EuroDry Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 16, 2024

There are 6 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the EuroDry Ltd. Conference Call on the 4th Quarter of 2023 financial results. We have with us today Aristides Pittas, Chairman and Chief Executive Officer and Mr. Tahos Aslaitis, 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. Conference call is being recorded today. And please be reminded that the company announced its results with a press release that has been publicly distributed. Before passing the floor over to Mr. Peters, I would also like to remind everybody 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 that may result in such expectations not being realized. I kindly draw your attention to Slide number 2 of the webcast presentation, which has 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 over to Mr.

Operator

Piedes. 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, I have Tasos Aslidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the 3 12 months period ended 31 December 2023. Please turn to Slide 3 of the presentation. Our financial results are shown here.

Speaker 1

For the Q4 of 2023, we reported total net revenues of $15,900,000 and net income attributable to controlling shareholders of $300,000 or $0.13 per basic and diluted share. Adjusted net income for the quarter was $1,900,000 or $0.70 per diluted share, mainly reflecting the contribution of FFAs. Adjusted EBITDA for the period was $6,600,000 Please turn to the press release for a full reconciliation of adjusted net income and adjusted EBITDA. Our CFO, Tasos Aslidis will go over our financial highlights in more detail later on in the presentation. As of February 15, 2024, we had repurchased a total of 273,120 shares of our common stock in the open market for about $4,100,000 under our share repurchase plan of up to $10,000,000 announced in August 2022 and extended for another year.

Speaker 1

Please turn to Slide 4 for an overview of our sales and purchase chartering and operational highlights. On the charter side, 11 of our 13 vessels are employed in short term charters, whilst 2 vessels continue to be employed under index linked charters until March 2024 2025, respectively at 105.5 percent of the average Baltic Kamsarmax 5 times charter index. You can see the specifics of the various charters we fixed in the accompanying presentation. There were no dry dockings repairs off hire time during the quarter. Our chartering strategy is largely driven by the market.

Speaker 1

We plan to continue with the same short term charter strategy until rates climb to levels that induce us to take more time charter cover or hedge through FFAs. Please turn to Slide 5. EuroDry's fleet consists of 13 vessels including 5 Panamax, 5 Ultramax, 2 Kamsarmax and 1 Supramax drybulk carrier. EuroDry's 13 Drybulk carriers have a total cargo capacity of approximately 920,000 petweight and an average age of 13.5 years. I'd like to remind you that during the quarter as previously announced and mentioned in our last earnings call EuroDry has a 61% ownership of the entities that own motor vessels Christos K and Maria K, the remaining 39% being owned by owners represented by NRP Project Finance, otherwise refers to as the NRP investors.

Speaker 1

Please turn to Slide 6 which depicts our fleet employment graphically. As you can see, we practically have no cover after the current quarter. In Q1, we are very little exposed to the market especially if we factor in FFAs. We have sold 90 days of FFA contracts for the equivalent of 1 Supramax vessel and 180 days of FFA contracts for the equivalent of 2 Panamax vessels, 3 ships equivalent in total, in the Q1 of 2024 at 10,000, dollars 10,100 and $10,181 per day respectively. Overall, we expect to be around breakeven rates in Q1.

Speaker 1

Turning on to Slide 7, we go over the market highlights for the Q4 ended December 31, 2023 and up until recently. The average spot market rates for Panamax was hovering at around $15,000 per day in the Q4 of 2023. By year end, spot rates rose to approximately $16,200 per day reflecting amongst others the effect of the Panama Canal growth. Despite the Red Sea disruptions that ensued, they have since dropped reflecting seasonal trends the Chinese New Year and the softer activity in the Pacific. The 1 year time charter rates for Panamaxes averaged around $13,400 per day during the Q4 rising to $14,350 by year end.

Speaker 1

Contrary to spot rates though, 1 year time charter rates have increased to $15,275 per day as of February 9th, reflecting the rising confidence that the market is bound to strengthen as the global growth gains steam ahead and the effects of the Red Sea disruptions become more pronounced. Please now turn to Slide 9. With its latest update in January 2024, the IMF raised its forecast for global growth compared to October 2023 outlook from 2.9% to 3.1 percent for 2024 and 3.2 percent for 2025. As a result of greater than expected resilience in the United States and fiscal support of China, we expect to see this recovery although the ITF also warns of risks from wars and inflation. The focus for 2024 and 2025 is however still below the historical average of the last 10 years of 3.8%.

