Euroseas Ltd.

Thank you for standing by. Ladies and gentlemen, and welcome to the Euro Series conference call on the second quarter 2022 financial results. We have with us Mr. Aristides Pitas, Chairman and Chief Executive Officer, and Mr. Tassos Aslides, 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 the automated message advising your line is open. I must advise you that this conference call is being recorded today. Please be reminded that the company announced their results with a press release that has been publicly distributed. Before passing the floor to Mr. Pizas, I would like to remind everyone that in today's presentation and conference call, EROCs 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 and may result in such expectations not being realized. I kindly draw your attention to slide number two of the webcast presentation, which has a full forward-looking statement. And the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. And now, I would like to pass the floor to Mr. Pitas. Please go ahead, sir.

Mr. Good morning, ladies and gentlemen. Thank you all for joining us today for our scheduled conference call. Together with me is Tasosos Lili, Sub-C Financial Officer. The purpose of today's call is to discuss our financial results for the six-month period and quarter ended June 30th of 2022. Let's go to slide three. Our income statement highlights are shown here. The second quarter of 2022 was another great quarter for us, producing the best results since our inception. With an extremely high charter coverage for the remainder of the year through to 2022, profitability for the next couple of years, regardless of market developments. For the second quarter of 2022, we reported total net revenues of $48.5 million and net income of $30.7 million, or $4.24. Adjusted net income attributable to common shareholders was $29.6 million, or $4.08 per share diluted. Adjusted EBITDA for the period stood at $34.2 million. As part of the company's common stock dividend plan, our board of directors has declared a quarterly which will be payable on or about September 16, 2022, to shareholders of the record on September 9, 2022. This annualized corresponds to a yield of about 7%. As of August 10, 2022, we had repurchased 40,000 shares of our common stock in the open market for about $900,000. Under our shared purchase plan of up to $20 million, which was announced in May 2022. Passage will go over the financial highlights in more detail later in the presentation. Please turn the slide forward. During the second quarter, we took delivery of motor vessel Emmanuel B and motor vessel Rena B on May 24 and June 27, respectively. Both vessels have a capacity of 4,250 TEU each and were built in 2005 and 2007. There were no new charters this quarter, as all our vessels are fixed until the fourth quarter of 2022. Regarding repairs and dry docking, EM-IDRA commenced the second scheduled dry dock, which was completed in the first quarter of 2022. There were no idle vessels during this quarter. Please turn to slide 5, where you can see our fleet profile. with a cargo capacity of close to 60,000 TEU, and another of 17 years weighted by size in TEU. Turning to slide 6, we present our vessels under construction, which consists of nine feeder container ships, which are expected to be delivered in 2023 and 2024. After the delivery of these new buildings, our fleet will consist of 27 vessels with a total carrying capacity of approximately 81,000 TEU. Flight 7 shows our vessel employment schedule. As you can see, fixed rate coverage as of the end of Q2 2022. stands at approximately 98% for the remainder of 2022, 78% for 2023, and almost 54% for 2024. Let's now turn to slide 9 to review how the 6- to 12-month time charter rates have developed in the last decade. Charter rates were low across all the onset of the pandemic, they have dramatically improved, posting all-time highs. Even though rates started retreating towards the end of 2021, they jumped to new highs during the first half of the year. In the last few months, rates appear to have decreased due to a number of reasons, including a partly due to the limited availability of vessels and partly because of the wait-and-see approach of charters, as well as lower demand for the transportation of finished goods, which is triggered by the uncertainty surrounding the ongoing geopolitical and global economic events. This is slide 10, where we summarize the container ship market highlights for the second quarter of 2022. End shutter rates across all segments declined slightly over the past three months, but are still higher than at the start of 2022, more than four times higher than at the end of 2020, and still well above the historical median of the last 12 years. Even though the second and 3 percent in the second quarter of 2022 over the previous quarter, secondhand prices remain very high historically. Generally speaking, the market softened a bit in the second quarter as the war in Ukraine raised uncertainty and diminished appetite for any investments. In the meantime, the new building price index increased by about 2.6 percent in the second quarter of 2022 over the past quarter. In fact, new building prices for container ships rose even further in the second quarter against the backdrop of decreasing slope availability at yard, rising building costs, manpower costs, and energy costs. The container ship fleet has grown by approximately 2% year-to-date without accounting for idle vessels reactivation or idling. The idle container ship fleet as of July 18, 2022, stands at about 0.9% of the fleet and has remained stable during the last year at the lowest levels. However, this number includes Iranian sanctioned ships and ships that were involved in blank sailings due to lockdowns in China during May and June, bringing the actual number of ships really idle and inoperable to a very low number. container ship market conditions still being exceptionally strong, no container ships have been sold for recycling so far this year, and none are expected to be recycled by the end of the year. By and large, it has been the quietest period for container ship scrapping since 2006. Scrapping prices fell sharply to about $60,000 per In addition, these prices are based on a very shallow market with no transactions reported and