Tsakos Energy Navigation Limited

Good morning to all. Thank you for standing by, ladies and gentlemen, and welcome to SACOS Energy Navigation Conference Call on the fourth quarter of 2024 financial results. We have with us today Mr. Takis Arapoglou, Chairman of the Board, Mr. Nicholas SACOS, Founder and CEO, Mr. Paul Durham, Chief Financial Officer, Mr. George Saraglou, President and Chief Operating Officer, and Mr. Harry Kosmatos. CEO, 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 star 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'd like to pass the floor over to your host, Mr. Nicholas Bornosis, President of CapitalLink and Investor Relations Advisor at to SACOS Energy Navigation. Please go ahead.

Thank you very much and good morning to all of our participants. I'm Nicolas Bornozis, President of Capitalink and Investor Relations Advisor to SACOS Energy Navigation 210. This morning, the company publicly released its financial results for the 12 months and fourth quarter ended December 31st, 2024. In case we do not have a copy of today's earnings release, please call us at 212-661-7566, or email us at 10 at CapitalLink.com, and we'll have a copy sent to you, emailed to you right away. Please note that parallel to today's conference call, there's 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 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 time, I would like to read the Safe Harbor Statement. This conference call and slide presentation of the webcast contains 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 tense business prospects and results of operations. So before passing the floor, To the chairman, I would like to congratulate the company for the transformational milestone transaction to build nine shuttle tankers with secured 15-year employment. This transaction solidifies TEN's profitability and growth for many years ahead. And by the way, it also proves how TEN's prudent capital allocation has enabled the company not only to move fast to close this transaction, but also to to finance the equity portion required at this stage with your own funds without stretching the company's balance sheet. And now, at this moment, I would like to pass the floor to Mr. Takis Arapoglou, Chairman of Xakos Energy Navigation. Please, Mr. Arapoglou, go ahead.

Thank you. Thank you, Nicholas. Good morning and good afternoon to everyone. And thank you all for joining our call today for the fourth quarter 2024 and full year 2024 results. As you've seen, excellent results from a market that continues to demonstrate strong fundamentals. A record 21 vessel expansion that will result in a fleet pro forma of 82 vessels. and $4 billion of contracted revenues, confirming the unique and robust industrial model of TEN. The milestone nine DP-2 shuttle tanker deal worth $1.3 billion with Transpetro firmly establishes TEN among a very select group of leaders in the shuttle tanker business. and demonstrates once more the commitment we have in servicing the needs of our customers, fully justifies our strategy of maintaining ample liquidity, and it also shows that it allows us to comfortably enter into such accretive mega-sized transactions. The sale of one more of our oldest vessels generates Again, cash for the company and the S&P activity of TEN in this front will continue in order to maintain a young fleet and generate additional cash. All this, I think, confirms the textbook nature of TEN's management that allows it to continue paying dividends uninterruptedly since inception, oblivious, I would say, to the cyclical nature of the market. So once again, congratulations to Nikos Tsarkos and the team for this excellent performance, which no doubt will continue keeping 10 in the forefront of the energy transportation business going forward. So thank you, and over to Nikos Tsarkos. Thanks.

