EuroDry Ltd.

Thank you for standing by, ladies and gentlemen, and welcome to EuroDry Conference Call on the fourth quarter 2022 financial results. We have with us today Mr. Aristides Pires, Chairman and Chief Executive Officer, and Mr. Tasos Ailides, 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. 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 a press release that has been publicly distributed. Before passing the floor to Mr. Pitas, I would like to remind everybody... that in today's presentation and conference call, EuroDRIVE will be making forward-looking statements. These statements are within the meanings 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 will kindly draw your attention to slide number two of the webcast presentation, which has the full forward-looking statement, and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. And now I would like to pass the floor over to Mr. Pitas. Please go ahead, sir.

Good morning, ladies and gentlemen. Thank you all for joining us today for our scheduled conference call. Together with me is The purpose of today's call is to discuss our financial results for the fourth quarter and full year ended December 31st, 2022. Tasos will go over our financial highlights in more detail later in the presentation. Please turn to slide three. Our income statement highlights are shown here. For the fourth quarter of 2022, we reported total net revenues of $15.1 million and net income of $6.3 million, or $2.20 per diluted share. Adjusted net income attributable to common shareholders was $3.3 million, or $1.18 per diluted share. The difference stemming mostly from the one-time profit we had selling our eldest vessel, MV Pantelispi. Adjusted EBITDA for the period was $7.3 million. Please refer to the press release for the reconciliation of adjusted net income, maximum double to common shareholders, and adjusted EBITDA. As of February 10, 2023, we had repurchased 147,000 announced in August 2022. We will continue to execute the share repurchase program at management's discretion. For the full year 2022, our net revenue was $70.2 million and net income was $33 million, or $11.62 per diluted share. Adjusted net income for the period was $28.4 million, or $9.86 per share diluted. Adjusted EBITDA for the period was $43.2 million. Please turn to slide 4 for our chartering and operational highlights. On the chartering front, we have been active in securing short-term employment for all our vessels as a result of a weakened Q However, we have fixed two of our 10 vessels for a minimum of 13 to 24 months respectively, but on index-linked charters at 105.5% of the average Baltic-Campus Aramax index, thus maintaining our exposure to the spot market there as well. vessels that have been refixed in January have been at still lower levels, below $10,000 a day, as can be seen in the slide. I'm just going to note here the one charter of motor vessel Molyboslac, as this vessel was delivered early from its previous charterer after mutual agreement and was refixed for the remainder of the charter at The original charterer paid the difference between the original charter rate, being $25,750 per day, and the rate of the new charter in advance, essentially leaving us with no material loss of income. Moving on to the dry docks and repairs. Motor vessel Irini was in dry 2022 and the remainder in Q1 2023. There were no idle or commercial off-hire periods during this quarter. In addition, during the quarter we sold 90 days of an FFA contract for Q1 2023, the equivalent of one Panamax vessel, at $12,000 per day. This contract is Please turn to slide 5. The company has a fleet of 10 vessels divided into two sub-sectors. Five modern and eco-ships younger than 10 years old, two Ultramaxes, two Campsramaxes and one Supramax, and five Japanese vintage Panamaxes, which however continue to be valuable workhorses of the industry. Overall, our fleet has a total cargo capacity of 13.6 years. Turning to slide 6, we provide a graphical update of our fleet employment. As you can see, fixed rate coverage for 2023, including the FFA, stands at about 13.8%. This figure excludes ships on index charters which are open to market fluctuations but have secured employment. Life7 reviews the market highlights for the fourth quarter of 2022 up until recently. The average spot market rate for Panamaxes was approximately $14,700 per day in the fourth quarter of The drop in the one-year time charter rates for Panamax has been more moderate, standing on average at around $14,700 per day during the quarter, and currently standing at $13,700 per day. Both the BPI and BDI indices reflected