Pyxis Tankers Inc.

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

Good morning, everyone, and thank you for joining our call for results of the three months ended June 30th, 2023. The Russia-Ukraine war continues to impact the global energy markets and disrupt economic and strategic priorities as well as global relationships and trade. Restrictive monetary policies have resulted in slowing economic activity and, most recently, lowering of inflation within many OECD countries. In spite of this, the project target sector maintains solid chartering activity and high asset values. At Pixis, we continue to successfully navigate through these uncertain times and we 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 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 healthy financial performance in revenues, operating cost control, and profitability, despite operating fewer vessels, as we saw with the 14-year-old Pixies Malou in late March. In the second quarter and the June 30th, we generated consolidated time-shutter equivalent revenues, TCE, of 8.6 million, a decrease of 2.7 million over the same period in 2022. Our daily PCE for our core eco-MRs in Q2 2023 was approximately $25,000, which was down slightly over the same course of last year due to less spot chartering activities. We reported net income of $2.8 million or $0.25 basic EPS for the most recent period, which was down from last year. Our adjusted EBITDA in Q2 2023 was $5.2 million. Over the course of the second quarter, the project's infrastructure and environment experienced great softness. Despite reasonable demand for transportation fuels worldwide, moderating economic activity was met with seasonal refinery maintenance programs. The ongoing Russian-Ukrainian war continues to result in tight inventories of petroleum products, which are below five-year averages in a number of locations around the world, changing trade patterns, expansion of corn mines, dislocation of the market, creating arbitrage opportunities and higher transportation costs. For example, in the U.S., recent inventories of gasoline and diesel were 7% and 14% respectively, lower than five-year averages. While product prices are significantly lower than a year ago, refinery activity continues to be solid with healthy crack spreads reflecting good global demand. This development still supports a constructive outlook for product and catch-up rates. In light of this, we continue to consider the purpose of monitoring equity on the market. We are always looking for economically viable acquisitions, and in the meantime, how to further improve our balance sheet and, to a limited extent, repurchase common shares. Most recently, our board unanimously approved a $6.8 million equity investment in a joint venture for the acquisition of the 2016 Japanese-based Ultramax Drival Carrier. We will own 60% of the joint venture and the balance held by an affiliate of our CEO and chairman, Mr. Valentis. Vessel purchase is expected to be funded by 11.3 million of equity and 19 million secured 5-year bank loan. We believe this counter-cycle investment in a first-class IFO vessel, which is proper and balanced water treatment system fitted, should provide attractive returns to PXE tangos through a well-managed structure. Upon anticipated closing of the transaction by late August, we will have significant drive-out to pursue additional strategic opportunities. Please turn to slide 4 for information on our existing fleet and employment activities. We are continuing to prudently maintain our mixed charting strategy of time and spot charters with a focus on diversification by customer and duration. As you can see after the sale of the Pixis Malu, we now own and operate a fleet of four equal efficient MRs, which has an average age of 8.6 years and is over four years younger than the industry average of 13 years. Three of our time tiers are currently contracted under short-term time charters, and one in the spot market. As of July 26th, 55% of the available days in Q3 were booked at an average estimated TCE rate of approximately $27,800, which at this point represents an 11% sequential increase over our Q2 daily chartering results. Next, please turn to slide 6 for a further update on the product entry market. In addition to my prior comments about the market, recent economic activity for most of the world has been affected by restricted monetary policies, the war, and other geopolitical events. The EU and G7 group ban on seaport cargoes of Russian refined products, which started in early February 2023 at subsequent price caps. have reduced Russian revenues, created market dislocation, which has been compounded by low inventories of refined petroleum products in many parts of the world. Product exports from the refineries located in the Middle East, U.S., and certain parts of Asia are expanding. According to Drury, an independent industry research firm, in 2022, seaborn trade of oil products increased 1.7% to over 1 billion tons, while ton mines rose 3.2% to almost 3.4 trillion tons. According to another leading research firm, ton-mile demand should increase 12% in 2023, cargo volumes growth 4%, and in 2024, a further 7% growth in ton-mile and another 4% increase in volumes is expected. The recent changes in trade routes can be seen on slide 7. Please turn to slide 8 to review several macroeconomic considerations which support fundamental sector demand. Historically, simple trade of refined products has been moderately correlated to global GDP growth. In July, the IMF revised its global GDP growth estimate upwards to 3% for this year due to the resilient economic activity primarily in the OECD. offset by the adverse effects of significantly higher interest rates and persistently stubborn high inflation. Recently, the IEA slightly revised its estimate of global oil consumption to increase 2 million barrels per day, or 2.2%, to an average of 102.1 million barrels per day in 2023. A continuation of the recent crude oil production cut by OPEC+, including a half-million-barrel-per-day reduction by ROSA starting in August, is expected to resolve in tighter supply later this year. However, incremental production is expected from the U.S., Canada, Brazil, Norway, and Guyana. Of course, invasive actions by Iran and