EuroDry Ltd. (EDRY) on Q1 2021 Results - Earnings Call Transcript
Operator: Thank you for standing by, ladies and gentlemen, and welcome to the EuroDry Conference Call on the First Quarter 2021 Financial Results. We have with us today, Mr. Pittas, Chairman and Chief Executive Officer; and Mr. Aslidis, Chief Financial Officer of the company. At this time all participants are in a listen-only mode. I must advice 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 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 statements. And the same statement was also included in the press release. Please take a moment to go through the whole statement and read it.
Aristides Pittas: Good morning, ladies and gentlemen, and thank you all for joining us today for our scheduled conference call. Together with me is Anastasios Aslidis, our Chief Financial Officer. The purpose of today’s call is to discuss our financial results for the three months period ended March 31, 2021. Please turn to Slide 3. Our income statement highlights are shown here. For the first quarter of 2021, we reported total net revenues of $8.6 million and a net income of $0.9 million. Adjusted net income attributable to the common shareholders was $1.3 million or $0.55 per share. Adjusted EBITDA for the period stood at $4 million. In stark contrast to a year ago, it has been a very positive 2021 so far with drybulk rates rebounding significantly as a result of solid trade growth and limited supply growth. The drybulk market continues to impressed with its strong trajectory since the onset of this year. As during the past week, the Baltic Drybulk Index reached its highest level since October 2010. Well, CFO, Anastasios Aslidis will go over our financial highlights in more detail later on in his presentation. Please turn to Slide 4 for our operational highlights. Motor vessel Pantelis was fixed for a trip of about 80 days to 100 days at $10,450 per day that scheduled to be concluded by the end of the month, and is currently being negotiated for the three months to five months charter at a level around $23,000 a day. The Tasos was fixed in January for about 60 days at $8,750 per day. And thereafter, it was fixed for about 50 days to 65 days at $19,750 per day. Lastly, the Ekaterini was extended at 106% of the Kamsarmax index for a minimum period until March 2022. Our hedges through at a phase which were put in place in the last quarter of 2020, and January 2021 naturally have been loss making in such a strong market. In Q1, we settled 120 days, the equivalent of 1.3 Panamax vessels, which were originally sold at the rate of $10,995 per day with a loss of $724,000. We have also sold the 90 days of quarter, Q2, Q3 and Q4 of 2021 the equivalent of one Panamax vessel at $12,550 per day. During Q1 there were no dry dockings or major repairs. A few days ago we agreed to acquire a motor vessel Blessed Luck with 76,000 deadweight drybulk vessel built in 2004 in Japan for $12.12 million. The vessel is majority owned by a third party and has been managed by Eurobulk, also the manager of the company’s vessels. The vessel is expected to be delivered to the company upon completion of its current volume within May 2021. The acquisition will be financed partly by a short-term sellers’ credit of $5 million and the one year bridge loan of $6 million provided by an entity affiliated with the my family and the remaining funds will come from the company.
Anastasios Aslidis: Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. I will now take you through our financial highlights for the first quarter of 2021, and compare to the same period of last year. For that, let’s turn to Slide 15. For the first quarter of 2020, the company reported total net revenues of $8.6 million, representing a 69.3% increase over total net revenues of $5.1 million during the first quarter of 2020, which was the result of the higher time charter rates our vessels earned during the first quarter of this year. The Company reported net income for the period of $0.9 million and net income attributable to common shareholders of $0.4 million, as compared to a net loss and a net loss attributable to common shareholders of $2.3 million and $2.6 million, respectively, for the same period of last year. Interest and other financing costs for the first quarter of 2021amounted to $0.6 million, slightly decreased as compared to $0.7 million for the same period of 2020. Depreciation expenses for the first quarter of this year were $1.7 million compared to $1.6 million for the same period of last year. Adjusted EBITDA for the first quarter of 2021 was $4 million, compared to $0.6 million achieved during the first quarter of 2020. Basic and diluted earnings per share attributable to common shareholders for the first quarter of 2020 was $0.19 calculated on 2.3 million shares basic and 2.32 million shares diluted compared to basic diluted loss per share of 1.17 million for the first quarter of 2020. Again calculate it on 2.27 million basic and diluted weighted average numbers of shares outstanding. Excluding the effect of the earnings attributable to common shareholders for the quarter of the unrealized loss on derivatives, the adjusted earnings again attributable to common shareholders for the first quarter of 2021, which has been $0.55 per share based diluted compared to an adjusted loss of $0.91 per share based and diluted for the first quarter of last year, in which the adjustment included also the loss on the write-down of inventory. Usually, secured do not include the above items in their published estimates of earnings per share.
Aristides Pittas: Thank you, Anastasios. So let me open up the floor now for any questions we may have. Thank you.
Q - Tate Sullivan: Hello, good day. Tate Sullivan from Maxim Group. Just starting on Slide 17 with the EBITDA calculator. Have you calculated or shown this table before and your company’s history? And it’s not just why did you think this was a good time to introduce it?
