Imperial Petroleum Inc.

Good morning, everybody, and thank you for joining us for the first quarter 2023 conference call of Imperial Petroleum. I'm Harry Vafios, the CEO, and with me today is Mrs. Aquilaris, our interim CFO, who will be discussing our financial performance. Before we commence our discussion, we'd like you all to read the safe harbor disclaimer 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, and we raise the attention of our investors to the fact that such forward-looking statements involve risks and investors and uncertainties which may potentially affect our company's performance. In addition, we'd like to state that during this call, we will quote monetary amounts unless explicitly stated, otherwise are all denominated in U.S. dollars. Starting from slide three is a summary of our company's performance highlights. The first quarter of 2023 had the best turnout possible for Imperial Petroleum, as we ended the period with a record net income of almost $36 million and outstanding performance for a fleet of our size. Our earnings per share, or EPS, came in at $2.31, which is close to our current share price. In conjunction with our past quarters, we generate an annual return on equity in the region of 19%, based on the trailing 12 months to March 2023, a return that cannot be left unnoticed. Setting aside our short performance, year 2023 commenced with a busy agenda for Imperial Petroleum from a strategic standpoint. We deployed about $70 million of cash in order to pay all of our outstanding debt. Imperial Petroleum is now a debt-free company with a flexible capital structure. Striving for growth, we acquired two more handy-sized bulk carriers, reaching a fleet of a total of 12 ships. Furthermore, we proposed a spin-off of two of our dry bulk carriers to a separate company called C3IS. Finally, on April 28, 2023, we effected a 15-for-1 reverse stock split in order to regain compliance with the NASDAQ minimum bid price requirement. Our strategic initiatives allow us to enjoy a company which is thriving in terms of financial performance owns a debt-free capital structure with an unencumbered fleet, has granted flexibility to our shareholders through our spin-off to expand and perhaps diversify our investment, and has taken action in order to regain compliance with NASDAQ just to provide more assurance to our shareholders. We continue to trade at a deep discount to NAV, but remain positive that our solid profitability will assist our share price to recover and realistically reflect the true valuation of the company. On slide four, we provide a summary of our fleet employment. As evident, all of our dry bulk carriers are under time charter employment. As for our tankers, following the conclusion of Magic One's legacy time charter, they're all operating on the spot market. Indeed, the spot market for all tankers, product Aframax and Suezmax tankers continues to be strong, particularly when compared to rates prevailing a year ago. This upward trend in rates is reflected in our performance as well. Our daily time chart equivalent in Q122 was $12,600 and climbed in Q123 to $53,750 per day, marking a rise of about 330%. Change in trade partners following the Russian-Ukrainian conflict have made voyages longer haul. This, along with a firm oil demand, maintain rates at high levels which are evidently favorable for the owners. On slide five, we're reviewing the tanker market. In spite of the global economic recession and the recent Western banking crisis that has caused some volatility in the market, global oil demand is forecasted to grow by about 2 million barrels per day this year. This growth will be facilitated mostly by China, which is no longer held back by COVID restrictions. This will give a rise in domestic demand. In addition to this, intensified refinery activity in China is expected to support crude imports, which should hit a record in the second half of 2023. In the beginning of April 2023, Saudi Arabia and other OPEC-plus members announced voluntary production cuts from May till the end of the year as a precautionary measure aimed at supporting the stability in the oil market. This has had an impact on rates in the short run. However, the basis little fleet growth along with trade flow changes and the Atlantic East arbitrage, we do not expect to see a noticeable and long-lasting weakness in the market. As evident, global tanker market is impacted by various events and thus it's difficult to make predictions as to future performance. However, firm demand and high utilization present present favorable conditions for a continuation of high freight rates and perhaps with some volatility in the periods ahead. Since 2020, oil demand has grown by about 9%, while oil exports have followed a slower pace of 6% growth. In other words, there's a supply shortfall in the market. Overall, global oil demand is anticipated to have a very long tail and to peak in the late 2030s, and this creates a positive outlook for the broader tanker market. On slide six, we're focusing on the product tanker market. We expect the outlook for this segment to remain positive for this year and beyond due to the small order book and longer whole-sheet bond trading patterns. Product anchor fleet growth will be 2% this year, while product anchor demand growth will exceed 10%. The Suezmax and Aframax tanker markets have been supported mostly by the intra-Atlantic Basin crude tanker demand. Briefly to comment on market rates and trade patterns during the first quarter. The tanker market saw an extremely strong start to the year, especially on the dirty side, but also the clean tankers were enjoying healthy freight levels too. The significant changes in oil and oil product trade flows, coming as a result of the sanctions imposed on Russian cargoes, continue to be the main driver behind the strong markets. India continues to buy large quantities of Russian oil, and China, coming out of the COVID lockdown, started to increase significantly their imports significantly. also of Russian Urals, crude from the Baltic and the Black Sea. In addition, the G7 nations' price cap restrictions on Russian oil products came into effect as of February 5th, which led to both Russian dirt and clean oil products having to find new buyers, and except for Turkey, the majority of these outlets are resulting in major increase in ton miles. On the dirty side, the Atlantic shore, the high straits, and especially the Afro-American segment, had a very solid Q1, with historically high levels paid on both sides of the Atlantic. East of Suez, a dirty market trade, did not see the kind of picks that the Atlantic market experienced, but the owners enjoyed a relatively stable and strong market also there. On the clean side, we saw more volatility west of Suez than east of Suez, but the average for the quarter turned out quite similar. I'll now pass you on to Mrs. Secularis, who will provide a summary of our financial performance.

