Q3 2022 StealthGas Inc Earnings Call
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Yeah.
Good day and thank you for standing by welcome to the health Gossip third quarter of 2022 results Conference call. At this time, all participants are in listen only mode.
After the speaker's presentation, there will be the question and answer session.
To ask a question during this session you need to press Star one one on the telephone keypad. You will then hear an automatic message was lagging behind us right.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Michael Johnny Please go ahead.
Good morning, everyone and welcome to our third quarter and nine months 2022 earnings Conference call and webcast. This is Michael Jolliffe Chairman of the board of directors.
Joining me on our call today is Harry box Gosh, how chief executive to discuss market and company outlook.
Tina SR bodies 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 two of this presentation.
Risks are further described in south 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 United States Dulles.
Now, let me start by saying that as you might have read this month, the world's population surpassed the 8 billion Mark.
In this world there are still two and a half billion people using kerosene wood and charcoal for their fuel needs.
We believe L. P. G is less carbon intensive than other fossil based fuels can play an important role for these people to meet their future entity energy needs in the Decarbonizing World.
Today, we released our earnings results for the third quarter of 2022, which was also the third quarter of trading as a P. A L. P G company.
Im happy to report yet another profitable quarter.
So let's proceed to discuss these results and what we see in the market in general.
Turning to slide three we summarize some highlights.
We mentioned in our previous call in the summer months, there's typically less activity. So he took me opportunities to perform the scheduled dry docking of four of our vessels they should choose to close our utilization figures.
One vessel that remains to be dry docked this year, it will probably be pushed back to the beginning of next year.
During the summer months have spot exposure was increased we had 843 days during the quarter.
This was a result of vessels coming off that period charters in a softer market and he's considered temporary actually prefer to lock in period charters.
Overall year on year, we've actually decreased our spot exposure by 38%.
During the last couple of months as the market is firming, we entered into more than 10 period charters.
But the majority of which are a one year duration or more.
Now we have 40% of our fleet days secured on period charters for next year.
Contracted contracted revenues as of November are almost 90 million excluding joint venture.
Venture vessels at 100 million in coke, including our JV vessels.
In terms of I'll say that in purchase activity, we don't have any news other than what we discussed during the law School bus is society, one joint venture vessel.
The receipt of $16.5 million in distributions from that sale and the reinvestment into new building medium gas carrier vessels for 2023.
What is new though is that we have committed finance for the new building vessels to the tune of 70 million. That's how remaining equity commitment for these vessels would be about 24 million that we can comfortably handle with the existing cash.
Looking briefly at our financial highlights we need to keep in mind that the four tankers that were part of the spin off last December were included in last year's comparative results.
Voyage revenues came in at $34 $9 million compared to $37.5 million last year as a result of the smaller fleet.
Overall, though.
Third quarter market was softer it was better than last year's.
In line with the trend in recent quarters, we had substantial decreases in opex and depreciation.
Well its due to the smaller fleet, but we also saw a rise in wage costs that was due to the combination of higher spot exposure and increase in bunker costs due to the rise in oil prices.
And the spot market, we are responsible for paying for our vessels fuel cost says you know.
Overall, our net profit for the quarter was $6 7 million and was boosted from the profits from our investments in our Jv's.
The nine month period, we reported profits of $26.6 million.
That brings our EPS for the quarter to 18 cents and 70 cents for the nine months.
This is a 600% increase year on year.
We remain steadfast and managing prudently all liquidity and so our total cash was $85 $6 million compared to $45 7 billion at the end of last year.
Mainly through the South we completed the refinancing of we also completed the refinancing of six vessels during the first quarter, our internally generated cash flow and distributions distributions from our joint ventures.
We continue to be well capitalized maintaining a low debt ratio of 36%.
And then just move on to slide four for a face employment update as of November .
Since our previous announcement, we successfully concluded 11, new charters and charter extensions at similar or improved levels.
These were contributed recently.
