StealthGas Inc. (GASS) Q4 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to StealthGas Q4 2021 Results Call. At this time, all participants are in listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] I now would like to turn the conference over to the CEO, Harry Vafias. Please go ahead, sir.

Good morning, everyone and welcome to our fourth quarter and 12 months 2021 earnings conference call and webcast. This is Harry Vafias, the CEO of StealthGas. Joining me on the call today is our Finance Officer, Ms. 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 the disclaimer on Slide 2 of the 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 U.S. dollars. Today, we released our earnings results for 2021, an indeed challenging year, governed by the ongoing COVID-19 pandemic, energy price increases and overall inflationary pressures. Unfortunately, the Russian invasion in Ukraine has made our global reality even more challenging. As all we hope to prompt a peaceful resolution to this tension. During this call, we will discuss this matter as we will try to identify the short term and perhaps longer-term effects which geopolitical tension may have in broader shipping sector and particularly in the LPG market. On Slide 3, we summarize the highlights of our fourth quarter and full year 2021 results. On the fourth quarter '21, we faced an improved LPG market, particularly in Europe, hence, we took the opportunity and secured all of our vessels trading in the area on period charters. On the other hand, the market in Asia was softer where we had about five vessels trading spot. When compared to the third quarter of 2021, we marked an almost 10% reduction of both spot base and commercial off-hire and ended Q4 '21 with an improved operational utilization of about 96%. Our [indiscernible] period activity has picked up, hence, our fleet coverage increased. We now have 49% of our fleet base secured on period charters for the remainder of 2022, with total fleet employment days for all subsequent period generating about $70 million, excluding the JV vessels and contracted revenues. In terms of our sale and purchase activity, we completed the sale and delivery of our 3,500 cubic meter ship the Eco Loyalty to its new owners. This deal was completed on February 22, 2022. And in addition, we entered into an agreement for the sale of our 5,000 cubic meter vessel regards inspiration, again for further trading. Both of these transactions will further enhance our cost base and reduce further our leverage. As announced during our previous earnings discussion, our spin-off was finalized on December 3, '21. So our four tankers were transferred to a new NASDAQ listed entity called Imperial Petroleum, IMPP. With the completion of the spin-off, StealthGas is now a pure-play company that focuses on the broader LPG market, able to service its clients on both short-haul and medium-haul voyages. Looking briefly into our financial highlights this quarter. We did account for our tanker operations in StealthGas all after the spin-off date, i.e., almost [indiscernible] of the way, so by default numbers against the same period of last year are not exactly comparable. In Q4 '21, voyage revenues came in at $36.1 million, $1.2 million lower than in Q4 of '20, mostly due to lost revenues as one of our tankers ballasted for its new period employment along with declined revenues. Along with declined revenues in the region of $1 million generated by one of our semi-ref vessels, both partially offset by an increase of our small LPG time charter revenues. Our time charter revenues came in at $31.2 million and were heavily affected by the sharp rise in bunker costs. Indeed, our daily bunker cost came in at close to $5,000 per day and it's foreseen that heavy bunker costs will continue at least for the first half of 2022. This quarter, we took a material impairment charge that was mainly due to the completion of our tanker spin-off. Excluding these impairment charges, we ended the last quarter of '21 with an adjusted EBITDA of $14.6 million and an adjusted net income of $3 million. Looking at our full year results, again, excluding the impairment, StealthGas generated a $10 million adjusted income, corresponding to an EPS of $0.27. Following the completion of the spin-off transaction, we still obtained a well-balanced capital structure with low gearing of 37.7%. On Slide 4, we have the employment update in terms of charter types. And as of March '22, out of the fleet of 36 LPG operating vessels, excluding our seven JV vessels, we have four of these on bareboat, 27 on time charter and five in the spot market. Since our previous announcement, we successfully concluded nine new charters and charter extensions. These new fixtures were all done at improved rates as we face a better market, particularly in Europe, than in Q3 '21. Given this improved environment and charters to secure vessels for a longer period, we agreed on slightly -- on some slightly longer charters of about one year duration. Our period coverage for the remainder of '22 is in the order of 49%, while for the second quarter of '22, average period is 63%. We have close to $70 million of secured revenues, $58 million of which is expected to be received within the remainder of the year. Including our joint venture vessels, total secured revenue increases to about $83 million. On Slide 5, I'd like to provide you an update as to our two joint venture performances. Our first joint venture which comprises in the majority of small LPG vessels, has only one vessel trading spot since January '22. The rest of the JV fleet are all on period employment. Following our last announcement, charters finalized the duration of the Eco Lucidity time charter which was prolonged to 12 months instead of the original six months. Our second joint venture, comprising of two medium gas carriers, plus one under construction, are both under time charter contracts and our yielding steady cash flows. With regards to the Gaschem Bremen, the charter ends at the end of March '22. And therefore, we are currently discussing new charter opportunities. Our JV arrangements combined have a solid cash base of about $40 million. In terms of our fleet geography in Slide 6, our company focuses on regional trade and local distribution of gas. This graph is a snapshot of the positioning of our vessels excluding our JV vessels as of February '21. Currently, 17 vessels trade in Europe, 14 vessels in the Middle East, Far East, three vessels in South America and two vessels in Africa. I will now turn the call over to Fenia Sakellaris for our financial performance.

