Euroseas Ltd. (NASDAQ:ESEA) Q1 2019 Earnings Conference Call May 29, 2019 11:00 AM ET
Aristides Pittas - Chairman and Chief Executive Officer
Tasos Aslidis - Chief Financial Officer
Conference Call Participants
Tate Sullivan - Maxim Group
Poe Fratt - Nobel Capital Markets
Thank you for standing by ladies and gentlemen, and welcome to the Euroseas Conference Call on the First Quarter 2019 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 a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today. Please be reminded that the company announced their 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 results in such expectations not being realized.
I kindly draw your attention to slide number two 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.
I would now like to pass the floor to Mr. Pittas. Please go ahead, sir.
Good morning, ladies and gentlemen, and thank you 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 3 months period ended March 31, 2019.
As a reminder, I would like to mention that on May 30, 2018, the company spun-off its drybulk fleet, excluding Monica P, a handymax drybulk carrier which has been agreed to be sold into EuroDry Ltd., a separate publicly listed company also listed on the NASDAQ Capital Market. Shareholders of Euroseas received one EuroDry Limited share for every five shares of Euroseas they held. As a result of the spin-off and the subsequent sale of M/V Monica P, Euroseas has become a pure containership company and the only publicly listed company concentrating on the feeder containership sector.
The results below refer to Euroseas Ltd. continuing operations excluding the contribution of vessels spun-off into EuroDry in May 2018, the discontinued operations. The historical comparative periods have been adjusted accordingly.
Now please turn to slide 3 to see our income statement highlights. For the first quarter of 2019, total net revenues were $8.3 million, net loss was zero million, net loss attributable to common shareholders after a $0.5 million dividend on Series B Preferred Shares was $0.5 million or $0.04 loss per share of basic and diluted. Adjusted net loss attributable to common shareholders for the period remind unchanged compared to net loss attributable to common shareholders. Adjusted EBITDA was $1.5 million.
Please turn to Slide 4, for our chartering and operational highlights. Let's start with our chartering activity. The EM Athens was extended for the period to minimum September 1, 2019, and maximum October 31, 2019 at $9,000 per day. The Joanna was fixed after the drydock for 11 to 13 months at $6,550 per day from the end of February.
The Ninos was extended for 140 to 175 days at $7,750 per day and the Kuo Hsiung was extended for a similar period as well at the same rate. Manolis P was extended for 11 to 12 months at $6,800 per day and EM Oinousses which has been idle after the delivery from the previous charters since April 21 is now starting its new employment on June 7, for 6 months to 12 months at $8,700 per day. The Aegean Express finally was extended for 3 to 5 months at 7,300 per day.
During the quarter we had one drydocking, it was Joanna P that completed its special survey which has started in December 2018 in [indiscernible] and completed towards the beginning of February.
Please turn to Slide 5, over the last five years our operational fleet utilization has been in excess of 97.6%. For the first quarter of 2019 operational fleet utilization was 100% compared with 99.7% the same period last year. Commercial fleet utilization rate in the first quarter of 2019 was 99.4% mainly due to the Joanna waiting for a few days prior starting a new employment. This compares to 97.8% the same period last year.
Oinousses has an outstanding safety and environmental backup, but at the same time has managed to keep costs low even though the age of the fleet is much higher than our peers. Our daily cost per vessel for the first quarter of 2019 was in line with our budget and similar to previous years. The graph on the page compares daily costs excluding drydocking since 2009 with our peers. Overall, our costs remain amongst the lowest of the public shipping companies.
Let's move to Slide 6 to view our fleet employment. Based on minimum durations, we have currently about 68% coverage for the remainder of 2019. Our strategy continues to be fixed for periods between 3 to 12 months always keeping in mind to have the value ships opening up in a staggered fashion, so as to minimize volatility which can be significant as we have seen in this market. But also in order to be able to take advantage of a market that we expect to improve further from now onwards.
Please turn to Slide 7 for our containership Q1 market highlights. Time charter rates in the first quarter for feeder and intermediate sized vessels ranging from 1000 to 5000 TEU fell about 7% to 15% on average in January with a bigger drop in the above 3000 TEU sizes. However, since February they have started rising again.
