Earnings Call Transcript - IMPP Q3 2024

Operator, Operator

Good day and thank you for standing by. Welcome to the Imperial Petroleum Third Quarter and Nine Months Financial and Operating Results Conference Call. At this time, all participants are in listen-only mode. Please be advised that this conference is being recorded. I would now like to hand the conference over to your speaker today, Harry Vafias, CEO of Imperial Petroleum. Please go ahead.

Harry Vafias, CEO

Good morning, everyone, and thank you for joining us for our third quarter and nine months '24 conference call. I'm Harry Vafias, the CEO of Imperial Petroleum. Joining me today is Fenia Sakellari, who will discuss our financial performance. Before we begin, we ask everyone to review the Safe Harbor disclaimer. This presentation may include some forward-looking statements as defined by the Private Securities Litigation Reform Act. We want to highlight to our investors that these statements are based on current beliefs and expectations and are subject to risks and uncertainties that could lead to actual results differing materially. Also, unless stated otherwise, all monetary amounts are in US dollars. Now, turning to our operational and financial highlights for the third quarter and nine months '24. The third quarter was satisfactory in terms of profit, considering the market deterioration compared to the first half of the year. Rates for both product and Suezmax tankers fell in Q3 '24, mostly due to seasonal factors and geopolitical uncertainties, creating a less favorable market environment. This market weakness is reflected in our low quarterly operational utilization of 65.6%, impacted further by the drydocking of one of our product tankers and a minor incident involving the Magic Wand, which was idle for the entire quarter. Despite the declining rates, we ended the quarter with nearly $11 million in profit. Our daily time charter equivalent of $22,000 decreased by 37% compared to the previous quarter but remained consistent with the same period last year. Excluding non-cash items, our profitability increased by $6.4 million or 142% compared to Q3 '23. Notably, we ended the third quarter with around $200 million in cash, and our operating cash flow for the nine-month period was $68 million. Our debt-free position reduces our breakeven point and helps us maintain profitability even in a weaker market. Regarding our fleet employment, nearly half of our fleet is currently under time charter. Our three handysize bulk carriers are under short time charters, and two of our product tankers have time short employment until January '25 and August '27, respectively. Looking at the broader market, spot rates for product tankers have dropped compared to the first half of '24, with typical seasonal declines exacerbated by uncertainties around demand, refinery operations, US elections, and OPEC decisions. By the end of Q3 '24, market spot rates for product tankers were 57% lower than in Q2 '24, and Suezmax rates declined by approximately 30% compared to the prior quarter. We are currently observing a cautious upward trend in product tanker rates due to increased cargo flows as we enter the winter season. Examining the tanker market, after a strong first half of the year, rates have declined since the third quarter began, influenced by seasonal factors. Global oil demand growth slowed in the third quarter relative to Q2 '24, with global tanker ton mile demand falling by 4.8%. The quarter was impacted by atypical factors, particularly the drop in Chinese oil imports by 730,000 barrels per day due to issues with the Chinese property market and the use of non-oil transport fuels. Additionally, Middle East crude exports were low due to high domestic consumption and reduced refinery runs. The dark fleet's growth and efficiency have increased, reducing Russian premiums and pressuring freight rates in the traditional market as some main owners have scaled back their Russian activities. In Q4 '24, there has not been a significant improvement in rates, but expectations are that the seasonal factors and the conclusion of the refinery maintenance season will uplift the market this winter, though we do not anticipate reaching rates comparable to last year. Looking ahead, OPEC plans to proceed with unwinding voluntary cuts, which is expected to increase cargo flows by 3 million barrels per day in '25, likely raising tanker rates. On tanker market fundamentals, the tanker fleet is experiencing a record low growth rate in '24, with higher deliveries expected in '25 and '26. Future new building additions are anticipated to be below the historical average growth rate of about 6.5%. Both MRs and Suezmaxes have aging fleets, with an estimated 20% of the product tanker fleet expected to be over 20 years old by '26 and 15% of Suezmaxes being more than 15 years old. Given the geopolitical tensions and supply cuts, strong fundamentals suggest that the tanker upcycle may continue for years due to constrained capacity. Moreover, with high new building prices, new tanker orders are expected to remain limited. In the dry bulk market, Q3 '24 earnings for handysize bulkers remained relatively flat, primarily impacted by the slowdown of the Chinese economy. Chinese steel production declined by 8% year-on-year in Q3 '24, though steel exports increased by 18% year-on-year. Looking forward, two main risks to dry bulk demand are the unwinding of extra ton miles and a potential worsening of the Chinese economic slowdown due to US tariffs. I will now turn it over to Ms. Sakellari to summarize our financial performance.

