StealthGas Inc

NASDAQ:GASS

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the StealthGas Second Quarter 2021 Results Conference Call and Webcast.[Operator Instructions] Please note that today's conference is being recorded.

I would now like to turn the conference over to your speaker, Mr. Michael Jolliffe, Chairman of the Board. Please go ahead.

[Michael Jolliffe, executive]

Good morning, everyone, and welcome to our second quarter 2024 earnings conference call and webcast. I'm 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 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 2 of this presentation, I'd be grateful. Risks are further disclosed in StealthGas filings with the Securities and Exchange Commission.

Today, we released our results for the second quarter. 3 months ago, I was here announcing to you our record first quarter profits. So it is with great delight that we have managed to follow up on that by announcing yet another record of quarterly profits. So let's proceed to discuss these results and update you on the company's strategy and the market in general. Turning to Slide 3. We summarize some highlights for our fleet and operations.

During the 6 months, we have sold 2 smaller vessels and got delivery of 2 brand-new medium gas carriers. We also sold 1 medium gas carrier owned through our joint venture. These have been discussed in the previous call. We did not engage in any further sale and purchase activity in the current quarter. With the market remaining firm, we were quite active on the chartering side entering into more period charters and extending contract coverage for 2025 to 55% of our fleet days. We have thus contracted revenues of over $220 million for all subsequent periods, excluding our joint venture vessels and remain focused on maintaining our minimal spot exposure. Moving to our financial highlights. We continued to produce record results by increasing revenues and reducing costs. With an 11% reduction in fleet days due to vessel sales, wage revenues increased to $41.8 million or 14% year-over-year, while they remained flat compared to the previous quarter.

Net income for the second quarter was a record $25.8 million compared to $10.5 million last year, a 146% increase even better with the earnings per share at $0.70, marking a 159% increase due to the lower share count as a result of share buybacks. So far this year, we have scaled back the share repurchases and bought back about $0.4 million worth during the first half, and we actually did not buy back any shares during the second quarter.

So there is about $5.5 million left authorized for share repurchases. We have been very active in implementing our debt reduction strategy since the beginning of the year and up until today, we drew down on a $70 million facility to finance the delivery of our MGC vessels and prepaid 4 facilities that together with regular amortization reduced the debt by another $107 million. Let us move on to Slide 4 for our fully owned fleet employment update as of September as we have interesting news on that front. Once again, we've had a lot of activity on the chartering side during the summer and ahead of what we hope will be a busy winter. Today, we announced 9 new period charters. 5 of those were extensions with current charterers. What is particularly noteworthy is that the majority of these charters were for relatively long periods.

Two of the charters were for 3 years and 3 of the charters were for 2 years all with established names. This kind of activity certainly bodes well in terms of expectations as fixing longer term is normally a sign that charters are looking to secure tonnage in a rising market ahead of any rises, whereas in a [ falling ] market, nobody is rushing to fix. During the latest charters, we have increased our contracted days for 2024 to 85% and for 2025 to 55%, already securing over $220 million in revenue up to 2027. At the moment, all the vessels are fixed.

No vessel is operating in the spot market, although we would expect to have a couple of openings before the year-end. Last year, as far as drydockings for 2024, 2 of our vessels went into drydock during the second quarter and extending into the third quarter, and we have 5 more small LPG vessels scheduled for drydock before the end of the year. In Slide 5, we look separately on our investments. That is the interest we hold in 5 vessels through 2 joint venture structures, but we do not consolidate in our results but use the equity method of accounting. The book value of our investments as of June 30 stood at $30 million compared to $42 million at the end of the previous quarter. While the reduction was due to the sale of the medium gas carrier eco Ethereal during the second quarter.

As previously discussed during the previous call, we received $24 million in cash as a return from investment from the sale and accumulated profits. Other than this, there was not much activity in terms of sale and purchase or chartering. As a reminder, we had initially co-invested in 4 more medium gas carriers that were all subsequently sold, and the 2 joint ventures consists now of a brand-new medium gas carrier and separately for small gas carriers. All these vessels are financed.