the weaker demand and lackluster shipping activity due to a slowdown of imports to China, global slowdown of economic growth, the Ukraine-Russia war, energy security focus, and rising interest rates. Leave now for slide nine. projections for 2023 and 2024, signalling some positivity in world economic growth and greater than expected resilience in a number of economies. The IMF now projects world growth to reach 2.9% in 2023, rising to 3.1% in 2024. The rise in central bank The rapid spread of COVID-19 in China dampened the growth in 2022, but a recent reopening has paved the way for a faster-than-expected recovery, with a projected GDP growth of percent in 2024 owing to persistent inflation and the Federal Reserve's hawkish outlook. European growth projections are up by 0.2 percent from the previous quarter to 0.7 percent for the whole in 2023, whilst the growth rebound to 1.6 percent is expected in 2024. and rising interest rates are likely to persist into the year. Growth in emerging and developing countries is expected to be quite slow in 2023, but higher than previously expected. Also, the Russian economy has recently been upgraded from a negative 0.3% in 2023 to a positive 2.1% for 2024. India is expected to grow at the fastest pace of 6.1%, while Brazil's economy is now projected to grow 1.2% in 2023 and 1.5% in 2024. According to Clarkson's estimate, dry bulk trade demand is expected to return to growth in 2023, following the contraction last year. For 2023, dry bulk trade rate is expected to grow by 1.6% and 2% in 2024. This turns slide 10, where we review the current dry bulk market cycle. The order book as a percentage of total fleet stands at 7.2% as of February 2023. This suggests minimal fleet growth over the next 2-3 years, likely leading to higher rates if trade increases. Continuing on to slide 11, according to Plaxo's latest report, new deliveries as a percentage of total fleet is expected to be 3.8% by the end of 2023, 2.4% in 2024, and just 0.8% in 2025. The actual fleet growth is expected, of course, to be lower due to recycling. and the candidate for scrapping. Please turn to slide 12 where we summarize our outlook for the dry bulk market. The dry bulk market continues to soften with freight China's zero-COVID containment policy and a weak global economic outlook with recessionary risks sparking slowdown fears in key markets. At the same time, certain logistical bottlenecks that grew during the pandemic years have reversed significantly. There are, however, certain demand catalysts that could lead us to return to normal or even above normal growth rates. China's return to normality after the real estate crisis and reversal of zero-COVID containment policy, along with announced stimulus packages, is one of the major potential drivers of the market recovery. By extension, an end to the war between Ukraine and Russia would lead to higher grain exports and huge reconstruction projects. a more predictable investment environment, higher economic growth, and thus more driver trade should start to materialize. On the supply side, the ordering of new ships has been practically non-existent due to lack of available slots in shipyards and the lack of clarity for the fuel of the future. The order to fleet ratio returns to normal levels. Furthermore, the introduction of emissions regulation-related measures, the EXI and the CII, could further curtail supply as already explained. Finally, let's turn to slide 13. The left chart shows the evolution of one-year time charter rates of Panamax dry bulk vessels since 2002. As of February 10th this year, the one-year time charter rate for Panamax ships with a capacity of 75,000 deadweight tons stood at $13,700 per day. This is close to the historical median levels. In the right chart, you can see the historical price range for a 10-year-old Panamax vessel, which has a current price of about $22.5 million. This is more than the highest price level seen in the last 12 and 20-plus years, but still considerably higher than the historically average and median prices. Clearly, prices are higher than what currents are We believe that Q123 will be the first loss-making quarter for Eurodry after eight consecutive profitable quarters in which the company booked a combined profit of more than $21 per share. We will continue to execute conservatively on our stock repurchase program, as indeed we perceive our stock market valuation to be, by a couple of orders of magnitude, lower than our intrinsic fair value. Let me now pass the floor over to our CFO, Tasos Asglidis, to go over our financial highlights in more detail. Tasos, the floor is yours.

