Pyxis Tankers Q2 2023 Earnings Call Transcript

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July 31, 2023

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 2023. As a reminder, today's 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 Pyxus 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

Good morning, everyone, and thank you for joining our call for results of the 3 months ended June 30, 2023. The Russia Ukraine war continues to impact the global energy markets and the strong economic and strategic priorities as well as global relationships and trade. Restrictive monetary policies have resulted in slowing economic And most recently, lowering of inflation within many more specific countries. In spite of this, the private sector Maintained solid chartering activity and high asset values. At Pyxis, we continue to successfully navigate through these uncertain times and we are pleased to report good operating and financial results for the most recent period.

Speaker 1

Before starting, 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 extensive financial performance in revenues, operating cost control and profitability despite 5 operating fewer vessels as we sold the 14 year of fixed Sysmalu in late March. In the Q2 ended June 30, We generated consolidated time charter equivalent revenues TCE of 8,600,000 a decrease of $2,700,000 over the same period in 2022.

Speaker 1

Our daily EPC for our core ECO and Mona since Q2 20 was approximately $25,000 which was down slightly over the same quarter last year due to less spot chartering activity. We reported net income of $2,800,000 or $0.25 basic EPS for the most recent period, which was down from last year. Our adjusted EBITDA in Q2 2023 was 5,200,000 Over the course of the Q2, the proton tanker chartering environment experienced rate softness. Despite the reasonable demand for transportation fuels worldwide, moderating economic activity was met with seasonal refinery maintenance program. The ongoing Russian Ukraine war continues to result in tight inventories of petroleum products, which are below 5 year averages In a number of locations around the world, changing trade patterns, expansion of tonne mines, dislocation trend market, Creating arbitrage opportunities and higher transportation costs.

Speaker 1

For example, in the U. S, recent inventories of gasoline and diesel were up 7% 14%, respectively, lower than 5 year averages. While product prices are Significantly lower than a year ago, refinery activity continues to be solid with healthy rice spreads reflecting good global demand. This development seeks support a constructive outlook for product tanker generator. In light of this, We'll continue to consider the purpose of modeling acquisition MRs.

Speaker 1

We are already looking for economically viable acquisitions And in the meantime, STAHL further improved our balance sheet and to a limited extent, repurchased common shares. Most recently, our Board unanimously approved a $6,800,000 equity investment in a joint venture for the acquisition In 2016, Jovanisbay Ultramax Drybulk carrier, we will own 60% of the joint venture and the balance held by to be funded by $11,300,000 of equity and $19,000,000 secured 5 year bank loan. We believe this counter cycle investment in a 1st class EPO vessel, which is scrubber and ballast water treatment system fitted, Should provide attractive returns to Pyxis Tankers through a well managed structure. Upon anticipated closing of the transaction by late August, We will have significant dry powder to pursue additional strategic opportunities. Please turn to Slide 4 For information on our existing fleet and employment activities, we are continuing to prudently maintain our mix The charting strategy of time and spot charters with a focus on diversification by customer and duration.

Speaker 1

As you can see after the sale of the fixed in Malo, We now own and operate a fleet of 4 Eco efficient MRs, which has an average age of 8.6 years and is over 4 years younger than the industry average of 13 years. 3 of our tankers are currently contracted under short term fire service and one in the spot market. As of July 26, 55% of the available days in Q3 which at this point represents an 11% sequential increase over our Q2 daily chartering results. Next, please turn to Slide 6 for a further update on the product tanker market. In addition to my prior comments about the market, recent economic activity for most of the world has been affected by restricted monetary policies, The word and other geopolitical elements.

Speaker 1

The EU and G7 group ban on seaborne cargoes of Russian Fine products, which started in early February 2023 and have subsequent price gaps, have reduced ROPS and revenues, Market dislocation, which has been compounded by low inventories of refined petroleum products in many parts of the world. Product exports from refineries located in the Middle East, U. S. And certain parts of Asia are expanding. According to Duri, an independent industry research firm, in 2022, cyclone trade of oil products increased 1.7% Over 1,000,000,000 tons, while tonne mines rose 3.2% to almost 3,430,000,000 According to another leading research firm, tonne mile demand should increase 12% in 2023, Cargo volumes grew 4% and in 2024, a further 7% growth in tonnage and another 4% increase Involance is expected.

Speaker 1

The recent changes in trade routes can be seen on Slide 7. Please turn to Slide 8 to review several macroeconomic integrations which support fundamental sector demand. Historically, seaborne trade of refined products has been moderately correlated to global GDP growth. In July, The IMF revised its global GDP growth estimate upward to 3% for this year due to the 3 end economic EBITDA primarily in the ONC team, offset by the adverse effects of significantly higher interest rates and persistently stubborn high inflation. Recently, the IEA slightly revised The estimate of global oil consumption to increase 2,000,000 barrels per day or 2.2 percent to an average of 102,100,000 barrels per Day 2023, a continuation of the recent crude oil production cut by OPEC plus including a 500,000 barrels per day reduction by Russia starting Starting in August, it's expected to result in tighter supply later this year.

Speaker 1

However, incremental production is expected from the U. S, Canada, Brazil, Norway and Guyana. Of course, evasive actions by Iran and Venezuela supplement global oil supply. According to the EIA, the U. S.

Speaker 1

Should increase other joint production in 2023 by 5.6 to almost 12,600,000 barrels per day. Nevertheless, the expectation of tighter supply in soil global demand Now move to Slide 9. Over the longer term, we expect demand for the product We are refining the capacity. Net disclosures is scheduled to come online by 2028 with the O and C experiencing a decline. However, originally planned shutdowns may be delayed given better refinery economics, but over the longer term, closes So it's better to contribute to the importing of refined products into mature large OECD markets and provide additional tonnage expansion.

