Euroseas Ltd.

Thank you for standing by, ladies and gentlemen, and welcome to the Euroseas conference call on the fourth quarter 2023 financial results. We have with us Mr. Aristides Piedas, Chairman and Chief Executive Officer, and Mr. Tasos Aslitis, Chief Financial Officer of the company. At this time, our 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 be announced. I must advise you that this conference 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. Peters, 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 risk 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 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. Peters. 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 is Tata Sashlidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the 3- and 12-month period ended December 31, 2023. Let us turn to slide 3 of the presentation to go over our financial results. It has had another strong quarter, having reported total net revenues of $49.1 million and a net income of $24.7 million, or $3.56 per cent per basic and diluted shares for the fourth quarter of 2020 scheme. Adjusted net income for the quarter was $25 million, or $3.61 per diluted share, Adjusted EBITDA for the period was $32.4 million. Please refer to the press release for a full reconciliation of adjusted net income and adjusted EBITDA to net income. Our CFO, Tassosos Livis, will go over our financial highlights in more detail later on in the presentation. We are very pleased to announce that our Board of Directors has declared a quarterly dividend of $66. share for the fourth quarter of 2023, reflecting a 20% increase from the prized quarterly dividend of 50 cents per share. The dividend, which is payable on or above March 11, 2024, to shareholders at record on March 4, 2024, reinforces our durable growth business model demonstrates our commitment to delivering shareholder returns. The annualized dividend yield, based on the current share price, is about 7%. This is the eighth consecutive quarter of paying meaningful dividends. As of February 21, 2024, we have repurchased market for a total of about $8.2 million under our share repurchase plan of up to $20 million announced in May 2022 and extended for another year. Thus, about 5.5% of our outstanding shares have been repurchased and to enhance our ability to drive long-term shareholder value. Please turn to slide 4 where we discuss our recent sale and purchase, shuttering and operational developments. The delivery of our third vessel from our nine vessel new building tender sold is an Echo EDI Phase III vessel, 2,800 The vessel is financed through retained earnings and a sale and lease back agreement with the Japanese owner and leasing house. Following its delivery, Motor Vessel Tender Soul commenced an 8-10 month charter at a rate of $17,000 a day. On the chartering side, Motor Vessel Aegean Express, our eldest and smallest vessel, was fixed for a minimum at the same level of $7,000 a day, and thereafter fixed again for a minimum of 35 to a maximum of 55 days, again at $7,000 per day. Motor-versus-sinus transfer was extended for approximately 40 to 60 days at $18,250 per day until February 2024, The other vessel that we fixed during the quarter was motor vessel Joanna, whose charter was extended for a minimum between This resulted in a performance improvement of over 25% for the vessel. Meanwhile, motor vessel Synergy Auckland was also dried up for approximately 18.5 days to pass a scheduled special survey. Let's now turn to slide 7 for a vessel employment update. As you may see, we have very strong charter coverage throughout the next two years, with about 71% of our fleet being fixed for 2024 and almost 23% for 2025. Our significant charter coverage at profitable rates for the remainder of the year suggests highly profitable quarters that will further enhance our fleet liquidity throughout Charter rates have increased from their low levels in December 2023. Certain of our vessels whose charters expired during this time have benefited from these disruptions, and we anticipate our vessels opening up soon, as well as our upcoming new buildings will likely benefit from the same trend. Let's turn to slide 9 to review how the 612 most time charter rates have developed over the sectors we primarily operate in, charter rates are about 30-35% higher in February from the low seen at the end of 2023. As of February 16, the 6-12-month charter rate for the 2,500 EU containerships stood at $15,500 per day approximately, which is higher than the historical median of 9,200 per day, to median and average rates are similar across the sizes of 17,000 to 4,400 TEU vessels. Moving on to slide 10, we go over some further market highlights. I'm looking to reach for me. Although there has been some easing in new-build contracting from the exceptionally firm levels witnessed during 2022, it remains relatively strong, driven by ongoing interest from financially accounting for 0.8% of the total fleet. This marks a decline from its peak of 0.8 million TEUs just one year ago, with a downward trend observed since then. In 2023, 83 vessels totaling 160,000 TEU approximately Although they remained about 30% higher than the average observer, The IMF is focused on global growth compared to the October The focus for 2024 and 2025 However, new commodity price spikes from geopolitical shocks, including continued attacks in the grow in other emerging and developing countries The leadership fleet is relatively Turning now to slide 13, we also go over the fleet H profile for ships in the 1,000 to 3,000 DEU range. These sizes of vessels are the backbone of our operations, and the primary focus should after eight a year ago. According to Let's move to slide 14, where we discuss our outlook summary are casting doubts on this unfavorable scenario. Following recent vessel attacks in the Red Sea and the Gulf of Aden, major container ship operators have announced The supply and demand dynamics suggest a continued If however normalisation occurs and both the Suez and the Panama Canal operate efficiently, the softening in 2025 could be significant due to the substantial fleet expansion. The transition towards cleaner energy sources is gaining momentum in the campaign of subsectors. While there is a clear shift underway, the long-term outcome remains highly uncertain. The chances of increasing the priority are very, very different. the historical range for new buildings and ten-year-old second-hand container ships with a capacity of 2,500 TEU. Values are rebounding from their end of the year prices and remain stubbornly high compared to both contract revenue covers throughout 2024 and 2025, having already covered 70% and 25% of our operating days respectively at very healthy rates. Our strong balance sheet will allow us to take delivery of the remainder of the containers of new buildings while keeping leverage low at around 60%. It will also allow us to now pay an increased dividend repurchase program to continue rewarding our shareholders. Even after these actions, our liquidity will have further increased. We therefore continue to evaluate investment opportunities that may incrementally increase our revenues and growth potential. And with that, I will pass the floor to Tassos Stylis.

Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. Over the next four slides, as usual, I will give you an overview of our financial highlights for the fourth quarter and full year of 2023 and compare those to the same periods of last year. For that, let's turn to slide 17. For the fourth quarter of 2023, the company reported total net revenues of $49.7 million, representing a 15.8% increase over total net revenues of $42.9 million during the fourth quarter of 2022. And that was mainly a result of the increased average number of vessels we operated in the fourth quarter of 2023 compared to the corresponding period of the year before. The company reported a net income for the period of $25.3 million as compared to a net income of 20.3 million for the fourth quarter of 2022. Interest and other financing costs for the fourth quarter of 2023 amounted to 2.8 million, before deducting capitalized interest income of 0.3 million earned from the self-financing of the pre-delivery payments for our new building program. for a total net interest and financing costs of 2.5 million for the period, compared to 1.6 million in the same period of 2022, after deducting capitalized imputed interest income for that period of 0.4 million. This increase in our interest expenses is due to the increased amount of debt we carried, and increasing the weighted average rate, soft rate, that our bank loans paid in the most recent period compared to the period of the previous year. Adjusted EBITDA for the fourth quarter of 2023 increased to 33 million compared to 22.9 million for the corresponding period in the fourth quarter of 2022. Basic and diluted earnings per share for the fourth quarter of 2023 were $3.58 and $3.56, respectively, calculated on about 6.9 million basic and diluted weighted average number of shares outstanding, as compared to basic diluted earnings per share of $2.87 and $2.86, respectively, for the fourth quarter of 2022. Excluding the effect on the net income for the quarter of the unrealized loss on derivatives, the amortization of fair value of below-market time charters acquired, and the vessel depreciation on the portion of the consideration of vessels acquired with the tax time charters allocated to the below-market time charter part, The adjusted earnings for the quarter ended December 31st, 2023, which have been $3.62 basic and $3.61 diluted, as compared to adjusted earnings of $2.50 basic diluted for the quarter ended December 31st, 2022. Usually, security analysts do not include the above items in their published estimates of earnings per share. Let's now look to the right part of the slide and review the numbers for the corresponding 12-month period ending December 31, 2023 and December 31, 2022. For the full year of 2023, the company reported total net revenues of $190 million, representing a 4% increase over total net revenues of $182.7 million during 2022, of the increased number of vessels we own and operated in 2023 compared to the year before. The company reported net income for the year of 115.2 million as compared to a net income of 106.2 million for 2022. The interest and other financing costs for 2023 amounted to $9.8 million, again, before deducting capitalized imputed interest income of $3.4 million earned, as I mentioned earlier, from self-financing the pre-delivery payments of our new building program, for a total interest and other financing costs of $6.4 million, compared to $5.1 million for the same period of 2022, which was derived after deducting capitalized imputed interest income for 2022 of half a million. Again, this increases due to the increased amount of debt that we had and the higher software rates that our bank loans had to pay as compared to the year before. Moving to the EBITDA figures, adjusted EBITDA for the 12 months of 2023 were $124 million compared to $114.4 million during 2022, primarily the result of higher revenues, as I mentioned earlier. Basic and diluted earnings per share for 2023 were $16.53 basic and $16.52 diluted, calculated on about $6.9 million basically diluted weighted average number of shares outstanding compared to basically diluted earnings per share of $14.79 and $14.78 per share respectively for 2022. Excluding the effect on net income for the year of the unrealized loss on derivatives, impairment loss, amortization of the below-market time charters acquired, the vessel depreciation attributed to the below-market charters acquired, and gain on time charter agreement termination, as well as gain on sale of vessel. The adjusted earnings for the year ended December 31, 2023, which have been $14.99 basic and $14.98 diluted compared to earnings of $13.23 basic and $13.21 diluted for the year before. As I mentioned before, analysts do not include those adjustments that we subtracted in the estimates of earnings per share. That's why we're making the adjustments. Let's now turn to slide 18 to review our fleet performance. We'll start our review by looking at our utilization rates first for the fourth quarter and then the full year of 2023 and compare it to the same periods of 2022. Starting with the fourth quarter of 2023, our commercial utilization rate was 100%, while our operational utilization rate was 99.5%, compared to 100% commercial and 95.1% operational for the fourth quarter of 2022. On average, 19 vessels were owned and operated during the fourth quarter of 2023, earning an average time charter