Tsakos Energy Navigation Q2 2024 Earnings Call Transcript

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September 11, 2024

There are 8 speakers on the call.

Operator

Thank you

Speaker 1

for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation Conference Call on the Second Quarter 2024 Financial Results. We have with us Mr. Takis Arapoglou, Chairman of the Board Mr. Nicholas Takos, Founder and CEO Mr. George Saragolu, President and Chief Operating Officer of the company Mr.

Speaker 1

Paul Durham, Chief Financial Officer and Mr. Harris Kosmatos, Co Chief Financial Officer of the Company. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise that this conference is being recorded today.

Speaker 1

And now I pass the floor to Mr. Nicholas Bornozis, President of Capital Link and Investor Relations Advisor to Tsakos Energy Navigation Limited. Please go ahead, sir.

Operator

Thank you very much, and good day to all of our participants. I am Nicolas Bornovis, President of Capital Link and Investor Relations Advisor to Tsakos Energy Navigation to TEN Limited. This morning, the company publicly released its financial results for the Q2 6 months ended June 30, 2024. In case we do not have a copy of today's earnings release, please call us at +-twelve-sixsixsixteen-five 66 or email us at 10 atcapitallink.com, and we will have a copy for you e mailed right away. Please note that parallel to 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.

Operator

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 webcast presentation 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.

Operator

Investors are cautioned that such forward looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of operations. And at this moment, I would like to pass the floor to Mr. Taki Sarapoglou, the Chairman of Tsakos Energy Navigation. Please go ahead, sir.

Speaker 2

Thank you, Nicholas. Good morning, everyone, and thank you for joining us today at our call for our Q2 first half twenty twenty four results. The financial results, activity and strategic initiatives presented today represent a master class in running a best in class shipping company. This contains among others continued solid profitability and operational excellence, both systemic and opportunistic fleet renewal with state of the art vessels, timely and bold drydocking program, a balanced spot stroke time charter strategy allowing TEN to capture the increased demand for longer term fixings, resulting in continuous increase in the minimum contracted future income. And lastly, the profitable unwinding of leasing contracts and the continued excellent relationships with our banking partners.

Speaker 2

All of the above allow TEN to continue servicing the needs of its blue chip clients in the best possible way, while maintaining a healthy cash position to fund accretive future growth. Equally, it allows Sten to be able to continue with its uninterrupted dividend payments since inception, increasing its dividend payments this year by 50% compared to 2023. So on behalf of the Board of Directors of TEN, congratulations once again to Nikolas Tsakos and his team and we all look forward to their continued success in what looks to be a continued solid tanker market. Thank you.

Speaker 3

Thank you, Chairman. And first of all, from all of us here in Athens, Greece, our thoughts and heartfelt wishes to all our American friends on this solemn anniversary today of nineeleven. With this, thank you for your kind words, Chairman. It has been another very dynamic and fruitful year for TEN in the industry. We are taking as much advantage of the positive circumstances to continue growing our fleet, to modernize our fleet.

Speaker 3

It has been a very large operational infrastructure in order to take delivery of our dual fuel vessels. We have the largest concentration of dual fuel vessels in our peer group. And right now, all of them are in the water operating as they should, reducing emissions and aiming for our 2,030 emission significant reduction goals. For those of you that are old enough to remember, 10 started back in 1993 after the OPA 90 with the name to have a double fleet way before the regulation deadline and this was something that was achieved back then with a gigantic newbuilding program that has right now exceeded 100 ships over the last 30 years and an investment in excess of $8,000,000,000 every vessel being a much more environmentally friendly and innovative product from the last vessel. And we have been able to do this and make profits at the time, keep a significant cash and also reward our shareholders with an uninterrupted dividend.

Speaker 3

We are proud today to be able to announce a 50% increase on an already significant dividend. And I think this would be one of the highest yields or in common dividend, and I hope the market will appreciate this. As the Chairman said, the fundamental the reason we're doing this is, first of all, because we have a cushion of at least US2 $1,000,000,000 of contracted business at the minimum. As you know, our company does most of its business on a profit sharing arrangement with the major oil companies, and this is the minimum we expect from them. It could be another third on top of that in case we have profit sharing, which we expect to have profit sharing going forward in the days to come as we are.

Speaker 3

Our shuttle tanker business with all the major oil company is progressing and increasing. And I have a feeling it will further increase as we go forward. And I think a very important part happened last week on the island of Chios. We have the first ever private academy, naval academy to produce men and women as captains, engineers, naval architects with huge know how for our fleet. I think this puts us in a significant competitive advantage to all our peer group because we're going a step further actually not only hiring and training our seafarers after they finish their education, but be with them since inception.

