Euroseas Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 16, 2023

There are 4 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the Euroseas Conference Call on the Q1 2023 Financial Results. We have with us Mr. Aristides Piedes, Chairman and Chief Executive Officer and Mr. Tasos Aslidis, Chief Financial Officer of the company. Followed by a question and answer

Speaker 1

session.

Operator

I must advise you that this conference is being recorded today. Please be reminded that the company announced their results with a press release that has been publicly distributed. Before passing the floor to Mr. Petis, I would like to remind everyone that in today's presentation and conference call, Euroseas 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. Pittas.

Operator

Please go ahead, sir.

Speaker 2

Good morning, ladies and gentlemen, and thank you all for joining us today for our scheduled conference call. Together with me is Tasos Aslidis, our Chief Financial Officer. The purpose of today's call is to Our financial results for the 3 months period ended March 31, 2023. With the 3rd Slide 3 of the presentation. Our Q1 financial highlights are shown here.

Speaker 2

For the Q1 of 2023, we reported total net revenues $41,900,000 and net income attributable to common shareholders of $28,800,000

Speaker 3

or

Speaker 2

$4.10 per diluted share. Adjusted net income attributable to common shareholders was $21,700,000 or $3.09 per diluted share. Adjusted EBITDA for the period stood at $26,000,000 A reconciliation of adjusted As part of the company's common stock dividend plan, our Board of Directors declared a quarterly dividend of $0.50 per common Share for the Q1 of 2023, which is payable on or about June 16 to the shareholders of record On June 9, 2023, this is the 5th consecutive $0.50 dividend that we are paying. As of May 15, 2023, under our share repurchase plan of up to $20,000,000 which was announced In May 2022, we had repurchased 348,000 of our common stock in the open market, representing about 5% of our stock For a total of about $7,000,000 Our CFO, Tasos Aslidis, will go over the financial highlights in more detail later on in the Please turn to Slide 4 where we discuss our recent sales and purchase, chartering and operational developments. As previously announced, on April 6, 2023, the company took delivery of its first newbuilding vessel, Most of us are GRAVOS, an echo 2,800 TEU feeder containership built in Daimler Production in South Korea.

Speaker 2

The vessel is EDI Phase 3 compliant and equipped with a Tier 3 engine and other sustainability linked features, including the installation of AMP and alternative maritime power system. The acquisition was financed with a combination of our own funds and the sustainability linked loan provided by Eurobank S. A. Following its delivery, Motovans with Dragos commenced the 36 to 40 month charter with the Siad lines At a gross daily rate of $48,000 per day, 2 of our vessels with contracts That were due in April May 2023 were extended at rates, but also duration that were better than anticipated, Reflecting the resilience of the market and the apparent belief of charterers that feed the vessels will be in short supply. Motoberson's senior duty loan was fixed for a period of 24 to 26 months with a daily rate of $23,000 per day, Weisz's EM Care charter was extended for a period of 36 months, plus or minus 45 days at $19,000 Earlier during this period, more potentially, Vianxpress was fixed between a minimum 6 month period at $13,000 per day and E and Hydra times E and Hydra times out the contract was Standard for the period of 12 months, 12 to 14 months at a gross daily rate of $15,000 a day.

Speaker 2

The Aegean Express completed its dry docking on February 8 and then experienced idle time of approximately 29 days Whilst we were dealing with Continental Shipping Line of Singapore, CSL, who repudiated its charter, Arbitration is ongoing against CSL, which we expect to win, But we expect to then face difficulties in enforcing the award as the charterable seems to be trying to hide its assets. Please return to Slide 5, where you can see our current fleet profile. Euroseas' current fleet is comprised of 18 vessels on the water, including 11 feeder container ships And 7 intermediate containment carriers with a carrying capacity of about 56,000 TEU And an average age of 16.5 years old. Turning to Slide 6, we present our vessels under construction, which consists of 8 EcoFrigger containerships, 5 with a carrying capacity of 2,800 TEU each And 3, with a carrying capacity of 1800 TEU each, expected to be delivered between Q2 2023 and Q4 2024. The 8 feeder containerships will have a capacity of 19,400 TEU.