Thank you, Harry, and good morning to everyone. In the first quarter of 23, our revenue and profitability took off. The fact that the fleet of 12 vessels managed to generate about 36 million of net income is impressive and encouraging for the quarters to follow. We ended the quarter with an operational utilization of 85%, with six days of technical of hire, and 495 days, or 54% of our fleet days, dedicated to spot activity. Both conditions and rates favored spot market operations. Evidently, this proved to be a sound and very profitable decision. Looking at our income statement for Q123 on slide 7 compared to Q122, revenues came in at 65.4 million, up by 60.3 million compared to the first quarter of 22, due to a further increase in market rates and the increase of our fleet by an average of six vessels. Voyage costs increased by 16.4 million, due to the increase in spot days by 468, that is 1,700%, and a rise in daily banker costs by 5,300 compared to Q1-22. Our running costs increased by 5.2 million, solely attributed to our fleet expansion. Compared to the fourth quarter of 22, when we had similar number of assets, our daily OPEX remained stable. We do expect a rise in OPEX in the second quarter of 22, as the two dry Balkan-sized carriers joined our fleet towards the end of Q123, and therefore the cost of their operation was not fully reflected in our results. Basically above, we generated a strong EBITDA of 40 million, that is 37.3 million, or 1,435% higher than in Q122. Our net profit of 35.7 million was an all-time high result, corresponding to an EPS of 2.31 cents, based on the number of shares outstanding as adjusted for the reverse split effected on April 28, 2023. Our profit margin for the quarter was in the order of 55%. Moving on to slide 8, let us take a look at our balance sheet for the three months of 2023. As of March 31, 2023, we had a free cash base of about $115 million, including time deposits. Within March, we utilized $23 million to repay one of our outstanding loans, while within April we further deployed another $46 million to repay early and in full all of our debt. Imperial Petroleum is now a debt-free company with unencumbered assets and zero cash flow obligations stemming from financing. Our operating cash flow for the quarter was $31 million, so in a single quarter we generated from our fleet operations cash almost as much as our market capitalization. As to date, our cash starts in the region of $70 million. We will continue to utilize upon the high interest rate environment and commit our excess cash on time deposits. Yields are high. Only Q123, we generated close to 1.3 million of interest income, fully hedging against our then finance costs for the period. In slide 9, we present a financial snapshot, placing efforts on our solid financial position. Going forward, as mentioned earlier, our cash balance is quite high in the region of 70 million, enabling us to expand our fleet further. Full debt repayment will lead to annual cash flow savings, principal and interest of almost 15 million. Funds that may be directed to asset investments. We enjoy both healthy liquidity and a good financial structure. Looking at profitability, Q123, our daily time charter equivalent per person, came in the order of $53,750. What is most impressive and a mathematical proof that our strong results may continue is that following our full debt repayment, our daily cash flow breakeven progression is about 9,000. Imperial Petroleum proved to be a company capable to grow fast and produce impressive returns. Our return on equity basis trailing last month is region 19%. Our considerations going forward stem mostly from how market conditions will play out and affect our segment. One question is the duration of the global recession. and recent banking crisis and the extent to which this will affect the oil market. Moreover, at basis strong oil demand, it is anticipated that OPEC will increase supply in the second half of 2023, but this is still unsure. Moving on to company specific, our only capital obligations going forward are five dry dockings scheduled to take place in the remainder of 2023. Concluding our presentation with slide 10, we simply outline once more the strong but yet proven points that make Imperial Petroleum a company that has a short but impressive track record of a successful fleet expansion, which ensured immediate returns. We hope that our company's worth will finally be reflected in our share price. At this stage, our CEO, Mr. Hari Vafkes, will summarize our concluding remarks for the period examined.

