Q3 2024 StealthGas Inc Earnings Call
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Speaker Change: Good day and thank you for standing by. Welcome to the StealthGAS 3rd Quarter 2024 Results Conference Call. At this time all participants are in a listen-only mode.
Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Michael Jolliffe. Please go ahead.
Speaker Change: Good morning everyone and welcome to our third quarter 2024 earnings conference call and webcast.
Speaker Change: I am Michael Jolliffe, Chairman of the Board of Directors, and joining me on our call today, as usual, is our CEO, Harry Vafias, to discuss the market and the company outlook, and Constantinos Sistovaris to discuss the financial aspects.
Speaker Change: 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, so if you could all take a moment to read our disclaimer on slide 2 of this presentation I shall be grateful.
Speaker Change: Risks are further disclosed in the stealth gas filing with the Securities and Exchange Commission.
Speaker Change: So let's proceed to discuss these results and update you on the company's strategy and the market in general, starting with slide three for some highlights.
Speaker Change: Today we released our results for the third quarter and nine months 2024.
Speaker Change: It was admittedly a successful quarter, despite the seasonally weaker summer months. We did not manage to break the previous quarter's record, but we have reported the most profitable nine months ever.
Speaker Change: Revenues came in at a solid 40.4 million dollars, slightly down by 3% from the previous quarter, but considerably higher by 17% than a year earlier.
Speaker Change: The reported net income on an adjusted basis for the third quarter was $14.2 million compared to $12 million last year, 18% higher.
Speaker Change: Adjusted profit for the first three quarters of this year reached a record $61 million.
Speaker Change: In terms of earnings per share on an adjusted basis, these were 38 cents for the quarter, 23% higher, and dollars 1.67 for the nine-month period, marking a 61% increase over the nine-month period.
Speaker Change: This was also assisted by the reduced share count as a result of share repurchases over the last one year.
Speaker Change: We did not buy back any shares during the third quarter so there is about 5.5 million dollars left authorised for share repurchases.
Speaker Change: Our strategy for the time being remains focused on deleveraging and optimising cash generation.
Speaker Change: While we did enter a new debt facility of 70 million in the beginning of the year, we have also made a hundred and eight million dollars in repayments up to today, reducing the debt to below a hundred million for the first time.
In terms of our fleet...
The strategy is to conservatively diversify and renew.
Speaker Change: We have previously discussed the sale of two smaller LPGs and the delivery of two medium gas carriers in the beginning of the year, as well as the subsequent sale of one medium gas carrier by our joint venture in the second quarter.
Speaker Change: At the same time, we agreed to take over a second vessel that was jointly owned.
Speaker Change: Since our last call in September, we were reasonably active on the chartering front.
Speaker Change: The company's chartering strategy is to fix on period charters when possible and profitable, so there were only two vessels operating in the spot market.
Speaker Change: including the latest charters we have increased our contracted days for 2025 to 65% already securing about a hundred million in revenues
Speaker Change: Total revenues secured up to 2027 are steady at $220 million.
Speaker Change: During the third quarter we had a rather heavy dry docking schedule. Four vessels were dry docked and one vessel has just entered dry dock, while in the fourth quarter two more vessels have been scheduled for dry dock.
Speaker Change: Since most vessels are in Europe, we are usually forced to perform the dry yachting at a higher cost than could potentially be achieved at cheaper far eastern shipyards.
Speaker Change: In terms of our fleet geography presented in slide 5, our company mainly focuses on regional trade and local distribution of gas.
Speaker Change: So most of our vessels are not likely to travel long distances and often do voyages that may last as short as a couple of days from load port to destination while the fewer larger vessels often engage in intercontinental voyages
For example, the United States Gulf Coast to Continent.
Speaker Change: This graph is a snapshot of the positioning of the fleet including the joint venture vessels as of mid-November.
Speaker Change: We currently have five vessels trading in the U.S. and Caribbean and five in Africa in some specialized trades and only three vessels trading in the Middle East and the Far East.
Speaker Change: The majority of our fleet, some 19 vessels or 60%, currently trade in Europe, particularly in the North West and in the Mediterranean.
Speaker Change: It is not always the case, as in the past the fleet used to be evenly split between Europe and the Far East, but we have strategically focused over the last several quarters on this area as the freight rates west of Suez continue to command a premium over east of Suez.
Speaker Change: We believe that in the short term we will continue to enjoy higher rates.
Speaker Change: west of Suez as there continues to be a shortage of suitably well-maintained vessels in Europe.
