StealthGas Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 22, 2024

There are 4 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Steve Gas Q1 2024 Results Conference Call and Webcast. During this call, all participants will be on listen only mode with no question and answer session. Please note that today's conference is being recorded. I would now like to turn the conference over to Chairman of the Board, Mr.

Operator

Michael Joliff. Please go ahead.

Speaker 1

Thank you. Good morning, everyone, and welcome to our Q1 2024 earnings conference call and webcast. This is Michael Jolliffe, Chairman of the Board of Directors. Joining me on our call today, as usual, is Harry Vafias, our CEO, to discuss the market and company outlook and Konstantinos Sistovaris 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 1

So if you could all take a moment to read our disclaimer on Slide 2 of this presentation, that would be great. Risks are further disclosed in StealthGas filing with the Securities and Exchange Commission. Today, we released our results for the Q1. 3 months ago, I was here announcing to you our record full year profits. So it is with great delight that we have managed to follow-up on that with a great start for 2024 by announcing record quarterly profits.

Speaker 1

So let's proceed to discuss these results and update you on the company's strategy and the market in general. Please turn to Slide 3, where we summarize some highlights starting with our fleet and operations update. During the Q1, we sold 2 smaller vessels and got delivery of 2 brand new medium gas carriers. We have not bought or sold any vessels in the current quarter with the exception of 1 vessel that was owned through a joint venture as previously announced that we will discuss further on in the call. With the market remaining firm, we continued securing more period charters both in our fully owned fleet and for the joint venture vessels with contract coverage for 2024 of 73% of our fleet days for our fully owned fleet.

Speaker 1

We have thus contracted revenues of over 100 $180,000,000 for all subsequent periods, excluding our joint venture vessels and continue to be focused on maintaining our minimal spot exposure. Moving to our financial highlights, with on average 5 fewer vessels compared to last year and a 15% reduction in fleet days, net voyage revenues that is net of voyage costs increased to $38,700,000 or 14% year over year and increased by 26% compared to the previous quarter. Net income for the Q1 was $17,700,000 compared to 16,800,000 last year, a 5% increase, which is the highest quarterly profit ever recorded by the company. Even better were earnings per share at $0.49 $0.53 on an adjusted basis given that we have decreased the share count year on year having bought back 3,900,000 shares last year. So far this year, we have scaled back the share repurchases and bought back about $400,000 worth during the Q1.

Speaker 1

So there is about $5,500,000 left authorized for share repurchases. We continue with our debt reduction strategy since the beginning of the year and up until today, we drew down on a $70,000,000 loan to finance the delivery of our medium gas carriers. And prepaid free facilities, together with regular amortization, reduced the debt level by $85,000,000 In the next Slide 4, let us reiterate for those new investors that may not be as familiar with our company that we have been in LPG Shipping since 2004 and currently have an interest in 32 vessels. 27 of those we fully own and 5 of those we have invested in under joint venture structures. Traditionally, we have been focused on small gas carriers in the 3000 to 8000 cubic meter range.

Speaker 1

However, in the last few years and especially since becoming a pure LPG company, there has been a strategic shift in complementing our small LPG carriers with larger sized vessels. As such, we have been sellers of smaller older vessels replacing them with newer and larger vessels in an effort to firstly keep a young age profile for the fleet that is currently about 10 years old and secondly to provide a more holistic service to our industrial customers. Out of the 32 vessels currently in the fleet, 24 are small pressurized gas carriers, 4 handysize semi ref vessels and 4 full ref medium gas carriers in the 40,000 to 45,000 cubic meter capacity. A diversified LPG fleet with larger vessels also provides the company with more upside earnings potential as rates for larger vessels are more volatile and the downside of course if the market were to falter. Let us move on to Slide 5 for our fully owned fleet employment update as of May and to stress that it has always been our focus to provide period coverage for our vessels and depend less on the spot market.

Speaker 1

Just like in February's call, we once more were pleased to announce a number of new period charters. Out of these 5 new charters, 3 were extensions with current charters, 1 for a relatively long 3 years and 2 for a 1 year duration and the remaining 2 for 6 3 months respectively. As a result, we have increased our contracted days 2024 to 73% and for 2025 to 30% securing over $180,000,000 in revenues up to 2027. Like in the previous call, only 2 of our vessels currently operate in the spot market. Lastly, in terms of drydocks during 2024, we still have 7 small LPG vessels scheduled for drydock as none was drydocked in the Q1.

