Aristides Pittas - Chairman of the Board, President, Chief Executive Officer Tasos Aslidis - Chief Financial Officer, Treasurer, Director

Thank you for standing by, ladies and gentlemen and welcome to the Euroseas' conference call on the fourth quarter 2016 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 the conference is being recorded today. Please be reminded that the company announced their results with the 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 number 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. I would now like to hand the floor to Mr. Pittas. Please go ahead, sir.

Good morning and thank you all for joining us today for our scheduled conference call. Together with me is Tasos Aslidis, our CFO. The purpose of today's call is to discuss our financial results for the fourth quarter and 12 months ended December 31, 2016. Let's turn to slide 3 of our presentation for our financial results overview, starting with the fourth quarter of 2016 located on the left hand side of the table. We reported total net revenues of $7.3 million. Net loss for the period was $17.6 million, while net loss attributable to common shareholders was $18.1 million. The results of the fourth quarter 2017 include the $5.9 million loss from the write-down of M/V Eleni which was held for sale. $3.8 million loss on excepted termination of our Kamsarmax newbuilding contract and $5.5 million impairment loss in our Euromar investments. Adjusted net loss attributable to common shareholders for the period was $3.7 million or $0.45 loss per share basic and diluted. Adjusted EBITDA for the fourth quarter was a loss of $0.4 million. Moving on to the right hand side of the table you can see our 12 months results. We reported total net revenues of $28.4 million. Net loss for the period was $44.2 million, while net loss attributable to common shareholders was $45.9 million. The difference being the $1.7 million of dividends from the Series B preferred shares. The results for the 12 months of 2016 include the $5.9 million loss on the write-down of the M/V Eleni, a $7.1 million loss from the termination of our Ultramax New Building contracts and on expected termination of our Kamsarmax newbuilding contract. And then $18.7 million impairment loss and loss in our Euromar investments. Adjusted net loss per share attributable to common shareholders for the period was $14.2 million or $1.74 per share basic and diluted. Adjusted EBITDA for the 12 months of 2016 was a loss of $1.1 million. During the last quarter of 2016 in the month of January of 2017, we were able to transform the company by resolving our liquidity needs to a combination of equity raisings from our at-the-market equity program, the contribution of a vessel that was scrapped and the private placement of our common stock to our sponsor. And also debt rescheduling and new financings. In addition we added a further drybulk newbuilding to our fleet and replaced certain older vessels with slightly younger ones. We believe all of these steps help position Euroseas to benefit from a potential market recovery. Our fleet now includes two drybulk newbuilding vessels and at the same time we have no remaining capital commitments since we can opt out of our Kamsarmax newbuilding contract by the end of March 2017. We also face a very low loan repayment burden in 2017. Please turn to slide 4 to discuss our operational highlights for the quarter. The quarter was an active one and it mid-December we purchased m/v RT Dagr from Tennenbaum for 900,000 shares of the company and took delivery of the vessel on December 23, 2016. The vessel performed the short term charter and then was sold for scrap for net proceeds of about $2.3 million on January 31, 2017. In November we also purchased m/v Tasos for $4.45million to replace m/v Eleni P which had been committed to be scrapped. We took delivery of m/v Tasos on January 9, 2017 and then scraped the Eleni on January 26, 2017. Thus effectively swapping a 1997-built vessel with the three years younger ship vessel at a very small premium to the price of the Eleni. During this quarter one vessel the Kuo Hsiung performed its scheduled drydocking. Also the Joanna was ideal in the Mediterranean sea since September 13 and was put on cold laid-up on November 03 and that’s the time the market was not expected to improve before end March 2017. The Kuo Hsuing was idle for six days during the quarter after completing the drydock and prior to re-entering the schedule. Other than that all our vessels were fully employed. On slide 5, you can see the various fixtures we did for our vessels during Q4, 2016 and up-to-date. As you can see all our bulkers that came open were fixed between about $6,000 to $7,500 per day except our newbuilding Alexandros P which is on subs we put an index linked charter of minimum six months at 114% above the BSI index. Similarly, our containerships