Imperial Petroleum Inc.

Good morning, everyone, and thank you for joining us for the third quarter 2022 conference call of Imperial Petroleum, Inc. I'm Harry Vafia, the CEO, and with us today is our interim CFO, Mrs. Fenia Sekelaris. Before we commence our discussion, we'd like all of you to read the safe harbor disclaimer posted in slide number two of our presentation. 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 involve risks and uncertainties which may potentially affect our company's performance in the future. In addition, we'd like to state that during this conference call, we will quote monetary amounts. These, unless explicitly stated otherwise, are all denominated in U.S. dollars. Let's start from slide three with a summary of our company's performance highlights. With a net income of $15.5 million in one quarter, in just one quarter, we announced today outstanding results both in terms of revenue and profitability. Tanker rates, particularly in the spot market, remained firm also at the third quarter, so we grasped the opportunity and increased our daily time charter equivalent per ship to about $33,000 compared to $13,000 the previous quarter. We strategically dedicated 70% of our fleet days to spot activity, and this proved highly lucrative. Amidst this positive market momentum, we continued to grow our fleet. On October 19th, we took delivery of our second dry bulk hunting size vessel, and we now count 10 operating vessels, six of which were acquired within a course of just 10 months. Our fleet addition fueled our earnings potential. In Q3 22, our revenues came in at $42.6 million, up by $31 million compared to Q2 2022. Our EBITDA climbed to almost $19 million, that is a $16 million increase compared to the second quarter of 2022. Our most important success, though, was our impressive profitability of $15.5 million, marking an unheard of 15,400% rise compared to Q2 2022, while generating in a course of three months a profit equivalent to 23% of our current market cap. Needless to say that Imperial Petroleum is heavily undervalued on the market, as company performance is seemingly uncorrelated with stock market valuation. On slide 4, we discuss our capital allocation and expected company liquidity. As previously announced, we took delivery of our first bulker, the Echo Bushfire, on September 21st. Our second dry bulk handy vessel, the Eco Angel Bay, was delivered to Imperial Petroleum on October 19th. In terms of loan financing, on September 29th, we finalized a $17 million loan against our product anchors, Clean Nirvana and Clean Justice. We have an official commitment and we are progressing with a $31 million loan against our two Suez Maxes, the Suez Enchanted and the Suez Protopia. Aside from the loans, primarily, our strong profitability has enhanced our liquidity and we ended the third quarter of 2022 with a free cash base including our time deposits of about $92.5 million, equivalent to 1.3 times our current market capitalization. Following the recent funds spent for the EcoAngel Bay and the conclusion of the $31 million financing mentioned earlier, we expect to have a free cash base of about $105 million, partly available for further fleet expansion and lows of only $70 million. Slide 5 is a summary of our current fleet deployment status. Our fleet has grown and therefore we elected to take on some short-term period coverage. We currently have three of our tankers and one bulk carrier on time charters. Based current fleet employment, 37% of our fleet days for Q4-22 are covered under period employment. The remaining of our fleet continues to operate in the spot market as rates are firm and therefore favor spot operations. Indeed, since October 10th, we have witnessed a further strengthening of daily spot rates, particularly for the Suezmax and Aframax tankers. This is mostly attributed to the increased tanker activity in the Middle East and U.S. Gulf markets. On slide 6, we are discussing the tanker market. The Russian war against Ukraine and related rippling effects still influence the tanker market. Indeed, the oil market is facing a restructuring following refinery closures sanctions imposed on Russian oil and the recent strategic decision of China to reduce petroleum product exports. In addition to this, the decision of OPEC Plus to cut oil production by 2 million barrels a day has affected the price of oil and has increased broader market uncertainty. Subsequently, the change in trade flows, increasing tonnage and reduced vessel supply kept especially the Afromax and Suezmax rates at very firm levels, both in the east and the west of Suez. Time Charter X for all vessel sizes have continued to firm, and with the expectations of a strong market, charters have recently started looking for long-term coverage, even up to three years. Currently, the critical focus date is the 5th of December, which is the cut-off date for EU imports of Russian crude oil, and what practical effects this will have on the market. As a base case scenario, we do expect in 2023 both and oil demand growth and further ton-mile demand growth, which will be stronger for major Asian countries. If Europe finally bans Russian oil by the start of 2023, Russia will need to relocate its exports towards Asia to a greater extent. This change in Russian flow might increase demand for vessels, particularly for product tankers. For the near short term, the issues of concern are if the new sanctions on Russia cause an unexpected fall in demand, that could, in an extreme scenario, outweigh the aforementioned 10-mile growth. In addition to this, another concern is whether the U.S. will have a radical response to OPEC cuts that could have a sharp impact on the market. Summing up, it seems that although the anchor market seems bullish, there is a high element of uncertainty that might tilt the market either further up or down in the future. On slide 7, regardless of the geopolitical variables affecting our market, we do witness the anchor market having solid fundamentals. All of the tanker segments in which we operate in have very low order book and a relatively old fleet. In addition to this, very few yards remain available to build vessels before 2025, so we do not expect a boom in new building ordering. These conditions lead to the conclusion that we might witness more scrapping in the medium term. In fact, a fact which will tighten our market supply even further. I'll now pass the floor to Mrs. Akelaj, who will provide a summary of our financial performance.

