EuroDry Ltd (EDRY) 2023 Q1 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the EuroDry conference call on the first-quarter 2023 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 for the press release that has been publicly distributed. Before passing the floor 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 current management expectations that involve risks and uncertainties and may result in such expectations not being realized.

I kindly draw your attention to slide number two 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 now I would like to pass the floor to Mr. Pittas. Please go ahead, sir.

Good morning, ladies and gentlemen, and 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, 2023.

Please turn to slide 3 of the presentation. Our financial highlights are presented here. For the first quarter of 2023, we reported total net revenues of $11.3 million and a net loss of $1.5 million or $0.55 loss per basic and diluted shares. Adjusted net income though attributable to common shareholders was $0.4 million, or $0.14 earnings per basic and diluted share respectively.

The main difference to our net income was the unrealized portion of the change of value in our derivative contracts. Adjusted EBITDA for the period was $2.4 million. A reconciliation of adjusted net income attributable to common shareholders and adjusted EBITDA is presented in the press release.

As of May 15, 2023, we had repurchased 198,731 shares of our common stock in the open market, around 7% of our total stock, for about $3 million under our share repurchase plan of up to $10 million announced in August 2022. We will continue to execute the share repurchase program at management's discretion. Tasos will go over our financial highlights in more detail later on in the presentation.

Please turn to slide 4 for our operational highlights. On the chartering side, we renewed charters on eight of our vessels. The majority of the ships were employed in short-term charters, while two vessels, the Blessed Luck and Eirini P, were fixed for periods six to nine months. You can see the specifics of the various charters we fixed in the accompanying presentation.

I remind you that two of our vessels are employed for a minimum of 13 to 24 months, respectively, on index-linked charters at 105.5% of the Average Baltic Kamsarmax [Index]. Additionally, at the end of February 23, once the market started to recover, we sold 90 days of FFA contracts for the equivalent of one Panamax vessel in the second and one in the third quarter of 2023 at $16,500 and $16,250 per day.

In March, we also sold another 90 days at $17,700 per day and $17,500 per day for Q2 -- for the corresponding quarters of Q2 and Q3. Thus, we practically covered another two of our vessels for this period at the aforementioned rate.

Regarding drydocks in repair, motor vessel Santa Cruz and motor vessel Ekaterini underwent drydock; the former for almost 24 days, and the latter for 17 days. Finally, please note that motor vessel Good Heart is undergoing minor repairs since May 3 in Texas and is currently expected to leave by the end of the week.

Please turn to slide 5. The company has a fleet of 10 vessels, including 5 Panamax, 2 Ultramax, 2 Kamsarmax, and 1 Supramax drybulk carriers, with a total carrying capacity of 730,000 deadweight tonnes approximately and an average age of approximately 13.5 years.

Moving on to slide 6. It provides the graphical update on our fleet employment. As you can see, fixed rate coverage for 2023 stands at around 46% if we include both FFAs and fixed charters. This figure excludes ships on index charters which are open to market fluctuations but have secured employment.

Turning onto slide 7, we go over the market highlights for the quarter ended March 31, 2023, up until last Friday. The average spot rate for Panamaxes kicked off the first quarter of 2023 on a low note, at approximately $10,200 per day, having passed the low of $6,200 a day in mid-February. By March 31, the spot rates have increased to approximately $13,000 per day.

The average monthly time charter rates for Panamaxes was about $14,500 per day during the quarter, increasing to $16,000 per day by March 31, currently standing at $14,675 per day. Consequently, both the BPI and BDI indices were off to a rocky start, hitting their lowest levels by mid-February but recovering sales.

[Early] March, the drybulk market looked upbeat, driven by China's reopening, ongoing demand for iron ore, and limited supply growth. However, during the last two months, we have seen the market lose steam, but rates continue to fall comfortably at five-figure profitable levels.

Please now turn to slide 9. With the latest updates in April 2023, the IMF slightly lowered its global GDP growth estimates to 2.8% for this year before settling to 3% in 2024. This is primarily due to the effects of high inflation, tighter monetary policies, slow economic activity, as well as the ongoing war between Russia and Ukraine, and growing geopolitical tensions.

