Tsakos Energy Navigation Limited

Thank you for signing by, ladies and gentlemen, and welcome to the SACOS Energy Navigation Conference call on the third quarter 2024 financial results. We have with us Mr. Sakis Arapoglou, Chairman of the Board, Mr. Nicholas SACOS, Founder and CEO, Mr. Paul Durham, Chief Financial Officer, Mr. George Saroglu, President and Chief Operating Officer, and Mr. Harris Cosmatos, Co-CFO of the company. At this time, all participants are on 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 file 1 on your telephone keypad and wait for your name to be announced. I must advise that this conference is being recorded today. And now I pass the floor to Mr. Nicholas Bornosis, President of Capitalink and Investor Relations Advisor for SACOS Energy Navigation Limited. Please go ahead, sir.

Thank you very much and good morning to all of our participants. I am Nicolas Gournoy, President of Capital Link and Investor Reliance Advisor to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the nine months and the third quarter ended September 30, 2024. In case you do not have a copy of today's earnings release, please call us at 212-661-7566 or email us at 10 at capitalink.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.tenn.gr. The conference call will follow the presentation slides So please, we urge you to access the presentation slides on the conference 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 time, I would like to read the safe harbor statement. This conference call and also the presentation of the webcast contain certain forward-looking statements within the meaning of the safe harbor provision of the Public Security Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties which may affect TENS business prospects and results of operations. And before passing the floor over to Mr. Arapoglu, the chairman of the Czechoslovakian Navigation, I'd like to congratulate the company. for being awarded Anchor Operator of the Year after the inauguration of the first private naval academy in Greece that shows the efficiency of the company's operation and also its focus on the welfare of the crews. And with this, I would like to pass the floor to Mr. Arapoglou, the chairman of Tsakos Energy Navigation. Please go ahead, sir.

Thank you, Nicholas. Good morning and good afternoon to all. Thank you for joining our call today. In a market admittedly off its earlier peak, yet still with firm business and geopolitical fundamentals, TEN continues to be sustainably profitable, steadily generating equity, maintaining its healthy cash position. increasing its dividends by 50 percent, offering a substantial dividend yield on today's price, and continuously renewing and increasing its fleet with state-of-the-art vessels. The company's industrial model, characterized by nearly $2 billion of forward contracted accretive revenue and proven operational excellence, ensures the continuation of its stable, sustainably profitable performance and the rewarding of its shareholders, handling market cyclicality in an efficient way. So congratulations are again, once again, in order to Nikos Tsakos and his management team on this performance, and best wishes for more successes going forward. And with this, thank you, and over to Mr. Nikos Tsakos.

Thank you, Chairman. Good morning and good afternoon to all our listeners. It has been a positive nine months and I think it has been a nine month milestone growth period for the company. We have been given the ability to reallocate some of our older assets, monetize them, and move forward with state-of-the-art new vessels. A 21-new vessel program, acquiring five vessel companies earlier in the year, taking delivery of dual-fuel vessels. And we're still with 12 vessels to be taken delivery starting from April 25. We're going to be taking over three or four vessels within 2025. So it's a very active period for the company. We've been able to be active, increase liquidity, significantly pay down debt. continue and increase our dividend policy, both for the common and for the preferreds. And we are facing an environment where there is a huge appetite for our services by our major clients. About 60 percent of our business is being provided by six major energy companies. I think Action is in the forefront, followed by Equinor, Total, BP and Shell, all of them first-class names. We were very proud to be partners in energy transportation going forward. There is a big appetite for good quality ships. We are at the crossroads of technology change in our business. And the prospects, the medium and long-term prospects of the business are positive, I think, as we have stated in our press release. However, we as a company, as the chairman said, we have been trying to take... The edge is out of cyclicality, and I think we have been successful for the first 31 years so far, never stopping paying dividends through difficult markets. And I think our president is going to take us through all the cycles we've been through, but always coming out stronger as a company in every respect. However, our share price, which peaked sometime in the summer, there has been quite a lot of profit-taking from that, which I think we're very positive to see, because we have been a company that back in 2019, together with the whole industry, we're trading in single digits. So we're almost tenfolded. that we are trading not more than two or three times earnings, where all our clients to whom we represent have an average of at least ten times earnings. So we do not expect to immediately trade at ten times earnings, but at least double of where we are today, I think is a fair valuation, and we are aiming to achieve this. explaining the different model, the industrial model of 10, which we are actually an industrial mover of energy for the major oil companies. As I said, milestone 2024 so far. Big growth, very exciting prospects going forward. The business, at least close to $2 billion of new business coming in. We have significantly increased our rates from all the 30 versions we renewed with the chartering department. And with that, I would ask our president to give us a quick overview of what's going on with the company.

