EuroDry Ltd.

Thank you for standing by, ladies and gentlemen, and welcome to the EuroDry conference call on the first quarter 2023 financial results. We have with us today Mr. Aristides Piedas, Chairman and Chief Executive Officer, and Mr. Tasso Caslidis, 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 wish 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. Titus, 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 law. Matters discussed may be forward-looking statements which are based on current management expectations that involve risk and uncertainty and may result in such expectations not being realized. I kindly draw your attention to slide number 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. And now I would like to pass the floor to Mr. Peters. Please go ahead, sir.

Good morning, ladies and gentlemen, and thank you all for joining us today for our scheduled conference call. Together with me is Mr. Tasos Haslidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the three-month period ended March 31, 2023. Please turn to slide three of the presentation. Our financial highlights are presented here. For the first quarter of 2023, we reported total net revenues of $11.3 million and a net loss of $1.5 million, or $0.55 loss, per basic and diluted shares. Adjusted net income, though, attributable to common shareholders, was $0.4 million, or $0.14 earnings per basic and diluted share, respectively. The main difference to our net income was the unrealized portion of the change of value in our derivative contracts. Adjusted EBITDA for the period was $2.4 million. A reconciliation of adjusted net income attributable to common shareholders and adjusted EBITDA is presented in the press release. As of May 15, 2023, we had purchased 188,731 shares of our common stock in the open market. for about $3 million, under our share repurchase plan of up to $10 million, announced in August 2022. We will continue to execute the share repurchase program at management's discretion. Passers will go over our financial highlights in more detail later on in the presentation. Please turn to slide four for our operational highlights. On the chartering side, we have new charters on eight of our vessels. The majority of the ships were employed in short-term charters, whilst two vessels, the Bless Luck and the Irene Peak, were fixed for periods 6 to 9 months. You can see the specifics of the various charters we fixed in the accompanying presentation. I remind you that two of our vessels are employed for a minimum of 13 to 24 months respectively on index-linked charters at 105.5% On the other, it's Baltic Kamsar Maxarade. Additionally, at the end of February 23, once the market started to recover, we sold 90 days of FFA contracts for the equivalent of one Panama Express route in the second and one in the third quarter of 2023 at $16,500 and $16,250 per day. In March, we also sold another 90 days at $17,700 per day and $17,500 per day for Q2, for the corresponding courses of Q2 and Q3. Thus, we practically covered another two of our vessels for these periods at aforementioned rates. Regarding dry docks and repairs, Motor Vessel Santa Cruz and Motor Vessel Ecaterina underwent dry docks. The former, for almost 24 days, days. Finally, please note that motor vessel Good Heart is undergoing minor repairs since May 3rd in Texas and is currently expected to leave by the end of the week. Please turn to slide 5. The company has a fleet of 10 vessels, including five Panamax to Ultramax Moving on to slide 6, we provide a graphical update on our fleet employment. As you can see, fixed rate coverage for 2023 stands at around 46% if we include both FFA's and fixed charters. This figure excludes ships on index charters which are open to market fluctuations but have secure employment. Turning on slide 7, we go over the market highlights for the quarter-ended March 31, 2023, up until last Friday. The average spot rate for Panamax is kicked off the first quarter of 2023 on a low note at approximately $10,200 per day, having passed a low of $6,200 a day in mid-February. By March 31st, the spot rates had increased to approximately $13,000 per day. The average one-year time charter rate for Panamaxes was about $14,500 per day during the quarter, increasing to $16,000 per day by March 31st, currently standing at $14,375 per day. Consequently, both the BPI and BTI indices were off to a rocky start, hitting their lowest levels by mid-February, but recovering since. In early March, the dry bulk market looked upbeat, driven by China's reopening, ongoing demand for iron ore, and limited supply growth. However, during the last few months, we have seen the market lose steam, but rates continue to fall comfortably at five-figure profitable levels. In its latest update in April 2023, the IMF slightly lowered its global GDP growth estimate to 2.8% for this year, before settling to 3% in 2024. This is primarily due to the effects of high inflation, tighter monetary policies, slow economic activity, as well as the ongoing war between Russia and Ukraine, and growing geopolitical tensions. However, the U.S. and the EU seem quite resilient, despite the recent economic shocks, primarily in the financial sector. Also quite noticeably, China seems to be on track to achieve an estimated growth rate of 5.2% for this year. followed by a moderate growth of 4.5% for 2024. Growth in emerging and developing countries is expected to be quite below longer-run trends in 2023 and 2024, with the IMF lowering growth projections more than previously expected. India is poised to grow by 5.9% in 2023 and 6.3% in 2024, which is below its trend. Russia's economic growth on the other hand was revised higher for 2023, to 0.7 percent from 0.3 percent during the last IMF estimates. However, the long-term outlook worsened from 2.1 percent to 1.3 percent for 2024. Despite the slightly slower global growth expectations, to return to steady growth of 2.5% both this year and in 2024. Please turn to slide 10. The order book continues to fuel positive market sentiment as it remains at the lowest historical levels. The order book, as a percentage of total fleet, as of May This suggests minimal fleet growth over the next two to three years, likely leading to higher rates in 2023 if trade increases even at just historically average levels. Additionally, environmental regulations could further influence supply growth either by forcing some vessels to retire or reducing their operational speed. Turning to slide 11, let us now look into supply fundamentals in a bit more detail. According to Clarkson's latest report, new deliveries as a percentage of total fleet are expected to be 3.9 percent as of the start of the year in 2023, 2.7 percent in 2024, and 1.2 percent 8% of the fleet is older than 20 years old and the candidates for scrapping, especially if the market will not be strong. Please turn to slide 12, where we summarize our outlook on the dry bulk market. The dry bulk market was under significant pressure in the beginning of the year, as I've already said, falling mostly to the traditional seasonality before the Chinese New Year. As of mid-February, and only to the Chinese reopening post-COVID, we have seen a significant rebound, especially in the smaller sizes up to come summer. Average freight rates stood at $8,500 per day across January and February 2023, before picking up in mid-March to $13,900. During this time, we were fortunate enough to have eight of our vessels employed under short-term charters and were therefore able to employ these vessels at higher rates. Even the two vessels under index-linked charters are open to market conditions and were able to benefit from this boost in the market. Over the past two months, we have observed lower rates in the absence of high congestion and slower than expected economic growth, with continued weakness in mainland China's real estate sector. We continue to believe in the improvement in banker earnings through 2023 as the market moves past this typical seasonal weak first quarter. Of course, the market is heavily dependent on the and the ease of global macroeconomic headwinds. On the other hand, the newly introduced emissions regulations, the EEXI and CII, will definitely have a positive contribution to the necessary slow steaming they will induce. Also on the supply side, the persistent underbuilding of new ships could create a supply crunch in the next few years. There is a shortage of available slots currently in shipyards, still 2026, and still a lack of clarity for the fuel of the future. Consequently, due to the conflicting forces at play today, uncertainty remains over the time in the scale of potential market improvements, though it can be argued that the fundamentals are mildly encouraging. 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 May 12, 2023, the one-year time charter rate for Panamax ships with a capacity of $75,000 deadly tons stood at $14,375 per day, which is very close to the historical median. 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 $25 million. This is lower than the highest price levels seen in the last 12 and 20-plus years, respectively, but higher than historical average and median prices. Certainly, current vessel prices are not justified by current charter rates. In the medium to longer term, either prices will need to fall or charter rates to increase. We believe that due to the fundamentals described and the return of global inflation, most probably charter rates will eventually have to rise. We are closely monitoring the situation to decide when to invest in further acquisitions, as during the last couple of years we have delivered the company and build significant liquidity. In the meantime, we will continue on our course of stock repurchase program, which we consider an excellent investment, as we are trading at around 35% of our market-adjusted MED. Let me now pass the floor over to our CFO, Tasos Aslidis, to go over various financial highlights in more detail. Tasos, the floor is yours.

