Earnings Call Transcript - IMPP Q1 2022

Operator, Operator

Thank you for standing by, and welcome to the Imperial Petroleum Q1 2022 Financial and Operating Results Conference Call and Webcast. At this time, all participants are in listen-only mode. I must advise you that your conference is recorded today, the 14th of June 2022. I would now like to hand the conference over to the speaker, Mr. Harry Vafias, CEO of Imperial Petroleum. Please go ahead, sir.

Harry Vafias, CEO

Good morning, everyone, and thank you for joining today's first quarter 2022 call for Imperial Petroleum Inc. I'm Harry Vafias, the CEO of Imperial Petroleum; and with me today is our CFO, Mr. Sakellaris. Before we commence our discussion, we'd like all to read the Safe Harbor disclaimer posted on Slide number 2 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, and 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, we would like to state that during this conference call, we will quote monetary amounts. These unless explicitly stated otherwise, are all denominated in U.S. dollars. Turning to Slide 3 for a summary of our company's performance highlights. As of June 1, 2022, we had raised approximately $135 million in total net proceeds after underwriting discounts from our public offerings. In addition, on June 13, 2022, we entered into agreements for warrant exercises expected to result in additional net proceeds to us of about $21 million. Testimony of our commitment to our growth plan is that within the course of five months, we doubled the number of vessels in our fleet and almost tripled our fleet's deadweight ton capacity. Imperial Petroleum commenced operations with just four tankers, and we now own a fleet of eight tankers. Towards the end of the first quarter 2022, we took delivery of an MR tanker, the Clean Nirvana. And within the second quarter of 2022, we added three more vessels, an MR tanker, the Clean Justice, and two Suezmax tankers, Clean Future and Clean Summer. These vessels will contribute to our results from the second quarter onwards. Sadly, the war in Ukraine is still ongoing and has had an unprecedented impact on the world economy, particularly on energy prices. This uncertain environment with oil price spikes did not leave shipping rates unaffected. We see a rise in rates across all tanker segments, especially from the end of the first quarter onwards. Focusing on our first quarter '22 results, these were encouraging for Imperial Petroleum. With a fleet operational utilization of almost 99% stemming from the operation of our initial four tankers, our revenues came in at $5.1 million, 28% higher than our revenues in the fourth quarter of '21. Our bottom line was positive in the order of $0.2 million, marking a turning point from the losses faced in the previous quarters. Most importantly, we enjoy a healthy and strong balance sheet. Following the capital deployment of $78 million for our vessel acquisitions, we still have about $55 million of available cash. On Slide 4, we discussed our capital allocation in more detail. As said, we have invested $78 million, which is equivalent to almost 55% of our net proceeds from our capital offerings. The four vessels acquired were purchased with equity; however, we are in advanced discussions to secure post-delivery financing in the region of $47 million, about 60% gearing. Consequently and including proceeds from our recent warrant transaction, a total of about $125 million will be available to be deployed for further growth. Leverage will increase equity returns while current steel prices provide low financial risk; the total demolition value of our acquired vessels in June is on the order of $40 million, that is 85% of our expected loans. Slide 5 is a summary of our current fleet employment status. Since our last announcement, the charters of the Magic Wand exercised their option and extended the charter for one more year until May 23. In addition to this, the Clean Justice entered into a time charter contract for a minimum of 80 days up to 120 days duration. We have a well-balanced fleet deployment, four of our vessels are on period charters, while the remaining four vessels operate in the spot market under improved rates compared to Q1 of this year. On Slide 6, we discuss the tanker market. The Russian war against Ukraine has reshaped the global oil markets. Following the sanctions on Russia, Europe has reduced Russian oil imports. Europe was importing about 30% of its crude from Russia. To compensate for the loss of Russian oil, Europe has increased imports from the U.S. and Africa. On the other hand, Russia has been exporting oil to India and China. Even if Europe agrees to ban Russian oil, as was recently discussed, it's believed that the impact could be tempered by demand from Asia. The seaborne oil trade has been rerouted; tankers are now settling for longer voyages, and this, along with the current cap in oil production, has led to a global rebound in tanker markets and a sharp rise in rates, particularly for product tankers. Given the current market environment, ton-mile growth is expected to climb to 6% in the period 2022 to 2025. The solid market fundamentals of the tanker sector, a low order book, and expected rise in demolition activity may fuel a further improvement in market rates in the years ahead. On Slide 7, the tanker market fundamentals are indeed promising; new building ordering for all tanker segments in which we operate has remained low in the past years due to uncertainty around environmental regulatory aspects, high steel prices, and uncertainty around the COVID-19 pandemic. On top of that, and given the number of vessels above 20 years of age, we do anticipate a fleet contraction if we see softening freight rates, in other words, if demolition outpaces new vessel deliveries. I will now pass the floor to our CFO, Mr. Sakellaris, who will provide a summary of our financial performance.

