EuroDry Q3 2023 Earnings Call Transcript

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November 8, 2023

There are 5 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the EuroDry Limited conference call on the Q3 2023 Financial Results. We have with us today Mr. Aristides Petas, Chairman and Chief Executive Officer and Mr. Tazos Aslidis, Chief Financial Officer of the company. At this time, all participants are in a listen only mode.

Operator

There will be a presentation followed by a question and answer session, I must advise you that this conference is being recorded today. 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, EuraDrive will be making forward looking statements. These statements are within the meaning of the federal securities laws.

Operator

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 would like to pass the floor to Mr. Petis.

Operator

Please go ahead, sir.

Speaker 1

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 3 9 month period ended September 30. Please turn to Slide 3 of the presentation.

Speaker 1

Our financial highlights are shown there. For the Q3 of 2023, we reported total nonrecnet revenues of $10,000,000 and a loss of $500,000 or $0.19 loss per basic and diluted share. Adjusted net loss for the quarter was $700,000 or $0.24 adjusted loss per basic and diluted share. Adjusted EBITDA for the quarter was $3,100,000 Please refer to the press release for reconciliation between the adjusted net loss and adjusted EBITDA. Tasos will go over our financial highlights in more detail later on in the presentation.

Speaker 1

As of September 8, we had purchased a total of 200 and 68,000 shares of our common stock in the open market for about $4,000,000 and that's under our share repurchase plan of up to $10,000,000 announced in August 2022 and extended for another year. This represents about 10% of our outstanding shares. On September 12, 2023, we announced our agreement to acquire 3 Echo Ultramax vessels, MV Christos K, a 63,000 deadweight drybulk vessel between 2015 the sister ship MV Marea, a 63,000 drybulk vessel also built in 2015 and another sister ship, the MV Yami Speedtest, built in 2014 for a total price of $65,000,000 The vessels are also sister ships to our May MV Alexandre Spie, which was built at the same yard in 2017 by ourselves. These acquisitions further expand our modern fleet cluster at the time that we believe is supportive of a healthy market over the next 2, 3 years, given current market fundamentals, especially the low order book as a percentage of the fleet and the effect of environmental regulations on the ability of certain vessels to continue trading. Of course, geopolitical uncertainties remain, which may potentially hinder demand.

Speaker 1

However, we believe the risks are generally tilted to the upside and the present level of the market presented a good opportunity to expand our fleet with high quality units of an old design. We expect these vessels to make significant contributions to our EBITDA in the coming quarters years. On October 26, we announced a strategic partnership with NRP Project Finance, a leading project manager of direct investments within shipping and offshore to a growing investment some Norwegian investors in motor vessel CHRISTUS K and motor vessel Marea. This opens up the door for us to the Norwegian market, which we hope we will be able to further develop. Please turn to Slide 4, where we provide further details about the sale and purchase charter and new operational highlights.

Speaker 1

Motor vessel, Yannis Pitas, was delivered on October 10, 2023. The vessel was already employed under a refined charter contract until December 2023 at $12,500 per day for a period of approximately 30 to 40 days, which is continuing after the delivery. The consideration was partly paid by cash at hand and partly financed with a sustainability linked loan for $10,500,000 with Eurobank S. A. On October 25 November 6, we took delivery of MV, Chris Tuskei and Maria, respectively.

Speaker 1

The investors are acquired in partnership with a number of investors represented by NRP Project Finance, as already said, in which the NRV investors acquired a 39 percent ownership stake in each of the vessels. Both vessels were partly financed with cash in hand and with a sustainability linked loan of $11,000,000 each with Eurobank. We believe that joint ventures such as this can provide a new funding source for fleet expansion without diluting existing shareholders and allows us to establish relationship with private investors and jointly capitalize on investment opportunities in the market. Please note that motor vessel Christos K has been fixed until the end of November 2023 at $9,600 per day and MV Maria is fixed until the end of November at $10,500 per day. Continuing on the chartering side, another 7 of our 13 vessels are employed in short term charters for a fixed period of 2, 3 months.

Speaker 1

2 of our vessels continue to be employed under index linked charters until March 2024 2025, respectively, as 105.5% of the average Baltic comes from Exindex. And 1 vessel, motor vessel, blessed Luck, is fixed on a longer time charter since May 2023 at $15,800 per day until January 2024. You can see the specifics of the other 7 charters we fixed in the accompanying presentation. Our chartering strategy is largely driven by market expectations and at current rates, we don't expect to be fixing longer term charters. Given the expectations for the roughly stable market going forward, we will continue with the same short term charter strategy until rates start climbing and we can secure higher rates for longer periods.