only available bids much lower than what owners are willing to accept. Please turn to slide 11. The global GDP growth forecast has been further reduced for 2022, according to the IMF's latest report, as several global events have hit a world economy already weakened by the pandemic. The ongoing geopolitical conflict between Russia and Ukraine added to existing inflationary pressures that had already started building up due to the economic stimuli provided during the pandemic, which triggered stricter monetary policies, including a series of aggressive interest rate hikes to help address inflation. With elevated energy prices mainly due to the Russia-Ukraine conflict and lingering supply chain issues, As well as additional slowdowns due to sporadic COVID-19 lockdowns and the property sector crisis that may further suppress Chinese growth, the IMF lowered its global GDP estimate from 3.6% to 3.2% for this year and to 2.9% for 2023. GDP growth for the United States was revised downwards to 2.3% for 2022, the 1.4 percentage point lower from April's forecast, due to lower growth and tighter monetary policies. Similarly, European growth has dropped to 2.6%, resulting from the Russia-Ukraine conflict and tighter monetary policies. Due to major global spillovers caused by its various regional issues, China's growth was also revised down to 3.3% for 2022, a 1.1% difference from the April forecast. Growth in emerging markets and developing economies is also expected to sharply decelerate, and India's forecast has been revised down to 7.4% for 2022 and 6.1% for 2023, while the only country with better forecasts this quarter seems to be Brazil, with an anticipated growth of 1.7% in 2022 from 0.8% previously, due to the robust recovery in Latin America. From the developed economies, Japan and the Asian five have also been revised downwards for 2022 and 2023, due to concerns about slowing economies following the U.S. interest rate hike and ongoing inflation. Looking at the containerized trade and according to Claxon Research Demand, demand is expected to decline by 0.6% in 2022, compared to 6.5% growth from the previous year. For 2023, containerized trade is projected to grow by 2.3%. Rate and growth projection. between Russia and Ukraine on world growth and trade are being continuously reassessed. Please turn to slide 12. The container ship fleet is relatively young, with most vessels under 15 years old and only 9% of the fleet over 20 years old. The circle figures for 2022 to 2025 reflect the anticipated fleet growth before any scrapping and slippages. Lasso expects new deliveries of about 4.5% of the current fleet to be delivered in 2022. percent of the fleet, and the majority of the deliveries are scheduled for the second part of 2023 onwards. Please turn to slide 13, where you can see the fleet age profile and model for ships from 1,000 to 3,000 TEU. As can be seen here, the number of vessels in this size range that are older than 20 years is 22 percent. much larger than the 9% for the average of the fleet shown in the previous slide. Also, the total order within this size bracket is under 14%, about half of that for the whole fleet. In other words, the supply dynamics for the smaller sizes are much more favorable than for the bigger ships. This was one of the prime reasons for us structuring a new milling program around these sizes. This turns to slide 14, where we discuss a round-book summary for the container supermarket. Partner rates have dropped by about 10% to 20% from recent record highs, while trade rates have fallen circa 20% to 30% below historical highs. Nevertheless, they both still remain spectacular. Pressure on container trade has increased as macroeconomic headwinds, lockdowns in China, the Russia-Ukraine conflict, inflationary pressure on consumers, and a shift back towards service spending have impacted volumes. Ongoing disruption caused by cold congestion remains extremely supportive to the charter market, despite trade volumes in 2022, The upper weights have shown no material sign of softening, edging down only marginally. The charterers appear reluctant to fix longer periods or fix forward. The fourth concession likely to take time to ease demand remains above pre-COVID levels, despite the nature of headwinds and the number of fleet expansions. Container market conditions look likely to remain positive in the short term. Consequently, of 2022 to remain strong. However, in 2023, increased deliveries, easing of post-concession and demand destruction should take their toll, and charter rates should decline significantly. may move in either direction, depending on the time to control inflation in the aftermath of the Ukraine-Russia war, maintaining supply pressure from 2023 onwards, which may overtake demand growth, and lastly, new environmental regulations, which will probably result in even slower steaming by 2023 to 2034, 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 a capacity of 2,500 TEUs since 2010. According to Clarkson, as of August 5th, the one-year daily time charter rates for 2,500 TEU containers stood at $72,500 per day. The right-hand side of the slide As you can see, second-hand prices increased significantly in terms of the charter rates during the last two years. However, the increase in prices for new buildings was muted. This was the second reason that prompted us to invest a significant part of the proceeds we have secured in new building purchases. The third, and probably the most important reason for putting in place our new building program, was the fact that due to environmental concerns, the world will need new, more economical vessels. These ships, which consume nearly half the fuel that elder vessels do, will experience a transition to a greener environment. for elder ships. Indeed, this has been the case for our first two vessels that have been forward-charted for a three-year period starting upon their delivery in the first half of 2023 at $48,000 per day, a rate which repays the full investment in just three years. Given our chartered fleet, between now and new building program, but to also reward our shareholders via our ongoing dividend and share repurchase program. Notwithstanding the above, I will now pass the floor to our CFO, Tassos Aslidis, to go over our financial highlights in further detail.

