Euroseas Ltd. Q1 FY2025 Earnings Call

Thank you for joining us, ladies and gentlemen, and welcome to the Euroseas Conference Call for the First Quarter 2025 Financial Results. With us are Mr. Aristides Pittas, Chairman and Chief Executive Officer, and Mr. Tasos Aslidis, Chief Financial Officer of the company. I would like to inform you that this conference is being recorded today. Please note that the company has announced its results in a press release that has been shared publicly. Before I hand it over to Mr. Pittas, I want to remind everyone that Euroseas will be making forward-looking statements during today's presentation and call. These statements are defined under Federal Securities Laws and are based on current management expectations, which involve risks and uncertainties that may prevent these expectations from being realized. I encourage you to refer to Slide #2 of the webcast presentation, which contains the complete forward-looking statement, also included in the press release. Please take a moment to review it. Now, I will turn the floor over to Mr. Pittas. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and thank you 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, 2025. Please turn to Slide 3 of the presentation for our quarterly financial highlights. For the first quarter of 2025, we reported total net revenues of $56.3 million and a net income of $36.9 million or $5.29 per diluted share. Adjusted net income for the quarter was $26.2 million or $3.76 per diluted share. Adjusted EBITDA for the period was $37.1 million. Please refer to the press release for the reconciliation of adjusted net income and adjusted EBITDA. Our CFO, Tasos, will go over our financial highlights in more detail later on in the presentation. As part of the company's common stock dividend policy, our Board of Directors declared the quarterly dividend of $0.65 per common share for the first quarter of 2025. The dividend will be payable on or about July 16, 2025, to shareholders of record from July 9, 2025. Since initiating our share repurchase plan of up to $20 million in May 2022, we have repurchased 463,000 shares of our common stock in the open market for a total of approximately $10.5 million. We remain committed to a disciplined and opportunistic capital allocation strategy and intend to continue leveraging the repurchase program in a manner that enhances long-term shareholder value. Please turn to Slide 4, where we discuss our recent developments and operational highlights. We recently signed an agreement to sell the Motor/Vessel Marcos V, a 6,350 TEU intermediate containership built in 2005, to an unaffiliated third party for total consideration of $50 million, with delivery expected in October 2025. The vessel was originally acquired in Q4 2021 for $40 million with an attached time charter at $42,000 per day for three years, followed by a fourth optional year at $15,000 per day, which was exercised by the charter. Upon completion of the sale, we expect to recognize a gain exceeding $8.5 million or $1.2 per share. Our actual cash return on the project is, of course, significantly higher. On the charter in France, we continued to strengthen our forward cover by securing several high-value multiyear charters. Notably, Motor/Vessel Monica was fixed for 24 to 26 months at $23,500 per day until at least May 2027. The Motor/Vessel Rena P was secured for 35 to 36 months at $35,500 per day until at least July 2028. Motor/Vessel Emmanuel P was fixed for a period of 36 to 38 months at a daily rate of $38,000 until at least September 2028. Additionally, Motor/Vessel EM Hydra was extended until at least May 2027 at $19,000 per day. These figures reflect our continued ability to secure long-term employment at highly attractive levels, providing strong cash flow visibility while reducing exposure to market volatility. Operationally, Motor/Vessel Diamantis P and Motor/Vessel EM Hydra were well prepared, resulting in no higher periods of approximately 23 and 22 days, respectively. Diamantis P is one of the vessels that was upgraded and then contributed to Euroholdings and subsequently was sold. The Hydra, which suffered from a crane breakdown, has to undergo extensive repairs and face significant downtime. The repair costs are covered by Hull and Machinery underwriters, and we intend to claim any of the loss exceeding 14 days through a loss of prior