EuroDry Q1 2024 Earnings Call Transcript

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May 21, 2024

There are 5 speakers on the call.

Operator

Thank you for

Speaker 1

standing by. Ladies and gentlemen, and welcome to the EuroDAR Limited Conference Call on the Q1 2024 Financial Results. We have Mr. Aristides Pittas, Chairman and Chief Executive Officer and Mr. Tasos Asalidis, Chief Financial Officer of the company.

Speaker 1

At this time, all participants are in a listen only mode. 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.

Speaker 1

Pittas, I would like to remind everyone that in today's presentation and conference call, EuroDry will be making forward looking statements. These statements are within the meaning of the federal securities laws. 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.

Speaker 1

And now, I'd like to pass the floor to Mr. Pritas. 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 discuss our financial results for the 3 month period ended March 31, 2024. Please turn to Slide 3 of the presentation. Our financial highlights are shown here.

Speaker 2

For the Q1 of 2024, we reported total net revenues of $14,400,000 and the net loss attributable to controlling shareholders of $1,800,000 or $0.65 loss per basic and diluted share. Adjusted net loss attributable to controlling shareholders for the quarter was $3,200,000 or $1.18 loss per basic and diluted shares. Adjusted EBITDA for the period was $2,100,000 Please turn to the press release for a 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 May 21, 2024, we had repurchased a total of about 300,000 shares of our common stock in the open market for a total of $4,700,000 under our share repurchase program of up to $10,000,000 announced in August 2022.

Speaker 2

The plan will renewed in August 2023 for another year. Please turn to Slide 4 for an overview of our sales and purchase chartering and drydocking highlights. On the chartering side, most of our vessels are employed in short term charters, whilst motor vessel Caterini continues to be employed under an index linked charter until March 2025 at 105.5 percent of the average Baltic Kamsarmax Index, the index based on the 5 Kamsarmax time charter routes. You can see the specifics of the various charters we fixed in the accompanying presentation. We plan to continue raising spots for the time being, but if charter rates further, we will consider securing a portion of our vessels' earnings via time charter or FFAs.

Speaker 2

Regarding dry dockings and repairs, during the quarter, we had 2 vessels undergoing dry dock, motor vessels, Black Lag and Molybros Lag. Motor vessel Starlight underwent its drydock in April. In addition, Blest Lag was operationally off hired for 17 days due to a damage of the auxiliary boiler. The cost of the repairs will be covered by the ship's hull and machinery underwriters in full, but unfortunately the time lost is not. The cost of the 2 dry docks and the resulting idle time together with the idle time of the blessed block during the repairs are the primary factors for the loss we incurred during this quarter.

Speaker 2

Please turn to Slide 5. Yield Drive's fleet consists of 13 vessels, including 5 Panamax drybulk carriers, 5 Ultramax vessels, 2 Kamsarmax and a Supramax drybulk carriers. Our 13 drybulk carriers have a total cargo capacity of about 1,000,000 deadweight ton and another age age of 13.5 years. At this point, I'd like to remind you, as previously announced in our last earnings call, that EuroDry owns 61% of the entities that own motor vessels, CHRISTOS K and Mabia. The remaining 39% is owned by owners represented by NRP Project Finance, otherwise referred to as the NRP investors.

Speaker 2

Please now turn to Slide 6 for a further update on our fleet employment. As you can see, fixed rate covers for the remainder of 2024 stands at around 27%. Turning to Slide 7, we go over the market highlights for the Q1 ended March 31, 2024 and up until recently. Spot rates continued their momentum from late 2023 and experienced an unusually strong Q1, supported by key commodity exports and the Red Sea and Panama Canal disruption, counter to the typical seasonal trends. In the Q1 of 2024, the average spot market rate for Panamaxes hovered around 13,000 SIS count per day.

Speaker 2

By May 17, the spot rates had increased to approximately $15,000 per day. In parallel, the 1 year time charter rates for Panamaxes were around S15,000 per day during the Q1, rising to $16,150 by May 'seventeen versus about $14,300 last year, Improving 1 year rates relative to spot prices may suggest that overall the sector seems set for a more positive 2020 4 than 2023. Please now turn to slide 9. The IMS latest update in April 2024 projects that the global economy will continue to grow at 3.2% in 2024, the same pace as in 2023 and this growth rate is expected to continue into 2025. This is largely due to a sizable improvement in the economic outlook for the United States, offset by a more modest slowdown in emerging and developing economies.

