Imperial Petroleum Inc. (IMPPP) Q1 2022 Earnings Report, Transcript and Summary

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.

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.

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 four days. Looking at our income statement for Q1 '22 against Q1 '21 on Slide 8, revenues came in at $5.1 million, at 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 [ph] performing a spot voyage in between year period employments. Our running costs were stable as our fleet mix, number of vessels on bareboat that these 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 $0.2 million [ph]. Moving on to Slide 9. Let us take a look at $0.2 million [ph]. Moving on to Slide 9. Let us take a look at our balance sheet for the three months of 2021 -- of 2022. Following our capital offerings that took place up until the end of the first quarter, our cash base increased sharply to $82 million of free cash. As mentioned 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 three times higher than our outstanding loans. We are in advanced discussion as we mentioned, on financing our newly acquired ventures, hence, our gearing will increase [ph]. 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 by joining high-quality fleet while always working on cost-efficient operation and maintaining a solid capital structure. At this stage, our CEO, Mr. Harry Vafias, 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 four tankers, doubling our tanker fleet size, and almost tripling our fleet's cargo carrying capacity. The outbreak of war in 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 fleet towards -- 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 of 2021. 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 Imperial 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.

[Operator Instructions] We have a question coming from the line of [indiscernible]. Please ask your question.

Hi. First of all, thank you for the presentation and congrats on definitely [ph] increasing revenue. The shareholders appreciate it. [Technical Difficulty]. I’m sorry. As an investor, my question is, you’ll have done offerings about two months apart. And during that duration, that kind of killed the momentum on the stock running for the Board [ph], are you going to do future offerings? And what is your timeline on that?

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.

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 IMPP.

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.

Okay. So just to understand, you don't have an answer and you can't give any assurance for your investors about offerings.

Exactly right. There can be no assurances because we don't know how the market is going to be in two months. We don't know how the capital markets are going to be in two months, and we don't know what the strategy for additional acquisitions is going to be in two months. I can only speak about now and the previous quarter. This is what I can speak about.

We have the next question coming from the line of John Godin from Investment [ph].

[Indiscernible].

Operator please go the next question please.

We have the next question coming from the line of Joe Ford [ph] from Alliance Global Partners. Please ask your question.

Yes, hi, Harry, it's actually Hofrath [ph] from Alliance Global Partners, AGP. I had a couple of questions for you. One is, are you looking at 60% debt on the $76 million of acquisitions? Is that sort of what we should look for as far as incremental debt, so your cash balance might go up by about $40 million.

Yes, something like that.

Okay. And when you look at the second quarter and even to the third quarter, I think you're -- to just confirm, it looks like you're looking at about 50% forward cover for the third quarter and almost full cover for the second quarter? And do you have average rates -- would those average rates be sort of in the $35,000 range for the second quarter? And then it looks like closer to $20,000 in the third quarter. Can you just give us a flavor for your forward cover?

Yes, I cannot speak about the third quarter. For the second quarter, the coverage, speak about the third quarter. For the second quarter, the coverage percentages are about, as you'd say, I would be slightly more conservative on the average rates, but you're not far away from the actuals.

Okay. And then on the warrant exercise, you're raising $21 million, what will this -- are these all Class C warrants? And how many warrants will still be outstanding after the exercise...

Because we've done a few offerings and we have had warrants outstanding, I don't remember the numbers by heart, but if you want, please send us an email, so we can check the exact outstandings and not make any mistake.

Okay, great. And then, if you look at sort of your cost structure looking into the third quarter when your fleet is fully on the water, all the acquisitions are completed and you have a full quarter under your belt. Can you give us an idea of sort of what your cash breakeven costs would be if you look at OpEx and then G&A layered on top of that?

Our G&A is relatively low as also our OpEx is, the question is if you're going to have debt by that time or not. So that's, let's say, the million-dollar question. The plan is, yes, by the end of the third quarter to have debt on these acquisitions. As you can understand, the banks since we are a new company are taking their time. We are not in a hurry either as we have plenty of equity to do our moves if we need to. So it will depend on how many ships have debt and how many don't, I think.

