StealthGas Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 24, 2023

There are 5 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the StealthGas Q1 2023 Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr.

Operator

Harry Verthijs. Please go ahead.

Speaker 1

Good morning, everybody, and welcome to our Q1 2023 earnings call and webcast. With Hayabas, CEO of StealthGas, to discuss market and company outlook and with Mr. Stavares handling Investor Relations to discuss the financial aspects. Before we commence the presentation, I'd like to remind you that we will be discussing forward looking statements, which reflect current views with respect to future events and financial performance. At this stage, if you could take a moment to read our disclaimer on Slide 2 of the presentation.

Speaker 1

The risks are further disclosed in the Stolt Glasses filing with the Securities and Exchange Commission. I would also like to point out that all amounts quoted unless otherwise clarified are stated in U. S. Dollars. Today, we released our earnings results for the Q1 of 2023, reporting yet again another quarter of strong profitability.

Speaker 1

So let's proceed to discuss the ZECO results and update you on the company's strategy and the market in general. On Slide 3, we summarize some of these highlights. The Q1 is usually a seasonally strong quarter for LPG Trading, so we continue with our strategy of fixing more ships on time charters at improved levels. The reduction in spot market days by 13 fact that we had a single vessel to dry dock increased the operational utilization of the fleet to 97.3%. We saw increased interest from charters in launching longer periods, and we took advantage of that.

Speaker 1

We thus managed to have secured today 8% of the remainder of 2023 days contracted out. We have locked in about $115,000,000 in revenues for all subsequent periods. In terms of our share repurchase activity, we continue to look for opportunities to sell some vessels in a boosting market. Together with our joint venture partners, we sold the medium gas carrier Eco Evolutione for a profit of about $14,000,000 in March. Following that, we recently entered into an agreement to sell 4 more vessels for a combined sell value of about $70,000,000 We will incur a profit that will be reflected in over the next couple of quarters depending on the deliveries will take place to their new owners.

Speaker 1

Looking briefly at our financial highlights, voyage revenues came in at a very strong $38,100,000 compared to $35,900,000 last year, a 6% increase despite having a much smaller fleet. Our income from operations, which is after operational expenses came in at $9,700,000 compared to $8,200,000 last year, a 19% increase. While our net income assisted by the return on investments from our joint ventures came in at $16,900,000 compared to $7,600,000 last year, more than double, translating to an EPS of $0.44 for the quarter. These profits were the best profits we have had for a single quarter. We continue to maintain a healthy balance sheet with ample liquidity of $92,600,000 as we continue to pay down debt.

Speaker 1

I would also like to announce that our Board approved today a $15,000,000 share buyback program that we are going to implement going forward. Due to high interest rates, our priority will be to pay down our debt. Therefore, the share buyback program may be gradual. We are confident that our cash flow will remain healthy for the rest of the year, thus giving us the confidence that we'll be able to meet both the above targets. On slide 4 for a full year on fleet deployment update as of May.

Speaker 1

Last time, we announced 8 new charters. This time, we announced 9 new charters and charter extensions at similar or better levels, and we continue to see charters interested in locking in longer than usual periods as we recently entered into yet another 3 year time charter, which is always a good sign for the market. As such, we increased our contracted days to 80% for the remainder of 2023 and have secured about $70,000,000 in revenues and our total contracted revenues for all peers have increased to $115,000,000 We have almost our entire fully owned fleet on time charters and only 2 vessels trading in the spot market. Lastly, out of 3 100 sales vessels due for drydock this year, one was drydock in the Q1, one was drydock in April, and we expect to drydock the 3rd one around the middle of June. On Slide 5, we are providing an update on our 2 JVs comprising of 5 vessels in total.

Speaker 1

Our first JV HAV of 4 smaller vessels, we did not enter into any new tank charters, mainly due to the fact that 3 of these vessels are Q4 driver this year. And with regards to Jalalobos scheduled to begin imminently, we are in discussions for jumping the Jalalobos post its drydock. We may postpone 1 of the 2 remaining drydocks to 2024. As such, we currently have 2 of the vessels operating in the spot market. The second JV currently comprising of a single medium gas carrier and the water price 1 more under construction.

