Q4 2023 Pyxis Tankers Inc Earnings Call
Episode 6 Thank you for watching.
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Good afternoon and welcome to the PIXIS Tankers pre-recorded conference call to discuss the financial results for the three months and year ended December 31st, 2023.
As a reminder, today's call is being recorded.
Additionally, a live webcast of today's conference call and an accompanying presentation is available on Pixis Tankers website which is www.pixistankers.com
Hosting the call today is Eddie Valentis, Chairman and Chief Executive Officer of Pexis Tankers, and Henry Williams, Chief Financial Officer.
I would now like to introduce PIXIS Tankers Chief Executive Officer Eddie Valentis.
Hello everyone and thank you for joining our call for results for the three months and year ended December 31st, 2023.
The effects on global seaborne trade from the Russia-Ukraine war have been compounded by the conflict in the Red Sea.
By and large, global economic activity has been resilient, especially in the OECD, despite the tight monetary policies by many central banks.
Fortunately, inflation is decelerating and there are prospects of interest rate cuts later this year.
The fundamentals for our two markets, product anchors and rival carriers, are strong, characterized by healthy charter rates and rising asset values.
But market conditions are dynamic and beyond our control. So, we expect to continue to successfully navigate through these uncertain times.
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 two that we recommend you read, including our presentation today, which will include forward-looking statements. Thank you.
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Turning to slide 3.
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Our most recent quarterly results reflected healthy financial performance in revenues and profitability despite operating fewer tankers.
In December 2023, we completed the sale of our 2015-built product tanker to realize a $17.1 million gain and report $26.4 million in net cash proceeds.
In the fourth quarter ended December 31st, 2023, we generated consolidated time-charted equivalent revenues, TCE, of $12 million, a decrease of 13.6% over the same period in 2022.
Our daily TCE for our EcoMRs in Q4 2023 was approximately $30,500, which was down 8% over the same quarter last year due to less sport chartering activity.
For the most recent period, we reported net income of $21.9 million or $2.04 basic EPS, which was dramatically up due to the gain on vessel sales.
Our adjusted EBITDA in Q4 2023 was a solid $7.7 million.
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Over the course of the fourth quarter, 2023, the product tanker chartering environment remained relatively firm. Despite slowing demand for transportation fuels worldwide, moderate economic activity was met with seasonal demand for home heating products in the Northern Hemisphere.
Armed hostilities contributed to the tight inventories of refined petroleum products, which continue to be below five-year averages in a number of locations around the world, changing trade patterns, expansion of tonne miles, dislocation to end markets, creating arbitrage opportunities and higher transportation costs.
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While end-market product prices have moderated over the last year, refinery activity continues to be solid, with healthy crack spreads reflecting good global demand.
These developments still support a constructive outlook for product anchor charter rates. As of March 12, 92% of available days in Q1 2024 were booked at an average TCE rate of $30,300 per day.
Two of our RMRs are employed under short-time charters and one in the spot market.
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The supply-demand fundamentals for the dry bulk sector look to be relatively balanced for 2024. Recently, we expanded our fleet with the acquisition of our second mid-size dry bulk carrier.
In mid-February 2024, we closed on the purchase of a 2015-built Kamsa Max. As of March 12, our two scrubber-fitted bulk carriers were booked for 70% of available days in Q1 at an average TC of $19,600 per day.
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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.
In 2023, we took advantage of the strong S&P market to sell two of our MRs at very attractive prices and realize over $25 million of gains and generate over $44 million of net cash proceeds.
Until we can identify economically viable vessel acquisitions, we look to further improve our balance sheet and repurchase common shares.
As of March 12, 2024, we have deployed an aggregate $1.4 million to buy back 375,000 common shares, which represents about 7.5% of our public flow from when we methodically implemented the program starting last summer.
Please turn to slide 4 for information on our existing fleet and employment activities.
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We are continuing to prudently maintain our mixed charting strategy of time and spot charters with a focus on diversification by customer and duration. As you can see,
Four of our vessels are under short-term PCs, which provide us with attractive fixed revenues over defined periods of time and optimized working capital.
The Pixi Landa, 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 RMRs at 9.6 years.
and R. Balcarrias at APU's.
The next special survey doesn't occur until next year for the Conker Asterix.
