Eddie Valentis - Chairman and CEO Henry Williams - CFO

Good day and welcome to the Pyxis Tankers Conference Call to Discuss the Financial Results for the Three and Nine Months Ended September 30, 2018. As a reminder, today’s call is being recorded. Additionally, a live webcast of today's conference call and an accompanying presentation is available on Pyxis Tankers website 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.

Thank you, operator. Welcome, everyone, and thank you for joining our call for the three and nine months results ended September 30, 2018. Before starting, please let me draw your attention to some important legal notifications on slide two that we recommend you read, including our presentation today, which will include forward-looking statements. Thank you. Turning to slide three. Overall, our results for the third quarter 2018 were disappointing. In Q3 ’18, we generated time charter equivalent revenues of $2.6 million, a 50% decrease over the same period in 2017. Our adjusted EBITDA was negative $1.5 million, a decline of $2.4 million from the year-ago period. As the third quarter unfolded, our medium range tankers continued to trade into a very difficult spot market. Weaker demand for MRs was caused by temporary market disruptions in the Atlantic basin, led by lower activity in the U.S. Gulf, continued drawdowns of refined product inventories in storage and intrusion of larger ships, including newbuild crude carriers, which transported clean products on their maiden voyages. For the quarter, the TCE for MR averaged $6,524 per day, while our small tankers averaged at $4,603 per day. During this difficult environment, we have continued to focus on our costs. The success of our efforts in Q3 was demonstrated by our total operational costs, which we define as operating expenses, general and administrative costs and management fees per vessel per day that were kept in check. Our eco MRs achieved an average of average of just over $7,900 per day per vessel for the quarter, only up by 1% compared to the year ago period. With respect to our debt agreements, in September 2018, we entered into a new $24 million loan agreement for the purpose of refinancing the outstanding backlog of Eighthone Corp., owner of the vessel Pyxis Epsilon. After repayment of existing debt, the new five-year secured loan provided us approximately $7.3 million of additional liquidity. We expect chartering activity to be challenging but with the modest upward trend as we move through 2019. In fact, spot charter rates have recently bounced off the bottom we experienced in Q3. We believe that long-term sector fundamentals are moving in the right directions, and consequently Pyxis should be well-positioned for an uptick in rates. Our disciplined cost structure should create operating leverage and enhance profitability when charter rates improve. Please turn to slide four for the fleet and employment overview. As you can see, as of November 9, 2018, we had one MR fixed at $13,350 per day under short-term time charter. Our small tankers continue to operate in the spot market. We expect to continue to utilize our chartering strategy of a mixture of time charters and spot voyages. Please turn to slide six 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 declined significantly from a year ago, led by a depressed spot market. In the period market, the current one year time charter rate is estimated to be $12,500 per day for a standard MR2, which is lower than the beginning of the year and almost 50% below the last 10-year high of $24,300 and about $2,000 per day below post global recession averages. Rates for eco vessels are typically higher, primarily because of lower fuel consumption. The major reasons behind the soft market conditions over the last 2.5 years has been a combination of factors including amongst others, a large number of new vessel deliveries, high inventories of refined products worldwide, and lack of arbitrage opportunities. The stocking of petroleum product inventories and storage has occurred worldwide and overall current levels approximate five-year averages. These lower levels combined with solid projected product demand should lead to a pickup in trading activity and hopefully a return global arbitrage rate. Turning to slide seven. As previously mentioned, we expect a better market in 2019 due to attractive long-term industry fundamentals of solid demand growth and diminishing fleet supply. Demand growth is estimated at 3% per year, led by increasing global consumption of refined petroleum products and moderating ton-mile expansion from the changing refinery landscape. The changeover to more low-sulfur fuel in advance of mandated January 2020, will result in logistical distribution challenges in many ports, but should create more demand for MR, especially starting after the second half 2019. The MR2 order book has declined significantly. And there are lower schedule deliveries of newbuild MR. A leading industry source recently estimated the order book at about 6.8% of the worldwide fleet and expects fleet to grow by 3.4% in 2019, exclusive of potential delays and scrapping. New ordering continues to be relatively low by historical standards. In addition financial and operating problems of certain shipyards could result in further delays, cancellations, reducing scheduled supply. In fact, slippage in scheduled newbuild vessel deliveries has reportedly run 21% as of September 2018. Scrapping is likely to increase over the long-term due to the age profile of the global fleet and new environmental regulations. One industry source estimates that 26 MRs were demolished during the first half of calendar 2018, which is more than all of 2017. New regulations for ballast water treatment fully start in September 2019 and low-sulfur fuel emissions come into play starting January 2020. Compliance with these regulations should necessitate significant additional capital expenditures per ship. Available capacity will temporarily be reduced by greater by greater dry-bulking activity. Higher fuel costs in 2020 will likely encourage slow steaming, which in our opinion will decrease available supply by approximately 50 MRs. Moreover, considering that 7% of the MR global fleet of 1,600 vessels is 18 plus years old, additional scrapping could further enhance the net supply outlook. Finally, access to cost effective capital including bank debt continues to be difficult industry-wide and this has had an impact on the ability of operators toward the new ships, upgrade the existing ones and make vessel acquisitions. Turning to slide eight. Current MR asset values continue to provide an attractive opportunity to acquire second-hand tankers at reasonable prices. A newbuild Tier 3 MR2 currently costs $36 million, approximately the 10-year average while a five-year old first generation eco-efficient vessel is valued currently at $26 million, 4% lower than the 10-year average. So, our sector has positive long-term fundamentals, coupled with reasonable asset values, which we believe continue to translate into an attractive entry point to enhance stockholder value. At this point, I would like to turn the call over to Henry Williams, our Chief Financial Officer, who will discuss our financial results in greater detail.

