StealthGas Inc

NASDAQ:GASS

Earnings Call Transcript 2024-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the StealthGas Third Quarter 2024 Results Conference Call. [Operator Instructions] 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, executive]

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 2 of this presentation, I should be grateful. Risks are further disclosed in the StealthGas's 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 3 for some highlights. Today, we released our results for the third quarter and 9 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 9 months ever.

Revenues came in at a solid $40.4 million slightly down by 3% from the previous quarter, but considerably higher by 17% for the 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 3 quarters of this year reached a record $61 million.

In terms of earnings per share, on an adjusted basis, fees were $0.38 for the quarter, 23% higher and $1.67 for the 9-month period, marking a 61% increase over the 9-month period. This was also assisted by the reduced share count as a result of share repurchases over the last 1 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 focus 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, strategy is to conservatively diversify and renew. We have previously discussed the sale of 2 smaller LPGs and the delivery of 2 medium gas carriers in the beginning of the year as well as the subsequent sale of 1 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 level that was jointly owned.

Let us move on to Slide 4 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. We concluded 5 new charters of short- to medium-term duration, the longer one being 1.5 years. We did not conclude any long-term charters as we did in the previous period. The company's chartering strategies to fix on period charges when possible and profitable, so there were only 2 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 revenue secured after 2027 are standing at $220 million. During the third quarter, we had a rather heavy drydocking schedule. 4 vessels were dry-docks and 1 vessel has just entered dry-dock, while in the fourth quarter, 2 more vessels have been scheduled to dry-dock. Since most vessels are in Europe, we are usually forced to perform the dry docking at a higher cost than could potentially be achieved a cheaper far eastern shipyards.

In terms of our fleet geography, presented in Slide 5, our company mainly focuses on regional trade and local distribution of gas. So most of our vessels are not likely to travel with long distances, and often do voyages that may last as short as a couple of days from low 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.

We currently have 5 vessels trading in the U.S. and Caribbean, 5 in Africa in some specialized trades and only 3 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 our the last several quarters on this area as the freight rate [indiscernible] continue to command a premium over Eastern seas.

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. Since it is unsafe to navigating the Red Sea due to the [indiscernible] 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 [indiscernible] have escalated. This also means less Middle East exports on larger vessels [indiscernible] for Europe and replaced our U.S. exports to Europe. Our Handy Size vessels, particularly to increased transatlantic trades between the United States and Europe.

Finally, I would also like to note that we have been increasingly engaging ammonia trades that our handys and medium gas carriers can carry.

In Slide 6, I will update you on our joint venture investments. That is the interest we had as of September 30 in 5 vessels. For pressurized LPG carriers are on medium gas carrier through 2 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 30 stood at $30.9 million [indiscernible] 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.

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 for Gas Defiance that we then chartered out for a 1-year charter. Prior to this, the debt of both vessels was repaid, so we added a debt-free vessel in our fully owned fleet.

For the remaining 2 smaller vessels, as the joint venture enters its sixth year, we are looking at opportunities to sell these. The remaining 3 vessels are all financed with the debt on the 2 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.

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, executive]

Thank you, Michael. We'll discuss the financial results that were released today. Let's turn to Slide 7, where we have a snapshot of the income statement for the third quarter and 9-month period of 2024 against the same period of 2023. Due to vessel sales that placed last year, there was a corresponding reduction in fleet days of 2% for the quarter and 10% for the 9 months period. Net revenues after [indiscernible] expenses came in at $37.5 million for the quarter, an increase of 16% and at $115.3 million for the 9 months, a similar increase of 16%, mainly the result of restructuring vessels at higher rates throughout the past year. And also, the addition of 2 larger vessels in the fleet with higher earnings [indiscernible].

Net revenues would have been higher this quarter if it was for the lower operational utilization as a result of having to dry dock for 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 9 months, down 10%. That corresponds about the reduction of the fleet. Overall, a good performance in containing expense 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 4 vessels and partially a fifth one had to undergo their statutory 5-year special survey and dry dock.

