StealthGas Inc

NASDAQ:GASS

Earnings Call Analysis

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and thank you for standing by. Welcome to the StealthGas Inc. Q4 2024 (sic) [ 2023 ] Results Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded.

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

[Michael Jolliffe, executive]

Good morning, everyone, and welcome to our fourth quarter 2023 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 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 shall be grateful.

Risks are further disclosed in StealthGas' filing 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 released our results for the fourth quarter and for the full year 2023, announcing for the second year in a row, record 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 starting with fleet and operations update. We first concluded the previously announced sale of 2 vessels, the Eco Dream and Eco Green, delivering those vessels in January. That same month, we also took delivery of our long-awaited MGC newbuilding vessels, the Eco Wizard and Eco Oracle that were deployed on their respective time charters.

As the market was firm during the last couple of months, we continued securing more period charters, both in our fully owned fleet and for the joint venture vessels with contract coverage for 2024 of 66% of our fleet days for our fully owned fleet. We have vast contracted revenues of over $200 million for all subsequent periods, excluding our JV vessels.

Moving to our financial highlights. With, on average, 7 fewer vessels compared to last year and a 20% reduction in fleet days, net voyage revenues that is net of voyage costs were flat at $130.6 million and $130.3 million for 2022 and 2023, respectively, in spite of the smaller fleet. Our profitability remained strong in the fourth quarter and was $8.9 million compared to $7.7 million last year, a 15% increase.

While for the full year, net income was $51.9 million compared to $34.3 million (sic) [ $34.2 million ] last year, a 52% increase, which is the highest profit recorded by the company since it became public. Earnings per share for the 12 months were $1.38 and also worth pointing out is that during 2023, we have halved our debt by paying down facilities of $154 million and still maintain strong liquidity. In the first 2 months of 2024, we drew down on a $70 million loan to finance the delivery of our 2 newbuilding vessels and prepaid one of the older facilities, thus having made debt repayments of over $30 million so far this quarter.

As far as the share buybacks during the last quarter of 2023, we bought back 1.2 million shares, bringing the total number of shares repurchased to 3.9 million shares costing over $19 million. However, we have not made any share repurchases during 2024 so far and have about [indiscernible] million left authorized for such a purpose.

Let us move on to Slide 4 for our fully owned fleet employment update as of February. Just like in the previous call, we again announced a number of new period charters. One of these 7 new charters, excluding our JV vessels for a 1-year duration and were mostly extensions with existing charters. 2 were of 6 months duration, and 1 of 3 months duration.

As a result, since the beginning of the year, we have significantly increased our contracted days for 2024 to 66% securing almost $120 million in revenues, while for the 6 larger vessels in our fleet, the 4 Handy Size and 2 MGCs, the percentage coverage is slightly higher at 76%. We have also managed to secure contracted revenues for all periods up to 2027 of over $200 million. Only 2 of our vessels currently operate in the spot market.

Lastly, in terms of dry-docks, during 2024, we have 7 small LPG vessels scheduled for dry-dock. In Slide 5, I would like now to provide an update of our 2 joint ventures comprising of 6 vessels. As far as the joint venture with the 4 small LPG vessels, there was a lot of activity on the chartering side, all 4 vessels entered into period charters between 5 and 12 months, whereas before, 2 of these were operating spot.

As far as 1 vessel that was scheduled to be dry-docked in the current quarter, its dry-dock has just completed. The second joint venture currently comprises of 2 medium gas carriers, both are currently on period charters, as previously announced. The Eco Ethereal's charterer had a purchase option attached to the charter and notified us of its intention to exercise that option accompanied by a deposit.

We expect the vessel to be delivered at the end of the charter in the second quarter. From the sale, the joint venture expects a profit and the StealthGas share will be reflected in the investments part of the income statement after its conclusion. Also, the vessel is debt-free and subject to agreement with our partners, we expect that all of the sale proceeds and accumulated profits will be distributed to the partners thereafter.

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 into Continental voyages. This graph is a snapshot of the positioning of the fleet, including the JV vessels as of mid-February.

