Pyxis Tankers: Financial Results for the Three and Six Months Ended June 30, 2019

Pyxis

Pyxis Tankers, an emerging growth pure play product tanker company, yesterday announced unaudited results for the three and six months ended June 30, 2019.

Summary

For the three months ended June 30, 2019, our Revenues, net were $6.5 million. For the same period, our time charter equivalent revenues were $5.5 million, an increase of 7.6% over the comparable period in 2018, but our net loss increased $0.3 million to $1.6 million primarily due to higher interest costs. For the second quarter, 2019 the loss per share (basic and diluted) was $0.08 and our Adjusted EBITDA (see “Non-GAAP Measures and Definitions” below) was $1.3 million.

Valentios Valentis, Chairman and CEO commented:

“As previously stated, we felt the chartering environment for product tankers would be choppy in the second and third quarters of 2019. In fact, the spot market for MR’s has been challenging primarily due to softer demand for refined petroleum products associated with slowing global economic conditions and seasonal trends, a significant number of new build deliveries, longer maintenance programs at certain refineries, and to a lesser extent, intrusion of larger vessels, including crude carriers taking clean cargoes on their maiden voyages. Our employment strategy of shorter-term, staggered time charters has proven beneficial, so far. In the second quarter of 2019, the average TCE for our MR’s was almost $13,600/day. As of August 8, 2019, we had 46% of remaining days in 2019 covered for our MR’s, exclusive of options, at an average rate of approximately $15,100. Two MR’s will be re-delivered in the fourth quarter, historically a stronger seasonal period. Moreover, at that time we expect to see the start of a sustainable improvement in vessel earnings based on the positive fundamentals of supply and demand growth, plus incremental demand for MR’s given the global impact of upcoming IMO 2020 regulations. However, we are concerned about the effects of rising trade tensions and recent geo-political events which could undermine global economic growth.

In general, we are encouraged by the relative improvement in time charter rates for MR’s over the last 12 months combined with our continued discipline within operational costs. We are optimistic about the near-term prospects for the product tanker sector, and for us, specifically, and look forward to taking advantage of various opportunities as they may arise to enhance shareholder value.”

Results for the three months ended June 30, 2018 and 2019

For the three months ended June 30, 2019, we reported a net loss of $1.6 million, or $0.08 basic and diluted loss per share, compared to a net loss of $1.3 million, or $0.06 basic and diluted loss per share, for the same period in 2018. Our Revenues, net during the three months ended June 30, 2019 were $6.5 million. An improvement in TCE revenues of $0.4 million to $5.5 million in the second quarter, 2019 was partially offset by an aggregate increase of $0.2 million in vessel operating expenses and general and administrative expenses. More significantly, a $0.5 million increase in interest and finance costs, net impacted the bottom line for the period ended June 30, 2019. Our Adjusted EBITDA was $1.3 million, representing an increase of $0.2 million from $1.1 million for the same period in 2018.

Results for the six months ended June 30, 2018 and 2019

For the six months ended June 30, 2019, we reported a net loss of $3.9 million, or $0.19 basic and diluted loss per share, compared to a net loss of $0.7 million or $0.03 basic and diluted loss per share, for the same period in 2018. The increase in our net loss was primarily the result of a non-cash impairment charge of $1.5 million that was recorded in the first quarter of 2018 related to the write down of the carrying amount of Northsea Alpha and Northsea Beta to their then fair values offset by the gain from debt extinguishment of $4.3 million as a result of the early prepayment of loans from Commerzbank when the existing debt for the small tankers and Pyxis Malou was refinanced in full with Amsterdam Trade Bank, N.V. (“ATB”) in February, 2018. Our Adjusted EBITDA was $1.8 million, an increase of $0.6 million from $1.2 million for the same period in 2018, reflected higher TCE revenues.

* Subject to rounding; please see “Non-GAAP Measures and Definitions” below

Management’s Discussion and Analysis of Financial Results for the Three Months ended June 30, 2018 and 2019 (Amounts are presented in million U.S. dollars, rounded to the nearest one hundred thousand, except as otherwise noted)

Revenues, net: Revenues, net of $6.5 million for the three months ended June 30, 2019, represented a decrease of $0.5 million, or 7.5%, from $7.0 million in the comparable period in 2018. The decrease in the second quarter of 2019 related to a decline in total operating days attributed to more idle days between voyage charter employments partially offset by greater time charter equivalents rates compared to the three-month period ended June 30, 2018.

Voyage related costs and commissions: Voyage related costs and commissions of $1.0 million for the three months ended June 30, 2019, represented a decrease of $0.9 million, or 48.2%, from $1.9 million in the comparable period in 2018. The decrease was primarily attributed to lower spot chartering activity, which incurs voyage costs. Under spot charters, all voyage expenses are typically borne by us rather than the charterer and a decrease in spot chartering results in a decrease in voyage related costs and commissions.

Vessel operating expenses: Vessel operating expenses of $3.1 million for the three months ended June 30, 2019, represented a slight increase of $0.1 million, or 3.7%, from $3.0 million in the comparable period in 2018. Some incremental operating costs were incurred in the beginning of the second quarter of 2019 with the re-delivery of the Pyxis Malou after her second special survey with Ballast Water Treatment System (“BWTS”) installation.

