Q3 2021 StealthGas Inc Earnings Call
Good day, and thank you for standing by that come to the salt gas third quarter 'twenty to 'twenty. One results conference call. Currently all participants are in a listen only mode up there to speak of the presentation. There will be a question and answer session. So I'll ask a question during the session you will need to press part and one on your telephone please be advised that todays call.
For instance, being recorded and I would like to have the conference now to your first speaker today, Mr. Michael Kelly. Please go ahead Sir.
Thank you very much and this is Michael Jolliffe, the board javelin Astellas gas.
Joining me on our call today is our CEO, Harry last gas and our Finance officer <unk> Sakai lettuce.
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 you could or would take somebody went to read our disclaimer on slide two of this presentation.
Risks are further disclosed in stealth gas 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.
Slide three summarizes the highlights about third quarter 2021 results that we released today.
A key strategic highlight is the successful spinoff completion about four tankers now trading in a separate listed entity called Imperial Petroleum Inc. Indeed, we are excited to have completed this transaction as we strongly believe that the timing was right because it creep.
Asian of two businesses in distinct sectors of the shipping industry.
That is of course, LPG carriers and taxes.
Focusing on stealth gass performance in the third quarter of this year. This was mainly govern bipolar spot activity increased bunker costs and a high number of commercial idle days.
Even though the COVID-19 pandemic is still persisting, we manage to liberate our spot exposure compared to the second quarter of this year.
However, due to seasonal factors, we did face increased commercial idle time for open vessels seeking new period employment.
As a result.
<unk> revenues were weak.
Due to the rising Oh prices, our voyage costs were disproportionately high.
Given the completion of two dry dockings in the partial completing another two dry dockings within the third quarter, we incurred technical off hire days.
This in combination with the soft spot before but it's already discussed.
What was he didn't allow our operational utilization in quarter 321 of 94, 1%.
However in spite the commercial obstacles faced in this quarter, we managed to take advantage of the improved market noticeably noticeable from September onwards, and fix several vessels on period charters.
We now have only three vessels operating in the spot market.
We have 93% of fleet days on period employment Apple until the end of this year, we total freeze employment days for all subsequent periods generating approximately $66 million.
Excluding of course, how JV vessels in contracted revenues.
Period coverage for the first quarter of 2022 is as high as 77% well for the whole of 2022 hour employment coverage is 39%.
Focusing on our financial performance and compared to the third quarter of 2020 revenues came in at 37 5 million.
An increase of $400000, mainly due to a 45% reduction there about chartering activity.
Revenues are by default laws in time charter and spot earnings.
Revenue potential was offset by the poor earnings generated from spot activity.
Our daily time charter equivalent in the third quarter of 2021 dropped by about $100.
We had about 60% increase in commercial idle and technical off hire days as a result of all of the above we generated in the third quarter of this year and that EBITDA, excluding noncash items of $14 $6 million.
In terms of nothing income steadfast produced breakeven results.
The profitability stemming from both about joint venture arrangement stood strong and we ended the quarter with an aggregate adjusted net profit of about $1.8 million corresponding to an adjusted EPS of five <unk>.
Yeah.
Moving on to slide number four we wish to explain in simple terms the impact of the Tankless spin off.
So Gus.
At the beginning about cool.
Strategically we felt the timing was right for the separation of asset classes to occur as future prospects for both market look promising.
From a financial perspective, the spin off of our tankers to Imperial petroleum will lead to a reduction of gaseous opex by about $2 5 billion per quarter or $10 million annually.
A drop in quarterly depreciation charges by about $2 $2 million per quarter or $8 $8 million annually.
And in almost $30 million reduction in.
And that is about 9% of total debt in stealth Gass total leverage.
However, these tankers depending on their requirement type of market cycle, we're generating on average 10% to 15% about total time charter equivalent revenue.
Hence this asset separation will for the time being leading to a decline in revenue potential.
Placing I'll focus now on stealth gas third quarter nine months performance Slide five provides an analysis of athletes employment.
In terms of charter types and as of December 2021 out of a fleet of 37 LPG operating ships, excluding a seven joint venture vessels. We have four of these on bareboat 30 on time charters and only three in the swap market.
Regardless of the onset market, mostly due to COVID-19 pandemic, we have managed to significantly reduce our spot exposure.
Okay.
Since our previous announcements, we successfully concluded nine new charters and charter extensions.
We have three vessels concluding their period charters up until the end of 2021, two of which have charter extension options.
Our period coverage for the remainder of 2021 is in the order of 93% while for the first quarter of 2022, the average period coverage is 77%.
We have close to $66 million of secured revenues and including our joint venture vessels total secured revenues increases to about $87 million.
In slide six I would like to provide an update as to our two joint venture performances.
Our first joint venture, which comprises in its majority of small LPG ships.
He has oh vessels on time charter.
Since our last announcement, we managed to fix the gas shuriken on a 14 month time charter extend the time charter for the echoed in Ebola.
An additional six months I'm fix the eco lucidity on a time charter with a six months minimum duration.
Our second joint venture comprising of two medium gas carrier vessels are both under time charter contracts basket, yielding steady cash flows.
Our joint venture arrangements combined have a cash base of about $40 million.
In terms of our fleet geography presented in slide seven 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 November 30 of 2021.
Currently 18 vessels of the LPG fleet trades in Europe.
12 vessels in the middle.
In the far east and two vessels currently trading in South America and five in Africa.
I will now turn the call over to furnish accolade is a financial director for our financial performance. Thank you.
And thank you Mr Jolliffe, and good morning to everyone.
I will discuss our financial performance for the third quarter and nine months for 2021.
Indeed, as we mentioned at the beginning of our call our biggest obstacle in this third quarter was commercial off hire days, coupled with the sharp rise in bunker costs.
These factors led to no sports revenues, that's what their mining overall profitability.
Market improvement is not someone from September onwards allowed us to lock almost none of our fleet on time charters.
Is it going to be minimizing spot exposure.
For the interim.
Let us move on to slide eight where we see the income statement for the third quarter of 2021 against the same period the previous year.
Voyage revenues came in at $37 5 million.
Thompson Creek.
As compared to the same period of last year.
If you did the four fewer vessels on bareboat nonoperating items.
Time charter contracts.
Nobody at 525% of quarterly spot days were in commercial in the fire in terms of off hire this quarter, we faced waiting time.
Peer deployment, but most importantly, we've had one of our products are different.
10 minutes basically being idled for the majority of the quarter.
Discussed earlier in our call almost all of the basins might be 90 times within the third quarter of 2021.
Operating under time charter contracts.
In terms of voyage costs amounted to $4 5 million might be 700000 increase compared to Q3 'twenty in spite of the declining number of spot.
Days by about 30%.
Key driver for this.
In the daily banking.
Daily bunker costs by 55%.
Based on all of the above our net revenues for the period.
3 million.
Running costs at $15 5 million marked about a 12% increase compared to Q3 most of that debuted at the far fewer vessels on bareboat for which.
Operating costs.
250 dollar rise in daily crew calls mainly group medical expenses.
And I think by then.
Drydocking charges amounted to 151 7 million and corresponded to the Drydocking of four small LPG vessels, two of which faced for a long time, if it doesn't the yards.
But I left water system installation.
Based on they are both factors are EBITDA, excluding noncash items, such as impairment gave me not $14 6 million interest and finance called Smart close to a 400000 increase I was $1 million this quarter financial close corresponded to swap interest.
That arrangement and refinancing costs.
With regards to income from my joint ventures, both of our JV has ended the quarter with an operating profit are the majority of the vessel time charter employment at improved rates.
As a result of all the point on a light bulb. We ended the third quarter of 2021 with a net income of one excluding noncash items of $1 8 million corresponding to an EPS of five cents.
Proceeding to slide nine we will briefly comment on our performance indicator for the period examined.
Our operational utilization for Q1 was quite low in the audience.
94, 1%.
She got off hire due to heavy drydocking schedule.
Scheduling called megaphone of higher Mark.
2% increase compared to the same period of last year.
With regards to our daily time charter equivalent in Q3, 'twenty, one daily P C might to gradually decline over the quarters.