Aristides Pittas: The first time we provide, I think it’s – what prompted us to provide that capability to our investors achieve significant change in the market and the expected improvement of our outlook. We wanted to highlight and give the investors opportunity to understand and even play themselves with these assumptions to assess the potential for our company shares profitability increase.
Tate Sullivan: Yes, it’s great. And I would just – I mean, just with that couple of questions on the table too. Does it include the new contract you mentioned the Pantelis contract and can you review the details of that contract as well please.
Aristides Pittas: It does not include the contract which you mentioned that Pantelis is negotiated.
Anastasios Aslidis: This is still on subjects. So it will probably conclude within today or tomorrow, but it’s not 100% fixed. We think it will be fixed, but it’s not 100% fixed.
Aristides Pittas: Tate, as you can see that includes the one year point that we booked on the vessel that we are acquiring.
Tate Sullivan: Right, okay. And then just on the Slide 17, the EBITDA calculator as well. It implies that EBITDA estimates are based on FSA in rates? You mentioned as of 10 days ago, or what was the timing?
Aristides Pittas:
Tate Sullivan: Okay. Okay, great. And before turning over on the acquisition for about $12 million, can you give more background, if you can just started, what made you comfortable closing it at that level, and are there other comparative acquisitions that you can highlight any background that you can provide?
Aristides Pittas: Sure. We saw the market is rising, and saw that we could fix this ship out at a very decent rate for at least a year, which we did, and which makes us comfortable that within the first year, we will be able to essentially record approximately $4 million of that total investment. So even though we paid the price, which is higher than the historical average prices, and historical median prices for such vessels, after the passing of this year, with this extra charter, we will have reduced the price to around $8 million, which is even below the median historical levels, and forecasting a high market going forward, we think it’s a very good addition to the company. The problem the company has been facing, of course, is that our liquidity has not build up yet. We can see it’s building up as time goes by, very significantly. We did this EBITDA calculator to help ourselves as well evaluate how much we will be increasing our returns, and our liquidity to see how we can grow the company that’s very conservatively in this rising market.
Tate Sullivan: Okay, great. Well, thank you for that background. I’ll turn it over. Thank you.
Aristides Pittas: Thank you.
Operator: We will now take our next question. Please go ahead. Your line is now open. Excuse me your is on unmute, your line is now open.
Poe Fratt: I apologize. Good morning, Aristides. Good morning Tasos. This is Poe Fratt from Noble Capital Markets. Tasos, I just wanted to double check on just your EBITDA calculator. And just ask you, in the first quarter, it has the FFA is adjusted in Section A. Why didn’t you do that for the sake of consistency over the rest of the year with your contracted days just because the FFAs are already locked in.
Anastasios Aslidis: You mean why it’s included in the 4.0, EBITDA is supposed to be on line three below right? That is what you are asking.
Poe Fratt: Yes, that’s what I’m asking for. It’s for just – it’s just for the sake of comparison, it would have been easier just to sort of look at it, maybe it would depress the average TCE rate too much but.
Anastasios Aslidis: Yes, the TCE rate actually, it’s less of the FFA that is shown there, the $14,924. I debated in my mind where to put the FFA contributions, and I decided I wanted to separate the six from the future. So that’s why I chose to put it in the line of water support included in the lower part of the table, where supposedly it’s only with the open day’s information?
Poe Fratt: No, I think it’s very helpful. I mean, there’s always a little bit of art to it, as opposed to science. But I think it’s a helpful way to look at look at your operating leverage since we looked through the rest of the 2021. I’ll just highlight the Pantelis, it’s consistent. The potential rate on the Pantelis is consistent with what the FFAs, which were on May 17 in general terms.
Anastasios Aslidis: Yes, I think, Aristides mentioned, $230,500, $250,000 a day which is actually higher than what would have been the implied rate for Pantelis, post Pantelis contract. That’s something that is contributing to the EBITDA.
Poe Fratt: Okay, thank you. And then when you are looking at the loan that you potentially assigning – lining up for Blessed Luck. What should we be thinking about as far as just leverage percentage? You probably do the math a little bit, you have $11 million of either sellers’ credit or bridge loan. So how much of that will be covered? It didn’t – I couldn’t really tell exactly how much you…
Anastasios Aslidis: It will be another $8 million Poe. It will be around $8 million.
Aristides Pittas: We are in the process of signing a term sheet with a bank for a loan of about $8 million. So that would allow us to repay the sellers’ credit and half of the other loan. And we will we still should have $3 million less for source and liquidity purposes.
Poe Fratt: Thanks. And I apologize, you might have mentioned it, but could you give us sort of an outlook for the TASOS beyond the end of June? Are you in discussions about potentially a follow-on charter for that, or can you just give us an idea of what the outlook TASOS looks like?
