Euroseas Ltd.

Thank you for standing by, ladies and gentlemen, and welcome to the Euroseas Conference Call on the first quarter 2021 financial results. We have with us Mr Aristides Pittas, Chairman and Chief Executive Officer, and Mr Tasas Aslidis, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There'll 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. Forward-looking statement. Please be reminded that the company announced their results with a press release that has been publicly distributed. Before passing the floor to Mr. Pittas, I would like to remind everyone that in today's presentation and conference call, Euroseas 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. Mr Pittas, please go ahead sir

Good morning ladies and gentlemen and welcome to our scheduled conference call for today. Together with me is Anastasios Aslidis, RCE Financial Officer. The purpose of today's call is to discuss our financial results for the three months ended March 31st, 2021. Let us turn to slide 3. Our income statement highlights are shown here. For the first quarter of 2021, We reported total net revenues of $14.3 million and net income of $3.8 million. Net income attributable to common shareholders after a $0.2 million dividend from the Series B preferred shares in the first quarter of 2021 was $3.6 million, or $0.53 per share basic and diluted. Adjusted net income attributable to the common shareholders was $3 million, or $0.45 per share, basic and diluted. This difference stems mainly from the unrealized gain we had on the value of our interest rate heads. Adjusted EBITDA for the period stood at $5.6 million. Tasos will go over our financial highlights in more detail later on in the presentation. Please turn to slide 4 where we discuss our recent operating developments. The Charter of the Akinada Bridge declared the 10 to 12 months option at $20,000 per day as from December 2021. Our EM care was extended for a period of 25 to 28 months at $22,000 per day starting from April 2021. The EM Hydra was fixed for 23 to 25 months at $20,000 per day as for May 2021. The Johanna was fixed for a period of 18 to 21 months at $16,800 a day as for May 2021. Finally, the Synergy Busan was fixed for a period of 36 to 40 months at $25,000 per day as from April 2021. Overall, the duration of these charters was on average around two years. As mentioned in the previous earnings call, our EN Corfu had suffered damage on its tail shaft in early December and was idle for two months due to repairs in dry dock till February 9th, and it has since resumed its operations. All the costs of the repair will be recovered by Hallen Machinery Insurance minus the deductible of about $100,000 and the off-hire time. There were no dry docks or any sales and purchases during the first quarter. I am very pleased to announce also the completion of our first Environment, Social and Governance Report and the posting of it on our website. We are strong believers in the necessity but also added value that is provided by excelling in all three focus areas of the acronym ESG. Please turn to slide 5 where you can see our current fleet profile. Eurosis fleet currently consists of 14 vessels including 9 feeders and 5 intermediate container carriers with approximate 540,000 deadweight tons and 42,000 TEU capacity. The weighted average age of the fleet is about 16 years in TEU terms. Slide 6 shows our vessel employment chart. As you may see, coverage for 2021 stands at 89%. The contracted EBITDA is 32.8 million. This figure is nearly three times higher than our 2020 EBITDA. For 2022, we have already booked 49% of our vessel days at a contracted EBITDA level of about 28 million. We still have five vessels opening up for recharter within the year and we will be gradually fixing them as they open up Always looking to fix long periods, but also assuring that reopenings will be staggered over time as well. Please turn to slide 8 to look at how the market fared during the first quarter to date. Over the last three months, the container ship markets have continued their upward path, exceeding their previous peak of 2008 and coming within reach to challenge their all-time highs last observed in 2005. Since the midst of last year, the spike in seabourn freight rates was initially viewed as a short-term reaction to a historic demand shock caused by the early stages of the pandemic and the ensuing restocking. The market has continued, though, to strengthen, and for the last year, the twice-weekly context index has risen on every reading, reflecting also a real demand growth. We believe that the favorable market fundamentals will continue over the remainder of this