StealthGas Q3 2024 Earnings Report

StealthGas EPS Results

• Actual EPS: $0.33
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

StealthGas Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

StealthGas Announcement Details

• Quarter: Q3 2024
• Date: 11/25/2024
• Time: Before Market Opens
• Conference Call Date: Monday, November 25, 2024
• Conference Call Time: 10:00AM ET

StealthGas (NASDAQ:GASS) (NASDAQ: GASS) is a maritime transportation company that owns and operates vessels used to transport liquefied petroleum gas (LPG). The company focuses primarily on small- and medium-sized LPG carriers, which transport products such as propane and butane for energy companies, commodity traders and other commercial customers.

StealthGas provides seaborne transportation services through a combination of time charters, voyage charters and other contractual arrangements. Its vessels serve international LPG trade routes, connecting production and export regions with markets and distribution facilities worldwide. The company’s operations are supported by third-party ship managers and maritime service providers, as well as its own commercial and technical management activities.

Founded in 2004, StealthGas is headquartered in Athens, Greece, and has built a fleet focused on the LPG shipping segment. The company is led by Michael J. Bodouroglou, who serves as chairman and chief executive officer. Its business is influenced by global energy demand, LPG production and consumption, vessel availability, charter rates and developments in international maritime trade.

StealthGas Q3 2024 Earnings Call Transcript

Key Takeaways

• Adjusted net income for Q3 was $14.2M, up 18% year-over-year, with record $61M for the first nine months and EPS rising 23% in Q3 and 61% over 9M.
• Total debt was reduced below €100M and with $77.4M cash on hand, StealthGas is near net debt free, cutting interest costs and boosting liquidity.
• Management has secured 65% of charter days for 2025 (about $100M in revenue) by focusing on profitable period charters and limiting spot exposure to two vessels.
• A heavy drydocking schedule in Q3 incurred $2.9M in expenses and lowered fleet utilization, slightly dampening quarterly performance.
• While global LPG exports climbed 5.5% YTD and U.S. exports jumped 12%, the medium gas carrier segment faces potential oversupply from a 50% orderbook, creating longer-term rate risks.

Presentation

[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 Jolliffe. Please go ahead.

[Michael Jolliffe, Chairman of the Board of Directors at StealthGas]

Good morning, everyone, and welcome to our third quarter 2024 earnings conference call and webcast. I am Michael Jolliffe, 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 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. So if you could all take a moment to read our disclaimer on slide two of this presentation, I shall be grateful. 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 three for some highlights.

[Michael Jolliffe, Chairman of the Board of Directors at StealthGas]

Today, we released our results for the third quarter and nine 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 nine months ever. Revenues came in at a solid $40.4 million, 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 third quarter was $14.2 million compared to $12 million last year, 18% higher. Adjusted profit for the first three quarters of this year reached a record $61 million. In terms of earnings per share on an adjusted basis, these were $0.38 for the quarter, 23% higher, and $1.67 for the nine-month period, marking a 61% increase over the nine-month period.

[Michael Jolliffe, Chairman of the Board of Directors at StealthGas]

This was also assisted by the reduced share count as a result of share repurchases over the last one year. We did not buy back any shares during the third quarter, so there is about $5.5 million left authorized for share repurchases. Our strategy for the time being remains focused on deleveraging and optimizing cash generation. While we did enter a new debt facility of $70 million in the beginning of the year, we have also made $108 million in repayments up to today, reducing the debt to below $100 million for the first time. In terms of our fleet, the strategy is to conservatively diversify and renew.

[Michael Jolliffe, Chairman of the Board of Directors at StealthGas]

We have previously discussed the sale of two smaller LPGs and the delivery of two medium gas carriers in the beginning of the year, as well as the subsequent sale of one medium gas carrier by our joint venture in the second quarter. We are still looking for opportunities in the sale and purchase market, and towards the end of the third quarter, our joint venture entered into an agreement to sell one 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 four 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.

[Michael Jolliffe, Chairman of the Board of Directors at StealthGas]

We concluded five new charters of short to medium-term duration, the longer one being one-and-a half years. 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 two vessels operating in the spot market. Including the latest charters, we have increased our contracted days for 2025 to 65%, already securing about $100 million in revenues. Total revenues secured up to 2027 are steady at $220 million. During the third quarter, we had a rather heavy dry docking schedule. Four vessels were dry docked, and one vessel has just entered dry dock, while in the fourth quarter, two more vessels have been scheduled for dry dock.

