Imperial Petroleum Inc. (NASDAQ:IMPP) Q2 2024 Earnings Call Transcript

Imperial Petroleum Inc. (NASDAQ:IMPP) Q2 2024 Earnings Call Transcript August 27, 2024

Operator: Good day and thank you for standing by. Welcome to the Second Quarter and Six Months 2024 Imperial Petroleum Results Conference Call. At this time all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. I will now like to hand the conference over to your speaker today, Fenia Sakellari, CFO of Imperial Petroleum. Please go ahead.

Fenia Sakellari: Good morning to everyone and thank you all for joining our second quarter and six months 2024 conference call of Imperial Petroleum. I am Fenia Sakellari, the CFO of Imperial Petroleum. Before we commence our discussion, I would like you all to read the Safe Harbor disclaimer posted in slide number two of our presentation. In essence, it is made clear that this presentation may contain some forward-looking statements as defined by the Private Security 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 the Imperial Petroleum and are subject to risks and uncertainties which could cause future results to differ materially from these forward-looking statements.

I would like to note that the slides of the webcast presentation will be available and archived on our company’s website after the conference call. In addition, before we commence our discussion, I would like to clarify that during this conference call, we will quote monetary amounts. This, unless explicitly stated otherwise, are all denominated in U.S. dollars. Let us now turn to slide three, so as to summarize our operational and financial highlights for the second quarter and first-half of 2024. Both crude and product rates hardly change from Q1 ‘24 to Q2 ’24, that’s allowing us to enjoy a profitable quarter in spite of the customary negative seasonal effects. The effect of the Russia-Ukraine conflict has, and it seems that it will continue having, a long-lasting impact mostly on European source of energy, while Red Sea diversions will most likely last beyond 2024.

This environment sustains tanker rates at firm levels, compared to historical averages, but yet going forward it remains unknown how the tanker market will be affected should these geopolitical tensions subside. Indeed, in Q2 ‘24, leveraging up on strong rates and an efficient utilization of our fleet, particularly our product tankers deployed West of Suez, where market for these vessels was tight, we managed to generate the profit of about $20 million, marking our second best quarterly performance so far. Our operational utilization came in to 81%, a solid performance when taking into consideration that about 80% of our fleet calendar days were dedicated to spot activity. Looking at our fleet expansion, we strive to enhance our fleet strength and value.

As in May, 2024, we entered into agreements to acquire a handysize drybulk carrier and a product tanker. The delivery of the handysize drybulk carrier, the Neptulus 2012 built, took place a few days ago, that is on August 24, 2022, while the product tanker, the Clean Imperial 2009 built, will be delivered towards the end of this year. The aggregate consideration for this acquisition is $40 million, and we have scheduled payment for both vessels either in Q1 ‘25 or within Q2 ‘25. From a financial standpoint, we view it as positive that for the past three quarters we enjoyed an escalating profitability. Our numbers in Q1’24 were much improved compared to Q4 ‘23, and this trend continued in Q2 ‘24 as well. Compared to the first quarter of this year, our revenues were up by 14% and our profits by 15%.

Q&A Session

We do not expect this trend to continue in Q3 ‘24 because markets are quite soft during the summer period. But should fundamentals remain the same, we do expect a firm strategy of the current market, particularly for crude tankers, as we move on into the winter season. Our capital structure remains healthy, as we enjoy debt-free balance sheet. But most importantly, a solid cash base, which as of the end of June ‘24, was in the order of $130 million, while currently stands at about $190 million. High liquidity gives us the flexibility to grow our company when opportunities of economic value arise. Proceeding to slide four, we provide a summary of our current fleet employment. All of our handysize drybulk carriers are on short time charters with two vessels concluding their employment in August and one vessel concluding her employment in September 2024.

We are also pleased to announce that one of our MR tankers, the Clean Justice, was recently fixed on a three-year time charter up until August 2027. Secured revenues stemming from this employment amount to approximately $30 million. Overall, looking at market spot rates for product tankers, these have been higher in the first-half of 2024. When compared to the same period of last year, as particularly towards the end of Q2 ‘24, product tankers enjoyed high rates, due to firmer activity in the Atlantic Basin resulting from higher U.S. exports. Suezmax rates were lower in the first-half of 2024, when compared to the same period of last year. In Q2 ‘24, Suezmax rates declined due to summer seasonality and reduced cargo levels, yet still remain at fair levels when compared to historical averages.

Let us move on to slide five to review the tanker market. In Q2 ‘24, geopolitical tensions such as the war in Gaza and Ukraine continue to affect the market and elevate tanker rates offsetting the seasonal drop in oil demand in regions like Europe and China. Houthi attacks still threaten shipping in the Red Sea. So far in 2024, Suez Canal transits are down roughly 50% from 2023. This decline in transit for product tankers is 69%. Majority of product tankers deviated via the Cape of Good Hope, and this has a substantially positive effect on the ton-mile distances consequently freight rates. At the moment, rates for product tankers have declined below the levels witnessed in Q2 ‘24, mainly due to the summer period. On the crude side, we witnessed a slight softening of the market, compared to the first quarter of this year.

