EuroDry Ltd. ($EDRY)

Thank you for standing by, ladies and gentlemen, and welcome to EuroDry Limited Conference Call on the First Quarter 2026 Results. With us today, we have Mr. Aristides Pittas, chairman and Chief Executive Officer; and Ms. Athina Atalioti, finance and Investment Manager. [Operator Instructions] I must advise you that this conference is being recorded today. Please be reminded that the company announced its results with a press release that has been publicly distributed. Before passing the floor over to Mr. Pittas, I would like to remind everybody that in today's presentation. The 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 on 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. Pittas. Please go ahead, sir.

Good morning, ladies and gentlemen. Thank you all for joining us today for our special conference call. Together with me is Athina Atalioti, who will go over the financial details in more detail. The purpose of today's call is to discuss our financial results for the 3-month period ended March 31, 2026. Please turn to Slide 3 on the presentation where we present our financial highlights. For the first quarter of 2026, we reported total net revenues of $12.8 million and net income attributable to controlling shareholders of $0.26 million or $0.09 earnings per diluted share. Adjusted net income attributable to controlling shareholders for the quarter was $0.33 million or $0.12 per diluted share. Adjusted EBITDA was $4.9 million. Please refer to the press release for a reconciliation of adjusted net income and adjusted EBITDA. Athina Atalioti will go over our financial highlights in more detail. Since launching our share repurchase plan of up to $10 million, which was originally announced in August 2022 and successfully extended in 2023, 2024 and 2025 with current authorization to run through August 2026. We have repurchased 348,000 sales in the open market for a total of $5.6 million. Repurchases under the program are executed in a disciplined and measured manner at management's discretion. We have decided to expand our newbuilding program by adding two Kamsarmax vessels, which will complement the two Ultramaxes already on order. We signed contracts with [indiscernible] building for the construction of these 282,000 deadweight [indiscernible] built to [indiscernible] standards with delivery scheduled for the first and second quarters of 2028. The total contract value is approximately $74 million, which will be financed through a combination of debt and equity. The contracts are conditional upon receiving a refund guarantee from a bank acceptable to the [ comp ]. Once all 4 vessels are delivered, our fleet would be comprised entirely of model ships, the majority of which have been built for us directly. Turning to Slide 4. We highlight our recent chartering and operational developments. From a chartering perspective, our fixtures during the first quarter were predominantly short term. Currently, four of our vessels are employed on index-linked charters at 115% of the average Baltic Supramax 10 time charter index, providing continued exposure to market dynamics while preserving operational flexibility. The remaining 7 vessels are employed on [ 3-time ] charters with durations ranging from approximately 1 to just over 3 months, whilst only the Christos K is on a longer [indiscernible] till December. Further details of the charters fixed during the period are provided in the accompanying slides. There were no idle or commercial [indiscernible] periods during the quarter. However, the motor vessel [indiscernible] drydocking for approximately 28 days starting from December 18, 2025 to January 15, 2026. We had, had the very small part of our exposure through FFAs. Luckily, these hedges are not in the money, but the market has been stronger than we forecasted earning the majority of our fleet higher [ rates ]. In particular, on February 19, we sold 90 days of the Kamsarmax index, which is based on the [indiscernible] of 5 [ time ] charter routes for the second quarter of 2026 at $19,240 per day and an additional 90 days for the third quarter of 2026 at $17,250 per day. It's equivalent to one vessel. In addition, on March 30, we sold a further 90 days of the Kamsarmax [indiscernible] Index for the third quarter of 2026 and $17,100 per day, also equivalent to one vessel. Please turn to Slide 5. EuroDry's current fleet consists of 11 vessels with an average age of around 13.8 years and the total carrying capacity of approximately 707,000 deadweight tonnes. In addition, we have two Ultramax [indiscernible] under construction with capacity of 63,500 deadweight tonnes each, scheduled for delivery in the second and third quarters of 2027 and two Kamsarmax vessels on order with capacities of 82,000 deadweight each scheduled for delivery in the first and second quarters of 2028. Upon delivery, our fleet will grow to 15 vessels with a total carrying capacity of approximately 1.05 million deadweight tonnes. Next, please turn Slide 6, where we graphically show our fleet employment. Our current fixed rate coverage for the remainder of the year stands at approximately 23.5% based on existing time charter agreements. This figure excludes our 4 vessels on index-linked. [Audio Gap] Slide 8, we review the general market highlights for the first quarter ended March 31, 2026, and recent developments from mid-May. Panamax spot rates improved from an average of approximately $13,290 per day during the first quarter to around $14,750 per day by the end of March and before strengthening further to approximately $22,300 per day as of last week. Similarly, one year rates have also increased with [indiscernible] assessing the standard Panamax 1-year time charter rate with approximately $18,000 per day as of May 15. Notwithstanding this improvement, one year charter rates continue to trade slightly below the remaining spot market levels. Turning to Slide 9. We review the global macroeconomic backdrop and its implications for dry bulk shipping demand. According to the IMF April 2026 World Economic Outlook Update, global growth is projected to moderate to 3.1% in 2026 and 3.2% in 2027 with downside risks dominating the outlook. The risk factors include the potential broadening of the Middle East conflict, uncertainty surrounding AI-driven productivity gains and the prospect of renewed trade tensions. Any of these could materially weaken growth and destabilize financial market. Global headline inflation is projected to edge higher than 2026 before resuming its downward trend in 2027 with a growth slowdown and inflationary prices expected to be most announced in emerging markets and developing economies. In the United States, the 2026 gold production was revised by the IMF modestly lower to 2.3%, while the 2027 outlook was