EuroDry Ltd.

Thank you for standing by, ladies and gentlemen, and welcome to the Eurodry LTD conference call on the fourth quarter of 2023 financial results. We have with us today Aristides Piedas, Chairman and Chief Executive Officer, and Mr. Tajos Asleides, 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 call is being recorded today, and please be reminded that the company announced its results with a press release that has been publicly distributed. Before passing the floor over to Mr. Pitas, I would also like to remind everybody that in today's presentation and conference call, Eurodrive will be making forward-looking statements. These statements are within the meaning of the federal security 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 number two of the webcast presentation which has 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, and thank you all for joining us today for our scheduled conference call. Together with me, I have tasked us as ladies of chief financial officers. The purpose of today's call is to discuss our financial results for the three and 12-month period ended 31st December, 2023. Please turn to slide three of the presentation. Our financial results are shown here. For the fourth quarter of 2023, we reported total net revenues of $15.9 million and net income attributable to controlling shareholders of $0.3 million or 13 cents per basic and diluted share. Adjusted net income for the quarter was $1.9 million, or 70 cents per diluted share, mainly reflecting the contribution of FFA. Adjusted EBITDA for the period was $6.6 million. Please turn to the press release for a full reconciliation of adjusted net income and adjusted EBITDA. Our CFO, Tasha Seslidis, will go over our financial highlights in more detail later on in the presentation. As of February 15, 2024, we had repurchased a total of 273,120 shares of our common stock in the open market for about $4.1 million under our share repurchase plan of up to $10 million announced in August 2021. Please turn to slide 4 for an overview of our sales and purchase, chartering and operational highlights. On the chartering side, 11 of our 13 vessels are employed in short-term charters, whilst two vessels continue to be employed under index-linked charters until March 2024 and 2025. and 5.5% of the average Baltic Councilor-Mex five-time charter index. You can see the specifics of the various charters we fixed in the accompanying presentation. There were no dry docking repairs or commercial off-hire time during the quarter. Our chartering strategy is largely driven by the market. We plan to continue with the same short-term charter strategy until rates climb to levels that induce us to take more time-charter cover or hedge through FFAs. Please turn to slide 5. Eurodrive's fleet consists of 13 vessels, including 5 Panamax, 5 Ultramax, 2 Camsormax and 1 Supramax dryball carriers. Eurodrive's 13 dryball of approximately 920,000 dead weight and an average age of 13.5 years. I'd like to remind you that during the quarter, as previously announced and mentioned in our last term in school, Eurodry has a 61% ownership of the entities that own Moto vs Christos K and Maria K, The remaining 39% being owned by owners represented by NRP project finance, otherwise referred to as the NRP investors. Please turn to slide 6, which depicts our fleet employment graphically. As you can see, we practically have no cover after the current quarter. In Q1, we are very little exposed to the market, especially if we factor in FFAs. We have sold 90 days of FFA contracts for the equivalent of one SupraMax vessel and 180 days of FFA contracts for the equivalent of two Panamax vessels, three ships equivalent in total, in the first quarter of 2024 at $10,000, $10,100 and $10,675 per day respectively. Overall, we expect to be around break-even rates in Q1. Turning on to slide 7, we go over the market highlights for the fourth quarter ended December 31st, 2023, and up until recently. The average spot market rate for Panamaxes was hovering at around $15,000 per day in the fourth quarter of 2023. By year end, spot rates rose to approximately $16,200 per day, reflecting, amongst others, the effect of the Panama Canal drought. Despite the Red Sea disruptions that ensued, they have since dropped, reflecting seasonal trends, the Chinese New Year and the softer activity in the Pacific. The one-year time-charter rate for Panamaxes averaged around $13.4 per day during the fourth quarter, rising to $14,350 by year-end. Contrary to spot rates, though, one-year time charter rates have increased to $15,275 per day as of February 9, reflecting the rising confidence that the market is bound to strengthen as the global growth gains steam ahead and the effects more pronounced. Please now turn to slide 9. With its latest update in January 2024, the IMF raised its forecast for global growth compared to October 2023 outlook, from 2.9% to 3.1% for 2024, and 3.2% for 2025. in the United States and fiscal support of China. We expect to see this recovery, although the IPF also warns of risks from wars and inflation. The focus for 2024 and 2025 is, however, still below the historical average of the last 10 years of 3.8%. With elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt rain on economy activity, and low underlying productivity growth. Inflation is falling faster than expected in most regions. In the midst of unwinding supply Global headline inflation is expected to fall to 5.8% in 2024 and to 4.4% in 2025, with the 2025 forecast having been revised down. With disinflation and steady growth, the likelihood of a hard landing has receded and risks to global growth are broadly balanced. However, new commodity price spikes from geopolitical shocks including continued attacks in the Red Sea and supply disruptions, or more persistent