Speaker 1

Earlier this month, we took some protection through an FFA covering 1 Panamax vessel for Q1 at the level of $10,100 per day. Regarding dry docks and repairs, motor vessel good parts underwent drydock for 24 days during the Q1. We also incurred about 5 days of commercial off hire at the lowest point of the quarter with motor vessel Santa Cruz. Please turn to Slide 5, which shows the main particulars of the 13 vessels that comprise our fleet today, which includes 5 Panamax, 5 Guntermax, 2 Kansarmax and the Supramax dry bulk carrier with a total capacity of approximately 920,000 deadweight tons and an average age of 12.5 years. I remind you that motor vessel Christos and Maria are 61% owned by Eurobank, the remaining being owned by the NRP investors.

Speaker 1

Next, please turn to Slide 6, which graphically depicts our fleet and polar employment. As you can see, fixed rate coverage for the Q4 of 2023 stands at around 50%. This figure excludes ships on index charters, which are offered to market fluctuations that have secured employment. Turning on Slide 7, we go over the market highlights for the Q3 ended September 30th and up until last week. During the Q3 of 2023, the average Panamax spot rate was around $10,676 per day.

Speaker 1

By September 30, spot rates of Panamax vessels have recovered to approximately $14,060 per day, reflecting the seasonal market strength during September, but have since slid by about 15% to $11,950 per day as markets have reacted to the slower world economy. Please now turn to Slide 9. With the latest update in October 2023, the IMF forecast showed that the global economy is still slow and uneven, remaining well below the historic coverage of 3.8 percent growth between 20,021,019. Global GDP growth is estimated to slow from 3.5% in 2022 to 3% this year and 2.9% in 2024. Global inflation is forecast to decline steadily starting from 2024 due to tighter monetary policy aided by lower international commodity prices.

Speaker 1

Slow economic recovery has been dominated by post pandemic geopolitical shocks, including the war in Ukraine, the latest Israeli Hamas conflict, U. S.-China relations and the Chinese property sector crisis, as well as the effects of monetary policy tightening to reduce inflation. However, important divergences are appearing. The slowdown is more pronounced in advanced economies than in emerging markets and developing economies. Among advanced economies, the U.

Speaker 1

S. Has been revised up due to resilient consumption and investment, while the euro area has been revised down as tighter monetary policy and energy crisis have taken it all. Divergence is also evident among emerging markets and developing economies with China facing growing headwinds, while Brazil, India and Russia have been revised upwards. Despite the slightly slower global growth expectation, according to the latest Clarksons estimates, drybulk trade demand is expected to return to a steady growth of 4.6% this year. However, for 2024, Clarksons expect just 1.8% TIM growth, largely driven by China's need for drybulk imports, coupled with the low order book and implementation of the environmental regulations, which will effectively reduce vessel capacity.

Speaker 1

Please turn to Slide 10. Uncertainty about future fuels and high newbuilding prices has led to a low order book. As of November 2023, the order book as a percentage of total fleet is only 8.1%, remaining 1 of the lowest in history. This suggests minimal fleet growth over the next 2 to 3 years. There is also the effect of increased slow steaming and scrapping amid the introduction of new environmental regulations, which could reduce available bulk supply even further.

Speaker 1

3rd, to Slide 11, let us now look into the supply fundamentals in a bit more detail. According to Clarkson's latest report, new deliveries as a percentage of total fleet are expected to be 3.8% in 2023, 3.2% in 2024 and 3.8% in 2025 onwards. As of November 2023, the total drybulk vessel operating fleet was 13,000 and 4 94 vessels. But the actual fleet growth is expected to be lower than the aforementioned figures due to scrapping and slippage. Also 8% of the fleet is older than 30 years old and a good candidate for scrapping, especially if the market remains at current or lower levels.

Speaker 1

Please turn to Slide 12, where we summarize our outlook for the drybulk market. I'll discuss that the bulk carrier market continued to drop within July, but started rising in August September and had risen further within October, reflecting the seasonal market strength. On average, in Q3, time charter rates for single trips remained at the same levels as in the Q2 of 2023, earning 11,000 800 per day. The reduced fleet inefficiencies, persistent demand challenges in key regions and the accumulation of fleet growth in recent years have contributed to the creation of the softer market conditions seen in recent years. However, freight rates increased by 20 percent in October compared to others' Q3 of 2023, while time charter rates have also seen a 10% increase due to an increased demand for clogged corn predominantly.

