StealthGas Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 18, 2023

There are 6 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Stelz Gas Q2 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

Michael Jolley, Chairman of the Board. Please go ahead.

Speaker 1

Good morning, everyone, and welcome to our Q2 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. At this stage, if you could all take a moment to read our disclaimer on Slide 2 of this presentation.

Speaker 1

Risks are further disclosed in StealthGas filings 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. Today, we release our earnings result for the Q2 2023.

Speaker 1

While we didn't break last quarter's record profits, we maintained a strong profitability of $10,500,000 resulting in our best performance on record for the first half of any year. 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. In terms of our sale and purchase activity, we continue to look for opportunities to sell some vessels now that asset prices are rising. We first concluded the previously announced sale of 4 vessels and the last 2 were delivered in July and then entered into a new agreement for the sale of 2 more of the smaller LPGs, the EchoDream and Echo Green, to a 3rd party with delivery in early 2024 for circa $35,000,000 on block.

Speaker 1

In terms of chartering, we were less active and concluded 2 6 month period charters, but we continue to have secured with employment 80% of the remainder of 2023 days. We have locked in about $90,000,000 in revenues for all subsequent periods. Looking briefly at our financial highlights. With on average 4 less vessels during the 6 month period, our net voyage revenues came in at a very strong $67,200,000 compared to $66,300,000 last year, a 1% increase in spite of the much smaller fleet. Adjusted net income for the 2nd quarter was $10,700,000 compared to $11,300,000 last year, a 5% decrease.

Speaker 1

Whilst for the recent 6 month period, adjusted net income was $28,000,000 compared to $20,000,000 last year. As we have now reported half of twenty twenty three, so far our profits have been the best on record. We are delighted to announce earnings per share for the 6 months of $0.71 During that period, we have halved our debt by paying down facilities of $105,000,000 in just 6 months and still maintaining strong liquidity. To update you on the share repurchase program that was announced during the previous call, up until now, the company has used up about a third of the $15,000,000 the board authorized and has repurchased 1,100,000,000 shares, which is close to 3% of our outstanding shares. Let us move on to Slide 4 for our fully owned fleet employment update as of August.

Speaker 1

These being summer months, period activity was slower. And as previously stated, we entered into only 2 new time charters. However, our contracted days remain at an elevated 80 percent for the remainder of 2023, and we have secured circa $43,000,000 in revenues. Our total contracted revenues for all periods up to 2026 are closer to 90,000,000 dollars It is also worth noting that we currently have no vessels in the stock market as they are all fixed on period charters. Lastly, out of the 3 handysize vessels due for drydocking this year, all have completed their drydock, 2 of them during the Q2 and hence the elevated drydock expense for that quarter.

Speaker 1

However, there are no more vessels due for drydock in our fully owned fleet for the remainder of this year. In Slide 5, I would like now to provide an update on our 2 joint ventures comprising of 5 vessels. The 1st joint venture of 4 small LPG vessels did not enter into any new period charters, mainly due to the fact that 3 of the vessels were also due for drydock this year. So here, 3 out of the 4 vessels operate in the spot market. The Gas Jaralambos completed its drydock in June and remains in the spot market.

Speaker 1

We may postpone 1 of the 2 remaining drydocks to 2024. The 2nd joint venture currently comprises of a single medium gas carrier in the water, plus one more under construction. Following the sale of 1 vessel in the Q1, StealthGas received $19,200,000 cash in distributions in the 2nd quarter, again boosting its liquidity. As previously discussed, the remaining vessel, the Echo Ethereal is on a very profitable time charter for 1 year with a charterers option to extend 1 more year and a sell or purchase option all at profitable levels. The operating cash flow of the Echo Ethereal allowed the joint venture to also pay off the $10,000,000 debt on that vessel in June, so it is currently unencumbered.

Speaker 1

Regarding the newbuilding vessel, there is no intention to fund the newbuilding acquisition with StealthGas Equity. The joint venture has sufficient cash in hand earmarked for this and recently secured a circa $30,000,000 commitment from a financier for the debt needed for the delivery of the vessel subject to customary closings. In terms of our fleet geography presented in Slide 6, our company 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 August 2023. The distribution of our fleet has not really changed since our last call as 17 vessels are positioned in Europe, particularly in the Northwest and in the Mediterranean.

