Pyxis Tankers Q1 2024 Earnings Call Transcript

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May 21, 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 Q1 2024. I must advise you that the conference call is being recorded. Additionally, a live webcast of today's conference call and 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 Valentin. Please go ahead, sir.

Speaker 1

Hello, everyone, and thank you for

Speaker 2

joining our call for results of the 3

Speaker 1

months ended March 31, for results of the 3 months ended March 31, 2024. The effects on global seaborne trade from the Russia Ukraine war have been further compounded by the conflict in the Red Sea. Overall, global economic activity has been resilient, including the OECD, despite the tight monetary policies by many central banks. Inflation is persisting and the prospects of interest rate cuts have been lower to later this year. However, the fundamentals for our 2 markets, product tankers and dry bulk carriers are positive characterized by healthy charter rates and rising asset values.

Speaker 1

While market conditions are dynamic and beyond our control, we expect to continue to successfully manage our operations through this over the high time. Before commenting on our solid operating and financial results for the most recent period, 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 healthy financial performance in revenues and profitability despite operating fewer tankers.

Speaker 1

After selling 2 MRs in 2023 for significant gains, we operated 3 product tankers in Q1 2024. However, during the quarter, we expanded our dry bulk fleet with the addition of modern Kamsarmax and ended the period with 5 vessels in the company's fleet. In the quarter ended March 31, we generated consolidated time charter equivalent revenues, TCE, of $10,200,000 an increase of 10.2% over the same period in 2023. Our daily EPC for our ECO fleet was approximately $27,600 for which the MRs averaged 31,719 Q1 2024 and our midsized bulkers averaged $16,950 For the most recent period, we reported net income of $3,600,000 or $0.33 basic EPS, which was lower without the gain on vessel tail in Q1 2023. Our adjusted EBITDA in the most recent period was a solid 6,000,000 dollars The perfect tanker chartering environment remained strong throughout the Q1 of 2024.

Speaker 1

Despite slower economic activity, armed hostilities contributed to tighter inventories of refined petroleum products, which continue to be below 5 year averages in a number of locations around the world, changing trade patterns, expansion of ton miles and dislocation to end markets, creating arbitrage opportunities. Despite higher crude prices over the last year, refinery activity continues to be supported by reasonably healthy crack spreads reflecting good global demand. These developments bolstered the constructive outlook for product tanker charter rates. As of May 16, 83 percent of available days in Q2, 2024 were booked for our MRs at an average TCE rate of $32,500 per day. 2 of our MRs are employed at the short term time charters and 1 in the spot market.

Speaker 1

The supply and demand fundamentals for the drybulk sector look to be relatively balanced for 2024. Recently, we expanded our fleet with the acquisition of our 2nd midsized dry bulk carrier. In mid February 2024, we closed on the purchase of a 2015 build Kamsarmax. As of May 16, our 2 scrubber fitted bulk carriers were booked for 92% of available days in Q2 at an average TCE of $18,400 per day, both employed under short term time charters. Considering the favorable prospects for both sectors and our existing capital resources along with established lending relationships, we remain committed to actively pursuing value enhancing investment opportunities.

Speaker 1

We have decided to further expand our fleet by investing in the acquisition of a sister ship of our concourse trade. Also, our Board has authorized the purchase of an additional $1,000,000 of common shares in the open market. Over the past year, the company has spent $1,600,000 to acquire over 415,000 shares, which represent about 9% of outstanding public float at May 2023. In addition, we have just announced the redemption of approximately 25% of the outstanding Series A convertible preferred shares scheduled for June. Please flip to Slide 4 for information on our existing fleet unemployment activities.

Speaker 1

We are continuing 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, 4 of our vessels are under staggered short term time charters, which provide us with attractive fixed savings over defined periods of time and optimize working capital. The Pyxis Lambda, our youngest vessel, continues to operate in the spot market. Notably, the average age of the vessels in our fleet is below the industry averages with our MRs at 9.7 years and 8.2 years for our bulkheads. The next special surveys are scheduled to occur next year for the Conqueror Esteli and our latest acquisition, which will be named the Conquer Venture.

