Tsakos Energy Navigation Limited

Thank you for standing by, ladies and gentlemen, and welcome to SACOS Energy Navigation Conference Call on the first quarter of 2025 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, Mr. Harry Cosmatos, Co-CFO 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 that this conference is being recorded today, and now I'll pass the floor over to Mr. Nicholas Bernouzis, President of CapitalLink and Investor Relations Advisor to SACOS Energy Navigation LTD. Please go ahead, sir.

Good morning, and thank you very much. Good morning to all of our participants. I am Nicholas Bornovitz, President of Capitalink and Investor Relations Advisor to Chakos Energy Navigation. This morning, the company publicly released its financial results for the first quarter ended March 31st, 2025. In case you do not have a copy of today's earnings release, please call us at 212-661-7566 or email us at 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.temn.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 presentation are given 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 contain certain forward-looking statements within the meaning of the Safe Harbor provision of the Private 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 the likes of operations. And before I pass the floor over to the chairman, please let me wish a belated birthday to Dr. Tsakos and his wife, Celia. And I understand that you have a very special birthday gift being in Korea and taking care of the delivery of the . That vessel bears your mother's name, and the vessel will have the great flag. And also, you had at the same time the naming of the sister vessel, which will bear your wife's name. So it has been a very special moment in the company's history, and I'd like to congratulate you. I will pass the floor to Mr. Arapoglou, the chairman of Chakos Energy Mediation. Mr. Arapoglou, please go ahead. Thank you. Thank you, Nicholas. Good morning. Good afternoon, everyone. Thank you again for joining us today in our call reporting our Q1 results. That's another quarter of excellent financial results driven by the usual superior operating track record of 10, supported of course by strong market fundamentals. This allows 10 to continue rewarding shareholders with a healthy dividend as it has been doing continuously since inception. As you've read in the press release, 10 has built a continuously and continuously grows on a rolling basis. a stream of high-quality committed future income of currently approximately $3.7 billion, spanning over a number of years through long-term accretive charters of a substantial part of its fleet, which ensures profitability, limit volatility, and provide greater predictability in its earnings. At the same time, of course, TEN continuously renews the fleet, with modern state-of-the-art vessels through an unprecedented in size 21 vessels now being built and selling our old challenge. You would agree that this is not the typical more sensitive model of shipping companies protecting them against market shortcomings, yet we believe that all these positive characteristics of the 10 industrial model are not properly reflected on our stock price, which is being valued in the same way as other companies in the sector with much less robust attributes. This is perhaps because most followers of the sector have a much shorter time horizon than our industrial model deserves. We hope that investors will focus on this and upgrade their valuation of our stock. I'll leave you to reflect on this and congratulate again Nikos Sarkos and his team for the excellent results and wish them more of the same. So thank you and over to you Nikos. Thank you Chairman and good morning, good afternoon to all of you that are following our first quarter of 2025 results. As the chairman said, it has been a solid period. We are navigating literally in very turbulent waters around the world, more for geopolitical events. I mean, the beginning of the year has been a wave of uncertainty as far as business, our business possibilities, a lot of talk about tariffs, a lot of talk about extra port costs, a lot of talk about protectionism, and of course now this very unsettling situation that is escalating in the Middle East that I think cannot make anybody happy. We have been able to navigate this turbulent waters again successfully, safely, and profitably for the majority. Of course, our main profitability is important, but the safety of our crew and the people on board their ships is even more important. And we have had another good run and safe run on this segment. Regardless of the uncertainties, the underlying market conditions are strong. It is very hard for us and our chartering team to maintain any vessels in the sport market. There is a huge demand for taking even older ships, and I will give you examples which I haven't seen in my 30-plus years in business. Any of our ships can be chartered, you know, anywhere up to 10 to 15 years. even older, good quality ships that we operate, as I'm sure you know. And, I mean, we have one of our oldest, if not our oldest ship, even older than my twin daughters. It keeps on being charted by one of the big major oil companies year after year. I think she is right now on her 20th extension, and she's 23 years old. and she's extended for another six, option six months. And that shows that a good quality operator that provides a good service age is not important as the quality of the assets. So the environment is good. The company is going through its largest growth until the next one, because that was something we were saying a couple of years ago when we sold 14 of our first generation ships and ordered another We're actually now at 21 new buildings. Two of them just delivered last week. Thank you, Nick, for your wishes on this very milestone occasion. And, yes, and we are looking at other opportunities. There are segments that we are right now underinvested, like the VLCCs. and always looking at good quality Korean or Japanese vessels as a priority. And perhaps we will come up with some surprises later in the following quarters on that. And with this, I will ask our president to give us a quick overview of what we have done up to now. And, you know, I think the things to remember are surprise, It's been treated together with the other companies. We went down from our $30, $31 one-year high to almost half of that. We're making some progress, but our net asset value without $3.7 billion of future business is in excess of $60. So we are really, really in undervalued territory here and a good opportunity. But we've been penalized. together with the rest of the market and the nervousness. 