Speaker 1

However, during the last couple of weeks, their markets appear to be losing steam. These moderate market conditions are expected to persist in the remaining of the Q4 of 2024 and throughout the year of 2024. The recent rate gains demonstrate support by seasonal factors, but the Q1 of 2024 is expected to be seasonally quite weak. Uncertainty remains over the scale and timing of potential market improvements with a range of scenarios surrounding key factors, including the Chinese economy, the challenges of political implications of the wars and the aforementioned supply and consumer regulation. Our above described fundamental analysis suggests a potentially higher market for 2024 than the currently than that currently implied by the FFAs.

Speaker 1

Let us turn to Slide 13. The left side of the slide shows the evolution of 1 year time charter rates of Panamax dry vessels since 2002. As of November 3, 2023, the 1 year time charter rate for Panamax ships with a capacity of 70 5,000 petweight tons stood at $11,975 per day, which is slightly below the historical median of around $13,500 per day. On the other hand, the vessel prices, as can be seen in the right hand side graph, are still significantly higher than the 10 year historical price average in medium. Under these circumstances, having grown our fleet by 30% with the current acquisitions, We will concentrate more on strengthening our balance sheet further and waiting for better circumstances to further grow the company.

Speaker 1

Of course, if we identify other joint venture opportunities, which provide accretive possibilities, we will execute upon them. In the meantime, we may continue to make further stock repurchases, noting, however, that the liquidity in our stock has decreased and therefore trying to optimize the whole process. Let me now pass the floor over to our CFO, Tasos Aslidis, to go over our financial highlights in more detail. Tasos, the floor is yours.

Speaker 2

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 Q3 9 months of 2023 and compare them to the same periods of last year. For that, let's turn to Slide 15. For the Q3 of 2023, the company reported total net revenues of $10,000,000 representing a 36.7% decrease over total net revenues of $15,800,000 during the Q3 of last year and that decrease was the result of the lower number of vessels we operated in the Q3 of 2023 versus last year and the lower time charter rates that our vessels earned this year compared to last.

Speaker 2

We reported net loss for the period of $500,000 as compared to a net income of $6,200,000 for the same period of the Q3 of 2022. Interest and other financial costs for the Q3 of 2023 amounted to $1,600,000 compared to about $1,000,000 for the same period of year. Interest expense during the Q3 of this year was higher mainly due to the increased underlying interest rates, software or LIBOR that our loans were charged during the period compared again to the previous to the same period of last year. Adjusted EBITDA for the Q3 of 2023 was $3,100,000 compared to $9,500,000 we achieved during the same period of 2022. Basic and diluted loss per share for the Q3 of this year was $0.19 calculated on about $2,800,000 basic and diluted weighted average number of shares outstanding compared to earnings per share of $2.11 basic $2.10 diluted calculated on about $2,900,000 basic and diluted weighted average number of shares outstanding for the Q3 of 2022.

Speaker 2

Excluding the effect on the loss for the quarter of the unrealized gain on derivatives, the adjusted net loss for the quarter ended September 30, 2023 would have been $0.24 loss per share basic and diluted compared to adjusted earnings of $1.94 basic and $1.93 diluted respectively, for the same period of last year. We do this adjustment because typically security analysts do not include the above items in their published estimates of earnings per share. Let's now look at the numbers for the corresponding 9 month period, periods ending ended September 30, 2023 and convert them to the same period of last year. For the 1st 9 months of 2023, the company reported total net revenues of $31,700,000 representing a 42.4 percent decrease over total net revenues of $55,100,000 during the 1st 9 months of 2022. Again, this was the result of the decreased number of vessels we operated and the lower time charter rates our vessels earned.

Speaker 2

The company reported net loss for the period of $3,300,000 as compared to a net income of $27,300,000 for the 9 month period, the same 9 month period of 2022. Interest and other financing costs for the 1st 9 months of 2023 amounted to $4,400,000 compared to $2,400,000 for the same period of last year. Again, the interest expense for the period was higher, mainly due to the increased underlying rates, interest rates or loans paid this year. Adjusted EBITDA for the 1st 9 months of 2023 was 8,000,000 dollars compared to $35,900,000 achieved during the 1st 9 months of 2022. Basic and diluted loss per share for the 1st 9 months of 2023 was $1.17 calculated on $2,800,000 basic and diluted weighted average number of shares outstanding, compared to earnings per share of $9.43 basic and $9.34 diluted for the same period of last year.