The cost for these dry docks that involve also lost time in revenues are expensed as incurred and not amortized. So there was a hedge 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 or earning gains or losses from sale of vessels during the third quarter of this year, while interest costs decreased by $0.7 million as the 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. However, this is reversed when looking at adjusted net income that excludes in particular, the nonrecurring gain from the vessel sales and the noncash stock compensation 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 9-month [indiscernible], 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 9 months, a 61% improvement compared to last year. While third quarter profit as expected did not surpass the second quarter's record. The company has now marked its best 9 months ever and is on track for a record year.

Looking at the balance sheet on the next slide, Slide 8, the company continues to maintain strong liquidity. Cash, including restricted cash was at the end of the quarter, $77.4 million, reduced by just 8% compared to December 31, despite the sizable debt repayments. 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 31 were nil as of September 30 as there were no vessels contracted to be sold. Also, deposits for vessels that were $23.4 million as of December 31, were nil as of September 30, [indiscernible] 2 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 2 medium gas carriers in January. 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. And we expect it to be reduced further in the coming quarters following the exit of the 2 smaller vessels that we previously mentioned. [indiscernible] as of September 30 increased 3.3% to $720.7 million compared to December 31.

Moving on to the liability side. The current portion of the long-term debt was half to $6.2 million, while the long-term portion of the debt stood at $106.9 million as of December 31, then $145.4 million as of March 31 and was reduced to $80.2 million as of September 30. 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 probably [indiscernible] in the following quarter. Shareholders' equity increased 11% or $60.5 million over the 9 months.

Moving on to Slide 9 to update you on the debt structure. The leverage has been the name of the game for the past couple of years, allowing 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 to outstanding debt with over $154 million of debt repayments. In 2024, in the first 9 months, $70 million 8-year facility was added in January and $106.6 million of debt repayment 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 2 years ago, and that we believe will allow significantly faster cash flow accumulation going forward. There are only 3 mortgage vessels out of 28 in the fleet, and that means much lower cash flow breakeven for our vessels making them more competitive. Finally, we have eliminated refinancing risk. There is only $115 million alone at the end of 2025 and the next [indiscernible] of $35 million is from the facility just recently concluded, which matures in 2032.

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

[Harry Vafias, executive]

Moving on Slide 10. Our brief insight on the LPG market. Over the last 3 years, global LPG exports are on a steady upward path after making a 4.3% increase in [indiscernible]. The latest data showed that over the first 9 months of '24, the increase higher at 5.5%. That coming out of the U.S. [indiscernible] for the first 9 months of this year, propane exports from the world's #1 export quarter. The U.S. continued to grow, marking an impressive 12% year-on-year increase. There was a slight dip over the summer as the result of Hurricane [indiscernible] but exports have resumed their upward path after that. We expect the rate of growth to slow in the coming quarters [indiscernible] projects are completed by '26 to allow volumes to increase by another 20%.

The [indiscernible] are back to normal, leading downward adjustment in VLGC rates also affecting the [indiscernible]. In the second largest exporting market, Middle East, volumes have moderated over the last couple of years since OPEC implemented production cuts and the area has losing market share, we will be waiting to achieve the forthcoming administration [indiscernible] in the U.S. is going to have [indiscernible] self-reported 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 intra-regional trade, there has been some activity with [indiscernible] of late. We're waiting to see the advent of the [indiscernible] as so far the [indiscernible] has been relatively mild with temperatures below average and that does not help demand for domestic heating consumption. On a more localized level, we [indiscernible] volume starting to December. As a more immediate effect, we're seeing some increasing [indiscernible] destined [indiscernible] replacing the outbound railroad [indiscernible] since Poland does not yet possess adequate port facilities for larger LPG vessels, they had to rely on smaller [indiscernible] doing more voyages [indiscernible] reducing the number of available ships.

The other side of the [indiscernible] in Asia, where the major importers of [indiscernible] located, we expect to [indiscernible] import growth in '24. For the 7 months of this year, [indiscernible] to Japan have marked and almost 12% year-on-year growth. In India, the second LPG market following elections in the summer, the import growth continues to be Brazilian coming in at [indiscernible] year-on-year for the 9-month period. In China, the weakening economy has led to the government to take measures [indiscernible] at a 5% rate regardless the expansion of PPA capacity for the production of [indiscernible] used for plastics continues [indiscernible].

