Imperial Petroleum Inc. (IMPP) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Q2 and 6 months 2025 Financial Operating Results of Imperial Petroleum Results Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your first speaker, Mr. Harry Vafias, CEO of Imperial Petroleum. Please go ahead.

Good morning, everyone, and thank you for joining us on our second quarter and 6 months 2025 conference call. I'm Harry Vafias, the CEO of Imperial Petroleum, and joining me on today is Ifigeneia Sakellari, who will be discussing our financial performance. Before we commence our discussion, please read the safe harbor disclaimer on Slide 2. In essence, it's made clear that this presentation may contain some forward-looking statements as defined by the Private Securities 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 Imperial Petroleum and are subject to risks and uncertainties, which could cause future results to differ materially from these forward-looking statements. In addition, we'd like to clarify, we will quote monetary amounts unless explicitly stated otherwise, in U.S. dollars. On Slide 3, we're summarizing our key operational and financial highlights for Q2 '25. What governed Q2 '25 was our impressive fleet expansion as within a single quarter, we took delivery of 7 drybulk ships, expanding our fleet by about 56% and reaching 19 non-Chinese built vessels. Imperial Petroleum is now a company of a material size that operates a combined fleet of tanker and drybulk ships. The majority of these drybulk ship deliveries took place towards the end of the second quarter of 2025. Hence, these drybulk ships did not have sufficient operating time to fully contribute to our bottom line. Nevertheless, our company continued the multiyear momentum of recurring profitable quarters. In Q2 '25, we generated a profit of $12.8 million, corresponding to an earnings per share of $0.36. In spite of the second quarter being a weak seasonal period, especially for tankers, we managed to improve our profitability against the first quarter of '25, mainly at the back of increased tanker time charter coverage that led to improved performance of our product tankers. During the second quarter of '25, we did witness a turbulent market in terms of geopolitical events, mainly in June with the brief Israel-Iran war. This conflict caused a spike in tanker rates and affected market sentiment due to the high risk of Strait of Hormuz closing. Our noticeable fleet expansion increased our fleet book value by about 55% against the previous quarter, and we now enjoy a fleet of about $350 million of book value. Imperial Petroleum continues to enjoy high liquidity as we ended the first half of 2025 with $212.2 million in cash and cash equivalents. We maintain a positive working capital and have sufficient quarterly cash flow generation, so we are able to preserve adequate liquidity throughout the periods. In spite of our expansion and our solid performance across the quarters, our company remains heavily undervalued. Basis on June 30 financials and fleet market values as per our management estimates, our net asset value per share is about $13.5, which is almost 4x higher than our current market price. It's evident that our company's strong financial and operating performance, along with the positive prospects set forth through our fleet expansion are not yet embedded in our share price. On Slide 4, we provide a summary of our current fleet employment. About 80% of the fleet is currently under time charter. As customarily, all our drybulk ships are under short-term charter contracts. The commercial strategy we currently follow for our drybulk ship allows us to secure cash flow while minimizing commercial idle days and voyage costs. For the tankers, we currently have 4 vessels, 2 product tankers and 2 Suezmaxes in the spot market. The remaining 5 product tankers are under time charter employment ranging from short-term to medium-term contracts. The increase in time charter coverage, which compared to the first quarter of '25 was in the range of 10%, improved our net revenue margin and assisted our bottom line. On Slide 5, we're discussing the evolution of market rates for both tankers and bulkers. What is positive is that compared to the first half of '25, daily rates have continued to strengthen for both tankers and bulk carriers. Looking at tanker rates, these are lower than the peak levels reached in the period '22 to '24, but still earnings remain robust compared to the 10-year average. Indicatively, it's reported that earnings for Suezmax vessels are about 30% higher than the 10-year average. Rates for product tankers are almost 15% higher than the 10-year average. And within the second quarter of '25, we witnessed a spike in rates around the Middle East region due to the brief Israel-Iran conflict. Since then, the rates have further strengthened mainly as a result of OPEC unwinding production cuts and the newly imposed sanctions by both the U.S. and EU U.K. Following June '25, rates for drybulk vessels strengthened at the back of trade fundamentals such as improved steel margin in China and a boost of grain trade in Brazil. Currently, rates for Supramaxes have risen to highest levels since May '24 ahead of U.S. grain season kickoff, and we currently enjoy solid rate in both segments we operate in, which faces with a cautious optimism as to what we anticipate for Q3 and '25. On Slide 6, we're reviewing the tanker market. The global oil tanker market has entered the second half of '25 with a positive stance, but the market is still dominated by geopolitical and trade policy risks. The recent Israel-Iran tensions had a direct impact on energy infrastructure, leading to a sharp drop in Iranian exports. Ongoing negotiations on trade tariffs such as the recent China-U.S. discussions caused trade frictions that have a material impact on market sentiment. Moreover, the expanded sanctions on Russia and Iran could alter trade patterns further creating trade disruptions and rate volatility. Setting aside the market uncertainty, both oil demand and supply are set to rise in the remainder of '25 and '26 with supply expected to outpace demand. In terms of supply, OPEC+ has begun unwinding voluntary production cuts, adding 1.8 million barrels per day in '25, an action that will positively affect the tanker rates. Looking at the tanker supply, this market is governed by strained fleet growth, an aging fleet and moderate demolition activity. The order book for the product tankers, MR2 stands at 3.2% for the remainder of '25 and 5.1% for '26. And Suezmaxes fleet growth is 3.5%, up to 5.1% for '26 -- 9%, sorry, for '26. We also anticipate the regulatory and environmental pressures to intensify demolition activity for older tonnage, a fact which will shrink vessel supply. On Slide 7, we are discussing the drybulk market. Following a softer first half, drybulk trade has recently shown signs of rebounding. Since July '25, drybulk trade volumes have increased by 2% year-on-year. Tonne mile growth for bulkers is expected to be moderate as Red Sea transit remain low and any vessel rerouting back from the Red Sea in the near term looks unlikely. Any additional tonne mile growth will be supported by the increase in long-haul exports to China for Guinea bauxite and Brazil iron ore and grains. Indeed, Guinea-China bauxite trade remains a key driver of drybulk trade, particularly for large vessels as departures were up 41% in the first half compared to the same period last year. Midsize bulkers were supported by Brazil-China grain trade, U.S. corn trade and Chinese steel exports. Overall, drybulk trade is expected to remain relatively stable in the years ahead. In terms of fleet growth, we saw 302 bulkers being delivered since the start of '25. Current order book is 9% for Panamax, Kamsarmax vessels, quite low for handysizes, 6% and reasonably big for Supramax/Ultramax at 11%. I'll now pass you the floor to Ms. Sakellari for the financial performance.