Nikos Tsarkos Yes, good afternoon and good morning to everybody. Thank you for your good words. The recent period has been a milestone period, as you mentioned, for the company. It's one of those periods where we leap up to our next stage. And we've done that back in 2007, when we became the largest ice class operating fleet in the world. A few years later, in 2014, we became the largest operator for a for Equinor, one of the most prestigious and demanding end users in the world. Last year we became the largest dual fuel vessel operator, just helping our greener side of moving our vessels and keeping our environmental footprint in line, and that was by the acquisition of a large fleet of modern dual-fuel vessels. And the Brazilian transaction, as we call it big in Brazil, is a transaction that puts 10 in, makes 10 for sure the most modern, the most modern deep cycle tanker operator, DP2 operator. And it complements our existing fleet, which we started in 2012, with four vessels already in the water, three being delivered very early next month. So we have April, July, and then in 26. All the vessels are being built, I would say, in the most superior South Korean yard. We had to compete with parties who had the inferior or lower rates, more competitive rates than us, but they were building ships in other yards in the Far East, including China, where the expertise was not there. So our experience, our long-term commitment to the segment, our training center, which is the only one that produces seafarers with accreditation from the Nautical Academy, of the UK, has given us the chance to be successful in achieving a positive result. But in the meantime, we're still running business, always looking at extending 21 new businesses with our major oil companies. As you may know, about 70 percent of our business is held by the six or seven very prestigious end users. We try to avoid employing our ships to operators or traders. We do it sometimes on the spot market, but long term we focus on the people who need to know and appreciate our services. Also, we have been active and will still be active in the S&P sales and purchase market. Just yesterday we delivered one of our 2009 for the capital gain after so many years, since 2009, and bring $30 million of cash. We're also in the market for two more similar transactions from now up to the end of the second quarter. So in the meantime, we do not lose track of the day-to-day business, and the fundamentals are very positive. We are a company that has perhaps right now the largest new building program from any of our peer groups, a very specialized 21-version program. All of our program is financed and there's significant competition from banks to finance. So one thing I have to make clear, we've been always criticized for keeping enough cash, but when transactions like this are there, we can achieve those transactions much better than any of our peer groups without really putting strain on our balance sheet or ever having to use to raise equity. So this mega transaction is fully financed by internal equity and bank debt which is competing at very attractive terms for our business. Still one of the I have to say I'm very proud about our team. It has been a very international, global transaction that we were able to achieve. What we are still disappointed is that our share price is half of what it was a year ago when I was here in the United States. Our company was much smaller. Our company had much less prospects right now. with 21 vessels, a 36% dynamic expansion, 82 vessels in the water very soon, and we have doubled our median to long-term receivables from $2 billion to $4 billion within the last two months with these transactions. Well, we hope, as the major shareholders here who know the value of our company, that very soon our share price will be what it should be. Our book value is in excess of $3 billion, however, not including the new transactions. Our market value is even higher than that, and our net debt is 1.5. So if you divide this by 30, you can see that the comfort of 11, where our share price should be, should be closer to $50. than 16 or 17. But again, we know the value of our company, and hopefully others will identify that these 32 years of continuous dividend, as the chairman said, is going to go for at least another 32 years. And with that, I would ask Mr. Cosmatos or George to please give us, Mr. Saroglu, our president, to give us Thank you very much, Nikos.