Speaker 1

Please turn to Slide 5 now to review the acquisition details for the Concar Venture. The company through a 60% owned subsidiary has agreed to enter into a joint venture agreement to purchase an eco efficient Kamsarmax bulker built in 2015 at a leading Chinese yard. The Concar Venture fitted with a balanced water treatment system will be acquired for $30,000,000 which is expected to be funded by a combination of bank debt, cash and the issuance of restricted common stock by the company. As one of the sellers of the vessel, I have agreed to receive $1,500,000 in restricted common shares of the company plus at the premium to the current share price as part of the purchase consideration. The vessel owning subsidiary expects to enter into a new $16,500,000 5 year secured amortizing back loan, which will be priced at the rate of sulfur plus 2.15%.

Speaker 1

The balance of the purchase price, vessel working capital, transaction fees and other closing costs will be funded by $13,200,000 in total cash of which the company will contribute $7,300,000 dollars As a further sign of commitment to the company, I have agreed to reinvest $5,900,000 in cash for the remaining 40% minority interest in the Neustrip owned owning subsidiary. The transaction was unanimously approved by the company's independent directors. It is anticipated that the acquisition of the Concurrent Venture, which is subject to customized closing conditions, will be completed in June 20 24. Afterwards, we will have a balance fleet of 6 ECO vessels in Alfiq, 3 MRs and 3 Bulkers. Please turn to Slide 7 to review several macroeconomic considerations which will support fundamental product tanker demand.

Speaker 1

Since our update 2 months ago, there hasn't been much change except market conditions continue to be very healthy with a positive outlook for the balance of 2024. Over the longer term, we expect demand for the product tanker sector to be supported by refinery ambitions led by the Middle East and Asia. According to Drury, mainly 4,400,000 barrels per day of net new refinery capacity is scheduled to come online by 2028. Much of the incremental refining capacity will be export driven, which should lead to further expansion of tonne mile. As you can see on Slide 8, the impact of the ongoing Russian Ukraine war and more recently the Israeli Hamas conflict have helped boost charter rates, lengthened sailing distances and expand ton miles.

Speaker 1

However, these types of Black Swan events only add to market uncertainty. Let's move on to Slide 9. The combination of robust chartering conditions for the last 3 plus years and continued positive outlook by owners has resulted in a significant pickup in orders for the construction of new product tankers since 2022. According to ROACE breaking at the start of May, the order book for Amartus stood at 9.8% of the global fleet over 180 vessels with a manageable delivery schedule. Due to significant backlogs, many Asian yards don't have available construction slots OMRs will deliveries until the second half of twenty twenty six or later.

Speaker 1

Delays in scheduled new build deliveries continue to be an unpredictable factor and around 9.7% last year. It is important to note that 13.8% of the global MR2 fleet over 254 vessels, a number exceeding the order book 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. But with a strong market, only 4 MRs were demolished in 2023. Overall, we continue to estimate the net fleet growth for MRs to be about 2% this year.

Speaker 1

Turning to Slide 10. Strong chartering conditions have led to steep increases in MR2 prices across the board. Values for secondhand tonnage remain well above 10 years averages. Construction contracts for new buildings in South Korea now exceed $49,000,000 excluding yard supervision and add ons. Prices for young eco efficient MR2 vessels, our preference, are approaching the cost of new build, making viable acquisition candidates difficult to find.

Speaker 1

Now, I would like to quickly touch on some updates for the drybulk sector, so please flip to Slide 12. Overall, the supply demand fundamentals for the sector look reasonably balanced for 2024. Considering a reasonable correlation to global GDP growth of 3.2% in 2024, demand for drybulk commodities shouldn't remain positive. In early May, a leading research firm estimated drybulk trade should grow 2% to 5,600,000,000 tons this year, but tonnage increased 5% due to the effects of planned hostilities and to a lesser extent restrictions caused by adverse weather conditions. To a fair extent, the supply picture for the dry bulk carriers look manageable.

