EuroDry Ltd (EDRY) 2022 Q1 法說會逐字稿

(inaudible) ladies and gentlemen, and welcome to the EuroDry conference call on the first-quarter 2022 financial results. We have with us today, Mr. Aristides Pittas, Chairman and Chief Executive Officer; and Mr. Tasos Aslidis, Chief Financial Officer of the company.

(Operator Instructions) I must advise you that this conference is being recorded today. Please be reminded that the company announced its results with the press release that has been publicly distributed. Before passing the floor over to Mr. Pittas, I would like to remind everyone that in today's presentation and conference call, EuroDry will be making forward-looking statements.

These statements are within the meaning of the Federal Securities Laws. Matters discussed may be forward-looking statements, which are based on the current management's expectation that involves risks and uncertainties that may result in such expectations not being realized.

I kindly draw your attention to slide 2 of the webcast presentation, which has the full forward-looking statements. And the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. And I would now like to pass the floor over to Mr. Pittas.

Thank you. Please go ahead, sir.

Good morning, ladies and gentlemen. Thank you all for joining us today for our scheduled conference call. Together with me is Mr. Tasos Aslidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the three-month period ended March 31, 2022.

Please turn to slide 3. Our income statement highlights are shown here. For the first quarter of 2022, we reported total net revenues of $18.3 million and the net income of $10.5 million. Adjusted net income attributable to the common shareholders was $9.5 million or $3.3 per share. Adjusted EBITDA for the period stood at $12.7 million. Our CFO, Tasos Aslidis will go over the financial highlights in more detail later on in the presentation.

Please turn to slide 4 for our operational highlights. Motor vessel Ekaterini charter has been extended until February 2023 at 105% of the average Baltic Kamsarmax index, while motor vessel Xenia charter has also been extended until March '24 at again, 105% of the average Baltic Kamsarmax index. Motor vessel Alexandros has been fixed for the trip of about 20 days to 25 days of $29,000 a day during the quarter, and then it was fixed at $26,250 per day for the next 20 days to 25 days. And thereafter, it was fixed to about 55 days to 65 days of $28,000 a day.

Motor vessel Pantelis was fixed for also for approximately 20 days to 25 days, the rate at $18,250 per day. And thereafter, it was fixed for $80 to $100 -- 100 days at $20,500 per day. The motor vessel Tasos was fixed for 57 days at $18,750 per day. And thereafter, it was fixed for about 90 days, $20,600 per day. The motor vessel Molyvos Luck, which was delivered to the company on February 11, 2022, was fixed at $25,750 per day for a minimum period of 10.5 months and a maximum of 13.5 months.

Finally, motor vessel Starlight was extended at the 98.5% of the Baltic Panamax Index for a minimum period until October 2022. As previously announced, on April 19, 2022, the company acquired motor vessel, Santa Cruz. 76,000 deadweight Japanese-built dry-bulk vessel built in 2005 for $15.75 million. The company also assumed the existing charter of the vessel of $14,800 per day until July 2022. The acquisition was financed with own funds. And the vessel was delivered to the company on April 20, 2022.

Regarding the dry dockings, motor vessel Pantelis occurred seven-day repair, while motor vessel Starlight went into drydock for 27 days. During the quarter., the company was also active on the FFA market and sold 90 days of forward freight agreements -- the equivalent of one Panamax vessel at a rate of $28,000 per day.

Please turn to slide 5 to see the summary of our current fleet. The company's operating fleet has increased to 11 units. Our current fleet has an average age of 13.5 years with the carrying capacity of about 800,000 deadweight tons.

Let's move to slide 6, which shows the current vessel employment schedule. As you can see fixed rate coverage for the remaining of 2022 stands at about 30%. This figure excludes the six ships on index charters, which have secured employment, but that open to market fluctuations.

