EuroDry Ltd. (EDRY) Earnings Call Transcript & Summary

Thank you for standing by ladies and gentlemen and welcome to the EuroDry Conference Call on the Second Quarter 2022 Financial Results. We have with us today Mr. Aristides Pittas, Chairman and Chief Executive Officer; and Mr. Anastasios Aslidis, Chief Financial Officer of the company. Please be reminded that the company announced its results with a press release that has been publicly distributed. Before passing the floor to Mr. Pittas I would like to remind everyone that in today's presentation and conference call EuroDry 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 2 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 over to Mr. Pittas. Thank you, sir. Please go ahead.

Hello, ladies and gentleman good morning. Thank you for joining us for the scheduled conference call. I have with me Anastasios Aslidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the 6-month period and [indiscernible] ended June 30, 2022. [indiscernible] to Slide 3. [indiscernible] statement highlights are shown here. For the second quarter of 2022, we reported total net revenues of EUR 21 million and net income of $10.6 million or $3.61 per diluted share. Adjusted net income attributable to common shareholders was $9.9 million or $3.28 per diluted share. Adjusted EBITDA for the period was $13.7 million. Positive leads in the [indiscernible] market that is still anticipated to remain firm for the second half of the year. We believe our stocks would be trading at much higher levels given the attached value of the company as well. We believe these factors create captivating opportunities for us and therefore, the company's Board of Directors has approved the share repurchase program for up to a total of $10 million of the company's common stock to be used as management's discussion. The Board will review the program after a period of 12 months. Share repurchases will be made from time to time for cash in open market transactions and prevailing market prices all in privately negotiated transactions. The timing and amount of purchases under the program will be developed by management based upon market conditions and other factors. The program does not require the company to purchase any specific number of [indiscernible] amount of shares and may be suspended and stated at any time at the company's discretionary without notice. [indiscernible] will go over our financial highlights in more detail later on in the presentation. Please turn to Slide 4 for our operational highlights. [indiscernible] was extended for a minimum period until February 2023 to a maximum period until April 20, 2023 at 105% of the Average Baltic Kamsarmax index. While [indiscernible] was also extended for a minimum period until March 1, 2024, to a minimum period until May 15, 2024 also at 105% of the Average Baltic Kamsarmax index. [indiscernible] approximately 20 to 30 days at $14,000 per day and the [indiscernible] scheduled dry docks. [indiscernible] was fixed for a fleet of approximately 20 to 25 days as well at $15,750 per day after completing its dry dock for approximately 23 days during the second quarter. Furthermore, motor vessel [ Santa Cruz ] was fixed again for a small tariff of about 15 to 25 days at $11,500 per day and motor vessel [indiscernible] for the 55 to 65 days at $13,000 per day. Our motor vessel [indiscernible] was fixed to the peak of about 55 to 65 days at $28,000 a day earlier in the quarter which was followed by a scheduled dry dock from [indiscernible]. The vessel is now fixed to [indiscernible] minimum of $15,000 per day up to 65 days. Finally, [indiscernible] was fixed for about 80 to 100 days at $20,600 per day and is also timely undergone a scheduled dry dock. Regarding commercial of [indiscernible] to 2.2 and 3.9 days respectively during this quarter. While waiting to commence the next employment due to complications that are all from dealing with the COVID issues. We are very pleased to announce that we have completed our 2021 sustainability report which is available on our website. Our commitment towards all aspects of ESG is steadfast. Please turn to Slide 5 to review our current fleet. Our current fleet proceeds of 11 vessels including 6 Panamaxes, 2 Ultramax and Supramax and 2 Kamsarmax with an average date of 30.5 years and the carrying capacity of approximately 800,000 deadweight tons. Turning on to Slide 6 to review the current vessel employment schedule. As you can see, fixed rate cover for the remaining quarters of 2022 stands at around 31%. This figure excludes the 3 [indiscernible] charters which are also to market fluctuations that have secured employment. Moving to Slide 7, we'll go over the market highlights for the quarter ended June 30, 2022 and as it currently stands. The market continues to be driven by a steady supply and demand balance which is reflected in the rates trending lower in recent weeks due to the ongoing to political complex and volatility surrounding the greater economy to describe commodity prices and inflation. As seen here, the average spot market rate for Panamaxes was approximately $35,400 a day in the second quarter. [indiscernible] the price drifted low to about $21,500 per day and currently stands at around $17,000 per day. Similarly, the 1-year time charter rate for Panamaxes was about $26,000 per day dropping to $20,150 per day by July 1 and currently stands at 68,750 per day. Despite the drop, the BPI expense trend is still relatively strong especially considering it comes against the [indiscernible] which has seen flat tons of volumes on the back of [indiscernible] Chinese steel production and iron ore demand. Please turn to Slide 9. The global GDP growth forecast have been further reduced for 2022 by the IMS in its latest report as several additional events [indiscernible] economy already weakened by the pandemic [indiscernible] political conflict between Russia and Ukraine added to existing inflationary pressures that had already started [indiscernible] due to the economic [indiscernible] provided during the pandemic which triggered tighter financial policies, including a series of aggressive interest rate hikes in order to address it. With elevated energy prices mainly due to the Russian Ukraine conflict and lingering supply chain issues as well as additional slowdown in China due to regional COVID-19 lockdowns and the [indiscernible] crisis may further suppress Chinese growth, the IMS has lowered its global EBITDA estimate from 3.6% in April to 3.2% to date and to 2.9% for 2023. GDP growth for the United States was revised downward to 2.3% for 2022, a 1.4% point lower from forecast. Due to lower growth in [indiscernible]. Similarly, the European growth has dropped 2.6% resulting from the Russian Ukraine conflict and tighter monetary policies. Due to major global spillovers caused by various regional issues, China's growth was revised also down to 3.3% for 2022, a 1.1 percentage point difference from April’s forecast. Growth in emerging markets and developing economies is also expected to [indiscernible] decelerate. India's forecast has been revised down to 7.4% for '22 and 61% to 2023. While the only country with better forecast in this quarter seems to be Brazil with an unanticipated growth of 1.7% in 2022 from 0.8% previously due a robust [indiscernible] in Latin America. From the developed economies, Japan in the Asian side has also been revised downwards for 2022 and 2023 due to concerns about slowing economies following the U.S. interest rate hike and ongoing inflation. Looking at the driver rate and according to [indiscernible] demand growth is expected to decrease to just 1.2% in 2022 compared to 3.8% for the previous year. For 2023, driver rate is expected to grow by 2.1%. Rating growth projections are being continuously required as the effects of geopolitical tensions between Russia and Ukraine where growth and trade being continuously assessed. Please turn to Slide 10. Life of [indiscernible] in recent years paints a favorable picture for the dry bulk sector. The order book remains at just 7.2% of the existing fleet which has mostly been unchanged over the past 18 months despite the strongest in more than a [indiscernible]. Now please turn to Slide 11 for our dry bulk fleet overview. [indiscernible] deliver of amount 3.5% of the balance fleet to be delivered in 2022 and 3.2% in 2023. [indiscernible] fleet growth of around 2.4% in 2022 and below 1% in 2023 as the [ outlook ] to fleet ratio remains at a record low and contracting subdued. Please turn to Slide 12, where we summarize our outlook in the dry dock market. Bulk market remains firm with earnings still above historical averages despite demand side concerns around the Russia Ukraine conflict and [indiscernible] economic headwinds. Severe port congestion continues to provide major disruption upside with a short-term market outlook still positive in anticipation of the traditional second half market seasonality. Beyond the overall risk to the global economy, finance demand in the bulk sector is likely to be impacted by a complex mix of upsides and downsides. Increasing commodity prices, inflation and interest rates, putting a strain on businesses and consumers while the shift in trading patterns and slower speeding deeper environmental concerns could increase other sailing differences. Congestion remains an issue and so far this year most fleets are consistently being [indiscernible] than in 2021. This naturally added inefficiency of the supply chain and reduce effective supply then tightening the supply-demand balance in face of [indiscernible] The [indiscernible] slow significantly in 2021 as high-trade rates and [indiscernible] continue trading and we expect it to remain at about the same level throughout the year. A few [indiscernible] in the Capesize sector for holding material licenses. Altering of new ships for 2023 and 2024 deliveries are expected to be nonexistent due to lack of available slots in shipyards. In addition, the lack of clarity for the fuel of the future remains an unknown something that makes placing a new order a very risky options. On the other hand, a normalization of trade routes and congestion [indiscernible] will probably increase effective supply. Overall, the direction of the market will be developed by the outcome of the war between Russia and Ukraine and [indiscernible] global economy to fight inflation with a least possible negative consequences on the gain growth. [indiscernible] Slide 13. The left side of the slide shows the evolution of 1-year time charter rate of Panamax dry bulk vessels in 2002. As overall fleets, the onetime charter rate for Panamaxes with capacity of 75,000 deadweight tons stood at 16,750 per day. [indiscernible] reduced from its 3-month earlier highs but still significantly higher than median levels. On the other hand side of the slide, you can see the historical price rate for 10-year old Panamax vessel which [indiscernible]. Over the past year, dry dock prices have gradually been increasing exceeding the historical medium and average levels and [indiscernible] highest levels of the decade but still its considerably lower than the peak of 2008. While we are overall quite bullish that in the medium term the dry dock market will remain strong and perhaps [indiscernible] further if [indiscernible] the political problems are resolved. [indiscernible] we are reluctant to make further acquisitions. We will be monitoring the market both for any opportunities that may arise as our strong balance sheet provides us with plenty of [indiscernible]. And with that, let me now pass the floor over to CFO, Anastasios Aslidis to go over the [indiscernible] financial highlights in more details. Thank you.