Q2, 'twenty, one we noticed an obvious inquiries, which in spite of seasonal factors of course bought performed much basically this quarter, we minus the present to a great extent.
Looking at our balance sheet is light and a free cash balance increased and is now in the order of 43 million while to date, we have no further direct capital expenditure.
Gearing ratio in Australia declined to 36, 6%, while taking into account our free cash our net debt to asset ratio is north of 32%.
This year, we have been very active and they seem to be financing that within the first nine months of 'twenty 'twenty. One we've completed the refinancing of 14 vessels.
Using our average annual finance cost that is LIBOR plus margin by 100 basis points.
We'll try to refinance another seven vessels within the first quarter of 2022, and therefore, we will have nobody want obligation for the next two years.
I will now hand, you over to ICL, Mr. Hardy, Bob Yes, when we discuss market and company outlook.
Yeah.
Proceeding on slide 11.
During Q3 'twenty one in spite of the customary seasonal softness.
Rents improved mostly towards the end of the quarter.
Looking at the small LPG trade west of Suez the spot market experienced the usual seasonal downturn during the summer months pushing ownership finished idle time between voyages.
We've also seen a few vessels, leaving the area heading east.
The last couple of months, which has further aided the balance due to the limited availability of export tonnage not noticeable since September and reasonable freight rates charters have been increasing their time charter exposure, which has been positive for the owners.
We expect that winter season.
Seasonal increase in cargoes owners might witness further rate improvement and enjoying even a more balanced market.
In the east of Suez are spot market in Asia since September state and lagging available tonnage.
There are cargoes in the market that are finally, not shipped due to the lack of tonnage.
Naturally this has had a positive effect from the freight rates over this period.
So increasingly tighter spot market has instructed in an active time charter market that charters have been actively looking for.
Forward shipping covers to move their contract cargos and get an advantage in the tight spot market.
We have seen no matters, both new time charters fixed in extensions on existing time charters for periods from three months up to one year.
Focusing on our market fundamentals of small LPG pressurized segment has substantial all tonnage 51% of the fleets fleet is currently above 20 years of age.
Which is a driving force behind increased scrapping activity since the beginning of this year, we have witnessed the demolition of seven small pressurized vessels.
And indeed, we are witnessing that heightened demolished demolition activity.
Aspiration orders or 16 vessels on order seven to be built in Japan, and Korea and nine to be built in China tend to be delivered until the end of 'twenty two 'twenty three.
It's important however to point out that seven older LPG vessels.
Equivalent to 45% of current order books were sold for demolition during the first nine months of 'twenty to 'twenty one.
Slide 12 presents our company sharper four months since the beginning of the year. During this period, where she got gosh. Its share price has increased by almost 6% and it has been trending upwards in the periods of result announcements at Georgetown interesting to know that following our tanker spinoff. The average trading volume has risen by about 80.
5%.
Our stock still trades at a discount to our NAV.
On slide 13, we are outlining the key variables that will affect our performance in the quarters ahead.
Given the market turmoil, especially due to the COVID-19 pandemic, it's quite difficult to make any firm predictions.
We have visual later.
You keep points of masks used our financial performance in the upcoming quarters.
First point is that we have a total tariff coverage of about $87 million.
Our total cost base of about 50 million sufficient liquidity in both our JV arrangement that Charlotte periods covered with minimal spot exposure. Moreover, we meant when he may not the low LIBOR rate environment, Hence our interest cost will remain low for the short term or the downside to have seven scheduled dry dockings for 2012.
Two for which we face increased course.
Due to related restrictions.
I mentioned earlier.
And why does it during pandemic might push the global economy and another downturn, concluding our presentation in spite of the global challenges. We're all facing we believe that sales guys. We perform well provided adult witnessed another global economic slowdown.
Due to the new COVID-19 virus likes the omicron.
At this stage, our board Chairman, who will summarize our concluding remarks for the period examined.
Thank you Harry.
We are pleased with the successful completion of a tanker spin off to annuity listed entity called Imperial petroleum.
With regards to sales gas the separation of the toll tankers will give them the opportunity to finally see OCA exclusively.
Exclusively on the broader LPG market, which has always been our core business.
