Euroseas Ltd.

Thank you for standing by, ladies and gentlemen, and welcome to the EEOC's conference call on the first quarter 2023 financial results. We have with us Mr. Aristides Piedas, Chairman and Chief Executive Officer, and Mr. Tasos Aslides, 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 your name to be announced. I must advise you that this conference is being recorded today. Please be reminded that the company announced the results 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 OCs will be making follow-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 would like to pass the floor to Mr. Petas. Please go ahead, sir.

Good morning, ladies and gentlemen, and thank you all for joining us today for our scheduled conference call. Together with me in status as lead is our chief financial officer. The purpose of today's call is to discuss our financial results for the three-month period ended March 31st, 2023. Let us start slide three of the presentation. Our first quarter financial highlights are shown here. For the first quarter of 2023, we reported total net revenues of $41.9 million and net income attributable to common shareholders of $28.8 million, or $4.10 per diluted share. Adjusted net income attributable to common shareholders was $21.7 million, or $3.09 per diluted share. Adjusted EBITDA for the period stood at $26 million. A reconciliation of adjusted net income attributable to common shareholders and adjusted EBITDA is presented in the press release. As part of the company's common stock dividend plan, our board of directors declared a quarterly dividend of 15%. As of May 15, 2023, under our share repurchase plan of up to $20 million, which was announced in May 2022, we had repurchased 348,000 of our common stock in the open market, representing about 5% of our stock for a total of about $7 million. Our CFO, Tasos Asselidis, will go over the financial highlights in more detail later on in the presentation. Please turn to slide 4, where we discuss our recent sales and purchase, chartering, and operational developments. As previously announced, on April 6, 2023, the company maritime power system. The acquisition was financed with a combination of our own funds and a sustainability-linked loan provided by Eurobank SA. Following its delivery, Motovessel Gregos commenced a 36- to that were better than anticipated, reflecting the resilience of the market and the apparent belief of charterers that feeder vessels will be in short supply. per day. Earlier during this period, motor vessel Aegean Express was fixed between a minimum four and a maximum six-month period at $13,000 per day, and EMEA's time chart contract was extended for a period of 12 months, 12 to 14 months, at a gross daily rate of $15,000 a day. The Aegean Express its charter. Arbitration is ongoing against CSN, which we expect to win, but we expect to then face difficulties in enforcing the award, as the charterer seems to be trying to hide its assets. Please turn to slide 5, where you can see our current lead profile. Eurasia's current fleet is comprised of 18 vessels on the water, including 11 feeder container ships and 7 intermediate container carriers, with a carrying capacity of about 56,000 TEU and an average age of 16.5 years old. Turning to slide 6. carrying capacity of 1,800 TEUs each, expected to be delivered between Q2 2023 and Q4 2024. The eight feeder container ships will have a capacity of 19,400 TEUs. After the delivery of these new buildings, our vessel employment. As you may see, we have very strong charter coverers throughout the next two years, with about 91% of our fleet being fixed for 2023 and almost 66% for 2024. These figures also take into consideration value-building deliveries. Our contracted revenues over the next two years are expected to generate time charter rates have developed over the last 10 years for the segments in which we mostly operate. While the container charter market saw a soft start to the year following the market weakness during the final months of 2022, charter rates started improving across all container ship segments during the first quarter through mid-May 2023. with rates sitting at healthy levels higher than the 10-year average and median levels. As of last Friday, the 6-12 month time-charter rate for 2,500 TEU container ships stood at $18,750 per day, whilst the rate for 4,400 TEU container ships stood at $26,750 per day. Moving on to slide 10, we go over some further market highlights. During the first quarter of 2023, one-year time charters continued to ease, but have increased since by about 10% to 15% compared to the low levels reached for more segments during February 2023. The average daily chart average during the first quarter of 2023 was down by 18% compared to the fourth quarter of 2022, as shown in the table. The general sentiment remained negative throughout the first quarter, as many parties remained apprehensive about entering into new transactions given the current macroeconomic headwinds and uncertainty due to the impact of the environmental regulations. New building prices were roughly stable in Q1 2023 compared to Q4 2022 and have eased a little over recent months in some sizes, but generally remain elevated amid cost inflation and extended yield for wood cover. The ideal container ship fleet as of April 24, 2023 stood at about 1.4% of the fleet, Recycling activity edged higher