We are very pleased to report today another profitable quarter and profitable year. There is a slide presentation that we will try to follow. You can look at it later on as well. Let's go straight to slide number four. which shows the growth of the company since inception in 1993 in terms of deadweight tons. As you can see here, we have turned every major crisis the world has faced into a growth opportunity for TEMP, thanks to our operating model. We have a counter-cyclical approach in investing in fleet growth by raising equity when we need it, which is usually at the bottom of the tanker market and not usually Our share price is at the top in order to fund growth projects. This is what slide 5 shows. The strategy has served us very well so far. In blue, you see the equity offerings in common shares since 1993. In red, the offerings in preferred shares. And as you can see, since 2013, we have issued six series of preferred shares. And we have already redeemed, as we speak, four of them at par. The four that we have redeemed have a par value of approximately 225 million. We have announced today a major transaction in the shuttle tanker sector. And this is a milestone deal with Transpetro in Brazil. We are building nine state-of-the-art DP-2 shuttle tankers that we can complement the four that are already in operation and three that we are building for a total pro forma shuttle fleet of 16 tankers. This is a landmark transaction that makes 10 one of the largest shuttle tanker operators in the world today. And all 16 vessels are fixed on long employment to major energy companies. companies, including, of course, Transetra in Brazil. In the last two years, since January 1st of 2023, we have upgraded the quality of the fleet by divesting from our first-generation conventional tankers, replacing them with more energy-efficient new buildings and modern second-hand tankers, including dual-fuel vessels. And we are very proud to have today been one of the largest owners of dual-fuel LNG-powered AfraMax tankers with six vessels in the water. Slide 6 lists the conventional pro forma fleet divided between crew and product tankers, spreading from large VLCCs to the smaller handy-sized tankers. We have nine new buildings that we expect to take delivery from the second quarter of this year until the third quarter of 2028. And you see various colors in this slide. The red color denotes the new building vessels, but also the vessels that we operate today in the spot market. With dark blue, we list the vessels under fixed time charters. And with light blue, the vessels with time charters with profit sharing. In the next slide, which has the pro forma specialized fleet, we list the 16 shuttle tankers. And on top of that slide, we listed the companies to LNG carriers. If we combine the two slides and account only for the current operating fleet of 61 vessels, 29 vessels or 48% of the operating fleet has market exposure through spot and time charter with profit sharing, while 51% or 84% of the fleet is in secured revenue contracts, which means time charters and time charters with profit sharing. Our biggest clients for both conventional and the specialized segment of the fleet are the names you see in slide 8. These are blue chip names with whom we do repeat long-term business. The largest client of all today is ActionMobile. without yet accounting of the deal that we announced with Petrobras in Brazil. The left side of the next slide shows you the all-in break-even cost for the type of vessels we operate. We have a simple operating model. We try to have our time-shutter vessels generate revenue to cover the company's cash expenses, which means paying for the vessel operating expenses, finance expenses, overheads, chartering costs and commissions, and we let the revenue from the spot trading vessels contribute to the profitability of the company. Thanks to the profit-sharing element, every $1,000 per day increase in spot rate has a positive impact of 12 cents in the annual earnings per share based on the number of 10 vessels that currently operate in the spot market. And with that, I will pass the floor to Haris Kosmatos, will walk us through the financial performance of the quarter and the year. Harry?

