Euroseas Ltd. Q1 FY2023 Earnings Call

Thank you for standing by, ladies and gentlemen, and welcome to the Euroseas Conference Call on the First Quarter 2023 Financial Results. We have with us Mr. 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 their results with a press release that has been publicly distributed. Before passing the floor with Mr. Pittas, I would like to remind everyone that in today’s presentation and conference call, Euroseas will be making forward-looking statements. These statements are within the meaning of the federal securities laws. Matters discussed may be forward-looking statements, which are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized. I kindly draw your attention to slide number 2 of the webcast presentation, which has the full forward-looking statement, and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. And now, I’d 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 Tasos Aslidis, our Chief Financial Officer. The purpose of today’s call is to discuss our financial results for the three months period ended March 31, 2023. Let us turn to slide 3 of the presentation. Our first quarter financial highlights are shown here. For the first quarter of 2023 we reported total net revenues of $41.9 million and net income attributable to common shareholders of $28.8 million, or $4.10 per diluted share. Adjusted net income attributable to common shareholders was $21.7 million, or $3.09 per diluted share. Adjusted EBITDA for the period stood at $26 million. A reconciliation of adjusted net income attributable to common shareholders and adjusted EBITDA is presented in the press release. As part of the Company’s common stock dividend plan, our Board of Directors declared a quarterly dividend of $0.50 per common share for the first quarter of 2023, which is payable on or about June 16th to the shareholders of record on June 9, 2023. This is the fifth consecutive $0.50 dividend that we are paying. As of May 16, 2023, under our share repurchase plan of up to $20 million, which was announced in May 2022, we had repurchased 348,000 of our common stock in the open market, representing about 5% of our stock for a total of about $7 million. Our CFO Tasos Aslidis will go over the financial highlights in more detail later on in the presentation. Please turn to slide 4 where we discuss recent sale and purchase, chartering and operational developments. As previously announced on April 6, 2023, the Company took delivery of its first newbuilding vessel, motor vessel Gregos, an eco 2,800 teu feeder containership built from Hyundai Mipo Dockyard in South Korea. The vessel is EEDI Phase 3 compliant and equipped with a Tier III engine and other sustainability-linked features including installation of AMP, an alternative maritime power system. The acquisition was financed with a combination of own funds and a sustainability-linked loan provided by Eurobank S.A. Following its delivery, motor vessel Gregos commenced a 36 to 40 month charter with Asyad Lines at the gross daily rate of $48,000 per day. Two of our vessels whose contracts that were due in April and May 2023 were expanded at the rates, but also duration that were better than anticipated, reflecting the resilience of the market and the apparent belief of charters that feeder vessels will be in short supply. Motor vessel Synergy Keelung was fixed for a period of 24 to 26 months at a daily rate of $23,000 per day, whilst EM Kea charter was extended for a period of 36 months, plus or minus 45 days at $19,000 per day. Earlier during this period, motor vessel Aegean Express was fixed between the minimum four and the maximum six months period at $13,000 per day and EM Hydra time charter contract was extended for a period of 12 to 14 months at the gross daily rate of $15,000 a day. Aegean Express completed its drydocking on February 8th and then experienced idle time of approximately 29 days while we were with Continental Shipping Line of Singapore, CSL, who repudiated its charter. We are currently in arbitration against CSL, which we expect to win, but we expect to then face difficulties in enforcing the award as the charterer seems to be trying to hide its assets. Please turn to slide 5, where you can see our current fleet profile. Euroseas’ current fleet is comprised of 18 vessels on the water, including 11 feeder containerships and 7 intermediate container carriers with a carrying capacity of about 56,000 TEU and an average age of 16.5 years old. Turning to slide 6, we present our vessels under construction, which consist of 8 eco feeder containerships, 5 with a carrying capacity of 2,800 TEU each, and 3 with a carrying capacity of 1,800 TEU each expected to be delivered between Q2 2023 and Q4 2024. With 8 feeder containerships, we have a capacity of 19,400 TEU. After the delivery of these new buildings, the fleet will consist of 26 vessels with a total carrying capacity of about 75,000 TEU. Let’s now turn to slide 7 for the graphical presentation of our vessel employment. As you may see, we have very strong charter coverage throughout the next two years, with about 91% of our fleet being fixed for 2023 and almost 66% for 2024. These figures also take into consideration the newbuilding deliveries. Our contracted revenues over the next two years are expected to generate in excess of $20 per share, which will be further boosted by the revenues from the rest of our uncharted days. Turning now to slide 9, we review how the 6 to 12-month time charter rates have developed over the last 10 years for the segments in which we mostly operate. While the container charter market saw a soft start to the year following the market weakness during the final months of 2022, charter rates started improving across all containership segments during the first quarter through mid-May 2023, with rates sitting at healthy levels, higher than the 10-year average and median levels. As of last Friday, the 6 to 12-month time charter rate for 2,500 TEU containership stood at $18,750 per day whilst the rate for the 4,400 TEU containership stood at $26,750 per day.

