StealthGas Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 25, 2024

There are 4 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the StealthGas Third Quarter 2024 Results Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Michael Joliff.

Operator

Please go ahead.

Speaker 1

Good morning, everyone, and welcome to our Q3 2024 Earnings Conference Call and Webcast. I am Michael Joliff, Chairman of the Board of Directors. And joining me on our call today, as usual, is our CEO, Harry Vafias, to discuss the market and the company outlook and Constantino Sistoevales 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. So if you could all take a moment to read our disclaimer on Slide 2 of this presentation, I should be grateful.

Speaker 1

Risks are further disclosed in the StealthGas filing with the Securities and Exchange Commission. So let's proceed to discuss these results and update you on the company's strategy and the market in general, starting with Slide 3 for some highlights. Today, we released our results for the Q3 9 months 2024. It was admittedly a successful quarter despite the seasonally weaker summer months. We did not manage to break the previous quarter's record, but we have reported the most profitable 9 months ever.

Speaker 1

Revenues came in at a solid $40,400,000 slightly down by 3% from the previous quarter, but considerably higher by 17% than a year earlier. The reported net income on an adjusted basis for the 3rd quarter was $14,200,000 compared to $12,000,000 last year, 18% higher. Adjusted profit for the 1st 3 quarters of this year reached a record $61,000,000 In terms of earnings per share on an adjusted basis, these were $0.38 for the quarter, 23 percent higher and dollars 1.67 for the 9 month period, marking a 61% increase over the 9 month period. This was also assisted by the reduced share count as a result of share repurchases over the last 1 year. We did not buy back any shares during the Q3, so there is about $5,500,000 left authorized for share repurchases.

Speaker 1

Our strategy for the time being remains focused on deleveraging and optimizing cash generation. While we did enter a new debt facility of €70,000,000 in the beginning of the year, we have also made €108,000,000 in repayments up to today, reducing the debt to below €100,000,000 for the first time. In terms of our fleet, strategy is to conservatively diversify and renew. We have previously discussed the sale of 2 smaller LPGs and the delivery of 2 medium gas carriers in the beginning of the year, as well as the subsequent sale of 1 medium gas carrier by our joint venture in the Q2. We are still looking for opportunities in the sale and purchase market.

Speaker 1

And towards the end of the third quarter, our joint venture entered into an agreement to sell 1 of the smaller vessels with delivery early in 2025. At the same time, we agreed to take over a second vessel that was jointly owned. Let us move on to Slide 4 for some more details on our fully owned fleet employment as of November. Since our last call in September, we were reasonably active on the chartering front. We concluded 5 new charters with short to medium term duration, the longer one being 1.5 years.

Speaker 1

We did not conclude any long term charters as we did in the previous period. The company's chartering strategy is to fix on period charters when possible and profitable, so there are only 2 vessels operating in the spot market. Including the latest charters, we have increased our contracted days for 2025 percent to 65 percent already securing about $100,000,000 in revenues. Total revenues secured up to 2027 are steady at $220,000,000 During the Q3, we had a rather heavy drydocking schedule. Four vessels were drydocks and one vessel has just entered drydock, while in the Q4, 2 more vessels have been scheduled for drydock.

Speaker 1

Dock. Since most vessels are in Europe, we are usually forced to perform the dry yachting at a higher cost than could potentially be achieved at cheaper Far Eastern shipyards. In terms of our fleet geography presented in Slide 5, our company mainly focuses on regional trade and local distribution of gas. So most of our vessels are not likely to travel long distances and often do voyages that may last as short as a couple of days from load port to destination, while the fewer larger vessels often engage in intercontinental voyages, for example, the United States Gulf Coast to continent. This graph is a snapshot of the positioning of the fleet, including the joint venture vessels as of mid November.

Speaker 1

We currently have 5 vessels trading in the U. S. And Caribbean and 5 in Africa in some specialized trades and only 3 vessels trading in the Middle East and the Far East. The majority of our fleet, some 19 vessels or 60% currently trading in Europe, particularly in the Northwest and in the Mediterranean. It is not always the case as in the past the fleet used to be evenly split between Europe and the Far East, but we have strategically focused over the last several quarters on this area as the freight rates west of Surry continue to command a premium over east of Surry.

Speaker 1

We believe that in the short term, we will continue to enjoy higher rates. West have said that there continues to be a shortage of suitably well maintained vessels in Europe. Since it is unsafe to navigate in the Red Sea due to the Houthi attacks, it would mean that most vessels would have to travel the long distance around the Cape of Good Hope to move from east to west. And due to the short distance trade routes for small LPG carriers, it is rare that cargoes are found for these types of long distance routes to make such a voyage profitable. It is therefore less likely that these arbitrages between East and West will quickly fade by an influx of vessels in the area.