The company items predominantly small LPG for which rates are less volatile along with large LPG vessels facing more volatile freight rates.
The capability to increase revenue dynamics.
Given the different nature of risk tankers and gas carriers bear this strategic move of separating these two asset classes, we will give shareholders the flexibility to adjust their holdings. According to the sector in which they want to invest and the timing in the cycle.
Focusing on the gas results in the third quarter 2021. These were primarily underpinned by the weak spot market and particularly the increase come a commercial off hire days.
That's the market improved from September onwards, we took the opportunity to fix all of our fleet on period charters and some.
Soundly positioned ourselves for the upcoming quarters.
Regardless of the LPG market improvement evident this last couple of months the biggest global concern is still the COVID-19 pandemic.
New variants might potentially heavily impact the market in the short term and that's why we have chosen to be defensive with low leverage and having only a few ships operating in the swap market.
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.
Okay, ladies and gentlemen, we will now begin the question and answer session and that's a reminder, if you wish to ask a question. Please press star and one on your telephone and wait for your needing to be announced.
Okay. We will now take our first question and it comes from the line of Randy <unk> from Jefferies. Your line is now open.
Howdy teams don't guess how's it going.
Hi, Randy.
Hey, I guess first question being the biggest news here just the spin off can you discuss that decision to spin off those tanker assets over simply selling the assets, putting the cash to work by repaying debt and then more importantly repurchasing shares.
Yes, Randy I mean, we've discussed this matter before.
A lot of shareholders were asking.
Why do we have tankers and a you know it's not your core business and.
Well, we are better off focusing on all the different sub segments of the LPG market.
So.
We thought spitting.
I think this company out into a different company.
It's a nice way of of having started gas as a pure LPG company focusing on small.
Small hadn't been medium sized gas carriers at least for now.
And at the same time, giving a nice dividend to our shareholders.
Selling the ships was not the best idea because selling the shirts would have meant that we are selling the ships at the bottom of the market, which you know it doesn't make any sense.
And on top of that.
Because you mentioned that Oh, gosh, that's very low debt levels show it wouldn't make.
A big difference if we reduce the debt a bit further our debt levels are very very low despite our rapid expansion as the lost a few.
A few years.
Buying back stock you know we've done it before.
We've done a tender offer before at the beginning of Covid.
And obviously, we will do more but the board will not allow us.
For as long as we have COVID-19 affecting our results. So we need to see some more clarity on the COVID-19 matters and hopefully a disappearance of this pandemic.
Pandemic before we sit down and ask for a third of our allow one Sean on share buybacks.
Okay.
<unk>.
The tankers.
The rates are very low selling at the bottom, but the asset values.
Haven't really come off much since the beginning of the year. So I'm wondering if it would be selling at the bottom of that capacity, but clearly the share price relative to your NAV, especially when your balance sheet is in good shape clearly seems a heavily discounted so wait until COVID-19 ends.
Is that five years from now who knows but alright, I guess separately. Following the spin off are you likely to pursue some additional growth in the LPG space are you content with your fleet. Today. You know for example, you still have some I would call them non core handy size larger semi ref vessels compared to most of your fleet are there.
It's possibly spin offs or sales candidates.
No. The opposite these are core assets and we will focus more in these.
The medium sized gas ships.
Got it okay.
And then in terms of the market clearly its tightening can you provide some insight on the <unk>.
Basically the increase on your new charters compared to previous charters have those rates improved and maybe specifically, what's the average rate for those seven charters that last five to 12 months.
Yes, I mean, if we give you a number it will make it more more difficult because that's where I'm talking about different sizes of ships is not easy I mean.
It's not easily distinguish distinguishable I would say that the four three and a half thousand cubic meter vessels.
So you would be a safe assuming a zero percent increase on five K vessels that you would be safe to assume a 5% increase in on a seven and a half thousand more and bigger you would it be safe to assume a 10%.
Increase.
Okay can you give me the nominal numbers instead of just the increase like what does that 10% equate to the 10% increase.
On the argument on the seven and a half thousand yeah.
Yeah.
Oh, Hey, it would be it would mean a breakthrough maybe not on the 320000 a month.