Heading into winter, we saw more interest from charterers and locking in longer periods are always a good sign for the market.
For the remainder of 2022, we have just four vessels in the spot market, but with a new charters, we have increased forward coverage for 2023% to 40% of our fleet days.
We have close to U S dollars $90 million of secured revenues going forward.
62 million of which half of next year.
Including the JV vessels, the secured revenues going forward.
Closer to $100 million.
In slide five I would like to provide an update on our two joint ventures.
We did not conclude any new charters since our last announcement.
How fast joint venture.
Which comprises small LPG vessels has one vessel operating in the spot market.
If.
You Love was completed and we received $2.
$16 5 million in distributions from the joint venture.
Our second joint venture comprises of two medium gas carriers.
Swap more under construction.
As previously discussed we did not intend to fund this acquisition with our own equity. The JV has sufficient caching had earmarked for this together with any finance proceeds to be arranged.
On the plus side the market for the larger vessels has risen significantly recently.
In terms of our fleet geography presented in slide six our company focuses on regional trade and the local distribution of gas.
This graph graph is a snapshot of the positioning of our vessels, excluding our joint venture vessels as of November the 16th 2022.
The distribution of our fleet has not really changed since our last call.
Our fleet is slip split between Europe and Asia.
Currently we have 19 vessels trading west of choice, particularly in Europe .
11 vessels trading in the middle and far East.
Three vessels trading in the U S and Caribbean.
And one more than in the previous quarter and one in Africa.
I would now to turn the call over to Constantino sister virus for our financial performance. Thank you.
Yeah.
Thank you Michael and good morning to everyone.
I will discuss our financial performance for the third quarter and nine months of 'twenty to 'twenty two.
Let us turn to slide number seven where we see the income statement for the third quarter of 2022 against the same periods of the previous year.
Net revenues came in at $28 2 million for the quarter and $94 4 million for the nine months.
Slightly reduced by 2% over the nine months period, we went from 41 vessels to 34 vessels roughly a 17% reduction in total fleet days.
We note the increase in voyage costs for the quarter as we had more spot days in our bunker costs were considerably higher due to the rise in oil prices, but we expect this to come down in the following quarters.
Operating expenses were at $14 1 million for the quarter and $40 3 million for the nine months.
A 13% reduction in the nine months period.
A similar trend to what we saw in the previous quarters.
Due to the reduction of the fleet size.
In terms of dry docking costs, we had $1 7 million in the third quarter of 2022.
We did dry dock for vessels during that period, a similar number to last years.
And we expenses instead of amortizing them.
So they do add some more volatility in the numbers when they all occur in the same quarter.
Yeah.
Depreciation is another items that saw a large decrease to $7 million for the quarter and 21 million for the nine months period.
That is a 26% decrease year on year.
Mainly due to the decrease in the number of the vessels.
Interest and finance costs increased to $3 6 million during the quarter, despite having a lower debt levels.
This is obviously due to the increases in interest rates and we expect this to continue until the fed stops raising rates.
Other income of $1 1 million, mainly relates to gains in the fair value of interest rate swap we hold.
As the increase in interest rates makes these swaps more valuable.
As well as increased interest we receive in our bank deposits.
Equity income Investees, he's our share in the profits of our JV structures.
And came in at $6 1 million for the quarter and $9 7 million for the nine months.
Both our JV structures operate profitably and also recorded a gain on the sale of the air cooled nebula in the third quarter.
As a result of all the points analyzed above we ended the third quarter of 2022 with net income of $6 7 million.
And $26 6 million for the nine months period.
Six fold increase compared to last year.
Looking at our balance sheet in slide number eight.
Liquidity, including restricted cash was at the end of the quarter in the order of $85 6 million subs.
A substantial increase from the $45 7 million in the fourth quarter of 2021.
The increase in liquidity came primarily from the refinancings and vessel sales and secondarily from the improved operating cash flow.
We saw this quarter 23.
