EuroDry Ltd (EDRY) 2020 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 2020 Financial Results. We have with us today Mr. Pittas, Chairman and Chief Executive Officer; and Mr. Aslidis, Chief Financial Officer of the company. (Operator Instructions) I must advise you that this conference is being recorded today, on Tuesday, the 19th of May 2020. Please be reminded that the company announced its results with a 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. The statement in today's conference call that are not historical facts, including, among other things, the expected financial performance of EuroDry's business, EuroDry's ability to pursue growth opportunities, EuroDry's expectations or objectives regarding future and market charter rate expectations and, in particular, the effects of COVID-19 on the financial condition and operations of EuroDry and the dry bulk industry in general may be forward-looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended.

Matters discussed may be forward-looking statements, which is 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 2 of the webcast presentation, which has the full forward-looking statements and the same statements was also included in the press release. Please take (inaudible) through the whole statement and read it.

And I would now like to pass the floor over to Mr. Pittas. Mr. Pittas, please go ahead.

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call is to discuss our financial results for the 3 months period ended March 31, 2020.

Please turn to Slide 3. Our income statement highlights are shown here. For the first quarter of 2020, we reported total net revenues of $5.1 million, adjusted EBITDA of $0.6 million and adjusted net income attributable to common shareholders of minus $2.1 million. Adjusted basic and diluted earnings per share attributable to common shareholders for the first quarter of 2020 was minus $0.91 per share. An average of 7 vessels were owned and operated during the first quarter of 2020, earning an average time charter equivalent rate of $7,885 per day. The company declared its fifth cash dividend of $0.4 million approximately on Series B preferred shares, resulting in a net loss attributable to shareholders of $2.6 million or $1.17 loss per share, basic and diluted.

Please turn to Slide 4 for our chartering, operations and sale and purchase highlights. The Pantelis was fixed for a trip about 45 to 55 days at around $5,000 per day. The Tasos was initially fixed for a trip for about 20, 25 days at $2,500 per day. And afterwards, it was fixed for a period of 95 to 100 days at $6,875 per day passing Singapore, which including the ballast voyage equates the time charter equivalent of about $6,000 per day. The Ekaterini was fixed for a period of minimum 12 months at 106% of the Kamsarmax 5TC index. In the first quarter of 2020, we had no FFA contracts.

In reference to dry docking costs and repairs in 2020, today -- up-to-date, they are as follows. The Tasos entered the dry dock on 22nd of March 2020 and stayed there for a period of approximately 18 days, and the preliminary estimate cost of about $900,000. The Pantelis just entered the dry dock today for the fourth special survey and ballast water tank installation with an estimated cost of $850,000 for a period of 22 days plus about $400,000 for the installation of the ballast water treatment plant. No more dry dockings are scheduled for 2020.

Please turn to Slide 5 to see a current snapshot of EuroDry's fleet. It is comprised of 7 dry bulk vessels with a fleet average age of 11.8 years, and a cargo carrying capacity of 529,000 deadweight.

Slide 6 shows the employment schedule. As you can see, effective coverage as of May 15, 2020 for the remainder of the year, stands at about 16% in terms of minimum fixed rate contracts and about 50% contracted days based on minimum durations. The latter figure includes ships on index charters, which are open to market fluctuations but have secured employment.

Turn to Slide 7, where we will go over the market highlights for the first quarter of 2020. Year 2020 to date has been marked by the dramatic effects of the global economy and seaborne trade of the COVID-19 pandemic. Dry bulk seaborne trade, in particular, declined dramatically, causing charter rates for Panamax vessels to drop to levels of about 50% lower compared to fourth quarter of 2019, a period that already had some signs of a weakening market. By mid-May 2020, charter rates have dropped even further, with the Cape market experiencing the hardest falls and now earning significantly less than Panamaxes. Spot rates for Panamaxes at around $4,500 per day are slightly lower than operating expenses. 1-year time charter rates have also dropped, but are nearly double those of current spot rates, indicating that the market participants expect a recovery within the next few months.

Please turn to Slide 9. As a result of the pandemic, the global economy is projected by the IMF to contract sharply by minus 3% in 2020, from 3.3% growth expected in the previous quarter. Among the developed economies, China's performance remarkably contracts to 1.2% from 6% previously, bringing nearly half century of long run growth to an end. For the advanced economies, the U.S. economic activity in 2020 plunges to minus 5.9% as the COVID-19 outbreak affects both the economy supply and demand side when compared to the 2% growth estimated in the previous quarter.

In this context, the IMF predictions for Eurozone indicate a huge drop in economic growth there as well, at minus 7.5%, while India's growth forecast was revised downward to 1.9% from its earlier estimate of 5.8%. Brazil's economic outlook darkens after an expected GDP growth of negative minus 5.3% compared to 2.2% positive growth in the previous quarter.