However, the US and the EU seem quite resilient despite the recent economic shocks, primarily in the financial sector. Also, quite noticeably, China seems to be on track to achieve an estimated growth rate of 5.2% for this year, followed by a moderate growth of 4.5% for 2024.

Growth in emerging and developing countries is expected to be quite below longer run trends in 2023 and 2024, with the IMF lowering growth projections more than previously expected. Asia is poised to grow by 5.9% in 2023 and 6.3% in 2024, which is below its trend.

Russia's economic growth on the (inaudible) was revised higher for 2023 to 0.7% from 0.3% during the last IMF estimate. However, the long-term outlook worsened from 2.1% to 1.3% in 2024. Despite the slightly slower global growth expectations, according to the latest Clarksons estimate, drybulk trade demand is expected to return to steady growth of 2.5% both this year and in 2024.

Please turn to slide 10. The order book continues to fuel positive market sentiment, as it remains at the lowest historical levels. The order book as a percentage of total fleet as of May 2023 stands just below 7% at 6.88%. This suggests minimal fleet growth over the next two, three years, likely leading to higher rates in 2023 if rate increases even at just historically average levels. Additionally, environmental regulations could further influence supply growth, either by forcing some vessels to retire or reducing their operational speed.

Turning to slide 11, let us now look into supply fundamentals in a bit more detail. According to Clarksons' latest report, new deliveries as a percentage of total fleet are expected to be 3.9% as of the start of the year in 2023; 2.7% in 2024; and 1.2% in 2025.

The actual fleet growth is, of course, expected to be lower than the aforementioned figures due to scrapping and slippage. 8% of the fleet is older than 20 years old and a candidate for scrapping, especially if the market will not be strong.

Please turn to slide 12, where we summarize our outlook in the dry bulk market. The dry bulk market was under significant pressure in the beginning of the year as [before] said, owing mostly to the traditional seasonality before the Chinese New Year. As of mid-February and owing to the Chinese reopening post-COVID, we have seen a significant rebound, especially in the more smaller sizes up to [consoles].

Average freight rates stood at $8,500 per day across January and February 2023 before picking up in mid-March to $13,900 per day, the highest level since December. During this time, we were fortunate enough to have eight of our vessels employed on the short-term charters and were therefore able to employ these vessels at higher rates. Even the two vessels on the index-linked charters are open to market conditions and were able to benefit from this boost in the market.

However, things could change. Over the past two months, we have observed lower rates in the absence of high congestion and slower-than-expected economic growth with continued weakness in Mainland China's real estate sector. We continue to believe in the improvement in bulker revenues through 2023 as the market moves past this typical seasonal weak first quarter.

Of course, the market is heavily dependent on the recovery of China's real estate sector and the ease of global macroeconomic headwinds. On the other hand, the newly introduced emission regulations, the EEXI and CII, will definitely have a positive contribution to the necessary slow steaming they will induce. Also on the supply side, the persistent underbuilding of new ships could create [supply accounts] in the next few years.

There is a shortage of available slots currently in shipyards till 2026 and still a lack of clarity for the fuel of the future. Consequently, due to the conflicting forces at play today, uncertainty remains due to the timing and the scale of potential market improvements. Although, it can be (inaudible) the fundamentals [are rightly encouraging[.

Finally, let's turn to slide 13. The left chart shows the evolution of one-year time charter rates of Panamax drybulk vessels since 2002. As of May 12, 2023, the one-year time charter rate for Panamax ships with a capacity of $75,000 deadweight tonnes stood at $14,375 per day. This is very close to the historical median.

In the right chart, you can see the historical price range for a 10-year old Panamax vessel, which has a current price of about $25 million. This is lower than the highest price levels seen in the last 12- and 20-plus years, respectively, but higher than the historical average of median prices. Certainly current vessel prices are not justified by current charter rates. In the medium to longer term, either prices will need to fall or charter rates to increase. We believe that due to the fundamentals described and the return of global inflation, most probably charter rates will eventually have to rise.

