EuroDry Ltd (EDRY) 2024 Q1 法說會逐字稿

Thank you for standing by. Ladies and gentlemen, and welcome to the EuroDry limited conference call on the first quarter 2024 financial results. We have 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 this results with 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 that may result in such expectations not being realized.

I kindly draw your attention to slide number 2, of the webcast presentation, which has the full forward-looking statement. 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'd 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 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, 2024.

Please turn to slide 3 of the presentation. Our financial highlights are shown here. For the first quarter of 2024, we reported total net revenues of $14.4 million and the net loss attributable to controlling shareholders of $1.8 million or $0.65 loss per basic and diluted share. Adjusted net loss attributable to controlling shareholders for the quarter was $3.2 million or $1.18 loss per basic and diluted share. Adjusted EBITDA for the period was $2.1 million.

Please turn to the press release for a reconciliation of adjusted net income and adjusted EBITDA, per share for purchase of lease will go over our financial highlights in more detail later on in the presentation.

As of May 21, 2024, we had repurchased a total of about 300,000 shares of our common stock in the open market for a total of $4.7 million and our share repurchase program of up to $10 million announced in August 2022. The plan will [move] in August 2023 for another year.

Please turn to slide 4 for an overview of our sales in both the chartering and drydocking highlights. On the chartering side, most of our vessels are employed in short-term charters [vist] the [most of vessel containing] continues to be employed under an index-linked charter until March 2025. That's 105.5% of the average Baltic Kamsarmax index. The index base from the five Kamsarmax time charter routes.

You can see the specifics of the various [sort of re-fics] in the accompanying presentation. We plan to continue trading spot for the time being. But if charter rates from further, we will consider securing a portion of our vessels earnings we are time charter or FFAs.

Regarding dry dockings and repairs. During the quarter, we had two vessels undergoing dry-dock [motor] vessels, Blessed Luck and Molyvos Luck. Motor vessels star like of the rent into dry dock in April. In addition, Blessed Luck was operationally of client for 17 days due to the damage of the auxiliary boiler. The cost of the repairs will be covered by the ship’s Hull & Machinery underwriters that's in full. But unfortunately, the time lost vision [loss]. The cost of the two dry docks and the resulting idle time together with the idle time of the Blessed Luck during the repairs are the primary factors for the loss will occur during this quarter.

Please turn to slide 5. [New] price the fleet consists of 13 vessels, including five Panamaxes dry bulk avenues. Five Ultramax vessels to Kamsarmax and the Supramax dry bulk carrier. Our 13 dry bulk carriers cover total cargo capacity of about 1 million deadweight ton and another average of 13.5 years.

At this point, I'd like to remind you, as previously announced in our last earnings call that you will drive all 61% of the entities that own motor vessels Christos K and Maria. The remaining 39% is owned by owners and presented by NRP Project Finance otherwise referred to as the end of the investors.

Please now turn to slide 6 for a further update on our fleet employment. As you can see, fixed rate covenants for the remainder of 2024 stands at around 27%.

Turning to slide 7, we go over the market highlights for the first quarter ended March 31, 2024 end up until recently. Spot rates continued their momentum from late 2023 and experienced an unusually strong first quarter, supported by key commodity exports and the Red Sea and Panama Canal disruption counter to the typical seasonal trends.

In the first quarter of 2024 the average spot market rates for Panamaxes covered around $13,600 per day. By May 17, the spot rates could increase to approximately $15,000 per day. In parallel, the one-year time charter rates for Panamaxes were around $15,600 per day during the first quarter, rising to $16,150 by May 17, versus about $14,300 last year. Improving one-year rates relative to spot prices may suggest that overall the sector seems set for a more positive 2024, then 2023.

Please now turn to slide 9. The IMF's latest update in April 2024 projects that the global economy will continue to grow at 3.2% in 2024 the same pace as in 2023, and this growth rate is expected to continue into 2025. This is largely due to a sizable improvement in the economic outlook for the United States offset by a more modest slowdown in emerging and developing economies.