Speaker 1

With elevated strength, Central Bank policy raised to fight inflation and withdrawal of fiscal support amid high debt weighing on economy weighing on economy activity and low underlying productivity growth. Inflation is falling faster than expected in most regions. In the midst of unwinding supply side issues and restrictive monetary policy. Global headline inflation is expected to fall to 5.8% in 2024 and to 4.4% in 2025, with the 2025 forecast having been revised down. With this inflation and steady growth, the likelihood of a hard landing has receded and risks to global growth are broadly balanced.

Speaker 1

However, new commodity price spikes from geopolitical shocks including continued attacks in the Red Sea and supply disruptions or more persistent underlying inflation could perhaps prolong tight monetary conditions. For shipping, we continue to monitor China, India and the Asian five, which according to the IMF will continue to grow quite strongly in the next couple of years. China having had major headwinds due to lower confidence and an underwhelming boost economic activity following its reopening after COVID-nineteen as well as its persistent property sector issues is still set to grow by another 4.6% in 2024 and 4.1% in 2025. India's growth is expected to be 6.5% in both 202420 25. Drybulk trade demand is therefore forecasted presently to grow at 1.6% in 20242025 which is below its historical average growth rate of 4.9%.

Speaker 1

Despite the improvement in demand in 2023 primarily fueled by China and escalating geopolitical tensions, it is expected that driving trade distortions and geoeconomic fragmentation will continue to weigh on the level of global trade. Please turn to slide 10. Uncertainty about the future of fuels and high new building prices have led to the low order book continuing. As of February 2024, the order book as a percentage of total fleet is at only 8.5% near the lowest historical levels. This suggests minimal fleet growth over the next 2 to 3 years.

Speaker 1

Complementing this low fleet growth, we also have the effect of increased slow steaming and expected scrapping due to the introduction of new environmental regulations. These could reduce the effective available bunker supply even further. Turning to slide 11, let us now look into the supply fundamentals in a bit more detail. As of February 2024, the total drybulk vessel operating fleet was 13,600 vessels. According to Clarkson's latest report, new deliveries as a percentage of total fleet are expected to be 3.6% in 2024, 2.9% in 2025 and 2.4% in 2026 onwards.

Speaker 1

The actual fleet growth is expected to be lower than the aforementioned figures of course due to scrapping and slippage. Also note that 8% of the fleet is older than 20 years old and therefore a good candidate for scrapping especially if the market remains at current all lower levels. Please turn to slide 12 where we summarize our outlook for the drybulk market. Drybulk markets drybulk shipping saw strong gains throughout the Q4 of 2023, marked by the Panamax freight index hitting 17,000 dollars per day in December 23, reaching its highest level since mid-twenty 22. Despite this, 2023 proved to be a comparatively moderate year for bulkhead earnings due to decreased fleet inefficiencies and the cumulative expansion of the fleet in the preceding years, which counteracted the robust trade recovery.

Speaker 1

The uptick in earnings during Q4 is largely attributed to the Panama Canal drought leading to a reduction in transit from approximately 10 per day to 0. 2024 is poised to be a stronger year for the drybulk sector, particularly if vessel supply continues to tighten, potentially leading to spikes in freight markets. Historically, the Q1 of the year has always been the weakest for the drybulk, largely owing to the Chinese New Year, which dampens economic activity. Contrary to prior expectations, it is proving to be stronger than anticipated mainly due to the Red Sea disruptions. Regarding the supply side, as discussed, there has been minimal ordering of new seeds due to constraints in shipyard availability and uncertainty surrounding the choicers of fuel, despite there being some not insignificant orders for methanol fueled vessels.

