StealthGas Inc. (GASS) Q1 2021 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the StealthGas Inc. First Quarter 2021 Financial and Operating Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your speaker today, Mr. Michael Jolliffe, the Board Chairman of StealthGas. Please go ahead.

Thank you, and good morning, everyone, and welcome to our First Quarter 2021 Earnings Conference Call and Webcast. I'm Michael Jolliffe, the Board Chairman of StealthGas. And with me on our call today is Harry Vafias, the CEO of StealthGas; along with our Finance Officer, Fenia Sakellaris. 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. At this stage, if you could all take a moment to read our disclaimer on Slide 2 of this presentation. Risks are further disclosed in StealthGas' filings with the Securities and Exchange Commission. I would also like to point out that all amounts quoted, unless otherwise clarified, are implicitly stated in United States dollars. Slide 3 summarizes the key highlights of our first quarter 2021 results that we released today. Although, we concluded a fair amount of new period charters, these slightly improved market conditions were not reflected in our revenues and profitability. Our performance remained quite similar to the fourth quarter of 2020 as we still chartered a high number of our vessels in the spot market, thereby facing high voyage and off-hire costs. Indeed, in this first quarter, our spot days were equivalent to the full operation of 13 vessels in the spot market. The increase in bunker costs, along with the fact that we operated 2 of our product tankers throughout this quarter in the spot market, led to a sharp rise of our voyage costs, thus suppressing our spot earnings capacity even further. We do look at autumn with cautious optimism. As the global vaccination process accelerates, this gives us hope for a more substantial market recovery. In addition to this, our market fundamentals remained strong with a low order book and a heightened demolition activity, thus assisting our segment even further. We believe that the combination of these parameters will most probably lead our market rates to pre-pandemic levels. However, the speed and timing of this anticipated recovery still remains uncertain. Focusing on our operations, our fleet utilization for quarter 1, 2021 was 98.7%, with about 50 days of technical off-hires, mainly as a result of the drydocking of one small LPG carrier. In terms of our operational utilization, this came in at 93.1%, mainly due to more than 15 of our ships operating predominantly in the spot market, the equivalent to 31% of our voyage days and our unusually high spot presence. Going forward, our fleet coverage has improved. We have 61% of our fleet days secured on period charters for the remainder of 2021, with total fleet employment days for all subsequent periods generating $87 million in contracted revenues. Including the time charter agreements of our joint venture structures, totally secured revenues increases to about $100 million. We need to highlight that this quarter, leveraging upon our proven and longstanding sale and purchase experience and grasping the value momentum in the MGC segment, we took the strategic decision to sell the 35,000 cubic meter MGC carrier, the Gaschem Hamburg, owned by our MGC JV, a decision that proved to be profitable as the selling price resulted in an aggregate gain of USD 7 million. The sale was concluded within May 2021 and proved that our expanded presence and diversification within the broader LPG segment has indeed been both profitable and strategically sound. Focusing on our financial performance, and compared to the first quarter of 2020, our revenues came in at $37.4 million, while our daily time charter equivalents decreased by about $100. As our spot exposure increased, so did the voyage costs incurred, thus suppressing our daily time charter equivalent earnings. With an EBITDA of about $13.5 million, our net income came in at $750,000, corresponding to an EPS of $0.02. Our capital structure remains healthy with low gearing and 0 capital commitments in the near-term future. Slide #4 provides an analysis of our fleet employment. In terms of charter types, out of a fleet of 42 operating vessels, excluding our 7 JV vessels, we have 5 of these on bareboat, 28 on time charters and 9 in the spot market. Compared to our previous announcement, we managed to reduce our spot presence and fixed all of our tankers on period charters, thus narrowing our spot exposure to the smaller LPG market. Indeed, we successfully concluded 10 new charters and charter extensions of short durations. We have 16 vessels concluding their period charters up until the end of 2021, which we view as a real opportunity. Our period coverage for the remainder of 2021 is in the order of 61%, while, currently, our period coverage for the second quarter of this year is in the order of 80%. We have close to $90 million of secured revenues and including our joint venture vessels, total secured revenues increased to about $100 million. In Slide 5, I would like to provide an update as to our 2 joint venture performances. Our first joint venture, which comprises in its majority of small LPG vessels, currently has 3 out of the 5 total vessels under time charter contracts. The time charter contract for the medium gas carrier, the Eco Nebula, was recently extended for another 3 months where we recently fixed the Gas Haralambos on a 1-year time charter. Focusing on our second joint venture, comprising of 2 medium gas carrier vessels, these are all under time charter contracts, thus producing steady cash flows. Following the aforementioned sale of the Gaschem Hamburg, which produced considerable gains, total free cash base within our joint venture arrangements has increased, and it is now in the order of about 40 million. In terms of our fleet geography, presented in Slide 6, our company focuses on regional trade and local distribution of gas. This graph is a snapshot of the positioning of our LPG vessels, excluding our joint venture vessels, as of May 24, 2021. Currently, 16 vessels of the LPG fleet trade in Europe, 14 vessels in the Middle East, 5 vessels trade in South America and 3 in Africa. I will now turn the call over to Fenia Sakellaris for our financial performance. Thank you, Fenia.