Speaker 1

In slide 6, I would like now to provide an update on our investments. That is the interest we hold in 5 vessels through 2 joint venture structures that we do not consolidate in our results, but use the equity method of accounting. The book value of our investments as of March 31st stood at $42,300,000 Out of these 5 vessels, 4 are small gas carriers and one is a medium gas carrier that was delivered last year. In terms of chartering, 1 vessel had its time charter extended for 12 months and another vessel entered into a new 6 month period charter. With the one vessel that was scheduled to be dry docked in the current year, its drydock was completed in the Q1.

Speaker 1

As announced during our previous call, we held an interest in another medium gas carrier, a 6 vessel bought in 2020 that was sold and delivered during the April of this year. As these investments are more short term in nature, we are happy to crystallize the profits from the rapid rise in asset prices. From the sale of the Echo Ethereals, StealthGas received a $24,000,000 interim distribution of the cash proceeds during April. The company's share of the profit from that sale will be reflected in the income from investments during the Q2 and was estimated at $9,500,000 That would translate to over $0.25 to the bottom line from that sale alone. In terms of our fleet geography presented in Slide 7, our company mainly focuses on regional trade and local distribution of gas, while the larger vessels often engage in intercontinental voyages.

Speaker 1

This graph is a snapshot of the positioning of the fleet, including the joint venture vessels as of mid May. The majority of our fleet, 18 vessels or 55% currently trade in Europe, particularly in the Northwest and in the Mediterranean. We have strategically focused over the past several quarters on this area as the freight rates west of Suez continue to command a premium over east of Suez and the customers as well as the terminals belonging mostly to establish industrial players demand higher specification vessels and strict adherence to safety principles. Excuse me. 7 vessels are trading in the Middle Far East, 4 vessels trading in the U.

Speaker 1

S. And Caribbean, and 3 in Africa. We do not expect a major redistribution in the trading of the fleet. The Red Sea safety situation is ongoing with more Houthi attacks being reported and it is not common for LPGs in our fleet to cross the Red Sea anyway. Middle East exports destined for Europe will more likely be diverted to Asia and replaced by U.

Speaker 1

S. Exports to Europe. Our Handysize vessels particularly do increase transatlantic trades between U. S. And Europe.

Speaker 1

It's more rarely that our vessels cross the Panama Canal to do the U. S.-China route. The delays in the Panama Canal crossing that have affected particularly VLGC vessels during the beginning of the year have now abated. Although we've reduced average number of crossings and the market for larger vessels is finding a new balance. That being said, we do have an MGC vessel currently loading in Houston that will go through the Panama Canal.

Speaker 1

But due to its smaller size, there were no delays in booking slots. Finally, I would also like to note that we've been increasingly engaged in ammonia trades that our Handys and MGC vessels can carry, and 2 of our vessels are currently transporting ammonia cargoes. I will now turn the call over to Constantino Sistovaris for our financial performance. Thank you so much.

Speaker 2

Thank you, Michael, and good morning to everyone. I will discuss our financial results that were released today. Let's turn to Slide number 8, where we see a snapshot of the income statement for the Q1 of 2024 against the same period of 2023. Even though fleet days were reduced by 15% and we had 5 fewer vessels, Net revenues after voyage expenses came in at $38,700,000 for the quarter, an increase of 14% as a result of higher revenues due to better market conditions. The addition of 2 larger vessels in our fleet with higher earnings capacity and the reduced voyage costs due to lower spot exposure.

Speaker 2

It is worth mentioning that 26 out of the 27 vessels in the fleet improved their profitability. Operating expenses were for the quarter, down 21%, a better result than expected mostly due to the 15% decrease in the number of vessels in the fleet. We also note the decrease in the dry docking costs of $1,100,000 as no vessels were drydocked during this period and the increase of $1,400,000 in G and A costs as a result of an increase in stock based compensation expense. As a result of the increase in revenues and decreases in costs, income from operations increased 80% to $17,500,000 for the Q1 of 2024 from $9,700,000 last year. Interest and finance costs also increased by 500,000 year on year because in the last year results were included some profits from the selling of swap positions due to the debt repayments.