Point $4 million, which are the advances on the medium gas carrier vessels under constructions.
Our vessels net book value decreased from $681 3 million to $648 5 million due to regular depreciation and the sale of two vessels.
The total value of our investments in our JV is $45 5 million.
Which was reduced compared to last year, not because of our investments are unprofitable, but due to the 16 and a half million in distributions. We received after the sale of the eco nebula.
The overall outstanding debt was $284 million from $300 million at the end of last year.
We expect our debt amortization going forward to be around seven seven and a half million per quarter, while it was close to $10 million per quarter about a year ago.
Concluding our financial commentary with slide nine we will briefly reiterate our debt profile and capital structure.
As mentioned in the last call up until February 2022 we underwent the important project of refer in refinancing a large part of the fleet.
With us raise more cash by about $16 million reduced our loan margins and reduce the debt amortization.
As a result, we have no refinancing risk until March 2025, when our first balloon as you.
During the second and third quarters, we did not enter into any new financing arrangements.
We did recently sign a commitment letter with one of our existing finance years for the financing of the two new building vessels.
Whereby we expect to receive up to 717 million Fi in finance proceeds for the delivery of these vessels subject to customary closing.
We expect to conclude the loan agreement before the end of this year.
Overall, we continue to keep low leverage with a debt ratio below 40% and we continue to have six unencumbered vessels.
As previously mentioned the successive raises interest rates by the fed has started showing into a rising interest rate expense.
Robert Labor cost was below 3% during Q3.
And actually it was below 20 basis points a year ago.
Whereas as the rates now have gone above 4.5%.
However, these negative effects will be mitigated by the interest rate hedges, we have put in place for 36% over that.
As well as a lower overall debt levels, we have today.
For comparison, a year ago that debt was 347 million compared to $284 million at the end of Q3 2022.
I will now hand, you over to our CEO Hari Rochester will discuss the market and the company outlook.
Moving to slide 10, I will provide some insight on the LPG market and reiterate the point that we had made in the past I was I still hold true. Despite the current economic and geopolitical I'm sure that there's that crashed the cloud overall future predictions.
So far this year global LPG exports have increased three 8% in line with what was expected.
The main exporters of LPG being the U S and the middle East countries. According to data from bank out of course that both of US have increased exports this year.
By 10% in the middle East countries by over 20%.
European countries on the other hand, like nowhere have decreased exports translating into ton mile increases.
It's no coincidence that currently freight rates on the larger size vessels are sky high.
On the receiving end the largest importers of LPG, Our India, China, Europe , Korea, and Japan out of these all with the exception of China import a significantly higher amount year to date, India, plus 12% of Japan, plus nine, 3%, Europe , plus 6% and Korea plus 13%.
The problem with China is that after having reduced imports overall at minus 2.3 year to date and despite some revival in its imports since shortly in the summer and continues to have lockdowns and restrictive policies that hinder economic activity.
The Chinese economy did grow by a modest four it stand at 5% in Q3.
But there is still a cloud over the sustainability of wage growth and the general economic condition.
Well remain cautiously optimistic on Chinese demand and feel that any resurgence there will be a catalyst and already stable in framing chartering market.
That is why we continue to refer to get Chinese PTH plant capacity additions that are projects that are slowly coming on stream with delays, but eventually should that significant demand for LPG and petrochemical products.
Now on the other side of the World as previously stated European Intraday General LPG trade is a large market for small LPG vessels and has been one of the best performing markets for our vessels lately. However, Europe during the summer months, there's not factors like plant plant maintenance as well as ample supply mainly coming from the U S.
S led to a reduction in demand.
As well as better petrochemical production slowing down well.
We did expect that fishes are not in the market, what we do not expect a high temperatures to continue well into October .
But at the end of the day the Earth is telcel than colder weather is coming and we already see a return to more normal activity.
On slide 11, we present, the key fundamentals of our LPG market commensurate with market ratio evolution.