Thank you, Mr. Jolliffe, and good morning to everyone. I will continue the presentation focusing on our financial performance for the first quarter of 2021. As mentioned earlier in our call, in this first quarter of the year, our spot activity remained high, thus undermining both our revenue and profitability potential. Let us move on to Slide 7, where we see the income statement for the first quarter of 2021 against the same period of the previous year. Voyage revenues came in at $37.4 million, marking a $3 million increase compared to the same period of last year. This increase is attributed to 7 fewer vessels on bareboat, now operating as export or on a time charter contract. Voyage costs amounted to $7 million, marking a $4.1 million increase compared to Q1 '20, as our spot vessels more than doubled. Our intense productivity brought upon a sharp rising cost, particularly for bankers, which increased by 50% compared to the previous quarter when we had same number of spot days. This increase is primarily due to the fact that this quarter, we had 2 of our product tankers operating primarily in the spot market, yielding high cost and poor time charter equivalents due to the soft tanker market. Based on all of the above, our net revenues for the period were $30.5 million. Running costs at $15.1 million marked about 14% increase compared to Q1 '20, mostly attributed to 7 fewer vessels on bareboat for which now we incur operating costs along with $150 rise in our daily crew costs attributed to the COVID-19 pandemic. As already discussed in our previous calls, the COVID-19 pandemic has increased our quarterly group costs by about $500,000 per quarter. Based on all of these, our EBITDA is in order of $13.4 million. Interest and finance costs marked close to $1.1 million decrease, mainly attributed to LIBOR decrease. In terms of interest costs, we did witness a sharp decline in costs. It is worth to mention that our average margin, including LIBOR is now in the region of 2.8%, while for the same period of last year, the average margin was about 4.5%. With regards to income from our JV, both of our JVs ended the quarter with a profit of which $1.1 million is accounted to StealthGas. Based on all the points analyzed above, we ended the first quarter of 2021 with a net income of $750,000 corresponding to an EPS of $0.02. Slide 8 demonstrates our performance indicators for the period examined. As mentioned earlier on, our operational utilization for Q1 '21 was in the order of 93.1%, as increased productivity led to a higher number of idle days. Our average daily TCE, including all StealthGas vessels, small LPGs, semi-refs and tankers, but excluding JV vessels, is slightly lower than our average daily breakeven, though a noticeable increase, if the performance of our spot vessels is excluded. Looking at our balance sheet on Slide 9. Our free cash is in the order $37 million, while, to date, we have no further capital expenditure, i.e., no cash commitments in the near future. Our gearing is now in the order of 38%. Based on our scheduled principal repayments, we will reduce our leverage by around $42 million per year. We have no balloon refinancing obligation for the remainder of 2021 and have already arranged for the refinance of about 65% of the balloons due in 2022 and 2023 as well. I will now hand you over to our CEO, Mr. Harry Vafias, who will discuss market and company outlook.