insurers. We experienced low commercial off-hire during the quarter. Please turn to Slide 5. On March 17, we successfully completed the spinoff of Euroholdings, a new entity comprised of three subsidiaries of Euroseas owning our three oldest vessels: the Motor/Vessel Aegean Express, Motor/Vessel Joanna, and Motor/Vessel Diamantis P. The spinoff was executed as a pro-rata distribution of Euroholdings shares to Euroseas shareholders at the ratio of one Euroholdings share for every 2.5 Euroseas shares held, representing approximately 5% of Euroseas' net asset values. Euroholdings began trading on the NASDAQ under the symbol EHLD on March 18, 2025, as a separate company. Since the spinoff, it has had an average share price of around $5.6, roughly a 44% discount to NAV, with another daily trading volume of 70,000 shares. The company's NAV as of March 31, 2025, was approximately $10.05 per share. The spinoff allows Euroholdings to operate independently with its own management and board while enabling Euroseas to focus exclusively on its younger, more efficient fleet and growth strategy moving forward. Please turn to Slide 6. The company has a fleet of 22 vessels, including 15 feeder containerships and 7 intermediate containerships, with a cargo capacity of approximately 67,000 TEU and an average age of under 13 years. Additionally, we expect the delivery of our two intermediate containership new buildings in the fourth quarter of 2027, each with a capacity of 4,300 TEU, which will further increase the size and reduce the average age of our fleet. Please turn to Slide 7 for a further update on our fleet employment. We continue to benefit from strong market demand. For 2025, approximately 97% of our available investment days have already been secured at an average rate of $28,250 per day, providing strong visibility into this year's earnings. Looking ahead into 2026, we have already recovered approximately 67% of our available days at an even higher average rate of $31,600 per day. This level of coverage achieved through a disciplined chartering strategy, which is neither too defensive nor too aggressive, significantly enhances our revenue stability and allows us to optimize our revenue stream across the market cycle. Moving on to Slide 9. We go over the market highlights for the first quarter of 2025. In the first quarter of 2025, one-year time charter rates remained strong, supported by tight vessel availability and sustained demand across all size segments. A significant portion of the container fleet has been fixed. In early June, charter rates have continued to trend upwards, remaining at historically elevated levels. Compared to Q4 2024, average charter rates have increased by 10% for feeder vessels and by 4% for Panamax and post-Panamax vessels. Looking at the broader market landscape, 2025 is shaping up to be an interesting year, marked by heightened geopolitical risk and shifting global trade dynamics. Ongoing wars and political tensions continue to disrupt traditional trade routes, while rising protectionism has introduced further inefficiencies. As a result, forecasting remains challenging, as we will discuss later on in this presentation. The average secondhand price index rose by approximately 4.5% in Q1 2025 compared to Q4 2024, supported by limited vessel availability and competitive fleet expansion efforts among buyers. New building pricing moved largely sideways in Q1 2025 compared to the previous quarter, still at historically elevated levels. Demand for new vessels remains strong, particularly for fuel-efficient and network-designed vessels, yet ordering has decelerated slightly due to limited shipyard capacity, rising material costs, and macroeconomic uncertainties. Meanwhile, the idle fleet, excluding vessels under repair, has continued to shrink, standing at 0.19 million TEU as of June 2025, which is 0.6% of the global fleet, roughly nonexistent. This reflects tight tonnage availability and robust fleet utilization. Recycling activity also remained subdued year-to-date with just 9 vessels totaling 5,000 TEU for demolition. However, with approximately 25% of the sub-8,000 TEU fleet over 20 years old, we anticipate that scrapping volumes could rise should market conditions soften. Scrap prices eased slightly to $470 per lightweight ton in Q1 2025. Lastly, the global containership fleet expanded by 3.3% year-to-date, not accounting