[Michael Jolliffe, Chairman of the Board of Directors at StealthGas]

Since most vessels are in Europe, we are usually forced to perform the dry dockings at a higher cost than could potentially be achieved at cheaper Far Eastern shipyards. In terms of our fleet geography presented in slide five, 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.

[Michael Jolliffe, Chairman of the Board of Directors at StealthGas]

We currently have five vessels trading in the U.S. and Caribbean, and five in Africa in some specialized trades, and only three vessels trading in the Middle East and the Far East. The majority of our fleet, some 19 vessels or 60%, currently trade 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 Suez continue to command a premium over east of Suez. We believe that in the short term, we will continue to enjoy higher rates west of Suez as there continues to be a shortage of suitably well-maintained vessels in Europe.

[Michael Jolliffe, Chairman of the Board of Directors at StealthGas]

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

[Michael Jolliffe, Chairman of the Board of Directors at StealthGas]

Finally, I would also like to note that we have been increasingly engaged in ammonia trades that our handies and medium gas carriers can carry. In slide six, I will update you on our joint venture investments. That is the interest we had as of September the 30th in five vessels: four pressurized LPG carriers and one medium gas carrier through two joint venture structures. These are presented separately as we do not consolidate these vessels in our results but use the equity method of accounting. The book value of our investments as of September the 30th stood at $30.9 million, close to 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.

[Michael Jolliffe, Chairman of the Board of Directors at StealthGas]

At the end of the quarter, together with our partners, we agreed to sell the Gas Shuriken to a third party. That vessel is expected to be delivered very early next year, depending on its trading schedule. Next, we agreed to buy back from that joint venture the Gas Defiance that we then chartered out for a one-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 two smaller vessels, as the joint venture enters its sixth year, we are looking at opportunities to sell these. The remaining three vessels are all financed with the debt on the two smaller ones maturing next year, while the medium gas carrier that belongs to our second joint venture, as you may recall, was acquired and financed just last year.

[Michael Jolliffe, Chairman of the Board of Directors at StealthGas]

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 Konstantinos Sistovaris, who will give details of our financial performance. Thank you.

[Konstantinos Sistovaris, Investor Relations Executive at StealthGas]

Thank you, Michael. We'll discuss the financial results that were released today. Let's turn to slide seven, where we have a snapshot of the income statement for the third quarter and nine-month period of 2024 against the same period of 2023. Due to vessel sales that took place last year, there was a corresponding reduction in fleet days of 2% for the quarter and 10% for the nine-month period. Net revenues, after voyage expenses, came in at $37.5 million for the quarter, an increase of 16%, and at $115.3 million for the nine months, a similar increase of 16%, mainly the result of rechartering vessels at higher rates throughout the past year, and also the addition of two larger vessels in the fleet with higher earnings capacity.

[Konstantinos Sistovaris, Investor Relations Executive at StealthGas]

Net revenues would have been higher this quarter if it weren't for the lower operational utilization as a result of having to dry dock four vessels during the quarter. Operating expenses were $12.3 million for the quarter, at the same level as last year, and $36.2 million for the nine months, down 10%. That corresponds about to the reduction of the fleet. Overall, a good performance in containing expenses so far in 2024, despite the inflationary pressures throughout the economy. The main drag for this quarter results were the dry docking expenses at $2.9 million, as four vessels and partially a fifth one had to undergo their statutory five-year vessel survey and dry dock.

[Konstantinos Sistovaris, Investor Relations Executive at StealthGas]

The costs for these dry docks that involve also lost time and revenues are expensed as incurred and not amortized, so there was a hit in the third quarter, especially when compared to last year when there were no vessels to be dry-docked at the time. In the third quarter, there was also an increase of $1 million in G&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 third quarter of this year, while interest costs decreased by $0.7 million as a result of the debt reduction. Net income for the third quarter was $12.2 million compared to $15.7 million for the same quarter last year, a 23% decrease.

[Konstantinos Sistovaris, Investor Relations Executive at StealthGas]

However, this is reversed when looking at adjusted net income that excludes, in particular, the non-recurring gain from the vessel sales and the non-cash stock compensations, and was $12 million last year compared to $14.2 million this year, an 18% increase, which is more reflective of the improving profitability of the company. For the nine-month period, adjusted net income was $16.8 million, a 52% increase compared to last year's. Likewise, adjusted earnings per share for the third quarter were $0.38, a 23% improvement, and $1.67 for the nine months, a 61% improvement compared to last year. While the third quarter profit, as expected, did not surpass the second quarter's record, the company has now marked its best nine months ever and is on track for a record year. Looking at the balance sheet in the next slide, slide eight, the company continues to maintain strong liquidity.

