Euroseas Ltd.

Thank you for standing by, ladies and gentlemen, and welcome to the Euroseas Conference Call on the fourth quarter 2022 financial results. We have with us Mr. Aristides Petas, Chairman and Chief Executive Officer, and Mr. Tasos Aslitis, chief financial officer of the company. At this time, all participants are on a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today. Please be reminded that the company announced their results with a press release that has been publicly distributed. Before passing the floor over to Mr. Pataf, I would like to remind everyone that in today's presentation and conference call, ULCs will be making forward-looking statements. These statements are within the meaning of the federal securities laws. Matters discussed may be forward-looking statements which are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized. I kindly draw your attention to slide number two of the webcast presentation, which has the full forward-looking statement, and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. And now I'd like to pass the floor over to Mr. Patas. Please go ahead, sir.

Good morning, ladies and gentlemen, and thank you. Together with me is Tasos Aslidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the quarter ended and full year December 31st, 2022. Tasos will go over our financial highlights in more detail Our income statement highlights are shown here. For the fourth quarter of 2022, we reported total net revenues of $42.9 million and net income attributable to common shareholders of $20.3 million, or $2.86 per diluted share. Adjusted net income attributable to common shareholders was $17.7 million, or $2.50 per diluted share. Adjusted EBITDA for the period stood at $22.9 million. Please refer to the press release for the reconciliation of adjusted net income as available to common shareholders and adjusted EBITDA. As part of the company's common stock dividend plan, our Board of Directors declared a quarterly dividend of $0.50 per common share for the fourth quarter of 2022, which will be payable on or about March 16th to the shareholders As of February 14, 2023, we had repurchased 251,685 of our common stock in the open market for a total of about $5.3 million. For the full year of 2022, our net revenues were $183.3 million, and net income attributable to common shareholders was $106.2 million, or $14.78 per share diluted. Adjusted net income attributable to common shareholders for the period was $95 million, or $13.23 million, Adjusted EBITDA for the period stood at $114.4 million. Our CFO, Tasos, will go over the highlights in more detail later on. Please turn to slide 4, where we discuss our recent sale and purchase, chartering, and operational developments. Following the announcement to sell the motor vessel at Inada Bridge, price of $14.2 million, the vessel was delivered to its buyers on January 9, 2023. Moving on to our more recent chartering developments. Motor Vessel Joanna's charter was extended for five to seven months at $14,500 per day. Unfortunately, we had one incident whereby the charters of one of our vessels, Motor Vessel Adrian Express, as the vessel was completing the scheduled dry dock. The charterer is Continental Shipping Line . While we are pursuing legal action, we have also entered into negotiations to find a replacement charter for the vessel. There were no idle or commercial off-hire periods this quarter. On the dry dock in France, two vessels passed their and the rent repairs from mid-October to the beginning of February 2023. The other version undergoing dry dock during the quarter was motor vessel patches for a period of approximately 29 days. Please turn to slide 5, where you can see our current fleet profile. You will see this current fleet is comprised of 17 vessels on the of 17 and a half years. Turning to slide 6, we present our vessels under construction, which consists of nine echo feed containers expected to be delivered during 2023 and 2024, the first of which is expected to be delivered by the end of next month. while three will have a carrying capacity of 1,800 TEU each. The nine feeder containers will have a capacity of 22,200 TEU. After the delivery of these new buildings, the fleet will consist of 26 vessels with a total carrying capacity of about 75,000 TEU. Let's now turn to slide 7 to see our vessel employment chart. As you may see, we have a strong chart of coverage throughout the next two years, with about 80% of our fleet being fixed for 2023, and almost 54% for 2024. These figures have also taken into consideration the first two new building deliveries, which have been fixed at $48,000 per day from the date of their respective deliveries. Turning now to slide nine, we review how the six to 12 month time chart In the last two years, the container market registered an all-time high in terms of time charter rates, owing to a combination of shifting of demand patterns and preferences, and also a tight supply situation, which in turn prompted significant spikes. Following this market strength, the container subcharter market started softening, dropping significantly since their peak levels in the summer of 2022. As the graphs clearly show, with a feeder size rate close to the 10-year average rate, while intermediate sizes are currently even below historical rate averages. Rates in all categories are still higher than their 10-year median level. Let's move to slide 10, where we go over the main underlying market themes. During the fourth quarter, one-year time During the last couple of weeks, rates seem to be stabilizing at still profitable levels. The second-hand price index, the as a major microeconomic uncertainty and weak demand trends diminished appetite for any investments. The new building price index decreased by just 1.2% in the fourth quarter of 2022 over the previous quarter, confirming that despite the negative market sentiment, the cost of building ships can easily move lower. The ice container ship fleet as of January 16 stood at about 2.2% of the fleet and has been gradually increasing since the