Earnings Transcript for IMPP - Q4 Fiscal Year 2022

Harry Vafias: Good morning, everybody, and thank you all for joining our Fourth Quarter 2022 and 12 Months 2022 Conference Call of Imperial Petroleum. I’m Harry Vafias, the CEO of the company, and with me today is the Interim CFO, Ms. Sakellari. Before we commence our discussion, we'd like to take you all to read the Safe Harbor disclaimer posted in slide number two of our presentation. In essence, it's made clear that this presentation may contain some forward-looking statements as defined by the Private Securities Litigation Reform Act. We raised the attention of our investors to the fact that such forward-looking statements involve risks and uncertainties, which may potentially affect our company's performance in the future. In addition, I would like to state that during this call, we will quote monetary amounts. These, unless explicitly stated otherwise, are all denominated in US dollars. Let's start from slide three, for a summary of our company's performance highlights. During Q4, we can take advantage of the solid tanker market which maintained the strong momentum gained in the third quarter. As a result of the tanker recovery in 2022, we managed to end the year with net income of close to $30 million, which is equivalent to 36% of our current market cap; quite an impressive result. Throughout the fourth quarter, tanker rates remained firm. The EU ban on Russian oil and price caps imposed on oil and refined petroleum products continue to affect trading patterns favorably. In addition, with China's slowly reopening, oil demand is expected to be strong. The tanker market players [ph] will be affected by the ongoing inflationary pressures and uncertainty of a possible global recession. Overall, our company had a remarkable year, dominated by rapid fleet expansion. Since -- during the course of 12 months, we more than doubled our fleet to 10 vessels and had very strong earnings. In a highlight for the fourth quarter of 2022, we marked the fleet operation utilization of 79.4% rather low levels due to the dry docking of two of our vessels, along with a balancing of one of our suezmaxes for a period of 40 days following the completion of which dry docking in order to reposition the vessel for her next employment. During the quarter, we had approximately half of our fleet operating under time charter contracts with the remaining of the fleet operating in the spot market in high spot charter rates. As per our fourth quarter financial highlights, our revenues came in at almost $38 million, which is close to 950% higher than the same period of last year. Our time charter equivalent revenue across our fleet came in at $27.4 million, corresponding to an average daily TCE of about $36,600. Our net income was close to $14 million, while as of the year we had $119 million of free cash available for fleet expansion and other uses. Our year end 2022 free cash level is approximately 1.5 times our equity market capitalization. Slide four is a summary of our current fleet deployment status. Two of our tankers and both of our handysize dry vessels are operating under short term time charter contracts. We have strategically dedicated the majority of our spot market, as demand is strong, with high charter rates. Spot rates, since the beginning of this year, exhibited some volatility, as the market was apprehensive ahead of the EU ban on Russian oil imposed on February the 5. Since that date rates have increased and remained very firm. Year-to-date and compared with the same period of 2022, the average increase of tanker rates across our size segments is in excess of 1,000%. On slide five, we're reviewing the tanker market. All demand is forecasted to grow by 1.8% in 2023, despite the global economic slowdown, due to the energy crisis and high interest rates. However, a strong rebound in oil demand is expected as China slowly fully reopens. And we expect this will necessitate the reversal of the OPEC cuts. On February 5th, 2023, EU introduced two separate price stops on Russian oil. Two price levels have been set forth on products; one for premium to crude petroleum products such as diesel, kerosene, and gasoline; and the other for discount to crude petroleum products such as fuel and naphta, reflecting market dynamics. The maximum price for premium to crude products will be 100% per barrel and the maximum price for discount to crude will be $45 per barrel. The EU Russian refined oil product ban will result in Europe for oil from others sources hopping further away. It's estimated that Russia will also needed new non-European buyers for 7 -- for 0.7 million barrels per day of clean petroleum products and 0.4 million barrels per day of fuel oil, certainly boosting tonne-miles. The biggest downside for 2023 is perhaps a global recession, which may necessitate production cuts. On slide six were for product tanker market, we expect the outlook for this segment to remain positive for the year and beyond, thanks to slow fleet growth and longer haul seaborne trading patterns. Limited available yard slots due to new billing orders primarily for dry bulk carriage containers and LNG ships are putting pressure on the record-low tanker order book. It's anticipated that in 2023, product tanker fleet growth will only be 1.2%, while product tanker might reach 10%. Briefly to comment on market rates and trade parts entering the first quarter; for the crude oil market, a combination of Russian oil being transported far greater distances and before the sanctions, mainly to India and China; and the EU ban on Russian oil imports come into effect from the 5th of December, led to an explosive rise in tonne-miles especially for Aframaxes and to certain degree for Suezmaxes. This, combined with a seasonally active resulted in very high spot rates during Q4. For the clean petroleum product race, the market strength seems to be resulting from the preparations for the 5th of Feb EU ban on the import of oil products. The market was extremely active and eager seems to maximize imports of oil products before the upcoming ban. Certain CPP trades show all-time high freight rates being paid in Q4. I'll now pass -- Ms. Sakellari will provide a summary of our financial performance.