Speaker 1

The ratio of the order book to the existing fleet as discussed remains close to historically low levels setting the stage for a potential recovery in charter rates if demand returns to more typical levels. Additionally, the implementation of emissions regulations such as E XI and CII could further restrict supply to increase scrapping or reduced operational speeds for certain vessels. On the demand side, China is important to monitor. Its potential to simulate demand growth and sentiment will be critical particularly considering challenges in the property sector and sensitivity to government policies regarding coal. Additionally, GDP growth in developed economies and unforeseen developments could also contribute to demand growth.

Speaker 1

The timing of interest rate cuts central banks as well as inflation easing will also weigh on global growth. The drought in the Panama Canal which has caused prolonged waiting times, capacity limitations and increased pressure on shipping schedules continues. As a result, freight has been redirected from the region and has led to a rise in ton mile demand and a noticeable surge in freight rates. Furthermore, disruptions in the Red Sea have reduced dry cargo ship traffic along this route, compelling shipping companies to either suspend voyages over a route to the Cape of Good Hope, consequently increasing vessel demand. Let's turn to slide 13.

Speaker 1

The left side of the slide shows the evolution of 1 year time charter rates of Panamax drybulk vessels since 2002. As of February 9, 2024, the 1 year time charter rates for Panamax 6 with a capacity of 75,000 deadweight tons stood at $15,275 per day, which is slightly above the historical medium of around $13,500 per day. On the other hand, as can be seen in the right graph, the historical price range for the 10 year old Japanese Kamsarmax vessel, which has a current price of around $26,000,000 is significantly higher than the 10 year historical average and median price. Given the high vessel values and the acquisition of the 3 ultras in Q4, which have reduced our liquidity, we are currently reluctant to invest further in new vessels. We prefer to spend some of our liquidity continue executing on our share repurchase program as our share price trades considerably below our net asset value.

Speaker 1

Further, as our liquidity builds up organically, we will continue monitoring the markets for investment opportunities, which we can always further finance either by levering up through partnerships and or disposal of elder assets. Let me now pass the floor over to our CFO, Tasos Aslidis to go over our various financial highlights in more detail.

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 Q4 and full year of 2023 and compare those to the same periods of last year. For that, let's turn to Slide 15. For the Q4 of 2023, the company reported total net revenues of $15,900,000 representing a 5.2% increase over total net revenues of $15,100,000 during the Q4 of last year of 2022.

Speaker 2

This was the result of the higher number of vessels we owned and operated in the Q4 of 2023 compared to the same period of 2022, offset by the lower time charter rates our vessels earned in the Q4 of last year compared to 2022. We reported a net income for the period of $300,000 compared to a net income of $6,300,000 for the same period Q4 of 2022. It should be noted that the results for the Q4 of 2023 exclude a €700,000 loss attributable to minority interests deriving from the 39 percent ownership of the NRP investors on vessels Christos K and Maria. Interest and other financing costs for the Q4 of 2023 increased to CAD2 1,000,000 dollars compared to $1,500,000 for the same period of 2022. Interest expense during the Q4 of last year was higher mainly due to the increased amount of debt we carried and the increased benchmark rates of our loans during the period as compared to the same one in 2022.

Speaker 2

Adjusted EBITDA for the Q4 of 2023 was $6,600,000 compared to $7,300,000 for the same period of 2022. Basic and diluted earnings per share attributable to controlling shareholders for the Q4 of 2023 was $0.13 calculated on $2,700,000 approximately $2,700,000 basic diluted weighted average number of shares outstanding compared to $5.38 basic $5.32 diluted for 2022 calculated on 2,800,000 2,900,000 basic and diluted weighted average number of shares outstanding. Excluding the effect of the unrealized loss on derivatives on the earnings for the Q4 of last year, the adjusted earnings per share attributable to controlling shareholders for the Q4 of 2023 would have been $0.71 basic and diluted compared to adjusted earnings of $1.19 $1.17 per share basic and diluted for the same period the Q4 of 2022. Typically, as we said in previous presentations, security analysts do not include the above items like unrealized loss on derivatives in their published estimates of earnings per share and that's why we're making this adjustment. Let us now look at the numbers for the corresponding 12 month periods, 2023 versus 2022.