middle of last year. There was a lockpick in the container ship recycling activity towards the end of the year, which is expected to increase in 2023 and 2024 amid weaker market conditions, supply pressure Despite scrapping prices softening in the fourth quarter of 2022 to about $515 per lightweight ton, they are still about 35 percent above the $219 average. Finally, the containers in fleet grew by approximately 4 percent in 2022, without accounting for high diversions or activation of further idling, etc. This was slide 11. The IMF revised its global growth projections for 2023 and 2024, signaling some positivity in world economic growth and greater than expected resilience in a number of economies. The IMF now projects world growth to slow from 3.4% in 2022 only to 2.9% in 2023, and Russia's war in Ukraine appears to be working without leaving the world to the previously feared recession. The rapid spread of COVID-19 in China dumped on the growth in the second half of 2022, but a recent reopening has paved the way for a faster rebound with a projected GDP growth of 5.2% in 2023 and 4.5% in 2024. economy. Overall, the European growth forecast for 2023 is up by 0.2% from the previous IMF report, expected at a still positive 0.7% for the year, thanks in part to signs of resilience to high energy costs, a milder than expected winter, and gradual tightening of the ECB's monetary policy. A growth rebound of 1.6 percent is expected in 2024. Growth in emerging and developing countries is expected to bottom out at still positive levels during 2023, at lower levels than in 2022, and recover in 2024. For 2024, it is not expected to recover to 2.1 percent. India is expected to grow at the fastest pace by 6.1 percent in 2023 and 6.8 percent in 2024, while Brazil's economy is not projected to According to Clafson's estimates, containerized trade demand reacted aggressively downwards, contributing to the market's slowdown in the second half of 2022. Containerized trade is also expected to be marginally negative in 2023, but a significant rebound of 3.1% is expected Trade and growth projections are being continuously revised as the effects of geopolitical tensions between Russia and Ukraine on world growth and trade are being continuously assessed and changed. Please turn to slide 12, where you can see the total fleet age profile and order book data. The container ship fleet is relatively young. The ROE per book as a percentage of total fleet stands at 28.8% as of February 2023, up 2.7% from the previous quarter. Demolition volumes look likely to pick up in 2023-2024, with an impetus from the softer charter market and the upcoming environmental regulations. Turning now to slide 13, We will also go over the fleet age profile and order book for containers in the 1,000 to 3,000 TEU range, which is quite different than for the total. These sizes of vessels are the backbone of our operations and the primary focus of our new building program. About 23% of the 1,000 to 3,000 TEU fleet is over age, meaning many of these will be scrapped and help lower the order book. The order book, as a percentage of the fleet, stands at only 13.2% as of February 2023. So the balance is quite good at this point and seems to be quite good for this size range. Let's move to slide 14. Political and economic insecurity affected containers above the pre-COVID 10-year average. The container shipping market is under clear pressure, with trade volumes falling by 9.4% year-on-year. This pressure has been amplified by excess retail inventories, which have reduced new shipments, alongside underlying economic headwinds and impacts on consumer activity. At the same time, port congestion that grew during the pandemic years has reversed significantly, increasing effective supply. In 2023, market conditions are generally expected to soften further, with rates expected to continue towards and potentially below typical historical average levels, while new vessels that will be delivered into the market From 2024 onwards, though, the outcome of a number of issues could significantly affect the overall demand for container supply. Firstly, the geopolitical developments around the Ukraine-Russia war and its aftermath, as well as other global tensions. Secondly, the economic conditions resulting across the globe. And thirdly, the new environmental regulations about greenhouse emissions, which will probably result in more slow steaming within 2023 and 2024, effectively removing capacity from the market, therefore improving market fundamentals. The spread between chartering Finally, the smaller-sized vessels in the range of 1,000 to 5,000 TEU are expected to perform relatively better due to their healthier supply situation. As mentioned, many over-ranged ships will be scrapped and the order book is much slower. Without doubt, of course, the flow of larger vessels to trades currently served by this size group could mitigate any differences to an extent. Let's move to slide 15. The left side of the slide shows the evolution of one-year time shorter rates for containers with a capacity of 2,500 TEU since 2010. It is reasonably clear that the one-year time shorter rates have continued to slide gradually as the rates have come down from an average of about right-hand side of the slide shows the historical price range for new building and 10-year-old container ships with a capacity of 2,500 EU. Prices, of course, are still at levels which can't be considered with this bargain. However, it is uncertain if they will direct significantly further on during the year. Especially new building prices due to the inflationary environment and the gradual fall of the dollar's value, may even increase. Having taken the full advantage of the rise of charter rates over 2021 and the first half of 2022, we have secured the revenue stream of $450 million, fund our eco-new building program, and still have sufficient liquidity to pursue other attractive opportunities that will arise in the upcoming 18 months. And with that, I will pass on the floor to Tasos to go through our finances in more detail.