equivalent rate of $29,704 per day, compared to 18 vessels in the same period of 2022, earning on average $29,399 per day. Total operating expenses, including vessel running expenses, management fees, and other G&A expenses, but excluding dry docking costs, were $7,923 per vessel per day for the fourth quarter of 2023, compared to $7,937 for the same period of 2022. If we move further down on this table, we can see the cash flow breakeven rate, which takes into account expenses, interest expenses, and loan repayments. Thus, for the fourth quarter of 2023, our daily cash flow breakeven rate was $15,000 per vessel per day, compared to $15,801 per vessel per day for the same period in the fourth quarter of 2022. Let's now look on the right part of the slide to review the same figures for the full year. During the entire 2023, our commercial utilization rate was 99.6%, while our operational utilization rate was 99.1%, compared to 99.9% commercial and 98.4% operational for 2022. On average, 18.25 vessels were owned and operated during 2023, earning an average time charter equivalent rate of $29,807 per day compared to 17.1 vessels owned and operated during 2022, earning on average $31,964 per vessel per day. Total operating expenses, again, including vessel running expenses, management fees, and other G&A expenses, but excluding dry docking costs, were $7,906 for 2023, as compared to $7,548 per vessel per day for 2022. Again, looking at the bottom of this table, we can see the cash flow rate for the year, dry docking expenses, interest expenses, and loan repayments, which for 2023 amounted to $14,186 per vessel per day, compared to $14,508 per vessel per day for 2022. Finally, if we look at the very last line on this slide, we can see the common dividend that we paid expressed in dollars per day. For the fourth quarter of 2023, that amounted to about $2,015 per vessel per day, while for the full year amounted to $2,104 per vessel per day. Let's now move to slide 19 to review our debt profile and our forward cash flow breakeven level. As of December 31, 2023, our total debt amounted to about $131 million. The chart shows our current debt repayment schedule for the next three years. In 2023, we made loan repayments totaling 68.98 million, a figure which includes a payment of 27 million that was refinanced, and balloons totaling 13.3 million for five of our vessels, which remain unencumbered, raising the number of unencumbered vessels in our fleet to seven. In 2024 and 2025, our projected loan payments decreased to around $31.2 million and $18.1 million, respectively, with ballooned yield in 2024 of $1.8 million and in 2025 of $18.3 million. The point here regarding the cost of our debt, which carries another margin of 2.31 percent, Assuming a soft rate of around 5.31, the cost of our senior debt stands as of December 31st of 7.62%. But including the cost of certain interest rate swaps that we have, this figure gets reduced to about 7.32% on average, as about 15% of our debt is hedged at a soft rate of around 3.4%. I'd like to draw your attention now to the bottom of the slide, where we present the level and components of our expected cash flow breakeven for the next 12 months, and we show the breakeven cash flow at the various levels. First, our EBITDA breakeven level is $8,643 per vessel per day, above what you see somewhere in the middle of the slide. including interest and loan repayments, our projected cash flow break-even level over the next 12 months is expected to be around $14,658 per vessel per day. To sum up our presentation, let's move to slide 20 to review certain highlights from our balance sheet. As of December 31, 2023, our assets include CAS and other current assets, which amount to about 71.7 million. Advances that we paid for our new building program currently stand at about 85.4 million, as of December 31, 2023. And the book value of our vessels was 267.7 million, resulting in a total book value of our assets of about $224.7 million. On the liability side, as I previously mentioned, we had debt spending at $131 million, equivalent to about 31 percent of the book value for our assets. The fair value of below-market starters acquired is approximately $7.6 million, representing about 1.2 percent of our assets. And other liabilities stand at about 11 million, accounting for another 2.6% of our total book value of our assets. Regarding shareholder's equity, I would like to highlight two points. First, that as of December 31st, 2023, our retained earnings turned positive, reflecting the profitability of the last four years, which erased the losses of the previous decade. And this happened even after payment of almost $25 million of dividends during 2022 and 2023. And second, that the market value for our fleet surpasses its book value significantly. Utilizing the charter-adjusted values for both our fleet and our new building contracts, our estimated value of our fleet is about $337 million thus about $70 million more than its book value. This translates to a net asset value of about $352.5 million for our company, which is equivalent to approximately $50.9 per share. Our share price yesterday closed at $34, which compared to our net asset value represents a substantial discount suggesting considerable appreciation potential for shareholders and investors. And with those remarks, I would like to pass the floor back to Aristides to continue the call.

