Pyxis Tankers Inc. — 2017 Form 20-F Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2017, filed March 23, 2018. Pyxis Tankers is a Marshall Islands-incorporated international product-tanker operator reporting under U.S. GAAP. Its fleet comprised six double-hull tankers with approximately 216,635 dwt: four MR tankers and two smaller tankers. Vessels operated under a mix of spot and time charters.
At December 31, 2017, two vessels were on time charters and four were employed on the spot market. The company had 20,877,893 common shares outstanding and Maritime Investors, controlled by the CEO, beneficially owned approximately 81.4%.
Key financial and operating metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Voyage revenues | $29.826 million | $30.710 million | Down 2.9% |
| Voyage-related costs and commissions | $8.710 million | $6.611 million | Up 31.8% |
| Vessel operating expenses | $12.761 million | $12.871 million | Down 0.9% |
| Operating loss | $2.346 million | $3.003 million | Improved by $0.657 million |
| Net loss | $5.243 million | $5.813 million | Improved by $0.570 million |
| Basic and diluted loss per share | $0.28 | $0.32 | Improved |
| Net cash from operating activities | $3.677 million | $4.446 million | Down 17.3% |
| Cash and cash equivalents | $1.693 million | $0.783 million | Up $0.910 million |
| Total assets | $124.813 million | $130.740 million | Down $5.927 million |
| Stockholders’ equity | $48.156 million | $48.753 million | Down $0.597 million |
Derived revenue-based metrics were weak: operating margin was approximately negative 7.9% and net margin approximately negative 17.6%, compared with approximately negative 9.8% and negative 18.9%, respectively, in 2016. The filing does not present EBITDA or a company-defined adjusted EBITDA measure.
- Daily TCE declined to $10,795 from $12,134 in 2016 and $13,597 in 2015.
- Fleet utilization declined to 89.3% from 91.3% in 2016 and 97.9% in 2015.
- Operating days declined to 1,956 from 1,986, while ownership days remained broadly stable at 2,190.
- Average daily vessel operating expense was $5,827, compared with $5,861 in 2016.
- Voyage-related costs increased primarily because of greater spot-market activity, which places fuel, port and canal expenses on the company.
- Bank debt outstanding before deferred financing costs was $66.868 million at year-end; total bank debt, net of deferred financing costs, was reported at approximately $66.4 million. The company also had a $5.0 million related-party promissory note.
- Working capital remained negative at approximately $8.6 million. Restricted cash totaled approximately $5.0 million, including current and non-current portions.
Material changes versus the prior comparable period
- Revenue decreased modestly, but the revenue mix shifted toward spot charters: spot revenue rose to $16.906 million from $9.472 million, while time-charter revenue declined to $12.920 million from $21.238 million.
- Lower TCE rates, reduced utilization and idle days between voyages reduced operating performance and operating cash flow.
- Operating loss improved because 2016 included a $3.998 million vessel impairment charge; no impairment charge was recorded in 2017. Nevertheless, 2017 results included a $0.231 million bad-debt provision.
- General and administrative expense increased 23.9% to $3.188 million, including approximately $0.4 million of non-cash restricted-stock compensation and approximately $0.3 million of costs from a terminated public equity offering.
- Net debt declined through scheduled repayments, but interest expense increased 3.1% to $2.897 million because of higher LIBOR-based rates.
- The company issued 2.4 million shares in a December 2017 private placement at $2.00 per share, generating $4.8 million of gross proceeds. It also issued 200,000 restricted shares to a senior officer.
- Management fees to related parties increased to $0.712 million, and total amounts charged by Maritime for charter commissions, ship management and administration were approximately $2.680 million.
Guidance, outlook, risks and unusual items
Management did not provide formal earnings or rate guidance. It expected to fund near-term needs through operating cash flow, related-party advances, debt and potential future equity or debt offerings, and stated that projected liquidity would cover the next 12 months. The company intends to retain cash rather than pay dividends in the near term.
The product-tanker market remained cyclical and depressed during 2017, although management cited signs of market correction late in the year as newbuilding supply moderated. The company planned to pursue selective fleet acquisitions, maintain a relatively modern fleet and use a mix of time and spot charters.
- Liquidity and refinancing: The company relied on related-party working-capital financing. Advances from Maritime increased during 2017, and the related-party promissory note was amended to $5.0 million, bearing 4.0% cash interest and maturing June 15, 2019.
- Subsequent refinancing: On February 28, 2018, $26.9 million of existing debt secured by three vessels was refinanced with a new $20.5 million five-year secured loan plus $2.1 million of cash. Approximately $4.3 million was forgiven and was expected to be recorded as a gain in the first quarter of 2018. The new loan carries LIBOR plus 4.65% and requires re-domiciliation of three subsidiaries to Malta by May 1, 2018.
- Debt covenants: The company reported compliance with financial and minimum-security-collateral covenants at December 31, 2017. However, debt agreements require minimum liquidity, vessel-value coverage and leverage ratios, and may restrict dividends, additional debt, asset sales and corporate actions.
- Market and counterparty risk: Charter rates and vessel values are volatile; three customers represented approximately 49% of 2017 revenue. Spot-market exposure, charterer defaults, off-hire periods and dependence on Maritime and ITM could materially affect cash flow.
- Interest-rate risk: A 100-basis-point increase in interest rates was estimated to reduce annual net income and cash flow by approximately $0.7 million based on 2017 average debt. An interest-rate cap with a $10.0 million notional amount and a 3.5% cap rate was entered into in January 2018.
- Regulatory expenditures: Future ballast-water treatment requirements and the IMO’s 2020 sulfur limit could require material capital expenditures or increase operating costs. Estimated ballast-water compliance cost was $0.2 million to $0.6 million per vessel in one disclosure, while dry-docking costs were estimated at $0.2 million to $0.9 million per vessel.
- Unusual items and contingencies: A charterer dispute was settled in October 2017; $150,000 of escrowed funds was paid to the charterer. The filing also describes a Make-Whole Right and a potential share repurchase obligation of up to $2.0 million related to former LookSmart shareholders.
- Insurance and operational risk: Pollution liability coverage was stated at $1.0 billion per vessel per incident, but catastrophic spills, piracy, accidents, environmental claims, cyberattacks and uninsured off-hire losses could exceed coverage.
Most important facts for an investor to verify
- Whether the February 2018 refinancing, debt forgiveness and Malta re-domiciliation requirements were completed on the disclosed terms.
- Current cash, restricted cash, working-capital deficit and compliance with all minimum-liquidity, leverage and vessel-value covenants.
- Current charter coverage, expected redelivery dates, spot-market exposure and realized TCE and utilization rates after 2017.
- Terms and availability of related-party advances, the $5.0 million promissory note and any changes in related-party management fees.
- Exposure to customer concentration, receivable collectability and any unresolved charterer disputes.
- Required capital expenditures for dry-docking, ballast-water systems, sulfur compliance and other environmental regulations.
- Potential dilution or cash obligations arising from the Make-Whole Right, future equity offerings and the 2015 equity incentive plan.
- The company’s ability to generate sustainable positive operating cash flow while carrying substantial variable-rate debt and paying no dividends.