during Q1, with 30 vessels being scrapped. This trend is anticipated to continue for the remainder of 2023 and 2024. Scrapping prices showed a modest improvement in the first quarter of 2023 to about $560,000 per lightweight ton. This is about 40% above the 2019 average. Finally, the container shift lead has grown by approximately 1.8% year-to-date, without accounting for IELTS vessels' deprivation. Please turn to slide 11. In its latest update in April 2023, the IMF slightly lowered its global slowing economic activity, as well as the ongoing war between Russia and Ukraine and growing geopolitical tensions. However, the US and EU seem quite resilient, despite the recent economic shocks, primarily in the financial sector. Quite noticeably, China, seems to be on track to achieve an estimated growth rate of 5.2% for this year, followed by a moderate growth of 4.5% for 2024. Growth in emerging markets and developing countries is expected to be quite below longer-run trends in 2023 and 2024, with the IMF lowering growth projections more than previously expected. India is poised to grow by 5.9% in 2023 and 6.3% in 2024, which is under its trend. Also, Russia's economic growth, albeit it was revised higher for 2023 to 0.7% from 0.3%, the longer-term outlook worsened from 2.1% to 1.3% for 2024. According to the latest Clarkson's estimates, container trade is projected to contract by 2.1% in 2023. However, in 2024, trade should improve as economic headwinds start to ease, with trade growth projected at 3.3%. Trade and growth projections are being continuously revised as the effects in the financial sector, inflation and geopolitical tensions on world growth and trade are being assessed. This is slide 12, where you can see the total fleet age profile and container ship output. The container ship fleet is relatively young, with most vessels under 15 years old, and only 10% of the fleet over 20 years old. The largest percentage of which, though, lies within feeder vessels. suggesting higher potential recycling for this type of ships. The order book as a percentage of total fleet stands at the high of 28.7% as of May 2023. Laxos expects new deliveries of about 9.7% of the current fleet to be delivered as of the beginning of 2023, in 2025, with the majority of the deliveries scheduled for delivery in the second half of 2023 and the first half of 2024. Turning on to slide 13, we go over the fleet age profile focus of our new building program. The order book here stands just 12% as of May 2023. Together with the fact that 23% of this size vessel is older than 20 years old suggests that the fleet could even decline for physical tendencies in the ensuing 23 years. Welcome to Clarkson. are expected to be 9.4%. 2.5% has already been delivered. 5.6% in 2024 and 0.8% in 2025. Let's move to slide 14 where we discuss our outlook summary for the container sector. Container markets remain significantly below last year's boon. following a strong correction in the second half of 2022. Despite the fall in volumes, easing of congestion and relative bottlenecks, as well as increasing deliveries, the container types of the market have shown admirable resilience and even some gains in recent months. Further softening is possible, though, for the remainder of 2022. are standing at 165% above pre-COVID 10-year median. The container freight index also reversed Their volumes had fallen by 7.5% year-on-year. The reversal of port congestion also released a good portion of the fleet, increasing effective supply. However, the vessel's slowdown has offset the increase in supply at the end of the congestion port. There are still large challenges ahead, mainly on the supply side. that also due to the microeconomic developments which are hard to predict and quantify. Thus, determining future shipping volumes and overall demand is very difficult. From 2024 onwards, market conditions are expected to remain challenging, as the rates may decline again if this has not already happened in the second half. capacity management, vessel speeds, and the range of other inefficiencies, such as congestion, that could alleviate pressures to some extent. The energy transition is another unknown that to further increase. Smaller-sized vessels, the segments we mainly operate in, are expected to perform relatively better due to potential scrapping of over-raised vessels and a lower number of new deliveries, all these pointing to a healthier supply situation. Without doubt, though, any differences to an extent. Let's move to slide 15. The left chart shows the evolution of one-year time shorter rates for containers with a capacity of 2,500 TEU since 2010. Following the industry's exceptional highs in 2022, the market has now known what As I've already said, this is still a much higher level than the historical median, and a very profitable level too. The right-hand chart shows the historical range for new buildings and ten-year-old container ships with a capacity of 2,500 EU. is up sharply. Even though new business contracts higher than the historical median. In this environment, we will continue to reward ourselves Our strong contracted revenue coverage towards 2023 and 2024 at 30 days will also allow us to take delivery of our remaining eight new building vessels and at the same time continue to evaluate investment opportunities with low risk that will incrementally increase our earnings and growth.

Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. Over the next four slides, I will give you an overview of our financial highlights for the first quarter of 2023 and compare the results to the same period of last year. For that, let's turn to slide 17. For the first quarter of 2023, the company reported total net revenues of 41.9 million, representing a 7.6% decrease over a total net revenue of 45.4 million during the first quarter of 2022. The company reported net income for the period of 28.8 million as compared to net income of 29.9 million for the first quarter of 2022. Interest and other financing costs for the first quarter of 2023 amounted to 1.99 million, partly offset by imputed interest of 1.1 million, which is capitalized and is due to the self-financing of the pre-believer installments of our new building program. In addition, we had 0.23 million of interest income. For the same period of last year, The interest and finance costs amounted to 1 million. We had no imputed interest and practically no interest income last year. The increase in the top line of our interest expense is due to the increased amount of debt and the increase in the weighted average LIBOR slash software rate in the current period compared to the same period of 2022. Adjusted EBITDA for the first quarter of this year was $26 million, compared to $31.1 million achieved during the first quarter of 2022. Basic and diluted earnings per share for the first quarter of 2023 were $4.11 and $4.10, respectively, calculated on about $7 million basic and diluted weighted average number of shares outstanding, compared to basic and diluted earnings per share of $4.15 and $4.13 respectively, calculated on 7.2 million shares for the same period of last year. Excluding the effect on the income for the quarter of the unrealized loss on derivatives, the amortization of below-market time charters acquired, the depreciation charged to the increased value of the vessels acquired with below-market charters, and the gain on the sale of a vessel, the adjusted earnings per share for the quarter ended March 31, 2023, which had been $3.10 per share, basic and $3.09 per share diluted, compared to adjusted earnings of $3.71 and $3.70, basically diluted respectively, for the same period of last year, after making similar adjustments for the previous year's period. Secure channels do not include the above items in their published estimates of 30%. That's why we provide you with the adjusted figures. 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 first quarter of 2023 and compare them to last year's. As usual, Our flitilization rate is broken into commercial and operational. In the first quarter of 2023, our commercial utilization rate was 98.1%, while our operational utilization rate was 100%, compared to 99.6% commercial and 99.5% operational for the first quarter of last year. On average, 17.1 vessels were owned and operated during the first quarter of this year, earning an average time charter equivalent rate of $29,231 per vessel per day, compared to 16 vessels owned and operated in the same period, the first quarter of 2022, earning on average $33,986 per vessel per day. Our total daily operating expenses per vessel, including management fees, general and administrative expenses, averaged $8,074 per day during the first quarter of this year, compared to $7,329 per vessel per day for the first quarter of 2022. If we move further down this table, we can see the cash flow break-even rate, which we had to meet during the first quarter of this year, and which takes into account also direct working expenses, interest costs, and loan repayments. Thus, for the first quarter of 2023, our cash flow break-even rate was $14,160 per vessel per day, compared to $14,059 per vessel per day during the first quarter of 2022. Finally, in the very last line of this table, you can see the common debt dividend that we paid, expressed in dollars per day. In the first quarter of 2023, we paid the equivalent of $2,292 per person per day in dividends. We had no dividends declared for the first quarter, paid, I should say, for the first quarter of 2022. Let's now move to slide 19 to review our debt profile. As of March 31st, 2023, our outstanding debt was 121 million. That includes debt for our new building, which we drew before the end of the quarter. At the same time, on the same day, as of the same day, our scheduled debt repayments for 2023, including the amount we paid in the first quarter, would amount to $27.14 million, while our balloon payments amount to $30.73 million in 2023. Of these balloon payments, we have already repaid two for $13.3 million and $6.3 million, and we're in the process of refinancing the other one. Looking at the chart on the top left part of the corner of the slide, We can see also our debt repayment schedule for the following years, beyond 2023. As you can see, our debt repayment is expected to decline, or existing debt is expected to decline, in all of those three years. And we had additional volume payments in 2025 amounting to about 22 million. A quick note here about the cost of our debt. the average margin on our debt is about 2.71%, and assuming a labor rate of about 5.34% on the top of it, we can estimate the total cost of our senior debt to be 8.05%. However, if we include it in our cost of debt calculation, the part of our debt, the inverse of which is locked through our interest rate draft contracts, the cost of our debt would drop to about 6.25%, as about 50% of our debt is shed at a cost of around 1.7%. As it's noted on the top part of the slide, we expect to assume additional debt to finance the remaining of our new building program, the eight vessels that I mentioned earlier, that debt to be around $192 million. Looking now at the bottom of the table, we can see our cash flow break-even level projected for the next 12 months, and that level is expected to be, to remain similar to what we had in the first quarter, and be around $14,251 per vessel per day. to review some balancing highlights. As of March 31, 2023, our assets included cash and other current assets that amounted to about $51.3 million. We have made advances for our new building program, which at the end of the quarter stood at about $98 million. The book value of our 17 vessels in the water as of March 31st stood at around 211.8 million, resulting in a total book value for our assets of about 361 million. On the liability side, our debt as of March 31st, 2023, as previously mentioned, stood at 121 million, representing 33.5% of the book value for our assets. The share value of our recently acquired charters, below-market charters, is about 31.1 million, and that is recorded in our balance sheet. Other liabilities also amount to about 10.7 million, or 3% of our total book value of our assets. It should be noted, though, that the market value of our fleet, including the value of our charters, is much higher than its book value. Based on our own estimates, the charter-adjusted value of our fleet, plus change in the market value of our new building contracts, is approximately worth $328 million as of the end of the month, as compared to the book value of our vessels, less the fair value of below-market charges of about $180 million. And this translates to a net asset value for our company of about $346 million, or a little more than $49 per share. Recently, our shares have been trading in the range of $18 to $19 per share, thus representing a significant discount, as I mentioned earlier, to our net asset value and provide good appreciation potential for our shareholders and investors based on these measures. With that, I would like to close my remarks and turn the floor back to our attendees to continue the discussion. Thank you, Tasos.

