Pyxis Tankers Q3 2024 Earnings Call Transcript

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November 22, 2024

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 2024. I must advise you that the conference 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.

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

Hello, everyone, and thank you for joining our call for results of the 3 months ended September 30, 2024. The disruption on global seaborne trade from the Russia Ukraine war and the expanding conflict in the Middle East continues. Global economic activity remains resilient despite the restrictive monetary policies by many central banks. Encouragingly, inflationary pressures are easing and we anticipate further interest rate cuts in the near term, which should support broader economic growth. The fundamental outlook for our core sectors, product tankers and drybulk carriers remains supportive with relatively firm asset values despite the recent softening of the chartering environment.

Speaker 1

Market conditions remain highly dynamic and can be significantly influenced by macroeconomic and geopolitical events, which are beyond our control. Before commenting on our operating and financial results for the most recent period, please let me draw your attention to some important legal notification 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 with strong revenues and profitability driven by supportive market conditions and our successful expansion into the drybulk sector.

Speaker 1

Following the acquisition of the 2015 built Kamsarmax in late June, we entered the Q3 with a fleet of 6 modern midsized eco vessels consisting of 3 MR2 product tankers, 1 Ultramax and 2 larger Kamsarmax bulk carriers. In the quarter ended September 30, 2024, we generated consolidated time charter equivalent revenues, TCE, of $11,700,000 marking an increase of over 25% from the same period in 2023. Our daily TCE for our fleet in Q3 2024 was approximately $22,000 with the MRs averaging almost $30,000 while our mid sized bulkers earnings slightly less than $14,000 per day. For the most recent period, we reported net income of $3,500,000 or $0.34 basic EPS, representing a $0.05 per share improvement compared to Q3 2023. Additionally, our adjusted EBITDA in the most recent period rose to $6,700,000 The product tanker chartering environment remained strong until the latter part of Q3 of 2024.

Speaker 1

Slower global economic activity, especially in China, was met with the worldwide impact from continued regional armed facilities and tight inventories of refined petroleum products in a number of locations. Trade dislocation persisted with moderating ton mine growth. Global refinery activity was supported in spite of lower crack spreads and slowing consumption, especially during the seasonal softer Q3. We are guardedly optimistic as we move further into the last quarter of the year, which is typically firmer due to the end of refinery maintenance and stronger seasonal petroleum product demand in the Northern Hemisphere. As of November 20, 69 percent of available days in Q4 2024 were booked for our MRs at an average estimated TCE rate of $24,630 per day.

Speaker 1

Still a healthy rate, but about $5,000 lower than the rate reported for the 3 months period ended September 30, 2024. 1 of our MRs is employed under a short term time charter and 2 are operating in the spot market. The supply demand fundamentals for the dry bulk sector seem to be relatively balanced for the remainder of 2024 and into next year. As of November 20, our 3 modern bulk carriers were booked for 55% of available days in Q4 at an average estimated TCE of 13,190 per day, which is almost 5% lower than what we reported in the Q3 2024. All of our bulk carriers are employed under short term time charters.

Speaker 1

Considering the constructive long term prospects for both sectors and our existing capital resources combined with established lending relationships, we remain committed to pursuing value enhancing accretive investment opportunities. However, we have yet to find compelling acquisitions of modern MRs given current prices, which are still near 10 year historical highs. While values for older bulkers have recently softened, we have grown more selective in pursuing acquisitions in this sector. In the meantime, we expect to strengthen our balance sheet, amortizing scheduled debt and repurchasing additional common shares. Please flip to Slide 4 for information on our existing fleet unemployment activities.

Speaker 1

We continue to prudently maintain our mixed chartering strategy of time and spot charters with a focus on diversification by customer and duration. As you can see, 3 of our vessels are under staggered short term time charters, providing us with attractive fixed revenues over defined periods of time, while optimizing working capital. Notably, the average age of the vessels in our fleet is materially below the industry averages with our MRs at 10 years 9 years for our bulkheads. The next special surveys are scheduled to occur during the first half of next year for 2 of our bulk carriers, the Concurrent Australia and the Concurrent Venture. Please turn to Slide 6 to review several macroeconomic and global oil market considerations, which support fundamental product tanker demand.

