StealthGas Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 21, 2023

There are 4 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Steve Gas Q3 2023 Results Conference Call and Webcast. At this time, all participants are in listen only mode with no question and answer session. Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Michael Jolief, Chairman

Speaker 1

of the

Operator

Board of Directors. Please go ahead.

Speaker 2

Thank you very much. Good morning, everyone, and welcome to our Q3 2023 earnings conference call and webcast. I'm Michael Joliff, Chairman of the Board of Directors. And joining me on our call today is Harry Vafias, our CEO, to discuss market and company outlook and Konstantinos Sistovaris, handling Investor Relations to discuss the financial aspects. Before we commence our presentation, I would like to remind you that we will be discussing forward looking statements, which reflect current views with respect to future events and financial performance.

Speaker 2

At this stage, if you could all take a moment to read our disclaimer on Slide 2 of this presentation. Risks are further disclosed in StealthGas filing with the Securities and Exchange Commission. I would also like to point out that all amounts quoted, unless otherwise clarified, are implicitly stated in U. S. Dollars.

Speaker 2

Today, we released our results for the Q3 2023, announcing the 2nd best quarterly profit ever and best ever 9 month results till today. So let's proceed to discuss these results and update you on the company's strategy and the market in general. Turning to Slide 3, we summarize some highlights starting with fleet and operations update. We first concluded the previously announced sale of 2 vessels, delivering those in early July. As discussed in the previous quarter, we still have 2 more vessels to deliver to buyers, and we expect these to be delivered in the Q1 of next year.

Speaker 2

During the current quarter in October, our joint venture took delivery of 1 new building medium gas carrier, the Echo Sorcerer that was deployed immediately on a period charter. In terms of chartering, we were very active and concluded over 9 new period charters securing over 50 percent of our fleet days for 2024. Most of these charters were of longer than usual tenors of 1 to 3 years. We have thus contracted revenues of $195,000,000 for all subsequent periods. Moving to our financial highlights, with an average 7 fewer vessels compared to last year, net voyage revenues, that is net of voyage costs, came in at a very strong $34,700,000 compared to $34,900,000 last year, just a 1% increase decrease, excuse me, in spite of the smaller fleet.

Speaker 2

Net income for the 2nd quarter was $15,700,000 compared to $6,700,000 last year, a 134% increase. While for the 9 months period net income was $43,000,000 compared to $26,600,000 last year, a 62% increase, which is the highest profit recorded by the company since its inception. Earnings per share for the 9 months were $1.12 dollars Also worth pointing out that during that period, we have halved our debt by paying down facilities of 100 $150,000,000 in just 9 months and still maintaining strong liquidity. In October, we also authorized a $10,000,000 increase in the share repurchase program that began in May, making it $25,000,000 in total. The company has repurchased over 3,900,000 shares spending over $19,000,000 so far and buying back a slide 4 for our fully owned fleet employment update as of November.

Speaker 2

In contrast to the previous call, this time we announced quite a number of new period charters. During the last couple of months, we saw increased interest from charterers to cover their commitments with inquiries for charters of longer than usual duration. We took advantage as the rates have been climbing and fixed a number of vessels in 1 to 3 year charters. As a result, we have significantly increased our contracted days for next year to 50%. We have also managed to secure contracted revenues for all periods up to 2027 up to 195,000,000 dollars more than double what we reported in the previous quarter.

Speaker 2

Only 2 of our vessels currently operate in the spot market, one of which already fixed for December. Lastly, in terms of dry docks, we completed the dry dock of 3 of the larger Handysize vessels in the previous quarters and have none left for the remainder of the year. For next year, there are 7 small LPG vessels scheduled for drydock. In slide 5, I would like now to provide an update on our 2 joint ventures comprising of 6 vessels. In the first joint venture, we owned 4 small LPG vessels, 2 of which are trading in the spot market.

Speaker 2

2 of the vessels completed their drydock this year in quarter 2 and quarter 3. The remaining drydock for the gas shuriken should take place in January of next year. The 2nd joint venture currently comprises of 2 medium sized gas carriers. Here as you may recall, 1 vessel was sold in the Q1 and the proceeds were distributed to the partners. In the current quarter, the joint venture took delivery of 1 new building medium sized gas carrier, the Echo Sorcerer, and the vessel was immediately deployed on a period charter and is currently loading in Houston.

