Pyxis Tankers Q2 2024 Earnings Call Transcript

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August 12, 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 Q2 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 Balotintas, Chairman and Chief Executive Officer of Pyxis Tankers and Mr.

Operator

Henry Williams, Chief Financial Officer of the company. I would like to pass it forward to one of your speakers today, Mr. Eddie Galentes. Sir, please go ahead.

Speaker 1

Hello, everyone, and thank you for joining our call for results of the 3 months ended June 30, 2024. The disruption on global seaborne trade from the Russia Ukraine war and the conflict in the Middle East continues. Global economic activity remains resilient despite the tight monetary policies by many central banks. Inflation is decelerating and interest rate cuts are expected starting this fall. The fundamental outlook for our 2 markets, product tankers and drybulk carriers remain positive characterized by health charter rates and rising asset values.

Speaker 1

But market conditions are 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 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 strong financial performance in revenues and profitability driven by healthy market conditions and our successful expansion into the dry bulk sector.

Speaker 1

With the acquisition of the 2015 built Kamsarmax in late June, our fleet of 6 modern midsize eco vessels consists of 3 MR2 product tankers, 1 Ultramax and 2 larger Kamsarmax bulk carriers. In the quarter ended June 30, 2024, we generated consolidated time charter equivalent revenues of 12,200,000 dollars marking an increase of almost 42% over the same period in 2023. Our daily time charter equivalent for our fleet in Q2, 2024 was approximately 29,150 of which the MRs averaged close to 32 $900 and our mid sized bunkers averaged $22,300 per day. For the most recent period, we reported net income of $5,000,000 or $0.48 basic EPS, substantially better than Q2 2023. Our adjusted EBITDA in the most recent period rose to 8,000,000 dollars The product tanker chartering environment remains strong throughout the Q2 of 2024.

Speaker 1

Despite slower global 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 worldwide. This has led to changing trade patterns, expansion of ton miles and arbitrage opportunities due to dislocation in certain end markets. Global refinery activity remains constructive in spite of moderating crack spreads and consumption, especially as we move further into the historically seasonally slower Q3. Overall, many of these developments reinforce a positive outlook for product tanker charter rates. As of August 9, 68% of available base in Q3, 2024 were booked for our MRs at an average estimated TCE rate of $33,850 per day similar to what we reported in the 3 month period ended June 30.

Speaker 1

2 of our MRs are employed under short term time charters and 1 in the spot market. The supply demand fundamentals for the drybulk sector continue to be relatively balanced for 2024. Our positive view on the drybulk sector is further reflected by the recent acquisition of the Concar Venture, a sister ship to the Kamsarmax we purchased back in February. As of August 9, our 3 modern bulk areas were booked for 76% of available days in Q3 at an average estimated TC of $17,200 per day, all 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 accretive investment opportunities.

Speaker 1

However, we have yet to find compelling acquisitions of modern MRs given current prices, which are reaching 10 year historical highs. While drybulk values have also continued to appreciate, 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 shares. Please flip to Slide 4 for information on our existing fleet unemployment activities. We are continuing to prudently maintain our mix chartering strategy of time and spot charters with a focus on diversification by customer and duration.

Speaker 1

As you can see, 5 of our vessels are under staggered short term time charters, which provide us with attractive fixed revenues 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 materially below the industry averages with RMRs at 9.9 years and 8.7 years for our bulkers. The next purchase surveys are scheduled to occur during the first half of next year for the Concar Asteria and the Concar Venture. Please turn to Slide 6 to review several macroeconomic and global oil markets considerations, which support fundamental product tanker demand.

Speaker 1

Market conditions, especially for refined petroleum products continue to be very healthy and drive a positive outlook for the balance of 2024. Over the longer term, we expect demand for the product tanker sector to be boosted by refinery additions led by the Middle East and Asia, as you can see on Slide 7. 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 8, the impact of the ongoing Russian Ukrainian war and the Israeli Hamas conflict have continued to sustain strong charter rates, lengthened sailing distances and expand ton miles.

Speaker 1

Unfortunately, escalating tensions in the Middle East are directly affecting the oil markets adding to the overall market uncertainty. Let's move on to Slide 9. The combination of robust chartering conditions over the last two and a half years and continued positive outlook by owners has resulted in a significant increase in orders for the construction of new product tankers. According to Drury, since the beginning of 2023, there have been orders for the construction of 231 new MR2s with the order book standing at 274 vessels or 16.1% of the global fleet at July 31. By the end of 2025, 104 MRs are scheduled for delivery.

Speaker 1

Surprisingly, only 11 MRs have been delivered during the 1st 7 months this year according to Drury. So slippage may further affect the actual number of deliveries. Due to significant backlogs, many Asian yards don't have available construction slots for MRs with deliveries in 2 plus years. It is important to note that 13.5 percent of the global MR2 fleet or 2 30 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.

