Imperial Petroleum Inc. (IMPP) Q1 2023 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Q1 2023 Imperial Petroleum Results Call. At this time, all participants are in listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] Please not that today's conference is being recorded. I would now like to hand the conference over to you speaker Mr. Harry Vafias, CEO of Imperial Petroleum. Please go ahead, sir.

Good morning, everybody, and thank you for joining us for the first quarter 2023 conference call of Imperial Petroleum. I'm Harry Vafias, the CEO and with me today is Ms. Sakellari, our Interim CFO, who will be discussing our financial performance. Before we commence our discussion, we'd like -- we like you all to read the safe harbor disclaimer in slide number two 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 raise the attention of our investors to the fact that such forward-looking statements involve risks and investors and uncertainties which may potentially affect our company's performance. In addition, we'd like to state that during this call, we will quote monetary amounts unless explicitly stated otherwise are all denominated in U.S. dollars. Starting from slide three as a summary of our company's performance highlights. The first quarter 2023 had the best turnout possible for Imperial Petroleum. As we ended the period with a record net income of almost $36 million, an outstanding performance for a fleet of our size. Our earnings per share or EPS came in at $2.31, which is close to our current share price. In conjunction with our past quarters, we generate an annual return on equity in the region of 19% based on the trailing 12-months to March 2023, a return that cannot be left unnoticed. Setting aside our short performance year 2023 commenced with the busy agenda for Imperial Petroleum from a strategic standpoint. We deployed about $70 million of cash in order to pay all of our outstanding debt. Imperial Petroleum is now a debt free company with a flexible capital structure. Striving for growth, we acquired two more handysize bulk carriers reaching at a fleet of total 12 ships. Furthermore, we proposed the spin-off of two of our dry bulk carriers, a separate company called CCIS. Finally, on April 28, 2023, we affected the 15 for 1 reverse stock split in order to regain compliance with the NASDAQ minimum bid price requirement. Our strategic initiatives allow us to enjoy a company which is driving in terms of financial performance owns a debt free capital structure with an unencumbered fleet has granted flexibility to our shareholders, who are spin-off to expand and perhaps diversify their investment and has taken action in order to regain compliance with NASDAQ, just to provide more assurance to our shareholders. We continue to trade at a deep discount to NAV, but remain positive at our solid profitability will assist our share price to recover and realistically reflect the true valuation of the company. On slide four, we provide a summary of our fleet employment, as evident all of our drybulk carriers are under time charter employment. As for our tankers following the conclusion of Magic Wand's legacy 10 charters, they're all operating on the spot market. Indeed, the spot market for all tankers, product Aframax and Suezmax tankers continues to be strong, particularly when compared to rates prevailing a year ago. This upward trend in rates is reflected in our performance as well. Our daily time charter equivalent in Q1 ‘22 was $12,600 and climb in Q1 ‘23 to $53,750 per day, marking a rise of about 330%. Change in trade partners following the Russian, Ukrainian conflict have made voyages longer haul, this along with the firm oil demand maintained rates are high levels, which are evidently favorable for the owners. On slide five, we're reviewing the tanker market. In spite of the global economic recession and the recent Western Banking crisis, that has caused some volatility in the market. Global ore demand is forecasted to grow by about 2 million barrels per day this year. This growth will be facilitated mostly by China, which is no longer held back by COVID restrictions. This will give rise to in-domestic demand. In addition to this, intensify the refinery activity in China is expected to support crude imports, which will hit that record in the second-half of 2023. In the beginning of April 2023, Saudi Arabia and other OPEC+ members announced voluntary production cuts from May till the end of the year as a precautionary measure and that supporting the stability in the oil market. This has had an impact of rates in the short run. However, base is little fleet growth along with trade flow changes and the Atlantic East arbitrage, we do not expect to share a noticeable and long lasting weakness in the market. Are the evident global tanker market is impacted by various events and that is difficult to make predictions as to future performance. However, firm demand and higher high utilization present favorable conditions for a continuation of high freight rates and perhaps some volatility in the periods ahead. Since 2020 or demand has grown by about 9%, while oil experts have followed a slower pace of 6% growth. In other words, there's a supply shortfall in the market. Overall global oil demand is anticipated to have a very long tail and to peak in the late 2030s and this creates a positive outlook for the broader tanker market. On slide six, we're focusing on the product tanker market. We expect the outlook for this segment to remain positive for this year and beyond due to the small order book and longer haul seaborne trading patterns. Product tanker fleet growth will be 2% this year, while product tanker demand growth will exceed 10%. The Suezmax and Aframax tanker market have been supported mostly by the Intra Atlantic basin crude tanker demand. Briefly to comment on market rates and trade patterns during the first quarter, the tanker markets show an extremely strong start to the year, especially on the dirty side, but also the clean tankers were enjoying healthy freight levels too. The significant changes in oil and oil product trade flows coming as a result of a sanctions imposed in Russian cargoes continue to be the main driver behind the strong markets. India continues to buy large quantities of Russian oil and China coming out of the recovery lockdown started to increase significantly their imports, also of erosion Euros crude from the Baltic and the Black Sea. In addition, the G7 nations [Indiscernible] cap restrictions on Russian oil products came into effect as of February 5, which led to both Russian dirt and clean oil products having to find new buyers and except for Turkey is the majority of these outlets are resulting in major increase in ton miles. On the dirty side, the Atlantic saw the highest rates and especially the Aframax segment had a very solid Q1 with historically high levels paid on both sides of the Atlantic. East of Suez, a dirty market trade did not see the kind of picks that the Atlantic market experienced, but the owners enjoyed their relatively stable and strong market also there. On the clean side, we saw more volatility West of Suez than East of Suez, but the others for the quarter turned out quite similar. I’ll now pass you on to Ms. Sakellari’s will provide a summary of our financial performance.

