IMPPP - Imperial Petroleum Inc. (IMPP) Q2 2023 Earnings Call Transcript

2023-08-11 12:07:03 ET

Imperial Petroleum Inc. (IMPP)

Q2 2023 Earnings Conference Call

August 10, 2023, 11:00 AM ET

Company Participants

Harry Vafias - CEO

Ifigeneia Sakellari - Interim CFO

Conference Call Participants

Dillon Lanius - Great Point Capital

Ross Haberman - RLH Investments

Presentation

Operator

Good day, and thank you for standing by. Welcome to the Q2 2023 Imperial Petroleum Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Harry Vafias, CEO. Please go ahead.

Harry Vafias

Good morning, everybody, and thank you for joining us for the second quarter conference call of Imperial Petroleum. I'm Harry Vafias, the CEO of the company and with me today is Ms. Sakellari, who will be discussing our financial performance.

Before we commence our discussion, please read the Safe Harbor disclaimer on Slide number 2. In essence, it's made clear that this presentation may contain some forward-looking statements as defined by the Private Securities Litigation Reform Act. And we raise the attention of our investors to the fact that such forward-looking statements involve risks and uncertainties which may potentially affect our company's performance in the future. In addition, we'd like to state that during this call, we will quote monetary amounts unless explicitly stated otherwise are all denominated in U.S. dollars.

On Slide 3, please read the summary of our company's performance highlights. In the second quarter of ’23, we managed to preserve the strong profitability momentum of the last three quarters. Once again we ended this year with a healthy profit, which excluding impairments and non-cash items came in the order of $27 million.

The tanker market, particularly the spot market remains strong, but it's currently affected by seasonal factors due to the summer period. This effect was to a small extent evident in 2Q ’23 rates and will be more visible in the third quarter of ‘23.

Our EPS for the second quarter of ‘23 came in at $1.46, while for the first half of ’23 our earnings are without doubt impressive for a flip of our size as our basic EPS came in at approximately $3.2, which is well in excess of our current share price. In conjunction with our past quarters performance, we generated an annual return on equity or ROE in the region of 30% based on the trailing 12-months average to June ‘23 and in turn that cannot be less than noticed.

Within Q2 ’23, we also completed the spin-off of our two handysize dry bulk ships to a separate list a company called C3is with a ticker symbol of CISS. C3is is currently a small company, which is debt free with three vessels but promising growth potential.

During Q2 ’23, we committed capital in order to repay all of our outstanding loans. Indeed, our six months ‘23 balance sheet has literally zero debt. While we estimate that our annual cash flow savings from that debt repayment will be in the region of $25 million. Further to raise this July, we sold our Aframax tanker of the Stealth Berana to C3is for a consideration of $43 million. This transaction generates a profit of about $11 million for IMPP, which will be accounted in the Q3 financials.

On Slide 4, we provide the summary of our currency and deployment. We currently have one of our handysize bulk vessels of Glorieuse under short term charter until October ‘23. And our remaining eight vessels that is seven tankers in one bulk carrier are all operating sport. As said the sport tanker market remains favorable and hence, as a general trend owner the first spot activity than committing their vessels to time charters. In spite of some seasonal effect year-to-date, daily spot rates for more tankers in which we operate in and are in the region of $50,000 per day.

Looking at our dry vessels, the market is quite chuffed. Glorieuse completed her drydocking within this quarter, while a second bulk carrier vehicle Wildfire will probably undergo her drydocking in Q3 ‘23.

On Slide 5, we're reviewing the tanker market. The global oil production is expected to increase by 1.8 million barrels per day in ‘23, and by another 1.6 million barrels in ‘24, reaching an output of 107 million barrels in ‘27. The expectations for a rising oil demand are hindered by the uncertainty about global economic growth and its impact on oil demand.

OPEC have agreed to extend crude oil production cut of one million barrels for July ‘23, thus adding to existing supply restrictions. During the second quarter of this year, we showed continue strong tanker market, however freight rates came down from the record levels seen in Q1. The market shock resulting from the drastic changes in Russian oil output trade flows that follow from the sanctions imposed by the G7 Nations and their allies seems to have settled and the values market days are now more accepting the fact that this is likely a long term structural change to the market, which will govern the market in the years ahead.

The main buyers of Russian oil and oil production in India and China, but we have also witnessed Saudi Arabia, increasing volumes purchased from Russia in addition to the already active Turkey. The increased availability of vessels willing to load Russian cargoes under the G7 Nation price cap rules meant, that the premium for these cargos over standard market cargos has gradually reduced for the quarter.

There's also the seasonal factor to consider with Q2 being the start of the summer, which is usually the slowest period of the year for tankers. We anticipate a softer market in Q3 ‘23 due to the seasonal factors and expected refinery maintenance, but we expect all supply tightness, particularly Europe to bolster tanker trade in the fourth quarter.