Speaker 2

The earnings from the investments in the joint venture amounted to $2,600,000 versus $8,800,000 last year, a significant $6,300,000 drop. The reduction in these profits is due to some profits that were being booked in the Q1 of last year from the sale of 1 vessel, whereas no sale took place in the Q1 of this year. As a result of the above, we ended the Q1 of 2024 with net income of 17,700,000 dollars compared to $16,800,000 for the same quarter of last year, a 5% increase. While on an adjusted basis, net income was $19,100,000 versus $17,300,000 last year, a 10% increase. Basic and diluted earnings per share for the Q1 were $0.49 and adjusted earnings per share $0.53 These were record quarterly profits on top of the record profits of last year's quarter.

Speaker 2

Looking at our balance sheet in the next slide, our liquidity including restricted cash was at the end of the quarter 80 $3,600,000 on par with the December 31 figures. Vessels held for sale that were 30 $4,900,000 as of December 31 were nil as of March 31 as these two vessels were sold in January and the proceeds were used for the delivery of the 2 medium gas carriers and debt repayments. Also deposits for vessels that were $23,400,000 as of December 31 were nil as of March 31 as the 2 medium gas carriers were delivered to the company. Vessels book value increased from 500 $4,300,000 to $617,600,000 a significant 23% increase as a result of the addition of the MGC vessels. The book value of our investments in our JVs was $42,300,000 close to the previous quarter for the 6 vessels.

Speaker 2

Total assets of the company increased over the 3 month period by 8% to 752,900,000 dollars Moving on to the liability side, the total debt increased by $37,100,000 compared to December 31 to $160,600,000 as a result of the $70,000,000 financed during January 2024. But we expect this to come down again in the Q2 as more debt prepayments took place. Shareholders' equity increased 3.5 percent or 19,100,000 over the 3 month period. Concluding our financial commentary with the next slide 10, we will briefly have a closer look at our debt structure. During 2023, the company very aggressively halved its outstanding debt with over $154,000,000 of debt repayments.

Speaker 2

And then followed in the Q1 of 2024 with prepayments of 30,000,000 dollars and in the Q2 of 2024 another 50,000,000 dollars Part of the debt being repaid was replaced with a cheaper facility with a longer tenure maturing in 2,032 relating to the 2 medium gas carriers that joined the fleet in January. As currently there are no further CapEx commitments, the company is still considering reducing its debt further. Although there are now only 4 vessels financed, 2 of which were financed this January. The other 2 that have facilities with tenors expiring in December 20 25 January 2026. The debt amortization is now reduced to just $9,000,000 per annum that will allow significantly faster cash flow accumulation going forward.

Speaker 2

23 vessels are unencumbered, a considerable advantage if ever there's a need to raise funds. On the other hand, prepayments have reduced the debt that is hedged with interest rate swaps to 19% currently. I will now hand you over to our CEO, Harry Vafias, who will discuss the market and the company outlook.

Speaker 3

Moving on Slide 11. LPG exports increased by a strong 4.3% in 2023, and we continue to share exports increasing at 5% in the Q1 of this year. Although we have expected the U. S. To slow its export growth after the coal snap in the beginning of the year, results for the 1st year showed that U.

Speaker 3

S. Export continued unabated, making a 12% year on year growth. We expect the U. S. Will continue to ship incremental amounts of NGLs in the current year.

Speaker 3

As we have discussed before, there are logistical issues that have to be solved to meet the increasing volumes. But LPG exporters are already planning ahead to accommodate these incremental volumes from Texas and Canada. While the U. S. Accounts for over 40% of global exports, exports from the Middle East that have fallen last year seem to have rebounded.

Speaker 3

And although that is hard to come by, particular as Iranian exports destined to China seem to be on the rise, we would hope to see other Middle Eastern countries not using the dark fleet ramp up their exports as well. The situation in Europe as one of the largest importers remained the same due to the mild winter. With lackluster hitting demand and petrochemical usage, volumes that were reduced last year seem to have been flat over year on year, although intraregional trade is active. The particularly good news for LPG come from the 2 most populous countries, China and India. 1st quarter numbers show a very strong import demand from China with volumes rising a fantastic 27 year on year.