Thank you very much, Aritidis. Good morning from me as well, ladies and gentlemen. As usual, over the next four slides, I will give you an overview of our financial highlights for the fourth quarter and full year of 2022 and compare them with our results in the equivalent periods of 2021. Let's start by turning to slide 17. For the fourth quarter of 2022, the company reported total net revenues of 42.9 million, representing a 12.1% increase over total net revenues of $38.3 million during the fourth quarter of 2021. That increase was the result of the higher average number of vessels we operated in the fourth quarter of last year compared to the fourth quarter of the year before. The company reported a net income attributable to common shareholders for the fourth quarter of 2022 of 20.3 million as compared to a net income attributable to common shareholders of 22.8 million during the fourth quarter of 2021. Interest and other financing costs for the fourth quarter of 2022 amounted to 1.6 million compared to 0.8 million during the same period of 2021. This increase is due to the increased amount of debt and the increase in the average LIBOR rate that we paid in the most recent period compared to last year.

In 2022, we also had interest income... Okay, our speaker accidentally disconnected, but he is back with us.

Basic earnings per share attributable to common shareholders for the fourth quarter of 2022 were $2.87, calculated on 7.08 million weighted average number of shares outstanding, while diluted earnings per share were $2.86, calculated on 7.1 million weighted average number of shares outstanding, compared basic diluted earnings per share of $3.16 and $3.14, respectively, for the fourth quarter of 2021. 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 vessel depreciation on the portion of the consideration of vessels acquired with attached time charters allocated to below-market time charters, the adjusted earnings per share attributable to common shareholders for the quarter ended December 31, 2022, would have been $2.50 per share, basically diluted, compared to adjusted earnings per share of $3.19, basically, and $3.18 diluted for the quarter ended December 31, 2021, after making similar adjustments for the period. Usually, security analysts do not include the above items in their published estimates of earnings per share. Let's now move to the right part of this slide to review the same figures for the full year of 2022. The company, for the full year, reported total net revenues of 182.7 million, representing a 94.6% increase over total net revenues of 93.9 million during 2021, again as a result of both increased number of vessels owned and operated and also average charters that our vessels earned during last year. compared to 2021. The company reported a net income attributable to common shareholders for the year of 106.2 million, as compared to a net income of 43 million, a net income attributable to common shareholders of 42.4 million for the 12 months of 2021. Interest and other financing costs for 2022 amounted to 5.1 million, compared to 2.8 million for 2021. Again, this increase is due to the increased amount of debt we carried and increased LIBOR rates that we had to pay during the year. I would like to note again as well here that in 2022, for the first time I saw many periods, we had interest income of about 0.27 million. Adjusted EBITDA for 2022 increased to 114.4 million, compared to 52.7 million during 2021, again primarily as a result of higher revenues and the higher daily rates earned. Basic earnings per share, attributable to common shareholders for 2022, was $14.79, while diluted earnings per share were $14.78, calculated on approximately 7.2 million weighted average number of shares outstanding, compared to basic earnings per share of $6.07 and diluted of $6.06 for 2021, calculated on average on about 7 million weighted number of shares outstanding. Excluding the effect on the income attributable to common shareholders for 2022, of the unrealized gain on derivatives, the amortization of the below-market charters acquired, and the vessel depreciation attributed to the acquisition of below-market charters, the adjusted earnings attributable to common shareholders for the year 2022 would have been $13.23 and $13.22, basic and diluted, respectively. compared to adjusted earnings of $6.03 and $6.02 per share basically diluted for 2021 with the same adjustments made as I mentioned above. Let's now turn to slide 18 to review our fleet performance. We will start our review by looking at our fleet utilization rates for the fourth quarter and full year of 2022 and 2021. As usual, our fleet utilization rate is broken down into commercial and operational. So in the fourth quarter of 2022, our commercial utilization rate was 100%, while our operational utilization rate was 95.1%, compared to 100% commercial and 98.5% operational. 