Aristides Pittas: Yes, we haven’t started discussing a new charter for the TASOS. Presently, it’s still quite a long time till then. Probably the health of the vessels, we will continue trading in three times charters or smalltime times charters. But we haven’t had any discussions yet. We will take whatever the market is. We want to have – as you see, we have about 75% exposure to the market, I would say. 70% exposure to the market, including the Blessed Luck. We like that. We are optimistic about the prospects of the charter market going forward. So, we like to be playing the market at this stage with a significant percentage of our fleet. That’s why all the other vessels are in index link charters.
Poe Fratt: Thanks. And then may be just a follow-on to that Aristides on the Blessed Luck discussion. You mentioned your net value is blown up, where you think it’s worth the risk. But you do highlight that there’s uncertainty as far as the Ocean Systems going forward. You are buying an older asset, you are increasing your age profile, it seems to be countered to what a lot of other companies are doing there. Can you just maybe even expand a little bit more than the comments you already made on how you look to set that transaction?
Aristides Pittas: Sure. Obviously, a play in the Blessed Luck is not a play in the long-term of the company. It’s a short term, I would say, rather opportunistic play, whereby this year, we’re going to make $4 million on this shape. We think that next year will also be strong. And therefore, even in two years, we will have brought the vessel to a very low valuation below the scrap value of the ship. So, we think that we will have a relatively old vessel, but all these vessels built between 2013, they are not very different in the consumptions that they have. So it’s really after 2013 that they started building more eco vessels, i.e. versus consuming less fuel. And again, the differences are not used. We do expect a very significant breakthrough sometime towards the end of these 10 years. But till that time, I think this vessel probably can live easily until its 25 years of both age. This is the average of scrapping age of ships and so this is a very well maintained ship. So technically we think that this can leave live for more than the two years that is required to break, hopefully, it’s required to bring it down to scrap and potentially concentrated further for the few more years.
Poe Fratt: That’s helpful. Yes, we are going to ask you what you thought the remaining level was sounds like that nine to 10 years maybe outside.
Aristides Pittas: As I said 25 years is the average scrapping rate age for the dry bulk vessels scavenge, maybe it’s gone down by one year of most. It has to pass its next vessel survey in what is it four years from today? We think it will be able to do that. But it will depend, of course, on the economic considerations at the time. If the market is good, the ship will lives .
Poe Fratt: And then – that you may have talked about it. But if you would just get distracted during the middle of the call. But would you highlight just any dry docking activity that you have over the rest of the year. And then also just talk about, any cost pressures you’re seeing, whether the first quarter run rate, as far as that’s roughly 5,700, we could use for the rest of the year. Any color on that would be helpful.
Anastasios Aslidis: We don’t have any dry dock scheduled for this year. But hopefully we set up our 2021 results in terms of cost per vessels. Again, I don’t see so far anything I think that is worth mentioning, obviously record the situations has made certain operations in ports a bit more difficult due to congestion. I think, for example, we have a couple of vessels that are waiting to get into port. Sometimes, there are some issues with COVID-related, but not really that makes us to flood them as extraordinary structures. With what we know, to this point.
Poe Fratt: Great. And just to clarify, I think, it says the preferred dividend that you pick in the first quarter it looked like you did.
Anastasios Aslidis: Actually, no, we didn’t pick, this is because we did in the crucial space the following quarter. I think we’re going to pay this Q1 dividend in cash, but it will be an extra expense in Q2. We did pay Q4 dividend in time. That’s why we don’t have any dividends this quarter, on the cash flow breakeven basis.
Poe Fratt: Okay, great. Thank you so much.
Anastasios Aslidis: Thank you.
Aristides Pittas: Thank you.
Operator: Thank you. We will now take our next question. Please go ahead. Your line is now open.
Tate Sullivan: Thank you. A follow-up from me Tate Sullivan at Maxim. Your comments with the EBITDA calculation, and let’s say I mean $31 million of EBIT on 2021. And then your comments of potential buybacks, dividend or debt reduction. And then I’m just looking at your slide, you have $8 million of loan payments due this year. What is your plan with that $8 million? Would you still extend that – extend that maturity, or can you just give context to what you might do there?
Anastasios Aslidis: So, I think this $8 million, this balloon will be extended, because it’s relatively cheap money. If we decide to repay something, it will be the preferred and of course, the short term loan that we’ve currently given to the company. So, the 8% money has priority to be repaid, the normal bank debt will be less than 4%. So, we need to decide and we have to decide by next quarter what we will be doing without increasing liquidity, because, okay, this quarter we didn’t have too much, but by the end of next quarter, we will. And we always look at the situation at that point in time and decide what is the better use of our liquidity and what would benefit our shareholders most then.
Tate Sullivan: Okay, Thank you. That’s it from me. Thank you very much.
Anastasios Aslidis: Thank you.
Operator: Thank you. There are no further questions at this time. I would now like to hand back to Mr. Pittas for closing remarks.
Aristides Pittas: Thank you all for attending our conference call today under these nice market circumstances. We’ll talk to you again in three months’ time.
Anastasios Aslidis: Thanks very much.
Operator: That does conclude our conference for today. Thank you for participating. You may all now disconnect.
