StealthGas Inc (GASS) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the StealthGas Third Quarter 2020 9-Month Financial and Operating Results Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today. And I would now like to hand the conference over to your speaker today, Mr. Harry Vafias. Please go ahead.

Good morning, everyone, and welcome to our third quarter, 9 months 2020 earnings conference call. This is Harry Vafias, the CEO of StealthGas, and with me on the call is Mr. Fenia Sakellaris, our Finance officer.

Before we commence our presentation, I'd like to remind you that we'll be discussing forward-looking statements, which reflect current views with respect to future events and financial performance.

At this stage, if you could all take a moment to read the disclaimer on Slide 2 of this presentation. 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.

Slide 3 summarizes the key highlights of our third quarter 2020 results that we released today. It's a fact that all throughout the third quarter, market uncertainty brought upon by the COVID-19 pandemic persisted. In some areas, particularly in Europe, the market was soft most of the time, with very few period charter opportunities and the spot market providing employment opportunities, but not at satisfactory rates. Setting aside the broader market sentiment, this quarter, StealthGas had to face 2 important cost obstacles. The first is the increased crew cost as a result of the restrictions and controls pertaining crew changes and controls as precautionary measures against the COVID-19 pandemic. The second was a quite heavy drydocking schedule we faced this quarter as we underway drydockings for Aframax tanker and 4 of our small LPG ships. In spite of these obstacles, we are quite satisfied with our operational and financial performance, as it shows that our strategies allowed us to successfully navigate through unusually rough market conditions.

Focusing on our operations, our fleet utilization for Q3 2020 was about 97%, with about 115 days of technical off-hire as a result of our heavy drydocking schedule. In terms of our operational utilization, this came in at 96%, mainly due to 10 of our ships being in the spot market, which is equivalent to 21% of our voyage days. In spite of our increased spot presence, dictated by current market environment, our commercial off-hire was minimum as we managed to keep all our spot vessels employed with short waiting times. Going forward, we have about 69% of our fleet days secured and period charters for the remainder of the year, with total fleet employment days for all subsequent periods, generating approximately $80 million in contracted revenues. Including the time charter agreements of our JV structures, total secured revenues increased to close to $100 million.

During Q3 2020, we took delivery of 7,500 cubic meters newbuilding LPG vessel, the Eco Alice, while in early November, we sold 1 LPG vessel, the Gas Nemesis II for further trading.

Looking at our financial performance highlights. Our voyage revenues came in at $37.1 million, marking an increase of $0.5 million compared to the same period of last year, mainly due to improved revenue stemming from our LPG and Aframax time charters. Our daily time charter equivalent continues to rise. Compared to the same period of last year, our daily time charter equivalent increased by about $1,000, driven by increased revenue generated from our time charters, in conjunction with a 25% decline in voyage cost mostly due to lower bunker prices, with an adjusted EBITDA, excluding impairment charges of about $16 million, our adjusted net income came at $3.2 million, corresponding to an adjusted EPS of $0.08, a solid performance amidst a very difficult market.

Slide 4 provides an analysis of our fleet employment. In terms of charter types, out of the fleet of 42 operating vessels, excluding our 8 JV vessels, we have 5 of these on bareboat, 26 on time charters and 11 spot. Compared to the previous quarter, we organized a prompt redelivery of 4 of our small LPG vessels employed on bareboat charters following BGAS filing for insolvency. The delivery of these vessels went smoothly and 1 of them is already on a period charter. With regards to the impact on our company as a result of this incident, our secured revenues going forward were reduced by quite a significant amount. In addition, we expect next quarter to rise in our operating cost base. In spite of the difficult economic environment since our last announcement, we concluded 5 new charters and charter extensions. Our period coverage for the remainder of 2020 is in the order of 68%, while currently our period coverage for 2021 is 33%. Our contracted revenues are close to $80 million, and including our JVs, total secured revenues increased to close to $100 million.

