Bank OZK Q1 2024 Earnings Call Transcript

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June 20, 2024

There are 8 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to Taco's Entertainment Conference Call on the Q1 2024 Financial Results. We have with us today Mr. Takis Arapologo, Chairman, Board Doctor. Nicholas Tacos, President and CEO Mr. Paul Durham, Chief Financial Officer and Mr.

Operator

George Saroglou, Chief Operating Officer of the company. I must advise you this conference is being recorded today. I will now pass the floor over to Nicholas Bornozis, President of Capital Link, Investor Relations Advisor for Taco Energy Navigation. Please go ahead, sir.

Speaker 1

Thank you very much, and good morning to all of our participants. I am Nicolas Bornales of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the Q1 ended March 31, 2024. If you do not have a copy of today's earnings release, please call us at 212 661-7566 or email us at 10 atcapitallink.com and we will have a copy for you e mail right away. Please note that par with today's conference call, there is also a live audio and slide webcast, which can be accessed on the company's website on the front page at www.tenn.gr.

Speaker 1

The conference call will follow the presentation slides, so please we urge you to access the presentation slides on the company's website. Please note that the slides of the webcast presentation will be available and archived on the website of the company after the conference call. Also, please note that the slides of the presentation, the webcast are user controlled, and that means that by clicking on the proper button, you can move to the next or to the previous slide on your own. At this time, I would like to read the Safe Harbor statement. This conference call and slide presentation of the webcast contain certain forward looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Speaker 1

Investors are cautioned that such forward looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of operations. And before turning the floor over to the Chairman, I'd like to mention that we also have today with us as part of the management team, Mr. Jairus Cosmatos, the Co Chief Financial Officer. And congratulations, Mr. Cosmatos, for your new role.

Speaker 1

And at this moment, I would like to pass the floor to Mr. Arapoglou, the Chairman of Tsakos Energy Navigation. Please go ahead, sir.

Speaker 2

Thank you, Nicholas. Good morning and good afternoon to all. And thank you again for joining our call today for Q1 results. Despite, as you've seen, a historically low utilization of 91%, just over, mainly due to a large number of dry dockings that we decided to do. We continue to deliver operational excellence on the back of a very positive market based on strong shipping fundamentals and geopolitical events, which are both expected to continue in the foreseeable future, are very comfortable equity generating ability and cash position allows us to double our semi annual dividend from last year's.

Speaker 2

In addition, we are mainly making use of the good market And we're using opportunities in the S and P side of the business to sell all tonnage and buy new modern green vessels, reducing the age of our fleet and positioning ourselves to capture accretive business that comes our way from our demanding blue chip clients. The result of all this is the steady increase of our stock price in recent months as the market recognizes our robust business model and this makes us very happy. So once again, well deserved congratulations to Nikos Tsakos and his team, and best wishes for maintaining TEN's stellar performance going forward. Thank you. And over to you, Nikos Tsakos.

Speaker 3

Thank you. Thank you, Chairman. And yes, well, we're going to have a new ticker starting as of July 1. We will get 10 will finally be 10 after almost 22 years, where our ticker belonged to another company, which right now has moved from the stock exchange. So I see this as a good sign.

Speaker 3

The previous ticker, which took us from $3 and change in 2019 to in excess of $30 last month were my initials. But rather sacrifice my initials for much closer identification for the company. As you said, the Q1, which has been a strong profitable quarter, is a springboard for us for what we are there to do. We took a lot of our vessels out of service to prepare them for the better days. We looked at ships, prepared them for sales.

Speaker 3

And of course, we took delivery of a very large about 14 vessels, so a very large number of ships. And at the same time, we were able to increase our cash position. Looking at it today, we're way above $450,000,000 approaching $500,000,000 in liquidity as we're finishing the 2nd quarter. And we're expecting a much better quarter, although I have to say that even the Q1 is a very healthy quarter, but we're looking at a much better quarter. We're already at the latter part of the second quarter, so I can see much better quarter coming.

Speaker 3

And 3rd and 4th quarter, where we'll have the whole tonnage into action, I think we will see even better time. So looking for a record year for 2024 as we did last year, What makes us very positive is the I'm presented in my 30 year 30 plus year history of in the business and presented demand by the major oil companies for any quality asset that is out there. And I mean, we get calls and we deal only with the major oil companies and the 1st plus end users or government bodies. And the calls we get even during the festive time of Macedonia, which we're all recovering still down in Greece in the last couple of weeks. We are getting we were cornered at any time and asked to provide our tenants for long term employment.

