StealthGas Inc (GASS) 2024 Q3 法說會逐字稿

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 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 3 for some highlights. 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.

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 de-leveraging 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 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 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 five 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 strategy is to fix on period charters when possible and profitable. So there were 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 a steady at $220 million.

During the third quarter, we had a rather heavy dry-docking schedule. Four vessels were dry docks and one vessel has just entered dry dock while in the fourth quarter, two more vessels have been scheduled for dry dock. 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 5, 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 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 five vessels trading in the US 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 North West 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. 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 a long distance around the Cape of Goodhope to move from east to west.

And due to the short distance trade routes for small LPG carriers, it is rare that cargos 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 have escalated. This also means less Middle East exports on larger vessels destined for Europe and replaced by US exports to Europe. Handy sized vessels particularly to increase transatlantic trades between the United States and Europe.

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 6, I will update you on our joint venture investments that is the interest we had as of September 30, 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 30 stood at $30.9 million close to the previous quarter. There was not much activity in terms of chartering of these vessels as 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 training 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 6th 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.

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.

Thank you, Michael. I will 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 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 months period.

Net revenues that's after void expenses, a mean 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 charter investors at higher rates throughout the past year. And also, the addition of two larger versions in the fleet with higher earnings capacity.

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 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 drive 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 years vessel survey and dry dock.

The cost for these dry docks that involve also lost time and revenues are expensed as incurred and not advertised. 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 $2.2 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 non-recurring gain from the vessel sales and the non-cash 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 nine month page, 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 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 in the next 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 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. 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 two smaller vessels that were previously mentioned.

Total assets 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 be so in the following quarter. Shareholders equity increased 11% or $60.5 million over the nine 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 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. In 2024, in the first nine 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 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 over to cash flow break even 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 balloon of $35 million is from the facility just recently concluded which matures in 2032.

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

Moving on 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 '24, the increase is really higher at 5.5%. [Dock] coming out of the US show that for the first nine months of this year, propane exports from the world's number one exporter, the US continued to grow, marking an impressive 12% year on year increase.

There was a slight dip of over the summer as a result of hurricane [barrel] but exports have resumed their upward path after that. We expect the rate of growth to slow in the coming quarters. And our [U-mass] capacity expansion projects are completed by '26 to allow volumes to increase by another 20%.

The [Panama] current situation is now resolved and [crollings] are back to normal, downward adjustment in VLGC rates also affecting the middle gas cargoes rates. In the second largest exporting market, Middle East, volumes have moderated over the last couple of years since [OpEx] implemented production cuts, and the area has been losing market share. We will be waiting to see if the forthcoming administration change in the US is going to have any effect in lifting the self [imposed] production cuts.

Although increasing volumes are sent from the US to Europe, LPG demand in Europe continues to remain flat. Although in the important intra-regional trade, there has been some activity with [petchem] cargoes of late. 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.

One and more localized -- on a more localized level, we mentioned last time, they put ban on Russian volumes starting this December. As a more immediate effect, we are see some increasing [cheaper] volumes destined for [plant], the [pacing] the now banned railroad option. Since Poland does not yet possess adequate port facilities for larger LPG vessels, they had to rely on solar pressure ships doing more voyages and by reducing the number of available ships.

The other side of the global in Asia where the major importers who will be located, we expect to share 8% [LGC] import growth in '24. For the first nine months of this year, [booms] is going to China 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 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.

Regarding the expansion of PBA capacity for the production of propane used for plastics continues at a massive scale. During '23, 9 new [LPG] 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 parts of other construction are expected to bring the total production at over $30 million tons to 77% rise from 2023 levels.

The addition of all these plants probably production that use LPG as a [feed stock] will underpin demand for the years come.

Slide 11, we discuss the state of the LPG shipping market and its fundamentals. Over all, the summer months in the time of the year when there is a pullback in demand. So a week about market while the period market will [table]. Looking at small, pressurized vessels are comprised of the majority of our fleet that continues to be a divergence in market between East and West.

In the West, spot market during [pretty worst], keeping reasonably active with rates and firm levels considering season, especially positions on the larger pressurized vessels have been tied. Both LPG & [BGMs] have been active. On the period side, we have convincingly strong interest and charters especially in 5,000 cubic meter and 7,500 cubic meters and rates have continued to edge upwards and are definitely at historically high levels.

The spot market east of Seus was slower than the West. Owners without the impositions would in most cases have to factor in summertime and spot rates were suffering as a cost as a consequence. As the order book is still rather light, next 2, 3 years with the rapidly aging fleet, it would seem chances are reasonably good that owners would be enjoying a firm market for some time.

The spot market for the handies, calibration will be well through the summer, mostly due to an active petchem market. On the [Pier] side, [prior rates] remain relatively stable although the market was pretty inactive through the quarter. Pet camps is usually spot focus market while the LPG which normally attracts [peeks] this interest on charge was very quiet.

The order book for 100 remains very slim with no delivery schedule for '25 and this was largely support the period market going into next year.

On the MGC's, spot market remains soft and nominees find themselves competing with trader relets more often than not. On the time chart side, owners with available tonnage have just in [jail kept their TC ideas] firm. This has again resulted in investments not being renewed due to bridgeable gaps between owners and charges ideas.

The order book provides for only a handful of deliveries in '25 which support this [CH] rates for the year. However longer term, the order book from this is his [Worsom]. We've seen even more orders placed since our last call driving the order book ratio to 50% of the existing fleet. We see new entrance and existing players ordering and disease as well as real disease, a track of high prices with deliveries is two and three years from now.

Admittedly, betting that ammonia with the next generation fuel choice. Hoping for a surge in demand. We of course would welcome such a development having already the seven larger vessels in order to able to carry ammonia. But that being said, we believe that ordering this vessel now at these record prices is quite a risk proposition.

On the other hand, the order book situation is quite different in the overlook hand size fleet where there are no vessels leaving over the next year and the order book remains [50] beyond that. Although since our last call, there were a few more orders being placed.

As far as our [core fee], professional ships, the situation hasn't changed much. We continue to see only a handful vessels being ordered and most of these in Chinese yards, destined for Chinese trades with the old book ratio at the low 50% 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 pressure fleet, over 30% of the existing vessels are over 20 years old, meaning that the fleet is not being used fast enough.

Scrapping continues to remain subdued given the strong [shopping] market, but even without trapping, 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 quarter ahead. 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 scheduled during the third quarter, that reduced our fleet utilization.

So far this year, we have announced record profits and with the markets trending during the winter, we are on track for another every year. There is continuing interest from charges on period coverage, and we have now 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 [Russia] ships are at historically high.

Currently, 25 vessels in our fleet are unencumbered. We have focused on our strategic goal to de-leverage 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 continue to improve our revenues and profitability, setting bar higher every time we believe we continue to be sound and undervalued investment for anyone sharing our pieces.

We have so far been producing strong results but continue to trade at a discount in terms of price to math and price to earnings.

We have now reached the end of our presentation. I would 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 you with us again at the next conference call for our Q4 results in February. Thank you very much.