EuroDry Ltd.

Thank you for standing by, ladies and gentlemen, and welcome to the Eurodar Limited conference call on the first quarter 2024 financial results. We have Mr. Aristides Pitas, Chairman and Chief Executive Officer, and Mr. Tasos Asselides, 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. Pitas, I would like to remind everyone that in today's presentation and conference call, Eurodry will be making forward-looking statements. These statements are within the meaning of the federal securities laws. Matters discussed may be forward-looking statements which are based on 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 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'd like to pass the floor 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 is Tasha Shazlidi, South Sea Financial Officer. The purpose of today's call is to discuss our financial results for the three-month period ended March 31st, 2024. Please turn to slide three of the presentation. Our financial highlights are shown here. For the first quarter of 2024, we reported total net revenues of $14.4 million, and the net loss attributable to controlling shareholders of $1.8 million, or $0.65 loss per basic and diluted share. Adjusted net loss attributable to controlling shareholders for the quarter was $3.2 million, or $1.18 loss per basic and diluted shares. Adjusted EBITDA for the period was 2.1 million. Please turn to the press release for a conciliation of adjusted net income and adjusted EBITDA. Our CFO, Tasha Soslidis, will go over our financial highlights in more detail later on in the presentation. As of May 21, 2024, we had repurchased a total of about 300,000 shares of our common stock in the open market for a total of $4.7 million and our share repurchase program of up to $10 million announced in August 2022. The plan was renewed in August 2023 for another year. Please turn to slide 4 for an overview of our sales and purchase chartering and dry docking highlights. On the chartering side, most of our vessels are employed in short-term charters, whilst Motovessel Caterini continues to be employed under an index-linked charter until March 2025, at 105.5% of the average Baltic Kamsar Max index. The index based on the five comes from Max Time Charter. You can see the specifics of the various charters we fixed in the accompanying presentation. We plan to continue trading spot for the time being, but if charter rates firm further, we will consider securing a portion of our vessels' earnings via Time Charter or FFAs. Regarding dry dockings and repairs during the quarter, we had two vessels undergoing dry dock, Motovessels Blest Lack and Molibos Lack. Motovessels Starlight underwent its dry dock in April. In addition, Blest Lack was operationally off-hired for 17 days due to the damage of the auxiliary boiler. The cost of the repairs will be covered by the ship's hull and machinery and the writers in full, but unfortunately the time lost is not. The cost of the two dry docks and the resulting idle time, together with the idle time of the blessed luck during the repairs, are the primary factors for the loss we incur during this quarter. Please turn to slide 5. Deutra's fleet consists of 13 vessels, including five Panamax dryball carriers, five Ultramax vessels, two Camsermax and a Supramax dryball carrier. Our 13 dryball carriers have a total cargo capacity of about a million deadweight tons and another age of 13.5 years. At this point, I'd like to remind you, as previously announced in our last earnings call, that Eurodry owns 61% of the entities that own motor vessels Christos K and Maria. The remaining 39% is owned by owners represented by NRP project finance, otherwise referred to as the NRP investors. Please now turn to slide 6 for a further update on our fleet employment. As you can see, fixed rate coverage for the remainder of 2024 stands at around 27%. Turning to slide 7, we go over the market highlights for the first quarter ended March 31st, 2024, and up until recently. Spot rates continued their momentum from late 2023 and experienced an unusually strong first quarter, supported by key commodity exports and the Red Sea and Panama Canal disruption, counter to the typical seasonal trends. In the first quarter of 2024, the average spot market rate for Panamaxes hovered around $13,600 per day. By May 17, the spot rates had increased to approximately $15,000 per day. In parallel, the one-year time charter rates for Panamaxes were around $15,600 per day during the first quarter, rising to $16,150 by May 17, versus about $14,300 last year. Improving one-year rates relative to spot prices may suggest that overall the sector seems set for a more positive 2024 than 2023. Please now turn to slide 9. The IMF's latest update in April 2024 projects that the global economy will continue to grow at 3.2% in 2024, the same pace as in 2023. And this growth rate is expected to continue into 2025. This is largely due to a sizable improvement in the economic outlook for the United States, offset by a more modest slowdown in emerging and developing economies. In one of the biggest changes, Russia's 2024 growth forecast was increased to 3.2% from the 2.6% projected by the IMF in January 2024 due to continued strong oil exports amid higher global oil prices, despite the price-cut mechanism imposed by Western countries. as well as strong government spending and investments related to war production, along with higher consumer spending in the tight labor market. The IMF also upgraded Russia's 2025 growth forecast to 1.8% from 1.1% previously. Clearly, the sanctions imposed by the West do not seem to be working. The forecast for the next five years globally is at its lowest in decades, at 3.1%. Global inflation is declining steadily and is projected to lower from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging markets and developing economies. The global economy remains surprisingly resilient despite significant central bank interest rate hikes to repair the price stability. Most banks now anticipate that the three Federal Reserve rate cuts projected for the end of 2024 will be reduced to one due to this persistent inflation. For shipping, we continue to closely monitor China's economy, which is affected by the enduring downturn in its property sector. The Chinese economy is forecast to grow by only 4.6% in 2024 and 4.1% in 2025. However, China's economic woes may further intensify due to trade tensions in an already weakened geopolitical environment, and stability may take even longer to be restored. On the other hand, though, growth in India is projected to remain strong at 6.8% in 2024 and 6.5% in 2025, with robustness reflecting strong domestic demand and a rising working-age population. Finally, the ASEAN 5, according to the IMF, will continue to grow quite strongly in the next couple of years, providing significant shipping support. According to Clarkson, demand for dry bulk trade is presently expected to grow by 2.4% in 2024, slightly below the fleet growth. This includes about a 0.6% uplift for full year 2024 due to the Red Sea and Panama Canal disruptions. A longer duration of disruptions in these regions could potentially drive demand higher. In addition, the combined effect on demand due to slower average speeds and increased congestions could lend further support for stronger dry bulk demand in 2024. Demand in 2025 is projected by Clarkson to grow by about 1.5%, assuming the Red Sea disruption has eased by the end of this year. Please turn to slide 10. Uncertainty about the future of fuels and high new building prices have led to the low order book continuing. As of May 2024, the order book as a percentage of total fleet is at only 9.3%, near the lowest historical levels. This suggests low 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 the new environmental regulations. This 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 May 2024, the total dry-falk vessel operating fleet was 13,700 vessels. According to Clarkson's latest report, new deliveries as a percentage of total fleet are expected to be 3.6% in 2024, 3.2% in 2025, and 3.5% in 2026 onwards. The actual fleet growth is of course expected to be lower than the aforementioned figures due to scrapping and slippage. Also note that 9% of the fleet is older than 20 years old and therefore a good candidate for scrapping, especially if the market remains at current levels or lower. Please turn to slide 12, where we summarize our outlook for the dry bulk market. Dry bulk shipping saw a modest decline during the first quarter of 2024, following a peak in December. Despite this decrease, Q1 of 2024 marks the highest market level for this typically slow season since 2010, with the exception of 2022. primarily due to the geopolitical and weather-related disruptions as discussed previously. The outlook for the remainder of 2024 suggests a robust bulk carrier market with rates around current levels. The recent strength in market conditions is largely attributable to tensions in the Suez Canal which have significantly increased on-rides. As and when these disruptions begin to ease or resolve, demand patterns are anticipated to normalize. Although this adjustment may take a considerable amount of time to fully materialize. Claussens assumes Red Sea rerouting is currently adding 1.2% to dry-balk ton-mile demand. Assuming half a year of rerouting due to these disruptions, which will then ease back to normal, this adds 0.6% to the full year of 2024 ton-mile demand growth. Assuming subsequent easing, this will subtract a similar figure from 2025 ton-mile demand growth. It is all quite uncertain, though, and will largely depend on the geopolitical developments, so it is possible that disruption could ease quickly or could take a significant amount of time. In any event, in 2025, banker earnings are expected to be softer. years have offset a strong trade rebound. On the other hand, the decarbonisation process is expected to affect trade lines and dry bud volumes going forward, positively by resulting in slower speeds and more scrapping, but negatively if less coal is transported. The overall effect on the market is hard On the supply side, though, the ordering of new ships has been very limited due to the lack of available slots at shipyards and uncertainty about the fuel of the future, despite significant orders for methanol-fueled ships. The order-book-to-fleet ratio remains nearly historically low levels, as said before, setting the stage for a potential recovery in charter rates should demand increase. Furthermore, introduction of emissions regulation-related measures could further curtail supply via increased scrapping or slower operational speed for a portion of the fleet. EEXI, CII, EUETS, FUELEUE are all new acronyms the industry will need to cope with Let's turn to slide 13. The left side of the slide shows the evolution of one-year time charter rates of Panamax dry vessels over the last 20 years. As of May 17, 2024, the one-year time dollars per day, which is about 20% above the historical median of around $13,500 per day. On the other hand, 10-year-old Panamax vessel prices have reached the maximum price seen in the last 10 years, around $29.5 million, as can be seen in the right-hand side graph. This is significantly higher than the 10 million and a median price of 14.75 million. At current secondhand prices, we are reluctant to purchase more vessels. We are happy to keep on running the fleet at market rates, strengthening the balance sheet, reducing debt, and waiting for new opportunities to present themselves. Let me now pass the floor over to our CFO, Tasosas Leidis, to go over various financial highlights in more detail.