29 vessels have been extended or new businesses within the first six months of the year. So that's 29 out of the 62 vessels in the water. So half of the fleet has been extended for a very long period of time. And we have reached, according to Paul Darab, and presented the future revenues going forward of 3.7 billion U.S. dollars. So I think these are serious numbers. We announced still a healthy dividend, and hopefully we will be able to maintain and perhaps increase that going forward. And George, tell me, how are the prospects for that? Thank you, Nikos. We are very pleased to report today another profitable quarter. We continue to operate in a very good freight market environment. Energy majors continue to approach our company for time-sharded business. And as Mr. Tsakros mentioned, since the start of the year, we have had 29 new time-sharded features. Total fleet contracted revenue, the backlog as of today, stands approximately at 3.7 billion. We have built in 10 one of the largest transporters of energy in the world. We have started with four vessels back in 1993. and we have turned every crisis the world and shipping has faced into a growth opportunity. We now have a pro forma fleet of 82 vessels, thanks to the company's crisis-resistant model. And during these 32 years, we have combined self-generated cash, traditional bank lending, and counter-cyclical capital market fundraising in order to build the corporate fleet. The fleet today is modern, diversified, and versatile, covering both the conventional and specialized transportation requirements of our clients, which are mainly the major oil companies, blue-chip names with global reach. In slide 5, we list the pro forma fleet of all conventional tankers, both cruise and product carriers. The red color shows the vessels that trade in the spot market and are new buildings under construction, especially when you see instead of a vessel name, the ticker NBDN. With light blue, we have the vessels that are on time chart with profit sharing, and with dark blue, the vessels that are on fixed rate time charters. In the next slide, we list the pro forma diversified fleet, which consists of our two LNV vessels and our 16 vessel shuttle tanker fleet. We are one of the largest shuttle tanker operators in the world. following the recently announced deal with Transpetro in Brazil, for nine high-specification shuttle tankers to be built in the Samsung shipyard in South Korea. We have five shuttle tankers in full operation after taking a recent delivery of F-1004, which commenced a long time charter to an energy major. If we combine the two slides and account only for the current operating fleet of 63 vessels, 29% or 46% of the operating fleet has market exposure, that is spot-related rates and time-sharters with profit sharing, while 52% or 83% of the fleet is in secured revenue contracts, that is fixed time-sharters and time-sharters with profit sharing. The next slide has this client with whom we do repeat business through the year thanks to our industrial model. ExxonMobil is the largest revenue client. Equinor, Shell, Chevron, Total Energy, and BP Follow. We believe that over the years we have become the carrier of choice to energy major thanks to the fleet that we built, the operational and safety record, the disciplined financial approach, and the strong balancing and financial performance. The next slide presents all the break-even costs for the various vessel types we operate in the company. And as we have said many times, our operating model is simple. We try to have our time charter vessels generate revenue to cover the company's cash expenses and let the revenue from the sport rating vessels contribute to the profitability of the company. Thanks to the profit-sharing elements, for every $1,000 increase in sport rates, we have a positive $0.13 impact in annual earnings per share based on the number of 10 vessels that currently have exposure to sport rates. We have a solid balance sheet with strong cash reserves. The fair market value of the fleet is 3.6 billion against approximately 1.7 billion of debt, and net debt to cap currently stands around 40%. Fleet renewal has been key to our operating model. Since January 3rd of 2023, we have further upgraded the quality of the fleet by directing from first-generation conventional tankers replacing them with more energy-efficient new buildings and modern second-hand tankers, including dual-fuel vessels. In summary, we have sold 14 vessels with an average age of 17.3 years and deadweight capacity of 1.2 million deadweight tons, and replaced them with 30 contracted and modern-acquired vessels with an average age of less than a year and three times the deadweight capacity of the vessels we sold. We continue to transition the fleet to greener and dual-fuel vessels. We are currently one of the largest owners of dual-fuel LNG-powered AfraMax tankers with six vessels in the world. Global land demand continues to grow year after year. Wars and geopolitical events positively affect the tanker market, and freight rates and the order book remains at healthy levels as a big part of the global fleet is over 20 years and needs to be replaced with. And with that, I will pass the floor to Haris Kosmatos, who will walk us through the financial performance for the first