StealthGas Inc. (GASS) Q2 2022 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the StealthGas Q2 2022 results call and webcast. [Operator instructions]. Please note that today's conference is being recorded. I would now like to hand over to your first speaker, Mr. Harry Vafias, CEO. Please go ahead, sir.

Good morning, everyone, and welcome to our second quarter 2022 earnings conference call. This is Harry Vafias, CEO, and joining me on our calls today is Mr. Sistovaris, who is handling our Investor Relations, to discuss the financial aspects. 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 that disclaimer on Slide 2 of the presentation. Risks are further disclosed in StealthGas’s 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 US dollars. Today, we released our earnings results for a second quarter 2022, which was also the second quarter of trading as a pure LPG company, and we showed a fantastic improvement compared to last year. So, let's proceed to discuss these results and what we see in the market in general. In Slide 3, we summarize the highlights of the second quarter. In the second quarter of 2022, the strong charter market that we experienced in the first quarter, continued, particularly west of Suez, but also in Asia we show healthy number of inquiries for charting our ships. In terms of operational utilization of our fleet, at 97%, it was similar levels to last year, and better than the previous quarter. Idle days for spot vessels were reduced. However, we did not drydock any vessels during this quarter. That will happen in Q3 and Q4. We now have 62% of our fleet days secured on period charters for the remainder of 2022, with total fleet employment days for all subsequent periods generating about $72 million, excluding JV vessels in contractors’ revenues. In terms of our selling and purchase activity during the quarter, we completed the previously announced sales of our oldest 5,000 cubic meter vessel, the 1997-built Gas Monarch, for further trading. And furthermore, during the current quarter, together with our JV partners, we entered into an agreement to sell to a third party, our largest vessel, the 38,000 cubic meter MGC vessel, the Eco Nebula. It was a profitable sale and the profits and accumulated profits after the debt repayment will be distributed to the partners during the current quarter. As a result, we estimate to increase our available cash by an additional $16 million. As we always aim to renew our fleet with more modern vessel, we also entered into an agreement with a related party to purchase two newbuilding Medium Gas Carriers 40,000 cubic meters each, already under construction in Korea, with delivery in the third and fourth quarter of 2023. If we were to place a new order today, we’d expect delivery of these vessels in 2025. The relevant CapEx of circa $117 million for these vessels, we expect to fund through our existing cash and new debt. We have approached one of our financiers, and are already in the commitment phase. Looking briefly at our financial highlights, we need to keep in mind that the four tankers that were part of the spinoff last December, were included in the Q2 2021 results. It was a very strong quarter and voyage revenues came in at $39.3 million, $3.4 million higher than the previous quarter, and about the same as last year when we had more vessels in the fleet. Overall, comparing the LPGs in our fleet, we saw a rise in revenues year-on-year, and this is also reflected in the TCE revenues that came in at $34.6 million, a $1.3 million increase from last year, despite having fewer vessels in the fleet. The beneficial effects of the absence of the tanker vessels is conspicuous