Tsakos Energy Navigation (TNP) - 2024 Q2 - Quarterly Report

Management's Discussion and Analysis Results of Operations Softer tanker market rates in H1 2024 led to decreased voyage revenues and net income, though Q2 net income rose from vessel sales Voyage Revenues Voyage revenues decreased in Q2 and H1 2024 due to softer tanker market rates and lower fleet utilization, impacting average daily TCE rates Voyage Revenue Breakdown ($ million) | Revenue Source | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Time charter-fixed rate | $86.8 | $68.0 | $163.2 | $130.8 | | Time charter-variable rate | $53.4 | $63.0 | $104.1 | $120.9 | | Voyage charter-spot market | $66.9 | $77.7 | $129.2 | $196.4 | | Total Voyage Revenue | $214.1 | $221.5 | $415.6 | $482.7 | - The decrease in voyage revenue was attributed to softer market rates in the tanker industry compared to 2023, despite the market remaining on solid ground due to high oil demand and geopolitical tensions[4] - Fleet utilization decreased to 92.4% in Q2 2024 from 94.2% in Q2 2023, mainly due to vessel repositioning and the scheduled dry-docking of three vessels[5] Average Daily TCE Rate Comparison ($) | Period | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Q2 (Three Months) | $34,235 | $38,353 | -10.7% | | H1 (Six Months) | $33,830 | $40,182 | -15.8% | Voyage Expenses Voyage expenses rose in Q2 2024 due to higher bunker and port costs, including EU ETS charges, but decreased in H1 2024 due to lower commissions Voyage Expenses Breakdown ($ million) | Expense Category | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Bunker expenses | $24.1 | $23.9 | $50.9 | $49.9 | | Port and other expenses | $9.9 | $6.9 | $17.6 | $16.4 | | Commissions | $7.4 | $8.1 | $14.9 | $18.5 | | Total | $41.4 | $38.9 | $83.4 | $84.8 | - The increase in Q2 port expenses was significantly impacted by the new EU ETS regulation, contributing $2.6 million to the total[14] - For the first half of 2024, the impact of EUAs on port and other expenses amounted to $5.2 million[15] Vessel Operating Expenses Vessel operating expenses increased in Q2 and H1 2024 due to higher repairs and crew costs from fleet expansion and dry-dockings, despite improved daily efficiency Vessel Operating Expenses Breakdown ($ million) | Expense Category | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Crew expenses | $26.7 | $25.9 | $53.5 | $51.6 | | Repairs and maintenance | $8.6 | $6.6 | $16.0 | $14.2 | | Insurances | $6.3 | $5.5 | $11.7 | $10.8 | | Total | $49.6 | $46.7 | $98.3 | $94.9 | - The increase in repairs and maintenance was attributed to the scheduled dry-docking of several vessels and routine repairs during Q2 and H1 2024[18] - Average daily operating expenses per vessel decreased by 1.5% to $9,347 in Q2 2024, mainly due to a rise in earnings capacity days from fleet expansion[20] Depreciation and Amortization Depreciation and amortization expenses increased in Q2 and H1 2024, primarily due to higher depreciation charges from newbuild and second-hand vessel additions Depreciation and Amortization Expense ($ million) | Period | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Q2 (Three Months) | $39.5 | $35.2 | +12.2% | | H1 (Six Months) | $77.0 | $70.4 | +9.4% | - The increase in depreciation was due to the delivery of newbuild aframax tankers (Chios DF, Ithaki DF) and the acquisition of several second-hand vessels in the first half of 2024[22] Gain on Sale of Vessels The company realized a $48.7 million net gain from five vessel sales in H1 2024, lower than the $81.2 million gain from eight sales in H1 2023 - In H1 2024, the company sold the suezmax tankers Eurochampion 2004 and Euronike, the aframax tankers Izumo Princess and Nippon Princess, and the LNG carrier Neo Energy for net proceeds of $228.4 million, resulting in a net gain of $48.7 million[25] - In H1 2023, the company sold eight handymax and handysize tankers for net proceeds of $165.9 million, realizing a gain of $81.2 million[25] Impairment No impairment charge was required for vessels or right-of-use assets as of June 30, 2024, as vessel values increased and cash flow tests were positive - The company reviews all vessels for impairment at each quarter-end. As of June 30, 2024, vessel values had increased compared to the prior year[26] - Cash flow tests indicated no impairment charge was required for any vessel intended to be held and used at June 30, 2024 and 2023[26] General and Administrative Expenses General and administrative expenses significantly decreased in Q2 and H1 2024, primarily due to the absence of a management incentive award granted in 2023 G&A Expenses Comparison ($ million) | Period | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Q2 (Three Months) | $7.9 | $12.3 | -35.8% | | H1 (Six Months) | $15.2 | $19.5 | -21.9% | - No incentive award was granted in H1 2024, compared to