Euroseas Ltd.

Thank you for standing by, ladies and gentlemen, and welcome to the conference call on the first quarter 2022 financial results. We have with us today Mr. Aristides Pitas, Chairman and Chief Executive Officer, and Mr. Tassos Aslitis, Chief Financial Officer of the company. At this time, all participants are in 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 the automated message advising your line is open. I must advise you that this conference is being recorded today. Please be reminded that the company announced its result 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, your tribe 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 risk and uncertainties that may result in such expectations not being realized. I kindly draw your attention to slide 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 full statement and read it. I would now like to pass the floor over to Mr. Pitas. Thank you, sir, and please go ahead.

Good morning, ladies and gentlemen, and thank you all for joining us today for our scheduled conference call. Together with me is Tasos Aslidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the three-month period ended March 31st, 2022. Let's turn to slide three. Our income statement highlights are shown here. For the first quarter of 2022, we reported total net revenues of $45.4 million and a net income of $29.9 million. Adjusted net income attributable to common shareholders was $26.8 million, or $3.70 per share diluted. Adjusted EBITDA for the period stood at $31.1 million. Our CFO, Tasos Aslidis, will go over the financial highlights in more detail later in the presentation. We are indeed very pleased with the company's increased profitability, which is of course the result of the extremely strong Charter H.R. Vessels record during the first quarter of 2022. In this positive environment and with robust earnings visibility well into 2024, we believe our stock should be trading at much higher levels, given the value of these contracted revenues and the net asset value of the company. We believe these factors combined create captivating opportunities for us. Therefore, the company's board of directors approved a share repurchase program for up to a total of $20 million of the company's common stock to be used at management's discretion. The board will review the program after a period of 12 months. Share repurchases will be made from time to time from cash in open market transactions at prevailing market prices or in privately negotiated transactions. The timing and amount of purchases under the program will be determined by management based upon market conditions and other factors. The program does not require the company to purchase any specific number or amount of shares and may be suspended or reinstated at any time in the company's discretion and without notice. At the same time, our increased profitability and charter coverage has allowed us to reinstate our common stock dividend plan, which ran consecutively from 2005 until 2013, but had to be paused due to the negative markets experienced in the last decade. This plan rewards our shareholders without having to hold back our growth strategy as we are paying out just a small part of our contracted earnings. In this respect, our Board of Directors has declared a quarterly dividend of 50 cents per share for the first quarter of 2022 payable on or about June 16, 2022 to shareholders of record on June 9, Despite the short-term rewards we have initiated for our shareholders, we do remain committed to further growth of the company. We therefore continue to examine investment and other opportunities, and we expect to remain a significant participant in the feeder container ship market as we grow our fleet. Please turn to slide 4, where we discuss our recent chartering and operational developments. Motovessel Aegean Express charter was extended for approximately 36 to 39 months at $41,000 per day beginning March 31. Motovessel Synergy Auckland was fixed for a single voyage brief idle period as a result of the loss of the short-term charter of $130,000 per day that was to be performed before a four-year charter we had concluded at $42,000 per day. The charter subsequently missed its delivery date. Therefore, this short-term charter was extended by approximately 30 days in April at $180,000 a day. before it started its new four-year charter, which it is currently doing. We are also pleased with the fixture of our first two new building vessels ahead of the delivery date at $48,000 per day for a minimum period of 36 months each. Motovessel Gregos' new charter will commence in March 2023 upon its delivery, while Motovessel Steratakis' new charter will commence in June 2023 upon the delivery of that vessel too. Regarding repairs and dry docking, EM Corfu underwent dry dock during the first quarter, while the Echinada Bridge incurred some repairs after having lost some containers at high seas. Furthermore, motor vessel Synergy Auckland incurred about five days of commercial off-hire in February 22, as discussed above. Please turn to slide 5, where we discuss our fleet's growth strategy. Adhering to our plan to renew our fleet and expand our footprint in the feeder sector, we continue focusing on the most commercially demanded vessel sizes. In January 2022, we placed orders for two additional EcoDesign fuel-efficient 2,800 TEU new building container ships at a combined price of about $85 million. And in May 2022, we exercised our option to proceed with the construction of two more sister vessels for a combined consideration of about $86 million. All four vessels will be constructed at Hyundai Meepo Dockyard in South Korea. The vessels are sister ships of a pair of vessels which were ordered in June 2021 and, as I said, was just chartered out. The four new orders are expected to be delivered between the fourth quarter of 2023 and the fourth quarter of 2024. In addition to this, we placed orders for three new building vessels with a carrying capacity of 1,800 TEU each, which will also be constructed