revised slightly upwards to 2.1%. The U.S. economy continues to demonstrate resilience [ all based ] on certain macroeconomic balances. The markets have priced in a more [indiscernible] interest rate [indiscernible] reflecting the inflationary impact of commodity-related supply shocks. The Federal Reserve remains in a wait-and-see mode with the rate cuts currently unfolds, pending further evidence of this in goods inflation. As of May 2026, the effective Fed funds rate stands at approximately 3.64% with rate cuts potentially resume from late 2026. Gradual depreciation of the U.S. dollar is anticipated as monetary [indiscernible] eventually takes hold. The then 5 region is projected to grow at a slightly lower rate than previously anticipated at approximately 4.1% in 2026 and 4.4% in 2027 due to external headwinds like Middle East energy shorts, geopolitical trade [indiscernible] and phasing export momentum. Meanwhile, China's growth trajectory is projected to remain relatively resilient with a GDP growth of 4.4% in 2026 and 4% in 2027 supported in part by the country's technological and industrial competitiveness. [ Tractional ] economic imbalances, however, remain a key challenge. Policy priorities continue to center on high-quality growth with emphasis and energy security, domestic consumption and technology-driven productivity gains. Turning on to the dry bulk sector. Clarksons projects dry bulk trade growth at approximately 2.5% in 2026 and 1.3% in 2027 suggesting continued albeit moderating demand for dry bulk vessels. While the broader global economy is still expected by the IMF to [indiscernible], the risks are skewed to the downside by microeconomic uncertainty, geopolitical fragmentation and an [ even ] regional trade activity. which may continue to weigh on trade flows and freight market dynamics. Please turn to Slide 10 as we review the current state of the dry bulk order book. As of May 2026, the order book stands at approximately 13.2% of the existing fleet, although higher than the cyclical low of 7% recorded in 2021, it remains among the lowest levels in history. For context, the order book accounted for 66% of the fleet in 2008, and around 24% in 2014. The persistent low level of new ordering activity reflects a combination of constraining factors, including [ limited scale ] capacity, elevated new building costs and continued uncertainty surrounding future fuel technologies and evolving environmental regulations. These supply side constraints could provide support for vessel utilization and freight rates over the moving term. Turning to Slide 11. We examine the supply side fundamentals in greater detail. As of May 2026, the total dry bulk fleet comprises approximately 14,600 vessels, representing around 1.1 billion deadweight tons. According to Clarksons latest estimate, scheduled newbuilding deliveries as a percentage of the existing fleet are projected at 4.5% in 2026, 4.1% in 2027, 5.6% for 2028 and beyond. Actual fleet growth is, of course, expected to be slightly lower as slippage and demolition activity will offset a portion of the gross deliveries. Looking at the fleet age profile, approximately 11% of the global fleet is over 20 years old, representing vessels that could be considered for scrapping if market conditions moderate or environmental [indiscernible] further. Turning to Slide 12, we summarize our outlook for the dry bulk market. [ Bulk ] markets have had a surprisingly stronger-than-expected start in 2026, with earnings growing particularly resilient through what is typically a seasonally soft period. Average Supramax and Panamax time charter rates rose by approximately 8% since the fourth quarter of 2025, reaching their strongest levels in two years and broadly in line with March 2024. [indiscernible] dry bulk trade trends continue to support vessel demand, driven by strong iron ore, grain and bauxite export volumes. Global [indiscernible] mine dry bulk trade has remained firm in 2026, partly supported by continued bauxite trade. Additionally, total [indiscernible] ore exports are projected to reach 60 million metric tons in 2026, providing a further boost. That said, uncertainty remains around [indiscernible] iron ore demand amid the ongoing pressure in steel output [indiscernible] although [indiscernible] during the first quarter and up to now, reflecting [indiscernible]. Moving ahead to the remainder of 2026, we expect moderate gains potentially resulting in full revenues above the 2025 levels. Geopolitical disruption continues to create [indiscernible] inefficiences across local trade routes and FFA pricing points to firm market over the next 10 to 12 months. Several key factors are expected to shape the outlook for 2027, the coal trade, higher gas prices are expected to provide some support with imports into Europe, Japan and career anticipated to rise. Although global coal volumes are still forecast by Clarksons to decline by approximately 2% in 2026. Emerging bottlenecks as the Panama Canal represents an additional source of potential supply tightening. Capesize vessels are expected to continue our [ performance ] supported by [indiscernible] bauxite trade flows. [indiscernible] project is set to boost iron ore production as part of China's Belt and Road strategy supporting Chinese industrial activity, reducing reliance on Australian and Brazilian imports and displacing lower grade domestic productions. Finally, geopolitical developments that disrupt trade routes and reduce operational efficiency remains the single most important unknown. On the supply side, the newbuilding orders have accelerated in recent months and we gain further momentum in the foreseeable future despite the lack of maritime [indiscernible]. Looking ahead to 2027, bulk markets are expected to see another year of moderate earnings with fleet growth likely to outpace trade growth. Nevertheless, several factors could help keep the market in relative balance, including the evolution of the Middle East conflict dynamics, the ramp-up of the [indiscernible] project and Chinese demand trends. Coal policy, vessel speeds and fleet renewal and demolition activity will also remain important variables. Our base case assumes a moderately softer market environment although in 2027 although, a prolonged conflict as considerably above the historical medium of [indiscernible] is reflected, although this [indiscernible] for the future of our company and the newbuilding values are still at decent levels. We have decided to utilize our liquidity to order two Kamsarmax vessels, thus positioning our fleet to benefit from a market improvement which we believe will come at some point in the coming years. And with that, I will now turn over the floor to Athina Atalioti for a closer look at our first quarter financial performance.

