Toro Corp. 2023 Form 20-F Summary
Business context and reporting period
Toro Corp. filed its annual report on Form 20-F for the fiscal year ended December 31, 2023. The filing is not a quarterly report, although it includes fourth-quarter activity. Toro is a Marshall Islands-incorporated, Cyprus-based shipping company focused on owning, chartering and operating tanker and LPG carrier vessels.
The company completed its spin-off from Castor Maritime on March 7, 2023. During 2023 it operated three reportable segments: Aframax/LR2 tankers, Handysize tankers and LPG carriers. It acquired four LPG carriers and sold six tanker vessels during the year. At December 31, 2023, the fleet comprised six vessels; after the sale of the M/T Wonder Sirius in January 2024, the fleet consisted of one Handysize tanker and four LPG carriers.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total vessel revenues | $78.5 million | $111.9 million | Down $33.4 million |
| Operating income | $136.9 million | $51.6 million | Up $85.3 million |
| Net income | $140.6 million | $49.9 million | Up $90.7 million |
| Net income attributable to common shareholders | $137.0 million | $49.9 million | Up $87.1 million |
| Operating cash flow | $56.1 million | $41.5 million | Up $14.6 million |
| EBITDA | $144.7 million | $58.9 million | Up $85.8 million |
| Cash and cash equivalents | $155.2 million | $41.8 million | Up $113.5 million |
| Gross debt at year-end | $5.3 million | $13.3 million | Down $8.0 million |
Reported profitability was dominated by $99.0 million of gains on vessel sales. Consequently, operating and net margins were unusually high and are not representative of recurring chartering profitability. The company’s average Daily TCE rate was $27,075 in 2023 versus $27,187 in 2022, while fleet utilization declined to 97% from 100% and daily vessel operating expenses increased to $7,331 from $6,969.
Revenue composition shifted materially toward pool arrangements: pool revenue increased to $62.5 million from $46.4 million, while voyage charter revenue fell to $3.8 million from $51.8 million and time charter revenue declined to $12.1 million from $13.7 million. Pool arrangements generally reduced Toro’s voyage expenses, which fell to $4.4 million from $29.3 million.
Segment revenue and operating income were $56.2 million and $128.7 million for Aframax/LR2, $15.6 million and $16.3 million for Handysize, and $6.7 million and negative $2.7 million for LPG carriers. The LPG segment began operations in the second quarter and had no comparable 2022 period.
Liquidity, debt and capital allocation
- Working capital surplus increased to $157.3 million from $48.2 million.
- Operating cash flow was $56.1 million. Investing cash flow was $50.7 million, primarily reflecting $172.9 million of vessel-sale proceeds, $70.7 million of LPG carrier acquisitions and the $50.0 million purchase of Castor Series D preferred shares.
- Financing cash flow was positive $6.3 million, including $18.7 million of net proceeds from the issuance of 8.5 million common shares to Pani Corp., a company controlled by the CEO.
- The remaining $5.3 million term-loan balance was fully prepaid on January 25, 2024. The company reported no outstanding debt as of February 29, 2024.
- The company has no declared common-share dividend policy and had paid no common dividends as of the filing date. Series A preferred dividends are cumulative and senior to common-share distributions.
Material changes versus the prior comparable period
- The fleet was substantially reduced through the sale of six tankers, while four LPG carriers were acquired. This reduced available days and recurring vessel revenue.
- The company transitioned from predominantly voyage-charter operations in 2022 to substantially greater use of pools in 2023; 81% of 2023 revenue was earned through pool arrangements according to management.
- General and administrative expense increased to $5.4 million from $2.1 million, driven partly by $1.3 million of stock-based compensation and $2.6 million of flat vessel-management fees after the spin-off.
- Toro issued 1.24 million restricted common shares under its equity incentive plan, including 1.1 million awarded to the CEO. The company recognized $1.3 million of related stock compensation expense.
- The company repurchased 222,600 common shares for approximately $1.0 million during 2023. It repurchased an additional 476,970 shares for $2.8 million from January 1 through February 29, 2024.
- Toro invested $50.0 million in Castor’s 5.00% Series D preferred shares and recognized $1.0 million of related dividend income in 2023.
Guidance, outlook, commentary and risks
The filing does not provide formal earnings or revenue guidance. Management expects to expand or replace vessels opportunistically, principally through secondhand acquisitions, subject to market conditions and available financing.
Following the January 2024 sale of the M/T Wonder Sirius, Toro exited the Aframax/LR2 segment and expects to report only Handysize and LPG carrier segments from the second quarter of 2024. Management cautions that several LPG carriers were fixed at rates materially below the tanker rates achieved in 2023, which could pressure future revenue and profitability.
Key risks include highly cyclical charter rates, dependence on a small number of charterers and pool managers, concentration of 92% of 2023 revenue among two pool managers and one charterer, reliance on related-party manager Castor Ships, older secondhand vessels, environmental and decarbonization costs, sanctions and compliance exposure, geopolitical disruptions including Red Sea attacks and the Russia-Ukraine conflict, counterparty defaults, vessel off-hire, insurance limitations and access to future debt or equity financing.
The company reported no material cybersecurity incidents in 2023 and stated that management’s disclosure controls and internal control over financial reporting were effective as of December 31, 2023. The auditor did not provide an internal-control attestation because Toro qualifies as an emerging growth company.
Important facts for investors to verify
- Separate recurring chartering earnings and cash generation from the $99.0 million of 2023 vessel-sale gains.
- Review post-2023 charter rates, utilization and profitability of the four LPG carriers and the remaining Handysize tanker.
- Assess customer and pool-manager concentration, including the 92% revenue concentration disclosed for 2023.
- Evaluate the terms, valuation and related-party implications of the $50.0 million Castor Series D preferred-share investment.
- Consider dilution from the 140,000 Series A preferred shares, which have a $140.0 million liquidation preference and conversion rights beginning in 2026, as well as the equity incentive plan and future share issuance capacity.
- Review related-party management fees, commissions, termination provisions and the CEO’s effective control of approximately 99.8% of voting power through Series B preferred shares.
- Verify the company’s U.S. shipping-income tax position, including the recorded $350,667 provision for 2023 and the uncertainty surrounding qualification for the Section 883 exemption.
- Monitor environmental compliance requirements, including EEXI, CII, EU ETS exposure and the remaining LPG carrier compliance items described in the filing.