EuroDry Ltd. Q3 FY2024 Earnings Call

Thank you for standing by ladies and gentlemen, and welcome to the EuroDry Ltd, conference Call on the Third Quarter 2024 Financial Results. We have with us today Aristides Pittas, Chairman and Chief Executive Officer; and Mr. Tasos Aslidis, Chief Financial Officer of the company. 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. 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 #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. Please go ahead, sir.

Good morning, ladies and gentlemen, and thank you all for joining us today for our scheduled conference call. Together with me is Mr. Tasos Aslidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the three months and nine months period ended September 30, 2024. Please turn to Slide 3 of the presentation. Our financial highlights are shown here. For the third quarter of 2024, we reported total net revenues of $14.7 million and the net loss attributable to controlling shareholders of $4.2 million or $1.53 loss per basic and diluted share. This significant loss is a consequence of the poor market we have lately been witnessing. But more importantly, on the fact that we chose to bring forward two dry dockings, which coupled with the two scheduled dry dockings we had during this quarter cost about $4.5 million, resulting in significant off-hire days. Adjusted net loss attributable to controlling shareholders for the quarter was $3.9 million or $1.42 loss per basic and diluted share. Adjusted EBITDA for the period was $0.5 million. Please refer to the press release for the reconciliation between adjusted net loss and adjusted EBITDA. Our CFO, Tasos Aslidis, will go over our financial highlights in more detail later on in presentation. As of November 19, 2024, we had repurchased 314,000 shares of our common stock in the open market for a total of about $5 million, since the initiation of our repurchase plan of up to $10 million which was announced in August 2022. We will continue to execute the repurchase program around current share price levels. During the quarter, we refinanced two of our loans involving four of our vessels, releasing $60 million of available cash reserves, extending loan maturities to 2029 and 2030 respectively, and also lowering the loan margins. Still, our debt levels are below 4% to 5% of our vessels market environment. Please turn to Slide 4 for an overview of our sales and purchase chartering and drydocking highlights. The duration of most of our charter contracts is softer for the time being, typically spanning 10 to 100 days, according to their minimum duration. This approach enhances our flexibility allowing us to fully capitalize on the potential positive market shift whenever this happens. You can see the specifics of the various charters in the accompanying presentation. As I have already said, I believe that Q4 and calendar 2025 would be better than Q3. We brought forward the dry dockings of M/V Maria and M/V Christos, thus significantly upgrading the vessels. Additionally, we completed scheduled dry dockings for Yannis Pittas and Eirini. During the quarter, we faced an additional 10 days of technical off-hire for our motor vessel Good Heart, which incurred a turbocharger damage. Please turn to Slide 5. EuroDry fleet consists of 13 vessels, including 5 Panamax dry bulk carriers, 5 Ultramax, two Kamsarmaxes and the Supramax dry bulk carriers. Our 13 dry bulk carriers have a total cargo capacity of about 1 million deadweight tons and an average age of 13.5 years. I'd like to remind you that EuroDry owns 61% of the entities that own motor vessel Christos K and Maria. The remaining 39% is owned by owners represented by NRP Project Finance otherwise referred to as the NFP investors. Now please turn to Slide 6 for a further update on our fleet employment. Currently, approximately 63% of our fleet is secured on fixed-rate charters for the remainder of 2024. Excluding ships on index charters, which are open to market fluctuations that have secured employment. With the daily rates ranging between $17,750 to $18,500 per vessel. The wide range of charter rates reflects the importance of positioning of ships during these difficult times. Turning to Slide 8, we go over the market highlights for the third quarter ended September 30, 2024, up until recently. In Q3 2024, Panamax vessels experienced a moderate decrease in both 1-year time charter and spot rates. The average 1-year time charter rate for Panamax vessels stood at $14,923 per day for the quarter, dropping to $14,100 per day by the end of September. Similarly, the average spot rate was $20,563 per day with a slight decline to $11,500 per day on the last day of Q3. The market has since declined even further as evidenced by the rates shown at the end of last week across the three dry bulk segments. Time charter rates for Panamax vessels have dropped to further 4.5% while spot rates are also down 12.5%. Please now turn to Slide 9. The IMF's latest update from October 2024 projects stable yet somewhat underwhelming global economic goals with unchanged forecasts hovering around similar levels across 2024 and 2025. While the US has shown resilience with upgraded growth projections, other advanced economies, particularly in Europe have seen either downgrades or staggered growth outlooks. This mixed landscape underscores the need for careful management of sectoral dynamics and monitoring policy to help maintain stability and ensure a soft landing, particularly as this inflation continues