Euroseas Ltd.

the third quarter 2022 financial results. We have with us Mr. Aristides Pitas, Chairman and Chief Executive Officer, and Mr. Tasos 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 your name to I must advise you that this conference is being recorded today. And please be reminded that the company announced their results with a press release that has been publicly distributed. Before passing the floor to Mr. Peterson, I would like to remind everyone that in today's presentation and conference call, USCIS will be making four looking statements. These statements are within the meaning of the federal securities laws. Matters discussed may be four looking statements. 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. as leaders and three financial officers. The purpose of today's call is to discuss some financial results for the third quarter, a nine-month period ended September 30, 2022. Let's go to slide three. In the third quarter of 2022, we reported total net revenues of $46 million and net income attributable to common shareholders of $35.2 million, or $3.50 per share, basic and diluted. Adjusted net income as is usable to common shareholders was $20.9 million, or $2.90 per share, basic and diluted. Adjusted EBITDA for the period stood at $26.2 million. As part of the company's common stock dividend plan, our board of directors has declared a quarterly dividend of $0.50 per share for the third quarter which will be payable on or about December 16 to shareholders of the record on December 9, 2022. This represents a 9.4% annualized yield on our stock price of last Friday. As of November 14, 2022, we had also repurchased 139,000 of our common stock in the open market for about $3 million. under our shared purchase plan of up to $20 million, announced in May 2022. Passers will go over the financial highlights in more detail later in the presentation. Please turn to slide 4, where we discuss our recent chartering and operational developments. We have no say in our purchases or chartering updates, as all vessels were fully contracted during the quarter. On the dry dock in Strand, Motovest Livre underwent repairs for 46 days, of which about 6 days occurred in the second quarter and 40 days occurred within the third quarter of 2022. Motovest UN Care underwent a scheduled dry dock as well for a total period of 51 days, of which 41 days were within the quarter and the rest during the fourth quarter. Motor vessel Rena B also underwent a dry dock for a period of about 33 days. Finally, motor vessels Akinata Bridge and Aegean Express have both been in dry dock since October 2022 and November 2022, respectively. While Akinata Bridge was in dry dock, a tail-shaft system damage was identified. Color machinery and also tire underwriters have been notified and the managers are presently working to evaluate necessary repair options. Please turn to slide 5 where you can see our current FLIP profile. Our FLIP consists of 18 vessels including Turning to slide 6, we present our vessels under construction, which consists of nine eco-feeder containerships. Six with a carrying capacity of 2,800 TEU each, and three with a carrying capacity of 1,800 TEU each, expected to be delivered within 2023 and 2024. The nine feeder containerships will have a capacity of 32,000 TEU. After the delivery of these new buildings, our fleet will consist of 27 vessels with a total carrying capacity of approximately 81,000 people. Slide 7 shows our vessel employment schedule. As you can see, fixed-rate coverage stands at approximately 99% for the remainder of this year, 78% for 2023, and almost 54% for 2024. Turning on slide 9, we review how the 6- to 12-month time charter rates have developed over the last 10 years. Container charter rates have declined significantly since the beginning of September, with slow container freight demand growth in response to the global Scheduled new building container ship deliveries starting from mid-2023 onwards, in combination with further softening and port congestion, will likely add further pressure on the container shipping rates, more so for the larger container ship segments. Nevertheless, rates are still higher than at the end of 2020 and well above the 12-year historical median. Please turn the slide. decline in the last three months. Average rates per day during the Q3 were down by 10 to 30 percent compared to Q2 2022, and have since fallen by more than 70 percent. The average second-hand price index decreased on average by about 20 percent in the third The containment of secondhand sales activity was a lot quieter in Q3 2022, as major macroeconomic uncertainties and weaker demand trends diminished any appetite for new investments. On the contrary, new building price index increased by about 0.3 percent in the third quarter over the second quarter of 2022. with new building prices remaining firm despite the growing negative market sentiment. The container ship fleet has