Speaker 2

In one of the biggest changes, Russia's 2024 growth forecast was increased to 3.2% from the 2 point 6% projected by the IMF in January 2024 due to continued strong oil exports amid higher global oil prices despite the price cap mechanism imposed by Western countries as well as strong government spending and investments related to more production, along with higher consumer spending in the tight labor market. The IMF also upgraded Russia's 2025 growth forecast to 1.8% from 1.1% previously. Clearly, the sanctions imposed by the West do not seem to be working. The forecast for the next 5 years globally is at its lowest in decades at 3.1%. Global inflation is declining steadily and is projected to lower from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging markets and developing economies.

Speaker 2

The global economy remains surprisingly resilient despite significant central bank interest rate hikes to repair the price stability. Most banks now anticipate that the 3 Federal Reserve rate cuts projected for the end of 2024 will be reduced to 1 due to this persistent inflation. For shipping, we continue to closely monitor China's economy, which is affected by the enduring downturn in its property sector. The Chinese economy is forecast to grow by only 4.6% in 2024 and 4.1% in 2025. However, China's economic woes may further intensify due to trade tensions in an already weakened geopolitical environment and stability may take even longer to be restored.

Speaker 2

On the other hand, though, growth in India is projected to remain strong at 6.8% in 2024 and 6.5% in 2025, with robustness reflecting strong domestic demand and the rising working age population. Finally, the AGN5, according to the IMF, will continue to grow quite strongly in the next couple of years, providing significant shipping support. According to Clarksons, demand for dry bulk trade is presently expected to grow by 2.4% in 2024, slightly below the fleet growth. This includes about a 0.6% uplift for full year 2024 due to the Red Sea and Panama Canal disruptions. A longer duration of disruptions in these regions could potentially drive demand higher.

Speaker 2

In addition, the combined effect on demand due to slower average speeds and increased congestions could lend further support for stronger drybulk demand in 2024. Demand in 2025 is projected by Clarkson's to grow by about 1.5%, assuming the Red Sea disruption has eased by the end of this year. Please turn to Slide 10. Uncertainty about the future of fuels and high newbuilding prices have led to the low order book continuing. As of May 2024, the order book historical levels.

Speaker 2

This suggests low fleet growth over the next 2 to 3 years. Complementing this low fleet growth, we also have the effect of increased slow steaming and expected scrapping due to the introduction of the new environmental regulations. This could reduce the effective available bulk supply even further. Turning to Slide 11. Let us now look into the supply fundamentals in a bit more detail.

Speaker 2

As of May 2024, the total drybulk vessel operating fleet was 13,700 vessels. According to Flight Zone's latest report, new deliveries as a percentage of total fleet are expected to be 3.6% in 2024, 3.2% in 2025 and 3.5% in 2026 onwards. The actual fleet growth is of course expected to be lower than the aforementioned figures due to scrapping on slippage. Also note that 9% of the fleet is older than 20 years old and therefore a good candidate for scrapping, especially if the market remains at current levels or lower. Please turn to Slide 12, where we summarize our outlook for the drybulk market.

Speaker 2

Drybulk shipping saw a modest decline during the Q1 of 2024 following a peak in December. Despite this decrease, Q1 of 2024 marks the highest market level for this typically slow season since 2010, with the exception of 2022, primarily due to the geopolitical and weather related disruptions as discussed previously. The outlook for the remainder of 2024 suggests a robust bulk carrier market with rates around current levels. The recent strength in market conditions is largely attributable to tensions in the Suez Canal, which have significantly increased ton miles. As and when these disruptions begin to ease or resolve, demand patterns are anticipated to normalize.

Speaker 2

Although this adjustment may take a considerable amount of time to fully materialize. Clarksons assumes Red Sea rerouting is currently adding 1.2% to drybulk ton mine demand. Assuming half a year of rerouting due to these disruptions, which will then ease back to normal, this adds 0.6% to the full year of 2024 ton mile demand growth. Assuming subsequent easing, this will subtract a similar figure from 2025 ton mile demand growth. It is all quite uncertain though and will largely depend on the geopolitical developments, so it is possible that disruption could ease quickly or could take significant amount of time.