Thank you, George. Thank you, Nikos. And good morning to all of you joining us for our earnings call today. 2024 continues to be a good year for tankers and for TEN for the same reasons that they played out for the last two and a half years. We are one of the largest and most established energy transporters worldwide. We have transported 460 million barrels per day in 2023 safely. That's about 23 days of U.S. consumption, or 5 percent of global oil consumption. We have celebrated 31 years in the public markets. And since our listing in 2002 in the New York Stock Exchange, we have paid uninterrupted dividends to our common shareholders. We have built a big, modern, diversified fleet. We have developed an industrial shipping model. And we have one of the highest repeat-caliber clients with ExxonMobil leading the way with 22 percent of the revenue, followed by Equinor, Shell, Chevron, TotalEnergies, BP, and others. We have, as we have embarked in our decarbonization journey and started our green energy program, we find ourselves in 2024 as one of the largest dual fuel operators with vessels in the water. We have six LNG Afromax powered vessels, and being the carrier of choice of energy majors for their transportation requirements. fix vessels whose charter expires, or book new business. And currently the backlog that we have is 1.8 billion. This is minimum secured revenues as sum. The majority of these fixtures have also some profit-sharing element. And these charters have an average duration of two years. Thanks to the fleet, to our fleet modernity and the efficiency of our technical managers and their purchasing power, the economies of scale, we have one of the high, very high fleet utilization, in excess of 92 percent. And we have a solidly, a company built with you know, very solid balance sheet. Our fleet fair market value is around $4 billion. We have a low debt of 1.8. And we have 30 million common shares outstanding. And the Chakros family and the management of the company are strong supporters with 30% plus of the shares outstanding in them. Despite being a top-of-class operator, the valuation of the company is low, very low. 2023, the earnings per share returned $9.04. And so we trade at two times, a bit over two times earnings when our major clients trade at least ten times earnings. Moving on to the next slide, we have been, TEN was created in the aftermath of OFA 90, which is a regulation. we have faced six major crises, and we manage every time to come out of each crisis stronger and bigger. If we look at the fleet that we have built today in slide number five, you see a very diversified fleet that caters to the needs of our clients, spanning from crude carriers to product tankers, LNGs, and shuttle tankers. Today we have a pro forma fleet of 74 vessels, 62 operating in the water, and 12 new buildings under construction. The red and the blue-colored vessels in the slide denote vessels trading in the spot and period market with profit sharing, while the black-colored vessels on fixed time charter. As you can see at the bottom of the slide, 31 out of 62 vessels in the water. have market exposure, that's 50 percent. This is spot and vessels with profit-sharing arrangements. And 49 out of the 62 vessels in the water, or 79 percent, are in secured employment, time charters, and time charters with profit-sharing. The next slide basically shows our access to our capital markets. We have grown the company since, you know, you see in blue the capital, the common capital raising that we have, and the red is through the preferred shares. We have retired four series of preferred shares for 223 million. And we have used the capital markets as a growth engine. as a growth engine for our fleet renewal. We have built an industrial model in slide 7, as you can see, with a list of our charters. As you can see, this is a blue chip client base, with the biggest client being Exxon, followed by Equinor, Shell, Chevron, We have on slide 8 the left side of the slide shows you the all-in break-even cost for the vessels on an income basis. Basically, the time-chartered vessels serve to cover the expenses, the operating expenses, the finance expenses, and all the other overheads that we have, while the spot trading vessels basically serve for the upside and the dividend distributions to our shareholders. For every $1,000 increase in spot rates, this has a positive impact of 16 cents in annual EPS based on the current vessels in the spot market. as of the nine months of 2023. Managing debt is an integral part of the company's strategy and capital allocation. We have grown the fleet significantly with larger, more specialized vessels. The debt levels have remained more or less at a level that is very manageable. The net debt to cap currently starts at 44 percent. This shows the fuel. The next slide, slide 10, shows the fleet renewal and green ship growth since January 1, 2023. We have sold 13 vessels with an average age of 17.5 years and 1 million total dead weight on, and have replaced them with 21 vessels with an average age of 1 year and 2.3 million dead weight on. This doubling in quality and the size of the fleet will help the company springboard the next growth phase. How this thing translates financially? Kari?