[Konstantinos Sistovaris, Investor Relations Executive at StealthGas]

Cash, including restricted cash, was at the end of the quarter $77.4 million, reduced by just 8% compared to December 31st, despite the sizable debt repayment. 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 $34.9 million as of December 31st, were nil as of September 30th as there were no vessels contracted to be sold. Also, deposits for vessels that were $23.4 million as of December 31st were nil as of September 30th as the two medium gas carriers were delivered to the company, and there were no vessels contracted to be bought. Vessels' book value increased from $504.3 million to $605 million, a significant 20% increase as a result of the addition of the two medium gas carriers in January.

[Konstantinos Sistovaris, Investor Relations Executive at StealthGas]

The book value of our investments in our joint ventures was $30.9 million, an $8.9 million reduction due to the sale of the one medium gas carrier and subsequent return of capital that happened during the second quarter. We expect it to be reduced further in the coming quarters following the exit of the two smaller vessels that were previously mentioned. Total assets as of September 30th increased 3.3% to $720.7 million compared to December 31st. Moving on to the liability side, the current portion of the long-term debt was halved to $6.2 million, while the long-term portion of the debt stood at $106.9 million as of December 31st, then $145.4 million as of March 31st, and was reduced to $80.2 million as of September 30th.

[Konstantinos Sistovaris, Investor Relations Executive at StealthGas]

As a result, with a total debt of just $86.4 million versus cash in hand of $77.4 million, the company is close to being net debt-free, and we'll probably be so in the following quarter. Shareholders' equity increased 11%, or $60.5 million, over the nine months. Moving on to slide nine to update you on the debt structure. Deleveraging 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 third quarter, the company has for the first time managed to reduce its total debt to levels below $100 million. During 2023, the company very aggressively halved its outstanding debt with over $154 million of debt repayments.

[Konstantinos Sistovaris, Investor Relations Executive at StealthGas]

In 2024, in the first nine months, $70 million eight-year facility was added in January, and $106.6 million of debt repayments took place, $21 million of which during the third quarter. As a result, the debt cash flow amortization is now reduced to $6.4 million per annum compared to $30 million just two years ago, and that we believe will allow for significantly faster cash flow accumulation going forward. There are only three mortgage vessels out of 28 in the fleet, and that means much lower cash flow break-even for our vessels, making them more competitive. Finally, we have eliminated refinancing risks. There is only one $150 million balloon at the end of 2025, and the next balloon of $35 million is from the facility just recently concluded, which matures in 2032.

[Konstantinos Sistovaris, Investor Relations Executive at StealthGas]

Thank you, and I will now hand you over to our CEO, Harry Vafias, who will discuss the market and company outlook.

[Harry Vafias, CEO at StealthGas]

Moving on to slide 10, our brief insight on the LPG market. Over the last three years, global LPG exports are on a steady upward path. After making a 4.3% increase in 2023, the latest data showed that over the first nine months of 2024, the increase is higher at 5.5%. Data coming out of the U.S. showed that for the first nine months of this year, propane exports from the world's number one exporter, the U.S., continued to grow, marking an impressive 12% year-on-year increase. Peaked over the summer as a result of Hurricane Beryl, but exports have resumed their upward path after that. We expect the rate of growth to slow in the coming quarters and resume as capacity expansion projects are completed by 2026 to allow volumes to increase by another 20%.

[Harry Vafias, CEO at StealthGas]

The Panama Canal situation now resolved and closes us back to normal, leading to a downward adjustment in VLGC rates, also affecting the medium gas carrier rates. In the second largest exporting market, the 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. Although increasing volumes are sent from the U.S. to Europe, LPG demand in Europe continues to remain flat, although in the important interregional trade, there has been some activity with petroleum cargoes of late.

[Harry Vafias, CEO at StealthGas]

We're waiting to 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. On a more localized level, we mentioned last time in the April ban on Russian volumes starting this December. As a more immediate effect, we're seeing some increasing seaborne volumes destined for Poland, replacing the now banned railroad option. Since Poland does not yet possess adequate port facilities for larger LPG vessels, they had to rely on smaller pressurized ships doing more voyages thereby 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% LPG seaborne import growth in 2024. For the first nine months of this year, volumes going to China have marked an almost 12% year-on-year growth.

