EuroDry Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 15, 2023

There are 4 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the EuroDry conference call on the Q1 2023 Financial Results. We have with us today Mr. Aristides Pidis, Chairman and Chief Executive Officer and Mr. Tasos Haslidis, 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, EuroDry will be making forward looking statements.

Operator

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 2 of the webcast presentation, which has a 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.

Operator

Pita. 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 month period ended March 31, 2023. Please turn to Slide 3 of the presentation.

Speaker 1

Our financial highlights are presented here. For the Q1 of 2023, we reported total net revenues of $11,300,000 and the net loss of $1,500,000 or $0.55 loss per basic and diluted shares. Adjusted net income though attributable to common shareholders was $400,000 or 0 point 14 dollars 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 concurrence. Adjusted EBITDA for the period was $2,400,000 A reconciliation of adjusted net income attributable to common shareholders on adjusted EBITDA is presented in the press release.

Speaker 1

As of May 15, 2023, we had repurchased 188,731 shares of our common stock in the open market, around 7% of our total stock, but about $3,000,000 under our share repurchase plan of up to $10,000,000 announced in August 2022. We will continue to execute the share repurchase program at management's discretion. Patios 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 charter side, we have new charters on 8 of our vessels.

Speaker 1

The majority of the ships were employed in short term charters, whilst 2 vessels with less luck and the Iranian peak were fixed for periods 6 to 9 months. You can see the specifics of the various charters we fixed in the accompanying presentation. I remind you that 2 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 array. Additionally, at the end of February 23, once the market started to recover, we sold 90 days of SSA contracts for the equivalent of 1 Panamax vessel in the second and one in the Q3 of 2023 at $16,500,000 16 $1,250 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.

Speaker 1

Thus, we practically covered another 2 of our vessels for these periods at aforementioned rates. Regarding dry docks and repairs, motor vessel Santa Cruz and motor vessel Finally, please note that Motobes in Wood 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 Bribal carriers, with a total cargo capacity of 730,000 deadweight tons approximately and an average age of approximately 17.5 years. Moving on to Slide 6, we provide a gradual update on our fleet employment.

Speaker 1

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 on to 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 Q1 of 2023 on a loan note at approximately $10,200 per day, having passed a loan of $6,200 a day in mid February. By March 31, the spot rates have increased to approximately $13,000 per day.

Speaker 1

The average 1 year time charter rate for Panamaxes was about $14,500 per day during the quarter, increasing to $16,000 per day by March 30 1, currently standing at $14,375 per day. Consequently, both the VPI and VTI indices were off to a rocky start, hitting the lowest levels by mid February, but recovering since. In 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 2 months, we have seen the market lose steam, but rates continue to hold comfortably at 5 figure profitable levels. Please now turn to Slide 9.

Speaker 1

In its latest update 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, strong economic activity as well as the ongoing war between Russia and Ukraine and growing geopolitical tensions. However, the U. S. And the EU seem quite resilient despite the recent economic shocks, primarily in the financial sector.

Speaker 1

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 2024, with the IMF lowering growth projections more than previously expected. India is poised to grow by 5 0.9% in 2023 and 6.3% in 2024, which is below its trend. Russia's economic growth on the other hand was revised higher for 2023 to 0.7% from 0.3% during the last IMF estimates. However, the long term outlook rose from 2.1% to 1.3% for 2024.

Speaker 1

Despite the slightly slower global growth expectations according to the latest Clarksons estimates, 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 outlook 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 2 to 3 years, likely leading to higher rates in 2023 if trade increases even at just historically average levels.

Speaker 1

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 Clarkson's 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 the candidate for scrapping, especially if the market will not be strong.

Speaker 1

Please turn to Slide 12, where we summarize our outlook in the drybulk market. The drybulk market was under significant pressure in the beginning of the year, as aforementioned as aforementioned, 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 smaller sizes up to cancelled this. Average freight rates stood at $8,500 per day across January 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 8 of our vessels employed under short term charters and were therefore able to employ these vessels at higher rates.