that came open were all fixed for about six months charters at rates between $6,000 and $7,000 per day. Turning to slide six, for our newbuilding program developments. As already announced we reached an agreement with Dayang ship and took the delivery of m/v Alexandros P on January 16, 2017. The already paid installments for our two Ultramaxes plus about $0.6 million were used to pay for the vessel. In exchange we canceled our claim on the refund guarantees and stopped the arbitration process. Also we extended by three months up till March 31, 2017 our option to build Kamsarmax 2. We can cancel the contract without any further payment by March 31, 2017 if we so choose. On slide seven, you will find our fleet as of today in total we have 13 vessels, six dry bulks and seven containerships. In slide eight, you can see the Euromar fleet our joint venture with Eton Park Capital and Rhone Capital. Euromar has a fleet of seven intermediate and two handysize container vessels between 1,700 and 3,100 teu and one post Panamax vessel of 5,600 teu. We remind you that Euroseas owns 14% of this venture. In Q4, 2016 Euroseas took an impairment of its common interfere with equity in Euromar of $4.7 million. This is an additional impairment to the impairment already taken in the previous quarters. Euroseas has a further $4 million commitment to be invested as preferred equity at Euromar's option. Euromar's cash position at the end of Q4 2016 was $11 million. Let's move to slide 10 for a brief overview of the market. After hitting a low of 290 points in February 2016, the BDI increased to 875 points by September 30, and ended at 1050 points at the end of December. Currently and as expected in the traditionally slow Q1 it has currently at the gain to 688 points. The BALTIC Cape spot rates averaged in Q1 of 2016 just $1,400 per day. They gradually increased within the year to end up in Q4 at $11,665 per day. Now they are back down $3,590 per day. The Panamax spot rates showed less volatility of course but again we have the same pattern. They were at $3,068 per day in Q1 and ended at $8,643 per day in Q4 having now corrected by about $1,000 to $7,478 per day. Similarly to the Panamax, the Supramax started the year of 2016 at $3,800 per day went up to $8,317 per day in Q4, and they are now back to $7,200 a day. One year time charter rates also increased significantly for whole sizes during 2016. Capes went up from $5,250 per day in January to $9,513 in December. Panamaxes increased from $5,370 in January 2016 to $8,517 in December 2016 and Supramaxes from $4,850 per day in January 2016 to $7,400 per day in December 2016. As of mid February this year one year time charter rates stood at about $10,250 per day for Capes, $8,575 per day for Panamaxes and $7,500 per day for Supramaxes. Secondhand prices for vessels of about 10 to 15 years old have increased in Q4 by about 50% from the start of 2016. During the last few weeks of 2017, we have seen a slight correction of about 5%. No newbuilding orders were placed in Q4 2016, but there were some resales by owners who did not have capacity to pay for them or yards which have taken them over. These resales were at levels of $18 million to $19 million for Ultramaxes, $20 million to $21 million for Kamsarmaxes and $33 million to $34 for Capes. These levels are roughly 30% to 40% lower than the price they were originally ordered for. During the first 45 days of 2017 we have seen a little bit of increased activity in the new building sector and the couple of orders placed at about 10% higher prices. Let's turn to slide 11 to discuss containerships market. Time charter rates in Q4 for vessels below 5,500 teu softened even more and remained in the region of $4,500 to $6,500 with the 1,700 teu vessels still earning the most. However increased chartering activity has been witnessed in December 2016. Also January 2017 and February 2017 have been relatively quite so far due to Chinese New Year but we anticipate March to be more active due to the new alliances coming into effect as of April 1, 2017. Secondhand prices over 15 years old remained at levels around scrap price. Certain distress sales of even younger ships occur at scrap levels. For example, a seven year old Panamax vessel built 2010 was recently scraped. Newbuilding prices were stable, although very few of those replaced. IRISL placed an order for four times 14,500 teu vessels. And the few vessels in the 1,000 to 2,000 teu rates were also ordered from CMA CGM, Wan Hai and Tropical Shipping. The idle fleet rose from about 1.2 million teu at the end of Q3 to about 1.45 million teu by yearend and has decreased to about 1.3 million teu at the end of January 2017. Scrapping accelerated in Q4 leading to an all time record of about $700,000 teu being scrapped in 2016. On slide 12, you can review the Drybulk Age Profile and Orderbook Delivery Schedule. The delivery schedule for