EuroDry Ltd.

Thank you for standing by. Ladies and gentlemen, and welcome to the EuroDry conference call on the third quarter 2022 financial results. We have with us today Mr. Aristides Pidas, Chairman and Chief Executive Officer, and Mr. Tassos Aslides, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be... There will be a presentation followed by a question and answer session, at which time if you would like to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. 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 call to Mr. Pitas, I would like to remind everyone that in today's presentation and conference call, Eurodrive 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 two of the webcast presentation, which has a 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. I would now like to pass the floor over to Mr. Pizost. Thank you, sir. Please go ahead.

Hello, ladies and gentlemen. Good morning, and thank you for joining us for the scheduled conference call. I have with me Tasos Aslidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the third quarter and nine-month period ended September 30, 2022. Please turn to slide 3. Our income statement highlights are shown here. In the third quarter of 2022, we reported total net revenues of $15.8 million and the net income of $6.2 million, or $2.10 per diluted share. Adjusted net income attributable to common shareholders was $5.7 million, or $1.93. and this adjusted EBITDA for the period was $9.5 million. As of November 10, 2022, we had repurchased 108,963 of our common shares in the open market for about $1.5 million, under our share repurchase plan of up to $10 million announced in August. Our CFO, Tassos Aslidis, will go over our financial highlights in more detail later on in the presentation. This turns slide four for our operational highlights. Motor vessel Pantelis was sold for $9.675 million and delivered to her new owners and an affiliated third party on October 17, 2022. On the charter in France, we continued renewing all eight of our vessels which came open for single trips, thus practically keeping our exposure to the spot market. You can see the specifics of the various charters in the accompanying presentation. We have two vessels that are fixed on longer but index-based charters, so practically only one vessel, which is on an agreed longer-term The average earnings of our fleet in Q3-22 was $20,600 per day, approximately. Regarding dry docks and repairs, we had three vessels, motor vessel Alexandros P, Irini P, and Tassos, which were in dry dock for approximately 22, 54, and 35 days, respectively. They released dry dock commenced in Q3 but ended in Q4, so 20 days of the 54 will be accounted for in Q4. There was no idle period or commercial off-hire this quarter. Please turn to slide 5. After the sale of motor vessel Pantelis, the company has a fleet of 10 vessels, including 5 Panamers, carriers. Eurodrive's 10 tribal carriers have a total cargo capacity of approximately 728,000 deadweight, with an average age of 12.6 years. Turning now to slide 6, let's review our current vessel employment schedule in a bit more detail. As you can see, fixed-race coverage for Q4 around 54%, and comes down to about 10% in Q1 2023. This figure excludes the two chips on index charters, which are open to market fluctuations but have secured employment. Moving to slide 7, we'll go over the market highlights for the quarter ended September 30, 2022, and how it currently stands. The other exports for market rate for Panamaxis was approximately $16,000 per day in the third quarter of 2022. By September 30th, there was an uptick to $17,300 per day, but currently it has dropped to around $14,900 per day. The one-year time charter rate for Panamaxis was about $16,000. and currently standing at $14,565 per day. Despite a slight uptick towards the end of Q3 2022, both BPI and BPI indices saw a precipitous drop from the second quarter of 2022 of about This was mainly caused by lower shipping demand due to the economic slowdown across the globe because of energy supply uncertainty from the Ukraine-Russia war and the increasing interest rates to combat rising inflation. Please start slide 9. The global GDP growth is forecast to slow from 6% in 2021 to 3.2% in 2022, and 2.7% in 2023, according to the IMF. This is the weakest growth profile in the last 15 years, apart from the global financial crisis and the critical phase of the COVID-19 pandemic. Russia's invasion of Ukraine, China's zero-COVID policy, showing energy prices, and