On Slide 6, we’re focusing on the product tanker market, with most yard slots being occupied by container and LNG ships. The product tanker fleet is expected to show little growth towards 2025. Limited yard availability along with some demand growth will lead to tightness of product and alternative supply. Another factor that should be taken into consideration of ship owners been reluctant to order high price newbuildings while regulations. That said the GHG reduction targets are yet to be decided, as well as the technology for alternative fuels.

And I’ll pass the floor to Ms. Sakellari, who will provide you summary of our financial performance.

Ifigeneia Sakellari

Thank you, Harry, and good morning to everyone. The tanker market too strong all throughout the second quarter of 2023. Seasonal factors as towards the end of the -- the quarter we ended into the summer period somehow lowered the exceptional performance seen in Q1 ‘23. In the second quarter of 2023, we managed to generate an adjusted net income of $26.6 million.

Our fleet operational utilization for the second quarter of the year came in at 76%. As we had 28 days of technical off hire you to dry docking of one of our handysize dry bulk carriers the Eco Glorieuse and 130 days of vessel repositioning as this quarter we had shorter and more frequent spot voyages. Indeed, about 67% of our fleet calendar days, equivalent to 745 days were dedicated to spot activity.

What is worth emphasizing is that in the first half of 2023, our company generated the net income of close to $53 million, corresponding to a basic EPS of close to $3.2. Excluding non-cash items such as impairment, our net income for the first half of 2023 is in the order of $62.6 million, which is translated to an adjusted basic EPS of $3.79. We generated that in only six months a net income of 1.5 times higher than our market capitalization, our current market capitalization.

Looking at our income statement for Q2 ‘23 on Slide 7, compared to Q2 ‘22. Revenues came in at $59 million up by $47.7 million compared to the second quarter of 2022. Due to the increase of our average fleet by approximately six vessels, leading to an increase in fleet calendar days by 98%, coinciding with an increase of tanker market rates, leading to a rise in fleet daily revenue of approximately 34,000.

Voyage costs increased by $15 million due to the increase in the spot days of our fleet by 541 days and to our fleet wide daily port expenses by approximately 3,750 per day due to high number of spot voyages. Our running costs amounted to $7 million compared to $3.3 million in the same period of last year. The $3.7 million increase in vessels operating expenses was primarily due to the increase of our fleet by an average of six vessels.

In terms of rise running costs this quarter we incurred 700,000 charge, as a dry bulk vessel Eco Glorieuse underwent drydocking along with water ballast system installation. Our general and administrative expenses amounted to $1.6 million as we incurred 500,000 of stock-based compensation costs along with the rising reporting costs related to a spin-off project. We also took an impairment charge of approximately $9 million related to the spin-off of our two drybulk carriers to C3is. The decline of our drybulk vessels fair values compared to one year ago when these races were acquired, resulted in the incurrence of an impairment loss, which is a non-cash item.

Basically above we generated an adjusted EBITDA of $31 million that is $27.8 million or 927% higher than in Q2 ‘22. Our adjusted net profit of $26.6 million corresponding to adjusted EPS of $1.46.

Moving on to Slide 8. Let us take a look at our balance sheet for the six months of 2023. As of June 2023, we had the free cash days including time deposits of about $100 million. Within April 2023, we have utilized $46 million to repay all of our outstanding debt. As evidence for our six months’ balance sheet, Imperial petroleum is now a debt free company with all of our assets unencumbered. Our operating cash flow for the six months’ period came in at $64 million, thus we generated from our fleet operations, cash almost -- cash flow almost 1.5 times our current market capitalization.

In Slide 9, we present the financial snapshot placing emphasis on our solid financial position. Our cash balance is quite high in the region of $100 million enabling us to expand our fleet further. Fully debt repayment has led to an annual cash flow savings principal and interest of almost $16 million. We enjoy both a healthy liquidity and financial structure.

Looking at our profitability in Q2 ‘23, our daily time charter equivalent per vessel came in an order of $39,000. Our return on equity basis trailing last 12 months has reached 30%. One of our obligations in terms of capital expenditures that we have five scheduled drydockings for the second half of ‘23. But following these, we will only have one scheduled drydocking for the period 2024 and 2025 that is that our vessel capital commitments will declined drastically.

Concluding our presentation with Slide 10. We simply outline once more the key factors that assist our successful performance. That is our solid experience in shipping, capable management and sound technical and commercial strategies. We hope that these elements will allow us to navigate efficiently even during tougher market conditions should this arise. At this stage our CEO Mr. Harry Vafias will summarize our concluding remarks for the period examined.

Harry Vafias

Within the first six months of the year, our company managed to generate the net income, excluding non-cash items of $62.6 million corresponding to basic earnings per share of $3.79, which is well above our current share price. Compared to the first six months of 2022, our increase in net income was in the order of 20,500%. Our strong performance is unquestionable, that shows the fact that we are significantly undervalued.

