Imperial Petroleum Inc. (NASDAQ:IMPP) Q3 2022 Earnings Conference Call October 24, 2022 11:00 AM ET
Company Participants
Harry Vafias – President, Chief Executive Officer and Chairman
Ifigeneia Sakellari – Interim Chief Financial Officer
Conference Call Participants
Greg Humphreys – Humphreys Capital
Operator
Good day and thank you for standing by. Welcome to the Imperial Petroleum Inc.’s Q3 Nine Months Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a Question-and-Answer Session. [Operator Instructions] Pleased be advised that today’s conference is being recorded.
I would now like to hand the conference over to you speaker today, CEO Harry Vafias from Imperial Petroleum. Please go ahead.
Harry Vafias
Good morning, everyone, and thank you for joining us for the third quarter 2022 conference call of Imperial Petroleum Inc. I’m Harry Vafias, the CEO and with us today is our Interim CFO, Ms. Fenia Sakellari.
Before we commence our discussion, we’d like all of you to read the Safe Harbor disclaimer posted on Slide number 2 of our presentation. 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 raised the attention of our investors to the fact that such forward-looking statements involve risks and uncertainties, which may potentially affect our company’s performance in the future.
In addition, I would like to state that during this conference call, we will quote monetary amounts. These unless explicitly stated otherwise, are all denominated in U.S. dollars.
Let’s start from Slide 3 with a summary of our company’s performance highlights. With a net income of $15.5 million in one quarter in just one quarter, we announce today outstanding results both in terms of revenue and profitability. Tanker rates particularly in the spot market remained firm all throughout the third quarter so we grasped the opportunity and increased our daily time charter equivalent per ship to about $33,000 compared to $13,000 the previous quarter.
We strategically dedicated 70% of our fleet days to spot activity and this proved highly lucrative. Amidst this positive market momentum we continued to grow our fleet. On October 19th, we took delivery of our second dry bulk handysize vessel and we now count 10 operating vessels, six of which were acquired within a course of just 10 months.
Our fleet addition fueled our earnings potential. In Q3 2022 our revenues came in at $42.6 million, up by $31 million compared to Q2 2022. Our EBITDA climbed to almost $19 million, that is a $16 million increase compared to the second quarter of 2022. Our most important success though was our impressive profitability of $15.5 million marking unheard of 15,400% rise compared to Q2 2022 while generating in the course of three months a profit equivalent to 23% of our current market cap. Needless to say that Imperial Petroleum is heavily undervalued on the market as company performance is seem seemingly uncorrelated with stock market valuation.
On Slide 4, we discuss our capital allocation and expected company liquidity. As previously announced, we took delivery of our first bulk carrier the Eco Bushfire on September21, our second dry bulk handy vessel the Eco Angelbay was delivered to Imperial Petroleum on October19th. In terms of loan financings on September 29th, we finalized a $17 million loan against our product anchors, Clean Nirvana and Clean Justice. We have an official commitment and we are progressing with a $31 million loan against our two suezmaxes the Suez Enchanted and the Suez Protopia.
Aside from the launch, primarily our strong profitability has enhanced our liquidity. We ended the third quarter of 2022 with a free cash base, including our time deposits of about $92.5 million equivalent to 1.3 times our current market capitalization. Following the recent funds spent for the Eco Angelbay and the conclusion of the $31 million financing mentioned earlier, we expect to have a free cash base of about $105 million, partly available for further fleet expansion and lows of only $70 million.
Slide 5 is a summary of our current fleet deployment status. Our fleet has grown and therefore we elected to take on some short-term period coverage. We currently have three of our tankers and one bulk carrier on time charters basis. Current fleet employment deployment 37% of our fleet days for Q4 2022 are covered under period employment.
The remaining of our fleet continues to operate in the spot market as rates are firm and therefore favor spot operations. Indeed, since October 10th, we have witnessed a further strengthening of daily spot rates, particularly for the Suezmax and Aframax tankers. This is mostly attributed to the increased tanker activity in the Middle East and U.S. Gulf markets.
On Slide 6, we’re discussing the tanker market. The Russian war against Ukraine and related rippling effects still influence the tanker market. Indeed, the oil market is facing a restructuring following refinery closures, sanctions were imposed on Russian oil and there is a strategic decision of China to reduce petroleum product exports. In addition to this, the decision of OPEC+ to cut oil production by 2 million barrels a day has affected the price of oil and has increased broader market uncertainty.