This is generally in line with usual seasonal patterns and we have seen a further softening through the first-half of Q3 ‘24 as well. We would normally expect the market to pick up in the last quarter if the Red Sea situation remains unresolved. Going forward, global oil demand is anticipated to grow by 2.3 million barrels per day, year-over-year, in the second-half of 2024, mainly driven by the U.S., China, and a slight growth in Europe and Asia Pacific. While China is still the largest driver of oil demand in Asia. India is poised to lead global demand growth in the years ahead. Proceeding to slide six, as mentioned, product tanker rates hold at firm levels favored by various factors, particularly longer travel distances and limited vessel supply.

Indeed fleet growth for product tankers is expected to be low this year, around 1.2%, mainly due to limited number of vessels contracted in 2022. Additionally, product tanker scrapping activity is at an all-time low, given the strong prevailing market. It is expected that about 20% of the product tanker fleet will be above 20-years of age by 2026. Looking briefly at crude tanker segment, this also experienced firm rates and very limited free growth. It is expected that during 2024-‘25 rates for crude tankers will remain at firm levels, however any potential normalization in the Red Sea might lead to a decline in freight rates. As of the first-half of 2024, about 1.4 million deadweight tons have been added to the fleet. Vessels applied for crude tanker looks increasingly tight as 34% of suezmax and 50% of aframax maxes are above 15-years of age.

Moving on to the dry bulk market, the outlook for this segment is positive, marking so far an improvement compared to 2023. In Q4 ‘24, earnings for the handysize drybulk carriers were 60% above long-term averages. The market continues to benefit from increased ton-miles due to the Red Sea detour caused by Houthi attacks. Chinese iron ore imports remained healthy despite weak steel output. A key market driver is a global gold trade continued its strong pace with both Chinese and Indian imports running at high levels. Let us now discuss our financial performance in Q2 ‘24 compared to the same period of last year. Looking at our income statement for Q2 ‘24 on slide seven, revenues came in at $47 million, compared to $59 million at 20.3% decrease, compared to Q2 ‘23 due to a decrease of our average fleet by 1.5 vessels and a decrease of suezmax’s market rates by about 25%.

Voyage cost decreased by $2.2 million due to a decline in port expenses by $2,200 per day due to reduction in transit through the Suez Canal, partially offset by an increase in daily bunker costs. Running costs decreased by $0.5 million, due to a lower average number of vessels. EBITDA for the second quarter of 2024 came in at $21.8 million, while net income at $19.5 million. Moving on to slide eight, let us take a look at our balance sheet for the first-half of 2024. We enjoyed high liquidity. As of June 30, 2024, our cash, including time deposits, were in the order of $130 million. The sharp increase in cash compared to Q1 ‘24 is attributed to the receipt of $42 million from the sale of Gstaad Grace II in April 2024 and our strong operating cash regeneration within Q2 ‘24 in the region of $20 million.

We also enjoyed the flexible capital structure governed by high liquidity, zero debt, and minimum liabilities. Proceeding to slide nine, we provide a snapshot of our strong fundamentals, such as dynamic profitability, as our net profit margin is in excess of 40%, robust cash flow generation in the first-half of 2024, we generate close to $40 million of operating cash flow. Strong market rates allow us to have a daily TCE per fleet voyage day in excess of 30,000, while cost management and zero leverage achieve the daily vessel cash flow breakeven of less than 9,000. Proceeding to slide 10, we provide the financial evidence of why we feel our stock is heavily undervalued. Within the course of 18 months, that is from January 2023 to June 2024, and basis our financial statements and management estimate of net asset value computation, Imperial Petroleum achieved a 45% increase in net asset value to around $430 million, a 10% rise in cash to $130 million, even though during this period we repaid $70 million of debt and about $120 million of operating cash flow generation.

In spite of our astounding performance, at the moment our market capitalization is close to $120 million, which implies that our share trades at a steep discount to our net asset value levels. Concluding our presentation with slide 11, we summarize yet once more imperial petroleum strength, which we feel makes our company a sound investment choice. At this stage, I will summarize our CEOs concluding remarks for the period examined. In Q2 ‘24, we managed to turn a typically weak seasonal period to our second most profitable quarter thus far, as we generated a net profit of $19.5 million. Our excellent performance was mostly leveraged by a product tankers that were strategically situated West of Suez, where market for this vessel remained tight.

We enjoy recurring profitable quarters, a very strong cash base, which currently stands to close to $190 million, and as we repeatedly stress, zero leverage. This gives us plenty of flexibility to grow further. We may significantly undervalued as our market capitalization is even lower than our cash, but I’m confident that gradually we will see an appreciation to a surprise driven by a recurring strong results. We would like to thank you for joining us at our conference call today and for your interest and trust in our company. We look forward to having you with us again at our next conference call for our first quarter results.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

End of Q&A: