Euroseas Ltd.
Q3 2020 Earnings Call Transcript

Published: 24 Nov 2020

[Operator:]

Thank you for standing by ladies and gentlemen. And welcome to the Euroseas Conference Call on the Third Quarter 2020 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 . I must advise you that this conference is being recorded today. Forward-looking statements. Please be reminded that the company announce their results with the press release that has been publicly distributed. But before passing on the floor to Mr. Pittas, I would like to remind everyone that in today's presentation on conference call, Euroseas will be making forward-looking statements. These statements all within the meaning of the federal securities laws. Matter discussed may be forward-looking statements which are based on current management's expectations that involve risks and uncertainties that may result in such expectations not being realized. I kindly draw your attention to Slide number 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 afternoon, ladies and gentlemen, and welcome to scheduled conference call for today. 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 nine month period ended September 30, 2020. Let's turn to Slide 3 to see our income statement highlights. For the third quarter, we reported total revenue of $12.3 million. Net income was $0.2 million and net income attributable to common shareholders after the $0.2 million dividend on the Series B preferred shares was $30,000 or $0.01 gain per share basic and diluted. Adjusted the net loss attributable to common shareholders for the period was $1.5 million or $0.26 per share basic and diluted after taking into account one off sales proceeds and some below current market cycles. Adjusted EBITDA was $1.2 million. Tasos will review our financial highlights in more detail later on in the presentation. Please turn to Slide 4 to view in detail our recent chartering operation and sale and purchase developments. During the quarter, M/V EM ship Hydra was chartered for a period of three to seven months at $7,200 per day. The charterer of M/V Synergy Oakland declared the eight to 12 months option, which is based on context minus 10%. The vessel currently earns about $15,400 a lesse per day. There were no drydocking expenses for the third quarter. With regards to idle and commercial off hire, the EM Kea M/V was idle for about 30 days between charters whilst the EM Hydra was idle for a couple of days between the charters. On the S&P front, in November 2020, we completed the sale of motor vessel EM Athens for a total of approximately $4 million of net proceeds, of which $3.75 million was used to repay the outstanding loan of the vessel. In addition to EM Athens during Q3, we completed the sale of motor vessels, Ninos, our 30 year old vessel and this vessel in the fleet for a total of approximately $2.3 million of net proceeds, of which $1 million was used to repay the outstanding loan of the vessel. Please turn to Slide 5 where you can see our current fleet profile. Upon the completion of the above mentioned sales, we now have 14 vessels, which include nine feeders and five intermediate container carriers with approximately 539,000 deadweight tons and 42.3000 TEU capacity. The weighted average age of the fleet by TEU is 15.5 years. Let's turn Slide 6 for our vessel employment chart. As of October 30th, we have about 93% coverage for the remainder of 2020 and about 40% for 2021 based on maximum charter durations. Naturally, we expect that as the market rate increase, the current charterers will keep our vessels to the maximum duration possible.

[Tasos Aslidis:]

Thank you very much, Aristides. Good morning from me as well ladies and gentlemen. I will now take you through the next four slides to give you an overview for our financial results for the three and nine month periods ended September 30, 2020. Let's first turn to Slide 16. For the third quarter of 2020, the company reported total net revenues of $12.3 million, representing a 19.4% increase for the total net revenues of $10.3 million during the third quarter of last year, which was the result of the increased number of vessels operated during this last quarter and was partly offset by lower time charter rates our vessels earned as compared to the same period of last year. The company reported net income for the period of $0.2 million and net income attributable to common shareholders of $0.03 million as compared to a net loss of $0.2 million and a net loss attributable to common shareholders of $0.3 million respectively for the third quarter of 2019. The results of the third quarter of 2020 include $0.3 million amortization of below market time charter rate contracts acquired and $1.3 million net gain on sale of vessels. Depreciation expense for the third quarter of 2020 was $1.6 million as compared to $1.1 million for the same period of last year due again to the increased number of vessels owned and operated by the company. Adjusted EBITDA for the third quarter of 2020 was $1.2 million compared to $1.6 million achieved during the third quarter of 2019. Basic and diluted earnings per share attributable to common shareholders for the third quarter of 2020 was $0.1 calculated on 5.7 million shares basic and diluted average number of shares outstanding compared to basic and diluted loss per share of $0.10 for the third quarter of 2019 calculated on 3.2 million basic and diluted weighted average number of shares outstanding. Excluding the effect from the loss attributable to common shareholders for the quarter of the amortization of the below market time charter contracts acquired, the net gain on sale of vessels and realized loss on derivatives, the adjusted loss attributable to common shareholders for the quarter ended September 30, 2020 would have been $0.26 per share basic and diluted compared to an adjusted loss of $0.15 per share basic and diluted for the same period of last year. Usually, security analysts do not include their full guidance in their public estimates of earnings per share.

