Eddie Valentis - Chairman and Chief Executive Officer Henry Williams - Chief Financial Officer

James Jang - Maxim

Good day and welcome to the Pyxis Tankers Conference Call to discuss the financial results for the First Quarter 2018. As a reminder, this call is being recorded. Additionally a live webcast of today's conference call and an accompanying presentation is available on the Pyxis Tankers Web site which is www.pyxistankers.com. Hosting the call today is Eddie Valentis, Chairman and Chief Executive Officer of Pyxis Tankers and Henry Williams, Chief Financial Officer. I would like to now introduce the Pyxis Tankers Chief Executive Officer, Eddie Valentis. Please go ahead sir

Thank you, operator. Welcome everyone and thank you for joining our call for the three months results ended March 31, 2018. Before starting please let me draw your attention to some important legal notifications on Slide 2. The comment you read including our presentation today which will include forward-looking statements. Thank you. Turning to Slide 3. Overall, our results for the first quarter 2018 were mixed. In the context of a challenging operating environment, we completed several significant initiatives. In Q1 '18 we generated time charter equivalent revenues of $4.5 million, a 3.7% decrease over the same period in 2017. Early in the quarter, we expect that basic goods sports charter market for medium range tankers MR and consequently we fixed all our MR under short-term time charters at fair rate which averaged around 14,900 per day. We reported net income of $600,000 or $0.03 per share for Q1 '18 versus a net loss of $1.7 million or $0.09 per share in the same period in the prior year. Note that our first quarter 2018, net earnings were after a $1.5 million impairment charge on our smaller tankers and the $4.3 million gain on debt extinguishment associated with the bank refinancing of three of our tankers. Our adjusted EBITDA for Q1 2018 was $100,000. Looking at the product tanker markets, for the balance of 2018, we expect MR charter rates to be choppy, but with the modest upward trend. As of the first week in May exclusive of options, we have booked 66% of second quarter 2018 available days for our MR is $14,900. We believe the sector fundamentals are moving in the right direction and consequently Pyxis should be well positioned for enough peaking rates later this year. Please turn to Slide 4, for the fleet and unemployment overview. As you can see, all the MRs are fixed under short-term T/C's as of May 7, 2018. The acquisition tankers have an average rate of $15,625 per day. Our small tankers continue to operate in the spot market. We will continue to utilize our chartering strategy for a mixture of time charter as per voyages. Please turn to Slide 6, for a brief update on the product tanker market. A more detailed market overview is available at the back of our presentation. Generally, the chartering environment for MRs slightly improved from a year ago. However, as already mentioned the spot market continues to be volatile. In the period market the current one year time charter rate is estimated to be $13,500 per day. For a standard MR2, which is slightly lower from the beginning of the year and 44% below the last 10-year high of $24,300 per day and about $1500 per day below post global recession averages. The major reasons behind the soft market conditions over the last two year has been a combination of factors including high inventories of refined products worldwide, lack of arbitrage opportunities and excess capacity to a large number of new vessel delivery. However, the petroleum product inventories have declined and now approximate 5-year average. Seasonal refinery maintenance in certain parts of the world have just concluded and restocking should occur shortly. Greater refiners throughput combined with higher demand should lead to build the petroleum product inventory and pick up in trading activity and hopefully a return of global arbitrage trade. Turning to Slide 7, looking ahead, we expect a better market starting later this year due to attractive long-term industry fundamental of solid demand growth and diminishing fleet supply. Demand growth is estimated at approximately 3% per year. Led by increasing global consumption of refined petroleum products and modest ton mile expansion from the changing refinery landscape. The MR2 order book has declined sharply under a lowest schedule delivered of new built MR. A leading industry source estimate the current order book at above 6.2% of the worldwide fleet of which average 2.8% per annum is scheduled for delivery through 2019 exclusive of potential delays and scrapping. New ordering continues to be very low by historical standards. In addition, financial and operating problems of shipyards could result in further delays cancellation reducing further the schedule supply. Scrapping is likely to increase over the long-term due to the age profile of the global fleet and new environmental regulations. New regulations for ballast water treatment starting in September 2019 and low-sulfur fuel ignitions are scheduled to come into play starting January 2020. Compliance with these regulations should necessitate significant additional capital expenditures per ship and we likely encourage slow steaming. Considering that 9% of the MR2 global fleet of approximately 1,600 vessels is currently 18 years plus or additional scrapping would further enhance the net supply outlook. Finally, access to cost effective capital including bank debt continues to be difficult in industry-wide and this has had an impact on the ability of operators toward the new ships, upgrade existing ones and make vessel acquisitions. Also the [indiscernible] crude tanker sector have negatively affected product tanker new built ordering my mix fleet owner. Turning to Slide 8, current MR2 asset values continue to provide an attractive opportunity to acquire second-hand tankers at relatively low prices. Based on data from a leading industry research firm, a new built MR2 currently costs $35.5 million, 3.3% below the 10-year average of $36.7 million. Similarly a five-year old vessel is currently valued at around $26 million, i.e., 8.8% lower than the same year average of $28.4 million. So, our sector has positive long-term fundamental, coupled with relatively attractive asset values which we believe continues to translate into an attractive entry point to enhance our product value. At this point, I would like to turn the call over to Henry Williams, our Chief Financial Officer will discuss our financial results in greater detail.