underlying inflation, could perhaps promote tight monetary conditions. Proceeding, we continue to monitor China, India and the ASEAN 5, which according to the IMF will continue to grow quite strongly in the next couple of years. China, having had major headwinds and an underwhelming boost to economic activity following its reopening after COVID-19, as well as its persistent property sector issues, is still set to grow by another 4.6% in 2024 and 4.1% in 2025. India's growth is expected to be 6.5% in both 2024 and 2025. Trade demand is therefore focused at presently to grow at 1.6% in 2024 and 2025, which is below its historical average growth rate of 4.9%. Despite the improvement in demand in 2023, will continue to weigh on the level of global trade. Please find slide 10. Uncertainty about the future of fuels and high new building prices have led to the low order book continuing. As of February 2024, the order book as a percentage of total fleet is at only 8.5% near the lowest historical levels. This suggests minimal fleet growth over the next two to three years. Complementing this low fleet growth, we also have the effect of increased slow steaming and expected scrapping due to the introduction of new environmental regulations. These could reduce the effective available bulk supply even further. Turning to slide 11, let us now look into the supply fundamentals in a bit more detail. As of February 2024, the total dry bulk vessel operating fleet was 13,600 vessels. According to Claxon's latest report, new deliveries as a percentage of total fleet are expected to be 3.6% in 2024. Actual fleet growth is expected to be lower than the aforementioned figures, of course, due to scrapping and slippage. Also note that 8% of the fleet is older than 20 years old and therefore a good candidate for scrapping, especially if the market remains at current or lower levels. Please turn to slide 12, where we summarize our outlook for the dry bulk market. Dry bulk shipping saw strong gains throughout the fourth quarter of 2023, marked by the Panamax Freight Index hitting $17,000 per day in December 2023, reaching its highest level since mid-2022. Despite this, 2023 proved to be a comparatively moderate year for bulkhead earnings due to decreased fleet inefficiencies, and the cumulative expansion of the fleet in the preceding years, which counteracted the robust trade recovery. The uptick in earnings during Q4 is largely attributed to the Panama Canal drought, leading to a reduction in transits from approximately 10 per day to zero. 2024 is poised to be a stronger year for the dry park sector. particularly if vessel supply continues to tighten, potentially leading to spikes in freight markets. Historically, the first quarter of the year has always been the weakest for the dry bugs, largely owing to the Chinese New Year, which dampens economic activity. Contrary to prior expectations, it is proving to be stronger than anticipated, mainly due to the Red Sea disruptions. Regarding the supply side, as discussed, there has been minimal ordering of new ships due to constraints in shipyard availability and uncertainty surrounding the choice of the future fuel, despite there being some not insignificant orders for methanol-fueled vessels. The ratio of the order book to the existing fleet, as discussed, remains close to historically low levels, setting the stage for a potential recovery in charter rates if demand returns to more typical levels. Additionally, the implementation of emissions regulations such as EXI and CII could further restrict supply through increased scrapping or reduced operational speeds for certain vessels. On the demand side, China is important to monitor. Potential to simulate demand growth and sentiment will be critical, particularly considering challenges in the property sector and sensitivity to government policies regarding coal. Additionally, GDP growth in developed economies and unforeseen developments could also contribute to demand growth. The signing of interest rate cuts by central banks, as well as inflation easing, will also weigh on global growth. The drought in the Panama Canal, which has caused prolonged waiting times, capacity limitations and increased pressure on shipping schedules, continues. As a result, trade has been redirected from the region and has led to a rise in ton-mile demand and a noticeable surge in freight rates. Furthermore, disruptions in the Red Sea have reduced dry cargo ship traffic them to the Cape of Good Hope, consequently increasing vessel demand. Let's turn to slide 13. The left side of the slide shows the evolution of one-year time charter rates of Panamax dry bulk vessels since 2002. As of February 9, 2024, the one-year time charter rate for Panamax ships with a capacity of 75,000 deadweight tons stood at $15,275 per day, which is slightly above the historical median of around $13,500 per day. On the other hand, as can be seen in the right graph, the historical price range for the 10-year-old Japanese Kamsar Max Vessel, which has a current price of around $26 million, is significantly higher than the 10-year historical average and median price. Given the high vessels' values and the acquisition of the three ultras in Q4, which have reduced our liquidity, we are currently reluctant to invest further in new vessels. We prefer to spend some of our liquidity to continue executing on our share repurchase program, as our share price trades considerably below our net asset value. Further, as our liquidity builds up organically, We will continue monitoring the markets for investment opportunities, which we can always further finance either by leathering up through partnerships and or disposal of elder assets. Let me now pass the floor over to our CFO, Tasos Aristidis, to go over our various financial highlights in more detail.