5 percent operational for the fourth quarter of 2021. On average, 18 vessels were owned and operated during the fourth quarter of 2022, earning an average time-charter equivalent rate of $29,400 per day, compared to about 15 vessels in the same period, the fourth quarter of 2021, earning an average $30,068 per day. Our total daily operating expenses, including management fees and generally administrative expenses, averaged $7,937 per vessel per day during the fourth quarter of 2022, compared to $7,708 per vessel per day for the fourth quarter of 2021. If we move further down this table, We can see at the bottom the cash flow break-even rate, which we paid during the fourth quarter of this year, which takes into account also dried organ expenses, interest costs, loan repayments, and preferred dividends, if any. If any of those preferred dividends were paid in cash. Thus, for the fourth quarter of 2022, our cash flow break-even rate was $15,500. $15,574 per vessel per day, compared to $11,950 per vessel per day during the fourth quarter of 2021. Looking now on the right part of the slide, we can review the same figures for the full year. During the full year of 2022, our commercial utilization rate was 99.9%, and our operational utilization rate 98.4%. compared to 100% commercial and 98.5% operational during 2021. On average, in 2022, we own and operated 17.12 vessels, earning an average time chart equivalent rate of $31,964 per day, compared to 14.25 vessels during 2021, earning on average $19,327 per day. In the middle of the table, our daily operating expenses, again, including management fees and G&A expenses, but excluding dry docking costs, averaged about $7,548 per vessel per day, compared to $7,212 per vessel per day during 2021. Again, at the bottom of the table, we can see our daily cash flow breakeven rate for the year, which amounted to $14,426, per vessel per day in 2022, compared to $10,782 per vessel per day in 2021. Finally, in the very last line of this slide, we can see the common dividend that we paid, expressed in dollars per day. For the fourth quarter, it was $2,165 per vessel per day, while for the full year, where only free dividends are accounted, It's $1,689 per vessel per day. Let's now move to slide 19 to review our debt profile. As of December 31, 2022, our outstanding debt was $108 million. As of the same date, our scheduled debt repayments over the following 12 months, that is during 2023, amounted to about $56 million, a little more than half of our debt, a figure that includes about 31 million of balloon payments, of which 31 million 6.2 were already made last week, resulting in three more of our vessels becoming unencumbered. We currently intend to make the next balloon payment of 7.1 million during the second quarter of 2023 from our own funds, rendering two more of our vessels unencumbered, While, again at this point, we are planning to refinance the last portion of our balloon payments at the end of 2023 of 17.4 million. Clearly, our low leverage and the increasing number of unencumbered vessels that we have increased our flexibility and our ability to raise debt to fund investment opportunities should they appear. Looking at the chart on the bottom of the slide, We can see that our cash flow breakeven level over the next 12 months, and that amounts to about $14,119 per vessel per day, of which $4,170 are contributed from loan repayments. The final comment before we leave this slide has to do with the cost of our debt. The average margin of our current debt is about $2.85. Assuming a LIBOR rate of 4.8% on the top of it, we can estimate the total cost of our senior debt to be around 7.65%. However, if we include in the cost of our debt the portion of the debt whose interest payments are locked via interest rate swap contracts, the overall cost of our debt would drop to about 5.16%. Of course, we expect to assume additional debt to finance our new building program, which is estimated to be in the tune of 200 to 220 million. To sum up our presentation, let's move to slide 20 to review our balances. Again, as of the end of last year, our assets included cash and other cash equivalents amounting to about 38 million. That includes also other current assets. Advances that we made for our new building program stood at about 59 million. And the book value of our vessels stood at around 225.5 million, and that includes the one vessel that we held for sale. resulting in total book value for our assets of about 328.6 million. On the liability side, as I mentioned earlier, our debt stood at 108 million, representing about 33% of the book value for our assets. We also had the fair value for our recently acquired below-market charters, which stood at about $35 million for about 10.5% of our assets, and also other liabilities of about $17.5 million, or about 5.3% of the book value for our assets. However, it should be noted here that the market value for our fleet is much higher than its book value. Based on our own estimates and using charter-adjusted values for our fleet, and market value changes for our new building contracts, and here we have taken into account the developments regarding Aegean Express that Aristides mentioned earlier, the estimated market value for our fleet is approximately $366 million as of the end of last year, which translates to a net asset value for our company of about $344 million, or in excess of $48 per share. Recently, our shares have been trading around $19 per share, thus representing a significant discount to our net asset value and offer a good appreciation potential for our shareholders and investors based on the above measure. With that final note, I would like to close my part of the presentation and turn the floor back to Aristides to continue the discussion.