for high investment reactivations. Please turn to Slide 10 for our broader market overview, focusing on the development of 6- to 12-month time charter rates over the past 10 years. As illustrated in the graphs on this slide, containership charter rates have continued the strong upward momentum in the first quarter of 2025, fueled by limited vessel availability and sustained demand across fleet segments. As of June 13, 2025, the 6- to 12-month time charter rate for 2,500 TEU containerships reached approximately $35,000 per day, more than three times the historical median of $11,000 per day and significantly above the 10-year average of about $20,500 per day. This trend of elevated rates is consistent across all vessel sizes, underscoring the sector's market strength. Please turn to Slide 11. The IMF April 2025 update presents a more cautious global economic outlook, revising its global GDP growth forecast for 2025 downwards to 2.8% from the 3.3% projected just 3 months ago in January. Global growth in 2026 is expected to modestly rise to 3%, but still lower than the previously expected 3.3%. In recent weeks, the world has experienced larger conflicts in the Middle East, with rising tensions between Iran and Israel. The World Bank cut its forecast growth for 2025 down to 2.3%, noting increased trade tensions and policy uncertainties. The revision from both institutions reflects mounting downside risks intensified by the United States targeting major trading partners and sectors and the ongoing war in the Middle East. These global tensions and heightened policy uncertainty have affected the outlook for the remainder of 2025 and into 2026. According to IMF projections, the United States' growth rate has been reduced by nearly 1% to 1.8% for 2025 and to 1.7% in 2026, down from the previously expected 2.8% and 2.1%, respectively. Other advanced economies have also had their forecasts reduced compared to previous expectations, with Europe's growth forecast at just 0.8% this year and 1.2% next year. Many European countries continue to face subdued domestic demand, manufacturing weakness, and the lingering effects of the energy crisis. U.S. government policy remains a major focus due to the direct impact of tariffs. This has the potential to have even wider implications. Global inflation continues to trend downwards, but at a slower pace than what was expected in January, with headline inflation expected to end at 4.3% in 2025 and 3.6% in 2026, with notable upward revisions for advanced economies and slight downward revisions for emerging and developing markets. However, the near-term path to price stability remains uneven. Persistent services and rate inflation in several economies, coupled with rising protectionism and demographic headwinds may delay full convergence to target inflation levels. As a result, central banks are expected to maintain a more cautious approach to monetary policy than previously anticipated. Emerging markets remain primary drivers of global growth, with India expected to expand by 6.2% and 6.3% in '25 and 2026, respectively, fueled by strong investment, robust agriculture, and the dynamic services sector. Similarly, the ASEAN-5 countries are also projected to exhibit growth. In China, growth has been revised downwards to 4% in both 2025 and 2026, influenced by transnational challenges, particularly around weak domestic consumption, deflationary pressures, and instability in the productive sector. Turning to the demand outlook, Clarksons' latest estimate from May 2025 projects global containment rates to grow by 2.2% in 2025, a notable upward revision from a previous forecast of negative 0.2% in March. They had predicted a more aggressive unwinding of rerouting within 2025, which now seems unfeasible. This reflects a more resilient environment than previously anticipated. Rerouting is now expected to be a topic for 2026, depending on the outcome of the current geopolitical situation. Moving on to Slide 12, you can see the total fleet age profile and containership order book. The containership fleet is relatively young, with most vessels under 15 years old and only 12% of the fleet over 20 years old. As of June 2025, the order book as a percentage stands at a very high 29.4%. Turning to Slide 13, we review the fleet age profile and order book specifically for vessels in the 1,000 to 3,000 TEU range, the sizes we mainly