The average age of the 4 small gas carriers is 15 years, and the joint venture is in its fifth year, so it would make sense to bring that investment full circle soon when and if the conditions are right. In terms of our fleet geography presented in Slide 6, our company mainly focuses on regional trade and local distribution of gas, while the larger vessels often engage in intercontinental voyages. This graph is a snapshot of the positioning of the fleet, including the joint venture vessels as of the end of August. The majority of our fleet, 19 vessels are 60% 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 period -- a premium over east of Suez as well as the fact that terminals in that area adhere to strict vetting requirements that favor modern and well-maintained vessels and operators with proficient safety management systems. As such, we have looked for opportunities to move vessels out of the Asian market by the cape of good hope since the Red Sea continues to be unsafe for navigation and into the Atlantic and now left with only 3 vessels trading in the Middle and Far East.

We will wait for a narrowing of the gap between West and East rates to move more vessels back in the area. We also now have 5 vessels trading in the U.S. and Caribbean and 5 in Africa in some specialized trades. The attacks in the Red Sea by houthis have escalated. This means less Middle East exports destined for Europe and replaced by U.S. exports to Europe. Our handy size vessels, particularly do increased transatlantic trades between U.S. and Europe. Finally, I would also like to note that we have been increasingly engaged in ammonia trades. Our handy's and MGC vessels can carry and 2 of our vessels are currently transporting ammonia cargoes. I will now turn the call over to Konstantinos Sistovaris for our financial performance. Thank you.

[Konstantinos Sistovaris, executive]

Thank you, Michael, and good morning to everyone. I will discuss our financial results that were released today. Let us turn to Slide 7, where we see a snapshot of the income statement for the second quarter and 6 months of 2024 against the same period of 2023. With fewer vessels in the fleet and the corresponding reduction of 11% in fleet days for the quarter and 13% for the 6-month period, net revenues that is after voyage expenses came in at $39.1 million for the quarter, an increase of 18% and $77.8 million for the 6 months, an increase of 16% as a result of increased rates due to better market conditions, reduced off hires and voyage costs reduced due to lower spot exposure. And finally, also the addition of 2 larger vessels in the fleet with higher earnings capacity that contributed about $12 million in revenues in the first 6 months. Operating expenses were $12.5 million for the quarter, down 7% and $24 million for the 6 months, down 14% as a result of the reduction in the fleet. Overall, expenses have been under increased pressure due to inflation.

But so far in the first 2 quarters of 2024, we have managed to contain these pressures in line with the general slowing down of inflation in the economy. We also note the decrease in drydocking costs of $0.9 million for the quarter. Last year, 2 Handy size vessels were drydocked whereas this year, it was 2 smaller vessels, smaller LPGs and the increase of $1.2 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 second quarter.

As a result of the increase in revenues and decrease in cost, income from operations increased 60% to $16.1 million for the quarter and increased 70% to $33.6 million for the 6-month period. Interest and finance costs also slightly increased year-on-year, but that is because in the first 2 quarters of last year were included some profits from the selling of swap positions due to the debt prepayments, and that was not the case for the first 2 quarters of this year. The profits from the investment in the joint venture amounted to $11.5 million for the second quarter and $14 million for the 6 months. In both 6-month periods of last year and this year, besides the operating profits, there were profits from sale of vessels.

This year, the profit from the sale of the Eco Ethereal by the joint venture boosted the investment returns in the second quarter by $9.5 million (sic) [ $9.8 million ]. As a result of the above, we ended the second quarter of 2024 with net income of $25.8 million compared to $10.5 million for the same quarter of last year, a 146% increase. While on an adjusted basis, net income was $27.5 million versus $10.7 million last year, 158% increase.

For the 6 months period, net income was $43.5 million and $46.7 million on an adjusted basis, 60% and 67% improvement compared to last year's 6-month period. Earnings per share for the second quarter were $0.70, 159% improvement and $1.20 for the 6 months, 69% improvement compared to last year. These were record quarterly results for the company and the most profitable 6 months in its history. Moving on to the balance sheet on Slide 8. Our liquidity, including restricted cash was at the end of the quarter, $76.6 million, reduced by 8.5% compared to December 31. The company, in spite of the continuous debt repayments, maintains ample liquidity. Vessels held for sale that were $34.9 million as of December 31 were 0 as of June 30 as there are currently no vessels contracted to be sold.