Please turn to slide 6 to review several macroeconomic considerations which support fundamental sector demand.
Historically, seed-borne trade of refined products and dry-bulk commodities have been moderately correlated to global GDP growth.
In January 2024, the IMF revised its global GDP growth estimate upward to 3.1% for this year due to better economic outlook led by the U.S. and lower inflation.
Recently, the IEA slightly revised the testament of global oil consumption to increase modestly by 1.2% to an average of 103 million barrels per day in 2024. The recent crude oil production cut of 2.2 million barrels per day by OPEC-plus is expected to run through June.
However, incremental production is expected from the U.S., Canada, Brazil, Norway, and Guyana. According to the EIA, the U.S. should increase average oil production in 2024 to 13.2 million barrels per day.
Next, please turn to slide 7.
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Major geopolitical events have boosted the product tanker sector. The EU and G7 Group ban on seaborne cargoes of Russian refined products, which started in early February 2023 and subsequent price caps, have had limited impact on Russian petroleum revenues, but have created significant market dislocations worldwide, which has been compounded by low inventories of refined petroleum products in many parts of the world.
More recently, repercussions of the Israeli-Hamas conflict have further disrupted trade partners.
and expanding tonnemise.
Shipments through the Suez Canal and the Red Sea have been dramatically cut due to attacks on vessels transiting the Gulf of Aden. As a result, rerouting around the Cape of Good Hope has been underway since the beginning of the year, which significantly increases the number of voyage days. For example, a tanker's journey from the Jubail refinery in Saudi Arabia now takes 70% more days to reach Rotterdam, a key destination in Northern Europe.
Product exports from the refinery is located in the Middle East, US, and certain parts of Asia continue to expand. According to Drury,
Shipborne trade of oil products in 2023 increased 1.3% to over 1 billion tons while ton miles rose 4.2% to almost 3.6 trillion tons.
According to Clarkson's, cargo volumes of refined products are estimated to increase 3% in 2024, with further expansion of tonne miles, including an incremental 4% from the Red Sea hostilities.
Now move to slide 8.
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Over the longer term, we expect demand for the product banking sector to be supported by refinery additions led by the Middle East and Asia.
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Drury estimates that almost 4.4 million barrels per day of new refinery capacity net of closures is scheduled to come online by 2028 with the OECD experiencing a decline. However, originally planned shutdowns may be delayed given better refinery economics but over the long run closes should further contribute to the importing of refined products into mature large OECD markets and provide additional ton-mile expansion. Many refineries including those in the U.S. continue to experience good utilization at profitable crack spreads in order to meet solid product demand.
Let's move to slide 9.
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The product tanker supply picture is clearer. The combination of robust chartering conditions of the last two years and continued positive outlook by owners has resulted in a significant pickup in orders for the construction of new product tankers. According to Drury, at the end of February, the order book for MR stood at 10.7% of the global fleet of all 181 vessels, of which 37 are scheduled for delivery during the remaining 10 months of this year.
Due to the huge backlogs, many engine yards don't have available construction slots for MRs with deliveries until the second half of 2026.
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Delays in new build deliveries continue to be an unpredictable factor, but around 9.7% last year.
An owner's decision-making process for tanker new ordering is further complicated by ongoing developments in ship and engine designs.
Stricter environmental regulations, escalating shipbuilding costs, as well as an evolving and still unclear selection and availability of lower carbon fuels. Importantly, 187 MRs, a comparable number to 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 five years.
But, only 4 MRs were demolished in 2023, given the strong market. Overall, we estimate that net fleet growth for MRs to be at 2% this year.
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Turning to slide 10
Strong chartering conditions have led to steep increases in asset prices across the board. Values for second-hand tenants remain well above 10-year averages. Construction contracts for new buildings in South Korea now stand at $48 million, excluding yard supervision and add-ons.
prices for young eco-efficient MR2 vessels, our preference, are approaching record highs, making attractive acquisition opportunities exceedingly scarce in our opinion.
Now, I would like to quickly touch on some of the key highlights on our dry bulk operations, so please flip to slide 12.
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To us, the dry bulk sector has many positive attributes.
The management team and board of directors have deep experience in owning and operating dry bulk carriers.
Drury estimated that shipboard drywall trade grew 4.6% last year, while tonne miles increased 2.1%.