Let's proceed with Slide 10. During Q1 '21, market sentiment slightly firmed, mostly due to the increase in demand from India and China. Going forward, the LPG demand in Asia, subject, of course, to COVID-19 remission, is expected to increase further, driven by the petrochemical and retail sector. In China, we witnessed 2 new PDH plants that came online in 2020, 1 more since the beginning of '21 and 4 additional PDH plants are scheduled to commence operations at the end of 2022. As these plants heavily rely in imported propane, this is positive for LPG trade. Focusing on retail demand, this is expected to increase as a result of the growth in population in the Asian region, along with investments in industrialization and urbanization that take place in the area. Another factor that heavily affects the LPG market is the price of oil. It should be noted that the further recovery in the oil market will make LPG more competitive relative to naphta, hence LPG demand for industrial use will increase. Indeed, the price of oil has risen about 70% since October 2020 as prices increased due to higher demand. On Slide 11, we see that during Q1 '21, rates for small LPGs marked a slight increase compared to the previous quarter, but still remain much lower than pre-pandemic level. Looking at the small LPG trade West of Suez, the effects of COVID-19 were still visible in the market, but we saw signs of improvement, particularly from mid-January onwards, which materialized more fully towards the end of the quarter. Number of cargoes increased, thus beginning to reduce a significant number of idle ships. We, therefore, witnessed an increase in rates, although we are still far away from a balanced market. We expect that as Europe slowly emerges from the pandemic, it will add further activity and confidence to the market. East of Suez, the market remained more stable, both in LPG and petchem cargoes. We still witnessed a resistance from charters for material freight increase. And in terms of period charters concluded, this have only been for short periods. It seems that charters are still hesitant to take longer time charter positions, which is most probably linked to the pandemic. It's expected that, though, that as the COVID-19 pandemic subsides, period coverage and confidence will increase. Focusing on our market fundamentals, the small LPG pressurized segment has a substantial old tonnage. 31% of the fleet is already above 20 years of age, which is the driving force behind increased scrapping. Since the beginning of the year, we have witnessed a demolition of 4 small pressurized ships. It's highly likely that scrapping activity will increase further within the remainder of 2021 if the market remains unchanged. As per recent published orders, there are 19 vessels on order, 11 to be built in Japan and Korea and 8 to be built in China and to be delivered until the end of 2023. On Slide 12, we discussed our company's outlook commencing with our share performance, since the beginning of '21. The performance of the stock is presenting, along with selected gas carriers peer group and the price of oil. Since the beginning of this year, the majority of shipping stocks follow a correlation to oil price increasing trend. It's expected that as economy bounces back from the COVID-19 pandemic and the global trade increases, this will favor all segments of the shipping industry. Focusing on our company. Since the beginning of 2021, our share price has increased by about 30%. However, we still trade at a discount to NAV. In Slide 13, 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 isolated a few key points that may assist our financial performance in the upcoming quarters. First point is that we have a total period coverage of about $100 million in print contracted revenues. In addition, we have several vessels expiring the period charters in the short term, plus about 10 ships in the spot market, which poses a risk, but at the same time, gives us significant operating leverage, should period activity pick up and market rates improve. Moreover, we have all of our 22,000 semi-refs and MGC vessels and tankers on time charters at improved rates, thus securing revenues and shielding our voyage costs. Fourth point is that we are under a very low LIBOR rate environment, hence, our finance costs will decrease even further. Last, but most important, is that should vaccines bring the pandemic into remission, we anticipate our market to leverage on its strong fundamentals, such as low order book and accelerated scrapping and therefore, recover relatively fast. Concluding our presentation, Slide 14, we present a brief summary of our company's and market's strong points. As mentioned in our previous earnings call, we are all firm believers that our healthy capital structure, along with our market expertise, will help us grasp the benefits of the small LPG market recovery when it arrives. At this stage, our Chairman will summarize our concluding remarks for the period examined.

Our performance in the first quarter of 2021 was still governed by the COVID-19 pandemic. Although, demand for small LPG carriers slightly strengthened and rates seem to have gained a positive momentum, these effects began to materialize towards the end of the quarter, thus were not reflected in our results for quarter 1, 2021. Due to market conditions, our presence in the spot market remained high. And compared to the last quarter of the year, what most -- mostly undermined our spot profitability was the operation of 2 of our product tankers in the spot market with the whole duration of the quarter, thus incurring high voyage costs against poor freight compensation. What we find important amidst these market conditions is that we have designed our fleet employment so as to grasp the positive market turn expected with the remission of the COVID-19 pandemic. We have 16 vessels concluding their period employment up until the end of 2021. And along with our ships currently in the spot market, it gives us the opportunity to recharter 16% of our fleet at a time when hopefully the market is expected to improve. 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] And your first question comes from the line of Randy Giveans from Jefferies.