Speaker 3

And I think we want to congratulate the Tsakos Shipping Group for taking such a bold step and producing the future of shipping because we can be here spending 1,000,000,000 and 1,000,000,000 of dollars in state of the art ships. But as long as we do not have the right people to man those vessels, our vessels are useless. So we see this as a milestone in going forward. And with that, I will ask our President, Mr. Saroglou to give us a quick and to the point presentation of where we have been and where we're going so far in 2024.

Speaker 4

Thank you, Nikos. Good morning to all of you joining our earnings call today. 2024 continues to be a good year for tankers and TEN for the same reasons that played out for the last two and a half years. We have an aging fleet and low order book, we have changes in trade flows, ongoing crude and oil product movements as a result of Western sanctions on Russian seaborne oil that had a multiplying effect on tanker ton mile growth and we have continued geopolitical tensions like more recently the avoidance of crossing the Red Sea as a result of footy attacks on Mersenne vessels. Let's go to the slides of our presentation.

Speaker 4

The first slide is we see the growth of the company since inception. Despite the 5 major crisis that we faced since 1993, each time we came out stronger, thanks to our operating model. And cumulatively in the period since 1993 the company posted an average growth of 21% in terms of total fleet deadweight tons. The next slide we have built as you see see a very diversified fleet catering to the needs of our clients, spanning from crude carriers to product tankers, LNGs and shuttle tankers. Today we have a pro form a fleet of 74 vessels, 62 operating in the water and 12 new buildings under construction.

Speaker 4

The red and blue colored vessels in the slides denote vessels trading in the spot, the red and period market with profit sharing, the blue, while black colored vessels denote vessels that are fixed on time charters. 28 out of the 62 vessels in the water or 45 percent of the fleet has market exposure, spot and profit sharing, which is good in today's environment, while 52% of the 62 vessels in the water or 84% of the fleet are in secured employment, time charters and time charters with profit sharing, which means that the propellers are spinning 20 fourseven. In Slide 5, we see the company's fleet growth in capital market access since inception. The blue boxes denote common shares offering, while the red offerings in preferred shares, the first three preferred shares totaling 188,000,000 of par value have been already redeemed together with a privately placed preferred instrument of $35,000,000 creating savings for the company in excess of $18,000,000 per year on coupon payments. Next slide presents the company's current and long term clients.

Speaker 4

As you can 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 charter with 13 vessels, all on long term time charter. Slide 7 presents the all in breakeven cost for the various vessel types we operate in our company. Our operating model is very simple. We try to have our time charter vessels generate revenue to cover the company's cash expenses and let revenue from spot rating vessels to make a contribution to the profitability of the company. Fleet utilization for the 6 months of the year was 92%, still a high number despite having 8 vessels undergoing scheduled repairs and 4 vessels earmarked for sale embarking in repositioning voyages.

Speaker 4

And thanks to the profit sharing element in the fleet, for every $1 per day increase in spot rates, this has a positive $0.12 impact in annual earnings per share based on the number of vessels that currently has exposure on spot rates. Managing debt is an integral part of the company's strategy and capital allocation. Since the end of 2016, the corporate fleet grew by more than 40% in terms of deadweight ton, while at the same time, total bank debt came down by almost 7%. One must consider also that in addition to the reduction in the total bank debt, the company also redeemed $211,000,000 in 3 series of preferred shares, plus a private placed preferred instrument. And so, today, the net debt to capital ratio is currently at 42.4%, which is considered to be low.

Speaker 4

Fleet modernity is a key element of our operating model. This slide shows fleet renewal and greenship growth since January 1, 2023 as we transition TEN for its next growth phase. We contracted and acquired 21 vessels in total with an average age of 1 year 2,300,000 deadweight ton. 9 vessels are already in the water earning money for the company, while 12 vessels are in new building that were purpose built to serve the transportation requirements of the company's long term clients. We have more than doubled the cargo capacity of the fleet with new, more environmentally friendly, greener, eco built tankers.

Speaker 4

These slides highlight the company's financial performance since 2004. As the Flute grew, so did the company's key financial indicators. Wells maintained strong cash reserves to manage the ups and downs of the shipping cycle. We had manageable debt levels and traded mostly profitable through the 20 plus years with the last 2 years generating consecutive record profit years. The 1st 6 months of 2024 have given TEN the opportunity to further upgrade the quality and earnings power of the fleet.

Speaker 4

We expect the new additions to contribute positively in the overall financial performance of TEN going forward. In addition to paying down debt, dividend continuity is important for common shareholders and management. Ten has always paid the dividend irrespective of the market cycle. Our dividend policy is semi annual. Last year, we paid a total dividend of $1 per share.

