Imperial Petroleum Inc. (NASDAQ:IMPP) Q1 2024 Earnings Conference Call May 16, 2024 9:00 AM ET
Company Participants
Harry Vafias – Chairman, President and Chief Executive Officer
Ifigeneia Sakellari – Interim Chief Financial Officer
Conference Call Participants
Harry Vafias
Good morning, everyone, and thank you all for joining us for our First Quarter 2024 Conference Call. I am Harry Vafias, CEO of Imperial Petroleum, and with me today is Mrs. Ifigeneia Sakellari, who will be discussing our financial performance.
Before we commence our discussion, we’d like you to read the safe harbor language on Slide number 2. In essence, it’s made clear that this presentation may contain some forward-looking statements as defined by the Private Securities Litigation Reform Act. We raise the attention of our investors to the fact that such forward-looking statements are based upon the current beliefs and expectations of Imperial Petroleum and are subject to risks and uncertainties which could cause future results to differ materially from these forward-looking statements.
We’d like to know that the slides of the webcast presentation will be available in archived in our Company’s website. In addition, before we commence our discussion, we’d like to clarify that during the call, we will quote monetary amounts unless explicitly stated all in U.S. dollars.
On Slide 3, we are summarizing our operational and financial performance. Q1 2024 was a much better quarter than Q4 2023. Our performance was lower when compared to the same period of last year, which was a record quarter as both market and utilization rates were at their peak. The tanker market in the first quarter of 2024 driven mainly by the geopolitical tensions and the reduction in the Suez Canal transits remained firm both in terms of demand and rates.
The Western market remains stronger than the Eastern, particularly for MRs. Hence, our strategic repositioning of the majority of our MR tankers that took place within Q4 2023 was crystallized into a rise of our revenues and profitability. Indeed leveraging upon our MR fleet and the full operation of our Suezmax’ as the Suez Protopia was idle for the majority of the last quarter of 2023, our fleet was better utilized. It was also engaged in longer haul voyages with far less commercial of hire.
In the first quarter of 2024, our operational utilization came in about 80% improved compared to the Q4 2023 by 23%. As said, market is firm, show our asset values even for older tonnage. We therefore took the strategic decision to sell the 2009 Aframax tanker Gstaad Grace II, our only Chinese built vessel for a consideration of $42 million. These funds will be used for free renewal when an attractive and financially some opportunity arises.
Looking briefly at our Q1 2024 results, our revenues came in at $41.2 million, generating an EBITDA of about $19 million and a net income of $16.7 million, which compared to our Q4 2023 performance revenues were higher by 38% and EBITDA by an astonishing 136%. Our net income was up by 157%. This improvement is much relied upon our strategy, given that tanker spot rates in Q1 2024 did not vary significantly from rates prevailing during the second half of Q4 2023.
We continue to maintain a strong cash base of about $67 million and remain a debt free company. Our consistently profitable performance, along with the dynamic share buyback program, which was active from early September 2023 until early January 2024, have assisted our share price to rise. In the beginning of September, Imperial Petroleum was trading at close to $1.5 per share, now trades above $3.5 a share. Taken into consideration that our current NAV per share is about $14 a share will still trade at a steep discount.
On Slide 4, we are providing a summary of our current fleet employment. Both of our handysize drybulk ships are on short time charters expiring in May and June respectively at improved rates compared to the previous quarter. It’s noted that in Q1 2024, the Baltic Handysize TC equivalent averaged 12,000 a day, which corresponds to a 24% year-on-year increase.
All of our tankers are operating in the spot market where rates remain favorable. Moving on from the extreme market spikes falling the Russian invasion in Ukraine, the tanker market now seems to have stabilized, reduced, although historically firm levels. In early 2023 when the effect of the Russian/Ukraine conflict had not yet crystallized, spot rates for Suezmax tankers were about 65,000 a day while for Aframax tankers close to 8,000 a day. Spot rates for both of these tanker segments are now about 40,000 a day.
The current stabilization of rates at firm levels is supported by the continued geopolitical attention in various places and continued changes in trend patterns caused by sanctions on Russian oil and oil products. Limited capacity in the Panama Canal and significant reduction in the usage of the Suez Canal due to ongoing attacks by the Houthis on the merchant vessels.
On Slide 5, we are reviewing the tanker market. As mentioned during Q1 of this year, the tanker market was predominantly affected by pressure stemming from geopolitical events, a predominant driver of Q1 market where the Houthis assaulted more than 80 ships. Due to this, the majority of tankers chose to bypass the Red Sea and therefore take a longer route around the Cape of Good Hope. It’s estimated that this has added about 30 days to a round trip voyage from Middle East to Europe, while it has assisted rates to remain at firm levels.
We saw the LR2 being the biggest winners from the Suez Canal disruptions, but also clean MRs got a significant boost, especially East of Suez. On the dirty side, Aframax’ and Suezmax’ continue to enjoy the effects of the sanctions on Russian oil and oil products and still outperforming the VLCCs which has been much less effects from both the sanctions and the Houthi attacks.
Indeed in the intensification of sanctions on oil trade has had and will continue to impact the oil market in the long run. Sanctions against Russian oil are ruled by law, hence will take a significant amount of time to resolve regardless of when the Russian/Ukraine conflict might come to an end.