Thank you, Harry, and good morning to everyone. As evident from our impressive results, this quarter we successfully leveraged upon our fleet expansion and the firm tanker rates. Compared to the third quarter of 2021, we have increased our fleet by an average of four vessels. Strong rates allowed us to capitalize upon our fleet additions, and therefore we managed to increase our average time charter equivalent per vessel by 20,000 per day and produce a profit of 15.5 million. Even though we dedicated 70% of our fleet days to spot operation and three of our product actors repositioned within Q3-22, we managed to sustain a solid operational utilization of about 86%. Looking at our income statement for Q3-22 in slide 8, revenues came in at 42.6 million, up by 38.5 million due to our fleet additions, but mostly due to high spot rates, particularly for the Suezmax and Afromax vessels. Voyage costs increased by 17.7 million due to the increase of spot days by 456 days, that is equivalent to 786%, and the rise in banker prices. This quarter, we incurred 1.2 million of voyage costs for the ballasting of three of our product tankers, the benefit of which will appear in Q4 2022. Our running costs increased by 3 million due to the average increase of our fleet by four vessels, and one of our product attackers, the Clean Sanctuary, ex-Clean Thrasher, coming off barefoot close to the end of the quarter. Basis thereof, we generated a strong EBITDA of around 19 million, that is 17.5 million, or 1,500% higher than in Q3 2021, and a net profit of 15.5 million, corresponding to an APS of 8 cents. Our profit margin for the quarter was in the order of 36%. Moving on to slide 9, let us take a look at a balance sheet for the 9 months of 2022. As of September 30, 2022, and in spite of vigorous fleet expansion, our free cash, including our time deposits, was in the order of 93 million. Our debt of 43 million is very low, as it equates to a gearing ratio of 13% basis fleet book values and even lower basis market values. In essence, at the end of our third quarter, our free cash was 2.2 times higher than our outstanding loans. Overall, we are following and will continue to follow a conservative leverage strategy. We are also pursuing a sound cash management strategy as we yield interest on our free cash through time deposits, thus in a way hedging against decreased finance costs. In slide 10, we present a financial snapshot placing emphasis on our solid capital structure. Going forward, we expect to have a free cash base in the order of 105 million and loans of about 70 million. In other words, we expect to maintain a negative net debt ratio. Based on our loan agreements, our loan repayments are well-structured. We will have a low annual principal repayment schedule of about 10 million per annum, while our first balloon payment is due in December 2026. Looking at profitability and growth, this has been so far a success. Having almost tripled our fleet within a course of 10 months, we ended the third quarter of 2022 with an average daily TC per vessel of 33,000, while our average daily OPEX per vessel was 6,600. Our considerations going forward are if the prevailing market uncertainty coupled with global inflationary pressures might negatively affect our market. Concluding our presentation with slide 11, we simply outline once more the strong but yet proven points that make Imperial Petroleum a growing company with promising performance in the quarters to come. At this stage, our CEO, Mr. Harry Vafias, will summarize our concluding remarks for the period examined.