operate in. With a much older fleet, the order book here stands at just under 5% as of June 2025. According to Clarksons, new building delivery for feeder intermediate size containerships is expected to remain limited over the next several years. From 2025, deliveries for vessels under 3,000 TEU are projected to amount to just 2% of the existing fleet. This already modest growth is expected to slow even further to 1.3% in 2026, followed by 1.9% in 2027, and down to just 0.5% in 2028 and beyond. On Slide 14, we discuss the different supply outlook for the two containership subsegments, focusing on feeder and intermediate size vessels under 8,000 TEUs. The global order book remains heavily concentrated on the large vessels servicing main lane routes, with significant capacity growth expected in that segment. However, feeder intermediate vessels, which are essential for regional distribution, face a very different supply outlook. Their order books are extremely limited, and the existing fleet is relatively old, with a large percentage of vessels exceeding 20 years of age. These older units are prime candidates for scrapping, particularly as environmental regulations tighten. As a result, it is quite possible that fleet capacity for feeder and intermediate containerships may actually decline even as the overall containership fleet continues to grow. This evolving supply backdrop supports a structurally tight market in our operating segments, indicating favorable conditions for vessel utilization and charter rates moving forward. Moving on to Slide 15. Turning to the broader outlook, the container shipping market in the remainder of 2025 is expected to be faced with three major challenges: the possible rerouting of vessels away from the Suez Canal, the pending outcome of U.S. trade tariff decisions, and the escalating tensions between Iran and Israel depending on their intensity. It seems unlikely that these issues will be resolved soon. Thus, we expect the market to remain relatively strong and resilient throughout the year. As we form our company strategy, we have to make several assumptions regarding how things will develop in 2026. We assume that rerouting will likely be a 2026 event, that tensions in the Middle East will hopefully ease in 2026 as well, and finally, that the impact of U.S. tariffs will not be as severe as originally announced. Based on these main assumptions and the high order book, particularly in the larger sector, it seems logical to predict a correction in the market in the next couple of years. With this in mind, we have proceeded to secure as long-term employment as possible at extremely high rates considering the current market. However, the latest escalation in the Middle East geopolitical framework may lead to prolonged disruptions and strong market conditions. We will monitor the situation closely. Finally, regarding energy conditions, we are concerned about how this will affect our markets. Progress is progressing at a slower pace than initially anticipated; however, technical and economic constraints persist. The recent shift in the U.S. administration's stance on climate policy may further delay adoption, but it is unlikely to reverse the broader decarbonization already underway in the sector. Currently, eco-efficient vessels are increasingly commanding premium charter rates as demand for sustainable transport solutions strengthens. Now please turn to Slide 16. The left-hand side graph shows the cycle of the one-year time charter rate for 2,500 TEU containerships over the past 10 years. As of June 13, the one-year time charter rate for 2,500 TEU containerships stood at $35,000 per day. This, despite being below its peak, is still extremely high and well above historical averages. Similarly, both new building and second-hand prices have also increased in the past year and also remain significantly above historical averages. In this environment of high prices and high charter rates, we continue to seek opportunities that could further enhance shareholder value. We believe that Euroholdings is one such example, as the current valuation of Euroseas and Euroholdings combined has outperformed all other similar listed companies in our universe since Euroholdings started trading independently on March 18. With that, I will pass the floor to our CFO, Tasos Aslidis, to go over our financial highlights in further detail.

Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. As usual, over the next four slides, I will give you an overview of our financial highlights for the first quarter of 2025 and compare those results to the same period of last year. For that, let's turn to Slide 18. For the first quarter of 2025, we reported total net revenues of $56.3 million, representing a 20.6% increase over total net revenues of $46.7 million during the first quarter of last year. We reported a net income for the period of $36.9 million as compared to a net income of $20 million for the first quarter of 2024. Interest and finance costs for the first quarter of this year amounted to $4 million, which, after deducting capitalized repeated interest income of $0.1 million produced by the self-financing of the pre-delivery payment for the two vessels we took delivery of in January and also interest income of $0.5 million, resulted in total interest and finance costs net of $3.4 million as compared to interest and other financing costs net of $1.3 million for the same period of 2024, during which period we deducted from the interest income due to the self-financing of new buildings' pre-delivery installments of $1.4 million and interest income of $0.5 million again. The increase in our interest expense this quarter is due to the increased amount of debt compared to the same period last year. Adjusted EBITDA for the first quarter of 2025 was $37.1 million compared to $24.6 million achieved during the first quarter of 2024, primarily due to the increased number of vessels we operated on average during the period and lower dry docking expenses incurred compared to the same period of last year. Basic and diluted earnings per share for the first quarter of 2025 were $5.31 basic and $5.29 diluted, calculated on about 7 million basic and diluted weighted average number of shares outstanding compared to basic and diluted earnings per share of $2.89 and $2.87, respectively, for the first quarter of last year, again calculated on about 6.9 million and 7 million weighted average number of shares outstanding. Excluding the effect on the net income for the quarter of the unrealized gain or loss on derivatives, the amortization of below-market time charters acquired, depreciation due to the increased value of the below-market time charters acquired, and more importantly, the gain on sale of the vessel we sold, the adjusted earnings per share for the quarter ended March 31, 2025, would have been $3.76 basic and diluted compared to adjusted earnings of $2.67 basic and $2.66 diluted for the same period of last year. Let's turn to Slide 19 to review our fleet performance. Again, as usual, we will start our review by first examining the utilization rates for this year compared to last year. And again, as usual, our utilization rate is broken down into commercial and operational. During the first quarter of 2025, our commercial utilization rate was 100%, while our operational utilization rate was 99.2%, Aristides explained the reasons, compared to 99.8% commercial and 99.9% operational for the same period of the previous year. On average, this quarter, we operated 23.68 vessels earning an average time charter equivalent rate of $27,563 per day compared to 19.6 vessels for the first quarter of 2024 earning an average of $27,806 per vessel per day. Our total operating expenses, including management fees and general & administrative expenses, but excluding dry docking costs, were for the first quarter of 2025, $7,511 per vessel per day, compared to $7,963 per vessel per day for the same period of last year. If we move further down on this table, we can see the cash flow breakeven rate, which also takes into account dry docking expenses, interest expenses, and loan repayments. Thus, for the first quarter of 2025, our daily cash flow breakeven rate was $13,062 per vessel per day compared to $17,171 per vessel per day for the first quarter of last year, a significant part of the difference being due to lower loan repayments and lower dry docking costs. At the bottom of this table, we can also see our common dividend expressed on a per vessel per day basis. Our dividend for the first quarter of 2025 equates to about $2,118 per vessel per day compared to $2,328 per vessel per day in the corresponding period of last year. Let's move to Slide 20 to review our debt profile. As of March 31, 2025, our total outstanding bank debt stood at $244 million, with an interest margin of approximately 2.04%. Assuming a 3-month SOFR rate of 4.31%, this translates to a cost for our senior debt, our only debt, of 6.35%. Considering our interest rate swaps, approximately 8.2% of our debt has been swapped for a fixed rate of just under 3.41%, bringing our blended cost of debt effectively down to 6.3%. We expect loan repayments for the rest of the year of approximately $18.4 million, plus a $7 million balloon, thus reducing the outstanding debt by the end of the year to about $230 million. In 2026, scheduled loan repayments are expected to total $19.5 million with no balloon payment due. In 2027, we anticipate making $16.8 million in loan payments alongside $20 million in balloon payments, resulting in a total expected scheduled debt repayment in 2027 of about $36.8 million. I would like to draw your attention now, at the bottom of the slide, where we present our cash flow breakeven level for the next 12 months, and we break it down into components. Overall, we expect a cash flow breakeven level to be around $12,673 per vessel per day, a level that, as you can realize, is significantly below the average daily earnings of our fleet. To sum up my presentation, let's move to Slide 21 and review some highlights from our balance sheet. As of March 31, 2025, we had cash and other current assets of about $106.4 million, while we have made advances for our two new buildings close to about $18 million. In addition, our assets include the book value of our ships, which stood at $524.2 million, resulting in a total book value of our assets and balances of about $648.8 million. On the liability side, as I mentioned earlier, we had debt of $244 million, which represents about 38% of the book value of our assets. We also had other liabilities that amounted to about $25 million, which constituted about 4% of the book value of our assets, leaving us with a book value of shareholders' equity of about $877 million or $64.8 per share book value. However, it is important to mention here that the market value of our fleet, adjusted for the charters that we have, is significantly higher than its book value. We estimate that at the end of March 2025, the charter-adjusted value of our fleet to be $144 million higher than its book value, thus resulting in a net asset value per share for our company in the range of $74 to $75. Despite the recent increase in our share price over the last two weeks, trading between $40 and $45 per share, it is evident that our stock trades at a significant discount to our net asset value, highlighting the substantial upside potential for our stockholders and investors. With that remark, I would like to turn the floor back to Aristides to continue our call.