In one of the biggest changes that analysis, 2024 growth forecast was increased to 3.2% from the 2.6% projected by the IMF in January 2024 due to continued strong marine experts, a mid higher global oil prices. Despite the price cap mechanism imposed by Western countries as well as strong government spending and investments related to more production, along with higher consumer spending in a tight labor market.

The IMF also created after 2025 growth forecast to 1.8% from 1.1% previously. Clearly, the sanctions imposed by the West do not seem to be working the forecast for the next five years globally is at its lowest in decades at 3.1%. Global inflation is declining steadily and is projected to lower from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to the inflation target sooner than emerging market and developing economies.

The global economy remains surprisingly resilient despite significant Central Bank interest rate hikes to repair the price stability. Both banks now anticipate -- most banks now anticipate that the three Federal Reserve rate cuts projected for the end of 2024 will be reduced to [one] due to this persistent inflation.

For shipping, we continue to closely monitor China's economy, which is affected by the during downturn in its property sector. The Chinese economy is forecast to grow by only 4.6% in 2024 and 4.1% in 2025. However, Chinese economic growth may further intensify due to trade tensions in an already weakened geopolitical environment. Instability may take even longer to be restored. On the other hand row, growth in India is projected to remain strong at 6.8% in 2024 and 6.5% in 2025 with a robust measure reflecting strong domestic demand and the rising working age population.

Finally, the ASEAN-5, according to the IMF, will continue to grow quite strongly in the next couple of years, providing significant shipping support. According to Clarksons, demand for drybulk trade is presently expected to grow by 2.4% in 2024, slightly below the fleet growth. This includes about 0.6% uplift for full year 2024 due to the Red Sea and Panama Canal disruptions. A longer duration of disruptions in these regions could potentially drive demand higher.

In addition to the combined effect of on demand due to slower average speeds and increased concessions could lend further support for stronger dry bulk demand in 2024. Demand in 2025 is projected by Clarksons to grow by about 1.5%, assuming that the Red Sea disruption has eased by the end of this year.

Please turn to slide 10. Uncertainty about the future of fuels and high newbuilding prices have led to the low order book continuing. As of May 2024, the order book as a percentage of total fleet is at only 9.3% near the lowest historical levels. This could this low fleet growth over the next two to three years. Complementing this low fleet growth, we also have the effect of increase slow steaming and expected scrapping due to the introduction of the new environmental regulations. This could reduce the effective available bulk supply even further.

Turning to slide 11. Let us now look into the supply fundamentals in a bit more detail. As of May 2024 the total dry bulk vessel operating fleet was 13,700 vessels. According to Clarksons latest report, new deliveries as a percentage of total fleet are expected to be 3.6% in 2024, 3.2% in 2025 and 3.5% in 2026 onwards.

The actual fleet growth is, of course, expected to be lower than the aforementioned figures due to scrapping and slippage. Also note 9% of the fleet is older than 20-years-old and therefore, a good candidate for scrapping, especially if the market remains at current levels or lower.

Please turn to slide 12, where we summarize our outlook for the dry bulk market. Dry bulk shipping saw a modest decline during the first quarter of 2024 following a peak in December. Despite this decrease Q1 of 2024 marks the highest mark level for this typically slow season since 2010, with the exception of 2022, primarily due to the geopolitical and weather related disruptions as discussed previously.

The reality for the remainder of 2024 suggest a robust bulk carrier market with rates at around current levels. The recent strength in market conditions is largely attributable to [pensions] in the Suez Canal, which have significantly increased tone miles as and when these disruptions begin to ease or cease, demand patterns are anticipated to normalize. Although this adjustment may take a considerable amount of time to fully materialize.

Clarksons assumes Red Sea the re-routing, [spell resulting] 1.2% to dry bulk tonne-mile demand. Assuming half year of re-routing due to these disruptions, which will then be back to normal. This adds 0.6% for the full year of 2024 tone mile demand growth. Assume subsequent easing measures, subtract a similar figure from 2025 tone mile demand growth. The [zone] quite uncertain and will largely depend on the geopolitical developments, is possible that disruption could this quickly, it could take significant amount of time.