Good morning from me as well, ladies and gentlemen. Over the next 5 slides, I will give you an overview of our financial highlights for the second quarter and first half of 2022 and convert them to the same periods of last year. For that, let's turn to Slide 15. For the second quarter of 2022, the company reported total net revenues of EUR 21 million, representing a 48.8% increase over total net revenues of $14.1 million during the second quarter of 2021 and that was the result on the one hand of the slide a high [indiscernible] rates our vessels earned during the second quarter of this year compared to last year. But mainly because of the increase in the overall number of vessels we only operated in the second quarter of 2022 compared to the same to the second quarter of last year. It's worth noting that compared to the second quarter of 2021 ROE in the second quarter of this year is about 25% larger. The company reported net income and net income attributable to common shareholders for the second quarter of this year of $10.6 million as compared to net income of $2.2 million and net income attributable to common shareholders of EUR 4.5 million for the same period of the second quarter of 2021. Interest and other financing costs including interest income and loss of [indiscernible] for the second quarter of 2022 amounted to EUR 0.08 million compared to $0.5 million for the same period of 2021 net including of EUR 1.7 million [indiscernible] improvement that we reported last year. Interest expense for the second quarter of 2022 was higher mainly due to the increase amount of debt that we had during the period as compared to the same period of last year and the higher underlying LIBOR costs. Adjusted EBITDA for the second quarter of 2022 was $13.7 million compared to $9.2 million achieved during the second quarter of 2021. [indiscernible] and diluted earnings per share attributable to common shareholders for the second quarter of 2022 were $3.66 basics and $3.61 diluted calculated on about 2.9 million weighted average number of sales outstanding compared to $0.83 basic and $0.81 diluted completes to about 2.4 million weighted average number of sales outstanding for the second quarter of 2021. Excluding the effect on the income attributable to common shareholders of the annualized gain and derivatives, the adjusted earnings attributable to common shareholders for the second quarter of this year would have been 3.43% and 3.38% basically diluted respectively. For the second quarter of last year excluding the gain, the [indiscernible] derivatives and the loss on debt extinguishment the adjusted earnings attributable to common shareholders would have been $2.81 and $2.76 [indiscernible] respectively. Usually, secured analyst do not include the above items in the public estimations of [indiscernible] Let us now look at the numbers corresponding 6-month period ended June 30 for 2022 and 2021. In the first half of this year, the company reported total net revenues of $39.3 million representing a 73.1% increase over total net revenues of $22.7 million during the first half of 2021 and that was a result of both a higher time charter rate to our vessel served during the first half of this year and the increased [indiscernible] we own and operate. We reported net income and net income attributable to common shareholders for the first 6 months of $21.1 million as compared to net income of $30.1 million and net income attributable to common shareholders of $2.4 million for the first half of last year. Interest and other financing cost includes interest income for the first half of 2022 amounted to $1.4 million compared to $1.1 million for the same period of 2021, non-inclusive again of the $1.7 million charge on the [indiscernible] This increase is mainly due, again, to the increased amount of debt in the current period as compared to the same period of 2021 and the other [indiscernible] cost increases. Again, the adjusted EBITDA for 2022 for the first half of 2022 was $26.4 million compared to $13.2 million achieved during the first half 2021. [indiscernible] attributable to common shareholders for the first half of 2022 were $7.35 basic and 7.25% [indiscernible] diluted calculated on 2.9 million weighted average number of sales outstanding. compared to $1.03 basis and $1.01 diluted for the same period of last year calculated to $2.3 million and $2.4 million weighted average number of sales outstanding respectively. Excluding the effect [indiscernible] attributable to common share folders for the first half of this year of the unrealized gain on derivatives, the adjusted earnings for the 6-month period puts again 6.77% basic and $6.68 diluted. For the 6-month period ended June 30, 2021, again excluding the annualized loss on derivatives and the loss of the extinguishment, the adjusted earnings attributable to common shareholders would have been $3.4 basic and $3.33 diluted. Let me now turn to Slide 16 to review our key performance. As usual, we will start our review by looking first at our disutilization rates first for the second quarter of 2022 and 2021. As we do all the time, our utilization rate is broken down to commercial and [indiscernible]. During the second quarter of 2022, our commercial utilization rate was 99.4% while our operational utilization rate was 99% compared to 100% commercial and 99.4% operational was the first for the second quarter of last year. Our overall utilization rate was 98.3% in the second quarter of 2022 compared to 99.4% for the second quarter of last year. On leverage, we owned and operated 10.79 vessels in the second quarter of this year and [indiscernible] rate of 23,498 per vessel per day compared to 7.37 vessels in the same period of 2021 and another $22,614 per day. As I mentioned earlier, our average fleet during the second quarter of this year was up about 45% compared to the second quarter of 2021. Our total