Pyxis Tankers Inc . (NASDAQ:PXS) has released its financial results for the fourth quarter and full year ended December 31, 2023, highlighting a strategic sale of a product tanker that contributed to a net income of $21.9 million.
Despite a decrease in time charter equivalent revenues compared to the previous year, the company remains optimistic about the balanced supply-demand fundamentals in the dry bulk sector for 2024. Pyxis Tankers is actively pursuing investment opportunities and has been repurchasing common shares to enhance shareholder value.
Key Takeaways
- Pyxis Tankers completed a product tanker sale, resulting in a $17.1 million gain.
- Q4 2023 time charter equivalent revenues were $12 million, a 13.6% decrease year-over-year.
- Net income for Q4 reached $21.9 million, with a basic EPS of $2.04.
- The company reported a solid cash position and a leverage ratio of less than 3%.
- Pyxis Tankers is focused on expanding its fleet and maximizing shareholder value.
Company Outlook
- Supply-demand fundamentals for the dry bulk sector appear balanced for 2024.
- Pyxis Tankers is actively seeking value-enhancing investment opportunities.
- The company is focusing on modern midsized carriers with lower CO2 emissions.
Bearish Highlights
- Time charter equivalent revenues decreased by 13.6% in Q4 2023 compared to the same period in 2022.
- Daily time charter equivalent rates for eco-MR2 tankers were down by 8% in Q4 2023.
Bullish Highlights
- The product tanker chartering environment remains relatively firm.
- Dry bulk charter rates and asset values have shown surprising strength.
- Net fleet growth for MR2 vessels is estimated at 2% in 2024.
Misses
- Despite overall strong financial performance, the company experienced a decline in time charter equivalent revenues in Q4 2023.
Q&A Highlights
- CFO Henry Williams discussed the financial results and the company's strong cash position, emphasizing a leverage ratio of less than 3%.
- Pyxis Tankers plans to leverage its financial health to develop further investment opportunities and expand its fleet.
Full transcript - Pyxis Tankers Inc (PXS) Q4 2023:
Operator: Good afternoon, and welcome to the Pyxis Tankers Prerecorded Conference Call to discuss the Financial Results for the Three Months and Year Ended December 31, 2023. As a reminder, today's call is being recorded. Additionally, a live webcast of today's conference call and an accompanying presentation is available on Pyxis Tankers website, which is www.pyxistankers.com. Hosting the call today is Eddie Valentis, Chairman and Chief Executive Officer of Pyxis Tankers; and Henry Williams, Chief Financial Officer. I would now like to introduce Pyxis Tankers' Chief Executive Officer, Eddie Valentis.
Eddie Valentis: Hello, everyone, and thank you for joining our call for results of the three months and year ended December 31, 2023. The effects on global seaborne trade from the Russia-Ukraine war have been compounded by the conflict in the Red Sea. By and large, global economic activity has been resilient, especially in the OECD despite the tight monetary policies by many central banks. Fortunately, inflation is decelerating and there are prospects of interest rate cuts later this year. The fundamentals for our two markets, product tankers and dry bulk carriers, are strong characterized by healthy charter rates and rising asset values. But market conditions are dynamic and beyond our control. So we expect to continue to successfully navigate through these uncertain times. Before commenting on our solid operating and financial results for the most recent period, please let me draw your attention to some important legal notifications on Slide 2 that we recommend you read, including our presentation today, which will include forward-looking statements. Thank you. Turning to Slide 3. Our most recent quarterly results reflected healthy financial performance in revenues and profitability despite operating fewer tankers. In December 2023, we completed the sale of our 2015 built product tanker to realize a $17.1 million gain and report $26.4 million in net cash proceeds. In the fourth quarter ended December 31, 2023, we generated consolidated time charter equivalent revenues, TCE, of $12 million, a decrease of 13.6% over the same period in 2022. Our daily TCE for our eco-MR2 in Q4 2023 was approximately $30,500, which was down 8% over the same quarter last year due to less spot chartering activity. For the most recent period, we reported net income of $21.9 million or $2.04 basic EPS, which was dramatically up due to the gain on vessel sale. Our adjusted EBITDA in Q4 2023 was a solid $7.7 million. Over the course of the fourth quarter 2023, the product tanker chartering environment remained relatively firm despite slowing demand for transportation of fuels worldwide, moderate economic activity was met with seasonal demand for home heating products in the Northern Hemisphere. Armed hostilities contributed to the tight inventories of refined petroleum products, which continued to be below five-year averages in a number of locations around the world, changing trade patterns, expansion of ton-mile, dislocation to end markets, creating arbitrage opportunities and higher transportation costs. While end market product prices have moderated over the last year, refinery activity continues to be solid with healthy crack spreads reflecting good global demand. These developments still support a constructive outlook for product tanker charter rates. As of March 12, 92% of available days in Q1 2024 were booked at an average TCE rate of $30,300 per day. Two of our MR2 are employed under short time charters and one in the spot market. The supply-demand fundamentals for the dry bulk sector look to be relatively balanced for 2024. Recently, we expanded our fleet with acquisition of our second mid-sized dry bulk carrier. In mid-February 2024, we closed on the purchase of a 2015 built Kamsarmax. As of March 12, our two-scrubber fitted bulk carriers were