Let us open up the floor for any questions we may have.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star 1 on your telephone keypad and a confirmation tone will indicate your line in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants who are 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, and let's go to star one. Thank you. Thank you. Our first question is from the line of Clement Mullins with Value Investor's Edge. Please proceed with your questions.

Good morning. Thank you for taking my questions. I wanted to start by asking about the tender soul. The vessel was initially scheduled to be delivered in the second quarter of 2023, but it seems the delivery is now expected in the first quarter of 2024. Could you provide some commentary on the reason behind the delays and whether we should expect any financial impact?

I'm not sure that that vessel was ever scheduled for the second quarter. It was scheduled for the fourth quarter and it has been delayed by a month or so to be delivered in the beginning of 2024. We have seen some small delays in some of the ships in the region of a month or two because of issues in South Korea with the shipyards. They had some labor issues and some difficulties in sourcing material and equipment. But it's minor delays of one to two months. I don't expect there to be huge delays.

We had a schedule for the second quarter of 2023, and that just leaped to early July 2023.

Yes, correct. All right. All right, that's helpful. Most of your new build program remains open. And how should we think about securing new contracts? Would you be comfortable employing them on short-term charters, or will you still be looking for medium-term employment?

It will really depend on what the market environment is towards the end of the year, because the terataki, which will be the peak of the market. The remaining vessels, which are all going to be delivered in 2024, we are not in a hurry to fix now, because we would get extremely discounted rates if we wanted and insisted on trying to fix them today. So we will wait for the right opportunity to fix them. We know that these are very modern and efficient vessels, much more economical years ago, so we are pretty confident they will be fixed at a very good rate. But how good, it will really depend on the market.

Yeah, that makes sense. And regarding the Aragon Express, you mentioned you expect to win the proceedings, but that the execution may be difficult as the Charter is hiding its assets. How should we think about the timing for the resolution of the proceedings?

I think that within the next couple of months, certainly within, you know, by our next call, this will have been resolved, the legal issues will have been resolved, and we will know if we have won the award, which we think is a no-brainer, but when you're in a The most difficult thing is to recover from a charterer who is hiding and indeed was the smallest charterer from all the charters that we have on all our other ships. So we have to see how that will go. All right. Thanks for the call.

Yeah, okay.

Sorry, go ahead, go ahead. No, no, no. That's fine. I think this is enough for now. All right. Thank you.

Thank you. Bye-bye. Thank you. If you'd like to ask a question at this time, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. We'll pause a moment to assemble a queue, and once again, that is star 1. Thank you. Thank you. At this time, I will turn the floor back to Mr. Pinas for closing remarks.

Well, thanks, everybody, for listening to us today, and we will be back in three months' time with the Q2 results. Thanks, everybody. Have a nice day.

Thank you, everyone. This will conclude today's call. You may disconnect your lines at this time. Thank you for your participation.