Speaker 1

Meanwhile, the attack in the Red Sea by the Houthis have escalated. This also means less Middle East exports on larger vessels destined for Europe and replaced by U. S. Exports to Europe. Our handysize vessels particularly do increased transatlantic trades between the United States and Europe.

Speaker 1

Finally, I would also like to note that we have been increasingly engaged in ammonia trades that our hand is a medium gas carriers can carry. In Slide 6, I will update you on our joint venture investments. That is the interest we had as of September 30th in 5 vessels. 4 pressurized LPG carriers and 1 medium gas carrier through 2 joint venture structures. These are presented separately as we do not consolidate these vessels in our results, but use the equity method of accounting.

Speaker 1

The book value of our investments as of September 30, so that was $30,900,000 close to

Speaker 2

the previous quarter. There was not much activity in terms of chartering of these vessels and most of these have charters which are close to expiry that we will then have to renew.

Speaker 1

At the end of the quarter, to go with our partners, we agreed to sell the gas jury hand to a third party. That vessel is expected to be delivered very early next year depending on its trading schedule. Next, we agreed to buyback from that joint venture, the gas defiance that we then chartered out for a 1 year charter. Prior to this, the debt on both vessels was repaid, so we added a debt free vessel in our fully owned fleet. For the remaining 2 smaller vessels, as the joint venture enters its 6th year, we are looking at opportunities to sell these.

Speaker 1

The remaining 3 vessels are all financed with the debt on the 2 smaller ones maturing next year, while the medium gas A that belongs to our 2nd joint venture, as you may recall, was acquired and financed just last year. Lastly, the dry dock on the one pressurized vessel that was originally scheduled for early 2025 was brought forward and the vessel is undergoing dry dock as we speak. I will now turn the call over to Constantino Cisorais, who will give details of our financial performance. Thank you.

Speaker 3

Thank you, Michael. I will discuss the financial results that were released today. Let's turn to Slide 10, where we have a snapshot of the income statement for the Q3 9 month period of 2024 against the same periods of 2023. Due to vessel sales that placed last year, there was a corresponding reduction in fleet days of 2% for the quarter and 10% for the 9 months period. Net revenues that's after voyage expenses came in at $37,500,000 for the quarter, an increase of 16% and at $115,300,000 for the 9 months, a similar increase of 16%, mainly the result of re chartering vessels at higher rates throughout the past year and also the addition of 2 larger vessels in the fleet with higher earnings capacity.

Speaker 3

Net revenues would have been higher this quarter if it weren't for the lower operational utilization as a result of having to drydock 4 vessels during the quarter. Operating expenses were €12,300,000 for the quarter, at the same level as last year and $36,200,000 for the 9 months, down 10% that corresponds about the reduction of the fleet. Overall, a good performance in containing expense so far in 2024, despite the inflationary pressures throughout the economy. The main drag for this quarter results were the drydocking expenses at 2,900,000 as ARS 4 and partially a 5th one had to undergo their statutory 5 years special survey and drydock. The cost for these drydocks that involve also lost time and revenues are expensed as impaired and not amortized.

Speaker 3

So there was a hit in the Q3, especially when compared last year when there were no vessels to be drydocked at the time. In the Q3, there was also an increase of $1,000,000 in G and A costs as a result of an increase in stock based compensation expenses. There were no impairments nor any gains or losses from sale of vessels during the Q3 of this year, while interest costs decreased by $700,000 as a result of the debt reduction. Net income for the 3rd quarter was $12,200,000 compared to $15,700,000 for the same quarter last year, a 23% decrease. However, this is reversed when looking at adjusted net income that excludes, in particular, the nonrecurring gain from the vessel sales and the noncash stock compensation and was $12,000,000 last year compared to $14,200,000 this year, an 18% increase, which is more reflective of the improving profitability of the company.

Speaker 3

For the 9 month page, adjusted net income was $16,800,000 a 52% increase compared to last year's. Likewise, adjusted earnings per share for the 3rd quarter were $0.38 a 23% improvement

Speaker 2

and

Speaker 3

$1.67 for the 9 months, a 61 percent improvement compared to last year. While the 3rd quarter profit, as expected, did not surpass the 2nd quarter's record, the company has now marked its best 9 months ever and is on track for a record year. Looking at the balance in the next slide, Slide 8. The company continues to maintain strong liquidity. Cash, including restricted cash, was at the end of the quarter $77,400,000 reduced by just 8% compared to December 31 despite the sizable debt repayment.