Speaker 2

As previously discussed, the remaining vessel, the Echo Ethereal, is on a very profitable time charter for 1 year with a charter option to extend 1 more year and a sale or purchase option all at profitable levels whilst the vessel is mortgage free as its debt was repaid in June. In terms of our fleet geography, presented in Slide 6, our company mainly focuses on regional trade and local distribution of gas rather than long distance. This graph is a snapshot of the positioning of the fleet, including the joint venture vessels, as of November, mid November. The majority of our fleet, 19 vessels, currently trade in Europe, particularly in the Northwest and in the Mediterranean. We have focused on this area as the freight rates west of Suez continue to command a premium over east of Suez in order to enjoy better rates, although the larger the vessels, the smaller this gap has become recently.

Speaker 2

7 vessels are trading in the Middle to Far East and 4 vessels trading in the U. S. And Caribbean and 3 in Africa. And while our main fleet is focused on local distribution, the larger vessels in our fleet perform more transatlantic voyages. As an example, this year, all but one of these vessels have loaded cargo in Texas to cross the Atlantic and unload in Europe and Africa.

Speaker 2

I will now turn the call over to Constantino Sisto Alvarez for our financial performance.

Speaker 3

Thank you, Michael, and good morning to everyone. I will discuss our financial performance for the Q3 of 2023. Let us turn to Slide 7, where we see the income statement for the Q3 9 months of 2023 against the same periods of 2022. Even though calendar rate days were reduced by 19% and we had 7 fewer vessels, net revenues after voyage expenses came in at $32,300,000 for the quarter $99,500,000 for the 9 months, an increase of 15% for the quarter and 5% for the 9 months compared to last year. So our fewer vessels generated more revenues comparatively.

Speaker 3

Total revenues were flat and had reduced voyage expenses. Operating expenses were $12,300,000 for the quarter, down 13% and flat at $40,200,000 for the 9 months. As previously stated, we did face inflationary pressures and had cost overruns particularly during the Q1 of this year. In the Q3, we see a normalization of expenses that are coming down in line with the fleet reduction. We also note depreciation costs being reduced significantly as a result of the fleet reduction to $5,600,000 $18,100,000 respectively for the quarter 9 months.

Speaker 3

During the Q3, the company also recognized a non cash gain on the sale of 2 vessels that were delivered in July of $4,700,000 As a result, income from operations quadrupled to $16,400,000 for the quarter and increased by 60% compared to last year to $36,200,000 for the 9 months. Interest and finance costs were significantly reduced by 30% over the quarterly period and 12% over the 9 months period, even though rates have more than tripled during those periods. This is a result of the aggressive debt repayments the company engaged in order to control interest costs and will result in significant savings. For the 9 months period, there was also a considerable increase in the equity income in joint ventures, which is our shares in the profits of our JV structures and our circa $40,000,000 investment there. This income came in at $11,400,000 and was mainly attributed to the profits from the sale of 1 joint venture vessel in the Q1.

Speaker 3

As a result of all of the above, we ended the Q3 of 2023 with net income of $15,700,000 compared to $6,700,000 for the same quarter of last year, a 134% increase. And for the 9 month period, dollars 43,000,000 compared to $26,600,000 last year, a 62% increase. Profits for so far this year were the highest this company has ever seen. Moving on at our balance sheet in the next slide 8, our liquidity including restricted cash and short term investments was at the end of the quarter $80,000,000 reduced from $95,700,000 at the end of last year, mainly due to debt repayments. Vessels held for sale were $38,700,000 as of September 30, and it refers to the 2 vessels under agreement to sell with deliveries in the beginning of next year.

Speaker 3

These vessels are debt free, so all of the proceeds on delivery will improve further our liquidity position. Advances of $23,400,000 remain unchanged and relate to the advance payments made on the medium gas carrier vessels under construction. A circa similar amount of equity outlay will be needed on the delivery of these vessels. Vessels net book value decreased from $628,500,000 to $510,000,000 mostly due to the sale of vessels. The value of our investments in our JVs was $38,700,000 covering 5 vessels, while a 6th vessel was added in October, for which we did not invest more money in the JV.

