Pyxis Tankers Inc. Q1 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by. And welcome to the Pyxis Tankers Conference Call to Discuss the Financial Results for the First Quarter. As a reminder, today's call is being recorded. Additionally, a live webcast for today's conference call and an accompanying presentation is available on the Pyxis Tankers website, which is www.pyxistankers.com. Hosting the call today is Eddie Valentis, Chairman and Chief Executive Officer of Pyxis Tankers; and Henry Williams, Chief Financial Officer. I would now like to introduce Pyxis Tankers' Chief Executive Officer, Eddie Valentis. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining our call to discuss the results for the three months ended March 31, 2020. I hope you are all safe and that you and your loved ones have remained unaffected by this terrible pandemic, which we hope will soon be behind us. Before we begin, I would like to highlight some important legal disclaimers that we recommend you review in our presentation today, which will include forward-looking statements. Thank you. Now, moving to our results for the first quarter of 2020, we saw an improvement from an operational standpoint compared to the same period in 2019 and completed the sale of our oldest vessel, the non-eco 2006-built Pyxis Delta. In Q1 2020, we generated time charter equivalent revenues of $5 million, nearly 4% higher than the previous year. We recorded a net loss of $1.2 million or $0.06 per share for the three months ending March 31, 2020, showing improvements over the same period last year. Our adjusted EBITDA for Q1 more than doubled to $1.2 million. The first five months of 2020, including the first quarter, faced unprecedented global events due to the spread of COVID-19 and significant volatility in the crude oil and refined petroleum product markets. Our operating results in the first quarter reflected the stability and contributions from the time charters we secured in 2019 for our medium-range product tankers, along with continued cost discipline. The average daily time charter equivalent for our MRs was around $15,400 during Q1. As of June 1st, all of our available days for MRs in the second quarter of 2020 were booked at an average gross rate of $15,700. While we anticipate a challenging chartering environment in the second half of 2020, we remain optimistic about the long-term prospects for both the product tanker sector and our company. For information on our fleet and current employment activities, later this month, the Pyxis Epsilon will undergo her first special survey, including the installation of a U.S. Coast Guard-approved Ballast Water Treatment System. Additionally, our small tankers will continue to operate in the spot market until they undergo their 10th-year special surveys in the third quarter of 2020. As we redeliver vessels, we will maintain our mixed chartering strategy of time and spot charters. Regarding the product tanker market, since January 2020, we have seen extreme volatility. After a promising start to the year, the COVID-19 pandemic adversely affected human life, economic conditions, and lifestyles globally. A sharp decline in personal and commercial activities resulted in reduced demand for petroleum products, especially transportation fuels like diesel, gasoline, and jet fuel. Simultaneously, there was an increase in oil production worldwide, driven by OPEC+ members. As spring approached, prices for crude oil and products plummeted, creating a steep forward curve or contango. Speculative trading activity, combined with port congestion and onshore storage constraints, led to increased demand for floating storage, significantly raising charter rates in the spot market. Beginning May 1st, oil production cutbacks from major producers such as Saudi Arabia coincided with initial recoveries in several major economies. Enhanced public safety to prevent COVID-19 and unprecedented government and central bank stimulus programs have played crucial roles in restoring confidence and stability. As personal and business activities resumed, inventory drawdowns began in May. The destocking of refined products led to decreased demand for seaborne cargoes and an accumulation of tonnage in the open market. Consequently, charter rates dropped significantly, indicating that the exceptional rate environment had ended. Looking ahead, we expect the second half of 2020 to bring additional uncertainty. The global economic recovery is likely to be bumpy as the developments surrounding COVID-19 continue to obscure the outlook as we adapt to the new normal. A rebound in global economic growth in 2021, based on an IMF-forecasted GDP growth of 5.8%, would be beneficial. Improved consumption of refined petroleum products and modest ton-mile expansion due to changes in the refinery landscape should provide further support for the product tanker sector. Regarding the supply outlook for MR2s, the situation appears more favorable than six months ago. The order book is steadily declining, with a leading industry source estimating it at 5.9% of a global fleet of over 1,700 vessels. While a reasonable number of MRs are scheduled for delivery in 2020, new ordering activity remains low. Advancements in ship and engine designs, a wider range of fuels, and ongoing discussions about scrubbers are complicating investment decisions for owners. Recent industry reports indicate that new vessel deliveries are lagging by about 60 days due to impacts from the virus on shipyard personnel and the supply chain. Demolition activity is likely to increase as 6.2% of the global fleet, or 108 MRs, are over 20 years old, especially considering the new environmental regulations affecting older, less-efficient vessels. Furthermore, the scarcity of cost-effective capital continues to hinder new orders. As a result, we estimate a net fleet growth for MRs of around 2% this year. Finally, MR2 asset prices have risen over recent years, particularly for younger eco-efficient tonnage, which now commands a modest premium compared to the 10-year average. There are still attractive opportunities to purchase second-hand tankers at reasonable prices, allowing us to benefit from potential increases in charter rates. I would now like to hand the call over to Henry Williams, our Chief Financial Officer, who will provide a more detailed discussion of our financial results.

Thanks, Eddie. Let's start with our unaudited results for the three months ended March 31, 2020 on slide 11. Our time charter equivalent revenues for Q1 2020, which we define as voyage revenues minus voyage-related costs and commissions were $5 million, an increase of 3.8% from the same period in 2019, primarily as a result of higher rates and better utilization despite the sale of the Pyxis Delta early in the quarter. In Q1 2020, our daily TCE rate fleet-wide was over $11,900, a 12% improvement over the comparable 2019 period and utilization improved 370 basis points to 91.4%. The small tankers continue to negatively affect our results. Turning to slide 12. We incurred a net loss of $1.2 million for the three months ended March 31, 2020 or $0.06 basic and diluted loss per share based upon 21.4 million weighted average shares outstanding, compared to a higher net loss of $2.3 million or $0.11 basic and diluted loss per share based on a slightly lower share count. Overall, lower costs reflected the elimination of the Pyxis Delta during Q1 2020. Better TCE revenues combined with continued cost discipline, resulted in a $700,000 improvement of adjusted EBITDA to $1.2 million in the most recent quarter. Please turn to slide 13, which reviews our recent fleet data by vessel type. Given the size of our fleet, changes in these metrics relate to a single vessel and one reporting period can have disproportionate effects on the total fleet operating results. Focusing on the quarter ended March 2020, we'd like to point out three key takeaways. The TCE for our three eco-MRs averaged approximately $15,400 per day. The average TCE for our small tankers improved nicely to about $5,600 a day with better utilization in the spot market. And fleet-wide daily vessel operating expenses were less than $5,700 a day, a 6% improvement over Q1 of 2019. Please turn to slide 14 to review our capitalization at March 31, 2020. At quarter close, our consolidated leverage ratio was on par with many other publicly traded tanker companies as net funded debt stood at 60% of total capitalization. No balloon payments are due for another 2.25 years. With that, I would like to turn the call back over to Eddie to conclude our presentation.

Thank you, Henry. The second half of 2020 will be challenging because of continued volatile chartering conditions within the context of unpredictable global economic recovery and the uncertain developments of the COVID-19 pandemic. We continue to be optimistic in the long term, given the fundamental supply and demand outlook for our industry. MRs will continue to build a workforce within the product banking sector, providing stability of cash flows and solid asset values. We appreciate your interest in Pyxis Tankers and thank you for joining our call today. We look forward to reporting on future progress at Pyxis Tankers. Be safe, be well.

Thank you very much. That does conclude the conference for today. Thank you for participating. You may all disconnect.