Speaker 1

But with a strong market, only 4 MRs were demolished in 2023 and that pace has yet to pick up. Overall, we continue to estimate the net fleet growth for MRs to be about 2% this year, very low by historical standards. Turning to Slide 10, we see the strong chartering conditions have led to steep increases in MR2 prices across the board. Values for secondhand tonnage remain well above 10 year averages. According to our ship brokers, 94 MR2s were sold in the 1st 7 months of 2024, up 24% year over year, marking the largest number on record.

Speaker 1

Tanker sales continue to be concentrated in older tonnage. Construction contracts for new buildings in South Korea now exceed $52,000,000 excluding yard supervision and add ons. Prices for young acquisition MR2 vessels, our preference, are approaching the cost of a new build, making viable acquisition candidates difficult to find in our opinion. Now I would like to provide some update for the drybulk sector. So please flip to Slide 12.

Speaker 1

Overall, the supply demand fundamentals for the sector look reasonably balanced for the remainder of 2024, considering a moderate correlation to global GDP growth of 3.2% in 2024, demand for drybulk commodities should remain positive. The drybulk trade is estimated to grow 2.6% to almost 5,700,000,000 tons this year with ton miles to increase by 3.9% due to the effects of armed hostilities and to a lesser extent port congestion and restrictions caused by adverse weather conditions. To a fair extent, the supply picture for drybulk carriers look manageable in the near term. Drury estimates the order book for Panamax carriers, which include Kamsarmax class vessels to be 406 vessels or 12.4 percent of the global fleet, but a similar percentage in 20 years of age or more, which should eventually lead to more scrapping. At July 31, the order book for Supramax carriers, which include Ultramax, stood at 607 units or 14.1 percent of the global fleet of this highly versatile vessel class.

Speaker 1

As you see on Slide 13, prices for drybulk carriers have also substantially appreciated. In fact, the price of a 5 year old Ultramax now matches or exceeds a new build cost. Nevertheless, strong asset prices are another positive indicator for the sector. 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. Thanks Eddie.

Speaker 1

On Slide 15, let's review our unaudited results

Speaker 2

for the 3 months ended June 30, 2024. Our time charter equivalent revenues for Q2, which we define as revenues net minus voyage related costs and commissions, rose to $12,200,000 an increase of almost 42% as we benefited from higher demurrage income under spot charters, better market conditions and more operating days due to the addition of the dry bulk vessels. Strong charting rates were reflected in our daily TCE for our MRs, which improved to $32,868 in Q2. Our bulkers reported an average daily TCE of $22,333 for the same period. During the quarter, the overall fleet generated an average TCE of $29,156 per vessel, almost a 17% increase through a mix of short term time and spot charters.

Speaker 2

Moving to Slide 16, we generated net income to common shareholders of $5,000,000 for the 3 months ended June 30, 2024, or $0.48 basic and $0.43 diluted EPS compared to net income of $2,800,000 or $0.25 basic, dollars 0.23 diluted income per share in the same period in 2023. Please note for accounting purposes, the fully diluted earnings calculations assume the potential conversion of all the outstanding Series A convertible preferred stock into common shares and the elimination of the associated dividend. In Q2, twenty twenty four, a majority of the increase in TCE revenues of $3,600,000 flowed through to adjusted EBITDA, which increased $2,800,000 to $8,000,000 for the period. Now flip to Slide 17 to review our capitalization at June 30, 2024. At quarter close, our consolidated leverage ratio of net funded debt stood at approximately 23% of total capitalization.

Speaker 2

Our weighted average interest rate was 8% for the most recent quarter and the next bank loan maturity is now scheduled for December of 2026. I should point out that at the end of June 2024, our total cash position aggregated $44,600,000 Most of the excess cash is invested in short term money market investments, which currently earn 5.5%. Lastly, given the recent common share buybacks, the partial redemption of the convertible preferred stock offset by the issuance of restricted shares for the Concur Venture acquisition, we have approximately 10,700,000 common shares outstanding as of August 9, 12,000,000 shares on a fully diluted basis. With that, I'd like to flip the presentation back over to Eddie to wrap up.

Speaker 1

Thanks, Henry. The outlook for both the product tanker and drybulk sectors remain positive in the near term, supported by healthy chartering environments. While the order books for our class of vessels have grown significantly since the beginning of 2023, we find solace in the large number of older vessels, which are less competitive operationally and face demolition soon. The ongoing major geopolitical conflicts continue to create operating challenges and opportunities for us. We continue to benefit from the combination of solid end market consumption, lower 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. Further, global GDP growth over the near term supports demand for a broad list of dry commodities and benefits our class of bulk carriers. We expect to utilize our solid extensive industry relationships to develop additional investment opportunities that maximize shareholder value, including selective fleet expansion. We also look to continue our common share repurchase program and of course repay scheduled debt. Enhancing our balance sheet remains a key priority.

Speaker 1

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

Operator

This concludes today's conference. You may now disconnect your lines. Thank you for your participation.

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