StealthGas Inc. (NASDAQ:GASS) Q1 2024 Earnings Call Transcript May 22, 2024 11:00 AM ET
Company Participants
Michael Jolliffe – Chairman
Konstantinos Sistovaris – CFO
Harry Vafias – CEO
Operator
Good day, and thank you for standing by. Welcome to the StealthGas Q1 2024 Results Conference Call and Webcast. During this call, all participants will be on listen-only mode with no question-and-answer session. Please note that today’s conference is being recorded. I would now like to turn the conference over to Chairman of the Board, Mr. Michael Jolliffe. Please go ahead.
Michael Jolliffe
Thank you. Good morning, everyone, and welcome to our first quarter 2024 earnings conference call and webcast. This is Michael Jolliffe, Chairman of the Board of Directors. Joining me on our call today, as usual, is Harry Vafias, our CEO, to discuss the market and company outlook, and Konstantinos Sistovaris, 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. So if you could all take a moment to read our disclaimer on Slide 2 of this presentation, that’d be great. We will further disclose StealthGas filing with the Security and Exchange Commission.
Today, we released our results of the first quarter. Three months ago, I was here announcing to you our record full year profits. So it is with great delight that we have managed to follow up on that with a great start to 2024 by announcing record quarterly profits. 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 starting with our fleet and operations update. During the first quarter, we sold two smaller vessels and got delivery of two brand-new medium gas carriers. We have not bought or sold any vessels in the current quarter with the exception of one vessel that was owned through a joint venture as previously announced that we will discuss further on in the call. With the market remaining firm, we continued securing more period charters in both our fully owned fleet and for the joint venture vessels with contract coverage for 2024 of 73% of our fleet days for our fully owned fleet. We have thus contracted revenues of over $180 million for all subsequent periods excluding our joint venture vessels and continue to be focused on maintaining our minimal spot exposure.
Moving to our financial highlights with on average five fewer vessels compared to last year and a 15% reduction in fleet days, net voyage revenues that is net of voyage costs, increased to $38.7 million or 14% year-over-year and increased by 26% compared to the previous quarter. Net income for the first quarter was $17.7 million compared to $16.8 million last year, a 5% increase, which is the highest quarterly profit ever recorded by the company. Even better were earnings per share at $0.49 and $0.53 on an adjusted basis given that we have decreased the share count year-on-year, having bought back 3.9 million shares last year. So far this year, we have scaled back the share repurchases and bought back about $0.4 million worth during the first quarter so there is about $5.5 million left authorized for share repurchases. We continue with our debt reduction strategy since the beginning of the year. And up until today, we drew down on a $70 million loan to finance the delivery of our medium gas carriers. And prepaid fee facilities that together with regular amortization reduced the debt level by $85 million.
In the next Slide 4, let us reiterate for those new investors that may not be as familiar with our company that we have been in LPG shipping since 2004, and currently have an interest in 32 vessels. 27 of those, we fully own and five of those, we have invested in under joint venture structures. Traditionally, we have been focused on small gas carriers in the 3,000 to 8,000 cubic meter range. However, in the last few years, and especially since becoming a pure LPG company, there has been a strategic shift in complementing our small LPG carriers with larger-sized vessels. As such, we have been sellers of smaller, older vessels, replacing them with newer and larger vessels in an effort to firstly keep a young age profile for the fleet that is currently about 10 years old and secondly, to provide a more holistic service to our industrial customers. Out of the 32 vessels currently in the fleet, 24 are small pressurized gas carriers, four are Handysize semi-ref vessels and for a full-ref medium gas carriers in the 40,000 to 45,000 cubic meter capacity. A diversified LPG fleet with larger vessels also provides the company with more upside earnings potential as rates for larger vessels are more volatile and the downside, of course, if the market were to falter.
Let us move on to Slide 5 for our fully owned fleet employment update as of May and to stress that this has always been our focus to provide period coverage of our vessels and depend less on the swap market. Just like in February’s call, we once more were pleased to announce a number of new period charters. Out of these five new charters, three were extensions with current charters, one for a relatively long three years, and two for a one year duration, and the remaining two for six and three months, respectively. As a result, we have increased our contracted days for 2024 to 73% and for 2025 to 30%, securing over $180 million in revenues up to 2027. Like in the previous call, only two of our vessels currently operate in the spot market. Lastly, in terms of dry-docks during 2024, we still have seven small LPG vessels scheduled for dry-dock as none was dry-docked in the first quarter.
