C3is - Q1 2024

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the C3is Q1 2024 Financial and Operating Results Conference Call and Webcast. All participants will be in listen-only mode throughout this conference, with no question and answer session at the end. Please note that today's conference is being recorded. I would now like to turn the conference over to Dr. Diamantis Andriotis. Please go ahead.

Diamantis Andriotis (CEO)

Good morning, everyone, and welcome to our C3is first quarter earnings conference call and webcast. This is Diamantis Andriotis, CEO of the company. Joining me on the call today is our CFO, Nina Pyndiah. Before we commence our presentation, I would like to remind you that we will be discussing forward-looking statements, which reflect current views with respect to future events and financial performance and are based on current expectations and assumptions, which by nature are inherently uncertain and outside of the company's control. At this stage, if you could all take a moment to read our disclaimer on slide two of this presentation. I would also like to point out that all amounts quoted, unless otherwise clarified, are implicitly stated in U.S. dollars. Today, we released our earnings results for the first quarter of 2024.

So let's proceed to discuss these results and update you on the company strategy and the market in general. Please turn to slide 3, where we summarize and highlight the company's performance, starting with our financial highlights. We had a great start for 2024, with an EBITDA of $5.7 million, compared to $1.4 million for Q1 2023, mainly due to the contributions from the Aframax tanker that joined the fleet in Q3 2023. Our net income was $3.8 million, compared to $0.8 million for Q1 2023, an increase of 475%. Our vessel's net value was $73.8 million at the end of March 2024, compared to $75.2 million on December 31, 2024.

In Q2 2024, the vessel's value will increase by approximately $16.2 million after the delivery of the bulk carrier that the company recently acquired. Our net cash balance was $34.9 million at the end of March 2024, compared to $9 million at the end of December 2023. This was a culmination of three major items: Net profit from our normal business operations, receivables of $6 million recorded at the end of Q4 2023 that were collected in Q1 2024, and the net proceeds of around $12 million from two share offers that took place in the first quarter 2024. Our TCE for Q1 2024 was $36.5K, more than double the rate for Q1 2023, which was $15.9K. The income from the Aframax tanker is the main contributor to this exceptional increase.

On the fleet value, the company commenced operations with two Handysize carriers with a total fleet capacity of 64,000 deadweight. Since then, we acquired an Aframax tanker of 115,000 deadweight in Q3 2023, and more recently, an additional 33,000 deadweight bulk carrier, bringing the total current fleet capacity to 213,000 deadweight, with an average age of 13.3 years. As stated in recent press releases, the company received a written notification from Nasdaq as the company shares were below $1 for 30 consecutive days, which is the minimum share bid price for continued listing on the capital market. In order to regain compliance, the company effected a 1-for-100 reverse stock split of the company's common stock in April 2024. Moving on to slide four, the proceeds from three public offerings are analyzed.

The first offering was in July 2023, which resulted in net proceeds of $4.4 million. The second and third offerings were in January and March 2024, respectively, with total net proceeds of $11.3 million and warrants exercise of $600,000. The culmination of the three public offerings resulted in a total of $16.4 million. In less than one year, our cash balance increased by 285%, and our fleet capacity expanded by 234% after the acquisition of the Aframax tanker in July 2023 and the Handysize dry bulk carrier in April 2024. Slide five shows the dry bulk trade during the first quarter of 2024. Global steel output rose 1% year-on-year, driven by activity outside China.

Production in China fell 3%, but China still accounted for 54% of the total. China's imports of iron ore increased by 5.3%, a 5-year seasonal high. World seaborne iron ore trade rose 5%, the additional coming from Brazil, India, and Ukraine. China's production of coal fell by 4.1% due to the oversupply of coal at the end of 2023, the Chinese New Year holidays, and vigorous safety inspections across mines that contributed to lower production. Falling prices of agricultural commodities and better crop yields in North and South America are expected to support grain trade in 2024. Imports from China touched a 4-year low due to crushing margins being in negative territory since October 2023. Slide six shows the increase in demand for dry bulk commodities versus the total dry bulk carrier fleet growth.

Dry bulk demand is expected to increase by 3.6% in 2024. Improvements in demand are being highly supported by firm Chinese demand for dry bulk commodities, while rerouting away from the Red Sea area and restrictions imposed in Panama Canal transits further support dry bulk ton-mile demand growth. After contracting 1% in 2022, minor bulk ton-mile trade increased by 3% in 2023, while it is expected to increase by 5.2% in 2024, and by 2.7% in 2025. On the fleet growth, the dry bulk carrier order book stood at historically low levels at 9.3% at the end of April. 8.6% of the total dry bulk carrier fleet is older than 20 years of age.