Thank you, George. Thanks. On behalf of our CFO, Paul Darwin, and myself, hello and welcome to our call. During 2024, TENS Fleet averaged approximately two vessels more compared to 2023, reaching 62 vessels in the water. As a result of the divestment of five older tankers, two Suez Maxis, two Afra Maxis, and one LMG Carrier, and the acquisition and or delivery of nine vessels, namely five modern tankers from Norway's Viking crew, the repurchase and termination of two sailing ISPAC transactions involving two Suez Maxis, and the delivery of two dual-fuel LMG Afra Maxis. Despite this fleet increase during the year, 15 vessels underwent scheduled dry dockings, while three performed repositioning voyages, all of which led to average fleet utilization for the year to settle at 92.5%, from 96.3% in 2023, a still healthy level nonetheless. Resulting from the above and combined with a somewhat softening tanker market, TEN still generated $804 million in gross revenues and $279 million in operating income, the latter after 49 million in capital gains from the sales mentioned above. TCE per C per day during the 12-month period which was naturally impacted by the dry dockings, settled at a still healthy 32,550, thanks to a larger step to the number of operating days on long-term secure revenue contracts corresponding to the long-term needs of our clients, 82% in 2024 compared to 77% in 2023. As a result, net income for 2024 was at $176 million, equating to $5.03 per common share, and adjusted EBITDA for the year at 400 million. Fleet operating expenses of 198 million modestly increased in line with the larger number and size of vessels in the fleet after the various acquisitions and investments during the year. Operating expenses per ship per day, however, were about 3% lower from the 2023 levels at 9,350, thanks again to efficient management performed by 10 technical experts on shore and on board the vessels. Total debt and other financial liabilities at the end of the year were at $1.8 billion, which compares favorably to both the book and fair value of the fleet, $3 billion and just about $4 billion at the end of the year, respectively. At the same time, net debt to capital remained at a comfortable 45%. Interest and finance costs for 2024 and reflecting the larger fleet size, both in terms of vessels and vessel types, as well as continuing elevated global interest rates despite recent cuts, was at 112 million from 100 million in 2023, a manageable increase. However, this inevitable and controlled cost increase was nullified and more as a result of the 4 million in reduced preferred coupon payments from amounts paid during 2023 $5 million savings in forward bearable hire from the repurchase of two Suez Maxis on leasing contracts in the summer of 2024, and $15 million in interest income. Casa Bank, as of December 31, 2024, was at just under $350 million, a very healthy level despite having paid $258 million for common and preferred dividends, growth projects, and the exercise of the above leasing repurchase options. Results for the fourth quarter of 2024 were equally attractive, considering that four of the 15 vessels that underwent dry docking during that year happened in this quarter. A fleet of 62 vessels, as opposed to about 60 in the fourth quarter of 2023, generated gross revenues of 188 million and operating income of 42 million, compared to 220 million and 57 million in the fourth quarter of 2023, respectively. Unlike the 2023 fourth quarter, no impairment charges were recorded during this 2024 fourth quarter. Fleet operating expenses for the fourth quarter of 2024 and despite the four bright documents mentioned above in the larger fleet size were at 51 million, just 1.3 million higher the 2023 fourth quarter level. However, operating expenses per C per day were marginally lower from the 2023 fourth quarter at 9,480. TCE per C per day closed the quarter 3.2 times higher than the above OPEX number at 30,107. The resulting net income for the fourth quarter of 2024 was at 19.3 million, producing EPS of 42 cents, reflecting the somewhat softer market driven by lower Asian oil imports, lower fleet utilization compared to 2023 fourth quarter, and the 4 million increase in depreciation amortization charges the larger fleet entailed. Adjusted EBITDA finished the quarter at 85 million. Supported by the aforementioned results, TEN is in line, and in line with its semiannual dividend policy, will pay a common stock dividend of $0.60 in July 2025, identical to the level paid in July 2024. In ending, it is pertinent to highlight what George mentioned earlier, that TEN today is facing, is undergoing its largest growth phase in its history, with 21 vessels on order, nine of which the DP2 shuttle tankers on 50-year contracts with Transpetro Petrobras, as recently announced, which in their own right contribute in double intense minimum revenue backlog from $2 billion to $4 billion, while turning us into one of the largest shuttle tanker owners in the world. And with this, I turn back to Nikos for the closing remarks. Thank you.

Well, thank you, Harry, and George, for putting the details on and putting some numbers on the bones. And as we said, it is a very significant period of growth. We are starting the delivery. And yesterday was the very successful sea trials. And I don't know if you guys have a picture. It was received overnight from South Korea, from the Athens 2004. first of the two total energy vessels to be delivered on the 28th of April, followed by the next one on the 28th of June, which will be the Paris 2024. So we're keeping Olympian names for those state-of-the-art ships. And those ships will be identical sister vessels to the ones that we are going to build in South Korea. which might have a significant higher cost than other yards, between 15% to 20%. But there are ships that are going to be with us for a very, very long time. The Pendatlo, which was just shown yesterday, it was another Sumption vessel from 2009, and the new buyers were very impressed with the condition. And then the next is the Anfield. It seems we had the big Liverpool fan crowd when she was named, and she will be delivered in 2026. And as soon as those ships will be in the water, 2027 and 2028, identical sister vessels, upgraded versions, environmentally friendly ones, are going to follow. So it's going to be a very exciting period, very accretive transactions. that will add at least, will almost double when the company will be in full force. As I said, we are the company with the lowest, or I would say let's put it positively, with the highest concentration of Japanese and Korean vessels. More than 90% of our vessels are Korean and Japanese, and if you put it on a gateway ton, In dead weight zones, it is at 95%. We have always been believers that quality has a cost, so that's why we have these results as we speak. And with that, I would like to open the floor for any questions. Thank you.

Thanks. At this time, we'll be conducting a question and answer session. 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. One moment, please, while we poll for questions. Our first question comes from Pofrat with Alliance Global Partners. Please proceed with your question.