Thank you, Tasso. Let me now open up the floor for any questions we may have.

Thank you. We will now conduct a question and answer session. If you would 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 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. Once again, that's star 1 at this time. One moment while we pull for our first question. Our first question comes from Tate Sullivan with Maxim Group. Please proceed. Hi. Thank you. Good morning.

First, on the 20% dividend increase and, I mean, 2023 having a payout ratio of about 12%, can you talk about how you evaluated increasing the 20% dividend? Did you look across the shipping sector at payout ratios? And what made you comfortable given, I mean, the ability of your...to get contracts on your six future new builds?

I think the primary concern was that we want to offer our shareholders significant dividend yields. So we want to satisfy our shareholders. We thought with the increase in the share price going down to 5-6% dividend yield was not at the level that we like to see. We know that our payout ratio even today is low. We are keeping the excess liquidity in order to find opportunities to invest when the time is right. But at the same time we really want our shareholders to be satisfied and to be getting more than they would be getting in conservative investments, bonds, stuff like that. So that was really the reason we did it. As we've said many times, we have ample liquidity that we are collecting through the charters that we have secured during the strong time of the markets, and we're trying to make optimal use of that.

Great, thanks, Gail. It was great to see you. And then on the AGM Express, coupled with your comment of maybe holding off on acquisitions for now, given where asset values are, particularly with the increase in rates due to the Red Sea situation, how are you evaluating the AGM Express, the 7,000 rate versus break-even, even at a level of about 8,600, scrapping versus future contract availability?

Well, last year in our model we were assuming that we would be scrapping the Aegean Express at the completion of the charter because we thought the market would be soft. But with this strengthening market, the 7,000 level, which is just above break-even for this particular vessel that has no debt assigned and low operating expenses, best to keep it, because really we don't know how this market will develop. So we want to have the option of earning significantly more than what we can earn by selling the vessel today at scrap value plus a little bit. So that's the reason we are keeping it. It has a positive option value for us, and it's contributing just a little bit because the $7,000 is above the break-even.

Thank you. And last one for me, Tassos, is on the capital commitments for the new builds, including the ship delivered this current quarter. Can you give an update on the outflow for this current quarter

I think the remaining six new buildings have, I believe, on the top of my head, some like 220 million that we need to total contract price, of which about 65, give or take, has been already paid. And we expect to finance 60% of the contract. of the contracted price, that's about $130 million. So we have about, I believe, $30 million of additional equity contributions to make. I made this calculation off the top of my head, trying to subtract the person who took delivery already. Understood. Okay, cool.

Thank you for that.