The 1700 TEU vessel, for example fell from an average of $8,250 in the fourth quarter to $7,000 in the first quarter and currently stands to $7,750 and is rising. For the 2500 TEU [indiscernible] vessels, the rate fell from about 9,800 per day in the fourth quarter to about 9,100 in the first quarter and currently stands at 9,300 approximately.
Average second-hand prices for older than 20-year old vessels remained around the scrap prices in the first quarter. However, for younger vessels of about 10 years old there was a slight drop by about 5%. New building prices for Tier 2 low scrubber and China-built vessels remained stable at around 23.5 million and 29 million for the 17 and 2500 TEU vessels respectively.
The idle fleet was 370,000 TEU as of mid-May or just 1.6% of the fleet implying that the further slight demand improvement would lead to higher rates as practically nearly all seaworthy idle vessels have been absorbed. Scrapping accelerated in the first quarter relative to the previous year and consequently the fleet grew by 1.4% year-to-date without accounting for idle vessels reactivations.
Please turn to Slide 8, the IMF projected world GDP growth in 2019 is revised downwards from 3.5% in the previous quarter to 3.3% with reductions stemming from mostly all big economies except China, which was revised marginally upwards to 6.3%. It seems the IMF believes China stimulus will work. The U.S. is down by 0.2% to 2.3% to; the Eurozone down by 0.3% to 1.3%; India down 0.2% to 7.3%; and Brazil down the most by 0.4% to 2.1%.
For 2020 global GDP growth rebounds to 3.6% as per the IMF, which is however lower than the expectation of the previous quarter by 0.1%. U.S. slightly, Japan significantly and China just marginally are expected to decline a bit relative to the IMF 2019 expectation. The 12 other major players are expected to improve slightly.
In terms of demand for containerized trade, demand measured in the TEU per mile is expected by Clarkson to grow by a level similar to world GDP growth at 3.4% in 2019 and 3.5% in 2020.
Slide 9 shows the container industry's total order book to fleet ratio. The order book is percentage of total fleet is at the lowest level of the last 20 plus years. Currently the order book to fleet ratio is about 13%. The fleet growth last year was around 6%, while for the next couple of years, we expect it to be significant low.
Please turn to slide 10, to review the containership age profile and order book deliver schedule. As you can see on the containership page profile chart on the left side of the slide, it shows a young fleet with a mere 5% of ships being over 20 years old. On the right side chart shows the delivery schedule of the cargo containership orde rbook which is expressed as a percentage of the fleet. The deliveries expect to be around 5% of the fleet in 2019, 5% in 2020 and 2.9% in 2021.
I note that for the years prior 2019, scrapping and other additions and removals were taken into account when calculating the fleet percent changes you can see on the graph. While from 2019 onwards these activities are not included in the calculation.
Please turn to Slide 11 to view the 1000 to 3000 TEU fleet dates profile and order book, delivery schedule which is the segment that we are focusing on. In our segment 17% of the 1000 to 3000 TEU fleet is over-aged compared to the 5% we saw for the whole fleet in the previous graph. The delivery schedule of the order book in 2019 is estimated to be 5.6% of the fleet growing to 6.8% in 2020 and dropping to 2.9% to 2021.
We would expect the fleet growth of the feeder fleet to be around 2% in both 2019 and 2020, when taking the scrapping trends into account.
Let's turn to slide 12. The left side of the slide shows the evolution of the one-year time charter rates for containers of 1,700 TEUs since 1990. Container rates for vessels of our size recovered strongly from their all time lows and reached the post financial crisis historical average level in the summer of 2018 prior to softening again a bit during the second half of last year and the first quarter of this year. The right-hand side of the slide shows vessel values in relation to historical prices since 2000. As you can see containership values are still below their median historical values.
Now please turn to Slide 13 for our outlook summary. 2019, year-to-date [the solid] [ph] tightening in market after January with rates for larger vessels improving strongly. However, rates remain low for feeders as idle fleet is still not fully observed. Our supplier and demand analysis which is based on Clarkson's expectations for container trade growth suggests a slightly improving market in 2019 starting in 2020, but firming up again in 2021, if only a few additional orders are placed.
The fundamentals for the sub 5000 TEU vessels are slightly better than for the larger vessels despite the recent feeder ordering mainly because demand prospects for feeder sized vessels remain stronger than that of bigger vessels especially in increasing rates where robust growth is expected to continue [indiscernible].