Our performance in the first quarter of 2023 resulted in record revenues and profitability. We are extremely pleased that our strategies are paying off. Commercially, we capitalized on the strong tanker market and efficiently utilized an average fleet of about 10 ships to produce in a single quarter net income of $36 million, marking a 17,750% increase compared to the net income generated in the first quarter of 2022, and an EBITDA of about $40 million, which is 1,435% higher than the same period of last year. Strategically, we propose the spin-off of two of our dry vessels to a separate company called C3IS. In terms of our financial strategy, we paid down all our debt and have stopped issuing new shares. Without a doubt, we are well-positioned to benefit from the good market conditions that seem to last going forward. We have now reached the end of the presentation and would like to open the floor for your questions. So, operator, please open the floor.

Thank you, Sal. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To cancel your question, please press star 1 and 1 again. Once again, please press star 1 and 1 if you have any questions or comments. And to withdraw your question, you can please press star 1 and 1 again. Thank you.

Please stand by while we compile the Q&A roster. This will take a few moments.

Once again, ladies and gentlemen, please press star 1 and 1 if you have any questions or comments.

We will take a total of 10 questions, not more.

We are now going to proceed with our first question. And the questions come from the line of Jason Bien from Living Traditionally. Please ask a question.

Oh, hi. Can you hear me?

Hello? Hi, Jason.

Hi, good afternoon or evening, wherever you are. So I guess I've been an investor here for about a year since you guys started. Been a little bit of a ride. And, you know, here in the United States and probably elsewhere in the world, I guess now more than ever, social media, online, you know, websites and stuff that give commentary about certain stocks. um, you know, are more prevalent than ever. Reddit, whatnot, Yahoo marketplace, whatever. And then, you know, the perception has been really negative about the company about, uh, trusting, uh, the future of, uh, your, uh, your management style in returns to investors. And, uh, what I really want to know and what the investment community wants to hear from you guys is, um, that dilution is over, I guess, to some degree, um, a definitive statement. And, um,

you know we really wanted the management invested in common shares we got a lot of criticism over the last year unfairly I would say the company grew in just a year from 4 shifts to 12 the company grew from a really small company with very few assets and debt to a debt-free company with an excess of $400 million in assets. We just said in the press release that we don't need to issue any more shares for now. We have plenty of money and no debt. All of our fleet is unencumbered. So, you know, if this doesn't give any comfort to shareholders, I don't know what will.

But I think that's kind of what we've been waiting for, sir. We've been waiting for kind of a verbal, you know, declaration from you of just that. And I think that will move the market. In the future, I would like to see management being compensated with common shares. I don't know whether there's some sort of performance compensation or whatnot, but I think it would give a good impression when management starts to actually be shareholders in the company.

Thank you, Jason. And I think that the board is discussing exactly that as we speak.

Excellent, sir. Well, again, I think you guys have done a fantastic job overall. I mean, these numbers are beyond impressive, and keep it up.

Thank you.

Yep.

We are now going to proceed with our next question. The questions come from the line of Edward Humphreys. Please ask a question.

Hello.

Hi, Edward. Hi, Harry. Thanks for taking the question. I just want to start off by saying it's really impressive how much you've grown the company and how healthy the balance sheet and all the operations are to date. I don't want that to be undervalued or diluted by a lot of the hearsay that you hear here and there. I think you guys have been doing a phenomenal job taking advantage of both the public markets and the unique you know, let's say global situation we're in right now. And I think it's very commendable. I just want to kind of piggyback off. I think Jason just hit it right on the head there. I think everyone is just kind of thinking the same. We're very impressed with the revenues, the profits. I would just put out there, I mean, even if management or the company itself put, you know, 50% of one quarter's, let's say, profits and to a common share buyback, you know, you can get about 5 million shares or so at this price point. If you guys were to resell those shares closer to the net asset value, which of course you've reiterated multiple times is, you know, closer to the $20 region. I mean, that would generate substantial returns to the company. Um, and then of course that could be put towards growing the fleet and continuing this, uh, you know, terrific job, which you guys been doing. So I kind of just wanted to get on and reiterate that, that I think you guys have a tremendous opportunity here with the clear difference in what the company is truly valid and what the market has it at here. If management could take advantage of that price arbitrage, I think we could definitely benefit the company and definitely benefit the shareholders.

Thank you, Edward. It will definitely be discussed at our next board meeting with the whole – members of the board. Thank you. It's appreciated. Thank you, Harry. Take care.