Speaker Change: Since it is unsafe to navigate in the Red Sea due to the Houthi attacks, it would mean that most vessels would have to travel the long distance around the Cape of Good Hope to move from east to west.
Speaker Change: And due to the short distance trade routes for small LPG carriers, it is rare that cargos are found for these types of long distance routes to make such a voyage profitable.
Speaker Change: It is therefore less likely that these arbitrages between East and West will quickly fade by an influx of vessels in the area.
Speaker Change: Meanwhile, the attack in the Red Sea by the Houthis have escalated. This also means less Middle East exports on larger vessels destined for Europe and replaced by US exports to Europe.
Speaker Change: are handy-sized vessels, particularly to increase transatlantic trades between the United States and Europe.
Speaker Change: Finally, I would also like to note that we have been increasingly engaged in ammonia trades that our handies and medium gas carriers can carry.
Speaker Change: In slide six, I will update you on our joint venture investments. That is the interest we had as of September 30th in five vessels.
Speaker Change: four pressurised LPG carriers and one medium gas carrier through two joint venture structures.
Speaker Change: These are presented separately as we do not consolidate these vessels in our results but use the equity method of accounting.
Speaker Change: The book value of their investments as of September 30th stood at $30.9 million close to the previous quarter.
Speaker Change: There was not much activity in terms of chartering of these vessels and most of these have charters which are close to expiry that we will then have to renew.
Speaker Change: At the end of the quarter, together with our partners, we agreed to sell the gas shuriken to a third party.
Speaker Change: That vessel is expected to be delivered very early next year, depending on its trading schedule. Next, we agreed to buy back from that joint venture the gas defiance that we then charted out for a one-year charter.
Speaker Change: Prior to this, the debt on both vessels was repaid, so we added a debt-free vessel in our fully-owned fleet.
Speaker Change: For the remaining two smaller vessels, as the joint venture enters its sixth year, we are looking at opportunities to sell these.
Speaker Change: Lastly, the dry dock on the one pressurised vessel that was originally scheduled for early 2025 was brought forward and the vessel is undergoing dry dock as we speak.
Speaker Change: I will now turn the call over to Konstantinos Sistovaris, who will give details of our financial performance. Thank you.
Thank you, Michael.
I will discuss the financial results that were released today.
Speaker Change: Let's turn to slide 7, where we have a snapshot of the income statement for the third quarter and nine-month period of 2024 against the same period of 2023.
Speaker Change: Due to vessel sales that took place last year, there was a corresponding reduction in fleet days of 2% for the quarter and 10% for the nine-month period.
and at $150.3 million for the nine months.
Speaker Change: A similar increase of 16%, mainly the result of rechartering vessels at higher rates throughout the past year. And also the addition of two larger versions in the fleet with higher earnings capacity.
Speaker Change: Net revenues would have been higher this quarter if it weren't for the lower operational utilization as a result of having to dry dock four vessels during the quarter.
Speaker Change: Operating expenses were $12.3 million for the quarter, at the same level as last year and $36.2 million for the nine months down 10%, that corresponds about to the reduction of the fleet.
Speaker Change: Overall, a good performance in containing expense so far in 2024, despite the inflationary pressures throughout the economy.
Speaker Change: The main drag for this quarter's results were the dry docking expenses at $2.9 million as four vessels and partially a fifth one had to undergo their statutory five-year special survey and dry dock.
Speaker Change: The costs for these dry docks, that involve also lost time and revenues, are expensed as incurred and not amortized, so there was a hit in the third quarter, especially when compared to last year, when there were no vessels to be dry docked at the time.
Speaker Change: In the third quarter, there was also an increase of $1 million in G&A costs as a result of an increase in stock-based compensation expenses.
Speaker Change: There were no impairments, nor any gains or losses from sale of vessels during the third quarter of this year, while interest costs decreased by $0.7 million as a result of the debt reduction.
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Speaker Change: Net income for the third quarter was $12.2 million compared to $15.7 million for the same quarter of last year, a 23% decrease.
Speaker Change: However, this is reversed when looking at adjusted net income that excludes in particular the non-recurring gain from the vessel sales and the non-cash stock compensations.
Speaker Change: and was $12 million last year, compared to $14.2 million this year. An 18% increase, which is more reflective of the improving profitability of the company.
Speaker Change: For the 9-month period, adjusted net income was $16.8 million, a 52% increase compared to last year.
Speaker Change: Likewise, adjusted earnings per share for the third quarter were $0.38, a 23% improvement, and $1.67 for the nine months, a 61% improvement compared to last year.
Speaker Change: While the third quarter profit, as expected, did not surpass the second quarter's record, the company has now marked its best nine months ever and is on track for a record year.