The total dry bulk carrier fleet grew by 3.1% in 2023, and is currently expected to grow by 3% in 2024, and by 2.5% in 2025. Compliance with new environmental regulations, coupled with an overage fleet, might induce scrapping, thus reducing available fleet supply. Moving on to slide 7, we see the attractive opportunities ahead for the tanker market. Despite the ongoing crude oil production cuts enforced by OPEC members, industry participants believe that the tanker market environment will remain healthy through 2025. Tanker demand outlook remains robust, supported by growth in crude oil trade volumes, as well as by trade pattern seas rising from Red Sea diversions, benefiting long-haul routes, thus boosting ton mile demand.

Crude oil demand in ton mile terms grew by 5.8% in 2023, and is expected to grow by 3.2% in 2024, and by 3.6% in 2025. Seaborne crude oil trade has been supported by increasing demand from China and rising exports from suppliers in the Americas. In 2023, crude oil trade is estimated to have increased by 5.2% or 334 million deadweight, whereas in 2024 it is expected to further increase by 2.5% or 342 million deadweight. The crude tanker trade in fleet grew by 3.7% in 2023, and is currently expected to grow by almost zero in 2024, and 0.9% in 2025.

Emissions regulations are expected to have a further moderating impact on active tanker supply. Slide eight shows the Handysize fleet age and growth. The order book for Handysize dry bulk carriers stood at 9% of the existing fleet as of May 2024. Compared to year-end 2023, the order book for Handysize dry bulk carriers declined by 12.4%. Almost 40% of the Handysize dry bulk carrier fleet is between 10-14 years of age, while a total of 27% of the trading fleet is estimated to be 15 years or older. Compliance with stricter environmental regulations is likely to accelerate demolition, thus reducing available Handysize fleet supply. On the fleet growth side, the Handysize dry bulk carrier net fleet growth stood at 3.2%. Analysts expect the supportive Handysize dry bulk carrier net fleet growth for the years to come.

Specifically, net fleet growth is expected to grow by about 4.4% in 2024, and 3.5% in 2025. Slow steaming and retrofitting time as part of complying with new environmental regulations, are also factors that are expected to reduce available fleet supply in the years to come. The outlook for the handy bulker market in 2024 is cautiously optimistic, with room for gradual improvements. According to current projections, the growth in bulker demand is expected to be slightly above fleet expansion, combined with a constrained delivery schedule and the potential for increased demolitions.

Several factors, including the attacks from Houthis in the Gulf of Aden, the implementation of reduced vessel speed and extended retrofitting time due to environmental regulations, coupled with the announced constraints in the Panama Canal, which are likely to last well beyond first half 2024, are poised to shape market dynamics. Slide nine shows the Aframax tanker fleet age and growth. The order book for Aframax tanker vessels stands at just 6% of the existing fleet in May 2024. As compared to year-end 2023, the order book for Aframax tanker vessels declined by 4.3%. Almost 30% of the Aframax tanker vessel fleet is between 15-19 years of age, while 20% of the trading fleet is older than 20 years.

As for the Handysize dry bulk carriers, compliance with stricter environmental regulations is likely to accelerate demolition, thus reducing available Aframax tanker fleet supply. In 2023, the net fleet growth for crude Aframax tankers stood at 1.7%. It's expected that the fleet will grow by just 0.7% in 2024, and 0.5% in 2025. Supply and demand fundamentals in the Aframax tanker segment appear balanced, as demand is projected to grow at a higher rate than supply by about 2% in 2024, and 3% in 2025. Slide 10 shows the current fleet of C3is. By the end of Q1 2024, C3is owned and operated a fleet of two Handysize dry bulk carriers and one Aframax oil tanker.

In May 2024, the company took delivery of the 33,000 deadweight dry bulk carrier, the Eco Spitfire, bringing the total fleet capacity to 213,000 deadweight, with an average age of 13.3 years. Payment for Eco Spitfire will have to be made by April 2025. All vessels have had their ballast water systems already installed. Furthermore, there are no immediate capital commitments for special surveys, as the next one due is in Q3 2025. All vessels are currently unencumbered and currently employed on short to medium-term period charters and spot voyages. For the contracted revenues of the company, the Eco Bushfire is on a time charter at a daily rate of $9,500 until June 2024. The Eco Angel Bay is on a time charter at a daily rate of $10,000 until July 2024.

The Afra Pearl II, ex-Stealth Berana, is on spot voyages, and the newly acquired Eco Spitfire is on a time charter at a daily rate of $9,500 until June 2024. Slide 11 shows a sample of the international charters with whom the management company has developed strategic relationships and has experienced repeat business. Repeat business highlights the confidence our customers have for our operations and the satisfaction of the services we provide. The key to maintaining our relationships with these companies are high standards of safety and reliability of service. I will now turn over the call to Nina Pyndiah for our financial performance.

