Euroseas Ltd. (NASDAQ:ESEA) Q4 2023 Earnings Call Transcript
Euroseas Ltd. (NASDAQ:ESEA) Q4 2023 Earnings Call Transcript February 21, 2024
Euroseas Ltd. misses on earnings expectations. Reported EPS is $3.56 EPS, expectations were $3.85. ESEA isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: 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 Pittas, Chairman and Chief Executive Officer; and Mr. Tasos Aslidis, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. [Operator Instructions] 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. Pittas, I would like to remind everyone that in today's presentation and conference call, Euroseas 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 to Mr. Pittas. Please go ahead, sir.
Aristides Pittas: Good morning, ladies and gentlemen and thank you all for joining us today for our scheduled conference call. Together with me is Tasos Aslidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the three and 12 month period ended December 31, 2023. Let us turn to Slide 3 of the presentation to go over our financial results. We have 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 basic and diluted share for the fourth quarter of 2023. 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, Tasos Aslidis 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 have declared a quarterly dividend of $0.60 per common share for the fourth quarter of 2023, reflecting a 20% increase from the prior quarterly dividend of $0.50 per share. The dividend, which is payable on or above March 11, 2024 to shareholders of record on March 4, 2024 reinforces our durable growth business model, which is supported by strong cash generation and financial strength and further 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 400,000 shares in the open 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 withdrawn. We will continue to use our share repurchase program at management's discretion depending on our stock price to enhance our ability to drive long-term shareholder value. Please turn to Slide 4, where we discuss our recent sales and purchase, chartering and operational developments. The delivery of our sales vessels from our nine vessel newbuilding program took place on February 6. Motor vessel tender sold is an Eco EEDI Phase 3 vessel, 2,800 TEU feeder containership newbuilding from Hyundai Mipo Dockyard in South Korea.
The vessel is equipped with a Tier 3 engine and other sustainability linked features, including installation of an AMP, an alternative maritime power system. The vessel is financed through retained earnings and the sale and leaseback agreement with the Japanese owner and leasing house. Following its delivery, motor vessel tender sold commenced an eight to 10 month charter at a rate of $17,000 a day. On the chartering side, Motor Vessel Aegean Express, our largest and smallest vessel was fixed for a minimum period of 10 to maximum 15 days at $7,000 per day, then extended with the same charterers for one to two months at the same level of $7,000 a day, and thereafter fixed again for a minimum of 35 to maximum 55 days again at $7,000 per day. Motor vessel Synergy Antwerp charter was extended for approximately 40 to 60 days at $18,250 per day until February 2024 and subsequently fixed at a nominal $2 per day for the trip with empty containers to the shipyard to have a scheduled drydock performed.
The other vessel that we fixed during the quarter was Motor Vessel Joanna, whose charter was extended for a minimum between 25 April to maximum 25 May at $10,250 per day. Regarding drydockings, Motor Vessel Synergy Busan underwent its scheduled special survey for approximately 25 days in the month of December. During this period, retrofits valued at around 1.6 million were conducted. They were partially funded by the charterers. This resulted in a performance improvement of over 25% for the vessels. Meanwhile, Motor Vessel Synergy Oakland was also drydocked to approximately 18.5 days to pass scheduled special survey. There was no commercial or item of hire time during the quarter. Next, please turn to Slide 5 for an update on our current fleet profile.
Our current fleet is comprised of 20 vessels in the water, including 13 feeder container ships and seven intermediate container carriers with a total carrying capacity of just under 61,700 TEU and an average age of 16.1 years. Turn to Slide 6, where we show our six remaining vessels under construction with deliveries expected throughout 2024. The six newbuildings have a total carrying capacity of 13,800 TEU, including three with a carrying capacity of 2,800 TEU each and three with a carrying capacity of 1,800 TEU each. On a fully delivered basis, the company's fleet will increase to 26 vessels with a total cargo capacity in excess of 75,000 TEU. Let's now turn to Slide 7 for the 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 2024 into 2025. Due to disruptions in trade patterns caused by the attacks on vessels on the Red Sea, charter rates have increased from their low levels in December 2023. Certain of our vessels whose charters expire during this time have benefited from these disruptions, and we anticipate our vessels opening up soon as well as our upcoming newbuildings will likely benefit from the same trend. Let's turn to Slide 9 to review how the six to 12 month time charter rates have developed over the last 10 years. During the fourth quarter of 2023, containership markets were down across all segments, but the trend has reversed since December, primarily due to the disruptions in the Red Sea as vessels are relocated from the region.
