Euroseas Ltd. Reports Results for the Quarter Ended March 31, 2009
Euroseas Ltd., an owner and operator of drybulk and container carrier vessels and provider of seaborne transportation for drybulk and containerized cargoes, announced yesterday its results for the three month period ended March 31, 2009.
Aristides Pittas, Chairman and CEO of Euroseas, commented: "The first quarter of 2009 continued to be challenging on the chartering front, especially for our containership vessels; however, it was also a period during which attractive opportunities for investment started emerging. As announced already, we have partly renewed our drybulk fleet by purchasing two drybulk vessels of approximately 11-12 years old and selling two of our 25-year old drybulk vessels. We continue pursuing further investment opportunities given our strong cash position at the end of the quarter. With a low overall leverage -- we have more cash than debt outstanding -- we have been able to secure conventional bank financing to partly finance our investment program.
"Despite the recent upturn in the drybulk market, we expect to face a volatile and generally depressed market environment over the next two years. We have covered practically 100% of our drybulk fleet for 2009 and 80% for 2010 via either time charter contracts or Freight Forward Agreement ('FFA') contracts.
Our containerships are facing significant challenges in securing employment contracts after the expiration of their present charters and it has proven economical to temporarily lay-up three of our vessels rather than employ them at unprofitable low levels.
"In contrast to many other shipping companies, our Board confirmed its intention to continue paying healthy dividends to our shareholders throughout the market cycles in parallel with our expansion program, as far as practically possible. In that respect we have maintained our quarterly dividend at $0.10 per share which represents a yield of about 7.1% on the basis of our stock price on May 7, 2009."
Tasos Aslidis, Chief Financial Officer of Euroseas, commented: "The results of the first quarter of 2009 reflect the lower level of the charter markets. Our results were positively influenced by other non-cash gains on interest rate derivatives and FFAs.
"Total daily vessel operating expenses, including management fees and general and administration expenses, during the first quarter of 2009 reflect a decrease of about 6.0% on a per vessel per day basis compared to the first quarter of 2008, which partly reflects that two of our vessels were laid-up during the first quarter of 2009 (one for the entire quarter and another for part of March 2009) and, thus, incurred significantly lower daily costs. We believe that we continue to maintain one of the lowest operating cost structures amongst the public shipping companies which, we believe, is one of our competitive advantages. It is worth noting that during the first quarter of 2009, we continued achieving decreases in our daily operating costs for the third quarter in a row. Needless to say that we will continue to focus on controlling and reducing our costs while ensuring safe operations.
"As of March 31, 2009, our outstanding debt is about $62.8 million versus restricted and unrestricted cash of about $64.9 million. In April 2009, we drew an additional loan of $10 million to partly finance our latest acquisition, M/V Eleni P. Our scheduled debt repayments over the next 12 months -- including the new debt -- amount to about $13.0 million, a number low enough to provide us with operational cash flow comfort. We estimate that our cash flow breakeven for the next 12 months is between $9,500 and $10,000 per vessel per day excluding dividend payments but inclusive of debt repayments."
First Quarter 2009 Results:
For the first quarter of 2009, the Company reported total net revenues of $15.3 million representing a 53.4% decrease over total net revenues of $32.8 million during the first quarter of 2008. The Company reported net income for the period of $3.9 million as compared to net income of $13.6 million for the first quarter of 2008 representing a 71.1% decline. The results for the first quarter of 2009 include a $1.7 million unrealized gain on derivatives and investments as compared to $0.02 million unrealized gain on investments for the same period of 2008. Depreciation expenses for the first quarter of 2009 were $4.5 million compared to $7.3 million during the same period of 2008. The decline was due to a change in estimates (see below) and the sale of M/V Nikolaos P and M/V Ioanna P, which contributed $2.0 million to the depreciation expenses in the first quarter of 2008, partly balanced by the depreciation of three vessels purchased since March 31, 2008. On average, 15.7 vessels were owned and operated during the first quarter of 2009 earning an average time charter equivalent rate of $12,684 per day compared to 15 vessels in the same period of 2008 earning on average $25,723 per day. Two of the Company's containerships were laid-up as of March 31, 2009 and a third one was laid-up in April 2009.
Adjusted EBITDA for the first quarter of 2009 was $6.2 million, a 67.1% decrease from $18.7 million achieved during the first quarter of 2008. Please see below for Adjusted EBITDA reconciliation to net income and cash flow provided by operating activities.
Basic and diluted earnings per share for the first quarter of 2009 was $0.13, calculated on 30,575,611 and 30,602,510 weighted average number of shares outstanding, respectively, compared to basic and diluted earnings per share of $0.45 for the first quarter of 2008, calculated on 30,321,553 and 30,379,994 weighted average number of shares outstanding, respectively.
Excluding the effect on the earnings for the quarter of the unrealized gain on derivatives, unrealized loss on investments, amortization of the fair value of time charter contracts acquired and loss from vessel sales, the earnings per share for the quarter ended March 31, 2009 would have been $0.07 per share basic and diluted, and, for the quarter ended March 31, 2008 would have been $0.38 per share basic and diluted. Usually, security analysts do not include the above items in their published estimates of earnings per share.
Change in accounting principle and change in estimates:
Beginning with the first quarter of 2009, the Company changed its accounting policy of drydocking costs from the deferral method, under which the Company amortized drydocking costs over the estimated period of benefit between dry-dockings, to the direct expense method, under which the Company expenses all drydocking costs as incurred. The Company believes that the direct expense method is preferable as it eliminates the significant amount of time and subjectivity involved in determining which costs and activities related to drydocking qualify for the deferral method. When the accounting principle was retrospectively applied, net income for the quarter ended March 31, 2008 decreased by $1.5 million.
The Company reflected this change as a change in accounting principle from an accepted accounting principle to a preferable accounting principle in accordance with Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections. The new accounting principle will be applied retrospectively to all periods presented in earnings releases and filings.
During the fourth quarter of 2008, the Company also changed its estimates of the scrap price and useful life of its containerships to better reflect the present market environment, industry practice and intended use. The effect of these changes increased net income for the period ended March 31, 2009 by $1.6 million.