Speaker 3

India growing economy of 1,000,000,000 plus people, where 45% of LPG demand is for household use has as recently as March decided to extend subsidies for LPG and the government facing German election soon is supportive of further penetration of LPG as an alternative fuel. This bodes well for the future demand for 1 of the fastest growing economies. In China, the driving force for LPG demand is, of course, the expansion of PDH capacity for the production of propylene. Utilization rates for the Q1 for this plant seems to have remained subdued around 65% in March due to the low profit margins, although reduction in quoted LPG prices in the last couple of months are positive for higher margins and increasing demand. LPG remained a competitive fuel compared to naphtha during this period.

Speaker 3

During last year, 9 PDH plants 9 new PDH plants came on stream, adding 5,400,000 tons of capacity. Reports say that another 7,000,000 tons is set to be added this year and 6,000,000 tons in 2025. Even if these are too optimistic, given the usual delays, and only an estimated 8000000 to 9000000 tonnes are added over the next 2 years, that's still a 50% capacity addition from today's level. On Slide 12, we present some of the key fundamentals in our shipping markets commencing with time charter rates. Rates overall remained flat during the Q1, albeit slight drop.

Speaker 3

Looking at the small LPG trade west of Suez, the spot market during Q1 was on average holding up at firm levels. We saw limited vessel availability and little idle time amongst owners. On the period side, we continue to see good activity in Q1 with charters keen to secure forward tonnage capacity and rates keeping firm. TC rates for the larger pressurized ships are now at around all time highs. East of Suez, we saw a quiet spot market with little action, more or less on par with Q4 of last year.

Speaker 3

For the Handysize and MGC vessels, following a very firm Q4, where the VLGCs pulled up the MGCs and the MGCs pull up the Handys, Q1 became a bit of a disappointment for the owners after the collapse of DLGCs at the beginning of the quarter. LPG trading dropped significantly and petchem trading remained quiet. As a consequence of a softening spot market, the period market also lost steam and charter started to pull back on their period interest. It's, however, a market controlled by a very limited number of owners and time charter ideas have held up reasonably well despite the reduced number of inquiries. With a more long term view, we continue to stress on the fundamentals for our core fleet of small pressurized ships continue to look promising with an aging fleet as almost a third of the fleet is over 20 years old.

Speaker 3

And although scrapping continues to be limited due to the firm markets, we continue to see only a handful of vessels being ordered, not enough to tip the supply demand balance. Similar picture in the hand size fleet, where there are only 5 ships to be delivered over the next 2 years. On the other hand, in the MGCs, there is indeed a high order book that grew further since our last call to over 30%. But that's especially for vessels that will now join the fleet in 'twenty 6 and even 'twenty 7. Until then, over the next 2 years, supply is limited and our vessels ordered 2 years ago are now in the water earning money.

Speaker 3

The driving force for the increase in ordering of medium gas carriers as well as VLGCs is also related to ammonia trading and the fact that ammonia seems to becoming a serious contender for the future fuel of choice that will power the next generation of really environmentally friendly ships to replace gas oil. On slide 13, we are outlining some key variables that may affect our performance in the quarters ahead. In the short term, we're entering the seasonally weaker summer months, and we would expect activity to slow somewhat, although the market is still firm as we speak. We continue to remain optimistic on the longer term for the reasons analyzed before. Today, we announced quarter.

Speaker 3

Profits of $17,700,000 for Q1 are an all time high for our company in the 20 years since its inception. These exceptional results were mainly driven by higher revenues and reduced expenses, and the 2 new MGC vessels that were added to the fleet immediately started producing results. The reduced share count as a result of the share buybacks further enhanced the bottom line on the earnings per share basis. In the current quarter, we have so far repaid over $53,000,000 of debt and now have 23 unencumbered or debt free vessels and a debt ratio below 15%. We continue to benefit from the positive market backdrop and we look forward to continue rewarding our shareholders' trust with more positive quarters.

Speaker 3

And even though our share price has climbed significantly over the last year as a result of the record profitability, We believe we continue to be a sound still undervalued investment, not just because we're optimistic on the market and have been producing results, but also because we're trading at a discount in terms of price to NAV and price to earnings. We've now reached the end of the presentation. Like to thank you for joining us at our conference call today and for your interest and trust in our company, and we look forward to having you again with us at our next call for our 2nd quarter results in August.

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Earnings Conference Call
StealthGas Q1 2024
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