globally. However, many regions still grapple with services, price inflation, highlighting ongoing pressures within specific sectors. Emerging markets continue to drive global growth led by India, the Asian 5 countries, and still China. China's growth appears to be slower at 4.8% this year and 4.5% next year, but there is hope that the extra stimulus recently announced may boost productivity growth further. India is projected to grow by 7% in 2024 and a further 6.5% in 2025, supported by significant investment, strong demand in technology, and infrastructure expansions. Southeast Asian countries are also positioned for solid growth, benefiting from regional demand and investment momentum. In parallel, Clarksons forecast for dry bulk trade demand in 2024 reflects the dramatic effect of tonmiles from the Red Sea mostly and Panama Canal passages. Assuming these disruptions, the forecast shows trade demand growth of just 1.3% for the year, from 5.2% in 2024 and 1% projection in 2026. These projections indicate a cautious outlook for the dry bulk sector, aligning with the global economic landscape. All the above-mentioned IMF projections and Clarksons projections are, however, very uncertain as we remain mindful of key macro risks, including the aftermath of the US elections and evolving global geopolitical tensions, which could impact medium and longer-term growth prospects. Please turn to Slide 10. Let's now review the current state of the order book in the dry bulk sector. As you can see, the current order book stands at 10.3% of the fleet, a slight increase from the 2021 low of 7%, indicating a modest uptick in new contracts. Despite its size, the order book remains one of the lowest in historical terms. Factors such as slow steaming, heightened scrapping rates, and stricter environmental regulations could constrain the available bulk fleet in the coming years, thus supporting rates as supply tightens relative to demand. Turning to Slide 11, let us now look into the supply fundamentals in a bit more detail. As of November 2024, the total dry bulk vessel operating fleet was 13,600 vessels. According to Clarksons' latest report, new deliveries as a percentage of total fleet are expected to be 3.6% in 2024, 3.5% in 2025, and 5.9% in 2026 onwards. The actual fleet growth is, of course, expected to be lower than the aforementioned figures due to scrapping and 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 dry bulk market. Dry bulk rates have continued to decline with some hitting year-to-date losses. The anticipated fourth quarter upswing has not materialized, and the average strip charter rate for Ultramax and Kamsarmax vessels are down by 30% year-over-year. Earlier market support from Chinese stockpiling of iron ore and coal, as well as disruptions in trade routes is now phasing, as supply now starts to exceed demand. Chinese economic stimulus in September intended to address the country's economic slowdown but had little effect and therefore, a few weeks ago, China announced a further five years in stimulus package totaling $1.4 trillion to tackle their government debt problems, signaling also that more economic support would come next year. The Panama Canal passage is running more effectively and efficiently following the resolution of the drought issues, leading to an increased supply of ships. The Suez Canal situation remained stable, although there is limited visibility on when the full return to normalcy can be expected. On the supply side, new ship orders remained limited, primarily due to constrained shipyard slots and the ambiguity around the fuel of the future. Many of the orders being placed are now restructured as methanol or LNG ready so that they can operate on alternative fuels if necessary, with less need for conversions. As mentioned, the order book-to-fleet ratio is still near historical lows providing a potential setup for rate recovery if demand improves. Additionally, upcoming emissions regulations like the EEXI, CII, EU ETS, Fuel EU, etc., could tighten supply through increased scrapping or reduced operating speeds for certain vessels. Let's now turn to Slide 13. As of November 15, 2024, the one-year time charter rate for Panamax ships with a capacity of 75,000 deadweight tons stands at $13,475 per day, slightly below the historical median of $13,700 per day by about 2%. Meanwhile, the market value for 10-year-old Panamax dry bulk carriers remains strong with current prices reaching $25.25 million. This level is significantly above the 10-year historical median of $15 million and the 10-year average of about $17.5 million. These trends highlight still a resilient secondhand market despite the 10% to 15% of action we have witnessed already. We believe the secondhand prices may soften a bit more to align with current charter rates if rates remain at current levels in the following months. Without, however, we will see significant further drops as this will be constrained by new building prices. There, we feel there is not much space to give, as the yards are full until 2028 and have no need to accept projects at low prices. Additionally, building costs have also risen, thus placing a floor to how much the yards could afford to reduce prices, even if they wanted to. In this context, we are evaluating our opportunities to further grow the company with investments that will enhance our shareholder future returns. And with that, let me pass the floor over to our CFO, Tasos Aslidis to go over various financial highlights in more detail.

