IMPPP - Imperial Petroleum Inc. (IMPP) Q3 2023 Earnings Call Transcript

2023-10-25 13:17:08 ET

Imperial Petroleum Inc. (IMPP)

Q3 2023 Earnings Conference Call

October 25, 2023 11:00 AM ET

Company Participants

Harry Vafias - CEO

Ifigeneia Sakellari - Interim CFO

Conference Call Participants

Presentation

Harry Vafias

Good morning, everyone, and thank you all for joining us for our Third Quarter and Nine Months 2023 Call of Imperial Petroleum. I'm Harry Vafias, the CEO of the company and with me today is Ms. Ifigeneia Sakellari, who will be discussing our financial performance.

Before we commence our discussion, please look at 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.

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 US dollars.

Starting on Slide 3, it’s a summary of our company's performance highlights. Since Q1 2022, we have had profitable quarters repeatedly. This is the seventh quarter we managed to maintain our profitability and we strive to continue to do so.

The third quarter of 2023 added to our established strong results as in the nine months of 2023 period, our total net income came in at circa $64 million corresponding to an EPS of $3.59, which is far higher than our current share price levels. Although profitable, our Q3 results did not reflect the strong momentum of the past couple of quarters.

Seasonal factors in conjunction with three scheduled drydockings that took place in this quarter hindered our revenue generation, which amounted to $29.4 million, an amount lower than expected.

Idle time faced both due to technical and commercial reasons was higher and is moreover evident by the 70.5% quarterly operational utilization. Although the tanker market remains strong in Q3, we did witness a softness in rates and demand, mostly attributed to the summer period.

Apart from lower revenue generation, we did incur $3 million of drydocking costs and almost 100 days of technical off hire due to the scheduled drydocking of three of our product tankers.

On the other hand, our results this quarter were enhanced by our hefty gain from the sale of our Aframax tanker, the Afrapearl II. This amounted to $8.2 million, along with $600,000 of related interest income accrued to-date. Imperial Petroleum continues to enjoy an admirable free cash base of $126 million, which is approximately three times higher than our market cap.

In addition, as a means to give value back to our shareholders and indirectly contain dilution, we commenced a share buyback scheme under which we have bought to-date about 1.1 million shares and proceeded as well with the repurchase of 2.6 million of outstanding warrants.

On Slide 4, we provide the summary of our current fleet employment. Both of our handysize bulk carriers are on a short time charters, expiring in November 2023 and January 2024, respectively. While all of our tankers are operating in the spot market, the spot market remains favorable and hence as a general trend owners prefer spot activity than committing vessels to time charters.

In Q3, tanker rates were affected by seasonal factors. However, the recent crisis in the Middle East has caused the rise in day rates, particularly for the Suezmax and Aframax tankers. Looking at our dry vessels, we do witnessed a slight improvement in rates, but the market is still well below the 2022 levels.

On Slide 5, we're reviewing the tanker market. The global economic activity has been affected. Russia's invasion in Ukraine, the past COVID-19 pandemic, and most recently, the crisis in the Middle East. In this environment, the IMF expects global GDP growth to fall from 3.5% in 2022 to about 3% in both 2023 and 2024.

In spite of the expected economic slowdown and concerns about the deceleration of China's economy, energy demand outlook remains positive. Global oil demand surged in June 2023 and is forecasted to increase by 2.4 million barrels in 2023, followed by another 2.2 million barrels per day in 2024.

In terms of oil supply, its anticipated that low inventories will exert upward pressure on oil prices. Market will be governed by a supply shortfall, the extent of which will mostly depend on non-OPEC production levels.

The Russia-Ukraine conflict has had a long lasting effect on the tanker market. Tanker ton-miles have grown by 3.8% in 2023 and this growth has been supported by the sanctions imposed on Russian oil trades.

In Q3 2023, we saw a softer tanker market in general than what we saw in the first two quarters of this year, both on the dirty and on the clean side. This is in line with normal seasonal trends. However, on the dirty side, we also saw voluntary cuts by Saudi Arabia, combined with Russia, finally leaving up to the announced oil supplier reductions, factors have led to a further decrease of export volumes and consequently, to a downward pressure on day rates.

On the clean side, the market experienced significant volume reductions, resulting from the refinery maintenance season and this combined with lower than expected restocking of storage in Europe meant lower earnings for owners compared to the average earnings during the first half of this year.

The expectation going forward is a rebound of both dirty and clean market in Q4. The major shifts include product trade flows resulting from the sanctions getting the Russian petroleum exports remain in place and this is expected to support the tanker market at least in the short to medium term.

The current crisis in the Middle East is adding further uncertainty to the oil market, resulting in more oil price volatility. With the conflict as it stands, we don't expect to have a major impact on tanker markets. However, should the conflict escalate further then the risk of major impact on the tanker market will multiply.

