PXSAP - Pyxis Tankers Inc. (PXS) Q4 2022 Earnings Call Transcript

2023-03-17 16:05:20 ET

Pyxis Tankers Inc. (PXS)

Q4 2022 Results Conference Call

March 16, 2023 08:30 AM 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 fourth quarter 2022. 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 to one of your speakers today, Mr. Eddie Valentis. Please go ahead, sir.

Eddie Valentis

Good morning, everyone, and thank you for joining our call for results of the 3 months and year ended December 31, 2022. The Russian invasion of the Ukraine continues to take center stage, affecting global energy markets and resetting personal, economic and strategic priorities as well as global relationships and trade. Many countries within the OECD are showing resilience as they battle high inflation, cost of living increases and the slowdown in economic activity. In spite of this, the product tanker sector continues to be positively affected with solid chartering activity and high asset values.

At Pyxis, we continue to successfully manage through these unprecedented times and are pleased to report outstanding 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 exceptional financial performances in revenues, operating cost control and profitability in the fourth quarter ended December 31, 2022. We generated consolidated time charter equivalent revenues TCE of $13.8 million, an increase of $10 million over the same period in 2021 and sequential growth of 16% over the previous calendar quarter. Charter rates continued to accelerate during the quarter, especially in the spot market. Our daily TCE for Q4 2022 for our 5 eco-MR2’s was $33,182 sequentially, up 14.2% over the prior quarter, and that's up a factor of 3.8x versus the results in the same period last year.

Moreover, we reported net income of $6.5 million or $0.61 per share basic EPS for the most recent period versus significant losses in 2021. Our adjusted EBITDA in Q4 2022 climbed to $9.7 million. I should point out that last week, we announced the sale of our oldest vessel, the Pyxis Malou, for $24.8 million, a very high price in relation to historical averages. The transaction should close by the end of the month and net us about $18 million in cash after repayment of the vessel's debt and related fees and expenses.

We expect to book a noncash gain on the vessel sale of $8 million or $0.75 per basic share in the first quarter of 2023. We will use these funds for general corporate purposes, including further loan repayment and strategic opportunities. Over the course of the fourth quarter, the product tanker chartering environment experienced further strength. This was the function of increased mobility, which amplify demand for transportation fuels, despite moderating economic activity.

In addition, the ongoing Russian invasion of Ukraine has resulted in tightening of product inventories, which continue to be below 5-year averages in a number of locations around the world, changing trade patterns, expansion of ton-miles, dislocation to end markets, creating arbitrage opportunities and higher transportation costs. While high inflation persists, petroleum product prices, such as gasoline and diesel have declined since the high points of last summer 2022.

The refinery activity continues to be solid with healthy crack spreads, reflecting good global demand. These developments have translated in strong product tanker charter rates in the spot market and greater time charter activity. However, and usually winter weather in parts of the Northern Hemisphere and stockpiling of certain refined petroleum products in Europe, such as diesel, temporarily moderate spot charter rates in the planting basin in the first part of the new quarter. Our bookings for Q1 2023 continue to be constructive.

And as of March 14, 80% of our available base for the first quarter were booked at an average estimated TCE of $28,000 per day. We are continuing to maintain our mixed chartering strategy of time and spot charters with a focus on diversification by customer and duration.

Please turn to Slide 4 for information on our existing fleet and employment activities. As you can see, one of our vessels, the Pyxis Malou is currently in the spot market and the remaining 4 MRs are contracted under short-term time charters that run up to next fall. For the Q1 bookings, the average estimated spot charter rate is $26,400 per day and another time charter rate of $29,400. We believe our chartering strategy provides a reasonable balance of risk and return, especially for a small company like ours. Please note that upon the sale of Malou, the average age of the fleet will be around 8 years.