Thank you very much, Eric Giddens. Good morning from me as well, ladies and gentlemen. I will use the next four slides to give you an overview of our financial highlights for the first quarter of 2023 and compare those results to the same period of last year. For that, let's turn to slide 15. For the first quarter of 2023, the company reported total net revenues of $11.34 million representing a 38% decrease for the total net revenues of $18.20 million achieved during the first quarter of last year. And that was the result of the lower time charter rate our vessels earned during the first quarter of this year, which was partly offset by the increased average number of vessels we owned and operated, and the lower charter revenues recognized in respect of one of our vessels. The company reported net loss for the period of 1.41 million as compared to a net income of 10.49 million for the same period of 2022. In terms, another financing cost for the first quarter of 2023 increased to 1.47 million as compared to 0.65 million for the same period The same time, though, we had, during the first quarter of this year, interest income of about $0.23 million, as opposed to very minimal interest income for the same period of 2022. Adjusted GDP for the first quarter of this year was $2.36 million, as compared to $12.71 million achieved during the first quarter of 2022. basic and diluted loss per share for the first quarter of 2023 was $0.55, calculated on about $2.8 million basic and diluted weighted average number of shares outstanding, converted basic and diluted earnings per share of $3.69 and $3.64 respectively for the first quarter of 2022, calculated approximately on $2.8 in 2.9 million weighted average number of shares outstanding. Excluding the effect on the earnings for the quarter of the unrealized loss in derivatives, the adjusted earnings for the quarter ended March 31st, 2023, which has been 14 cents, basically diluted, compared to adjusted earnings of $3.34 and $3.30 per share based on their dividend respectively for the same quarter of last year. Typically, security analysts do not include the above items, the unrealized losses or earnings, in their published estimates of earnings per share. Let's now turn to slide 16 to review our fleet performance. We will start our review by looking first at our utilization rates for the respective first quarters of this and last year. As always, our fleet utilization rate is broken down to commercial and operational. During the first quarter of 2023, our commercial utilization rate was 99.8%, while our operational utilization rate was 99.7%, compared to 100% commercial and 99.6% operational for the first quarter of 2022. On average, 10 vessels were owned and operated during the first quarter of 2023, earning an average time charge of $10,674 per day, compared to 9.54 vessels that were owned and operated during the first quarter of last year, earning an average $24,636 per day. Our total daily operating expenses, including management fees, GMA expenses, but excluding driving costs, averaged $6,953 per version per day during the first quarter of 2023, compared to $6,610 per version per day for the first quarter of last year. If we move further down this table, we can see the cash flow break-even rate, which we had during the first quarter of this year, which takes into account, in addition to the low, direct expenses, interest expenses, and loan repayments. For the first quarter of 2023, our total daily cash flow break-even rate was $13,196 per day, as compared to $12,815 per day, for the first quarter of last year. Let's move now to slide 17 to review our debt profile. After March 31st, 2023, we had outstanding bond debt of about 67 million. Looking at the chart on the top part of this slide, we can see that our debt repayments, excluding volume repayments, over this and next year are between 11 and 12 million a year. and then dropped to between 5 and 6 million in 2025 and 2026. As of March 31, 2023, our state debt repayments, including volume repayments over the next four months, amounted to about 8.5 million. A good note here about the cost of our debt. The average margin of our debt is about 2.68%. And assuming a LIBOR rate of 5.35% on the top of that, and including the cost of the portion of our debt covered by our interest rate swap contracts, we estimate that the total cost of our senior debt as of the end of last quarter to be around 7.7%. At the bottom of this table, we can see a projected cash flow rate even rate for the next 12 months broken down into its various components. On the total basis, we can see that we expect to get a cash flow break-even rate of around $12,495 per vessel per day. In the same chart, we can also see our EBITDA break-even rate in the middle of the chart, which includes our operating expenses, GMA expenses, and direct open costs, and which is estimated to be around $7,902 per vessel per day. Let's now move to the next slide to conclude our presentation, move to 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 March 31st, 2023, cash and other assets stood at about $34.8 million. The book value of our vessels was approximately $146.5 million, resulting in a total book value for our assets of about $181.3 million. Under 1995, our debt as of March 31st and 31st, I mentioned, was about $67 million, $66.9 million, representing about 37% of the book value for our assets. We had other liabilities amounting to about $2.3 million, or just below 2% of the book value of our assets, resulting in book shareholder security of about $111.7 million, which translates to a book value per share of $39.26. However, based on our own estimates and market construction, we estimated that the market value for our vessels was above the book value, and actually stood around $179 million, thus suggesting that our MAV per share could be in excess of $50. With our share prices trading around $15, there obviously appears to be a significant discount to our MAV, suggesting that our stock offers a significant appreciation potential for our shareholders and investors. And with that, I would like to turn the floor back to our speakers to continue the call.

