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Operator
Thank you for standing by, ladies and gentlemen, and welcome to the SACOS Energy Navigation Conference call on the third quarter 2022 financial results. We have with us Mr. Takis Arapoglu, Chairman of the Board, Mr. Nicholas SACOS, President and CEO, Mr. Paul Durham, Chief Financial Officer, and Mr. George Saraglou, Chief Operating Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today. And now, I pass the floor over to Mr. Nicholas Fornosas, President of Capital Link Investor Relations Advisor to Sarkos Energy Navigation. Please go ahead, sir.
Takis Arapoglu
Thank you very much, and good morning to all of our participants. I'm Nicolas Borneros of Capitalink, investor relations advisor to Sarkos Energy Navigation. This morning, the company publicly released its financial results for the third quarter in nine months ended September 30, 2022. In case you do not have a copy of today's earnings release, Please call us at 212-661-7566 or email us at 10GEN at CapitalLink.com and we will have a copy for you emailed right away. Please note that parallel to today's conference call, there is also a live audio and slide webcast, which can be accessed on the company's website on the front page at www.capitallink.com. The conference call will follow the presentation slides, so please, we urge you to access the presentation slides on the company's website. Please note that the slides of the webcast presentation will be available and archived on the website of the company after the conference call. Also, please note that the slides of the webcast presentation are user controlled, and that means that by clicking on the proper button, you can move to the next. or to the previous slide on your own. At this stage, I would like to read the Safe Harbor Statement. This conference call and slide presentation of the webcast contain certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties which may affect tens of business prospects and results of operations. And before passing the floor to the chairman, I would like to remind everybody and congratulate them. This year, the company is celebrating its 20th anniversary of listing on the New York Stock Exchange. And on December 9 we look forward to having with us in New York the management of TEN and Dr. Tsarkos joining the Capital Link Invest in Greece Forum December 9 in New York. And at this moment I would like to pass the floor to Mr. Arapoglou, the chairman of Tsarkos Energy Navigation. Please go ahead, sir.
Nicolas Borneros
MR. Thank you, Nikos. Good morning, good afternoon to all. Thank you for joining our call today. Real congratulations to management for historical second-best quarterly performance, just below the highest ever in Q4-07 of 52 million. So, you know, this is a great result. It proves once again The strategy model protects us in bad times, fully responds in good times, and allows us to serve our obligations, pay dividends, and generate cash for new business. And we're very happy that all this is reflected now, is beginning to be reflected on the stock price. And in particular, I'd like to congratulate management for the successful new business with another blue chip customer, Total, on a first deal ever on a very successful business. So without further ado, congratulations to Nico Sarkozy and his team and offer the floor to him for the rest of the meeting. Thank you, Nikos.
Nikos
Thank you, Chairman, and good morning, good afternoon to all of you. Thank you for being here and supporting and following Ten's 20-year performance on the New York Stock Exchange. And 30 years, next year it's going to be our 30th year anniversary since the company was established. And hopefully our share price will be above $30. We were hoping to be well above $20 in the remaining of the year, so we worked on $10 at $20, and the next year it's going to be $10 at $30 at least. But thank you for bringing us where we are. As the chairman said, this really was our best quarter in the last 15 years. We have not had such a high return since the fourth quarter of 2007. But I believe that if things continue to go, and you know I'm very conservative usually, and I hope that we will break the record. Paul is working on it already and our chartering team at the same time. In the fourth quarter of this year, things will go. look to be even stronger or rosier. And this is a time that the 10-model proves it works, because we can work at difficult times, but also at much better times. We have, as George Charoglou is going to point out, this is our fifth crisis that we are coming out from, for the tanker market, based on geopolitical events and market-related events and economic events. and our aim is always to have a sustainable growth. We are able to fix business and make sales of ships at the times, at the high times, that will carry us on to the next cycle. And I think this is the time we are doing now. We're enjoying six-figure returns or revenue, time charter revenues, in a majority over AfraMax, SuezMax and VLCC fleet, which hopefully will be portrayed on the fourth and the first quarter. What gives me comfort is right now we are in a situation where very little new building supply is coming in. And so this good market, perhaps not at these high levels as always, but will be sustainable for at least the next three years. In turn, we use the low markets to be able to purchase new, modern assets, as we have done. and then charter them out when the times are better for long term to be able to cover the cyclical markets that we might, the cycling that the markets might bring. And with this, I would like to ask George Saroglu to take too much of his time to give us a little description of the last nine months and focus on subsequent events, which we will talk also after during the question time.