During Q3, 'twenty two time charter rates were flat while on a year over year basis, there continues to be healthy growth between seven and 14% depending on the size and the location look at the small LPG trade west of Suez the spot market softened a bit during the second half of the summer and it has for the last couple of months' remained relatively stable.
Expectations are for the usual winter market.
We've increased demand and weather delays will cause the usual seasonal upturn in the market and we expect a healthy spot market for the next few months.
Our fleet is quite balanced and it requires a relatively small amount of ing kristi month to tighten up the market significantly.
Sure as the spot market in Asia Shoffner softened during the summer months similar to what we're starting to work, but it has since picked up pace and we have for the last couple of Marston quite good activity.
This goes for both the pet Chem LPG market until about a month ago. When we saw more and more charterers chart starting to look for TC coverage, both short term and for next year rates have remained relatively stable but have started.
To climb upwards. The last few weeks, we expect this trend to continue as we get closer to the year end.
The handy sized vessels the market went for a significant number one from a significant number of vessels sitting I didn't the main loading reagents to their current market, which has no idle vessels and only a handful of available spot candidates until the year ends.
We expect to see strong grades through the winter.
The fundamentals for our core fleet of small pressurized ships continues to look promising very continues to be an overhang of many older vessels in the fleet over 20 years old and so far in 2022 with a market for LPG being strongly have only shown only one vessel being scrapped.
Calming of regulations from an E X I N C. I will also make it harder for older vessels to trade and we expect to see increasing scrapping activity sooner or later or vessels being removed from international trading to do restricted cabotage trade trade's unless the mining jurisdictions.
Ordering activity continues to be subdued partly because of difficulties in finding yard availability.
And partly because you were billing prices have risen.
Not.
Oh, it's pretty some published orders there are 21 vessels on order to be delivered until the end of 'twenty four and a couple more beyond that again since our last call. We estimate four vessels were delivered and we see a handful more vessels on order, but we continue to believe that the risk of seeing bulk ordering of new vessels that could keep the supply demand balance to be improbable.
A sub 2% annual increase in the fleet before scrapping is one of the smallest if not the smallest in all shipping segments.
Slide 12 presents our company sharp performance since the beginning of the year.
Our share price has performed well since the beginning of the year in a very volatile market along with other LPG related stocks and lately. All these talks have not followed the crude oil price lower at the same time, we could.
I would like to repeat or believe they're selling their stock still trades at deep discount where navy and for the nine months EPS is 0.7 cents, making their stock more attractive on a price to earnings ratio.
In slide 13, we're outlining the key variables that will affect our performance in the quarters ahead, what do you consider that our most important unknowns that makes it quite difficult to predict our markets future would be the way of it or the rising interest rates would bring a recession.
Especially in Europe , whose economies are more fragile and it's an important market for our vessels.
Continuing war in Ukraine, and the political.
Situation in China, crafting and cloud and the timing of its eventual return to the normal economic activity our market fundamentals remain quite solid as we continued to see a low order book, while 27% of the fleet is over 20 years of age on the downside.
Flashers pressures may increase our caution and we trade in a product.
Because that is sensitive to economic recessions, our strong points going forward is that we have a sizable and quite diversified fleet with strong customer relations. We maintain our focus to a secure revenue stream with more fixed charters like we recently did by entering into a substantial number of new charters, while at the same time containing cost pressures.
We will be relying upon a robust capital structure and the support of our final shares that we've just recently reaffirmed with a new commitment further new buildings and we feel confident comfortable.
Our strategic decision to make still go to a pure play LPG company across the broader LPG spectrum will pay off in our and strengthen our asset returns.
We intend to diversify our fleet within the LPG space.
We are able to offer our customers were major industrial players or more complete service over an array of vessel sizes. So they can move their product I was we were doing with the addition of larger vessels while at the same time, we're open for opportunities to sell older vessels. The first nine months of this year has been very positive despite the seasonally softer third quarter.
Or what does it we should expect to show an improvement.
