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Edited Transcript of PXS earnings conference call or presentation 20-Mar-20 12:30pm GMT

Q4 2019 Pyxis Tankers Inc Earnings Call

ATHINA Mar 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Pyxis Tankers Inc earnings conference call or presentation Friday, March 20, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Henry P. Williams

Pyxis Tankers Inc. - CFO & Treasurer

* Valentios Valentis

Pyxis Tankers Inc. - Chairman & CEO

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Presentation

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Operator [1]

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Good day, and welcome to the Pyxis Tankers conference call to discuss the financial results for the fourth quarter 2019. As a reminder, today's call is being recorded.

Additionally, a live webcast of today's conference call and an accompanying presentation is available on 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. Gentlemen, you may begin.

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Valentios Valentis, Pyxis Tankers Inc. - Chairman & CEO [2]

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Thank you, operator. Welcome, everyone, and thank you for joining our call for the 3 months and year results ended December 31, 2019. I appreciate your time to hear an update despite the recent stronger global headwinds and economic challenges facing all of us. Well, do we hope that we will soon overcome these temporary difficulties, our thoughts and wishes go to all affected by this terrible pandemic.

Before starting, please let me draw your attention to some important legal notifications on Slide 2 that we recommend you read, including our presentation today, which will include forward-looking statements. Thank you.

Turning to Slide 3. Our operating results for the fourth quarter 2019 reflected the substantial improvement over the comparable period of 2018. In Q4 '19, we generated time charter equivalent revenues of $6.2 million, a 39.5% increase over the same period in 2018. We had a net loss of $3.6 million or $0.17 per share for the quarter ended December 31, 2019, slightly higher than the same period in 2018, which was primarily due to a noncash loss of $2.8 million or $0.13 per share on the sale of our oldest vessel, the Pyxis Delta.

Our adjusted EBITDA for Q4 '19 increased $1.7 million to $1.9 million. The last part of 2019 reflected a period of steady improvement from a terrible 2019 -- 2018 and the high volatility of the first 3 quarters of 2019. Charter rates for medium-range tankers increased into a very solid fourth quarter. At various times during the year, we decided to fix all 4 of our MRs and the standard time charters at higher rates and minimize various uncertainties surrounding the impact of the new IMO 2020 fuel regulations. We decided to take advantage of the stronger environment and sell our only non Eco-MR. In order to achieve a number of our strategic operating and financial goals. The vessel sale was announced in December and completed by mid-January 2020. The net proceeds were applied to delever our balance sheet, improve liquidity and better position us for growth. Further, we avoided operating this older high consuming tanker which would be less competitive moving forward and in carrying the cost of a major upcoming special survey, including the vessels installation of a ballast water treatment system. Our fleet currently consists of 5 tankers, as shown on Slide 4, 2 modern eco-efficient MRs, 1 eco-modified MR and 2 small tankers.

As of March 13, we had 6% of our remaining available fleet base for 2020 covered, exclusive of any extensions. The MRs have an average daily rate of approximately $15,400 per day, which is $1,200 per day higher than the 10-year average for 1-year time charter. As you can see, our small tankers continue to operate in the spot market. We will continue to utilize our mixed chartering strategy in the near term. Please note that 3 of our vessels are scheduled for special surveys during the upcoming quarter.

Please turn to Slide 6 for a brief update on the product tanker market. A more detailed market overview is available at the back of our presentation, including updated sector data. First, let's review the fourth quarter 2019. Charter rates for MRs improved primarily as a result of seasonal demand and strong fundamentals. In addition to demand for winter heating oil in the Northern hemisphere, rates increased because of incremental cargoes of marine gasoil and new compliant low-sulfur fuel blends. Furthermore, a dramatically stronger crude tanker market, caused a number of larger product tankers to switch to dirty cargoes, thereby reducing available capacity to carry clean petroleum products, such as gasoline and jet fuel.

More importantly, let's discuss the current quarter of 2020. Simply, COVID-19 has resulted in a global economic fallout, which has increased the volatility and uncertainty in demand for refined petroleum products.

In late January, spot rates for product tankers collapsed in Southeast Asia due to high inventories, the extended lunar holidays in China and the ripple economic effect of the COVID-19 virus. However, recently, spot rates have substantially rebounded the measure. Atlantic basin has been resilient despite warm winter weather and the delayed arrival of COVID-19 in the Western Hemisphere, impact of which is still to be determined. The period market for amounts and softened, which is typical at this time of year due to refinery turnarounds and fears of lower demand. For example, the the 1-year TC for Eco-MRs has declined by approximately $1,200 (sic) [$1,300] per day to $17,200 per day since the first week of January.

I do think it is beneficial to point out some important points from the current environment. So please go to Slide 7. We have seen lower bunker costs, tighter price spreads between high and low-sulfur fuel oil, evolving arbitrage opportunities and slower net vessel supply growth, primarily associated with delays in newbuild deliveries and dry-dockings, including scrubber installations. We feel our modern eco-fleet, our mixed chartering strategy and our stable and cost-effective operating platform will be helpful during these uncertain times. Looking down the road, despite the interruption of COVID-19, we still believe in the long-term fundamentals in the product tanker sector.