Speaker 2

In any event, in 2025, bulk earnings are expected to be softer as diminished fleet inefficiencies and the cumulative growth of fleet in recent years have offset a strong trade rebound. On the other hand, the decarbonization process is expected to affect trade lines and drybulk volumes going forward, positively by resulting in slower speeds and more scrapping, but negatively if less coal is transported. The overall effect on the market is hard to predict. On the supply side though, the ordering of new ships has been very limited due to the lack of available slots at shipyards and uncertainty about the fuel of the future, despite significant orders for methanol fueled ships. The order book to fleet ratio remains nearly historically low levels, as said before, setting the stage for a potential recovery in charter rates should demand increase.

Speaker 2

Furthermore, introduction of emissions regulation related measures could further curtail supply via increased scrapping or slower operational speed for the portion of the fleet. EEXI, CII, EUETS, Fueled EUE are all new acronyms the industry will need to cope with and more are to come. Let's turn to Slide 13. The left side of the slide shows the evolution of 1 year time charter rates of Panamax dry vessels over the last 20 years. As of May 17, 2024, the 1 year time charter rate for Panamax ships with a capacity of 70 5,000 deadweight tons stood at $16,150 per day, which is about 20% above the historical median of around $13,500 per day.

Speaker 2

On the other hand, 10 year old Panamax vessel prices have reached the maximum price seen in the last 10 years, around $29,500,000 as can be seen in the right hand side graph. This is significantly higher than the 10 year historical average price of $16,800,000 and median price of $14,750,000 At current secondhand prices, we are reluctant to purchase more vessels. We are happy to keep on running the fleet at market rates, strengthening the balance sheet, reducing debt and waiting for new opportunities to present themselves. Let me now pass the floor over to our CFO, Tasos Aslidis, to go over various financial highlights in more detail.

Operator

Thank you very much, Eric. Good morning from me as well, ladies and gentlemen. Over the next four slides, I will give you another view of our financial highlights for the Q1 of 2024 and compare those results to the same period of last year. For that, let's turn to Slide 15. For the Q1 of 2024, the company reported total net revenues of $14,400,000 representing a 27.2% increase over total net revenues of $11,300,000 during the Q1 of last year.

Operator

And this was the result of the increased time charter rates our vessels earned during the Q1 of this year, plus the increased number of vessels we operated this quarter compared to the same quarter of the previous year. The company reported net loss for the period of $1,900,000 and a net loss attributable to controlling shareholders for the period of $1,780,000 as compared to a net loss attributable to controlling shareholders of 1.5 $4,000,000 for the same period of 2023. The net loss attributable to the non controlling shareholders of $13,000,000 in the Q1 of this year represents the loss that corresponds to the 39% ownership of the entities represented by the NRP investors as Aristides explained earlier. Interest and other financing costs, including interest income for the Q1 of 2024 increased to $2,040,000 as compared to $1,230,000 for the same period of last year. Interest expense during the Q1 of 2024 was higher, mainly due to the increased amount of debt and the increased benchmark rates that our loans had to pay, while interest income was lower due to lower cash balances we carried during the period as compared to the same period of 2023.

Operator

Adjusted EBITDA for the Q1 of this year was $2,070,000 compared to $2,360,000 during the Q1 of 2023. Basic and diluted loss per share attributable to controlling shareholders for the Q1 of 2024 was $0.65 calculated on about 2,800,000 shares basic and diluted weighted average number of shares outstanding compared to basic and diluted loss per share of $0.55 for the Q1 of last year, calculated on also about 2,800,000 shares basic and diluted. Excluding the effect on the net loss attributable to the controlling shareholders for the quarter of the unrealized gain in derivatives, the adjusted loss for the quarter ended March 31, 2024 would have been $1.18 basically diluted compared to adjusted earnings of $0.14 per share, basically diluted again for the same period of last year. Let's now turn to Slide 16 to review our fleet performance. As usual, we will start our review by first examining the utilization rates for the Q1 of this year and compared to last year.