Moving to slide 7, we shall go over the market highlights for the quarter ended March 31, 2022, up to now. Despite the challenging global economic and geopolitical environmental -- environment during the first quarter of 2022, dry bulk rates remain at healthy levels. As seen here, the average spot market rate for Panamax ships was approximately $21,400 a day in the first quarter. And by March 25, the price had increased with $28,500 per day. Overall, the BPI index started picking up towards the end of the quarter as increased ore and coal cold quantities were shipped and increased ton miles and [grained rates] were noticed due to the Russia and Ukraine conflict, which offset, of course, the decrease in grained rates from those areas.

Please now turn to slide 9. Global growth is expected to slow significantly in 2022, largely as a consequence of the war in Ukraine and the pandemic in China. In its latest report, the IMF lowered its previous global GDP estimates from 4.4% to go to 3.6% for this year and from 3.8% to 3.6% in 2023. A deep contraction is projected for Russia due to the sanctions and also European countries decisions to scale back energy inputs.

Larger than expected slowdown in China remains a key risk to grow with emerging markets, but its impact will depend on the drivers of such slowdown as well has been showing [poorly severe actions]. Prospects for emerging markets and developing economies are also generally for lower growth in '22 than in '21. The developed economies, Japan and the ASEAN-5 should do better than 2021. Tightening -- tighter Fed policy and an anticipated halt to any further stimulus spending by Congress, the IMF has reduced its growth forecast for the US for 2022 by 1.7% point -- 1.7% to 3.7%.

Looking at the dry bulk trade and according to Clarksons Research, demand is expected to grow by 2.3% in '22, compared to 4.6% for the previous year. For 2023, we expect dry bulk trade to grow at a moderate pace of 2.5%. Rate and growth projections are being continuously revised as the effects of geopolitical tensions between Russia and Ukraine on world growth and trade are being continuously assessed.

Please turn to slide 10. The orderbook as a percentage of total fleet up until May 2022 stands at 6.6%, which is around the lowest levels we've seen in the last 35 plus years.

Now please turn to slide 11 for our dry bulk fleet overview. Whilst Clarksons expects new deliveries of about 3.1% of the current fleet to be delivered in 2022 and 2.8% in 2023, they expect the net fleet growth of around 2% during 2022 and below 1% in 2023, after also taking into account scrapping slippage and other possible removals. New vessel ordering continues to be muted, given concerns over the environmental regulations. And as a result, supply should remain tight for the foreseeable future.

Please turn to slide 12, where we summarize our outlook in the dry bulk market. As previously mentioned, the Ukraine-Russia war adds to uncertainty and inflation, while widening of lockdowns in China causes a delay in the easing of global supply bottlenecks and the normalization of supply demand balances. We expect them to remain volatile at high levels as the short- and medium-term outlook are generally positive and supported by one of the lowest orderbook ever and disruptions from port congestion and changing trade flows.

Indeed, demand has been affected lately due to a number of factors, including changes in trade flows due to reduced production levels in China, resulting in lower steel production as well as reduction of bulk exports originating from Russia and Ukraine. However, as derivative trade routes have increasing ton-mile demand for coal and other dry bulk commodities as they shift away from Russian ports.

Overall, fundamentals remain positive for 2022, barring any immediate severe recession. While many unknown factors like congestion easing, effect of the war in demand, and the introduction of new regulations will play a dominating role in creating the forward supply and demand balances.

Ordering for new ships for 2023 deliveries is expected to be nonexistent due to lack of available slots and shipyards. In addition, the lack of clarity for the fuel of the future remains an unknown, something that makes placing a new order even for a later delivery a very risky option. On the other hand, normalization of trade routes and congestion easing will probably increase effective supply at some point.

Please turn to slide 15. The left side of the slide shows the evolution of one-year time charter rates of Panamax dry bulk vessels since 2002. As of the end of last week, the one-year time charter rate for Panamax ships with capacity of 75,000 deadweight tons stood at $27,125, having recovered from the big drop we saw at the beginning of the year. On that hand, right-hand side of the slide, you can see the historical price range for a 10-year-old Panamax vessel, which has a current price of around $28 million. This is the highest of the last decade.

