Earnings Call Transcript - IMPP Q3 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to the Q3 2025 Imperial Petroleum Results Conference Call and Webcast. Please note that today's conference is being recorded. I would now like to turn the conference over to Mr. Harry Vafias, CEO of Imperial Petroleum. Please go ahead, sir.

Harry Vafias, CEO

Good morning, everyone, and thank you for joining us for our third quarter and nine months 2025 Conference Call. I'm Harry Vafias, the CEO of Imperial Petroleum. Joining us today is Ms. Ifigeneia Sakellari, who will be discussing our financial performance. Before we commence our discussion, please read the safe harbor disclaimer on Slide 2. In essence, it's made clear that this presentation may contain forward-looking statements as defined by the Private Securities Litigation Reform Act. We raise the attention of our investors to the fact that such forward-looking statements are based upon the current beliefs and expectations of Imperial Petroleum and are subject to risks and uncertainties, which could cause future results to differ materially from these forward-looking statements. In addition, we'd like to clarify that during this conference call, unless explicitly stated otherwise, all monetary amounts are denominated in U.S. dollars. On Slide 3, we're summarizing our key operational and financial highlights for Q3 '25. Our operating performance in the third quarter was satisfactory. This was the first quarter that our recently acquired seven drybulk ships were fully integrated. Due to this integration, our fleet calendar days increased by 36.1% quarter-on-quarter. Our fleet operational utilization for Q3 '25 was quite high, about 89%, much improved compared to the same quarter of last year when operational utilization was only 66%. Our drybulk ships are most of the time on short-period time charters with low commercial off-hire, and this leverages the operating performance of our fleet as a whole. In terms of our fleet deployment mix in Q3 '25, the majority of our vessels — all of our drybulk ships and almost half of our product tankers — were under time charter employment. So 75% of our voyage days were time charter days, while the remaining 25% of our voyage days were dedicated to spot activity. Touching briefly on our financial performance, the full integration of our drybulk ships, in conjunction with strong rates in both tanker and drybulk markets, was reflected in our Q3 numbers, particularly in our operating income. In Q3, our revenues came in at $41.4 million, marking a 25% increase against the same period of last year. Our operating income for the quarter was on the order of $10.3 million, marking a 72% increase compared to Q3 '24 and a 23% increase compared to Q2 '25. We view it as very positive that our fleet expansion has led to increased income from our core operations. We ended the quarter with a net income of $11 million, which was slightly lower compared to the second quarter of '25 due to the income decline from time deposits and minor losses from foreign exchange fluctuations. For the nine months of '25, our net income came in at $35 million, our EBITDA close to $50 million, while our operating cash flow was as high as $57 million. Our organic operations fueled operating liquidity. In terms of our cash including time deposits, we ended the nine-month period with about $100 million of cash, decreased compared to our six-month '25 financials due to the $129 million payment for the seven drybulk ships that took place within July and August '25, and our cash base is about $172 million. On December 1, we concluded a capital raise of $60 million through a registered direct equity offering to institutional investors. These proceeds will be used for further acquisitions as we aim to increase our fleet ideally to a size between 25 and 30 ships. Through our fleet expansion, we strive to further boost revenue, profits and asset utilization. In terms of market conditions, we are in a period in which both tanker and drybulk segments are doing quite well. We see that asset values for both markets we operate in are firming, and should this trend continue, it's highly probable that values will climb higher in the near future. Imperial Petroleum has solid fundamentals as we have zero debt and a strong operating cash flow, and this gives us comfort that going forward we will be able to satisfy our working capital needs. Our strong operating cash flow generation supported our fleet expansion during the past couple of years. Our total cash of approximately $100 million at quarter end is expected to be primarily deployed towards our upcoming cash needs, including $52 million of capital expenditures to be paid in Q2 and Q3 '26 related to our three remaining drybulk vessel deliveries and an additional $14 million in total drydocking costs. In 2026, 12 of our vessels are scheduled to undergo