Pyxis Tankers Inc. — 2018 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2018. The filing is an annual Form 20-F, not a standalone fourth-quarter report; quarterly financial results are not separately provided in the filing text. Financial statements are prepared under U.S. GAAP and were audited by Ernst & Young with an unqualified opinion.
Business Context
Pyxis is a Marshall Islands holding company focused on international product tanker transportation. At year-end it owned six double-hull tankers, including four MR vessels and two smaller tankers, with six vessels and approximately 216,635 dwt. Three vessels were on time charters and three operated in the spot market at December 31, 2018. The company has no direct employees and relies primarily on affiliated manager Pyxis Maritime Corp. and third-party technical manager ITM.
Financial and Operating Metrics
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Net revenue | $28.5 million | $29.6 million | Down 3.8% |
| Operating loss | $8.0 million | $2.3 million | Loss increased $5.7 million |
| Net loss | $8.2 million | $5.2 million | Loss increased $3.0 million |
| Loss per share | $0.39 | $0.28 | Loss increased |
| Net cash from operating activities | $(2.2) million | $3.7 million | Declined $5.9 million |
| Cash and cash equivalents | $0.5 million | $1.7 million | Down $1.1 million |
| Restricted cash | $3.7 million | $5.0 million | Down $1.3 million |
| Total assets | $116.6 million | $124.8 million | Down $8.2 million |
| Stockholders’ equity | $39.9 million | $48.2 million | Down $8.2 million |
Derived margins were approximately 58.5% after voyage-related costs, (28.1%) operating margin and (28.9%) net margin. These margins are calculated from reported figures and are not company-defined measures.
- Spot-charter revenue increased to $17.0 million from $16.7 million, while time-charter revenue declined to $11.5 million from $12.9 million.
- Voyage-related costs and commissions increased 39.6% to $11.8 million, primarily because more vessels operated under spot charters, where Pyxis bears voyage expenses.
- Vessel operating expenses decreased slightly to $12.7 million; daily vessel operating expense declined to $5,785 from $5,827.
- Fleet utilization declined to 84.3% from 89.3%, operating days fell to 1,816 from 1,956, and daily TCE declined to $9,163 from $10,795.
- Interest and finance costs increased 55.0% to $4.5 million. The weighted average interest rate increased to 6.0% from 3.7%, despite total bank debt declining.
Debt, Liquidity and Cash Flow
- Gross vessel-loan borrowings were $63.4 million at December 31, 2018, and the company also had a $5.0 million related-party promissory note. The filing reports total funded debt of approximately $67.5 million net of deferred financing costs.
- Working capital deficit was $9.2 million, compared with $8.6 million in 2017. Current liabilities included $4.7 million of trade payables and $3.4 million due to related parties.
- Pyxis Maritime advanced $3.4 million for operating costs, debt service and other obligations; the advances had no specific repayment terms. Management expects to seek additional related-party advances in the near term.
- Cash flow from investing activities was $(0.1) million, primarily for a ballast-water-treatment advance. Financing cash flow was $(0.2) million after $44.5 million of new borrowings, $43.6 million of debt repayments and financing costs.
- Debt maturities include $4.5 million of principal due in 2019, $4.7 million in 2020, $4.8 million in 2021, $14.6 million in 2022 and $34.8 million in 2023.
- The company reported compliance with its financial covenants overall, but the total-liabilities-to-market-value-adjusted-assets ratio was 68%, above the 65% threshold applicable to dividend distributions by two subsidiaries. Those subsidiaries therefore could not distribute dividends to Pyxis.
Material Changes Versus 2017
- Operating performance deteriorated because of weaker tanker freight markets, lower utilization, more idle days between charters and scheduled dry-dockings.
- Pyxis recorded a $2.3 million vessel impairment charge on Northsea Alpha and Northsea Beta; no vessel impairment was recorded in 2017.
- A $4.3 million gain from debt extinguishment resulted from refinancing three vessels with Amsterdam Trade Bank and the related write-off by the prior lender.
- Debt was refinanced or restructured, including a new $20.5 million facility for three vessels and a $24.0 million facility for Pyxis Epsilon carrying an 11.0% interest rate, with up to 1.0% payable in kind during the first two years.
- The company issued 182,297 shares through its ATM program for approximately $0.3 million of gross proceeds, bringing year-end shares outstanding to 21,060,190.
- Revenue presentation changed to net of address commissions, and Pyxis adopted ASC 606, ASC 842 and the restricted-cash presentation guidance. Management stated these changes did not materially affect 2018 results.
Outlook, Commentary and Risks
Management expected to cover the next 12 months of liquidity needs through operating cash flow and working-capital management, while also considering debt, equity, joint ventures and asset sales. The company intended to retain cash for vessel operating costs, dry-dockings, debt service and reinvestment, and did not intend to pay dividends in the near future.
Management cited signs of improvement in product tanker markets late in 2018 and expected moderate fleet-supply growth to support potentially better rates. As of March 26, 2019, four vessels were on time charters and two were in the spot market; 45% of remaining 2019 available days were contracted, excluding charterer options. New one-year charters were scheduled for Pyxis Epsilon at $15,350 per day and Pyxis Theta at $15,375 per day.
- Liquidity is constrained by minimal unrestricted cash, a substantial working-capital deficit, debt amortization and reliance on affiliated advances.
- Product tanker rates, vessel values and utilization are cyclical and volatile; the company may not re-charter vessels at profitable rates.
- Vessel values were below book value at year-end, creating further impairment and covenant risks.
- All vessels were subject to debt security interests and financial covenants, including minimum liquidity and collateral coverage requirements.
- Pyxis did not plan to install scrubbers and expected potentially higher fuel costs from IMO 2020 sulfur regulations. Ballast-water-treatment retrofits were expected to cost approximately $0.4 million to $0.6 million per vessel, depending on specifications.
- The company is exposed to interest-rate risk, primarily LIBOR-based debt, although it maintained a $10.0 million interest-rate cap at a 3.5% cap rate through July 2022.
- Three customers represented approximately 47% of 2018 revenue, and related-party management arrangements create potential conflicts of interest.
- Maritime Investors, controlled by the CEO, owned approximately 80.9% of the common stock, giving it effective control over shareholder matters.
- The company does not intend to pay dividends, and contractual restrictions may prevent subsidiary distributions even if operating results improve.
Most Important Facts to Verify
- Whether operating cash flow and charter rates improved sufficiently after year-end to address the $9.2 million working-capital deficit and upcoming debt maturities.
- The current status of affiliated advances from Pyxis Maritime and the terms, repayment expectations and availability of further funding.
- Compliance with minimum liquidity, collateral coverage and market-value-based debt covenants, particularly the 65% distribution threshold.
- Actual 2019 charter coverage, redelivery dates, spot-market exposure and achieved TCE rates for each vessel.
- Final costs and financing effects of ballast-water-treatment retrofits, dry-dockings and IMO 2020 fuel compliance.
- Whether additional impairment charges could arise from vessel values, charter rates or utilization remaining below assumptions.
- The economic substance and pricing of related-party management fees, promissory-note financing and other transactions with Maritime.
- Whether the company can maintain its Nasdaq listing and access additional equity or debt financing on acceptable terms.