The majority of our fleet, 18 vessels 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 premium over East of Suez. 7 vessels are trading in the Mid Far East, 4 vessels trading in the U.S. and Caribbean and 4 in Africa, 1 more than the previous quarter, although this is a Trans Indian Ocean trade.

We do not expect a major redistribution in the trading of the fleet. Although that being said, we do have 1 vessel relocating from Asia to Europe. However, this is one of the recently delivered MGC vessels that is expected to engage in ammonia trading in Europe.

Let me take the opportunity to also address the matter of the Red Sea situation. Since it is not very often that our vessels move from east to west and vice versa by saying that this particular vessel, which is on time charter, although it intends to unload its cargo in the Mediterranean, it will follow the long route via the Cape and enter the Mediterranean from Gibraltar rather than from the Suez Canal. So instead of taking 20 days, the trip will take about 38 days, almost double the time.

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 the financial results that were released today. Let us turn to Slide 7, where we see a snapshot of the income statement for the fourth quarter and 12 months of 2023 against the same period of 2022. Even though fleet days were reduced by 21% and we had 7 fewer vessels, net revenues, that is after voyage expenses came in at $30.8 million for the quarter and $130.3 million for the 12 months, a decrease of 15% for the quarter and 0.2% for the 12 months compared to last year.

So our fewer vessels generated more voyage revenues comparatively and had reduced voyage expenses. Operating expenses were at $12.9 million for the quarter, down 12%, while for the full year were $53.1 million, a yearly reduction of 3.3%. We would have expected a larger reduction in OpEx year-on-year, but we did face inflationary pressures and had cost overruns, particularly during the first quarter of last year.

During the fourth quarter, we also faced some extraordinary costs related to the maintenance of one of our vessels. We also note depreciation costs being reduced significantly as a result of the fleet reduction to $5.6 million and $23.7 million, respectively, for the quarter and 12 months. During the fourth quarter of this year, the company did not recognize any gains or losses on the values of its fleet. But for the full year, the company recognized a $2.8 million impairment loss and a $7.6 million gain coming from the sale of vessels during that period.

As a result, income from operations increased 3% to $9.6 million for the quarter and increased by 40% to $45.8 million for the 12 months compared to last year. Interest and finance costs were significantly reduced by 30% over the quarterly period and 18% over the 12 months period even though rates have more than tripled in the comparative period, and that translates into significant savings as a result -- which is the result of the company's debt repayments.

In addition, for the 12 months period, our joint ventures, particularly the 1 with larger vessels produced good results, adding to the bottom line $10.8 million in 2022 and $12.3 million in 2023, both from operations and particularly from sale and purchase activities.

As a result of all of the above, we ended the fourth quarter of 2023 with net income of $8.9 million compared to $7.7 million for the same quarter of last year, a 25% increase with earnings per share for the fourth quarter of $0.25 and adjusted earnings per share of $0.29.

While for the 12-month period, net income was $51.9 million compared to $34.2 million last year, a 51% increase. Earnings per share for 2023 were $1.38 and adjusted earnings per share were $1.34. These were record profits for the company for a second year in a row.

Looking at the balance sheet in Slide 8. Our liquidity, including restricted cash and short-term investments was at the end of the quarter, $83.7 million, reduced from $95.7 million at the end of last year, mostly due to the debt repayments.

Vessels held for sale were $34.9 million as of December 31. Both these vessels that were debt-free at the time were sold in January and the proceeds enhanced liquidity. Vessels net book value decreased from $628.5 million to $504.3 million, mostly due to the sale of vessels during 2023. The book value of our investments in our 50-50 joint ventures was $39.7 million, close to the previous quarter, but now covering 6 instead of 5 vessels previously whose market value is approximately $150 million.

Moving on to the liability side. The total debt has been reduced by $154 million to $124 million at the end of last quarter. With the addition of $17 million in finance proceeds during the first quarter of 2024, we expect an increase in the debt for the coming quarter. Although we continue to prepay and have so far repaid $30 million in the current quarter. The $19 million spent on buying back shares during 2023 was accounted as a reduction in equity. However, as a result of the solid results being reported during the year, overall, we managed to increase shareholders' equity by $32 million to $550 million.