grown by approximately 3.4% year-to-date, without accounting for idle vessel reactivation or further idling. The idle container ship fleet as of October 24 stood at about 1.8% since last year. No container ships have been sold for scrap so far this year, and none are expected to be recycled by the end of the year as a result of strong container ship markets thus far. However, it is projected to pick up from 2023, potentially as markets cool Our prices softened to around $600 per lightweight ton in the third quarter. They still remain about 40% above the 2019 average as a result of currency depreciations and softening of steel markets. Please turn to slide 11. The global GDP growth is forecast to slow from 6% in 2021 to 3.2% in 2021. This is the weakest growth profile in the last 15 years, apart from the global financial crisis and the critical phase of the COVID-19 pandemic. Russia's invasion of Ukraine, China's zero-COVID policy, shunning energy prices, and global inflation all weighed down heavily on the drivable outlook. China's growth is projected to slow to 3.2% in 2022. significantly lower than the pre-pandemic years marking one of the worst performances in almost half a century. In 2033 On the other hand, European growth projections have increased to 3.1% from previously 2.6% in 2022, but the risks remain on the downside, and in 2023 GDP growth is expected to be just 0.5%. Growth in emerging markets is forecast to be slow in 2022, while the only country with a better forecast In 2023, all other developing countries growth by only 1.7%. Of course, trade and growth projections are being continuously revised, and the effects of geopolitical tensions between Russia and Ukraine on world growth and trade are being continuously assessed. Please turn to slide 12. The container ship fleet is relatively young, with most vessels under 15 years old and only The circuit figures for 2022 to 2025 reflect the anticipated fleet growth before any scrapping and slippages. Larsen expects new deliveries of about 4.5% of the current fleet to be delivered in 2022. Currently, the total container support for the book stands at close to 39% of the fleet, and the majority of the deliveries are scheduled for the second part of 2023 onwards. This is slide 13, where you can see the fleet age profile in order to look for ships from 1,000 to 3,000 EU, which form the backbone of our operations and the side range where we have focused our new building program. As you can see, the breakdown of this segment and the prospective order book seem significantly better than the broader picture. The order book currently stands at 14.3%, half back of the whole fleet, and the number of vessels over 20 years. eco-new builds that will deliver from Q4 2023 to Q4 2034 at very satisfactory levels. I remind you that the first two vessels of our new building program that will be delivered in the first half of 2023 have already been chartered for three years at very lucrative rates. Please turn to slide 14 where we discuss our outlook summary for the container ship market. Political and economic uncertainties are affecting the prospects of container shipping, with freight rates plunging over the past quarter, as already said. Declines in sports freight rates are to be mirrored in tank charter rates, with benchmark rates falling by about 70% in the last month. While charter rates have also fallen due to A lot of the slowdown in container and vessel demand has been due to the weak cargo movement. Container shipping market is facing volume headwinds amid an increasingly pessimistic economic outlook, primarily due to the Russian-Ukraine conflict, inflationary pressures on consumers, and a shift back towards service spending. Consequently, we expect the market-shortening trend to continue in the near term. The high organ book set to hit the water in the next 24 to 36 months is expected to exert a big pressure on the supply of ships and consequently time charter rates. Some of mitigating this pressure, the new environmental regulations will probably result in even slower steaming by 2023 and 2024, effectively removing excess capacity from the market. This could slow the decline in rates or even reverse it if we witness a stabilization in the global economy as well. Let's move to slide 15. The right-hand side of the slide shows the historical price range for the new building and 10-year-old containers with the capacity of 2,500 TUs. As you can see, there has been a sharp decline in second-hand vessel prices, which has been rising steadily in the last two years, up until August 2022. In the meantime, new building prices remain new building program in order to use nine modern ecologically friendly feeder vessels, two of which we have already contracted, as aforesaid, for a minimum period of three years at highly profitable rates. We intend to gradually transition into one of the most environmentally friendly feeder operators. We continue to...

Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. As usual, I will now take you through the next four slides of our presentation to give you an overview of our financial highlights for the third quarter, a nine-month period ended September 30, 2022. and converted them to the same period of last year. For that, let's turn to slide 17. In the third quarter of 2022, the company reported total net revenues of 46 million, representing an almost 100% increase over total net revenues of 23 million during the third quarter of 2021, which was mainly the result of the higher average short rate our vessels earned in the third quarter of this year compared to last, and the fact that we operated four more vessels. The company reported a net income attributable to common shareholders for the third quarter of 25.2 million, as compared to a net income attributable to common shareholders of 8.5 million for the third quarter of last year, an increase of over 200%. Interest and other financial costs for the third quarter of 2022 amounted to 1.3 million compared to 0.6 million for the same period of last year. This increase is due to the increased amount of debt almost twice as marked in the same period of last year, and increasing the weighted average LIBOR rate in the current period compared to the same period in the first quarter of 2021. It is noteworthy that for the three months ended September 30, 2022, the company recognized an unrealized gain of 1.8 million on its interest rate shock contracts. With the three-month end of September 30, 2021, last year, the company recognized a small gain on the same context. Adjustability for the third quarter of 2022 was $26.2 million, compared to $10.6 million achieved during the third quarter of 2021, an increase of almost 150%. Basic and diluted earnings per share attributable to common shareholders for the third quarter of this year were $3.5, calculated on about 7.2 million weighted average number of shares outstanding, compared to basic diluted earnings per share of 1.18 and 1.17, respectively, for the third quarter of 2021, calculated again on about 7.2 million weighted average number of source substances. Excluding the effects on the income attributable to common shareholders for the quarter from the unrealized gain in the average, the amortization of fair value of below market time charges acquired, and the vessel depreciation and the portion of the consideration of assets acquired in the tax charters allocated to below-market charters, the adjusted earnings attributable to common shareholders for the quarter ended September 30, 2022, which has been $2.90 per share, basically diluted, compared to adjusted earnings of $1.16 per share, basically diluted, for the quarter, the same period, of September of 2021, a quarter during which we excluded the unrealized gain on derivatives. Usually, security analysts do not include the above items in the public estimates of fairness per se. That's why we make the adjustments ourselves. Let us now look at the numbers for the corresponding nine-month periods ended September 30th, 2022 and 2021. For the first nine months of this year, The company reported total net revenues of 139.8 million, representing a 150% increase for the total net revenues of 55.6 million during the first nine months of 2021. Again, the result of higher average earnings are vessels earned and a higher number of vessels owned and operated during the period compared to last year. The company reported a net income attributable to common shareholders for the period of 85.9 million as compared to a net income of 20.2 million and a net income attributable to common shareholders of 19.6 million for the same period, the first nine months of 2021, an increase of more than 300%. Interest and other financing costs for the first nine months of 2022, amounted to 3.5 million compared to 2 million for the same period of last year. Again, this increases due to the increased amount of debt and the higher liabilities our bank loans get to pay in the current period as compared to the previous one. Again, it is noteworthy that for the first nine months of this year, the company recognized an unrealized gain of 4.1 million on its interest rate shock converts, compared to a 0.4 million gain that we recognized over the same period of last year. Adjustability for the first nine months of 2022 was 91.5 million, compared to 26.6 million for the first nine months of 2021, representing a 244% increase. Basic and valid earnings per share attributable to common shareholders for the first nine months of this year were $11.91 and $11.86 respectively, calculated on about 7.2 million weighted average number of shares outstanding. Compared to basic and valid earnings per share of $2.84 and $2.82 per share, for the first nine months of 2021. Again, excluding the effect on the income attributable to common shareholders for the first nine months of this year of the unrealized game and derivatives, the amortization of all value of below-market charges acquired and the vessel depreciation and the portion of the consideration of vessels acquired and attached below market charges, the adjusted earnings per share attributable to common shareholders for the first nine months of this year, which has been $10.71 basic and $10.67 diluted, compared to adjusted earnings per share of $2.76 basic and $2.74 diluted for the same period of last year. Let's now move to Flight 18 to review our fleet performance. As usual, we will start our review by looking first at our fleet utilization rates for the third quarter of 2022 and 2021. As shown here, and as always, our utilization rate is working down to commercial and operational. In the third quarter of 2022, our commercial utilization rate was 100%, and our operational utilization rate was 99.5%. compared to 100% commercial and 98.8% operational for the third quarter of 2021. On average, 18 vessels were owned and operated during the third quarter of this year, earning an average time charter equivalent rate of $30,893 per day, compared to 14 vessels that were owned and operated during the third quarter of 