PXSAP - Pyxis Tankers Inc. (PXS) Q1 2023 Earnings Call Transcript

2023-05-16 16:52:07 ET

Pyxis Tankers Inc. (PXS)

Q1 2023 Earnings Conference Call

May 15, 2023, 04:30 PM ET

Company Participants

Eddie Valentis - Chairman and CEO

Henry Williams - CFO

Conference Call Participants

Presentation

Operator

Good day, and welcome to the Pyxis Tankers conference call to discuss the Financial Results for the First Quarter 2023. As a reminder, today's call is being recorded. Additionally, a live webcast of today's conference call and an accompanying presentation is available on Pyxis Tankers website, which is www.pyxistankers.com.

Hosting the call is Mr. Eddie Valentis, Chairman and Chief Executive Officer of Pyxis Tankers; and Mr. Henry Williams, Chief Financial Officer of the company.

I would like to pass the floor over to one of your speakers today, Mr. Eddie Valentis. Please go ahead, sir.

Eddie Valentis

Good afternoon, everyone, and thank you for joining our call to review the results of the three months ended March 31, 2023.

The recent announcement by OPEC+ to cut its members' crude oil production by 1.65 million barrels, starting this month has now joined the Russian invasion of Ukraine as the focal points affecting global energy markets. Many countries within the OECD continue to show resilience as they battle high inflation, tighter monetary policies and the slowing economic activity. In spite of this, the product tanker sector continues to be positively affected with healthy chartering activities and high asset values.

At Pyxis, we continue to successfully manage through these uncertain times and are pleased to report good operating and financial results for the most recent period.

Before starting, please let me draw your attention to some important legal notifications on Slide 2 that we recommend you read, including our presentation today, which will include forward-looking statements. Thank you.

Turning to Slide 3, our most recent quarterly results reflected solid financial performance in operating revenue and stability, combined with a substantial gain from vessel sales. In the first quarter ended March 31, we generated consolidated time charter equivalent revenues, TCE of $9.2 million, an increase of 139% over the same period in 2022. Initially, spot charter rates were soft in the Atlantic Basin during the first quarter but subsequently rebounded as the period progressed.

We completed the sale of our oldest tanker, the Pyxis Malou in late March for $24.8 million to realize a noncash gain on sale of $8 million and almost $19 million in net cash proceeds. In Q1 '23, our daily TCE for our MRs was $23,508, more than double the results in the same period last year. Most importantly, we reported net income to common shareholders of $8.7 million or $0.81 basic EPS for the most recent period versus significant losses in 2022.

Our adjusted EBITDA in Q1 '23 improved to $4.2 million. Over the course of the first quarter, the product tanker chartering environment experienced further strength. This was a function of increased mobility, which amplified demand for transportation fuels, despite moderating global economic activity and the recovery in China.

The ongoing Russian invasion of the Ukraine resulted in tight stocks of refined petroleum products, many of which continue to be below five year averages in a number of locations around the world, changing trade patterns, expansion of ton-mile and dislocation to end the markets, creating arbitrage opportunities and greater transportation costs. While high inflation persists, petroleum product prices such as gasoline and diesel have further declined since the high point of last summer 2022.

As seasonal turnarounds wrap up in the Northern Hemisphere, the refinery activity continues to be solid, but at lower yet profitable crack spreads still reflecting good global demand. These developments have translated into a healthy contract tanker chartering, amidst the volatile spot market and meaningful time charter activity. After the recent vessel sale, we now own and operate four eco-efficient MRs, which have an average age of 8.6 years, significantly below the industry average.

Our booking rates for Q2 2023 continue to be constructive. And as of May 11, 70% of our available days for the second quarter were booked at an average estimated TCE of $29,160, sequentially up from the Q1 results.

Please turn to Slide 4 for information on existing fleet and employment activities. While all our tankers are currently on the short-term time charters, we expect to maintain our mixed chartering strategy assignments for charters with a focus on diversification by customer and duration. We believe our chartering strategy provides a reasonable balance of risk and return, especially for a small company like ours.