Our quarterly results in the fourth quarter, which is traditionally stronger at the beginning of the winter, but we're overall optimistic on the LPG market in the near and long term and hope to keep this momentum going.
We have now reached the end of our presentation and we'd like to open the floor for your questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone and wait for a name to be announced.
Well, we'll compile the Ken Aerostat this will take a few moments.
Now we're going to take our first question.
Yeah.
Okay.
And the first question comes from the line of Tate Sullivan from Maxim Group. Your line is open. Please ask your question.
Hello. Thank you good day to all of them hurry at the end of your remarks, you mentioned your intent to further diversify your mix of your fleet.
Our acquisitions still available and the strong market.
Yes, but at very high prices, so we prefer.
Unless we find a one of a one off opportunity to wait until our price the secondhand prices in your billing prices.
Go down to more logical levels.
And then if if that that that decrease in asset values does not occur.
Before you take delivery of the most recent two new builds I mean do you intend to continue to reduce leverage I mean, you've had a meaningful reduction in leverage in the last year and a half and continue to reduce your net debt. So will that be Australia potential strategy until you take delivery of the two ships.
Yes, since now interest rates have become a way to a way too expensive.
You know reducing debt to only be positive for the company.
Yeah.
Okay, and then on the seasonality I'm just.
Rates at a healthier rate environment. Currently so you in this current quarter with your secured date.
Third rates and then the stock rates available.
Year over year increase.
And your time charter equivalent rates compared to last year, and and what and I don't know if you have Andy maybe you can outline what was your time charter equivalent rate last year, excluding the tankers that you spun off.
I don't have that information and even if I had you would be confused because you know we have many many different sizes and many many different ages of their ships. So you know one number would not would.
Would not be a good a good image of what's going on.
Alright, yeah, but it still looks like a good quarter over quarter increase usually fourth quarter LPG and then also just circling back to the leverage but do you target an ideal amount of leverage that you have or.
So you have available liquidity can talk acquisitions.
If the rates were low as it was the last you know four or five years, we would say anything below 50%.
Now that the interest rates are very high and it might get higher I would say that the lower the better.
Alright. Thank you. Thank you Harry.
Thank you.
Now we're going to take over next question.
Just give us some numbers.
And our next question comes from the line of bread Boston from Boston Consulting. Your line is open. Please ask your question.
Hi, good morning.
Results in the quarter I guess the question I have here is.
CEO of both stealth gass in Imperial petroleum.
Do you believe the questions around reverse split it's share buybacks listening sensor et cetera.
Imperial petroleum or affecting the investors' decisions to invest more in stealth gass.
And if so can you clarify.
If you are and what you might be doing to avoid the lessening of the parent patrolling over the next month. Thank.
Thank you.
And we cannot comment on imperial petroleum.
Gosh not at all where there is a different strategy, we said gosh with a different board.
So what we do is still gosh, you might have seen has nothing to do with what we do with the other company.
Okay.
Okay. Thank you.
Thank you.
Yeah.
As a reminder, if you wish to ask a question. Please press star one on your telephone keypad.
Now we're going to take our next question.
Please standby.
And the next question comes from the line of Tate Sullivan from Maxim Group. Your line is open. Please ask your question.
Thank you for allowing a ball.
On the staffing environment, yet your comments about potentially seeing more scrapping in 'twenty three or do you have shifts that you may consider stopping in this current rate environment or would you continue to operate our ships that you can still obtain the current rates that are there.
We only have one or very old vessel.
And we will try and sell for further trading.
That's not possible, we will scrap it.
Thank you.
Thank you.
Yeah.
Yeah participants as you don't mind, if you wish to ask a question. Please press star one on your tongue.
From Keybanc.
Okay.
Speakers there are no further questions at this time.
Yeah.
We would 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 at our next conference call for our first quarter 'twenty two results in February 23. Thank you.
That does conclude our conference for today. Thank you for participating you may now all disconnect have a nice day.
Yeah.
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