Earnings Call Transcript - TEN Q1 2025

Operator, Operator

Thank you for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation Conference Call on the First Quarter 2025 Financial Results. We have with us today Mr. Takis Arapoglou, Chairman of the Board; Mr. Nikolas Tsakos, Founder and CEO; Mr. Paul Durham, Chief Financial Officer; Mr. George Saroglou, President and Chief Operating Officer; Mr. Harrys Kosmatos, Co-CFO of the company. I must advise that this conference is being recorded today. And now I'll pass the floor over to Mr. Nicolas Bornozis, President of Capital Link, and Investor Relations adviser to Tsakos Energy Navigation Ltd. Please go ahead, sir.

Nicolas Bornozis, President of Capital Link

Good morning, and thank you very much. Good morning to all of our participants. I am Nicolas Bornozis, President of Capital Link, and the Investor Relations Adviser to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the first quarter ended March 31, 2025. In case you do not have a copy of today's earnings release, please call us at (212) 661-7566 or email us at 10@capitallink.com, and we will have a copy for you emailed right away. Please note that parallel to today's conference call, there is also a live audio and slide webcast, which can be accessed on the company's website on the front page at www.tenn.gr. The conference call will follow the presentation slides, so please we urge you to access the presentation slides on the company's website. Please note that the slides of the webcast presentation will be available and archived on the website of the company after the conference call. Also, please note that the slides of the presentation are user-controlled, meaning that by clicking on the proper button, you can move to the next or to the previous slide on your own. At this time, I would like to read the safe harbor statement. This conference call and slide presentation of the webcast contain certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of operations. And before I pass the floor over to the Chairman, please let me wish a belated birthday to Dr. Tsakos and his wife, Celia. I understand that you had a very special birthday gift being in Korea and taking care of the delivery of the Suezmax tanker, Dr. Irene Tsakos. That vessel bears your mother's name, and it will have the Greek flag. Also, at the same time, you have the naming of the sister vessel, Cilia T., which will bear your wife's name. So it has been a very special moment in the company's history, and I'd like to congratulate you. And with this, I will pass the floor to Mr. Arapoglou, the Chairman of Tsakos Energy Navigation. Mr. Arapoglou, please go ahead.

Efstratios-Georgios A. Arapoglou, Chairman

Thank you, Nikolas. Good morning, good afternoon, everyone. Thank you again for joining us today in our call reporting our Q1 results. It's another quarter of excellent financial results driven by the usual superior operating track record of TEN, supported, of course, by strong market fundamentals. This allows us to continue rewarding shareholders with a healthy dividend as we have been doing continuously since inception. As you've read in the press release, TEN has built a continuously growing stream of high-quality committed future income of currently approximately $3.7 billion, spanning over a number of years through long-term accretive charters for a substantial part of its fleet, which ensures profitability, limits volatility, and provides greater predictability in its earnings. At the same time, of course, TEN continuously renews the fleet with modern state-of-the-art vessels through an unprecedented size of 21 vessels now being built and selling our old tonnage. You would agree that this is not the typical more sensitive model of shipping companies that protects them against market downturns. We believe that all these positive characteristics of the TEN industrial model are not properly reflected in our stock price, which is being valued in the same way as other companies in the sector with much less robust attributes. This may be because most followers of the sector have a much shorter time horizon than our industrial model deserves. We hope that investors will focus on this and upgrade the valuation of our stock. I'll leave you to reflect on this and congratulate again Nikos Tsakos and his team for the excellent results. Thank you, and over to you, Nikolas.