What needs to be taken into considerations that the expected unwinding of the sanctions in the Red Sea might lead to a downward correction in earnings? The expectation is that this unwinding might take place towards the end of this year. Going forward, is expected that oil demand could grow by 3.25% over the next two years. This demand is anticipated to be stronger in Asia-Pacific, while supply growth will be focused mostly in the U.S., Brazil and Canada.
Oil demand and supply dynamics are in place for a positive tanker market outlook ahead. Due to the strong prevailing market, we do witness limited scrapping activity. Both newbuilding and secondhand asset values continue to increase. Should free rates remain at this level, we might see prices even further.
On Slide 6, MRs, Aframax and Suezmax segments have had the current order book, which is lower than the percentage fleet that is above 20 years of age. Therefore, we anticipate the shrinking of the fleet in the years ahead. As market is firm, we currently witness limited scrapping activity, but at the same time, there is a limited yard capacity for new orders. Hence, there is a marginal room for a sharp price of the current order book. In terms of market values, both newbuilding and secondhand asset values continue to increase and perhaps there is room for further rise in asset values.
Looking briefly at the Drybulk segment. During the first four months of this year, global seaborne demand for drybulk commodities have increased by 0.4%. However, the Chinese economy, which accounts more than 40% of the global seaborne imports continues to be weak, mostly due to the Chinese property sector along with ongoing challenges stemming from domestic and retail demand. We do witness though an improvement in handysize drybulk rates at the back of stronger demand and the increase of average sailing distances.
I will now pass the floor to Ms. Sakellari, who will provide you with a summary of our financial performance.
Ifigeneia Sakellari
Thank you, Harry, and good morning to everyone. We commence this year with a promising performance, marking a questionable improvement compared to Q4 2024 results. Market continues to be firm and rates have normalized at high levels, which are lower though than the peak levels witnessed in the beginning of 2023.
Let us discuss now our financial performance in Q1 2024 compared to the same period of last year. Looking at our income statement for Q1 2024 on Slide 7, revenues came in at $41.2 million in Q1 2024 compared to $65.4 million in Q1 2023. The main reason for this comparative decline in revenues during the first quarter of 2023 in which we marked a record performance to date was that rates were at their peak as the effects of the Russian/Ukraine conflict had not yet been normalized.
In fact, tanking market spot rates prevailing during the first quarter of 2023 were higher than rates witnessed in Q1 2024 by an average of 38%. In addition in Q1 2024, we operated a lower average number of vessels, but most importantly, the tanker vessels, Gstaad Grace II acquired in Q1 2024 did not materially contribute to our results as they were delivered to us mid-quarter. Further to this, the Gstaad Grace II underwent dry docking right after her delivery.
Voyage cost decreased by $3.4 million due to decreased port expenses by $1.4 million as a result of longer haul voyages reduction in transit through the Suez Canal and decreased commissions by $2.2 million due to lower revenues when compared to the same period of last year. Our running cost decreased by $0.9 million due to a lower average number of vessels. In terms of dry docking, this amounted to $0.6 million and during Q1 2024, our Aframax tanker Gstaad Grace II commences dry docking, which was concluded within April, 2024.
(Basically) above, we generated an EBITDA of close to $19 million compared to an EBITDA of $40 million in Q1 2023 and net profit of $16.7 million compared to $35.7 million net income in Q1 2023. Our basic earnings per share for the first quarter of 2024 came in at $0.56.
Moving on to Slide 8, let us take a look at our balance sheet for the first quarter of 2024. In spite of our recent vessel acquisitions, which was mentioned took place in February, we do maintain a hefty free cash base in order of $67 million and we remain a debt-free company. Following the sale of Gstaad Grace II, which took place in April, 2024, and the receipt of almost $38 million from C3is Inc., which will take place within July, 2024, our cash balance will be in the order of a $150 million. This without taking into account the free cash flow that will be generated up until then.
Our operating cash flow for Q1 2024 was $18.6 million, meaning that all of our profitability was translated this quarter into operating cash. Overall, we have minimum liabilities as our equity to asset ratios in the order of 96%.
Proceeding to Slide 9, we provide the snapshot of our strong fundamentals along with some considerations going forward. We do enjoy healthy liquidity and profitability position, but nevertheless trade at a steep discount to our net asset value, which is close to $14 per share. Our profitability relies on our strong TCE generation. In Q1 2024, our daily TCE generation was reaching 31,000 per day – per fleet voyage day, while our daily breakeven remains low. We have minimum capital expenditures going forward as we have one more scheduled dry docking in Q4 2024 following which our next dry docking is due in Q1 2026.
Concluding our presentation with Slide 10, we summarize our strong points. Our financial position is healthy. We enjoy recurring profitable quarters and are able to adjust our commercial strategy to market conditions.
At this stage, our CEO Mr. Harry Vafias, will summarize our concluding remarks for the period examined.
Harry Vafias
This year commenced quite favorably for Imperial Petroleum. $16.7 million of net income for the first quarter of this year, which is almost 106% higher than our profitability in the last quarter of 2023, filled us with optimism. The market continues to be governed by turbulence, which directs longer haul voyages and is sustaining charter rates at firm levels. The financial health of Imperial Petroleum is undisputable with a large cost pile and no bank debt. Going forward, we’ll remain focused on the growth of our company.
Question-and-Answer Session
Q –
Harry Vafias
We would like to thank you all for joining us at our conference call today and for your interest and trust in our company, and we look forward to having you with us again at our next call for our second quarter results. Thank you.