Environmental regulations coming into effect in 2020 create additional uncertainty as ships will be taken out of service to install scrubbers already in 2019 and a probable increase in low sulfur fuel prices can result in further slow steaming which in turn could help strengthen the market.
The other wildcard are the U.S., China, EU trade talks whose outcome can affect demand growth either positively or negatively depending on their outcome.
And with that, I would like to pass the floor over to Tasos Aslidis to take you through our financials in a little bit more detail.
Thank you very much Aristides. Good morning from me as well ladies and gentlemen.
I will take the next four slides to give you an overview of our financial results for the three-month period ended March 31, 2019. The thing I would like to mention that the figures were used for the comparison period of 2018 will refer to the continuing operation of Euroseas that is, which have stripped out from the results we published last year, the contribution of the vessels that were spun-off in May 2018 into EuroDry Limited as Aristides mentioned earlier.
Let's look at Slide 15, for the first quarter of 2019, we reported total net revenues of $8.34 million compared to $8.31 million total net revenues during the first quarter of last year. We reported net loss for the period of $0.2 million and total net loss attributable to common shareholders of $0.5 million as compared to a net loss of $1.4 million, a net loss attributable to common shareholders of $1.9 million respectively for the first quarter of 2018.
Adjusted EBITDA for the first quarter of 2019 was $1.44 million compared to $0.3 million during the first quarter of last year. Basic and diluted loss per share attributable to common shareholders for the first quarter of 2019 was $0.04 per share calculated on 12,340,000 basic and diluted weighted numbers of shares outstanding compared to basic and diluted loss per share of $0.17 for the first quarter of 2018 calculated to 11,115,000 shares basic and diluted.
Excluding the effect on the loss for the quarter of the unrealized gain on derivatives, the adjusted lost per share for the quarter ended March 31, 2019, which should remain as unchanged at $0.04 per share.
Let's now turn to Slide 16 to review the fleet performance for the first quarter of 2019 and compared to the same period of last year. As usual, we have broken the utilization rate of our fleet into commercial and operational. As you can see on the slide, for the first quarter of this year, we reported a 99.4% commercial utilization rate and a 100% operational utilization rate compared to 97.8% commercial and 99.7% operational for the same period of 2018.
I want to remind you here that our utilization rate calculation does not include vessels in scheduled drydock, scheduled repairs or laid-up during the reported period. In the first quarter of this year, we operated 11 vessels with a time charter equivalent rate of $9,088 per vessel per day compared to a time charter equivalent rate of $8,441 per vessel per day during the same period of 2018, the period during which we operated 12 vessels.
Total operating expenses including management fees and general and administrative expenses but excluding drydocking cost where $6,223 per vessel per day for the first quarter of this year compared to $6,808 per vessel per day for the same period of 2018.
As Aristides mentioned earlier, overall, we believe we maintain one of the lowest operating cost structures amongst our public peers and we think this is one of our competitive advantages in the business.
Let's now look at the bottom of the table through our daily cash flow breakeven levels presented here as a vessel per day basis. For the first quarter of 2019, we reported an operating cash flow breakeven level including loan repayments and the cash portion of our preferred dividend, but before any balloon repayments of $8,651 per vessel per day as compared to $9,233 per vessel per day for the first quarter of 2018.
Let's now move to Slide 17, this slide shows on the right-hand side, our cash flow breakeven budget for the next twelve months and from the left side, we show our statutory debt repayments for the next three years. As you can see from the chart on the left part of the slide, we do not give any balloon payments this year or next year and we have quite low debt repayment. Our next balloon payments are not before 2021, when we will pay $3.2 million for our vessel Astoria and $20.1 million for other nine vessels totaling $23.3 million, if of course would not previously refinance these balloon payments.
Expressed in dollars per vessel per day, our loan repayments over the next 12 months amount to $1,300 contribution to our debt cash flow breakeven level. Looking now at the right part of the slide, in the table there and making assumptions for the remaining components of our operating cash flow breakeven that is our operating expenses, G&A expenses interest, drydock and cash portion or the cash preferred dividend. We come up with an overall cash flow breakeven level for the next 12 months of $9,150 per vessel per day. We believe this low cash flow breakeven level would provide us sufficient flexibility to fund growth and new deals depending on -- and deal with market developments over the next year or so.