Thank you very much, Aristides. Good morning everyone. Over the next four slides, I will give you an overview of our financial highlights for the third quarter and the first nine months of 2024, comparing them to the same periods last year. I won’t cover every detail, but I will focus on the key points. Let's begin with Slide 15. For the third quarter of 2024, the company reported total net revenues of $14.7 million, a 47% increase from last year’s $10 million. This growth was primarily due to an increase in the average number of vessels we operated this year compared to last. Interest and financing costs for the third quarter of 2024 totaled about $2 million, up from $1.6 million the previous year, primarily due to higher debt levels we carried. Interest income during this quarter fell to $16,000, down from $362,000 in 2023 because of a lower cash balance. Adjusted EBITDA for this quarter was $0.5 million, down from $3.1 million last year. The loss per share attributable to controlling shareholders for the third quarter of 2024 was $1.53, based on 2.7 million weighted average shares outstanding, compared to a loss per share of $0.19 with 2.8 million shares last year. It’s important to note that dry dock expenses for this quarter totaled $4.5 million, compared to $0.8 million in 2023, which accounts for a $3.7 million difference, or about $1.35 per share, explaining much of the variance between the two quarters. Adjusting for unrealized losses from interest rate swaps, the adjusted loss per share for the third quarter of 2024 is $1.42, compared to a loss of $0.24 last year. Now, let’s review the nine-month results ending September 30, 2024, and compare them to 2023. For the first nine months of 2024, we reported total net revenues of $46.6 million, marking another 47% increase from $31.7 million in the same period last year, driven mainly by the higher number of vessels we operated. Interest and financing costs for this timeframe were approximately $6 million versus $4.4 million last year, again due to higher debt levels. Interest income decreased to $78,000, down from $734,000 in 2023. Adjusted EBITDA for the first nine months of this year was $7.6 million, compared to around $8 million last year. The basic diluted loss per share for the first nine months of this year was $2.34, based on the same weighted average share count, compared to a loss per share of $1.17 in 2023. Adjusting for unrealized earnings or losses from interest rate swaps, the adjusted loss per share becomes $2.77 for the first nine months of 2024 and a loss of $0.57 for the same period last year. I want to reiterate the significant impact of dry docking expenses on these results. Let’s move to Slide 16 to examine our fleet's performance. We will begin by reviewing our fleet utilization rates for both the third quarter and the nine-month period of 2024 compared to 2023, including a breakdown into commercial and operational rates. I won’t detail every number but will highlight that our total utilization rate ranged from 98.5% to 99%, except for a specific period in 2023, during the second quarter, when we experienced a vessel incident that led to lower monthly utilization. Regarding our fleet details, on average, we owned and operated 13 vessels during both the third quarter and the nine-month period of 2024, with an average time charter equivalent rate of $13,339 per day for the nine-month period, and about $13,105 for the third quarter. In comparison, in 2023 we owned and operated 10 vessels, earning an average of $12,126 per day in the third quarter and $11,644 in the nine-month period. Lastly, I would like to draw your attention to the cash flow breakeven levels. For the nine months of 2024, our cash flow breakeven level was about $13,788 per vessel per day, while for the third quarter, it was approximately $15,145 per vessel per day. The vulnerability of this figure primarily stems from elevated dry docking expenses in the last quarter of 2024. Keep this figure in mind as we discuss expected cash flow breakeven levels for the next 12 months in the following slide. Moving to Slide 17, let's take a look at our debt profile. As of September 30, 2024, EuroDry's outstanding debt was $94.6 million, which on a pro forma basis, including recent refinancings, stands at $110.6 million. The repayment schedule shown is adjusted for the financing we have finalized. Repayments for 2025 and 2026 are projected to be between $12 million and $13 million each year, with a significant payment of about $10 million due in 2027, which we could refinance as we have in the past. Concerning the cost of our debt, the average margin as of September 30 was approximately 2.19% over software, assuming a three-month off rate of about 4.5%. The estimated cost of our senior debt is around 6.69%, which decreases to about 6.54% when factoring in our interest rate swaps covering part of the debt. This helps us manage interest expenses effectively amidst market fluctuations. The average cost of our debt is expected to decrease further due to recent refinancings at lower margins. At the bottom of this slide, we see our projected cash flow breakeven level for the next 12 months, which is around $11,766 per vessel per day, largely because of significantly lower scheduled dry docking expenses anticipated at $468 per vessel per day. We have one dry docking and one in-water survey scheduled. Recall that the cash flow breakeven level for the third quarter of 2024 was $3,776 per vessel per day, reflecting a difference of about $3,300. Finally, let’s conclude our presentation with Slide 18, which provides an overview of our balance sheet. As of September 30, 2024, cash and other current assets were approximately $20.3 million, with the book value of our vessels around $194.4 million, leading to a total asset book value of $214.7 million. On the liability side, our debt was reported at $94.6 million, with other liabilities at $8.3 million, and minority interest accounting for $8.7 million. This gives us a book shareholders' equity of about $103 million, translating to roughly $37 per share. Additionally, it's important to note that the market value of our vessels exceeds the book value; we estimate our vessels are valued at about $248 million, which is lower than last quarter but significantly above the book value by $54 million or 18.5%. The net asset value per share stands at about $55.5, compared to our share price of $15, indicating substantial appreciation potential for our shareholders should market factors help close this gap. With that, I will turn it back to Aristides to continue the call.