Speaker 3

It's a good situation. It's not always have been that way, although tenant has fared well even at times when people did not want to see any of our ships. And I believe we will see this portrayed on our share price. And this has been the most active period in the last 5 years I can recall commercially for our business. And again, I want to thank men and women on board the ships because they by keeping the propellers running, they make things happen and they give us the opportunity to share with our loan contracts and our and of course, our people on land and in our offices.

Speaker 3

Looking at as I said, looking forward, it seems that the stars are aligned for this period of time as long as our industry. Other than the LNG segment, which I would say is the only grossly overbuild side of the business with 60% of the order book out there. Every other aspect of our business any other segment of the energy business is well balanced. And some and we're ordering ship in some segments that there is no any growth. And with that, yes, please, I will ask George to give us more detailed developments.

Speaker 3

Thank you.

Speaker 4

Thank you very much Nikos. Good morning to all of you joining our earnings call today. 2024 continues to be another good year for tankers, as the factors that elevated freight rates in the last 2 years since 2002 continue. Key takeaways for TEN during the Q1 of 'twenty four, which was one of the busiest quarters in TEN's history as far as split renewal and volume of S and P transactions is concerned. First

Speaker 1

of all, we

Speaker 4

took delivery of the company's last 2 dual fuel LNG powered Aframax tankers in a series of 4 new buildings that were built against long term employment to a major energy concern. We started taking delivery of the first in a series of 5 high spec environmentally friendly tankers from Viken. The delivery of the remaining 4 took place during the Q2 of 2024. 2 of the 5 tankers are dual fuel LNG powered Aframaxes. With the 4 that's 10 purposely built for another client, the company has now 6 dual fuel LNG powered Taframax tankers fully operational.

Speaker 4

This is one of the largest, if not the largest concentration of LNG powered Aframaxes. These 6 vessels mark dense entrance into green tankers. At the same time, we continued the sale of older first generation vessels. Since the start of 2023, we sold 8 tankers that were built between 2,005 and 2,007. From January of this year, the company took advantage and sold more vessels.

Speaker 4

We started by announcing the sale of a 2,005 built Suezmax tanker in January, and since then, 4 more vessels have been sold, another 2,005 built Suezmax, 2 Aframaxes, 1 built in 2,007 and the other in 2,008, plus feet combined in 2,007. In total, since 20 23, 13 vessels have been sold with an average age of 17.5 years and have been replaced with 21 vessels that have doubled the deadweight capacity of the vessels that were disposed and an average age of just 1 year. Part of the 21 vessel growth initiatives is with purpose built new building vessels to fit existing transportation requirements of the company's long term clients. Since the start of 2024, we have signed 6 new building contracts for 1 shuttle tanker and 5 LR1 tankers. This brings our current newbuilding order book to 12 vessels.

Speaker 4

The freight market was strong last year and remains strong as we speak. We continue to renew time charters at higher time charter base rates. Oil majors continue to fix vessel forward, which is a testament to a market that is expected to sustain current freight levels. The order book continues to be low due to the uncertainty of availability and affordability of alternative fuels other than biofuels and LNG currently. Many yards report availability after 2027.

Speaker 4

We continue to experience the largest change in trade flows to ongoing crude and oil product movements as a result of Western sanctions on Russian seaborne oil and more recently changes in the crossings in the Red Sea and Suez Canal as a result of the Houthis attacks on merchant vessels. And as we have said in previous calls, most of these changes appear to be permanent. At the same time, global oil demand continues to grow. 2024 is expected to be another record year for global oil demand. We expect demand to reach approximately 103,000,000 barrels per day versus approximately close to 102,000,000 barrels per day in 2023.

Speaker 4

Let's go to the slides of our presentation. If we start with Slide 3, we see that since inception in 1993, we have faced 5 major crisis and each time the company came out stronger, thanks to its operating model. The average company growth is 21% in terms of total deadweight ton. In Slide 4, we see the company's fleet growth and capital market and capital in slide 4, we see the fleet and its current employment profile. The slide has all the 5 ex vehicle tankers that are now fully integrated and operational.