So I guess I'll take you over the financials. Thank you, George. I'll take you over the financials of the nine-month and the three-month Results, so during the first nine months of 2024, 10 operated 62 vessels, three more the equivalent 2023 period, of which 11 underwent scheduled dry docking. As a result, the corresponding fleet utilization for the 2024 nine months was at 92.2% from 95.6% during the same 2023 period. As energy majors' appetite for term employment increased, emphasis was placed on attaining such secure revenue contracts to take advantage of the elevated rates offered, and as a result, This backdrop, and in a somewhat waned Chinese oil imports environment, something which lately seems to be reversing, then in the first nine months of 2024, generated gross revenues of $660 million and operating income of $236 million, which included about $49 million of capital gains. Fleet operating expenses of $147 million increased in line with the larger number and size of vessels in the fleet after the various acquisitions and divestments during the nine-month period. Operating expenses per ship a day, however, were 3.3% lower from the 2023 nine months, at $9,306, thanks again to efficient management performed by 10 technical experts onshore and onboard the vessels. Time charge equivalent per ship per day during this period impacted by the aforementioned broad tokens and less days in market-related contracts settled at a still healthy 33,390, 3.6 times higher the above daily vessel operating expense rate. Reflecting all the above, a net income of 157 million was recorded for the first nine months of 2027, generating EPS of $4.62. Adjusted EBITDA for the 24-9 months was at $314 million. Interest and finance costs of $87.4 million during the 24-9 months reflected the new loans for vessel acquisitions and new building deliveries, as well as continuing elevated global interest rates. Despite the material drop in spreads, TEN has achieved duties. However, this inevitable and controlled cost increase was to a large extent mitigated by about $4 million in reduced coupon payments on outstanding preferreds from the amount paid during the equivalent 20 to the three-night months, and $5 million savings in forward bearable hire from the repurchase of two was at $386 million, $9.5 million higher from the December 2023 level. And that is after having paid $258 million for common and preferred dividends for growth projects and the exercise of the above leasing repurchase options. Now, the results of the third quarter of 2024 were equally attractive, considering that three out of the 11 vessels that underwent dry docking happened during this quarter. generated gross revenues of 200 million and operating income of 57 million, compared to 187 million and 53 million for the third quarter of 2023, respectively. Neither of these two comparable quarters have gained or lost from Brazil's sales. Fleet operating expenses of $49 million for the third quarter of 2024 were $1.6 million lower from the 2023 third quarter level, despite the three paradoxes mentioned above and the larger fleet size, both in terms of numbers and dead weight. Operating expenses per ship per day were at $9,188, almost $1,000 lower than the 2023 third quarter number. Time charge equivalent per ship per day closed the quarter three and a half times above the OPEX number, at $32,539, about $1,200 higher compared to last year's third quarter. The resulting net income of $26.5 million, producing earnings per share of $0.67, reflected the $5 million increase in depreciation and amortization costs the larger fleet entailed. Adjusted EBITDA finished the quarter at $100 million, $8.5 million above the level of the 2023 As of September 30, 2024, the fleet's per-market value was about $4 billion, and total debt $1.8 billion, corresponding to the higher fleet size as a result of four dual-fuel LNG-powered AfraMach new buildings and five more than second-hand vessels entering the fleet. At the same time, net debt to capital remained at a very comfortable 44%. In ending, and supported by the aforementioned results, TEN will pay a second semi-annual common stock dividend of $0.90 on December the total distribution for 2020 to $1.50 per common share, 50% higher than the 2023 amount, yielding approximately 7.5% on today's price. And with this, I turn back to Nikos for the closing remarks.

