Euroseas Ltd. (ESEA) Earnings

Management highlights

- Shareholder Returns: The Board approved a 6.7% quarterly dividend increase to 80 cents per share, payable June 16 to shareholders of record June 9, for an annualized yield of ~5% based on current share price. Since launching its $20 million share repurchase program in May 2022, the company has repurchased 480,500 shares (6.8% of outstanding shares) for $11.4 million; the program was renewed in May 2026 and will continue to be executed opportunistically. - Fleet Strategy and Expansion: The company expanded its newbuilding program, adding four additional methanol-ready vessels to strengthen its position in the structurally favorable feeder and intermediate segments. It ordered two 2,800 TEU container ships from Quanhai Shipbuilding for $93 million (delivered Q4 2028/Q1 2029) and two 1,800 TEU regional container ships from Nantong CIMC for $64.5 million (delivered Q3 2028/Q4 2028), all financed with a 65% leverage mix of equity and debt. It also entered a 49% joint venture with MRP Projects Finance for its third new intermediate container vessel (delivered Q1 2028, financed with at least 60% debt), where MRP investors will invest $12.2 million including transaction costs. - Operational Performance: The company achieved 100% vessel utilization in Q1 2026, with no idle or off-hire days. It secured multi-year charters for two vessels: MV Em Care at $30,000 per day for 36-38 months, and MV Em Status at $21,500 per day for 22-24 months. - Forward Revenue Visibility: As of Q1 2026, 96% of 2026 available voyage days are contracted at an average $30,150 per day, 86% of 2027 days are contracted at $31,000 per day, and 50% of 2028 days are contracted at $31,500 per day, supporting stable cash flow across market conditions. - Balance Sheet: As of Q1 end 2026, total debt was $213.3 million with an average total interest cost of ~5.65%, well within peer levels. The company maintains a strong balance sheet with high liquidity, and estimates current net asset value at ~$71 per share, representing a 30% discount to current market valuation.

Guidance

- Management maintains that the supply-demand balance for the feeder and intermediate container vessel segments remains structurally favorable, as more than half of the existing global fleet in these segments is over 15 years old and approaching scrapping age, while newbuilding activity is far more limited than in larger vessel classes. - For 2026, global container fleet growth is expected to be among the lowest in recent years, supporting a balanced supply-demand environment, with ongoing Red Sea routing delays providing near-term market support. - Management notes 2027 faces more uncertainty, as a historically large wave of new vessel deliveries (concentrated in larger vessel classes) will test market conditions, though accelerated scrapping of older tonnage may offset some pressure. - The company expects to fix all remaining open vessel charters for 2026 within the next few months, reaching 100% coverage for the year, with expected rates in the range of recent charters (~$21,500-$30,000 per day) for the three remaining open vessels.

Segment performance

EuroCity operates two core container shipping segments: the feeder (1,000-3,000 TEU) and intermediate container vessel segments. For Q1 2026, the company reported total net revenue of $55.4 million, a 1% decrease from $56.4 million in Q1 2025, driven by operating 3 fewer vessels year-over-year. Net income was $32.52 million ($4.65 diluted per share), down from $36.9 million in Q1 2025. Adjusted EBITDA rose 10.2% year-over-year to $40.9 million, up from $37.1 million in the prior year period. Adjusted diluted EPS was $4.70, up from $3.76 in Q1 2025. As of Q1 end 2026, the operating fleet has 21 total vessels: 6 intermediate container ships (25,000 total TEU, 18 year average age) contributing ~41% of total fleet capacity, and 15 feeder container ships (35,000 total TEU, <10 year average age) contributing ~59% of total fleet capacity. Average daily time charter equivalent (TCE) rate across all vessels was $30,354 in Q1 2026, up from $27,563 in Q1 2025. Total operating expenses per vessel per day (excluding drydocking) were $7,789, up from $7,511 year-over-year, while daily cash break-even fell to $12,347 from $13,062 due to lower debt levels offsetting operating expense increases.

Risks & headwinds

- Broad macroeconomic risks: Downside risks to global growth include broadening Middle East conflict, shifting trade policy disruptions, lingering inflationary pressures from commodity supply shocks, and ongoing geopolitical trade fragmentation. - Sector-specific supply risks: The broader container shipping sector has a current order book at levels not seen in 15 years, with outsized newbuilding concentration in larger Panamax and post-Panamax vessel classes that could lead to oversupply in those segments starting in 2027. - Energy transition uncertainty: While the industry is shifting to lower-emission technologies, adoption pace is expected to be slower than anticipated due to technical, economic, and regulatory delays in finalizing the IMO's net-zero framework. - Interest rate and refinancing risk: Balloon debt repayments are scheduled through 2030, though management has historically been able to refinance these obligations on favorable terms when desired. - Forward-looking statements are based on current expectations that may not be realized due to unforeseen risks and uncertainties.

Analyst Q&A

• Q: Mark Richmond of Noble Capital asked about the TCE rate similarity between older 2008/2009 intermediate vessels and newbuilds, and whether charters pay a premium for newer vessels. /

  A: Management confirmed newbuilds have ~20% better fuel efficiency than older vessels even after environmental upgrades. The similar current TCE rates reflect that newbuilds will not be delivered for two years; if they were available today, they would command a significant premium over older vessels. Longer charter tenor for newbuild contracts (four years vs. 2-3 years for existing vessels) also contributes to the similar rate levels.

• Q: Alliance Global Partners asked why the company chose a JV with MRP investors rather than straight debt financing for the new third intermediate vessel, and if this is a one-off or recurring structure. /

  A: Management framed the JV as a strategic relationship rather than a financing necessity. They already have an existing working relationship with the MRP-led group of Norwegian shipping investors, and the JV increases EuroCity's visibility in the Norwegian investment market. Management noted no decisions have been made on future JVs, but may pursue one or two more for other newbuilds going forward.

• Q: A follow-up asked about the chartering outlook for the remainder of 2026, and whether the older vessel Grinke would be retired or kept in service. /

  A: Management initially budgeted for retirement after its current charter, but will now complete a special survey to keep the vessel in service due to attractive charter interest in the currently strong market. They noted the feeder and intermediate segment market remains extremely strong, with very few available vessels globally over the next four months, and expect to fix all remaining open 2026 charters within days or months to reach 100% annual coverage, with rates around the level of recent smaller vessel charters (~$21,500 per day).