Speaker 1

During the Q1, the JV decided to sell the other medium gas car as it owned, the Equivalciona, for close to $40,000,000 This was a very profitable sale and Stel Gas share of the profits was shown in the income statement for the quarter. Following the survey in April, Belgas received $19,200,000 in cash and distributions from the JV. In terms of chartering, the remaining vessel, the Equatorial entered a very profitable time charter for 1 year with charters option to extend 1 more year and in addition charters option to buy the vessel instead that if it doesn't get exercised, there is an option for the JV to sell the vessel back to the charter, all at very profitable levels. As previously discussed, we do not intend to fund a new naming acquisition with our own equity. The JV has sufficient cash in hand, earmarked for this and have already entered into discussions with financiers to provide the debt.

Speaker 1

In terms of our fleet geography in Slide 6, our company focuses on regional trade and local distribution of gas. This graph is a snapshot of the positioning of the fleet including the JV vessels as of May 23. The distribution of our fleet has not really changed since our last call as we continue to position more than half of our fleet in Europe, where rates are currently better and the rest mostly in Asia. Currently, we have 16 ships trading most of Suez, particularly in Northern Europe, 9 vessels in the Middle East Far East, slightly less than before, 4 vessels in the U. S.

Speaker 1

And Caribbean and the last 2 vessels in Africa. Mr. Stavares will now update you on our financial performance.

Speaker 2

Thank you, Harry, and good morning to everyone. I will discuss our financial performance for the Q1 of 2023. Let us turn to Slide 7. We'll be receiving income statement for the Q1 against the same period of 2022. Net revenues came in at $34,000,000 for the quarter, a considerable increase by 8% compared to last year.

Speaker 2

Considering that there was a reduction of around 12% in total fleet days. Operating expenses were BRL 14,500,000 for the quarter, similar to the previous quarter number. Operating expenses were elevated compared to last year despite the fewer vessels, and we expect them to come down in the next quarter even though we face some inflationary pressures, particularly with crew costs. In terms of dry docking, we had EUR 1,000,000 in the Q1 as we drydock 1 of the handysize vessels and incur expenses for the preparation of 2 more drydocks that will follow. Depreciation is another item that saw a decrease to €6,600,000 due to the decrease in the number of vessels.

Speaker 2

Interest and finance costs increased to €2,600,000 due to the increases in interest rates, but they were low for this quarter as we included profits from the sale of 2 interest rate swaps. We expect these costs to increase going forward. This quarter, we also had a considerable increase in equity income in investees, which is our share in the profits of our JV structures that came in at $8,800,000 for the quarter as a result of the profits from the sale of the joint venture vessel. As a result, we ended the Q1 of 2023 with a net income of $16,800,000 compared to $7,600,000 for the same quarter of last year. This was a record quarterly net income figure for StealthGas.

Speaker 2

Looking at our balance sheet, slide 8. Our liquidity, including restricted cash short term investments, that is time deposits, was at the end of the quarter, dollars 92,600,000 close to where we were at the end of last year despite having paid down $32,000,000 in debt during that quarter. The liquidity came from vessel sales and from improved operating cash flow. Advances of $23,400,000 relate to the payments made on the medium gas carrier vessels under construction. Our vessel's net book value decreased from 628,000,000 dollars to $619,000,000 due to regular depreciation and the sale of vessels.

Speaker 2

The total value of our investments in of the profits of the joint ventures. The overall outstanding debt was €245,000,000 compared to 2.7 €7,000,000 in the previous quarter. As a result of the solid profits being reported, we increased shareholders' equity to 532,000,000 dollars Concluding our financial commentary with Slide 9, we will briefly reiterate the debt profile and capital structure. Following the refinancing is done over the last couple of years, we have extended the maturity of the loans to 2025 and beyond. Recently, the focus has been towards paying down debt.