In any event in 2025. Bulker earnings are expected to be softer has diminished fleet inefficiencies and the cumulative growth of the fleet in recent years have offset the strong trade rebound. On the other hand, the decarbonization process is expected to affect trade lines and drive bus volumes going forward, positively by resulting slower speeds and more scrapping, but negatively if less coal is transported. The overall effect from the market, it's hard to put a big.

On the supply side will the ordering of new ships has been very limited due to the lack of available slots at shipyards and uncertainty about the fuel of the future. Despite significant orders for methanol fuel ships, the order book to fleet ratio remains nearly historically low levels, as said before, setting the stage for a potential recovery in charter rates should demand increase. Furthermore, introduction of emissions regulation related measures could further curtail supply. We are increased scrapping or slower operational speed for the portion of the fleet. EEXI, CII, EU ETS, FuelEU are all new acronyms. The industry will need to cope with and more out to come.

Let's turn to slide 13. The left side of the slide shows the evolution of one-year time charter rates of Panamax dry vessels over the last 20 years. As of May 17, 2024 the one-year time charter rate for Panamax ships with the capacity of 75,000 deadweight tons stood at $16,150 per day, which is about 20% above the historical median of around [$13,500] per day.

On the other hand, 10-year-old Panamax vessel prices have reached the maximum price seen in the last 10 years around $29.5 million, as can be seen in the right hand side graph. This is significantly higher than the 10 years historical average price of $16.8 million and the median price of $14.75 million. At current second-hand prices, we are reluctant to purchase more vessels. We are happy to keep on running the fleet at market rates, strengthening the balance sheet, reducing debt and waiting for new opportunities to present themselves.

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

Thank you very much, Aristides. Good morning from me as well ladies and gentlemen. Over the next four slides, I will give you an overview of our financial highlights for the first quarter of 2024 the comparable results to the same period of last year. [For that] let's turn to slide 15. For the first quarter of 2024 the company reported total net revenues were $14.4 million, representing a 27.2% increase over total net revenues of $11.3 million during the first quarter of last year.

And this was the result of the increased time charter rates our vessels earned during the first quarter of this year, plus the increased number of vessels we operated this quarter compared to the same quarter of the previous year. The company reported net loss for the period of $1.9 million and net loss attributable to controlling shareholders for the period of $1.78 million as compared to a net loss attributable to controlling shareholders of $1.54 million for the same period of 2023.

The net loss attributable to the noncontrolling shareholders of $0.13 million in the first quarter of this year represents the loss that corresponds to the 39% ownership of the entities that are presented by the NRP investors as I repeated explained earlier.

Interest and other financing costs, including interest income for the first quarter of 2024 increased to $2.04 million as compared to $1.23 million for the same period of last year. Interest expense during the first quarter of 2024 was higher, mainly due to the increased amount of debt and the increased benchmark rate with our launch today, while interest income was lower due to lower cash balances we carry during the period as compared to the same period of 2023.

Adjusted EBITDA for the first quarter of this year was $2.07 million compared to $2.36 million during the first quarter of 2023. Basic and diluted loss per share attributable to controlling shareholders for the first quarter of 2024 was $0.65, calculated on about 2.8 million share basic and diluted weighted average number of shares outstanding compared to basic and diluted loss per share of $0.55 for the first quarter of last year, calculated on whole for about [2.8 million] shares basic and diluted.

Excluding the effect on the net loss attributable to the controlling shareholders for the quarter of the unrealized gain on derivatives, the adjusted loss for the quarter ended March 31, 2024, would have been $1.18 basic and diluted compared to adjusted earnings of $0.14 per share basic and diluted again for the same period of last year.

Let's now turn to slide 16 to review our fleet performance. As usual, we will start our review by first examining the utilization rates for the expected for the first quarter of this year and compared to last year. Our fleet utilization rate is broken down to commercial and operational during the first quarter of this year, our commercial utilization rate was 100%, while our operational utilization rate was 98.1% compared to 99.8% commercial and 99.7% operational for the first quarter of 2023.