[Aristides Pittas:]

Thank you, Tasos. I want to open up the floor to any questions you may have.

[Operator:]

Thank you . Your first question is coming now. Please go ahead, caller. Your line is open.

[Tate Sullivan:]

Tate Sullivan from Maxim Group. Can we follow up with some comments on the Athens sale and you noted market values for ships have increased recently as well and then that sale, you avoided some drydocking expenses. Do you have a similar dynamic with other remaining ships in your fleet with contracts expiring this year that you may consider selling or how will you evaluate each…

[Aristides Pittas:]

I think the Athens was the last vessel that we sold this year. We did sale it at a value of about $1 million about the scrap value, indicating this improvement in the market that we have seen and confirming this improvement in the market that we have seen. It was a vessel that was due for special service or we would have needed to pay between $1 million and $1.5 million to pass this vessel survey and install the ballast water treatment plant. So we decided to sell that ship at the time. We don't have any intention to sell any other of our ships in the foreseeable future right now.

[Tate Sullivan:]

And that 1 million figure that you mentioned related to Athens, is that -- you recognized a gain on sale with that $4.9 million of net proceeds?

[Tasos Aslidis:]

The gain of Athens will be recognized next quarter, it was showed in November but will be a book gain on the vessel.

[Tate Sullivan:]

And then you referred to the November 19 purchase agreement and issuing a small amount of shares related to that. Are there additional shares in the next year related to that November 2019 acquisition, or any other payment obligations in that…

[Aristides Pittas:]

No, that was an agreement with the seller of the vessels that if the container market a year down was stronger than where it was last year, there would be an extra compensation of $125,000 per vessel on the ships that we acquired. So paid in stock. So so that was that. And there is no other warrants outstanding of any kind.

[Tate Sullivan:]

And so I know you mentioned avoiding, the Athens avoiding the special survey in ballast water. Can you just review uses of cash in the near term? Are there other ships that require special surveys that you cannot talk about?

[Aristides Pittas:]

There is no imminent special survey in any of our ships within this quarter or the next quarter. I think the next vessel survey could be on the in Q2 next year. But there again, the inclination right now is to keep the vessel unemployed in pass it through its special survey.

[Tasos Aslidis:]

We might have some ships, I think there are couple of synergy ships that might passing water surveys in the first quarter. Nothing is really dramatic in terms of …

[Operator:]

Thank you. Your next question is coming now. Please go ahead. Your line is open.

[Poe Fratt:]

Poe Fratt from Noble Capital Markets. Aristides, can you -- Tasos, could you just highlight again on the Athens? It sounds like you're going to book a gain of a million dollars in the fourth quarter?

[Tasos Aslidis:]

I don't have on top of my head what would be the again that we’re going to book, but it will probably be around that level …

[Poe Fratt:]

Okay, that I just wasn't clear on that. And then on the drydock expense that you avoided. Could you quantify that?

[Aristides Pittas:]

I said it was between $1.5 million. It involves the vessels survey plus the installation of the ballast water treatment plant.

[Poe Fratt:]

And then when you look at, Tasos, on your Slide 18, you talked about the preferred dividends and you have $100 a day of preferred dividends. Just to clarify, is that assuming that you're going to pay the preferred dividend starting in January of 2021 in cash?

[Tasos Aslidis:]

That’s right.

[Poe Fratt:]

And then when you look at -- the markets move significantly, you have 40% of your days booked in 2021. Do you have a rate that's associated with that forward cover?

[Tasos Aslidis:]

I mean I don’t have the calculation here but we can -- the rate is -- the average of the rate shown is in chart -- on Slide 6.

[Poe Fratt:]

Okay…

[Tasos Aslidis:]

I would say, it’s just below …

[Aristides Pittas:]

That are three vessels, Poe, that will be fixed within this year in the next couple of weeks, which we expect to fix at high levels and will affect this number. So in about couple of weeks, we should have a better clarity as three vessels we are aiming to fix for at least a year.