Speaker 3

Moving on to the liability side, the company has significantly reduced all liabilities and particularly the outstanding debt component. So total liabilities have been reduced since the beginning of the year by $156,000,000 from 303 $600,000 down to $147,500,000 As a result of the solid results being reported, shareholders' equity has increased by $33,000,000 to $550,000,000 Concluding our financial commentary with Slide 9, we will briefly have a look at the debt profile. Over a 9 month period, the company has more than halved its outstanding debt with over $150,000,000 of debt repayments, down to $127,700,000 as of September 30 and continues to maintain a very low leverage. During the Q3, dollars 13,000,000 was repaid. The company has 15 vessels out of the 27 in its current fleet mortgage free.

Speaker 3

About 35% of the remaining debt is hedged with the interest rate swaps at an average of 2.1% that mitigate the effect of the interest rate rises. The refinancing risk is very low as the first balloon payment is in 2 years' time. And overall, all balloon payments on the remaining debt have become much more manageable as you can see on the right hand picture. While debt reduction is a strategic move and we expect it to continue, there is still the financing for the delivery of the 2 new building vessels in the Q1 of these, the company has signed a facility agreement with the lender to provide up to $70,000,000 in finance proceeds for the delivery of these vessels, subject of course to customary closings. I will now hand you over to our CEO, Harry Vafias, who will discuss market and company outlook.

Speaker 1

Moving on Slide 10, a brief insight on the LPG market. So far, the 1st 9 months of the year have been very positive as far as LPG supply is concerned, with global exports estimated to have risen by 3.1%. The U. S, the world's largest exporter, continued to export record amounts with 13% increases year on year, exporting 44,000,000 tonnes of LPG in the 1st 9 months of this year. In order to continue on that record, strict U.

Speaker 1

S. Exporter like Energy Transfer, continue to invest in future export capacity expansion projects. On the other hand, the OPEC related oil production cuts by Saudi Arabia led to reduced volumes coming out of the Middle East, while other Middle Eastern countries have ramped up production to try and fill the gap. As far as imports, we continue to have anemic demand from petrochemical plants in Europe that operate at lower margins in general. Although the onset of winter when household demand increases have been supportive in terms of regional trade.

Speaker 1

Import growth has been from places like India, where imports rose to 1,800,000 tonnes in October compared to an average of 1,500,000 tonnes this year, and particularly China, where imports have increased by 30% in the 9 month period. China's economy, despite all the problems, seems to be resilient so far and even registered a healthy 5.2% growth in the 1st 9 months of this year. New Chinese PDH plants continue to come on stream as China wants to control its propylene production. Hence, major investments have been made for increasing the capacity. PDH capacity has increased over 4,000,000 tons this year alone.

Speaker 1

And while not all planned projects have come on stream and have been pushed back to next year, the macro picture points to a continuously increasing demand. Utilization rates for these plants hit a high of 85% in August, but has since fallen as production margins have become less profitable. The other latest development is obviously the delays in the Panama Canal due to drought. The first impact is that these delays are leading some shippers to use alternative routes and tie up vessel availability, leading to increased ton mile demand. This primarily affects the VLGCs, where rates have increased rapidly, but it also has a trickle down effect all the way to the handysize vessels, but have seen their rates rising as well.

Speaker 1

The longer term effects, if this issue persists, remain to be seen as rising costs could have an impact on demand. On Slide 11, we present some of the key fundamentals in our shipping market commencing with 10 charter rates for our market. We continue to see a year over year basis see significant increases in rates up to 19%, particularly in the larger sizes like the 7,500 cubic meter and handysizes listed there. Compared to the previous quarter, overall rates remained flat as there is less activity in the summer months. On the small LPG trade west of Suez, the spot market was soft through Q3, but at the time of writing, we are starting to see more activity and rates are moving upwards.

Speaker 1

There are a number of time charter vessels coming up for renewal and strength of the spot market will likely decide if time charter levels remain stable or improve further. East of Suez, the Asian market has for the most part of Q3 been quiet and freight levels were poor. Significant idle time was experienced by several vessels. From the start of Q4, we have seen a slightly more spot activity and expectations are as in the West for a busier winter period. On the period side, things were relatively quiet through Q3 and have not picked up as much as was expected.