Speaker 3

We do not have and do not use any revolving credit lines as there is no need at this moment. Vessels held for sale were €34,900,000 as of December 31, were nil as of September 30 as there were no vessels contracted to be sold. Also, deposit for vessels that were $23,400,000 as of December 31 were nil as of September 30 as the 2 medium gas carriers were delivered to the company and there were no vessels contracted to be bought. Vessels book value increased from $504,300,000 to $605,000,000 a significant 20% increase as a result of the addition of the 2 medium gas carriers in January. The book value of our investments in our joint ventures was $30,900,000 an $8,900,000 reduction due to the sale of the 1,000,000 gas carrier and subsequent return of capital that happened during the Q2.

Speaker 3

And we expect it to be reduced further in the come quarters following the exit of the 2 smaller vessels that were previously mentioned. Total assets as of September 30 increased 3.3 percent to EUR 720,700,000 compared to December 31. Moving on to the liability side. The current portion of the long term debt was half to EUR 6,200,000 while the long term portion of the debt stood at EUR 106,900,000 as of December 31, then EUR 145 point $4,000,000 as of March 31, and was reduced to EUR 80,200,000 as of September 30. As a result, with a total debt of just EUR 80 $86,400,000 versus cash in hand of $77,400,000 the company is close to being net debt free and will probably be sold in the following quarter.

Speaker 3

Shareholders' equity increased 11 percent or $60,500,000 over the 9 months. Moving on to Slide 9 to update you on the debt structure. The leverage has been the name of the game for the past couple of years, allowing for significant interest cost savings over this period. It is worth noting that in the Q3, the company has, for the first time, managed to reduce its total debt to levels below 100,000,000 dollars During 2023, the company very aggressively halved its outstanding debt with over $154,000,000 of debt repayments. In 2024, in the 1st 9 months, $70,000,000 8 year facility were added in January and $106,600,000 of debt repayments took place, dollars 21,000,000 of which during the Q3.

Speaker 3

As a result, the debt cash flow amortization is now reduced to $6,400,000 per annum compared to $30,000,000 just 2 years ago. And that, we believe, will allow significantly faster cash flow accumulation going forward. There are only 3 mortgage vessels out of 28 in the fleet, and that means much lower cash flow breakeven for our vessels, making them more competitive. Finally, we have eliminated refinancing risks. There is only EUR 150,000,000 alone at the end of 2025, and the next balloon of $35,000,000 is from the facility just recently concluded, which matures in 2,032.

Speaker 3

Thank you. And I will now hand you over to our CEO, Haris Baffias, who will discuss the market and company outlook.

Speaker 2

Moving on Slide 10, our brief insight on the LPG market. Over the last 3 years, global LPG exports are on a steady upward path. After making a 4.3% increase in 2023, the latest data show that over the 1st 9 months of 2024, the increase is really higher at 5.5%. That coming out of the U. S.

Speaker 2

Showed that for the 1st 9 months of this year, propane exports from the world's number one exporter, the U. S. Continued to grow, marking an impressive 12% year over year increase. Leap of over the summer as a result of Hurricane Vale, but exports have resumed their upward path after that. We expect the rate of growth to slow in the coming quarters and assume as capacity expansion projects are completed by 26% to allow volumes to increase by another 20%.

Speaker 2

The Panama Canal situation now resolved and Crohn's are back to normal, leading downward adjustment in VLGC rates, also affecting the medium gas carrying rates. In the 2nd largest exporting market in Middle East, volumes have moderated over the last couple of years since OPEC implemented production cuts and the area has been losing market share. We will be waiting to see if the forthcoming administration change in the U. S. Is going to have any effect in lifting the self imposed production cuts.

Speaker 2

Although increasing volumes are sent from the U. S. To Europe, LPG demand in Europe continues to remain flat. Although in the important intra regional trade, there has been some activity with petchem cargoes of late. The waiting will see the advent of the colder weather as so far the weather has been relatively mild with temperatures below average and that does not help demand for domestic heating consumption.

Speaker 2

1 and more localized on a more localized level, we mentioned last time the airport ban on Russian volumes starting this December. As a more immediate effect, we're seeing some increasing sea borne volumes destined for plant replacing the now banned railroad option. Since Poland does not yet possess adequate port facilities for larger LPG vessels, they had to rely on solar pressurized ships doing more voyages and by reducing the number of available ships. On the other side of the globe in Asia, where the major importers of LPG are located, we expect to see 8% LGC import growth in 2024. For the 7 months of this year, Wound's brand to China have marked an almost 12% year on year growth.

Speaker 2

In England, the 2nd LPG market following elections in the summer, the import growth continues to be resilient coming in at 7.1% year on year for the 9 month period. In China, the weakening economy has led to the government to take measures out of late and to reaffirm its amendment to keeping the economy growing at a 5% rate. Regarding the expansion of PPA capacity for the production of papillon used for plastics continues at a massive scale. During 2023, 9 new pig plants came on stream adding 5,400,000 tons of capacity. So far this year, 7 new plants have started adding over 5,000,000 tons.