Thank you, Harry, and good morning to everyone. In the first quarter of ‘23, our revenue and profitability took off. The fact that the fleet of 12 vessels managed to generate about $36 million of net income is impressive and encouraging for the quarters to follow. We ended the quarter with an operational utilization of 85% with six days of technical off hire and 495 days or 54% of our fleet days dedicated to spot activity. Both conditions and dates favor spot market operations, evidently this proved to be a sound and very profitable decision. Looking at our income statement for Q1 ‘23 on slide seven, compared to Q1 ‘22, revenues came in at $65.4 million, up by $60.3 million, compared to the first quarter of ’22, due to a further increase in market rates and the increase of our fleet by an average of six vessels. Voyage costs increased by $16.4 million, due to the increase in spot days by $468, that is 1,700% and the rise in daily bunker cost by $5,200, compared to Q1 ‘22. Our running costs decreased by $5.2 million solely attributed to our fleet expansion, compared to the fourth quarter of ‘22 when we had similar number of vessels our daily OpEx remains stable. We do expect a rise in OpEx in the second quarter of ‘22 as the two drybulk handysize carriers joined our fleet towards the end of Q1 ’23 and therefore, the cost of the operation was not fully reflected in our results. Basically, above we generated a strong EBITDA of $40 million that is $37.3 million or 1,435% higher than in Q1 ‘22. Our net profit of $35.7 million was an all-time high result corresponding to an EPS of $2.31 based on the number of shares outstanding as adjusted for the reverse fleet, effective on April 28, 2023. Our profit margin for the quarter was in the order of 55%. Moving on to slide eight. Let us take a look at the balance sheet for the three months of 2023. As of March 31, 2023, we had the free cash base of about $115 million including time deposits. Within March, we utilized $23 million to repay one of our outstanding loans, while within April, we further deployed another $46 million to repay earlier in full, all of our debt. Imperial Petroleum is now a debt free company with unencumbered assets and zero cash flow obligations stemming from financing. Our operating cash flow for the quarter was $31 million, so in the single quarter, we generated from a fleet operation, cash almost as much as our market capitalization. As to-date, our cash starts in the region of $70 million, we will continue to utilize upon the high interest rate environment and commit our excess cash on time deposits. Yields are high only Q1 ‘23, we generated close to $1.3 million of interest income, fully hedging against and -- are then finance costs for the period. In slide nine, we present the financial snapshot placing efforts on our solid financial position. Going forward, as mentioned earlier, our cash balance is quite high in the region of $70 million and [Technical Difficulty] to expand our fleet further. Full debt repayment will lead to annual cash flow savings, principal and interest of almost $15 million. Funds that may be directed to asset investments. We enjoy both healthy liquidity and a good financial sector. Looking at profitability Q1 ‘23, our daily time charter equivalent per vessel came in the order of [$53,750] (ph). What is most impressive and the mathematical proof that our strong results may continue is that following our full debt repayment, our daily cash flow breakeven provision is about 9,000. Imperial Petroleum proved to be a company capable to grow fast and produce impressive returns. A return on equity basis trailing last 12 months is reaching 19%. Our considerations going forward stem mostly from how market conditions will play out and affect our segment. One question is the duration of the global recession and recent banking crisis and the extent to which this will affect the oil market. Moreover, a base of strong oil demand is anticipated that OPEC will increase supply in the second-half of 2023, but this is still unsure. Moving on to company specific, our only capital obligations going forward are five drydocking scheduled to take place in the remainder of 2023. Concluding our presentation with slide 10, we simply outlined once more the strong budget proven points that make Imperial Petroleum a company that has a short, but impressive track record of a successful fleet expansion, which should immediate returns. We hope that our company's words will finally be reflected in our share price. At this stage, our CEO Mr. Harry Vafias, will summarize our concluding remarks for the period examined.