[Harry Vafias, CEO at StealthGas]

In India, the second major LPG market, following elections in the summer, the import growth continues to be resilient, coming in at 7.1% year-on-year for the nine-month period. In China, the weakening economy has led to the government to take measures as of late and to reaffirm its commitment to keeping the economy growing at a 5% rate. Regardless, the expansion of PDH capacity for the production of propylene used for plastics continues at a massive scale. During 2023, nine new PDH plants came on stream, adding 5.4 million tons of capacity. So far this year, seven new plants have started, adding over 5 million tons so far, and more plants are under construction that are expected to bring a total production at over 30 million tons, a 77% rise from 2023 levels.

[Harry Vafias, CEO at StealthGas]

The addition of all these plants for local production that use LPG as a feedstock will underpin demand for the years to come. On slide 11, we discussed the state of the LPG shipping market and its fundamentals. Overall, the summer months being the time of the year when there is a pullback in demand, so a weaker spot market while the barge market was stable. Looking at small pressurized vessels in comparison with the majority of our fleet, there continues to be a divergence in market between east and west. In the western spot market, during Q3, it was keeping reasonably active with late and firm levels, considering the season, especially positions on the larger pressurized vessels have been tight. Both LPG and petchems have been active.

[Harry Vafias, CEO at StealthGas]

On the period side, we have continued to see strong interest in Handies, especially the 5,000 cubic meters and 7,500 cubic meters. Rates have continued to edge upwards and are definitely at historically high levels. The spot market east of Suez was slower than the west. Owners with open positions would, in most cases, have to factor in some ballast time and spot rates were suffering as a consequence. As the order book is still rather light for the next two to three years, with a rapidly aging fleet, it would seem chances are reasonably good that owners will be enjoying a firm market for some time. The spot market for the Handies held up reasonably well through the summer, mostly due to an active petrochemical market. On the period side, PDH remained relatively stable, although the market was pretty inactive through the quarter.

[Harry Vafias, CEO at StealthGas]

Petchems is usually a spot-focused market, while LPG, which normally attracts TC interest from traders, was very quiet. The order book for Handysize remains very slim, with no delivery scheduled for 2025, and this would largely support the period market going into next year. On the MGC, the spot market remains soft and owners found themselves competing with trading rates more often than not. On the time charter side, owners with available tonnage have enjoyed relatively firm. This has again resulted in vessels not being renewed due to unbridgeable gaps between owners and charterers' ideas. The order book provides for only a handful of deliveries in 2025, which support TC rates for the year. However, longer term, the order book for MGCs is worrisome. We've seen even more orders be placed since our last call, driving the order book ratio to 50% of the existing fleet.

[Harry Vafias, CEO at StealthGas]

We've seen new entrants and existing players ordering MGCs as well as VLGCs at record high prices with deliveries two and three years from now. Admittedly, betting that ammonia will be the next generation of fuel choice, hoping for a surge in demand. We, of course, would welcome such a development, having already the seven larger vessels enough to be able to carry ammonia. But that being said, we believe that ordering these vessels now at these record prices is quite a risky proposition. On the other hand, the order book situation is quite different in the overlooked Handysize fleet, where there are no vessels delivering over the next year, and the order book remains low beyond that, although since our last quarter, there were a few more orders being placed. As far as our core fleet of pressurized ships, the situation has not changed much.

[Harry Vafias, CEO at StealthGas]

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

[Harry Vafias, CEO at StealthGas]

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 dry dock schedule during the third quarter that reduced fleet utilization. So far this year, we have announced record profits, and with the market strengthening during the winter, we are on track for another good year. There's continued interest from charterers on period coverage, and we now have contract coverage of 65% for 2025, securing approximately $100 million in revenue just for next year, particularly in Europe, where the majority of our fleet is located. Period rates for pressurized ships are at historical highs. Currently, 25 vessels in our fleet are unencumbered.

[Harry Vafias, CEO at StealthGas]

We have focused on our strategic goal to deleverage, and as of the end of the third quarter, we had $86 million loans and $77 million cash attested to the company's strong financial position. As we continuously improve our revenues and profitability, setting the bar higher every time, we believe we'll continue to be a sound and undervalued investment for anyone sharing our vision. 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. We have now reached the end of our presentation. I'd like to thank you for joining us at our conference call today and for your interest and trust in our company. We look forward to having you with us again at the 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.

Participants

Executives

• Harry Vafias, CEO
• Michael Jolliffe, Chairman of the Board of Directors
• Konstantinos Sistovaris, Investor Relations Executive