Speaker 2

So far, and more parts are under construction and expected to bring the total production up over 30,000,000 tons, a 77% rise from 2023 levels. The addition of all these plants for roughly production at U. S. LPG as a feedstock will underpin demand for the years to come. Slide 11, we discuss the state of the LPG shipping market and its fundamentals.

Speaker 2

Overall, the summer announced being the time of the year when there is a pullback in demand, so a weaker spot market while the period market was able. Looking at small pressurized vessels that comprise of the majority of our fleet, there continues to be a divergence in market between East and West. In the Western spot market during Q3 was keeping reasonably active with later firm levels considering season, especially positions on the larger pressurized vessels have been tight. Both LPG and pecans have been active. On the period side, we have commenced a strong interest on charters, especially in 5,000 cubic meters and 7,500 cubic meters.

Speaker 2

Rates have continued to edge upwards and are definitely at historically high levels. The spot market in East of Suez was lower than the West. Owners without them positioned would, in most cases, have to factor in some oil time and spot rates were suffering as a consequence. As the order book is still rather light in the next 2, 3 years with a rapidly aging fleet, it would seem chances are reasonably good that others would be enjoying a firm market for some time. The spot market for the handies held reasonably well through the summer, mostly due to an active tech in the market.

Speaker 2

On the peer side, petchem has been relatively stable, although the market was pretty inactive through the quarter. Petchem is usually spot focused market, while the LPG, which normally attracts TC interest from charter, was very quiet. The order book for 100 remains very slim with no deliveries scheduled for 2025, and this will largely support the current market going into next year. On the MGC spot market remains soft and owners find themselves competing with trade relay heads more often than not. On time charter side, owners with available tonnage have enjoyed kept their TCI DSLM.

Speaker 2

This has then resulted in investments not being renewed due to abreachable gaps between Corners and Charters Ideas. The order book provides for only a handful of deliveries in 2025, which will support TCRH for the year. However, longer term, the order book for MGC is worrisome. We have seen even more orders be placed since our last call, driving the order book ratio to 50% of the existing fleet. We've seen new entrants in existing players ordering MGCs as well as VLGCs at record high prices with deliveries 2 3 years from now.

Speaker 2

Admittedly betting that ammonia will be the next generation fuel choice, hoping for surge in demand. We, of course, would welcome such a development having already the 7 larger vessels in order to be able to carry ammonia. But that being said, we believe that ordering these vessels now at these record prices is quite a risk proposition. On the other hand, the order book situation is quite different in the overlooked handysize fleet, where there are no vessels moving over the next year and the order book remains healthy beyond that, although since our last quarter, there were a few more orders being placed. As far as our core fleet, professionalized ships, the situation hasn't changed much.

Speaker 2

We continue to see only a handful vessels being ordered and most of these in Chinese yards destined for Chinese trades with the order book ratio at the low 5% for the next 3 years. And we would like to repeat what is shown in our graph that according to the age profile of the Peshwa fleet, over 30% of the existing vessels are over 20 years old, meaning that the fleet is not being moved fast enough. Scrapping continues to remain subdued given the strong charging market. But even without scrapping, it's easily getting more difficult for the vessels to trade in the international markets, especially in Europe, given the safety environmental regulations. On our last slide, we're outlining some of the key variables that may affect our performance in the quarters ahead.

Speaker 2

Our company had another quarter of high performance during the seasonally weaker summer months. We managed to increase our revenues by 17% compared to last year even though there was a heavy drydock schedule during the Q3 that reduced half fleet utilization. So far this year, we have announced record profits and with the markets strengthening during the winter, we are on track for another year. There is continued interest from charters on period coverage and we have now contract coverage of 65 percent for 2025, securing approximately $100,000,000 in revenues just for next year. Particularly in Europe, where the majority of our fleet is located, period rates for Russia issues are at historically highs.

Speaker 2

Currently, 25 vessels in our fleet are unencumbered. We have focused on our strategic goal to deleverage. And as of the end of the Q3, we had $86,000,000 in loans $77,000,000 cash attested to the company's strong financial position. As we continue to improve our revenues and profitability, setting the bar higher every time, we believe we continue to be a sound and undervalued investment for anyone sharing our thesis. We have so far been producing strong results, but continue to trade at a discount in terms of price to NAV and price to earnings.

Speaker 2

We have now reached the end of our presentation. I'd like to thank you for joining us on our conference call today and for your interest and trust in our company. We look forward to having with us again on next conference call for our Q4 results in February. Thank you very much.

Operator

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

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StealthGas Q3 2024
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