global inflation all weighed down heavily on the dry bulk outlook. China's growth is projected to slow to 3.2% in 2022, significantly lower than the pre-pandemic years, marking one of the worst performances in almost half a century. In 2023, the IMF expects a slight, for Chinese standards, strengthening to 4.4%, for 2022, from 2.3% in previous projections, and is now projected to inch down further to just 1% in 2023. On the other hand, European growth projections have increased to 3.1% from previously 2.6%, but the risks remain on the downside, and in 2023 GDP growth is expected to be just 0.5%. Growth in emerging markets is forecast to be slow in 2022, while the only country with a better forecast seems to be Brazil, with an anticipated growth of 2.8% from 1.7% previously forecasted, due to the robust recovery in Latin America. For 2023, all other developing countries are expected to do a little bit worse than in 2022, except Russia, Looking at the dry bulk trade, according to Clarkson's, demand growth is expected to be marginally negative in 2022, compared to plus 1.2% in the previous quarter projections. For 2023, dry bulk trade rate is expected to grow by a mere 1.4%. As you notice, trade and growth projections Please turn to slide 10. The single most positive driver for optimism about the dry bulk market is the low dry bulk order book. In the last 18 months it has been kept at very low levels and it currently stands at 6.9% of the existing fleet. Now please turn to slide 11 for the bird's eye view of the supply fundamentals. Based on Clarkson's latest report, the new deliveries as percentage of total fleet is expected to be 3.7% by the end of 2022, 3.4% in 2023, and 2.2% in 2024. Actual fleet growth will, of course, be lower due to scrapping. 8% of the fleet is older than 20 years old, and the candidate Please turn to slide 12, where we summarize our outlook in the dry bulk market. The dry bulk market and predominantly the casein sector has significantly softened year-to-date, primarily due to reduced demand for steel in China, which has led to less iron ore imports. The real estate sector, which accounts for about 30% of China's GDP, faces significant uncertainties going forward. commodity demand and freight rates. Long demand for coal improvement this quarter, with the supply chain starting to normalize and bringing a lot of tonnage back into the market. The negative pressure recorded in the dry-fuel trade market has acted as a main contributor Ordering of new seals for 2023 and 2024 deliveries has been practically non-existent due to lack of available slots in shipyards and the lack of clarity for the fuel of the future, something that makes placing a new order a very risky option. Despite the above-said low expected fleet growth for 2023 and 2024, the overall direction of the market remains uncertain. will be determined by the developments in the Chinese economy and in particular the real estate sector, the outcome of the war between Russia and Ukraine, and the efforts of the in inflation lowering in October, and China possibly abandoning the zero-COVID rule. Let's hope these will not be reversed during the next few days and weeks. Let's start with slide 13. The left side of the slide shows the evolution of one-year time-sharper rates of Panamax dry bulk vessels since 2002. As of November 4, The one-year time charter rate for Panamax ships with a capacity of 75,000 deadweight tons stood at $14,745 per day and remains just above the average rate level observed during the decade before the COVID pandemic start. On the right-hand side of the slide, you can see the historical price range for a 10-year-old Panamax vessel, which has a current price of around $23 million. Whilst these prices are slightly reduced from the previous quarter valuation, they are still significantly higher than historical medium and medians. Our balance sheet has strengthened considerably, and we are sitting on significant free liquidity. If the market continues to correct and charter rates and prices drop further, we will consider further vessel acquisitions. But barring such a development, we believe the most investor-friendly strategy is to continue implementing conservatively our share repurchase program. A share price is trading at a huge discount to our NAV, so we will practically be buying vessels at these discounts to current market prices. And with that, let me now pass the floor over to our CFO, Cassius Asselidis, to go over the various financial highlights in more detail. Thank you.