Speaker 4

This year, we announced a total dividend of 1.50 dollars a 50% increase in the distribution. We have already paid $0.60 on July 18. We announced today the payment of $0.90 with payment to be determined in our upcoming BOD strategy meeting in October. Inclusive of this upcoming dividend, TEN has distributed over $827,000,000 of common and preferred share dividends with $573,000,000 to common shareholders since the company's 2002 New York Stock Exchange listing. Global oil demand continues to grow.

Speaker 4

Despite financial and geopolitical headwinds, the International Energy Agency expects global oil demand to grow by approximately 1,000,000 barrels per day this year. It's going to be another record year after last year with most of the growth coming again from the Asia Pacific region. On the supply side, most of the growth is coming from non OPEC plus countries, Brazil, the United States of America, Guyana and Canada. 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 August stands at 7 0 6 tankers, a little over 13% over the next 3 years. This figure still represents a low number of newbuildings. At the same time, a big part of the fleet over 2,360 vessels or 44% is over 15 years and 8 65 tankers or 16% of the current tanker fleet are currently over 20 years. So this order book that we have is quite manageable. The last slide shows the scrapping activity since 2018.

Speaker 4

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. And with that, I will pass I will ask Paul and Harris to walk you through the financial highlights of the first half and second quarter of 2024. Paul?

Speaker 5

Well, thank you, George. Great stuff as always from here. Over the past months, the company has taken advantage of utilizing in house resources to restructure much of its organization and to develop the company in new directions in the remaining months of the year. Therefore, this will continue to be a major focus for management. The tanker market fundamentals continue to remain firm and assisted by the various geopolitical events around the globe.

Speaker 5

We are confident that TEN will continue to be a main beneficiary. And these were just a few issues of confidence in our company.

Speaker 6

So, let me try to increase our confidence by going over some details on the numbers. So, let me take it over from here. Thank you, Paul. So, with the fleet averaging about 62 vessels in the water, 8 of which going through scheduled drydockings and 3 performing repositioning voyages, fleet utilization for the first half of twenty twenty four settled at 92%, a slight drop from the 2023 equivalent period. In this backdrop, TEN in the first half of twenty twenty four generated gross revenues of $460,000,000 and operating income of $179,000,000 which included $49,000,000 of capital gains.

Speaker 6

Fleet operating expenses of $98,000,000 increased in line with the larger number and size of vessels in the fleet. Operating expenses per ship per day however remained almost identical to the 2023 first half at $9,367 thanks again to efficient management performed by TEN's tactical experts onshore and onboard the vessels. TCE per seep per day time charter equivalent that is for the 2024 first half was at a healthy 33,830 even though impacted by repositioning voyages, drydocking and spot market softening, driven by Chinese reduction of oil imports, something however that is expected to be temporary. Adjusted EBITDA for the 2024 6 months was at 214,000,000 dollars And net income of $130,000,000 was recorded for the first half of twenty twenty four, generating earnings per share of $3.96 Of interest, dividend payments for the company's outstanding preferreds during the 2024 1st 6 months were $4,600,000 lower the amount paid during the 2023 first half. Results for the Q2 of 2024 were equally attractive.

Speaker 6

A fleet of 62 vessels generated gross revenues of $214,000,000 and operating income of $103,000,000 which includes $32,500,000 of capital gains. Fleet operating expenses for the Q2 of 2024 impacted by fleet drydockings and repositioning voyages in a fleet larger than the one in the Q2 of 2023 were at $49,700,000 only $3,000,000 higher than the Q2 of 2023 levels. Operating expenses per ship per day were however $150 lower than the 2023 Q2 at $9,347 with TCE per ship per day closing the quarter 3.7x higher than OpEx level at $34,235 Adjusted EBITDA finished the quarter at $113,000,000 due to a seasonal softening in spot rates and vessel repositionings. The resulting net income of $76,400,000 produced $2.36 in EPS. Again, preferred coupon payments during the quarter during the Q2 of 2024 were approximately $2,000,000 lower than 2023 second quarter amount.

Speaker 6

As of June 30, 2024, bank debt increased to $1,800,000,000 corresponding to a higher fleet size as 5 vessels acquired earlier in the year from Norwegian concerns began entering the fleet and 2 dual fuel Aframax newbuildings were delivered during the Q1 of the year. At the same time, net debt to capital was at a very comfortable 42.4%. And with this, I'll turn it back to Nikos for the closing remarks. Thank you.