Speaker 2

Again, excluding the effect of the unrealized loss on derivatives, the adjusted net loss for the 9 month period ended September 30, 2023, which have been $0.57 per share compared to adjusted earnings of $8.69 basic and $8.60 diluted for the same period of last year. Let's now turn to Slide 16 to review our fleet performance. We will start our review as usual by looking at our fleet utilization rates for the Q3 of this year and compare them to the same period of 2022. Again, as we do all the time, our fleet utilization rate is broken down to commercial and operational. During the Q3 of 2023, our commercial utilization rate was 99.4% while our operational utilization rate was 99.5% compared to 100% commercial and 98.9 percent operational for the same period in the Q3 of 2022.

Speaker 2

On average, 10 vessels were owned and operated during the Q3 of this year, earning an average time charter equivalent rate of $12,126 per day compared to 11 vessels we operated in the same period of 2022, which earned on average $20,637 per day. Our total daily operating expenses, including management fees, averaged $6,680 per vessel per day during the Q3 of 2023 compared to $6,593 per vessel per day for the Q3 of last year. General and administrative expenses per day per vessel amounted to $6.77 in the Q3 of this year compared to $700 for the Q3 of 2022. If we move further down on this table, we can see our cash flow breakeven rate, which takes into account drydocking expenses, interest expenses and loan repayments. As we can see, during the Q3 of 2023, our daily cash flow breakeven rate was $12,640 per vessel per day compared to $13,978 per vessel per day for the Q1 of last year.

Speaker 2

If we move to the right side of this slide, we can review the same figures for the 9 month periods of this year and last year. During the 1st 9 months of 2023, our commercial utilization rate was 99.1% and our operational utilization rate was 98.1% compared to 99.8% percent commercial and 99.2 percent operational for the same period of 2022. On average, we owned and operated 10 vessels during 2023, earning an average time charter equivalent rate of $11,644 per vessel per day compared to 10.5 vessels during this same period of last year, which earned $22,876 per vessel per day on average. Our vessel operating expenses, again including management fees, averaged $7,095 per vessel per day during the 1st 9 months of this year and compared to $6,587 per vessel per day for the same period of 2022. General and administrative expenses per day per vessel amounted to $8.13 this year compared to $7.50 for the 1st 9 months of 2022.

Speaker 2

As we did for the 3 month figures, we can look at our cash flow breakeven levels for the 9 month period at the left line of this slide, which also take into account, as I mentioned earlier, direct operating expenses, interest expenses and loan repayments. In the 1st 9 months of 2023, we had $13,319 per vessel per day breakeven level, cash flow breakeven level compared to $12,955 per day per vessel for the same period of last year. Let's now turn to Slide 17 to review our debt profile. As of September 30, 2023, we had outstanding bank debt of about 75,000,000 dollars repayments for the remaining of $23,000,000 amount to $2,600,000 As Aristides mentioned earlier, we assumed additional debt to finance the acquisition of the 3 vessels we bought and that debt amounted to 32,500,000 dollars and that additional debt is reflected in the repayments shown in the top left part of the chart. In 2024, our total debt repayments, including balloon payments, amount to $18,050,000 while they are set to decrease to $9,700,000 approximately both in 20252026.

Speaker 2

Another point worth mentioning in this slide is that it relates to the average margin of our debt, which is about 2.64%. Assuming a software rate of about 5.41%, the rate as of October 6 on the top of that and including the cost of the portion of our debt covered by our interest rate swap, we estimate the total cost of our senior debt to be around 7.75%. At the bottom of this slide, we can see our projected cash flow breakeven level for the next 12 months broken down to its various components. Overall, we expect our cash flow breakeven level to be around $13,303 per vessel per day. And also on the same table, you can see what would be our the breakeven rate for our EBITDA to be on the positive side.

Speaker 2

So we would need to earn $7,830 per vessel per day to register a positive EBITDA result for the next 12 months. And that rate would include our operating expenses, G and A in expenses and dry toilting costs. Let's now move to the next slide, Slide 18, where we can see some highlights from our balance sheet in a rather simplified way. This slide gives also a snapshot of our assets and liabilities. As of September 30, 2023, cash and other tangible assets on our balance sheet stood at about $42,000,000 The book value of our vessels, including the $6,500,000 advance payment we made during the quarter for the acquisition of the 3 Ultramax vessels were approximately 148,000,000 dollars resulting in total book value for our assets of about $190,000,000 On our liability side, our debt as of September 30, as I mentioned earlier, stood at about $75,000,000 representing about 40% of the book value of our assets, while other liabilities amounted to $5,600,000 or about 3% of the book value of our assets and that calculation results in a book value of shareholders' equity of about 109,400,000 dollars translating to a book value of $39.2 per share.