Operator

Our fleet utilization rate is broken down to commercial and operational. During the Q1 of this year, our commercial utilization rate was 100%, while our operational utilization rate was 98.1% compared to 99.8% commercial and 99.7 percent operational for the Q1 of 2023. On average, 13 vessels were owned and operated during the Q1 of this year, earning an average time charter equivalent rate of $12,455 per day compared to 10 vessels in the same period of last year, earning co numbers $10,674 per vessel per day. Our total daily operating expenses, including management fees, general and administrative expenses, but excluding direct and cost, were $6,867 per vessel per day during the Q1 of this year compared to $6,953 per vessel per day for the Q1 of 2023. If we move over down on this table, we can see the cash flow breakeven levels, which takes into account, in addition to the above, the drydocking expenses, interest expenses and loan repayments.

Operator

For the Q1 of 2024, our daily cash flow breakeven level was $12,440 per vessel per day compared to $13,186 per vessel per day for the same period of 2023. Turning now to Slide 17 to review our debt profile. As of March 31, 2024, our outstanding bank debt was $101,460,000 and it is projected to decline to about 67.5 $1,000,000 by the end of 2026. In the remainder of this year, our total debt repayments, including balloon payments, amount to about $14,700,000 for a total for the year of about 18,000,000 dollars Then in both 2025 and 2026, loan repayments are due to decrease to about $9,700,000 per year. Significantly thus reducing our cash flow breakeven level.

Operator

It is worth mentioning on this slide that the average margin of our debt, which is about 2.45 percent And assuming the soft rate of about 5.32%, may the total cost of our debt if we take also into account the reduced interest we're going to pay for the portion of our debt that we have swapped, make the overall cost of our debt at around 7.56%. At the bottom of this slide, we can see our projected cash flow breakeven level for the next 12 months broken down into its various components. Overall, we expect our cash flow breakeven level to be around $12,535 per vessel per day and our EBITDA breakeven level to be around $8,513 per vessel per day for the next 12 months, as I mentioned. Let me now conclude my brief financial presentation by moving to Slide 18, where we can see some highlights from our balance sheet in a simplistic way, taking basically a slab slot of our assets and liabilities. As of March 31, 2024, cash and other current assets in our balance sheet stood at about 27,000,000 dollars The book value of our vessels was approximately $200,000,000 resulting in total book value of our assets of about $227,400,000 On our liability side, as I mentioned earlier, our debt as of March 31, 2024 was about $101,500,000 representing approximately 44.7% of the book value for assets, while other liabilities amounted to $8,800,000 about 3.7 percent of the book value of our assets.

Operator

The remaining book value of $116,800,000 represent the interests of our minority holdings, the NRP investors, of about $9,600,000 while the remaining $107,400,000 of book value is attributed to our common shareholders, resulting in a book value of $38.35 percent. However, based on market transactions and other market reports, we estimate that the market value of our vessels was and is a broader book value and stands at around $262,000,000 That is about $62,000,000 higher than the vendor book value, which is equivalent to about $20 per share, thus bringing our NAV per share to more than $60 Our share price, which is trading around $22.80 represents a significant discount compared to an NAV discount of the order of 65%, a valuation gap that offers a significant upside potential for our shareholders and investors. With that, let me turn the floor back to Aristides to continue the call.

Speaker 2

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

Speaker 1

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

Speaker 3

Hello. Thank you. Good day. First on the debt repayment profile on Slide 17, Tassos, is this debt that the existing loan repayment something that you're looking to refinance before the end of the year? Will you use cash flow to or will you prioritize using cash flow to pay down that debt, please?

Operator

I don't think we're planning to refinance any of our debt in the near future. I believe we are planning to repay the to make repayments and start doing the remaining of the year from the cash flow we are going to generate. And as you can see in that slide, the repayments drop significantly next year and the year after, reducing our cash flow breakeven. We have balloon payments that are coming due in 2027, as you can see, and I suspect those we will be refinancing at the time.

Speaker 3

And then on the loss of luck in the quarter and the boiler damage, did that happen while in drydock in voyage and the expenses to repair it? Is that within dry docking costs? Can you go into more detail on that, please?

Speaker 2

No. This damage happened when we left the shipyard. It was an error of the crew and the shipyard was the cause that this happened, but it happened just after we had left the shipyard. It's an insurable cost and all the repairs are covered. Unfortunately, the loss of time is not covered.

Speaker 2

So we lost 17 days of employment.

Speaker 3

Can you approximate or can you not show the approximate cost to repair that should be insurable?