Speaker 4

We have a pro form a fleet of 62 tankers, 29 out of the 62 or 47% of the fleet for 47% of the fleet in the water have market exposure, a combination of spot, COAs and time charter with profit sharings. 52 of the 62 vessels or 82% are in secured contracts, fixed time charters and time charters with profit sharing. This means that TEN is well positioned to continue capturing the positive tanker market fundamentals. In Slide number 5, we see the company's fleet growth and capital market access since inception. We aid capital for growth, not at the top of the market, but at times when asset prices were usually low.

Speaker 4

In the slide, the numbers in the blue boxes represent the company's common share offerings and in red the series of preferred share offerings since the company New York Stock Exchange listing. The first three preferred series totaling $188,000,000 of par value, the Series B, C and D, plus a private placed preferred instrument of $35,000,000 initial par value had been fully redeemed, saving the company in excess of $18,000,000 per year of coupon payments for all retired preferred shares. In the next slides, we see the company's current and long term clients. As you see, we have a blue chip customer base consisting of all major global energy companies, refineries, commodity traders, with Equinor currently topping the list as our largest charterer with 13 vessels hold on long time charters. On slide 7, the left side presents the all in breakeven vessel types we operate in TEN.

Speaker 4

Our operating model is simple. We try to have our time charter vessels generate revenue to cover our company's cash expenses. That means paying for the company's vessel operating expenses, finance expenses, overheads, chartering costs and commissions, and we let revenue from the spot trading vessels contribute to the profitability of the company. Fleet utilization as a result of the 8 vessels undergoing scheduled maintenance and repairs during the Q1 of 2024 was 91.3% versus 96.1% the prior year quarter. And thanks to the profit sharing element for every one $1,000 per day increase in spot rates, this has a positive $0.14 impact in annual EPS based on the number of 10 vessels that currently have exposure in spot rates.

Speaker 4

Managing debt is an integral part of the company's strategy and capital allocation. The company's debt, as this slide shows, peaked in December of 2016. Since then, we have repaid $250,000,000 of debt and redeemed $211,000,000 in 3 series of preferred shares plus a privately placed preferred interest. Sailing pesos activity is also important. It's a cornerstone of TEN's strategy and the resulting fleet modernity, a key element of our operating model.

Speaker 4

The left side of the slide shows the divestment in tankers since January 1, 2023. We showed 13 vessels totaling 1,000,000 deadweight ton, having an average age of 17.5 years. On the right side of the slides, under growth, we have a number of vessels we are currently building and acquired since January 1, 2023. 21 vessels in total, eco friendly greener tankers. TEN has currently a new building program of 12 tankers consisting of 3 DP2 shuttle tankers for delivery in 'twenty five and 'twenty six, one vessel, 2 eco friendly scrubber fitted Suezmaxes for delivery also in 'twenty five, 2 scrubber fitted MR tankers for delivery in early 2026 and 5 LR1 product tankers for delivery in 2027, 1 vessel and 2024, 4 vessels.

Speaker 4

And we have taken delivery of 4 DSLR2 new buildings and 5 ex vacant tankers with a combined average age of 1 year 2,300,000 deadweight tons. We more than doubled the cargo capacity of the fleet with new, more environmentally friendly, eco built tankers. This slide highlights the company's financial performance since 2004. As the fleet was growing through the years, so did the company's cash position, always maintaining strong cash reserves to manage the ups and downs of the shipping cycle. We have maintained strong profitability with the task through the last 2 years generating record profits, and we have kept manageable debt levels throughout this 20 year period.

Speaker 4

The 1st 5 months of 'twenty four have given TEN the opportunity to further upgrade the quality and earnings power of the fleet. We expect the new additions to contribute positively in the overall financial performance of the company starting from the second half of this year. In addition to paying down debt, dividend continuity is important for common shareholders and management. Penn has always paid a dividend irrespective of the market cycle. Our dividend policy is semiannual.

Speaker 4

Last year, we paid $0.30 in June, a special dividend of $0.40 in October and $0.30 in December. This year we announced $0.60 per share to be paid July 18 to shareholders of record on July 12. Inclusive of this upcoming dividend, which is double the 1st semiannual dividend of 2023, Ken has distributed over $800,000,000 of common and preferred share dividends, dollars 546,000,000 of which to common shareholders since the company 2002 New York Stock Exchange list. Global oil demand continues to grow. Despite financial and geopolitical headwinds, the International Energy Agency expects global oil demand to grow by approximately 1,000,000 barrels per day to approximately 103,000,000 barrels per day.