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

Thank you. At this time we will be conducting a question-and-answer session. Our first question comes from Mark Reichman with Noble Capital Markets. Please proceed with your question.

So Ken, I'm looking at the fleet profile. And so 10 of our 13 vessel time charters are set to expire in November and December of this year. And so I was wondering if you could just talk a little bit about your renewal strategy and also just your expectations for pricing. Obviously, we can see the rates in the market, but just a little visibility there would be appreciated.

Yes, of course, we will have to take the market. Our current belief is that these are relatively low levels where we would not like to fix for longer periods. So we will probably be fixing our ships on trip time charters, short charters, which are anything between 15 to 90 days. At the current levels, of course, for this type of ships, positioning is extremely important. So depending on where the ship is, the numbers that you can see can vary from anything between bottom of, say, 7,500 to top of 20,000. But it all depends on where your ship is at the time that it opens up.

And then just second. Go ahead.

We will not be securing longer charters at these rates because we think that in 2025 after the new year, we will, at some point, see high charter rates.

Okay. Regarding voyage expenses, they were approximately $3.7 million for the first half of the year, compared to $4 million for the entire year of 2023. Can you provide some insight into what we should expect for voyage expenses?

I mean our charters typically are time charters. So voyage expenses relate primarily to gains or losses on the purchase and the delivery of fuel on board between charters. And in case we have a ballast trip, then during that period, we pay the voyage expense ourselves. So they fluctuate in a less standard way.

Okay. What would be your expectations for the fourth quarter?

It's difficult to set expectations because it really depends on the type of charters we undertake and whether we end up recording a gain or loss when we buy back any remaining fuel from the previous charter and sell to the next one. For modeling purposes, I would suggest using a percentage based on previous results as a guide moving forward.

Actually, I think for modeling purpose reasons, you would just use the time charter equivalent that you suppose that the vessels will get and neglect that.

Okay. I think that's what we had done. So just lastly, the fourth quarter looks like it will be a very strong quarter without the dry docking expenses. Could you talk a little about dry docking for 2025? If rates are low in the first quarter, would you consider pulling any forward? It would be helpful if you could reiterate the dry docking expectations for 2025.

In 2025, we have only one scheduled dry dock for Santa Cruiser. Additionally, we have a survey for one of our new buildings, which will take place in the water and is not considered a dry dock. This is why we anticipate very minimal drydocking expenses in our forward 12-month breakeven expectation.

Right, $468. Thank you very much, I really appreciated it.

Thank you very much. Bye.

Our next question comes from Tate Sullivan with Maxim Group. Please proceed with your question.