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 first quarter of 2023 and compare the results to the same period of last year. Let’s turn to slide 17. For the first quarter of 2023, the Company reported total net revenues of $41.9 million, representing a 7.6% decrease over total net revenues of $45.4 million during the first quarter of 2022. The Company reported net income for the period of $28.8 million as compared to net income of $29.9 million for the first quarter of 2022. Interest and other financial costs for the first quarter of 2023 amounted to $0.9 million, partly offset by imputed interest of $1.1 million, which is capitalized and it is due to the self-financing of the pre-delivery installments of our newbuilding program. In addition, we recorded $0.23 million of interest income. For the same period of last year, the interest and finance costs amounted to $1 million. We had no imputed interest and practically no interest income last year. The increase in the top-line of our interest expense is due to the increased amount of debt and the increase in the weighted average LIBOR/SOFR rate in the current period compared to the same period of 2022. Adjusted EBITDA for the first quarter of this year was $26 million, compared to $31.1 million achieved during the first quarter of 2022. Basic diluted earnings per share for the first quarter of 2023 were $4.11 and $4.10, respectively, calculated on about 7 million basic and outstanding and diluted weighted average number of shares outstanding, compared to basic and diluted earnings per share of $4.15 and $4.13 for the same period of last year. Excluding the effect on the income for the quarter of the unrealized loss on derivatives, the amortization of below market time charters acquired, the depreciation charged due to the increased value of the vessel acquired with below-market charters and the gain on the sale of vessel, the adjusted earnings per share for the quarter ended March 31, 2023 would have been $3.10 per share basic and $3.09 per share diluted, compared to adjusted earnings of $3.71 and $3.70 basic and diluted, respectively, for the same period of last year, after excluding after making similar adjustments for the previous year. Usually, security analysts do not include the above items in their published estimates of earnings per share. That’s why we provide you with the adjusted figures.

Let’s now turn to slide 18 to review our fleet performance. We will start our review by looking at our fleet utilization rates for the first quarter of 2023 in comparison to last years. As usual, our fleet utilization rate is broken into commercial and operational. In the first quarter of 2023, our commercial utilization rate was 98.1% while our operational utilization rate was 100% compared to 99.6% commercial and 99.5% operational for the first quarter of last year. On average, 17.1 vessels were owned and operated during the first quarter of this year and at an average time charter equivalent rate of $29,231 per day, compared to 16 vessels owned and operated in the same period the first quarter of 2022, earning on average $36,986 per vessel per day. Our total daily operating expenses per vessel including management fees, general and administrative expenses, averaged $8,074 per day during the first quarter of this year, compared to $7,329 per vessel per day for the first quarter of 2022. If we move further down this table, we can see the cash flow breakeven rate which we set to meet during the first quarter of this year and which takes into account also drydocking expenses, interest costs and loan repayments. Thus, for the first quarter of 2023, our cash flow breakeven rate was $14,160 per vessel per day, compared to $14,059 per vessel per day during the first quarter of 2022.

Finally in the very last line of the table, you can see the common dividend that we pay expressed in dollars per day. In the first quarter of 2023, we paid the equivalent of $2,292 per vessel per day in dividends. We had no dividend declared for the first quarter paid for the first quarter of 2022. Let’s now move to slide 19 to review our debt profile. As of March 31, 2023, our outstanding debt was $121 million that includes debt for our newbuilding, which we do before the end of the quarter. At the same time—as of the same date, our scheduled debt repayments for 2023, including the amount we paid in the first quarter would amount to $27.14 million, while our balloon payments amount to $30.73 million in 2023. With this balloon payment, we have already repaid $13.3 million and $6.2 million and we’re in the process of financing the other one. Looking at the chart on the top left part of the corner of the slide, we can see also our debt repayment scheduled for the following years beyond 2023. As you can see, our debt repayment is expected to decline over the next three years. And we have additional balloon payments in 2025 amounting to about $22 million.

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

Good morning. Thank you for taking my questions. I wanted to start by asking about the tender. So, the vessel was initially scheduled to be delivered in the second quarter of 2023, but it seems—we are expecting it in the first quarter of 2024. Could you provide some commentary on the reason behind the delays and whether we should expect any financial impact?

I’m not sure that vessel was ever scheduled for the second quarter. It was scheduled for the fourth quarter and it has been delayed by a month or so to be delivered in the beginning of 2024. We have seen some small delays in some of the ships in the region of a month or two because of issues in South Korea with the shipyards. They had some labor issues and some difficulties in sourcing material and equipment. But it’s minor delays of one to two months. I don’t expect them to be huge delays.

Most of your newbuild program remains open. And how should we be seeing about securing new contracts? Are you comfortable employing them on short-term charters or are you still looking for medium-term employment?

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

Yes, makes sense. And regarding the Aegean Express, you mentioned you expect to win the proceedings, but that the execution may be difficult as the charterer is hiding its assets. How should we think about the timing for the resolution of the proceedings?

Thanks everybody for listening to us today. And we will be back in three months’ time with the Q2 results.

Thanks everybody. Have a nice day.

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