On average, 13 vessels were owned and operated during the first quarter of this year at an average time charter equivalent rate of $12,455 per day compared to 10 vessels in the same period of last year [compared to an average] $10,674 per vessel per day. Our total daily operating expenses, including management fees, general and administrative expenses, but excluding direct costs, were $6,867 per vessel per day during the first quarter of this year compared to $6,953 per vessel per day for the first quarter of 2023.

If we move further down on this table, we can see the cash flow breakeven levels, which takes into account in addition to variable the drydocking expenses, interest expenses and loan repayments. For the first quarter of 2024, our daily cash flow breakeven level was $12,440 per vessel per day compared to $13,186 per vessel per day for the same period of 2023.

Turning now to slide 17 to review our debt profile. As of March 31, 2024 our outstanding bank debt was $101.46 million and it is projected to decline to about [6%] (technical difficulty) million by the end of 2026. With the remainder of this year, our total debt repayments, including balloon payments amounts to about $14.7 million for total for the year of about $18 million. Then in both 2025 and total in 2026, loan repayments are due to decreased (technical difficulty) [$9.7 million] per year.

Significantly, thus reducing our cash flow breakeven level. It is worth mentioning on this slide that the average margin of our debt, which is about 2.45% and assuming the SOFR rate of about 5.32% make the total cost of our debt. If we take also into account the reduced interest, we're going to pay for the portion of our debt that we have struck make the overall cost of our debt at 7.56%.

At the bottom of this slide, we can see our projected cash flow break-even level for the next 12 months, broken down into its various components. Overall we expect our cash flow breakeven level to be around $12,535 per vessel per day, and our EBITDA breakeven level to be around $8,513 per vessel per day for the next 12 months as I mentioned.

Let me now conclude my brief financial presentation by moving to the slide 18, where we can see some highlights from our balance sheet in a simplistic way taking basically a snapshot of our assets and liabilities. As of March 31, 2024 cash and other current assets in our balance sheet stood at about $27 million. The book value of our vessels was approximately $200 million, resulting in total book value of our assets of about $227.4 million.

On our liability side as I mentioned earlier, our debt as of March 31, 2024, was about $101.5 million, representing approximately 44.7% of the book value of our assets, while other liabilities amounted to $8.8 million or about 3.7% of the book value of our asset.

The remaining book value of [$116.8 million] represents the interests of our minority holdings to the NRP investors of about $9.6 million, while the remaining $107.4 million of book value is attributed to our common shareholders, resulting in a book value of 38 point $35 per share. However, based on market transaction and other market reports, we estimate the market value of our vessels was nice. Our broader book value stands at around $262 million. That is about 62 million or higher, then the vendor book value, which is equivalent to about $20 per share, thus increasing our NAV per share to more than $60 our share price, which is trading around [$22.18] presents a significant discount compared to our NAV discount of the order of 65%. The valuation gap that offers significant upside potential for our shareholders and investors.

And with that, let me turn the floor back to Aristides to continue the call.

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

(Operator Instructions)

Tate Sullivan, Maxim Group.

Hello. Thank you. Good day. First on the debt repayment profile on slide 17, I'll touch is this debt, that existing loan repayments, something that you're looking to refinance before the end of the year? Or will you use cash flow practice or will you prioritize using cash flow to pay down that debt?

I think we're -- [I don't think] we related to refinancing in your gross debt in the near future. I believe for Workman to repay the to make repayments of our during the remaining of the year from the customer we are going to generate. And as you can see in that slide, the prepayments dropped significantly next year and the year after reducing our cash flow breakeven with balloon payments that are coming due in 2027, as you can see. And that suspect those who will be refinancing of the [diamond].

Thank you. And then on the Blessed Luck in the quarter and the boiler damage, did that happen while in dry dock in voyage and the expenses to repair is that within dry docking costs, can you go into more detail on that, please?

No, this number happen when we left the shipyard, the close [and there] of the crew on the shipyard that was the cause of that happened. But it happened just after we had left the shipyard, it's an insurable cost and all the repairs are covered. Unfortunately, the loss of time is not covered. So we lost 17 days of employment.

