Pyxis Tankers Inc. — FY2016 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2016. This is an annual Form 20-F, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP and audited by Ernst & Young. Pyxis operates six double-hull product tankers with approximately 216,635 dwt, employed through a mix of spot and time charters.
Financial performance and operating metrics
| Metric | 2015 | 2016 | Change |
|---|---|---|---|
| Voyage revenue | $33.2 million | $30.7 million | Down 7.4% |
| Operating income/(loss) | $6.0 million | ($3.0 million) | Down $9.0 million |
| Net income/(loss) | $3.5 million | ($5.8 million) | Down $9.3 million |
| Basic and diluted EPS | $0.19 | ($0.32) | Declined $0.51 |
| Net cash from operations | $12.4 million | $4.4 million | Down $7.9 million |
| Daily TCE | $13,597 | $12,134 | Down 10.8% |
| Fleet utilization | 97.9% | 91.3% | Down 6.6 percentage points |
| Vessel operating expense per day | $6,058 | $5,861 | Down 3.3% |
Revenue declined primarily because of lower TCE rates and fewer operating days associated with greater spot-market activity. Spot-charter revenue increased from $8.7 million to $9.5 million, while time-charter revenue declined from $24.5 million to $21.2 million. Voyage-related costs and commissions rose 39.9% to $6.6 million as more vessels operated on spot charters.
Approximate 2016 margins were negative: operating margin was approximately (9.8%) and net margin approximately (18.9%). General and administrative expense increased 45.2% to $2.6 million, primarily reflecting the full-year $1.6 million administrative fee paid to affiliated manager Pyxis Maritime and higher public-company professional costs. Interest and finance costs increased 11.0% to $2.8 million, mainly due to higher LIBOR-based rates.
Balance sheet, cash flow, debt and liquidity
| Balance-sheet metric | December 31, 2015 | December 31, 2016 |
|---|---|---|
| Cash and cash equivalents | $4.1 million | $0.8 million |
| Restricted cash | $4.5 million | $5.0 million |
| Total assets | $141.7 million | $130.7 million |
| Total current liabilities | $11.2 million | $12.9 million |
| Net fixed assets | $130.5 million | $121.3 million |
| Total stockholders’ equity | $54.6 million | $48.8 million |
- Working-capital deficit widened from $5.2 million to $8.7 million.
- Accounts payable increased to $3.1 million from $1.1 million, and amounts due to related parties increased to $2.0 million from $0.1 million.
- Cash flow from investing activities was nil in 2016, compared with $18.8 million of outflows in 2015 related primarily to the Pyxis Epsilon acquisition.
- Financing cash outflow was $7.8 million, including $7.3 million of long-term debt repayments and a $0.5 million increase in restricted cash.
- Bank debt outstanding was approximately $73.4 million net of deferred financing costs; gross scheduled loan principal was $73.8 million. A separate $2.5 million related-party promissory note remained outstanding and was subsequently extended to January 2019.
- Debt bears floating LIBOR-based interest rates with stated margins ranging from 1.75% to 3.35%. Management estimated that a 100-basis-point rate increase would reduce 2016 net income and cash flow by approximately $0.8 million.
- Minimum liquidity requirements under the loan agreements generally included at least $5.0 million, of which $2.5 million was required to be freely available and unencumbered. Management stated that projected operating cash flows were expected to cover liquidity needs for the following 12 months.
Material changes and unusual items
- Pyxis recorded a $4.0 million vessel impairment charge for Northsea Alpha and Northsea Beta, reducing their carrying values to estimated fair values of approximately $8.0 million each. Market values for several other vessels were also below book value, although projected undiscounted cash flows did not require further impairment.
- The fleet remained at six vessels, but four vessels were employed on the spot market at December 31, 2016 versus greater time-charter exposure in 2015. This increased revenue volatility and voyage-cost exposure.
- Maritime assumed full commercial management of Northsea Beta in June 2016 and Northsea Alpha in November 2016 after termination of the commercial management arrangements with North Sea Tankers.
- Pyxis completed the Pyxis Delta’s fifth-year special-survey dry-docking at a cost of approximately $0.4 million.
- The company’s total-liabilities-to-market-value-adjusted-assets ratio was 68%, exceeding the 65% threshold applicable to dividend distributions from Sixthone and Seventhone. The filing states that other financial and minimum-security-collateral covenants were complied with, but those subsidiaries could not distribute dividends to Pyxis until the ratio was cured.
- No dividends were planned for the near future. The company expects to retain cash for operations, dry-docking, debt service and reinvestment.
Outlook, management commentary and principal risks
Management’s strategy is to preserve a relatively young, modern tanker fleet, selectively acquire additional MR tankers, and balance spot, time-charter, pool and potentially bareboat employment. The filing does not provide formal earnings or revenue guidance. As of March 24, 2017, three vessels were under time charter and three were operating on spot voyages; approximately 39% of 2017 available days were contracted, excluding charterer options.
- Product tanker rates declined during 2016 after stronger 2015 conditions, and management expects results to remain highly sensitive to charter rates, fleet utilization, vessel values and the supply of new tonnage.
- Industry risks include oversupply of product tankers, volatile spot rates, charterer defaults or renegotiations, off-hire and dry-docking, fuel costs, piracy, sanctions, geopolitical disruption and environmental incidents.
- Regulatory requirements create potential capital and operating costs, including ballast-water treatment, the IMO 2020 sulfur limit, emissions controls and other safety and environmental standards.
- Liquidity is constrained by low unrestricted cash, a working-capital deficit, scheduled debt amortization and balloon payments, and reliance on related-party advances from Maritime. At December 31, 2016, Maritime had advanced approximately $2.0 million with no specific repayment terms.
- All vessels are pledged as collateral. Declines in vessel values could create covenant pressure, restrict dividends or financing, and potentially permit lenders to accelerate debt or foreclose on collateral vessels.
- Related-party governance risk is significant: Maritime provides management and administrative services, is controlled by CEO Eddie Valentis, and Maritime Investors beneficially owns approximately 93% of the common stock.
- The company identified a $0.1 million allowance for doubtful accounts related to a commercial dispute with a charterer and reported $0.3 million placed in escrow by Maritime in connection with that dispute.
- The company believes it qualified for the Section 883 U.S. shipping-income tax exemption for 2016 and does not believe it was a passive foreign investment company, but both conclusions depend on facts, ownership and legal interpretations that could change.
Most important facts for an investor to verify
- Current charter coverage, expiring charters, renewal rates and exposure to spot-market earnings.
- Unrestricted cash versus restricted cash, near-term debt amortization and the timing and size of loan balloon payments.
- Status of the 68% leverage covenant ratio, dividend restrictions and any lender waivers or required remedial actions.
- Availability and terms of continued working-capital support from Maritime and the repayment status of the $2.5 million related-party promissory note.
- Current market values of each vessel, potential additional impairments and collateral coverage under each loan agreement.
- Actual costs and installation schedules for ballast-water systems, low-sulfur fuel compliance and other environmental requirements.
- Potential dilution or cash obligations under the LookSmart make-whole right, including the possible issuance of up to 609,228 shares based on the filing’s December 31, 2016 assumptions.
- Terms and economic fairness of related-party management agreements, including the approximately $1.6 million annual administrative fee and per-vessel management fees.