Paul
Thank you, Nikos. Good morning to all of you joining our earnings call today. Let's go to the slides of our presentation. Starting with slide three, we see that since 10th inception in 1993, out stronger thanks to its operating model. This time is no exception. We manage the COVID pandemic without any serious effects for both fleet and onshore operations, and we are currently navigating the challenges created by the war in Ukraine. The market fundamentals, record low order book, and an aging fleet, even without the tragic war, were positive for the tanker industry. The combination of self-imposed and voyage distances lengthened. A new round of European sanctions on oil imports from Russia is expected in December. The full impact cannot be assessed until details are known. However, it is expected to sustain the lengthening of voyage distances, which coupled with normal winter factors like weather delays, Russia will need to reroute its oil exports away from Europe, and Europe will need to backfill those short-hauled imports from oil product trades, we expect the tanker industry to go through a sustained, strong market in the years to come. In slide 4, we see the fleet and its current fleet employment. 40 out of the 66 vessels, or 61% of the fleet in the water, has market exposure, a combination tanker fundamentals, and we have taken advantage of the good tanker market as our earnings release of today shows. Fleet modernity is a key element of our operating model. Year to date, we sold two vessels, a 2003 built Panamax tanker and a 2006 built LR2 Alphamax tanker, and took delivery of three modern vessels. Two new buildings, In this month, we took delivery of a 2020-built, eco-friendly, scrubber-fitted VLCC, which we have renamed as DS-1, the Greek name for Zeus. All three vessels are chartered against long, accretive time charters. In fact, today we announced the start of the three-year time charter with profit sharing for DS-1 to a significant oil major. against minimum five up to 15-year contracts. This is in addition to an order we have in place for four new building Aframax tankers, which we expect to start taking delivery from the fourth quarter of 23, and which are part of the company's green-ship, dual-fuel, LNG-powered initiative. All vessels are coming with long-term employment attached. In slide five, We present the company's current and long-term clients. As you see, we have a blue-chip customer base consisting of four major global energy companies, refineries, commodity traders, with Equinor currently topping the list as our largest charter, with nine vessels and four new buildings all on a long-term time charter. On slide 6, the left side presents the all-in break-even cost for the various vessel types we operate. We maintain, as you see, a low-cost base. We have a simple operating model. We try to have our time-chartered vessels generate revenues that cover the company's cash expenses, which mean paying for the vessel operating expenses, finance expenses, overheads, chartering costs and commissions, and we let the revenue from the spot-trading fleet contribute to the profitability of the company. Despite the prevailing inflationary pressures, we want to highlight the purchasing power of our technical managers and the continuous cost-control efforts by management to maintain a low OPEX average for the fleet, while at the same time keeping a high return, we achieved an overall utilization of 93.7% for the fleet. And thanks to the profit-sharing element, for every $1,000 increase in spot rates, we have a positive 29 cents impact in annual EPS based on the number of vessels we currently operate in the spot market. Slide number seven, debt reduction, is also integral to the company's capital allocation strategy. we have repaid 428 million of debt and repurchased 100 million in two series of step-up preferred shares we had outstanding. In addition to paying down debt in slight date, we see that dividend continuity is important for common shareholders and management. TEN has always paid the dividend irrespective of the market cyclicality. 15 cents per common share represents a 50% increase from the July 10 cents a share dividend. The company has paid half a billion in dividends since we listed the company in the New York Stock Exchange in 2002. Global oil demand continues to recover despite lockdowns in China as a result of their zero-COVID policy and mounting global economic headwinds. For the year, oil demand is expected to developed economies lead oil demand growth in 2022. In 2023, oil demand expansion is forecasted to come from the non-OECD countries. On the supply side, we have the recent OPEC Plus cuts, the sanctions and self-sanctions on Russian crude, and that will play out in 2023, and further releases currently from the OECD Strategic Petroleum Reserves. Global oil stocks continue to fall and are currently below the five-year average in the period 2017-2021. Non-OPEC 2023 production is set to rise, coming mainly from Brazil, USA, Guyana, Canada, Mexico, and Norway. As global oil demand recovers, over the next three years, which is the lowest that it has been in more than 30 years. At the same time, a big part of the fleet is, 32 percent, is over 15 years. And we have 8.3 percent So we think that all these factors point to a very balanced tanker supply market for a couple of years ahead. And with that, I will ask Paul to walk you through the financial highlights for the third quarter and the ninth month of the year. Paul? Thank you, George.