Concluding our financial commentary with Slide 9, we will briefly have a look at the debt profile. Over a 12-month period, the company more than half did its outstanding debt with over $154 million of debt repayments, down to $124 million as of December 31 and continues to maintain a very low leverage.

During the fourth quarter, no prepayments were made, just regular debt amortization. During January, the company drew down on a $70 million in finance proceeds from its recently concluded 8-year facility related to the 2 newbuilding vessels. As currently, there are no further CapEx commitments, the company used part of the proceeds to prepay $29 million outstanding from another facility.

As a result, the company has 18 vessels out of the 27 vessels in its current fleet, mortgage-free. A considerable advantage if ever there is a need to raise funds. On the other hand, prepayments have reduced the debt that is hedged with interest rate swaps to 13%. The refinancing risk is very low as there are no balloon payments until the end of 2025 and beginning of 2026.

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

[Harry Vafias, executive]

On Slide 10, we have a brief insight on the LPG market. 2023 was a bumper year for LPG exports that increased 4.3% year-on-year. The U.S. further increased the rate of its exports growth, marking an impressive 15% year-on-year growth. We expect the U.S. will continue to ship incremental amounts of NGLs in the current year, albeit not as such breakneck speeds.

This, coupled with the Middle East volumes continuing to decrease during '23, mainly as a result of OPEC cuts is solidifying the U.S. position as #1 exporter in the world that now accounts for over 40% of global exports. The situation in Europe did not change much. The winter has so far been relatively mild, reducing heating demand and petrochemical users has also been dynamic. As a result, inventories remain high and imports do not see the boost that was expected marking declines year-on-year.

That being said and since the majority of our fleet trades in Europe, interregional trade has been quite active and rates did strengthen. This could also be a consequence of the supply of pressurized vessels in Europe being limited by the very strict operational and safety limitation set in European ports that excludes a significant part of the global fleet.

As far as the other 2 major importers, India and China, forecasts are that India surpassed a record 18 million tons of [ reports ] in '23, growing imports by 3% last year, but more importantly, projections are for further increases. India is growing -- is a growing economy of 1 billion-plus people where 45% of LPG demand is for household use. And with general elections coming, the government has been supportive of subsidies for LPG and eliminating import duties in order to make LPG more accessible to the people.

China imports a record 31 million tons, registered the 24% growth in '23 assisted by the reopening of the economy, although demand was more subdued in the last quarter as high prices led to lower petrochemical plant utilization ratios. During '23, 9 new PDH plants came on stream, adding 5.4 million tons of capacity. Report said that another 7 million tons is set to be added in '24 and 6 million tons in '25 and even if these are too optimistic given the usual delays and only an estimated 8 million to 9 million tons are added over the next 2 years, but that's still a 50% capacity addition from today's level.

The other 2 issues are the Panama Canal and the Red Sea situation. As far as the Panama Canal, it seems that although delays still remain, the situation is slowly improving. So on the one hand, ton miles will decrease, but on the other hand, it will support the arbitrage trade with exports to China, while equally serious is a new situation that Red Sea with attacks on vessels by the Houthis and especially from a safety point of view.

It's not often that we see our vessels close to Red Sea, but Michael just gave you an example of how the situation may affect us. On Slide 11, we present some of the key fundamentals in our shipping market commencing with time charter rates for our market.

We continue to see quarter-on-quarter significant increases in rates up to 21%, particularly in the larger sizes like MGC and Handy Size ships, and moderate increase down to the [ 3.5k ] ships with the exception of the Asia trade. Looking at the small LPG trade West of Suez. On the period side, the market was quite active, leading up to year-end.

At the time of writing, the market is going through a typical period of winter strength and owners are enjoying firm freight rates. East of Suez, on the period side, we saw more activity in Q4 than Q3. However, the market performance is still lagging behind that of the Atlantic.

This is the reason why we have seen a few vessels leave Asia in favor for the West. For the Handy Size and MGC vessels on the back of an ever-strengthening MGC market, which again took much of strength from the VLGC market available Handy Size positions became very tight and spot rates increased substantially.