and next year, as world economies are projected to continue recovering from the pandemic-induced slowdowns and to register strong growth rates, while, in parallel, vessel deliveries are expected to be modest over the same period. Please turn to slide 9, where we give a bird's eye view of the general container market for the first quarter. As shown in the slide, time charter rates across all segments skyrocketed over the past six months, drawing a positive picture, which by far exceeds historical median and average levels and has reached rates not seen since 2008. For all vessel sizes, one-year time charter rates as of May 2021 have at least doubled from the figures seen in Q4 2020, just a few months ago. It's worth mentioning here that the surging market has also lifted the Hal Robinson Container Ship Index to 2,133 points. The previous all-time peak of 2,093 points was set almost 16 years ago in June 2005. The average second-hand price index rose on average by about 30% in Q1 2021 over Q4 2020, while price increases varied across different age groups, with the end of essence increasing by more than 100%. During the first quarter, new building prices were increased by approximately 10% on the back of steel prices being on the rise and fresh interest for new buildings on the back of the container ship market rises. The inactive container ship fleet currently, at the end of May 2021, stands at about 240,000 TEU, approximately 1% of the fleet, the majority of which is Iranian-controlled steel-sanctioned vessels and vessels that will never reactivate. I remind you that just a year ago, in mid-May 2020, the inactive fleet stood at 2.7 million TEU. The number of vessels scrapped decreased in Q1 to only 10 ships, or 8,000 TEU, despite scrap prices that have increased to about $550 per lightweight ton due to the high demand for steel. On the whole, in Q1 2021, the fleet grew by 1%, without of course accounting for idle reactivations or idling, etc. Meanwhile, the order book has been significantly increased, focusing though on the larger vessels, and currently, as of April, stood at 17.6% from about 10% just three months ago, according to Clarkson's. This is expected to reach the 20% level during May. Please turn to slide 10. As vaccine production is ramping up and rollouts are gathering pace around the world, A return to more normal levels of social and economic activity looks to be achievable by most developed economies, thus pointing to an improved outlook for global growth. Of course, current circumstances in developing and underdeveloped countries are not subdued, with India being affected the most. Overall, though, global demand seems to continue to be on the rise. In the beginning of April, the IMF projected a stronger recovery for the global economy in 2021 compared to their January forecast, with GDP growth projected to be 6%, revised upwards from 5.5% in January. Among the developing economies, China and India post continuous growth for 2021. In fact, China maintains its momentum with a broadening recovery at 8.4% compared to 8.1% growth estimated in the previous projections. India's growth is expected to be 12.5% by the IMF, although I think that the resurgent pandemic may dent somehow the country's growth prospects, but not on a large scale. In addition to China and India, the US economy is estimated to grow at 6.4%, while the Eurozone's GDP is set to rebound to 4.4%, compared to the previous estimates of 5.1% and 4.2% respectively. Looking ahead, global growth for 2022, according to the IMF Economic Outlook, will continue to see above-average increases at 4.4%, and most individual countries continuing to grow above trend, except China and India, which are expected to grow at a still very reasonable 5.6% and 6.9% respectively. For 2023, estimated global GDP growth according to the IMF is estimated at 3.5%, which is around the pre-pandemic levels. In terms of demand for containerized trade, which closely correlates to global GDP growth over the last few years and is measured in TEU per mile, according to Clarkson estimates, we expect to see a strong rebound in demand at 5.5% this year. For 2022 and 2023, the container trades are expected to hold up at reasonably high levels of 3.4% and 3.5% respectively. As one might expect, all the above forecasts should be taken with a grain of salt as predicting the future is always difficult. But it is now even harder due to the disruptions caused by COVID-19 which is vastly changing established life and trade patterns. Its unknown duration interacts with the uncertainty of the geopolitical developments and global financial climate to make forecasting even more tricky. Please