floor. Haris? Haris Kosmatos Hello? Hello, DRC, would you please check if you could? Sorry, what's the problem? Yes. Hi. Thank you, George. Thank you. Thank you, George, for discussing all the major points that I think we need to highlight. And with this, I will just go over a brief overview of the financials that we presented earlier today. So during the first quarter of 2025, TEN operated just about 62 vessels, one of the equivalent 2034 periods, and shifted fleet employment more towards the Q1 of the contract to capture the interest appetite from oil majors to north-west long-term transportation needs. As a result, spent exposure to spot contact increased from about 73% in the first quarter of 2024 to 80% in the first quarter of 2025. By contrast, the slipped pure spot exposure between the 2024 and 2025 first quarter period declined from 19% to about 18%. Despite this recalibration of slip employment to confirm the sense of industrial approach to shipping, ability to maintain a notable presence in the still healthy strong stock market was actually enhanced as emphasis was placed on profit selling contracts, which when combined with stock figures increased the fleet's ability to capture market digs from 44% in last year's first quarter to 47% in this year's quarter. Staying on three dynamics, during the first quarter of 2025, two vessels under one schedule red office compared to five in the 2024 first quarter, ensuring a near maximum fleet utilization of 97.2%. Resulting from the above, the low fleet, the high fleet utilization, and the increased base in secure revenue contracts somewhat neutralize any pressure the soft export market earlier in the year may have created. have, thankfully, generated $197.1 million in gross revenues, a little under the $201.5 million in the first quarter of 2024. The average time total equivalent perceived per day that corresponded to this performance was, at the feel-healthy, $30,741. The budget expanded on the other hand, and in line with the calculated lower exposures portrayed during the 2025 first quarter, experienced a 6.6 million decline from last year's first quarter and settled at 36 million. Vessel operating expense, however, due to the sum of larger fleet, were 49.6 million compared to 48.6 million in the first quarter of 2024, or $9,503 per seat per day. The level contained, thanks to the efficient and proactive management of 10 sector managers, A similar pattern was evident for both the 2018 amortization expenses, which increased from $37.5 million in the first quarter of 2024 to $41 million in the first quarter of 2025, also assisted by the introduction of larger and more high-value assets. During the first quarter of 2025, a sale of the 2009 Bill Sears Max Bank as a comfort loan generated capital gains of $3.6 million, compared to total gains of $16.2 million in the first quarter of 2024. Net of this gain during the first quarter of 2025 operating income was at $57.1 million compared to $60.1 million in the 2024 first quarter. Interest and finance costs declined by $1.1 million to $24 million. as a result of lower debt obligations and some of lower interest rates compared to the 2024 quarter. Reflecting on the above, a net income of $30.7 million was reported in the first quarter of 2025, leading to an earnings per share of $1.04. Adjusted to the budget of the first quarter of 2025, a quarter with a short spot rate was at $99.3 million, almost identical to the $100.5 million in last year's strong sports rate first quarter. Total debt was reduced to $1.7 billion, $40.4 million lower from the 2024 first quarter level, while debt to capital also fell to a countable 40.6%. Special funds for the first quarter of 2025 after $27 million in preferred students and $238 million of principal payments to banks, including payments for some national arrangements, were $350 million, $6 million higher from the cut levels at the end of the 2024 first quarter. And in lending, and reflective of this positive performance, tend to distribute to common shareholders a first semi-annual dividend of $0.60 per share, to shareholders of record on July 25, 2025. And with this, I'll pass it back to you. Thank you. Kari, thank you for your very to the point and accurate presentation. And I think as we said, it has been the beginning of this year. It has been a very peculiar and turbulent year. starting with restriction of shipping. And as we usually say, our aim is we are the truck drivers of the season. We need open roads and not protection and not tolls. And on top of this, the recent intensified geopolitical turmoil is putting us literally to navigate very turbulent waters, which I think we have been successfully and profitously doing. And looking at the tanker market and the majority of the crude trades, there's huge demand for more business. As we have said, it has been a very strong year of expansion. This is our largest expansion until our next one. And we're looking to speed it up. grow to segments that we have not grown up yet for good reasons, like the VLCC and the LNG. The market environment is positive. A lot of demand we have. Our chartering department has to try and keep some ships on the spot market. There's huge demand, even for all the ships, as I mentioned, the example of our 2003 vessel, which has been continuously chartered with one of the major oil companies since their inception, which is a very good proof for our technical managers, for the way we operate the ships, and the trust that they are able to share with the oil companies. So overall, an unsettling period for the world, but something that we keep under control, at least for our side of the business. We have been able to combine As the Chairman earlier said, I present the growth to Protonav. I'm just putting on the slides over the years. And growth and strength over the crisis and strong dividend payments and debt reduction. And with this, I would like to open the floor. If there are any questions, please, we're here to answer.