Speaker 2

For the whole year of 2023, the company reported total net revenues of $47,600,000 dollars representing a 32.2% decrease over total net revenues of $70,200,000 during 2022, mainly the result of the lower time charter rates our vessels earned. We reported a net loss for the period of $2,900,000 as compared to a net income of $33,500,000 for 2022. Again, the results for the full year of 2023 exclude a $370,000 loss attributable to minority interests. Interest and other financing costs for the 12 months of 2023 amounted to about €6,500,000 compared to €3,900,000 during the same period of 2022. The reason being higher again is the higher level of debt we carried and the higher average benchmark rates that we that our launch had to pay.

Speaker 2

Adjusted EBITDA for 2023 was $14,600,000 compared to $43,200,000 during 2022. Finally, basic and diluted loss per share attributable to controlling shareholders for 2023 was $1.05 calculated on $2,700,000 basic and diluted weighted average number of shares outstanding compared to base diluted earnings per share of $11.66 $11.61 respectively for the whole year of 2022. The final adjustment related to and excluding the unrealized loss of derivatives on the loss for the year. After we do that, the adjusted earnings for 2023 attributable to controlling shareholders would have been $0.13 basic and diluted compared to adjusted earnings per share of $9.90 $9.85 basic and diluted respectively for 2022. Let's now turn to Slide 16 to review our fleet performance.

Speaker 2

We will start our review by looking at our fleet utilization rates for the Q4 and full year of both 2023 2022. First, during the Q4 of 2023, our commercial utilization rate was at 100%, while our operational utilization rate was 99.5% compared to 100% commercial and 99.7% operational for the Q4 of 2022. On average, 12.2 vessels were owned and operated during the Q4 of 2023, earning another time charter equivalent rate of $14,570 per day compared to 10.1 vessels in the same period of 2022 earning on average $16,689 per day. Our total daily operating expenses, including management fees, general and administrative expenses, but excluding dry docking costs were $7,340 per vessel per day during the Q4 of 2023 compared to $7,035 per vessel per day for the Q4 of 2022. I'd like to note here that the figure for the Q4 of 2023 includes certain set up expenses for our joint venture with NRP Investors.

Speaker 2

If we move further down on this table, we can see the cash flow breakeven rate, which takes also into account drydocking expenses, interest expenses and loan repayments. Thus for the Q4 of 2023, our daily cash flow breakeven rate was $11,895 per vessel per day compared to $13,089 per vessel per day for the same period of 2022. Let's now look on the right part of the slide to review the same figures for the full year. During the entire 2023, our commercial utilization rate was 99.4%, while our operational utilization rate was 98.5% compared to 99.8% commercial and 99.3% operational for 2022. On average, 10.6 vessels were owned and operated during 2023, earning an average time charter equivalent rate of $12,528 per day compared to 10.4 vessels for 2022 earning on average $21,304 per day.

Speaker 2

Our total operating expenses for the year, again including management fees, G and A expenses, but excluding dry docking costs, averaged $7,106 per vessel per day in 2023 compared to $6,698 per day for 2022. At the bottom of this table, we can again see here the cash flow breakeven rate for the year, which in 2023 amounted to $12,944 per vessel per day compared to $12,991 for 2022. Let's now turn to slide 17 to review our debt profile. As of December 31, 2023, our outstanding bank debt was approximately 104,800,000 dollars and in 2024 it stands for it's about $87,000,000 In 2024, our total debt repayments, including balloon payments, amount to about $18,000,000 dollars while they are set to decrease to about $9,700,000 approximately both in 2025 and 2026. It is worth mentioning in this slide that the average margin of our debt, which is about 2.46% and assuming a shortfall rate of about 5.6% as of earlier this month And including the cost of the portion of the debt, we have for which we have interest rates drops, we estimate our total cost of our senior debt as of the end of last year was around 7.8%.

Speaker 2

At the bottom of this slide, we can see our projected cash flow breakeven level for the next 12 months, working down into its various components. Overall, we expect our cash flow breakeven level to be around $12,378 per vessel per day and our EBITDA breakeven rate to be around $8,000 per vessel per day. In that rate, our EBITDA breakeven rate includes operating expenses, G and A expenses and drydocking costs. I'm almost concluding my presentation. And for that, let's move to the next slide, slide 18, where we can see some highlights from our balance sheet in a simplified way.

