Imperial Petroleum Inc. (NASDAQ:IMPP) Q1 2022 Earnings Conference Call June 14, 2022 11:00 AM ET
Company Participants
Harry Vafias – Chief Executive Officer
Fenia Sakellaris – Chief Financial Officer
Conference Call Participants
Operator
Thank you for standing by, and welcome to the Imperial Petroleum Q1 2022 Financial and Operating Results Conference Call and Webcast. At this time, all participants are in listen-only mode. [Operator Instructions] I must advise you that your conference is recorded today, the 14th of June 2022.
I would now like to hand the conference over to the speaker, Mr. Harry Vafias, CEO of Imperial Petroleum. Please go ahead, sir.
Harry Vafias
Good morning, everyone, and thank you for joining today’s first quarter 2022 call for Imperial Petroleum Inc. I’m Harry Vafias, the CEO of Imperial Petroleum; and with me today is our CFO, Mr. Sakellaris.
Before we commence our discussion, we’d like all 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, and 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, we 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.
Turning to Slide 3 for a summary of our company’s performance highlights. As of June 1, 2022, we had raised approximately $135 million in total net proceeds after underwriting discounts from our public offerings. In addition, on June 13, 2022, we entered into agreements for warrant exercises expected to result in additional net proceeds to us of about $21 million. Testimony of our commitment to our growth plan is that within the course of five months, we doubled the number of vessels in our fleet and almost tripled our fleet’s deadweight ton capacity.
Imperial Petroleum commenced operations with just four tankers, and we now own a fleet of eight tankers. Towards the end of the first quarter 2022, we took delivery of an MR tanker, the Clean Nirvana [ph]. And within the second quarter of 2022, we added three more vessels, an MR tanker, the Clean Justice and to Suezmax tankers, [indiscernible]. These vessels will contribute to our results from the second quarter onwards.
Sadly, the war in Ukraine is still ongoing and has had an unprecedented impact on the world economy, particularly on energy prices. This uncertain environment with oil price speaking, did not leave shipping rates unaffected. We see a rise in rates across all tanker segments, especially from the end of the first quarter onwards.
Focusing on our first quarter ’22 results, these were encouraging for Imperial Petroleum. With a fleet operational utilization of almost 99% stemming from the operation of our initial four tankers, our revenues came [indiscernible]. Stemming from the operation of our initial four tankers, our revenues came in at $5.1 million, 28% higher than our revenues in the fourth quarter of ’21. Our bottom line was positive in the order of $0.2 million, marking a turning point from the losses faced in the previous quarters. Most importantly, we enjoy a healthy and strong balance sheet. Following the capital deployment of $78 million for our vessel acquisitions, we still have about $55 million of available cash.
On Slide 4, we discussed our capital allocation in more detail. As said, we have invested $78 million, which is equivalent to almost 55% of our net proceeds from our capital offerings. The four vessels acquired were purchased with equity; however, we are in advanced discussions to secure post-delivery financing in the region of $47 million, about 60% gearing. Consequently and including process from our recent warrant transaction, total of about $125 million will be available to be deployed for further growth. Leverage will increase equity returns, while current steel prices provide low financial risk as total demolition value of our acquired vessels in June, the order of $40 million, that is 85% of our expected loans.
Slide 5 is a summary of our current fleet employment status. Since our last announcement, the charters of the Magic Wand exercised their option and extended the charter for one more year until May 23. In addition to this, the Clean Justice entered into a time charter contract for a minimum 80 days up to 120 days duration. We have a well-balanced fleet deployment, four of our vessels are on period charters, while the remaining four vessels operate in the spot market under improved rates compared to Q1 of this year.
On Slide 6, we discuss the tanker market. The Russian war against Ukraine has reshaped the global oil markets. Following the sanctions on Russia, Europe has reduced Russian oil imports. Europe was importing about 30% of its crude from Russia. To compensate for the loss of Russian oil, Europe has increased imports from the U.S. and Africa. On the other hand, Russia has been exporting oil to India and China. Even if Europe agrees to ban Russian oil as it was recently discussed, it’s believed that the impact could be tempered by demand from Asia. Seaborne oil trail has been rerouted; tankers are now selling longer voyages, and this, along with the current cap in all production has led to a global rebound in tanker markets and a sharp rise in rates, particularly for product tankers. Given current market environment, ton-mile growth is expected to climb to 6% in the period 2022 to 2025. The solid market fundamentals of the tanker sector, low order book and expected rise in demolition activity may fuel a further improvement in market rates in the years ahead.
On Slide 7, the tanker market fundamentals are indeed promising; new building ordering for all tanker segments in which we operate in has remained low in the past years due to uncertainty around environmental regulatory aspects, high steel prices and uncertainty around the COVID-19 pandemic. On top of that, and given the number of vessels above 20 years of age, we do anticipate the fleet contraction if we see softening freight rates, i.e., demolition to outpace new vessel deliveries.
I will now pass the floor to our CFO, Mr. Sakellaris who will provide a summary of our financial performance.