Speaker 2

I think it's about $900,000 It's not a cheap repair. But as I said It

Operator

is not included in the numbers because it's fully insurable. So you will not find it either on the drydocking or the operating expenses.

Speaker 3

Okay. Okay. Thank you. And then going forward, scheduled dry docks for the rest of the year, can you review that?

Speaker 2

In this quarter, we only have one dry dock, which has already taken place, which is the Starlight. And we have 3 drydocks

Speaker 4

in Q3.

Speaker 2

I haven't looked as far as Q4, but You have

Operator

no dry docks, nothing scheduled for Q4 this year?

Speaker 2

Nothing for Q4. So the 3 dry docks in Q3, really. That doesn't mean to come. Okay.

Speaker 3

Thank you very much. Thanks.

Speaker 1

Thank you. Our next question comes from the line of Poe Fratt with Alliance Global Partners. Please proceed with your question.

Speaker 4

Hello, ladies and gentlemen. I had a question, Eric stated about your 2025 outlook. It seems like you're trying to signal that less congestion next year, less disruption, a little bit more in supply growth and demand just growing a little bit modestly would potentially create a softer rate environment. Would you categorize your outlook as conservative? Or

Operator

do you think it's sort of a

Speaker 4

base case or do you think it's sort of a conservative case and that you potentially get all if some of these things linger, it's a little bit better than you think?

Speaker 2

Yes. I think I mean, we generally try to be quite conservative. But in all honesty, it is extremely difficult to predict how the market will move under the current geopolitical situations because they affect the trade, they affect economic growth, and nobody can really say what that would be. There are a few positives. The low supply growth is a positive.

Speaker 2

The fact that vessels are going slower, slower due to the environmental regulations is a positive. These are strong positives. If demand turns out being quite strong in 2025, we can have a much better market. It's really difficult to decide. Having said that, the FFA market is also predicting a slightly lower market in 2025 than in 2024.

Speaker 2

So this is the information we currently have, very, very difficult to decipher and decide what the actual move will be. It can be I mean, if there are geopolitical tensions, but global economy does well, I. E. We have longer trade routes, but still the economy works well, we can have a very good market. But our base case is always quite conservative.

Speaker 2

Yes, understood. And then in that context, I'm

Operator

not sure if I heard

Speaker 4

anything about any FFA hedges for the rest of the year? Do you have any in place? And then secondly, with one new time charters in the sort of the mid to high teens, would that be something that might be attractive given your outlook for 2025 or sort of the latter half of 'twenty two and the early part of 'twenty five?

Speaker 2

Yes. Currently, as we said, all our ships are essentially on spot charges trading the market. If we see a strengthening in the next couple of months, we will probably fix a portion of our fleet at these higher numbers, either through normal time charters or through FFAs. We currently don't have any open FFA position. But if we see levels that are even more satisfactory than these levels, these levels today's market levels are still profitable levels overall.

Speaker 2

This quarter, we had the loss that we had due to the 2 drydocks and the off hire of the blessed lag mainly. Also, we took a loss on the FFAs that we have done. But next quarter, we are cautiously optimistic that we will return to profitability.

Speaker 4

Understood. And then, Tassos, could you just sort of give you gave some guidance for OpEx. So just OpEx should be just slightly up through the rest of the year relative to where you reported in the Q1?

Operator

No, I think we're pretty much on budget for the Q1. So we would be plus or minus 2% to 3%, I believe. It's hard to say, obviously. It's hard to say, but we haven't seen any surprise on the OpEx so far. Okay, great.

Speaker 1

Thank you, Kane.

Speaker 2

Thank you, Paul. Thank you.

Speaker 1

Thank you. Our next question comes from the line of Lars Aide with Arctic

Speaker 3

Securities. So I guess the last quarter kind of touched upon my question. But as you noted in your report this morning, you're positioning your fleet for more market exposure moving forward. I guess in that context, your market mix should be positive, I assume, as you strategize like with this tool?

Speaker 2

Sure. I mean, our base case is that for the next few months, the market should be quite positive.

Speaker 3

Yes. It was covered a lot for that color. Thank you.

Operator

Thank you.

Speaker 1

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to management for any final comments.

Speaker 2

Well, thank you all for listening in, in today's presentation. We will be back to you with Q2 results in about 3 months' time. Thank you.

Operator

Bye, everybody.

Speaker 1

Thank you. This concludes today's conference call.

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