For 2021, the IMF estimates that once the pandemic abates in the second half of 2020 and containment efforts can be gradually lifted, the global economy will grow by 5.8% as economic activity normalizes, helped by policy support. In this premise, the growth outlook of both the U.S. and the Euro area are expected to recover to 4.7% growth, whereas the 2021 focus for China is expected to be 9.2%; India, 7.4%; Russia, 3.5%; and Brazil, 2.9%.

Looking on to the dry bulk trade, according to Clarksons, projected growth in 2020 is now estimated at negative 3.7%, whilst in tandem with the IMF forecast of a swift recovery in 2021, the outlook for dry bulk trade growth is a strong positive 5.3% growth in that year.

Please turn to Slide 10. In 2020, the order book which is dominated by large vessels, currently stands at 6.3%. Clarksons estimates that scrapping and slippage will eventually result in a fleet growth of around 2.5%. For 2021, the order book is estimated at 3%, with softer scrappings and slippage, will result in a fleet growth of about 1.9%. The order book for 2022 is currently only 0.6%, which would imply that after scrappings and slippage, we could see a shrinking fleet that year if just a few new orders are placed with 2022 deliveries.

The order book -- please turn to Page 11. The order book as a percentage of total fleet up until May 2020 stands at 8.1%, which equals the lowest level of the last 20-plus years. The root cause for the poor performance of dry bulk shipping during the last decade has been the high number of deliveries, which easily outpaced the growth of the trade. After the peaking in 2008 of the contracting activity at about 50% of the existing fleet, the number of new orders has declined beyond the normal 10% level. With a relatively small order book and realistic demand expectations for the coming years, a fundamentally supported rebound in the dry bulk market should be expected in the near future, bearing in mind that it takes about 1.5 to 2 years for a vessel to be delivered once it is sold.

So please turn in page -- to Page 12, where we summarize our dry bulk outlook. The unknown duration of the pandemic and its financial consequences render any favorable forecasting very difficult as a [wholesale]. Initial estimates from Clarksons to quantify the effects of the coronavirus pandemic on dry bulk trade, indicate a sharp drop in demand in 2020 followed by a sharp recovery in 2021, similar to the way economies reacted during the 2009 financial crisis.

Hoping that we have been through of the toughest part of the pandemic effect in the first quarter of 2020, we might not expect to see any significant gains during the summer. But markets could see meaningful improvements by year-end, in parallel, as ordering of new ships is expected to be contained in the midst of the above demand uncertainty and the lack of clarity of the fuel for the future. Not knowing the optimal ships for even 5 years out, makes the placing of any new order that might require 20-plus years to pay off, very speculative and risky. Therefore, 2021 indicates a promising year amidst the low order book and expectations for a strong global recovery, which should continue into 2022.

Next, please turn to Slide 13. The left side of the slide shows the evolution of 1-year time charter rates of Panamax dry bulk vessels since 2000. Even though dry bulk vessel rates bounced back from the unsustainable all-time lows in 2016, COVID-19 is now forcing us to revisit these levels.

The right-hand side of the slide shows the vessel values in relation to 10-year historical prices. In the last 2, 3 years, dry bulk prices have been gradually increasing towards historical average prices above all-time low values that were established at the beginning of 2016 till the outbreak of the COVID, but had still not reached median or average values. After COVID-19, they corrected by about 10% to 15%, but prices have not fallen as dramatically as charter rates. With a stabilizing and even improving freight rate environment, we would expect asset values to improve as well. Therefore, we try to position ourselves to benefit from such a development, and we continuously evaluate opportunities for investments in vessels or pursue combinations with other fleets, especially focusing on using our status as a public company to provide the consolidation platform.

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

Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. I will take you over now our financial results highlights for the 3 months ended March 31, 2020. For that, please turn now to Page 15.

For the first quarter of 2020, we reported total net revenues of $5.1 million, representing a 12.5% decrease over total net revenues of $5.8 million during the first quarter of 2019, and that was the result, as Aristides mentioned, of the lower time charter rates our vessels earned during the quarter. The company reported a net loss for the period of $2.3 million and a net loss attributable to common shareholders of $2.6 million as compared to a net income attributable to common shareholders of $0.9 million and $0.4 million, respectively, for the same period first quarter of 2019. Depreciation expenses for the first quarter of 2020 were $1.6 million and remain unchanged compared to the same period of last year.

Adjusted EBITDA for the first quarter of 2020 was $0.6 million compared to EBITDA of $2.5 million during the first quarter of last year. Basic and diluted loss per share attributable to common shareholders for the first quarter of 2020 was $1.17, calculated on 2.3 million basic and diluted weighted average number of shares outstanding compared to basic diluted earnings of $0.18 for the first quarter of 2019, calculated on 2.2 -- on approximately 2.2 million basic and diluted weighted average number of shares outstanding.