Nikolas P. Tsakos, Founder and CEO

Thank you, Chairman, and good morning, good afternoon to all of you following our first quarter 2025 results. As the Chairman said, it has been a solid period. We are navigating literally in very turbulent waters around the world, largely due to geopolitical events. The beginning of the year has brought a wave of uncertainty in terms of business possibilities. There is a lot of talk about tariffs, extra port costs, and protectionism. And, of course, the very troubling situation that is escalating in the Middle East. However, despite these uncertainties, we have managed to navigate through these turbulent waters successfully, safely, and profitably. Our main profitability is important, but the safety of our crew and the people on board our ships is even more important. We have had another good run in this segment. Regardless of the uncertainties, the underlying market conditions are strong. It is very challenging for us and our chartering team to maintain any vessels in the spot market as there is a huge demand, even for older ships. I can provide you with examples that I haven't seen in my 30-plus years in business, any of our ships can be chartered even if they are 10 to 15 years old, or even older. One of our oldest ships, older than my twin daughters, has been chartered by one of the major oil companies year after year. I believe she is currently on her 20th extension, and she is 23 years old and has been extended for another 6 options. This illustrates that for a quality operator providing good service, age is not as critical as the quality of the assets. The environment remains positive. The company is experiencing its largest growth phase to date, having previously sold 14 of our first-generation ships and ordered another 17. We are now at 21 new buildings, two of which were just delivered last week. I would like to thank you for your well wishes on this significant milestone occasion. We are also exploring other opportunities. There are segments in which we are currently under-invested, such as VLCCs, and we are always looking for good quality Korean or Japanese vessels as a priority. Perhaps we will have some surprises in the following quarters regarding that. Regarding our share price, it has been treated similarly to other companies. We've seen a decline from our $31 one-year high to almost half of that value. Although we're making progress, our net asset value, excluding $3.7 billion of future business, is in excess of $6. We are genuinely in undervalued territory here, presenting a good opportunity. Half of our fleet, 29 vessels, has been extended or have new business within the first six months of the year. According to our CFO, Paul Durham, we anticipate future revenues of $3.7 billion. We announced a healthy dividend and, hopefully, we will maintain or perhaps increase that going forward. And with that, I will ask George to provide us with a quick overview of what we have accomplished so far.

George V. Saroglou, President and COO

Thank you, Nikos. We are very pleased to report today another profitable quarter. We continue to operate in a very favorable freight market environment. Energy Majors continue to approach our company for time charter business. As Mr. Tsakos mentioned, since the start of the year, we have secured 29 new time charter features. Total contracted revenue for the fleet stands at approximately $3.7 billion. We have built TEN into one of the largest transporters of energy in the world, starting with 4 vessels back in 1993, and we have turned every crisis that the world and shipping has faced into a growth opportunity. We now have a pro forma fleet of 82 vessels, thanks to the company's resilient model. Over these 32 years, we have combined self-generated cash, traditional bank lending, and counter-cyclical capital market fundraising to build the corporate fleet. Today, our fleet is modern, diversified, and versatile, covering both conventional and specialized transportation requirements primarily for major oil companies. In Slide 5, we illustrate our pro forma fleet of all conventional tankers, both crude and product carriers. The red colors show the vessels that trade in the spot market, and our new buildings under construction are marked with 'ticker NB TBN.' With light blue, we have the vessels on time charter with profit sharing, and with dark blue, the vessels on fixed-rate time charters. In the next slide, we present the pro forma diversified fleet, consisting of our 2 LNG vessels and our 16 vessels shuttle tanker fleet. We are among the largest shuttle tanker operators globally, following our recent deal with Transpetro in Brazil for 9 high-specification shuttle tankers to be built at Samsung shipyard in South Korea. We currently operate 5 shuttle tankers after taking delivery of Athens 04, which has commenced a long time charter with an Energy Major. If we account only for the operating fleet of 63 vessels, 29 or 46% have market exposure, which refers to spot-related rates and time charters with profit sharing. While 52 vessels or 83% of the fleet are secured under revenue contracts, these include fixed time charters and those with profit sharing. The next slide details the clients with whom we maintain repeat business throughout the year, largely due to our industrial model. ExxonMobil has emerged as our largest revenue client, followed by Equinor, Shell, Chevron, TotalEnergies, and BP. We believe that over the years, we have established ourselves as the carrier of choice for Energy Majors, thanks to the fleet we have built, our operational and safety record, disciplined financial management, and our strong balance sheet. The following slide presents breakeven costs for the various vessel types we operate within the company. Our operating model is straightforward; we ensure that our time charter vessels generate revenue to cover the company's cash expenses and allow the revenue from spot trading vessels to contribute to profitability. Thanks to the profit-sharing element, every $1,000 increase in spot rates results in a positive $0.13 impact on annual earnings per share based on the current 10 vessels exposed to spot rates. We have a solid balance sheet with strong cash reserves. The fair market value of the fleet is $3.6 billion against about $1.7 billion in debt, with a net-debt-to-cap ratio currently at approximately 40%. Fleet renewal has been critical to our operating model. Since January 1, 2023, we have further upgraded the fleet quality by divesting first-generation conventional tankers and replacing them with energy-efficient new buildings and modern secondhand tankers, including dual fuel vessels. In summary, we have sold 14 vessels with an average age of 17.3 years and a deadweight capacity of 1.2 million tons. We have replaced these with 30 contracted and modern acquired vessels, boasting an average age of less than a year and a threefold increase in deadweight capacity. We are transitioning our fleet to greener and dual fuel vessels, and we are currently among the largest owners of dual fuel LNG-powered Aframax tankers globally, with 6 vessels in operation. Global oil demand continues to grow year after year, and wars along with geopolitical events are positively affecting the tanker market and freight rates. The order book remains healthy, with a considerable part of the global fleet being over 20 years old and requiring replacement. I will now pass the floor to Harrys Kosmatos, who will discuss our financial performance for the first quarter.