Nina Pyndiah (CFO)

Thank you, Diamantis, and good morning to everyone. Please turn to slide 12, and I will go through our financial performance for the first quarter of 2024. Voyage revenues for the three months ending 31st of March, 2024, amounted to $12.8 million, corresponding to a daily TCE of 36,480. Compared to Q1 2023, our net revenues increased by 247%, and our TCE more than doubled, mainly due to the contribution from our Aframax tanker. Our fleet operational utilization was 93.4% for the first quarter of 2024, compared to 90.6% for the first quarter of 2023. Voyage expenses and vessels operating expenses for the three months ended March 31, 2024, were $2.8 million and $1.8 million, respectively.

For the first quarter of 2023, the figures were $285,000 and $1 million. The increases in both voyage expenses and vessels operating expenses are attributed to the increase in the average number of vessels due to the addition of the Aframax tanker to the initial fleet. Voyage expenses for the first quarter of 2024 mainly included bunker costs of $1.8 million, corresponding to 64% of total voyage expenses. Operating expenses for the three months ending March 31, 2024, mainly included crew expenses of $900,000, corresponding to 50% of total operating expenses, spares and consumable costs of $400,000, corresponding to 22%, and maintenance expenses of $200,000, representing works and repairs on board the vessels, corresponding to 2%-10% of total vessel operating expenses.

Management fees increased by 52% from Q1 2023, due to the increase in the average number of vessels. General and administrative costs were $1.5 million, mainly related to the expenses incurred from the two public offerings and the reverse stock split. Depreciation recorded in Q1 2024 was $1.4 million, a 50% increase from Q1 of last year, due to the increase in the average number of vessels. Interest and finance costs for the period was $543,000, and related to the accrued interest expense to a related party, as of March 31, 2024, in connection with the $38.7 million payable, which is part of the acquisition price of our Aframax tanker, Afra Pearl II, which is payable by July 2024.

Unrealized loss on warrants for the three months ended March 31, 2024, was $630,000, and related to the net fair value losses of our Class B1 and Class B2 warrants and Class C1 and C2 warrants, which were issued during the first quarter of 2024. As a result of the above, for the three months ended 31st of March, 2024, the company reported a net income of $3.8 million. The net income for the first quarter of 2023 was $751,000, corresponding to an increase of 404% this quarter. EBITDA for the three months ended 31st of March, 2024, amounted to $5.7 million, representing an increase of 301% from Q1 2023.

Turning to slide 13 for the balance sheet, the fleet book value as at the end of March 2024 was $73.8 million. As at the end of Q1 2024, the cash and cash equivalent was $34.9 million, an increase of 285% from December 31, 2023. The company has no outstanding bank debt. The financial liability of $39 million relates to the Aframax oil tanker that was acquired in July 2023 and is due in July 2024. Concluding the presentation on slide 14, we outlined the key variables that will assist us progress with our company's growth.... Owning a high quality fleet reduces operating costs, improves safety, and provides a competitive advantage in securing favorable charters.

We maintain the quality of the vessels by carrying out regular inspections, both while in port and at sea, and adopting a comprehensive maintenance program for each vessel. The company's strategy is to follow a disciplined growth with in-depth technical and condition assessment review. Management is continuously seeking timely and selective acquisitions of quality vessels, with current focus on short to mid, medium-term charters and spot voyages. We always charter to high quality charterers, such as commodity traders, industrial companies, and oil producers and refineries. The company maintains an adequate level of cash flow and liquidity, with no outstanding bank debt. At this stage of our CEO, Dr. Diamantis Andriotis, will summarize the concluding remarks for the period examined.

Diamantis Andriotis (CEO)

2024 started with an influence of vigorous activities for C3is that will enable us to act instantly as the windows of growth and opportunities open. During the first quarter of the year, we concluded two follow-on equity offerings, generating aggregate net proceeds of $11.4 million, and we also effected the reverse stock split of 1-for-100 of our common shares, aimed at meeting the minimum bid price requirement for maintaining listing on Nasdaq. In May, we took delivery of our latest addition to the fleet, the Eco Spitfire, a 33,000 deadweight, 2012 Japanese-built dry bulk carrier. However, payment will be effected in April 2025. Our fleet has increased by 234% since the company's inception less than a year ago.

Our financial results for Q1 2024 showed increases of 300% to our EBITDA, 400% to our net income, and 285% in our cash balance. Earnings momentum are generally favorable, and we are focused on identifying optimal opportunities with our strategy remaining aimed at growth, earnings, and returns on investments. We believe that our capital structure, comprising of no bank debt and a strong cash balance currently standing at over $40 million, will further enhance our company's ability to fund selective vessel acquisitions, final payments of the remaining purchase price for our Aframax and our dry bulk carrier. We aim at diversifying our fleet so as to have more impact on long-term profits by reweighting of exposure to different segments, thus allowing stronger segments to bolster weaker ones and smoothing returns over time.

We would like to thank you for joining us today, and look forward to having you with us again at our next call for our second quarter of 2024 results.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.