Let's now turn to Slide 18, this slide provides us some highlights from our balance. As of March 31, 2019, we had unrestricted cash of $4.2 million and restricted cash balance of $6.2 million, which had other assets of about $4.1 million and we at the end of last quarter we estimated the value of our vessels to be in the range of $62 million to $64 million, thus total losses were in the range of $76 million to $79 million.
Opposite these assets, we saved an outstanding bank debt of $36.2 million which represents about 46% of our total assets. The shared equity outstanding of $19.7 million representing about 25% of our assets and various other liabilities were about $5 million or roughly 7% of our assets, thus we can based on these, we can estimate that our net asset value as of March 31 was in the range of $15 million to $17 million or in the range of $1.20 $1.35 per share.
In closing, I would like to point out that against this estimate of our net asset value, our closing price on May 28 of 7% represents a significant discount to the value of the company.
And with that, I would like to turn the floor back to our Aristides to manage the remaining of the call.
Thank you, Tasos.
Let me open up the floor for any further questions.
Thank you. Your first question comes from the line from Maxim Group. Please go ahead. Your line is open.
Hi. This is Tate Sullivan from Maxim Group. As you previously stated, you're looking to balance both investment opportunities and other and consolidating the fleet versus refinancing. Given your current outlook, I mean -- will you be focusing on refinancing or potentially buying more ships?
Yes. I think refinancing is paramount for us. And I think we will -- we are working already on some plans to affect a significant refinancing. Hopefully, we'll be able to announce something in the near future. At the same time, we are looking at possibilities of using the shares of the company as currency to buy further ships. So, we are working on both fronts very, very closely.
Okay. Thank you for that. That's all for me. Thank you.
Thank you. We will now take our next question. Please go ahead. Your line is now open.
Good morning. This Poe from Nobel Capital Markets.
And I apologize, as I'm on cell phone, you may not hear clearly. You talked about some of your upcoming contracts, keeping the capacity for the store, you have said to be inspired by the end of the third quarter. If I'm looking at my third question, can you give a little bit flavor for where rates are expected to be in the third quarter as opposed to what you signed up over the course of the first quarter?
It's difficult to say, I couldn't hear you very well, but I think the question is, if we have any visibility on where rates are going to be in the third and fourth compared to today. And other than expressing the optimism that usually seasonally this month and the next two coming months are quite strong. It's a bit difficult to say because of the uncertainties in the standing from the trade talks mainly and for where the global economy is heading to.
But if we trust the economists that suggest that we will still have a strong 3.3% GDP growth within this year worldwide and the next year is going to rebound back to 3.6% GDP growth. These are very positive developments because the orderbook as we have explained is at the lowest levels ever. So, fewer ships are coming in, if demand holds, we should expect an improvement in charter rate. I do not expect a dramatic improvement, but I do expect an improvement for feeder vessels as well. We've seen a very significant improvement in charter rates for ships between 5,000 and 8,000 TEU. And also the Panamax vessels have recovered from their extremely lows. So I am cautiously optimistic that we should see somehow better rates in Q3.
Yes. It is interesting too. But, the larger the 5,000 or 8,000 or 10,000, they've also seen a lot of time 3 years plus. So the other question I had, you sort of talked about M&A or making acquisitions. Can you talk about that the tone of the market right now and sort of how far away the bid asked or [indiscernible]?
I think the biggest problem that we have seen in these discussions is that, some participants wants to value companies based on their market capacity rather than their net asset value. And that is as you know more than 50% or about, 50% difference. So, that of course is something that creates some difficulty in attracting other players to complete usage in the list of the entity.
Okay. And then, like to get to net, but in your press release on page 3, in the fleet profile, it had in the header, it had included in the three vessels that were under agreed to be acquired. And I just wondered if you could clarify that because I don't recall that you had announced any acquisition or co-spin-off made any acquisition?
No. This is in fact some things that has been discussed, but has not been finalized. So, we -- I'm not able to comment more on this right now. But, it is under discussion and we do expect to finalize some thing soon.
Three potential acquisitions down the radar?
Okay, great. Thanks for your time.
Thank you very much. Thank you very much.
Thank you. [Operator Instructions]
Hello. If there are no more questions, then we can conclude the call.
Thank you. There are no further questions at this time.
Thank you very much. Have a good model. We will talk again next quarter. Bye.
Thank you. Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all now disconnect.