Speaker 3

Thank you, Paul. Thank you, Harry, for putting the right numbers behind the efforts of all our men and women on board our ships and our onshore personnel and the team here. It's been an exciting 1st 6 months and I think we're looking for a very interesting period for the remaining of the year. It's a year of I think this is a milestone, 2024 has been a milestone period of growth for the company. As George said, we tend to grow oil wells in difficult times, but I think this is an intriguing time where we depend on our clients, the major oil companies and their vast appetite for 1st class operators to continue growing and servicing their needs.

Speaker 3

And with this, I would like to open the floor for any questions. Thank you.

Speaker 1

Thank

Speaker 5

you.

Speaker 1

Thank you. Our first question comes from the line of Poe Fratt with Alliance Global Partners. Please proceed with your question.

Speaker 7

Good day. Could you help me understand whether the dividend, the 0.90 dollars dividend will be paid this year or will it be paid next year?

Speaker 3

Well, the dividend will be paid this year. As last year, we always announced the date after our strategy meeting, which is the end of October.

Speaker 7

Okay, great. And increase in the dividend is great. Your stock price has been a little volatile, it's fallen back from its high in the low 30s. Where do the stock buybacks fit in your capital allocation strategy?

Speaker 3

Well, our stock buyback is not in the forefront of our financial strategy. And the reason is, as you know, we still have quite an illiquid stock and we are not having a very strong concentration of 40% from the insiders. We rather reward shareholders for staying rather we're paying them to leave. So we are this has been a strategy. I mean we used to do some buyback back in the day, because we've been around so long, we've done everything.

Speaker 3

But I think from experience, we'd rather pay our shareholders to stay than send them home with a check. So this is for the time being and the company has also growth prospects. We're taking part in significant new contracts with very good returns and accretive returns. So I think dividends, growth is number 1 and that's where we are.

Speaker 7

Okay, understood. And then sort of segues into my next question, which is you ordered 5 LR1s. What is the rough total amount that you'll spend on those? Is $350,000,000 total appropriate? And then secondly, have you paid a down payment or deposit on those 5 LR1s?

Speaker 7

And if not, when do you anticipate paying a down payment?

Speaker 3

We have made the pay of the first down payment. So yes, you are approximately right. Harry, why don't you go through the numbers?

Speaker 6

Okay. So let me see here. So the 5 LR1s, we expect that obviously we're going to raise some plain vanilla bank debt on them. So far we have paid approximately $5,600,000 of equity on the one vessel. And as the order progresses, then equal amounts are expected to be paid for the other 4.

Speaker 3

Okay. So the prior year, we do not want our we do not give exact price because we don't want most of our competition to come and do the same. But I think our the $350,000,000 is an approximate correct number.

Speaker 7

Okay. I can follow-up offline on that. But as far as the investment in the quarter, you had a net investment of about $105,000,000 I calculate during the quarter that you sold about $158,000,000 of assets with the Neo Energy, the Euro Nike and then the Izumo Princess. Is that accurate? And then how much did you spend on acquisitions in the quarter?

Speaker 7

And then did you make any new build payments?

Speaker 3

Well, I think as Harry said, we have since the Q1, of course, we have increased our payments because that refers to the June 30. Since then, on top of the payments that Harry said, we have made the down payments for the other 4, the remaining 4, LR1 vessels in addition to the $5,000,000 that we paid for the first down payment.

Speaker 6

Most of this detail will be recorded in the 6 ks which we expect to publish at the end of the month. But if you want it sooner then obviously we're open to discuss it offline.

Speaker 7

Sounds good. Thank you.

Speaker 1

Thank you. Mr. Stakos, I'm not seeing any other questions at this time. I'll turn the floor back to you for any closing comments.

Speaker 3

Thank you very much. Well, I think, as I said, it has been a very productive period, a period of growth. But I think what goes also is the continuous appetite and chartering of our ships to the major oil companies. Our shuttle tankers are out for long periods of time, 5 to 7 to 10 years to major oil companies. And the same goes for the majority of our Suezmaxes and vessels that are coming.

Speaker 3

Our investment in the LR1s is the segment of the market with its lowest order book and we believe that there is still a future and appetite for vessels like this and that's why we're renewing our fleet there. And we're very proud for the operational so far excellence of our dual fuel vessels. And on top of that, as I said, the milestone for the company has been our technical management's inauguration of a non academy to produce and educate our people for the next future in technology and innovation for our vessels. Looking forward for reporting next significant strong quarter also going forward and wishing everybody all the best on this difficult day for our American friends. Thank you very much.

Speaker 1

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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Tsakos Energy Navigation Q2 2024
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