Drybulk vessels in 2016 was 11.9% of the fleet for the full year. However, slippage and cancellations are running at record pace and only about half of the initial orderbook was delivered as we had predicted. For 2017, the drybulk orderbook stands at 7.4%, a very significant drop from 2016. Some of that will also be canceled or slipped into 2018. Nevertheless, deliveries in 2017 should be comfortably the lowest of the last 10 years. The 2018 order book is even less and barring any significant new orders which are not expected due to the depressed market, the actual fleet could even slightly shrink during 2018. Please turn to slide 13. The container delivery schedule at the beginning of 2016 stood at 6.8% and was dominated by the larger vessels. Here again, cancellations and slippages resulted in about [30%] less delivery than originally predicted coupled with a huge number of scrapping the fleet grew by just 1.3%. For 2017 and 2018 the order book slightly increased during the last few quarters mainly due to the slippage of the 2017 orders. As of now the order book for 2017 and 2018 stand at 8.3% and 5.1% respectively. However, slippage and scrapping are expected to keep the actual size of fleet growth at similar levels as was 2016. The great majority of the orderbook is for large ships, but cascading still happening. If you have seen and we continue to see Panamaxes between 3,000 and 5,000 teu being displaced by the new larger ships in the longer routes. Even more so now that the New Panama Canal Gateway has been opened. At the same time though some of these larger ships have cascaded down to routes that were served by 1,000 to 3,000 teu vessels. However, we have seen stabilization of this process with cheaper oil and size restrictions appearing to be putting a break in these cascade process. This goes well for the fleet arrange as we expect to witness negative fleet growth in this segment for the next couple of years. Please turn to slide 14 to have a very brief discussion on the world economy which is a driver of our business. While the U.S. economy is showing to benefit from policy reforms, unfortunately the sentiment globally isn't equally promising. Anti-globalization pressures globally could hurt world trade. On the positive side the strengthening in U.S. economy has led to proceed with the rate hike in December and we could see more rate hikes coming in 2017. The good news for market remains that most of the trading at 5 year highs and the U.S. stock market is at all time high. Also the Chinese government should continue stimulating the economy and the rising commodity prices if they persist could also boost growth in commodity exporting countries like Russia, Middle East and Latin America. Also positive for shipping is that Indian growth is benefiting from policy reforms and increased investment. Long terms move to go less cash could help further, although near term growth could be dented a bit. On the negative front, though Mr. Trump’s protectionist to rhetoric doesn't seem promising for global trade. This protectionism which has gained support in most advanced economies is also reflected in Britain and other European countries. Even [Europe’s] banking sector remains a significant concern. The biggest unknown however are the regional conflicts and terrorism which continue to hinder confidence worldwide. The OPEC start and the developments in U.S.-Russia relationship can both work both ways. Slide 15 shows expectations of world GDP growth according to the IMF and also shipping demand growth. Projected world GDP in 2017 is expected to be 3.4%, the same as the previous quarter. China is expected by the IMF to grow by a healthy 6.5% in 2017 up from the previous quarter of 6.2%. India is projected to grow by 7.2%, lower than the 7.6% the growth expected in the previous quarter. The U.S. is now projected to grow by slightly higher rate of 2.3% from the 2.2% of the previous quarter, and Brazil is expected to have 0.2% growth in 2017 down from $0.5% of previous quarter. Finally, Russia now is expected to do slightly better than previously expected at 1.1% growth from 1% in the previous quarter. Turning to shipping. Drybulk growth is projected by Clarkson is to be 2%. Containership trade, according to Clarkson, which shows slightly less growth from what was expected during the previous quarter at 4%, down from 4.1%. Actual growth in 2016 and projection for 2017 as provided by Clarkson are about 1% higher than the other analyst though. Let's see how the IMF projections materialized because in the recent past, actual world GDP has always lagged IMF projections at the beginning of the respective year by between 0.1% to 0.5%. Assuming that world GDP is growing as projected by the IMF, we would think that both drybulk and containerized trade could grow at roughly similar rates. Let's turn to slide 16 to summarize our outlook for the drybulk