Thank you, Harry and good morning to everyone. I will discuss our financial performance for the fourth quarter and 12 months of 2021. As mentioned in the beginning of our call, year 2021 was governed by the effects of the COVID-19 pandemic upon LPG demand but most importantly, the recent additions to our operating costs through the improved cost crew changes and safety restrictions. Moreover, in year 2021, we witnessed a surge in oil prices which impacted bunker costs. Let us turn to Slide 7 where we see the income statement for the fourth quarter of 2021 against the same period of the previous year. Voyage revenues came in at $36.1 million, marking a decrease of $1.2 million compared to the same period of last year, mainly due to lost revenues stemming from our [indiscernible] with Clean Thrasher and one of our semi-ref vessels, the Eco Freeze. In more detail, the Clean Thrasher balances towards a new area for its new period deployment while the Eco Freeze spend some idle time following its redelivery. This lost revenue that was in the region of $2 million was partially offset by the 16% increase over time charter revenues generated from our LPG vessels. Voyage costs decreased by $0.5 million compared to the same period of last year. This small decrease in voyage expenses was minimal when considering the decline of spot based by 56% and is attributed to the sharp price of daily bunker costs by almost $2,600. Based on all of the above, our net revenues for the period went in the order of $31.2 million. Running costs were up by $400,000 compared to Q4 '20 due to fewer vessels on bareboat, that's why bareboat base declined by 16%, along with a further increase of our daily crew cost due to the COVID-19 pandemic. Impairment charges amounted to $41.5 million. $40 million of which corresponds to the impairment charge we include due to a tanker spin-off. Based on the above factors, our EBITDA, excluding noncash items, such as impairment, came in at $14.6 million. Interest and finance costs marked close to $100,000 decline. Although interest charges were $400,000 less this quarter, we incurred $400,000 in swap repayment costs and arrangement fees for loan refinancings. With regards to our income from our JVs, both of our JVs ended the quarter with an operating profit as well as the vessels were under time charter employment. As a result of all the points analyzed above, we ended the fourth quarter of 2021 with a net income excluding repayment of $2.8 million, corresponding to an adjusted earnings per share of $0.07. Briefly, to comment on our full year results. Although compared to 2020, our revenues improved, we witnessed a sharp rise in our voyage costs due to a higher number of spot days for the year in conjunction with increased bunker prices. In addition to this, our fleet employment mix [ph] this year are several vessels that were on bareboat in 2020, operated by the spot order in time charter throughout 2021 and therefore, we incurred higher operating costs. Nevertheless and again, excluding impairment charges, we ended year 2021 with a net income of close to $10 million, corresponding adjusted EPS of $0.27. Proceeding to Slide 8. Given that StealthGas is now a pure-play LPG company and in order to assess the dynamic of our LPG fleet, we looked at the quarterly performance of 2021 exclusively for the LPG's current fleet, JV vessels excluded. Indeed, it was quite interesting to note the following. Our TCE revenues remained fairly stable across the quarters regardless of higher time charter activity, mainly due to the weakening of our spot earnings. Focusing on our spot activity for 2021, as the quarters went by, we gradually reduced both spot and commercial idle time. However, high bunker cost due to continuous increase in oil demand as productivity profitability. In terms of our operating expenses, crew costs and COVID-19-related charges were the main obstacles in 2021. These charges marked a year-on-year increase of 8%. Nevertheless, we did manage to maintain a more stable quarterly operating cost base. Looking at our balance sheet in Slide 9. Our liquidity, including restricted cash, is now in the order of $46 million. As mentioned in previous earning calls, all throughout 2021, we're very active with vessel refinancing. Taking this into account, along with our schedule of principal repayments, we decreased our outstanding debt by $51 million. Even following the completion of the spin-off, our gearing ratio remains low in the region of 37.7%. Concluding our financial commentary with Slide 10. We will briefly discuss our debt profile and capital structure following the spin-off. Since the beginning of 2021 and up until February 2022, we underwent the important project of financing 20 vessels, thus exceeding and reshaping our own portfolio and deferring balloon payments. Our first balloon payment is now due in March 2027, enhancing our free cash base and outcome of our largely financing that took place in February 2022 and reducing our average loan margin by about 50 basis points which given the relatively low for now LIBOR environment, assist us in keeping our finance cost at moderate levels. In terms of capital structure, not only our company gearing continues to be low following the spin-off project but it's still well below the average gain of our industry peers. I will now hand you over to our CEO, Mr. Harry Vafias, who will discuss market and company outlook.