a $5.0 million award granted to the management company in H1 2023[30] - Daily overhead per vessel decreased to $1,392 in Q2 2024 from $2,337 in Q2 2023, and to $1,358 for H1 2024 from $1,793 in H1 2023[31] Operating Income Operating income increased in Q2 2024 due to vessel sales gains but decreased in H1 2024, reflecting a weaker tanker market and lower gains Operating Income Comparison ($ million) | Period | 2024 | 2023 | | :--- | :--- | :--- | | Q2 (Three Months) | $103.0 | $82.6 | | H1 (Six Months) | $179.2 | $281.7 | - The increase in Q2 operating income was mainly attributed to gains on the sale of four vessels[32] - The decrease in H1 operating income was mainly attributed to the weakening market and a $32.5 million reduction in gains on sale of vessels compared to H1 2023[32] Interest and Finance Costs Net interest and finance costs increased in Q2 and H1 2024 due to higher average interest rates on outstanding debt and new hedging agreements Net Interest and Finance Costs ($ million) | Period | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Q2 (Three Months) | $30.1 | $24.3 | +23.5% | | H1 (Six Months) | $55.2 | $48.9 | +13.0% | - The average interest rate paid on outstanding debt increased to 7.09% for Q2 2024 from 6.62% in Q2 2023, and to 7.2% for H1 2024 from 6.5% in H1 2023[34][35] - In H1 2024, the company entered into eight bunker agreements and three CO2 emission agreements to hedge its exposure to price fluctuations[39] Interest Income Interest income increased in Q2 and H1 2024, driven by higher cash reserves and prevailing interest rates Interest Income Comparison ($ million) | Period | 2024 | 2023 | | :--- | :--- | :--- | | Q2 (Three Months) | $4.7 | $4.1 | | H1 (Six Months) | $7.9 | $6.9 | Non-controlling Interest Net income attributable to non-controlling interests was $1.2 million in Q2 2024 and $1.6 million in H1 2024, reflecting a 49% stake in Mare Success S.A - The non-controlling interest relates to a 49% stake in Mare Success S.A., which owns four vessels[43] Net Income Attributable to Non-controlling Interest ($ million) | Period | 2024 | 2023 | | :--- | :--- | :--- | | Q2 (Three Months) | $1.2 | $1.1* | | H1 (Six Months) | $1.6 | $2.4** | Net Income Attributable to Tsakos Energy Navigation Limited Net income attributable to the company increased in Q2 2024 but significantly decreased in H1 2024 due to weaker market conditions Net Income and EPS Attributable to Common Stockholders | Period | Net Income ($M) 2024 | EPS 2024 | Net Income ($M) 2023 | EPS 2023 | | :--- | :--- | :--- | :--- | :--- | | Q2 (Three Months) | $69.6 | $2.36 | $48.7 | $1.65 | | H1 (Six Months) | $116.9 | $3.96 | $216.6 | $7.34 | Liquidity and Capital Resources The company maintained strong liquidity with $377.3 million cash, but H1 2024 operating cash flow decreased, while debt increased to $1.79 billion for fleet expansion - Non-restricted cash balances were $377.3 million as of June 30, 2024, compared to $372.0 million as of December 31, 2023[48] - Net cash provided by operating activities decreased to $160.2 million in H1 2024 from $258.5 million in H1 2023, primarily due to lower TCE rates[51] - Net cash used in investing activities was $356.5 million in H1 2024, mainly for vessel acquisitions ($442.4 million), partially offset by proceeds from vessel sales ($228.4 million)[53] - Net cash provided by financing activities was $201.5 million in H1 2024, including $331.9 million in new loan drawdowns and $13.5 million in dividend payments[57] - Total debt outstanding increased to $1.79 billion at June 30, 2024, from $1.57 billion at December 31, 2023. The debt-to-capital ratio was 50.6%[58] Inflation Inflationary pressures moderately impacted operating costs and management fees in H1 2024, significantly increasing floating-rate financing costs due to higher interest rates - Global inflationary pressures have resulted in higher prevailing interest rates, significantly increasing interest payable under floating rate financing agreements[62] - Inflation has had a moderate impact on operating expenses, dry-docking expenses, corporate overhead, and management fees, which increased in the first half of 2024[62] Consolidated Financial Statements Consolidated Balance Sheets Total assets increased to $3.77 billion due to vessel acquisitions, while total liabilities rose to $2.02 billion from increased long-term debt Consolidated Balance Sheet Highlights (in thousands of U.S. Dollars) | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $577,236 | $509,336 | | Vessels' Net Book Value | $2,930,160 | $2,600,021 | | Total Assets | $3,769,051 | $3,364,090 | | Total Current Liabilities | $436,350 | $323,202 | | Long-Term Debt, net | $1,531,911 | $1,370,683 | | Total Liabilities | $2,017,591 | $1,711,443 | | Total Stockholders' Equity | $1,751,460 | $1,652,647 | Consolidated Statements of