Speaker 1

Many refineries, including those of the U. S, continue to experience good utilization and profitable crack spreads in order to meet solid product demand. Processing cheaper to Russian noodles has been a recent margin advantage for refineries primarily located in India and China, supporting domestic supplies and seafood exports, especially for transportation fuels. Let's move on to Slide 10. The product tanker supply picture is much clearer as the outlook for MR2 continues to look According to Drew Rick, as of June 30, 2023, the order book for M and A stood at 6.6% For the Global Key, our 111 vessels of weeks 17 are scheduled for delivery during the second half of this year.

Speaker 1

Due to huge backlogs, many Asian Chileans don't have available construction slots for MRs and will deliver until early 2026. Delays in newbuild deliveries continue to be an unpredictable factor as the slippage has run over 12% annually for the last 5 years. An owner's decision making process for tankers in order is further complicated by long term developments in ship and engine design, stricter environmental regulations, escalating shipbuilding costs as well as an evolving and steel and steel selection And availability of lower carbon fuels. As many as 144 vessels or 8.5% of the global fleet If 20 years of age or older, significantly more than the older book. Given this large number combined with declining economics of operating on the right vessels, major scrapping should occur over the next 5 years.

Speaker 1

Thus, we estimate the net fleet growth for MR of less than 2% per year through 2024. Turning to Slide 11. Good chartering conditions have led to Big increases in massive prices across the board. Values for second hand tonnage is still way above 10 year averages, But prices for all tankers have recently softened. Construction confidence for Humility is now approximately $47,000,000 Exclusive of the other supervision and add ons, prices for the anti equal increase in the Americas are present I've seen near historical highs and attractive acquisition opportunities are very rare.

Speaker 1

At this point, I would like to turn the call over Henry Williams, our Chief Financial Officer, will discuss our financial results in greater detail.

Speaker 2

Thanks, Teddy. On Slide 13, let's review our unaudited results for the 3 months ended June 30, 2023. Our time charter revenues for Q2 of 2023, which we define as revenues Net minus voyage related costs and commissions declined to $8,600,000 a decrease of $2,700,000 from the same period in 2022 due to lower charter rates primarily in the spot market which was offset by higher utilization. More important, with the sale of our oldest vessel in March of 'twenty three, we operated 1 fewer MR in the most recent period. For the Q2 of 'twenty three, the TCE rate for our MRs was $25,000 per day, still a healthy rate, but down 5% from 2022 period.

Speaker 2

Moving to Slide 14, we generated net income to common Shareholders of $2,800,000 for 3 months ended June 30, 2023 or $0.25 basic and $0.23 diluted EPS compared to net income of $4,600,000 or $0.43 basic and $0.38 diluted net income per share in the same period of 2022. 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 Q2 2023, a significant portion of the decrease in TCE revenues Load through the income statement as adjusted EBITDA decreased $2,000,000 to a respectful $5,200,000 Now I'll flip to Slide 15 to review our capitalization at June 30, 2023. At Port Quotis, our consolidated leverage ratio Our net funded debt stood at less than 19% of total capitalization. Due to increases in SOFR, Our weighted average interest rate was about 8.2% for the most recent quarter and the next bank loan maturity is in about 2 years.

Speaker 2

I should point out that at June 30, 2023 our total cash position was approaching $34,500,000 Most of our excess cash is invested in short term money market instruments, which currently earn an average of 5.2%. Lastly, Thea is scheduled to have her second special survey with ballast water treatment system installation later this summer at a cost of approximately $1,400,000 and 25 days off hire. With that, I'd like to turn the call back over to Eddie To conclude the presentation.

Speaker 1

Thanks, Henry. Over the near term, fundamental demand was relatively in balance with supply. Macroeconomic headwinds and uncertainty from geopolitical conflict create challenges and opportunities for the Project Tanker segment. We continue to benefit from the combination of solid end market consumption, low refined product inventories in many parts of the world, Changing trade patterns and expanding tonnage. Scheduled developments for the refinery landscape Only enhance the long term outlook of our sector.

Speaker 1

We will effectively utilize a strong financial position of excess cash and low leverage as well as big industry relationships to seize investment opportunities that maximize shareholder value. We appreciate your interest and thank you for joining our call today. We look forward to reporting on future progress at Pyxis Tankers. Enjoy the summer and stay well.

Operator

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

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Key Takeaways

  • Pyxis generated TCE revenues of $8.6 million and net income of $2.8 million (EPS $0.25) in Q2 2023, with adjusted EBITDA of $5.2 million despite operating one fewer vessel year-over-year.
  • Geopolitical tensions from the Russia-Ukraine war and below-average refined product inventories have created arbitrage opportunities and are expected to support a constructive outlook for product tanker rates.
  • The company now operates four eco-efficient MRs (average age 8.6 years) with 55% of Q3 available days already contracted and is pursuing counter-cycle growth via a 60% joint venture acquisition of an Ultramax dry bulk vessel.
  • With net funded debt at 19% of capitalization, approximately $34.5 million of cash earning 5.2%, and an 8.2% weighted average interest rate, Pyxis maintains strong liquidity and low leverage to pursue strategic investments.
  • Limited newbuild deliveries, significant scrapping potential for vessels over 20 years old, and sub-2% annual net fleet growth for MRs are expected to underpin long-term product tanker market fundamentals.
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Earnings Conference Call
Pyxis Tankers Q2 2023
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