Thank you, and thank you for describing a very busy period in a very efficient and timely way. I think what is important is that we are maintaining our industrial energy transportation model. We try to take enough advantage of the upside where the market is, but we always, and I think what is important of our long and continuous dividend payment, if you go back to the expenses side, and I think this gives a very good... This is slide number eight. I mean, the way we have been able to go on for the last 31 years, we make sure that our first-class charters who are more than I think 60 percent or 70 percent of our income comes from long-term employment and profit-sharing arrangements. And they cover all, and when I say all, our obligations, including depreciation, our interest, depreciation and debt repayment for us is very similar because of the modernity of the ships that we have. So that's how we fare. I mean, we might not be the most exciting, you know, shipping company out there, but we are an industrial company. We want to keep 10 for the next generation, a bit like the Patek Philippe advertisement. You never own one, you keep it for the next generation. That's what we are here to do. And that has kept us going for 30 years, been able to pay dividends for 30 years. Our peer group, which is first-class companies out there, which we are proud to be associated and operate in the same environment, All of them have a different strategy. We're all for diversity, otherwise it would have been a very, very boring peer group if we all did the same. You have companies, most of the companies out there, they focus in one segment. of the energy transportation. And, you know, although it's a very fragmented industry, they play a significant role. Companies are in the VLCCs, other companies are in Suez Maxis, other companies are just product carriers. We are for diversity. We are what they call, it sounds corny, one-stop shipping, but we are. I mean, we have everything from VLCCs down to, you know, up to LNGs and up even higher, to shuttle tankers and smaller product carriers. So we do what our client wants us to operate. We have a huge operating capacity. I think the biggest from the whole peer group. I mean, we actually, we train and our own crew in our academies, we are on hand management. We are on hand management also on the commercial side with offices around the world. in the Philippines. I mean, you know, we take shipping seriously. And that's why we are able to have these results through the cycle. I was very, very happy to see that our operating expenses in an inflationary environment with bigger ships had a 10 percent increase. And I think that is a decrease, and our income had been increased. That was very, very complementary in difficult times. So I believe we should be looking at the closer to industrial or infrastructure company valuations rather than just shipping valuations. to go up and down together with a peer group, whether we have been able to or we're trying to, and we have been proven to be able to take out the edges of a cyclical market as much as possible. I'm sure there's better, even better to do, but we always try to do better every day. So with that, I would like to open the floor, and all of us are here to answer any questions that you might have. Thank you.

Thank you. If you'd 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'd 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. Our first question comes from the line of Poe Fratt with Alliance Global Partners. Please proceed with your question.

Hi, greetings. If I could... Hi. If we can just sort of focus on the macro initially, can you just sort of give me an idea of sort of how you're thinking about, you know, with the U.S. elections, the potential for tighter sanctions on Russia, Iran, and potentially Venezuela?