Speaker 2

However, based on our own estimates and market transactions, we estimate that the market value for our vessels was above their book value and stood, including the advances I mentioned earlier, at about 182,000,000 dollars representing approximately 23% higher value compared to the book value of the vessels and resulting in a net asset value per share in excess of $51 I would like to close this presentation noting that our share price is mainly trading around $15 and thus if you compare this to our net asset value, it represents a steep discount, rated at tip discount rate, which should offer 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.

Speaker 1

Thank you, Tassos. I'm opening now up the floor for any questions.

Operator

Thank you. We will now be conducting a question and answer Our first question comes from the line of Christopher Ski with Arctic Securities. Please proceed with your question.

Speaker 2

Hello gentlemen. How are you?

Speaker 3

Congrats on a quarter on Mainland beef. So that's good. I was just wondering if you could tell us a bit more about the rationale for growing your fleet through the joint venture. What's the rationale for this? And is such a platform something you would consider to use more as a means to expand?

Speaker 3

Or

Speaker 1

how should we think about this?

Speaker 2

Sure.

Speaker 1

The Board had initially decided to acquire 2 vessels and we were looking to find them. We then found a group of 3 vessels and we said that it would be best and more conservative not to acquire it on our own with our own equity, although we could. But we wanted to maintain a strong balance sheet. And we had started some discussions with NRP regarding potential cooperation. And finally, we thought that it's a good idea, why not?

Speaker 1

They are looking to find something to invest in for their investors. Why not do something together in a joint venture? And the discussions led to an agreement and we are very happy to have done it because we opened up our company to the Norwegian market, which is a very knowledgeable shipping shipping market and a strong shipping market. And hopefully, we will be able to do more stuff with the same investors or other investors.

Speaker 3

Thank you. And with regards to asset values, obviously, they are still quite high in a historical perspective. And it doesn't seem like they're coming down anytime soon, although rates are not supporting it. With that in mind, would you consider settling some of your older vessels?

Speaker 1

We will definitely be at some point replacing the older vessels with newer vessels. This transition has to happen and at some point it will happen. When we think the time is right, we will do it. Hopefully, within the next couple of years, we will see a stronger market, which will make it more interesting for us to sell some of the older vessels. We will see.

Speaker 1

The transition has to happen at some point. We bought the 3 Ultramaxes, I think, at the lowest point of values within this year at least. That prices were softening throughout the summer. Then after we concluded the deal to acquire the ships, the markets in September October improved and we saw prices going up a little bit. So we think we found a right time within the year to affect this expansion.

Speaker 1

We have to see how next year develops and we will take it from there.

Speaker 3

Okay. Thanks. That's all from me. Thanks a lot. Thank you.

Operator

Our next question comes from the line of Tate Sullivan with Maxim Group. Please proceed with your question.

Speaker 4

Hi. This is Brian Yu on the line for Tate Sullivan. Hi. I just wanted to ask, in terms of like the market demand for China, what are some indicators you guys are seeing that helps indicate that demand for 2024 is going to be moderate in terms of seasonality?

Speaker 1

Yes. We think that generally seasonality will persist, right? So there will be the periods when there is a lot of demand for grain or the factories want to restock and all that stuff, which usually happens. So seasonality will be an issue again next year. China is a question mark for us right now.

Speaker 1

There are some positives and some negatives regarding them. I think that China has always managed to when people expect it to be having difficulties to come up with the right measures, which result in keeping the economy rather strong. So we are optimistic that despite the fact that we have seen well, we have actually seen a big increase in the coal imports, We have seen significant iron ore imports as well despite the very poor market on the construction side. We are optimistic that China will manage to continue delivering this 5%, 5.5% growth, which is sufficient to hopefully maintain rates at good levels.

Speaker 4

Okay, got it. Thank you.

Operator

Mr. Peters, it appears we have no further questions at this time. I would like to turn the floor back over to you for closing comments.

Speaker 1

Thanks everybody for standing by and listening to our today's conference call. We will be back to you within 3 months' time with the results of the end of

Speaker 2

the year. Thanks everybody for listening to us.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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EuroDry Q3 2023
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