Our performance in the first quarter of 2023 resulted in record revenues and profitability. We are extremely pleased that our strategies are paying off. Commercially, we capitalize on the strong tanker market and efficiently utilized an average fleet of about 10 ships to produce in a single quarter net income of $36 million marking 17,750% increase, compared to the net income generated in the first quarter of 2022 and an EBITDA of about $40 million, is 1,435% higher than the same period of last year. Strategically, we proposed a spin-off of two of our dry vessels to a separate company called C3is. In terms of our financial strategy, we paid down all our debt and have stopped issuing new shares. Without a doubt, we are well positioned to benefit from the good market conditions that seem to last going forward. We have now reached the end of the presentation and would like to open the floor for your questions. So operator please open the floor.

Thank you, sir. [Operator Instructions]

We will take a total of 10 question, not more.

We are now going to proceed with our first question. And the question come from the line of Jason [Indiscernible]. Please ask your question.

Hello, hi. Can you hear me? Hello?

Hi, Jason.

Hi, good afternoon or evening, wherever you are. So I guess I've been an investor here for about a year since you guys started, been a little bit of a ride. And here in the United States and probably elsewhere in the world. I guess now more than ever, social media, online, websites and stuff they give commentary about certain stocks are more prevalent than ever, Reddit, Whatnot, Yahoo Marketplace, whatever. And perception has been really negative about the company, about trusting the future of your management style in reassurance to investors? And what I really want to know and what the investment community wants to hear from you guys is that dilution is over, I guess, to some degree, a definitive statement. And we really want to see management invested in common shares?

We got a lot of criticism over the last year and fairly, I would say. The company grew in just a year from four ships to 12. The company grew from a really small company with no assets -- with very few assets and debt to a debt free company with an excess of $400 million in assets. We just said in the press release that we don't need to issue any more shares for now, we have plenty of money and no debt. All of our fleet is unencumbered, so if this doesn't give any comfort to shareholders, I don't know what will.

[Multiples Speakers] what we’ve been waiting for, sir. We've been waiting for kind of a verbal declaration from you of just that and I think that will move the market. In the future, I would like to see management being compensated with common shares. I don't know whether there's some sort of performance compensation or whatnot, but I think it would give a good impact in when management starts to actually [meet] (ph) shareholders in the company?

Thank you, Jason. And I think that the board is discussing exactly that as we speak.

Excellent, sir. Well, I -- again, I think you guys have done a fantastic job overall. I mean these numbers are beyond impressive and keep it up.

Thank you.

Yes.

We are now going to proceed with our next question. The question come from the line of Edward Humphreys. Please ask your question.

Hello?

Hi, Edward.

Hi, Harry. Thanks for taking the question. I just want to start off by saying it's really impressive how much you've grown the company and how healthy the balance sheet and all the operations are to-date. I don't want that to be undervalued or kind of diluted by a lot of hearsay that you hear here and there. So I think you guys have been doing the phenomenal job taking advantage of both the public markets and the unique let's say, global situation we're in right now. And I think it's very commendable. I just want to kind of piggyback off, I think Jason just hit it right on the head there. I think everyone is just kind of thinking the same. We're very impressed with the revenues, the profits. I would just put out there, I mean, even if management or the company itself put 50% of one quarter's let's say profits into a common share buyback, you could get about 5 million shares or so at this price point. If you guys were to resell those shares closer to the net asset value, which of course you've reiterated multiple times is close to the $20 region. I mean, that would generate substantial returns to the company? And then of course that could be put towards growing the fleet and continuing this terrific job what you guys have been doing. So I kind of just wanted to get on and reiterate that, that I think you guys have a tremendous opportunity here with the clear difference in what the company is truly valuing and what the market has it at here. If management could take advantage of that price arbitrage, I think we could definitely benefit the company and definitely benefit the shareholders?

Thank you, Edward, it will be definitely be discussed at our next board meeting with the whole members of the board. Thank you, it's appreciated.

Thank you, Harry. Take care.

We are now going to proceed with our next question. And the question comes from the line Thomas Randall from Tribco Partners. Please ask your question.

Hello. Can you hear me?