Also, deposits for vessels that were $23.4 million as of December 31 were 0 as of June 30 as the 2 medium gas carriers were delivered to the company, and there are no vessels contracted to be bought. Vessels book value increased from $504.3 million to $611.3 million, a significant 21% increase as a result of the addition of the 2 medium gas carrier vessels.

The book value of our investments in our joint ventures was $29.8 million, a $10 million reduction compared to December 31 as the company received back its investment on the vessel that was sold during the second quarter through a dividend. Total assets of the company increased 4.4% to $727.8 million compared to December 31. Moving on to the liability side. The current portion of the long-term debt was halved to annual repayments of $8.7 million, while the long-term portion of the debt stood at $106.9 million as of December 31, than $144 and $145.4 million as of March 31 and was reduced to below $100 million for the first time in over 15 years, standing at $98.8 million as of June 30 and will be reduced further in the third quarter. Shareholders' equity increased to 8.5% or $46.6 million over the 6-month period. Concluding our financial commentary with Slide 9, we will briefly have a closer look at our debt structure as this is where the company has focused in recent times.

During 2023, the company very aggressively have its outstanding debt with over $154 million of debt repayments. Then in the beginning of -- in the beginning of 2024, a new cheaper facility was concluded in the order of $70 million for the brand new vessels and with an 8-year tenure, while $85.3 million of existing debt was repaid. In the current quarter, the company has already prepaid another $21.3 million.

As a result of the debt -- as a result, the debt amortization is now reduced to just $6.4 million per annum compared to $30 million just 2 years ago, and that will allow significantly faster cash flow accumulation going forward. With close to $70 million in cash, the company is now close to being net debt free. There are only 3 mortgage vessels out of 27 in the fleet, and that means much lower cash flow breakevens for our vessels. Obviously, we have eliminated refinancing risk. There is only $115 million balloon at the end of 2025. And the next balloon is from the finance we just recently received that matures in 2032. I will now hand you over to our CEO, Harry Vafias, who will discuss market and company outlook.

[Harry Vafias, executive]

Moving on Slide 10. We have a brief insight on the LPG market. LPG exports increased by a strong 4.3% in '23, and we continue to see exports increasing 3.6% in the first half of this year, slightly lower than in the first quarter, but still healthy. Exports from the largest LPG exporter in the world, in the U.S. continued to grow unabated in the first 6 months of this year at 11% of the impact of Hurricane Brilon these exports seems to have been minimal for Q3.

The issue is now becoming whether the U.S. will hit an export selling due to the capacity constraints. To avoid that, companies like Enterprise Product Partners, Energy Transfer and Targa, already planning capacity expansions at the U.S. terminal so that volumes can increase by over 20% by the end of '26. On the other hand, Middle East exports remained flat as long as OPEC extends its production cuts. And until those are lifted, we not expect any meaningful change in volumes coming from the Arabian Gulf. Although increasing volumes are sent from the U.S. to Europe, LPG demand in Europe has remained relatively flat, and a lot will depend on whether we experience the same mild winter as we did last year. To know that the 1-year phase in -- of the import ban on Russian volumes that was introduced last year comes into effect this December.

This means that Russian volumes that accounted for 6% of imports in '23 will be banned. Countries such as Poland that imported LPG via rail will now have to rely more on seaborne imports. In terms of imports, the driving force of LPG demand is China and India. During the first half of this year, seaborne import volumes in China rose by 11% year-on-year and even hit an all-time high of 1.4 million barrels a day in July.

India, over 45% of LPG demand is for household usage is expected to grow its economy by 7% next year according to the World Bank, and LPG demand is expected to grow alongside of it. The Indian elections were held through June and the incumbent government that has so far been supportive of LPG consumption propelling the nation to #2 importer in the world on the elections. In China, the driving force for LPG demand is, of course, the expansion of PDH capacity for the production of propylene, while utilization rates remained subdued during the first half of the year, LPG remained a competitive fuel compared to NAFTA during this period. During 23, 9 new PDH plants came on stream, adding 5.4 million tonnes of capacity. So far this year, 6 new plants have started up, adding another 4.2 million tons, and capacity additions are expected to reach 5 million tons by the end of this year.