General and administrative expenses: General and administrative expenses of $0.6 million for the three months ended June 30, 2019, represented a slight increase of less than $0.1 million, or 7.9%, from the comparable period in 2018 due to timing of certain incurred costs.

Management fees: For the three months ended June 30, 2019, management fees paid to our ship manager, Pyxis Maritime Corp. (“Maritime”), and to International Tanker Management Ltd. (“ITM”), our fleet’s technical manager, were $0.4 million in aggregate and remained flat compared to the three-month period ended June 30, 2018.

Amortization of special survey costs: Amortization of special survey costs of less than $0.1 million for the three months ended June 30, 2019, remained relatively stable compared to the same period in 2018.

Depreciation: Depreciation of $1.4 million for the three months ended June 30, 2019, remained flat compared to the three months ended June 30, 2018.

Bad debt provisions: Bad debt provisions of less than $0.1 million for the three months ended June 30, 2019, represented a slight decrease in doubtful trade accounts receivable compared to the same period ended June 30, 2018.

Loss from financial derivative instrument: The loss from financial derivative instrument for the three months ended June 30, 2019, related to the net loss from the change in fair value of the interest rate cap for a notional amount of $10.0 million we purchased in January 2018. The same loss was the also recorded in the comparable period in 2018.

Interest and finance costs, net: Interest and finance costs, net, of $1.5 million for the three months ended June 30, 2019, represented an increase of $0.5 million, or 52.9%, from $1.0 million in the comparable period in 2018. The increase was mainly attributed to the increase of the LIBOR-based interest rates applied to our outstanding loans, as well as due to the increased total borrowings outstanding from $58.2 million at June 30, 2018 to $61.2 million at June 30, 2019. In addition, the overall weighted average interest rate increased to 8.2% in 2019 from 5.1% in the comparable period in 2018, as a result of the refinancing of the existing debt for a) Northsea Alpha, Northsea Beta and Pyxis Malou with ATB and b) Eighthone Corp. (Pyxis Epsilon) with EnTrustPermal in September, 2018.

Management’s Discussion and Analysis of Financial Results for the Six Months ended June 30, 2018 and 2019 (Amounts are presented in million U.S. dollars, rounded to the nearest one hundred thousand, except as otherwise noted)

Revenues, net: Revenues, net of $13.2 million for the six months ended June 30, 2019, represented a decrease of $0.4 million, or 2.9%, from $13.6 million in the comparable period in 2018. The decrease during the first six months of 2019 related to the small tankers’ lower TCE rates, due to greater number of idle days between their voyage charter employments and hence less operating days.

Voyage related costs and commissions: Voyage related costs and commissions of $2.9 million for the six months ended June 30, 2019, represented a decrease of $1.0 million, or 25.7%, from $3.9 million in the comparable period in 2018. The decrease was primarily attributed to lower spot chartering activity with our MR’s.

Vessel operating expenses: Vessel operating expenses of $6.4 million for the six months ended June 30, 2019, represented a slight increase of less than $0.1 million, or 1.0%, from $6.3 million in the comparable period in 2018.

General and administrative expenses: General and administrative expenses of $1.2 million for the six months ended June 30, 2019, represented a slight decrease of less than $0.1 million, or 4.8%, from the comparable period in 2018.

Management fees: For the six months ended June 30, 2019, management fees payable to Maritime and ITM of $0.8 million in the aggregate, remained flat compared to the six months ended June 30, 2018.

Amortization of special survey costs: Amortization of special survey costs of $0.1 million for the six months ended June 30, 2019, represented an increase of 112.7%, compared to the same period in 2018 due to the Pyxis Malou’s 10th year special survey which was performed during the first quarter of 2019.

Depreciation: Depreciation of $2.7 million for the six months ended June 30, 2019, remained relatively flat compared to the same period in 2018.

Vessel impairment charge: No vessel impairment charge was recorded in the six months ended June 30, 2019 compared to a vessel impairment charge of $1.5 million (non-cash) for the comparable period of 2018, that was related to the write down of the carrying amounts of Northsea Alpha and Northsea Beta to their then fair values.
Bad debt provisions: Bad debt provisions of less than $0.1 million for the six months ended June 30, 2019, represented a slight decrease in doubtful trade account receivable compared to the same period ended June 30, 2018.

Gain from debt extinguishment: There was no such gain recorded in the six months ended June 30, 2019 in contrast with the comparable period in 2018 when a gain from debt extinguishment of $4.3 million was recognized related to the refinancing of existing indebtedness of Secondone Corporation Ltd, Thirdone Corporation Ltd and Fourthone Corporation Ltd in a new 5-year secured term loan with ATB. Approximately $4.3 million was written-off by the previous lender at closing, which was recorded as gain from debt extinguishment in 2018.

Gain / (Loss) from financial derivative instrument: Loss from financial derivative instrument of less than $0.1 million for the six months ended June 30, 2019 related to the net loss from the change in fair value of the interest rate cap compared to a gain of less than $0.1 million in the respective period in 2018.