Looking at the balance in the next slide, slide 8.
The company continues to maintain strong liquidity.
Speaker Change: Cash, including restricted cash, was at the end of the quarter $77.4 million.
Speaker Change: reduced by just 8% compared to December 31st despite the sizable debt repayment.
Speaker Change: We do not have and do not use any revolving red lines as there is no need at this moment.
Speaker Change: Vessels held for sale were 34.9 million as of December 31st, were nil as of September 30th, as there were no vessels contracted to be sold.
Speaker Change: Also, deposits for vessels that were $23.4 million as of December 31st were nil as of September 30th as the two medium gas carriers were delivered to the company and there were no vessels contracted.
to be bought.
Speaker Change: Vestel's book value increased from $504.3 million to $605 million, a significant 20% increase as a result of the addition of the two medium gas carriers in January.
that happened during the...
second quarter.
Speaker Change: And we expect it to be reduced further in the coming quarters following the exit of the two smaller vessels that were previously mentioned.
Speaker Change: Total losses as of September 30th increased 3.3% to $720.7 million compared to December 31st.
Speaker Change: Moving on to the liability side, the current portion of the long-term debt was halved.
and was reduced to 80.2 million as of September 30th.
Speaker Change: As a result, with a total debt of just $86.4 million versus cash in hand of $77.4 million, the company is close to being net debt free and will probably be so in the following quarter.
Shareholders' equity increased 11%, or $6.5 million, over nine months.
Speaker Change: Moving on to slide 9 to update you on the debt structure.
Speaker Change: The Leverage has been the name of the game for the past couple of years, allowing for significant interest cost savings over this period.
Speaker Change: It is worth noting that in the third quarter, the company has for the first time managed to reduce its total debt to levels below 100 million.
Speaker Change: In 2024, in the first nine months, a 70 million 8-year facility was added in January, and 106.6 million of debt repayments.
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$21 million of which during the third quarter.
Speaker Change: As a result, the debt cash flow amortization is now reduced to 6.4 million per annum.
Speaker Change: compared to 30 million just two years ago and that we believe will allow for significantly faster cash flow accumulation going forward.
Speaker Change: There are only 3 mortgage vessels out of 28 in the fleet, and that means much lower cash flow break-even for our vessels, making them more competitive.
Finally, you have eliminated refinancing risks.
Speaker Change: There is only one $15 million balloon at the end of 2025, and the next balloon of $35 million is from the facility just recently concluded, which matures in 2032.
Speaker Change: Thank you, and I will now hand you over to our CEO, Harry Vafias, who will discuss the market and company outlook.
and Michael Jolliffe. Thank you. Thank you.
Harry Vafias: are a brief insight on the LPG market. Over the last three years, global LPG exports are on a steady upward path. After making a 4.3% increase in 2023, the latest data show that over the first nine months of 2024, the increase is slowly higher at 5.5%.
Harry Vafias: that are coming out of the U.S. show that was the first nine months of this year.
Harry Vafias: Propane exports from the world's number one exporter, the U.S. continue to grow, marking an impressive 12% year-on-year increase.
Harry Vafias: There was a slight dip over the summer as a result of Hurricane Beryl, but exports have resumed their upward path after that. We expect the rate of growth to slow in the coming quarters.
Harry Vafias: and as you must capacity expansion projects are completed by 26 to allow volumes to increase by another 20%.
Harry Vafias: The Panama Canal situation now resolved and crossings are back to normal, leading to a downward adjustment in VLGC rates, also affecting the emitting gas carry rates.
in the second largest exporting market in the Middle East.
Harry Vafias: Volumes have moderated over the last couple of years since OPEC implemented production cuts and the area has a losing market share. We will be waiting to see if the forthcoming administration change in the US is going to have any effect in lifting the self-imposed production cuts.
Harry Vafias: Although increasing volumes are sent from the U.S. to Europe, LPG demand in Europe continues to remain flat, although in the important intra-regional trade there has been some activity with pet-chem cargos of late.
Harry Vafias: We are waiting to see the advent of the colder weather, as so far the weather has been relatively mild with temperatures below average and that does not help demand for domestic heating consumption.
Harry Vafias: On a more localized level, we mentioned last time the airport ban on Russian volumes starting this December. As a more immediate effect, we're seeing some increasing seaborne volumes destined for Poland, replacing the now banned railroad option.
Harry Vafias: Since Poland does not yet possess adequate port facilities for Lavrov LPG vessels, they have to rely on smaller pressurized ships doing more voyages and by reducing the number of available ships.