Ifigeneia Sakellari: Thank you, Harry and good morning to everyone. During the fourth quarter of 2022, we continue to record strong revenues and generated net income of close to $14 million. We are very satisfied with our results, reflecting a tremendous improvement in the overall tanker and product tankers in particular. Our results were somewhat undermined as one of our Suezmax tanker, the Suez Enchanted and one of our dry bulk vessel engine bay underwent drydocking. This, along with the repositioning voyage on ballast of the Suez Enchanted following the completion of its drydocking added to our lot higher, almost 130 days, further reducing revenue generation. Indeed, our operational utilization was low during the fourth quarter in the order of 79.4%. Looking at our income statement for Q4 2022, on slide seven compared to Q4 2021, revenues came in at $37.9 million, up by $34 million compared to the fourth quarter of 2021 due to our fleet additions as we increased our fleet by six vessels along with a noticeable rise in market rates. Voyage cost increased by 9.6 million due to the increase in sport voyages by days by 320 days that is 516% in the rising banker prices. This quarter we include 1.7 million of voyage cost for the balancing of our Suezmax tanker, Suezmax enchanted which landed of about 50 days, the benefit of which will appear in the first quarter of 2023. Our running costs increased by $4.6 million due to the average increase of our fleet by six vessels and one of our product tanker, the Clean Sanctuary coming off their bare boot close to the end of August 2021. Basis the above, we generated a strong EBITDA of almost $18 million that is $17 million or 2,125% higher than in Q4 2021 and a net profit of $8 million corresponding to an EPS of $0.7. Our profit margin for the quarter was in the order of 36%. For 12 months 2022, we generated a net profit of $29.5 million corresponds to an EPS of $.19. As a result our trailing price to equity ratio slightly above 10 times. Moving on to slide 8, let us take a look at the balance sheet. For the 12 months of 2022 as of December 31, 2022, we had the face of about $120 million. Our operating cash flow for the year was $40 million so we generated from our fleet operations, cash almost equal to our current market capitalization. For the time being, we leverage upon our free cash base as we place the majority of our cash and time deposits as evident during the 12 months of 2022. Our time deposits generated a total of $1.3 million that's covering the majority of our finance costs. During the fourth quarter of 2022, we increase our loan, took on a $30 million loan against our two Aframax vessels. Our total debt is in order of $70 million which equates to a gearing ratio of 19% basis fleet book values. As of the end of year 2022, as free cash was 1.7 times above our outstanding leverage, resulting in a negative net debt to fleet book value ratio. In slide 10, we present a financial snapshot relating emphasis on our solid capital structure. Going forward, as mentioned balance is quite high, enabling us to expand our fleet further. Our loan repayments are well structured. We will have a low annual fees per repayment schedule of about $10 million per annum while our first balloon payment is due in December, 2026. Looking at our profitability and growth, this has been a success. Having almost tripled our fleet, within the course of 12 months, during the fourth quarter of 2022. We had an average daily TCE per vessel of $33,600, while our average daily OpEx per vessels was $7,000. This is how the recently imposed cap on rational will affect the margins. Adding to this, we also need to see how inflationary pressures might impact demand on oil products. Concluding our presentation with slide 10, we simply outline once more the strong but yet proven points that make Imperial Petroleum a growing company that has a short, but impressive track record of successful fleet expansion which ensures immediate returns. At this stage, our CEO, Harry Vafias will summarize our concluding remarks for the period examined.

Harry Vafias: 2022 can only be characterized by one word, success. As market conditions were favorable, particularly during the second half of the year, we managed to increase our net income by about 1,020%. We managed to increase our EBITDA by 2,175% grow our one year old company to 10 vessels, and generated net income of about $30 million. Going forward, our main focus will continue to be growth and profitability. We positioned the company well with an enviable capital structure, $257 million in asset market values, $120 million approximately in cash and only $70 million of debt. The market outlook for tankers looks promising for this year and we are set to capture the continuing favorable charter environment as well as acquisition opportunities in the tanker and dry bulk sectors. We have now reached the end of the presentation and we would like to open the floor for your questions. So, operator, please open the floor.

Operator: Thank you. [Operator Instructions] We will now take the questions. One moment, please. It comes from the line of [indiscernible]. Please go ahead. Your line is open.