Speaker 1

The gap between time charter levels in the East versus the West continues to be considerable, and we may see some vessels deciding to position from East to West in the search for more lucrative period cover. For the time being, we have well positioned more than half of our fleet in the most lucrative market. In addition, 8 vessels are trading in the Middle and Far East, 4 vessels trading in the U. S. And Caribbean and 3 in Africa.

Speaker 1

I will now turn the call over to Konstantinos' sister of Ares, who will discuss our financial performance.

Speaker 2

Thank you, Michael, and good morning to everyone. I will discuss our financial performance for the Q2 of 2023. Let us turn to Slide number 7, where we see the income statement for the Q2 6 months of 2023 against the same periods of 2022. Even though calendar rates were calendar days were reduced by 12%, Net revenues came in at $33,100,000 for the quarter $67,200,000 for the 6 months, a small increase of 1% compared to last year for the 6 months period. That was mostly due to a reduction in firmer rates.

Speaker 2

Operating expenses were 13 point $4,000,000 for the quarter $27,900,000 for the 6 months. Overall, there has been a significant increase in operating expenses as a result of inflationary pressures that was actually more pronounced during the Q1, less so in the Q2 that the company is actually trying to control. In terms of drydocking costs, an item that had major differences in the comparison, but also depends on the timing of the drydockings. We had $1,500,000 in the 2nd quarter $2,600,000 in the 6 months, an increase of $2,000,000 or 3.5x in the 6 months. That was because we drydocked 3 out of the 4 hand sized vessels in the fleet, and they are the larger vessels and hence incur higher expenses when drydocked every 5 years.

Speaker 2

During the Q2, the company also recognized a noncash gain on the sale of 2 vessels that were delivered of 2,900,000 dollars and a noncash impairment of 2,800,000 on the agreed sale of 2 vessels that will be delivered in January 2024. Interest and finance costs were slightly reduced over the quarterly period and flat over the 6 month period at $5,100,000 even though rates have more than tripled in the comparative periods. This is a result of the aggressive debt repayments the company engaged in order to control interest costs. For the 6 month period, there was also a considerable increase in equity income in joint ventures, which is our share in the profits of our joint venture structures that came in at EUR 10,500,000 and was mainly attributed to the profits from the sale of 1 joint venture vessel in the Q1. As a result of all of the above, we ended the Q2 of 2023 with net income of $10,500,000 compared to $12,200,000 for the same quarter of last year.

Speaker 2

And for the 6 months period, dollars 27,300,000 compared to $19,800,000 last year. Profits for the 6 month period were the highest this company has ever seen. Moving on to our balance sheet in Slide 8. Our liquidity, including restricted cash and short term investments, was at the end of the quarter $55,100,000 reduced from $95,700,000 at the end of last year due to the debt repayments. Vessels held for sale were $63,600,000 as of June 30, and it refers to the 4 vessels under agreement to sell.

Speaker 2

During July, the sale of the 2 vessels was completed, and liquidity increased by about $35,000,000 Advances of 23 point $4,000,000 remained unchanged and relate to the advance payments made on the medium gas carriers vessels under construction. Vessels book value decreased from $628,000,000 to 515,000,000 dollars due to the sale of the vessels. The total book value of our investments in our joint ventures decreased to $38,000,000 following a $19,200,000 dividend we received during April after the sale of 1 vessel. The overall outstanding debt was $140,500,000 dollars compared to $277,000,000 at the end of last year. Over a 6 month period, the company has halved its outstanding debt.

Speaker 2

As a result of the solid results being reported, we increased shareholders' equity to 541,000,000 dollars Concluding our financial commentary with Slide 9, we will briefly have a look at the debt profile. As a result of both recent vessel sales and rising interest rate, there was a major focus on reducing leverage for the company. During the Q1 of 2023, dollars 32,000,000 of debt, including regular amortization, was repaid. During the Q2, a massive EUR 105,000,000 was repaid, and that doesn't include the repayments that the joint venture vessels did. Overall, debt has more than half from $294,000,000 a year ago to $141,000,000 at the end of the second quarter.