We are closely monitoring the situation to decide when to invest in further acquisitions, as during the last couple of years we have deleveraged the company and built significant liquidity. In the meantime, we will continue on our conscious stock repurchase program, which we consider an excellent investment as we are trading at around 35% of our market-adjusted NAV.

Let me now pass the floor over to our CFO, Tasos Aslidis, to go over various financial highlights in more detail. Tasos, the floor is yours.

Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. I will use the next four slides to give you an overview of our financial highlights for the first-quarter 2023 and compare those results to the same period of last year.

For that, let's turn to slide 15. For the first half of 2023, the company reported total net revenues of $11.34 million, representing a 38% decrease over total net revenues of $18.28 million achieved during the first quarter of last year. And that was a result of the lower time charter rate our vessels earned during the first quarter of this year, which was partly offset by the increased average number of vessels we own and operated and the voyage charter revenues recognized in respect of one of our vessels.

The company reported net loss for the period of $1.41 million (sic -- see slide 15, "$1.54 million") as compared to a net income of $10.49 million for the same period of 2022. The interest and other financing costs for the first quarter of 2023 increased to $1.47 million (sic -- see slide 15, "$1.23 million") as compared to $0.65 million for the same period of last year.

At the same time though, we said during the first quarter of this year, interest income of about $0.23 million as opposed to very minimal interest income for the same period of 2022. Adjusted EBITDA for the first quarter of this year was $2.36 million as compared to $12.71 million achieved during the first quarter of 2022.

Basic and diluted loss per share for the first quarter of 2023 was $0.55, calculated on about $2.8 million basic and diluted weighted average number of shares outstanding. Compared to basic and diluted earnings per share of $3.69 and $3.64, respectively, for the first quarter of 2022, calculated approximately on $2.9 million weighted average number of shares outstanding.

Excluding the effect of the earnings for the quarter of the unrealized loss on derivatives, the adjusted earnings for the quarter ended March 31, 2023, would have been $0.14, basic and diluted, compared to adjusted earnings of $3.34 and $3.30 per share, basic and diluted, respectively, for the same quarter of last year. Typically, security analysts do not include the above items, the unrealized losses on earnings, in their published estimates of earnings per share.

Let's now turn to slide 16 to review our fleet performance. We'll start our review by looking at our first utilization rates for the respective first quarters of this and last year. (technical difficulty) our utilization -- our fleet utilization rate is broken down to commercial and operational. During the first quarter of 2023, our commercial utilization rate was 99.8%, while our operational utilization rate was 99.7% compared to 100% commercial and 99.6% operational for the first quarter of 2022.

On average, 10 vessels were owned and operated during the first quarter of 2023, earning on average time charter equivalent rate of $10,674 per day compared to 9.54 vessels that we owned and operated during the first quarter of last year, earning on average $24,636 per day.

Our total daily operating expenses, including management fees, G&A expenses, but excluding [burdensome] cost, averaged $6,953 per vessel per day during the first quarter of 2023, compared to $6,610 per vessel per day for the first quarter of last year.

If we move further down on this table, we can see the cash flow breakeven rate, which we said during the first quarter of this year, which takes into account, in addition to dry bulk, drydocking expenses, interest expenses, and loan repayments. For the first quarter of 2023, our total [free] cash flow breakeven rate was $13,186 per vessel per day, as compared to $12,815 per vessel per day for the first quarter of last year.

Let's move now to slide 17 to review our debt profile. As of March 31, 2023, we have outstanding bank debt of about $67 million. Looking at the chart on the top part of this slide, you can see that our debt repayment, excluding balloon repayments, over this and next year are between $11 million and $12 million per year, and then dropped to between $5 million and $6 million in 2025 and 2026.

As of March 31, 2023, [our] debt repayments, including balloon repayments over the next 12 months, amounted to about $8.5 million. [If you look here], it was the cost of our debt. The average margin of our debt is about 2.68% and assuming a LIBOR rate of 5.34% on the top of that. And including the cost of the portion of our debt covered by our interest rate swap project, we estimate that the total cost of our senior debt as of May of last quarter to be around 7.7%.

