Imperial Petroleum Inc. (NASDAQ:IMPP) Q4 2023 Earnings Conference Call February 13, 2024 11:00 AM ET
Company Participants
Harry Vafias – Chairman, President and Chief Executive Officer
Ifigeneia Sakellari – Interim Chief Financial Officer
Conference Call Participants
Operator
Good day, and thank you for standing by. Welcome to the Q4 and 12 Months 2023 Imperial Petroleum Results and Webcast. At this time, all participants are in a listen-only mode with no question-and-answer session. Please note that today’s conference is being recorded.
I would now like to hand the conference over to your speaker, Mr. Harry Vafias, CEO. Please go ahead.
Harry Vafias
Good morning, everyone, and thank you for joining us for our fourth quarter and 12 months 2023 results. I’m Harry Vafias, CEO, and with me today is Mrs. Sakellari, who will be discussing our financial performance.
Before we commence, please read Slide number 2. In essence, it’s made clear that this presentation may contain some forward-looking statements as defined by the Private Securities Litigation Reform Act.
We raise the attention of our investors to the fact that such forward-looking statements are based upon the current beliefs and expectations of Imperial Petroleum and are subject to risks and uncertainties which would cause future results to differ materially from these forward-looking statements. We’d like to know that the slides of the webcast will be available in archive on our Company’s website. In addition, before we commence our discussion, like to clarify that we’ll quote monetary amounts. These are less explicitly stated, are all denominated in U.S. dollars.
On Slide 3, is a summary of our performance highlights. For us, the key takeaways of last year is our strong performance and the impressive rise of our share price. The last couple of quarters of 2023 were softer than anticipated. In Q3 2023, we witnessed a typical market contraction due to seasonal factors. While in Q4, we faced a weak market in the East, which especially hurt the performance of our product tankers.
Nevertheless, Imperial Petroleum, a company of only nine ships on the water managed in 2023 to generate about $184 million in revenues. That is 90% higher than 2022. An EBITDA of $82 million and a net income of the year of $71 million, marking an impressive 141% increase against the profitability of 2022. Our average daily time charter equivalent for 2023 was in the order of 35,000 per day.
Looking at our Q4 results. These were lower than expected as our two scheduled drydockings and strategic repositioning of our product tanker situated East produced idle time. Operational wise, we ended the quarter with a utilization of 69%, while having a predominant present in the spot market.
From a financial standpoint, we generated a net income of $6.5 million compared to $13.8 million of net income in Q4 2022. In September 2023, we announced a dynamic share buyback program. To date, the company has repurchased a total of 4.2 million shares for a total amount of $8.3 million.
Indeed, since our share buyback announcement, the price of IMPP has nearly doubled. As it means to further enhance shareholders value, in December 2023, the company also repurchased 3.2 million outstanding warrants.
Markets prospects seems positive. Currently, the tanker market is affected by the various ongoing geopolitical pressures like the Russia-Ukraine conflict, which in principle has boosted ton mile demand. The tension in the Middle East, the Houthi attacks in the Red Sea, and the semi closure of the Panama Canal. The duration and future impact of these pressures is now known, but nevertheless, market fundamentals in terms of demand, which increased by 2.2 million barrels in 2023, lower order book, an aging fleet set the foundations for a prominent market going ahead.
On Slide 4, we provide a summary of our current fleet employment. Both our handysize bulk carriers are on a short time charters expiring February and April respectively at fairly better rates compared to the previous quarter. Since Q4 2023, the drybulk markets have stabilized mainly due to rise in Chinese steel exports and thermal coal imports.
Looking at the tanker fleet, our product tanker, the Magic Wand, is under short time charter, while the rest of our tanker fleet is in the spot market. Spot rates may remain favorable enhanced as a general trend, owners prefer spot activity than committing vessels on time charters. Indeed spot rates for Aframax and Suezmax vessels are close to 50,000 a day, while rates for product tanker is under the region of 40,000 a day. The disruptions in the Red Sea, which commence in November 2023, have led an upward shift in rates, but we do witness some daily volatility.
On Slide 5, we are reviewing the tanker market. During the last quarter of 2023, the tanker market was affected by several variables. On the one hand, we witnessed geopolitical pressures such as Israel’s conflict with Gaza, and most recently the Houthi attacks in the Red Sea, creating an upward pressure on rates, particularly for the clean tankers.
On the other hand, softer winter conditions along with self-imposed production cuts by Russia and Saudi Arabia resulted in lower demand and global oil inventories. It’s expected that the need to refill these inventories will result in a growth in transportation demand, especially in the first half of 2024.
Overall Q4, there was a clear gap in tanker earnings between West and East. In the East market, we saw exports constrained as 1 million barrels per day of capacity entered maintenance. As eastern product supply fundamentals tightened, flows into the Atlantic Basin dropped. However, the downward pressure on rates was partially offset by strong Western market, particularly for product tankers as the lower water levels in the Panama Canal reduced transits into the U.S. Gulf, leading to temporary tightness of vessel supply in the Atlantic Basin.
Going forward, we expect demand to firm and tanker rates to remain strong at the back of high trade volumes and slower tanker fleet growth. In addition, the fact that demand is growing in the Asia Pacific while supply is growing in the Americas causes the market imbalance to increase. This ultimately leads to growing transportation volumes and sailing distances. In the near-term should Cape and Suez diversions remain in place when Chinese purchasing resumes, we may witness a further increase in rates.