Speaker 4

It's going to be another record year after last year. Most of the growth is coming from Asia and Asia Pacific region, mainly India and China. On the supply side, most of the growth in 2024 is expected to come from non OpEx plus countries like Brazil, the United States of America, Guyana, Canada, Mexico and Norway. The majority of the additional supply is in the Atlantic Basin, while demand growth continues to be concentrated in the Pacific, boosting long haul tanker demand. As global oil demand continues to grow, let's look at the forecast for the supply of tankers.

Speaker 4

The order book as of May 24 stands at 10% or 577 Tankers over the next 3 years. The figure still represents a low number of newbuildings. At the same time, a big part of the fleet, almost 42%, is over 16 years and 893 tankers or almost 60% of the fleet are currently over 20 years. The next slide shows the scrapping activity since 2018. We believe scrapping activity will pick up as the global fleet gets older and older tankers are getting out of favor for long term business by major charters.

Speaker 4

And with that, I will ask Paul to walk you through the financial highlights of the Q1. Paul? Thank you, George. And first, I'd just like to

Speaker 5

say how happy I am to be with my colleagues for a long, long time. It's been a long

Speaker 3

time, really. It feels like a long time.

Speaker 5

Thank you, George. Since the beginning of 2024, we have been very active on the sale and purchase front, which enabled us to divest from some of our first generation tankers and replace them with new ones in high end green technology. From the sale of our older battery, we generated $200,000,000 which together with the strong cash flow fleet has earned enabled and enabled us to retain very solid cash reserves. During this time, while engaging in this green chip initiative, we took 8 vessels for our scheduled maintenance and repairs, a necessary activity which should fade away into the Q2. The result of this was a natural drop

Speaker 4

in fleet.

Speaker 5

Could

Speaker 6

join. So, Salai, continue? Yes, please. Okay. Thanks.

Speaker 6

It's like it takes you to tango, so let's continue the tango. So let me take it over from here. So as Paul started saying, the result of this maintenance created this natural drop in utilization from 96.4 percent in the same quarter of 2023 to 91.3 this quarter. Despite these actions, voyage revenues totaled $202,000,000 and operating income, including a $16,200,000 in capital gains from a vessel sale, settled at $76,200,000 dollars The resulting net income reached $54,000,000 which frontulates to $1.06 in earnings per share. Operating expenses continue to be somewhat influenced by inflationary pressures and reached $48,600,000 similar to the 2023 Q1, which did have approximately 2 vessels more on average.

Speaker 6

Operating expenses per ship per day were at about 9,400 dollars not far off the 2023 Q1 with the average TCE time charter equivalent per ship per day at around 33,400, so a big notable difference. A still healthy number, but impacted by the reduction in vessels and the steep dry dockings and repairs evident in the quarter as mentioned earlier. EBITDA at the end of the Q1 of 2024 was at about 101,000,000 dollars and expected to return to higher levels once the new vessels begin to generate their lucrative returns. From the beginning of Q1 of 2024, we have seen a distinct continuation of demand for our vessels and we expect this to help further build our cash reserves going forward. As the tanker market fundamentals continue to remain firm and assisted by the various geopolitical events around the globe, we are confident that TEN will continue to be the main beneficiary.

Speaker 6

And I think that concludes the summary from the financial point of view. So over to you, Nikos.

Speaker 3

Thank you. Thank you, guys. And I think it's good to give to let our shareholders know that how busy we have been. And I think this has been one of the longest presentations by our President because we have been so busy. But George, we better yes, it's better to be accurate than do nothing.

Speaker 3

But as I said, I think we used this period of time as a springboard of our next phase, which is very clearly to be one of the first, if not the first company to run the most environmental fleet out there. And we did this before, but I mean, we were about 30 years younger for those who have such a long memory. And the reason 10 is around today was a very quick reaction to the OPA90. And that was the big change of the industry's design of ships. That was the biggest real structural change in our industry's design since the ancient years.

Speaker 3

And we were the 1st company to have a fully double double trip way before the the due time, the obligatory due time. And we're looking to do the same with our fleet, with the help of our clients. I think we and in the meantime, make significant profits. And with that, I would like to open the floor to any questions that you may have. Thank you.

Operator

Thank you. Our first question is from Clement Mollins with Value Investor Edge. Please proceed.

Speaker 7

Good morning or well afternoon. Thank you for taking my questions. I wanted to start by asking about the recent order for 5 FLR1s. Should we think about it as fleet renewal? Or is there a plan to increase your

Speaker 1

spot?