Hi, Thomas.

Hi. First of all, congratulations to you and your management team on a spectacular quarter. I just want to make a note that the amount of profit you reported in your first quarter was the equivalent of the market capitalization on Friday. I'm an investment banker of 40-years, I'm semi-retired, I have never ever seen the degree of undervaluation of a publicly held company. My only suggestion to the company is to retain a good Investor Relations firm that will help present this compelling story to smaller hedge funds and investor clubs, because what you have is an incredibly compelling story. Now I'm sure all of you are aware of that for your operators and you do a tremendous job of operating the company, but I believe that most of the shenanigans going on in the marketplace are naked short sellers. And they can be very vicious as we all know. The other suggestion about a buyback is clearly something that I know you're going to consider. And that certainly would put a floor on the stock. But you're managing the company for the long-term as long as you convince shareholders of that, number one and number two, you have a good firm to present this to the investment community. I think this company will do just fine. So again, many congratulations on what you've done with this company.

Thank you very much, Thomas. Your experience really counts. We are exactly doing that through selective interviews that go on YouTube and so on to spread the story. And from one on one calls with larger investors. Everybody has now realized better late than ever how solid the companies and how cheaper companies. So we hope that [Technical Difficulty] the gap between real value and the value of the stock will narrow going ahead. But thank you.

Thank you very much.

We are now going to proceed with our next question. And the questions come from the line of Scott Shepherd from Black Castle. Please ask your question.

Yes, hello. Can you hear me?

Hello, Scott.

Congratulations on the quarter. I think it was phenomenal. I'm really impressed with what you guys have done with the company. Not to beat a dead horse, but my question is on dividends, stock buybacks, if the company is considering, retaining that capital for other purposes besides stock buybacks or a potential dividend. What uses might the company be exploring with that capital? And can you give us a little insight on that potentially? Thank you.

Yes. I mean in Q4 last year, we would not have expected that we would be debt free so fast. So reducing our debt down to zero was the first priority, because the interest rates are going through the roof. And therefore, that was a really viable thing that management did, I think. And we haven't really explored the uses of the capital yet as there is the difference in opinion between the board, if we should expand the fleet further or we should do a buyback or we should wait and see if the market to continues to be that strong in Q2 and Q3. So there are these two, three, let's say aspects that need further discussion. But I think we're all on the same page, we're not issuing any more shares. The company is debt free, the company has become a cash making machine. So I think within the next quarter of the following one, we have more concrete news on which option we have all decided to go with.

Great. Thank you.

We are now going to proceed with our next question. And the next questions come from the line of Jeff Friedrich from Imperial Petroleum. Please ask your question.

Yes. Hey hi. IN the SEC filing for the C3is document. You guys mentioned a buyback of the shares that you put in for the IMPPP part that now IMPP owns. Of course, it was reduced by the amount of shares accordingly by the reverse split at 150% the price, is that still going to happen?

Sorry, Jeff. I didn't understand the question. If it's possible to send us an email with the specific questions, so we can go through it with our accounting team as well and we'll get back to you.

All right. Well, the -- okay. All right.

Just send an email, please. It's easier for us to understand what you're asking for.

Okay. Well, I was just asking a question regarding something out of the SEC document. Regarding the SEC -- the C3is program?

Yes. I will repeat for the first time if it's possible to send it on an email, so [Multiple Speakers] not understanding.

Okay. Yes, yes, totally got it. Thank you.

Thank you, Jeff. Thank you.

We are now going to proceed with our next question. The next question comes from the line of Ross Haberman from RLH Investments. Please ask your question.

Good morning. Thanks for taking my call. Very nice quarter. I just wanted to ask a quick question. Could you give us a little rationale for the purchase of the bulk carrier ships, which you purchased from yourself a couple of months ago. And now are these the same ones which are spinning off? Could you sort of give us the rationale for buying them? Because they were not oil tankers, but they're a different type of ship. And now why spin them off? Could you sort of give us the rationale? Thank you.

Yes. Thank you, Ross. I think it's quite simple, because the tanker market is doing so well, the prices for tanker assets has gone ballistic. We are generating a lot of money, so instead of going and buying an asset which currently is very expensive, we try to find an asset in a market which is not booming and therefore the valuation is not so expensive. And by spinning these two ships out, as a dividend to our shareholders, then our shareholders get the bonus, because they can hold the stock if they believe in this new market or either bulk carriers or sell it and make some money back if they don't believe in this market. Such a nice option for our shareholders?

When is that new stock going to begin to trade if I may ask?

