Imperial Petroleum Inc. (IMPP) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Imperial Petroleum Third Quarter and 9 Months Financial and Operating Results Conference Call. [Operator Instructions] Please be advised that this conference is being recorded. I would now like to hand the conference over to your speaker today, Harry Vafias, CEO of Imperial Petroleum. Please go ahead.

Good morning, everyone, and thank you all for joining us for our third quarter 9 months '24 conference call. I'm Harry Vafias, the CEO of Imperial Petroleum. And joining me today is Ifigeneia Sakellari, who will be discussing our financial performance. Before we commence our discussion, I'd like all of you to read the safe harbor disclaimer on Slide 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 could cause future results to differ materially from these forward-looking statements. In addition, before we commence our discussion, we'd like to clarify that during this call, we will quote all monetary amounts unless explicitly stated all in U.S. dollars. Turning to Slide 3. We're summarizing our operational and financial highlights for the third quarter and 9 months '24. The third quarter of this year was quite satisfactory in terms of profit when taking into consideration that market deteriorated in comparison to the first half of this year. Indeed, prevailing rates for both product and Suezmax tankers declined in Q3 '24, mostly driven by seasonal factors and geopolitical uncertainties, thus creating an unexciting market environment. Market weakness is evidenced by our low quarterly operational utilization of 65.6%, which was further burdened by a dry docking of a product tanker and a minor incidence of our product tanker, the Magic Wand. The vessel remained idle for the whole quarter. Within this market of declining rates, we did manage to end the quarter with close to $11 million of profit. Our daily time charter equivalent of 22,000 declined compared to the previous quarter by 37%, nevertheless, remain at same levels compared to the same period of last year. Actually, when excluding noncash items, our profitability improved compared to Q3 '23 by $6.4 million, equivalent to a rise of 142%. What we deem as remarkable is our solid liquidity position as we ended the third quarter with about $200 million in cash, while our operating cash flow for the 9 months period of '24 amounted to $68 million. Our 0 debt position lowers our breakeven and assist us to maintain profitability even when the market weakens further. On Slide 4, we are providing a summary of our current fleet employment. Almost half of our fleet is under time charter employment. As customarily, our 3 Handysize bulk carriers are under short-term charters, while 2 of our product tankers are under time charter employment up until January '25 and August '27, respectively. Overall, looking at the market, spot rates for product tankers have declined when compared to the first half of '24. The typical seasonal decline in rates was this year compounded by uncertainty over demand, refinery runs, U.S. elections and OPEC decisions. As of the end of Q3 '24, market spot rates for product tankers were 57% lower than in Q2 '24, while for suezmaxes, spot rates declined compared to the previous quarter was in the order of 30%. We currently see a cautious upward trend in product tanker rates, driven by increased cargo flows as we enter into the winter season. On Slide 5, we're reviewing the tanker market. After the strong market witnessed in the first half of the year, tanker rates have slipped since the start of the third quarter due to seasonal factors. Indeed, global oil demand growth slowed in the third quarter relative to Q2 '24, while global tanker ton mile demand fell 4.8% this quarter. The third quarter of '24 was affected by various typical factors, the most crucial of them being the slump in Chinese oil imports, which decreased 730,000 barrels per day due to the deterioration of the Chinese property crisis and the adoption of non-oil transport fuels. Moreover, we witnessed low Middle East crude exports due to the seasonally high domestic consumption in the region along with reduced refinery runs. Also, the dark fleet has become larger and more efficient than last year. As a result, Russian premiums have gone down and some of the largest mainstream owners previously involved in illegal Russian business have reduced their Russian activities and returned to the normal market. This has put increased pressure also on the freights of the normal market. In Q4 '24, we have not seen any material improvement in rates. However, expectations are that the seasonal effect of, and the end of the refinery maintenance season will eventually push the market up also this winter, but we don't expect to reach the same rates as last year. Going forward, OPEC has pledged to move forward with this voluntary cut unwind, which is anticipated that this would boost cargo flows by 3 million barrels per day in '25, thus raising tanker rates. On Slide 6, we comment upon tanker market fundamentals. The tanker fleet is seeing a record low growth rate in '24 with escalating deliveries expected in '25 and '26. It's worth noting that the newbuilding additions in the coming years are less than the long-run average growth rate of about 6.5%. Both MRs and suezmaxes have an aging fleet. It is expected that about 20% of the product tanker fleet will be above 20 years of age by '26, while 15% of the suezmaxes is above 15 years of age. Depending on how geopolitical tensions and supply cuts will affect the market in the long run, strong fundamentals create the expectation that the tanker upcycle might last for the forthcoming years as capacity remains constrained. In addition, taking into account the high newbuilding prices, it's also expected that the new tanker orders will remain limited. On the dry bulk market, Q3 '24 earnings for Handysize bulkers remained fairly flat, mostly affected by the slowdown of the Chinese economy. Chinese steel production was weak in Q3 '24, marking an 8% year-on-year decline. However, there was an 18% year-on-year growth in Chinese steel exports. Looking ahead, 2 primary risks to dry bulk demand are the unwinding of extra ton miles and a Chinese economic slowdown, potentially worsened by U.S. tariffs. I'll now pass the floor to Mr. Sakellari in order to summarize our financial performance.

