Pyxis Tankers Inc.

Good day and welcome to the Pixis Tankers conference call to discuss the financial results for the third quarter 2022. 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 Pixis Tankers website, which is www.pixistankers.com. Hosting the call is Eddie Valentis, Chairman and Chief Executive Officer of Pixis Tankers. and Mr. Henry Williams, Chief Financial Officer of the company. I would like to pass the floor to one of your speakers today, Mr. Eddie Valentis. Thank you. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining our call for results of the three months ended September 30th, 2022. The impact from the Russian invasion of the Ukraine continues to take center stage, affecting global energy markets and resetting personal, economic and strategic priorities as well as global relationships. Many countries are battling high inflation, cost of living increases and the slowdown in economic activity. However, the product tanker sector continues to be positively affected with strong chartering activity and rapidly increasing asset values. At Pixis, we continue to successfully manage through these unprecedented times. Before starting, please let me draw your attention to some important legal notifications on slide two that we recommend you read, including our presentation today, which will include forward-looking statements. Thank you. Turning to slide three. Our most recent quarterly results reflected strong financial performance in revenues, growth, and profitability. In the third quarter ended September 30th, 2022, we generated consolidated time charter equivalent revenues, TCE, of 12 million, an increase of 8.5 million over the same period in 2021. Charter rates continue to accelerate during the quarter, especially in the spot market. Our daily TCE for Q3 2022 for our five eco-MRs was $29,062, Sequentially, up 10.6% over the prior quarter and up a factor of 4 versus the results in the same period last year. Moreover, we reported net income of 5.3 million or 48 cents basic EPS for the most recent period versus losses in 2021. Our adjusted EBITDA in Q3 2022 climbed to 8 million. Over the course of the third quarter, the product anchor chartering environment experienced further strength. This was a function of increased mobility, which amplified demand for transportation fuels, despite moderating economic activity. In addition, the ongoing Russian invasion of the Ukraine has resulted in tightening of product inventories, which continue to be below five-year averages in many parts of the world. changing trade patterns, expansion of tonne miles, dislocation to end markets, creating arbitrage opportunities and higher transportation costs. While high inflation persists, petroleum product prices such as gasoline and diesel have softened to varying levels since the beginning of summer 2022. Accordingly, refinery activity continues to be very strong, with healthy crack spreads reflecting solid global demand. These developments have translated in robust product anchor charter rates in the spot market and greater time charter activity. Our booking rates for Q4 2022 continues to show upward momentum. As of November 10th, 82% of our available days for the fourth quarter were booked at an average estimated TCE of $36,800. We're continuing to maintain our mixed chartering strategy of time and spot charters with a focus on diversification by customer and duration. Please turn to slide four for information on our existing fleet and employment activities. As you can see, two of our vessels are currently in the spot market and the remaining three MRs are contracted under short-term TCs that run up to next fall. For the Q4 bookings, The average estimated spot charter rate is $47,700 and an average time charter of $32,600. We believe our chartering strategy provides a reasonable balance of risk and return, especially for a small company like ours. Next, please turn to slide six for a further update on the product anchor market. In addition to my prior comments about the market, Recent economic activity for most of the world has been affected by the war and other geopolitical events. Initial sanctions on exports on petroleum products have had limited financial impact on Russia, which has benefited from market dislocation and low inventories in many parts of the world, especially Europe. But the EU ban on Russian refined products starting in early February 2023 should only compound complexities of the market and according to one analyst, an incremental 8% growth in product anchor demand. As previously highlighted, tight supplies of gas, oil and diesel are changing trade routes and adding ton miles to voyages by increasing exports from the refineries located in the Middle East, US and certain parts of Asia. Increasing demand for transportation fuels, more recently for air travel, only exacerbates the difficulties in replenishing diesel and jet fuel inventories. Unanticipated events such as Russia's complete shutdown of Europe's major operating natural gas pipeline, Nord Stream 1, and its subsequent bombing only create chaos through the energy value chain and force some European utilities to consider switching to alternatives such as fuel oil for power generation. Reliable, secure energy sources will continue to be a major priority. Please turn to slide seven to review macroeconomic considerations. Historically, seaborne trade of refined products has been relatively correlated to global GDP growth. While the IMF maintained its GDP growth estimate to 3.2% for this year, it slightly reduced its outlook for 2023 to 2.7% in the October update. The IEA recently reduced its oil consumption to an average of 99.6 million barrels per day for 2022, a 2% increase, and slightly lower growth estimates in 2023 to 1.7%. Due to moderating economic activity and lower crude prices, OPEC Plus recently cut production by an estimated net effect of 1 million barrels per day through 2023. Orchestrated releases of crude from the strategic petroleum reserves of certain countries, such as the US, are winding down by the end of the year. Annual increases of 6% of US oil production will add supply over time. However, Given geopolitical and macroeconomic factors, a leading research firm recently estimated demand growth for refined products at 6% for 2023. Moving to slide 8, U.S. refineries are currently achieving high seasonal utilization at healthy crack spreads in order to meet solid product demand from the U.S., Europe, and Latin America. Zero-COVID policies continue to delay the economic rebound in China and have resulted in recent government approvals for the export of approximately 120 million barrels of gasoline, diesel and jet fuel through early next year. In fact, many of these cargos should be carried on a Mars within the Asian region. Over the longer term, we expect demand for the product tanker sector to be supported by refinery additions led by the Middle East and Asia. DURI estimated that over 4.9 million barrels per day of new refining capacity is scheduled to come online by 2026, virtually all of which is outside the OECD. Planned shutdowns are likely to slow, but over the long run, maybe further contribute to the importing of refined products into mature, large OECD markets and provide additional ton-mile expansion. Let's move on to slide nine. The product tankers supply picture is much clearer as the outlook for MR2s continues to look very promising. The order book continues to drift lower with subdued new ordering for the product tankers. Due to the surge in ordering of new container ships, gas carriers, and dry bulk vessels, many Asian yachts don't have available construction slots with deliveries at the end of 2024 or later. Over the five-year period ending 2021, delays in delivery of new builds averaged almost 18 MRs per year. An owner's decision-making process for tanker new ordering is further complicated by ongoing developments in ship and engine designs, stricter environmental regulations, rapidly escalating shipbuilding costs, as well as an evolving and still unclear selection and availability of lower carbon fuels. New IMO regulations governing CO2 emissions, including data collections and ratings under EEXI and CII, start in 2023 and could limit available supply due to slow steaming by older vessels. Despite the strong chartering market and reasonable scar prices, 17 MR2s have been demolished since the beginning of 2022. Given that about 7% of the worldwide fleet of MRs is 20 years of age or older, demolition activity should pick up. Consequently, we continue to estimate that annual net fleet growth for MRs should be around 2% throughout 2023. Turning to slide 10, robust charter conditions have led to steep increases in asset prices across the board. New building prices are now over $43 million. With earliest delivery in about two years, values for young eco-efficient EMRs are near historical highs and acquisition opportunities are rare. However, higher asset prices have increased our fleet value and NAV. This, combined with rising earnings power, should lead to higher equity values and hopefully share prices. 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.

