Aristides Pittas - Chairman and Chief Executive Officer Tasos Aslidis - Chief Financial Officer

Donald Bogden - Wells Fargo

Thank you for standing by, ladies and gentlemen, and welcome to the Euroseas’ Conference Call on the First Quarter 2017 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’ll be a presentation followed by a question-and-answer session [Operator Instructions]. I must advise you 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’d 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 I’d now like to pass the floor to Mr. Pittas. Please sir, go ahead.

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 three months period ended March 31, 2017. Let’s turn to Slide 3 of our presentation for our financial results overview. Despite the improving markets, we were not able to return to profitability during Q1 as most vessels was still running off low charters. Consequently, net loss for the period was $2.2 million while adjusted net loss attributable to common shareholders was $3.1 million or $0.29 per share loss that difference is because of the $0.4 million of dividends from the Series B preferred shares and $0.5 million of loss on sale of a vessel. Net revenues were $8.3 million and adjusted EBITDA was $0.2 million. We are hopeful that in Q2, we should be close to a return profitability and our share price which currently corresponds to less than half of our own NAV valuation will again start moving towards that. Please turn to Slide 4 to discuss our operational highlights for the quarter. The start of the year included a couple of sales on purchase transactions. After performing a short term charter the vessel, RT Dagr was sold for scrape for net proceeds of about $2.3 million on January 31. In the fourth quarter of 2016, we had a deal to purchase the 2000 built dry bulk carrier MV Tasos for $4.45 million to replace the eldest dry bulk vessel in the fleet motor vessel Eleni P which had been committed to be scrape. We took the delivery of the Tasos on January 9 and then scrapped Eleni on January 26 thus effectively swapping a 1997 built vessel with a three years younger ship at a very small premium to the price of the Eleni. During the first quarter, the Joanna was on cold layup, up till early March but then the container market started improving and was taken out of lay-up and chartered till July 17 at $6,450 per day. Also during the first quarter, the Eirini P was offhire for about 17 days after a collision incident. The vessel undertook necessary repairs and is now back trading. The bulk of the cost was recoverable under our insurances. On Slide 5, you see the value fixes we did for our vessels during Q1 2017 and update. Starting with our bulkers. A new building, Alexandros P was fixed for a minimum six months at 14% above the BSI index. The Monica P was fixed on a number of short term voyages between $4.5000 [ph] and $10,000 per day and the Pantelis was fixed for about 90 days at $8,850 per day. The containerships that came open were all fixed for about six month charters at rates between 6 and $7,5000 [ph] per day. On Slide 6, you can see the developments of our new building program. On January 16, we took delivery of our ultramax motto vessel Alexandros when the Dutch paying just $0.6 million to conclude the purchase as we agreed with the yard to use the advances we had already paid for the two cancelled vessels we had previously ordered in exchange for stopping the arbitration process. At the same time, we drew a traditional loan of about $11 million on the vessel thus significantly improving our liquidity. Second, we agreed with Yangzhou Dayang shipyard in China to proceed with the building of our second Kamsarmax bulker, the sister ship to our motor vessel Aegean which was built by the same yard in 2016. The new building contract had then been signed reduce the remaining payments for the vessel by more than 10% to $22.5 million. The payment terms are three installments of 10% with the first installment already being paid in Q2. The final 70% will be paid when we take delivery of the vessel by June 2018. Turning to Slide 7, you will find our fleet as of today. In total, we have 14 vessels, 7 dry bulk vessels including the new building and seven containerships. On Slide 8, we have listed 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 and owns all the preferred units. Let’s move to Slide 10 for a brief overview of the market. At the end of 2016, the BDI was at 961 points and averaged 945 points during Q1 2017. After peaking at 1338 points on March 29, the index started edging downward and ended at 1297 points on March 31. Currently, it stands at 1005 points as of May 10. Daily cape stop rates averaged $11,838 per day in Q1, Panamax spot rates averaged $8263 per day and Supramax spot rates averaged $7,534 per day. They all closed the quarter above the Q1 average at $20,075, $11,025 and $9250 per day respectively. While currently they stand at $12,404 for capes, $8127 for Panamaxes and $8841 for Supramaxes as of May 10. So they are back around Q1 average. Of course one year time charter rates have also increased significantly during the last quarter for all sizes. Capes from $10450 per day the December 2016 average to $15,750 per day, the March 2017 averages. Panamaxes increased from $8570 per day in December to $10,350 per day average in March. And Supramaxes from $7900 per day in December to $10,050 per day in March. As of May 10, time charter rates have slightly corrected to $15,750 per day for capes, $10,125 per day for Panamaxes and $9,250 per day was Supramaxes. Second hand five year old vessel prices rose around 30% during Q1 while vessel resale prices increased around 25%. The increases in price were much larger in the region of 50% plus for 10 to 15 year old vessels. As resale new building vessel candidates have disappeared, a number