at Hyundai Meepo, for a total consideration of approximately $102 million. The vessels are expected to be delivered during the first half of 2024, one in the first and two in the second quarter of the year. At the same time, we also scanned the market for second-hand vessels with long-term time charters in place at attractive acquisition prices, bringing the cost basis of the vessel below historical average levels at the end of the charter. As previously announced, at the beginning of May, we agreed to acquire MV Emmanuel P, ex-Hispan Melbourne, which has a charter rate of $19,000 per day until March 2025, and MV Rena P, ex-Hispan Manila, which has a charter rate of $20,250 per day until April 2025. context index, with a floor of $13,000 and a ceiling of $21,000 per day until February 2025. Both intermediate-sized container vessels have a capacity of 4,250 TEU each and were built in 2005 and 2007, respectively. The vessels were acquired for a combined price of $37 million. I am happy to say that MV Emmanuel P was delivered to the company today in the morning, whilst MV Rena P is expected to be delivered sometime within June 2022. Both acquisitions have been initially financed with the company's own funds. Please turn to slide 6 where you can see our current fleet profile. Eurasia's current fleet is comprised of 18 vessels. Actually, we should say 17 vessels, as the RENAPI will be delivered to us in June. Anyway, of these 18 vessels, 10 are feeder container ships and eight intermediate container carriers. Eurasia's 18 container ships will have a carrying capacity of about 59,000 TEU and an average age of about 17 years. Flight 7 shows the nine feeder container ship new buildings with a total carrying capacity of 22,200 TEU that are expected to be delivered between 2023 and 2024. After the delivery of the new building vessels, Eurosis fleet will consist of 27 vessels with a total carrying capacity of about 81,000 TEU. Slide 8 shows our vessel employment chart. As you may see, we have covered 97% of our capacity in 2022, approximately 78% of our capacity in 2023, and almost 55% in 2024. Let's now turn to slide 10 to review how the market has developed in the last decade. Rates charter rates were low across all segments until mid-2020, after the onset of the pandemic. Since then, charter rates have improved about six times, posting 10-year historical highs. Despite the short-lived retreat in container rates that was registered during November and December of 2021, rates continued to climb to new highs in the first quarter of 2022. Although we've seen a slight correction in the last weeks for the feeder sizes, we expect market fundamentals to be favorable throughout the year. Please turn to slide 11 to go over some other market highlights. As we've mentioned, time shutter rates across all segments have skyrocketed over the past 12 months and have reached all-time highs. Alongside the increased time charter market, prices for second-hand vessels have also increased, with the average second-hand price index up about 17% in Q1-22 over Q4-21. Price gains were most apparent in the feeder segments, with a guideline price over 2,750 TEU 10-year-old vessels rising approximately 180% year-over-year, to $56 million. During the last couple of weeks, we have seen, though, some softer deals being concluded in the smaller feeder sector. During the first quarter, the new building index increased by about 2.4%. The sentiment of the new building market continues to follow its upward trend, which is also reflected in the current container ship prices, which are holding at five-year highs. The idle container ship fleet, as of May 9, stands at about 270,000 TEU, or 0.7% of the fleet, and has remained around those levels, lowest levels, in the last year. However, due to lockdowns in China, the trend seems to be retreating a little bit in the last few weeks. When China reopens, these idle vessels will also be, of course, probably reactivated. There have been no demolitions to date in 2022. The capacity of container ships to be scrapped is expected to be approximately 34,000 TEU by Clarksons. Scrapping price has remained high so far during the year and stands at around $660 per lightweight ton as of May 2022. Overall, the fleet has grown by about 1.1% year-to-date, without, of course, accounting for the idle reactivations. As it stands, approximately 80% of the capacity ordered so far in 2022 has been alternative fuel capable, mainly LNG dual fuel, while in 2021 just 22% of the capacity contracted was with alternative fuel capable. Please turn to slide 12. Global growth is expected to slow significantly in 2022, largely as a consequence of the ongoing conflict between Ukraine and Russia, increased inflation pressures and the continuing lockdowns in China. In its latest report, the IMF lowered its previous global GDP estimates from 4.4% growth to 3.6%. due to the sanctions, as well as European countries' decision to scale back energy imports. Shorter-than-expected slowdown in China remains a key risk to growth and is affecting global supply chains. More stimulus measures are likely to be employed in order to speed economic activity. But the strength of any rebound is uncertain and will largely depend on the scale of future COVID-related outbreaks and lockdowns. The IMF has also cut U.S. growth to 3.7% for 2022 and 2.3% for 2023, down from its January projections of 4% and 2.6% respectively for the U.S. Prospects for emerging markets and developing economies are also generally for lower growth in 2022 than in 2021. From the developed economies, only Japan and the ASEAN 5 are expected to do better than 2021. Looking at the containerized trade, and according to Clarkson's research, demand is expected to grow by 3.2% in 2022, For 2023, we expect containerized trade demand to grow at a moderate pace of 3.5%. Rate and growth projections are being continuously revised as the effects of the lockdowns in China and geopolitical tensions between Russia and Ukraine on world growth and trade are being continuously reassessed. Please