Next, please turn to Slide 6 for a further update on the product tanker market. In addition to my prior comments about the market, the recent economic activity for most of the world has been affected by the war and other geopolitical events. Initial sanctions on exports of petroleum products have had limited financing impact on Russia, which has benefited from market dislocation and low inventories in many parts of the world. In advance of the EU and G7 group ban on seaborne cargoes of Russian refined products starting in early February 2023, and related price cash, extensive inventories have been built up in Europe since December.

This pull forward of demand is viewed as temporary and high inventory should be unwound by the second quarter. And nevertheless, events like this one, add to the complexities of the market. Exports from the refineries located in the Middle East, U.S. and certain parts of Asia are expanding. Last year, U.S. exports of oil products grew on average 10%.

According to Drewry, an independent industry research firm, in 2022, shipborne trade of oil products increased 2.8% to over 1 billion tons, while ton-miles rose 6.7% to almost 3.5 trillion. Overall, research analysts estimate that transfers and sanctions could potentially provide up to 12% in incremental product tanker demand in 2023. The recent changes in trade routes can be seen on Slide 7.

Near-term demand for refined products should also get a boost as China has lifted its severe COVID restrictions over the last 3 years. We have already seen increasing demand for transportation fuels, more recently for air travel and mobility expand and the economy accelerates. Higher levels of government approved export quotas during the late 2022 and Q1 2023 has supported chartering activities, primarily in the Pacific basin.

Please turn to Slide 8 to review several macroeconomic considerations, which support fundamental sector demand. Historically, , seaborne trade of refined products has been relatively correlated to global GDP growth. In January, the IMF upgraded its GDP growth estimates to 2.9% for this year due to stronger economic activity, primarily in the OECD and the reopening of China, which is now expected to grow 5.2% versus the recent historical low of 3% last 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. Adequate supply of crude oil should be available from OPEC+, which should adhere to its production quarters through the end of the year. According to the EIA, the U.S. should increase average oil production in 2023 by 4.7% to 12.5 million barrels per day. Exclusive of sanctioned countries, such as Venezuela and Iran, added oil production is expected from Canada, Norway and Guyana.

Now move to Slide 9. Over the longest 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 planned shutdowns are likely to slow given better refinery economics.

But over the long run, closures should further contribute to the importing of refined products into mature, large OECD markets and provide additional ton-mile expansion. As we approach seasonal refinery maintenance programs, mainly refineries, including those in the U.S. are experiencing solid throughput and healthy crack spreads in order to meet solid product demand. Buying cheap Russian crude oil has been a margin advantage for refineries primarily located in India and China, supporting domestic supplies and seaborne exports. Many of these cargoes consist of transportation fuels, which continue to be carried on MRs within the Asian region.

Let's move on to Slide 10. The product tanker supply picture is much clearer as the outlook for MR2s continues to look very promising. The order book is historically low with the limited new ordering for product tankers. According to Drewry, as of February 28, 2020, the order book for MR2s 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 ordering of new containers ships, gas carriers and dry bulk vessels, many Asian yards don't have available construction slots for a month with deliveries until at least 2025. Delays in new-build deliveries continue to be a concern and slippage around 15% in 2022. Known decision-making process for tanker and new ordering is further complicated by ongoing developments in ship and engine designs, stricter environmental regulations, escalating ship-building costs as well as an evolving and still unclear selection of availability of lower carbon fuels.

New IMO regulations governing CO2 emissions, including data collections and ratings under EEXI & CII starting 2023, and could limit available supply due to slow steaming of older vessels. Only 5 MR2s were demolished in 2022, principally due to the stronger 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 older 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 11. In robust charter conditions have led to steep increases in asset prices across the board. New-building prices are now approximately $45 million, exclusive of yard supervision and add-ons with deliver in about 2 years. Values for young, eco-efficient MR2's are near historical highs and acquisition opportunities are rare. Higher asset prices have increased our fleet valuation and net asset value. And our recent sale of the Pyxis Malou confirms that. But unfortunately, we still trade at a significant discount to NAV.