drydocking, driving these cash requirements. On Slide 4, we are providing a summary of our current fleet employment. Seventy-five percent of our fleet is currently under time charter employment while our drybulk vessels are under short-term charter contracts. The commercial strategy we currently follow for a drybulk ship provides healthy cash flow while minimizing idle time and voyage costs. As for our tankers, at the moment we employ three product tankers and our suezmaxes in the spot market, while the remaining four product tankers are under period employment ranging from short- to medium-term contracts. On Slide 5, we're discussing the evolution of market rates for both tankers and drybulks. Within Q3, market rates strengthened in both tanker and drybulk segments. Rates for suezmax tankers gained momentum mainly on the back of OPEC output increases which resulted in VLCC rates more than doubling and trickling down this positive momentum to the suezmaxes. The suezmaxes ended the third quarter with a daily rate of about $55,000 a day. Product tanker rates were boosted toward mid-quarter by higher activity in the Atlantic and stronger refining spreads across the U.S., Asia and Europe. Rates in the drybulk sector exerted within Q3 the highest rise witnessed over the past year. Daily rates for supramaxes climbed within the third quarter from $10,000 to $16,000 a day, while kamsarmaxes increased from $12,000 to $15,000. This is attributed to higher global iron flows that began in June, especially in Chinese iron ore demand for both Australia and Brazil, along with higher activity on minor bulk cargoes. The broader market has been resilient in Q4, particularly for suezmax tankers. Suezmax rates a couple of weeks ago were close to $80,000 a day. Rates for product tankers are gradually escalating within Q4 due to the colder weather combined with the end of the refinery maintenance season. Rates for drybulk vessels have stabilized at these increased levels witnessed in Q3 and positive market prospects indicate that this trend may continue. On Slide 6, we are reviewing the tanker market. Within Q3, the setup for the tanker market was strong. We witnessed a rebound in refining margins, higher-than-expected oil demand and a general reversal of prior OPEC cuts. The crude tankers exerted a strong performance within the third quarter of '25 with earnings increasing every month. Additional U.S. sanctions imposed on crude tankers tightened the fleet supply, thus helping conventional trades. Overall, the medium-term outlook for crude tankers remains positive on the back of OPEC exports and Chinese crude imports maintaining a steady pace. However, geopolitical uncertainty, such as the ending of the Russia-Ukraine War and the opening of the Suez Canal, may pressure the market in the long run. The performance of product tankers was modest in Q3 while maintaining overall strength compared to the same period of last year. In the Atlantic, transatlantic freight levels from Europe climbed, while the U.S. Gulf remained subdued despite partial recovery later in the quarter. East of Suez, activity softened on reduced product flows before stabilizing toward the period end. The order book for the product tankers stands at 11.2%, while about 19% of the fleet is above 20 years of age. The order book for the suezmaxes is currently 21% with about 15% of the fleet being above 20 years of age. While assessing tanker fleet capacity, we should also look at sanctioned fleet percentages. About 6% of the total product tanker fleet is under EU, U.K., OFAC and UN sanctions. This percentage for the total suezmax tanker fleet is 11.6%. On Slide 7, we are discussing the drybulk market. Following a softer first half, the drybulk market took an upturn in Q3. Rates for both kamsarmax and supramax moved from $12,000 to $16,000. Indeed, Q3 '25 was a stronger period for seaborne coal trade with coal imports into China marking a significant quarter-on-quarter rise. In addition, volumes in the Atlantic in this mid-size drybulk segment were also supported by the increase of grain volumes in the Atlantic and a rise in U.S. corn exports, up 25% year-on-year. Trade growth is expected to mark a faster expansion in '26, mainly on the back of South Atlantic iron ore and bauxite volumes. The recent U.S.-China trade truce should support freight rates as soybean exports to China will increase. Indeed, China will continue to drive growth, but at a slower pace than previously, via increasing aluminum production and strong imports of iron ore, bauxite and minor bulks. The current order book is quite low for handysize at 7.2% and supramax at 8.7%, but relatively high for kamsarmax at 14.5%. Ordering activity has slowed down while there is a considerable percentage of aged vessels across all dry subsegments. I now pass the floor to Ms. Ifigeneia Sakellari to summarize our financial performance.