Turning to Slide 8. I historical demand growth for refined petroleum products has been highly correlated to the global GDP growth. Greater worldwide consumption of petroleum products and ton-mile expansion from the change in refinery landscape will return. For example, U.S. exports of refined products have increased an annual compounded growth rate of 10.6% over the last 10 years, a healthy portion of which is carried on MRs. The trend should continue as the U.S. is expanding its export capacity. The MR order book continues to decline. And as of the end of February 2020, the order book was at 5.9% out of the worldwide fleet of 1,739 vessels. Approximately 50 MR2s are scheduled for delivery over the next 10 months and new ordering activity has been very low. In 2019, only 49 MR2s were ordered. We strongly believe that with the delays caused by the virus at certain shipyard, supply growth in 2020 should be lower. Moreover, demolitions should increase as 6.2% or 108 MRs of the global fleet is 20 years or older. Consequently, we believe net fleet growth for MRs should be less than 2% in 2020.

Turning to Slide 9. MR2 asset values have increased, especially for younger eco-efficient tankers, which are currently 14% above 10-year averages. Lower vessel operating costs and better fuel consumptions provide greater earnings power and make these tankers highly valued. There continues to be attractive opportunities to acquire second-hand tankers and participate in the long-term upward movement of charter rates.

At this point, I would like to turn the call over to Henry Williams, our Chief Financial Officer, who will discuss our financial results in greater detail.

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Henry P. Williams, Pyxis Tankers Inc. - CFO & Treasurer [3]

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Thanks, Eddie. Let's start with our unaudited results for the 3 months and year ended December 31, 2019, on Slide 11. Our time charter equivalent revenues for Q4 '19, which we define as voyage revenues minus voyage related costs and commissions were $6.2 million, an increase of $1.8 million or 39.5% for the same period in 2018, as a result of a better freight market, greater time charter activity and better fleet utilization.

In Q4 '19, our daily TCE rate was approximately $12,400, across our fleet of 6 vessels with utilization of almost 91%. Results for the small tankers offset the strong results for our MRs.

Turning to Slide 12. We incurred a net loss of $3.6 million for the 3 months ended December 31, 2019, or $0.17 basic and diluted loss per share. Based upon 21.4 million weighted average shares outstanding compared to a net loss of $3.4 million or $0.16 basic diluted loss per share, based on a lower share count of 20.9 million shares for the same period in 2018. Good discipline in vessel operating costs, management fees and G&A expenses continued to be evident during the most recent quarter.

As previously mentioned, in Q4 '19, we took a noncash loss of $2.8 million or $0.13 per share on the sale of the Pyxis Delta, which contributed to a significant portion of the net loss. During Q4 '18, we took a noncash charge of $700,000 or $0.04 due to the write-down of the carrying value of our 2 small tankers to their fair market values. Our adjusted EBITDA increased substantially from $200,000 in Q4 '18 million to $1.9 million in the most recent quarter.

Please turn to Slide 13 to review our most recent fleet data by vessel type. Changes in these metrics related to a single vessel in one reporting period and have a disproportionate effect on the total fleet operating results. Focusing on the most recent quarter ended December 2019, we'd like to point out 3 key takeaways. The TCE for our 4 MRs averaged almost $14,500 per day. The average TCE for our small tankers improved to over $6,600 per day but negatively affected our fleet-wide results. And finally, fleet-wide daily operating expenses were almost $6,000 a day for the quarter, but were again very consistent year-over-year.

Turning to Slide 14. We believe it is important to review total daily operational cost to run and manage a public tanker company, including overhead. These costs vary by fleet composition and vessel delivery, company operating structure and management. We define total daily operational costs as vessel operating costs, technical and commercial management fees plus G&A expenses. For comparative purposes, we believe that the total daily operational cost of our Eco-MR2s continue to be competitive within the industry despite our small size.

Please turn to Slide 15 to review our capitalization as of December 31, 2019. During the year, we repaid $4.5 million of bank debt. At year-end, our consolidated leverage ratio was on par with other publicly traded tanker companies as net funded debt stood at 61% of total capitalization. No balloon payments are due for another 2.5 years. While 55% of our outstanding debt as floating interest rates tied to LIBOR. Please note, with the sale of Delta in January 2020, we repaid an additional $5.7 million of bank debt.

With that, I'd like to turn the call back over to Eddie to conclude our presentation.

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Valentios Valentis, Pyxis Tankers Inc. - Chairman & CEO [4]

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Thanks, Henry. We are all staring at various uncertainties, including a potential global recession, but we are optimistic that these headwinds will be short-lived. We believe in the long-term fundamentals of the product banking sector, leading to improving charter rates, cash flows and asset values. Our cost-effective operating platform, modern fleet and current mix of time charters and spot exposure should help us manage a potentially choppy environment in the short-term and then position us to take advantage of opportunities to grow Pyxis and enhance shareholder value.

I thank you all for joining our call today and look forward to reporting on further progress at Pyxis Tankers. Stay healthy and be safe.

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Operator [5]

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That concludes the conference call for today. Thank you for participating. You may all disconnect.