Thank you very much, Aristides. 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 first quarter of 2026 and compare those results to the same period as last year. For that, let's turn to Slide 15. For the first quarter of 2026, the company reported total net revenues of $12.79 million, representing a 38.9% increase over total net revenues of $9.21 million during the first quarter of 2025 which was the result of the increased time charter rates our vessels earned during the first quarter of 2026, partly offset by the decreased average number of vessels owned and operated during the first quarter of 2026 compared to the same period of 2025. The company reported a net income attributable to controlling shareholders of $0.26 million as compared to a net loss attributable to controlling shareholders of $3.7 million for the same period of 2025. Interest and other financing costs for the first quarter of 2026 decreased to $1.5 million as compared to $1.8 million for the same period of 2025. Interest expense during the first quarter of 2026 was lower, mainly due to the decreased benchmark rate for our loans and a decreased average debt during the first quarter of 2026 as compared to the same period of last year. In the first quarter of 2025, we recorded a gain on the sale of $2.1 million relating to the sale of [ model vessel passes ]. There were no vessel sales in the respective quarter of 2026. Adjusted EBITDA for the first quarter of 2026 was $4.87 million compared to a negative $1.02 million during the first quarter of 2025. Basic and diluted earnings per share attributable to controlling shareholders for the first quarter of 2026 was $0.09 calculated on 2,796,647 and 2,828,521 basic and diluted weighted average number of shares outstanding compared to basic and diluted loss per share attributable to controlling shareholders of $1.35 for the first quarter of 2025 calculated on 2,737,297 basic and diluted weighted average number of shares outstanding. Excluding the effect on the net income attributable to controlling shareholders for the quarter of the unrealized loss on derivatives, the adjusted income attributable to controlling shareholders for the quarter ended March 31, 2026, would have been $0.12 per share basic and diluted compared to an adjusted loss of $2.07 per share basic and diluted attributable to controlling shareholders, respectively, for the quarter ended March 31, 2025. Usually, security analysts do not include the above items in their published estimates of earnings per share. Turning to Slide 16, we review our fleet performance for the first quarter of 2026 with comparison to the same period of 2025. Beginning with utilization, our commercial utilization rate reached 100% in the first quarter of 2026, while our operational utilization rate was 99.7%, resulting in overall utilization of 99.7%. This compares favorably to the first quarter of 2025 when commercial utilization stood at 98.4%, operational at 99% and overall at 97.4%, reflecting a meaningful improvement in fleet deployment efficiency year-over-year. On average, 11 vessels were owned and operated during the first quarter of 2026, earning an average time charter equivalent rate of $14,416 per day. This compares to an average of 12.8 vessels in the same period of 2025, earning an average [ TCE ] rate of $7,167 per vessel per day, reflecting a more than doubling of earnings on a per vessel basis year-over-year. Turning to operating costs. Total operating expenses, including management fees and G&A expenses, but excluding dry docking costs were $7,479 per vessel per day during the first quarter of 2026 compared to $7,604 per vessel per day during the same period of 2025, reflecting a modest increase. Finally, our cash flow breakeven rate, which takes into account the operating expenses, drydocking costs, interest expense and scheduled loan repayments, excluding [ balloon ] payments, stood at $12,514 in the first quarter of 2026 compared to $11,528 in the first quarter of 2025 with a [ TCE ] rate of about $14,400 comfortably exceeding the breakeven rate of $12,540. Please turn to Slide 17. This slide serves as a calculation tool, which enables our shareholders and investors to assess the earnings potential in the remainder of 2026 in the current environment. The table shown in this slide has two components. The top chart refers to our fixed rate contract. As you can see, our contract coverage in fixed contract rate is about 23% for the rest of the year. It is about 50% in the second quarter but declined to 15% in the third, and this is very small for the fourth quarter. This chartering strategy reflects our expectation that the market will be quite positive as indeed, it is indicated by the [ forward rate ] market. The rest of our vessels are employed in contract linked to the relevant to their [indiscernible] bulk dry index. Our calculator indicatively shows the Supramax and Panamax consumer involving forward rate as of May 15, 2026 and also shows how the this index level [indiscernible] related to rates for our ships. We actually display the final [ blended ] day for the open days of our fleet, which you can see right below the Supramax and Panamax forward rate in the table and which efficacy tends to be very similar to the index levels. Based on these assumptions and by further assumed for simplicity, $7,500 per day per vessel OpEx and G&A costs and the 5% commission rate, one can estimate the EBITDA contribution. The final result is additionally adjusted for our preliminary [indiscernible] expenses expected during the year. This overall exercise demand to provide a tool to calculate our EBITDA for 2026. Obviously, one can enter his or her own assumptions about the rate to do that. It is worth observing that at current FFA rate, one would expect an annualized EBITDA rate of $34 million. Of course, one can make his or her own assumptions of how the market might turn out. In the rest of 2026, [indiscernible] can also fully reestimate our EBITDA dependent to the average rate and by our open day. For example, a change of $1,000 per day in the average rate and would result in a $2.2 million change in our 2026 EBITDA. Turning to Slide 18. We review our debt profile and cash flow breakeven estimate. As of March 31, 2026, our outstanding debt stood at $109 million carrying an average margin of approximately 1.99%. Assuming a 3-month swap rate of 3.64% as of that date, the all-in cost of our senior debt averaged 5.63%. The upper chart illustrates our debt amortization schedule. Scheduled debt repayments totaled approximately $12.2 million during 2026, $21 million in 2027, $17 million in 2028 and $28.8 million in 2029, inclusive of [ balloon ] payment of approximately $1.2 million, $10.2 million, $6.7 million and $19 million, respectively. Please note that although we have arranged the debt financing of our two Ultramax newbuildings, our current debt figure that I quoted includes only the portion of one of the two loans drawn to date representing the predelivery payments made thus far. The 2027 and 2028 repayments figures includes scheduled repayments under both newbuilding loan facilities that we have started growing to finance our Ultramax newbuilding, newbuildings with are scheduled for delivery during the second and third quarter of 2027. Turning to the bottom of this slide, we present our cash flow breakeven estimate for the next 12 months, broken down by major components. Our EBITDA breakeven level starts at $8,035 per day, while our all-in cash flow breakeven incorporating operating expenses, dry docking costs, interest expense and loan repayment is estimated at $12,310 per day. Let's move now to my final slide, Slide 19 to review some highlights from our balance sheet as of March 31, 2026. This slide offers a snapshot of our assets and liabilities and hopefully provide a concise picture of our financial position. On the other side, tax and other assets stood at approximately $31.6 million. Advances for newbuildings amounted to approximately $14.4 million and the book value of our vessels was approximately $163.1 million bringing our total assets to approximately $209.1 million. On the liability side, total debt stood at approximately $100.9 million, while other short term liabilities amounted to $5 million for combined liabilities of approximately $105.8 million, representing roughly 51% of total assets. Shareholders' equity on a book value basis stood at approximately $93.8 million or $32.45 per share. However, based on our internal estimates and external valuations, the market value of our fleet is meaningfully above its book value. We estimate the current market value of our vessels at approximately $226.9 million compared to a book value of approximately $163.1 million, implying an excess value of approximately $63.9 million, adjusting for this difference yields an estimate net asset value in excess of $52.77 per share. When compared to the recent trading range of our shares, which has moved up to around $21 recently, it becomes evident that there is a substantial discount to our estimated net asset value and by extension, a significant potential assets for both shareholders and potential investors. We remain committed to executing our strategy and creating long-term value for our shareholders, and we believe the current share price represents a compelling entry point relative to our estimated net asset value. With that, I will hand the call back to Aristides to continue.

