Earnings Call Transcript - TEN Q1 2020

Operator, Operator

Thank you for standing by, ladies and gentlemen, and welcome to the Tsakos Energy Navigation Conference Call on the First Quarter 2020 Financial Results. We have with us Mr. Efstratios Arapoglou, Chairman of the Board; Mr. Nikolas Tsakos, President and CEO; Mr. Paul Durham, Chief Financial Officer; and Mr. George Saroglou, Chief Operating Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. I must advise you that this conference is being recorded today, Thursday, 11 of June 2020. And now, I'll pass the floor over to Mr. Nicolas Bornozis, President of Investor Relations Advisor of Tsakos Energy Navigation. Please, go ahead, sir.

Nicolas Bornozis, IR Advisor

Thank you very much, and good morning to all of our participants. I am Nicolas Bornozis, the Investor Relations Advisor to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the first quarter of 2020. In case you do not have a copy of today's earnings release, please call us at 212-661-7566 or email us at ten@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. 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 webcast 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 at this moment, I would like to pass the floor to Mr. Efstratios Arapoglou, the Chairman of Tsakos Energy Navigation. Mr. Arapoglou, please go ahead, sir.

Efstratios Arapoglou, Chairman

Thank you, Nicolas. Good morning and good morning to all. I hope that you and yours are all well and staying safe and healthy. Citing Q1 results once more delivering consistent justification of TEN's operating model. As we've said many times in the past, it's a model that provides stability of earnings at all times and is flexible enough to capture all market opportunities as they arise. This, coupled with best-in-class cost containment and an impeccable health and safety record, allows us to comfortably meet our obligation to reduce debt. And as you've seen, increase our originally declared dividend by 50%. All of this we believe is gradually beginning to be reflected in our stock price, which is, in any case, expected to benefit from our announced reverse split, as it will hopefully make our shares more attractive to a much broader professional investor audience. Once again, congratulations to Nikolas Tsakos and his team. We wish them continued good market conditions and greater success for the rest of the year. Thank you and over to you, Nikolas.

Nikolas Tsakos, President and CEO

Thank you, Chairman, and good morning to all of you. It is really very nice to be able to be in touch with you again after 10 weeks since our last earnings call. I think a lot has gone on during this time. Many of us have had a lot of pain within the family due to the COVID virus. We had our last meeting on March 24, and at that time, I think we were at the beginning of a very uphill battle as far as personnel issues. But for us, other than the personnel issues, what has been very important is the safety of the 2,000 seafarers on board our ships all over the world. This has made all of us greyer and wiser in less than 10 weeks. But we are happy to announce not only that we were able to operate in this unprecedented time with 97% efficiency, but also that we did not have an outbreak of the virus in any of our vessels. I think with that in mind, we not only had a very profitable quarter but, more importantly, a healthy and safe quarter for all. We believe that TEN has been able to navigate significant extraordinary crises over the 28 years we've been in the public market and we’re prepared for this latest challenge. The fundamentals of our industry are very strong. We believe that this crisis, when it turns around, could lead to a very safe recovery. The order book currently stands significantly lower than in past crises, which gives us a good chance of seeing strong fundamentals for 2020 and beyond. We took advantage of favorable rates in March and April to charter our fleets at attractive rates that strategically position us for the coming quarters. I will now ask George Saroglou to remind us of the situation we've navigated through in the last 90 days. George?

George Saroglou, Chief Operating Officer

Thank you very much, Nikolas, and good morning to you all. 2020 has so far been a year for the history books. What started in China as a local health problem ended up gradually spreading around the world, creating a global pandemic of unprecedented proportions, which almost put the whole world to a complete standstill as a result of government mandates, lockdowns and social distancing measures to contain the spread of the virus. In this global health crisis, our first priority was the health, safety and well-being of our families, our office personnel and our crews on board vessels. Equally important was to make sure that there was no business disruption or downtime as a result of working remotely. The lockdown and difficulties imposed on shipping adapted quickly and successfully to this new reality. Thank you to everybody involved. We are pleased to report today a very strong and profitable first quarter, one of the best quarters for TEN due to favorable market conditions, a low oil price environment, record land and floating storage at sea and limited new supply of tonnage, despite unprecedented demand destruction. There is a spillover effect of the strong rates into the second quarter. While we are not currently at headline record-breaking rate levels, which are not sustainable, the medium to long-term outlook remains positive. Since TEN's inception in 1993, as our CEO mentioned, we have faced four major crises. But each time the company, thanks to its operating model built to be crisis-resilient, has come out growing stronger and bigger. Our fleet's employment profile includes a combination of fixed time charters and flexible contracts that capture the market’s upside. We also maintain a cost-effective operational model from management to operational expenses. Debt reduction remains an integral part of our strategy as we continue to reward shareholders with healthy dividends. Our fundamentals remain strong even as the market slowly begins to recover.