2021, earning an average $19,482 per vessel per day. Our total operating expenses, including management fees and GMA expenses, but excluding dry-doping costs, averaged $7,180 per vessel per day during the third quarter of this year, compared to $7,321 per vessel per day for the third quarter of 2021. If we move further down in this table, we can see the cash flow break-even rate for the first quarter of 2022, which in addition to the operating cost mentioned above, takes into account interest expenses, direct expenses, and loan repayments, but excludes balloon repayments if any. Thus, during the first quarter of 2022, our daily cash flow break-even rate was $14,300. $64 per vessel per day compared to $11,831 per vessel per day for the same period of last year. Next, let's go over to the right part of this table and review our utilization rate and the remaining of the same figures for the nine-month period of the two years. During the first nine months of 2022, Our commercial utilization rate was 99.9%, and our operational utilization rate 99.6%, compared to 100% commercial and 98.5% operational for the same period of last year. On average, 16.8 vessels were owned and operated during the first nine months of 2022, earning an average time charter equivalent rate of $42,814 per day compared to 14 vessels, earning $15,478 per day for the first nine months of 2021. Looking again at the bottom of the table, we can see our break-even rate, our cash flow break-even rate for the nine-month period of 2022 being $14,018 per vessel per day compared to 10,000 $377 per vessel per day for the same period of 22 and 1. As you can see, better expenses and loan repayments making up most of the difference. Let's now move to slide 19 to review our debt profile and our forward cash break-even level. On the top of the slide, you can see our scheduled current debt repayments over the next several years. Our loan repayment schedule for this year stands at about $28 million. That is including, of course, the $20.7 million of repayment we made in the first nine months. That does not account for the $1.9 million of a balloon payment that we made earlier this year. With the debt payments of our current debt going down over the next couple of years. We had a number of balloon payments in 2023, which we expect to routinely be able to refinance if we choose to do so. Please note that our debt profile does not include any debt that we expect to assume to finance our rebuilding program. Let's have a quick look to the right part of the slide and take a note about the cost of our debt. The average margin of our current debt is about 2.85%, and assuming the labor rate of around 4.5%, the cost of our senior debt would be on average about 7.4%, especially at the end of September. However, if we account for our interest rate fraction and the portion of our debt, Our total average cost of debt, as of September 30th, drops down to about 5.9%. Looking now at the bottom of the table, you can see our cash flow break-even level projected for the next 12 months, which, as you can see, we expect to be just a bit above for $3,000 per day, per vessel per day, for which about $4,500 are contributed from our loan repayments. In concluding the presentation of our financial highlights, let's move to slide 20 to review our balances. As of September 30, 2022, our assets include costs and other current assets amounting to about $41.1 million, advances that we paid to our new buildings, spending at about $50.5 million, and of course the book value for our vessels at about $230 million, resulting in a total book value for our assets of about $321.7 million. On the liability side, our debt as of September 30th stood at $115.7 million, representing about 36% of the book value of our assets. Here is a report also on the Liberia site, the value of our recently acquired below-market charters, which was estimated, taking into consideration the various investment acquisitions and their fair value, or 38.8 million, or about 12.1 percent of our assets. And we have other liabilities that amount to about 13.9 million, or 4.3 percent of the total book value for our assets. However, the market value for Aflip is much higher than its book value. Based on our own estimates, and using charter-adjusted values for our fleet and mobility contracts, the estimated worth of our vessels is approximately $402.6 million as of the end of September, which translates to a net asset value for our company of $395 million, or about $55 per cent. Recently, our shares have been trading around $20 per share, thus representing a significant discount to our net asset value and a good appreciation potential for our shareholders and investors based on the above measure. But it is not only that. I would like to make a simple calculation that highlights certain financial aspects of Eurosys and the strength of our balance sheet and charter book. Between October 1, 2022 and the end of 2024, when our new building program concludes, we have about 11,550 contracted days with a leverage rate of about $33,000 per day. There are also about 4,500 or so open days. If we ignore the latter, but take into account all the costs, We are set to earn, over the next two years and one quarter, about $20 per share. On the top of that, the open days, we learned something. Even if they just earn $10,000 per day, one-third of what our contracted days are, that would add another $6 per share. This earnings suffice to fund the remaining equity portion of the new building program. At the end of 2024, only the stock price of the existing second-hand fleet of cars, plus any remaining of its present debt, will bet another $10 to $15 per share for the value of our company, which have not accounted yet for the payments we have already made for our new building, the $15 million or so I mentioned earlier, or the $32.5 million of cars we currently have. With the above quick As a nation, I wanted to highlight the strength of our belief in the value of U.S. issues. With that, I would like to close my part of the presentation and turn the floor back to Aristides to continue the discussion.