We are now going to proceed with our next question. And the questions come from Thomas Randolph from TripCo Partners. Please ask your question.

Hello. Can you hear me?

Hi, Thomas.

Hi. First of all, congratulations to you and your management team on a spectacular quarter. I just want to make a note that the amount of profit you reported in your first quarter was the equivalent of the market capitalization on Friday. I'm an investment banker of 40 years. I'm semi-retired. I have never, ever seen the degree of undervaluation of a publicly held company. My only suggestion to the company is to retain a good investor relations firm that will help present this compelling story to Smaller hedge funds and investor clubs, because what you have is an incredibly compelling story. Now, I'm sure all of you are aware of that, but you're operators and you do a tremendous job of operating the company. But I believe that most of the shenanigans going on in the marketplace are naked short sellers. And they can be very vicious, as we all know. The other suggestion about a buyback is clearly something that I know you're going to consider. And that certainly would put a floor on the stock. But you're managing the company for the long term. As long as you convince shareholders of that, number one. And number two, you have a good firm to invest present this to the investment community, I think this company will do just fine. So again, many congratulations on what you've done with this company.

Thank you very much, Thomas. Your experience really counts. We are exactly doing that through selective interviews that go on YouTube and so on to spread the story. and from one-on-one calls with larger investors. Everybody has now realized better late than never how solid the company is and how cheap the company is. So we hope that the gap between real value and the value of the stock will narrow going ahead. But thank you.

Thank you very much.

We are now going to proceed with our next question.

And the questions come from the line of Scott Shefford from Black Castle. Please ask your question.

Yes, hello, can you hear me? Hello, Scott. Congratulations on the quarter. I think it was phenomenal. I really am impressed with what you guys have done with the company. Not to beat a dead horse, but my question is on dividends, stock buybacks. If the company is considering retaining that capital for other purposes besides stock buybacks or a potential dividend, what uses might the company be exploring with that capital? And can you give us a little insight on that potentially? Thank you.

Yes, I mean in Q4 last year we would not have expected that we would be debt free so fast. So reducing our debt down to zero was the first priority because the interest rates are going through the roof and therefore that was a really valuable thing that management did I think. We haven't really explored the uses of the capital yet as there is the difference in opinion between the board if we should expand the fleet further or we should do a buyback or we should wait and see if the market continues to be that strong in Q2 and Q3. So there are these two, three, let's say, aspects that need further discussion. But I think we're all on the same page. We're not issuing any more shares. The company is debt-free. The company has become a cash-making machine. So I think, you know, within the next quarter or the following one, we'll have more concrete news on which option we have all decided to go with.

Great, thank you.

We are now going to proceed with our next question. And the next questions come from the line of Jeff Friedrich from Imperial Petroleum. Please ask your question.

Okay, yeah, hi. In the SEC filing for the C3IS document, you guys mentioned a buyback of the Shares that you put in for the IMPPP part that now IMPP owns, of course it was reduced by the amount of shares accordingly by the reverse split at 150% the price. Is that still going to happen?

I didn't understand the question. If it's possible to send us an email with the specific question so we can go through it with our accounting team as well, and we'll get back to you.

All right.

Just send an email, please. It's easier for us to understand what you're asking for.

Okay. Well, I was just asking a question. Question regarding something I had at the SEC document regarding the SEC, the C3IS program.

Yes, I will repeat for the first time if it's possible to send it on an email so they're understanding.

Yep, yep, totally, totally got it. Thank you.

Thank you, Jeff. Thank you.

We are now going to proceed with our next question. The next question comes from the line of Ross Haberman from LH Investments. This is also a question.

Good morning. Thank you for taking my call. Very nice quarter. I just wanted to ask a quick question. Could you give us a little rationale for the purchase of the bulk carrier ships which you purchased from yourself a couple of months ago, and now are these the same ones which are spinning off? Could you sort of give us the rationale? for buying them because they were not oil tankers, but they're a different type of ship, and now why spin them off? Could you sort of give us the rationale? Thank you.

Yes, thank you, Ross. I think it's quite simple. Because the tanker market is doing so well, the prices for tanker assets has gone ballistic. We are generating a lot of money, so instead of going and buying an asset which currently is very expensive, We try to find an asset in a market which is not booming and therefore the valuation is not so expensive. And by spinning these two ships out as a dividend to our shareholders, then our shareholders get the bonus because they can hold the stock if they believe in this new market, i.e. the bulk carriers, or sell it and make some money back if they don't believe in this market. So it's a nice option for our shareholders.