Speaker 2

After the delivery of these new buildings, the fleet will consist of 26 vessels with a total carrying capacity of about 75,000 TEU. Let's now turn to Slide 7 for a graphical presentation of our vessel employment. As you may see, we have very strong charter coverage throughout the next 2 years with about 91% of our fleet being fixed For 2023 and almost 66% for 2024. These figures also take into consideration Expected to generate in excess of $20 per share, which will be further boosted by the revenues from the rest of our uncharted days. Turning now to Slide 9, we review how the 6 to 12 month time charter rates have developed over the last 10 years for the segments in which we mostly operate.

Speaker 2

Whilst the container charter market saw a soft start in the year Following the market weakness during the final months of 2022, charter rates started improving across all container ship segments during the first Quarter through mid May 2023 with rates sitting at healthy levels higher than the 10 year average and medium levels. As of last Friday, the 6 to 12 month time charter rate for 2,500 BOE Containerships Stood at $18,750 per day, whilst the rate for a 4,400 TEU containers Stood at $26,750 per day. Moving on to Slide 10, we go over some further market highlights. During the 1st quarter of 2023, 1 year time charters continue to ease, but have increased SINCE by about 10% to 15% compared to the low levels reached for most segments during February 2023. The average daily charter rates during the Q1 of 2023 were down by 18% compared to the Q4 of 2022, as shown in the table.

Speaker 2

The general sentiment remained negative throughout the Q1 As many parties remain apprehensive about entering into new transactions given the current macroeconomic headwinds And uncertainty due to the impact of the environmental regulations. Newbuilding prices were roughly stable in Q1 2020 Rico Paretsky, Q2, Q4 2022 and have lived a little over recent months in some sizes, but generally remain elevated amid cost inflation and extended yard forward cover. The idle containership fleet as of April 24, 2023 stood at about 1.4% of the fleet, We peaked in February 2023 at 3%, which has been trending down ever since. Recycling activity edged higher during Q1 with 30 basis days prior. This trend is anticipated to Scrapping prices showed the modest improvement in the Q1 of 2020 To about $560,000 per life rate ton.

Speaker 2

This is about 40% above the 2019 average. Finally, the containership fleet has grown by approximately 1.8% year to date Without accounting for annual vessel situation. Please turn to Slide 11. With latest update in April 2023, the IMF slightly lowers its global GDP growth estimate to 2.8% for this year before settling to 3% in 2024. This is primarily due to the effects of high inflation, tighter monetary policies, Slow economic activity as well as the ongoing war between Russia and Ukraine and growing geopolitical tensions.

Speaker 2

However, the U. S. And EU seem quite resilient despite the recent economic shocks primarily in financial sector. Life notice of LiD 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 markets and developing countries is expected to be quite below longer than Trends in 2023 2024 with the IMF lowering growth projections more than previously expected.

Speaker 2

India is poised to grow by 5.9% in 2023 and 6.3% in 2034, which is under its trend. Also Russia's economic growth, albeit it was revised higher for 2023 to 0.7% from 0.3%, The longer term outlook worsened from 2.1% to 1.3% for 2024. According to the latest Clarksons estimates, container freight is projected to contract by 2.1% in 2023. However, in 2024, trade should improve as economic headwinds start to ease, With trade growth projected at 3.3%. Trade and growth projections are being continuously revised As the effects in the financial sector inflation and geopolitical tensions on world growth and pay are being assessed.

Speaker 2

Please turn to Slide 12, where you can see the total fleet age profile and containership overview. The containership fleet is relatively young with most vessels under 15 years old and only 10% of the fleet over 30 years old. The largest percentage of which though lies within feeder vessels, suggesting higher Thanks for recycling for these prices. The order book as a percentage of total fleet stands at the high of 28.7 percent as of May 2023. Clarksons expects new deliveries of about 9.7 Sales from the current fleet to be delivered as of the beginning of 2023 or 2023, 10% in 2024 and 6 24% in 2025.

Speaker 2

With the majority of the deliveries scheduled for delivery in the second half of twenty twenty three And the first half of twenty twenty four. Turning on to Slide 13, we go over the free cash profile and order book In the 1,000 to 3,000 TEU range in more detail. These charges of vessels are the backbone of our operations And the primary focus of our newbuilding programs. The order book here stands just 12% as of May 10, 20 Generally, the fact that 23% of big sized vessels is older than 20 years old Suggest that the fleet could even decline for future contingencies in the ensuing 2 to 3 years. Talking to Clarkson's, new deliveries for 2023 are expected to be 9.4%, 2.5% as well as the individual, 5.6% in 20.24 and 0.8% in 2025.