Unidentified Analyst: Hello, I'm sorry, I didn't – didn't ask a question. Don't have a question.

Operator: No problem, sir.

Unidentified Analyst: Thank you. I don't know.

Operator: We will not take the next question. One moment, please. It comes from the line of [indiscernible]. Please go ahead. Your line is open.

Unidentified Analyst: Thank you very much. I’ve got a question about the equity dilution that has happened over the last year, so clearly destroyed a lot of capital, taken the book by $20 to $1.50. And the latest At The Money program, there’s only paused last week. So what is the plan going forward, is it capital really using equity dilution completed now? Do you have $100 million in cash? Are you going to continue to do that over the next year?

Harry Vafias: Very good question. As you can understand despite our stellar results, we are still – in global terms a very small shipping company, 10 ships, obviously is not a big fleet in global standards. Obviously, we have money to expand. But even with this money, we cannot really double or triple the fleet. For the time being, we will continue with the ATMs until we have enough cash or a fleet large enough to be competing with the global players.

Unidentified Analyst: And what is the target for that? How many ships?

Harry Vafias: That's not a very easy answer to give, as things change on a quarterly basis. But I would say a proper – a proper fleet size will be in the region of 20, 25 ships.

Unidentified Analyst: Got it. Thank you.

Harry Vafias: Thank you.

Operator: Thank you. We will now take the next question. It comes from the line of Gary. Please go ahead. Your line is open.

Unidentified Analyst: Good morning. Good afternoon. Good evening. My name is Gary, and I'm very impressed with the results. However, I'd like to kind of address the elephant in the room regarding the NASDAQ Listing with the notification in mid-December from the qualification department regarding the 180 day extension. How do you plan to meet that by June 12? We exceed $1 in your share price for at least 10 days straight, when you're diluting and selling 35 million shares within the last seven weeks. I'd like to understand more about that. Thank you.

Harry Vafias: Very good question. Obviously by continuing to announce stellar results, as you might have seen in Q3 and in Q4, we hope that shareholders will understand the value in the company, as just the cash is far more than the market cap, however, if we continue to announce very good results, and the stock is obviously below $1, we have no other choice but to do a reverse stock split by June.

Unidentified Analyst: Okay. You answered my question. Thank you.

Harry Vafias: Thank you.

Operator: Thank you. We will now take the next question. It comes from the line of Peyton Manning [ph]. Please go ahead. Your line is open.

Unidentified Analyst: The previous guy just answer my question.

Harry Vafias: Thank you.

Operator: Thank you. We will now take the next question. It comes from the line of -- please go ahead. Your line is open.

Unidentified Analyst: Hello, hi. I just wanted to ask, is there ever a time when you will consider buyback?

Ifigeneia Sakellari: Very good question as well. I think we are in the very early stages of the company's growth and fleet increase. This is something, obviously, we consider when we have reached the optimal fleet size and we continue to announce stellar results as we did this quarter and the previous quarter. We've done similar moves in our affiliated company, StealthGas. So it's something that we can consider, but it’s not the right moment as we are in expansion mode right now. But, yes, it's something that we should consider and discuss in the future.

Unidentified Analyst: Okay. Thank you, Ifigeneia.

Ifigeneia Sakellari: Thank you.

Operator: Thank you. We will now take the next question. It comes from the line of Daniel Stengel [ph]. Please go ahead. Your line is open.

Unidentified Analyst: Hi, good afternoon. My question was answered in a previous one. But I realize we're in growth mode. But with the unavailability of tankers to purchase, wouldn't it make sense to do a buyback to regain compliance? And then continue with ATMs later on after we've regained compliance? Thank you.

Harry Vafias: Yes and no. As I said, we are still considered a small company. The big chatters and the oil majors don't really want to deal with the small companies. They want to deal with the big operators that has 10, 30, 40 ships ideally, we are at 10 ships, we grew very fast. We've been announcing very, very profitable quarters as you have seen, and with very little debt and a lot of cash on the side. If the tankers are too expensive, we may add some other ships from other segments that are not valued, it’s expensively right now. And as I said, the buyback is not something foreign to us. We've done it a lot on our sister company. And we will have it in our mind to discuss it with BoD, but when we have achieved our short-term goals. So as I said, it's not something impossible, but it's a bit early.

Unidentified Analyst: Okay, Thank you.

Harry Vafias: Thank you.

Operator: Thank you. I would like to hand back over to Harry Vafias for final remarks.

Harry Vafias: We'd like to Thank you all for joining us at our conference call today and for your interest and trust in our company, and we look forward to having you with us again at our next conference call for our Q1 2023 results. Thank you very much.