Good afternoon. Congratulations on the shuttle tanker deal getting all nine done. I had a question about the structure of how they're going to be operated. My understanding is that Transpetro is going to be providing the crews and operating the shuttle tankers under a bare boat charter. Is this the first time they've done this and You know, do you think that what's their capacity to be able to provide the crews for those? And then is there a potential where you would, you know, if they can't provide the crews by 2027, would you be able to step in and do the crewing on those shuttle tankers?

Well, I have to say that's a very, very correct and to the point operational question. And I think, yeah, you're very right. They have been operating, as I said, currently we have four vessels working in Brazilian waters, in which we also train in our Greek and Rio facilities, Brazilian crew. The lack of highly educated or trained Seafarers is a global phenomenon. It's not just in Brazil. And that's why companies like us, we have our own, we run our own academy. So we take the young men and women, quite a big number of women, which is, I would say, an untapped source of seafarers. Just less than 5% of the world's seafarers are women. and we train them from 18 up to when they enter service. So there's a very good probability that we will closely cooperate with Transpetrol, and I would say one of the reasons that we were awarded, to our surprise initially, but for many surprise all nine vessels, is our reputation and capacity to manage and run those ships. So I'll be visiting very often that part of the world with our team and our aim is to closely cooperate in actually running those ships, which will be a pleasure for us and it will be very prudent for us because we will be able also to maintain our investment in the quality that we would like to. So the short answer to your question is yes.

Okay, great. And then on the asset sales front, it looks like you sold the Pentathlon Suez Max at 2009 vintage. You have four older Suez Maxes that are older than 2009. You talked about two potentially pending transactions. Can you give us some... flavor on what assets might be under contract right now to be sold in the second quarter?

Yes, I mean, you are correct. Some of our older ships, however, they are chartered long-term to the major oil companies like Exxon and BP. Because of their high-class features, they get a significant premium for almost 20 years we operate them. But they could be candidates age-wise, although they're in excellent condition. And then we have our first-generation Afromax, the 2007 and 2008 ones. And we expect to be able to net close to 130 million, including the recent offer of net proceeds for the same. That's why I said the mega-transaction, because of our strong liquidity and the sales of chips that are coming, would not affect our balance sheet. It's fully funded. There is no requirement for raising equity. And we will still maintain a very, very strong liquidity going through that. We will be looking for the first-generation Afromaxis and Trismax going forward.

Great.

Thank you. Thank you very much.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Clement Mullins with Value Investors Edge. Please proceed with your question.

Hi. Thank you for taking my questions. I wanted to start by following up on Bo's question on selling the other side of the fleet. You mentioned this is generally to make space for new eco-friendly vessels, and I was wondering, generally speaking, does it refer to the vessels you have already ordered, or are you looking into adding additional tonnage over the coming months?

I mean, we are always looking at strategic opportunities, but I was referring to the 21 vessels that we have ordered currently. And I think we have currently the largest renewal program for many of our fields going forward.

That's helpful. Thank you. And shifting toward the recent shuttle tanker orders, is there any appetite for to hedge the interest rate risk on the financing you secure for the shuttle tankers?

Yes, that's a very good point. And we have a desk of two very stingy gentlemen sitting in our Treasury Department looking on a daily basis to find ways to make the financing even cheaper. So yes, we are looking on a daily basis. They are proposing to me and to our CFO volume structures that could cap interest rate uplift. Yeah, I mean, we're very, very focused on that part of the business.

Makes sense. Thank you. The Maria Energy is coming off contract in May. Could you talk a bit about how you plan to employ the vessel going forward? Are you willing to lock in a term contract despite the mediocre rates offered for LNG carriers? And secondly, is the sale of the vessel potentially in the cards?

What would you like to know about the cards?

Whether you could consider selling the Maria Energy.

Perhaps, perhaps, yeah, just to refresh, the Maria Energy, by the name of my late sister, is one of our luckiest ships. The vessel is fixed from May 2026 for 12 to 15 years at a very, very, very accretive rate to a major end user. So what we have to do from May until next May is to cover a year of her operation and before she's going to be delivered to a very, very long employment that actually will take her to the end of her life earning a humongously high double-digit IRR and return of equity that when we build the ship, we never calculated it would be as big as that. So perhaps we have not communicated that yet to the marketer. Perhaps we did it a long time ago, but she started from 2026 to 2040. I think that would be over my retirement. but I'll be following the relatives.