Speaker 2

During the Q1

Speaker 1

of 2023,

Speaker 2

€32,000,000 of debt, including rental amortization, was repaid, releasing 5 vessels. During the current quarter, another EUR 36,000,000 has already been paid, including full repayment of the debt on 2 more vessels. We expect by the end of the quarter to repay another $30,000,000 related to the vessels that were agreed to be sold. We expect to continue to reduce debt through regular repayments as well as prepayments, as the case may be in order to reduce our expenses. Overall, debt has been reduced from $302,000,000 a year ago to below $250,000,000 at the end of the Q1.

Speaker 2

About 32% of the current debt is hedged with interest rate swaps at an average of 2% that mitigate the effect of interest rate rises. During the quarter, we had to close a couple of these positions as a result of the debt repayments, with us incurred profits that further reduced the interest related expenses for that quarter. Overall, we continue to maintain very low leverage and have increased the number of unencumbered vessels from 6 to 10. We have also signed a new loan agreement with our 1 very distinct financiers for the financing of the 2 new building vessels, whereby we expect to receive up to 70 $1,000,000 in finance proceeds for the delivery of the vessels, subject to customary closings. I will now hand you over to our CEO, Arbacias, who will be a smart company and outlook.

Speaker 1

On Slide 10, we are providing some insight on the energy market as a product and the increase in trade we've been investing so far. According to data from Baixeo Corso during the 1st 3 months of 2020, LPG exports increased 6%, slightly better than was expected. The main exporters of LPG were the U. S. And Middle East countries continue to show significant double digit increases in exports with U.

Speaker 1

S. Firms planning capacity additions to further increase exports in the future. We expect European imports to start stalling and we may see some declines, especially our Somerset theme. However, the theme of increased on mine imports has lost upon PIMOs to be shut down, even though LPG is not sanctioned, remains valid as data show. Apart from Europe, the largest importers of LPG, India, China, Korea and Japan have increased their imports.

Speaker 1

The liquid production in LPG contract prices by price such as Saudi Arabia should be an opportunity for importers to restock. As far as China the lifting of COVID restrictions led to a 4.5% increase in GDP in the Q1 and a significant increase in imports of LPG. Also positive for the short term outlook is the fact that margins for BPH plants have finally turned positive and we see reported an increase in utilization rates for the production of polypropylene. We have mentioned before that the main catalyst for Chinese LPG demand will be the increased capacity of HPGR's plants that use imported propane as a feedstock. These plants have been plagued by capital delays and low production run rates due to the unfavorable margin, but the rapid expansion of PDH capacity in China over the last few years is certain.

Speaker 1

On Slide 11, representing some of the key fundamentals in our shipping market commencing with the market rates for our market. During Q1 2023, 10 short duration and firm. Looking at the table of the published rates on a 1 year over year basis, there continues to be healthy growth between 4 percent and 16% depending on the size and location. Looking at the small LPGs, Western Suez spot market has remained tight since our last call and charters have been left with few choices of vessels for their cargoes and consequently owners have been able to keep rates at strong levels while also keeping idle time at a minimum. East of Suez, the spot market in Asia has been a bit more active lately on both petchems and LPGs, but there continues to be a high degree of TC coverage amongst the charters in the area.

Speaker 1

The pillared market has been relatively quiet as the TC coverage amongst charters was already high. Rates are emerging upward slightly, but the gap with the TC rates being fixed west of Suez is increasing. For the Humysize vessels, the spot market has continued to be tight with very limited production available for spot cargoes. Charters have on several occasions found themselves with potential cargoes to lease, but no vessels to lease them. On the previous side, we have seen a bit of activity.

Speaker 1

Several existing charters have been extended and a couple of new ones concluded. The market remains tight even though we've seen some of the short term ammonia tank charges coming to an end and the vessels switching back to LPG. The fundamentals of our core fleet of small terrestrial ships continue to look promising as almost a third of the fleet is over 20 years of age. As the market remains strong, scrapping activity continues to remain subdued, even the older vessels that recently sold were destined for further trading. We should expect that tighter regulation in the future will push some of these vessels to get scrapped.

Speaker 1

The ordering activity continues to be subdued with only a handful of additional vessels being ordered. As per recent published orders, there are about 21 ships on order to be delivered in the next couple of years, including a couple that are set for 2023 deliveries, but have gone under the radar. Such an order book in itself is not posing a risk of upsetting the balance of the market. We continue to believe that the risk of seeing bulk ordering of new vessels that could hit the supply demand balance is improbable. A sub-two percent annual increase in the fleet before scrapping is one of the smallest, if not the smallest, in all shipping segments.