Thank you very much, Aristidis. 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 2023 and compare those to the same periods of last year. For that, let's turn to slide 15. For the fourth quarter of 2023, the company reported total net revenues of $15.9 million, representing a 5.2% increase of a total net revenues of $15.1 million during the fourth quarter of last year, of 2022. That was the result of the higher number of vessels we owned and operated in the fourth quarter of 2023, compared to the same period of 2022, offset by the lower time charter rates our vessels earned in the fourth quarter of last year compared to 2022. We reported a net income for the period of $0.3 million, compared to a net income of $6.3 million for the same period, the fourth quarter of 2022. It should be noted that the results for the fourth quarter of 2023 exclude a $0.37 million loss attributable to minority interests deriving from the 39 percent ownership of the NRP investors on vessels Christos K and Maria. Interest, another financing cost for the fourth quarter of 2023, increased to $2 million compared to $1.5 million for the same period of 2022. Interest expense during the fourth quarter of last year was higher, mainly due to the increased amount of debt we carried and the increased benchmark rates of our loans during the period as compared to the same one in 2022. Adjusted EBITDA for the fourth quarter of 2023 was $6.6 million compared to $7.3 million for the same period of 2022. Basic and diluted earnings per share attributable to controlling shareholders for the fourth quarter of 2023 was $0.13, calculated on approximately $2.7 million basic diluted weighted average number of shares outstanding, compared to $5.38 basic and $5.32 diluted for 2022, calculated on 2.8 and 2.9 million basic diluted weighted average number of shares outstanding. Excluding the effect of the unrealized loss in derivatives on the earnings for the fourth quarter of last year, The adjusted earnings per share attributable to controlling shareholders for the fourth quarter of 2023 would have been $0.71 basically diluted compared to adjusted earnings of $1.19 and $1.17 per share basically diluted for the same period, the fourth quarter of 2022. Typically, as we said in previous presentations, Security analysts do not include the above items, like unrealized losses and derivatives, in the published estimates of earnings per share, and that's why we're making this adjustment. Let us now look at the numbers for the corresponding 12-month periods, 2023 versus 2022. For the whole year of 2023, the company reported total net revenues of $47.6 million, representing a 32.2% decrease over total net revenues of $70.2 million during 2022, mainly the result of the lower time shorter rates our vessels earned. We reported a net loss for the period of $2.9 million as compared to a net income of $33.5 million for 2022. Again, the results for the full year of 2023 exclude a $0.37 million loss attributable to minority interests. Interest and other financing costs for the 12 months of 2023 amounted to about $6.5 million, compared to $3.9 million during the same period of 2022. The reason being higher, again, is the higher level of debt we carried and the higher average benchmark rates that our loans had to pay. Adjusted EBITDA for 2023 was 14.6 million, compared to 43.2 million during 2022. Finally, basic and diluted loss per share attributable to controlling shareholders for 2023 was $1.05, calculated on 2.7 million basic diluted weighted average number of shares outstanding. compared to basic diluted earnings per share of $11.66 and $11.61, respectively, for the whole year of 2022. The final adjustment related to excluding the unrealized loss of derivatives on the loss for the year. After we do that, the adjusted earnings for 2023 attributable to controlling shareholders would have been $0.13 basically diluted compared to adjusted earnings per share of $9.90 and $9.85 basically diluted respectively for 2022. Let's now turn to slide 16 to review our fleet performance. We will start our review by looking at our fleet utilization rates for the fourth quarter and full year of both 2023 and 2022. First, during the fourth quarter of 2023, our commercial utilization rate was at 100 percent, while our operational utilization rate was 99.5 percent, compared to 100 percent commercial and 99.7 percent operational for the fourth quarter of 2022. 12.2 vessels were owned and operated during the fourth quarter of 2023, earning an average time charter equivalent rate of $14,570 per day, compared to 10.1 vessels in the same period of 2022, earning on average $16,689 per day. Our total daily operating expenses including management fees, general and administrative expenses, but excluding dry docking costs, were $7,340 per vessel per day during the fourth quarter of 2023, compared to $7,035 per vessel per day for the fourth quarter of 2022. I'd like to note here that the figure for the fourth quarter of 2023 includes certain set-up expenses for our joint venture with NRP Investors. If we move further down on this table, we can see the cash flow breakeven rate, which takes also into account dry docking expenses, interest expenses, and loan repayments. Thus, for the fourth quarter of 2023, our daily cash flow breakeven rate was $11,895 per vessel per day, compared to $13,089 per vessel per day for the same period of 2022. Let's now look on the right part of the slide to review the same figures for the full year. During the entire 2023, our commercial utilization rate was 99.4%, while our operational utilization rate was 98.5%, compared to 99.8% commercial and 99.3% operational for 2022. On average, 10.6 vessels were owned and operated during 2023, earning an average time charter equivalent rate of $12,528 per day, compared to 10.4 vessels for 2022, earning an average $21,304 per day. Our total operating expenses for the year, again, including management fees, G&A expenses, but excluding dry docking costs, averaged $7,106 per vessel per day in 2023, compared to $6,698 per day for 2022. At the bottom of this table, we can again see here the cost flow given rate for the year. which in 2023 amounted to $12,944 per vessel per day, compared to $12,991 for 2022. Let's now turn to slide 17 to review our debt profile. As of December 31, 2023, our outstanding bank debt was approximately $104.8 million, and In 2024, it stands for about $87 million. In 2024, our total debt repayments, including balloon payments, amount to about $18 million, while they are set to decrease to about $9.7 million approximately, both in 2025 and 2026. It is worth mentioning in this slide that the average margin of our debt, which is about 2.46 percent, and assuming a software rate of about 5.6 percent as of earlier this month, and including the cost of the portion of the debt we have for which we have interest rate drops, we estimate our total cost of our senior debt as of the end of last year was around 7.8 percent. At the bottom of this slide, we can see our projected cash flow breakeven level for the next 12 months broken down into its various components. Overall, we expect our cash flow breakeven level to be around $12,378 per vessel per day. and our EBITDA break-even rate to be around $8,000 per vessel per day. And that rate, our EBITDA break-even rate, includes operating expenses, G&A expenses, and dry talking costs. I'm almost concluding my presentation. And for that, let's move to the next slide, slide 18, where we can see some highlights from our balance sheet in a simplified way. we offer a snapshot of our assets and liabilities in this slide. As of December 31st, 2023, CAST and other assets stood on our balance sheet at about 27.5 million. The book value of our vessels was approximately 203.6 million, resulting in total book value for our assets of about 231 million. On our liability side, our main liabilities are debt, which, as mentioned previously, stood at about 104.8 million as of December 31st, representing about 45.4 percent of the book value of our assets. And we have additional liabilities of about 6.8 million. That means that the book value of our shareholders' equity was about 110 million. translating to about $39 book value per share, and this figure excludes the book value of the minority interests that we have. However, the market value of our fleet is higher than our book value, and we estimate, based on our own estimates and other market transactions, that the market value of our fleet stands at about $239 million. We suggest that our NAV per share is in excess of $51. Our shares recently paid at around $21, thus at a substantial discount compared to our net asset value. This discount represents a significant opportunity for appreciation for our shareholders and investors. And with that, I would like to end my brief financial presentation and turn the floor back to Aristides.