in the operating expenses, where there was a $6.4 million reduction in operating expenses and depreciation combined. Our net profit for the quarter was $12.2 million, compared to $1.6 million last year, and $7.6 million in the first quarter. While on an adjusted basis, excluding derivatives, we ended the quarter with net profits of $11.3 million, and an adjusted EPS of $0.30. That brings our six-month EPS on adjusted basis to $0.52. We manage this while at the same time, increasing our cash and cash equivalents from $31.3 million at the end of last year, to approximately $78 million at the end of Q2 ’22, or $90.2 million, including restricted cash, mainly through the sales we completed, the refinancing of six vessels during Q1, and our internal generated cashflow. We continue to be well capitalized, maintaining a low debt ratio of 36%. Let us move to Slide 4 of our fleet employment update. Since our previous announcement, we successfully concluded five new charters and charter extensions at similar or better levels. In terms of charter types, as of August 22, out of a fleet of 34 operating vessels, excluding our seven JV vessels, we do not have any vessels on bareboat. The two that remained on bareboat were delivered back to us during Q2. 22 on-time charter, and eight in the spot market, slightly higher than before. As we are in the summer months, we don't expect to have more vessels on the sport market, but our target is to fix more on-time charters as we enter the winter period. Our period coverage for the remainder of 2022 is in the order of 62%. We have close to $72 million of secure revenues going forward, $40 million of which is expected to be received within the remainder of 2022. In Slide 5, we provide an update as to our two joint ventures. All six vessels are now time-chartered. Our first joint venture, which comprises of small LPG vessels, have the gas high levels extended time charter for 12 months. As previously said, we decided, along with the partners, to sell the biggest vessel, the 2007-built Eco Nebula at a profit a shade below $10 million. The delivery of the vessel occurred on August 9, and the associated debt was repaid. The cash from the sale, along with the accumulated profits, will be distributed back. We’ll expect to receive about $60 million cash from this vessel as our share, and this will boost our already healthy cash base. Our second JV comprises of two medium size gas carriers plus one more under construction. Last quarter, we time-chartered the Gaschem Bremen. And this quarter, we time-chartered the Eco Evolution for six months at a significantly higher rate. Our JV arrangements combined, have a solid cash base of about $6 million to $7 million, including the sale of the Nebula proceeds. We don't expect to have any CapEx related to the delivery of the newbuilding MGC in 2023, as our joint venture itself has enough cash in hand after the sale of one older vessel last year to fund the acquisition, together with any finance proceeds to be arranged. After all, the rising newbuilding prices across all sectors, including MGCs, underpin the financing to be short. In terms of fleet geography on 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 August, currently we have 19 vessels trading west of Suez, particularly in Europe, 11 vessels trading in the Middle East and Far East, two vessels trading in the US and Caribbean, and two vessels in Africa. We have moved more vessels into Europe Med-Black sea area since the last call, given the better market conditions in Europe and expecting increased activity as the winter approaches. I will now turn the call over to Mr. Sistovaris for our financial performance.

