Pyxis Tankers Q3 2023 Earnings Call Transcript

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November 20, 2023

There are 3 speakers on the call.

Operator

Good day, and welcome to the Pyxus Tankers Conference Call to discuss the Financial Results for the Q3 of 2023. As a reminder, today's call is being recorded. Additionally, a live webcast of today's conference call and in the company's 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 Pyxus Tankers and Mr.

Operator

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.

Speaker 1

Good morning, everyone, and thank you for joining our call for results of the 3 months ended September 30, 2023. The Russia Ukraine war continues to be center stage for the impact to the global energy markets and disrupt economic and strategic priorities as well as Global Relationships and Trade. The recent turmoil in the Middle East may have far reaching implications for all, including increasing global volatility for the oil market. Restrictive monetary policies have resulted in slowing economic activity and Most recently, lowering of inflation within many OECD countries. China's economic recovery continues to lag expectations.

Speaker 1

In spite of these geopolitical and macroeconomic events, the product tanker sector maintains solid chartering activity and high asset values. At Pyxis, we continue to successfully navigate through these uncertain times, and we are pleased to report good operating and financial results for the most recent period. Before starting, please let me draw your attention Some important legal notifications on Slide 2 that we recommend you read, including our presentation Today, which will include forward looking statements. Thank you. Please turn to Slide 3.

Speaker 1

Our most recent quarterly results reflected healthy financial performance in revenues, operating cost control and profitability Despite the effect of operating 1 fewer vessel in our fleet, in the Q3 ended September of 2023, We generated consolidated time charter equivalents, TCs of $9,300,000 a decrease of $2,700,000 over the same period in 2022. Our daily time charter equivalent for our 4 equal By March in Q3, 2023 was approximately $28,000 which was down 3.6 And over the same quarter last year due to less spot chartering activity. We reported net income of $3,100,000 or $0.29 basic EPS for the most recent period, which was down from last year. Our adjusted EBITDA in Q3, 2023 was $5,500,000 Please note, our 3rd quarter results were a sequential improvement From Q2 2020. In September, we announced 2 important strategic decisions for our company.

Speaker 1

First, We closed the $6,800,000 equity investment in a joint venture for the acquisition of the 2016 Japanese built Ultramax Drybulk Carrier, We believe this countercyclical investment in the 1st class eco vessel, which is scrubber and ballast water treatment system fitted, Should provide attractive returns to Pyxis Tankers through a well managed structure. 2nd, we have agreed To sell the 2015 vessel, Pyxis Epsilon, for a very attractive price, 10 year high of almost 41,000,000 The vessel sale should close in December and net us approximately $26,400,000 in cash after repayment of associated bank debt and transaction fees and expenses. Similar to the sale of our 2,009 bit MR earlier this This year, we should make a sizable profit on the disposition of our 8 year old tanker. In the Q4, we expect to realize a gain of $17,100,000 or $1.62 per current outstanding share or $1.38 per diluted share. Upon closing of this latest transaction, we expect to have over $57,000,000 in available cash to pursue additional opportunities.

Speaker 1

These funds combined with the potential of accretive moderate amounts of lower cost bank debt Could furnish us with the firepower to double the size of our fleet under the right circumstances. As you can see on Slide 4, world events have significantly impacted our sector. Over the course of the Q3, the product tanker environment experienced normal seasonal improvement in charter rates. Moderating economic activity was accompanied by a reasonable demand for transportation flows worldwide despite higher prices. The ongoing Russia Ukraine war continued to result in moderating inventories of petroleum products, which remain below 5 year averages In numerous locations around the world, changing trade patterns, expansion of ton mine, these location trend markets creating arbitrage opportunities And high transportation costs.

Speaker 1

For example, in the U. S, recently reported inventories of diesel were 13% lower than 5 year averages. Refinery throughput should pick up in the Q4 as seasonal maintenance programs are completed combined with healthy crack spreads from solid global demand for products and lower crude prices. These developments support a constructive outlook for product tanker charterage. Please move to Slide 5 for information on our existing fleet and employment activities.

