Euroseas Ltd. (ESEA) Earnings

Management highlights

### Fleet Development and Expansion - Added two additional 1,800 TEU gear-less container vessels to the newbuilding orderbook in mid-June 2026, complementing the two vessels ordered in April 2026. Deliveries are scheduled for December 2028 and March 2029, with total consideration of $64.5 million to be financed via 60-65% debt and the remainder equity. - A joint venture with NRP Investors for a newbuilding vessel has closed: NRP will take a 49% stake for ~$12.2 million, with their first capital contribution already received, and delivery targeted for Q1 2028, with at least 60% debt financing assumed. - As of Q2 2026, the operating fleet totals 21 vessels with 61,000 TEU combined carrying capacity and an average age of 13 years: 6 intermediate container ships (25,500 TEU, 18-year average age) and 15 feeder container ships (35,500 TEU, 9-year average age). There are 12 newbuildings on order (8 feeders, 4 intermediate containers) with deliveries through Q1 2029, which will expand the total fleet to 33 vessels and 97,000 TEU, creating one of the youngest fleets in the feeder/intermediate container segment. - Two newly chartered vessels are fixed for 24-26 months at $25,500 per day, providing earnings visibility through at least Q1 2028. No technical or commercial off-hire days were recorded in the quarter. ### Capital Return and Balance Sheet - The Board declared a Q2 2026 quarterly dividend of $0.80 per share, with an annualized yield of 4.2-4.5% based on current share prices. - Since launching the 20 million share repurchase program in May 2022, the company has repurchased 4.8 million shares (representing ~6.8% of outstanding shares) as of mid-August 2026. - As of June 30, 2026, total outstanding bank debt is $208 million, with an average interest margin of ~2% and a total effective rate of ~5.75%. Total liquidity includes ~$164 million in restricted and unrestricted cash. The company estimates its current fleet market value is ~$660 million, translating to a net asset value of ~$103 per share, which is above current trading prices. ### Market Fundamentals - Container shipping markets have trended upward through Q2 and the first half of Q3 2026, driven by robust demand and supply disruptions from Middle East geopolitical tensions. Starter rates are at pre-COVID highs, and freight rates continued climbing through July. - Second-hand vessel prices held steady in Q2 2026 compared to Q1, with scarce available tonnage and strong competition for prompt charter-free vessels supporting valuations. Newbuilding prices have increased sector-wide. - Global idle container capacity (excluding vessels under repair) was just 200,000 TEU (~0.6% of the global fleet) as of early July, a historic low that confirms structural supply tightness. Recycling activity has been very subdued, with only 25,000 TEU scrapped through July 2026, reflecting high current tonnage values and limited incentive to scrap. - More than half of the global feeder vessel fleet is at or approaching scrapping age, and the feeder segment orderbook stands at just 17.6% of the existing fleet, well below the broader market average. Roughly two-thirds of the intermediate container fleet is at or approaching retirement age, with an orderbook of 28% of existing fleet, far lower than orderbooks for larger mainline vessels (which range from 40% to 87% of existing fleet). This creates a structurally favorable supply outlook for the smaller vessel classes that Euroseas operates.

Guidance

- Forward charter coverage is 96% for 2026 at an average contracted rate of $30,858 per day, 81% for 2027 at $31,658 per day, and 47% for 2028 at $32,000 per day, which insulates earnings if market rates soften after current charters expire. - Management expects near-term market rates to remain supported by tight supply, but anticipates some moderation in rates toward the end of 2026. Accelerated scrapping of older vessels and slow steaming are expected to help absorb incremental new supply in 2027. - Global containerized shipping demand (measured in TEU miles) is projected to grow 3.6% in 2026, followed by a 4.8% decline in 2027 as shipping routes and sailing distances normalize. - Global economic growth is projected at 3% in 2026 and 3.4% in 2027, broadly unchanged from prior forecasts. Container trade volume growth is projected to moderate to 3.7% in 2026 and 3.4% in 2027, down from 4.6% in 2025.