Speaker 3

Very well. I think that's a really good point. If you look at our fleet list that our President was presenting, you see that we have vessels there. We still have the Andes, which is it's kind of our oldest vessel, was built before most of my children were even born. Now I am an empty nester, but we have phone numbers of her performance and that ship is of course a big candidate for sale, but she has performed very well for us being built in the in Mabar in Japan.

Speaker 3

And you see that we have a significant fleet built between 2,000 and 8 2016, let's say. So it is a category of ships that we believe we have they have been profitable for us. And if you look at the order book, I don't think anybody is building any of those ships. I think the order book is anyway 2% to 3%. So it's a combination.

Speaker 3

Yes, it is fleet renewal. It's a side of the business that very few people operate and it's something that I think it's a good opportunity. It is the least build segment of the vessels that we operate.

Speaker 7

Makes sense. Thanks for the color. And would you be willing to trade them on spot or do you still plan to follow your usual strategy of securing a charter?

Speaker 3

Well, I mean, the way things are today, we do not have a big chance of trading ships on spot because our clients are actually grabbing those ships as soon as we make a new bidding order or a discussion or a tech deliver of the ship. What I try to do and I think our clients are now much, much more open to it, is put market related features like profit sellings in the market. So most probably those ships will be either entering some of our very successful pools or will be working on profit arrangements with our clients. So yes, we are always looking for the highest utilization and the propeller to earn us money every hour.

Speaker 7

That's helpful. Thank you. And actually talking about long term contracts, I noticed that your exposure to every $1,000 per day increase in rates has decreased to $0.14 relative to last quarter's $0.18 And I was wondering, could you provide some commentary on some of the fixtures you have added over the past few months?

Speaker 3

Yes. I think by the end of actually, by the end of the second quarter, it will be closer to $0.20 from our calculations because we have refixed at some vessels in the Q3 at unprecedented levels. I cannot say too much because our competition is listening. And although we're all nice friends and we can have a drink in Marine Money or Capital Linkage, but everybody to run his own business. But in some cases, our minimums have doubled from where they are from other profit service.

Speaker 3

So you will see that increasing significantly. The reason is that in the Q1, we took some vessels that had on its with its previous owners fixed employment.

Speaker 7

And final question from me. This is more on the shareholder return side. Last year, you declared a special dividend alongside Q2 earnings. And I was wondering, considering you expect Q2 earnings to be significantly better than Q1's, Is it fair to expect a special dividend as well when you report earnings?

Speaker 3

That's a very good question. I mean, all of your questions are good, but I think that I want to clarify something. Yes, last year, we actually announced and paid an extra dividend, which went unnoticed by the analysts in the market as a one off experience. So we did not get any additional valuation for our shareholders. So we will not pay an extra dividend because it goes unnoticed although I thought dollars and should be paid after we pay them, they should be noticed.

Speaker 3

And we will add it on the second half dividend, so it will go notice. So I guess, our intention is if the market continues to increase the second half of the year, but not in a with a special dividend because the market seems to think that it's a one off occasion and they do not give it any value. So we would include it in our second half in our December dividend.

Speaker 7

Makes sense. That's all for me. Thank you for taking my questions. Thank you.

Operator

With no further questions at this time, I would like to turn the floor back over to the CEO, Doctor. Nicholas Takas. Please conclude.

Speaker 3

It's a pleasure to be able to share the company's developments with you. It's our 31st year. Hopefully, we will see last year, we were 10 at 30 and we broke 30. Now we're 31. I want to break 31 and more and much more above that.

Speaker 3

And we hope that our performance and our results and our dividend payments will help to shareholders. And our share price go much closer to where it should be, Although it has moved positively, but we're still a long way from where we expect it to be. And again, I want to thank everybody for their support. It has been a frantic period in the last 6 months for commercial developments of renewing the fleet or for growing the fleet significantly at the same time making earnings, positive earnings and profits by selling older ships and then replacing them with much younger ships, younger the company, modernizing the company. So, yes, we are in a go go always mode right now, but we only do it when there is solid business.

Speaker 3

You know that we are trying to avoid putting ever our company into any trouble. We haven't done this for 31 years. And we're always growing it responsibly. And we want to thank you for your support and looking to see you face to face very soon. And I think we're organizing a European roadshow.

Speaker 3

And of course, we're always in the U. S. Quarterly to see our shareholders. And again, thank you very much and have a nice relaxing and peaceful summer. We will not have one because we will be working.

Speaker 3

Thank you.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

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