Speaker 1

Even the 2 vessels under index linked charters are open to market conditions and we are able to benefit from this boost in the market. However, things could change. Over the past 2 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 bunker revenues through 2023 as the market moves past this typical seasonal weak Q1. Of course, the market is heavily dependent on the recovery of China's real estate sector and the ease of global macroeconomic headwinds.

Speaker 1

On the other hand, the newly introduced emission regulations, the EEXI and CAI, will definitely have a positive contribution to the necessary slow steaming they will induce. Also on the supply side, the persistent under building of new ships will create a supply crunch in the next few years. There is a shortage of available slots currently in yields 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 over the time and the scale of potential market improvements. And all which can be argued that the fundamentals are mildly encouraging.

Speaker 1

Finally, let's turn to Slide 13. The left chart shows the evolution of 1 year time charter rates of Panamax drybulk vessels since 2002. As of May 12, 2023, the 1 year time charter rate for Panamax ships with a capacity of $75,000 deadweight tons started at $14,375 per day, which is very close to the historical median. In the right chart, you can see the historical price range for the 10 year old Panamax vessel, which has a current price of about $25,000,000 This is another than the highest price levels seen in the last 12 20 plus years, respectively, but higher than historical average and medium prices. Certainly, current vessel prices are not justified by current charter rates.

Speaker 1

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 cautious stock repurchase program, which we consider an excellent investment Tasos Aslidis, to go on with various 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. I will use the next four slides to give you an overview of our financial highlights for the Q1 of 2023 and compare those results to the same period of last year. For that, let's turn to Slide 15. For the Q1 of 2023, the company reported total net revenues of $11,340,000 representing a 28% increase over total net revenues of $18,200,000 achieved during the Q1 of last year.

Speaker 2

And that was the result of the lower time charter rates our vessels earned during the Q1 of this year, which was partly offset by the increased average number of vessels we own and operated, and the VoIP charter revenues were recognized in respect of 1 of our vessels. The company reported net loss for the period of $1,401,000 as compared to a net income of $10,490,000 for the same period of 2022. Total and other financing costs for the Q1 of 2023 increased to $1,470,000 dollars as compared to $650,000 for the same period of last year. The same time ago, we had during the Q1 of this year interest income of about $230,000 as opposed to very minimal interest income for the same period of 2022. Adjusted EBITDA for the Q1 of this year was 2,360,000 dollars as compared to $12,700,000 achieved during the Q1 of 2022.

Speaker 2

Basic and diluted gross share share for the Q1 of 2023 was $0.55 calculated on about $2,800,000 basic and diluted weighted average number of shares outstanding, converted basic and diluted earnings per share of $3.69 $3.64 respectively for the Q1 of 2022, calculated approximately 2,900,000 and 2,900,000 dollars weighted average number of sales outstanding. Excluding the effect of the earnings for the quarter of the unrealized loss and derivatives, the adjusted earnings for the quarter ended March 31, 2023, which have been $0.14 basically diluted compared to adjusted earnings of 3.34 dollars $3.30 per share based diluted, respectively, for the same quarter 1 year. Typically, security analysts do not include landlord items, the unrealized losses or earnings in the published estimates of earnings percent. Let's now turn to Slide 16 to review our fleet performance. We will start our review by looking at our first, at our utilization rates for the expected 1st quarters of this and last year.

Speaker 2

Also, this, our utilization our fleet utilization rate was 99.8%, while our operational utilization rate was 99.7% compared to 100% commercial and 99.6% operational for the Q1 of 2022. On our base, 10 vessels were owned and operated during the Q1 of 2023, earning a lumber time charter equivalent rate of $10,674 per day compared to 9.54 vessels that we owned and operated during the Q1 of last year, earning another $24,636 per day. Our total daily operating expenses, including management fees, G and A expenses, but excluding the balancing costs, averaged $6,952 per vessel per day during the Q1 of 2023 compared to $6,610 per vessel per day for the Q1 of last year. We're facing to account in addition to our growth, dry docking expenses, invert expenses and loan repayments. For the Q1 of 2023, our total paid cash flow rate was $13,196 per vessel per day as compared to $12,815 per vessel per vessel per day for the Q1 of last year.