Over the past year, dry bulk prices have gradually been increasing, exceeding the historical median and average levels. However, prices have still been significantly lower than what we have seen in the beginning of 2008. Whilst continuing to reap the benefits from the current strong charter market, we are also closely monitoring market developments for any opportunities that may arise to further enhance shareholder value.

And with that, let me now pass the floor over to our CFO, Tasos Aslidis to go over the various financial highlights in more detail. Thank you.

Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. Over the next five slides, I will give you an overview of our financial highlights for the first quarter of 2022 in comparison to the same period of last year.

With that, let's turn to slide 15. In the first quarter of 2022, the company reported total net revenues were $18.3 million, representing a 113% increase over total net revenues of $8.6 million during the first quarter of 2021, and that was the result of both higher charter rate time to operate with our vessels during the first quarter of this year and the increased number of vessels we owned and operated compared to the first quarter of 2021.

The company reported net income attributable to common shareholders for the period of $10.5 million as compared to a net income and net income attributable to common shareholders of $0.9 million and $0.4 million, respectively for the first quarter of last year. Interest and other financing costs for the first quarter of 2022 amounted to about $0.65 million, slightly increased as compared to $0.6 million for the same period of 2021.

Interest expenses during the first quarter of this year were higher due primarily to the increased LIBOR rates on our loans to pay as compared again to the first quarter of 2021. Adjusted EBITDA for the first quarter of this year was $12.7 million compared to $4 million achieved during the first quarter of 2021, representing 217% increase.

Basic and diluted earnings per share attributable to common shareholders for the first quarter of 2022 were $3.69 and $3.64 respectively, calculated on 2.85 million basic and 2.88 million diluted weighted average number of shares outstanding, compared basic and diluted earnings per share of $0.19 for the first quarter of 2021, calculated on about 2.2 million basic and diluted shares weighted average number of shares outstanding.

Excluding the effect on earnings attributable to common shareholders for the quarter for the unrealized gain on derivatives, the adjusted earnings attributable to common shareholders for the quarter ended March 31, 2022, would have been $3.34 and $3.30 per share basic and diluted, respectively, compared to adjusted earnings of $0.55, basic and diluted in the first quarter of last year. Usually, security analysts do not include the above items in their published estimates of earnings per share. That's why we do the adjustment.

Let's now turn to slide 16, to review our fleet performance. We'll start our review by looking first at our fleet utilization rates for the first quarter of 2022 and 2021. As usual, our fleet utilization rate is broken down to commercial and operational. During the first quarter of 2022, our commercial utilization rate was 100%, while our operational utilization rate was 99.6% compared to a 100% commercial and 100% operational for the first quarter of last year.

On average, 9.5 vessels were owned and operated during the first quarter of 2022, adding another time-charter equivalent rate of $24,636 per vessel per day compared to seven vessels in the same period of 2021 and an average $14,924 per day. Our total operating expenses, including management fees, general and administrative expenses, but excluding the total cost of the (inaudible) cost averaged $6,610 per vessel per day during the first quarter of 2022 compared to $6,571 per vessel per day for the first quarter of last year.

If we move further down on this statement, we can see the cash flow break-even rate we report for the first quarter of 2022, which also takes into account dry bulk in expenses, interest expenses, and loan repayments, excluding our [alluded] payments and preferred dividends, if they're paid in cash. Thus, during the first quarter of 2022, our daily cash-flow breakeven rate was $12,821 per vessel per day compared to $11,064 per vessel per day for the same period of the first quarter of 2021.

Let's now move to slide 17. We [say use] this slide, starting this time last year, we indicate it's a calculation tool that enables our shareholders and investors to assess the end potential of our fleet in the current year and under the current environment. The table shown in the slide, there's two parts. The top part reflects to our fixed-rate contracts. If you can see that our contract coverage in fixed-rate contracts is about 45% for the year. It is about 56% in the second quarter but declined to 24% and 11% in the third and fourth quarter.

This chartering profile -- this chartering strategy reflects our expectation that the market will be quite strong, and yes, indeed it is indicated by the current forward freight market rates. The rest of our vessels are employed in contracts linked to the -- relative to their size [that of Dry] index or are yet to be contracted.

