Euroseas posts loss amid higher costs

Euroseas-MV-MONICA-P-Handymax

Euroseas Ltd., an owner and operator of container carrier vessels and provider of seaborne transportation for containerized cargoes, announced its results for the three month period and full year ended December 31, 2018.

The Spin-off

On May 30, 2018, the Company spun-off its drybulk fleet (excluding M/V Monica P, a handymax drybulk carrier, which was agreed to be sold) into EuroDry Ltd., a separate publicly listed company also listed on Nasdaq Capital Market. Shareholders of the Company received one EuroDry Ltd. share for every five shares of the Company they held. As a result of the spin-off and the subsequent sale of M/V Monica P, the Company 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 from Euroseas Ltd. of vessels spun-off into EuroDry Ltd. in May 2018 (“discontinued operations”); historical comparative periods have been adjusted accordingly.

Fourth Quarter 2018 Highlights:

Total net revenues of $8.0 million. Net loss of $0.5 million; net loss attributable to common shareholders (after a $0.2 million dividend on Series B Preferred Shares) of $0.8 million or $0.07 loss per share basic and diluted. Adjusted net loss attributable to common shareholders1 for the period was $0.8 million or $0.071 per share basic and diluted.
Adjusted EBITDA1 was $1.2 million.

An average of 11.0 vessels were owned and operated during the fourth quarter of 2018 earning an average time charter equivalent rate of $8,577 per day.

The Company declared its twentieth dividend of $0.2 million on its Series B Preferred Shares; the dividend was paid in-kind by issuing additional Series B Preferred Shares.

The Company raised approximately $1.9 million of proceeds, net of offering expenses, via its at-the-market offering.
Full Year 2018 Highlights:

Total net revenues of $34.4 million. Net loss of $0.7 million; net loss attributable to common shareholders (after a $1.3 million dividend on Series B Preferred Shares) of $2.0 million or $0.18 loss per share basic and diluted. Adjusted net loss per share attributable to common shareholders1 for the year was $3.3 million or $0.291 per share basic and diluted.

Adjusted EBITDA1 was $4.3 million.

An average of 11.49 vessels were owned and operated during the twelve months of 2018 earning an average time charter equivalent rate of $9,179 per day.

1Adjusted EBITDA, Adjusted net loss and Adjusted loss per share are not recognized measurements under U.S. GAAP (GAAP) and should not be used in isolation or as a substitute for Euroseas financial results presented in accordance with GAAP. Refer to a subsequent section of the Press Release for the definitions and reconciliation of these measurements to the most directly comparable financial measures calculated and presented in accordance with GAAP.

Aristides Pittas, Chairman and CEO of Euroseas commented:

“During the fourth quarter of 2018 and early 2019, concerns about global economic growth, tariffs and trade tensions between the U.S. and China have influenced containerized trade. The feeder containership markets continued getting softer while chartering activity remained subdued until after the Chinese New Year of the beginning of February when we started seeing some stabilization and slightly more enquiries. Despite the difficult chartering environment, we have managed to charter all our vessels even those which were idle for part of the past quarter. Furthermore, we have increased the Company’s liquidity through refinancing of some of its debt and raising additional equity capital via its at-the-market offering at significantly higher prices than its recent trading range.”

“The containership market is still facing modest supply growth due to an orderbook-to-fleet ratio at historically low levels and additional vessel down-time required for installing required equipment for implementation of emissions and water ballast treatment regulations. Thus, any solution of the trade wars issues between the US and primarily China may lead to a recovery of the containerized trade and translate to higher rates for our vessels increasing our profitability. Euroseas’ strategy remains focused on exploiting its position as the only publicly-listed feeder company either growing organically or pursuing accretive growth opportunities via mergers or combinations with privately owned vessels or fleets.”

Tasos Aslidis, Chief Financial Officer of Euroseas commented: “The operating results of the fourth quarter of 2018 reflect the downward sliding level of charter rates in the containership markets. On average, however, during the fourth quarter of 2018, our vessels earned approximately 6.5% higher time charter equivalent rates compared to the fourth quarter of 2017.”

“Total daily vessel operating expenses, including management fees, general and administrative expenses, but excluding drydocking costs, were about the same during the fourth quarter of 2018 compared to the same quarter of last year, while for the full year 2018 they increased by approximately 4.6%. Adjusted EBITDA during the fourth quarter of 2018 was $1.2 million versus $1.5 million in the fourth quarter of last year, and it reached $4.3 million versus $1.9 million for the respective twelve-month periods of 2018 and 2017.”

“As of December 31, 2018, our outstanding debt (excluding the unamortized loan fees) and a profit participation liability on one of our vessels (representing the estimated amount related to the lender’s entitlement to participate in the appreciation of the fair value of one of our vessels) were $37.5 million and $1.1 million, respectively, versus restricted and unrestricted cash net of funds due to related companies of approximately $10.5 million. The profit participation liability is shown without taking into account the aggregate operating results of the vessel which will be included in the final calculation.”