Speaker 1

On Slide 12, we are showing the evolution of our LPG fleet. In this slide, for comparison purposes, we have excluded the tanker vessels that we held up until 2021, and we are focusing on the pure LPG fleet in terms of cubic capacity, including the JV vessels. We have always been active in the sell and purchase market, buying and selling ships. With the asset values rising as a result of a strong market, we find it an opportune time to sell some ships. After selling 4 of them in 2022 and 4 more this year, as well as 1 vessel sold by our JV, We entered into entertainment to sell another 4 vessels for about $70,000,000 in aggregate.

Speaker 1

We will record profits from these sales, but we are looking to sell more vessels if the price is right. Through such sales have reduced the average age of our 3 to 9 years, which is quite modern for industry strandels. Our JVs will also opportunistically sell vessels and occasionally buy, as for example the one new building medium Gascayo that our JV invested in and is now expected to deliver in September this year. In our core fleet, we expect that with the addition of the 40,000 cubic meter new buildings starting in late 2023, we will once again increase the capacity in terms of cubic meters while being able to better serve the diverse needs of our customers with ships of all sizes. It's a strategic decision to diversify the fleet in and split in between smaller vessels that we have traditionally operated and larger vessels, Handysun and medium gas carriers that have slowly been entering our fleet since 2018.

Speaker 1

In Slide 13, we are outlining some of the key variables that may affect our performance in the quarters ahead. Obviously, the most important development is that we have mentioned earlier the reopening of China after a long awaited 2 years. With the Chinese economy back on track, we already see increased LPG trading. On the other hand, we are entering the summer months where normally demand for LPG is less strong. Summing up, we are reaping the fruits of the favorable market conditions and our sound business strategy and execution.

Speaker 1

After having reported in the previous quarter record annual profits, it's with great pleasure that we announced this time record quarterly profits. The laudable bottom line results were driven by 2 factors: the strong performance of revenue generation from our existing fleet and the returns we realized from the investments in our JVs following the sale of 1 vessel. The profitable sale of 4 vessels that we announced today will further boost our future results. We are taking the opportunity to divest assets in a rising market and will continue to diversify the fleet with the timely addition of bigger ships. At the same time, we are renewing our efforts to contain our cost base and we'll make use of our liquidity to deleverage in a rising interest rate environment and return value back to our shareholders via a $50,000,000 share buyback.

Speaker 1

We expect this cash will solidify the company's future, while at the same time, will remain positive for the medium term outlook for the LPG market. We have entered a period where the yields that we can provide to our shareholders can be substantial. We are taking advantage of the strong markets and have continued strengthening our balance sheet, which we believe will enable the seamless continuous operations of our company. Lastly, we remain committed in our disciplined and balanced strategy that should continue to allow us to generate shareholder value throughout the market cycles. We've now reached the end of our presentation, and we should open the floor for questions.

Operator

Thank We will take our first question. And the question comes from the line of Tate Sullivan from Maxim Group. Please go ahead. Your line is open.

Speaker 3

Thank you. Thank you, Harry. And to start, so you ended the quarter Q1 with 32 ships, but the sale of the an additional ship will be has already been completed this quarter, then selling 4 other ships, bringing your fleet down to 27 and then adding 2 new builds. So is the fully delivered size of the fleet 29 today with 5 JVs vessels? Please just start.

Speaker 1

Sorry, what was the question?

Speaker 3

What is the fully delivered size of the fleet, Harry? Just to confirm, is it 29 after you finalize all the sales that you announced today? 29 ships?

Speaker 1

It's a very fluid environment as we're buying and selling ships on a monthly basis, but I think your number is right. Okay.

Speaker 3

Understood. And then announcing the $70,000,000 sale, does it support the previous disclosed net asset value that you disclosed? Was it a month ago or so longer at 14.50 dollars And can you talk about the gains on that sale? Or is or have you not finalized?