CASSIUS ASSELIDIS Thank you very much, Archiris. 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 third quarter and nine-month period ended September 30, 2022. and compare the results to the same periods of last year. For that, let's turn to slide 15. For the third quarter of 2022, the company reported total net revenues of 15.8 million, representing an 18.8% decrease from total net revenues of 19.5 million during the third quarter of last year, and that was primarily the results of the lower time chart rates our vessels earned in the third quarter of this year compared to last, and also of the increased schedule of hires during the third quarter, during which our vessels did not earn revenue, and that despite the larger number of vessels we operated. The company reported net income, a net income attributable to common shareholders for the period of 6.2 million, as compared to a net income of $12.1 million, and a net income attributable to common shareholders of $11.8 million for the same period of 2021. Interest and other financing costs, including interest income for the third quarter of this year, amounted to approximately $1 million, compared to $0.6 million for the same period of 2021, the increase being due to higher levels of debt and higher LIBOR days that we had to pay. Adjusted EBITDA for the third quarter of 2022 was 9.5 million, compared to 13 million achieved during the third quarter of last year. Basic and diluted earnings per se, attributable to common shareholders, accounted for the third quarter of 2022 where $2.1 basic and $2.10 diluted, calculated on about $2.9 million basic diluted weighted average number of social standing, compared to $4.47 basic and $4.41 diluted earnings per share, calculated on about $2.6 million and 2.7 million basically diluted, respectively, weighted average number of shares outstanding for the third quarter of last year. Excluding the effect on the earnings attributable to common shareholders for the quarter of the change in their realized gain of derivatives, the adjusted earnings attributable to common shareholders for the quarter ended September 30, 2022, which has been $1.94 basic and $1.93 diluted, compared to objective earnings of $3.84 to $3.79 per share, basically diluted respectively, for the same period, third quarter of last year. Usually, security analysts do not include the above items in their public statements of earnings per share. Let us now look at the numbers for the corresponding nine-month period ended September 30, 2022, and this is compared to the same nine-month period for last year. For the first nine months of 2022, the company reported total net revenues of 55.1 million, representing a 30.7% increase over total net revenues of 42.1 million during the first nine months of last year, and that increase is mainly due to the increased number of vessels we operated, and the slightly higher timeshare operation of vessels during the nine months of this year compared to last. The company reported a net income attributable to common shareholders for the nine-month period of $27.3 million, as compared to a net income of $15.1 million, and a net income attributable to common shareholders of 14.2 million for the nine-month period of 2021. Interest and other financing costs for the first nine months of 2022 amounted to 2.4 million, compared to 3.3 million for the same period of 2021, a figure, though, which also includes loss from debt extinguishment of about 1.65 million. Interest expense for the period was higher due to the increased amount of debt that we carried and the increased liabilities that we had to pay for loans during the year. Adapted EBITDA for the nine months of 2022 was 35.9 million compared to 26.3 million during the first nine months of last year. Basic and diluted earnings per share attributable to common shareholders for the first nine months of 2022 was $9.43 basic and $9.34 diluted, calculated on about 2.9 million weighted average number of shares outstanding, compared to $5.94 basic and $5.74 diluted, calculated from about 2.4 and 2.5 million, respectively, for the same period of last year. Excluding the effect on the earnings attributable to common shareholders for the first nine months of this year of the change in the third value of derivatives, the unrealized change, the adjusted earnings attributable to common shareholders for the nine-month period, the nine-month period, the nine-month period target, ending September 30, 2022, which has been $8.59 basic and $8.60 diluted, compared to adjusted earnings per share for $7.42 basic and $7.29 diluted for the same period, the nine months of 2021. Let us now turn to slide 16 to review our fleet performance. As usual, we'll start our review by looking first at our fleet utilization rate for the third quarter of 2022 and conversion to the third quarter of 2021. As shown here, and as always, our fleet utilization rate is verted down to commercial and operational. So during the third quarter of 2022, our commercial utilization rate was 100%, while our operational utilization rate was 98.9%, compared to 100% commercial, and that's 9.4% operational for the third quarter of last year. On average, 11.0 vessels were owned and operated during the third quarter of this year, earning an average time chart equivalent rate of $20,637 per day, compared to 8.1 vessels that were operated in the same period of last year, earning on average $28,103 per day. Our total operating expenses, including management fees, general and administrative