Comprehensive Income Net income increased in Q2 2024 due to vessel sales gains but significantly decreased in H1 2024, reflecting lower voyage revenues and reduced gains Consolidated Income Statement Highlights (in thousands of U.S. Dollars) | Account | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Voyage Revenues | $214,055 | $221,454 | $415,644 | $482,667 | | Operating Income | $102,950 | $82,562 | $179,197 | $281,715 | | Gain on sale of vessels | $32,495 | $0 | $48,662 | $81,198 | | Net Income | $77,588 | $62,112 | $132,009 | $239,575 | | Net Income Attributable to Common Stockholders | $69,636 | $48,712 | $116,922 | $216,594 | | Earnings Per Share (basic and diluted) | $2.36 | $1.65 | $3.96 | $7.34 | Consolidated Statements of Cash Flows H1 2024 saw decreased operating cash flow, substantial cash used in investing for vessel acquisitions, and cash provided by financing from new debt Consolidated Cash Flow Summary - H1 (in thousands of U.S. Dollars) | Cash Flow Category | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash provided by Operating Activities | $160,222 | $258,502 | | Net Cash (used in) provided by Investing Activities | ($356,512) | $37,025 | | Net Cash provided by (used in) Financing Activities | $201,517 | ($70,872) | | Net increase in cash | $5,227 | $224,655 | | Cash and cash equivalents at end of period | $381,921 | $534,094 | Notes to Interim Condensed Consolidated Financial Statements Note 2: Transactions with Related Parties The company engages in significant related-party transactions for management and technical services, with H1 2024 management fees at $10.1 million and no incentive award - The company has a Management Agreement with Tsakos Energy Management Limited for overall executive and commercial management, with fees charged per vessel[77] - Management fees charged by the Management Company totaled $10.1 million for H1 2024, compared to $10.0 million in H1 2023[78] - No incentive award was granted in H1 2024, whereas a $5.0 million award was granted in H1 2023[79] Note 5: Vessels In H1 2024, the company expanded its fleet with newbuilds and acquisitions totaling $506.6 million, while selling five vessels for a $48.7 million gain, with no impairment required - In H1 2024, the company took delivery of newbuild aframax tankers Chios DF and Ithaki DF for $156.6 million and acquired five second-hand vessels for $350.0 million[106] - The company sold five vessels in H1 2024, realizing a total net gain of $48.7 million[108] - The impairment review as of June 30, 2024, did not indicate an impairment charge for any vessel[109] Note 7: Long-term Debt and Other Financial Liabilities Total outstanding loans reached $1.64 billion as of June 30, 2024, with new loans of $348.5 million secured in H1 2024 at a 7.17% weighted-average interest rate Long-Term Debt (in thousands of U.S. Dollars) | Description | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Loans | $1,636,430 | $1,411,779 | | Total long-term debt, net | $1,386,482 | $1,220,749 | - In March 2024, the company signed a new five-year loan for $245.0 million to finance five vessel acquisitions and a new seven-year loan for $103.5 million for a newbuild DP2 shuttle tanker[112][113] - The company was compliant with all financial covenants in its thirty-two loan agreements as of June 30, 2024[120] Note 9: Stockholders' Equity In H1 2024, the company distributed $8.0 million in Series F and $5.5 million in Series E preferred dividends, and declared a $0.60 per common share dividend - Paid dividends of $8.0 million on Series F Preferred Shares and $5.5 million on Series E Preferred Shares in H1 2024[134][135] - Declared a semi-annual dividend of $0.60 per common share ($17.7 million total) on March 27, 2024, which was paid on July 18, 2024[135] Note 12: Commitments and Contingencies As of June 30, 2024, the company had $722.1 million in capital commitments for ten new vessels and $1.36 billion in future time charter revenues, with an SEC investigation terminated - The company has ten vessels under construction with remaining contractual payments of $722.1 million as of June 30, 2024[139][140] - Future minimum revenues expected from non-cancelable time charters total $1.358 billion[143] - In June 2024, the SEC informed the company that it had terminated its investigation regarding potential non-compliance with the FCPA[142] Note 15: Subsequent Events Subsequent events include granting 625,000 restricted shares, signing contracts for two new LR1 tankers, and declaring a $0.90 per common share dividend - On July 24, 2024, 625,000 restricted common shares were granted to directors, officers, and employees[156] - On August 27, 2024, the company signed shipbuilding contracts for two new LR1 tankers[156] - On September 11, 2024, the company declared its second semi-annual dividend of $0.90 per common share[156]