turn to slide 13 to see the container ship age profile and delivery schedule. As you can see in the container ship age profile chart located on the left side of the slide, we have a young fleet with a mere 8% of ships being over 20 years old. However, the older vessels are mainly concentrated in the smaller classes in which our ships operate. The right side chart shows the delivery schedule of the current container ship order book, which is expressed as a percentage of the fleet. reflects the anticipated fleet growth before any scrapping and slippages. Currently, the total container ship order book stands at 26.4% of the fleet, and the majority of the deliveries are scheduled for the second half of 2024 onwards. Please turn to slide 14 where we discuss our outlook summary for the container ship market. As previously mentioned, the Ukraine-Russia conflict has contributed to this rising uncertainty and inflation, while continued Chinese lockdowns are causing delays in the easing of global supply bottlenecks. Supply and demand analysis still suggests a fair market continuing in 2022. The short to medium-term outlook for the container sector remains positive, with port congestion and trade disruptions likely to continue to provide support throughout the year, alongside a moderate fleet growth of 4%. In addition, the Chinese lockdowns are currently affecting local production levels, which could have material implications if they persist, but could also transform to a rapid recovery once the lockdowns end. These logistical bottlenecks are expected to remain in the near term. Longer term, though, fundamentals are harder to predict and will depend on the interplay of, first, what demand for vessels will be once transportation system disruptions ease. Second, the fallout of the Ukraine-Russia conflict and its effect on world economic growth and containerized trade. it will overtake demand growth. And lastly, the effect of new environmental regulations, which will probably result in further slow steaming by 2023, 2024, and effectively removing capacity from the market. Let's move to slide 15. The left side of the slide shows the evolution of one-year time charter rates for containers with the capacity of According to Clarkson's, as of the end of last week, the one-year daily time charter rate for a 2,500 TEU container ship stood at $76,000 per day. The right-hand side of the slide shows the historical price range for a 10-year-old container ship with a capacity of 2,500 TEU, which has a current price of $56 million and is the highest of all the last decade. There is no doubt that at some point charter rates and prices have to correct, as such high shipping costs threaten to derail the world order of globalization. The astronomically high margins of today will no doubt give way to more rational markets once enough new vessels and positions the company accordingly to take advantage of the opportunities presented by the current market, but also be prepared for the correction that will sometime come. The company will continue growing when the right opportunities are spotted, but will maintain a strong balance sheet throughout to weather any storm that may come. And with that, I will now pass the floor to our CFO, Tassos Aslidis, to go over our financial highlights in further detail.

Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. As usual, I will now take you through the next five slides of our presentation and give you an overview of our financial highlights for the first quarter of 2022 and compare the results to the same period of last year. For that, let's turn to slide 17. For the first quarter of 2022, Eurosys reported total net revenues of 45.4 million, representing a 217% increase over total net revenues of 14.3 million during the first quarter of last year. The company reported a net income and a net income attributable to common shareholders for the period of 29.9 million as compared to a net income of 3.8 million and an net income attributable to common shareholders of 3.6 million for the first quarter of 2021. Interest and other financing costs for the first quarter of 2022 amounted to about 1 million compared to 0.7 million for the same period of last year. This increase is generally due to the increased amount of debt we carry and the increase in the weighted average LIBOR rate that we paid in the current period compared to last year. Adjusted EBITDA for the first quarter of 2022 was 31.1 million compared to 5.6 million for the same period in 2021, representing a 455% increase. Please see the press release we issued yesterday for the adjusted EBITDA reconciliation to our net income. Basic and diluted earnings per share for the first quarter of 2022 were $4.15 and $4.13 respectively, calculated on 7.2 million basic and 7.3 million diluted weighted average number of shares outstanding, compared to basic and diluted earnings per share of $0.53 per share, for the first quarter of 2021, calculated on about 6.7 million basic and 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, the amortization of below-market time charters acquired, and the depreciations charged due to the increased value of the vessel acquired with the low market time charter. The result for the quarter would have been $3.71 basic and $3.70 diluted, compared to adjusted earnings of $0.45 per share basic and diluted for the first quarter of last year. during a period during which we excluded unrealized gain in derivatives and the loss on the sale of a vessel. Usually, security analysts do not include the above items in the published estimates of earnings per share. That's why we present our earnings in that fashion. Let's now move to slide 18, to review our fleet performance. Again, as usual, we will start our review by looking first at our utilization rates for the first quarter of 2022 and compare them to the first quarter of last year. Our fleet utilization rates are broken down into commercial and operational. During the first quarter of 2022, our commercial utilization rate was 99.6%, while our