turn to slide 11 to review the containership page profile and delivery schedule. As you can see in the containership page profile chart on the left side of the slide, Overall, the containerized fleet is a young fleet with a mere 6% of ships being over 20 years old. However, the older vessels are mainly concentrated in the smaller size classes where our ships operate. The growth of the fleet in these segments in which we operate should be minimal in the next couple of years as no significant orders have been placed to date and even if orders are placed The vessels will not be delivered before the second half of 2023 or mid-2024. The right side chart shows the delivery schedule of the current container ship order book, which is expressed as a percentage of the fleet. The circuit figures for 2021 to 2025 are from just the order book, before any scrapping and slippages. Currently, the total container ship order book stands at 17.6% of the fleet and is rising. This is however still a historically low figure despite the recent rise. The current delivery schedule provides a source of optimism for this and next year. For the continuation and further strengthening of current market levels, If trade demand further recovers, given that the supply side will be at minimum levels. From 2023 onwards, we could expect some correction if demand waddles. Please turn to slide 12, where we discuss our outlook summary. The unknown duration of the pandemic and its financial consequences have made predictions about the future trade very difficult. However, if the distribution of vaccines can help with the containment of COVID-19 in the developed markets by the first half of 2021, as widely anticipated and seen, then in the second half of 2021 and 2022 and without experiencing catastrophic events, we can expect significant global demand growth. In any event, Current logistical bottlenecks are expected to continue for the remaining of the year. In 2021 overall demand is therefore expected to be significantly stronger than in 2020 and higher than the supply growth. This of course spurs optimism for even stronger rates. Even though we have already seen significant rate appreciation over the last three months, surpassing the highest levels of the last decade. As a result, a modest correction, if and when logistical bottlenecks exist, cannot be ruled out. Longer-term fundamentals are hard to predict and, as we said, will depend a lot on the vessel ordering rate and the rate of growth of demand for container ships. Expected deliveries in 2023 are about 6.6% of the current fleet, which is not immaterial. In particular, though, the order book for smaller vessels still remains at historically low levels, and it appears that in good yards there is no availability until the end of 2023. Delivery schedules for 2021 and 2022 remain extremely small, creating a good environment and suggesting rate support and possibly even further rises in the next two years. Let's turn to slide 13. The left side of the slide shows the evolution of the one-year time charter rates for containers of 2,500 TEU since 2000. Since the financial crisis of 2008 to late 2020, rates stayed rather depressed with three spikes within the $5,500 to $15,000 per day range. Currently, we are witnessing the highest price levels in charter rates seen over the past 12 years, exceeding those seen even in 2008 before the market collapse, and are lower only than the levels we previously experienced in the mid-2000s. The right-hand side of the slide shows vessel values in relation to historical prices since 2011. As we can see, current container ship values over the past six months have significantly increased above median and average levels and are the highest they have been over the last decade. This of course was expected as rates are at the highest too. Under the current market conditions, Our strategy is to only acquire vessels in combination with securing medium to longer term charters that will bring the vessels down to median valuations by the end of the charters. At the same time, we are always open to growing the company using our listed platform to potentially acquire vessels in exchange of shares as we had also done in 2019 when we bought seven vessels in that manner. In any event, the improved markets will increase the company's free cash flow, and we will continue trying to optimize its use between further growth, strengthening the balance sheet even more, and returning capital to our shareholders, having always our shareholders' best interests as our top priority. I will now pass the floor to our CFO, Tassos Aslidis, to go over our financial highlights in more detail.

Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. I will now take you through the next five slides to give you an overview of our financial results for the first quarter of 2021 and compare them to the same period of 2020. For that, let's turn to slide 15. For the first quarter of 2021, the company reported total net revenues of $14.3 million, representing a 7.3% decrease over total net revenues of $15.4 million during the first quarter of 2020, which was primarily due to the lower number of vessels we operated in 2021. On average, 14 vessels were owned and operated during the first quarter of 2021 compared to 19 vessels during the first quarter of 2020. The company reported a net income for the period of 3.8 million and a net income attributable to common shareholders of 3.6 million as compared to a net income of 2 million and a net income attributable to common shareholders of 1.8 million for the first quarter of 2020. Interest and other financing costs including interest income for the first quarter of 2021 amounted to 0.7 million compared to 1.2 million for the same period of last year. This decrease is due to the decreased amount of debt outstanding between the two periods and the decrease in the weighted average LIBOR rate and margin in the current period as compared to the same period of last year. For the three months ended March 33, 2021, the company recognized a $0.5 million loss on its interest rate swap contract, comprising of a $0.52 million unrealized loss and a $0.4 million realized gain. We had no derivative gain in the first quarter of 2020. We had no derivative conflicts. Depreciation expense for the first quarter of 2021 amounted to 1.6 million compared to 1.7 million for the same period of last year, again due to the decreased number of vessels in the company's fleet. Adaptive tipita for the first quarter of 2021 was 5.6 million compared to 4.1 million during the first quarter of last year. Basic and diluted earnings per share for the first quarter of 2021 were $0.53, calculated on 6.7 million basic and diluted weighted average number of shares outstanding, compared to basic and diluted earnings per share of $0.32 for the first quarter of last year, calculated on 5.57 million basic diluted weighted average number of shares outstanding. Excluding the effect on the income attributable to common shareholders for the quarter of the unrealized gain on derivatives and the loss on the sale of a vessel, the adjusted earnings per share for the quarter ended March 31st, 2021, which have been 0.45 dollars per share basically diluted compared to adjusted earnings of 0.17 dollars per share basically diluted for the first quarter of 2020 from which results would have excluded the amortization of the low market time charters acquired. Usually security analysts do not include the above items in the published estimates of earnings per share. Let's now move to slide 16 to review our fleet performance in greater detail. As usual, we will start our review by looking first at our utilization rates for the first quarter of 2021 and compare them to the same period of last year. Our fleet utilization rate is broken into commercial and operational. During the first quarter of 2021, our commercial utilization rate was 100%, while our operational utilization rate was 96.7% compared to 98.9% commercial and 96.2% operational during the corresponding period of last year. I should remind you here that our utilization rate calculation does not include vessels in dry dock or scheduled repairs if any of those events occurred during the period. As I mentioned earlier, on average, 14 vessels were owned and operated during the first quarter of 2021, earning an average time charter equivalent rate of $12,134 per vessel per day, compared to 19 vessels owned and operated in the first quarter of 2020, earning an average time charter equivalent rate of $9,615 per vessel per day. Our total daily operating expenses including management fees, generally administrative expenses, but excluding dry docking costs, averaged $6,914 per vessel per day during the first quarter of 2021, compared to $5,881 per vessel per day during the same period of last year, the increase partly being due to the different composition and smaller size of our fleet, and partly due to increases of certain components of the costs. Let's now look at the bottom of the table for daily cash flow breakeven levels presented here on a per vessel per day basis. For the first quarter of 2021, our cash flow breakeven level was $9,337 per vessel per day compared to $8,611 per vessel per day during the same period of 2020. Let's move now to slide 17. This is a new slide and we included it to provide our shareholders and investors with a tool to assess the earning potential of our fleet in the rest of 2021 and during 2022. The table shown in this slide has two parts. The first refers to our already in place contracts. The table shows the available days for hire of our fleet, making assumptions for the scheduled dry dockings, the number of contracted days in each period, as well as the difference of the two, the remaining open days. As you can see, all of our vessels are contracted for the second quarter of this year, while 86% of our available days for the third quarter The 70% of our days for the fourth quarter are contracted too. Similarly, 49% of the 2022 available days are contracted and even 22% of our 2023 days are already contracted. For the contracted days, the table also shows the average contracted rate which allows you by making an assumption for the operating expenses and the GNA expenses per day to estimate their likely EBITDA contribution. For the open days, the user of this calculator ought to make an assumption for the daily rate to be earned which would allow him or her to estimate their own EBITDA contribution.