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 fourth quarter and full year of 2022 and compare them with our actual results in the equivalent periods of 2021. For that, let's turn to slide 15. For the fourth quarter of 2022, the company reported total net revenues of 15.1 million, representing a 32.3% decrease of a total net revenues of 22.3 million during the fourth quarter of last year, which was the result of the decreased average time charter equivalent rate our vessels earned in the fourth quarter of this year compared to last year. The company reported a net income and a net income attributable to common shareholders for the period of 6.27 million as compared to a net income of $16 million and a net income attributable to common shareholders of $15.2 million for the same period, the fourth quarter of 2021. Interest and other financing costs for the fourth quarter of 2022 increased to about $1.5 million as compared to $0.7 million for the same period of 2021. Interest expense was higher mainly due to the increased amount of debt and of course the increased liabilities our loans had to pay during the period as compared to the same period of last year. Adjusted EBITDA for the fourth quarter of 2022 was 7.3 million compared to 16 million achieved during the fourth quarter of 2021. and diluted earnings per share attributable to common shareholders for the fourth quarter was $2.21 basic, calculated on $2.8 million, and $2.20 diluted, calculated again on about $2.9 million weighted average number of social spending, compared to $5.38 basic and 5.32 diluted during the same period of last year. Excluding the effect on the income attributable to common shareholders for the quarter of the change in fair value of derivatives and gain on sale of investment, the adjusted earnings attributable to common shareholders for the fourth quarter of this year would have been 1.18 cents per share basic and $1.17 per share diluted, compared to adjusted earnings of $4.34 per share basic and $4.29 per share diluted for the same period of last year. Typically, security analysts do not include the above items in their published estimates of earnings per share. Let's now move to the outcome of this slide. to review the same figures for the full year of 2022. For the full year, the company reported total net revenues of 70.2 million, representing an 8.9% increase over total net revenues of 64.4 million during 2021, as a result of the increased number of vessels we operated during 2022. The company reported a net income and a net income attributable to common shareholders for the period of 33.5 million as compared to a net income of 31.2 million and a net income attributable to common shareholders of 29.4 million during 2021. Interest and other financing costs during 2022 amounted to 3.9 million compared to 2.3 million for the same period of last year. Adjusted EBITDA for the 12 months of 2022 was 43.2 million compared to 42.3 million achieved during 2021. Basic earnings per share attributable to common shareholders for the 12 months of 2022 were $11.66 calculated on 2.9 million weighted average number of social outstanding and diluted earnings per share were $11.61, calculated again on about 2.9 million weighted average number of social outstanding compared to basic and diluted earnings per share attributable to common shareholders of $11.63 and $11.54 dollars, basic and derivatives, respectively, for last year. Excluding the effect on the earnings attributable to common shareholders for the year of the change in the fair value of derivatives, the loss on debt extinguishment in 2021, and the gain on sale of a vessel in 2022, the adjusted earnings per share attributable to common shareholders for last year, 2022, would have been $9.90 basic and $9.85 diluted, compared to $11.63 basic and $11.54 diluted for 2021. As I mentioned, typically security analysts do not include the above items in their public statements of current process. Let's now turn to slide 16 to view our fleet performance. We will start our review by looking at our fleet utilization rates for the fourth quarter and the full year of 2022 and 2021. Let's start with the fourth quarter first. As usual, our fleet utilization rate is brought down to commercial and operational. In the fourth quarter of this year, our commercial utilization rate was 100%, while our operational utilization rate was 99.7%. compared to 99.8% commercial and 99.5% operational for the fourth quarter of last year. On average, 10.1 vessels were owned and operated during the fourth quarter of 2022, earning an average time charter equivalent rate of $16,688 per day, compared to nine vessels that were owned and operated during the fourth quarter of 2021, earning on average $29,157 per day. Our total daily operating expenses, including management fees, general and administrative expenses, averaged $7,035 per vessel per day during the fourth quarter of 2022, compared to $6,324 per vessel per day for the fourth quarter of last year. If we move further down this table, we can see the cash flow break-even rate, which we paid during the fourth quarter of this year, which takes into account also value-adding expenses, interest costs, loan repayments, and preferred dividends, if any of them were paid in cash. Thus, for the fourth quarter of 2022, our daily cash flow rate was $13,063 per vessel per day, compared to $11,625 per vessel per day during the fourth quarter of 2021. Let's now look on the right part of the slide to review the same figures for the full year. During the entire 2022, our commercial utilization rate was 99.8%, while our operational utilization rate was 99.3%, compared to 99.9% commercial and 99.6% operational for 2021. On others, we own and operated 10.4 vessels, earning an average time charter equivalent rate of $21,304 per day, compared to 7.9 vessels in the year 2021, earning on average $24,222 per vessel per day. Our total daily operating expenses, including management fees, generally administrative expenses, but excluding diversion costs, average $6,699 per vessel per day in 2022, compared to $6,456 per vessel per day in 2021. Again, looking at the bottom of this table, we can see our daily cash flow break-even rate for the year, which amounted in 2022 to $12,989 per vessel per day, and that compares to $10,000 Let's now move to slide 17. There we can review our debt profile. As of December 31st, 2022, we had an outstanding bank debt of about 81.9 million. Looking at the chart on the top of the slide first, we can see that our debt repayment and balloon payments over the next four years. As of December 31, 2022, again, our scheduled debt repayments, including balloon repayments over the next 12 months during 2023, amounted to about $23 million, an amount which includes an $11.3 million balloon payment related to the loan of our newest vessel, Katerin. Our balance sheet allows us to comfortably make the balloon payment. Nevertheless, we intend to refinance it, like we have done in similar cases in the past. Total debt repayments in 2024 amount to about 14 million, inclusive of a 3 million balloon, and dropped to about 5.7 million in each of 2025 and 2026. A quick note here about the cost of our debt. The average margin for our debt is about 2.7%, and assuming a labor rate of about 4.8% on the top of it, we can estimate our total cost of our senior debt to be around 75%. However, if we included in our cost of debt calculation the interest rates locked via our interest rate swap contracts, the cost of our debt would drop to about 6%. At the bottom of this table, we can see a projected cash flow break-even rate for the next 12 months, broken down to its components. As you can see, we expect an overall cash flow break-even rate level of around $12,725 per vessel per day. chart on the bottom of the slide, we can see our EBITDA break-even rate, which amounts to about $7,637 per vessel per day over the next 12 months. Let's now move to the last slide, slide 18, where we can see some highlights from our balance sheet in a simplified way. This slide offers a snapshot of our assets and liabilities. As of December 31, 2022, CAS and other current assets stood at about $50.5 million in our balance sheet. The book value of our vessels was approximately $149 million, resulting in a total book value of our assets of about $200 million. On the liability side, our debt, as of at the end of last year, as I mentioned, was about 81.9 million, representing about 41% of the book value of our assets. And we also had other current liabilities amounting to about 4.3 million, or about 2.2% of the book value of the assets. That leaves us with a book value of shareholders' equity of about 114 million, which translates to a book value However, based on our own estimates and market transactions, we assess that the market value of our vessels as of the end of last year was above their book value and stood at around $168 million, about $19 million more than their book value, suggesting that our NAV per share to be in excess of $45 per share, close to $46 per share, And that indicates that with our shares trading in the range of $16 to $17 recently, that investing in our shares provides a significant upside to our shareholders and investors. This concludes my brief review of our results and balance sheet, but I would like now to pass the floor back to our interviewees to continue the call.