Segment performance

Euroseas operates only one business segment focused on container shipping, so no separate product segment breakdown is provided. For Q2 2026, total net revenue was $56.5 million, a 1.3% decrease from $57.2 million in Q2 2025, driven by a lower average number of owned/operated vessels (21 in Q2 2026 vs 22 in Q2 2025) that was partially offset by higher average time charter rates. Net income attributable to controlling shareholders was $33.2 million ($4.74 diluted EPS) in Q2 2026, up from $29.9 million ($4.29 diluted EPS) in Q2 2025. Adjusted EBITDA was $40.1 million in Q2 2026, up from $39.3 million in Q2 2025. For the first half of 2026, total net revenue was $112.3 million, a 1.1% decrease from $113.6 million in H1 2025, while net income attributable to controlling shareholders was $65.7 million ($9.39 diluted EPS) compared to $66.8 million ($9.60 diluted EPS) in H1 2025. Adjusted EBITDA for H1 2026 was $81 million, up from $76.4 million in H1 2025. For Q2 2026, commercial utilization was 100% and operational utilization was 99.9%, with an average contract rate of $30,306 per vessel per day, up from $29,420 in Q2 2025. Daily operating expenses (including G&A, excluding drydocking) were $8,036 per vessel per day, up from $7,394 in Q2 2025. The daily cash flow break-even rate was $13,233 per vessel per day, slightly down from $13,206 in Q2 2025.

Risks & headwinds

- Geopolitical tensions in the Middle East (Iran conflict) and the ongoing Ukraine-Russia war have kept energy prices, inflation, and interest rates elevated, and create uncertainty around market timing and supply chain stability. - While current market tightness eliminates immediate pressure, a potential cascading effect from larger newbuilt mainline vessels could push larger vessels down into feeder/intermediate trade routes as shipping schedules normalize, creating modest downward pressure on rates for smaller vessel classes. This risk is mitigated by the fact that cascading would have to move through multiple size segments to affect Euroseas' vessel classes, which already have favorable underlying supply dynamics. - Newbuilding delivery slippage is possible, though management does not currently forecast material delays for its own orderbook. Actual future earnings may differ from internal indicative projections of contracted coverage and revenue. - U.S. trade policy and tariffs remain an uncertain variable that could impact shipping demand, though the impact to date has been more muted than initially feared. - Older vessels in the existing fleet may need to be scrapped or disposed of as newbuildings are delivered and environmental regulations tighten, which could result in lower disposal values if market conditions soften in the future.

Analyst Q&A

• Q: What total equity requirement is needed for the full newbuilding program, and how will the company allocate available capital between newbuilds, dividends, share repurchases, acquisitions, and debt repayment? /

  A: The total cost of the full newbuilding program is ~$560 million, with 60% planned to be financed via debt, leaving a total equity requirement of ~$230 million, of which $74 million has already been contributed. The company expects to generate enough cash flow from operations over the next two years to cover the remaining equity requirement, and all capital allocation options (including dividend increases, additional share repurchases, and further acquisitions) remain on the table, with the board reviewing options quarterly.

• Q: What are the company's plans for older vessels as newbuildings are delivered, and is forward fixing available for older tonnage? /

  A: Management currently plans to continue operating older vessels for the foreseeable future, as the strong market means older vessels generate attractive earnings that justify keeping them. Disposal decisions will likely not be needed for at least two years. There is currently enough market tightness that older vessels can be fixed easily for near-term charters, with only a very small discount to modern tonnage, mostly attributable to slightly higher fuel consumption. Management expects to fix all three older vessels opening for charter later this year within the next month.

• Q: Could there be delivery delays for newbuildings given busy shipyards, and has the company changed its contracting strategy to use variable rate structures with upside sharing? /

  A: Management does not currently foresee any delivery delays, and shipyards have generally stayed on schedule for recent projects. The company still intends to secure long-term fixed-rate charters for newbuildings when appropriate, but it is too early to fix charters for vessels that will not deliver for several years. No shift to variable contract structures (with floors and upside sharing) has occurred, and all current discussions are for traditional fixed-rate time charters, with optional early termination clauses sometimes included.

• Q: Is cascading from larger newbuilt vessels a material risk to Euroseas' feeder and intermediate segment rates? /

  A: Currently, geopolitical instability prevents liner companies from adjusting and optimizing routes, so no meaningful cascading is occurring today. When markets eventually normalize, liner companies will likely optimize routes and increase vessel sizes on many routes, so some cascading is expected. However, cascading must filter through multiple size classes from large mainline vessels before reaching Euroseas' operating segments, which already have structural supply tightness, so the material impact is expected to be limited.