Our calculator indicatively shows the second part of the table, the Supramax and Panamax Baltic forward rates as of May 13, 2022, and also shows how this index levels get translated to rates for our ships. We actually displayed the final blended rate for the open days of our fleet, which we can see right below the Supramax and Panamax for what rates in the table, and which as you can see, exactly similar in terms of levels to the rate that we have contracted.

Based on these assumptions and by further assuming for simplicity, [$75,000] per day per vessel is OpEx and G&A cost in the 5% commission rate, one can estimate the EBITDA contribution of the day to get to be fixed. The final result is additionally adjusted at the bottom of the table for our preliminary drydock expense estimate during the year.

This over all exercise is meant to provide the tool, as I mentioned, to calculate our EBITDA for 2022. Obviously, one can (inaudible) his or her own assumption about the rates to do that. Growth (inaudible) that the assumed FFA rates in annualized EBITDA estimate for 2022 would be in excess of $50 million. Final figures, I mentioned, will obviously depend on the rates materializing over the rest of the year and possibly on the timing of any charters we book.

One can also easily estimate from this table the dependence of the EBITDA the average rate earned by our open days. For example, the change for $4,000 per day, the average rate would result in about $2 million change in our '23 -- '22 EBITDA estimate.

Let's now move to slide 18. We view our debt profile. As of May 31, 2022, we get an outstanding bank debt of about 75.6 years. By looking at the chart, we can see that our debt repayments over the next three years range between $10 million and roughly, $14 million, and then talk to $2.8 million and $3.6 million in 2025 and 2026. Our next balloon payment is towards the end of 2023 for about $11.3 million and in the first one of our Kamsarmax vessels. We would expect to be able to refinance that balloon payment, if we choose so, as we have done numerous occasions previously like that.

A quick note also on this slide about the cost of our debt. The average margin for our debt is about 2.8% and assuming the LIBOR rate of about 1.25% and the top of it, we can estimate that the cost of our bank debt to be around 4.1%.

The bottom of the slide, we can also share projection for cash flow breakeven rate for the next 12 months. And we can achieve our projection of cash flow breakeven level of about $13,000 per vessel per day, which is no more to say, includes about $38,000 per vessel per day of loan repayments.

Let's now move to slide 19, where we can see some highlights from our balance sheet in a simplified way. This slide shows a snapshot for our assets and our liabilities. On our asset side, you can see the cash that we have and other assets, other liquid assets that account for about $21 million. The book value of our sessions is approximately $148 million, resulting in a total book value for our assets of about $169 million.

On the liability side, our debt as of March 31, as I mentioned earlier, is equal to about $75.6 million, which approximately represents about 45% of the book value for us. Accounting for other liabilities in the same -- at the same time comes to about $4.6 million, approximately 2.7% of total assets, leaving us surplus equity, essentially, our net book value to be approximately $89 million, which translates to $29.8 per share book value.

However, we estimate it should be end of March 2022, that the market value of our investments to be around $250 million, about 36% higher for the respective book value, suggesting an NAV per share in excess of $52. Our share consistently traded around $35 or about 65% of our net asset value, suggesting the significant appreciation for our stock, if it were to approach our NAV levels.

And with that, I would like to turn the floor back to Aristides to continue the call.

Thank you, Tasos. Let me open up the floor for any questions that you may have.

(Operator Instructions) The line is now open. Please go ahead, and ask your question.

Yes, hello. Tate Sullivan from Maxim Group. Good day. May I just start it on newbuilds, and Aristides, can you review some of your conversations with shipyards? Last week, we saw a newbuild announcement for delivery in first half '24 in the dry bulk industry. And I've heard that maybe now the conversations are focusing on '25 delivery. Is that the case? And why so long to go on timeline?

Yes. Yes, Tate. You are right. The good shipyards are mostly full for 2024. So it is difficult to place orders within 2024. So most likely, you will be looking for delivery in 2025 these days. Of course, for smaller dry bulk vessels, I think that in China, you can still have 2024 deliveries, but the best shipyards really are quite full.