For the sectors we primarily operate in, charter rates are above 30% to 35% higher in February from the lows seen at the end of 2023. As of February 16, the six to 12 month charter rate for a 2,500 TEU containership stood at $15,500 per day approximately, which is higher than the historical median of $9,200 per day, but at similar levels to the 10 year average rate of $15,386 per day. The trends and comparisons 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. During the fourth quarter of 2023, as mentioned, the rates were down across all segments. The current increase is mainly attributed to the Red Sea crisis, which is still evolving and its full impact is yet to be seen.
It's quite clear however, that these events will shape the way charter rates develop at least in the near future. Average rates per day during the fourth quarter of '23 decreased by 21% compared to the third quarter of 2023. The average secondhand price index saw a decrease of around 7.7% during the fourth quarter of 2023 compared to the third quarter of 2023. But we have already seen a reversal of this trend during January and February. While prices continue to lag significantly behind the peak levels seen in 2022, they are above the average levels observed before the COVID-19 pandemic. The Newbuilding Price Index maintained stability in the fourth quarter of 2023 compared to the third quarter. Newbuilding prices continue to stay elevated due to cost inflation on extended yard progress.
Although there has been some easing in newbuild contracting from the exceptionally firm levels witnessed during 2022, it remains relatively strong, driven by ongoing interest from financially robust line of companies seeking to renew their fleets with a fairly few vessels. As of January 29, 2024, the idle fleet excluding vessels under repair stands at 0.23 million TEU, accounting for 0.8% of the total fleet. This marks a decline from its peak of 0.8 million TEU just one year ago with a downward trend observed since then. In 2023, 83 vessels totaling 160,000 TEU approximately were scrapped. Because of historically healthy charter rates, demolition activity remains moderate compared to historical standards in 2023. However, it is anticipated to notably increase in the coming years due to factors such as weaker markets, supply growth and environmental regulations adding pressure.
In the fourth quarter of 2023, scrapping prices softened slightly to approximately $535 per lightweight ton, although they remained about 30% higher than the average observed in 2019. Finally, the fleet expanded by a strong 8.1% in 2023 without accounting for idle vessel reactivation. Please now turn to Slide 11. With its latest uptake in January 2024, the IMF raised its forecast for global growth compared to the October 2023 outlook from 2.9% to 3.1% for 2024 and from 3.1% to 3.2% for 2025 as a result of greater than expected resilience in the United States and fiscal support in China. We expect to see this recovery, although the IMF also warns of risks from wars and inflation. Risks surrounding COVID-19 have declined in much of the world.
The forecast for 2024 and 2025 is however still below the historical average of 3.8% as elevated Central Bank policy rates to fight inflation and the withdrawal of fiscal support amidst high debt weigh on economic activity. Low underlying productivity growth also accelerates the slow trend. As per the analysis, global growth is likely to recover from 2025 onwards, supported by the unwinding of supply side basis and interest rate cuts starting in 2024. Global inflation is focused by the IMF to decline steadily starting from 2024 due to tighter monetary policy aided by lower international commodity prices, which is expected to 4% to 5.8% in 2024 and 4.4% in 2025, with the 2025 quarter having been reside down. However new commodity price hike from geopolitical stocks including continued attacks in the Red Sea and supply disruptions all perceive more persistent underlying inflation could perhaps for long-term monetary conditions.
China's growth forecast of 5.2% in 2024 and 4.6% in 2025 has been revised upwards even after having some major headwinds due to lower confidence and underwhelming boost to economic activity following its reopening and persistent property sector issues. Similarly, growth in other emerging and developing countries, including India and the Asia and France, is projected to continue quite strongly for the next couple of years. India's growth is expected to be 6.5% in both 2024 and 2025. Containership trade demand was forecast to increase quite significantly in 2024 by collapses in the January report, as ton-mile demand will be affected by disruptions in the Red Sea and restrictions from the Suez Canal and Panama Canals as well as the slower speeds necessitated by the IMO environmental rules and the introduction of the EU ETS.
We anticipate that Clarksons apparent demand estimate will further rise in February as the effects of the Red Sea near closure are appearing more severe than originally assumed. Please turn to Slide 12, where you can see the total fleet age profile and containership orderbook. The containership 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 high potential recycling for this type of ships. As of February 2024, the order book as a percentage of total fleet stands at 23.9%, down from nearly 30% six months ago. Turning on to Slide 13, we also go over the fleet age profile and orderbooks for ships in the 1000 to 3000 TEU range.