Thanks, Eddie. On slide 12, let's review our unaudited results for the three months ended September 30, 2022. Our time charter equivalent revenues for Q3 of 22, which we define as revenues net minus forage-related costs and commissions, accelerated to $12 million, an increase of $8.5 million from the same period in 2021 due to higher charter rates, especially in the spot market where we incur voyage-related costs and commissions, as well as the impact from changes in our fleet. Since summer of last year, we have added two MRs and sold two small tankers. In the third quarter of 22, the TCE rate for our MRs was $29,062 per day, a dramatic increase from the comparable 2021 period. Moving to slide 13, we generated net income to common shareholders of $5.1 million for the three months ended September 30, 2022, or 48 cents basic and 42 cents diluted EPS compared to a net loss of $3.7 million or 37 cents basic and diluted loss per share in the same period in 2021. For accounting purposes, the fully diluted earnings calculation in 2022 assumes the potential conversion of all outstanding Series A convertible preferred stock into common shares and the elimination of the associated dividend. In 2023, a substantial portion of the increase in TCE revenues dropped to the bottom line. Adjusted EBITDA rose to $8 million, an improvement of $9.2 million from the third quarter of last year. Please turn to slide 14, which reviews our recent MR fleet data. As we operate one echo-modified vessel and four echo-efficient tankers, given the size of our fleet, changes in these metrics related to a single vessel in one reporting period can have a disproportionate effect on the total fleet operating results. Beyond the significant improvement in TCE for 2022, the key takeaway here remains the relative stability in operating expenses despite rising cost pressures such as crewing, insurance, and loops. Turning to slide 15, as you may recall, we believe it is important to periodically review total daily operational costs to run and manage a public tanker company, including overhead. These costs vary by fleet composition, vessel delivery removal, company operating structure, and management. We define total daily operational costs as the sum of vessel operating expenses, technical and commercial management costs, plus G&A expenses. Based upon recent results, the total daily operational costs of our modern echo-efficient MR2s continue to be very competitive compared to the U.S. listed pure-playing product tanker peers, despite our small size. Now flip to slide 16 to review our capitalization at September 30, 2022. At quarter close, our consolidated leverage ratio to net funded debt stood at approximately 51% of total capitalization. We continue to be in full compliance of our loan events. Our weighted average interest rate was 5.9% for the most recent quarter. And the next bank loan maturity is July of 2025. Over 21% of our debt has interest rate protection or fixed coupon mitigating further increases in interest costs. I should point out that during the quarter working capital improved $5.1 million to $2 million. With that, I would like to turn the call back over to Eddie to conclude our presentation.

Thanks, Henry. The combination of solid demand, recent geopolitical events including the war, low refined product inventories in many parts of the world has been particularly beneficial to our sector. Despite slowing economic activity, we are optimistic about the prospects of the chartering environment. Over the long term, we find further support in the positive supply and demand fundamentals of the product anchor sector. Given the various uncertainties, we will stay on course with our mixed chartering strategy of spot employment complemented by time charters in order to prudently optimize revenues and provide cash flow visibility. Unless we find an attractive, accretive acquisition, we expect to use excess cash flow to further improve our financial position. We appreciate your interest and thank you for joining our call today. We look forward to reporting on future progress at Pixies Tankers. Be safe. Be well.

This will conclude the conference call for today. You may all disconnect. Have a nice day.