In Slide 5, I'd like to provide a summary update as to our 2 joint venture performances. With regards to our first joint venture comprising this majority of smaller LPG ships, we currently have 2 of the 5 ships under time charter contracts. The time charter contract for the medium gas carrying vehicle Nebula was recently extended for a period of another 3 months. Given the soft market conditions, the 3 vessels in the spot market marked a poor performance and constantly did not add significantly to profitability.

Focusing on the second joint venture, comprising of 3 medium-sized ships. These are all under time charter contracts, whilst producing steady cash flow. One of our vessels the Gaschem Hamburg underwent a scheduled drydocking within Q3 2020, thus affecting profitability for the quarter. The remaining 2 vessels will undergo their drydocking within the fourth quarter.

On Slide 6, we provide you with a brief summary of our recent S&P activity. On September 30, we took delivery of a 7,500 cubic meter newbuilding pressurized eco vessel, the Eco Alice. This vessel was acquired with full equity, which is the reason why we witnessed a decline in our free cash at the end of the third quarter. The related loan drawdown took place at the beginning of October, thus increasing our cash base once more. In addition, and as we mentioned earlier on our call, we sold the LPG Gas Nemesis II  for further trading. With these 2 transactions, the average age of our fleet is now 9.5 years. In a few months' time, we will complete our acquisition for the delivery of an 11,000 cubic meter eco new building, the Eco Blizzard. Financing for this vessel is already in place, so our equity contribution will be in the order of about $4 million, and with about a $55 million of free cash from the GASS balance sheet to date and another $10 million on top in our JV structures, capital expenditure commitments are fully covered.

In terms of our fleet geography in Slide 7, our company focuses on regional trade and local distribution of gas. This graph is a snapshot of the positioning of our LPG vessels, excluding the JV ships, as of November 12, 2020. Currently, we have 18 of our LPG vessels trading in Europe, 13% in the Middle East, Far East, and 5 vessels in Africa and only 2 in America.

I now turn over to Mrs. Fenia Sakellaris for financial performance.

Thank you, Harry, and good morning to everyone. I will continue the presentation focusing on our financial performance for the third quarter of 2020. As mentioned earlier in our call, even in these uncertain market conditions and even with the heavy drydocking schedule we had to undergo in the third quarter, we managed to preserve our revenues at quite high levels to produce such satisfactory profitability. For this, we relied on the solid revenues produced by vessels under period contracts, the low oil price, [preserve] so bunker cost at moderate levels and our declining finance cost due to the lowering of our debt at very low LIBOR rate.

Let us move on to Slide 8, where we see the income statement for the third quarter of 2020 against the same period of the previous year. Voyage revenues came in at $37.1 million, marking a $0.5 million increase compared to the same period of last year. This increase is attributed to a rise of our time charter revenue stemming from our small LPGs, our 22,000 semi-ref vessels and our Aframax tanker. From the fourth quarter of '19 and up to the COVID-19 pandemic outbreak, we managed to lock time charter contracts at better rates than previously, thus boosting our revenue stream and offsetting the lower revenue relating to the spot market. Voyage costs amounted to $3.8 million, marking a 24% decrease compared to Q3 '19 in spite of our higher exposure in the spot market due to the decline of bunker costs by almost 20%.

Based on all of the above, our net revenues for the period were $33.3 million corresponding to a net revenue margin of 90%. Running costs at $13.8 million marked about 12% decrease compared to Q3 '19, mostly attributed to 2 of our vessels, a small LPG and our Aframax tanker coming off bareboat as well as increased crew costs faced due to the COVID-19 pandemic. Indeed, compared to the second quarter of 2020, our crew expenses related to crew changes in conjunction with port restrictions and safe travel requirements, increased in the third quarter by approximately $500,000. Drydocking costs at $2.3 million correspond to the drydocking of our Aframax tanker and 4 small LPG vessels. We had communicated that within 2020, we had to undergo the completion of 9 drydockings. The remaining 4 will take place at the fourth quarter of this year.