of new building orders have emerged with late 2018 and mostly 2019 deliveries. New building prices for Chinese build vessels are in the region of $24 million to $25 million for Kamsarmax and Ultramax vessels. Year-to-date the dry bulk fleet has grown by about 1.7%. Let’s turning to page 11 for a brief discussion on what’s happened in the container market. Time charter rates in Q1 have more than doubled for traditional Panamax and post Panamax vessels moving from $4000 per day to above $10,000 per day. Smaller size vessels have also seen rises of about 50% for the 2.5 to 3000 TUs with smaller increases recorded for the smaller vessels. Note that the market started rising from March 2017 onwards. However, there were currently some signs of fatigue in the last months but rains are still holding. Secondhand prices for older than 15 year old vessels have moved from close to scrape price levels up about 40% to about half of this rise attributed to the rise in scrape prices themselves. Newbuilding prices have been stable, however activity was minimal during this last quarter and was concentrated mainly on some smaller vessels with mostly 2019 deliveries. The idle fleet has dropped from about 1.45 million teus in the beginning of January to about 967 teus by April 3 and down to 600,000 teus to-date. Most of the reduction came from the bigger sizes. Scrapping accelerated also in Q1 to a record level of about 210,000 teus scrapped. Consequently, year-to-date the fleet has only marginally grown by about 0.3%. On Slide 12, you can review the dry bulk age profile and order book delivery schedule. The delivery schedule for dry bulk vessels in 2017 currently stands at 7.4% of the fleet. However, slippage and cancellations continue to occur and we could see the actual number of deliveries in 2017 significantly less than regionally predicted. Overall, deliveries in 2017 should be comfortably the lowest over the last 10 years. The 2018 order book is even less and if some further slippage occurs then we have healthy scraping. The actual fleet could even slightly shrink during 2018. Please turn to Slide 13, the container delivery schedule at the beginning of 2017 stood at 8.3% and was dominated by the larger vessels. Here again, cancellation and slippages will result in less deliveries than originally predicted. The grace majority of the order book is still for large ships, the cascading continues to be happening although to a lesser extent. We continue to see Panamaxes between 3,000 to 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, some more of these Panamaxes are cascaded down to routes that were served by 1,000 to 3,000 teu vessels but cheaper oil and size restrictions appear to be putting a break in this cascade process. This bodes well for this fleet range as we do not expect to witness fleet growth in this segment for the next couple of years. Please turn to Slide 14 to have a brief discussion on the world economy which is the driver of our business. Overall, we see slightly more optimism than in the previous quarter. The outlook for the world’s large economies US, China, Japan and Europe all faced positive prospects for the first time since the financial crisis. Strong emerging market growth is also led by India. Despite Trump’s impulsiveness and unpredictability, we are seeing stronger than expected consumer confidence in the US and we expect the US government to continue to do what it takes to strengthen GDP while keeping inflation in check. The aforementioned are supported with a US stock market that continues to perform very well as are most major world stock markets which are close to all-time highs but with company earnings on the rise as well. Also improving despite Brexit is the sentiment in the UK, due to stronger than expected growth there. The positive outlook is completed with the Chinese government continuing to stimulate the economy and exporting countries like Russia, Middle East and Latin America all having benefited by the rise of commodity prices from last year’s lows. As always, however, there are risks. And the negatives toward growth can come from protectionist policies that could create counter reactions. This protectionism is not only had from President Trump, but has gained support in many advanced economies and of course Brexit has been triggered. We could also get a possible tightening in emerging economies due still vulnerable Chinese financial system. US, Russia and US-China relationships are being redefined within the evolving global framework. Europe embezzled banking sector remains a concern. The biggest unknown however are the regional conflicts and terrorism which continue to hinder confidence worldwide. Slide 15 shows expectations of world GDP growth according to the IMF and also sweeping demand growth. Projected world GDP in 2017 is expected to be 3.5% a 0.1% increase from the previous quarter. China is expected by the IMF to grow by a healthy 6.6% in 2017, slightly up from the previous quarter of 6.5%. India is possessed to grow by 7.2%, the same strong level as in the previous quarter. Also the US is still projected to grow by 2.3% and Brazil is expected to have the same 0.2% [ph] growth in 2017 as during the previous quarter. Ralsado [ph] in now expected to do slightly better as well than the previous quarter estimate at 1.4% growth from 1.1% in the previous quarter. Turning on to shipping, dry bulk growth is projected by Clarksons to be 2.5% up already from the 2% of the previous quarter. Also containership trade according to Clarksons saw slightly more growth than the previous quarter at 4.3% from 4%. Let’s turn to Slide 16 to summarize our outlook for the dry bulk sector. After one of the worst years in dry bulk shipping, markets fundamentals for 2017 seem improved taking advantage of high -- of recent high scrapping and better than expected