Speaker 2

Let's move to Slide 14, where we discuss our outlook summary for the container subscriber. Container markets remained significantly below last year's boom, following a strong correction in the second half of twenty twenty two. Despite the falling volumes, easing of congestion and relative volume mix as well as increasing deliveries, The container type charter market has shown attributable resilience and even some gains in recent months. Further softening is possible, though, for the remainder of 2023 as deliveries of new business vessels is expected to pick up pace in the second half of the year. In many events, capital charter rates are still outstanding at 165% Above pre COVID 10 year meeting, the container sales index also reversed course during the last couple of months And the results that we compare to January 2023 levels lately.

Speaker 2

It now stands at the level 8% lower than the January 20 Containment volumes have fallen by 7.5% year on year. The reversal of port congestion Also released a good portion of the fleet increasing effective supply. However, the vessel slowdown As offsetting heat from supply at the end of the congestion board, there are still large challenges ahead, Mainly on the supply side, but also due to macroeconomic developments, which are hard to predict in 'twenty five. Thus, determining the future shipping volumes and overhead royalty margin is very difficult. On 2024 onwards, market conditions are expected to remain challenging as the rates will decline again If this has not already happened in the second half of twenty twenty three, due to a second consecutive year of substantial fleet expansion.

Speaker 2

Massive performance will remain sensitive to capacity management versus speed and the range of other inefficiencies Such as congestion that can alleviate pressure to some extent. The energy transition is another unknown that will affect the container ship sector probably positively. While it's evident that the shift is taking place and in the short term, we can expect lower speeds, thus shrinking vessel availability, Well, long term outlook is difficult and uncertain. One thing that is probably sure The spread between charter rates achieved by ECHO vessels relative to the older vessels is expected to further increase. Smaller sized vessels, the segment we mainly operate in are expected to perform relatively better Due to potential scrapping of over 8 vessels and lower number of new deliveries, All these pointing to a healthier supply situation.

Speaker 2

Without down low, Escaping of larger vessels, trades currently served by this size could mitigate any differences to an extent. Let's move to Slide 3. The left chart shows the evolution of 1 year times after range for containers with Following the industry's exceptional highs in 2022, The market has now normalized with 1 year time charter rate currently standing at 18,750 And $50 per day. As Raphon said, this is still a much higher level than the historical region And a very profitable level, too. The right hand chart shows the historical range for new buildings and 10 year old containerships Distributed between relatively few shift gears concurrently with rising inflation, which grew building prices up sharply.

Speaker 2

Even though newbuilding contracting activity has been hampered so far this year, newbuilding prices remain at very high levels On the backstop of the inflation of the environment, prices for 10 year old secondhand containerships which skyrocketed in the latest 22 The $56,000,000 have since eased to around $20,500,000 a level Still significantly higher than the historical medium. In this environment, we will continue to reward our shareholders Through our steady quarterly dividend, which currently yields about 10% annually and by executing on our share repurchase Which we believe represents a very attractive investment opportunity since our sales came at 40% of the linkedin's value. Our strong contracted revenue coverage throughout 2023 2024 At healthy rates, we've also allowed us to take delivery of our remaining 18 newbuilding vessels and at the same time, Continue to evaluate investment opportunities with low risk that will incrementally increase our earnings and growth. And with that, I will pass the floor to our CFO, Tasos Rodriguez, to go over our financial highlights in further detail.

Speaker 3

Thank you very much, ladies and gentlemen. Over the next four slides, I will give you an overview of our financial highlights for the Q1 of 2023 and compare the results to the same period of last year. With that, let's turn to Slide 17. For the Q1 of 2023, The company reported total net revenues of $41,900,000 representing a 7.6% decrease The company reported net income for the period of $28,800,000 as compared to net income of $29,900,000 for the Q1 of 2022. Interest and other financial costs For the Q1 of 2023, amount was $1,990,000, partly offset by imputed interest of $1,100,000 which is capitalized and is due to the self financing of the pre delivery installments of our new building program.