Fenia Sakellari, CFO

Hello. Let us discuss our financial performance in Q3 '24 compared to the same period of last year. As mentioned earlier, we marked sound profitability amidst an unfavorable and uncertain market environment. Looking at our income statement for Q3 '24 on Slide 7. Revenues came in at $33 million in Q3 '24 compared to $29.4 million, a 12.2% increase compared to Q3 '23 due to an increase of our average fleet by 1.3 vessels and better performance of our product tanker as three of our product tankers underwent drydocking in the third quarter of 2023, thus incurring significant idle time due to technical reasons. As mentioned earlier this quarter, our idle time was hindered by the drydocking of one of our product tankers, along with a minor incident of another product tanker, both events adding to idle time and undermining revenue. Voyage costs amounted to $13 million, which increased by $0.4 million compared to the same period of last year due to expenses incurred in connection with the EU emission allowances in order to meet our obligation arising from CO2 emissions as a result of the new EU regulations that entered into force starting from January 1st, 2024. Running costs amounted to $7.2 million, increased by $1.1 million due to the increase of our fleet. EBITDA for the third quarter of 2024 came in at $12.2 million while net income at $10.1 million, corresponding to an EPS of $0.29. On an adjusting basis, that is, excluding non-cash items, our adjusted net income for the period was $10.9 million, marking a 142% increase compared to Q3 '23. For nine months, EBITDA came in at $52.8 million and adjusted net income excluding non-cash items at $15.6 million. Moving on to Slide 8, let us take a look at our balance sheet for the nine months of 2024; we enjoyed high liquidity. As of September 30, 2024, our cash, including time deposits, was in the order of $200 million. The majority of available cash is currently placed under time deposits yielding interest income. For the nine months '24 period, income from time deposits amounted to about $4.5 million, with $2.1 million earned only in Q3 '24. We also enjoy a flexible capital structure governed by high liquidity, zero debt, and minimum liabilities, placing us in an advantageous position to weather any market conditions. Proceeding to Slide 9, we provide a snapshot of our strong fundamentals such as dynamic profitability as our net profit margin is in excess of 30%. We have robust cash flow generation. In the nine months of 2024, we generated close to $68 million of operating cash flow. Going forward, the key considerations are the future of geopolitical tensions and the impact they will have on the tanker and broader shipping market overall. Concluding our presentation with Slide 10, we summarize yet once more Imperial Petroleum's strengths. We feel that our strong financial performance in recurring profitable quarters is solid proof of our argumentation as to why we believe Imperial Petroleum is worth investing in. At this stage, our CEO, Mr. Harry Vafias will summarize our concluding remarks for the period examined.

Harry Vafias, CEO

In spite of an unexciting and seasonally weak quarter, Imperial Petroleum was yet again profitable. Our adjusted net income this quarter was up 141% compared to Q3 '23, and our costs increased by about 60% compared to the end of the same quarter last year. Since the beginning of the year, we have generated a net profit of close to $46 million, with a fleet of only 10 vessels. Apart from our ongoing profitability, our financial strength is shown by our cash of about $200 million in conjunction with zero leverage. The market was volatile and weak during Q3, and it still remains unknown how future geopolitical tensions will affect the tanker and broader shipping markets overall. We would like to thank you for joining us today at our conference call and for your interest and trust in our company. We look forward to having you with us again at our next conference call for our fourth quarter results. Thank you very much.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.