Thanks Eddie Let's start with our unaudited results for the three months ended March 31, 2018, on Slide 10. Our time charter equivalent revenues for Q1 '18, which we defined as voyage revenues minus voyage related costs and commissions were $4.5 million, a decrease of approximately $200,000 or 4% from the same period in 2017, mainly as a result of a decrease in total operating days attributed to an increase in idle days between voyage charter employments. We achieved T/C rates of almost $10,700 across our fleet of six vessels in Q1 '18, with peak utilization of 82%. Our fleet wide T/C for the first quarter of '18 was approximately 9% higher compared to the year ago period despite the underperformance of the small tankers. Turning to Slide 11, we generated a net income of $600,000 for the three months ended March 31, 2018 or $0.03 basic and diluted earnings per share based upon 28.9 million weighted average shares outstanding compared to a net loss of $1.7 million or $0.09 basic and included loss per share based on a lower share count of 18.3 million shares for the same period in 2017. Q1 '18 earnings were negatively impacted by $1.5 million non-cash impairment charge associated with the small tankers which are more than offset by a $4.3 million gain for the bank debt refinancing transactions. Those results translated into adjusted EBITDA of $100,000 for Q1 '18 representing a decrease of $300,000 from $400,000 in the prior period in 2017. More specifically voyage revenues were $6.6 million for the three months ended, March 31, 2018, a decrease of $1.1 million or approximately 14% over the comparable period in 2017. The decrease was primarily related to a decline in total operating days attributed to an increase in idle days between voyage, charter employments. Voyage related costs and commissions of $2.1 million for Q1 '18 represented a decrease of $900,000 or 30% over the comparable period in 2017. The decrease was primarily attributable to lower spot charting activities which encouraged voyage related expenses. Vessels operating expenses of $3.3 million for the three months ended March 31, 2018, represented an increase of $300,000 or 11% compared to the same period of 2017. The increase is primarily attributable to certain unscheduled repairs to Pyxis Malau. G&A expenses of $700,000 for Q1 '18 declined 13% over the prior year mainly due to improved cost efficiencies. Management fees payable to our shift management Pyxis Maritime and our Technical Manager International Tanker Management of approximately $200,000 each for the three months ended March 31 '18 remained relatively stable compared to the comparable period in 2017. Amortization of special survey cost and depreciation which aggregated $1.4 million in Q1 '18 remained flat. Non-cash vessel impairment charge $1.5 million for Q1 '18 relates to the write down of the carrying amounts for the North Sea Alpha and North Sea Beta to defer values. Gains from debt extinguishment of $4.3 million for three months ended March 31,'18 relates to the refinancing of existing indebtedness of the North Sea Alpha, North Sea Beta and Pyxis Malau into a new five-year secured bank loan. Interest and finance costs net for the three months ended March 31, 2018 increased $100,000 primarily due to a higher LIBOR rate, which is the basis of our bank loans and the write-off of the unamortized financing costs following the refinancing of existing indebtedness discussed earlier. On the other hand, the increased trend in LIBOR rates resulting in a small gain from the change of the fair value at the interest rate cap for notional amount of $10 million, we recently purchased. Turning to Slide 12, this reviews our recent fleet data by vessel type. Given the size of our fleet change in these metrics relate to a single vessel in one reporting period can have a disproportionate effects on the total fleet operating results. Focusing on the most recent quarter ended March 31, 18. We would like to point out four key takeaways. The TCE for eco-efficient MRs averaged $14,000 a day. The results for our eco-modified reflected unscheduled offer days in repair work. The average TCE for the small tankers of $4900 a day with utilization up 71% which negatively affected the fleet wide results. Finally, fleet-wide daily OpEx of $6100 a day up about 11% of the same period in 2017. In our opinion most of this increase in the quarter was temporary. Turning to Slide 13, we believe it is important to review total daily operational costs to run and manage a public tanker company including overhead. These costs vary by fleet composition and vessel delivery company operating structure and management. We define total daily operational cost as vessel operating expenses, technical and commercial management fees plus G&A expenses. For comparison to our peers, we believe that total daily operational costs of our young eco-efficient MR2 tankers continue to be very competitive despite our small size. Turning to Slide 14, our consolidated leverage improved at net funded debt stood at $57.4 million or 51% of total capitalization. Overall, we have moderate leverage and no balloon payments for another two years. The weighted average interest rate in Q1 '18 was 4.5%. With that, I would like to turn the call back over to Eddie to conclude our presentation.

Thanks Henry. We believe this year will be the start of a sustainable stronger product tanker product leading to improving charter rate, cash flows and further asset depreciation. As our MRs are coming off time charters, we should be in good position to benefit from a potential multi-year market recovery. We hope to utilize our cost effective operating platform and deep management experience to take advantage of opportunities and enhance stockholders value. In conclusion, we feel confident in the long-term industry fundamentals and our position to capitalize on future events. I thank you for joining our call today and look forward to reporting on further progress at Pyxis Tankers.