When is that new stock going to begin to trade, if I'm asked?

It's not finally yet. We're waiting for the SEC's legal proceedings. I think if all goes well, we don't have any unexpected delays, beginning of June. So very soon, I guess.

And just one follow-up question. Will you use the new cash which you generate, assuming your business continues in a very positive manner like we saw this quarter. Will you use it possibly to buy other non-tanker ships like you just did, or you're sort of going to stick within the realm of oil tanker ships? I think that's what one of the less positive aspects is that you sort of veered off and went into a different type of ship Purchasing, and I think that was a little bit of a negative aspect, which some of the shareholders were surprised to see you do. But thank you very much for taking the questions.

Yes, I think that investors have a very short memory because last year when Stealth Gas, which was the mother company, spinned out Imperial Petroleum, We were getting exactly the same comments. Why did Stealth Gas, which is a gas company, buy tanker assets and why they're veering off their normal strategy? Of course, some people who took this imperial petroleum stock and sold at the highs made five, six, seven times their money out of nowhere. We are again at the same point where Imperial Petroleum is now buying assets from a different class and will spin them out. And again, we are facing criticism. So look what happened last year with the assets spinned out of the mother company. And I think you'll understand why we're doing it. And actually, it's a very positive thing because, as I said before, you get a separate share which you can hold or sell. So the power and the authority lies with the shareholder and not with us. This is a very big, nice decision for the shareholder to have, to keep the free shares or sell them.

Thank you.

We are now going to proceed with our next question. And the questions come from the line of Lance Gad from the Gad Foundation. Please ask a question.

Yes, hello. When Imperial Petroleum was spun out of stealth gas before the 1-4-15 reverse split, the basis allocated was $12, and I'm, let's see, I think it was $12.50, and maybe it was $7.50. Yes, $7.50, and now with the 1-4-50 reverse split, those shares have a basis of $112.50. I was curious how that number came about. Why was it so enormous?

I cannot answer that. This is a legal and accounting issue according to the SEC rules. But what I can say is that if we did not do the reverse split, and the company continued to trade below $1, we would be delisted. The stock would be in the pink slips and the value would be zero. It was the only thing we could do to keep the company going and give some liquidity to our shareholders.

The other question I had, we announced before the reverse split, I believe that the NAV of the company was $1.38, yet we were selling shares in the market at about $0.20 to raise money to buy ships. I can't understand how that was a good thing to do.

You're absolutely right, Lance, and that's why we stopped doing it. And with all the money we raised, not only did we buy ships, but we also repaid our total debt down to zero, which makes the company today a very, very strong company that can withstand any market conditions.

But we sold an awful lot of stock at a price even below today's price. And today's price is approximately what we made in the quarter. So I couldn't... It seemed to me to be absurd that we would do that.

Yeah, we couldn't know the future. We couldn't foresee that we were going to be making so much money in Q1 because all our ships were spot. They were not on time charter contracts when you can... forecast your earnings. Sport means that if the market is good, you can make a lot of money, or if the market is not good, you can lose a lot of money. So it's a risk. We took that risk, and it paid out. So that's why we are happy. We don't need any money to raise any money. We have no debt. The company is very strong. We have no problems anymore with the NASDAQ compliance price, and we move ahead.

Thank you.

We are now going to proceed with our next question. And the next question is from . Please ask a question.

Hi, Harry. Can you hear me?

Yes.

Hi there. I was, I'm just curious. The main thing I'm trying to understand with the share price so far below net asset value, if you believe there's so much opportunity with the marketplace, why do you or no management own any common shares?

Who told you that we don't own any common shares?

They would be an FCC filing.

We do own common shares, my good friend, and to be honest with you, When the stock was booming exactly a year ago, or I think a bit longer, the management did not sell a single share of the shares it owned. So that showed the belief in the company. We could have sold and made a lot of money when the shares were trading at very high levels. We didn't.

Why would there be no interest to purchase more if it's a 70% discount to net asset value, if not more? You are absolutely right.

But don't forget that we own two public companies that both trade at a discount to NAV. So obviously, we are not Bill Gates. We don't have billions. So we have to carefully manage our own assets. But I agree with you. At the moment, the stock is a very good buy with today's fundamentals. I agree.

Okay. Thank you, Eric.

Given the time constraint, we will end the question and answer session here. I will now hand back the conference to Mr. Harry Rafias for closing remarks. Thank you.

We'd like to thank you all for joining us at our conference call today and for your patience and interest and trust in our company. And we look forward to having you with us again at our next conference call for our second quarter results. Thank you very much.