Okay, Great and then on the five thousands.
It would mean.
95.
295, and then lastly, I'm 3500.
That has not increased.
What would that be though on a monthly basis that would mean a 225.
225, great that helps with the model.
Right right.
The just to clarify the problem Randy is not the income.
The market is tightening and obviously this pushes the rates up.
Prop M is the increased cost due to COVID-19 because of extra quiet quarantines are increased CRO cost increase crude traveling these kind of things. We see is the problem right now not so much the income side.
No I I I think that's fair, but I think the cost.
It would come under control here in the next few months the income, especially with all the charters you have a lot more visibility there and again, if you wait for Covid to add your stock price movies textbooks.
I don't know if waiting until then to repurchase shares is the best that's the strategy but.
I'll leave that for you and the board.
Thank you.
Thank you.
Okay. We will now take our next question and it comes in the line up for lunch got from got suddenly L. L. P.
Often.
Yes, good morning.
Prospectus for Imperial petroleum.
Has the statement that the book value is substantially higher than market value I was wondering if you could clarify substantial substantially.
Substantially if you could give us an idea as to what the market value of the four tankers are.
Yes, actually as you understand we cannot give numbers if we have not put in it in the a F. One.
But that is what we discussed on the previous question.
Where we said that if we sold the ships.
We would face a book value loss.
And that reduction would be minor that's why it was we were better off.
Speaking of spinning them off which still means you're going to have a book loss, but that's at least you don't lose control of the ships and the current shareholders get it get some shares as I said dividend, which would they can keep ourselves you know depending on what they think about the the tanker market.
In Q4, our stealth Gass will have this will polka they slosh and obviously the numbers will oh, let's see what the numbers are but indeed, it's not a small number.
So yeah, I mean, it's no secret in market values of ships I would say from a professional.
Operator, that's kind of node, it's like Oh, you you you can give us what's in the public domain.
And you've already said substantially lower in the prospectus.
And this is a public conference call I made I think I don't see any reason why we can't talk about what it's worth and we've talked about and a V. A.
In past conference calls how.
How our stock was trading substantially you've been giving us numbers so I'm.
I'm kind of.
I'm kind of I I don't have to stay away. We can know what the substantial differences are what substantially beads.
I cannot answer that question is I'm not a lawyer.
I'll have to check with our U S legal team.
Jack.
Okay.
Aw or not.
Okay I've been an attorney for I've been a lawyer for 50 years I don't see any problem with it but check with your account so I mean.
The sell out.
Thank you.
Thank you very much.
Oh Hello.
Yes.
One other question generally with spinoffs one of my Background's in tax law generally with spin offs things are spun off sometimes in preparation for a sale or a merger or acquisition is there any.
Was that a motivation here and doing the spin offs at all.
Again, I think you're asking things, which are not in the public domain and if we tell you you're gonna be considered an insider.
So I guess, we cannot answer to that question.
But of course, our me and every other shareholder or anyone that wants to access this conference call in the public domain, So I'm not sure I agree with that but but anyway.
Okay.
Started my good friend right right I understand.
Well, if you could check with your counsel because cash please.
That's M E mail, so that you don't forget it please send us an email and we'll come back to you.
Yeah, I've had I've had.
What is your what is the address to use for an email.
It's our it's on our HR announcement in shoulder in all our announcements you can find you bet.
Right I I had had an issue.
Previously on it because the for example, the common stock Imperial Petroleum is traded between three and seven ships had a range of 100 and some odd percent.
So and I think one of the reasons is the statement that are.
You know the assets are worth substantially less than book and there's no guidance as to what it's worth so you have this huge prospectus.
And shareholders to receive dividends, but we have no idea of accessing.
What are what the what this distribution is worth so set in the market.
The same thing.
Twice right.
So that they can check or forgot disclosing formation and if we can't we'll be delighted to give it to you.
Thank you.
Thank you very much.
Okay. Once again, if you wish to ask a question Please press star and one.
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 and we look forward to having you with us again.
For our fourth quarter 'twenty one results in February 22, Thank you.
Okay that does conclude our conference for today. Thank you for participating in all disconnect.
Uh huh.
Yes.
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