EuroDry Ltd.

Thank you for standing by, ladies and gentlemen, and welcome to the Eurodry conference call on the first quarter 2022 financial results. We have with us today Mr. Arsides Pitas, Chairman and Chief Executive Officer, and Mr. Tasos Aslides, Chief Financial Officer of the company. At this time, all participants are in listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, please press star and one on your telephone keypad and wait for an automated message advising your line is open. I must advise you that this conference is being recorded today. Please be reminded that the company announced its results with the press release that has been publicly distributed. Before passing the floor over to Mr. Pitas, 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 the current management's expectation that involves risk and uncertainties that may result in such expectation not being realized. I kindly draw your attention to slide two of the webcast presentation, which has the full forward-looking statements, 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 I would now like to pass the floor over to Mr. Pitas. Thank you. Please go ahead, sir.

Good morning, ladies and gentlemen. Thank you all for joining us today for our scheduled conference call. March 31, 2022. Please turn to slide 3. Our income statement highlights are shown here. For the first quarter of 2022, we reported total net revenues of $18.3 million and a net income of $10.5 million. Adjusted net income, attributable to the common shareholders, was $9.5 million for $3.3 per share. adjusted EBITDA for the period stood at $12.7 million. Our CFO Tasos Slidis will go over the financial highlights in more detail later on in the presentation. Please turn to slide 4 for our operational highlights. Motor Vessel Ekaterinis charter has been extended until February Water vessel Alexandros has been fixed for a trip of about 20 to 25 days at $29,000 a day during the quarter. Then it was fixed at $26,250 per day for the next 20 to 25 days, and thereafter it was fixed for about 55 to 65 days at $28,000 a day. Motor vessel Padelis was fixed The motor vessel Tassos was fixed for 57 days at $18,750 per day, and thereafter it was fixed for about 90 days at $20,600 per day. The motor vessel Mollik was locked. for a minimum period of 10.5 months and a maximum of 13.5 months. Finally, Motor Vessel Starlight was extended at 98.5% of the Baltic Panamax Index for a minimum period until October 2022. As previously announced, on April 19, 2022, the company acquired Motor Vessel Santa Cruz, The company also assumed the existing charter of the vessel at $14,800 per day until July 2022. The acquisition was financed with loan funds, and the vessel was delivered to the company on April 20, 2022. Motor vessel Pantelli secured a seven-day repair, while motor vessel Starlight went into dry dock for 27 days. During the quarter, the company was also active on the FFA market and sold 90 days of forward freight agreements, the equivalent of one Panamax vessel, at a rate of $28,000 per day. Please turn to slide five. to see the summary of our current fleet. The company's operating fleet has increased to 11 units. Our current fleet has an average age of 13.5 years with a carrying capacity of about 800,000 deadweight tons. stands at about 30%. This figure excludes the six ships on index charters, which have secured employment but are open to market fluctuations. Moving to slide 7, we shall go over the market highlights for the quarter ended March 31, 2022. Up to now. Despite the challenging global economic and levels. As seen here, the average spot market rate for Panamax Ships was approximately $21,400 a day in the first quarter, and by March 25th, the price had increased to $28,500 per day. Overall, the BPI index started picking up towards the end offset, of course, the decrease in grain trades from those areas. Please now turn to slide 9. Global growth is expected to slow significantly in 2022, largely as a consequence of the war in Ukraine and the pandemic in China. In its latest report, the IMF logged its previous global GDP estimates from 4.4% growth to 3.6% for economies, Japan and the ASEAN-5 should do better than 2021. Citing Taito Fed policy and an anticipated hold to any further stimulus spending by Congress, the IMF has reduced its growth forecast for the U.S. for 2022 by 1.7% to 3.7%. on world growth and trade are being continuously assessed. Please turn to slide 10. The order book as a percentage of total fleet up until May 2022 stands at 6.6%, which is around the lowest levels we've seen in the last 25 plus years. Now please turn to slide 11 for our dry bulk fleet overview. Whilst Claxon expects New vessel ordering continues to be muted given concerns over environmental regulations, and as a result, supplies should remain tight for the foreseeable future. Please turn to slide 12, where we summarize our outlook in the dry bulk market. As previously mentioned, the Ukraine-Russia war We expect earnings to remain volatile at high levels as the short and medium-term outlook are generally positive and supported by one of the lowest order books ever and disruptions from poor congestion and changing trade flows. Ukraine. However, alternative trade routes are increasing ton-mile demand for coal and other tribal commodities as they shift away from Russian ports. Overall, fundamentals remain positive for 2022, forward supply and demand balances. Ordering for new ships for 2023 deliveries is expected to be nonexistent due to lack of available slots in shipyards. In addition, the lack of clarity for the fuel of the future remains an unknown, something that makes placing a new order, even for a later delivery, effective supply at some point. This turns to slide 13. exceeding the historical median and average levels. However, prices have still been significantly lower than what we have seen in the beginning of 2008. Whilst continuing to reap the benefits from the current strong charter market, we are also closely monitoring market developments for any opportunities that may arise to further enhance shareholder value. Thank you.

Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. Over the next five slides, I will give you an overview of our financial highlights for the first quarter of 2022 and compare them to the same period of last year. For that, let's turn to slide 15. In the first quarter of 2022, the company reported total net revenues of 18.3 million representing a 113% increase of the total net revenues of 8.6 million during the first quarter of 2021. And that was the result of both higher time charter rates that our vessels earned during the first quarter of this year and the increased number of vessels we owned and operated compared to the first quarter of 2021. The company reported net income a net income attributable to common shareholders for the period of 10.5 million as compared to a net income attributable to common shareholders of 0.9 million and 0.4 million respectively for the first quarter of last year. Interest and other financing costs for the first quarter of 2022 amounted to about 0.65 million slightly increased as compared to 0.6 million for the same period of 2021. Interest expenses during the first quarter of this year were higher due primarily to the increased LIBOR rates our loans had to pay as compared again to the first quarter of 2021. Trusted TP DAB for the first quarter of this year was 12.7 million compared to 4 million achieved during the first quarter of 2021 representing a 217% increase. Basic and diluted earnings per share attributable to common shareholders for the first quarter of 2022 were $3.69 and $3.64, respectively, calculated on 2.85 million basic and 2.88 million diluted earnings weighted average number of shares outstanding, compared to basic diluted earnings per share of 19 cents for the first quarter of 2021, calculated on about 2.3 million basic and diluted shares, weighted average number of shares outstanding. Excluding the effect on earnings attributable to common shareholders for the quarter of the unrealized gain on derivatives, The adjusted earnings attributable to common shareholders for the quarter ended March 31, 2022, which have been $3.34 and $3.30 per share basically diluted respectively. Compared to adjusted earnings of $0.55 basically diluted in the first quarter of last year. Usually security analysts do not include the above item in their published estimates of earnings per share, that's why we do the adjustment. Let's now turn to slide 16 to review our fleet performance. We will start our review by looking first at our fleet utilization rates for the first quarter of 2022 and 2021. As usual, our fleet utilization rate is broken down to commercial and operational. During the first quarter of 2022, Our commercial utilization rate was 100%, while our operational utilization rate was 99.6%, compared to 100% commercial and 100% operational for the first quarter of last year. On average, 9.5 vessels were owned and operated during the first quarter of 2022, earning an average time charter equivalent rate of $24,636 per vessel compared to seven vessels in the same period of 2021, earning on average $14,924 per day. Our total operating expenses, including management fees, general and administrative expenses, but excluding the total cost, the operating costs, average $6,610 per vessel per day, during the first quarter of 2022, compared to $6,571 per vessel per day for the first quarter of last year. If we move further down on this table, we can see the cash flow break-even rate for the first quarter of 2022, which also takes into account dialogue in expenses, interest expenses, and loan repayments, excluding our balloon repayment. and preferred dividends if they are paid in cash. Thus, during the first quarter of 2022, our daily cash flow rate even rate was $12,821 per vessel per day, compared to $11,064 per vessel per day for the same period in the first quarter of 2021. Let's now move to slide 17. We have used this slide starting this time last year to indicate as a calculation tool that enables our shareholders and investors to assess the earnings potential of our fleet in the current year and under the current environment. The table shown in the slide has two parts. The top part refers to our fixed trade contracts. As you can see, our contract coverage in fixed trade contracts is about 45% for the year. It is about 56% in the second quarter, but