demand especially for iron ore coal. Thus we expect 2017 to be better than 2016 for the dry bulk. For 2018, we do not expect dramatic changes in demand supply balance. If new orders for 2019 were less than 2% of the fleet are placed, we would expect supply demand in 2019 to remain helpful for further rate increases. In any event, China continues to be unpredictable but single most important driver of the bulk market despite being adjusting to a new norm of lower growth rate. The first quarter iron ore imports, the largest contributor of dry bulk trade growth have been strong amidst a firm steel demand and rising imports attributed mostly to local mine closures but also very good demand. Similar trends are witnessed in the coal imports. During Chin’s transition to a more market oriented economy it is saving to rationalize many loss making businesses. These includes the shutdown of many uneconomic iron ore and coal mines thus boosting imports and helping dry bulk demand. Let’s turn to Slide 17 for our outlook of the container market. We expect demand growth in 2017 to be better than 2016. Year-to-date data suggest even more promising growth than initially estimated. The rapid absorption of the idle fleet should it continue will result in higher charter rates as well for vessels of all size. We also expect the supply demand balance in favor of demand in 2017 as well. Despite the huge order book of big vessels, massive and continuous cascading has resulted in regional trade which was up to now serving by smaller vessels to be hit as well. Developing trading partners – patterns and further cascading will determine the smaller vessels market in the future. For the time being, ordering has almost halted and only small vessels have been ordered in the last quarter. Of course any further strategic ordering of larger vessels from the various alliances if it were to happen would create values for 2019 onwards prospects which currently seems very good. Let’s now turn to Slide 19 to view our dry bulk employment schedule. Our dry bulk coverage for 2017 currently stands at about 39%. We are continuing the practice of employing our vessels and short term contracts or index charters in the expectation of further market improvement. Slide 20 shows our containership employment schedule. We currently have about 75% coverage in 2017 and thus with our dry bulk vessels the strategy for our containership has been to employ them on short term employments in the anticipation of the market improved expect where we can earn more than $10,000 a day Please turn to Slide 21. Eurobulk, our managers are continuing to keep our cost low. Our daily cost per vessel for Q1 2017 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 first quarter of 2017, our operational utilization was 98.3% and our commercial fleet utilization was 92.5%. Let's turn to Slide 22. The left side of this slideshows the evolution of time charter ratio of Panamax drybulk ships and containers of 1,700 teus since 2001. Despite the recent dry generation largest ships, container rates per vessels of our size are at lows last seen in 2010. Drybulk vessel rates have bounced back from their all-time lows last year but are still historically low. The right hand side of the slideshows the current vessel values in relation to historical prices. Dry bulk prices have moved above all time load values which was established at the beginning of 2016, whereas containership prices are just now starting to move away from their all-time lows. We believe that current valuations still do not reflect the long term revenue capacity of the vessels in either sector. Assuming that the analyst of the 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 order books get depleted within the next year or so provided of course that the industry does not shoot itself again in the foot by starting to reorder new ships. With our balance sheet strengthened 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 wanted to pass the floor over to Tasos 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. As in every quarter, I will provide you with a brief overview of our financial statements and results for the first quarter ended March 31, 2017. For that let’s turn to Slide 24 and take a look at our results for the three month period again ended at the end of March of this year. The results for the first quarter of 2017 partly reflect the recovering state of the dry bulk and container shipping markets. For the quarter, we reported total net revenues of $8.3 million representing a 26.6% increase over total net revenues of $6.5 million during the first quarter of 2016. We reported a net loss for the period of $2.2 million and a net loss attributable to common shareholders of $2.6 million as compared to a net loss of $2.8 million and net loss attributable to common shareholders of $3.3 million respectively for the first quarter of 2016. The results for the first quarter of 2017 include $0.5 million gain on a sale of a vessel. As Aristides mentioned earlier, in addition to the gain on the vessel, the difference between net loss and net loss attributable to common shareholders of $0.4 million accounts for the dividends we paid to our Series B preferred shares in the first quarter of this year. This preferred dividend can be paid out at our option either in cash on in kind and we have elected to pay in kind for the last 13 quarters. Basic diluted loss per share for the first quarter of 2017 was $0.24 compared to basic and diluted loss per share of $0.40 for the first quarter of last year. Excluding the effect on the loss for the quarter of the gain on the sale of vessel and the net contribution of our interest rate derivatives, the net adjusted loss per share for the quarter ended March 31, 2017 would have been $0.29 basically diluted compared to a loss of $0.38 basic diluted for the