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 first quarter of 2024 and compare those results to the same period of last year. For that, let's turn to slide 15. For the first quarter of 2024, the company reported total net revenues of $14.4 million, representing a 27.2% increase over total net revenues of $11.3 million during the first quarter of last year. And this was the result of the increased time charter rates our vessels earned during the first quarter of this year, plus the increased number of vessels we operated this quarter compared to the same quarter of the previous year. The company reported net loss for the period of 1.9 million and a net loss attributable to controlling shareholders for the period of 1.78 million as compared to a net loss attributable to controlling shareholders of 1.54 million for the same period of 2023. The net loss attributable to the non-controlling shareholders of 0.13 million in the first quarter of this year represents the loss that corresponds to the 39% ownership of the entities represented by the NRP investors, as I received explained earlier. Interest and other financing costs, including interest income, for the first quarter of 2024 increased to 2.04 million, as compared to 1.23 million for the same period of last year. Interest expense during the first quarter of 2024 was higher, mainly due to the increased amount of debt and the increased benchmark rates that our loans had to pay, while interest was lower due to lower cash balances we carried during the period as compared to the same period of 2023. Adjusted EBITDA for the first quarter of this year was 2.07 million compared to 2.36 million during the first quarter of 2023. Basic and diluted loss per share attributable to controlling shareholders for the first quarter of 2024 was zero dollars and 65 cents, calculated on about 2.8 million shares basic and diluted, weighted average number of shares outstanding, compared to basic and diluted loss per share of 0.55 dollars for the first quarter of last year, calculated on also about 2.8 million shares basic and diluted. Excluding the effect on the net loss attributable to the controlling shareholders for the quarter of the unrealized gain on derivatives, the adjusted loss for the quarter ended March 31, 2024, would have been $1.18, basically diluted, compared to adjusted earnings of $0.14 per share, basically diluted again for the same period of last year. Let's now turn to slide 16 to review our fleet performance. As usual, we will start our review by first examining the utilization rates for the first quarter of this year and compared to last year. Our fleet utilization rate is broken down to commercial and operational. During the first quarter of this year, our commercial utilization rate was 100%, while our operational utilization rate was 98.1%, compared to 99.8% commercial and 99.7% operational for the first quarter of 2023. 13 vessels were owned and operated during the first quarter of this year, earning an average time charter equivalent rate of $12,455 per day, compared to 10 vessels in the same period of last year, earning an average $10,674 per vessel per day. Our total daily operating expenses, including management fees, general and administrative expenses, but excluding dry docking costs, were $6,867 per vessel per day during the first quarter of this year, compared to $6,953 per vessel per day for the first quarter of 2023. If we move further down on this table, we can see the cash flow break-even levels, which takes into account, in addition to the above, the dry docking expenses, interest expenses, and loan repayments. For the first quarter of 2024, our daily cash flow break-even level was $12,440 per vessel per day, compared to $13,186 per vessel per day for the same period of 2023. Turning now to slide 17, to review our debt profile. As of March 31, 2024, our outstanding bank debt was $101.46 million, and it is projected to decline to about $67.5 million by the end of 2026. In the remainder of this year, our total debt repayments, including balloon payments, amount to about $14.7 million, for a total for the year of about 18 million. Then, in both 2025 and 2026, loan repayments are due to decrease to about 9.7 million per year. Significantly thus reducing our cash flow break-even level. It is worth mentioning on this slide that the average margin of our debt, which is about 2.45%, and assuming a soft rate of about 5.32%, make the total cost of our debt, if we take also into account the reduced interest we're going to pay for the portion of our debt that we have swapped, make the overall cost of our debt at around 7.56%. At the bottom of this slide, we can see our projected cash flow break-even level for the next 12 months, broken down into its various components. Overall, we expect our cash flow breakeven level to be around $12,535 per vessel per day, and our EBITDA breakeven level to be around $8,513 per vessel per day for the next 12 months, as I mentioned. Let me now conclude my brief financial presentation by moving to slide 18, where we can see some highlights from our balance sheet, in a simplistic way, taking basically a snapshot of our assets and liabilities. As of March 31st, 2024, cash and other current assets in our balances stood at about 27 million. The book value of our vessels was approximately 200 million, resulting in total book value of our assets of about 227.4 million. On our liability side, as I mentioned earlier, our debt as of March 31, 2024, was about $101.5 million, representing approximately 44.7% of the book value of our assets, while other liabilities amounted to $8.8 million, about 3.7% of the book value of our assets. The remaining book value of $116.8 million represents the interest of our minority holdings, the NRP investors, of about $9.6 million, while the remaining $107.4 million of book value is attributed to our common shareholders, resulting in a book value of $38.35 per share. However, based on market transactions and other market reports, we estimate that the market value of our vessels was and is above their book value and stands at around $262 million. That is about $62 million higher than their book value, which is equivalent to about $20 per cell. thus bringing our NAV per share to more than $60. Our share price, which is trading around $22 lately, represents a significant discount compared to NAV, a discount of the order of 65%, a valuation gap that offers a significant upside potential for our shareholders and investors. And with that, let me turn the floor back to Aristides to continue the call.