Yes. Yes. Just looking, Harry, it's just the cash cost, meaning OpEx plus G&A. The financial leverage is a moving target, as you mentioned. So I was sort of just looking at those two numbers.

Yes. We will have to revert on that. So please send us an e-mail on it.

Okay, sounds good. And then when you look at it, you've been expanding the fleet, you're up to 8 with a mix of product and crude tankers. Can you give us a flavor for where you see the best value right now on refined product tankers versus crude oil tankers and sort of what your optimal fleet might look like?

Good question. But in this market where tankers are very, very hot commodities and there are very few ships, good ships for sale, especially non-Chinese builds. We cannot be very picky. Whatever we found that -- whatever we find that is reasonably priced and makes a good sense with the remaining fleet, we have to pounce on it. So ideally, we would like a fleet of 12 to 16 vessels, evenly split between crude and products. But as I said, there's very few quality shifts for sale at reasonable prices. So we have to manage the expectations.

Okay, great. That's very helpful. Thank you, Harry.

Thank you.

We have the next question coming from the line of [indiscernible]. Please ask your question.

Hi. Number one, I'd like to know on the warrant conversion yesterday, how many additional warrants were offered to the people that converted.

We'll have to check with Maxim because they did this exercise, not us.

But wouldn't that be considered? So since basically you just take the large investors, because I'm a Series B holder, and I think there's some other Series B holders that own about 200,000 warrants on this deal. And basically, we did not get the chance to lower our pricing as well as get an additional warrant. So it seems like you're just in it for the institutional investors and the little investment be damned.

No, not exactly as we did not decide on who will be approached and who not. I will repeat again, Maxim Investment Bank did, not us.

I understand that, sir, but still, you're the company, you have to sign off on it. So bottom line is, we're stuck with warrants at $1.60, eight [ph] shareholders were granted an additional warrant as well as an additional better pricing. So when does those shareholders get taken care of. Because you're [indiscernible] don't care about the small shareholders.

Operator, go to the next caller please. Operator?

We have the next question...

Operator, I don't think he's answered the question. We'd like to have an answer to the question because there's a lot of...

We're going to take questions. If you're soliciting we're going to take questions. If you're so shouting and screaming, we have better things to do. So operator, please go the next caller.

We have the next question coming from [indiscernible].

Yes. My question was the same question and that wasn't answered. Also, how do you plan on paying, look to expand to 18 ships? How do you look to do that in the foreseeable future through more equity raises?

Equity raises and through the profits generated by the current ships plus the debt raised on the current ships?

Okay. So will you be doing more secondaries, as you did in the past?

I've already answered that twice already, 2x.

Okay. And so are you familiar with the company, what's the name of it. There's another company very similar to your company recently, Macken Group [ph] an offering with them as well. Performance Shipping. Are you familiar with that company?

We know them not very well, but we know which company it is, yes.

Right. Because they did the same thing, the stock went to $4 and recently, they did a few secondaries, bought some ships and now it's trading around $0.60 a share.

Okay. So what has this to do with us?

Well, I'm asking, we're looking at the same thing. It's almost identical if you look at the company. If you look at the equity raises.

Yes, I cannot comment for other companies, my good friend. I only care about our company. So I don't understand your question. There are hundreds of shipping companies. Obviously, they're not all alike, right?

Right.

We have cash. We have very low leverage. We have growing profits. We are at a time where tankers are doing really well, and we're going to see the benefits of the rising tanker market in Q2 and Q3. So we need to be patient.

Okay. Okay. Because we saw a lot of dilution recently, a lot of sell-offs, especially with the warrants.

As you know very well, you can buy and sell our stock whenever you like. You are not obliged to keep the stock, right?

Well, our investors like to buy and look for a good future with the company.

Yes, the stock is trading below NAV. So the stock is cheap right now. The stock is cheap from a buying point of view.

Right. And that's what we're hoping that the stock is cheap, and it's not going to continuously be diluted. I know that Maximum Group LLC is infamous for doing secondaries and continuing to dilute the shares. And that's some of the concerns that we've had in the past that is this...