operating expenses including management fees, general administrative expenses but excluding the total cost, the cost of [indiscernible] was $6,562 per vessel per day in the second quarter of this year compared to $6,467 per vessel per day for the second quarter of 2021. If we move forward down of this table, we can see the cash flow [indiscernible] for the second quarter of 2022 which also takes into account dry dock expenses, interest expenses and loan repayments and preferred dividends to be paid in cash it only excludes [indiscernible]. Thus, during the second quarter of 2022 our daily cash flow rate [indiscernible] was $11,986 per vessel per day compared to $10,314 [indiscernible] per day for the same period of last year. The increase mainly due to the higher loan payments that we keep during the second quarter of 2022. Let's now go over our utilization [indiscernible] and the remaining figures for the first half of this year compared to the first half of 2021. During the first half of 2022, our commercial utilization rate was 99.7% and our operational utilization rate was 99.3% compared to 100% commercial and 99.7% operational utilization rate for the same period of last year. On average, 10.19 vessels were owned and operated during the first half of this year. Earnings and other expansion of [indiscernible] of $24,025 per vessel per day compared to 7.19 vessels owned and operated in the same period the first 6 months of 2021. [indiscernible] $18,879 per vessel per day. Our total operating expenses again including management fees, G&A expenses, but excluding diluting costs were $6,584 per vessel per day in the first half of this year compared to $6,518 per vessel per day for the same period of 2021. Looking at the bottom of this table we can see again the cash flow [indiscernible] for the first half of 2022 which [indiscernible] also direct expenses, interest expenses and loan repayments and [indiscernible] EBITDA [indiscernible] if any of them were paid in cash. In the first half of 2022, our daily cash flow [indiscernible] was [indiscernible] per vessel per day compared to $10,688 per vessel per day for the same period of last year [indiscernible] being that we set higher loan and payments this year. Let's now move to Slide 17, our EBITDA calculator. As we noted in previous earnings presentations we used the slides as a calculation tool which enables our shareholders- and investors to assess the [indiscernible] potential of our vehicles at current year and under the current environment. And to allow them also to make their own assumptions and assess the impact of that to our profitability. As you can see here from the table our contracted covers in fixed rate contracts is about 47% in the third quarter of this year declined about 13% in the fourth quarter of this year. Our calculated [indiscernible] shows in the second half of the table, the Supramax and Panamax Baltic forward trade as of August 1st and how this index level get translated to [indiscernible] for our ships. Based on these assumptions and assumptions for OpEx and G&A costs and assuming the 5% commission rate [indiscernible] EBITDA contribution of the presentation for our fleets get to be fixed. The [indiscernible] issue several assumptions about the other earnings that are open days might earn during the third and fourth quarter and assess our EBITDA for the remaining quarters and full year 2022. Let's now move to Slide 18 to review our debt [indiscernible]. As of June 30, 2022, we had an outstanding bank debt of about $7.48 million. Looking to the chart we can see that our debt repayments over the next 3 years range between EUR 10 million and about EUR 14 million per year and then dropped to EUR 2.8 million and EUR 3.6 million in 2025 and 2026. Our next [indiscernible] is covered at the end of 2023 for a value of about $11.3 million for one of our functional [indiscernible]. We expect to be able to [indiscernible] on this payment [indiscernible] which are done in similar situations in the past. A quick note here about the cost of our debt. The average margin of our debt is about 2.7% and assuming a LIBOR rate of about 2.8% on the top of it, we can estimate the total cost of our senior debt as of the end of the second quarter to be about of 5.7%. At the bottom of this slide, you can also see that projected cash flow rate for the next 12 months [indiscernible] components. We can see here with our expected cash flow [indiscernible] for the next 12 months is about $20,100 per vessel per day. Let's go move to Slide 19 where we can see some highlights from our balance sheet in a simplified way. This slide shows a snapshot of our assets around and our liabilities. Our assets consist of our cash and other short-term assets and the cost of our investments. As of June 30, 2022, we had cash and other assets of about 17 million. And the book value of our vessels was approximately $860 million, resulting in total book value of assets of about $177 million. On the liability side our debt as of June 30 as I mentioned, was about EUR 79.8 million representing about 12.5% of the book value of our assets. Additionally, other liabilities amounted to $2.9 million or about 1.6% of our total assets resulting in [indiscernible] of about EUR 12.5 million translating to approximately $30 of net book value per share. However, based on our own estimates and on market transactions, as of the end of June the market value for our vessels was around EUR 235 million to EUR 236 million or about 48% higher than their respective book volumes suggesting an NAV [indiscernible] in excess of $59 per share. With our share price recently trading in the [indiscernible] closed yesterday just below $18 per share there appears to be a sizable gap to our NAV suggesting significant appreciation potential from shareholders and investments. And with that, I'd like to turn the floor back to Aristides to continue the call.