Operator would you like to open up for any questions please?

Absolutely. [Operator Instructions] You have a question from the line of James Jang from Maxim. Your line is now open.

How is it going guys?

Okay.

Hey, James.

So, on the charter front, you have three vessels are set to come off charter this month. Have you had any advance discussions about redeploying them or expanding these charters?

James, it's a difficult month for product tankers as we can imagine. We currently have discussion for extension for two months for one with the vessel. And we are trying to see about the remaining two what are the possibilities for extension or new employment.

Okay. And so, do you think you will be able to achieve rates that -- some of the rates similar to the prior charters or are you looking for a slight decrease?

No. Definitely the market has come off since January when we fixed the vessel. As I said it's a difficult month for the sector. The rates have not where they were in the beginning of the year.

Yes. I think James obviously what Eddie is talking about is, a little bit of softness at this point in time, which is to some extent not to be that surprising. I think we are still of the belief that obviously as we move into the late summer and clearly fall moving to Q3, Q4, the rates were being improving and that's a general consensus here, and I guess elsewhere. So I think at this point, we still have strong belief that things will improve obviously as year progresses.

So, on that front, it seems there has been more draw downs in global inventories, but rates haven't moved along with that. What's the lag?

Well, first of all, seasonality is kicking in. I mean we are definitely off the winter season. Although the demand is still very healthy and we have not seen restocking of inventories of yet significant restocking. So, I guess this is the one of the reasons that market is soft. Also mean a few refiners have gone into maintenance mode as the result volumes have been down. So generally, if you look historically, this is a slow month for products. But I have to be honest with you, personally I was expecting a stronger month, which we have not seen. So considering also the supply of vessels and as you know the deliveries of vessels are getting less and less on the MR space. And I was hoping that these would definitely improve the situation for end of Q2 this year, was still there, and still remains to be seen whether market will improve later this quarter or beginning next. But, as Henry said, we are very positive on the market going forward. It hasn't kicked in as we anticipated this -- for the time being.

To repeat this, some of the [CAGRs] [ph] has been split with LRs?

This is part of the problem. I mean definitely LR are cutting in MR business. This is the trend that we've seen over the past year. Yes, it is a factor affecting our market definitely.

Okay. And I just have one more on I guess, IMO 2020, we've seen an up tick of some of the larger vessels like the VRs start to enter into accelerated scrapping. When do you guys see that possibly happening on the MR2 side, would it be closer to 2020?

Really we look at this development very closely. Yes, really, when we look at this development very closely. Substantial number of vessels today are around 18 years of age which means that in 2020 that will be approaching the 4% survey. And then, it will be a big question mark whether that will happen from the ballast water system or when they will have to comply with the low-sulfur relation. So we don't know, but as we describe, I mean, as we know the majority of the fleet, as it looks today, I'm thinking about the MRs will be switching to the approved fuel, which for the time being, it looks like it’s the MGO. So whether it will be economical for them to operate in the new environment and how prices will develop during that time, it's something to be seen and but definitely interesting that a large percentage of the fleet is -- will be at that time at 20 years of age.

Just one follow-up to that. So it seems like let's say we were speaking about MGO, there could be a dislocation of cargos meaning whether refiners are able to churn out MGO and where the ships actually go to bunker fuel. Do you think that the MRs could be a big part of the trade once we reach 2020, or do you think that could be handled more on the allowed ones and twos?

It depends on the tankers of the bunker station. We believe the MR will definitely be in the game. Now, whether it will be a major benefactor of this change remains to be seen, but definitely create a big amount of this MGO will have to be moved MR. So we definitely believe in the sector and we definitely believe -- that we believe that it will also add to the ton mile effect. So, yes, we are -- we think the MR segment will be among the beneficiaries. It remains to be seen as which refinery will be ready by 2020, and then, take it from there as soon as we have a clear picture of the supply event we could definitely tell you more about whether the MR will be major beneficiary or not.

Okay, great. Oh, just sorry, one more. Have you heard any further news on the refund guarantees disaster in [indiscernible] have they been issuing more or is it still tough to get those?

As far as South Korea is concerned, I have to tell you that I do not know what's happening in China. But as far as South Korea is concerned, I know that the banks have been conservative in issuing refund guarantees, but they have issuing the refund guarantee, also with delays. They have been issuing the refund guarantees and this is important I guess with the Korean shipping building industry. But, I'm not aware of the Chinese situation. I guess it's going -- depending on the shipyard.

We've also heard that the refund guarantees that are coming from the banks, the banks are paying specific attention to whether the contract is a profitable contracted yard. The days have lost leaders, they are not interested in supporting. So there's a higher, I would say threshold regarding getting a refund guarantee let alone getting it on time.

Okay, great. Thanks for that. All right. That's all I have for now. Thank you guys.

Thank you.

[Operator Instructions] We have got no further questions in the queue.

Thank you, operator. Thank you very much all for participating in today's conference call.

And that completes your call for today. Thanks for participating. You may all now disconnect.