Speaker 2

Let's move now to Slide 17 to review our debt profile. As of March 31, 2023, we had outstanding bank debt of about $67,000,000 Using the chart on the top part of this slide, we can see that our total payments, excluding balloon payments, over this and next year are between $11,000,000 $12,000,000 per year and then dropped to between $5,000,000 $6,000,000 in 20 20 5 and 2026. As of March 31, 2023, our statutory debt repayments, including the loan retention in the next 12 months amounted to about 8.5 dollars A good note here about the cost of our debt. The average margin of our debt is about 2 0.68 percent and assuming a LIBOR rate of 5.35% on the top of that and including the cost of the portion of our debt covered by our interest rate swap contracts, we estimate that the total cost of our senior debt as of the end of last quarter to be around 7.7%. At the bottom of the table, we can see a projected cash flow breakeven rate for the next 12 months broken down into its wild components.

Speaker 2

On a total basis, we can see that we expect to take a cash flow breakeven rate of around $12,405 per vessel per day. In the same chart, you can also see our EBITDA breakeven rate where you can see some highlights from our balance sheet in a simplified way. This slide offers a snapshot of our assets and liabilities. As of March 31, 2023, cash and other assets stood at about $34,800,000 The book value of our vessels was approximately 146,500,000 dollars resulting in total book value of our assets of about 181.3 1,000,000. Representing about 37% of the book value of our assets.

Speaker 2

We had other liabilities amounting to about 2,300,000 dollars or just below 2% of the book value of our assets, resulting in book shareholders' equity of about $111,700,000 which calculates to a book value per share of $39.26 However, based on our own estimates and market transactions, we estimated that the market value for our vessels was above the group value and actually stood around $179,000,000 thus suggesting that our NAV per share to be in excess of $50 With our share price is trading around $15

Operator

Our first question is from Tate Sullivan with the Maxim Group.

Speaker 2

Please proceed with your question.

Speaker 1

Hello. Thank you. Good day.

Speaker 3

Starting on your comments of just the slower than expected economic growth in China and the real estate market really not picking up, what could be catalysts for the drybulk market in the near term in terms of data points from China that we might see here? Or do you think it just might settle around current rates going forward, please?

Speaker 1

Yes. Thanks. Hi. I think that there are 2 aspects here. 1 is China, which is, as we all know, the most significant dry bulk stimulus that one can have.

Speaker 1

And especially, it's iron ore requirements, which, of course, drives mainly the gate size sector, but also the smaller sizes to an extent. So what happens with the real estate sector of China and its general growth is of paramount importance here. And so this is the one thing that China is not alone 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.

Speaker 1

So global growth generally and China especially are the 2 things to watch. And can you provide you've

Speaker 3

commented on the newbuild market and hesitance to place newbuild orders. Is our ships the limited number of newbuilds coming out of drybulk, 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 new builds?

Speaker 1

I think that we have very few ships coming out of the shipyards at this point. Few of them have fixed charters. There is a very few that are built with capacity to run on LNG or Methanol or whatever 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 Elbit vessels.

Speaker 1

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 we'll take our decisions probably within the summer period.

Speaker 3

And then I apologize if I missed the comment. On the repurchase plan, Entasis, can you remind me when the current plan expires? And then I believe you still have, what, about $7,000,000 of capacity remaining under the plan.

Speaker 2

Is that correct? We are I think we approved the repurchase plan in May last year, and we have used it for, I think, a good 2 quarters now. So we take a disciplined 2 quarters before our Board reviews the plan. We have used it to the level we believe it was appropriate for the volume that our share traded. But we have significant capacity to use, I mean, more than what we could use.

Speaker 2

We spent $3,000,000 give or take, and we put $7,000,000 in the plan.

Speaker 1

Okay. Thank you. Thank you both. Thanks,

Operator

Yes, there are no more questions at this time. I'd like to hand the floor back over to Mr. Aristides Pina for any closing comments.

Speaker 1

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

Speaker 2

Thank you, everybody.

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Earnings Conference Call
EuroDry Q1 2023
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