Moving on Slide 11. We'll provide some insight on the LPG market. Needless to say that given the current geopolitical tensions in Ukraine along with the ongoing COVID-19 pandemic, it's very difficult to foresee clearly our market performance. Based on [indiscernible] by Poten & Partners, LPG production is expected to increase all throughout '22 and '23, on the back of U.S. shale rising production and increased exports from the Middle East as OPEC continues to unwind production cuts. China will continue to be the demand driver in Asia due to several PDH expansion projects, the majority of which, about six million metric tons, will commence production in the second half of '22. India's LPG imports remained high as new LPG terminals on both the Western Coast and Eastern Coast will help growth in imports in the near term. In addition to this, LPG imports of Northwestern Europe are expected to increase in the years ahead on the back of a rising petrochemical demand. Factoring in the recent outbreak of war in Ukraine, this may have both direct and indirect impacts on LPG and pet-chem trade. The direct impact in the event of reduced LPG volumes from Russia could be a change in trade patterns in Europe. Increased oil prices may cause a further increase in bunker costs. We must be one of the important indirect negative effect. However, at the same time, the high oil price we currently witnessed may increase the use of LPG, particularly for industrial use. As things stand, the U.S., Europe and other nations have exempted Russian energy trade from sanctions. This is to prevent an already tight market from rallying further. However, even if this measure has failed as knock-on effects of other sanctions are already being felt all across the oil markets and the broader energy sector. On Slide 12, we present the key fundamentals of our small LPG market, commencing with market rate evolution. During Q4 '21, rates improved across all small LPG subsegments. We witnessed a noticeable rise in rates for the 3,500 cubic meter vessels trading in the West. Looking at the small LPG trade, West of Suez, all throughout '21, the spot market remained tight, particularly during the winter period. During the winter time, seasonal factors combined with balanced fleet have resulted in owners enjoying better day rates. Rates have now reached pre-pandemic levels. On the period side, we have seen considerable activity. This naturally comes as a result of a tight spot market and charters anticipation that this tightness will continue. East of Suez, during the last couple of months of '21, the spot market was tight and charters were on many occasions struggling to find workable tonnage. Since then, the tightness has eased. There are more vessels available in the market and spot rates have slightly softened. Looking at the age profile of the small pressurized LPG segment, the segment has substantial oil tonnage. 27% of the fleet is currently above 20 years of age which is a driving force behind the increased scrapping activity. In '21, seven small pressurized ships have been sold for demolition, equivalent to 38% of the current order book. We might witness further scrapping as we head towards '23 when IMO decarbonization measures, such as EEXI and CII, will come into force. As per recent published orders, there are 18 vessels in order, 8 to be built in Japan, Korea and 10 to be built in China, to be delivered until the end of 2024. Slide 13 presents our company's share performance over the past 15 months. Since the beginning of '22, we took -- we noticed a sharp rise in oil prices on the back of limited oil supply production cuts along with geopolitical fears. As evident, energy-related stocks did not follow the same trend. Gas stock still trades at a discount to NAV. In Slide 14, we are outlining the key variables that will affect our performance in the quarters ahead. Given the market turmoil, especially now with the current situation in Ukraine, it's quite difficult to predict our market's future. Our strong points going forward is that we have a sizeable and a quite diversified fleet. Thus, we can easily leverage upon any further market improvement, particularly now that rates have climbed to pre-pandemic levels. In addition and as we have seen in the past, the oil price surge may increase demand for LPG, particularly for industrial use. Our market fundamentals are quite solid as we enjoy a relatively low order book, while 27% of the fleet is above 20 years of age. On the downside and given the recent geopolitical crisis, inflationary pressures on our cost may become stronger. If oil prices continue to rise, we'll take a further hit on our voyage costs. Regardless of the global situation, our focus in the following quarters will be to adapt to how the seaborne trade in our LPG market will shape while relying upon our strong fleet and robust capital structure. We feel confident that our strategic decision to make StealthGas a pure-play LPG company across the broader LPG spectrum will pay off and strengthen our asset returns. At this stage, I will summarize our concluding remarks. Year '21 has been throughout scores demanding as it required, shipping to the pressures arising from the ongoing COVID-19 pandemic along with inflationary pressures as an outcome of rising energy prices. Regrettably, the Russian war outbreak in Ukraine has made a global reality uncertain, with considerable effects in humanitarian, geopolitical and economic aspects. LPG trade will not remain unaffected and we may see further direct effects such as changes in trade partners as indirect ones as further increases in energy prices and various other costs that may increase, such as insurance or risk premium. Regardless of the dire environment in '21, StealthGas followed a dynamic pace, taking the strategic decision to become a pure play in the broader LPG segment, thus transferring the tankers to a separate listed entity. Equally important, we underwent a large-scale project of refinancing the majority of our fleet, reaping the benefits on both cash flow and lowering our costs. Our year ended with a profit of $10.2 million, excluding the impairment charges, a decent performance when taking into consideration the large increase in our voyage costs, crew costs related to the COVID-19 pandemic as well expenses for drydocking, again due to the pandemic and job restrictions. Going forward, we cannot predict our market's reality, especially in such rapid times. However, a sizable fleet and market strong fundamentals, LPG rates improvement in the fourth quarter of '21, along with our healthy capital structure are the strong points upon which we'll rely despite any market disturbances that we may face in the near future. We have now reached the end of our presentation. I would like to open the floor for your questions.