Speaker 1

Market conditions, especially for refined petroleum products, continue to be relatively healthy and support a positive outlook through 2025. Over the longer term, we expect demand for the product tanker sector to benefit from refinery additions, particularly in the Middle East and Asia. According to Drury, 3,700,000 barrels per day of net new refinery capacity is scheduled to come online this year through 2028. Much of the incremental refining capacity will be export driven, which should lead to further expansion of ton miles. As you can see on Slide 7, the impact of the ongoing Russian Ukrainian war and the Middle East conflict have continued to sustain elevated charter rates, lengthened sailing distances and expand ton miles.

Speaker 1

According to Clarksons, product tanker ton miles increased 6 percent during the 1st 9 months of 2024 versus the comparable period in 2023. For next year, we expect demand growth moderating to 2.9%. However, the uncertain part of these armed conflicts can dramatically affect the oil markets, adding more volatility to the product tanker sector. Let's move on to Slide 8. Strong chartering conditions since early 2022, coupled with continued positive outlook among owners, has resulted in a significant increase in orders for the construction of new product tankers.

Speaker 1

Since the beginning of 2023, the pace of orders for the construction of new MR2s has picked up substantially. According to ARO Ship Brokerings, as of November 1, the MR2 order book stood at 307 vessels, representing 16.5% of the global fleet. By the end of 2025, 105 MRs are scheduled for delivery. But the rate of Gimbel deliveries remains slow with only 30 MRs delivered during the 1st 10 months of this year and slippage is likely to affect the actual number of deliveries. Due to significant backlogs, many Asian yards don't have available construction slots for MRs with delivery dates now rolling into the first half of twenty twenty seven.

Speaker 1

It is important to note that 13.7% of the global MR2 fleet or 254 tankers are 20 years of age or older. Given this large number combined with declining economics of operating older vessels, major scrapping should occur over the next 5 years. However, with a relatively solid market, demolition activity has yet to pick up. Overall, we continue to estimate the net fleet growth for MR2s to be 2% this year, very low by historical standards with an expected increase of approximately 5% in 2025. Turning to Slide 9, we see the strong chartering conditions have led to substantial increases in MR2 prices across the board.

Speaker 1

Asset values for 2nd hand tonnage remain well above 10 year averages with S and P activity occurring at a rapid pace. The majority of tanker sales continue to be concentrated in older tonnage. Meanwhile, construction contracts for the new buildings in South Korea remain close to $52,000,000 excluding yard supervision and add ons. Prices for young acquisition MR2 vessels, which is our preference, are very expensive, making viable acquisition candidates difficult to identify in our opinion. Now I would like to provide some updates for the drybulk sector.

Speaker 1

So please flip to Slide 11. Overall, the supply demand fundamentals for this sector looks reasonably balanced for the remainder of 2024 and 2025. Considering a moderate correlation to annual global GDP growth of 3.2% through 2025, demand for drybulk commodities should remain positive. According to Arctic Securities, Simbor drybulk volumes are forecast to grow by 2.2% in 2025 with ton miles increasing by 3%. Over the long term, Drury is currently forecasting total drybulk demand to increase at the compound annual growth rate of 2.4% through 2029.

Speaker 1

To a fair extent, the supply picture for drybulk hires looks manageable in the near term. Arrow's should broken and currently estimated the order book for the drybulk sector at 11.7% of the worldwide fleet with 9.8% of tonnage at 20 years old or more. For the Panamax segment, which includes Kamsarmax class vessels, the order book is currently 3 62 vessels or 14.3% of the global fleet. However, a higher percentage of this class, 16.7 percent is 20 years of age or more, which should eventually lead to more scrapping. At November 1, the Ultramax order book stood at 4.78 units or 30.7% of the global fleet of this highly versatile relatively young vessel class.