During '23, 9 new [indiscernible] came on stream adding $5.4 million of capacity. So far this year, 7 new plants have started adding over 5 million tons so far and more parts and other construction are expected to bring the total production at over 30 million tons, [indiscernible] rise from 2023 levels. The addition of all these plants for [indiscernible] will underpin demand for the years come.

Slide 11, we discuss the state of the LPG shipping market and its fundamentals. Overall, the [indiscernible] the year when there is a pullback in demand. So a weaker [indiscernible] market while the [indiscernible] market [indiscernible] looking at small pressure vessels are comprised of the majority of our fleet, there continues to be a [indiscernible] market between East and West in the western spot market during Q3 was keeping relatively active [indiscernible] firm levels considering the season, especially positions of the larger pressure vessels have been tied both LPG and [indiscernible] have been active.

On the [indiscernible] side, we have continued [indiscernible] strong interest in charters, especially in 5,000 cubic meters and 7,500 cubic meters. [indiscernible] have continued to [indiscernible] upwards and are definitely at historically high levels. The spot market East of Suez was lower than the West [indiscernible] positions would, in most cases, have to factor in [indiscernible] time and [indiscernible] suffering as a consequence. [indiscernible] the order book is still rather light in the next 2, 3 years with the rapidly aging fleet would seem [indiscernible] are reasonably good that owners will be enjoying a firm market for some time.

The spot market for [indiscernible]. On the peer side, [indiscernible] remained relatively stable, although the market was pretty inactive through the quarter. [indiscernible] market, while LPG which normally [indiscernible] and this will largely support the [indiscernible] line into next year.

On the MGC spot market remains soft [indiscernible] for themselves competing with trade [indiscernible] more often than not. Our time charter side owners [indiscernible] tonnage having [indiscernible]. This has again resulted in investments not being renewed due to [indiscernible] gaps between [indiscernible]. The order book provides for only a handful of deliveries in '25, which support this rate for the year. However, longer term, the order book [indiscernible] more orders [indiscernible] since our last call, driving the order book ratio to 50% of the existing fleet. We're seeing new entrants and existing players ordering [indiscernible] at record high prices with deliveries 2 and 3 years from now, admittedly, betting that ammonia will be the next generation of fuel choice hoping for surge in demand. We, of course, with volume such a development, having already larger vessels are able to carry ammonia. But that being said, we believe that ordering this vessel now at these record rises is quite a risk proposition.

On the other hand, the order situation is quite different in the [indiscernible] Handy Size fleet, where there are no vessels being over the next year and order book remains beyond that. Although since our last quarter were a few more orders being [indiscernible].

As far as our core fleet [indiscernible], the situation hasn't changed much. We continue to see only a handful of vessels being ordered and most of these in Chinese [indiscernible] destined for Chinese trades with the order book ratio at the low 5% for the next 3 years and we would like to repeat what is shown in our graph. According to the age profile of the pressure 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 chart in market. But even without scrapping, it's [indiscernible] getting more difficult for the [indiscernible] to trade in the international markets, especially in Europe, given the safety and environmental regulations.

On our last slide, we are outlining some of the key [indiscernible] our performance in the quarters ahead. Our company had another quarter of [indiscernible] during the seasonally weaker summer months, we managed to increase our revenues by 17% compared to last year, even though there was a heavy drydock schedule during the third quarter has reduced our 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 record year. There is continuing interest from [indiscernible] period coverage, and we have now a contract covered 65% for 2025, securing approximately $100 million in revenue just for next year, particularly in Europe, where the majority of our fleet is located, [indiscernible] are at [indiscernible] highest. Currently, 25 vessels in our fleet are unencumbered. 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 [indiscernible] to the company's strong financial position.

As we continue to improve improve our revenues and profitability, setting bar higher every time we believe we continue to be sound and undervalued investment for anyone sharing our [indiscernible]. We have so far been produced strong results, but continue to trade at a discount in terms of price to [indiscernible].

We have now reached the end of our presentation. I'd like to thank you for joining us on our conference call today and for your interest and trust in our company. We look forward to having with us again on 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.