Thank you very much, Eric. Good morning for 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 second quarter and third half of 2022 and compare them to the same periods of last year. For that, let's turn first to slide 17. The company reported total net revenue for the second quarter of $48.5 million, representing a 165% increase from a total net revenue of $15.3 million during the second quarter of 2021, the increase being the result of the increased time charge rate traversal error in the second quarter of this year compared to last and also due to the increase in the average number of vessels we own and operate in the second quarter of this year again compared to last year. The company reported a net income, a net income attributable to common shareholders for the period of $30.7 million as compared to a net income of $7.9 million, a net income attributable to common shareholders of 7.6 million respectively for the same period of 2021. Interest and other financing costs for the second quarter of 2022 amounted to 1.1 million compared to 0.7 million for the same period of 2021. This increase is due to the increased amount of debt and the increase in the weighted average liabilities pay in the current period compared to the same period of last year. Adjusted EBITDA for the second quarter of 2022 was 34.2 million compared to 10.3 million achieved during the second quarter of 2021, an increase of 231%. Earnings per share attributable to common shareholders For the second quarter of 2022, where $4.26 and $4.24 basically diluted, calculated on about 7.2 million weighted average number of sales outstanding. And from there to basically diluted terms per share of 1.12 and 1.11 respectively, for the second quarter of 2021, calculated on 6.8 million, approximately, basically diluted weighted average number of shares outstanding. Excluding the effect on the income attributable to common shareholders of the unrealized gain in derivatives, the amortization of below-market time charges acquired, and the depreciation charged due to the increased value of the vessels acquired with below-market time charges. The adjusted earnings attributable to common shareholders for the quarter would have been $4.1 per share basic and $4.08 per share diluted. Technically, compared to adjusted earnings of $1.12 per share basic diluted, for the quarter ended June 30th, 2021. For that quarter, we excluded the unrealized loss in derivatives. Usually, security analysts do not include the above items in the past estimates of earnings per service while you are making the adjustment. Now, let us look at the numbers for the six-month periods. In the first half of 2022, the company reported total net revenues of 93.9 million, representing an 188% increase of the total net revenues of 32.6 million for the first half of 2021. We reported an net income attributable to common shareholders for the period, the first half, of 60.7 million, compared to an net income of 11.7 million, an net income attributable to common shareholders of $11.1 million for the first half of 2021, an increase of 435%. In the other financing costs, for the first half of 2022, amounted to $2.1 million, compared to $1.4 million for the same period of 2021. This increase, again, is due to the increased amount of debt we paid, and the increase in the other liabilities we paid for the period. for the first half of 2022 was $65.3 million, compared to $15.9 million for the same period, the first half of 2021. Earnings per share attributable to common shareholders for the first half of 2022 were $8.40 basic, and calculated on $7.2 million average number of shares outstanding, and $8.36 per share diluted, calculated in $7.3 million, average weighted number of shares outstanding, compared to basic derivative earnings per share of $1.65 and $1.64, respectively, for the first half of 2021. Again, excluding the effect on the income material of the common shareholder's For the first half of this year, of the annualized gain in derivatives, the amortization of below-market time charts acquired, and the depreciation charge to the increased value of the versions acquired with below-market charters, the adjusted earnings per share to the common shareholders for the six-month period, which has been $7.08 long-sense basic and $7.77 diluted, compared to adjusted earnings of $1.58 per cent basic and $1.57 per cent diluted for the same period of 2021. Again, subtracting for that period the unrealized gain of derivatives and the loss on the sale of the vessel. Let's now move to slide 18 to review our fleet performance. We will start our review by looking first at our fleet utilization rate for the second quarter in comparison to 2021. As usual, our digitalization rate is broken down to commercial and operational. In the second quarter of 2022, our commercial digitalization rate was 100%, and our operational digitalization rate was 99.7%, compared to 100% commercial and 99% operational for the second quarter of last year. On average, 16.43 vessels were owned and operated during the second quarter of this year, earning an average time-sharper equivalent rate of $33,714 per day, compared to 14 vessels that we owned and operated in the second quarter of 2021, earning an average of $14,853 per day. Our total operating expenses, including management fees, VMA expenses, but excluding digestion costs, averaged $7,732 per vessel per day during the second quarter of this year, compared to $6,860 per vessel per day for the second quarter of 2021. If we move further down in this table, we can see the cash flow break-even rate for the second quarter of 2022, which, in addition to the operating costs mentioned above, takes into account interest expenses, direct open expenses, and loan repayments, excluding our balloon repayments, if any. Thus, during the second quarter of 2022, our daily cash flow break-even rate was $13,561 per visit per day, compared to $9,937 per person per day for the same