Hi, thank you. I was reviewing and it was about a year ago that you formed the partnership with NRP project finance. Can you provide us with an update on that joint venture? Are you still considering more potential acquisitions? I also noticed that you may still be distributing some income to the joint venture. Any update would be appreciated.

Hi Tate, this is Aristides. I think our relationship with NRP is going very well, and we have regular meetings with everything running smoothly. We have mentioned that we are open to exploring other projects together, and that is something that could happen. For the financials, Tasos, perhaps you can share some insights.

No. I think we bought the ships this time last year. We carry them and fully consolidate their figures in our fleet, reporting their portion as minority interest on both the income statement and the balance sheet. The project, in isolation, has recorded some losses so far, but that's why we brought forward the dry docks. We expect and hope that the project will become quite profitable over the next year.

Understood. Great. Okay. Thank you. And then just globally, is the current weakness in dry bulk in most trade routes? Or is there better strength in Europe versus Asia? Can you just comment on sort of what that balance is going forward, please?

Yes. I think Tate that it's uniformly relatively poor. China is a huge driver of dry bulk trade. And the fact that it has been slow has affected our expectations and I think the biggest part of the market. But ships are ships, we float around they go wherever they can find the best rate. So even if there were imbalances, they balance out relatively quickly. I wouldn't say that there is a particular area of the world currently that is much stronger than any other.

Okay. Fair comments. Have a good rest of the day.

Our next question comes from Poe Fratt with Alliance Global Partners. Please proceed with your question.

Hi, good afternoon Aristides and good afternoon Tasos. Tasos, could you go over the refinancings you completed? It appears you repaid $10 million and secured new loans totaling $26 million, resulting in an increase in cash of about $16 million. Could you provide a general overview of the debt amortization for the two new loans and detail the balloon payments expected in 2029 and 2030?

Yes, I can provide more details after the call if needed. We have relevered four of our ships through two loan facilities, extending the maturity to five and six years, respectively, which will go until 2029 and 2030 at a slightly lower margin. I don't have the balloon payment details right now, but I will gladly share that information with you.

Okay. I'll follow up with you. You mentioned the joint venture with NRP and some other opportunities you are considering. How do those potential opportunities relate to your stock buyback program? It seems that your stock buyback activity has been relatively quiet, although I believe you started repurchasing shares this quarter, around 1,000 shares or so. Can you discuss your stock buyback program in relation to your other capital allocation priorities?

Yes, you are correct, there has been very little in terms of buybacks in the last quarter. We believe the stock price is currently lower than its intrinsic value. Therefore, while we are inclined to initiate more buybacks, we are also considering a few projects and investment opportunities that require our attention. We need to determine how to balance these priorities, as our resources are not unlimited, and we cannot heavily pursue both options at the same time. We will keep you updated on our decisions moving forward.

I wanted to add that the stock buyback is limited by certain regulatory factors and we cannot execute more than what we have been already executing. There is up to 25% of the average volume that we can buy and certain other things that really don't allow us to buy as aggressively as we would have liked potentially.

I think also the main reason is that indeed, the liquidity in the stock is not that high. So that makes it a bit less. We could have done more, obviously. But having not very liquid stock and thinking about investing some of our funds are the two reasons that kept us from doing more.

Yes. Just to confirm though, Aristides and Tasos, the buyback program was active in the fourth quarter as the stock went down.

It was active, but in the fourth quarter, we stopped doing it weeks into the quarter because it falls within our trade window.

You quite.

Trade window. But it was a very limited amount of shares that we bought back.

Yes, I always do it as more of a complement not a #1 priority, but I just wanted to make sure I understood that it is. You do feel that at roughly in the 15s or the mid-15s that the stock is undervalued and that you're more active than you have been obviously subject to the constraints of the average volume and everything, but you're more active now than you have been over the course of the last three quarters.

I think is the first statement.

Okay. And then I think I'll follow up, Tasos on the details on the debt amortization and then the balloons. But the new loans, just to clarify, the new loans are about $26 million.

$16 million incremental.

Okay. On top of the $10 million that was due in the quarter. So right?

We refinanced even loans that weren't due in this quarter.

Okay, sounds good. Thanks so much.

You're welcome, Poe.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Aristides Pittas for closing comments.

Thank you all for listening to us today. We will be back to you in 3 months' time. Thank you.

Thanks, everybody.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation. Thank you.