Thank you, Tatos. Let me now open up the floor for any questions we may have.

Thank you. If you'd 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 keys. Our first question comes from the line of Tate Sullivan with Maxim Group. Please proceed with your question.

Hello. Thank you. Good day. First, on the debt repayment profile on slide 17, is this debt, the existing loan repayment, something that you're looking to refinance before the end of the year, or will you prioritize using cash flow to pay down that debt, please?

I don't think we're planning to refinance any of our debt in the near future. I believe we're planning to repay the...to make the payments that are due in the remaining of the year from the cash flow we are going to generate. And as you can see in that slide, the repayments dropped significantly next year and the year reducing our cost flow break even. We have balloon payments that are coming due in 2027, as you can see, and I suspect those we will be refinancing at the time.

Thank you. And then on the blessed luck in the quarter and the boiler damage, did that happen while in dry dock, in voyage, and the expenses to repair it, is that within dry docking costs? Can you go into more detail on that, please?

No, this damage happened when we left the shipyard. It was an error of the crew and the shipyard was the cause that this happened. But it happened just after we had left the shipyard. It's an insurable cost and all the repairs are covered. Unfortunately, the loss of time is not covered, so we lost 17 days of employment.

Can you approximate or can you not show the approximate cost to repair that? That should be insurable.

I think it's about $900,000.