Excluding the effect on the loss attributable to common shareholders for the quarter of the unrealized loss [or gain] on derivatives and the loss on inventory valuation, the adjusted loss for the quarter ended March 31, 2020, would have been $0.91 basic and diluted compared to adjusted loss of $0.21 for the same period of last year. Usually, security analysts do not include the above items in their published estimates of earnings per share.

Please now turn to Slide 16 to review our fleet performance. We'll start our review by looking first at our fleet utilization rate. As usual, our utilization rate is broken down into commercial and operational. During the first quarter of 2020, we had 100% commercial and operational utilization rate as compared to 100% commercial and 99.7% operational for the first quarter of last year. I would like to remind you here that our utilization rate calculation does not include vessels in scheduled dry docks or scheduled repairs if such events took place during the period.

On average, 7 vessels were owned and operated during the first quarter of 2020, earning an average time charter equivalent rate of $7,885 per vessel -- per day compared to also 7 vessels being operated in the same period of last year, earned on average, $9,472 per day. Our total daily vessel operating expenses, including management fees, general and administration expenses, but excluding dry docking cost, averaged $6,055 per vessel per day during the first quarter of this year as compared to $5,849 per vessel per day for the same quarter of 2019.

If we move further down to this table at the bottom of it, we can see the cash flow breakeven rate that we had for the first quarter of 2020, a number which takes into account dry docking expenses, cash interest expense, loan repayments and preferred dividend payments. For the first quarter of 2020 then, our daily cash flow breakeven Rate was about $11,140 per vessel per day compared to 11,557 per day for the same period of 2019, representing a small reduction.

Let's now turn to Slide 17 to review our debt profile. On the left part of this slide, you can see our loan repayments for the remaining life of our loans as well as our balloon repayments. And on the right part of the slide, you can see the projection of our cash flow breakeven level for the following 12 months. As of March 31, 2020, EuroDry set an outstanding bank debt of $54.9 million with an average margin of about 3%. In the entire year of 2020, we have to make total loan repayments of about $5 million. In 2021, as you can see from the chart, we have a balloon payment of $6.6 million due, which is supported by 3 vessels, followed by a balloon payment of $2.1 million in 2022. These balloon payments are less than the scrap price of the respective 4 vessels even at today's scrap prices, and we anticipate that we'll have no issues with financing them when due. We have additional balloon payments in 2023 and 2025.

A quick note on the cost of our funding. Assuming a LIBOR rate of 1% on the top of the approximate 3% average margin I mentioned earlier, our cost of the senior debt would be around 4%. If we included the dividend cost of our preferred equity, which is 9.25% until January 2021, the average blended cost of our non-equity funding which have been around 5% as of the end of last quarter.

Regarding our preferred equity, I would like to remind you again here that in June 2019, we repaid approximately $4.3 million of our Series B preferred shares in exchange of a reduction in our dividend rate, from 12% down to 9.25% until January 2021 when our dividend rate is set to increase to 14%. The remaining outstanding amount of our Series B preferred shares at the end of last quarter was $15.4 million.

Our loan repayments for the next 12 months expressed on a vessel per day basis contribute about $2,700 to our daily cash flow breakeven level per vessel as you can see at the bottom line of the table on the right part of the slide. If we make assumptions for the remaining items that make up our cash flow breakeven rate like operating expenses, general and administrative expenses, dry docking, interest, et cetera, we come up with an overall cash flow breakeven level per vessel per day for the next 12 months of approximately $10,800.

Let's now move to Slide 18, where we can see some highlights from our balance sheet. This is indeed a simplified version of our balance sheet, where we see the main groupings of our assets and liabilities. On the asset side first, we have cash and other current assets of about $9 million; and including the book value of our vessels as of March 31, 2020, our total assets amount to about $113 million. On the liability side, we have bank debt of about $54.9 million, which approximately accounts for 49% of the book value of our assets.

Also, we have a preferred equity, as I mentioned, of $15.4 million, which accounts for 14% of our assets, and we have also other liabilities at about $4.5 million, accounting for 4% of our assets. These figures leave our net book value at around $39 million or $16.8 per share. If we now take into consideration the market value of our vessels, which declined about 10% during the first quarter of 2020, our net asset value per share would be in the range of $11 to $13. Thus, the recent trading range of our shares of between $4 and $5 represents a significant discount to the value of the company. Should that gap narrows, along with a possible recovery of the markets, it would represent a significant appreciation opportunity for our shareholders.

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

Thank you, Tasos. And we have some questions. If there are any, please?

(Operator Instructions) We will now take our first question.