Thank you. We will now be conducting the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 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 your question. Our first questions come from the line of Poe Fratt with Alliance Global Partners. Please proceed with your questions.

Hello. Can you just highlight what the second quarter new build cost will be? I'm looking at roughly $130 million. Is that in the ballpark for the second quarter, you know, new build payments?

All righty. Hello, can you hear me? Yes. Hello, folks. So for the second quarter of 25, we have one of our DP-2s that will be coming into the fleet. This vessel has the only forces that are under $130 million. And we expect to pay approximately $70 million remaining for that quarter out of equity. The rest has been arranged through paid money that's commensurate with the project. A second installment, the second Pakistan installment on the nine new buildings, the nine DT2 subcontracts of about $67 million, that will make the second Pakistan payment that we are required to make. Until the delivery of the best vessel, we will not make any other payments on that because we are looking to get pre-delivery financing on those vessels as well. And also we expect one of the to be delivered in the next quarter. And again, this has a value somewhere in the mid-80s, and we're looking to raise somewhere between 70% and 50% financing. We're very healthy doing that, and the rest will be paid out of the public earth. So these are more or less what we have scheduled currently for the next quarter as regards to the new version.

Okay, that's great. And just to clarify, so the $67 million on the shuttle tankers will fall into the second quarter, not the rest of the year. So that's a second quarter event, Harry?

They are scheduled for July. Okay.

So third quarter. Okay. And then when you, you know, Nikos, you talked about, you know, that you're underrepresented or you don't have as much exposure to VLCCs, and we should stay tuned. My impression is that the bid-ask in the S&P market is still, you know, I guess could you characterize how the bid-ask is in the S&P market right now, especially for bees, since you mentioned bees?

We are always looking at to build ships against clients' wishes and, of course, when opportunities arise. I mean, our first aim is to build good quality Korean or Japanese ships. And there are not many of them out there. So when we get an opportunity, it's something that we seriously look. As you look at our fleet, we're down to three VLs. And I think for a company that will be close to 90 ships before the end, you know, in a performance basis, we need to increase these segments in the market, and we're looking at opportunities out there. We have seen, and I think we have been able to find a good reduction of the new building prices from top yards, and this is what we are looking to take advantage of.

Okay, great. And then you did sell in the first quarter, you know, a 2009 Suezmax. Can you just sort of help me understand sort of your fleet, you know, strategy as far as are you going to continue to sell older assets as you see decent bids out there? Or, you know, is your fleet going to stay roughly, you know, flat with the new builds increasing the fleet over time?

We are always taking advantage of the S&P market in renewing the fleet. I think we are looking to sell at least half a dozen ships from now to the end of the year. We are very close in three or four transactions that might take place before the fourth quarter, which will release close to 100 million of net cash flow. And, of course, it would enhance our ability to pay dividends, reduce debt, and at the same time would not affect our strong cash balances where we grow the business for further expansion.

Okay. And I know it's probably hard at this point in time. Can you give us an outlook for the dividend, the second half dividend that you typically pay in December?

Well, yes. I mean, I cannot because this is taking, our strategy meeting is taking place every October in Greece and that's when people sit under the sun and decide having some wine on the dividend. But joking apart, we hope to have at least a single dividend to the first half, to say the least.