Hello, let us discuss our financial performance in Q3 '24 compared to the same period of last year. As mentioned earlier on, we marked a sound profitability amidst an unfavorable and uncertain market environment. Looking at our income statement for Q3 '24 on Slide 7, revenues came in at $33 million in Q3 '24 compared to $29.4 million, a 12.2% increase compared to Q3 '23 due to an increase of our average fleet by 1.3 vessels and better performance of our product tanker as 3 of our product tankers underwent dry docking in the third quarter of 2023, thus incurring significant idle time due to technical reasons. As mentioned earlier on this quarter, our idle time was hindered by the dry docking of one of our product tankers, along with the minor instance of 1 -- another product tanker, both events adding to idle time and undermining revenue. Voyage costs amounted to $13 million, increased by $0.4 million compared to the same period of last year due to expenses incurred in connection with the EU emission allowances in order to meet our obligation arising from the CO2 emissions as a result of the new EU regulations entered into force starting from January 1, 2024. Running costs amounted to $7.2 million, increased by $1.1 million due to the increase of our fleet. EBITDA for the third quarter of 2024 came in at $12.2 million, while net income at $10.1 million corresponding to an EPS of $0.29. On an adjusted basis, that is excluding noncash items, our adjusted net income for the period was $10.9 million, marking a 142% increase compared to Q3 '23. For 9 months, EBITDA came in at $52.8 million and adjusted net income, excluding noncash items, at $50.6 million. Moving on to Slide 8. Let us take a look at our balance sheet for the 9 months of 2024, we enjoyed high liquidity. As of September 30, 2024, our cash, including time deposits, were in the order of $200 million. The majority of available cash is currently placed under time deposits yielding interest income. For the 9 months '24 period, income from time deposits amounted to about $4.5 million, $2.1 million earned only in Q3 '24. We also enjoy a flexible capital structure governed by high liquidity, 0 debt, minimum liabilities, placing us in an advantageous position to weather any market conditions. Proceeding to Slide 9, we provide a snapshot of our strong fundamentals such as dynamic profitability as our net profit margin is in excess of 30%. We have a robust cash flow generation. In the 9 months of 2024, we generated close to $68 million of operating cash flow. Going forward, the key considerations of future of geopolitical tensions and the impact they will have on the tanker and broader shipping market overall. Concluding our presentation with Slide 10, we summarize yet once more Imperial Petroleum strengths. We feel that our strong financial performance and recurring profitable quarters is a solid proof of our argumentation as to why we believe Imperial Petroleum is worth investing in. At this stage, our CEO, Mr. Harry Vafias, will summarize our concluding remarks for the period examined.

In spite of an unexciting and seasonally weak quarter, Imperial Petroleum was yet again profitable. Our adjusted net income this quarter was up 141% compared to Q3 '23 and our cost increased by about 60% compared to the end of the same quarter last year. Since the beginning of the year, we have generated a net profit of close to $46 million with a fleet of only 10 vessels. Apart from our ongoing profitability, our financial strength is shown by our cash of about $200 million in conjunction with 0 leverage. Market was volatile and weak during Q3 and still remains an unknown how future geopolitical tensions will affect the tanker and broader shipping markets overall. We would like to thank you for joining us today at our conference call 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 fourth quarter results. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.