sector. Market fundamentals for 2017, after one of the worst first halves in drybulk shipping ever improved significantly in the second half of the year with high scrapping and better-than-expected demand especially for iron ore and coal. China remains the main source of drybulk trade growth although its economy seems to be adjusting to new normal or lower growth rate. Iron ore imports the largest contributor of drybulk trade growth have been fluctuating depending on prices in China's policy of decisions. Similar fluctuations are witnessed in coal imports. China's transition to a more market oriented economy is aiming to rationalize many loss making businesses. This includes the shutdown of many uneconomical iron ore and coal mines. Thus if China continues acting along these lines imports maybe boosted which should help drybulk demands. Overall, we expect 2017 and 2018 to register slight improvements in the demand supply balance and absence significant new orders 2019 should be a very promising year with very limited supply growth. Let's turn to slide 17 for the closing remarks on the container industry. We expect demand growth in 2017 to be slightly better than 2016, but remain around the lowest levels ever recorded. We expect the supply demand balance in favor of demand in 2017 and 2018. The oversupply will be in the larger vessels but there is some hope for smaller vessels where new supply is lesser than expected in scrapping and trade growth. Developing trading patterns and cascading will determine the smaller vessels market. For the time being ordering has almost halted but any continuing strategic ordering of mega vessels from the various alliances, if they happen, will create further worries for 2018 onwards prospects. The opening of the new Panama Canal in late July has opened new trading patterns and introduction of ultra large containers in the USA trades. Mass withdraws of Panamax to smaller post-Panamax vessels from those trade has resulted in a huge oversupply of such ships which will take some time to rebalance. The recovery in rates despite the better fundamentals is not expected prior to the absorption of the idle fleet. Let's now turn to slide 19 to view our drybulk employment schedule. Our drybulk coverage for 2017 currently stands at about 51%. We are continuing the practice of employing our vessels in short-term contracts or indexing charters in the expectation of the market improvement. Slide 20 shows our containership employment schedule. We currently have about 44% coverage in 2017. And does with our drybulk vessels, the strategy for our containerships has been to employ them on short-term employment in the anticipation of the market improvement except where we can earn more than $10,000 a day. Please turn to slide 21. Eurobulk, our managers are continuing to keep our costs low. Our daily cost per vessel for Q4 2016 was in line with our budget and similar to previous years. The graph in the page compares daily costs excluding drydocking since 2008 with our peers. Overall our cost remains amongst the lowest of the public shipping companies. For the fourth quarter of 2016, our operational utilization was 99.8% and our commercial fleet utilization was 95.5%. Let's turn now to slide 21. The left side of this slide shows the evolution of time charter rates of Panamax drybulk ships and containers of 1,700 teus since 2001. Container rates are at lows last seen in 2010. The drybulk vessels have bounced back from their all time lows last year, but are still historically very low. The right hand side of the slide shows the current vessel values in relation to historical prices. Drybulk prices have just moved above all-time low values which were established at the beginning of 2016 whereas containership prices are currently setting new all-time lows. We have already seen a significant 50% increase in secondhand drybulk vessel values but still these are way below historical average. From the container sector we are no light at the end of the tunnel as currently seen. There has been no move yet. In any event current valuations do not reflect the long-term revenue capacity of the vessels in either sector. Assuming that the analyst of IMF are right in predicting slightly stronger global GDP growth in 2017, we should be on track for market improvements in both markets once the current large order books get depleted within the next couple of years, provided of course the industry doesn't shoot itself again in the foot by starting to reorder new ships. So we could expect a better market in for drybulk in 2017 and for containers in 2018. With our balance sheet strengthen and our order book sorted out we will now focus on trying to take advantage of the still low point in the markets to cautiously grow the company. And with that, I want to pass the floor over to Tasos Aslidis to take you through our current financials in more detail.