Next, please turn to Slide 6 for a further update on the product tanker market. In addition to my prior comments about the market, global economic activity continues to be impacted by the war and the evolving uncertainty of geopolitical events. Stepped-up sanctions, including the recent ban of Russian refined product cargoes by the EU on the seven countries and related price caps have reportedly reduced revenues to Russia, which has benefited from trade dislocation and low inventories in many parts of the world and found some new end markets, mostly involving longer sailing distances.

Product exports from the refineries located in the Middle East, U.S. and certain parts of Asia are also expanding with longer voyages. According to Drewry, an independent industry research firm, in 2022, seaborne trade of oil products increased 2.8% to over 1 billion tons, while ton-miles rose 6.7% to almost 3.5 trillion. Recently, a leading research firm estimated that global product tanker ton mines increased 13% in the first quarter of '23 versus the same period in the prior year.

For '23, that firm estimated ton-miles to increase 11%, volumes to grow 4% and voyage distances to rise 7% to 8% year-on-year. Near-term demand for refined products should also get a boost as China has lifted its severe COVID restrictions late last year. We have already seen increasing demand for transportation fuels, more recently for air travel as mobility expands and the economy accelerates. Higher levels of government-approved export quotas have supported chartering activities initially in the Pacific Basin, but may move into more distant markets.

Please turn to Slide 7 to review several macroeconomic considerations which support fundamental sector demand. Historically, seaborne trade of refined projects have been relatively correlated to global GDP growth. In the latest update, the IMF slightly lowered its global GDP growth, estimated to 2.8% for this year due to the effects of high inflation, tighter monetary policies and slowing economic activity, primarily in the OECD.

However, based on first quarter results, China seems to be on track to achieve an estimated growth rate of 5.2% for this year. The IEA recently revised its global oil consumption to increase 2 million barrels per day or 2% to an average of approximately 102 million barrels per day for 2023. Despite the recent OPEC class announcement for a production cut, there seems to be adequate supply of crude oil.

Brent is expected to maintain its current price within the range of $75 to $80 by year-end according to various analysts. The EIA just updated its 2023 estimate for U.S. crude production to increase 5.1% to 12.5 million barrels per day.

Now move to Slide 8, over the longer term, we expect demand for the product tanker sector to be supported by refinery additions led by the Middle East and Asia. Drewry estimates that over 4.7 million barrels per day of new refinery capacity is scheduled to come online by 2026, mostly outside the OECD. Originally, plant shutdowns are likely to slow given better refinery economics and market disruptions. But over the long run, closures should further contribute to the importing refined products into mature large OECD markets and provide additional ton-mile expansion, thereby reducing available tanker capacity.

Let's move to Slide 9. The product tanker supply picture is much clearer and the outlook for MR2s continues to look very promising. The order book is historically low with limited new ordering for product tankers. According to Drewry, as of February 28, 2023, the order book for MR2 stood at 5.8% of the global fleet or 99 vessels, of which only 31 are scheduled for delivery during the remainder of the year.

Due to the surge in new orders for the other types of ships, many Asian yards don't have available construction slots for MRs with deliveries until late 2025. Delays in newbuild deliveries continue to be a concern, as slippage around 15% in 2022. And owners decision-making process for tanking ordering is further complicated by ongoing development in ship and engine designs, stricter environmental regulations, escalating shipbuilding costs as well as an evolving and clear selection and availability of lower carbon fuels.

New IMO regulations governing CO2 emissions, including data collection under EEXI & CII have started and may limit available supply due to slow steaming by older vessels. Only five MR2s were demolished in 2022 and zero so far in 2023, principally due to the strong chartering environment. However, 178 vessels or 10.4% of the global fleet is 20 years of age or older, almost double the order book. Given this large number, combined with declining economics of running all the vessels, major scrapping should occur over the next 5 years. Thus, we estimate the net fleet growth for MRs of less than 2% per year through 2024.