The state of [Indiscernible], probably the more strategic narrow passage for oil and oil products in the world could then be at risk of a military conflict. This, again, could give a major boost to tanker day rates.

On Slide 6, focusing on the product tanker market, the global product tanker order book stands at 167 vessels, 6% of the total fleet. A total of 17 vessels are scheduled for delivery within the remainder of this year. Going forward, we do anticipate a shortage of vessels as the ratio of order book to vessels over 20 years of age is 44%.

Berth capacity is limited up until 2027 due to non-existent yard space and owners need to consider environmental regulations, which are due to come in force over the coming years before committing to the purchase of any new ship.

I will pass now the floor to Ms. Sakellari, who will provide a summary of our financial performance.

Ifigeneia Sakellari

Thank you, Harry, and good morning to everyone. When looking at the nine months for 2023 period of this year, our total profit generation is impressed. In the nine months of 2023, we have generated a net income close to $63 million, an outstanding performance given that we operate a small fleet of 10 vessels.

Focusing solely on the third quarter of 2023, this indeed was a softer quarter than prior periods, mostly due to seasonal factors. Our fleet operational utilization for the third quarter of the year came in at about 71% as we had about a 100 days of technical off hire due to the scheduled drydocking of three of our product tankers and commercial ideal days stemming mostly from our Suezmax tankers, the Suez Protopia. About 67% of our fleet calendar days equivalent to 565 days were dedicated to spot activity.

Looking at our income statement for Q3 2023 on Slide 7 compared to Q3 2022, revenues came in at $29.4 million compared to $42.6 million due to decline in revenues resulting from the sale of Afrapearl II, increased idle time due to three scheduled drydockings, and one of our Suezmax tanker being commercially idle for one-third of the quarter.

Voyage cost decreased by $5.8 million due to the decrease of our daily banker costs by $13,400 as a result of oil prices in Q3 2023. Our running costs increased by $1.2 million due to the increase in the average number of our vessels. In this quarter, we also incurred a $8.2 million gain on sale related to the sale of our Aframax tanker Afrapearl II to C3is Inc.

In relation to the sale, we also incurred $600,000 of interest income accrued in connection with the remaining consideration of $38.7 million, which is receivable by July 2024.

In terms of drydocking costs, this amounted to $2.7 million as three of our product tankers underwent drydocking. We have another two drydockings up to the end of 2023, but only one more scheduled drydocking for the period 2024 and 2025. Basis the above, we generated for the quarter an EBITDA of $14 million and a net profit of $12.1 million corresponding to a basic EPS of $0.56.

Moving on to Slide 8, let us take a look at our balance sheet for the nine months of 2023. As of September 30, 2023, we had the free cash base of about $126 million. Indeed, our operating cash flow for the nine-month period came in at $74 million. Thus, in this brief period, we generated from our fleet operations cash almost 1.5 times on current market capitalization.

In Slide 9, we present a financial snapshot placing emphasis on our solid financial position. Our cash balance is quite high in the region of $130 million. We have about $70 million of committed capital expenditure for the acquisition of two tankers with delivery within January 2024.

In addition to this, we have a receivable of almost $39 million from C3is Inc., payable by July 2024. Full debt repayment has led to annual cash flow saving principal initiatives of almost $15 million. We enjoy both a healthy liquidity and financial structure.

Looking at our profitability in nine months 2023, our daily time charter equivalent per vessel came in the order of $38,500. Our return on equity basis trailing last 12 months is region 27%.

One of our obligations in terms of capital expenditure is as mentioned, that we have two scheduled drydockings for Q4 2023. But following this, we only have one more scheduled drydocking for the period 2024-2025. So, our vessel capital commitments will decline drastically.

Concluding our presentation with Slide 10, we simply outlined once more the key factors that assist our successful performance. Imperial Petroleum has a proven track record of profit and cash flow generation, sound capital structure management, and fleet expansion, while preserving a strong cash base, which we hope that market condition will allow us to preserve.

At this stage, our CEO, Mr. Harry Vafias will summarize our concluding remarks for the period examined.

Harry Vafias

I'm very pleased with our performance during the nine months of this year. In this period, we managed to generate net income of $64.7 million and operating cash flow of $73.7 million, both results being well above our current market cap.

I'm also pleased by our Board's strategic decision to commence a share buyback program of $10 million as this is a means to give value back to our shareholders. Under this program, we have purchased to-date about 1.1 million shares and in addition, we have repurchased 2.58 million outstanding warrants. As we aspired that these recent moves together with our strong financial results and healthy balance sheet will soon be reflected in our share price.

Question-and-Answer Session

End of Q&A

We would like to thank you all for joining us at our conference call today and for your interest and trust in your company and we look forward to having you with us again for our fourth quarter results. Thank you.

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