Thank you very much Aristides. Good morning from me as well, ladies and gentlemen. As usual, I will provide you with a brief overview of our financial statements and results for the fourth quarter and full year 2016. For that, let's turn to slide 24 and first take a look at our results for the three month period and full year ended December 31, 2016. . I will repeat here some of the same figures that Aristides gave you in the beginning of the presentation. The results for the fourth quarter of 2016 reflect the continued depressed state of the drybulk and containership shipping markets. For the fourth quarter 2016, we reported total net revenues of $7.3 million representing a 17% decrease over total net revenues of $8.8 million during the fourth quarter of 2015. We reported net loss for the period of $17.6 million and a net loss attributable to common shareholders of $18.1 million as compared to a net loss of $3.9 million and $4.4 million, respectively for the fourth quarter of last year. As Aristides mentioned earlier, the difference between net loss and net loss attributable to common shareholders is $0.4 million and accounts for the dividends we paid to our Series B preferred shares in the fourth quarter of last year. This preferred dividend can be paid out at our option either in cash or in kind and we have elected to pay in kind for the last 12 quarters. The results for the fourth quarter of 2016 among others include a $5.9 million loss on write-down for vessel held for sale for our vessel M/V Eleni a $3.8 million loss on expected termination of our newbuilding contract and $4.7 million impairment loss in our Euromar investments. Basic and diluted loss per share attributable to common shareholders for the fourth quarter of 2016 was $2.17 compared to basic and diluted loss per share of $0.54 for the fourth quarter of 2015. Excluding the effect on the loss attributable to common shareholders for the quarter of the net gain and derivatives, the loss on write down of vessel held for sale, the loss on termination of a newbuilding contract, and the impairment loss in other investment and investment in joint venture are Euromar investments, the adjusted net loss per share attributable to common shareholders for the quarter ended December 31, 2016 would have been $0.45 per share basic and diluted compared to $0.41 per share basic and diluted loss for the same quarter of 2015. Adjusted EBITDA for the fourth quarter of 2016 was negative $0.4 million compared to negative $0.2 million for the same period of last year. Let's now discuss the results of 12 months of 2016. For the year we reported total net revenues of $28.4 million representing a 24.6% decrease over total net revenues of $37.7 million during the 12 months of 2015. We reported a net loss for the period of $44.2 million and a net loss attributable to common shareholders of $45.9 million as compared to net loss of $14 million and$15.7 million respectively for the 12 months of 2015. Again the difference between net loss and net loss attributable to common shareholders is the $1.7 million of dividends that we paid to our Series B preferred shares. The results of the 12 months of 2016 include amongst others a $5.9 million loss on a write-down of vessel held for sale, a $7.1 million loss on termination of newbuilding contracts, and then $18.7 million impairment loss in our Euromar investments. Basic and diluted loss per share attributable to common shareholders for the 12 months of 2016 was $5.63 basic and diluted compared to $2.45 for the 12 months of 2016. Excluding the effect on the loss attributable to common shareholders of the net loss on derivatives, the net gain on sale of vessels and loss on write-down of vessels held for sale, the loss on termination of newbuilding contracts, and impairment loss in our Euromar investments the adjusted net loss per share attributable to common shareholders for 2016 would have been $1.74 compared to a loss of $2.22 per share basic and diluted for 2016. Adjusted EBITDA for 2016 was negative $1.1 million decreasing from a negative of $0.2 million recorded during 2016. Let's now move to slide 25. In this slide, we provide you with our fleet performance for the 12 months period ended December 31, 2016 and for the fourth quarter of both 2015 and 2016. Let's start with our fleet utilization rates. We have broken down our presentation over fleet utilization rates always in commercial and operational. For the fourth quarter of this year, we reported a 95.5% commercial utilization rate and 99.8% operational utilization rate as compared to a 83.9% commercial and 98.7% operational utilization rate for the same period of last year. I want to remind you that our utilization rate calculation does not include vessels in scheduled drybulk or scheduled repairs during the