Fenia Sakellaris
Thank you, Harry, and good morning to everyone. Our financial performance for the first quarter of ’22 was better, both compared to the first and fourth quarter of ’21. As said, during the first quarter, rates did not mark a noticeable improvement. We did have virtually all of our vessels on period deployment, though, hence, include minimum voyage costs. Indeed, our operational utilization was in the order of 99% as our conversion of hire for the whole quarter was only 4 days. Looking at our income statement for Q1 ’22 against Q1 ’21 on Slide 8, revenues came in at $5.1 million, same levels as in Q1 ’21, but 28% higher than the previous quarter, Q4 ’21 as all vessels were on period charters. Voyage costs marked almost $0.9 million decrease given that our spot days were 82%, 102 days, that is lower, offset by the year-on-year increase in bunker costs. Indeed, in the first quarter of ’22, we had only the Stenberana performing spot voyage in between year period employments. Our running costs were stable as our fleet mix, number of vessels on bareboat that is remained unchanged. Overall, we tried to keep costs at moderate levels in spite inflationary pressures. Basically above, we generated an EBITDA of $2.6 million, that is almost 50% higher than in Q1 ’21 and a net profit of $4.2 million. Moving on to Slide 9. Let us take a look at 2.2 million. Moving on to Slide 9. Let us take a look at our balance sheet for the 3 months of 2021. of 2022. Following our capital offerings that took place up until the end of the first quarter, our cash base increased slightly to $82 million of free cash. As mentioned are in our call, a large portion was deployed for vessel acquisitions. Total debt is in the order of about $28 million. As of the end of the first quarter, our free cash was 3x higher than our outstanding loans. We are in advanced discussion as we mentioned, on financing our newly acquired ventures, Hence, our gearing wheel grains, however, we follow a conservative strategy on leverage. Concluding our presentation on Slide 10, we outline the key variables that assist us in our company’s growth. Even in this limited time of Imperial’s operation, we have shown commitment, we are joining high-quality fleet, while always working on cost-efficient operation and maintaining a solid capital structure. At this stage, our CEO, Mr. Havas, will summarize our concluding remarks for the period examined. Having raised a total of $135 million from our equity offerings, we consider the number of acquisition candidates to be acquired and grow our fleet. We managed within a brief period of time to identify, acquire and take delivery of 4 tankers, doubling our tanker fleet size and almost tripling our fleet’s cargo carrying capacity. The outbreak of warning Ukraine shocked shipping markets and altered oil trading patterns, resulting in an improvement in the charter market. For Imperial Petroleum, the first quarter of ’22 was transitional. The vessels we acquired were added to our fit towards and after the end of the first quarter, while improved charter rates for our existing vessels materialized from the beginning of the second quarter. Nevertheless, this was a profitable quarter with a significant improvement in revenue and earnings from the last quarter — the strong tanker market, the dynamic fleet expansion, along with improved charter rates bodes well for the second quarter to be even more profitable. Our remaining cash balance is about $55 million following the $78 million spent on vessel acquisitions. And before we incurred debt for this acquisition, which will increase our cash balance even further, as will the warrant exercise transaction, we recently announced that is expected to result in additional net proceeds of about $21 million. We are committed to growing our company further, and we’ll seek to expand our fleet so that tepid Petroleum becomes a true pioneer in the field of energy shipping. We have now reached the end of our presentation.
We would like to open the floor for your questions. So operator, please open the floor.
Question-and-Answer Session
Operator
A reminder for your name to be taken by an operator. Once again, it’s one, if you have any questions or comment at this time. This will take you for moments. Thank you. will take a few moments. We have a question coming from the line of Jon SenfromInvestor.
Unidentified Analyst
First of all, thank you for the presentation and congrats on definitely increasing revenue. The shareholders appreciated…
Harry Vafias
Question on…
Q – Unidentified Analyst
I’m sorry. As an investor, my question is, have done offerings about 2 months apart. And during that duration, that’s kind of killed the momentum on the stock running for the holes. Are you going to do future offerings? And what is your time line on that?
Harry Vafias
Thank you for your question. First of all, as you know well, to do an offering, we must have the Board’s agreement and consent. We are well capitalized at the moment. So we haven’t discussed another offering. We have the right to do as many offerings as we want. We want to grow the company, as we discussed many times in the past and in RF1. – and we can grow also outside the tanker segment. But we haven’t had any discussion with the Board for another offering as we speak.
Unidentified Analyst
Okay. And I do appreciate that answer. It’s just — it has definitely filled the momentum and lowered the sentiment. So we kind of want some insurance or assurance, excuse me, that you’re going to be for the retail investors that you want to see the stock run when the laws are down so that we can all succeed. If you really think about your shareholders, you won’t do that many offerings. And I realize you need to grow and the return on investment with ship acquisitions that makes sense. But if there continues to be offerings, it’s going to kill the momentum, and it’s going to lower the sentiment, and there won’t be many retail investors for INPP.
Harry Vafias
You are very correct in this business, as you know better than me assurances cannot be given. But as you see that the business is slowly entering a new age of profitability and stability – we will have to see what happens in the future.
Unidentified Analyst
Okay. So just to understand, you don’t have an answer and you can’t give any assurance for your investors about offerings.
Harry Vafias
Exactly right. There can be no assurances because we don’t know how the market is going to be in 2 months. We don’t know how the capital markets are going to be in 2 months, and we don’t know what the strategy for additional acquisitions is going to be in 2 months. I can only speak about now and the previous quarter. This is what I can speak about.
Unidentified Analyst
Okay.
Harry Vafias
Thank you.
Operator
We have the next question coming from the line of John Godin from investment.
Unidentified Analyst
First, there’s not much on the math.
Operator
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect your lines. Thank you, and goodbye.
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