In Slide 6, I would like now to provide an update on our investments. That is the interest we hold in five vessels through two joint venture structures that we do not consolidate in our results, that use the equity method of accounting. The book value of our investments as of March 31 stood at $42.3 million. Out of these five vessels, four are small gas carriers and one is a medium gas carrier that was delivered last year. In terms of chartering, one vessel had its time charter extended for 12 months, and another vessel entered into a new six-month period charter. For the one vessel that we’re scheduled to be dry-docked in the current year, it’s dry-dock was completed in the first quarter. As announced during our previous call, we held an interest in another medium gas carrier, a sixth vessel bought in 2020 that was sold and delivered during the April of this year. As these investments are more short term in nature, we are happy to crystallize the profits from the rapid rise in asset prices. From the sale of the Eco Ethereal, StealthGas received a $24 million interim distribution of the cash proceeds during April. The company’s share of the profit from that sale will be reflected in the income from investments during the second quarter and was estimated at $9.5 million, that would translate to over $0.25 to the bottom line from that sale alone.
In terms of our fleet geography, presented in Slide 7, our company mainly focuses on regional trade and local distribution of gas, while the larger vessels often engage in intercontinental wages. This graph is a snapshot of the positioning of the fleet, including the joint venture vessels as of mid-May. The majority of our fleet, 18 vessels or 55% currently trade in Europe, particularly in the Northwest and in the Mediterranean. We have strategically focused over the past several quarters on this area as the freight rates West of Suez continue to command a premium over East of Suez and the customers as well as the terminals is mostly to establish industrial players demand higher specific vessels and strict adherence to safety principles. Seven vessels are trading in the middle Far East, four vessels trading in the US and Caribbean and three in Africa. We do not expect a major redistribution in the trading of the fleet. The Red Sea safety situation is ongoing with more Houthis attacks being reported and it is not common for LPGs in our fleet to cross the Red Sea anyway.
Middle East exports destined for Europe will more likely be diverted to Asia and replaced by US exports to Europe. Our Handy Size vessels, particularly due increased transatlantic trades between US and Europe. It’s more rarely that our vessels across the Panama for now to do the US-China route. The delays in the Panama and our crossing that have affected, particularly VLGC vessels during the beginning of the year have now abated, although with reduced average number of crossings and the market for larger vessels is finding a new balance. That being said, we do have an MGC vessel currently loading in Houston that will go through the Panama Canal, that due to its smaller size, there were no delays in bookings slots. Finally, I would also note that we’ve been increasingly engaged in ammonia trade that our Handys and MGC vessels can carry and two of our vessels are currently transporting ammonia cargoes.
I will now turn over to Konstantinos Sistovaris, for our financial performance. Thank you so much.
Konstantinos Sistovaris
Thank you, Michael, and good morning to everyone. I will discuss our financial results that were released today. Let’s turn to Slide number 8, where we see a snapshot of the income statement for the first quarter of 2024 against the same period of 2023. Even though fleet days were reduced by 15%, and we had five fewer vessels, net revenues after voyage expenses came in at $38.7 million for the quarter, an increase of 14% as a result of higher revenues due to better market conditions, the addition of two larger vessels in our fleet with higher earnings capacity and the reduced voyage costs due to lower spot exposure.
It is worth mentioning that 26 out of the 27 vessels in the fleet improved their profitability. Operating expenses were [$11.5 million] (ph) for the quarter, down 21%, a better result than expected, mostly due to the 15% decrease in the number of vessels in the fleet. We also note the decrease in the dry-docking costs of $1.1 million as no vessels were dry-docked during this period and the increase of $1.4 million in G&A costs as a result of an increase in stock-based compensation expense. As a result of the increase in revenues and decreases in costs, income from operations increased 80% to $17.5 million for the first quarter of 2024 from $9.7 million last year. Interest and finance costs also increased by $0.5 million year-on-year because in the last year results were included some profits from the selling of swap positions due to the debt repayments. The earnings from the investments in the joint venture amounted to $2.6 million versus $8.8 million last year, a significant $6.3 million drop. The reduction in these profits is due to some profits that were being booked in the first quarter of last year from the sale of one vessel, whereas no sales took place in the first quarter of this year.
As a result of the above, we ended the first quarter of 2024 with net income of $17.7 million compared to $16.8 million for the same quarter of last year, a 5% increase. While on an adjusted basis, net income was $19.1 million versus $17.3 million last year, a 10% increase. Basic and diluted earnings per share for the first quarter were $0.49 and adjusted earnings per share, $0.53. These were record quarterly profits on top of the record profits of last year’s quarter.
