Pyxis Tankers Inc.

Good day, and welcome to the Pixis Tankers conference call to discuss the financial results for the first quarter 2023. 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 Mr. 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 over to one of your speakers today, Mr. Eddie Valentis. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining our call to review the results of the three months ended March 31, 2023. The recent announcement by OPEC Plus to cut its members' crude oil production by 1.65 million barrels starting this month, has now joined the Russian invasion of the Ukraine as the focal point affecting global energy markets. Many countries within the OECD continue to show resilience as they battle high inflation, tighter monetary policies and the slowing economic activity. In spite of this, The product thank you sector continues to be positively affected with healthy chartering activity and high asset values. At Pixis, we continue to successfully manage through these uncertain times and are pleased to report good operating and financial results for the most recent period. Before starting, please let me draw your attention to some important legal notification 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 solid financial performance in operating revenues and profitability, combined with a substantial gain from vessel sales. In the first quarter, ended March 31st, we generated consolidated time chartered equivalent revenues, TCE, of 9.2 million. an increase of 139% over the same period in 2022. Initially, spot charter rates were soft in the Atlantic Basin during the first quarter, but subsequently rebounded as the period progressed. We completed the sale of our oldest tanker, the Pixies Malu, in late March for 24.8 million to realize a non-cash gain on sale of 8 million and almost 19 million in net cash proceeds. In Q1-23, our daily TCE for our MRs was $23,508, more than double the results in the same period last year. Most importantly, we reported net income to common shareholders of 8.7 million, or 81 cents basic EPS for the most recent period, versus significant losses in 2022. Our adjusted EBITDA in Q123 improved to 4.2 million. Over the course of the first quarter, the product tanker chartering environment experienced further strength. This was a function of increased mobility, which amplified demand for transportation fuels despite moderating global economic activity and the recovery in China. The ongoing Russian invasion of Ukraine resulted in tight stocks of refined petroleum products, many of which continue to be below five-year averages in a number of locations around the world, changing trade patterns, expansion of corn mines and dislocation of land markets, creating arbitrage opportunities and greater transportation costs. While high inflation persists, petroleum product prices such as gasoline and diesel have further declined since the high points of last summer 2022. As seasonal turnarounds wrap up in the Northern Hemisphere, refinery activity continues to be solid, but at lower, yet profitable, crack spreads, still reflecting good global demand. These developments have translated into healthy product anchor chartering amid the volatile spot market and meaningful time charter activity. After the recent vessel sale, we now own and operate four acquisition MRs, which have an average age of 8.6 years, significantly below the industry average. Our booking rate for Q2 2023 continues to be constructive, and as of May 11th, 70% of our available days for the second quarter were booked at an average estimated TCE of $29,160, sequentially up from the Q1 results. Please turn to slide four for information on existing fleet and employment activities. While all our tankers are currently under short-term time charters, we expect to maintain our mixed chartering strategy of time and spot charters with a focus on diversification by customer and duration. 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, global economic activity continues to be impacted by the war and evolving uncertainty of geopolitical events. stepped up sanctions, including the recent ban of Russian refined product cargos by the EU and G7 countries, and related price caps, has reportedly reduced revenues to Russia, which has benefited from trade dislocation and low inventories in many parts of the world, and found some new end markets, mostly involving longer sailing distances. Product exports from the refineries located in the Middle East, U.S., and certain parts of Asia are also expanding with longer voyages. According to Drury, an independent industry research firm, in 2022, seaborne trade of oil products increased 2.8% to over 1 billion tons, while ton miles rose 6.7% to almost 3.5 trillion tons. Recently, a leading research firm estimated that global product anchor tonne miles increased 13% in the first quarter of 2023 versus the same period in the prior year. For 2023, that firm estimated tonne miles to increase 11%, volumes to grow 4%, and voyage distances to rise 7% to 8% year on year. Near-term demand for refined products should also get a boost as China has lifted its severe COVID restrictions late last year. We have already seen increasing demand for transportation fuels, more recently for air travel, as mobility expands and the economy accelerates. Higher levels of government-approved export quotas have supported chartering activities initially in the Pacific Basin, but may move into more distant markets. Please turn to slide seven. to review several macroeconomic considerations which support fundamental sector demand. Historically, seaborne trade of refined products has been relatively correlated to global GDP growth. In the latest update, the IMF slightly lowered its global GDP growth, estimated to 2.8% for this year, due to the effects of high inflation, tighter monetary policies, and slowing economic activity, primarily in the OECD. However, based on first quarter results, China seems to be on track to achieve an estimated growth rate of 5.2% for this year. The IEA recently revised its global oil consumption to increase 2 million barrels per day, or 2%, to an average of approximately 102 million barrels per day for 2023. Despite the recent OPEC class announcement for a production cut, there seems to be adequate supply of crude oil. Brent is expected to maintain its current price within a range of $75 to $80 by year end, according to various analysts. The EIA just updated