Speaker 1

Recently, ARO estimated the order book for Panamax Carriers, which include Tamsarmax Class vessels was 271 vessels or 10.9% of the global fleet, but a significantly higher percentage, 17.3 percent of the global fleet is 20 years of age or more, which should eventually lead to more scrapping. At the beginning of May, the order book of Ultramax stood at 3 79 units or 26.3 percent of the global fleet of this highly versatile vessel class. 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.

Speaker 2

Thanks, Hedi. On Slide 14, let's review our unaudited results for the 3 months ended March 31, 2024. Our time charter equivalent revenues for Q1 of 2024, which we define as revenues net minus voyage related costs and commissions, rose to $10,200,000 an increase of 10.2 percent as we operated pure product tankers, but benefited from higher spot rates and the addition of the dry bulk vessels. Strong charting conditions were reflected in our daily TCE for our MRs, which jumped to $31,790 in Q1 of 20 24. During the quarter, the overall fleet generated TCE of almost $27,600 per vessel through a mix of short term time and spot charters.

Speaker 2

Moving to Slide 15, we generated net income to common shareholders of $3,400,000 for the 3 months ended March 31, 2024 or $0.33 basic and $0.30 diluted EPS compared to net income of $8,700,000 or $0.81 basic and $0.71 diluted income per share in the same period in 2023. The results from a year ago reflected the sale of our 2,009 built MR, which we generated gain of $8,000,000 Please note that 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. In Q1 of 2024, the increase in TCE revenues of $900,000 and lower G and A expenses of $600,000 flowed through to adjusted EBITDA, which increased $1,800,000 to $6,000,000 Now flip to slide 16 to review our capitalization at March 31, 2024. At quarter close, our consolidated leverage ratio of net funded debt stood at 14% total capitalization. Our weighted average interest rate was 8.2% for the most recent quarter and the next bank loan maturity is scheduled for July of 2025.

Speaker 2

I should point out that at the end of March 24, our total cash position aggregated $49,000,000 Most of our excess cash is invested in short term money market instruments, which currently earn 5.4%. Lastly, as of May 16, 2024, we had repurchased in the open market 415,000 common shares in total under our initial $2,000,000 buyback program and there are approximately 10,500,000 PXX shares currently outstanding. Please note that the planned redemption of 100,000 shares of our preferred stock will avoid potential dilution from conversion into 446,000 common shares. The approved issuance of $1,500,000 of restricted stock as part of the Conquer Venture acquisition at an assumed share price of $5.60 would add about 268,000 common shares at closing. Overall, the effect of these two transactions would reduce the fully diluted share count by approximately 1 quarter of a 1000000 shares at March 31 to 12,100,000 fully diluted shares.

Speaker 2

With that, I'd like to flip the presentation back over to Eddie.

Speaker 1

Thanks, Henry. The outlook for project tanker sector looks quite bullish for the near term. Supply and demand fundamentals for the dry bulk sector are expected to be reasonably balanced for the remainder of 2024. Ongoing major geopolitical conflicts continue to create operating challenges and opportunities for us. We continue to benefit from the combination of solid and market consumption, longer refined product inventories in many parts of the world, changing trade patterns and expanding ton miles.

Speaker 1

Scheduled developments for the refinery landscape only enhance the long term outlook for the product tanker sector. Global GDP growth over the near term supports demand for a broad list of dry commodities. Chartering conditions for dry volcanoes have also benefited from these major events, including unprecedented transit restrictions on the Panama Canal, which are abating. We expect to utilize our strong financial position and extensive industry relationships to develop additional investment opportunities that maximize shareholder value, including further fleet expansion. The announced repurchase programs for our common and preferred stock will be accretive and should enhance the trading of our share.

Speaker 1

We appreciate your interest and thank you for joining our call today. We look forward to reporting on future progress at Texas Tankers.

Operator

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

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