Thank you, Harry, and good morning to everyone. I will discuss our financial performance for the second quarter of 2022. Let us turn to Slide 7, where we see the income statement for the second quarter of 2022, against the same period of the previous year. Voyage revenues came in at $39.3 million, almost the same as last year, partly due to the fewer vessels in the spot market. Our spot market days decreased by 59% to just 364 days. And in spite of the fewer number of vessels, we had 34 vessels at the end of Q2, versus 42 vessels at the end of Q2 2021. We should also note the increase in the voyage and the TCE revenues of the four handysize LPGs in the fleet that were all chartered at higher rates in a stable market, albeit starting from a lower base. Voyage cost decreased by $1.3 million compared to the same period last year, down to $4.6 million for the same reasons. The stable revenues and the decrease in cost combined, resulted in net revenues for the period in the order of $34.6 million compared to $33.3 million last year, an increase of 4%. Operating expenses saw a significant reduction of $2.5 million, about 16% compared to the first quarter of last year, due to the fewer number of vessels. Were we to exclude this effect, our operating expenses would be along the same levels as last year, a positive result, given that we continue to face cost pressures, particularly in crew costs due to the COVID situation and due to rising inflation. In terms of drydocking costs, we had $0.2 million in the second quarter. We did not drydock any vessel during that period, and we extended the due date for a couple of vessels for a few months. That means we still expect to drydock another five vessels for the remainder of the year. Depreciation is another item that saw a large decrease, from $9.6 million to $7 million, due to the decrease in the number of vessels. During the previous year, there was also an impairment charge of $3.1 million related to the sale of one vessel. We did not incur any loss or gain during the second quarter of this year. Interest and finance costs declined from $3 million to $2.8 million, partly due to the decrease in the average debt during the period, due to the regular repayments, and partly due to the decrease in the average cost due to the reduction in loan margins. Beginning next quarter, we expect this trend to reverse, as we will start seeing the effect of the recent interest rate increases in the rollover of our facilities. Other income of $1.1 million mainly relates to gains in the fair value of interest rate swaps we have entered into, as the increase in interest rate make these hedges more valuable. As a result of all the points analyzed above, we ended the second quarter of 2022 with a net income of $20.2 million, a six-fold increase compared to last year, and adjusting net income that's excluding vessel impairments and derivatives of $11.3 million, corresponding to an EPS of $0.32. For the first half of 2022, we had net income of $20 million, and an EPS of $0.52. Looking at our balance sheet in Slide 8, our liquidity, including restricted cash, was, at the end of the quarter, in the order of $90.2 million, a substantial increase from the $45.7 million in Q4 2021. The increase in liquidity came primarily from the refinancings and the vessel sales, and secondarily, from operating cash flow. Our vessels net book value decreased from $681 million to $655 million due to depreciation and the sale of two vessels. The total value of our investments in our JV is $56 million. With the sale of the Eco Nebula, the value will be reduced in the third quarter of 2022. The overall outstanding debt is $292 million, from $300 million at the end of last year. We expect our debt amortization going forward to be about $7.5 million per quarter, while it was close to $10 million per quarter a year ago. So, concluding our financial commentary with Slide 9, we will briefly discuss our debt profile and capital structure. As mentioned before, since the beginning of 2021, and up until February 2022, we underwent the important project of refinancing a large part of the fleet. We thus raised more cash, by about $16 million, reduced our loan margins, and reduced the data motorization. As a result, we have no refinancing risk until March 2025 when our first balloon is due. During the second quarter, we did not enter into any new financing arrangements. We expect to enter into a new financing arrangement before the end of the year in relation to the two newbuilding vessels. We have approached one of our financiers willing to finance both vessels, and we expect that we will re leverage them up to 6%. We will have more details in our third quarter presentation. Overall, we continue to keep low leverage, with the debt ratio below 40%, and we continue to have six unencumbered vessels. The rapid rise in interest rates will have a negative effect on our interest costs. We will start seeing the increase in cost in the third quarter. However, these negative effects will be mitigated by the interest rate hedges we have put in place for 36% of our debt, as well as the lower overall debt level we have today. For comparison, a year ago, the debt was $352 million, compared to $292 million at the end of the second quarter 2022. I will now hand you over to our CEO, Harry Vafias, who will discuss market and the company outlook.