[indiscernible] increased significantly through the quarter and charterers in need of tonnage fund of sales paying significantly more than what they have been used to for many years. Since the start of the year, the TC market has been quiet and rather significant gap remains between owner charterers ideas.

As with the spot market, as soon as the VLGCs fell from their peak in mid-January, the period take us on the MGC side took a step back to a certain situation. And since then, things have remained pretty quiet. The good thing is that the number of TC candidates is very limited, and there won't be much competition between owners on any period inquiries coming up.

The question is how many period inquiries we will say. With a more long-term view, I would like to reiterate that the fundamentals for our core fleet of small pressurized ships continue to look promising with an aging fleet as almost 1/3 of the fleet is over 20 years old. And although scrapping activity is limited due to the firm markets, we continue to see only a handful of vessels being ordered, not enough to tip the supply-demand balance.

Similar picture in the Handy Size fleet where there are only 5 vessels to be delivered over the next 2 years. On the MGC side, there is indeed a high order book of about 20%, but demand for these vessels have so far proven resilient. The bulk of the orders is for 2026, and we have prudently fixed our newbuilding vessel for [indiscernible] years at very healthy numbers.

On Slide 12, we are showing the evolution of our LPG fleet. In this slide for comparison purposes, we have excluded the tanker vessels that we held up to 2021 and focus the pure LPG fleet in terms of cubic capacity, including our JV vessels. From a strategic point of view, we have been sellers of vessels in a rising market.

Since the beginning of '23, 10 vessels have left the fleet of about 77,000 cubic meter capacity in total. However, since October '23, we have added 3 brand-new vessels of 122,000 cubic meters. This is the expansion we are making in the larger sizes, replacing older smaller ships for modern medium gas carriers.

Our core fleet continues to consist of smaller units, but with 4 medium gas carriers and 4 Handy Size gas carriers, the composition of the fleet has changed adding diversity in terms of our revenue stream and flexibility in terms of our operations and customer base, albeit with more volatility in rates.

Our intention is to keep a diversified fleet and seek opportunities to replace smaller ships with larger ones. Now we'll pass you on to Mr. Jolliffe for the remaining results.

[Michael Jolliffe, executive]

Thank you, Harry. In our last Slide #13, we are outlining some of the key variables that may affect our performance in the quarters ahead. We continue to remain optimistic on the longer term for the reasons that we analyzed earlier.

Summing up, StealthGas reported for the fourth quarter 2023, a net income of $8.9 million. It was yet another quarter of strong profitability. For the full year 2023, net income amounted to $51.9 million, far surpassing last year's record yearly profit of $34.3 million corresponding to a 51% increase.

So it gives me great pleasure that not only has the company managed to sustain its record profitability, but drastically improve it successfully. Obviously, the main driver of such results is the lasting recovery of the LPG market that hopefully will continue. But markets are volatile and sound policies as well as opportunistic plays need to also guide decisions.

As such, the company did not focus on growth for 2023, it rather focus on taking advantage of the market and securing more period charters currently having over $200 million in contracted revenues, selling vessels as asset prices were rising, paying down debt as interest rates were rising, over $150 million was repaid in 2023 and over $30 million in the current quarter and returning value to our shareholders by buying back our own stock having bought over 10% of the issued shares during last year and spending $19.1 million.

That being said, it was also important not to collect to renew the fleet, and in January of this year, StealthGas took delivery of the 240,000 cubic meter MGC vessels, Eco Oracle and Eco Wizard, whose period charters should support profitability this year.

So far, the beginning of 2024 looks promising as the market for our vessels remains firm and barring any extraordinary events, we should expect solid revenues in the current quarter. Even though our share price has climbed significantly over the last year, we believe we continue to be a sound, still undervalued investment, not just because we are optimistic on the market and have been producing good results, but also because we are trading at a discount in terms of price to NAV and price to earnings ratios.

We have now reached the end of our presentation, and we would 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 our next conference call for our first quarter results in May. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.