These sizes of vessels are the backbone of our operations and the primary focus of our newbuilding program. The order book here stands at 8.9% as of February 2024, half the rate a year ago. According to Clarksons, new deliveries are projected at an estimated 8% in 2024 and a very modest 1.9% in 2025. Furthermore, with over 50% of the fleet aged over 15 years. These are very favorable fundamentals for this sector. New environmental regulations suggesting lower speeds and increased recycling in the segment in the coming years augment the positivity of the thesis in favor of vessels of the sizes we operate. Let's move to Slide 14, where we discuss our outlook summary for the container ship market. Container shipping faces pressure due to the influx of new capacity into the fleet, especially during this year where deliveries are expected to amount to about 11% of the fleet measured in TEU.
However, recent events primarily in the Red Sea, but also the Panama Canal and the implementation of the EU ETS have led to a doubling of shipping freight rates and reversing the drop in charter rates. The context index has served by 33% since December 21, 2023. In 2024, significant challenges are initially expected. However, the balancing of supply and demand by the situations in the Suez Canal/Red Sea and the Panama Canal are casting doubts on this unfavorable scenario. Following recent vessel attacks in the Red Sea and the Gulf of Aden, major containership operators have announced a pause in crunches through the area. This re-routing via the Cape of Good Hope impacts capacity supply and demand very positively. If the situations in the Panama Canal and Red Sea are resolved, a further softening in container freight and charter markets is anticipated, driven by the accelerated capacity growth.
However, an extended period of vessel re-routing away from the Suez Canal would probably lead to further increased charter rates. In 2025, in the absence of the Suez Canal/ Red Sea and Panama Canal issues, supply and demand dynamics suggest a continued softening of the market. Market conditions are very difficult to predict, as sensitivity to factors such as geopolitical developments, capacity management, vessel speed and various other inefficiencies like congestion, a crucial and it can't be easily forecast. If however normalization occurs and both the Suez and the Panama canals 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 container ship sector.
While there is a clear shift underway, the long-term outcome remains highly uncertain. The gap between charter rates achieved by eco-friendly vessels is expected to widen further as charters increasingly prioritize environmentally friendly transportation options. Moving on to Slide 15. The left chart shows the evolution of one year time charter rate for containers with a capacity of 2,500 TEU, since 2013. One year time charter rates are far below their peak in early 2022, but as previously mentioned have recovered to 15,500 per day, which is similar to the historical average and higher than the historical median. The right hand chart shows the historical range for new buildings and 10 year old secondhand 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 historical average and median levels. At these price levels, we are reluctant to pursue further acquisitions unless they can be combined with charters that will reduce residual values at their expiration to levels below historical median. We feel very well protected against market volatility with a high concentrated revenue -- contract revenue coverage 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 containership new buildings, while keeping leverage low at around 60%. It will also allow us to now pay an increased dividend and execute on our stock repurchase program to continue rewarding our shareholders.
Even after these actions, our liquidity could 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 Tasios Aslidis.
Anastasios Aslidis: 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 and from the self-financing of the pre-delivery payments for our newbuilding 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 included 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 and 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 attached time charters allocated to the below market time charter part, the adjusted earnings for the quarter ended December 31, 2023 which have been $3.62 basic and $3.61 diluted as compared to adjusted earnings of $2.50 basic and diluted for the quarter ended December 31, 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, '23 and December 31, '22. 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. Again mainly the result 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. Interest and other financing costs for 2023 amounted to $9.8 million, again before the capitalized imputed interest income of $3.4 million and as I mentioned earlier from self-financing the pre-delivery payments of our newbuilding 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 $0.5 million.
Again, this increase is due to the increased amount of debt that we said 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 basic and diluted weighted average number of shares outstanding compared to basic and 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 would 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 period 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 drydocking 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 also into account drydocking 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 drydocking 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 breakeven rate for the year, including drydocking 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 repayments decreased to around $31.2 million and $18.1 million respectively with balloons view 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%. 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 the soft rate of around 3.4%. I'd like to draw your attention now at the bottom of this 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, a bar that you see somewhere in the middle of the slide. In total, including interest and loan repayments, our projected cash flow breakeven level of 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 cash and other current assets, which amount to about $71.7 million. Advances that we paid for our newbuilding 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 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% of the book value of our assets.
The fair value of below market charters acquired is approximately $7.6 million, representing about 1.2% of our assets and other liabilities stands at about $11 million accounting for another 2.6% of our total book value of our assets. Regarding shareholders' equity, I would like to highlight two points. First, as of December 31, 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 newbuilding 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 our shareholders and investors. And with those remarks, I would like to pass the floor back to Aristides to continue the call.
Aristides Pittas: Thank you, Tasos. Let me now open up the floor for any questions we may have.
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