Subsequently, the change in trade flows increasing ton miles and reduced vessel supply kept especially the Aframax and Suezmax rates at very firm levels both in the east and the west of Suez. Time chart rates for all vessel sizes have continued to firm and with the expectations of a strong market charters have recently started looking for long-term coverage even up to three years.
Currently the critical focus date is the 5th of December, which is the cutoff date for EU imports of Russian crude oil and what practical effects this will have on the market. As a best case scenario, we do expect in 2023 both an oil demand growth and further ton mile demand growth, which will be stronger for major Asian countries. If Europe finally bans Russian oil by the start of 2023, Russia will need to relocate its exports towards Asia to greater extent. This change in Russian flow might increase demand for vessels, particularly for product tankers.
For the near short-term the issues of concern are if the new sanctions of Russia cause an unexpected fall in demand that could in an extreme scenario outweigh the aforementioned ton mile growth. In addition to this, another concern is whether the U.S. will have a radical response to OPEC cuts that could have a sharp impact on the market. Summing up it seems that although tanker market seems bullish, there’s a high element of uncertainty that might tilt the market either further up or down in the future.
On Slide 7, regardless of the geopolitical variables affecting our market, we do witness the tanker market having solid fundamentals. All of the tanker segments in which we operate in have very low order book and a relatively old fleet. In addition to this, very few yards remain available to build vessels before 2025, so we do not expect a boom in new building ordering. These conditions lead to the conclusion that we might witness more scrapping in the medium term. In fact, a fact which will tighten our market supply even further.
I will now pass the floor to Ms. Sakellari who will provide a summary of our financial performance.
Ifigeneia Sakellari
Thank you, Harry and good morning to everyone. As evident from our impressive results this quarter, we successfully leveraged upon our fleet expansion in the firm tanker rates. Compared to the third quarter of 2021, we have increased our fleet by an average of four vessels. Strong rates allowed us to capitalize upon our fleet additions and therefore we managed to increase our average time charter equivalent per vessel by 20,000 per day and produced a profit of $15.5 million. Even though we dedicated 70% of our fleet days to spot operation and three of our product tankers repositioned within Q3 2022, we managed to sustain a solid operational utilization of about 86%.
Looking at our income statement for Q3 2022 in Slide 8, revenues came in at $42.6 million up by $38.5 million due to our fleet additions, plus mostly due to high spot rates, particularly for the Suezmax and Aframax vessels. Voyage cost increased by $17.7 million due to the increase of spot days by 456 days. That is equivalent to 786% and the rising banker prices. This quarter we incurred $1.2 million of voyage costs for the balancing of three of our product tankers. The benefit with which will appear in Q4 2022.
Our running costs increased by $3 million due to the average increase of our fleet by four vessels and one of our product tanker, the Clean Sanctuary ex Clean Thrasher coming off their boot close to the end of the quarter. Basis the above we generated a strong EBITDA of around $19 million, that is $17.5 million or 1500% higher than in Q3 2021 and a net profit of $15.5 million corresponding to an EPS of $0.8. Our profit margin for the quarter was in the order of 36%.
Moving on to Slide 9, let us take a look at the balance sheet. For the nine months of 2022 as of September 30, 2022 and in spite of vigorous fleet expansion, our free cash including our time deposits, was in the order of $93 million. Our debt of $43 million is very low as it equates to a giving ratio of 13% basis fleet book values and little lower basis market values. In essence, at the end of our third quarter, our free cash was 2.2 times higher than our outstanding loans. Overall, we are following and will continue to follow a conservative leverage strategy. We are also pursuing a sound cash management strategy as we yield interest in our free cash through time deposits, thus in a way hedging against decreased finance costs.
In Slide 10, we present a financial snapshot placing emphasis on our solid capital structure. Going forward, we expect to have a free cash base in the order of $105 million and loans of about $70 million. In other words, we expect to maintain a negative net debt ratio. Based on our loan agreements, our loan repayments are well structured. We will have a low annual piece per repayment schedule of about $10 million per annum while our first balloon payment is due in December, 2026.
Looking at profitability and growth, this on high success. Having almost tripled our fleet within a course of 10 months, we ended the third quarter of 2022 with an average daily TCE per vessel of $33,000, while our average daily OpEx per vessel was $6,600. Our considerations going forward are if the prevailing market uncertainty coupled with global inflationary pressures might negatively affect our market.
