EuroDry Ltd. Q4 FY2020 Earnings Call

Thank you for joining us, everyone, and welcome to the EuroDry conference call regarding our fourth quarter 2020 financial results. With us today are Mr. Pittas, our Chairman and CEO, and Mr. Aslidis, our CFO. Please note that this call is being recorded. The company has released its results through a press release that is publicly available. Before we hear from Mr. Pittas, I want to remind everyone that today's presentation and call will include forward-looking statements, as defined by federal securities laws. Discussions may involve forward-looking statements based on current management expectations, which involve risks and uncertainties that could lead to different outcomes. I encourage you to review Slide 2 of the webcast presentation for the complete forward-looking statements, which are also included in the press release. Please take a moment to read the full statement. Now, I will turn the call over to Mr. Pittas. Thank you. Please proceed.

Good morning, ladies and gentlemen, and thank you all for joining us today for our scheduled conference call. Together with me is Anastasios Aslidis, Chief Financial Officer. The purpose of today's call is to discuss our financial results for the year-end and quarter ended December 31, 2020. Please turn to Slide 3. Our income statement highlights are shown here. For the fourth quarter of 2020, we reported total net revenues of $6.4 million and a net loss of $0.3 million. Adjusted net loss attributable to the common shareholders was $0.8 million or $0.34 per share. Adjusted EBITDA for the period stood at $1.8 million. For the full year of 2020, our net revenues were $22.3 million and we had a net loss of $5.9 million. Adjusted net loss attributable to common shareholders was $6.9 million or $3.04 per share and adjusted EBITDA was $3.7 million. During the fourth quarter of 2020 and the beginning of 2021, the dry bulk market improved gradually and reached levels last seen in the fall of 2019, just before the COVID-19 pandemic took center stage. During the last week, we have really seen the market take off. The Baltic Panamax Index has jumped from $13,300 on February 1 to $18,300 yesterday and $21,300 today, a rise of about 40% in the last 3 weeks and a further rise of more than 20% in just 1 day today. Our CFO, Tasos Aslidis, will go over our financial highlights in more detail later on in the presentation. Please turn to Slide 4 for our chartering and operational highlights. Motor vessel Pantelis was fixed for a trip of about 50 to 55 days at $9,000 per day, thereafter fixed for about 80 to 100 days for $10,450 per day. The Tasos was fixed for about 25 to 30 days at $9,250 per day. And thereafter, it was fixed for about 20 to 25 days at $9,500 per day. And currently, it's fixed for about 45 to 55 days at $8,750 per day. Just so you can appreciate how the market has moved, had this large fixture been done today, this vessel would have been paid $19,000 per day, i.e., $10,000 per day more in just 2, 3 weeks. Lastly, Xenia was fixed at 105% of the Kamsarmax 5-time charter routes index for a period of about 20 months. Based on today's index, this implies about $24,000 for today. We have also sold FFAs for 120 days in Q1 2020 at a rate of $10,995 per day, which is equivalent of 1 Panamax vessel plus an additional 30 days of 1 more ship. We have also sold 90 days per quarter, Q2, Q3 and Q4 of 2021, with the equivalent of 1 Panamax vessel at $12,550 per day. Obviously, these hedges right now are out of the money. But we are extremely happy that this is happening. Lastly, with regards to dry dockings and repairs, please note that Xenia passed its first special survey in dry dock from December 6 to December 26 at a cost of about $0.5 million. Please turn to Slide 5 for a summary of EuroDry's current fleet. As you can see, it's comprised of 7 dry bulk vessels with a fleet average age of 12.6 years and a cargo carrying capacity of about 530,000 deadweight tons. Slide 6 shows the current vessel employment schedule. As you can see, the effective coverage as of February 8, 2021, for the remainder of 2021 stood at about 23% in terms of minimum fixed rate contracts, including the vessels that are covered by FFAs. This figure excludes ships on index charters, which are open to market fluctuations, even though they might be having secured employment. This is a very nice position to be sitting on right now that we have this improving market. Turn to Slide 7, where we'll go over the market highlights for the fourth quarter. During the fourth quarter, the dry bulk market reached an inflection point with the rates trending upwards amid increased demand and following the distribution of COVID-19 vaccines on a global scale. Usually, we prepare these presentations a couple of days ahead and numbers don't change meaningfully during such a brief period. The slide you see is based on February 12. Spot rates for Panamaxes averaged at $11,532 a day in Q4. And on February 12, they increased to around $15,363 per day. Today, as mentioned earlier, they are already at $20,300 per day. 1-year time charter rates averaged at close to $11,100 per day in Q4. And until last week, they hovered around $13,500 per day. For sure, Clarksons figures this week will reflect a circa $1,000 to $2,000 further increase for 1-year time charter rates. Please turn to Slide 9. Given the recent global policy support and vaccine rollouts that have raised hopes of a turnaround in the pandemic later this year, the IMF has been gradually increasing its GDP estimates. The IMF projected world GDP growth in 2021 has been revised further upwards from 5.2% in the previous quarter to 5.5% now. Among the developed and developing economies, China and India are expected to post positive growth within 2021. In fact, China is the only country that achieved recovery faster than expected in 2020 and continues its strong growth into 2021 at 8.1% compared to 2.3% growth in 2020. The U.S. economy is estimated to grow at 5.1% while the Eurozone's GDP is set to rebound to 4.2% in 2021. Most important economies are