Moving on Slide 10, we are providing some insight on the LPG market. Needless to say that given the ongoing geopolitical tensions in Ukraine, along with the ongoing COVID-19 pandemic, it’s very difficult to foresee our market's performance. Last quarter, we discussed how we had not seen any increase in inputs from China, the largest importer of LPG, but we’re expecting this to change. Indeed, it seems the lifting of COVID restrictions had a positive impact, and as latest reports show, Chinese imports seem to have reversed and grown by yet a moderate 1% year-on-year for the first seven months of 2022, and a strong 7% month-on-month growth in May. This helped underpin the pressurized market for our vessels. The rising demand would have been stronger had there not been delays in PDH plants capacity additions. Out of the 7.5-million-ton capacity additions expected this year, only 2.2 million tons have been added this thus far, as potent research shows, and the run rate of China's 17 PDH plants continues to run at lower levels. We would expect more plants to come in the equation as the year progresses. India has seen a significant growth in recent years, becoming the second largest import in Asia. Data shows record imports close to $2 million tons are expected for the month of August. However, questions remain on the sustainability of this growth, as import data from the subcontinent is unconfirmed, and demand growth may be hampered by the rise in domestic LPG prices. Households in India have been hit by four hikes in LPG cylinder prices this year, despite the drop in LPG process globally, commensurate to the drop in oil prices, and the government is reluctant to keep subsidizing the LPG prices of gas cylinders. And as everywhere, LPG demand is echoed in price increases and a possibly economic recession. On the other side of the world, now 30% of European LPG imports are from the US, a percentage that has risen recently, also part as a result of the Ukrainian conflict. We expect this trend to continue in the near-term as the US keeps increasing its export capabilities and LPG imports of Northwestern Europe, are expected to increase in the years ahead, on the back of a rising petrochemical demand. As previously said, European intra-regional LPG trade is a large market for small LPG vessels, and has been one of the best performing markets for our vessels lately. Although Rosha has never been a major source for Europe LPG imports, events have underpinned the need for diversifying LPG sources. Besides increasing US-sourced LPG, we have not yet identified significant changes in trading patterns. That being said, one business, we as a company have been more evolving recently, has been transferring cargo from Algeria to Europe. On Slide 11, we present the key fundamentals of our small LPG market, commencing with the market rates evolution. During Q2, time charter rates continue to improve among all small LPG sub-segments on a quarter-on-quarter basis, while on a year-over-year basis, we witnessed a double-digit growth. Looking at the small LPG trade west of Suez, the market for pressurized LPG carriage during Q2 was quite active, both on the LPG and petrochemical side. Owners enjoy the firm market, and especially in Northwest Europe. As the summer approached, activities slowed down, as we would expect, and some of our vessels that were previously on TCE, are currently trading spot. East of Suez, the Asian spot market was tight for a significant part of Q2. Easing of COVID restrictions assisted in the rebound in Chinese imports, particularly in May. In July and August, it was India that saw a rebound in imports. However, for the small vessels, demand came under pressure during the summer months. While we are more optimistic going into winter months, on the period shared, activity has been lower, but rates have generally remained at healthy levels. The fundamentals for our core fleet of small pressurized gas ships continue to look promising. There continues to be an overhang of many older vessels over 20 years old. So far in 2022, with the market for LPG shipping being strong, we have not seen any scrapping. New environmental regulations also make it harder for older vessels to trade, and we expect to see increasing scrapping activity sooner or later. The ordering activity continues to be subdued, partly because of the fickleness in finding yard availability, and partly because newbuilding prices have risen together with the recent surge in inflation globally. New environmental regulations related to emissions, and a lack of clear direction on the matter of fuel choice, make the ordering of new vessels a more risky decision. As per recently published orders, there are 21 vessels on order to be delivered until the end of 2024, and a couple more beyond that. While we did see a handful more vessels on order, we foresee that the risk of seeing bulk ordering of new vessels that could tip the supply-demand balance, is to be improbable. A sub 2.5% annual increase in the fleet before scrapping, is one of the smallest, if not the smallest in any of the shipping segments. Slide 4 presents our company share performance since the beginning of 2022. Our share price has risen over the past few months, close to doubling in June in a very volatile market, while we continue to see a correlation with crude oil. At the same time, we reiterate that gas stock still trades at a deep discount to NAV, and that with the six months EPS is $0.52, making the stock more attractive on a price to earnings ratio. In slide 13, we are outlining the key variables that will affect our performance in the quarters ahead. Given the market thermal, especially now with the current situation in Ukraine, the COVID situation in China, it’s quite difficult to predict our market's future. Our strong point going forward is that we have a sizable and quite diversified LPG fleet that we can easily leverage upon any further market improvement, and continue to have manageable debt levels. Our market fundamentals are quite solid, as we enjoy a relatively low order book, while 27% of the industry fleet is above 20 years of age. On the downside, inflationary pressures may increase our costs, and we trade in a product that is sensitive to economic recessions. Regardless of the global situation, our focus in the following quarters will be to secure a revenue stream with more fixed charters, while at the same time contain cost pressures. We will be relying upon our robust capital structure and the support of our financiers for renewing our fleet, as with the addition of the two medium sized gas carriers, taking advantage of any opportunities to sell all the vessels. We feel confident that our strategic decision to make StealthGas a pure LPG company across the broader LPG spectrum, will pay off and strengthen our asset returns. The first 2Quarters of the years has been very positive. We announced today the best results in a long time, with strong profitability, especially the second quarter was the best quarter in the last decade. We should not expect to see same results in the same - in the third quarter, which is traditionally weaker due to seasonality, but we're optimistic on the LPG market in the near and long-term, and hope that this momentum keeps going. We have now reached the end of the presentation, and would like to open the floor for your questions. So, Operator, please open the floor.