declines to 24% and 11% in the third and fourth quarter. This chartering profile, this chartering strategy, reflects our expectation that the market will be quite strong, as indeed it is indicated by the current forward freight market rates. The rest of our vessels are employed in contracts linked to the relative-to-their-size dry-fault-dry index, or are yet to be contracted. Our calculator indicatively shows, in the second part of the table, the Supamax and Panamax Baltic forward rates as of May 13, 2022, and also shows how these index levels get translated to rates for our ships. We actually display the final blended rate for the open days of our blitz, which you can see right below the Supermax and Panamax forward rates in the table, and which, as you can see, is roughly similar in terms of levels to the rates that we have contracted. Based on these assumptions, and by further assuming for simplicity $7,500 per day per vessel as OPEX and GNA costs, and a 5% commission rate, one can estimate the EBITDA contribution of the days get to be fixed. The final result is additionally adjusted at the bottom of the table for our preliminary direct expense estimates during the year. This overall exercise is meant to provide a tool, as I mentioned, to calculate our EBITDA for 2022. Obviously, one can enter his or her own assumption about the rates to do that. It is worth observing the assumed FFA rates, an annualized EBITDA estimate for 2022 would be in excess of 50 million. The final figure, as I mentioned, will obviously depend on the rates materializing over the rest of the year and possibly on the timing of any charters we book. One can also easily estimate from this table the dependence of the EBITDA to the average rate earned by our open days. A change of $1,000 per day in the average rate earned would result in about $2 million change in our 2022 EBITDA estimates. Let's now move to slide 18. To review our debt profile. As of May 31, 2022, we had an outstanding bank debt of about $75.6 million. By looking at the chart, we can see that our debt repayments over the next three years range between 10 and roughly 14 million, and then drop to 2.8 and 3.6 million in 2025 and 2026. Our next balloon payment is towards the end of 2023 for about 11.3 million, and it refers to one of our cancer investments. We would expect to be able to refinance that balloon payment if we choose so, as we have done in numerous occasions previously like that. A quick note also on this slide about the cost of our debt. The average margin of our debt is about 2.8%, and assuming a LIBOR rate of about 1.25% on the top of it, we can estimate that the cost of our bank debt to be around At the bottom of this slide, we can also see a projection for a cash flow breakeven rate for the next 12 months, and we can see in that projection that a cash flow breakeven level of about $13,000 per vessel per day, which, it is noteworthy to say, includes about $3,800 per vessel per day of loan repayment. Let's now move to slide 19, where we can see some highlights from our balance sheet in a simplified way. This slide shows a snapshot of our assets and our liabilities. On our asset side, you can see the costs that we have and other assets, other liquid assets that account for about $21 million. The book value of our vessels is approximately resulting in a total book value for our assets of about $169 million. On the liability side, our debt as of March 31st, as I mentioned earlier, equals to about $75.6 million, which approximately represents about 45% of the book value of our assets. Accounting for other liabilities at the same time, comes to about $4.6 million, approximately 2.7% for total assets, leaving us shareholder's equity, essentially our net book value, to be approximately $89 million, which translates to $29.8 per share book value. However, we estimate, as of the end of March 2022, that the market value of our vessels to be around $215 million, about 46% higher of their respective BOO values, suggesting an NAV per share in excess of $52. Our share has recently traded around $35, or about 65% of our net asset value, suggesting that there is significant room for appreciation for our stock if it were to approach our NAV level. And with that, I would like to turn the floor back to Aristides to continue the call. Thank you, Tasos.