It's not finally yet we're waiting from the SEC some legal proceedings. I think before it goes well, we don't have any unexpected delays beginning of June. So very soon, I guess.

And just one follow-up question. Will you use the new cash, which you generate assuming your business continues in a very positive manner like we saw this quarter. Will you use it, possibly to buy other non-tanker ships like you just did or you're sort of going to stick within the realm of oil tanker ships. I think that's what one of the less positive aspects is that you sort of veered off and went into a different type of ship purchasing? And I think that was a little bit of a negative aspect, which with some of the shareholders were surprised to see you -- do. But thank you very much for taking the questions.

Yes. I think that investors have a very short memory, because last year when StealthGas, which was the mother company spined-out Imperial Petroleum. We were getting exactly the same comments why did StealthGas, which is a gas company by tanker assets and why they're veiling off their normal strategy. Of course, some people who took this Imperial Petroleum stock and saw that the highs made 5 times, 6 times, 7 times their money out of nowhere. So we are again of the same point where Imperial Petroleum is now buying assets from a different class, and we'll spin them out. And again, we are facing criticism. So look what happened last year with the assets spined-out, out of the mother company, and I think you'll understand why we're doing it and actually it's a very positive thing. Because as I said before, you get a separate share, which you can hold or sell. So the power and the authority lies with a shareholder and not with us. This is a very big nice decision for the shareholder to have to keep the free shares or sell them.

Thank you.

We are now going to proceed with our next question. And the question come from the line of Lance Gad from the Gad Foundation. Please ask your question.

Yes, hello. When Imperial Petroleum was spun out of StealthGas before the [$14.50] (ph) reverse split, the basis allocated was $12 and I'm -- let's see, I think it was $12.50 and maybe it was $7.50. Yes, $7.50 and now with the $14.50 reverse split those shares have a basis of $112.50. I was curious, why -- how that number came about? Why was it so enormous?

I cannot answer that. This is a legal and accounting issue according to the SEC rules. But what I can say is that if we did not do the reverse split and the company continue to trade below $1, we would be delisted. The stock would be in the pink slips and if the value would be zero. So it was the only thing we could do to keep the company going and give some liquidity to our shareholders.

Right. The other question I had, we announced before the reverse split, I believe that the NAV of the company was $1.38, yet we were selling shares in the market at about $0.20 to raise money to buy ships, I can't understand how that was a good thing to do.

You're absolutely right, you're absolutely right Lance and that's why we stopped doing it and with all the money with [Indiscernible], not only did we buy ships, but we also repaid our total debt down to zero, which makes the company today a very, very strong company that can withstand any market conditions.

But we sold an awful lot of stock at a price even below today's price. And today's price is approximately what we made in the quarter. So I couldn't, it seemed to me to be absurd that we would do that?

Yes, we couldn't know the future, we couldn't foresee that we're going to be making so much money in Q1. Because all our ships were spot, there were not on time charter contracts when you can forecast your earnings. Spot means that if the market is good, you can make a lot of money or if the market is not good, you can lose a lot of money. So it's a risk, we took that risk and it paid out. So that's why we are happy. We don't need any money, today's any money. We have no debt. The company is very strong. We have no programs anymore with the NASDAQ compliance price. And we move ahead.

Thank you.

We are now going to proceed with our next question. And the next question is from [Indiscernible]. Please ask your question.

Hi, Harry. Can you hear me?

Yes.

Hi there. I was -- I'm just curious, the main thing I'm trying to understand with the share price so far below net asset value, if you believe there's so much opportunity with the marketplace, why do you or no management own any common shares?

Who told you that we don't own any common shares?

They would be an SEC filings.

We do own common shares, my good friend. And to be honest with you, when the stock was booming exactly a year ago or I think a bit longer, the management did not sell a single share of the [service] (ph) owned. So that showed the lease in the company. We could have showed that made a lot of money, one that shares were trading at very high levels we didn't.

Why would there be no interest to purchase more if there is -- it's a 70% discount for net asset value, if not more?

You are absolutely right, but don't forget that we own two public companies that both trade at the discount to NAV. So obviously, we are not Bill Gates. We don't have billions, so we have to carefully manage our own assets. But I agree with you. At the moment, the stock is a very good buy with today's fundamentals. I agree.

Okay. Thank you, Harry.

Given the time constraints, we will end the question-and-answer session here. I will now hand back the conference to Mr. Harry Vafias for closing remarks. Thank you.

We'd like to thank you all for joining us at the conference call today and for your patience and interest and trust in our company, and we look forward to having you with us again at our next conference call for our second quarter results. Thank you very much.

Ladies and gentlemen, that concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.