Thank you. [Operator Instructions]. Our first questions comes from the line of Sai Chandra from (Infosys). Please ask your question. Hello, Sai Chandra. Your line is open. Hello, Mr. Chandra, your line is open from (Infosys). You may ask a question.

We can go to the next caller.

Sure. We're going to proceed with the next one. Please stand by. The next questions come from the line of Tate Sullivan from Maxim Group. Please ask your question.

Yes. Hello. Good day. Harry. can you give more background on the decision to acquire the newbuild Medium Gas Carriers versus buying smaller small gas carriers? And will those be in your JVs as well or within gas?

Thank you. Tate. Nice to hear from you. The bigger ships have bigger profitability when the market is firm. And since we've said before that we want to balance the fleet between small and bigger ships, by having less smaller ships and more bigger ships, we are following exactly on that strategy. The two ships will be 100% owned - these two ships will be 100% owned by StealthGas.

Okay. And then what’s the delivery in the second half of ‘23, how long ago were these ships originally ordered? And second part of that question, if you would order medium sized or small LPG ships, when would you probably take delivery of newbuilds if you ordered today, please?

These ships, I think, were ordered in Q4 2020. And what was the second question? Sorry.

If you would order small gas carriers or Medium Gas Carriers newbuilds today, would they be for ‘25 delivery or perhaps even later or earlier?

Yes, it would be for ‘25, but with the prices as they are today, we would refrain from ordering newbuilds.

Okay, great. And can you - in selling the Nebula, can you talk in this straw market - and I see it was built in 2007. Can you talk about the decision to sell versus retaining the ships, even if they can generate profits for you in this type of market, please?

Tate, it’s quite a simple logic. If you can sell a ship which is 15 years old with SS, Special Survey being due, and you can sell her at the price when you make a sizeable profit, then you take the decision and do it. And that's why the board of StealthGas and the JV partners approved the sale.

Great. Thank you. And one more for me, if I may. You noted drydock costs for, I think, five ships in the second half of the year. Approximately how much drydocking costs per ship or historically have dry costs been for smaller LPG ships?

It depends on the location as well. It’s not only the size. It depends on the location and the age of the ship. So, I don't have the exact info right now, but if you’d like, you can send us an email and we can come back with more numbers, more specific numbers.

Okay, great. Thanks. Thank you for the details. All right. Thanks.

[Operator instructions]. We have no further questions at this time. I will now hand back the conference to you for any closing comments. Oh, we just have 2Questions. Just one moment. The next questions come from the line of (indiscernible) from the (indiscernible) Foundation. Please ask your question. Your line is open.

Yes. Hi. I had to leave for a moment. I don't know if anyone asked you about stock buybacks. Did they?

No, they didn't.

Oh, okay. What - we used to talk about $12 a share of NAV. Maybe the number is lower. I don't know. I've crunched numbers a little bit lower, but whatever the number, it's tremendously - it's a multiple of what our market price is.

Yes, I would agree with you 100%

Good. Well, we have a lot of cash, more cash. Why aren't we buying stock back? It seems to me to be one of the best buys in the market.

Yes. But you probably forgot what we said in the Q1 results.

Which pertaining to this, I guess I …

Yes. Pertaining exactly to this. If you don't remember, I don't mind repeating it.

Okay. Thank you.

The board has told us since we had two, three years of really bad markets and the COVID disruptions, they want to see two, three solid quarters before we discuss share buybacks.

Okay, great. Fair enough.

So, I guess this is the second solid quarter. So, if we have a very solid Q3, I think it'll be a matter for discussion at board level.