This quarter's unprecedented profitability growth is solid proof that our company's strategy is indeed paying off. With the capital recently raised, we have managed to grow our fleet, substantially increase our profitability and cash flow, and create value for our investors. As a result of having acquired six investors in the course of 10 months, we generated net income of $15.5 million in a single quarter, which is 15,400% higher than our profit in Q2 2022. an equivalent to 23% of our current market cap. We incurred moderate debt during the quarter, maintaining a healthy capital structure with approximately $42 million of debt, while preserving a free cash balance available for further fleet expansion of about $92 million. Given the strong market fundamentals and the promising charter rate environment, and by taking advantage of our efficient management of our expanded fleet, We believe that we will achieve strong results and generate significant cash flow going forward. However, the valuation of our shares of common stock does not reflect our strong financial performance and capital available to fund our growth prospects. We've now reached the end of our presentation, and we would like to open the floor for your questions. So, operator, please open the floor.

Thank you. As a reminder, to ask a question you will need to press star 1 1 on your telephone and wait for your name to be announced. Once again, please press star 1 and 1 on your telephone if you wish to ask a question.

Please stand by while we compile the Q&A queue. One moment, please. Just one moment.

And the first question comes from the line of Greg Humphries from Humphries Capital. Please go ahead. Your line is open.

Thank you. Hey, Harry. Fantastic earnings report. Great commentary. Definitely been in it for the long run. Any chance of a buyback for the stocks with the extra cash?

That's not a bad idea. Obviously, it's the first really amazing results. So, therefore, it's a bit too early to start buying back stock as we are still in growth mode. But definitely, the board, if it sees two or three more quarters with these amazing results might be a topic for discussion.

Great. Thank you. Keep up the great work. Appreciate it.

Thank you very much.

Thank you. Just one moment, please.

We will now take the next question.

And it comes from the line of Ian Lipman. Please go ahead. Your line is open.

Thank you very much. So I had the same question concerning the buyback film program. So it was already answered, the first question. Thank you very much. Great job done. Thank you very much.

Thank you. Regards to Germany.

Thank you. Once again, as a reminder, if you wish to ask a question, please press star 1 and 1 on your telephone.

We will now take the next question.

It comes from the line of Doge Herm Chemical. Please go ahead. Your line is open.

Hello. Good morning from Texas. I just want to congratulate all of you on a fantastic earnings report. I don't think people understand how great the numbers are. So congratulations on that. And I just wanted to ease some concerns with regards to a reverse split in play. I wanted to ask you if that was on the table or off the table, and what plan do you guys have to get this over $1 per compliance?

Thank you for the kind words. First of all, we worked extremely hard to get to these stratospheric results. The stock split, the reverse stock split, sorry, is not a matter of of if we want to do it or not. If the stock does not go above $1, we have to do it, otherwise we're going to be delisted, as you know very well. So I hope that with this very hard effort and amazing results, people will understand that you cannot value a company with 10 ships at below its cash levels, and therefore we can push the price up above $1 and therefore the reverse stock split won't be necessary. But I do agree with you that this must be avoided.

Yes, yes, I completely agree. And I agree the company has worked far more than what the share price is at now. And, you know, it's just it's been a concern of everyone. And I wanted to get your thoughts on plans moving forward.

Thank you. And as we discussed, we hope you can avoid this.

All right. Thank you, Harry. Congratulations on the fantastic company. Y'all are doing great.

Thank you. Regards to Texas.

Thank you. We will now take the next question. Please stand by. And it comes from the line of Jose Chinchilla. Please go ahead. Your line is open.

Hello, Harry. Well, actually, both my questions have been answered. So, yes, congratulations on the results.