Thank you, Harry, and good morning to all. The second quarter of '25 was a turning point for Imperial Petroleum. Our fleet increased materially. Our recent acquisitions in Q2 '25 did not contribute significantly to our operations and profitability as most of the vessels were delivered towards the end of the quarter. Nevertheless, within the second quarter of '25, we managed to increase our profitability by 13% against the first quarter of '25, generating a net income of $12.8 million. Focusing on the second quarter of '24, though, this was exceptional as market rates were at their peak, much higher than in Q2 '25. Indicatively, it's mentioned that in Q2 '24, our daily fleet time charter equivalent was in the order of $35,200, while for Q2 '25, daily fleet time charter equivalent was about $20,700. Looking at our income statement for Q2 '25 on Slide 8, revenues came in at $36.3 million, marking a $22.8 million (sic) [ 22.8% ] decline compared to revenues generated in the same period of '24. This decline stems from lower market rates. During Q2 '25, average daily spot rates for product tankers were $9,500 lower when compared to the same period of last year. In addition, average daily 1-year time charter rates for product tankers were about $12,000 lower compared to prevailing rates in Q2 '24. Voyage costs amounted to $10.7 million, $6.4 million lower than when compared to Q2 '24. This decrease in voyage expenses is attributed to increased time charter activity by about 36%, leading to a decline in voyage costs, particularly bunker costs. In Q2 '25, our bunker costs were $5.2 million lower compared to the same period of last year. Running costs amounted to $8.4 million, increased by $1.9 million due to the increase of our fleet by an average of 3.8 vessels between the 2 periods. Overall, during the past year, we have witnessed a stabilization of daily operating costs across the quarters. Our average fleet operating costs oscillates between $6,400 to $6,700 per day, depending on maintenance and supply needs within each quarter. Drydocking costs amounted to $1.7 million as this quarter, one of our Suezmax tankers and one of our Supramax drybulk carriers underwent dry docking. EBITDA for the second quarter of '25 came in at $17.1 million, while net income at $12.8 million corresponded to a basic earnings per share of $0.36. For 6 months EBITDA '25, our EBITDA came in at $31.8 million. Our operating cash flow was $42 million, while our net income was $24.1 million, corresponding to an EPS of $0.67. Our current share price is about 3x higher than our earnings per share for the last trailing 12 months, a sign that our profitability capacity is not adequately reflected in our company's valuation. Moving on to Slide 9. Let us take a look at our balance sheet for the 6 months of '25. We enjoy a healthy cash base of close to $212 million. Within April '25, we repaid about $40 million for the vessels Clean Imperial and Neptulus. Nevertheless, we faced a marginal decline in our end-of-period cash balance as robust cash flow generation allows to preserve liquidity at high levels. Our fleet book value is a shade above $350 million, about 68% higher than end of year '24 due to our vessel additions. Payable to related party balance mainly reflects the amount owed for recent vessel delivery, which was paid within July and August '25. Proceeding to Slide 10, we provide the summary of our liquidity, profitability and market considerations going forward. We continue to enjoy a debt-free balance sheet and a solid cash flow generation. Within the first half of '25, our operating cash flow was $42 million. Our profitability margin remains wide as market rates are favorable and significantly higher than our breakeven levels. In Q2 '25, our time charter equivalent per fleet voyage day was close to $21,000, while our daily average cash flow breakeven is currently about $8,700 for tankers and close to $6,500 for our drybulk carriers. In terms of market consideration, a focal point is the duration and next steps pertaining the trade war as well as OPEC further output increases, if any. For the dry carriers, it is important to see how demand will play out and whether the current level of rates can be sustained. Concluding our presentation with Slide 11, we summarize yet once more our company's strong points, placing emphasis that we operate a quality built fleet of tankers and drybulk vessels that we strive to grow even further and have managed to demonstrate recurring profitability since the fourth quarter of 2021. At this stage, our CEO, Mr. Harry Vafias, will summarize our concluding remarks for the period examined.

We are proud for completing our recent fleet expansion. This is an important milestone for us. Imperial Petroleum now operates a combined diversified fleet of 9 tankers and 10 bulk carriers, all non-Chinese built vessels. In terms of our financials, we remain profitable, debt-free. And as of the end of Q2 '25, we held about $212 million in cash. In the first half of '25, we generated $24.1 million of net profit and $42 million of operating cash flow. Market rates for both tankers and bulkers are currently favorable. Therefore, we hope that we will be able to take advantage of the second half of '25, utilize our fleet at full speed and produce even better results. We'd like to thank you all for joining us at our conference call and for your interest and trust in our company, and we look forward to having you again with us at our next call for our Q3 results. Thank you.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.