operational utilization rate was 99.5%, compared to 100% commercial and 96.7% operational for the first quarter of last year. On average, 16 vessels were owned and operated during the first quarter of 2022, earning an average Time Charger equivalent rate of $33,986 per day, compared to 14 vessels in the same period of last year, earning on average $12,134 per day. Our total operating expenses, including management fees, general and administrative expenses, but excluding diverting costs, averaged $7,329 per vessel per day during the first quarter of this year, compared to $6,914 per vessel per day for the first quarter of 2021. If we move further down in this table, we can see the cash flow breakeven rate for the first quarter of 2022, which also takes into account, in addition to the above, interest expenses, dry-torten expenses, and loan repayments, but excludes balloon repayments. and for the first quarter of 2021 also includes preferred dividend payments. Thus, during the first quarter of 2022, our daily cash flow breakeven rate was $14,057 per vessel per day, compared to $9,330 per vessel per day for the same period of last year, with a difference primarily due to increased loan repayments and dry docking expenses. Let's now move to slide 19. You should be familiar with this slide by now, as we've used it since this time of last year. This slide provides our shareholders and investors with a tool to assess the earnings potential of our fleet in the coming periods. The table shown in this slide has two parts. The first part refers to our already in place contracts. The table shows the available days for hire of our fleet in each period, and after making assumptions for the dry-dolting days expected, and also shows the number of contracted days, as well as the difference of the two, what we call the remaining open days of our fleet. The table also shows the percentage covers and the average contracted rate in each period. By making an assumption for the operating and G&A expenses and the dry-dieting costs, we can estimate, first, the EBITDA contribution of the contracted portion of our fleet. To complete our EBITDA calculation for the entire fleet, we need to make an assumption about the average rate to be earned by our open days. Here one could make his or her own assumptions. Indicatively, If we assume that open days in 2022, 2023, and 2024 would earn another rate equal to that of the contracted dates in each period, we would have the EBITDA estimates shown at the bottom of the table. Furthermore, by knowing our open days in each period, we can easily calculate the sensitivity of our EBITDA to chart rate changes. Of course, as our contract coverage is very high, especially for 2022, which is essentially 100%, and 2023, our EBITDA dependence to market rate is minimal. Taken to the extreme, it is worth noting that even if all our open days earn nothing, then our EBITDA for the next two years would still be over 125 million per year, and even for 2024 it would be over 105 million. Let's now move to slide 20 to review our debt profile. On the top part of this slide, we can see our scheduled current debt repayments over the next several years. Our loan repayment schedule without balloons for this year stands at about 27.4 million, with our debt repayments of the current debt, as I mentioned, going down over the next three years. We have various volume payments due in 2023, which we expect to routinely be able to refinance if chosen so. Please note that the shown debt profile does not include new debt that we expect to assume to finance our new building program. A quick note on this slide on the cost of our debt. This is related to the loans outstanding at the end of the last quarter. The average margin of our debt is about 3%, and assuming a LIBOR rate of 1.25%, our cost of our senior debt would be on average about 4.25%. If one includes the cost of our interest rate swaps, which are on average at about 1%, the overall cost is coming down a bit to about 4.17% for our existing debt. Looking at the bottom of this table, we can see our cash flow breakeven level expectation for the next 12 months in dollars per vessel per day. You can see that our loan repayments that we just reviewed over the next 12 months are to make a $4,094 per versa per day contribution to our cash flow breakeven level. If we make similar assumptions for the remaining components of our cash flow breakeven level, that is our operating expenses, G&A expenses, interest payments, and die-doting costs, we can come up with a cash flow breakeven leverage for the next 12 months of just around $13,061 per vessel per day. Let's now move to slide 21. This slide provides some highlights from our balance sheet, adjusted to reflect the market value for our fleet. As of March 31st, 2022, on a book value basis first, Our assets include cash and other assets of about 68.6 million, and the book value of our vessels, including advances for the new buildings and the acquisitions of the second-hand acquisitions, giving us a total book asset value of about 241.8 million. On the liability side, we had an outstanding bank debt of 112.1 million and other liabilities of about 22.6 million, resulting in a net book value of our shareholder's equity of about 107 million. However, the market value for our fleet is much higher than its book value. We estimate that our vessels are worth more than 520 million, inclusive for the appreciation of the value of venue building contracts and adjusted for the negative value of certain of our charters. Thus, on a market value basis, we can calculate the net asset value of our fleet to be around $470 million, or around $64 per share. Recently, our shares have been trading in the range between $24 and $29 per share, thus representing a significant discount to our net asset value per share and offering good appreciation potential for our shareholders and good investment opportunities for our investors. And with that, I would like to close my presentation and pass the floor back to Aristides to continue the discussion.