Thank you, Cassius. Let us open up the floor now for any questions that you may have, operator, please.

Perfect. Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Tate Sullivan with Maxim Group. Please proceed with your question.

Thank you. Good day, both. On the Continental Shipping Line news, was the Aegean Express the only ship chartered by CFL, please, to start? Of course, I was expecting this question.

And, indeed, this is the only ship that is chartered to this charterer. This is a small charterer with whom we have had quite a long relationship, having had the vessel on his charter for quite some time. It is very unfortunate what has happened, and we hope that it wouldn't. But it has, and now we are taking legal action against the charter who has defaulted. So we will see what the outcome will be on that. All our other vessels are fixed to much bigger and stronger names, so I don't really anticipate any issue with those charters going forward.

Thank you. And related to the new builds coming into your fleet and the two coming in the next three, four months you already have contracts for, and then the third schedule for delivery, I believe in 4Q23, can you talk about the recent new build contracting environment for similar built ships and what the potential level for that ship is? Or has there been any similar size ships entering the market recently?

There haven't been any orders as far as I know of for similar type ships, but the area around which these would be secured, if they were, would be around the prices that we've paid. prices generally drop dramatically. And this is for two reasons. One thing is the dollar is dropping a little bit compared to where it was a few months ago. And secondly, due to the global inflation, the cost of building a ship is becoming more expensive. So I do not think that we will see significantly that may be ordered. In fact, it could be even fired at some point. So that is concerning the prices. Concerning chartering of our remaining seven vessels, the first one is to be delivered in December 23. so several vessels that we will get sometimes in 2024. We are not in any hurry to fix them at this point in time. We are very confident that we will be able to easily employ them and to employ them at decent levels. Of course, not as high as the levels that still at very profitable levels, but we will do that much closer to the delivery time. Okay, thank you.

And then my last is on, I think you announced some contract developments with the Joanna for $14,500. What is the current, when does that current contract expire, or does that match your slide deck on page 7 as well, please?

Sure. It expires in... The earliest it can expire is in about two and a half months from today. This is the earliest it can expire, and it can last for another two, three months. We did that maybe three, four weeks ago. I can't remember. The level is a decent level. giving us a decent profit on the ship. The charter market is still at profitable levels for all ships, despite the huge drop. We tend to think that, oh, this is a disaster, what has happened, but it's not really. Take away the super cycle, which was exorbitant, it's still good levels that we are seeing.

Okay.

Thank you very much.

Have a great rest of the day. Thank you, Dave. If you'd like to ask a question, please press star 1 on your telephone keypad. One moment while we poll for questions. There are no questions at this time. At this point, I'd like to turn the call back over to UOC's CEO, Mr. Patas. Thank you. You may close the call.

Thank you very much, everybody, for listening in to our Q4 and end-of-year results. We will be with you in three months' time for our Q1 results. Have a good day.

Thanks, everybody. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.