Imperial Petroleum Inc.

good day and thank you for standing by welcome to the q2 2023 imperial petroleum results conference call at this time all participants are in the listen only mode after the speaker's presentation there'll be a question and answer session to ask a question during the session you will need to press star one and one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question please press star one and one again please be advised that today's conference is being recorded I would now like to hand the conference over to your speaker today, Harry Vazias, CEO. Please go ahead.

Good morning, everybody, and thank you for joining us at our second quarter conference call for Imperial Petroleum. I'm Harry Vazias, the CEO of the company, and with me today is Mrs. Akilaris, who will be discussing our financial performance. Before we commence our discussion, please read the safe harbor language in slide number two. In essence, it's made clear that this presentation may obtain 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. On slide three, please read the summary of our company's performance highlights. In the second quarter of 23, we managed to preserve the strong profitability momentum of the last three quarters. Once again, we ended this period with a hefty profit, which excluding impairments and non-cash items, came in the order of 27 million. The tanker market, particularly the spot market, remains strong, but is currently affected by seasonal factors due to the summer period. This effect was to a small extent evident in 2.23 rates, and will be more visible in the third quarter of 2023. Our EPS for the second quarter of 2023 came in at $1.46, while for the first half of 2023, our earnings were without doubt impressive for a fleet of our size, as our basic EPS came in at approximately $3.2, which is well in excess of our current share price. In conjunction with our past quarter's performance, we generated an annual return on equity or ROE in the region of 30% based on the trailing 12 months average to June 23, a return that cannot be left unnoticed. Within Q2 23, we also completed the spin-off of our two handy-sized dry bulk ships to a separate listed company called C3IS with a ticker symbol of CISS. C3IS is currently a small company which is debt-free with three vessels but promising growth potential. During Q2-23, we committed capital in order to repay all of our outstanding loans. Indeed, our six-month 23 balance sheet has literally zero debt, while we estimate that our annual cash flow savings from the debt repayment will be in the region of $25 million. Further to this, this July, we sold our Aframax tanker, the Stealth Berana, to C3IS for a consideration of $43 million. This transaction generated profit of about $11 million, for IMPP, which will be accounted in the Q3 financials. On slide four, we provide a summary of our current flint deployment. We currently have one of our hand-sized bulk vessels, the Glorieres, under short tank charter until October 23, and our remaining eight vessels, that is seven tankers and one bulk carrier, are all operating spot. As said, the spot tanker market remains favorable, and hence, as a general trend, owners prefer spot activity than committing their vessels to time charters. In spite of some seasonal effects year-to-date, daily support rates for most tankers in which we operate are in the region of $50,000 per day. Looking at our dry vessels, the market is quite soft. The Glorier has completed her dry docking within this quarter, while a second Balcario-Diego wildfire will probably undergo her dry docking in Q3-23. On slide 5, we're reviewing the tanker market. The global oil production is expected to increase by 1.8 million barrels per day in 2023 and by another 1.6 million barrels in 2024, reaching an output of 107 million barrels in 2027. The expectations for a rising oil demand are hindered by the uncertainty about global economic growth and its impact on oil demand. OPEC have agreed to extend crude oil production cut of 1 million barrels for July 23, thus adding to existing supply restrictions. During the second quarter of this year, we saw a continuous strong tanker market. However, freight rates came down from the record levels seen in Q1. The market shock resulting from the drastic changes in Russian oil and oil output trade flows that followed from the sanctions imposed by the G7 nations and their allies seems to have settled, and the various markets are now more accepting the fact that this is likely a long-term structural change to the market which will govern the market in the years ahead. The main buyers of Russian oil and oil products remain India and China, but we have also witnessed Saudi Arabia increasing volumes purchased from Russia in addition to the already active Turkey. The increased availability of vessels willing to load Russian cargoes under the G7 nation price cap rules meant that the premium for these cargoes over standard market cargoes has gradually reduced through the quarter. There's also the seasonal factor to consider, with Q2 being the start of the summer, which is usually the slowest period of the year for tankers. We anticipate a softer market in Q3-23 due to the seasonal factors and expected refinery maintenance, but we expect oil supply tightness, particularly in Europe, to bolster tanker trade in the fourth quarter. On slide six, we're focusing on the product tanker market, with most yacht slots being occupied by container and LNG ships. the product anchor fleet is expected to see little growth towards 2025. Limited yard availability along with firm demand growth will lead to a tightness of product anchor tonnage supply. Another factor that should be taken into consideration is that ship owners might be reluctant to order high-priced new buildings while regulations that set the GHG reduction targets are yet to be decided, as will be technology for alternative fuels. And now I pass you the floor to Ms. Akhil Raj, who will provide you a summary of our financial performance.