Speaker 1

I think that makes the energy higher than that than what was presented.

Speaker 3

Okay. So that higher value. Okay. And then how about the opportunity to buy larger ships in this rising rate environment? And then, I mean, could you what do you consider new builds?

Speaker 3

Is it still extended delivery timelines for new builds? Are there opportunities to buy larger ships? Can you comment on that market, please?

Speaker 1

Not really. The ships are now very expensive that you are selling ships. New building slots are, if you find any, they're going to be very forward. So not a big advantage to our shareholders. So yes, it's going to be difficult.

Speaker 3

Okay. And then you mentioned paying down for the sales, the sales with 4 ships bringing in and reducing the debt that you mentioned earlier in the remarks to did you say that your the initial pace of the repurchase activity might be a bit slow compared to paying down debt? And how long is the repurchase authorization, please? Two questions.

Speaker 1

Sorry, I didn't get the last part of your question.

Speaker 3

Well, let's start with how long is the repurchase authorization for the $15,000,000

Speaker 1

They haven't given us a timeline.

Speaker 3

Okay. And then can that start immediately as well or is there when can Stuffed Gas start repurchasing share?

Speaker 1

Yes, yes. We are authorized now to start whenever we want. So yes, the idea is to start straight away.

Speaker 3

But did you mention earlier maybe in the near term more of a focus on paying down debt?

Speaker 1

No, we didn't say that. We said we want to do both things concurrently. But because, obviously, we're not generating 100 of 1,000,000, we have to prioritize the debt repayments over share repurchases, which means that we're going to do both, but maybe in a gradual way.

Speaker 3

Okay, great. I'll hop back in the queue. Thank you, Harry.

Speaker 1

Thank you.

Operator

Thank you. We will take our next question. And your next question comes from the line of Clement Mullins from Value Investors Edge. Please go ahead. Your line is open.

Speaker 4

Good morning. Thank you for taking my questions. I wanted to follow-up about recent asset sales. You had previously strived to sell some of the oldest vessels on the fleet. And I was wondering what's the reasoning behind the decision to sell some of the more modern assets?

Speaker 4

Is it just taking advantage of a strong pricing environment? Or is there something else?

Speaker 1

Very good question. 1, yes, the values for these ships now are quite high, so it's a good time to sell. And 2, we want as we have said many, many, many quarters again and again, we want to have a bigger balance, a better balance between smaller ships and larger ships. So we need to sell smaller ships and when the time is right, buy bigger ships. So that's why we've done it.

Speaker 4

That's helpful. Thank you. And looking ahead, we're going to enter the seasonally weaker period of the year. Could you provide some guidance on where do you see profits going for Q2 and whether you have any visibility for Q3?

Speaker 1

No, we don't give guidance. But as we have already said, 80% of the 2023 days are already fixed. So we don't expect huge changes in our numbers.

Speaker 4

All right. Thanks for the color. That's all from me. I'll pass it over. Congratulations.

Speaker 1

Thank you.

Operator

Thank you. We will take our next question. Your next question comes from the line of Tate Sullivan from Maxim Group. Please go ahead. Your line is open.

Speaker 3

Thank you for taking my follow-up. And then in terms of the joint venture income in Q1, $8,800,000 I think before you'd mentioned how much of that was the gain on the sale versus the JV income, if you can disclose?

Speaker 1

$7,000,000 was the gains out of $8,500,000

Speaker 3

Okay, great. And then did I hear you mentioned earlier that operating expenses will decline quarter over quarter in 2Q 2023, I mean, but average operating expenses per ship, are you saying, I mean, the total level based on the selling of the ship?

Speaker 1

That's what we are trying for, but inflation is a big enemy.

Speaker 3

Okay. Great. Great. Thank you very much. Have a good day.

Speaker 1

Thank you.

Operator

There seems to be no further questions at this time. Please continue.

Speaker 1

We'd like to thank all of you for joining us on the conference call today and for your interest in trust in our company, and we look forward to having you with us again for our Q2 results in August. Thank you.

Powered by Quartr
Earnings Conference Call
StealthGas Q1 2023
00:00 / 00:00