expenses, but not including the total cost of dry working, was $6,593 per vessel per day in the third quarter of this year, compared to $6,495 per vessel per day for the third quarter of 2021. If we move to the corner of this table, we can see the cash flow break-even rate for the third quarter of 2022, which also takes into account diverting expenses, interest expenses, the loan repayment, and preferred dividends, if there were any, to be paid in cash, but excludes any value payments. Thus, during the third quarter of 2022, our daily cash flow rate even raised was $13,984 per vessel per day, compared to $9,992 per vessel per day for the same period of last year. And this is mainly, as you can see, attributed to higher driver's costs that we have to pay this year and to higher loan payments. Let's now go over, let's now look for the nine-month period. Let's start again with our utilization rate. During the nine-month period of 2022, our commercial utilization rate was 99.8%, and our operational utilization rate 99.1%, compared to 100% commercial and 99.6% operational during the same period, the first nine months of last year. We own and operated another 10.5 vessels, earning an average time shorter equivalent rate of $22,876 per day, compared to 7.5 vessels that we own and operated during the first nine months of 2021, which earned an average $22,232 per day. Our total operating expenses, again, including management fees, G&A expenses, but excluding diversion costs, were $6,587 per vessel per day for the first five months of this year, compared to $6,510 per vessel per day for the same period of 2021. Again, looking at the bottom of the table, we can see the cash flow rate even raised for the period. And for the nine-month period of 2022, that was $13,961. As compared to $10,456 for the same period of last year, the increase again attributed to higher directories and expenses paid and higher loan payments. Let's now turn to slide 17, and let's review our debt profile. As of September 30, 2022, we set an outstanding bank debt of about $88 million. Looking at the chart in the top part of this slide, we can see that our debt repayments, excluding balloon payments over the next three years, are around $11 million per year, and then drop to $5.7 million in 2025 and $4.9 million in 2026. Our next balloon payment of about $11.3 million is due in 2023, and we expect to be able to refinance this payment, if we choose so, as we've done in all the cases that we've had valuations in the past. A quick note here about the cost of our debt. The average margin for our debt is about 2.75%, and assuming a LIBOR rate of about 4.55% on top of it, we can estimate the total cost of our senior debt as of the end of the quarter, to be around 7.3%. Actually, though, the cost of our debt is about 110 basis points lower, that is about 6.2%, if we account for the amount of debt, the level cost of which we have had via interest rate swaps. At the bottom of this table, we can see a projected cash flow break-even rate for the next 12 months, broken down into its components. You can see that we expect to have a cash flow break-even rate of around $13,550 per vessel per day. On the same chart at the bottom of the slide, you can see our EBITDA break-even, which includes our operating expenses, GMA expenses, and dry working costs. and which is estimated at around $7,564 per vessel per day. This figure can help analysts and investors assess our EBITDA over the next 12 months by making an assumption about the earnings to be earned by our vessels. On the basis of our current 10-vessel fee, we would have about 35,000 vessel dates available for high over the next 12 months. Almost all of our vessel dates, as we have seen earlier, are exposed to the stock market. So it is straightforward to make an assessment of our EBITDA for the next 12 months. For example, if we assume that our vessels earn on average, for the sake of simplicity, $17,564 per vessel per day net of commission, the resulting $10,000 per day excess over the EBITDA rate, even rate, would translate to about 35 million EBITDA for the upcoming 12-month period. Let's now move to slide 18, where we can see some highlights from our balance sheet in a simplified way. This slide shows a snapshot of our assets and liabilities. Our assets consist of our cash and other shorter assets and the value of our assets. As of September 30, 2022, cash and other assets stood at about 43.7 million. The book value for our vessels was approximately 158.2 million, resulting in total book value of assets for about 201.8 million. On the liability side, our debt, as we mentioned earlier, as of September 30th, was about 88 million, representing 43.6% of the book value for our assets. Additionally, other liabilities amounted to $6.6 million, or 3.3% of our total book value for assets, resulting in book shareholder's equity of about $107.2 million, which translates to a book value of $37.27 per share. However, based on our own estimates and based on market transactions, As of the end of September, we estimated that the market value of our vessels was above their book value and stood around $192.5 million, suggesting that our NAV per share to be in excess of $49 per share. With our short-term interest rate trading around $15, there obviously appears to be a sizeable gap to our NAV, suggesting that significant appreciation potential for our shareholders and investors. And with that comment, let me turn back the floor to Aristides to continue the call.