Let me now 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. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 keys. Our first question is from Tate Sullivan with Maxim Group. Please proceed. Hello, good day.

Thank you. Can you talk a little bit about the FFA hedges that you put in place in October and November? I mean, you indicated that it's for three vessels equivalent, but then in your table you have two vessels on index links charters. Do one of those FFA hedges last for almost half a year? Can you talk more about that?

Sure. When you have vessels that are not fixed, which was the situation back in October, the hedge also works for the unfixed vessels that you will fix within the first quarter of the year. 100 percent correlated with the FFA, but the correlation is still very, very significant. So at the time that we did it, we had really nothing fixed. So we covered three vessels for around $10,000 a day. We thought that the market was going to be lower. $10,000 was for Q1 comfortable with, and that's why we did it. It turns out that the market has been stronger, so all these three FFA's will result in a slight loss, but that's fine. It's equivalent to having fixed three ships at $10,000 a day. The remaining will be at somehow higher figure as Q1 is tending to be.

And this was a similar strategy, I recall, and you said as well, to most of the first quarters in previous years.

Whenever we feel that the market will be significantly lower than where it is at the current stage and where the FFA is predicted to be, we might hedge a percentage of our fleet through FFA. It's equivalent as if we had taken, let's say, a charter on three ships, $10,000 a day at that time for three months.

on the joint venture with NRP investors. Did you, the chartering, since you took delivery of those ships, were they already fixed? Did they already have fixed charters in place, or have you contracted those ships since acquiring them in the JCP?