Speaker 2

During the Q3, another $13,000,000 has so far been repaid. About 35% of the remaining debt is hedged with the interest rate swaps at an average of 2.1% that further mitigates the effect of interest rate rises. Overall, we continue to maintain a very low leverage and have increased the number of unencumbered vessels from 10 to 15. As far as the new building vessels are concerned, we have signed a new loan agreement with 1 of our existing financiers for the financing of the 2 vessels, whereby we expect to receive up to $70,000,000 in finance proceeds for the delivery of these vessels, subject to customary closings. I will now hand you over to our CEO, Harry Vafias, who will discuss the market and the company outlook.

Speaker 3

On Slide 10, our brief insight on the LPG market. So far, the first half of the year has been very positive as far LPG supply is concerned, with global export estimated to have risen by 3.5% as per by Caro Costa reports. The U. S, being the main exporter, has been exporting record amounts with 12% increases year on year, consistently exporting above 1,500,000 tons a month. The current inventories being at high levels, it's likely this trend will continue.

Speaker 3

With the main destination of US exports being China and Japan, this has provided firm support for the larger LPG rates and subsequently the medium sized ships as well. The Middle East countries have also been exporting increased amount of LPG, particularly in the Q2, although the recent OPEC in oil production may moderate this growth, but that remains to be seen. Overall, in 20 23, there has been a positive price differential with NAFTA that has supported use of LPG as feedstock by crackers. This had less effect in Europe as plants were operating at lower margins in general, but a more pronounced effect in Asia. There has been a lot of talk in the news lately about China, a main importer of LPG and its economic recovery post COVID, with references to declining imports and export numbers.

Speaker 3

But as far as LPG is concerned, April saw records amount being imported and then in May, again, an all time high with 3,300,000 tons being imported. Higher U. S. Exports, lower propane prices, recovery utilization rates above 70% and capacity additions boded well for LPG demand from Chinese PDH plants. We have touched on PDH plants quite a few times before as we see it as a macro theme.

Speaker 3

China wants to control its property in production, hence major investments have been made for increasing its capacity. It has been a bumpy ride, but for these plants that the rapid expansion of PDH capacity in China over the last few years is certain. 2 more plants were added in the Q2 and 5 more are expected until the end of the year. On Slide 11, we present some of the key fundamentals in our shipping market commencing with market rates for our market. As stated in our previous call, on a year over year basis, we see significant increases in time charter rates, up to 15%.

Speaker 3

During Q2, 2023, time charter rates remained steady for the smaller ships, while increasing further for larger ships. Looking at the small LPGs trade West of Suez, the spot market remained tight for the majority of Q2. Since second half of June, the spot market has started to cool off a bit, in line with the usual seasonal pattern machine more or less every year. On the period side, the market continued in a healthy and fairly active state through Q2. We have seen the stabilization of rates on the smaller pressure ships and a continuous strengthening on the 7 ks cubic meters and above.

Speaker 3

Expectations are strong for the coming winter period and for the next couple of years in general, and we seek keen interest from charters to lock in tonnage going forward. East of Suez, in Asia, the spot market did not perform as strong as the Western markets did. At the time of the writing, the market is relatively quiet with the expectation of a pickup from September, October onwards. The period market in Asia remained rather quiet through Q2, with charter still enjoying relatively high TC coverage. We expect more activity towards Q4.

Speaker 3

For the hand sized vessels, the spot market continues to remain tight through Q2 as well with little tonnage available on either side of Suez. There was also a spillover effect from the very tight medium sized market, which again was held up by strong, very large gas carrier market. On the period side, rates remain relatively stable and the small order book for this size bodes well for the coming years. I'd like to reiterate that the fundamentals for our core fleet of small pressurized ships continue to look promising as almost onethree of the fleet is over 20 years old, which show a handful of vessels being scrapped while market rates hold firm. By this quarter, we also did not see any new ordering of vessels in an already subdued newbuilding market.

Speaker 3

As per recent published orders, there are about 18 vessels on order to be delivered up until the next couple of years. A sub 2% annual increase in the fleet before scrapping should eventually lead to a death of vessels in the midterm. We continue to believe that the risk of seeing bulk ordering of new vessels in this segment that could peak the supply demand balance is improbable. On Slide 12, we are showing the evolution of our LPG fleet. In this slide, for comparison purposes, we excluded the tanker ships that we held until 2021, and we focused the pure LPG fleet in terms of cubic capacity, including our JV vessels.