expected to see a slight growth upturn when compared to the previous quarter, except for India, which is according to the IMF's projection will see a huge 3% further increase in its estimated growth, reaching a very impressive 11.8%. For 2022 and 2023, global growth according to the IMF economic outlook will continue to see above-average increases at 4.2% and 3.8%, respectively with most individual countries continuing to grow above trend, except China, which, however, is also expected to be growing at a reasonable 5.6% to 5.7%. Looking at the dry bulk trade growth and basing ourselves on Clarksons' projections for 2021, we expect to see significant demand improvement at 3.7% for this year while in 2022 and 2023, the dry bulk trade rate will hold up reasonably well at 2.8% and 2.5% rates, respectively. Please turn to Slide 10. The order book as a percentage of total fleet up until February 2021 stands at 5.75%, which is the lowest level seen in the last 20-plus years. The principal reason for the poor performance of dry bulk shipping during the last decade has been the high number of deliveries, which easily outpaced the growth of the trade for the greater part of the last decade. My script last week read, "With a relatively small current order book and normal demand expectations for the coming years, a fundamentally supported rebound in the dry bulk market should be expected in the near future. Also bearing in mind that it takes about 1.5 to 2 years for a vessel to be delivered once it is contracted." Well, this quote today seems that it's already happening. Of course, the current boom is somehow grain-related and reflects the increased port waiting times. But we would not bet on any significant correction happening. Please turn to Slide 11 to review the dry bulk delivery schedule. For 2021 deliveries, the order book is still dominated by large vessels. According to Clarksons, fleet growth in 2021 will be around 3.7%, taking into account scrapping and other fleet changes that have taken place to date. For 2021, the order book is estimated at 4.3%. If one accounts for scrapping and slippage, actual fleet growth will be low. The order book for 2022 and beyond is currently only 1.7%, which would imply that through scrapping and slippage, we will see a very small, if any, growth to the fleet that year. For 2023 onwards, we may see an increase in deliveries as good markets always prompt investors to order new vessels. Please turn to Slide 12, where we summarize our outlook on the dry bulk market. The unknown duration of the pandemic and its financial consequences render any type of modeling very difficult. However, if the distribution of vaccines can help with the containment of COVID-19 in the developed markets by the first half of 2021 as widely anticipated and the developing nations follow suit in the second part of '21 and 2022 without having catastrophic problems, then we can expect significant global demand growth. Despite the fall in demand due to COVID-19 and the relatively high numbers of deliveries, 2020 also brought about significant spikes with many parameters not factored, like further slow steaming, huge congestion/delays, scrubber retrofits and along with the Australia-China trade war, led to extra delays and setbacks, eventually creating a very volatile environment, which culminated in witnessing the strongest January of the last decade and the February, I have to say, like no other. Ordering of many new ships for 2022 delivery is not expected as it takes about 18 months from order to delivery of a new vessel. For 2023, the lack of clarity for the fuel of the future and consequently not knowing the optimal ship for even 5 years out makes the placing of any new order very speculative and risky. As the market rises though, there will be some investors taking the gamble and placing new orders. Therefore, concluding, 2021 and 2022 indicate a couple of promising years amidst a low order book, a significant demand rebound, assuming the pandemic is placed under control in the first half of 2021, expectations of further easing of trade tensions between China and the U.S., additional economic stimulus, and most importantly China. As previously mentioned, according to the IMF projections, China is expected to grow by 8.1% in 2021. When China grew at such levels in the past 20 years, the dry bulk market experienced extraordinary turns. India growing at 11.8% is a further encouraging factor. Let's turn to Slide 13. The left side of the slide shows the evolution of 1-year time charter rates of Panamax dry bulk vessels since 2000. As of February 12, 2021, the 1-year time charter rate for Panamax with a current capacity of 75,000 deadweight stood at around $13,500 per day, roughly equal to the median charter rate over the last 10 years. As already discussed, this week should see a further meaningful increase. As you can see on the right side of the slide, the current price of a 10-year-old Panamax vessel is around $15 million. In the last 2, 3 years, dry bulk prices have gradually been increasing towards historical average prices above the all-time low values that were established at the beginning of 2016 and have now reached those levels. With the strengthening freight rate environment close to the median rate, we would expect to see asset values to increase further. In view of this, we try to position ourselves to benefit from the developments, and we continuously evaluate opportunities for investments in vessels or pursue combinations with other fleets, especially focusing on using our status as a public company, which can perhaps provide a consolidation platform. To help achieve these goals, we have also focused on efforts to improve our capital structure by reducing our capital costs and creating additional liquidity. In that effect, we have recently repaid $3 million of our preferred obligations in exchange also with a reduction of the preferred dividend to 8% and have also affected various refinancings. Let me now pass the floor over to CFO, Tasos Aslidis, to go over our various financial highlights in more detail.