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

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you. Our first question is from Tate Sullivan with Maxim. Please proceed with your question.

Okay. Thank you. Good day. To start, you mentioned, I think I heard correctly, a $35 million EBITDA for the upcoming 12-month period with the $13,558 break-even. But what was the assumed time charter equivalent rate you used? Was it one-year contracts today of around $14,500? Can you repeat that, please?

that was just an indicative calculation. Because our EBITDA break-even was $7,564, I assumed a net, to just demonstrate the calculation, I assumed a net time chart earnings of $17,564, so the difference would be for the next 12 months. But if the rate was up, the EBITDA would have been $35 million.

Okay. Thank you. And then strategically, I mean, the increase in debt from 2Q to 3Q, can you talk about the decision to add debt by roughly $15 or $16 million?

So we had two unencumbered vessels, and we thought that it was a good idea to put a conservative 50 percent debt on them so as to have the liquidity to be able to use it, firstly, for our series purchase program, but also to be able to move quickly some point if we want to make a new acquisition. It feels good to have the cash in the bank.

Thank you. And plus you gave detail on the rising rate going forward and we can make our own calculations on that too. And then also on the sources of support for the market.

I think what we need to do is to keep an eye open to the geopolitical and economical developments. Demand depends a lot on global GDP growth, and this is really what we should be trying to understand what it will be. And, of course, this is a very difficult task. Absolutely. Okay. Thank you both. Thank you, Dave.

Thank you. Thank you. Our next question is from Poe Frat with Alliance Global Partners. Please proceed with your question.

Good morning, Eric Stevens. Good morning, Tassos. I have a question more on the financing side. You know, you have $11.3 million of debt that's due next year that is potentially going to be refied. Can you give me an idea of what you're expecting as far as the refi rate? And conversely, since you did, you know, encumber, you know, refinance or encumber some of the vessels in the third quarter, Would we expect you, if the rates are too high, to, you know, pay that debt down with cash and wait for a better financing environment?

I think we figured that we would like to have some liquidity on our balance sheet for the reasons that I explained earlier. So that's why we took relatively cheap. I think the margin on the debt that we got was near 2%. So it was relatively, actually less than 2%, so it was a relatively cheap debt. Of course, LIBOR costs are higher, so gaining something on the margin gets reversed by the increase in LIBOR. But in any case, having the extract in our balance, it gives us flexibility to pursue the pressure problem and also be ready to pull the trigger, as people say, in case opportunities come around.

Also, okay, the cost of the debt, because LIBOR is increasing, is higher, but on the other hand, you now do get some interest on your deposits. So the overall cost of having this free liquidity is actually very small.

It's basically the margin, which in that particular case, it was one of the lowest we have achieved recently. So regarding the balloon that you mentioned, that is due sometime in the second quarter of next year. We'll decide closer to that date whether we will just repay it or refinance it. We consider ourselves lucky enough to have the flexibility to make that decision and not be forced to refinance.

Yeah, that's what I was sort of alluding to. And then, you know, if you pull the trigger on some new assets, that means that, you know, asset values have come down. You know, just to reiterate on the stock buyback program, can you walk us through some of the math that you're looking at on, you know, the current stock price at 15? That would imply that, you know, asset values are below the median value. average, you know, that you show in your presentation, you know, probably to the tune of about 20%. So should I be looking at, you know, even if the asset values go down to the median level, that you're still buying your stock currently at a discount to the long-term asset values?

Yeah, clearly. Right now, the best investment for us is to buy back our stock. That is trading significantly below NAV. And that's why we're doing it, because compared to buying a vessel at NAD, that is 75% discounted, or whatever is the gap. If the market becomes weaker, then opportunities may appear. Also, we just sold one, our eldest vessel, and it was always in our mind, it is in our mind to renew our fields of swapping

And with rates lower, are you seeing any customers think about locking in, trying to lock in, or approach you with more longer-term commitments? Not to say that you would agree to longer-term commitments at these levels, but are customers starting to think about that?

Not really. We don't see any significant pressure from the market to get long-term charges at today's rate. I think that, you know, the fact that it's so difficult to predict what will happen makes everybody more conservative and not willing to take longer exposures.

Okay, great. Thanks for your time. Thank you, Paul. Thank you, Paul.

Thanks for the question. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone when we pay your line is in the question queue.

I presume there's no more questions.

There are no more questions at this time. I'd like to turn it back to management for any closing comments.

Thank you all for being with us for our call this quarter. We will be back with you early next year to discuss how the whole year fell. Thank you.

Thanks, everybody. Happy Thanksgiving to my American friends.

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