Thank you, Harry, and good morning to everyone. The tanker market stood strong all throughout the second quarter of 2023. Seasonal factors, as towards the end of the quarter we entered into the summer period, somehow lowered the exceptional performance seen in Q1-23. In the second quarter of 2023, we managed to generate an adjusted net income of $26.6 million. Our fleet operational utilization for the second quarter of the year came in at 76%, as we had 28 days of technical off-hire due to the dry docking of one of our handy-sized dry-bile carriers, the Eco-Glories, and 130 days of vessel repositioning, as this quarter we had shorter and more frequent spot voyages. Indeed, about 67% of our fleet calendar days, equivalent to 745 days, were dedicated to spot activity. What is worth emphasizing is that in the first half of 2023, our company generated a net income of close to $53 million, corresponding to a basic EPS of close to $3.2. Excluding non-cash items such as impairment, our net income for the first half of 2023 is in the order of $62.6 million, which is translated to an adjusted basic EPS of $3.79 million. We generated that in only six months and net income of almost 1.5 times higher than our market capitalization, our current market capitalization. Looking at our income statement for Q2-23 on slide 7 compared to Q2-22, revenues came in at $59 million, up by $47.7 million compared to the second quarter of 2022, to the increase of our average fleet by approximately six vessels, leading to an increase in fleet calendar days by 98%, coinciding with an increase of tanker market rates, leading to a rise in fleet daily revenue of approximately 34,000. Voyage costs increased by 15 million due to the increase in the spot days of our fleet by 541 days, and to our fleet-wide daily port expenses by approximately 3,750 per day due to a higher number of spot voyages. Our running costs amounted to $7 million compared to $3.3 million in the same period of last year. The $3.7 million increase in vessels operating expenses was primarily due to the increase of our fleet by an average of six vessels. In terms of dry docking costs, this quarter we incurred $700,000 charge as our dry bulk vessel, the EcoGloria, is underway dry docking along with water balance system installations. Our general administrative expenses amount to $1.6 million as we incurred $500,000 of stock-based compensation costs along with the rise in reporting costs related to our spin-off project. We also took an impairment charge of approximately $9 million related to the spin-off of our two dry-bulk carriers to C3IS. The decline of our dry-bulk vessels' fair values compared to one year ago when these vessels were acquired resulted in the occurrence of an impairment loss, which is a non-cash item. Based on the above, we generated an adjusted EBITDA of 31 million, that is 27.8 million, or 927% higher than in Q2 2022. Our adjusted net profit of 26.6 million corresponds to an adjusted base EPS of 1.46 cents. Moving on to slide eight, let us take a look at our balance sheet for the six months of 2023. As of June 30, 2023, we had a free cash base, including time deposits of about 100 million. Within April 2023, we had utilized 46 million to repay all of our outstanding debt. As evident for a six-month balance sheet, Imperial Petroleum is now a debt-free company with all of our assets unencumbered. Our operating cash flow for the six-month period came in at 64 million. Thus, we generated from a free operations cash almost cash flow almost 1.5 times our current market capitalization. In slide 9, we present a financial snapshot placing emphasis on our solid financial position. Our cash balance is quite high in the region of $100 million, enabling us to expand our fleet further. Full debt repayment has led to an annual cash flow savings principal and interest of almost $15 million. We enjoy both a healthy liquidity and financial structure. Looking at our profitability in Q2 23, our daily time charter equivalent per vessel came in an order of 39,000. Our return on equity basis trailing last 12 months is reaching 30%. One of our obligations in terms of capital expenditure is that we have five scheduled dry dockings for the second half of 23, but following this, we will only have one scheduled dry docking for the period 2024 and 2025. That is that our vessel capital commitments will decline drastically. Concluding our presentation with slide 10, we simply outline once more the key factors that assist our successful performance. That is our solid experience in shipping, capable management, and sound technical and commercial strategies. We hope that these elements will allow us to navigate efficiently even during tougher market conditions should this arise. At this stage, our CEO, Mr. Harry Vafias, will summarize our concluding remarks for the period examined.