Let me open up the floor for any questions that we may have.

Thank you. We will now begin the question and answer session. And as a reminder, for those who want to ask a question, just press star and 1 on your telephone keypad. And we will now take the first question. The line is now open. Please go ahead and ask your question.

Yes, hello. Tate Sullivan from Maxim Group. Good day. I may have just started on new builds, and Aristides, can you review some of your conversations with shipyards? Last week, we saw a new build announcement for a delivery at first half 24 in the dry bulk industry, and I've heard that maybe now the conversations are focusing on 25 delivery Is that the case, and why it's so long, such a long timeline? Yes.

Yes, you are right. The good shipyards are mostly full for 2024, so it is difficult to place orders within 2024. So most likely you will be looking for a delivery dry bulk vessels, I think that in China you can still have 2024 deliveries. But the best shipyards really are quite full.

Can you comment historically, I mean, two to three years to get delivery of a new ship? Is there any conversation in the industry about expanding shipyard capacity or is that, what are the barriers to doing so?

If you remember, this was done back in 2005, when, again, the markets were going through a boom and suddenly people wanted ships. And we saw, especially in So by the time they were open, the market has corrected, and there was no need for them. So there was a lot of suffering by people that tried to build new shipyards. And I don't see any movement right now to increase the shipyard capacity significantly at all. Okay.

Thank you. And shifting to the future overhang, if that's the right way to put it, but the potential environmental regulations. Are you starting, are clients starting to request newer ships, cleaner ships? Have they been doing so? I mean, what's the kind of potential enforcement of future environmental regulations? Are you already seeing customers demand for newer, cleaner ships?

I think that everybody would like to use newer ships and whatever is available which is more efficient. that one has to live with what exists, and everybody is having to live with what vessels exist. fuel-efficient vessels being built. So I anticipate that whilst we all want to do what we can to help the environment, the practicalities of the day are such so that we will continue with the conventional ships that we have for quite some time. Great. Thank you very much, Aristides. I'll turn it over.

Thank you. And we will now take the next question. The line is now open. Please go ahead and ask your question.

I think I'm up. It's from Alliance Global Partners. Aristides, if we could talk about the other side of the equation on new builds. You know, you talked about delivery times being extended potentially into 24 and 25. What would drive you to order a new build? There's no visibility in the market. Contracts, you know, are still fairly short. Would you consider building something on spec without any, you know, confidence that you might see longer-term contracts develop over the next couple of years? Well, I think you hit the nail there.

We are seeing where people can get long-term charters at, you know, high rates and therefore can justify the investment. In dry bulk we do not have charters taking ships for longer periods. And that's why you see that not only us, but everybody is reluctant to order dry bulk vessels today at prices which are, you know, So I think this is the main reason that you see this discrepancy between container ordering and dry bulk ordering.

Great. That's helpful. And then can you... You talked about environmental regulations. Can you be a little more specific on your fleet and what you're doing between now and 2023 to... prepare for the new regulations?

Well, obviously we are going to fully comply with the new regulations. regulations, with various initiatives to, you know, paint the hulls so that there is less resistance. But at the end, the most important thing that will help comply with the regulations will be to reduce the speed of the vessel. And indeed, this is what everybody will be doing in this market. They will reduce the maximum speed of the ships, which, of course, is a good thing for the market as a whole, because effectively it reduces supply of vessels. So small things are being done in optimizing the routes, in trying to make the engines a little bit more efficient. But these are small numbers. They are not very significant improvements. The biggest improvement comes the resistance, and of course, when you cut your speed.

Okay. And then if I calculate correctly, Tassos, on the first quarter, your OPEX was roughly in the $6,600 range per day, and you're, for the next 12 months, guiding to about $6,938 a day. Can you walk us through, you know, a little bit more clearly the drivers on that? Is it higher bunker fuels, prices? And also, should we see a gradual increase, or will there be a step change in the second quarter?