Speaker 3

In addition, we had $230,000 of interest income. For the same period of last year, The interest and finance costs amounted to $1,000,000 We had no included interest and practically no interest income last year. The increase in the top line of our interest expense is due to the increased amount of debt and the increase in the weighted average LIBORs Adjusted EBITDA for the Q1 of this year was $26,000,000 compared to $31,100,000 achieved during the Q1 of 2022. Basic and diluted earnings per share for the Q1 of 2023 were $4.11 $4.10 respectively, calculated on about 7,000,000 Basic and outstand and the diluted weighted average number of shares outstanding compared to basic and diluted earnings per share for $4.15 $4.13 respectively, calculated from $7,200,000 shares for the same period of last year. Excluding the effect on the income for the quarter The unrealized loss on derivatives, the amortization of the low market time charter acquired, The depreciation charge to the increased value of the vessels acquired with below market In the gain on the sale of Avessel, the adjusted earnings per share for the quarter ended March 31, $0.09 per share diluted compared to adjusted earnings of $3.71 $3.70 based for the previous year's period.

Speaker 3

Usually, secured channels do not include the above items in their For the Q1 of 2023, in comparison to last year's,

Speaker 1

as

Speaker 3

User, our fleet utilization rate is broken into commercial and operational. In the Q1 of 2023, our commercial utilization rate was 19.1%, While our operational utilization rate was 100% compared to 99.6% commercial 99.5 percent operational for the Q1 of last year. On average, 17.1 vessels were owned and operated during the Q1 of this year, earning In other ex fine chartered goodwill and rate of $29,231 per vessel per day Compared to 16 vessels owned and operated in the same period, the Q1 of 2022, earnings on average $36,906

Speaker 1

per vessel per day.

Speaker 3

Our total daily operating expenses Including management fees, general and administrative expenses, other than $8,074 per day during the Q1 of this year compared to $7,329 per vessel per day for the Q1 of 2022. If we move further down this table, we can see the cash flow breakeven rate, which we had to meet during the Q1 of this year and which takes into account also drydocking expenses, interest costs Great cash flow breakeven rate was $14,160 per vessel per day compared to $14,059 per day during the Q1 of 2022. Finally, in the very last line of this table, you can see the common debt dividend that we paid, expressed in dollars per day. In the Q1 of 2023, we paid the equivalent of $2,292 per vessel per day in dividends. We have no dividend declared for the Q1 paid, I should say, for the Q1 of 2022.

Speaker 3

Let's now move to Slide 19 to review our debt profile. As of March 31, 2023, Our outstanding debt was $121,000,000 That includes debt for our new business, which we drew before the end of the quarter. At the same time, on the same day as on the same day, our scheduled debt repayments For 2023, including the amount we paid

Speaker 2

in the

Speaker 3

Q1, would amount to 27,400,000 While our volume payments amount to $30,730,000 in 2023. This balance payment we have already paid $2,000,000 for $17,300,000 and $6,300,000 and we're in the process of Looking at the chart on the top left part of the corner of the slide, We can see also our debt repayment schedule for the following year beyond 2023. As you can see, our debt repayment is expected to decline or adjusted debt is expected to decline No loss in 3 years. And we had additional balloon payments in 2025, amounting to about 22,000,000 A quick note here about the cost of our debt. The average margin on our debt is about 2 point 71% and assuming a labor rate of about 5.34% on the top of it, We can estimate the total cost of our senior debt to be 8.05%.

Speaker 3

However, as we included in our cost of debt calculation, The price of our debt, the interest of which is lost through our interstate swap contracts, The cost of our debt would drop to about 6.25 percent, as about 50% of our debt We have at a cost of around 1.7%. As it's noted on the top part of the slide, We expect to assume additional debt to finance the remaining of our newbuilding program, the 8 vessels that are previously mentioned earlier, And we estimate that debt to be around $190,000,000 $200,000,000 Looking now at the bottom of the table, You can see our cash flow breakeven level projected for the next 12 months and what level is expected to be We remain similar to what we had in the Q1 and be around $2,251 per vessel per day, A big part of which is our loan repayments, dollars 4,073 per vessel per day corresponds to repayments of loans. To review our presentation, let's move to Slide 20 to review our balance sheet some balance sheet highlights. As of March 31, 2023, our assets included cash and other current assets It amounted to about $51,300,000 We have made advances for our new leasing program, which at the end of the quarter stood at about $98,000,000 The book value Of our 17 vessels in the quarter as of March 31 stood at around 211,800,000 Our guidance of March 31, 2023, as previously mentioned, stood at $121,000,000 representing 33.5 percent of the book value of our assets.