Within the first six months of the year, our company managed to generate a net income, excluding non-cash items, of $62.6 million, corresponding to basic earnings per share of $3.79, which is well above our current share price. Compared to the first six months of 2022, our increase in net income was in the order of 20,500%. Our strong performance is unquestionable, but so is the fact that we are significantly undervalued. We have a fleet valued at about $225 million, zero debt, and on top, another $100 million in cash. The outlook for the banker market remains favorable, whereas there might be some opportunities in the dry box sector as dry ship values are dropping. We will continue to capture this favorable momentum, generating strong results while growing our company even more. We have now reached the end of our presentation. We'd like to open the floor for questions. So operator, please open the floor.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 to ask a question. Please stand by while we compile the Q&A roster. Once again, if you would like to ask a question, please press star one and one on your telephone. We will now go to the first question.

One moment. And your first question comes from Anthony Chiazzo.

Please go ahead.

Hi, Harry. How are you? I'm just curious if there are any plans to do a buyback on the company, considering the share price is hovering around the lows right now. Yeah, what are your thoughts on that? It was mentioned previously.

Thank you very much, Anthony. It's a thought that indeed is passing through my mind. It has not been discussed at board level. But if we continue to generate these kind of results and the stock doesn't do anything impressive, I think we should discuss it at the board level with the rest of the directors.

Thank you. We will now go to our next question. One moment, please. And your next question comes from the line of Dylan Lanius from GreatPoint Capital. Please go ahead.

Hey, good day. Congratulations on all the progress in developing the business. Just curious about the goal set out to get to 15 carriers and some of the transactions with recently adding dry bulks and then spitting out the AfriMax. I'm just curious about where the strategy is going from here?

Yes. Obviously, by doing the spin-off on the sale of the one ship doesn't get us to our target, but we have to do these moves. Indeed, because of our amazingly strong financial position with the cash and all the fleet being... We need to grow. We need to find... opportunities to grow, and we will do so, as we've done in the past. So the goal of 15 ships is not that far away. We have already nine after selling the one tanker, and I think we can get to that within the next three to six months, unless something dramatic happens to the market.

And then being a pure play and now adding dry bulks. into the mix of the fleet.

We never said we're going to be a pure play. We have to buy and sell ships according to the market cycles. And therefore, we will look to buy anything that makes sense for the company, the shareholders, and the bottom line.

Okay, thank you.

Thank you. Thank you. We will now go to our next question. And the next question comes from the line of Ross Haberman from RLH Investments. Please go ahead.

Good morning, Harry. How are you? I have a quick question about the bulk transaction. You bought the ships from yourself. And then a year later, you spun it off and took a $9 million write-down. Is that correct?

Not really.

That's how I read it. How would you describe it?

We bought the ship from an affiliated company when the market was higher because obviously we cannot predict the future. And then we spun them off. And because we spun them off, we had an impairment. Impairment is a non-cash item. It doesn't affect us in any way financially or customer-wise. It's actually a protection because since we took the impairment, it means that if at any time we want to sell the ships, we're not going to have a loss. So that's the summary of it.

I just want to make one observation that these related party transactions, although you've done it and your board passed, blessed it, optically it doesn't look great. And I'm just saying that might be part of the reason why your stock trades at such a low multiple, that because of these related transactions, they're not a good idea for the future. And I'll just say that.

When we were buying chips from affiliated, when we were buying bankers from affiliated parties, of 13 and 14 million, and then the same ship were worth 30 million, we didn't hear the same comments.

What do you say about that? That worked out very well. I'm not going to say anything about that.

We've been doing this business for many, many years. We've made a lot of money from buying and selling ships. Of course, markets move one way and the other, like stocks do as well. We cannot have 100% accuracy on the predictions. If we can have the majority of our moves being right, then that's a good thing. Next question, please.

Thank you. We will now go to our last question for today. One moment, please. And your last question for today comes from the line of Eric Newman from PowerView.

Hey, Harry, how are you? I've got a question. You've put most of the tanker ships in the spot market, and I'm just curious if there's an availability to lock in any of those ships with tanker rates where they are today. Does it make sense to secure longer time charters? And if you could give us a sense of the spread today between where maybe you'd be able to lock something in versus where the spot is, we'd appreciate it. Thanks.

The answer is yes and no. The problem is that, as you know, the majority of our ships are not very modern. The majority of the serious charters want modern ships. So if we had to charter some of our ships, it would have to be either at a discount or with second-tier names.

Thank you. I will now hand the call back for closing remarks.

Thank you all for joining us at our conference call today, for your interest and trust in our company, and we look forward to having you with us again at our conference call for our Q3 results. Thank you.

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