Thanks, Eddie. Let's start with our unaudited results for the three and nine months ended September 30, 2018, on slide 10. As you can see, our spot market activities dramatically affected our results in the most recent quarter. Our time charter equivalent revenues for Q3 2018, which we define as voyage revenues minus voyage related costs and commissions were $2.6 million, a decrease of approximately 50% from the same period in 2017, primarily a result of a lower charter rates. We achieved daily TCE rates of approximately $6,000 across our fleet of six vessels in Q3 2018, with fleet utilization of 80%. Our fleet-wide TCE for the third quarter of 2018 was approximately 44% lower, compared to the year-ago period, primarily due to lower charter rates for our MRs. Turning to slide 11. We generated a net loss of $4.1 million for the three months ended September 30, 2018, or $0.20 basic and diluted loss per share, based upon 20.9 million weighted average shares outstanding, compared to a net loss of $1.3 million or $0.07 basic and diluted loss per share, based upon a lower share count of 18.3 million shares for the same period in 2017. Those results translated into an adjusted EBITDA of negative $1.5 million for Q3 2018, representing a decrease of about $2.4 million from the same prior period in 2017. More specifically, voyage revenues were $7.4 million for the three months ended September 30, 2018, an increase of $1.1 million at 17.6% over the comparable period in 2017. The increase was primarily related to greater spot charter activity, partially offset by lower time charter equivalents rates as well as a decrease in total operating days. Voyage related costs and commissions of $4.8 million for Q3 2018, represented an increase of $3.7 million or 320% over the comparable period in 2017. This increase was primarily attributable to the greater spot chartering activities which incurs voyage related expenses. Vessel operating expenses of $3.1 million for the three months ended September 30, 2018, represented an decrease of $100,000 or 4.2% compared to the same period in 2017. The decrease was attributable to cost efficiencies, increases through most of our fleet during the period. General and administrative expenses of $500,000 in Q3 2018 represented a slight decline from the year-ago period. Management fees payable to our ship manager Pyxis Maritime and our technical manager, International Tanker Management, of $400,000 in the aggregate for the three months ended September 30, 2018 remained stable versus a year ago. Amortization of special survey costs and depreciation, which aggregated $1.4 million in Q3 2018, remained flat. Interest and finance costs, net of $1.2 million for the three months ended September 30, 2018, represented an increase of $500,000, primarily due to a higher LIBOR rate, which is the basis of our bank loans as well as the write-off of unamortized deferred financing costs following the refinancing of our existing indebtedness on Eighthone. Turning to slide 12. This reviews our recent fleet data by vessel type. Given the size of our fleet, changes in these metrics related 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 September 30, 2018, we would like to point out three key takeaways. The TCE for our two eco-efficient MRs averaged $4,150 per day as they both traded under a weak spot market throughout the quarter. While on the other hand, our eco-modified MR which was deployed under TCE throughout the quarter at a TCE of $12,143. The average TCE for small tankers was $4,600 a day with utilization of 68%. And finally, fleet-wide daily OpEx was $5,670 per day, a 4.2% decrease over the same period in 2017. Turning to commercial management fees plus G&A costs. In comparison to our peers, we believe that total daily operational costs of our young eco-efficient MR2 tankers continued to be very competitive despite our small size. Turning to slide 14. Our consolidated leverage improved as net funded debt stood at $57.6 million or approximately 51.5% of total capitalization. Overall, we have moderate leverage and no balloon payments for almost four years. The weighted average interest rate for Q3 2018 was approximately 5.3%. With that, I would like to turn the call back over to Eddie to conclude our presentation.

Thanks, Henry. We believe that 2019 will be the start of a sustainable, stronger product tanker market, leading to improving charter rates, cash flows and further asset appreciation. We should be in a good position to benefit from a potential multi-year market recovery. The flow through of higher charter rates over our relatively fixed cost operating platform should lead to enhanced profitability. In conclusion, we feel confident that 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. End of Q&A: Ladies and gentlemen, that does conclude today's conference. Thank you for attending. You may now disconnect.