[Operator Instructions] We have the first question from Randy Giveans from Jefferies. Please go ahead. Your line is open.

Howdy, team. How is it going?

Hi, Randy.

All right. A couple of questions. First, it appears the headline rates, as you mentioned, continued to slowly improve or above pre-COVID levels. Can you provide some details on where the pricing currently is for the market? Maybe your outlook for 2022. And then more specifically, what's the average rate for the three recently signed one year charters you have?

Yes. I can give you some general numbers because, obviously, with the Ukraine crisis, this might go up or down. So I will give you the numbers prior to the Ukraine war, 3,500 [ph], I would say, around [indiscernible]; I would say around 9.5 and 7.5 [ph]. I would say, region 11.5 [ph].

Nice. And then you're saying more recently with the conflict, that's down a little bit, 5%, 10%? Can you sensitize that?

It's too early to judge, Randy. I mean it might end up to be a positive thing. But as you know, we don't like to say too much. Let's wait and see how long it will last and what other sanctions Europe and the U.S. will take against Russia. And then we can really discuss this.

That's fine. And then how do those 1-year charter rates compare to the kind of spot rates for like the...

The recent fixed rates were 5% to 10% above the last -- the previously fixed rates, not the spot rates.

Nice. Okay. And then in terms of your vessel sales, the gas inspiration, when is that going to be delivered to the buyers? And then any additional plans for selling some of the other assets?

As you know, since we're trading to a big discount to NAV, selling assets at NAV is always in the back of our minds. That's why we did these two deals that will not only reduce our debt but also increase our cash. The Eco Loyalty was delivered in the end of February and the inspiration will deliver either in March or beginning of April.

Go it. Got it. Okay. And then you brought it up there. Selling assets at NAV is certainly accretive, especially if you're buying shares at the discount to NAV. Obviously, you didn't buy any this quarter. Balance sheets improved, outlook is pretty good. Clearly, there's some uncertainty with Russia-Ukraine. But any thoughts on the share buybacks?

We have discussed this, Randy, many times. You know that we've done many, many share repurchases in the past and the tender offer that we did when COVID begun. I will repeat it for one more time. As soon as we have COVID still around, the Board will not authorize us to buy back shares. So we have to see the end of COVID before we deploy capital and buying more shares.

Got it. That seems to be waning but -- all right. I'll give you a few more months to have a...

I agree with you. I agree with you. But as you know, unfortunately, is not out yet.

Sure. We'll get Dr. Fauci [ph] on the line to declare victory but until then we'll wait. Last quick question, I don't want to hijack the call here but just for OpEx and G&A, that clearly upticked during the quarter. Is that kind of a new run rate? Was that based on some of the one-off events like the spin-off, just for our modeling purposes?

You already replied the question yourself. I mean, OpEx has been affected by the crew changes and COVID regulations with quarantine and so on which obviously pushes costs up. We hope that this will not be the new run rate. So you should run basis those numbers for as long as COVID is around, as we just said. And yes, of course, G&A, you know we have one of the lowest G&A around. Obviously, we had an increased G&A because of the extra expenses connected with the spin-off which, by the way, the StealthGas shareholders have got the IMPP common shares and pref shares, should have done a very good job multiplying their investments.

Got it. All right. Well, that is all for me. Thanks again, Harry.

Thank you, Randy.

Thank you for your question. There are no further questions at the moment. [Operator Instructions]

As there are no further questions, we would like to thank you for joining us on our conference call today. We look forward to having you with us again at our next call for our Q1 results in May. Thank you very much.

That concludes the conference for today. Thank you for participating. You may all disconnect.