Thank you, Athina. Maybe now we'll open up the call for any questions we may have.

[Operator Instructions] Our first question is from Mark Reichman with Noble Capital Partners.

I really do appreciate Slide 17. That's very helpful. And so I was wondering, could you provide some additional detail regarding the financing strategy for the newly ordered Kamsarmax vessels and the expected impact on leverage levels?

Sure. We don't intend to have predelivery financing, I think. So we will get, upon delivery, financing to the order of 60% approximately. As you know, there is ample supply of bank financing these days. Many banks are courting us to provide this financing [ with ]. So we are pretty sure that the very modest level of financing that we will require, we will be able to do it.

And then how does management evaluate the trade-off between continued share repurchases and funding fleet expansion opportunities in the current market environment?

Yes. We're trying to balance everything as you say. We are continuing the repurchase of stock because our share price is extremely low. On the other hand, we want the liquidity in our stock in the stock that is trading to continue improving as it has over the last 6 months. So we are careful not to overdo it and be too aggressive in this process. We've decided that we will do this vessels, which will help us in the future, these 4 newbuilding vessels. And the remaining earnings, we will see what we will do. But for now, we are pretty covered with these 4 vessels that we have on order.

And then just lastly, are there additional opportunities for fleet renewal vessel acquisitions or selective asset sales if secondhand vessel prices remain elevated? And I'm really kind of looking at the Panamax vessels in your fleet that have that average age of, looks like around 21 years.

Correct. These are potential sale candidates at some point in time. For the time being, they are earning significant time charter equivalents of about $20,000 per day or close to that level which obviously is helping us build up our cash reserves. But we will decide later towards Q3, if we will dispose one of them or not.

[Operator Instructions] Our next question is from Poe Fratt with Alliance Global Partners.

