StealthGas Inc. Q2 FY2023 Earnings Call

Good morning, everyone, and welcome to our second quarter 2023 earnings conference call and webcast. I’m Michael Jolliffe, Chairman of the Board of Directors and joining me on our call today is Harry Vafias, our CEO, to discuss market and company outlook and Konstantinos Sistovaris, handling Investor Relations to discuss the financial aspects. Before we commence our presentation, I would like to remind you that we will be discussing forward-looking statements, which reflect current views with respect to future events and financial performance. 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 U.S. dollars. Today, we released our earnings results for the second quarter 2023. While we didn’t break last quarter’s record profits, we maintained a strong profitability of $10.5 million, resulting in our best performance on record for the first half of any year. So, let’s proceed to discuss these results and update you on the Company’s strategy and the market in general. Please turn to slide 3, where we summarize some highlights. In terms of our sale and purchase activity, we continue to look for opportunities to sell some vessels now that asset prices are rising. We first concluded the previously announced sale of 4 vessels and the last 2 were delivered in July and then entered into a new agreement for the sale of 2 more of the smaller LPGs, the Eco Dream and Eco Green to a third party with delivery in early 2024 for approximately $35 million. In terms of chartering, we were less active and concluded 2 six-month period charters but we continue to have secured employment for 80% of the remainder of 2023 days. We have locked in about $90 million in revenues for all subsequent periods. Looking briefly at our financial highlights, with on average 4 less vessels during the six-month period, our net voyage revenues came in at a very strong $67.2 million compared to $66.3 million last year, a 1% increase despite the much smaller fleet. Adjusted net income for the second quarter was $10.7 million compared to $11.3 million last year, a 5% decrease. For the recent six-month period, adjusted net income was $28 million compared to $20 million last year. As we have now reported half of 2023, our profits have been the best on record. We are delighted to announce earnings per share for the six months of $0.71. During that period, we have halved our debt by paying down facilities of $105 million in just six months while maintaining strong liquidity. To update you on the share repurchase program that was announced during the previous call, up until now, the Company has used about a third of the $15 million the Board authorized, repurchasing 1.1 million shares, which is close to 3% of our outstanding shares.

Thank you, Michael, and good morning to everyone. I will discuss our financial performance for the second quarter of 2023. Let us turn to slide number 7, where we see the income statement for the second quarter and six months of 2023 against the same periods of 2022. Even though calendar days were reduced by 12%, net revenues came in at $33.1 million for the quarter and $67.2 million for the six months, a small increase of 1% compared to last year for the six-month period. That was mostly due to a reduction in voyage expenses, but also due to the firmer rates. Operating expenses were $13.4 million for the quarter and $27.9 million for the six months. Overall, there has been a significant increase in operating expenses due to inflationary pressures, which was actually more pronounced during the first quarter, and less so in the second quarter that the Company is trying to control. In terms of drydocking costs, we had $1.5 million in the second quarter and $2.6 million in the six months, an increase of $2 million or 3.5 times in the six months. This increase corresponds with the drydocking of 3 out of the 4 Handysize vessels in the fleet. During the second quarter, the Company also recognized a noncash gain on the sale of two vessels that were delivered of $2.9 million and a noncash impairment of $2.8 million on the agreed sale of two vessels that will be delivered in January 2024. Interest and finance costs were slightly reduced over the quarterly period and flat over the six-month period at $5.1 million, even though rates have more than tripled in the comparative periods. This is a result of the aggressive debt repayment the Company engaged in to control interest costs. The equity income in joint ventures was $10.5 million, attributed to profits from the sale of one joint venture vessel in the first quarter. As a result of all of the above, we ended the second quarter of 2023 with net income of $10.5 million compared to $12.2 million for the same quarter last year; and for the six-month period, $27.3 million compared to $19.8 million last year. Profits for the six-month period were the highest this company has ever seen. Moving on to our balance sheet in slide 8, our liquidity was at the end of the quarter $55.1 million, reduced from $95.7 million at the end of last year due to debt repayment. Vessels held for sale were $63.6 million, referring to the four vessels under agreement to sell. During July, the sale of the two vessels was completed and liquidity increased by about $35 million. Vessels’ book value decreased from $628 million to $515 million due to the sale of the vessels. The total book value of our investments in joint ventures decreased to $38 million, following a $19.2 million dividend we received in April after the sale of one vessel. The overall outstanding debt was $140.5 million compared to $277 million at the end of last year. Over a six-month period, the Company has halved its outstanding debt. As a result of the solid results being reported, we increased shareholders’ equity to $541 million.