It's a very valid concern. But on the other hand, you have, as I said before, a lot of cash, more cash coming from the -- from the debt that we are raising, plus a very, very hot tanker market. So I hope that the pros will be more than the cons, I think.

Do you think oil continuing to rise is going to increase your business in a significant way.

Obviously, obviously, not even ExxonMobil can answer that question. But generally speaking, I think that for the short to medium term, oil will be high, yes.

Yes. Okay. Well, thank you very much for your time. I appreciate it.

My pleasure. Thank you.

We have the next question coming from Sammy Suele [ph] from Retail Investors. Please ask your question.

Hi, there.

Hello.

Yes, I just have a question about the Q2 guidance. Can you provide that?

We haven't given any actual guidance. We think that Q2 is going to be better than Q1, if that helps.

Okay, thank you.

We have the next question coming from John Gordon from Investments [ph].

Good afternoon or good morning out there.

Thank you. Good afternoon.

I have just a couple of questions for you. From a PR standpoint, my friend. I think you need a little bit more of that. If you're looking at your Page 4 here, it shows that we got our two ships for the total of 8 on the 3rd of June correct?

Yes.

So why didn't anyone come out and say that instead of saying mid-June, the third would have been a perfect timing. I think the stock would have went up, and I think more than half of these phone calls to try to answer politely as possible, wouldn't be there. We need more PR. Do you have a PR department? Can you -- is there something that exists there?

If you have any other questions, please fire away because we are here just for you. Any other questions, please fire away because we are here just for you.

Yes, that's the major question that I have. It's just somebody that demonstrate more PR. Just wow, guess what, guys, we got our Enchanted and our Protopia, whatever you want to call that, both -- let's get going, right? Another thing is with Maxim Group. The only thing I want to say about that is why -- you do have to sign off on those things. And I understand that this is not to insult you by no means, but when you do an offering, why is it that we go from a 160 standpoint, right, the first quarter earnings -- or I'm sorry, back in March and then take the lowest bidder out there. I'm sure those other investment companies that you can just hang up on Maxim and say, hey, guys, my company's worth wholesale value with 8 ships. If I either lowball these in a high market like you can't buy these ships guys, so they're going up in price. So, if each boat out there is worth – I’m lowballing it, $20 million, right? And then your cash flow try to buy simply the shares out there, the wholesale value on your stock should be about $2.80 to $3 a share. And I think that’s where a lot of callers are getting frustrated within it. If you look at like the [indiscernible] out there, and in America, there’s a bunch of little sites that they go to, right, and talk about your stock. I going with you guys for since the inception. I’m not selling your stock, I have a boatload of them.

The -- your comments are mostly valid. In this business, you need to be patient because, as we said, the ships we took delivery at the end or the end of Q1 or beginning of Q2, thus, their value has not yet been reflected in the performance -- and on the comment about Maxim, you're also right. It's good to not take the lower stuff around, I would agree with you on that.

I think we're learning together here, right? Harry, that maybe the next time Maxim calls you just sort of hang up the phone and find someone else -- like give me a call. My number is here. I'll find just somebody in New York and a New York second.

Thank you. As you see, we're in the same boat here. We're trying to grow a company that started with only four ships and we are aiming to become medium or big if we can. Obviously, some of the shareholders are not happy when they are diluted. But on the other hand, we need the money to grow. So we need to find a fine balance between the 2. I'm very happy that most of the comments you said, as I said, we've also discussed internally. So we really thank you for your contribution.

Appreciate you. Just go buy some more boats with some money from a bank and not me.

This is what we're going to try and do, yes.

From a bank, not me. Or call me and I'll get another New York, a little investor out there for $2 a share, to the wholesale value. If you went out of business, I can sell your boats for more than the $0.68 we're currently at. [indiscernible].

We have now reached the end of our presentation. We'd like to open the -- we'd like to close the questions. And operator, I'd like to thank everybody for joining us at our conference call today and for your interest and trust in our company, and we look forward to having you with us again at our next call for our second quarter results. Thank you very much.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect your lines. Thank you, and goodbye.