That's very interesting and helpful. Thank you. And final question from me. I wanted to ask about the dividend. You reiterated last year's 60 cent semi-annual distribution. And I was wondering, should the market improve going forward? Would there be any appetite to potentially raise the second semi-annual payment?

Yeah, I mean, that's what we've been doing. We always have the first dividend as a result of the year we just had, the year we just reported. And it was 60 cents last year. We maintained exactly 60 cents for the July semi-annual dividend. And if you recall, last year in December, we upped it because the market was very, very strong to 90. Hopefully we can do the same, having such a big backlog of employment, and at least have the same dividend. So that's what we do. We have our strategy meeting in October. By that time, we have a good view of the first nine months of the year. And as we did last year, hopefully we can do another 90 cents or even more. So that's how we operate.

Makes sense. That's everything from me. Thank you for taking my questions. Thank you.

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Poe Fratt with Alliance Global Partners. Please proceed with your question.

Just two quick ones about operating, you know, the operating stats. I think Harris mentioned he had 15 dry docks in the 2024 timeframe. How many did you expect in 2025? And then also, it looks like your G&A expenses were up in the second half of the year, I think, because of incentive comp. Can you give us sort of an idea of how the 2025 timeframe G&A expense line looks?

Yes, I mean, we are looking almost at the dry dog a month, which considering that we operate a fleet in the water of 60 vessels, that's what you would expect. You know, it's a five-year cycle. Sometimes when the ships are being built, I mean, it is kind of... It's not hard for someone to figure it out, because it's every five years since the vessels, you know, if a vessel is built in 2010, it will have 15, 20, and 35 special surveys. And as far as we expect the GNA to drop significantly. We had the pleasure to distribute a significant number of shares to our personnel on the ships and in our offices last year. And I think that has created a good team feeling for them. So they're all now trying to make sure we get the share price back to about $30, which It should be.

Great. Thank you.

We have reached the end of the question and answer session. I'd now like to turn the call back over to Mr. Nicholas Saklis.

Well, again, thank you for listening in. It has been a very exciting and one of those Game changers, as a lot of the international maritime and financial press has called out transactions going forward. We tend to do this every now and then to put the company to its next phase. But we always do it prudently and without putting the house for sale. So the company is very well funded. The company can even do a similar transaction going forward without having to raise extra equity. And we are in an environment that the underlying day-to-day market is maintaining strength. Right now, the Afromax is, you know, my son, he's 22, and he's training to be a broker in one of the famous brokerage houses. So for him, it's very exciting to see that the winner of this week are the Afromaxis. So Afromaxis today are in the 70,000 range. So the ones we have in profit sharing, the ones that are on the spot, are really enjoying that. And 2S Max is not far behind in the 50,000 range. Last week, the VLs were in the 50. So it's a very, very lively market. and strong markets with rates being very accretive, mainly for companies like that, that have a low cost and a low break-even. So we're looking at a well-balanced market. The geopolitical events around the world, starting with the Houthis attacking the world split, and I think the very good defense of the United States and Greece and all the allies that are protecting our seafarers are going to open up further, hopefully, our oceans. And, of course, the increased part of the presence of a decaying gray fleet, and we've seen two incidents in the last month of gray ships actually being abandoned and creating, putting environmental danger in the market, allows mainstream shipping companies like ourselves to enjoy healthy rates going forward. And again, just to reiterate that 60% of our business is done by external largest clients, followed by Equinor, followed by Chevron, Total, Petrobras, of course, and BP. So we are... in a sense, the floating pipelines of very, very demanding end users. And we are getting a reward for that, and hopefully we will see this reward move to our share price like it was last year. And with that, I would like to thank all of you for listening in. Thank you very much.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.