Fourth Quarter 2018 Results:

For the fourth quarter of 2018, the Company reported total net revenues of $8.0 million representing a 2.9% increase over total net revenues of $7.8 million during the fourth quarter of 2017. The Company reported net loss for the period of $0.5 million and a net loss attributable to common shareholders of $0.8 million, as compared to a net income of $0.7 million and a net income attributable to common shareholders of $0.2 million respectively, for the fourth quarter of 2017. Drydocking expenses amounted to $0.3 million during the fourth quarter of 2018 comprising the drydocking cost of one vessel completing her drydocking that started within the third quarter of 2018, another vessel that completed her in water survey and a third vessel that completed her drydock in 2019 while during the fourth quarter of 2017, we had one vessel completing her drydocking recording a $0.4 million expense. Depreciation expense for the fourth quarter of 2018 was $0.8 million slightly higher compared to the same period of 2017.

On average, 11.0 vessels were owned and operated during the fourth quarter of 2018 earning an average time charter equivalent rate of $8,577 per day compared to 11.3 vessels in the same period of 2017 earning on average $8,057 per day.

Adjusted EBITDA1 for the fourth quarter of 2018 was $1.2 million compared to $1.5 million achieved during the fourth quarter of 2017. Please see below for Adjusted EBITDA reconciliation to net loss.

Basic and diluted loss per share attributable to common shareholders for the fourth quarter of 2018 was $0.07 calculated on 11,815,347 basic and diluted weighted average number of shares outstanding, compared to basic and diluted earnings per share of $0.02 for the fourth quarter of 2017, calculated on 11,113,718 basic and diluted weighted average number of shares outstanding.

Excluding the effect on the loss attributable to common shareholders for the quarter of the loss on derivatives the adjusted net loss per share attributable to common shareholders for the quarter ended December 31, 2018 would have been $0.07 per share basic and diluted compared to adjusted net loss of $0.01 per share basic and diluted for the quarter ended December 31, 2017 which was also adjusted by excluding the gain on sale of a vessel. Usually, security analysts do not include the above items in their published estimates of earnings per share.

Full Year 2018 Results:

For the full year of 2018, the Company reported total net revenues of $34.4 million representing a 44.9% increase over total net revenues of $23.8 million during the twelve months of 2017. The Company reported a net loss for the year of $0.7 million and a net loss attributable to common shareholders of $2.0 million, as compared to net loss of $6.9 million and a net loss attributable to common shareholders of $8.8 million, respectively, for the twelve months of 2017. The results for the twelve months of 2018 include a $1.3 million gain on sale of a vessel, $0.2 million of unrealized gain on derivatives and a $0.2 million of realized loss on derivatives. The results for the twelve months of 2017 include a $0.01 million gain on derivatives, a $0.8 million gain on sale of vessels, and a $4.6 million loss on write-down on two vessels held for sale. Depreciation expense for the twelve months of 2018 was $3.3 million compared to $3.6 million during the same period of 2017. Although the average number of vessels increased, one vessel which was held for sale during the second semester of 2018 did not contribute to the depreciation charge and the new vessels acquired have a lower average daily depreciation charge as a result of their lower acquisition cost and greater remaining useful life compared to the remaining vessels.

Interest and other financing costs for the twelve months of 2018 amounted to $3.1 million compared to $1.6 million for the same period of 2017. This increase is due to the increased amount of debt and increased LIBOR in the current period compared to the same period of 2017. Vessel operating expenses for the same period of 2018 amounted to $20.0 million as compared to $15.0 million for the same period of 2017. The increased amount is due to the higher number of vessels owned and operated in the twelve months of 2018 compared to the same period of 2017. Drydocking expenses amounted to $2.8 million for the twelve months of 2018 (three of our vessels completed their special surveys with drydocks, another three completed their intermediate surveys in-water and a vessel started her special survey that completed with drydock in 2019), compared to $0.6 million for the same period of 2017 where one of our vessels completed its intermediate survey.

On average, 11.49 vessels were owned and operated during the twelve months of 2018 earning an average time charter equivalent rate of $9,179 per day compared to 9.28 vessels in the same period of 2017 earning on average $7,309 per day.

Adjusted EBITDA1 for the twelve months of 2018 was $4.3 million compared to $1.9 million during the twelve months of 2017. Please see below for Adjusted EBITDA reconciliation to net loss.

Basic and diluted loss per share attributable to common shareholders for the twelve months of 2018 was $0.18, calculated on 11,318,197 basic and diluted weighted average number of shares outstanding compared to basic and diluted loss per share of $0.79 for the twelve months of 2017, calculated on 11,067,524 basic and diluted weighted average number of shares outstanding.

Excluding the effect on the loss attributable to common shareholders for the twelve months of 2018 of the gain on derivatives and the gain on sale of a vessel, the adjusted net loss per share attributable to common shareholders for the year ended December 31, 2018 would have been $0.29 compared to adjusted net loss of $0.45 per share basic and diluted for 2017. Usually, security analysts do not include the above items in their published estimates of earnings per share.

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