Thank you, Pastor. Let us open up the floor for any questions we may have.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation sound will indicate your line is in the question queue. Our first question is from Tate Sullivan with Maxim Group. Please proceed.

Hello. Good day. Good day, both. In the press release, you mentioned maybe using this current environment as an opportunity to buy ships or merge user public shares as a merger. What are incentives for other ship owners to sell currently or to consider a merger, please?

First of all, we need to find our incentive to buy ourselves because, as I said during the discussion, prices are still quite high relative to where the current charter rates are. And I think we would need to see prices softening a little bit before we were able to act on these expansion plans that we have.

Right. And then you mentioned you gave some commentary about positioning of the ships. And I mean, I've seen the slide in terms of your spot rates for this current quarter. Is there a potential for more positioning after the current contracts expire in this current quarter? Should we factor that into our estimates for 1Q23?

Well, half of our vessels are practically fixed throughout Q1. The other half will come up for rechartering within the next 40 days, till the end of the quarter. So we will be obviously fixing those ships as well. Because the market is at where Q1 is the lowest quarter, everything else being equal, of course. We think that this will transpire this year as well, and we will see recovering rates within Q2. Okay.

And plus, on the voyage expenses, a bit volatile with the gain on bunkers and going back to I mean, will this be consistently an expense, or what has to happen to have a gain on bunkers going forward? Or should I just continue to factor in about a million of voyage expenses every quarter?

It depends very much. Voyage expenses depend on the style of fixing. If we did time charters, obviously we don't have significant voyage expenses, other than voyage expenses result from buying and selling fuel and delivery between charters. If we fix on a mortgage basis, and I think we do have a mortgage charter in Q1, which will be shown in the Q1 results, then, of course, both revenues and mortgage expenses will be high. So the best way to model it is to, in my opinion at least, is to model the time charter equivalent basis and assume a level of mortgage expense. But... Possible gains on volume expenses that you see occasionally is because of the gains that we realize when we buy at a lower price and sell to the next charter at a higher price. We shouldn't count of this continuing, this sort of one-off situation.

Yes. Volume expenses are very much affected by fewer down, because we buy from the market, sell to charters, and vice versa. And it all depends on how that is going. So this is a difficult thing to model, as Tasos rightly said.

Understood. Okay. Well, thank you, Frank. Thank you for the background and the commentary. Have a good rest of the day. Thanks. Thanks. Bye.

As a reminder to Star 1 on your telephone keypad, if you would like to ask a question, we will pause for a brief moment to see if there's any more questions. There are no further questions. I would like to hand the conference back over to management for closing comments.

Thank you, everybody, for listening in to our results of this quarter. We will be back to you at the end of Q1 with the results of the first quarter of 2023. Have a great day. Thank you, everybody.

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