Can you comment -- and historically and then, I mean, two to three years to get delivery of a new ship, is there any conversation in the industry about expanding shipyard capacity or is that --? What are the barriers to doing it?

If you remember, this was done back in 2005, when again, the markets were going through a boom and suddenly people wanted ships. And we saw, especially in China new shipyards being open, it takes time to build the shipyard -- a couple of years and most of them by the time they were open, the market has corrected and there was no need for them. So there was a lot of suffering by people that tried to build the new shipyards. And I don't see any movement right now to increase the shipyard capacity significantly at all.

Okay. Thank you. Shifting to the future overhang, if that's the right way to put it, but are there potential environmental regulations? Are you starting -- our clients starting to request newer ships, cleaner ships that they've been doing so? I mean, what's the kind of potential enforcement of future environmental regulations are you already seeing customers demand for newer cleaner ships?

I think that everybody would like to use newer ships and whatever is available, which is more efficient. But one has to live with what exists and everybody's having to live with what vessels exist and it will be quite some time till we see much more fuel-efficient vessels being built. So I anticipate that whilst we all want to do what we can to help the environment, the practicalities of the day as such, so that we will continue with the conventional ships that we have for quite some time.

Okay. Thank you very much, Arstides. I'll turn it over.

Thanks, Tate.

Thank you. (Operator Instructions) The line is now open. Please go ahead, and ask your question.

Hi, I think I'm up. It's Poe Fratt from Alliance Global Partners. Aristides, if you talk about the other side of the equation on newbuilds. You've talked about delivery times being extended potentially into '24 and '25, what would drive you to order a newbuild? There's no visibility in the market. Contracts are still fairly short. Would you consider building something on spec without any confidence that you might see longer-term contracts develop over the next couple of years?

Well, I think that you hit the nail there. We are seeing new building of those in-container ships, where people can get long-term charters at the, you know, high rates, and therefore can justify the investment. In dry bulk, we do not have charters taking ships for longer periods. And that's why you see that not only us, but everybody is reluctant to order the dry bulk vessels today at prices which are 25%, 30% higher than what they were a couple of years ago. So I think this is the main reason that you see this discrepancy between container ordering and dry bulk ordering.

Great. That's helpful. And then can you talk about environmental regulations? Can you be a little more specific on your fleet? And what you're doing between now and 2023 to prepare for the new regulation?

Well, obviously, we are going to fully comply with the new regulations. Even existing ships will be able to comply with new regulations with various initiatives to paint the house, so that there is less resistance. But at the end, the most important thing that will help comply with the regulations will be to reduce the speed of the vessel. And indeed, this is what everybody will be doing in this market. They will reduce the maximum speed of the ships, which of course, is a good thing for the market as a whole, but because it effectively reduces supply of vessels.

Though, small things are being done in optimizing the routes in trying to make the engines a little bit more efficient, but these are small numbers. They are not very significant improvements. The biggest improvement comes when you drydock you ship, and you paint it nicely, and you reduce the significantly the resistance, and of course, when you cut your speed.

Okay. And then if I calculate correctly and the taxes from the first quarter, your OpEx was roughly in the $6,600 range per day, and your -- for the next 12 months guiding to about $6,938 a day. Can you walk us through a little bit more clearly the drivers on that? Is it higher bunker fuels prices? And also should we see, sort of, a gradual increase? Or will there be a step change in the first -- in the second quarter?

I think it's an increased part of the [pension] inflation, obviously, Partly, depends on exchange rates and that works for us for the time being because we pay management fees in Euros, and it is getting cheaper. And there are also certain things become more expensive like the lubricants and the like. So I think that -- we expect the increase to safety pretty much in the -- right now or over the next quarter, and to see over all higher levels compared to 2021.

Crewing costs are going to be a challenge, both in getting crew and positioning them. I think there are increases across the board, primarily coming from the change in the overall inflation and tightness in the market that we see.