Another 6 million tons are scheduled for '25, a growth of over 60% compared to '23 levels. Slide 11, we present some of the key fundamentals in our shipping market commencing with time charter rates for our market. Rates tend to fall during the second quarter, but remained firmed at historically high levels for the smaller vessels, why we did experience a drop for the larger ships. At the small LPG trade, we saw continued strength in parts of the pressurized market through Q2, especially in the Atlantic.

The spot market west of Suez was tight on tonnage and rates remained firm. The east of spot market, on the other hand, was softer with poor rates and more idle time experienced by owners. On the period side, we saw further rate rises, especially in the West. Most vessel sizes in the pressurized market are now at historically high levels. West of Suezan, we also see charter skin to secure longer period than 1 year. The rates west of shares continue to shift in significantly above the Eastern market. On the Handy size segment, we saw a softening in the spot market through Q2. This is partly due to more difficult trading conditions for LPG and partly due to the petchem market apart from ethylene, underperforming compared to expected activity.

Also, the time charter market experienced a softening of rates compared to Q1. Short term, we expect the segment -- the TC market to show improvement in Q4. Medium to longer term, the fundamentals for the handy size segment looks strong with an almost nonexisting order book, especially for standard semi-ref tonnage. The main risk factor at the moment remains a growing midsized order book, which could worst-case scenario put down pressure on the handy segment.

On the medium-size ships, a significantly softer VLGC market compared to Q1 resulted in a softer Q2 also for this market. Although a limited number of spot vessels were available, the lack of demand led to falling rates and some vessels incurring idle time. As a result, also the time charter rates show down on correction. However, the limited number of new buildings entering the market before '25 has assisted in limiting the fall. However, more long term, the order book situation for MGCs starts to look worrisome. More orders are piling in with '27 and '28 deliveries and the order book ratio has now surpassed 40%.

There's a lot of optimism as these vessels also carry ammonia, and ammonia is the candidate for the next generation of green fuel for shipping. But this is still a speculation at this point. And if this doesn't happen, there's going to be an oversupply of vessels. The order book situation is quite different in the overlooked Handy size fleet was there 0 vessels delivering over the next year.

And the order book remains healthy, although recently, we did see some new orders being placed for 5 ships for '27 and '28. As far as our core fleet is concerned of pressurized ships, the situation has not changed much. We continue to show only a handful of vessels being ordered with a order book ratio near the 5% mark for the next 3 years. This time ordering coupled with the fact that almost 1/3 of the fleet is over 20 years of age, make the fundamentals for this segment look quite promising. We would like to have seen more scrapping, given the age of the fleet. But due to the firm market, owners have not sold any vessels for scrapping thus far. In the last slide, we are outlining some of the key viable that may affect our performance in the quarters ahead. In the short term, we're entering the seasonally strong winter periods, and we expect activity to pick up as demand for LPG, particularly for heating rises. We continue to remain optimistic on the longer term for the reasons we analyzed earlier.

To sum up, today, we announced yet another record-breaking quarter. Profits that were more than double compared to last year of $25.8 million for the second quarter of '24 are at an all-time high for the company in the 20 years since its inception. While we managed to contain our operating costs, we took full advantage of a strong chartering market fixing vessels at higher rates during that and previous quarters, whose benefits we are enjoying now.

The bottom line was further bolstered by the return from our investments related to the sale of a vessel by one of our JVs. We continue with the strategy of debt reduction. And in the current quarter, we have so far repaid $21 million of debt and now have 24 unencumbered vessels, the vast majority of the fleet and a net debt ratio below 5%. And Second part of our strategy was to fix on period taking advantage of the strong market while securing our cash flow. We have successfully implemented that so far as all the vessels are fixed and have managed to secure employment for 55% of the fleet for next year. Overall, we have secured $220 million in future revenues.

As we continuously improve our profitability, setting the bar higher every time, we believe we continue to be a sound undervalued investment, not just because we are optimistic on the market and have been producing results, but also as we are paying at a discount in terms of price to NAV and price to earnings ratio. We have now the end of our presentation. I'd like to thank you for joining us at our conference call 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 Q3 results in November. Thank you very much.

[Operator]

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.