Speaker 1

We're continuing to prudently maintain our mix chartering strategy of time and spot charters with a focus on diversification by customer and duration. As you can see, We currently own and operate a fleet of 4 eco efficient MRs, which has an average age of 8.9 years, about 4 years younger than the industry average of 15 years. As previously mentioned, the fixed reception will be delivered to Herbaix shortly After concluding her current charter, 3 of our tankers are currently contracted under short term DCs and 1 in the spot market. As of November 20, 84% of the available days in Q4 for RMRs were booked at an average estimated TCE rate Of approximately 29,600, which at this point represents a 6% sequential increase over our Q3 daily chartering results. Our newly acquired dry bulk carrier, the Conqueror Me, Started her maiden voyage in early October under a short term PC at $16,250 per day.

Speaker 1

Next, turn to Slide 7 for a further update on the product tanker market. In addition to my prior comments about the market, Economic activity for most of the world has been resilient despite the effects of restricted monetary policies, the Ukrainian war and other geopolitical events. The EU and G7 Group ban on seaborne cargoes of Russia refined products We started in early February 2023 and subsequent price caps have limited Russian revenues, Created market dislocation, which has been compounded by lower inventories of certain refined petroleum products in many parts of the globe. Product exports from the refineries located in the Middle East, U. S.

Speaker 1

And certain parts of Asia continue expanding. At the end of October, a leading research firm forecast product tanker storm mine demand to grow 6% in 2024 with cargo volumes to rise 3.5%. Please turn to Slide 8 to review several macroeconomic considerations Support fundamental sector demand. Historically, shipborne trade or refined products has been moderately All related to global GDP growth. In October, the IMF slightly revised its global GDP growth estimates to average just under 3 Percent per annum for 2023, 20 24 due to buoyant economic activity, primarily in the OECD, offset by the adverse effects of significantly higher interest rates and persistently high, but declining inflation.

Speaker 1

In November, the IEA slightly revised its estimate of global oil consumption to increase 2,400,000 barrels per day or 2.4 percent to an average of 502,000,000 barrels per day in 2023. A continuation of the recent crude oil production cuts of 1,300,000 barrels per day by Saudi Arabia and Russia It is expected to result in tighter supplies through year end. However, incremental production is expected from the U. S, Canada, Brazil, Norway and Guyana. Early this month, EIA reported that U.

Speaker 1

S. Crude production hit a record 13,100,000 barrels per day in August and further growth is expected next year. Of course, evasive actions By Iran and the temporary relaxation of Venezuela and sanctions by the U. S. Supplement global oil supply.

Speaker 1

High oil prices in the Q3 have subsequently receded due to slowing global economic conditions combined with sufficient supply. BRS tanker Research recently stated that global refinery throughput should steadily rise during the current quarter to hit a record of 84,200,000 barrels per day in December. Longer term, product tanker demand will be supported by net additions to global refining landscape, Further driving ton mile expansion and cargo volumes from the U. S, Middle East, India and China. Now move to Slide 9.

Speaker 1

The project tanker supply picture is clear as the outlook for Amartus continues to look promising. While orders So the construction of new project tankers have picked up in 2023, the order book is still relatively low by historical standards. As of June 30, 2023, Drury estimated door to book Poromar 2 at 6.6% of the global fleet or 111 vessels. Due to huge backlogs, many Asian yards don't have available construction slots for MRs with deliveries on P-twenty 26. Delays in newbuild deliveries continue to be an unpredictable factor as slippage has run over 12% annually for the last 5 years.

Speaker 1

An owner's decision making process for tanker ignoring is further complicated by ongoing developments in ship and engine designs, Stricter environmental regulations escalated shipbuilding costs as well as an evolving and still unclear selection of availability of lower carbon fuels. As many as 144 vessels or 8.5 percent of the global fleet is 20 years of age or older, Significantly more than the order book. Given this large number, combined with declining economics of operating of the vessels, Including higher running costs, capital upgrades, possible slow steaming, as well as the implementation of new emission regulation and penalties Starting in 2024, greater vessel scrapping should occur over the next 5 years. Plus, we continue to estimate the net fleet Growth of MRs of less than 2% per year throughout 2024. Turning to Slide 10.