Speaker 3

The share value of our recently acquired charters, The low market charters is about $31,100,000 and that is reported in our balance sheet. Otherwise, this also amount to about $10,700,000 or 3% of our total book value of our assets. It should be noted though that the market value of our fleet, including the value of our charters, It's much higher in book value. Based on our own estimates, the charter adjusted value of our fleet The last change in the market value of our newbuilding contracts is approximately worth 328,000,000 As of the end of the month, as compared to the book value of our vessels, the less preferred value of the overall market charters of about $180,000,000 And this translates to a net asset value for our company of about $346,000,000 or a little more than $49 per share. Recently, Our shares have been trading in the range of $18 to $19 per share, thus representing a significant discount that I think mentioned earlier to our net asset value and provide good appreciation potential for our shareholders and investors based on these measures.

Speaker 3

With that, I would like to close my remarks and turn the floor back to Aristides to continue the discussion.

Speaker 1

Thank you, Tazos. Let us open up the floor for any questions you may have.

Operator

Thank you. We'll now be conducting a question and answer session.

Speaker 1

Thank you.

Operator

Thank you. Our first question is from the line of Clement Mullens with Value Investors Edge. Please proceed with your questions.

Speaker 1

Good morning. Thank you for taking my questions. I wanted to start

Operator

by asking Hello.

Speaker 1

Hi. I wanted to start by asking about the tender sold. The vessel was initially scheduled to be delivered in the Q2 of 2023, But it seems very reasonable expected in the Q1 of 2024. Could you provide some commentary on the reason behind the delays And whether we should expect any finance line with the bank? I'm not sure that, that Vessel was ever scheduled for the Q2.

Speaker 3

The Q4.

Speaker 1

It was scheduled for the Q4, And

Speaker 2

it has been delayed by a month or so to be delivered in the beginning of 2024. We have seen some small delays in some of the ships in the region of A month or 2 because of issues in South Korea with the shipyards. They had some labor issues and some difficulties in sourcing material and equipment. But it's minor delays of 1 to 2 months. I don't expect there to be huge delays.

Speaker 3

We have vessel teratitis

Speaker 2

Yes, go ahead.

Speaker 1

All right. All right. That's helpful. Most of your new build program remains open. And how should we think about securing new contracts?

Speaker 1

Would you be comfortable employing them on short term charters? For we used to be looking for medium term employment.

Speaker 2

It will really depend on what the market The environment is towards the end of the year because the TeraTaki, which will be delivered beginning of July Instead of end June as was the initial plan, is already fixed to a Siad lines at $48,000 per day for 3 years together with the Gregos some time ago at the peak of the market. The remaining vessels, which are all going to be delivered in 2024, We are not in the hurry to fix now because we would get extremely discounted rates if we wanted and insisted on trying to fix them today. So we will wait for the right opportunity to fix them. We know that these are very modern and efficient vessels, Much more economical than similar sized vessels that were built 10 15 years ago. So we are pretty confident they will be fixed at very good rates.

Speaker 2

But how good? It will really depend on the market.

Speaker 1

Yes, that makes sense. And regarding the ARAGAN Xpress, you mentioned you expect to win But the execution may be difficult as the Charter is hiding its assets. How should we think about the timing for the resolution of the proceeding?

Speaker 2

I think that within the next couple of months, certainly within by our next This call, this will have been resolved. The legal issues will have been resolved and we will know if we have won the award, Which we think is a no brainer, but when you're in arbitration, you're never 100% sure. But as I said, The most difficult thing is to recover from a charterer who is hiding and indeed was The smallest charterer from all the charterers that we have on our other ships. So We have to see how that will go.

Speaker 1

All right. Thanks for the color.

Speaker 2

Yes, okay.

Speaker 1

Sorry, Goran. Go ahead.

Speaker 2

No, no, no. That's fine. I think this is enough for now.

Speaker 1

All right. Thank you.

Speaker 2

Thank you. Bye bye.

Speaker 3

Thank you.

Operator

Thank

Speaker 3

you.

Operator

Thank you. At this time, I will turn the floor back to Mr. Penas for closing remarks.

Speaker 2

Thanks everybody for listening to us today, and we will be back in 3 months'

Operator

Thank you, everyone. This will conclude today's call. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Euroseas Q1 2023
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