Ifigeneia Sakellari, CFO

Thank you, Harry, and good morning to all. The third quarter of '25 was once more profitable. It was the first quarter that we fully utilized our enhanced drybulk fleet segment, and this paid off as we materially increased our operating income. It's worth mentioning that the daily net revenue from the drybulk vessels increased by about 23% in Q3 '25 compared to the same quarter of '24. Our tanker segment, particularly suezmax tankers, performed strongly as well, except for one of our product tankers involved in clean petroleum products (CPP) trading, as this was a market that remained relatively weak in the third quarter of '25. Looking at our income statement for Q3 '25 on Slide 8, revenues came in at $41.4 million in Q3 '25, marking a 25.5% increase compared to revenues generated in the same period of '24. This increase is mainly due to our recent drybulk vessel additions along with an improvement of market rates, particularly for the suezmax tankers, as rates for these vessels increased within Q3 '25 to $55,000 per day and are now even higher, close to $70,000 per day. Voyage costs amounted to $11.6 million, marking $1.4 million lower than in Q3 '24. The decrease in voyage expenses is attributed to the change in our fleet employment, which now shifts toward period coverage. In Q3 '25, our time charter coverage was about 75% versus 27% in Q3 '24. Our net revenues for the quarter came in at about $30 million compared to $20 million in Q3 '24. This is equivalent to a 50% increase. Running costs amounted to $10.9 million, increased by $3.7 million due to the increase of our fleet by an average of 8.6 vessels between the two periods. The current average daily OpEx for our tanker fleet is around $7,200 and $5,600 for the drybulk fleet. We incurred negligible drydocking costs this quarter as none of our vessels underwent drydocking. As mentioned, we do have a heavy drydocking schedule for 2026 as 12 of our vessels will need to be docked. In addition to this quarter and compared to the same period of last year, we faced a reduction in our income from noncore operations due to a reduction of funds in time deposits and a minor foreign exchange loss incurred in the quarter. In Q3 '24, nonoperating income was $4 million compared to $700,000 in Q3 '25. EBITDA for the third quarter of '25 came in at $18 million, while net income of $11 million corresponds to basic earnings per share of $0.30. For nine months '25, our EBITDA came in at $37.4 million. Our operating cash flow was $57 million, while our net income was $35 million corresponding to an EPS of $0.98. Moving on to Slide 9, let us take a look at our balance sheet for the nine months of '25. As of September '25, our free cash, including time deposits, was about $100 million. As already mentioned, within Q3 '25, we paid $129 million for the acquisition of seven drybulk vessels; hence our cash base declined. We still enjoy a flexible capital structure as we have no debt and solid liquidity. Looking at our fleet book value, this increased to $343 million, reflecting a 65% expansion in the company's asset base within just nine months. Proceeding to Slide 10, we provide a summary of our liquidity, profitability and market considerations going forward. For the nine months of '25, our operating cash flow was $57 million. Our profitability margin remains wide as market rates are favorable and significantly higher than our breakeven levels. In Q3 '25, our average time charter equivalent per fleet voyage day was close to $23,000 for tankers and about $12,000 for the drybulk fleet. In terms of market considerations, it still remains crucial how the current geopolitical tensions will unravel and if new geopolitical tensions will arise, such as the recent friction between the U.S. and Venezuela. The U.S. trade war seems to have stalled for now, but the question remains how it will play out in the long run. Rates for both tankers and drybulk seem strong; thus the prospect for the fourth quarter is favorable. In Slide 11, we summarize some key remarks around the strategy going forward. We base our strong operating performance on successful commercial management of our high-quality, well-built ships. Going forward, we strive to expand further, while also addressing our current capital commitments and working capital needs. At this stage, our CEO, Mr. Harry Vafias, will summarize our concluding remarks for the period examined.

Harry Vafias, CEO

The full integration of our recently delivered seven drybulk ships, increasing our fleet to 19 ships and soon to 22 ships, enhanced within Q3 '25 our income and profitability stemming from core operations. Market rates for both tanker and drybulk markets are solid, and this seems likely to hold in the upcoming quarters. With our debt-free balance sheet and our cash base that is currently $172 million, and our focus on quality-built Japanese and Korean-built ships, we aim for an even better performance in the fourth quarter of 2025. We'd like to thank you all for joining us on our call today and for your interest and trust in our company, and we look forward to having you again with us at our next call for our Q4 '25 results. Thank you.