Venezuela supplement global oil supply. According to the EIA, the U.S. should increase average oil production in 2023 by 5.6% to almost 12.6 million barrels per day. Nevertheless, the expectation of tighter supply and soaring global demand have resulted in an approximate 10% increase in oil prices since the start of the summer. Now I'll move to slide nine. Over the longer term, we expect demand for the product architecture to be supported by refinery additions led by the Middle East and Asia. Drury estimates that at almost 4.4 million barrels per day of new refinery capacity, net disclosures is scheduled to come online by 2028, with the OECD experiencing a decline. However, originally planned shutdowns may be delayed given better refinery economics, but over the longer run, closures should further contribute to the importing of refined products into mature, large OECD markets and provide additional frontline expansion. Many refineries, including those of the U.S., continue to experience good utilization at profitable crack spreads in order to meet solid product demand. Processing cheaper Russian noodles has been a recent margin advantage for refineries primarily located in India and China, supporting domestic supplies and seafood exports, especially for transportation fuels. Let's move on to slide 10. The product tanker supply picture is much clearer, as the outlook for MR2s continues to look very promising. While orders for the construction of new product tankers have picked up in 2023, the order book is still relatively low by historical standards. According to Drury, as of June 30th, 2023, the order book for MR2s stood at 6.6%, of the global fleet, or 111 vessels, of which 17 are scheduled for delivery during the second half of this year. Due to huge backlogs, many Asian shipyards don't have available construction slots for Mars with deliveries until early 2026. Delayed renewable deliveries continue to be an unpredictable factor, as slippage has run over 12% annually for the last five years. A longer decision-making process for tanker inventory is further complicated by ongoing developments in ship and engine design, stricter environmental regulations, escalating shipbuilding costs, as well as an evolving and still unclear selection and availability of lower carbon fuels. As many as 144 vessels, or 8.5% of the global fleet, is 20 years of age or older, significantly more than the order book. Given this large number combined with declining economics of operating all the vice-versa, major scrapping should occur over the next five years. Thus, we estimate the Netflix growth for MR of less than 2% per year through 2024. Turning to slide 11. Good chartering conditions have led to steep increases in asset prices across the board. Values for second-hand tonnage is still way above 10-year averages, but prices for old tankers have recently softened. Construction costs for new buildings now approach $47 million, exclusive of yard supervision and add-ons. Prices for young eco-efficient MR2s are present, are staying near historical highs, and attractive acquisition opportunities are very rare. 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, Teddy. On slide 13, let's review our unaudited results for the three months ended June 30, 2023. Our time in Charter of Bulletin Revenues for Q2 of 2023, which we define as revenues, net minus voyage-related costs and commissions, declined to $8.6 million, a decrease of $2.7 million, from the same period in 2022 due to low chart rates primarily in the spot market, which was offset by higher utilization. More important, with the sale of our oldest vessel in March of 23, we operated one pure MR in the most recent period. For the second quarter of 23, the TCE rate for our MRs was $25,000 per day. Still a healthy rate, but down 5% from their comparable 2022 period. Moving to slide 14, we generated net income to common shareholders of $2.8 million for the three months ended June 30th, 2023 for 25 cents basic and 23 cents diluted EPS compared to net income of $4.6 million for 43 cents basic and 38 cents diluted net income per share in the same period of 22. For accounting purposes, the fully due earnings calculation assumes the potential conversion of all the outstanding Series A convertible preferred stock into common shares and the elimination of the associated dividend. In Q2 of 23, a significant portion of the decrease in TCE revenues flowed through the income statement as adjusted EBITDA decreased $2 million to a respectful $5.2 million. Now flip to slide 15 to review our capitalization at June 30, 2023. At quarter close, our consolidated leverage ratio of net funded debt stood at less than 19% of total capitalization. Due to increases in SOPR, our weighted average interest rate was about 8.2% for the most recent quarter, and the next bank loan maturity is in about two years. I should point out that at June 30, 2023, our total past position was approaching $34.5 million. Most of our excess cash is invested in short-term money market incidents, which currently earn an average of 5.2%. Lastly, Epixis Theta is scheduled to have her second special survey. with ballast water treatment system installation later this summer at a cost of approximately $1.4 million and 25 days off-hire. With that, I'd like to turn the call back over to Eddie to conclude the presentation.

Thanks, Henry. Over the near term, fundamental demand is relatively imbalanced with supply. Macroeconomic headwinds and uncertainty from geopolitical conflict create challenges and opportunities for the product banker segment. We continue to benefit from the combination of solid and market consumption, low refined product inventories in many parts of the world, changing trade patterns, and expanding online. Scheduled developments for the refinery landscape only enhance the long-term outlook of our sector. We will effectively utilize a strong financial position of excess cash and low leverage, as well as deep industry relationships to seize investment opportunities that maximize shareholder value. We appreciate your interest and thank you for joining our call today. We look forward to reporting on future progress at Pixie Stanford. Enjoy the summer and stay well.

And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.