period, second quarter of last year, with a big part of the difference being accounted by the higher loan repayments made during this period. Next, let's go over to our utilization rate and remaining of the figures for the first half of the year, and compare them again to the same period of 2021. During the first half of 2022, Our commercial utilization rate was 99.8%, and our operational utilization rate, 99.6%, compared to 100% commercial and 98.3% operational utilization rate for the same period, the first half of last year. We owned and operated 16.23 vessels in the first half of 2022, bearing an average time charge equivalent rate of $33,843 per day, compared to 14 vessels, earning $13,523 per day during the first half of 2021. Our total operation expenses, again, including management fees, G&A expenses, but before driving costs, were $7,534 per day, during the first half of this year, compared to $6,887 per vessel per day for the same period of 2021. Again, if we look further down in the table, we can see again the cash flow rate even raised for the first six months of 2022, and that amounts to be $13,805 per vessel per day, compared to $9,638 per vessel per day for the first half of 2021. The difference, again, mostly being accounted by the current loan repayments during this year. Let's now move to slide 19. This slide provides our shareholders and investors a tool to assess the earnings potential of our fleet in the coming periods. The table shown here, we call it the data calculator, has two parts. The first part refers to our current contracting dates. Starting with the calendar of recent dates available, the fleet shows the available fleet dates and after making some assumptions for dates budgeted for any scheduled titles. Also, it shows the number of contracted days as a percent, productive days, the percent coverage, and the average contracted rate in each period. By making an assumption for the operating expenses and other G&A expenses and the dry nursing costs, we can estimate the EBITDA contribution of the contracted portion of RV. The second part of the table, and for future periods, we can see the difference of the available days and the contracted days what we call the remaining open days of our fleet. To complete our orbital calculation for the entire fleet, we need to make an assumption about the average rate that will be earned by our open days. Here, one could make his or their own assumptions. Indicatively, if we assume that the open days in the second part of 2022, 2023, 2024, we get the same rate as the average of the car in the contractor base, we can get the estimates of EBITDA that we see at the bottom of the table. Furthermore, knowing our automation experience, we can easily calculate the sensitivity of our EBITDA estimates to chart rate changes. The notes below the table provide the sensitivity of our EBITDA to chart rate changes. For example, if our 2023 open days are assumed to earn $20,000 per day instead of $33,218 shown in the table, our EBITDA for the year would be approximately $143 million. Let's now move to slide 20 to review our debt profile. On the top of this slide, you can see our steady current debt repayments over the next several years. Our loan repayment schedule without balloons for this year stands at about $27.4 million, without repayments of the car debt going down over the next couple of years. We have a number of balloon payments coming due in 2023, which we expect to routinely be able to decide on if we choose to do so. Please note that our debt profile does not include any new debt that we expect to assume to finance our new building program. A quick look on this slide about the cost of our debt, which is related to the loans we're spending at the end of the last quarter. The average margin of our debt is about 3%, and assuming the LIBOR rate of around 2.8%, our cost of senior debt would be on average about 5.8%. This one includes the cost of our interest rate swaps, which are on average about 1.7%. The overall cost of our debt is coming down a bit to about 4.7%. Looking now at the bottom of this table, we can see our cash flow break-even level expectation for the next 12 months in dollars per vessel per day. You can see the various components that make up our cash flow break-even level that we just reviewed. And the final break-even rate for the next 12 months will expect to be a little less than $14,000, $13,993, of which about $4,227 per person per day is a contribution from lower repayment. slide 21 to provide some highlights on our balances. As of June 30th, 2022, our assets include cash and other assets amounting to about $17.1 million, advances for our new buildings of about $37.8 million, and of course the book value for our vessels of about $233.6 million, resulting in book value for our assets was about $288.5 million. On the liability side, our debt as of June 30th, 2022, stood at $105.2 million, representing about 36.5% of the book value for our assets. We said on our liability side to record the value of our recently acquired low market charters, which was estimated in order to record the recent vessel acquisitions of their fair value of 42.7 million, or 14.8% of our assets, and other liabilities amounting to about 7.4 million, or 25% of our total assets, resulting in about 133 million book value of our shareholder's equity. However, the market value for our fleet is much higher than its book value. Based on our own estimations, using the charter-adjusted market value of our vessels and new building contracts, our vessels are estimated to be worth about $538 million as of the end of June 2022, which translates to a net asset value of $439 million, or about $66 per cent. Recently, our shares have been trading in the range between $22 and $29 per share, thus representing a significant discount to our net asset value 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 our attendees to continue the discussion. Thank you, Pastor.