Speaker 3

We have always been active in the sell and purchase market, buying and selling ships. In the rising market, we continue to sell some vessels. After selling 4 in 2022 and 8 more this year as well as 1 sold by our JV, we entered into an agreement to sell another 2 vessels for circa $35,000,000 in aggregate. While we recorded an impairment on this last sale, we extended the timing of the delivery to early 2024, so we will take advantage a little longer of the profitable charters that these ships are under. We're looking to sell more vessels if the price is right.

Speaker 3

Through such sales, we have maintained the average age of our fleet to 10 years, which is quite modern for the industry standards. Moreover, we have been investing in more than newbuilding vessels, and our order book consists of 3 Korean built medium gas ships with 40,000 cubic capacity each. The first one owned by our JV is near completion and will take delivery in October, while the other 2 will take delivery in Q1 'twenty four. It's a strategic decision to diversify the fleet between the smaller vessels that we have traditionally operated and the larger ships, handysize and medium sized gas carriers that have slowly been entering our fleet since 2018. In Slide 13, we are outlining some of the key variables that may affect our performance in the quarters ahead.

Speaker 3

We remain optimistic on the longer term for the reasons we analyzed earlier. Despite many uncertainties, mostly related to the macroeconomic environment, in the short term, we are in the summer months and the market has held up pretty well so far. We expect as we enter the winter for the Northern Hemisphere, the rates will start increasing as they normally do. Summing up, after having reported record annual profits last year and record quarterly profits in Q1, the market remained firm and we had another strong second quarter, allowing us to report record 6 months profit and keep us on target to break last year annual record. In terms of strategy, during the Q2, we further divested assets in the rising market.

Speaker 3

We'll continue to diversify the fleet with a timely addition of larger, more eco friendly ships. We were also largely focused on reducing debt, repaying $105,000,000 during this quarter alone, thus greatly reducing our interest rate expenses. At the same time, our Board authorized us to repurchase shares that we started doing late in the previous quarter. Up to now, we have repurchased over 1,000,000 common shares and we will continue to do so. We are at the fortunate position where we can deleverage, diversify, repurchase stock and maintain shareholder liquidity at the same time.

Speaker 3

This is the way we are creating shareholder value for investors. And even though our share price has climbed significantly over the past 6 months, we believe we continue to be some investment for anyone wishing to invest in our company at this time. We've now reached the end of our presentation. We would like to open the floor for your questions.

Operator

Thank From the line of Tate Sullivan from Maxim Group. Please go ahead.

Speaker 4

You started where you balance Terry starting the repurchase plan late in the second quarter where the majority of the

Speaker 3

Sorry, Tejas, I cannot hear you. If you can speak louder and more clearer, sorry.

Speaker 4

With most of the repurchases in the quarter. I can't hear your

Operator

We will go now to the next question from the line of David Cohen.

Speaker 1

Yes. What is the current plan to destroy the stockholder value as you did with Imperial Petroleum?

Speaker 3

Next question, please.

Speaker 1

What is the plan to

Operator

We will now take the next question. From the line of Pimed Molins from Value Investors Edge. Please go ahead.

Speaker 5

Hi, good morning or afternoon. Thank you for taking my questions. On the press release, you mentioned you want to continue to diversify with larger vessels. And I was wondering, could you provide some more insight on this regard? Is this something you're planning to do, let's say, in the immediate future or once asset valuations normalize?

Speaker 5

And secondly, do you have a preference for new deals for modern tonnage? Or what's your sense?

Speaker 3

Thank you for your question, Clement. Basically, with the way the market is and with the way that LPG is such a small business with very few players, basically, we don't have a choice. If we find a good quality vessel, it doesn't really matter if it's secondhand or new building and it's valued properly, and we're going to buy it. Unfortunately, it's not like drybulk where you have hundreds of ships and you can pick and choose when you want to buy and what you want to buy. This is a really small market with very few quality ships for sale.

Speaker 3

And therefore, if we want to diversify and buy bigger ships, we have to be a bit more easy on our decisions.

Speaker 5

Makes sense. Turning towards the share buybacks. It seems you started to use the authorization towards the end of the quarter. What was the reasoning behind this decision? And going forward, could you provide some commentary on how you plan to continue to allocate capital?

Speaker 3

What was the first part of the question?

Speaker 5

Yes. Like what was the reasoning to start to use the authorization towards the end of the quarter?