Okay. If we could broadly talk about capital allocation in the context you continue to find some opportunities for secondhand assets, but arguably you're paying close to NAV for those assets and your stock is trading at a fairly reasonable discount or wide discount to what you said your NAV might be. Can you walk us through whether at some point in time you'd consider implementing a share buyback program or potentially like other companies returning some cash to shareholders in the form of a dividend? Or can you just talk about broadly what we might expect over the next 12 months from a capital allocation standpoint?

That's a very good question. And this is what we are discussing continuously now in our Board -- at the Board level. There is this, as you say, we are trading at a big discount to our NAV. So one would say that you could buy back your stock and that would be a good investment. Our problem is that we are a very small company, especially for the capital markets. Because as an operating company, I think the size that we have is sufficient to have the same operating costs as the companies that are much bigger and also be more efficient than them.

So I think that's -- but product -- from a capital markets perspective, becoming smaller, which is what essentially, we would do if we were to buy back our stock, would reduce the size of the company and the liquidity on the stock. And we are discussing and hoping that we will be able to increase the share price of --our share price towards NAV with a better marketing of who we are and what we're doing and what the prospects of the company are. So this is the reason we have yet to follow such policy of paying dividends or doing share buybacks. But this is always under review.

Yes, Understood. Just your stock is so volatile, even a small share buyback might set a higher floor than what we've seen. Over the last couple of quarters, it just seems like every once in a while, there's an air pocket. And if the stock buyback were in place, maybe that would help minimize or maybe dampen that sharp drawdown. Just some thoughts.

Appreciate it.

Tate Sullivan, Maxim Group LLC.

Thank you for taking my follow up. Tasos, on the drydocking cost that you're forecasting, [you made an] -- what you reported this quarter -- in the first quarter rather, I mean, they do see higher. Is that related to painting the halls that Aristides mentioned earlier? Are there other things you can do when the ships are in the dry dock to make them more fuel efficient? And should we expect drydocking costs to increase in the next couple of years as well?

I think, probably. It is fair to say that the average drydock cost, especially for our older vessels, will increase over the next 12 months or two years to start to deal with issues like that. And part of the deal with the fact that the ships are aging, and they have to go through a drydock at the later age, they cost a little more.

But also the unit cost in all the shipyards have increased significantly. So a replacement of the ton of steel has increased 50%. So every unit cost in shipyard has been increasing over the last year, (multiple speakers) every component.

Okay, great. And then following up the capital allocation question; with the ship purchases in the last quarter, you purchase a ship mostly with almost all of cash and reduce debt slightly. Are you expecting to finance or add financing -- secured financing to the ship and the ship you're buying this quarter to --?

We're considering it. The things we are looking to -- we have the leisure to market and look what bank would offer the best terms. But we are considering to finance both of our last acquisitions, which were both bought with own funds. So we have some embedded funding capacity that we can use if we need to fund financial in other vessels.

Okay, thank you. And then just adjusting some potential play -- I mean, buying ships, secondhand ships in this market, Aristides, can you just talk about how you stress test the current rates and get comfortable with paying higher prices than you have you have your recent acquisitions for ships in this period?

Sure. We always -- and that's why we have not been buying very, very modern ships. I mean the last ship we bought was a very old vessel, but with a one-year time charter that could be agreed at the time we brought the value down to a reasonable level by the end of the one-year charter. So these kinds of thoughts and assumptions go into our process of selecting ships to buy, we need to have some high charter, even if it's just a year to make sure that we are able to reduce the price to a price which is close to the historical median price at the end of the charter.

And also, Tate, I think a fundamental reason to be optimistic about the market is when you look at slide 10, the orderbook-to-fleet ratio, it's, I would say, almost all-time low, not if at all-time low. And that definitely provides a fair amount of comfort for the next couple of years to (inaudible) good leverage, I would say.

Thank you for taking my call.

Thank you.

Thank you. And no further question as of the moment. I will now pass the floor over to our Aristides Pittas. Please go ahead, sir.

Thank you all for taking your time to listen to our call. We'll be with you again in three-months' time. Bye.

Thanks, everybody.

Thank you. That concludes our conference for today. Thank you all for participating. You may now disconnect.