same period of last year. Adjusted EBITDA for the first quarter of 2017 was positive $0.2 million up from a loss of $0.1 million during the first quarter of 2016. Let’s now move to Slide 25. In this slide, we will provide you with our fleet performance for the first quarter of this year and compare it with our performance during the first quarter of 2016. Let's start with our fleet utilization rates, which as usual we have broken down in commercial and operational. So for the first quarter of this year, we reported a 92.5% commercial utilization rates and 98.3% operational utilization rate as compared to a 93.7% commercial and a 100% operational utilization rate for the same period of this year. I want to remind you that our utilization rate calculation does not include vessels in schedule dry dock, schedule repairs or in lay up during the reporting period. Also, I would like to mention here that a big part of what I shown to you as commercial off-hire about 40% is a balance left to reposition our newly delivered vessel Alexandros P while most of the remaining commercial fleet relates to the final trips to the scrapyard of two of our vessels Eleni P and RT Dagr that were scrapped during the quarter. If adjusted for these events, our commercial utilization rate during the first quarter of this year which have been around 99%. In the first quarter of this year, we operated 13.38 vessels and had a time charter equivalent rate of $7313 per vessel per day representing an 11.4% increase compared to a time charter equivalent rate of $6,565 per vessel per day that we achieved during the same period of 2016, a period during which we operated 11.54 vessel and dry bulk was at historic lowest point. Total operating expenses including management fees and general administrative expenses but excluding dry docking cost were $5,664 per vessel per day for the first quarter of 2017 compared to $6130 per vessel per day for the same period of last year representing a decline of about 7.4%. As Aristides mentioned earlier, overall, we believe we maintain one of the lowest operating cost structure amongst our public peers and we think this is one of our competitive advantages in the business. Just look now at the bottom of this table to our daily customer breakeven levels presented here on a per vessel per day basis. For the first quarter of 2017, we reported an operating cash flow breakeven level including loan repayments but before any balloon repayments or $7,129 per vessel per day as compared to $8013 per vessel per day during the first quarter of 2016. Let’s now move to Slide 16. This slide shows on the right hand side our cash flow breakeven levels an estimate over the next 12 months and from the left side our schedule vessel debt repayments including scheduled balloon repayments over the next five years. As you can see, we have managed to improve our – the liquidity of the company by restructuring and financing some of our loans during 2016 last year which resulted in low debt repayments during 2017. Regarding balloon payments, we have an 1.1 million balloon payment due in the fourth quarter of 2017 which very likely will repay earlier and in 2018, we have an 8.1 million of balloon in repayments while in 2019, we have balloon payments of about $70 [ph] million due. Typically, we have managed to refinance the biggest part of our balloon payments as they come due. This gap, the gap on this slide does not include debt that we will very likely assume to finance the vessel we have under construction which is due to be delivered by June 2018. Our loan repayments over the next 12 months amount to about $1200 per vessel per day contribution to our cash flow breakeven level and you can see this number on the table on the right part of the slide. If we make assumptions about the rest of our operation items such as operating expenses, G&A expenses, interest and drydocking expenses on a per vessel per day basis, we have an overall breakeven level of about $8100 per vessel per day expect over the next 12 months. Again without any balloon payments included which if included would add about $1250 per vessel per day to our cash flow breakeven level for the period. Let’s not turn to Slide 27 for a discussion on our cash flow and net asset value sensitivity to market changes. Euroseas currently has about 50% of total available days for the remaining of 2017 and about 8% of total available days for 2018 committed at fixed rates while the remaining 50% in 2017 and 92% of the available days in 2018 are either chartered at index linked rates or are exposed to market changes. Thus we are in a good position to take advantage of any market recovery and as we have been doing so far this year. At the same time, our low cash flow breakeven level as we discussed in the previous slide provides us an extra cushion to absorb any market volatility. In more detail you can see this in the table at the bottom part of the slide and in that table you can see what effect on our earnings, $1000 per day change in the rates we have. So in 2017, if the market increases by $1000 per vessel per day, we would – that would contribute about $2 million to our bottom line which would translate to about $0.18 per share while in 2018 $1000 increase in the charter rates would translate to $4.2 million to our bottom line which would translate to about $0.38 per share. Similarly if the values of our ships increase by $1 million each that means that $13 million would be added to our fleet value since we have 13 ships right now which would translate to about $1.16 increase in our NAV per share while when we get delivery of the 14 vessels which is currently being built in 2018 and $1 million increase per vessel would result in an increase to our NAV per share of $1.25. And with this, I would like to turn the floor back to Aristides to conclude the call.