The first one is just would you please provide your latest estimate for scheduled off-hire days for the remainder of the year?

Scheduled you mean drydocking costs, are you talking?

You mentioned that you will retrofit one of your secondhand vessels with energy-saving equipment, so I assume that vessel will also have some off-time.

This is the same vessel. Our estimated stoppage time of 25 days is the period in which we expect to complete the vessel survey and the retrofits. This is the only vessel we have for dry dock this year.

The retrofit is being completed as part of the dry dock, so we don't anticipate any additional days needed for the retrofits to the best of our knowledge.

Great. Then the second question is on Page 15 of your presentation, I just wanted to kind of focus on the line where you say that we conclude that it's probable that we'll experience downward pressure in charter rates. Now obviously, you're very well covered in 2025 and even into 2026. But I was wondering which of those three assumptions has the most bearing in your conclusion there? Is it the rerouting of the ships through the Suez? Is it the tariffs and economic growth? Or just if you could maybe just expand on that a little bit would be great.

Okay. Rerouting of ships is a significant negative because it reduces ton mile substantially. So if that happens, we have reduced ton mile, and the effective supply of ships goes up. So that can be a significant negative, but of course, the imposition of tariffs and the drop in global trade can also be negative. However, the disruption that is caused by changing trade routes and the lines trying to optimize those routes to Suez results in delays that are not higher than waiting times at port, which is a positive if that happens. Generally, disruption is positive, and so also the effects of the war can be positive, except if that leads to a very significant drop in trade. So these are all very difficult things to analyze and make predictions upon, I have to admit. And that's why we took the much more cautious approach even before the war.

Okay. No, that's helpful. And just one last question is that your total daily vessel operating expenses were down compared to the prior year. And I was just wondering if you expect those to decline further as the remaining new builds are reflected in operations.

Yes, I think statistically, that probably is true as our composition of our fleet becomes on average less aged, having more new builds incorporated for more time of the year. The blended average might come down a bit. But generally, our budget talks about roughly 2% higher operating expenses compared to our previous budget.

Tasos, could you highlight how much debt you're going to pay off when Marcos V is actually delivered to the buyer?

We have already paid about $8 million. We have scheduled a payoff of $7 million at the end of the year, but we actually paid a bit early on the loan this quarter. So, Marcos is debt-free.

Okay. So that net proceeds will be $50 million in the fourth quarter?

That's correct. Yes, that's right.

Okay. Great. And then you still have some older vessels pre-2010. Are you looking to enhance your fleet profile by selling some of the older vessels? Can you just talk about the sales and purchase market following the sale of the Marcos?

Aslidis, you want to...

I think we don't plan to sell vessels while they're on charter, but perhaps when the charters expire with time.

Okay. Should we consider the Genesis piece off charter at the end of the year as a potential sales candidate?

I think I would say that we are looking primarily to recycle the vessel, and we are putting our fillers in the market for that at this moment. If there are no other questions, then I'll take the role of Aristides and thank everybody for participating in our call. We're looking forward to seeing you all in August when we're going to issue our first half results. Thank you very much again, and enjoy the rest of your day.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.