Thank you, Aristides. Good morning, everyone. I will now discuss our financial results for the fourth quarter and full year of 2019 and 2020. For the fourth quarter of 2020, the company reported total net revenues of $6.4 million, down 15.7% from $7.6 million in the fourth quarter of 2019. This decline was due to lower average time charter equivalent rates for our vessels compared to last year. The company reported a net loss of $0.3 million, with a net loss attributable to common shareholders of $0.7 million, compared to net income of $1.4 million and $1 million attributable to common shareholders in the same period of 2019. Interest and other financing costs for the fourth quarter amounted to $0.5 million, down from $0.8 million in the same period of 2019, primarily due to a lower debt level and decreased LIBOR rates. Depreciation expenses for the quarter were about $1.65 million, remaining stable compared to the previous year. Dry docking expenses were $0.5 million, down from $0.7 million in the fourth quarter of 2019. Adjusted EBITDA was $1.8 million compared to $3.8 million in the fourth quarter of 2019. Basic and diluted loss per share for the fourth quarter was $0.31, based on approximately 2.3 million shares outstanding, compared to earnings of $0.45 per share for the same quarter in 2019. After excluding the unrealized gain on derivatives, the adjusted loss per share would be $0.34, compared to adjusted earnings of $0.43 for the fourth quarter of 2019. Analysts typically make these adjustments in their earnings per share estimates. Now, let’s discuss the results for the full year of 2020. The company reported total net revenues of $22.3 million, an 18.2% decrease from $27.2 million in 2019, again due to lower average time charter rates. The net loss for 2020 was $5.9 million, with a net loss attributable to common shareholders of $7.5 million, compared to net income of $0.02 million and a loss of $1.9 million attributable to common shareholders in 2019. Interest and financing costs for 2020 totalled $2.3 million, down from $3.5 million in 2019, owing to a lower average debt and LIBOR rates. Depreciation for 2020 was around $6.6 million, similar to $6.5 million in 2019. The company recognized an unrealized loss on derivatives of $0.5 million in 2020 versus $0.4 million in 2019. Dry docking expenses for 2020 totalled $2.3 million, compared to $1.7 million in 2019. Adjusted EBITDA for 2020 was $3.7 million, down from $10.3 million in 2019. Basic and diluted loss per share for 2020 was $3.28 based on about 2.3 million shares outstanding compared to a loss of $0.85 in 2019. Without the unrealized derivatives impact, the adjusted loss per share would have been $3.04, compared to a loss of $0.69 in 2019. Analysts do not count unrealized results in their earnings estimates. Now, let’s review our fleet performance. Our commercial utilization rate for the fourth quarter of 2020 was 100%, with an operational utilization rate of 99.9%, compared to 100% for both measures in the fourth quarter of 2019. On average, we owned and operated 7 vessels during the fourth quarter, earning a time charter equivalent rate of $10,761 per vessel per day compared to $12,439 in the fourth quarter of 2019. Our daily vessel operating expenses, excluding dry docking costs, averaged $6,258 per vessel per day during the fourth quarter of 2020, compared to $5,955 in the fourth quarter of 2019. Our cash flow breakeven rate for the fourth quarter was about $8,925 per vessel per day versus $10,222 in the fourth quarter of 2019. For the full year of 2020, our commercial utilization rate was 100%, with an operational utilization rate of 99.7%, compared to 100% and 99.4%, respectively, in 2019. In 2020, we owned and operated 7 vessels, earning a comparable time charter equivalent rate of $9,387 per vessel per day versus $11,190 in 2019. Our daily operating expenses for 2020, excluding dry docking costs, were $6,211 per vessel per day compared to $5,869 in 2019. The cash flow breakeven rate for 2020 was $10,445 per vessel per day compared to $11,783 in 2019. Now let’s discuss our debt profile. We had outstanding bank debt of about $51.4 million as of December 31, 2020. In January 2021, we refinanced two vessels and agreed to refinance another. Following these transactions, our pro forma debt as of December 31, 2020, would be about $56 million. In 2021, we need to make approximately $7 million in loan repayments and an $8 million balloon payment at the end of the year, collateralized by three vessels, which we expect to refinance successfully. We also have another balloon payment due in 2023 of about $11.3 million collateralized by one Kamsarmax vessel. The average margin of our debt is about 3%, resulting in an estimated senior debt cost of around 3.5% when assuming a LIBOR rate of 0.5%. Including the cost of preferred dividends, the blended cost of our non-equity funding stands at roughly 4.5% as of the end of the last quarter. Following a $3 million net redemption in early 2021, we have reduced the dividend rate on our preferred equity to 8% per annum or 9% if paid in kind. This dividend was set to increase to 14% as of last month. Our loan repayments over the next 12 months contribute about $2,793 to our cash flow breakeven level, which we expect to be around $10,161.