It's not a cheap repair, but as I said... It is not included in the numbers because it's fully insurable, so you will not find it either on the dry docking or the operating expenses. Okay.

Okay. Thank you. I thought... Thank you. And then going forward, scheduled dry docks for the rest of the year? Can you review that, please?

In this quarter, we only have one dry dock, which has already taken place, which is the Starlight. And we have three dry docks in Q3. I haven't looked as far as Q4, but... You have no dry docks.

You have nothing scheduled for Q4 this year.

Nothing for Q4. So it's the three dry docks in Q3, really, that are still to come. Okay.

Thank you very much. Thanks.

Thank you. As a reminder, if you'd like to join the queue, please press star 1 on your telephone keypad. Our next question comes from the line of Poe Fratt with Alliance Global Partners. Please proceed with your question.

Hello, ladies and gentlemen, and hello, process. Hi, Poe. I had a question, Aristides, about your 2025 outlook. You know, it seems like you're trying to signal that, you know, less congestion next year, less disruption, you know, a little bit more in supply growth and demand just growing a little bit modestly. you know, would potentially create a softer rate environment. Would you categorize your outlook as conservative or, you know, do you think it's sort of a base case or do you think it's sort of a conservative case and that you potentially get, you know, if some of these things linger, it's a little bit better than you think? Yes.

I think, I mean, we generally try to be quite conservative. But in all honesty, it is extremely difficult to predict how the market will move under the current geopolitical situations, because they affect the trade, they affect economic growth, Nobody can really say what that would be. There are a few positives. The low supply growth is a positive. The fact that vessels are going slower due to the environmental regulations is a positive. These are strong positives. If demand turns out being quite strong in 2025, we can have a much better market. It's really difficult to decide. Having said that, the FFA market is also predicting a slightly longer market in 2025 than in 2024. This is the information we currently have. Very, very difficult to decipher and decide what the actual move will be. It can be, I mean, if there are geopolitical tensions, but the global economy does well, i.e. we have longer trade routes, but still the economy works well, we can have a very good market. But our base case is always quite conservative.

Yes, understood. And then in that context, I'm not sure if I heard anything about any SFA hedges for the, you know, the rest of the year. Do you have any in place? And then secondly, you know, with your time totals in the sort of the mid to high teens, would that be something that might be attractive given your outlook for 2025 or sort of the latter half of 2024 and the early part of 2025?

Yes, currently, as we said, all our ships are essentially on spot charters trading the market. If we see a strengthening in the next couple of months, we will probably fix a portion of our fleet at these higher numbers, either through normal time charters or through FFAs. We currently don't have any open FFA position. But, you know, if we see levels that are even more satisfactory than these levels, these levels, today's market levels, are still profitable levels overall. This quarter we had the loss that we had due to the two dry docks and the off-hire of the blessed luck mainly. Also we took a loss on the FFA that we have done. But next quarter we are cautiously optimistic that we will return to profitability.

Understood. And then, Tostos, could you just sort of give some guidance for OPEX? So just OPEX should be just slightly up for the rest of the year relative to what you reported in the first quarter?

No, I think we're pretty much on budget for the first quarter. So, I mean, we would be plus or minus 2% to 3%, I believe. It's hard to say, obviously. It's hard to say, but we haven't seen any surprise on the OPEC so far. Okay, great.

Thank you, Ken.

Thank you, Paul. Thank you.

Thank you. Our next question comes from the line of Lars Ide with Arctic Securities. Please proceed with your question.

Hi. Good morning. Good morning. How are you? Good morning. So I guess the last quarter kind of touched upon my question. But as you noted in your report this morning, you're positioning your fleet for more market exposure moving forward. I guess in that context, your market view should be positive, I assume, as you strategize with this tool.

Sure. I mean, our base case is that for the next few months, the market should be quite positive.

Yeah. I think it was covered a lot. Thank you. Thank you.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to management for any final comments.

Well, thank you all for listening in in today's presentation. We will be back to you with Q2 results in about three months' time. Thank you. Bye, everybody.

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