Can you, Aristides, just discuss your hedging strategy? It looks like you have the equivalent of one when dry bulker hedged in the second quarter and then two in the third quarter. Can you just talk about what you're seeing now on the curve and maybe looking into the fourth quarter on whether you'd continue to hedge?

Yes. Poe, you're right. We felt that the market will not be that strong so we consider hedging a little bit at the levels that we did, which was $19,000 for Q2 and $17,000 for Q3. The market has been stronger. So today, FFA rates are higher than that. We evaluate the situation in our weekly meetings and we'll decide if we will take more cover either through time charter in a few of our vessels or through further FFAs. But this is something which is dynamic and that we look upon every week.

Great. And then would you -- with the addition of the two additional newbuilds, can you just highlight your newbuild CapEx for 2026, '27 and '28?

I think we can arrange to send this to you separately, but I don't have the numbers on my head. But we will send them to you, okay?

Okay. That's great. And then can you -- you didn't buy -- there's quite a discrepancy between your estimated net asset value and where your stock currently is trading. You didn't buy any stock in the first quarter. Can you just help us -- maybe help me understand what you can do to try to close that gap, that discount to your NAV, Aristides?

Well, the stock price increased substantially during the quarter, right, from what was it, $12, $13 up to $21. So it's been increasing. Nevertheless, we are still having the buyback program active and we have executed a few purchases during the last few days. We will continue executing on that, but only a little bit marginally because as I said to Mark previously, for us, it's important that we keep up the liquidity in the stock growing. So we won't be extremely aggressive on that.

Okay. Great. And then from a cost standpoint, the two things that I'm sort of focused on looking forward are bunker costs and also insurance costs. Can you just discuss your exposure to potential increases in both those areas?

Yes. On the bunker side, actually are on time charter basis which means that the charterer is responsible for placing the bunkers and paying for them. So it's not a huge issue for us as long as there is availability of bunkers, we don't really mind the higher price. Of course, the charterer minds it, so it affects his decisions. On the insurance cost, there is increased war risk insurance in several areas. But as our vessels do not trade there, we are not affected.

Our next question is from Tate Sullivan with Maxim Group.

[indiscernible] the voyage days in the first quarter were a bit below I forecasted, and you mentioned some repositioning in the press release given global dynamics, do you think the repositioning between charters will be a quarterly occurrence? Or was that special situation related to the first quarter?

No, I think it was a special situation in the first quarter. It happened that we had a lot of repositioning. But on average, I don't -- I expect it to be narrowed to what we've been advising.

And then the voyage expenses, there was a [ gain ] related to those repositionings and maybe the bulk fuel sale that's certainly a one -- a quarterly event as well. Not -- I think the last time that occurred was 2-odd years ago. Is that correct?

Yes, exactly.

Okay. And then last, your comments on the Panama Canal. Is that an emergent dynamic removing some vessel voyage from the fleet? Or has that been consistent in the first two months of this quarter?

No, it's practically an emerging dynamic because we are seeing more and more tankers cross the Panama Canal who pay higher fees to pass and for whom it's more important to pass through the canal. And that has practically squeezed the dry bulk out of the canal. It's a consequence of the war in Iran and the fact that on the tanker sector, there's been a significant shift on the trading patterns.

We now have a follow-up from Mark Reichman with NOBLE Capital Partners.

I just wanted to follow up on -- when you look at the fixed rate coverage for the remainder of 2026, it's about 23.5%. And if you're expecting rates to kind of remain strong, I can understand why you would want to leave exposure to the market. And we're only in May. But looking to 2027, if you're expecting the market to weaken a little bit or rates to go down, at what point do you try to start preparing for that or 2027 to maybe increase your fixed rate coverage as you head into 2027?

Indeed, you're right. We are looking into this mark, but rates for 2027 are quite lower than where they are today. But we are also looking at the alternative, which is to time charter maybe a couple of vessels for a year's time so that we cover a little bit of the 2027 exposure. We wouldn't do too much, but it is possible that we will fix a couple of ships in longer [ CC ] or covered with FFA.

There are no further questions at this time. I would like to turn the floor back over to Mr. Pittas for closing remarks.

Thank you all for listening in to our results of today. We look forward to discussing again in Q2, which, as we all know, is going to be a pretty good quarter based on what we are seeing today. Thank you all.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.