Speaker 3

Because you need to do legal paperwork, you need to take approvals and all this takes time.

Speaker 5

Makes sense. And regarding the second one, so how you plan to continue to allocate excess capital? So how do you think about repurchases versus new build orders? How do you plan to balance

Speaker 3

it? As we have discussed before, we are in a fortunate position that we can do both. We will buy back stock. We have another approximately $10,000,000 to spend. And we have also to rebuild the company because we have sold a lot of tonnage over the last 2 years.

Speaker 5

Yes, makes sense. And final question for me, it's more on the modeling side. As of quarter end, how much debt did the joint ventures have after the repayment of the loan on the echo, if you will?

Speaker 3

Please send us an e mail on that because I don't want to give you a wrong number. If you want to send us an email and we can check and come back to you.

Speaker 5

Yes, let's do that. Okay, that's all for me. Thank you for taking my questions.

Speaker 3

Thank you.

Operator

Thank you. We will now take the next question from the line of Tate Sullivan. Please go ahead from Maxim Group.

Speaker 4

Hello. Thank you. Can you hear me now?

Speaker 3

A bit better.

Speaker 4

Okay. Thank you. Just for the newbuild deliveries, so the joint venture newbuild is delivered in October and then your 1st year newbuilds in the Q4, the second in the Q1 of 2024, I believe. Can you talk about the remaining commitments for those newbuilds, please?

Speaker 3

For the JV, we don't need to put any money. For the 2 other ones that are due in both in Q1 2024, we need to spend about $20,000,000

Speaker 4

$20,000,000 Okay. And then was part of the decision to sell the Eco Dream and Eco Green related to financing those commitments or totally separate consideration?

Speaker 3

You said financing.

Speaker 4

Are you using some of the proceeds from selling EcoDream and EcoGreen to buy the new build ships?

Speaker 3

Not at all, David. Probably you're a bit confused. We have 15 unencumbered vessels that can raise 100 of millions of debt very easily and very cheaply, not at all. We just hold the ships because we show a very good price for the size and age that the ships wear.

Speaker 4

And then do you can you share the current number of shares outstanding or after the repurchases? Or maybe can you do that in the future?

Speaker 3

It's whatever it was, minus 1,100,000 shares that we have got back.

Speaker 2

Okay.

Speaker 4

Yes, just you report the diluted shares. Okay. And then when would you look to start book contracts for the newbuilds for the ships under construction? Is that something that you do well ahead of delivery? Or how does it usually work in LPG industry, please?

Speaker 3

It all depends on the numbers. If we see good numbers in advance, we book. If we don't, we wait. Normally, we book 30 to 60 days prior delivery.

Speaker 4

Great. And then you mentioned you already have $70,000,000 of financing for the new builds. And did I hear you right that you'll get 2 shifts for $35,000,000 Is that correct?

Speaker 2

Yes. Okay.

Speaker 4

Thank you very much. Thank you, Tate.

Operator

There are no further questions at this time. I would like to hand back over to management for final remarks.

Speaker 3

We'd like to thank you all for joining us today for our conference call and for your interest and trust in our company, and we look forward to having you again with us for the Q3 results in November. Thank you.

Operator

That does conclude our conference for today. Thank you for participating. You may now disconnect.

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Key Takeaways

  • StealthGas reported an adjusted Q2 net income of $10.7 million (down 5% YoY) and achieved record H1 profits of $28 million with earnings per share of $0.71, despite operating an average of four fewer vessels.
  • The company has halved its debt over six months by repaying $105 million to $140.5 million total, maintained liquidity of $55.1 million, and increased unencumbered vessels from 10 to 15.
  • During Q2, StealthGas sold four vessels (with two more contracted for early 2024 delivery at about $35 million) and repurchased approximately 1.1 million shares (close to 3% of outstanding) under a $15 million authorization.
  • Fleet employment remains strong with 80% of 2023 days secured, locking in about $90 million of future revenue, all vessels on period charters, and no further drydockings scheduled for the rest of the year.
  • Management sees robust LPG fundamentals—rising U.S. exports, strong Chinese imports and tight spot markets—and plans to diversify into larger, more eco-friendly tonnage while keeping leverage low.
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Earnings Conference Call
StealthGas Q2 2023
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