[Poe Fratt:]

And you anticipate my next question, Aristides, is just your ability to move your fleet up to market rates. And it sounds -- it looks like the two 2,600 TEU vessels, what is it the Astoria and the Evridiki…

[Aristides Pittas:]

That’s the name of my grandmother Evridiki…

[Poe Fratt:]

And I apologize for mispronouncing it. Could you talk about -- is there any reason why those two vessels wouldn’t move up into what you're showing as the market rate in the 14,000 range?

[Aristides Pittas:]

No there is no reason they would not move up to that level. Evridiki has a slight complications, because it will have to pass special survey. So there will be a special survey clause, which might affect a little bit the rate but still rates we feel are even higher than the 14,000 that we’ve shown in the graph at this stage.

[Poe Fratt:]

And then the smaller one, the Aegean Express, any reason why that one moved up into you know the 11,000 -- 12,000 range?

[Aristides Pittas:]

And I think it will be in that range that you mentioned, 11, 11.5 something like that.

[Poe Fratt:]

And then as you look, it sounds like you were -- would there be any discount if you went out a year, Aristides, or would…

[Aristides Pittas:]

Generally for the smaller vessels, it’s not easy to get longer than a year. But if today -- some charterers are talking about that but of course would be a discount involved. So we will see how we would decide to fix.

[Poe Fratt:]

Yes, that's sort of the trade-off of getting cover versus the current rate. And any thoughts on moving more of your fleet to be indexed rates? You know, when you look at the Oakland, that's been able to capture the near term moving rates pretty well, but you know the rest of the fleet is more static, if you will. Any thoughts on moving you know more of the fleet to indexed rates?

[Aristides Pittas:]

Charterers generally do in container shipping don't do it as much. In the dry bulk side, we have many fixes which are index linked. But on the container side, there is very few charterers that wants to proceed along that way. So that's why you don't see it as much. We like that.

[Poe Fratt:]

Yes, little more predictability…

[Aristides Pittas:]

It’s not extremely predictable but at least it guarantees full employment, because you never know how the index will move. If there’s more predictability, if you fix a year at a certain rate, you know exactly what you're going to make.

[Poe Fratt:]

Sorry, that’s what I was alluding to as opposed to indexes can move around a lot. When charterers -- when you look at the balloon payment of the two next year, it's just a little bit over 12 million. When do you think you'll be able to talk about you know the potential pushing out of that? What are you hoping for as far as sort of, are you looking at two year or three year push out or do you think you might be able to push the maturity out even further.

[Tasos Aslidis:]

I think we can -- we should be able to push it out for two years at least and most likely we’ll do a three year financing, this is during December next year. So there is some time to see how the market develops and how much the earnings and accumulation of cash flows has been. But the scrap value of the four vessels and loan should be sufficient to cover that balloon. So I expect judging from our past success in refinancing those payments we wish to have no dramatic issue to refinance it.

[Poe Fratt:]

And Aristides, you talked about the contingent payment on the acquisition that you actually shared. I think, I'm not sure -- it might have been asked but I'm not sure you addressed it. But can you talk about why you use the ATM program in August? And it wasn't -- isn't going to be active, going into the next couple of quarters, is that something we should expect? Or just what happened in August that made you use the ATM?

[Aristides Pittas:]

So we saw an increase in the price of the stock that we felt warranted the use of the ATM in order to increase our liquidity. We think that with the current market and with the fixes that we have done and we will do, we will use the ATM only opportunistically if we do see sudden rises in the stock price, which we have seen in a few occasions through probably moment to more algorithmic trading that keep these smaller stocks at some point.

[Tasos Aslidis:]

Typically, we use it when the price that we can sell shares above the NAV at the time. So we don't use it in any dilutive way.

[Poe Fratt:]

So looking to sort of that north of $5.50, $6 share range. And Tasos, can you highlight just how much availability you have under the ATM, how many shares you can use whether its a dollar figure or a number of share that you could issue under the ATM?

[Tasos Aslidis:]

Between $2 million and $2.5 million.

[Operator:]

Thank you. I will now hand the call back to Mr. Aristides Pittas for closing remarks. Please go ahead, sir.

[Aristides Pittas:]

Well, I want to thank everybody for listening in to the results of Q3, and things look good and probably Q4 results should be better than Q3 still. So we will talk again the beginning of the year to discuss the whole year and how prospects are at the time. Thank you.

[Tasos Aslidis:]

Thanks everybody.

[Operator:]

Thank you. That does conclude today's conference call. Thank you for participating. You may all disconnect.