May I now open up the floor for any questions that you may have.

And we do take our first question from Tate Sullivan of the Maxim Group.

First, some repurchase plan. How did you decide on the initial size of the repurchase plan at $10 million? Was it looking at what you recently generated in free cash flow every quarter? Just to start there, please.

I think we mostly decided on the side looking at our current liquidity and wanting to put an initial size on it. We will see how things develop and we can any time make it bigger if we want or small or whatever. We thought it was just a reasonable amount to start with. Appropriate to the size of the company as well.

Can you just review is this in your history with public shipping companies and shipping [indiscernible] the first repurchase plan in 15 years [indiscernible] Can you just review the repurchase history [indiscernible] please?

Yes. We have never done that in the past. But looking at how low our share prices we felt compelled to do something to help support the price and make it a good return for our shareholders. At least starting to buy a new vessel is quite expensive as asset prices are extremely high compared to where we are trading. So it makes more sense to buy back our stock rather than to buy a new vessel. Especially [indiscernible] 20% or 25% of NAV exactly because of that.

And that's related to one of my other questions. You mentioned reluctance to make more acquisitions in this environment even though you're positive for the medium term. Is it mainly because the asset prices are still high?

Prices are still high. We've seen the correction [indiscernible] We think that it's still in the line but things are definitely uncertain. And at least prices, we don't want to be making a new investment. But a 30% of the price which is where our stock price is trading it becomes interesting.

And then can the refinancing hassles you mentioned of the debt [indiscernible] What facilities do this year? And I mean, do you usually wait till 3 months when it matures and what is the maturity on that facility? And will it probably be at a higher interest rate curve maybe even lower still instead of 5 years ago or so?

I think this year [indiscernible] maturing the volume I mentioned was one of our customers [indiscernible] it matures in the fourth quarter of 2023. We believe we can sign up the balloon routinely as we did in the past. In addition, we have 2 vessels that [indiscernible] So we have the option to lever out those vessels as well.

Next, we move on to the line of Charles Fratt with Alliance Global Partners.

Good move seems like on the stock buyback program. A quick question on it. How quickly can you become active on the program?

You can become active as soon as we are set up and we can I think over the next couple of days would be ready to use.

And then so talking [indiscernible] looks like an increase in the share count over the second quarter. And then looking at the cash flow statement it looks like you might have issued a little bit of equity under ATM. The average price that I calculated was a little bit over $40 so this was probably done in late April. Can you just confirm those numbers? Or just give me an idea what happened under the ATM in the second quarter?