It's Tate Sullivan from Maxim Group. I hope you can hear me okay. I always appreciate the update on the downtime expected. In the upcoming quarter, you mentioned no more expected downtime for 2020, and I'm looking at Slide 6, specifically. Are you done upgrading or installing new ballast equipment in the other 5 boats? Or can you set some expectations for 2021, please, for potential downtime?

I'm not sure about 2021. The ballast water treatment plants will be on all the ships, except for the Tasos, which would be due, I think, in 2022. I don't think we have any other dry docks in 2021 either. We have 1 dry dock in 2021, which is for the Xenia.

Okay. Great. And then it was small -- in the completed quarter 1, I haven't seen that before for you, the inventory write-down. Can you -- what is that related to? Is that fuel? Or can you give us some more description of that, please?

This fuel that we had on board our -- one of our vessels, which was operating on a voyage charter basis. And because of the significant drop of oil prices between February at the end of the quarter, we had to take a write-down on the value of that fuel.

Okay. And the last for me is, I know it's every country, every region has different reactions to the current global situation, economic and COVID situation. Is that -- can you remind me where your banks are located in roughly? And then when you start discussions to extend balloon payments that start in 2021, please?

Our banks are -- we have 2 banks located in Greece. We're talking with another bank's office in Greece, and the remaining of our banks is based in Germany. We have already had some discussions about possibly finding ways to reschedule some of our debt -- of the near-term debt.

And your next -- we'll now take our next question.

This is Poe Fratt from NOBLE Capital Markets. Could you give us the current rate or maybe the first quarter 2020 rate on the Alexandros P that was in the Guardian Pool? Where did that pool averaged in the first quarter? And then if you could give us an idea of maybe an average to date in that pool for this quarter.

Tasos, do you have that handy?

Yes. I can. If you can give me -- should be -- it should be below $10,000, obviously, but I need to -- can I get back to you on that or maybe later in the call?

Yes. That would be great. Maybe if you look at the TCE rate in the first quarter, just a little bit under $8,000, you talked about forward cover for the rest of the year. Maybe if you could just drill down the second quarter. If we look at the forward cover, what forward cover on a percentage basis would you be comfortable quoting? And then on top of that, where would the quarter average to date be for the TCE rate?

Poe, it's relatively easy for you to calculate because except from the Tasos and the Pantelis, which are always chartered at spot voyages, and we include in the presentation the charter rates, the remaining 4 vessels are based on the index. So if you just look at the index, you can calculate the index for the Panamaxes and the index for the Kamsarmaxes, you can calculate the exact rate except on the -- on 1 vessel, Xenia, where we are based on the index, but we have a floor of $11,000. So that vessel is earning $11,000, so it's easy to calculate.

The remaining 3 Panamaxes are based on the index, as you can see in the presentation. So you just have to use that number to get to where you think we should be. And for the Alexandros which is in the Guardian Pool, I would just tell you that we are trading -- that the pool is performing slightly better than the Supramax index. And the Alexandros P having 114 points is actually earning a little bit more than 114% of the index.

In fact, to respond to your earlier question, Poe, Alexandros earned on a net-net basis, about $8,500 in the first quarter, the Supramax spot rates averaged around $7,400. So that supports the point that Aristides mentioned.

Yes. That's helpful. And then could you, Tasos, walk us through your current liquidity, and beyond cash, what you have available? And maybe highlight some of the unencumbered assets that you potentially could lever up. And I guess, my goal is to sort of see how you're positioned to maybe either partially or fully redeem the preferred before that rate goes up by about 500 basis points.

Yes. I think in the near term...

Poe, can I answer this question? In the near term, as Tasos started saying, the market is not helping us to make it easy for us to be able to refinance the preferred that we want to do by February next year. We have in mind that we will use any liquidity that we manage during the next months to create through the existing ships, but also refinance some of the ships, either through sales and leasebacks or direct refinancing to be able to repay the preferred because, obviously, it becomes expensive. So this is the plan. We think initially, we thought we would be doing this at time of the year. But obviously, because of the developments, I don't think it would be very easy to do now. And it will be something that will probably happen during the fall.

Great. That's helpful. And then if you could just expand on the ballast water treatment program. And it sounds like you may not have a ballast water treatment installation in 2021. Did I hear that correctly? If you could just walk through the ballast water treatment program schedule, that would be helpful again.

There is only -- the Pantelis, which just entered the dry dock today is going to put the ballast water treatment plant during this dry dock. After that, all the vessels will have a ballast water treatment plant, except the Tasos. The Tasos will need to install that ballast water treatment plant in its next dry docking, which should be 2022 or 2023.

There are currently no further questions. Mr. Pittas and Mr. Aslidis, please continue.

Thank you very much. We would like to end this call here. And we'll be with you next quarter, hopefully, with a better market situation at that time.

Thanks, everybody, for attending.

That does conclude the conference for today. Thank you for participating. You may all disconnect.