Speaker 2

We offer a snapshot of our assets and liabilities in this slide. As of December 31, 2023, cash and other assets stood on our balance sheet at about 27,500,000 dollars The book value of our vessels was approximately $203,600,000 resulting in total book value for our assets of about $231,000,000 On our liability side, our main liabilities are debt, which as mentioned previously stands stood at about $104,800,000 as of December 31, representing about 45.4 percent of the book value of our assets and we had additional liabilities of about 6,800,000 dollars That means that the book value of our shareholders' equity was about 110,000,000 dollars translating to about $39 book value per share and this figure excludes the book value of the minority interests that we have. However, the market value of our fleet is higher than our book value and we estimate based on our own estimates and other market transactions that the market value of our fleet stands at about $239,000,000 we suggest that our NAV per share is in excess of $51 Our shares recently discount compared to our net asset value. This discount represents a significant opportunity appreciation for our shareholders and investors. And with that, I would like to end my brief financial presentation and turn the floor back to Aristides.

Speaker 1

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

Operator

Thank Our first question is from Tate Sullivan with Maxim Group. Please proceed.

Speaker 3

Hello. Good day. Thank you. Can we talk a little bit about the FFA hedges that you put in place in October November? I mean, you indicated that it's for 3 vessels equivalent, but then in your table, you have 2 vessels on index linked charters.

Speaker 3

So do one of those FFA hedges last for almost half a year? Can you talk more about that please?

Speaker 1

Sure. When you have vessels that are not fixed, which was the situation back in October, the hedge also works for the unfixed vessels that you will fix within the Q1 of the year. It isn't 100% correlated with the FFA, but the correlation is still very, very significant. So at the time that we did it, we had really nothing fixed. So we covered 3 vessels for around $10,000 a day.

Speaker 1

We thought that the market was going to be lower, dollars 10,000 was for Q1 a number that we felt comfortable with and that's why we did it. It turns out that the market has been stronger. So all these 3 FFAs will result in a slight loss, but that's fine. It's equivalent to $3,600 to $10,000 a day. The remaining will be at somehow higher figure as Q1 is tending to be.

Speaker 4

Okay. And this is

Speaker 3

a similar strategy, I recall, and you said as well to most of the first quarters in previous years?

Speaker 1

Whenever we feel that the market will be significantly lower than where it is at the current stage and where the FFA is predicted will be. We might hedge a percentage of our fleet through FFA. It's equivalent as if we had taken, let's say a charter on 3 ships $10,000 a day at that time for 3 months.

Speaker 4

Okay. And a bit a

Speaker 3

follow-up, another question on the joint venture with NRP investors. Did you the chartering, since you took delivery of those ships, were they already fixed? Did they already have fixed charters in place? Or have you contracted those since acquiring in the JV?

Speaker 1

Yes, they didn't have any charters. 1 of them was finishing up, one of its charter. So I think it had about 1 and a half months left. But since then we have been fixing all the ships on short term charters in anticipation of a better market in Q2.

Speaker 4

And Tassos,

Speaker 3

will next quarter or this current quarter not have the roughly $400,000 of costs to form the JV? Is that correct? That's correct.

Speaker 2

That's right. A portion of the setup fees that had to be expensed until we that was reflected in our G and A number this quarter.

Speaker 3

Okay. And last for me, thank you, Erisit. As you mentioned, any changes in China's coal policy, are you referring to the headlines that have been out there, maybe China's will increase industrial output with some stimulus measures? And do you have any is it a meaningful portion of your fleet currently carrying coal or has in the past?

Speaker 1

Indeed we have quite a few vessels that regularly pick up coal in that area. So we are affected by whatever China decides. That can move both ways. So we really don't know what their policy is going to be.

Speaker 3

Thank you very much. Have a good rest of the day.

Speaker 2

Thank you, Tate.

Operator

Our next question is from Christopher Key with Arctic Securities. Please proceed.