Great. That's helpful. And then you did highlight that, you know, your NAB is, you think is north of $60. The stock's, you know, a little bit under 20. So it's at a 35%, you know, it's trading at 35% of NAB. Is there anything that you think that you should do to help close that gap? Or should we just, you know, I guess, is there anything that you've corporate actions-wise you can take to help close that gap?

Well, I think what we have to do is to try as the chairman, I think the chairman, perhaps he can at the end of this, he can give us again the same presentation, is to present the difference of TEL, which has an industrial model proven for 50 years, than the other shipping companies that are more fluctuating. I mean, we still have a small flow of shares, including the management and the family. So if someone was there to do a buyback, it would completely dilute even more than the free flow. So I think we are looking for various ways where people will understand the value of the company. One of them would be, and we've been discussing going forward, some sort of spin-off of the LNG and that has a huge cash flow for the next, with an average of 12 and a half years, that of course that would be able to help also the modern company. But these are still discussions we're internally having. We don't have to do anything for the next couple of years. If the company has a lot of liquidity, does not need to raise capital, it just needs to make the point more evident.

That's an interesting concept. Thank you so much.

Thank you. Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. I'm not showing any further questions at this time. I would now like to hand the call back over to Mr. Nicholas Sackos for any closing remarks.

You guys have heard too much from my side. It has been an exciting first six months, and hopefully we can make the remaining of the year exciting. We wish for everybody to have a peaceful summer, although it doesn't look very likely, but We hope everybody would be able to make sense of what's happening and have a much more peaceful environment that we operate in right now. And with that, I will ask our chairman, Mr. Takis Araboglou, to close our presentation. Thank you. Thank you. Thank you, Nicolas. On the question of closing the gap on the price to NAV, And, you know, the mention of a buyback, I would rather pay people to stay through dividends than pay them to leave. So I think that I hope investors will understand the value of the stock and treat it differently to your usual other shipping assets. in the market, which behave and trade in a different way. We provide an almost stable stream of income going forward, which is not a one-off. It's being rolled year after year with additional transactions. And this provides a different environment in which we operate. And I hope that investors will understand the distinction. So that's it from me for now. Thank you. Thank you, Chairman. Well, I think just again not to, and this is more for the analysts, I think our type of operation, which is much, much more industrial, and it has a proven record of 32 consecutive years of dividend and growth, is not They should not be measured on net asset value. I think net asset value is completely for companies that have no operation. I mean, we have $3.7 billion with an average of 12.5 years of forward income fixed at the minimum. To make everybody feel very, very young, we have 180 years of fixed employment for all our ships, which means I think even our great-grandchildren might be there to receive some of the dividends at the end of the period. So the model of net asset value, which actually takes a ship that might be empty and just sitting in the middle of the ocean with no cargo and give it the same value as a ship that has a 15 or 10 year it's a wrong, or at least it's not representative of what we do. I think we should be looking to be measured on EBITDA multiples, like our earning multiples. And right now, if we look, I mean, we're measuring that two or three times EBITDA multiples, when we're measuring that eight times EBITDA multiples. And that's what we're going to try and make better through the spin-off. And that's the only reason we might be doing the spin-off is to prove the point. It's not because the company is actually putting aside close to $500,000 of cash on a daily basis after all our expenses. So the last thing we need is to raise equity. We have to pay dividends, grow, and reduce debt. And again, with that, I would like to end our talk. I would like to let our analysts think a bit and perhaps start measuring companies like ours on that measure rather than net asset value. And, of course, Nikos, if I may interrupt Nikos. Yes, please. Sorry. And also if you look at, if you take last year's dividend, and perhaps we will not be that fast, This year, at the present level of our stock price, we're talking about an 8%, 9% dividend yield, which is not something that you find in the sector often. And this is the proof of the model, really, if you look at it. So they're relatively limited there. So I think what Nico says is correct. Net asset value is a very static model. We don't run a static business. And EBITDA is the best indicator of the performance of the fleet. Thank you. Thank you. And all the best for the remaining of the year. Our team is in New York. I know you guys are having a very nice lunch, I presume, I hope. at the Greek restaurant sitting outdoors very, very soon. Send us some picture and a doggy bag for us. Thank you. Take care. Bye-bye. Thank you, everyone. Thank you. Bye-bye. Bye-bye.

This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of the day.