Concluding our presentation with Slide 11, we simply outline once more the strong but yet proven points that make Imperial Petroleum a growing company with promising performance in the quarters to come. At this stage our CEO Mr. Harry Vafias will summarize our concluding remarks for the period examined.
Harry Vafias
This quarter’s unprecedented profitability growth is solid proof that our company’s strategy is indeed paying off. With the capital recently raised, we have managed to grow our fleet, substantially increase our profitability and cash flow, and create value for our investors. As a result of having acquired six vessels in the course of 10 months, we generated net income of $15.5 million in a single quarter, which is 15400% higher than our profit in Q2 2022, an equivalent to 23% of our current market cap.
We incurred moderate debt during the quarter, maintaining a healthy capital structure with 42, approximately $42 million of debt, while preserving a free cash balance available for further fleet expansion of about $92 million. Given the strong market fundamentals and the promising charter rate environment, and by taking advantage of our efficient management of our expanded fleet, we believe that we will achieve strong results and generate significant cash flow going forward. However, the valuation of our shares of common stock does not reflect our strong financial performance and capital available to fund our growth prospects.
We’ve now reached the end of our presentation and we would like to open the floor for your questions. So operator, please open the floor.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And the first question comes from the line of Greg Humphreys from Humphreys Capital. Please go ahead. Your line is open.
Greg Humphreys
Thank you. Hey Harry. Fantastic earnings report. Great commentary. Definitely been in it for the long run. Any chance of a buyback for the stocks with the extra cash?
Harry Vafias
That’s not a bad idea. Obviously it’s the first really amazing results, so therefore it’s a bit too early to start buying back stock as we are still in growth mode. But definitely the Board, if it’s is two-three more quarters with these amazing results might be might be a topic for discussion.
Greg Humphreys
Great, thank you. Keep up the great work. I appreciate it.
Harry Vafias
Thank you very much.
Operator
Thank you. Just one moment please. We will now take the next question and it comes from the line of Ian Lipman. Please go ahead. Your line is open.
Unidentified Analyst
Yes thank you very much. So I had the same question concerning the buyback share program, so it was already answered in the first question. Thank you very much. Great job done. Thank you very much.
Harry Vafias
Thank you. Regards to Germany.
Operator
Thank you. [Operator Instructions] We will now take the next question. It comes from the line of [indiscernible] Chemical. Please go ahead. Your line is.
Unidentified Analyst
Hello, good morning from Texas. I just want to congratulate all of you on a fantastic earnings report. I don’t think people understand how great the numbers are, so congratulations on that. And I just wanted to ease some concerns with regards to a reverse split in play. I wanted to ask you if that was on the table or off the table, and what plan do you guys have to get the [indiscernible] $1 per compliance?
Harry Vafias
Thank you for the kind words. First of all, we worked extremely hard to get these stratospheric results. The stock split, the reverse stock split, sorry is not a matter of if we want to do it or not. If the stock does not go above $1, we have to do it. Otherwise, we’re going to be delisted, as you know very well. So I hope that with this very hard effort and amazing results, people will understand that you cannot value a company with 10 ships at below its cash levels, and therefore we can push the price up above $1 and therefore the reverse stock split won’t be necessary. But I do agree with you that this must be avoided.
Unidentified Analyst
Yes, yes, I completely agree and I agree the company is worth far more than what the share price is at now, and it’s just, it’s been a concern of everyone and I wanted to get your thoughts on plans moving forward.
Harry Vafias
Thank you. And as we discussed, we hope we can avoid this.
Unidentified Analyst
All right. Thank you, Harry. Congratulations on the fantastic company. You all are doing great.
Harry Vafias
Thank you. Regards to Texas.
Operator
Thank you. We will now take the next question. Please stand by. And it comes from the line of Jose Tintea [ph]. Please go ahead. Your line is open.
Unidentified Analyst
Hello, Harry. Well, actually, both my questions have been answered, so yes, congratulations for the results.
Harry Vafias
No worries. Thank you for calling.
Unidentified Analyst
Yes.
Operator
Thank you. [Operator Instructions] And the next question, one moment, is coming from the line of Dave Roe. Please go ahead.
Unidentified Analyst
Yes congratulations, Harry on the great results. Can you ease any — all the stockholders concerns about any dilution or auctions moving forward in the next six months to one year?