Well, I have to be chosen as Secretary of State to be able to answer this, but I'm just a poor Greek shipowner. But, I mean, as long as it affects us. I think we are, in general, shipping flourishes when we have open borders, open seas, and there are no sanctions. However, we are in a situation... where 25% of the world fleet, I mean, that's a huge world tanker fleet, is what we call a grey fleet, which means that we have not, the remaining of us, the 75% that, of course, do not participate in any sanctioned business, are able to take advantage of the first-class business without the competition of awardees undercutting the market. So I think sanctions right now are working for the benefit of first-class companies and our peer group because we do not have... I mean, the average age of what they call the grey flip is above or close to 20 years. So we don't want to have those ships again in the Med or in the Caribs or in the Far East undercutting good quality responsible shipping operators. So, in a sense, it has a positive. And on top of that, of course, we are not navigating. We never put our seafarers at risk. And our charterers have never, never insisted. I mean, the quality of the charterers we operate never insisted for us to ever cross the Red Sea if we didn't feel or our captains do not feel safe. And they do not feel safe. And I think I respect that's why we're doing business. with the top-tier clients. I know other colleagues of ours that have been that actually charter ships to lesser concerns are continuously pushed to cut corners and try and put their seafarers in danger. across the Red Sea, and we had incidents that could have been environmental disasters and also with human loss. But this is something TEN does not do. Now, if with a magic stick one day we can put the world in peace, I think that would be even better for shipping. We would have gotten rid of a big number of older ships that are really run down, so they could not, you know, charter to major oil and energy companies again. And we will have more places to, you know, there will be huge reconstruction, hopefully, of, you know, in the Black Sea of Ukraine and Russia. And if there is peace in the Middle East, which there is rumor there is, there will be a huge reconstruction there. So, yeah, a peaceful world is a much better world for shipping. Sorry for the long answer.

No problem, Secretary of State. When you look at it, Nikos, would the potential tighter sanctions, you know, if they did restrict the flow of oil out of Iran especially, does the dark fleets, or the darker gray fleet, as you say, do you think they get pushed into retirement, or is there potential for some of those to get cleaned up and move into the unsanctioned fleet?

I think a big part of it will not be able to re-enter, the majority of those ships will not be able to re-enter the competitive market. LPG and, of course, oil, are very, very, you know, under tight environmental concerns from our clients. I mean, every ship has to be inspected every six months in order to, and if it's not in a perfect rate, it will not be touched. So I think those ships will take a very long time to be in a perfect state, and it won't be worth for it because there will not be a reason. So I think we will see an increase of scrapping of all the tonnage.

Okay, great. And then can we just talk about the new build program? I think in the year 6K... You indicated that you had about $110 million to spend in CapEx for the second half of the year in 2024. Can you give me an idea how much was spent in the third quarter and then how much will be spent on the new bill program in the fourth quarter?

How is that the spending? I do the earning. Okay. So...

So the total program was just over or approximately $950 million. The remaining for this year, so to give you kind of more updated figures, because from the 6K things have changed in terms of new loans acquired and equity instruments paid. So we still have for the remainder of the year to pay $21.5 million. will be bank debt, and the rest, call it $8 million, $9 million of equity. The remaining we're still discussing with various banks in raising, you know, commercial financing. Today on the 12 vessels we have We have kind of agreed signed on three, and we are very close on signing, you know, debt arrangements for the majority of the others. So as you can imagine, you know, the payments would alter. But to give you kind of a high-level answer, so as I said, approximately $21.5 million remaining in the fourth quarter. And for 2025, we assume, we expect, and assuming, you know, those bank loans will come forth. We're very close in agreeing. Approximately just over $100 million of equity payments that we expect, assume, to come from our own coffers, if you like, for 2025. So it all depends on, you know, the various, you know, installments that we need to pay, and sometimes, you know, they flip into the next quarter or the year following.

Yeah, I was trying to focus on what the total installments were, irrespective of how you finance them. So, Harry, could you... How much did you spend in the third quarter? In installments? Okay. Maybe we can do a call later this week. That would be helpful. Yes, I can.

Because each vessel has a different kind of pattern. So we can have it offline to sort of give you kind of a general and down-to-the-dollar detail.

Okay. And then in the second quarter, there was a little bit of a twist. I saw in the financials as far as now you have time deposits. Do you have a time deposit figure for the third quarter? I think it's $94 million in the second.