On Slide 6, focusing on the crude tanker market. Trade volume growth is expected to increase by 2.5% this year and 1.5% next year. The order book to fleet ratio for crude tankers currently stands at 4.3%, so fleet growth will be quite moderate in the years ahead. We do foresee an increase in ton mile demand for product tankers as well. The current order book for MR tankers is higher than product tankers in the order of 7.5%. However, 20% of the MR fleet is above 20 years of age, so we do expect demolition to intensify in the years ahead.
A development that might positively affect the MR trade is the recent strategic shift of several LR2 tankers from trading clean to dirty cargoes in order to benefit from higher earnings. Should the Red Sea situation continue, we might see more of these trade shifts which may positively affect demand and rates for MR tankers.
Looking briefly at the Drybulk segment. In 2024, drybulk trade is expected to expand by 2%. Vessel utilization rates have improved and this is currently reflected in both asset values and rates.
I will pass the floor to Ms. Sakellari will provide you a summary of our financial performance.
Ifigeneia Sakellari
Thank you, Harry, and good morning to everyone. 2023 was a very strong year for Imperial Petroleum as compared to 2022. We managed to increase our revenues by $87 million or 97% and our net income by about $42 million, which is equivalent to 141% growth. As we discussed earlier in our call, Q3 2023 in particular, Q4 2023 was softer than anticipated. Thus, our profitability was somewhat lower than expected.
In Q4 2023, we faced a weak East market for product tankers. Two of our product tankers operating East, the Clean Nirvana and the Clean Thrasher were repositioned to the Atlantic and therefore spent significant time without employment. These vessels were subsequently fixed at better rates than what was available in the East.
Moreover, in Q4 2023, two of our vessels, the tanker Suez Protopia and handysize drybulk carrier the Eco Wildfire underwent the scheduled dry docking, so this ships faced idle time as well.
Looking at our income statement for Q4 2023 on Slide 7. Revenues came in at $29.9 million compared to $37.9 million in the same period of last year, a 31% decrease due to smaller fleet by an average of one vessel and off hire days due to technical and commercial reasons. The total of hire, including our drydockings and repositioning of vessel, was about 300 days for the quarter. Voyage cost increased by $3.3 million due to an increase in bunker cost as a result of 65% rise in spot days and $0.8 million increase of port expenses.
Our running cost decreased by $0.7 million compared to the same period of last year due to the decrease of our fleet by an average of one vessel. In terms of drydocking costs, this amounted to $2.5 million as one of our Suezmax tanker and one of our drybulk carrier underwent drydocking. Basically above, we generate an EBITDA of $8 million compared to an EBITDA of $17.8 million in Q4 2022 and a net profit of $6.5 million compared to a $13.8 million net income in Q4 2022.
In terms of earning per share, this has been affected by deemed dividend as a result of the conversion of the Preferred Series C shares. As explained in our press release, this is a non-cash item, does not affect our net income and simply affects the computation of the EPS for the period. So for the fourth quarter of 2023, our EPS comes down to a loss of $0.02 per share. For the full-year of 2023, our EPS came in at $3.22 per share, which is currently higher than our share price.
Moving on to Slide 8. Let us take a look at our balance sheet for the 12 months of 2023. After December 31, 2023, we had the total cash including tax deposits of about $124 million. Our operating cash flow for the 12-month period came in at 80 million. Thus, in a 12-month period, we generated from our fleet operations cash almost equal to our current market capitalization. We have no outstanding leverage and minimum liabilities as our equity to asset ratios in the order of 96%.
Proceeding to Slide 9, we provide the snapshot placing [indiscernible] on solid financial position. As of the end of the year 2023, our cash balance was close to $124 million. We have been very active treasury wise utilizing our free cash leveraging upon a high deposit rate environment.
For 2023, our interest income was in the order of $5 million. As long as rates are favorable, we will continue to commit our excess cash on time deposits. One of our obligations in terms of capital expenditure is that including our upcoming vessel deliveries, we have two scheduled drydockings, one in Q1 2024 and one in Q2 2024. Further to this, our next drydocking is due in Q1 2026.
Concluding our presentation with Slide 10. We summarize our strong points. Our financial position is healthy. We have a proven track record of continuous profitability and our share buyback program seems to be bearing fruits.
At this stage, our CEO, Mr. Harry Vafias will summarize our concluding remarks for the period examined.
Harry Vafias
Since our listing approximately two years ago, we managed to almost triple our fleet, accumulate more than a $100 million of cash, pay off all of our bank loans and excel in terms of profits. For 2023, our profitability was $71.1 million, which is 141% higher than that of 2022. Since September 2023, we have commenced our share buyback and to date, we have purchased 4.3 million common shares and 5.8 million of outstanding warrants for a total consideration of about $10 million while since our share buyback announcement, our share price has doubled.
We would like to thank you all for joining us at our conference call today and for your interest and trust in our company, and we look forward to having you with us again on our next call for our Q1 2024 results. Thank you.
Question-and-Answer Session
Q –
Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect your lines. Thank you.