Harry Vafias
As discussed, you’ve seen that we’ve not raised any money recently, but the balance sheet of the company is extremely strong. Obviously, we cannot guarantee that we will not raise money in the future and as we are still consider the small company in worldwide terms. But by showing these amazing results, we can easily prove that the war is and what was said in different chat rooms was all wrong. And by announcing a 15000% increase in profit is just a small piece of evidence that the Board and the Management was right.
Unidentified Analyst
Absolutely. And does any EU ban on Russian oil affect the business at all for the consumer?
Harry Vafias
There is no ban at the moment. There is a potential ban coming on 5th of December for crude oil and 5th of February for product tankers. But in the end of the day, that might be good news as the Russian oil will have to travel longer distances to go to its buyers. So let’s see what happens in the next two months.
Unidentified Analyst
All right. Thanks a lot man. Great job there.
Harry Vafias
Thank you.
Operator
Thank you. We will now take the next question. One moment, please.
Harry Vafias
I will take three more questions and then we will end because it’s going too long. So last three questions.
Operator
No problem at all, sir. The next question comes from the line of Andrea Blanco. Please go ahead. Your line is open.
Unidentified Analyst
Hello, Harry. Just want to say, great job on the on the earnings for this most recent quarter. My question is in regards to meeting compliance for the dollar. Do you plan on asking for the — an extension, or are you just going to go with a reverse split?
Harry Vafias
We will do whatever it takes in order not to do the reverse stock split. But as you know, this is not completely under our control. The NASDAQ and the, our legal team have to be, have to convince NASDAQ not — to give us more time, let’s say. As I said, I hope that with these amazing results, we don’t need to ask for an extension. We want to see the stock well above $1 and therefore, as I said we will not thereafter need anything, no favors.
Unidentified Analyst
Right, I totally agree. There’s no way this stock should be valued as low as it is, it’s just, it makes no sense. Given the…
Harry Vafias
Yes, it might be. I agree with you, and that’s why some clever people will buy now, which is, at these very low levels and hopefully make a good return when the stock goes above dollar a share.
Andrea Blanco
Great, thank you very much. Good work, everybody involved.
Harry Vafias
Thank you.
Operator
Thank you. We will now take the next question, and it comes from the line of Scott Shumaker from Mushtaq Enterprises. Please go ahead. Your line is open. Scott? We will go now to the next question. One moment please. And the next question is from Fareed Lebar [ph]. Please go ahead. Your line is open.
Unidentified Analyst
Yes, hi Harry. Congratulations on the, this much anticipated earnings. What a great job your company and you are doing. I have a question regarding if we can, I actually, I have two questions. Are we going to see any more vessel, buyers of vessels before the end year? And also my second part question is, my second part of the question concerns the dry bulk vessel, what are they used for exactly? If you can answer this question, I will appreciate. Thank you so much. Thank you…
Harry Vafias
Yes, thank you for the kind words. Number one we would like to add more vessels. It’s not easy because the prices have become very high right now, so I cannot guarantee we will buy more vessels within the next 50 days. For the second part, dry bulk vessels means vessels that can carry anything that is dry. In other words grain, coal, sugar, steel, minerals, fertilizers. They can carry more than 15, 20 different cargos. So this is essentially what a dry bulk carrier is.
Unidentified Analyst
Excellent, thank you so much sir. I very much appreciated. I know fertilizer is in high demand as well, so hopefully.
Harry Vafias
Correct, correct. Well done.
Unidentified Analyst
Thank you, sir. Thank you for responding.
Harry Vafias
Last question.
Operator
Thank you. Okay, no problem. One moment please. And it comes on the line of PM Pai [ph]. Please go ahead. Your line is open.
Unidentified Analyst
Great results Harry, congratulations. How does the current quarter looks like?
Harry Vafias
As you understand, we cannot say too much for the current quarter, but from what you read what you heard, sorry in our presentation things look to be quite solid and quite firm. But obviously the point of the call is the third quarter, not the fourth quarter.
Unidentified Analyst
Are the rates better than the second quarter?
Harry Vafias
I would say the same.
Unidentified Analyst
Thank you so much.
Harry Vafias
Thank you very much.
Operator
Thank you. I would like to hand back over to Harry Vafias for final remarks.
Harry Vafias
We would like to thank all of you 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 at our next conference call for our Q4 results. Thank you very much.
Operator
That does conclude our conference for today. Thank you for participating. You may all disconnect.
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