Speaker 5

Hello and good afternoon. Thank you for and good morning. Thank you for the good presentation. It seems like your timing on the vessel acquisition in Q4 was very good. And given that asset prices have continued to appreciate in value, would you sort of consider selling some of the older vessels in your fleet now?

Speaker 5

Or sort of how do you see that going forward?

Speaker 1

Yes, that's a possibility as you say, not currently. We're not currently considering a sale, but we do have in mind that if prices improve further which we think will happen, we think that the market is going to be stronger in Q2 and Q3 than what it is now and that will result in higher earnings for the ships but also higher prices and we might take that opportunity to sell 1 or 2 of the other vessels. But no decision has been taken along those lines yet.

Speaker 2

Thank you, Christopher.

Operator

Our next question is from Poe Fatt with Alliance Global Partners. Please

Speaker 4

proceed. Yes. Hi, Aristides. Hi, Tassos. I just had a couple of clear questions about clarifications.

Speaker 4

Eric Stevens, you were talking about coal in China. Are you talking about met or thermal?

Speaker 1

Both actually.

Speaker 4

Okay. And then when you talk about the Q1 FFAs being out of the money or underwater, when I look at Page 6 though, there are a couple of your vessels that are trading at TC rates or spot rates that are well under the FFAs. Are they still underwater, you think, for the full quarter? Or do you think they'll level out over the course of the quarter?

Speaker 1

Yes, I think these vessels that these levels where you see below 10,000 are mainly small positional voyages that is that the ships will end up in areas where we expect to make a higher charter afterwards. So combining both of these, I think the average for every vessel is going to be above $10,000 a day. Therefore, that's why we say that the hedge has worked negatively, let's say, during this quarter. Okay. That's helpful.

Speaker 1

If I correctly, Tassos can correct me, the loss has really been taken in Q4 because we have to account for that. Tassos?

Speaker 2

Yes. That's correct on the GAAP numbers. On the GAAP numbers, the unrealized loss, we don't take it into this quarter. We'll take it when it actually occurs during the Q1 of next year. So the unadjusted numbers, the loss is there, but when we adjust them, we exclude the unrealized losses.

Speaker 2

These losses so far are unrealized. So, they will be reflected in our adjusted numbers next quarter.

Speaker 4

Yes. They'll essentially shift from unrealized to realized either maybe in the gain because of where you marked it at the end of the year? Correct. Yes.

Speaker 2

Even during the Q1, the market is lower than it was at the end of last year, the losses would be less and they might turn to gains. But since we have more vessels open in the market, we prefer the market to be stronger overall.

Speaker 4

Yes, understood. And you don't have any FFAs that extend into the Q2 or the rest of the year, correct? That's correct. Okay. And then, Aristides, I think in your formal presentation or your comments, you said that this quarter, you're going to be close to breakeven, you think.

Speaker 4

Is that the total breakeven including debt amortization, so like $12,000 and change or is it that closer to that EBITDA breakeven?

Speaker 1

No, I think around that $12,000 level.

Speaker 4

Okay. And then with your stock buyback program, it seems like you're buying stock at roughly an average price of around $15 You know, stocks, you know, good 30% above that. What's your stance on stock buybacks as we stand right now with stock over 20?

Speaker 1

We will continue buying back stock because still the price is extremely low. We would have been doing it more aggressively if the liquidity in the stock was high. But unfortunately the liquidity within the company, the trading liquidity within the company stock is very low, which doesn't allow us to be very aggressive on our repurchase program.

Speaker 2

There are certain guidelines how much you can buy based on the trading volume. So and we are trying to use Wix to exhaust the trading allowance, but it is more given our trading liquidity.

Speaker 4

Great, understood. Thank you so much.

Speaker 2

Thank you, Paul.

Speaker 1

Thank you, Paul.

Operator

With no further questions, I would like to turn the conference back over to Mr. Pittas for closing comments.

Speaker 1

Thank you all for participating in today's call. We will be back to review in 3 months' time to discuss the results of the Q1. Have a good day and a good weekend.

Operator

Thank you. This will conclude the conference. You may disconnect your lines at this time.

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Earnings Conference Call
EuroDry Q4 2023
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