reporting periods. In the fourth quarter of last year, we operated 12.1 vessels and we set a time charter equivalent rate of $7,666 per vessel per day, representing a 0.7% decline compared to a time charter equivalent rate of $7,717 per vessel per day that we recorded during the same period of 2015, a period during which we operated 14 vessels. Total operating expenses including management fees, G&A but excluding drydocking costs were $5,525 per vessel per day for the fourth quarter of 2016 compared to $5,741 per vessel per day for the same period of last year representing a decline of close to 3.8%. As Aristides mentioned overall we believe we continue to 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 look now at the bottom of this table to our daily cash flow breakeven levels presented here on a per vessel per day basis. For the fourth quarter of 2016, we reported an operating cash flow breakeven level including loan repayments, but before any balloon repayments of $8,779 per vessel per day as compared to $8,085 per vessel per day that we had during the fourth quarter of 2016. Let's turn our attention now to the 12 months of this year on the right side of the slide. For the 12 -months period ended December 31, 2016, we reported a 95.7% commercial utilization rate and a 99.8% operational utilization rate, compared to 93.9% commercial and 99.4% operational utilization rate for the same periods the full year of 2016. During 2016, we operated an average of 11.5 vessels, and set time charter equivalent rate of $7,331 per vessel per day, representing about a 3.2% decrease compared to the time charter equivalent rate of $7,570 per vessel per day which we achieved during the 12 months of 2015 a period during which we operated 14.74 vessels on average. Total operating expense, again for the 12-months period, including management fees, G&A but without drydocking, were $5,883 per vessels per day compared to $6,071 per vessel per day for 2015 representing a decline of close to 3%. Let's look again at the bottom of the table to our daily cash flow breakeven levels presented here again on a per vessel per day basis. For 2016 we reported an operating cash flow breakeven level, again including loan repayments, but before balloon payments, of $8,425 per vessel per day compared to $9,336 per vessel per day for 2015. Let's now move to slide 26. This slide shows on the right hand side our cash flow breakeven levels over the next 12 months and from the left side this slide shows our scheduled debt repayments including scheduled balloon repayments over the next five years. As you can see we have managed to improve the liquidity of the company by restructuring or refinancing some of our loans during 2016. For 2017 we have a $1.1 million balloon payment due in the fourth quarter and our next major balloon payment is not before 2018 when we have balloon payments for about $10 million. Our loan repayments over the next 12 months, amount about $900 per vessel per day contribution to our cash flow breakeven level as you can see that on the table on the right part of the slide. If we make assumptions about the rest of our operating items, like the operating expenses, G&A expenses, interest and drydocking dollars per vessel per day basis we have overall cash flow breakeven level expected for the next 12 months of $7,850 per vessel per day again without any balloon payments included, which if included would add another $250 per vessel per day to our cash flow breakeven level for the period. Let me also add the debt figure shown in this slide include a $10.9 million loan we drew in January 2017 against our newly acquired Ultramax vessel, Alexandros P and also include in 2018 the repayment of a shareholder loan of $2 million that we took in November 2016. The later actually will be repaid earlier than contractually scheduled will be repaid during the month of February 2017 this month. The above auctions are long with about $2.3 million net proceeds from the sale of our vessel RT Dagr a vessel that we acquired by issuing USA stock and the funds we raised via our at the market offering in the private placement in December 2016 and January 2017 provide us with sufficient liquidity not only to cover our commitments but as Aristides mentioned to practically look for investment opportunities in the market to explore it. And with that, let me turn the floor back to Aristides.

Thank you Tasos. Let me open up the floor for any questions that you may have.

Okay. Well, this concludes our conference call for today and we will be with you again in three months time for the results of the first quarter of 2017. Thank you very much.

Have a nice day to everybody.

Thank you very much. This concludes the conference for today. Thank you all for participating. You may now all disconnect.