Paul Durham, Chief Financial Officer

Thank you, George. We've had a strong first quarter ending with significant cash reserves, mainly due to voyage revenues of $180 million, helped by full employment and only one dry docking. This was 22% higher than in the prior year's first quarter, which led to a doubling of operating income to $55 million and of net income to $21 million, despite non-cash bunker hedge losses. In summary, we had 46 tankers on pure time charter earning $80 million, with 16 vessels having profit-sharing arrangements that contributed an additional $20 million. Our EBITDA amounted to $90 million, a 40% increase over the same period last year. Operating expenses increased 4%, primarily due to loading extra provisions and supplies in light of the spreading pandemic, but our daily average operating expenses per vessel remained at $7,900. This strong quarter gives us a solid foundation moving into the next quarter, and as long as market fundamentals remain in our favor, we expect to generate healthy cash flow to meet all our obligations. Now, I'll hand the call back to Nikolas.

Nikolas Tsakos, President and CEO

Thank you, Paul. And keep on bringing us good news. That’s very good. With this, we would like to open the floor for any questions that you might have. Thank you very much.

Operator, Operator

Thank you. And your first question comes from the line of Ben Nolan with Stifel.

Ben Nolan, Analyst

Yes. Hi. Good morning, guys. I have a couple of things. First of all, Nikolas, while we appreciate the deal is not done, you alluded to some things that you're working on. Could you maybe just characterize the types of opportunities you're currently pursuing?

Nikolas Tsakos, President and CEO

Yes. As you said, it is our strategy to pursue long-term commitments with specialized types of vessels, and we're currently in close negotiations for up to three units that will offer significant double-digit locked-in returns. This aligns with our model of securing reliable income streams while managing risks.

Ben Nolan, Analyst

Understood. And regarding the LNG carrier on order that does not have a contract yet, what’s your strategy there as far as securing employment for it before delivery?

Nikolas Tsakos, President and CEO

We are exploring multiple avenues across oil and gas transportation that make sense for our diversified fleet. We're monitoring the market closely and leveraging our existing relationships to position ourselves favorably ahead of the delivery timeline. There’s still time to assess market conditions before we make any decisions.

Ben Nolan, Analyst

And lastly, on capital allocation, how do you balance safety versus growth opportunities, especially in light of your optimistic outlook?

George Saroglou, Chief Operating Officer

In terms of prioritization, debt repayment comes first, followed by strategic investments. We need to be sensible with our capital allocation while taking advantage of growth opportunities, but we also need to ensure financial safety.

Randy Giveans, Analyst

Howdy gentlemen? How is it going? Question around the profit sharing, what was the amount for the first quarter and was that a record?

Nikolas Tsakos, President and CEO

Yes, the profit-sharing contributed at least $20 million in revenue, which has been significant for our results this quarter. We expect similar contributions going forward as long as market conditions hold.

Randy Giveans, Analyst

And regarding dividends, could you clarify your strategy for increasing it while balancing growth initiatives?

Nikolas Tsakos, President and CEO

We raised the dividend to recognize our strong performance and reward our investors. While we will maintain our base dividend, we'll carefully consider special dividends based on market performance and our cash flow position.

J. Mintzmyer, Analyst

Good afternoon, gentlemen. Thanks for taking the questions. I just wanted to confirm if the first LNG carrier has been moved to January 2022?

Nikolas Tsakos, President and CEO

Yes, that is correct. The delivery for the first LNG carrier has been moved to January 2022, and we are monitoring the market closely for the best opportunities.

Operator, Operator

Thank you for your participation. This concludes today's conference call. You may now disconnect.