Turning to Slide 10, robust charter conditions have led to steep increases in asset prices across the board. New building prices now approached $46 million, exclusive of yard supervision costs and add-ons with delivery in late 2025. Values for young eco-efficient MR2s continue to be near historical highs and acquisition opportunities are rare. Higher asset prices have increased our fleet valuation and combined with a better balance sheet, our net asset value has risen. Unfortunately, our share price has not.

At this point, I would like to turn the call over to Henry Williams, our Chief Financial Officer, who will discuss our financial results in greater detail.

Henry Williams

Thanks, Eddie. On Slide 12, let's review our unaudited results for the three months ended March 31, 2023. Our time charter equivalent revenues for Q1 of '23, which we define as revenues net minus voyage-related costs and commissions improved to $9.2 million, an increase of almost $5.4 million from the same period in 2022, primarily due to higher charter rates.

In March, we completed the sale of our oldest tanker. So by the end of the 2023 period, we operated 4 MRs. In the most recent quarter, utilization picked up significantly. But importantly, TCE rate for our MRs was $23,508 per day, a dramatic increase from the comparable 2022 period.

Moving to Slide 13, we generated net income to common shareholders of $8.7 million for the three months ended March 31, 2023, or $0.81 basic and $0.71 diluted EPS compared to a net loss of $3.7 million or $0.34 basic and diluted loss per share in the same period in 2022. For accounting purposes, the fully diluted earnings calculation in 2023 assumes the potential conversion of all outstanding Series A convertible preferred stock into common shares and the elimination of the associate dividend. In Q1 '23, a substantial portion of the increase in TCE revenues dropped to the bottom line. Adjusted EBITDA rose $4.2 million, an improvement of $4.9 million from Q1 of last year.

Please turn to Slide 14, which reveals our recent MR fleet data as we operated one eco-modified vessel, the Malou and 4 eco efficient tankers. Given the size of our fleet, changes in these metrics related to a single vessel in one reporting period can have disproportionate effects on the total fleet operating results. For example, during March 23, we sold the 2009-built eco-modified tanker and commenced the special survey of the Pyxis Karteria.

Overall, the key takeaways for Q1 of '23 was higher charter revenues for the eco-efficient MRs more than offset rising vessel operating expenses, but inflation continues to be a concern.

Now flip to Slide 15 to review our capitalization at March 31, 2023. At quarter end, our consolidated leverage ratio of net funded debt stood at approximately 23% of total capitalization with book value per fully diluted common share of $5.56. Due to increases in LIBOR, SOFR, our weighted average interest rate was 8.15% for the most recent quarter and the next bank loan maturity is July of 2025.

For the remainder of this year, we have one special survey, which is scheduled for late summer at an estimated total cost of approximately $1.25 million, including BWTS installation. I should point out that our total cash position at March 31 of $30.5 million should only increase in the current quarter due to free cash flow generated from operations.

With that, I would like to turn the call back over to Eddie to conclude our presentation.

Eddie Valentis

Thanks, Henry. As we discussed over the near term, fundamental demand looks to be relatively in balance with supply. Despite recent macroeconomic headwinds and geopolitical conflicts, the combination of solid end market consumption, relatively low product inventories in many parts of the world, changing trade patterns and expanding ton-miles continue to support a healthy chartering environment.

Scheduled additions to the global refinery landscape only enhance the long-term outlook of the sector. Given various uncertainties and growing complexity, we will continue our mixed chartering strategy of time charters complemented by spot deployment in order to prudently optimize revenues and provide cash flow visibility. Our sizable and growing cash position and low leverage, strengthen our operating and financial flexibility as well as broadened corporate and strategic opportunities for us to further increase shareholder value.

We appreciate your interest and thank you for joining our call today. We look forward to reporting on future progress at Pyxis Tankers. Be safe, be well.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Question-and-Answer Session

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