Very interesting. Let me put in the time deposits. We try to keep the majority of our cash rolling and earning interest on a daily basis. So we have an average interest income of more than 4%, and we're, you know, 5% of the... So we always have time deposits, and our money, the money, the 400 million or the 380 million we have, is earning the 4% to 5%. regardless if it's time deposit or not. So the majority of it, you can consider it that is on time deposit.

Understood. Okay, great. Thank you so much. Thank you, Paul.

Thank you. As a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Clement Mullins with Value Investors Edge. Please proceed with your question.

Hi, good afternoon. Thank you for taking my questions. I wanted to start by asking about your two SWESMAX new builds to be delivered throughout 2025. It seems you recently secured a contract for the second one. Could you talk a bit about the duration and the terms of the contract on these two vessels?

Yes, I mean, these are... These are three- and five-year contracts for those ships to one of our biggest clients. We're not supposed to spill all the beans here over the wall. And at a very, very accretive minimum, if you look on page 8, where we have our in-break events, I think our minimum rate for the next three to five years is almost twice our break-even. So it's going to add a significant amount of net income, cash flow, and for us who are big shareholders, dividend going forward.

That's helpful. Thank you. I also wanted to ask about dry docking days during the quarter, because that weighed on utilization. But on top of that, there was also some commercial off-hire. Could you talk a bit about your dry docking schedule going forward, both for Q4 and for 2025? And secondly, we are now two months into the fourth quarter. Do you expect to include commercial off-hires while doing the quarter? Okay.

So in terms of dry docking days, I mean, we usually assume we're between, you know, let's say on average about 30 days, 35 days. And we expect in the fourth quarter to have three to four vessels undergoing, you know, a schedule of dry docking. That's helpful.

And for 2025, how many vessels?

It's plus one, because one will have to go dried up by the vessels on the bare boat, so we will not incur that cost. So three or four vessels that will pass, you know, there are special surveys that we will incur the cost, and one, it will not have any bearing on us. Sorry, and your next, your other question? For next year. And for 2025? Next year, 2025, it is estimated approximately 10 vessels will have to undergo a special survey, dry docking.

Makes sense. And then on the commercial of Hire for Q4? Sorry? On commercial of Hire for Q4, do you expect to incur in any off-hire days on top of the off-hire for dry docking?

I think we will be in the same utilization period.

Yeah. I mean, considering that we have, like, 92 percent because of all this product, and so we would expect that in the fourth quarter utilization will be higher than that. So no additional off-hire days. any surprises.

Makes sense. Final question from me. This one is more on the modeling side. General administrative expenses increase substantially both quarter over quarter and year over year. Could you talk a bit about the drivers behind this and whether we should think about it as a one-off or not?

Yes, this is a one-off because we have, as I think you have seen, an incentive plan, a shared incentive plan for our personnel. So it's really not a cash increase, it's just an increase that we have to take into consideration for the incentive plan. So it is a one-off.

So for Q4, we should expect DNA to revert to lower than? Yes, yes. Makes sense. That's all from me. Thank you for taking my questions. Thank you.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Sakos for any final comments.

Well, thank you for listening in. I hope that our revamped presentation keeps you all a bit more animated with the slides. I think the slides are going to be on so you can study a bit more the company. I still believe that we are a very good opportunity, a buy opportunity. We as management personally, whenever we're allowed, we're buying our shares. We've never sold one. I know that the share price has moved from single digits up to 30. So many people are taking profits. But I think there is a significant upside. And the company is trading at a very... I mean, we're actually trading at a multiple that predicts that we're going to be out of business in the next six months. We hope with $1.8 billion forward and, you know, a lot of new ships coming, this will not be the case. Looking forward to be able to get the surprise, make the surprise great again, as someone said, and move up forward. The team will be in the United States early December doing a non-deal roadshow. So we would love to be able to see you either face-to-face or Zoom call on your side or those that are in the United States. And with that, I would like to thank you and wish you a very happy Thanksgiving to everybody. And I hope our CFO's present of a big dividend will help Thanksgiving and will not steal Christmas. Thank you very much. Thank you.

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