I think it's an increase partly dependent on inflation, obviously. partly depends on exchange rate and that works for us for the time being because we pay management fees in euros and it's getting cheaper and also certain things become more expensive like the lubricants and the light so I think we expect the increase to set in pretty much right now or over the next quarter and to see all the higher levels compared to 2021. Crewing costs continue to be a challenge, both in getting crew and positioning them. I think there are increases across the board, primarily coming from the trade region, the overall inflation and tightness in the market that we see.

Okay. And if we could broadly talk about capital allocation in the context you continue to find some opportunities for second-hand assets, but arguably you're paying close to NAB for those assets and your stock is trading at a fairly reasonable discount or wide discount to what you said your NAB might be. Can you walk us through whether at some point in time you'd consider implementing a share buyback program or potentially like other companies, returning some cash to shareholders in the form of a dividend or Can you just talk about broadly what we might expect over the next 12 months from a capital allocation standpoint?

That's a very good question, and this is what we are discussing continuously now at the board level. There is this, as you say, we are trading at the you could buy back your stock, and, you know, that would be a good investment. Our problem is that we are a very small company, especially for the capital markets, because as an operating company, I think the size that we have is sufficient So I think that from a capital markets perspective, becoming smaller, which is what essentially we would do if we were to buy back our stock, would reduce the size of the company and the liquidity on the stock. And we are discussing and hoping that we will be able to increase the share price of our share price towards NAV with a better marketing of, you know, who we are and what we're doing and what the prospects of the company are. paying dividends or doing share buybacks. But this is always under review.

Yeah, understood. Just as stock is so volatile, even a small share buyback might set a higher floor than what we've seen over the last couple quarters. It just seems like every once in a while there's an air pocket, and if a stock buyback were in place, maybe that would help minimize or maybe dampen that sharp drawdown. Just some thoughts. Appreciate it.

Thank you. And we have a follow-up question from Tate Sullivan. We'll now take the question. The line is now open. Please go ahead and ask your question.

Thank you for taking my follow-up. So on the dry docking costs that you're forecasting, and then what you reported this quarter, in the first quarter rather, I mean, they do seem higher. Is that related to painting the hulls that Aristides mentioned earlier? Are there other things you can do when the ships are in the dry dock to make them more fuel efficient? And should we expect dry docking costs to increase in the next couple of years as well?

It's fair to say that the average dry dock cost, especially for our older vessels, will increase over the next 12 months or two years to partly deal with issues like that and partly deal with the fact that the ships are aging and if they have to go through a dry dock at a later age, they cost a little more.

But also the unit costs in all the shipyards have increased significantly. So, you know, a replacement of a ton of steel has increased 50 percent. So every unit cost in shipyards has been increasing over the last year, every component.

Okay, great. And then following up the capital allocation, I mean, you purchased a ship mostly with almost all of cash and reduced debt slightly. Are you expecting to finance or add financing, secured financing, to the ship and the ship you're buying this quarter?

We're considering this. I think we're looking to... We have the leisure to market and look what banks would offer the best terms, but we're considering to finance both of our last acquisitions, which were both bought So we have some embedded funding capacity that we can use if we need to finance another vessel. Okay.

Thank you. higher prices than you have for your recent acquisitions for ships in this period?

Sure. We always...and that's why we have not been buying very modern ships. I mean, the last ship we bought was a very old vessel. But with a one-year time charter that could be agreed at the time, we brought the value down to a reasonable level. So these kinds of thoughts and assumptions go into our process of selecting ships to buy.

And also, Peter, I think a fundamental reason to be optimistic about the market is when you look at slide 10, the order-book-to-fleet ratio, I would say it's almost all-time low. It's not at all-time low. And that definitely provides a fair amount of comfort for the next couple of years. The market will remain at a good level, so to say.

Well, thank you for taking my call.

Thank you. And no further question as of the moment. I will now pass the floor over to our Cilis Pitas. Please go ahead, sir.

Thank you all for taking the time to listen to our call. We'll be with you again in three months' time. Bye.

Thank you, everybody.

Thank you. That concludes our conference for today. Thank you all for participating. You may now disconnect. Thank you, John.