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 13, let's review our unaudited results for the 3 months ended December 31, 2022. Our time charter equivalent revenues for Q4 of '22, which we define as revenues net minus voyage-related costs and commissions, further accelerated to $13.8 million, an increase of $10 million from the same period in 2021 due to higher charter rates, especially in the spot charter market where we incur higher voyage-related costs and commissions as well as the impact from changes in our fleet. In the 2022 period, we operated 1 additional MR. In the fourth quarter of '22, the TCE rate for our MRs was $33,182 per day, a dramatic increase from the comparable 2021 period.

Moving to Slide 14. We generated net income to common shareholders of $6.5 million for the 3 months ended December 31, 2022 or $0.61 basic and $0.53 diluted EPS compared to a net loss of $5.6 million or $0.58 basic and diluted loss per share in the same period in 2021. For accounting purposes, the fully diluted earnings calculation in 2022 assumes the potential conversion of all the outstanding Series A convertible preferred stock into common shares and the elimination of the associated dividend. In Q4 '22, a substantial portion of the increase in TCE revenues dropped to the bottom line. Adjusted EBITDA rose to $9.7 million, an improvement of $10.4 million from Q4 of last year.

Now let's review year-end results. For the 12 months ended December 31, '22, we reported TCE revenues of $41 million, an increase of over $23.2 million, primarily due to significantly higher spot charter rates and greater spot employment. In fiscal '22, the daily TCE for our MRs was $25,739, substantially higher than 2021. After payment of preferred stock dividends, we generated net income of $12.5 million, a swing of $25 million from the loss of 2021. EPS for 2022 was $1.18 basic and $1.06 diluted, a dramatic turnaround from the prior year. Adjusted EBITDA was $24.3 million in 2022, representing a $25 million improvement.

Please turn to Slide 15, which reviews our recent MR fleet data as we operate 1 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. Beyond the significant improvement in TCE, the key takeaway for 2022 is slightly lower vessel operating expenses despite rising cost pressures such as crewing, insurance and lubes. Clearly, our results reflect our commitment to a tight operating cost structure.

Turning to Slide 16. As you may recall, we believe it is important to periodically review total daily operational cost to run and manage a public tanker company, including overhead. These costs vary by fleet composition, vessel delivery or removal, company operating structure and management. We define total daily operational costs as the sum of vessel operating expenses, technical and commercial management costs plus G&A. Based on recent results, once again, the daily total operational costs of our modern eco-efficient MR2s continue to be very cost competitive in contrast to our U.S. listed pure-play peers despite our smaller size.

Now flip to Slide 17 to review our capitalization at December 31, 2022. At year-end, our total consolidated leverage ratio of net funded debt stood at approximately 46% total capitalization. We continue to be in full compliance with our loan agreements. Due to increases in LIBOR, our weighted average interest rate was 7.25% for the most recent quarter and the next bank loan matures July of 2025. I should point out that our total cash position at year-end was $10.2 million and should only increase in the current quarter due to free cash flow generated from operations plus the expected receipt of net proceeds from vessel sale. With that, I'd 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 is relatively in balance with supply. However, 2 major catalysts for the product tanker sector are now underway. The impact from increasing sanctions of seaborne cargoes of Russian refined products and very opening of China despite the recent macroeconomic headwinds and geopolitical conflicts, the combination of solid end market consumption, moderating product inventories in many parts of the world, changing trade patterns and expanding ton-miles continue to support a strong chartering environment.

Scheduled developments for the refinery landscape only enhance the long-term outlook of the sector. Given various uncertainties on growing complexity, we will stay on course with our mixed chartering strategy of time charters complemented by spot employment in order to prudently optimize revenues and provide cash flow visibility. Our sizable cash position and low leverage, strengthen our operating and financial flexibility as well as broaden strategic opportunities 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.

Question-and-Answer Session

Operator

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