A few questions for me. You stated in the release there was some positive momentum materializing towards the end of the first quarter. As such, how much stronger are you expecting rates and maybe utilization to be here in the second quarter? And what is utilization currently?

Listen, Randy, in this environment, with COVID still raging in certain countries like India, vaccination percentage is still very low. Huge increases on crude change expenditure. And the big hit we got previously from the biggest bankruptcy, makes us very, very cautious. And I don't believe that Q2 will be in any way better than Q1. As you show from our commentary, we expect that we're going to see some improvement after the summer. So if I was you, I would continue to calculate the financials and making your analysis basis that Q2 is not very dissimilar from Q1.

Okay. Fair. And then I guess, the consolidation that continues to take place throughout the LPG sector. Are you open at this time to either selling further vessels or purchasing vessels or maybe even switching vessels, right, changing out some of your handy sized LPG carriers for additional small LPG carriers? Obviously, you recently sold the Gaschem Hamburg for a profit. So additional vessel sales likely here?

Again, Randy, you know how we think. If we can make a nice profit or a clever move, we're going to make it, if it's not in our traditional fleet. We, as you know, have -- we own ships in StealthGas in 4 different segments, the pressurized LPG, semi-ref LPGs, fully-ref LPGs, product tankers and Aframax, so that's actually 5 segments. So indeed, we are open for anything that will add shareholder value. And the Gaschem Hamburg sale, which is a ship that we bought last year, we managed to make a profit out of the ship and sell it for $7 million profit in less than 12 months. So I consider that, in this environment, quite a successful asset play.

Okay. And then you mentioned shareholder value there. Any updates on additional tender offer share repurchases going forward?

I don't think we have the financial strength at this moment to do big things like we did previously with the share buybacks and the tender offer. Unfortunately, the COVID pandemic has lasted longer than we expected last year. Of course, our Board is always eager and ready when we see better times, better rates and obviously more cash on our balance sheet because don't forget that $40 million is in the JV structures and not in the StealthGas ships -- and of course, the StealthGas share price being as low as it is now, of course, to rediscuss and reapprove further share repurchases as we have done a lot of them in the last 3 to 4 years.

All right. That makes sense. And then I guess, lastly, there was a report out this morning saying that massive levels of LPG scrapping may be needed in the coming months. I guess 2 questions. What are your thoughts on this? And why hasn't there been much scrapping in recent quarters?

I think that refers, Randy, on the larger ships. It wasn't a reference on the smaller ships because smaller ships -- yes. Again, I think the article mostly referred on the VLGC side, where you have a lot of new buildings and a quite a modern fleet. This is the exact opposite of the pressurized market, where you have a relatively small order book and a huge percentage of overaged ships. I think it has happened. I mean 4 ships being scrapped in the pressurized segment is a number that we haven't seen for many years previously. Don't forget that the scrap prices currently are very high, which -- and uses people to sell for scrap. But of course, don't forget that it's all the matter of expectations. If people have a debt-free 25-year-old ship and expect the market to be good in Q3 or Q4, maybe they want to hold on to it. If their expectations don't materialize, then obviously, then she is a scrap candidate. But I think this year will be a clear sign of what people believe because we hope it will be the end of COVID-19 pandemic. And also we'll see what the rates will do towards the end of the year. Will they go up? Or will stay same at low levels? We are one of the few segments of shipping that has not had a good run-up in the last few years like the other segments have had. I mean containers and dry are doing really well. Tankers are doing really badly, but had the boom year last year. So I think sooner or later, our turn should come. We don't know when that's going to be, but let's hope it's in the end of Q3 or Q4 this year.

There are no further questions. [Operator Instructions]

I think there are no other questions. So we'd like to thank you for joining us at our conference call today and for your interest and trust in our company. I look forward to having you again for our second quarter results in August 21. Thank you very much.

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