Thank you, Tasso. I want to open up the floor for any questions we may have.

And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question comes from the line of Tate Sullivan with Maxim Group. Please proceed with your question.

Thank you. Good day. Can you first touch on the considerations of the repairs on the Okonata Bridge in terms of the remaining useful life of the vessel and how much the repairs may cost and ultimately what would make you decide to scrap the ship instead of repairing the ship, please?

Yes, this is something I cannot really answer at this stage because we are still evaluating the situation. Of course, we believe that the cost of repairs will be covered by our insurance, so there isn't going to be a significant repair costs, but we need to see how much time this whole project would take before being able to make a final evaluation.

Thank you. And then regarding the new build market for container ships and understanding it's bifurcated between the larger ships and the size of your ships, have there been any reports of any new build delivery delays at all? I know it's usually quite reliable, but in this current environment, do you expect to take your ships mostly on time from your shipyards?

Yes, I would say I do believe that we will take our ships mostly on time. We're building the ships in one of the most restable shipyards in the world, which is known to be on time and not face delays. So I would not think

Thank you. And last for me is, are there any, with what we've seen the rates do and with the new builds under construction, not Europe, but across the industry, have any operators considered selling ships under construction in this market or not at this point yet? Or could that be an opportunity going forward?

We are not aware yet of somebody willing to go ahead and sell their ships at this point in time, especially at prices which are lower than the current new building prices. So there is a lot of resistance on new build prices dropping. Anyway, they were never... exorbitantly high as were the values of second-hand ships.

Thank you very much. Thanks. Thank you, Jake. Our next question comes from the line of James Jang with Universe Securities. Please proceed with your question.

Good afternoon. Hi, James. Hi, guys. Hi. So the Okinawa Bridge, yeah, so the damages and everything. But, you know, I guess it would be fair to assume we shouldn't look at any earnings from the vessel until, what, maybe, if you don't scrap us all, I guess until the second half of next year. Would that be fair to say? I think that's fair to say. Okay. Okay. And then going on to the vessels going off-charter, you've got Joanna, the Keylong, Hydra, Kia, and Antwerp. They're going to be coming off-charters throughout 2023. When do you start discussions with rechartering or extending charters? And if you could kind of let us know, you know, because it looks soft next year for rates with the new bills coming in and with the revised down forecast for economic growth. I mean, would it be fair to say that you would take, you know, the low market charters at this point in time to protect some downside risk, or would you be willing to go through 23 and then try to recharter them when the vessels are re-delivered?