Theo Harrys E. Kosmatos, Corporate Development Officer & Co-CFO

Thank you, George. Thank you for highlighting all the major points that need to be addressed. I will now provide a brief overview of the financials we presented earlier today. In the first quarter of 2025, TEN operated approximately 62 vessels, up from the equivalent figure in 2024, and shifted fleet employment more towards secured revenue contracts to capture the increased appetite from all majors looking to lock in their long-term transportation needs. As a result, TEN's exposure to spot markets increased from about 73% in the first quarter of 2024 to 80% in the first quarter of 2025. Conversely, our fleet's pure spot exposure between 2024 and 2025 saw a slight decline from 19% to about 18%. Despite recalibrating our fleet's employment strategy to align with this evolving landscape, TEN's ability to maintain a notable presence in the healthy spot market has significantly enhanced. Our emphasis has been on profit-sharing contracts, which, when combined with spot exposure, raised our fleet's ability to capture market opportunities from 44% in last year's third quarter to 47% in the first quarter of this year. Regarding fleet operations, in the first quarter of 2025, only 2 vessels underwent scheduled dry docking, compared to 5 in the first quarter of 2024, ensuring a near-maximum fleet utilization rate of 97.2%. Consequently, in light of the high fleet utilization and the increased base in secured revenue contracts, we have effectively neutralized any earnings pressure the softer spot market earlier this year may have posed. TEN's fleet generated $197.1 million in gross revenues, slightly below the $201.5 million recorded in the first quarter of 2024. The average time charter equivalent per day per ship corresponding to this performance was a healthy $30,741. Voyage expenses, aligning with TEN's measured lower exposure to spot rates in this quarter, declined by $6 million from last year's first quarter, settling at $36 million. Vessel operating expenses due to an expanded fleet footprint totaled $49.6 million compared to $48.6 million in the first quarter of 2024, amounting to an average of $9,502 per ship per day, a level that remains manageable thanks to TEN's efficient and proactive management. A similar pattern was evident in depreciation and amortization expenses, which increased from $37.5 million in the first quarter of 2024 to $41 million in the first quarter of 2025. This uptick was somewhat attributed to the inclusion of larger and higher-value assets. During Q1 2025, the sale of a 2009-built Suezmax tanker resulted in capital gains of $3.6 million, compared to $16.2 million in the first quarter of 2024. After factoring in these gains, TEN's operating income for the first quarter of 2025 was $57.1 million, down from $60.1 million in the same period of 2024. Interest and finance costs declined by $1.1 million to $24 million, reflecting lower debt obligations and interest rates compared to Q1 2024. Accordingly, the company's net income reported for Q1 2025 was $37.7 million, leading to earnings per share of $1.04. Adjusted EBITDA for the first quarter of 2025, despite a softer spot rate environment, amounted to $99.3 million, nearly identical to the $100.5 million recorded in last year's robust first quarter. Total debt was reduced to $1.7 billion, a $40.4 million decline from the first quarter of 2024. Following $27 million in preferred coupon payments and $238 million in principal payments to banks, including payments for financing arrangements, the available cash level increased to $350 million, $6 million higher than it was at the end of the first quarter of 2024. Given this positive performance, TEN will distribute its first semiannual dividend of $0.60 per share to shareholders of record on July 14, 2025. And with that, I'll pass it back to Nikos. Thank you.