Okay, thank you very much. Thank you, Dave. Thank you. Our next question comes from Christopher Sicaglio with Artic Securities. Please proceed.

Oh, it rests on another good quarter, and that's not very positive with the dividend hike. It's Christopher Shire, and I think, I believe it was a different name, that was the goal. Anyway, can you elaborate a bit on chalk ring discussions, both with regards to coming out now and on the new base, how long durations can you get now and how do you sort of evaluate duration compared to rate level?

Yes, we are already discussing the charter of our first new building vessel to be delivered in April. Duration is between one and two years. We are looking at the various offers that we have, and we decide depending on the level of if we go for one or two years' time. There are discussions about the couple of ships that open up within the next month or two months or so, four periods of up to a year. We will see. I mean, there is interest in the vessels that are coming up within the next couple of months, and we are focusing on these vessels for the time being, but nothing to report yet.

Okay, great. And with regards to the comment you made in the report on potential accretive investment opportunities, is this something, is this sort of asset transactions or is it company or M&A or what are we seeing here?

Well, to be honest, it's individual vessel acquisitions at this stage primarily that we are looking at. We're looking at quite a few things, but there is, again, nothing to report. We need to feel comfortable about the deal before advancing it.

That's all for me.

Have a good day. Thank you. Bye. Thank you. Thank you for your time. Once again, ladies and gentlemen, to ask a question, please press star 1 on your telephone keypad. Our next question comes from Clement Mullins with Value Investors Edge. Please proceed.

Good afternoon. Thank you for taking my questions. I wanted to start by asking about the upgrades on the Synergy Busan. You mentioned it will improve the

The ship has completed its dry dock and we have data on the first month after the delivery of the vessel after the retrofits. The indications are that we are talking about 25 percent improvement in the performance. So on our budgeted figures, we estimated that within two years we would have recovered the whole investment. It might be even sooner.

That's very helpful. Thank you. My second question is market-related. No one knows when this rupture in the Red Sea will be over, but I was wondering, should

It takes a long time for markets to readjust on changes. So I think that even if things were to end tomorrow, it will take at least six months before we go back to normality. And I don't see it ending tomorrow. But generally it takes time.

That's all from me. Thank you for taking my questions. Thank you.

Thank you. Our next question comes from Paul Fratt with Alliance Global Partners. Please proceed. Hi, Erskine.

You covered a lot of ground. I'm not sure you mentioned it, but could you just highlight whether on the dividend increase, will this be reviewed annually? Is that sort of something we should expect?

Usually, I mean, dividends are reviewed quarterly by our board, but the expectation, obviously, when we announced it, is that this will continue throughout the year. I am not committing 100% that that will be the case, but we feel very comfortable that we will be able to continue for at least another year.

Thank you. We have a follow-up question from Tate Sullivan with Maxim Group. Please proceed.

Thank you for taking a follow-up. Maybe I apologize if I missed it earlier, but the Akhenata Bridge and the haul damage from last year is the $1.1 million expense for the fourth quarter on higher insurance related to that, and you still have outstanding insurance claims related to the haul damage for the Akhenata Bridge?

Will you take that? Yeah, I think we have collected a good number of the outstanding claims on Akinada. That's why our receivables, other receivables, if you look at our balance, have come down significantly this quarter. There might be some small things, but by and large we have collected most of the insurance claims.

And was that $1.1 million charge, Tasos, in 4Q for higher insurance related to the Akinata claims, or is something separate? No, we... Go ahead, Tasos. No, I don't... I cannot relate to such a charge in Q4.

Some other operating income... that you probably see in Q4 relates to some recovery from Aegean Express. Okay. Understood. Okay. Thank you very much. Indeed, on Aegean Express we collected a bit more than what we had assumed before, and that's why you see that increase. We will try to be conservative in our estimates of what would be paid on the insurance, and we did get a little more on the Aegean Express claims, which is reflected on our Q4 figures.

Yes, exactly. That's what I wanted to say. I think we got about a million dollars more than what we thought we would get from the insurance process because, as always, we are very conservative when we budget such things.

Thank you. At this time, I would like to turn the floor back over to the CEO, Mr. Peters, for closing comments.

Thank you all for participating in today's conference call, and we will be back to you with our Q1 results in three months' time.

Goodbye. Thanks, everybody. Thank you for your questions.

Thanks. That concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.