Thank you, Tasos. So I think we can open the floor up for any questions that we may have.

[Operator Instructions] And our first question comes from Donald Bogden from Wells Fargo. Donald, your line is now open.

Good afternoon, gentlemen. How are you?

Hi, Donald. How are you doing?

So my first question is just on the bulk ordering and given we have seen a recovery in asset values, we have seen some incremental ordering. Can you quantify that and what is the lead time right now if the order or bulk are considering much of the burst in 2018 are open?

The lead time is minimal one year but closer to 18 months I would say.

Closer to 18 month. Thank you for that color and just as a follow-up, so that mean can you talk a bit to the state of the overall ship running industry, I mean obviously the crane yards are more transparent, they are distressed but we haven’t as much news flow out of the Chinese bulker yards, I mean, there is a small level of distress. Are you seeing these yards market new designs now or do you expect a significant amount of closures as on the Chinese shipbuilding market?

The Chinese have some standard designs right that they build generally. So they are not marketing something new. A lot of the yards – of the smaller yards are really suffering. The bigger yards most of them have some work but they need to find more work from 2019 onwards. And so the situation is not much better than what it is in Korea.

Got you, thank you for that color.

There is one significant issue around new buildings which is that Tier 3 engines that will now be required of new ships which will make – which is there is no significant sayings on the structure of the ships but you have to put in a Tier 3 engine in the vessel and that is more expensive, right, about $1 million to $2 million more expensive. So this is a further deterrent I would say for owners to be putting in bids today for new ships.

Right and I mean, based on your commentary in the presentation you said you know 10 plus year assets run off to upwards of 50% from their lows and sort of five years assets were up 30%. If you look at the economics of a new build versus a second hand tonnage, you still think they favor second hand tonnage or is getting close to parity or how are you currently looking at that?

I think we are getting close to parity. So that’s why you’ve seen a couple of new orders being place. But the fact that as I said, you know, you have this Tier 3 engines which cost a little bit more and is obviously deterrent together with the fact that financing is not as plentiful these days for new building vessels.

Got it. And then just one follow-up on the containership market. You had mentioned in your remarks that you saw some fatigue creeping into the market, is that just from that fall that were previously laid up return to service or can you sort of just elaborate on what you meant by that?

Some tariff had been increasing also quite dramatically especially for the mid-size vessels and we saw charter rates for Panamax vessels go very quickly up from $4,000 to $10,000. It’s not continuing to go up even the $10,000 is not a very high number if you look at the in the context of the last 15 years. So we would have hoped that that continues its currently stopped at that level. We need to monitor the market and see how it develops.

Okay, thanks it from me. As always thank you for the color, guys.

Thanks Donald.

[Operator Instructions]

Well apparently, there is no more questions. So I would like to thank everybody who was on the call today and I look forward to talking to you again next year, hopefully with our results indicating still better results.

Thanks everybody.

Thank you, ladies and gentlemen. That does conclude your conference for today. Thank you all for participating. You may all disconnect.