Yeah, I think everybody is reluctant at this stage to do something with, don't want to take on ships today that are coming open in three or six months' time. And similarly, the owners don't want to fix at rates that seem to be so much softer than they were. So the only fixes that you're seeing done are the very few vessels that are opening that are currently being fixed. Okay.

So what about the Joanna? Have you had any discussions with the current charter to extend even a few months, or is that still up for discussion?

We have not had any serious discussion yet, but we've agreed that we will be discussing within the It does come open. It's the first shift to come open, and we will be discussing, I presume, within this next month. Okay, excellent.

I guess my final question here is, with what's... Let's say 23 is really bad for rates. How does that affect the dividend? Would you be able to support the 50 cents... As we, you know, 24 should be a better year. Like, would you keep the 50 cents in 23?

The current thinking, yeah, I can tell you about the current thinking because obviously every quarter we reevaluate and we keep that balance. every quarter. But the way we have thought about it is that the dividend is sustainable and will continue within the next few quarters at least. I remind you that, you know, 50 cents that we are currently paying is just 15 percent of the income that we are currently making. So we do expect that throughout 2023 we will easily be able to be paying a dividend. But I won't promise it, but I believe that that will be the case. Okay. Excellent.

Oh, actually, just one final question here. I know the market's solved, everything is gloom and gloom right now, but how is the S&P market? Has it just gone quiet, or is there still some activity? No, there's very, very little activity. Very few ships are coming open.

Only a handful of buyers are in the market. People have secured longer-than-time charters for their vessels, and they're not willing to sell at the discounted prices. So we're really at a wait-and-see situation, and only what is necessary is being done in today's markets.

Excellent. Okay. That is all I had. All right. Thank you very much. Thanks, James. Thank you. Thank you, James.

Thanks. Our next question comes from the line of Toe Frat with Alias Global Partners. Three, four, C, what's your question?

Yeah, hi. Good morning. Good morning. She went through the, you know, the new build advances right now are 50 million. You have. potentially financing of $200 million to $220 million. What are you assuming on your financing leverage levels? And then can you walk us through your remaining capex for the new builds in 2023, 2024, and 2025, just sort of an overall ballpark number for each year on your new build costs?

Our new building program will cost about $260 million. Of that amount, $50 million we have already paid by making installments. We expect to fund it at about 60%. So, as I said there on slide 19, about $220 million of debt covered, about 60%. And we have to make about $100 million of equity payments between now and the end of 2024. This is when we expect our new building program to end. I mean, as I said, in terms of the detailed schedule of payments, but I would guess that we are to make about 40% of the payments, of the remaining payments in 2023, and the remaining 60% in 2024. So, more deliveries in 2024. So, that would be Okay, great. And then, you know, you talked about the current market. You talked about some of the rollovers potentially for, you know, the TARDIS that are ending.

Can you, you know, you've already locked in two of the nine new builds. Are you in any discussions for locking in additional new builds or is it sort of the same thing that's going on in the market right now? You know, limited interest in making long-term commitments and, you know, we'll have to wait to see the next new builds contracted.

We are always monitoring the market, Paul. The truth is that right now, with the current uncertainty, I would think that we would probably not be moving within this size of the year. for something new. But we are constantly following the markets, and if there is something to discuss, we will obviously let you know.

Great. Thank you so much. Mind you, the next delivery is in Q4 2023, so it's a year out.

And we have reached the end of the question and answer session. I'll now turn the call back over to Aristides Pitas for closing remarks.

Thank you, everybody, for being with us today on our conference call, and we'll be back with you at the beginning of next year to discuss how the year closed. Thank you very much.

Thank you, everybody, for listening.

I'm sorry. This concludes this. You may disconnect your lines at this time. Thank you for participation.