Nikolas P. Tsakos, Founder and CEO

Harrys, thank you for your concise and accurate presentation. As we've discussed, the beginning of this year has proven to be quite peculiar and turbulent, marked by shipping restrictions. As we usually state, our aim is to have open roads, not protectionism. Furthermore, the intensified geopolitical turmoil has compelled us to navigate through turbulent waters. Nevertheless, we have successfully and profitably managed our operations within the tanker market amidst significant demand for business. This has indeed been a strong year of expansion and currently our largest growth phase thus far. We are still looking to enter segments where we are currently underrepresented, such as VLCC and LNG, as our chartering department is continuously trying to secure exposure in the spot market given the high demand, including for older vessels. An example would be our 2003 ship, which has seen continuous chartering with one of the major oil firms since its inception— a strong testament to our operational efficiency. Overall, while the world may be undergoing uncertainties, we maintain control over our business, combining growth capabilities with dividend payments and debt reduction strategies. With that, I would like to open the floor for any questions.

Operator, Operator

Our first question comes from Poe Fratt with Alliance Global Partners.

Poe Fratt, Analyst

Can you just highlight what the second quarter new build costs will be? I'm looking at roughly $130 million. Is that in the ballpark for the second quarter new build payments?

Theo Harrys E. Kosmatos, Corporate Development Officer & Co-CFO

For the second quarter of '25, we have one of our DP2s joining the fleet. The holding cost for this vessel is just under $130 million, and we expect to pay around $17 million remaining for that quarter. The remaining payments have been arranged through financing. Additionally, we will be required to pay a second installment of $67 million on the 9 DP2 shuttle tankers scheduled for delivery in July. We are also expecting one of the additional vessels to be delivered in the next quarter with a mid-80s value, looking to finance around 75% of that.

Poe Fratt, Analyst

Okay. And just to clarify, so the $67 million on the shuttle tankers will fall into the second quarter, not the rest of the year. So that's a second quarter event, Harrys?

Theo Harrys E. Kosmatos, Corporate Development Officer & Co-CFO

Yes, they are scheduled for July of this year.

Poe Fratt, Analyst

Great. And then Nikos, you talked about how you are underrepresented or lack sufficient exposure to VLCCs and mentioned staying tuned. Can you characterize how the bid-ask scenario is in the S&P market right now, especially for these?

Nikolas P. Tsakos, Founder and CEO

We are always looking to build ships based on clients' needs and when opportunities arise. Our primary aim is to build high-quality vessels from Korean or Japanese yards. There are limited options available currently, but we are actively seeking out opportunities. Presently, we are down to 3 VLs, and with a goal of nearly 90 ships in pro forma terms, we need to broaden our presence in this segment. We've recognized a favorable change in the newbuilding prices from top yards, and we aim to leverage that.

Poe Fratt, Analyst

That makes sense. You sold a 2009 Suezmax in the first quarter. Can you clarify your fleet strategy regarding whether you plan to continue selling older assets if suitable bids are available, or will your fleet remain relatively stable as new builds increase over time?

Nikolas P. Tsakos, Founder and CEO

We consistently leverage the sale and purchase market to rejuvenate our fleet. We intend to sell at least half a dozen ships by the end of this year and are currently close to finalizing 3 or 4 transactions that could yield around $100 million in net cash flow. This will not only bolster our capacity to pay dividends and reduce debt, but also ensure we maintain robust cash balances as we pursue further expansion opportunities.