No worries. Thank you for calling.

Thank you. Any further questions, please press star 1 and 1.

And the next question.

One moment. It's coming from the line of Dave Rowe. Please go ahead.

Yes. Congratulations, Terry, on the great results. Can you ease all the stockholders' concerns about any dilution or auctions moving forward in the next six months to one year?

As discussed, you've seen that we've not raised any money recently. The balance sheet of the company is extremely strong. Obviously, we cannot guarantee that we will not raise money in the future as we are still considered a small company in worldwide terms. But by showing these amazing results, we can easily prove that the worries and what was said in different chat rooms was all wrong. And by announcing a 15,000% increase in profit is just a small piece of evidence that the board and the management was right.

Absolutely. And does any EU ban on Russian oil affect the business at all for the consumer?

There is no ban at the moment. There is a potential ban coming on... 5th of December for crude oil and 5th of February for product tankers. But, you know, in the end of the day, that might be good news as the Russian oil will have to travel longer distances to go to its buyers. So let's see what happens in the next two months.

All right. Thanks a lot, man. Great job today.

Thank you.

Thank you. We will now take the next question. One moment, please.

I will take three more questions, and then we will end because it's going too long. So last three questions.

No problem at all, sir. The next question comes from the line of Andrew Bledko. Please go ahead. Your line is open.

Hello, Harry. Just want to say great job on the earnings for this most recent quarter. My question is in regards to meeting compliance for the dollar. Do you plan on asking for an extension, or are you just going to go with a reverse split?

We will do whatever it takes in order not to do the reverse stock split. But as you know, this is not completely under our control. The NASDAQ and our legal team have to convince NASDAQ not to. to give us more time, let's say. As I said, I hope that with these amazing results, we don't need to ask for an extension. We want to see the stock well above $1. And therefore, as I said, we will not thereafter need anything, no favors.

Right. I totally agree. There's no way this stock should be valued as low as it is. It makes no sense, given the... Yes, it might be...

i agree with you and that's why some clever people will buy now which is you know at these very low levels and hopefully make a good return when their stock goes above above a dollar share great thank you very much good work everybody involved thank you thank you thank you we will now take the next question

And it comes from the line of Scott Schumacher from Moose Cag Enterprises. Please go ahead, your line is open.

Scott? We will go now to the next question.

One moment, please. And the next question is from Farid Lebar. Please go ahead. Your line is open.

Yes. Hi, Harry. Congratulations on this much-anticipated earnings. What a great job you, the company, and you are doing. I have a question regarding if we can – actually, I have two questions. Are we going to see any more vessel – a bio for vessels before the end year. And also my second part question is. My second part question concerned the dry bulk vessel. What are they used for exactly? If you can answer this question, I really will appreciate it. Thank you so much.

Yes, thank you for everything. Thank you for thank you for the kind words. We would like to add more vessels. It's not easy because the prices have become very high right now. So I cannot guarantee we will buy more vessels within the next 50 days. For the second part, dry bulk vessels means vessels that can carry anything that is dry. In other words, grain, coal, sugar, steel, minerals, fertilizers. they can carry more than 15, 20 different cargoes. So this is essentially what a dry bulk carrier is.

Excellent. Thank you so much, sir. Very much appreciated. I know fertilizer is in high demand as well, so hopefully... Correct, correct. Well done. Thank you, sir. Thank you for responding.

Thank you.

Last question.

Okay, no problem. One moment, please. And it comes from the line of PM Pi. Please go ahead. Your line is open.

Great results, Harry. Congratulations. How does the current quarter look like?

As you understand, we cannot say too much for the current quarter, but from what you heard in our presentation, things look to be quite solid and quite firm. But obviously, the point of the call is the third quarter, not the fourth quarter.

Are the rates better than the second quarter? I would say the same. Thank you so much.

Thank you very much.

Thank you. I would like to hand back over to Harry Vafies for final remarks.

We'd like to thank all of you 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 the next conference call for our Q4 results. Thank you very much.