Thank you, Pastor. And let us now open up the floor for any questions 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. The confirmation time 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 processing the start keys. One moment, please, while we poll for questions. Thank you. Our first question is from Tate Sullivan with the Maxim Group. Please proceed with your question.

Hello. Thank you. Good day. Starting on your comment. and China and the real estate market really not picking up. What could be catalysts for the dry bulk market in the near term in terms of data points from China that we might see, or do you think it just might settle around current rates going forward, please?

Yes, thanks, Kai.

I think that... There are two aspects here. One is China, which is, as we all know, the most significant dry bulk stimulus that one can have. And especially its iron ore requirements, which of course drives mainly the gate size sector, but also the smaller sizes to an extent. So what happens with the real estate sector of China and its general growth is of paramount importance here. So this is the one thing. But China is not alone in this world. This is a globe that has many, many constituents. And what is happening in the rest of the world is also extremely important. Global growth generally, and China especially, are the two things to watch.

Can you provide... You've commented on the new-build market and hesitance to place new-build orders. Are ships, the limited number of new-builds coming out, dry-bulks, new-builds coming out of the yards, do they already have contracts? Do you see any opportunities to purchase ships currently under construction, or would you, in the new-builds?

I think there are very few ships coming out of the shipyards at this point. Few of them have fixed charters. There is very few that are built with capacity to run on LNG or methanol or whatever, which combination with charters, but the big, big majority of the ships that are being built are coming out without charters, and the owners will have to face the market. Of course, they are very economical ships, so they should have an advantage over elder vessels, but we will see. I don't see currently any particular deal that we are looking at. We are generally looking at the market and will take our decisions probably within the summer period.

I apologize if I missed the comment. On the repurchase plan in Tassos, can you remind me when the current plan expires on

Yes, I think we approved the purchase plan late last year, and we have used it for, I think, a good two quarters now. So we have at least another two quarters before our board reviews the plan. We have used it to the level we believe it was appropriate for the volume that our shares traded. So we have significant capacity to use, I mean, more than what we have used. We spent $3 million. We were taken. We took $7 million in the plan.

Okay. Thank you.

Thank you both. Very safe. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. I presume there are no more questions. Yes, there are no more questions at this time. I'd like to hand the floor back over to Mr. Aristides-Pinas for any closing comments.

Well, thank you very much for standing by for our conference call today. We will be back to you in the conference time to discuss the latest developments. Goodbye.

Thank you, everybody.

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