General and administrative costs decreased compared to the same period of last year by about $500,000, mainly as our stock compensation plan active in the same period of last year ended in August 2019. Based on all of these, our adjusted EBITDA is in the order of $16 million, interest and finance costs marked -- close to a $2 million decrease, mainly attributed to LIBOR decrease and the lowering of our debt. Based on all the points analyzed above, we ended the second quarter of the year with an adjusted net income of $3.2 million, corresponding to an adjusted EPS of $0.08. We further on added to this year's profitability. So for the whole 9 months of 2020, our adjusted net income is $12.6 million, corresponding adjusted EPS of $0.41, a fairly good performance given the difficult market we're in.

Slide 9 demonstrates our performance indicator for the period examined. As mentioned earlier on, our operational utilization of Q3 '20 was in the order of 96%, a fair performance. In terms of our adjusted time charter equivalent, we noticed a rise on our quarterly basis by about $750 daily, an outcome, mainly to improve time charter rates from small LPGs, which prevailed in the beginning of 2020 prior to the COVID-19 pandemic, improved time charter rates for a 22,000 semi-refrigerated vessels and the time charter contract for a single Aframax tanker currently producing a strong revenue.

Looking at our balance sheet in Slide 10. Our free cash is in the order of $28 million. As mentioned, the decline in our free cash base is due to the all equity payment of our newbuilding LPG vessel delivered at the end of the third quarter. Related loan drawdown took place in the beginning of October 2020, thus increasing our cash base once more. Our gearing has declined, it is now in the order of 36.5%. Based on our scheduled principal repayments, we will reduce our leverage by around $40 million per year going forward. We have no balloon refinancing due in the remainder of 2020, with balloon obligations of around $30 million in 2021, for which we will have fully concluding refinancing before the end of this year. Consequently, we anticipate the current portion of long-term debt to be reduced in the upcoming -- in our upcoming results by around the same amount.

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

Let's proceed with Slide 11. As market uncertainty brought upon by the COVID-19 pandemic still prevails, it's very difficult to assess our market's future. We can, however, provide a summary comments how to LPG trade is now across key regions. Commencing with Europe, the market showed a slight periodical improvement compared to the second quarter, but overall, it remained weak. Terminals continue to go offline for maintenance as a means to offset the broader decline in markets. In Asia, we noticed a decline of residential demand for LPG. But going forward, this could potentially be reversed by the requirements of new PDH plants that commenced operations around the middle of this year and 2 additional PDH plants scheduled to commence operations by the end of this year.

In the U.S., LPG production has shown some improvements in the third quarter compared to the past quarter of this year. However, shale production still remains low compared to before the COVID pandemic outbreak. Lastly, in the Middle East, we witnessed the rise of LPG exports as a result of OPEC lifting crude oil production quotas and this may continue going forward to the potential further easing of production quotas.

Moving on Slide 12, we see that during Q3 '20 and due to COVID, rates for small LPGs continued to decline. Employment for larger coasters, i.e. 7,500 cubic meters remain relatively steady, and therefore, rates for this segment did not suffer as much. Looking at the small LPG trade West of Suez from July onwards, we saw a modest and gradual improvement in the market as the European economies came out of their lockdowns and cargo started moving again. The recovery in the market was not sufficient to significantly improve the day rates, but at least owners were able to reduce idle time.

Now that the new lockdowns are looming across Europe, we do expect a difficult couple of months ahead, although we believe it will be less severe than in the first half of the year. On the period side, so far charters are careful and cautious about the potentially difficult winter period if extended lockdowns do materialize. Going to late winter spring, we could expect to see more interest from charters to lock in time charter tonnage in anticipation of improved market conditions. The Eastern market go through the 9 months of 2020 in a better state than the Western market. Although there were significant effects felt from the pandemic also in the East, China's relatively early recovery led to a less detrimental effect on idle time and freights in the East than in the West. The petchem market has been the most unstable for the pressurized fleet East of Suez as large volumes of petchems have been moved from the Atlantic, where there was a great surplus of cargo in the first half of the year and competing with local supply in Asia. LPG, on the other hand, has fared better and showed steady movements within the Seasian region. As with the spot market, also the Asian time charter has been -- market has been holding up better than the time charter market in the West as we did not see the large fall in rates during Q2 as we saw in Europe. Going forward, there's still some resistance and uncertainty from charters for taking too much period coverage. However, we don't expect an improvement in this market in the coming months and year.