Poe Fratt, Analyst

Understood. It's probably too early for an outlook on the dividend for the second half that's typically paid in December, right?

Nikolas P. Tsakos, Founder and CEO

I cannot say for certain, as our strategy meeting occurs every October in Greece, when our team discusses dividend decisions over wine. Jokes aside, we are hopeful for at least a similar dividend to the first half.

Poe Fratt, Analyst

That helps, thank you. You mentioned that your NAV is above $60, while the stock is trading below $20, indicating it trades at about 35% of NAV. Do you see any actions that could help reduce that gap?

Nikolas P. Tsakos, Founder and CEO

We believe we need to illustrate the distinction of TEN's value, which has demonstrated an industrial model over 30 years, unlike other shipping companies that are more volatile. Our share float remains small, excluding management and family holdings. If someone were to pursue a buyback, it would only further dilute existing shares. Our focus is on showcasing the company's value proposition, which includes discussions around a potential spinoff of our LNG and shuttle tanker fleet, which provides substantial cash flow over the next 12.5 years. However, these deliberations are still in progress. We have ample liquidity and do not require immediate capital raises; rather, we need to enhance visibility on our valuation.

Operator, Operator

I am not showing any further questions at this time. I would now like to hand the call back over to Mr. Nikolas Tsakos for any closing remarks.

Nikolas P. Tsakos, Founder and CEO

Thank you all for your attention. It has been an engaging first six months, and we aim to ensure that the rest of the year remains just as exciting. We wish everyone a peaceful summer, even though it may not appear likely. We hope everyone can make sense of the current situation and find a more peaceful operating environment. With that, I will pass it to our Chairman, Mr. Takis Arapoglou, to conclude our presentation. Thank you.

Efstratios-Georgios A. Arapoglou, Chairman

Thank you, Nikos. Regarding the question about addressing the gap between our price to NAV and the suggestion of a buyback, I would prefer to incentivize investors through dividends rather than pay them to exit. I hope investors will recognize the underlying value of the stock and differentiate it from more typical shipping assets in the market. We provide a stable income stream that is consistently renewed, providing a different operating environment. That's all I have for now.

Nikolas P. Tsakos, Founder and CEO

Thank you, Chairman. Just to reiterate, especially for the analysts on the call, our operations are significantly more industrial in nature and should not be evaluated solely on net asset value. This measure isn't representative for companies with substantial operational figures. We maintain $3.7 billion in forward income with an average of 12.5 years on fixed contracts. In fact, we have 180 years of fixed employment across all ships, indicating that even our future generations may be beneficiaries of our dividend strategy. Therefore, we propose evaluating our company based on EBITDA multiples rather than net asset value. Currently, we are trading at 2-3x EBITDA multiples, yet should be at approximately 8x. Our goal is to enhance the perception of our value, potentially through a spinoff, but we have no urgent need for capital raises. Rather, we should focus on maximizing dividends, fostering growth, and ensuring debt reduction. Thank you all.

Efstratios-Georgios A. Arapoglou, Chairman

If I may add, based on last year's dividend, we might not be far from that this year given our current stock price. We are looking at an 8-9% dividend yield, which is not common in this sector. This further exemplifies the strength and model of our operations when reviewing payout ratios. As Nikos mentioned, our business is dynamic—EBITDA metrics serve as the relevant performance indicator. Thank you.

Nikolas P. Tsakos, Founder and CEO

Thank you, and best wishes for the remaining year. I trust our team is in New York. I hope you are enjoying a pleasant lunch and hope to see some pictures from the meals, perhaps even a doggy bag sent our way. Thank you.

Efstratios-Georgios A. Arapoglou, Chairman

Take care, everyone. Thank you for joining us.

Nikolas P. Tsakos, Founder and CEO

Thank you, bye-bye.

Operator, Operator

This concludes today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of the day.