Yes, they didn't have any charter. One of them was finishing up one of its charters, so I think it had about one and a half months left. But since then we have been fixing all the ships on short-term charters in anticipation of a better market in Q2.

And, Toslas, will the next quarter or this That's correct. Okay. That's right.

A portion of the set-up fees that had to be expensed, and that was reflected in our G&A numbers this quarter. Okay.

And last for me, as you mentioned any changes in China's coal policy, are you referring to the headlines that have been out there? industrial output with some stimulus measures and do you have any, is it a meaningful portion of your fleet currently carrying coal or has in the past? Indeed, we have

quite a few vessels that regularly pick up coal in that area. So we are affected by whatever China decides. That can move both ways. So we really don't know what their policy is going to be.

Thank you very much.

Have a good rest of the day.

Thank you, Dave. Our next question is from Christopher Ski with Arctic Securities. Please proceed.

Hello. Good afternoon. Thank you for... And good morning. Thank you for the good presentation. It seems like your timing on the deflection position in Cuba was very good, and given that the asset prices have continue to appreciate in value, would you still continue selling some of the older vessels in your fleet? Now, how do you see that going forward?

Yes, that's a possibility, as you say. Not currently. We're not currently considering a sale, but we do have in mind that if prices improve further, which we think will happen, we think that the market is going to be stronger in Q2 and Q3 than what it is now. And that will result in higher earnings for the ships, but also higher prices. And we might take that opportunity to sell one or two of the other vessels. But no decision has been taken along those lines yet.

Okay. Okay.

Our next question is from POFAT with Alliance Global Partners. Please proceed. Yeah.

Hi, Eric Stevens. Hi, Constance. I just had a couple of questions about clarifications. Eric Stevens, you were talking about coal in China. Are you talking about matter thermal? Both, actually. Okay. And then when you talk about the, you know, first quarter FFA's being, you know, out of the money or underwater, when I look at page six, though, there are a couple of your vessels that are, you know, trading at TC rates or spot rates that are, you know, well under the FFA's. Are they still underwater, you think, for the full quarter, or do you think they'll, you know, level out over the course of the quarter?

Yes, I think these vessels, these levels where you see below 10,000 are mainly small positional voyages. expect to take a higher charter afterwards. So combining both of these, I think the average for every vessel is going to be about $10,000 a day. Therefore, that's why we say that, you know, the hedge has worked negatively, let's say, during this quarter. If I understand correctly, Tasos can correct me, you know, the loss has really been taken in Q4 because we have to account for that, Tasos?

Yeah, that's correct. On the GAAP numbers, the unrealized loss we We don't take it into this quarter. We'll take it when it actually occurs during the first quarter of next year. So the unadjusted numbers, the loss is there. But when we adjust them, we exclude the unrealized losses. These losses so far are unrealized. So they will be reflected in our adjusted numbers next quarter.

Yeah, they'll essentially shift from unrealized to realized, either maybe in the game because of where you marked it at the end of the year.

Correct, yeah. If during the first quarter the market is lower than it was at the end of last year, the losses would be less, and they might turn to gains. But since we have more investments open in the market, we prefer the market to be stronger overall. Yeah, understood.

And you don't have any FFAs that extend into the second quarter or the rest of the year, correct? That's correct. Okay. And then, Eric, I think in your formal presentation or your comments, you said that this quarter you're going to be close to break-even, you think. Is that the total break-even, including, you know, debt amortization, so like $12,000 and change, or is it closer to that EBITDA break-even?

No, I think around that $12,000 level.

Okay. And then with your stock buyback program, it seems like you're buying stock at roughly an average price of around $15. Stock's a good 30% above that. What's your stance on stock buybacks as we stand right now with stock over $20,000?

We will continue buying back stock, because still the price is extremely low. We would have been doing it more aggressively if the liquidity in the stock was high. But unfortunately the liquidity within the company, the trading liquidity within the company stock is very low, which doesn't allow us to be very aggressive on our repurchase program. Yes.

There are certain guidelines how much you can buy based on the trading volume. So we are trying to use to exhaust the trading allowance, but it is more given our trading liquidity. Great. Thank you so much. Thank you, Paul.

With no further questions, I would like to turn the conference back over to Mr. Peters for closing comments.

Thank you all for participating in today's call. We will be back with you in three months' time to discuss the results of the first quarter. Have a good day and a good weekend.

Thank you. This will conclude the conference. You may disconnect your lines at this time.