We are hopeful that heading further towards the winter months, our market will begin to recover, especially now with the positive news on the vaccines against COVID soon becoming publicly available. Regardless of the current situation, which is driven by global economic conditions, our segment's specific fundamentals, that of an aging fleet and low order book remained positive and will likely accelerate our market's recovery rate once the broader economic environment permits so. The small LPG pressurized segment has substantial old tonnage. About 26% of the fleet is above 20 years of age, hence, we do anticipate an acceleration of demolition in the future. Since the beginning of 2020, we have recorded the demolition of only 1 ship. Mostly as scrapping has come to a halt in the past few months, mainly due to the COVID lockdowns and subsequent closing of demolition yards. As per published orders, there are 16 vessels that is about 5% of the total fleet to be delivered until the end of 2022, a relatively small order book.

On Slide 13, we discuss our company's outlook commencing with the share performance since the beginning of the year. The performance of our stock is presenting along with selected gas carriers, peer group and the price of oil. The global COVID-19 outbreak and imposed lockdown resulted in a fall in demand for petroleum products. However, the ease of first lockdowns in May increased the demand for oil and subsequently, oil prices began to rise. These events affected energy-related stocks, which exerted a broad correlation with oil price volatility. Following the conclusion of the U.S. elections and the positive announcement on the vaccines earlier this month, oil price and share prices have begun to increase.

On Slide 14, we are outlining the key variables that will affect our performance in the quarters ahead. Given the market turmoil, it's quite difficult to make firm predictions. We have [resolated] a few key points that may assist our financial performance in the upcoming periods. First point is that we have period coverage of $100 million precontracted revenues until the end of 2022. Secondly, we have all of our 22,000 semi-ref and MGC vessels on time charters at improved rates, while the majority of our tankers are also on period charters, producing a solid cash flow. Third point is that we are under a very low LIBOR rate environment. Hence, our finance costs will decrease even further. Last but not least, further to the positive news on the vaccines, we anticipate our market to leverage on its strong fundamentals and recover at a fast pace. However, the downside is that we have 10 vessels concluding their period employment up until the end of the year. Moreover, we have 4 drydockings to complete within the fourth quarter of this year, thus building in our cost base.

Concluding our presentation on Slide 15, we present a brief summary of our company's and market strong points, leveraging upon our leading presence and expertise in the small LPG segment and the fact that should COVID-19 pandemic subside, we will most likely be able to enjoy a much more profitable quarters ahead.

At this stage, our Chairman will summarize our concluding remarks for the period just examined.

Thank you, Harry. In the third quarter of 2020, StealthGas marked a quite satisfactory performance given that we operated a rather difficult market. With the COVID-19 pandemic still persisting, our market has been heavily affected. Due to imposed lockdowns, we witnessed a declining demand for LPG and charter sentiment has been effective, thus making them reluctant to take forward positions on period contracts. Adding to this, regulations pertaining to crew safety and crew changes have added to our costs, and we'll continue to do so up until the COVID-19 pandemic subsides. Nevertheless, our company not only achieved strong revenues, but managed to end the quarter with profitable results. We feel confident that we can successfully navigated our market even during testing times.

In addition, we further acknowledge and had our market not being hit by the COVID-19 pandemic, it seems we would have had a far better run this year.

We have now reached the end of our presentation, and we would like to open the floor for your questions. So operator, please open the floor. Thank you.

(Operator Instructions)

I guess, there are no questions.

No. There are no questions at this time. Please continue.

We'd like to thank you for joining us at our conference call today and for your interest and trust in our company, and we wish you a very happy Thanksgiving. And look forward to having you with us again at our next conference call for our fourth quarter results in February '21. Thank you very much.

Thank you.