Can you approximate or can you not sure that the approximate cost to repair that, that should be insurable.

I think it's about $900,000. It's not achieved repair. But as I said --

If we not include it in the numbers because is fully insurable. So you will not find the under drydocking or operating expenses.

Okay. Thank you, [Aristides]. Thank you. And then going forward, our scheduled drydocks for the rest of the year. Can you review that?

In this call, we only have one drydock, which has already taken place which is the Starlight and we have three drydocks in Q3. I haven't looked as far as Q4, but --

There is no drydocks, no, nothing scheduled for Q4 this year.

Nothing for Q4. So it shows the three drydocks in Q3 really. But there's something to talk.

Okay. Thank you very much.

Thanks.

(Operator Instructions)

Poe Fratt, Alliance Global Partners.

Hello, Aristides and hello, Tasos. I had a question and [Aristides] is about your 2025 outlook. It seems like you tried to take more but less congested next year, less disruption, a little bit more in supply growth and demand just growing a little bit modestly would potentially create a softer rate environment. Would you categorize you were outlook as conservative? Or do you think it's base case? Or do you think it's conservative case, you actually get or if some makes, some of these things linger see a little bit better than you think?

Yes, I think I mean, we've generally tried to be quite conservative. But in all honesty, it is extremely difficult to predict how the market will move under the current geopolitical situations because they affect that rate very affect economic growth and nobody can really say what that would be. There are a few positives very low supply growth is a positive. The fact that the vessels are growing slower due to the environmental regulations, either positive. These are strong positives.

You should [demand] turns out being quite strong 2025, we can have a much better market. It's really difficult to decide. Having said that, the FFA market is also predicting a slightly lower market in 2025 than in 2024. So this is new information we currently have very, very difficult to decipher and decide what's the actual move will be. It can be I mean, if there are geopolitical tensions, but the global economy does well, i.e., we have longer [trade roof], but still the economy works well, we can have a very good market, but our base case is always quite conservative.

Yes, understood. And then in that context, I'm not sure if I could any thinking about any FFA hedging for the rest of the year to have the in place.

And then secondly, once new time charters in the mid to high teens, would that be something that might be attractive given your outlook for 2025, that's the latter half of '24 and the early part of '25?

Yes, currently we said the all our six [reconciling] spot rates raising the market. If you see a strengthening in the next couple of months, we will probably fix a portion of that opportunity at these higher numbers either through normal time charters through FFAs and currently don't have any open. That's a fair position. But you know, if we see levels that are even more satisfactory than these levels. And these levels today's market levels are still profitable levels. Overall, this quarter we had the loss that we had due to the two drydocks and the off-hire of the Blessed Luck, mainly. Also we took a loss on the FFAs that we had done. But the next quarter, we are cautiously optimistic that we will rebuild profitability.

Understood. And then Tasos, could you just give us some guidance for OpEx. So just OpEx should be just slightly up for the rest of the year relative to what you've reported in the first quarter?

Well, I think we're pretty much on [par with] the first quarter. So I mean, we would be plus or minus 2% to 3%, I believe. And it's hard to say, obviously, it's hard to say, but we haven't seen any surprises on the OpEx so far.

I'll take, great. Thank you, team.

Thank you, Fratt.

Thank you.

Lars Eide, Arctic Securities.

Hi. Good morning.

Good morning, [Lars Eide] .

Good morning.

And so I guess the last quarter touched upon my question. But as you noted in your report this morning, you're positioning your fleet for more market exposure moving forward. I guess in that context, your market view should be [positive hedging], I assume as you [said] guys what do you guys look like with this? [With this, too].

So I mean, our base case is that for the next few months the market should be quite positive.

Yeah, I think it was cover of up to 1%. That's [color]. Thank you.

Thank you.

Thank you. Ladies and gentlemen, that concludes our question and answer session, and I'll turn the floor back to management for any final comments.

Well, thank you all for listening in today's presentation. We will be back to you with the Q2 results in about three months' time. Thank you.

Bye everybody.

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