Great. Thank you very much, Harry.

We are going to proceed with the next question. The next questions come from the line of Tate Sullivan from Maxim Partners. Please ask your question.

Well, thank you for taking a follow-up on. Just, you commented on some of the seasonality earlier, and you’re saying 3Q will probably be not as strong as 2Q, but then in the time charter equivalent rate table in the presentation, it seems like a good momentum in rates, but still seasonality, and particularly without the tankers in your fleet now after the spinoff, so still every year, 3Q and 2Q, do you expect an LPG to be the weakest quarters of the year?

As with - under normal circumstances, Q4 and Q1 are strong. Q2 and Q3 are weaker.

Great. Thank you very much. All right. Have a great day.

We're going to proceed with the next question. Please stand by. The next questions come from the line of Michael (indiscernible) from (indiscernible) Partners. Please ask your question.

Harry, how will you and the board feel comfortable buying - committing to buying over $100 million in two new ships, and yet uncomfortable buying back stock until you see three or four quarters, when buying back stock is essentially buying a diversified portfolio of ships that are already built, on the water and leased that you know a lot about, and purchasing two new ships you know none of those facts? I don't quite see how you can do one without the other.

Very good point. The strength of this company is the size of the fleet and the modernity and quality of the fleet. If we don't keep building and buying quality vessels, our oil major customers will dump us for somebody else. So, for a company that has $800 million in assets, low leverage, and a very strong balance sheet, buying two ships with minimal cash outflow, I don't consider that a crazy move.

Right, but purchasing your stock is essentially buying ships. If you're comfortable buying ships …

Not for our customers. For our shareholders, yes, but not for our customers

I appreciate what we do for our customers, but buying back stock is what you do for your shareholders, amongst paying dividends.

Yes. And that's why we are one of the few LPG companies in the world that's done consecutive buybacks and also a tender offer, if you remember.

I understand that, but the analysis of - to order ships, purchase ships, is no different than purchasing stock. A buyback function …

It's completely different because the one pleases the shareholders, the other pleases the customers, and we need to try to have both pleased, which is not an easy equation.

I'm going back to what the board and you said in the first quarter, which is, you want to see two or three strong quarters before you do a buyback. But if you look at it from the perspective of purchasing ships, buying your stock is the functional equivalent of purchasing ships. I understand from a customer perspective, but from a financial analysis perspective and a risk analysis, it's an identical thing.

I am the largest shareholder of the company, my good friend. Don't you think it'll be benefit me if we did a share buyback?

I'm sure it would. And so, I'm trying to understand …

Exactly. So, I agree with you 100%, but that's what the board has said, and we have to respect their opinion, of which we agree with.

I'm just trying to understand the analysis that the board went through in which it commits to purchase two ships as opposed to purchasing 13, 14, 20 ships.

I just explained it to you three minutes ago, exactly explained why we did it.

It's not coming through.

Okay. We can discuss it offline then.

Okay.

Thank you very much.

Thank you.

We are going to proceed to the next question.

Last one, please.

The next questions come from the line of (indiscernible) from the (GAD Foundation). Please ask your question.

Yes. Hi, Harry. One other question. You don't do conference calls for Imperial Petroleum. Would you consider it? It seems very difficult to follow that company. Would you consider doing conference calls?

Sure. I don't understand the question. What do you mean conference calls?

What we're doing today, you don't do that.

This is - we're obliged by law to have quarterly results announcements. And obviously we do calls for both companies.

Oh, you do? You do them for Imperial Petroleum?

We are obliged by law, so yes.

Oh, because I haven't seen any notice of it or email. And is there a website or?

Of course there’s a website.

Okay. Then it's my negligence. Thank you.

No problem. But this is a StealthGas call now.

Right. Of course.

So, we would like to thank you all …

There are no further questions at this time. Thank you.

We'd like to thank you, everybody, for joining us at our conference call today, and we look forward to having you again with us for our Q3 results in November. Thank you very much.

That concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.