its 2023 estimate for U.S. crude production to increase 5.1% to 12.5 million barrels per day. Now, move to slide eight. Over the longer term, we expect demand for the product tanker sector to be supported by refinery ambitions led by the Middle East and Asia. Drury estimates that over 4.7 million barrels per day of new refinery capacity is scheduled to come online by 2026, mostly outside the OECD. Originally, planned shutdowns are likely to slow, given better refinery economics and market disruptions, but over the long run, closures should further contribute to the importing of refined products into mature, large OECD markets and provide additional ton-mile expansion, thereby reducing available tanker capacity. Let's move to slide nine. The product tanker supply picture is much clearer as the outlook for MR2s continues to look very promising. The order book is historically low with limited new ordering for product tankers. According to Drury, as of February 28, 2023, the order book for MR2s stood at 5.8% of the global fleet or 99 vessels, of which only 31 are scheduled for delivery during the remainder of the year. Due to the surge in new orders for the other types of ships, many Asian yachts don't have available construction slots for MRs with deliveries until late 2025. Delays in new-built deliveries continue to be a concern, a slippage around 15% in 2022. An onerous decision-making process for tanking ordering is further complicated by ongoing development in ship and engine designs, stricter environmental regulations 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 collection and ratings under EEXI and CII, have started and may limit available supply due to slow steaming by older vessels. Only five MR2s were demolished in 2022 and zero so far in 2023, principally due to the strong chartering environment. However, 178 vessels, or 10.4% of the global fleet, is 20 years of age or older, almost double the order book. Given this large number, combined with declining economics of running all the vessels, major scrapping should occur over the next five years. Thus, we estimate the net fleet growth for Mars of less than 2% per year through 2024. Turning to slide 10, robust charter conditions have led to steep increases in asset prices across the board. New building prices have now approached $46 million, exclusive of yard supervision costs and add-ons with delivery in late 2025. Values for young eco-efficient MR2s continue to be near historical highs, and acquisition opportunities are rare. Higher asset prices have increased our fleet valuation and, combined with a better balance sheet, our net asset value has risen. Unfortunately, our share price has not. 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, Jerry. On slide 12, let's review our unaudited results for the three months ended March 31, 2023. Our time charter equivalent revenues for Q1 of 23, which we define as revenues net minus voyage-related costs and commissions, improved to $9.2 million, an increase of almost $5.4 million from the same period in 2022, primarily due to higher charter rates. We completed the sale of our oldest tanker. So by the end of the 2023 period, we operated four MRs. In the most recent quarter, utilization picked up significantly. But importantly, TCE rate for our MRs was $23,508 per day, a dramatic increase from the comparable 2022 period. Moving to slide 13, we generated net income to common shareholders of $8.7 million for the three months ended March 31, 2023, or $0.81 basic and $0.71 diluted EPS compared to a net loss of $3.7 million or $0.34 basic and diluted loss per share in the same period in 2022. For accounting purposes, the fully diluted earnings calculation in 2023 assumes the potential conversion of all outstanding Series A convertible preferred stock into common shares and the elimination of the associated dividend. In Q1-23, a substantial portion of the increase in TCE revenues dropped to the bottom line. Adjusted EBITDA rose $4.2 million, an improvement of $4.9 million from Q1 of last year. Please turn to slide 14, our recent MR fleet data as we operated one echo-modified vessel, the Malou, 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 disproportionate effects on the total fleet operating results. For example, during March 23, we sold the 2009-built echo-modified tanker and commenced the special survey of the Pixis Cartieria. Overall, the key takeaways for Q1 of 23 was higher charter revenues for the eco-efficient MRs more than offset rising vessel operating expenses. But inflation continues to be a concern. Now flip to slide 15 to review our capitalization at March 31, 2023. At quarter end, our consolidated leverage ratio of net funded debt stood at approximately 23% of total capitalization with book value per fully diluted common share of $5.56. Due to increases in LIBOR SOFR, our weighted average interest rate was 8.15% for the most recent quarter, and the next bank loan maturity is July of 2025. For the remainder of this year, we have one special survey, which is scheduled for late summer, and it estimated total costs for approximately $1.25 million, including BWTS installation. I should point out that our total cash position at March 31 of $30.5 million should only increase in the current quarter due to free cash flow generated from operations. With that, I would like to turn the call back over to Eddie to conclude our presentation. Thanks, Henry.

As we discussed over the near term, fundamental demand looks to be relatively in balance with supply. Despite recent macroeconomic headwinds and geopolitical conflicts, the combination of solid and market consumption, relatively low product inventories in many parts of the world, changing trade patterns and expanding tonne mines continue to support a healthy chartering environment. Scheduled additions to the global refinery landscape only enhance the long-term outlook of the sector. Given various uncertainties and growing complexity, we will continue our mixed chartering strategy of time charters, complemented by spot employment, in order to prudently optimize revenues and provide cash flow visibility. Our sizable and growing cash position and low leverage strengthen our operating and financial performance flexibility as well as broadened corporate and strategic opportunities for us to further increase shareholder value. 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 concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.