Speaker 1

Good chartering conditions have led to steep increases in asset prices across the board. In fact, a resale of a newly constructed MR2 is over $50,000,000 for prompt delivery. Values for secondhand tonnage is still up way above 10 gigabyte average, but prices for older tankers continue to soften. Construction contracts for new buildings now approach 47,000,000 exclusive of Yargu Supervision costs and add ons. Prices for young Eco efficient Demartos are staying near historical high And attractive acquisition opportunities continue to be rare.

Speaker 1

The premium price we obtained for the Pyxis Epsilon exemplifies a Sellers market for quality tonnage. Until we can develop compelling MRP projects, we will continue to consider other sectors, This can generate a strong value proposition for our shareholders. For example, our recent investment in the drybulk sector utilizes our management's Deep knowledge and operating experience in midsize carriers to achieve asset diversification at a different point in the shipping industry cycle, which allow us an attractive risk return profile. Maintaining a solid balance sheet with liquidity and quality, Modern fleet is paramount to the flexibility and implementation of the strategy. Additional investments in the drybulk sector may occur.

Speaker 1

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

Speaker 2

Thanks Eddie. On Slide 12, let's review our unaudited results for the 3 months ended September 30, 2023. Please note the company due to our control of the Drybulk joint venture consolidates in its financial statements the newly acquired Concorp Army. While we incurred approximately $700,000 of startup expenses At the end of the quarter, no revenues were recognized as your first voyage did not start until early October. Our time charter equivalent revenues for Q3, 2023, which we define as revenues net minus voyage related costs and commissions declined to $9,300,000 a decrease of $2,700,000 from the same period in 2022 due to lower spot charring activity which was offset by our utilization.

Speaker 2

More importantly, with the sale of our oldest vessel in March of 'twenty three, We operated 1 pure MR in the most recent period. In the Q3 of 2023, the TCE rate for our MRs was $28,000 per day, Still a healthy historical rate, but down $1,000 from the comparable 2022 period. Moving to Slide 13. We generated net income to Collins shareholders of $3,100,000 for the 3 months ended September 30, 2023 or $0.29 basic or $0.26 diluted EPS compared to a net income of $5,100,000 or $0.48 basic and $0.42 diluted income per share for the same period in 2022. For accounting purposes, the fully diluted earnings calculation assumes the potential conversion of all the outstanding Series A convertible preferred stock into common shares and the elimination of the associated dividend.

Speaker 2

In Q3, 2023, a significant portion of the decrease in TC revenues Flow through the income statement as adjusted EBITDA decreased $5,100,000 to a respectful $5,500,000 Now look to Slide 14 to review our capitalization at September 30, 2023. At quarter close, our consolidated leverage ratio of net funded debt stood at 27% of total capitalization and now reflects the inclusion of the concur for me. The weighted average interest rate of our loans was about 8.25% in the most recent quarter. The next bank loan maturity is scheduled for July of 2025. I should point out that as of September 30, 2023, our total cash position was $34,100,000 Most of our excess cash is invested in short term money market instruments, which currently earn an average deposit rate of 5.7%.

Speaker 2

Upon closing of the sale of the Excess Epsilon in December, our cash position should grow by another $26,400,000 As of December 14, we have purchased over 294,000 common shares in total at an average price of $3.72 including commissions under our authorized $2,000,000 buyback program. We have up to another $900,000 remaining under this program, which has been extended until May 2024. Lastly, we have completed the 10th year special surveys for both the Pyxis Theta and Pyxis Cartiera at an aggregate cost of $2,300,000 43 dry docking days. Our next special survey is not scheduled until 2026. With that, I would like to turn the call back over to Eddie to conclude our presentation.

Speaker 1

Thanks, Henry. Over the near term, we expect fundamental demand to remain relatively in balance with supply. Macroeconomic headwinds and rising uncertainty from geopolitical conflicts create challenges and opportunities for the product tanker sector. We continue to benefit from the combination of solid end market consumption, moderate to low refined product inventories in many parts of the world, Changing trade patterns and expanding tonnage. Scheduled developments for the refinery landscape only enhance the long term outlook of our sector.

Speaker 1

We will effectively utilize our strong financial position of excess cash and the potential availability of modern leverage as well as deep industry knowledge and relationships to seize compelling investment opportunities that We appreciate your interest and thank you for joining our call today. We look forward to reporting on future progress at Pyxis Tankers. Enjoy the fall and upcoming holidays and be well.

Operator

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

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