Nikos
This is rather going to be a report of super numbers, starting with a net income of over $51 million. fully realizing our expectations for a strong quarter. In this quarter, our vessels reaped an extra $92 million revenue over the prior quarter three, resulting in a total revenue of $224 million, a 70% increase mostly from spot earnings of $103 million as rates surged. In addition, our time charter vessels in quarter three including $14 million profit share, generated over $120 million, covering most of our operational expenses. The inflow of cash in the third quarter from our operations resulted in EBITDA of over $100 million compared to just $20 million in the previous third quarter, while in the nine-month period EBITDA totaled $236 million, From the start of this year to the end of September, TEN's revenue reached $590 million, while net income in the nine months amounted to over $130 million, with profit share of nearly $21 million. Average daily TCE exceeded $32,000, thanks to market conditions that allowed our fleet to achieve almost maximum utilization of 94% despite five vessels completing dry dock in quarter three. The significant cash flow generated in the recent nine-month period and the abundant cash reserves generated as a consequence has placed us in a very favorable position. We anticipate these reserves will provide us new opportunities, such as those created by the company over the past months, such as, in particular, the new LNG carrier, the shuttle tanker, and more recently the new VLCC. These newly acquired vessels are already operating on accretive time charters and are expected to generate considerable revenue in their lifetimes. These are the kind of opportunities that we believe will continue to generate accretive returns and secure our cash flow. And, of course, as George has mentioned, to reduce our debt. Good?
Nikos
Yep. Thank you, Paul. Reducing debt is always good, and we've been doing it quite drastically, not only reducing debt from the highs of 2016-17 by close to 430 million, and then another 100 million for buying back our PREV. So I think what we have accomplished is... a bigger fleet, a much more modern fleet with much less obligations. And we've been doing this through thick and thin, through the good times, the bad times. Perhaps we're one of the few companies out there that we have never delayed or renegotiated any of our banking relationships instead. And this is why we have always been offered very good terms very competitive terms in growing the business at difficult times. I mean, the picture that Paul and George are showing to us is a picture of a strong market, a sustainable market going forward. This is what we want to do, but we always protect the company's downside, as we have done in the past. And our main is to further decrease our debt and increase our dividends to the shareholders. In mind, it seems that the best is yet to come, at least for the foreseeable future. We're halfway there, so I expect the fourth quarter to be there. to be a record quarter with the numbers that we are seeing today. I mean, our spot Afra Maxis, many of them are above the $100,000 a day level, together with our Suez Maxis, which is significantly higher where the third quarter was, and for sure the first nine months. And with that positive note, I would like to open the floor for any questions. Thank you.
Operator
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. Once again, if you would like to ask a question, press Star 1 on your telephone keypad. One moment, please, while we poll for questions. Thank you. Our first question comes from a line of Clement Mullins with Value Investors Edge. Please proceed with your question.
Clement Mullins
Good morning, gentlemen. Thank you for taking my questions. Given the much-improved outlook on the tanker sector, I want to delve a bit deeper into your capital allocation priorities. How do you plan on balancing shareholder returns, dividends of share purchases, growth spending, and the leveraging?
Nikos
company in growth mode So we always want to have ample cash for growth. And again, it's not growth for growth. It's growth for accretive transactions that will get our earnings above the $3, $4 level per share, I mean. And then, of course, dividend is very important for us. We are big believers. in rewarding our shareholders. And the management is the largest shareholder here to reward the management through dividends going forward. So protection of a strong balance sheet, which if you go back over the years we always maintained. Strong liquidity, because the only time you actually appreciate your strong liquidity is when you do not have it. and 10 has never been in this situation in 30 years, and an increase in dividends.
Clement Mullins
All right. And regarding your overall financial position, are you comfortable with your current level of leverage, or would you like to leverage a bit, be it repurchasing research or repaying bank debt?
Nikos
Very good point. And as I said, I mean, if you look on slide 7 that was put up there in the presentation, we have done a dramatic deleveraging, considering that in 2016 the company did not have the quality of the fleet we have today. or the valuation of the flip, and we are determined to do this. And according to Paul, I think by 2024, we will be significantly under the billion-dollar. Our aim is to be above a billion-dollar a billion dollars in debt. And I think this is something we are working on that. And I think you brought a very good point out there. We have one of our prefers which is due for repurchasing at par in the next six months and that would be something that we might be using our excess liquidity to do.
Clement Mullins
Thanks for the call, that's helpful. Thank you.
Operator
A final reminder, if you would like to ask a question, press star 1 on your telephone keypad. One moment, please, while we re-poll for any additional questions. Thank you. It appears we have no further questions at this time. I would now like to turn the floor back over to management for closing comments.
Nikos
Well, thank you very much. When the news are good, I think we get less questions. And I think that's understandable. Again, as I said, we are looking... I think this is the first time we feel significantly strong about that. We're looking at a sustainable, positive future for the tanker and energy industries. We are proud to grow the business with first-class clients and relationships. We want to thank you for your support in that. We hope that our next announcement, which will be in the first quarter, coming up for the fourth quarter and first full year results, we will have even better news and better prospects. And looking forward, we will be visiting New York in the next couple of weeks. Looking forward to meet any of you interested face-to-face and talk about the industry, And the company, I would like from all of us here to wish our American friends and everybody around the world a happy Thanksgiving, happy, peaceful, and with you and your family. And thank you very much.
Operator
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Paul
Thank you.
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