Harry Vafias: On the other side of the globe, in Asia, where the major importers of LPID are located, we expect to see 8% LGC import growth in 2024. For the first nine months of this year, volumes going to China have marked an almost 12% year-on-year growth.
Harry Vafias: in India, the 2nd World Trade Market, following elections in the summer.
Harry Vafias: The import growth continues to be resilient, coming in at 7.1% year-on-year for the nine-month period. In China, the weakening economy has led to the government to take measures out of late and to reaffirm its amendment to keeping the economy growing at a 5% rate.
Harry Vafias: regarding the expansion of PDA capacity for the production of opalein.
used for plastics.
continues at the Massey Game.
Harry Vafias: During 2023, nine new peatage plants came on stream, adding 5.4 million tons of capacity. So far this year, seven new plants have started, adding over 5 million tons. So far and more plants are under construction that are expected to bring the total production at over 30 million tons, a 77% rise from 2023 levels.
Harry Vafias: Slide 11, we discuss the state of the LPG shipping market and its fundamentals. Overall, the summer months being the time of the year when there is a pullback in demand.
and others.
Harry Vafias: The spot market east of Suez was slower than the west. Owners with open positions would in most cases have to factor in some mile time, and spot rates were suffering as a consequence.
Harry Vafias: The spot market for the Handies held reasonably well through the summer, mostly due to an active pecker market. On the pier side, pier rates remained relatively stable, although the market was pretty inactive through the quarter.
Harry Vafias: The order book for 100 remains the same, with no delivery schedule for 25, and this will largely support the period market going into next year.
Harry Vafias: On the MGC spot market remains soft and owners find themselves competing with trader relets.
Harry Vafias: More often than not, our time-chartered site owners with available tonnage have in general kept their TC ideas firm.
This has again resulted in vessels not being renewed.
due to breachable gaps between owners and shares ideas.
Harry Vafias: The order book provides for only a handful of deliveries in twenty-five.
Harry Vafias: which support PC rates for the year. However, longer term, the order book...
from Jesus Worsham.
Speaker Change: We've seen even more orders be placed since our last call, driving the order book ratio to 50% of the existing fleet. We've seen new entrants and existing players, ordering MGCs as well as VLGCs at record high prices with deliveries two and three years from now.
Speaker Change: Admittedly, betting that ammonia will be the next generation of fuel choice.
Speaker Change: We of course would welcome such a development, having already the seven larger vessels in our fleet able to carry ammonia, but that being said, we believe that ordering these vessels now at these record prices is quite a risk proposition.
Speaker Change: On the other hand, the order book situation is quite different in the overlooked handisized fleet, where there are no vessels leaving over the next year and the order book remains healthy beyond that, although since our last call there were a few more orders being placed.
Speaker Change: As far as our corporate professor is concerned, the situation has not changed much.
Speaker Change: We continue to see only a handful of vessels being ordered, and most of these in Chinese yards, destined for Chinese trades, with the order book ratio at a low 5%.
for the next three years.
Speaker Change: And we would like to repeat what is shown in our graph, that according to the age profile of the Peshawar fleet, over 30% of the existing vessels are over 20 years old, meaning that the fleet is not being renewed fast enough.
Speaker Change: Scrapping continues to remain subdued given the strong charting market, but even without scrapping it's increasingly getting more difficult for investors to trade in the international markets, especially in Europe, given the safety and environmental regulations.
Speaker Change: On our last slide, we are outlining some of the key variables that may affect our performance in the quarters ahead.
Speaker Change: Our company had another quarter of high performance during the seasonally weaker summer months. We managed to increase our revenues by 17% compared to last year, even though there was a heavy dry-dock schedule during the third quarter that reduced our fleet utilization. So far this year we have announced record profits, and with the market strengthening during the winter, we are on track for another record year.
Speaker Change: Particularly in Europe, where the majority of our fleet is located, period rates for restaurant ships are at historically highs.
Speaker Change: As we continue to improve our revenues and profitability, setting the bar higher every time, we believe we continue to be a sound and undervalued investment for anyone sharing our vistas.
Speaker Change: We have so far been producing strong results but continue to trade at a discount in terms of price to math and price to earnings.
Speaker Change: We have now reached the end of our presentation. I'd like to thank you for joining us at our conference call today and for your interest and trust in our company. We look forward to having you with us again at the next conference call for our Q4 results in February. Thank you very much.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: The following video is a derivative work of the Touhou Project. It has no relation to the original work. This video is a derivative work of the Touhou Project. It has no relation to the original work. Thank you for watching.