Interest and finance costs, net: Interest and finance costs, net, of $2.9 million for the six months ended June 30, 2019, represented an increase of $1.1 million, or 58.2%, from $1.8 million in the comparable period in 2018. The increase was attributable to higher LIBOR rates paid on floating rate bank debt compared to the comparable period in 2018 and the refinancing of the loans on four of our vessels at higher interest rates. The total borrowings outstanding increased to $61.2 million at June 30, 2019 from $58.2 million at June 30, 2018 and the overall weighted average interest rate increased to 8.2% in 2019 from 5.1% in the comparable period in 2018.

Liquidity, Debt and Capital Structure

Pursuant to our loan agreements, as of June 30, 2019, we were required to maintain minimum liquidity of $3.6 million. Total cash and cash equivalents, including restricted cash, aggregated $5.0 million as of June 30, 2019.

Total funded debt (in thousands of U.S. dollars), net of deferred financing costs:

Our weighted average interest rate on our total funded debt for the six months ended June 30, 2019 was 8.2%.

On May 14, 2019, the Company entered into a second amendment to the Amended & Restated Promissory Note to the outstanding $5 million unsecured promissory note (the “Note”) issued to Maritime Investors Corp., an affiliate controlled by Mr. Valentis, which (i) extended the repayment of the outstanding principal, in whole or in part, until the earlier of a) one year after the repayment of the credit facility of Eighthone with EntrustPermal (the “Credit Facility”) in September 2023, b) January 15, 2024 and c) repayment of any PIK interest and principal deficiency amount under the Credit Facility, and (ii) increased the interest rate to 9.0% per annum of which 4.5% shall be paid in cash and 4.5% shall be paid in common shares of the Company calculated on the volume weighted average closing share price for the 10 day period immediately prior to each quarter end. The new interest rate is effective from April 1, 2019. After the repayment restrictions have been lifted per the Credit Facility, the Company, at its option, may continue to pay interest on the Amended & Restated Promissory Note in the afore-mentioned combination of cash and shares or pay all interest costs in cash. Out of the total interest charged on the Amended & Restated Promissory Note during the six-month period ended June 30, 2019, $112 will be paid in cash and the remaining $56 will be settled with common shares to be issued subsequent to June 30, 2019.

Non-GAAP Measures and Definitions

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) represents the sum of net income / (loss), interest and finance costs, depreciation and amortization and, if any, income taxes during a period. Adjusted EBITDA represents EBITDA before certain non-operating or non-recurring charges, such as vessel impairment charges, gain from debt extinguishment and stock compensation. EBITDA and Adjusted EBITDA are not recognized measurements under U.S. GAAP.

EBITDA and Adjusted EBITDA are presented in this press release as we believe that they provide investors with means of evaluating and understanding how our management evaluates operating performance. These non-GAAP measures have limitations as analytical tools, and should not be considered in isolation from, as a substitute for, or superior to financial measures prepared in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA do not reflect:

• our cash expenditures, or future requirements for capital expenditures or contractual commitments;
• changes in, or cash requirements for, our working capital needs; and
• cash requirements necessary to service interest and principal payments on our funded debt.
In addition, these non-GAAP measures do not have standardized meanings and are therefore unlikely to be comparable to similar measures presented by other companies. The following table reconciles net loss, as reflected in the Unaudited Consolidated Statements of Comprehensive Loss to EBITDA and Adjusted EBITDA:

Daily time charter equivalent (“TCE”) is a shipping industry performance measure of the average daily revenue performance of a vessel on a per voyage basis. TCE is not calculated in accordance with U.S. GAAP. We utilize TCE because we believe it is a meaningful measure to compare period-to-period changes in our performance despite changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which our vessels may be employed between the periods. Our management also utilizes TCE to assist them in making decisions regarding employment of the vessels. We calculate TCE by dividing Revenues, net after deducting Voyage related costs and commissions, by operating days for the relevant period. Voyage related costs and commissions primarily consist of brokerage commissions, port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by the charterer under a time charter contract. Vessel operating expenses (“Opex”) per day are our vessel operating expenses for a vessel, which primarily consist of crew wages and related costs, insurance, lube oils, communications, spares and consumables, tonnage taxes as well as repairs and maintenance, divided by the ownership days in the applicable period.
We calculate fleet utilization by dividing the number of operating days during a period by the number of available days during the same period. We use fleet utilization to measure our efficiency in finding suitable employment for our vessels and minimizing the amount of days that our vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys and intermediate dry-dockings or vessel positioning. Ownership days are the total number of days in a period during which we owned each of the vessels in our fleet. Available days are the number of ownership days in a period, less the aggregate number of days that our vessels were off-hire due to scheduled repairs or repairs under guarantee, vessel upgrades or special surveys and intermediate dry-dockings and the aggregate number of days that we spent positioning our vessels during the respective period for such repairs, upgrades and surveys. Operating days are the number of available days in a period, less the aggregate number of days that our vessels were off-hire or out of service due to any reason, including technical breakdowns and unforeseen circumstances.

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