Thank you, Tasos. We are ready to take any questions we may have.

And your first question comes from Tate Sullivan from Maxim Group.

To start, just referring to your slide presentation, Slide 4, and thank you for the comments earlier on the Pantelis and Tasos contracts, and just looking sequentially, I mean, you did increase slightly the actual length of each of those contracts. Do you expect that trend can continue, given what you see currently for 2021, when those current contracts expire, please?

I mean today, starting rates, if the ships were open to be chartered today, we would be able to fix 3-month charters at around $19,000 a day. This is the current market. Unfortunately, we fixed about 3 weeks ago when the market hadn't taken off as it has very, very recently. So we'll have to wait for the conclusion of these charters before we're able to refix. But we anticipate that if the market is at similar levels, we will be able to do similar fixes.

And similar terms around three months, you said?

Yes.

Okay. Regarding the two boats, you mentioned in your press release and prepared remarks that there is no scheduled downtime for 2021. Can that change based on future discussions with customers if you need to adjust your customer arrangements? What gives you that visibility? With no schedule, can that change?

With the current visibility that we have, firstly, we don't have any dry dockings during 2021, which obviously would be scheduled off-hire and result in the dry docking cost as we had this quarter with Xenia, for example, that stopped for 20 days, the money for that period and cost us $500,000 to pass through the dry dock. So we don't expect these kind of events. With a strong market or even if it's not as strong as this, rechartering the vessels will most probably be quite easy without involving any other additional off-hire time. So yes, we do not expect additional off-hire times.

Okay. My last question is about the consolidation platform with your public vehicle mentioned in the press release. In terms of the scale of opportunity, are there hundreds of private operators out there? Are you considering buying new ships regularly? Could you comment on the flow of opportunities?

Yes. It's not huge, the flow of opportunities. And in order for us to get into a discussion about some kind of en bloc acquisition or merger, we have to feel a little bit comfortable with our share price. We think our share price has still the chance of appreciating. Because with trading, we calculated the discount to the NAV, which as Tasos said, we calculate around $14, $15. So if we trade at those levels, I think we will become attractive and people will want to get the public listing and be part of a public vehicle. And we can have things happening. But these opportunities, they're not hundreds, of course. They are 2 or 3 that we have had some preliminary discussions, nothing that is running strongly at this moment. Most probably, we could see a possible further acquisition of a single vessel in the traditional way.

There are no further questions at this time. We seem to have no further questions. I would now like to hand you back to the CEO, Aristides Pittas, for closing remarks.

Thank you. Thank you all, who participated in our today's call. We will come back to you at the end of the next quarter, which promises to be a very exciting quarter. Thank you.

Thanks, everybody.

That does conclude our conference for today. Thank you for participating. You may all disconnect.