booked for 70% of available days in Q1 at an average TCE of $19,600 per day. Considering the favorable prospects for both sectors and our existing capital resources along with established lending relationships, we remain committed to actively pursuing value-enhancing investment opportunities. In 2023, we took advantage of the strong S&P market to sell two of our MR2 at very attractive prices and realized over $25 million of gains and generated over $44 million of net cash proceeds. Until we can identify economically viable vessel acquisitions, we look to further improve our balance sheet and repurchase common shares. As of March 12, 2024, we have deployed an aggregate $1.4 million to buy back 375,000 common shares, which represents about 7.5% of our public float from when we methodically implemented the program starting last summer. Please turn to Slide 4 for information on our existing fleet and employment activities. We are continuing to prudently maintain our mixed chartering strategy of time and spot charters with a focus on diversification by customer and duration. As you can see, four of our vessels are under short-term TCEs, which provide us with attractive fixed revenues over defined periods of time and optimize working capital. The Pyxis Lambda, our youngest vessel, continues to operate in the spot market. Notably, the average age of the vessels in our fleet is below the industry averages with our MR2 at 9.6 years and our bulk carriers at eight years. The next special survey doesn't occur until next year for the Konkar Asteri. Please turn to Slide 6 to review several macroeconomic considerations which support fundamental sector demand. Historically, seaborne trade of refined products and dry bulk commodities have been moderately correlated to global GDP growth. In January 2024, the IMF revised its global GDP growth estimate upwards to 3.1% for this year due to better economic outlook led by the U.S. and lower inflation. Recently, the IEA slightly revised its estimate of global oil consumption to increase modestly by 1.2% to an average of 103 million barrels per day in 2024. The recent crude oil production cuts of 2.2 million barrels per day by OPEC+ is expected to run through June. However, incremental production is expected from the U.S., Canada, Brazil, Norway and Guyana. According to the EIA, the U.S. should increase average oil production in 2024 to 13.2 million barrels per day. Next, please turn to Slide 7. Major geopolitical events have boosted the product tanker sector. The EU and G-7 group ban on seaborne cargoes of Russian refined products, which started in early February 2023 and subsequent price caps have had limited impact on Russian petroleum revenues, but have created significant market dislocations worldwide, which has been compounded by low inventories of refined petroleum products in many parts of the world. More recently, repercussions of the Israeli/Hamas conflict has further disrupted trade patterns and expanded ton-mile. Shipments through the Suez Canal and Red Sea have been dramatically cut due to attacks on vessels transiting the Gulf of Aden. As a result, rerouting around the Cape of Good Hope has been underway since the beginning of the year, which significantly increases the number of voyage days. For example, in tankers journey from the Jubail refinery in Saudi Arabia now takes 70% more days to reach Rotterdam, a key destination in Northern Europe. Product exports from the refineries located in the Middle East, U.S. and certain parts of Asia continue to expand. According to Drewry, seaborne trade of refined products in 2023 increased 1.3% to over 1 billion tons, while ton-miles rose 4.2% to almost 3.6 trillion miles. According to Clarksons, cargo volumes of refined products are estimated to increase 3% in 2024 with further expansion of ton-miles, including an incremental 4% from the Red Sea hostilities. Now move to Slide 8. Over the longer term, we expect demand for the product tanker sector to be supported by refinery additions led by the Middle East and Asia. Drewry estimates that almost 4.4 million barrels per day of new refinery capacity, net of closures, is scheduled to come online by 2028, with the OECD experiencing a decline. However, originally planned shutdowns may be delayed given better refinery economics. But over the long run, closes should further contribute to the [indiscernible] of refined products into mature large OECD markets and provide additional ton-mile expansion. Many refineries, including those in the U.S., continue to experience good utilization as profitable crack spreads in order to meet solid product demand. Let's move to Slide 9. The product tanker supply picture is clear. The combination of robust chartering conditions over the last two years and continued positive outlook by owners has resulted in a significant pickup in orders for the construction of new product tankers. According to Drewry, at the end of February, the order book for MR2 stood at 10.7% of the global fleet of all 181 vessels, of which 37 are scheduled for delivery during the remaining 10 months of this year. Due to the huge backlogs, many Asian yards don't have available construction slots for MR2, with deliveries until the second half of 2026. Delays in new build deliveries continue to be an unpredictable factor but run at 9.7% last year. An owner decision-making process for tanker new ordering is further complicated by ongoing developments in ship and engine designs, stricter environmental regulations escalating shipbuilding costs as well as an evolving and still unclear selection and availability of lower carbon fuels. Importantly, 187 months, a comparable number to the order book are 20 years of age older, given this large number, combined with declining economics of operating older vessels, major scrapping should occur over the next five years. But only four MR2 were demolished in 2023, given the strong market. Overall, we estimate that net fleet growth for MR2 to be at 2% this