Considering its reasonable correlation to global GDP growth, demands for dry balsam on this expected to remain positive.
The supply-demand outlook is relatively balanced for 2024. Hal Robinson, a leading shipbroker and chartering agent, forecasts net fleet growth of 2.2% in 2024, with similar demand growth of 2%.
In 2024, global GDP growth is expected to be over 3%, including China at 4.6%.
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In the dry bulk sector, we focus on modern, mid-sized, eco-efficient carriers which provide operating versatility and diversification by port, cargo, and customer. Both our Ultramax and Camsha-Max bulkers are fitted with scrubbers, which provide lower CO2 emissions and banker fuel savings. Our cargos usually consist of whole and minor bulks, such as grains, fertilizers, and aggregates.
Although the early winter is typically a softer period, charter rates for dry Valkyries have recently shown surprising strength.
This resilience can be attributed to solid demand for drivable commodities, partly fueled by restrictions on transit through the Panama Canal and incidents in the Red Sea.
Significantly, China recorded record-breaking iron ore and coal imports in the first two months of 2024.
As of March 8th, Clarkson's reported one-year time charter rates of $17,250 for Ultramax and $18,500 for Camsomax vessels.
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As of March 12, 2024, our two dry bulk carriers were booked at 70% of available days in Q1 at an average TCE rate of $19,600 per day.
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As you can see on slide 13, dry bulk asset values have also been strong. These valuations from Drury imply a favorable price appreciation of our recent vessel acquisitions.
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.
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Thanks Eddie. On slide 15, let's review our unaudited results for the three months ended December 31, 2023.
Our time-to-charter equivalent revenues for Q4 of 2023, which we define as revenues net, minus avoidance-related costs and commissions, declined to $12 million, a decrease of $1.9 million, as we operated one less tanker and spot exposure was lower.
However, we completed the sale of our 8-year-old tanker in mid-December at a very attractive price to realize a gain of $17.1 million.
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Our combination of time and spot charts for RMRs yielded an average daily TC of approximately $30,500, which was down from the same period in 2022, but up sequentially from Q3.
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Moving to slide 16, we generated net income to common shareholders of $21.6 million for the three months ended December 31, 2023, or $2.04 basic or $1.76 diluted EPS, compared to net income of $6.5 million or $0.61 basic and $0.53 diluted income per share for the same period in 2022.
For accounting purposes, the Fully Diluted Earnings Calculation assumes the potential conversion of all outstanding Series A convertible preferred stock into common shares and the elimination of the associated dividend.
In Q4'23, a substantial portion of the decrease in TCE revenues flowed through the income statement as adjusted EBITDA decreased $2 million to a respectful $7.7 million.
For fiscal year-end 2023, we reported EPS of $3.38 per basic share and $2.94 fully diluted with adjusted EBITDA of $22.6 million.
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Now, flip to slide 17 to review our capitalization at December 31, 2023. At quarter close, our consolidated leverage ratio of net funded debt stood at less than 3% of total capitalization. Due to increases in SOFR, our weighted average interest rate was 8.3% for the most recent quarter, and our next bank loan maturity is scheduled for July of 2025.
I should point out that at year-end 23, our total cash position was over 56 million dollars.
Most of our excess cash is invested in short-term money market instruments, which currently earn over 5.5% interest.
Lastly, we have repurchased in the open market 375,000 common shares in total and have $565,000 still remaining under the buyback program.
With that, I'd like to flip it back to Eddie to conclude our presentation.
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Thanks, Henry.
Both of our sectors, dry and refined products, fundamental demand is relatively in balance with supply.
Major geopolitical conflicts have created operating challenges and opportunities for us.
We continue to benefit from the combination of solid and 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 for the project. Thank you.
Global GDP growth over the near term supports demand for the broad list of dry commodities.
Chartering conditions for dry bulk carriers have also benefited from these major events including unprecedented conditions at the Panama Canal.
We expect to utilize our strong financial position and extensive industry relationships to develop investment opportunities that maximize shareholder value, including further fleet expansion. We appreciate your interest and thank you for joining our call today. We look forward to reporting on future progress at PXI standards.
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Ladies and gentlemen, thank you for your participation. You may disconnect your lines at this time and enjoy the rest of your day.