Speaker 1

According to Allied chartering, net fleet growth of about 3% in 2025 is a reasonable forecast for our 2 vessel segments. As you see on Slide 12, prices for drybikers have also substantially appreciated. The price of a 5 year old Utamax approximates the cost of the new build. However, asset prices for older tenants have recently softened, but still remain at historical high levels, continuing to support equity values. At this point, I

Speaker 2

would like to turn over the call to Henry Williams, our Chief Financial Officer, who will discuss our financial results in greater detail. Thanks, Eddie. On Slide 14, let's review our unaudited results for the 3 months ended September 30, 2024. Our time charter equivalent revenues for Q3 2024, which we define as revenues net minus voyage related costs and commissions rose to $11,700,000 an increase of almost 24% as we benefited from high demurrage income from spot charters, favorable market conditions and an increase in operating days due to the addition of the dry bulk vessels to our fleet. Solid charring rates were reflected in our MRs, which achieved a 6% improvement in daily TCE reaching $29,826 for Q3 2024.

Speaker 2

Our dry bulk carriers reported an average daily TCE of $13,841 for the same period. However, the Q3 was sequentially lower than Q2 in both segments due to softer charter rates and seasonal factors. During the most recent quarter, the overall fleet generated respectable average TCE of $22,060 per vessel through a mix of short term time and spot charters. Moving to Slide 15, we generated net income to common shareholders of $3,600,000 for the 3 months ended September 30, 2024 or $0.34 basic and $0.31 diluted EPS compared to a net income of $3,100,000 or $0.29 basic and $0.26 diluted income per share for the same period in 2023. Please note that for accounting purposes, the fully diluted earnings calculations assume the potential conversion of all the outstanding Series A 7.75 percent convertible preferred stock into common shares and the elimination of the associated dividend.

Speaker 2

In Q3 2024, the increase in TCE revenues of $2,200,000 was partially offset by a $1,100,000 increase in operating expenses leading to a $1,200,000 improvement in adjusted EBITDA to $6,700,000 Now flip to Slide 16 to review our capitalization at September 30, 2024. At quarter close, our consolidated leverage ratio of net funded debt stood at 22% of total capitalization. Our weighted average interest rate was approximately 7.8% for the most recent quarter and our next bank loan maturity is in about 2 years. I should point out that at the end of September 2024, our total cash position aggregated $43,700,000 Most of our excess cash is invested in short term money market instruments, which currently earn 4.85%. As previously disclosed with a payment of approximately $7,600,000 in late October, we had redeemed all remaining outstanding Series A convertible preferred stock.

Speaker 2

Since the start of our common share buyback program in June of 2023, we have acquired 578,000 DXS shares in the open market for a cost of about $2,400,000 Dupixis redemption of the preferred stock in full has eliminated potential dilution of 1,800,000 shares. In aggregate, we have avoided dilution of almost 2,400,000 shares further enhancing earnings and net asset value per share. Currently, we have approximately 10,600,000 common shares outstanding of which 4,500,000 shares are broadly held in the public float. With that, I'd like to turn the call back over to Eddie to conclude our presentation. Thanks, Henry.

Speaker 2

We are guardedly optimistic about the targeting environment for product tankers and dry bulk carriers for the near term.

Speaker 1

Modest global demand growth for seaborne cargoes across the board range of refined petroleum products and drybulk commodities is expected to continue with the respective order books remaining relatively manageable. Longer term, supply and demand fundamentals remain constructive, especially given the fleet age profiles of both sectors. Even though inflation is decelerating with the possibility of further interest rate cuts and continued moderate global economic growth, the uncertainty surrounding macroeconomic conditions and unfolding global events necessitate continued prudent risk management. Beyond the expected uptick in demand for the winter season, the product tanker sector may benefit from the prospect of greater restrictions against certain sanctioned countries, which may help offset the effects of the possible de escalation of armed conflict. However, the potential expansion of tariffs amongst major trading partners is likely to lead to further market dislocation and volatility.

Speaker 1

Looking ahead, we expect to utilize our solid financial position and extensive industry relationships to selectively pursue additional investment opportunities that maximize shareholder value, including potential vessel acquisitions. Also, we aim to continue our common share repurchase program and repay debt as scheduled, all while maintaining the strength of our balance sheet. We appreciate your interest and thank you for joining our call today. We look forward to reporting on future progress at Pyxis Tankers.

Operator

And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Have a great rest of the day.

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