On slide 10, our brief insight on the LPG market. So far, the first half of the year has been very positive in terms of LPG supply, with global exports estimated to have risen by 3.5%. The U.S., being a main exporter, has been exporting record amounts with 12% increases year-on-year, consistently exporting above 1.5 million tons a month. With current inventories being at high levels, it’s likely this trend will continue. The main destination of U.S. exports is China and Japan, providing firm support for the larger LPG rates and subsequently the medium-sized ships as well. The Middle East countries have also been exporting increased amounts of LPG, particularly in the second quarter. Although the recent OPEC cut in oil production may moderate this growth, that remains to be seen. Overall, in 2023, there has been a positive price differential with naphtha that has supported the use of LPG as feedstock by crackers. This had less effect in Europe as plants operated at lower margins, but a more pronounced effect in Asia. In April, China saw record imports, followed by another all-time high in May with 3.3 million tons imported. Higher U.S. exports, lower propane prices, recovery utilization rates above 70%, and capacity additions have bode well for LPG demand from Chinese PDH plants. We have talked about PDH plants as a macro theme, as China wants to control its propane production, investing in increasing its capacity. Two more plants were added in the second quarter, and five more are expected before the end of the year. On slide 11, we present some of the key fundamentals in our shipping market commencing with market rates for our market. On a year-over-year basis, we see significant increases in time charter rates up to 15%. During Q2 2023, time charter rates remained steady for the smaller ships while increasing further for the larger vessels. The spot market for small LPG trade West of Suez remained tight for most of Q2. Since the second half of June, the spot market has started to cool off, consistent with the usual seasonal pattern. On the period side, the market continued in a healthy and active state through Q2. We saw stabilization of rates on the smaller pressure ships and continued strengthening on those with 7,000 cubic meters and above. Expectations are strong for the coming winter period and for the next couple of years in general, with keen interest from charters to lock in tonnage. In Asia, the spot market did not perform as well as the Western markets. We expect more activity in Q4. The Handysize vessels’ market also remained tight through Q2, with little tonnage available on either side of Suez. There was a spillover effect from the very tight medium-sized market, which was bolstered by the strong very large gas carrier market. The fundamentals for our core fleet of small pressure vessels look promising as almost one-third of the fleet is over 20 years old, with hundreds of vessels being scrapped while market rates hold firm. On slide 12, we are showing the evolution of our LPG fleet. We have been active in the sell and purchase market. In a rising market, we continue to sell vessels, having sold four in 2022 and eight more this year, including one sold by our joint venture. We entered into an agreement to sell another two vessels for approximately $35 million. Through such sales, we have maintained the average age of our fleet to 10 years, which is quite modern for the industry standards. Additionally, we have invested in more newbuilding vessels. Our order book consists of three Korean-built medium gas ships with a capacity of 40,000 cubic meters each, with the first one owned by our joint venture near completion for delivery in October, while the other two are set for delivery in Q1 2024. This strategic decision diversifies our fleet between smaller vessels and larger medium-sized gas carriers, which have been gradually entering our fleet since 2018. In slide 13, we outline the key variables that may affect our performance in the quarters ahead. We remain optimistic about the longer term despite uncertainties related to the macroeconomic environment. In the short term, we expect rates to start increasing as we enter winter for the Northern Hemisphere, continuing our strategy of further divesting assets in a rising market, diversifying our fleet with larger, more eco-friendly ships, and reducing debt. We are pleased to report record annual and quarterly profits. During the second quarter, we have repurchased over 1 million common shares and we will continue to do so. We find ourselves in a strong liquidity position, enabling us to deleverage, diversify, repurchase stock, and maintain strong liquidity. This strategy is aimed at creating shareholder value for our investors. While our share price has climbed significantly over the past six months, we believe it remains a sound investment for those looking to invest in our company.

We will now take the first question from Tate Sullivan from Maxim Group. Please go ahead.

The purchase plan was implemented late in the second quarter, where the majority of the transactions occurred.

Sorry, Tate, I cannot hear you. If you can speak louder and more clearly, sorry.

We will go now to the next question from the line of David Kwan. Please go ahead.

Yes. What is the current plan to destroy shareholder value as you did with Imperial Petroleum?

Next question, please.

We will now take the next question from the line of Climent Molins from Value Investor's Edge. Please go ahead.

On the press release, you mentioned you want to continue to diversify with larger vessels. I was wondering if you could provide some insight on this regard. Is this something you’re planning to do in the immediate future or once asset valuations normalize? And do you have a preference for newbuilds for modern tonnage?

Thank you for your question, Climent. With the way the market is and with LPG being such a small business with very few players, we don’t have a choice. If we find a good quality vessel, it doesn’t really matter if it’s second-hand or a newbuilding; if it’s valued properly, we’re going to buy it. Unfortunately, it’s not like dry bulk where there are hundreds of ships, and you can pick and choose. This is a really small market with very few quality ships for sale, and therefore, if we want to diversify and buy bigger ships, we have to be more flexible in our decisions.

Turning towards the share buybacks, could you provide some commentary on how you plan to continue to allocate capital?

We are in a fortunate position that we can do both. We will buy back stock. We have approximately $10 million to spend and also need to rebuild the Company because we have sold a lot of tonnage over the last two years.

As of quarter end, how much debt did the joint ventures have after the repayment of the loan on the Eco Ethereal?

Please send us an email on that because I don’t want to give you a wrong number. If you want to send us an email, we can check and get back to you.

Thank you for taking my questions.

Thank you.

We will now take the next question from the line of Tate Sullivan from Maxim Group. Please go ahead.

Can you hear me now, Harry?

A bit better.

For the newbuild deliveries, so the joint venture newbuild is delivered in October, and then your newbuilds in the fourth quarter, the second and the first quarter of ‘24. Can you talk about the remaining commitments for those newbuilds?

For the joint venture, we don’t need to put in new money; for the two others due in Q1 2024, we need to spend about $20 million.

Was part of the decision to sell the Eco Dream and Eco Green related to financing those commitments or totally separate consideration?

Not at all. We have 15 unencumbered vessels. We can raise hundreds of millions in debt very easily and very cheaply. We sold the ships because we saw a very good price for the size and age that the ships were.

Can you share the current number of shares outstanding after the repurchases?

It’s whatever it was minus 1.1 million shares that we have bought back.

When would you look to start booking contracts for the newbuilds? How does it usually work in the LPG industry?

It all depends on the numbers. If we see good numbers in advance, we book; if we don’t, we wait. Normally, we book 30 to 60 days prior to delivery.

You mentioned you already have $70 million of financing for the newbuilds. Two ships for $35 million. Is that right?

Yes.

There are no further questions at this time. I would like to hand back over to management for final remarks.

We’d like to thank you all for joining us today for our conference call and for your interest and trust in our company, and we look forward to having you again with us for the third quarter results in November. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.