Speaker 1

The exception is on the 7.5 ks cubic meter vessels, where there is a very tight supply demand balance and TCE rates have continued to increase. There remains a gap to TCE rates in the West, but for larger the vessel, the smaller the gap. On the Handysize and the MGC vessels, the spot market was rather dull and uneventful. On the period side, we saw relatively little activity through Q3. But even though the spot side struggled through the quarter, period expectations and 1 year age kept reasonably steady.

Speaker 1

The start of Q4 and the strength of the MGC market, coupled with the expected spillover effects from the Panama Canal drought, has given a boost to the owners' expectations, and rates are currently on an upward trajectory. Spot rates for MGCs were reasonably strong for the 1st 2 months of Q3, but have since experienced a boom and are at the time of routing historically strong. The effect of Panama Canal is expected to cause a significant tightening of an already tight VLGC market for quite some time, and this also has and will continue to have a significant spillover effect on the smaller ships. On the period front, for MGCs, we saw a lot of activity. Existing time charter vessels were extended.

Speaker 1

And more importantly, the new building list for second half 'twenty three, first half 'twenty four, which at the start of the third quarter was fairly has at the time already been reduced to only one vessel. I'd like to reiterate that the fundamentals for our core fleet of small pressurized ships continue to look promising with an aging fleet as almost onethree of the fleet is over 20 years of age. And although scrapping activity is limited due to the firm markets, we continue to see only a handful of vessels being ordered, not enough to keep the supply demand balance. Similar picture in the Handysize fleet where there are only 3 vessels to be delivered over the next 2 years. Only in the MGC market, there is indeed a high order book, but demand for these vessels has so far proved resilient and freight rates are near record levels.

Speaker 1

On Slide 12, we're showing the evolution of our LPG fleet. In this slide, for comparison purposes, we have excluded the tanker vessels that we held up to 2021 and focused the pure LPG fleet in terms of cubic capacity, including our JV vessels. In a rising market, we have sold and delivered so far this year 8 vessels and 2 more expected to be delivered around January. Though through such sales of mostly older vessels, we have maintained the average of our fleet to 10 years, which is quite modest for industry standards. Concurrently, we have been investing in modern newbuilding MGC vessels, significantly larger than those in our core fleet.

Speaker 1

We are cautiously expanding in a segment that is hot right now with freight rates close to all time highs, albeit much more volatile. 1 of these vessels were delivered in October and 2 more we have fixed, delivered in January. Our intention is to keep a diversified fleet.

Speaker 2

Please look at slide 13, where we are outlining some of the key variables that may affect our performance in the quarters ahead. We remain optimistic in the longer term for the reasons we analyzed earlier. This is a fast changing environment with many uncertainties, mostly relating to the macroeconomic factors, while some related to China's economy and others to unseen influences like the Panama Canal delays or geopolitical tensions in the Middle East. On the other hand, what is certain in the short term is that we are entering the winter for the Northern Hemisphere and period when demand normally strengthens and we are seeing this in the market. To sum up, so far, 2023 has turned out to be a tremendous year for gas shipping overall and especially for StealthGas.

Speaker 2

So far, for the 1st 9 months of 2023, we have reported our strongest performance on record with a basic EPS of $1.12 For the Q3, it normally would be a seasonably weak quarter. We reported net income of $15,700,000 the 2nd best quarter on record, only surpassed by the Q1 of this year. As the market is firming, we took advantage of the momentum and entered into a number of long period charters, some with durations as long as 3 years, thus securing part of our future revenues. We have thus extended the duration of our contract coverage to over 50% for 2024. Also, part of our strategy is deleveraging.

Speaker 2

And so far during this year, we have more than halved the outstanding debt, repaying $151,000,000 and greatly reducing our interest rate expenses in the process, while at the same time keeping 15 out of the 27 vessels debt free. At the same time, we sought to expand the repurchase of shares with an additional $10,000,000 making it $25,000,000 in total. We believe we are well positioned to benefit from strong markets and to continue to generate shareholder value. And even though our share price has climbed significantly over the past 6 months, we believe we continue to be astound, still very undervalued investment for anyone wishing to invest in our company at this time. We have now reached the end of our presentation and we would like to thank you for joining us at our conference call today and for your interest and trust in our company.

Speaker 2

We look forward to having you with us again at our next conference call for our Q4 results in February. Thank you very much.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines.

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Earnings Conference Call
StealthGas Q3 2023
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