At the bottom of this table, we can see a projected cash flow breakeven rate for the next 12 months, broken down into [smaller] components. On a quarter basis, we can see that we expect to make a cash flow breakeven rate of around $12,495 per vessel per day. In the same chart, we can also see our EBITDA breakeven rate in the middle of the chart which includes our [breakeven] expenses, G&A expenses, and drydocking costs, which are estimated to be around $7,902 per vessel per day.

Let's now move to the next slide to conclude our presentation. Move to slide 18, where we can see some highlights from our balance sheet in a simplified way. This slide also shows the snapshot of our assets and liabilities. As of March 31, 2023, cash and other assets stood at about $34.8 million. The book value of our vessels was approximately $146.5 million, resulting in total book value for our assets of about $181.3 million.

On the liability side, our debt as of March 31, 2023, which I mentioned, was about $67 million, $66.9 million, representing about 37% of the book value of our assets. We have other liabilities amounting to about $3.3 million or just below 2% of the book value of our assets, resulting in book shareholders' equity of about $111.7 million, which translates to a book value of $39.26.

However, based on our own estimates and market contraction, we estimated that the market value for our vessels was above the book value and actually stood around $179 million, thus suggesting that our NAV per share to be in excess of $50. With our share prices staying around $15, there obviously appears to be a significant discount to our NAV, suggesting that our stock offers a significant appreciation potential for our shareholders and investors.

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

Thank you, Tasos, and let us now open up the floor for any questions we may have.

(Operator Instructions) Tate Sullivan, Maxim Group.

Hello. Thank you. Good day. First, starting on your comments of just the slower-than-expected economic growth in China and the real estate market, really an uptick -- what could be catalysts for the drybulk market in the near term in terms of data points from China that we might see? Or do you think it just might settle around current rates (technical difficulty) going forward, please?

Yes, Tate. Hi. I think that there are two aspects here. One is China, which is, as you well know, the most significant drybulk stimulus that one can have. And especially its iron ore requirements which of course drives mainly the [capsize] sector, but also the smaller sizes to an extent. So what happens with the real estate sector of China and this general growth is of paramount importance here.

So this is the one thing, but China is not the norm in this world. This is a globe that has many, many constituents. And what is happening in the rest of the world is also extremely important. So global growth generally and China especially are the two things to watch.

And can you provide -- you've commented on the newbuild market and hesitance to place newbuild orders. Are ships -- the limited number of newbuilds coming out -- dry bulk newbuilds coming out of the yards, do they already have contracts? Do you see any opportunities to purchase ships currently under construction? Or would you in the newbuilds?

I think that there are very few ships coming out of the shipyards at this point. Few of them have fixed charters. There is very few that are built with capacity to run on LNG or methanol or whatever, which are making the headlines and which are done in combination with charters. But the big, big majority of the ships that are being built are coming out without charters and the owners will have to face the market.

Of course, they are very economical ships. So they should have an advantage over other vessels. But we will see. I don't see currently any particular deal that we are looking at. We are generally looking at the market and will take our decisions probably within the summer period.

I apologize if I missed the comment on the repurchase plan. And Tasos, can you remind me when the current plan expires? And I believe you still have, what, about 7 million of capacity remaining under the plan. Is that correct?

Yeah, the thing is, I think we approved the repurchase plan late last year, and we have built it for, I think, a good two quarters now. So we have at least another two quarters before our Board reviews the plan. We can use it (inaudible) share trading. We have significant capacity to use. I mean, more than what we could use. We spent $3 million, give or take, another $7 million [more] in the plan.

Okay. Thank you. Thank you, both.

Thank you, Tate.

(Operator Instructions)

I presume there are no more questions.

Yeah. There are no more questions at this time. I'd like to hand the floor back over to Mr. Aristides Pittas for any closing comments.

Well, thank you very much for standing by for our conference call today. We will be back to you in a quarter's time to discuss the latest developments. Goodbye.

Thank you, everybody.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.