We have a fleet valued at about $225 million, zero debt and on top another $100 million in cash. The outlook for the tanker market remains favorable. Whereas there might be some opportunities in the drybulk sector as dry ship values are dropping. We'll continue to capture this favorable momentum, generating strong results while growing our company even more.

We have now reached the end of our presentation, we’d like to open the floor for questions. So operator, please open the floor.

Question-and-Answer Session

Operator

[Operator Instructions] We will now go to the first question. One moment. And your first question comes from Anthony Kovscek [ph]. Please go ahead.

Unidentified Analyst

Hi, Harry, how are you? I'm just curious if there any plans to do a buyback on the company concerning the share price is hovering around the lowest right now? Yes, what are your thoughts on that? Because it was mentioned previously.

Harry Vafias

Thank you very much, Anthony. It's for that, indeed, is passing through my mind it has not been discussed at Board level. But if we continue to generate this kind of results and the stock doesn't do anything impressive, I think we should discuss it at the Board level with the rest of the directors.

Operator

Thank you. We will now go to our next question. One moment please. And your next question goes on the line of Dillon Lanius from Great Point Capital. Please go ahead.

Dillon Lanius

Hey, good day. Congratulations on all the progress and developing the business. Just curious about the goal set out to get to 15 carriers and some of the transactions that recently adding drybulk spinoff out the Aframax. Just curious where the sort of strategy is going from here?

Harry Vafias

Yes, obviously, by doing the spinoff from the sale of the one ship, doesn't get us to our target, but we have to do this moves. Indeed, because of our amazingly strong financial position, with the cash and the all of the fleet being we need to grow, we need to find the opportunities to grow. And we will do so, as we have done in the past. So the goal of 16 ships is not that far away, we have already nine after selling the one tanker, and I think we can get to that within the next three to six months, unless something dramatic happens to the market.

Dillon Lanius

And then being a pure play, and now adding drybulks into the mix of -- as a fleet?

Harry Vafias

We never said we're going to be a pure play, we have to buy and sell ships according to the market cycles. And therefore, we will look to buy anything that makes sense for the company, the shareholders and the bottom line.

Dillon Lanius

Okay, thank you.

Operator

Thank you. We will now go to our next question. And the next question comes from the line of Ross Haberman from RLH Investments, please go ahead.

Ross Haberman

Good morning, Harry. How are you? I just had a question about the about the bulk transaction. You bought that ships from yourself? And then a year later you spun it off and took a $9 million writedown? Is that correct?

Harry Vafias

Not really.

Ross Haberman

That's how I read it. How would you describe that?

Harry Vafias

We bought the ship from an affiliated company, when the market was higher, because obviously we cannot predict the future. And then we spun them off. And because we spun them off, we had an impairment. Impairment is a non-cash item, it doesn’t affect us in any way financially, or cash flow wise. It's actually a protection. Because since we took the impairment, it means that if at any time we want to sell the ships, we're not going to have a loss. So, that's the summary of it.

Ross Haberman

I just want to make one observation that, these related party transactions, although you've done it and your Board blessed it. Optically, it doesn't look great. And I'm just saying that might be part of the reason why your stock trade at such a low multiple, that because of these related transactions, that not a good idea for the future. And I'll just say that…

Harry Vafias

When we were buying the ships from affiliates, when we were buying tankers from affiliated parties at $13 million and $14 million and then the same shot [ph] over $30 million we didn't hear the same comments. What do you say about that?

Ross Haberman

That worked out very well. I'm not going to say anything about that.

Harry Vafias

We were doing this business for many, many years, we've made a lot of money from buying and selling ships. Of course, markets move one way and the other like stocks do as well. We cannot have 100% accuracy on the predictions. If we can have the majority of our moves being right, then that's a good thing. Next question, please.

Operator

Thank you. We will now go to our last question for today. One moment, please. And your last question for today comes from the line of Eric Newman [multiple speakers].

Unidentified Analyst

Hey, Harry, how are you? Just had a question, you've put most of the tanker ships in the spot market. And I'm just curious if there's an availability to lock-in any of those ships with tanker rates, where they are today, does it make sense to secure longer time charters? And if you could give us a sense of the spread today between where maybe you'd be able to lock something in versus where the spot is, we appreciate it. Thanks.

Harry Vafias

That is, yes and no. The problem is that as you know, the majority of our ships are not very modern. The majority of the serial charters want more than ships. So if we had to charter some of our ships, it would have to be either a big discount or with second tier names.

Operator

Thank you. I will now hand the call back for closing remarks.

Harry Vafias

Thank you all for joining us on our conference call today, for your interest and trust in our company and we look forward to having you with us again at our conference call for our Q3 results. Thank you.

Operator

Thank you. This concludes today's conference call. Thanks for participating, you may now disconnect.

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