year. Turning to Slide 10. Strong chartering conditions have led to steep increases in asset prices across the board. Values for secondhand tonnage remain well above 10-year averages. Construction contracts for new buildings in South Korea, now stand at $48 million, excluding yard supervision and add-ons. Prices for young eco-efficient MR2 vessels, our preference, are approaching record highs, making attractive acquisition opportunities exceedingly scarce in our opinion. Now I would like to quickly touch on some of the key highlights on our dry bulk operations. So please flip to Slide 12. To us, the dry bulk sector has many positive attributes. The management team and Board of Directors have deep experience in owning and operating dry bulk carriers. Drewry estimated that seaborne dry bulk trade grew 4.6% last year, while ton-miles increased 2.1%. Considering its reasonable correlation to global GDP growth, demand for dry bulk commodities expected to remain positive. The supply-demand outlook is relatively balanced for 2024. Howe Robinson, a leading ship broker and chartering agent forecasts net fleet growth of 2.2% in 2024 with similar demand growth of 2%. In 2024, global GDP growth is expected to be over 3%, including China at 4.6%. In the dry bulk sector, we focus on modern midsized acquisition carries, which provide operating versatility and diversification by port, cargo and customer. Both our Ultramax and Kamsarmax bulkers are fitted with scrubbers, which provide lower CO2 emissions and bunker fuel savings. Our cargoes usually consists of coal and minor bulks such as grains, fertilizers and aggregates. Although the early winter is typically a softer period, charter rates for dry bulk carriers have recently shown surprising strength. This resilience can be attributed to solid demand for dry bulk commodities, partly fueled by restrictions on transits through the Panama Canal and incidents in the Red Sea. Significantly, China recorded a record-f10.7 iron ore and coal imports in the first two months of 2024. As of March 8, Clarksons reported one year time charter rate of $17,250 for Ultramax and $18,500 for Kamsarmax vessels. As of March 12, 2024, our two dry bulk carriers were booked at 70% of available days in Q1 at an average TCE rate of $19,600 per day. As you can see on Slide 13, dry bulk asset values have also been strong. These valuations from Drewry imply a favorable price appreciation of our recent vessel acquisitions. At this point, I would like to turn the call over to Henry Williams, our Chief Financial Officer, who will discuss our financial results in greater detail.
Henry Williams: Thanks, Eddie. On Slide 15, let's review our unaudited results for the three months ended December 31, 2023. Our time charter equivalent revenues for Q4 of '23, which we define as revenues net minus voyage-related costs and commissions, declined to $12 million, a decrease of $1.9 million as we operated one less tanker and spot exposure was lower. However, we completed the sale of our eight-year-old tanker in mid-December at a very attractive price to realize a gain of $17.1 million. Our combination of time and spot charters for MRs yielded an average daily TCE of approximately $30,500, which was down from the same period in 2022, but up sequentially from Q3. Moving to Slide 16. We generated net income to common shareholders of $21.6 million for the three months ended December 31, 2023, or $2.04 basic or $1.76 diluted EPS, compared to net income of $6.5 million or $0.61 basic and $0.53 diluted income per share for the same period in 2022. For accounting purposes, the fully diluted earnings calculation assumes the potential conversion of all outstanding Series A convertible preferred stock into common shares and the elimination of the associated dividend. In Q4 '23, a substantial portion of the decrease in TCE revenues flowed through the income statement as adjusted EBITDA decreased $2 million to a respectful $7.7 million. For fiscal year-end 2023, we reported EPS of $3.38 per basic share and $2.94 fully diluted with adjusted EBITDA of $22.6 million. Now flip to Slide 17 to review our capitalization at December 31, 2023. At core close, our consolidated leverage ratio of net funded debt stood at less than 3% of total capitalization. Due to increases so far, our weighted average interest rate was 8.3% for the most recent quarter and our next bank loan maturity is scheduled for July of 2025. I should point out that at year-end '23, our total cash position was over $56 million. Most of our excess cash is invested in short-term money market instruments, which currently earn over 5.5% interest. Lastly, we have repurchased in the open market, 375,000 common shares in total and have $565,000 still remaining under the buyback program. With that, I'd like to flip it back to Eddie to conclude our presentation.
Eddie Valentis: Thanks, Henry. Both of our sectors, dry and refined products, fundamental demand is relatively in balance with supply. Major geopolitical conflicts have created operating challenges and opportunities for us. We continue to benefit from the combination of solid end market consumption, lower refined product inventories in many parts of the world, changing trade patterns and expanding ton-miles. Scheduled developments for the refinery landscape only enhances the long-term outlook for the product tanker sector. Global GDP growth over the near term supports demand for the broad list of dry commodities. Chartering conditions for dry bulk carriers have also benefited from these major events, including unprecedented conditions at the Panama Canal. We expect to utilize our strong financial position and extensive industry relationships to develop investment opportunities that maximize shareholder value, including further fleet expansion. We appreciate your interest, and thank you for joining our call today. We look forward to reporting on future progress at Pyxis Tankers.
Operator:
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