Fenia Sakellaris, CFO

Thank you, Harry, and good morning to everyone. Our financial performance for the first quarter of '22 was better both compared to the first and fourth quarter of '21. As said, during the first quarter, rates did not mark a noticeable improvement. We did have virtually all of our vessels on period deployment though, hence minimal voyage costs. Indeed, our operational utilization was in the order of 99% as our conversion of hire for the whole quarter was only four days. Looking at our income statement for Q1 '22 against Q1 '21 on Slide 8, revenues came in at $5.1 million, at the same levels as in Q1 '21, but 28% higher than the previous quarter, Q4 '21, as all vessels were on period charters. Voyage costs marked almost $0.9 million decrease given that our spot days were 82%, that is lower, offset by the year-on-year increase in bunker costs. Indeed, in the first quarter of '22, we had only the Stenberana performing a spot voyage between year period employments. Our running costs were stable as our fleet mix and the number of vessels on bareboat did not change. Overall, we tried to keep costs at moderate levels in spite of inflationary pressures. Basically above, we generated an EBITDA of $2.6 million, that is almost 50% higher than in Q1 '21 and a net profit of $0.2 million. Moving on to Slide 9. Let us take a look at our balance sheet for the three months of 2021 of 2022. Following our capital offerings that took place up until the end of the first quarter, our cash base increased sharply to $82 million of free cash. As mentioned in our call, a large portion was deployed for vessel acquisitions. Total debt is in the order of about $28 million. As of the end of the first quarter, our free cash was three times higher than our outstanding loans. We are in advanced discussions, as we mentioned, on financing our newly acquired ventures; hence, our gearing will increase. However, we follow a conservative strategy on leverage. Concluding our presentation on Slide 10, we outline the key variables that assist us in our company's growth. Even in this limited time of Imperial's operation, we have shown commitment by joining a high-quality fleet while always working on cost-efficient operation and maintaining a solid capital structure. At this stage, our CEO, Mr. Harry Vafias, will summarize our concluding remarks for the period examined.

Harry Vafias, CEO

Having raised a total of $135 million from our equity offerings, we consider the number of acquisition candidates to be acquired in order to grow our fleet. We managed within a brief period of time to identify, acquire, and take delivery of four tankers, doubling our tanker fleet size, and almost tripling our fleet's cargo-carrying capacity. The outbreak of war in Ukraine shocked shipping markets and altered oil trading patterns, resulting in an improvement in the charter market. For Imperial Petroleum, the first quarter of '22 was transitional. The vessels we acquired were added to our fleet towards and after the end of the first quarter, while improved charter rates for our existing vessels materialized from the beginning of the second quarter. Nevertheless, this was a profitable quarter with a significant improvement in revenue and earnings from the last quarter of 2021. The strong tanker market, the dynamic fleet expansion, along with improved charter rates, bodes well for the second quarter to be even more profitable. Our remaining cash balance is about $55 million following the $78 million spent on vessel acquisitions. And before we incur debt for this acquisition, which will increase our cash balance even further, as will the warrant exercise transaction we recently announced that is expected to result in additional net proceeds of about $21 million. We are committed to growing our company further, and we'll seek to expand our fleet so that Imperial Petroleum becomes a true pioneer in the field of energy shipping. We have now reached the end of our presentation. We would like to open the floor for your questions. So operator, please open the floor.

Operator, Operator

We have a question from an unidentified analyst. Please go ahead and ask your question.