Looking at our balance sheet in the next slide. Our liquidity, including restricted cash was at the end of the quarter, $83.6 million, on par with the December 31st figures. Vessels held for sale that were $34.9 million as of December 31st were nil as of March 31 as these two vessels were sold in January. And the proceeds were used for the delivery of the two medium gas carriers and debt repayments. Also, deposits for vessels that were $23.4 million as of December 31st, were nil as of March 31st as the two medium gas carriers were delivered to the company. Vessels book value increased from $504.3 million to $617.6 million, a significant 23% increase as a result of the addition of the MGC vessels. The book value of our investments in our JVs was $42.3 million, close to the previous quarter for the six vessels. Total assets of the company increased over the three-month period by 8% to $752.9 million.
Moving on to the liability side. The total debt increased by $37.1 million compared to December 31 to $160.6 million as a result of the $70 million financed during January 2024, but we expect this to come down again in the second quarter as more debt prepayments took place. Shareholders’ equity increased 3.5% or $19.1 million over the three-month period.
Concluding our financial commentary with the next Slide 10, where we’ll briefly have a closer look at our debt structure. During 2023, the company very aggressively halved its outstanding debt with over $154 million of debt repayments. And then followed in the first quarter of 2024 with prepayments of $30 million and in the second quarter of 2024, another $50 million. Part of the debt being repaid was replaced with a cheaper facility with a longer tenure maturing in 2032, relating to the two medium gas carriers that joined the fleet in January. As currently, there are no further CapEx commitments, the company is still considering reducing its debt further, although there are now only four vessels financed, two of which were financed this January. The other two that have facilities with tenures expiring in December 2025 and January 2026. The debt amortization is now reduced to just $9 million per annum, that will allow significantly faster cash flow accumulation going forward. 23 vessels are unencumbered, a considerable advantage, if ever there is a need to raise funds. On the other hand, prepayments have reduced the debt that is hedged with interest rate swaps to 19% currently.
I will now hand you over to our CEO, Harry Vafias, who will discuss the market and the company outlook.
Harry Vafias
Moving on Slide 11. LPG exports increased by a strong 4.3% in 2023, and we continue to see exports increasing at 5% in the first quarter of this year, although we have expected the US to slow its export growth after the cold snap in the beginning of the year, results for the first year showed that US exports continued unabated, making a 12% year-on-year growth. We expect the US will continue to ship incremental amounts of NGLs in the current year. As we have discussed before, there are logistical issues that have to be solved to meet the increasing volumes. But LPG exporters are already planning ahead to accommodate these incremental volumes from Texas and Canada. While the US accounts for over 40% of global exports, exports from the Middle East that had fallen last year seemed to have rebounded. And although that is hard to come by, particularly as run and exports destined to China seem to be on the rise. We would hope to see other Middle Eastern countries not using the dark fleet, ramp up their exports as well.
The situation in Europe as well as one of the largest importance remain the same due to the mild winter with lackluster heating demand and petrochemical usage, volumes that were reduced last year seem to have been flat over year-over-year, although intraregional trade is active. The particularly good news for LPG come from the two most populous countries, China and India. First quarter numbers saw a very strong import demand from China with volumes rising a fantastic 27% year-on-year. India’s growing economy of 1 billion-plus people where 45% of LPG demand is for household use has as recently as much decided to extend subsidies for LPG and government-facing general elections soon is supportive of further penetration of LPG as an alternative fuel. This bodes well the future demand from one of the fastest-growing economies. In China, the driving force for LPG demand is, of course, the expansion of PDH capacity for the production of propylene. Utilization rates for the first quarter for this plan seems to have remained subdued around 65% in March due to the low profit, although reduction in quoted LPG prices in the last couple of months are positive for higher margins and increasing demand.
LPG remained a competitive fuel to naphta during this period. During last year, nine PDH plants — nine new PDH plants came on stream, adding 5.4 million tons of capacity. We reported that another 7 million tons is set to be added this year and 6 million tons in 2025. Even if these are too optimistic given the usual delays and on an estimated 8 million to 9 million tons added over the next two years, that’s still a 50% capacity addition from today’s level.
On Slide 12, we present some of the key fundamentals in our shipping markets commencing with time charter rates. Rates overall remained flat during the first quarter, albeit at historically high levels. With the exception of the larger size ships, the slower slight drop. Looking at the small LPG trade west of US, the spot market during Q1 was an average holding up on levels. We show limited vessel availability and little idle time owners. On the period side, we continue to see good activity in Q1 with charters keen to secure forward tonnage capacity and rates keeping firm. This relates for the larger pressure ships are now at around all-time highs. East of Suez, we saw a quiet spot market with little action, more or less on par with Q4 of last year. For the Handysize and MGC vessels following a very firm Q4, where the VLGCs pulled up the MGCs, and the MGCs pulled up the Handys, Q1 became a bit of a disappointment for the owners, the collapse of VLGC at the beginning of the quarter.
LPG trading dropped significantly and petchem trading remained quiet. As a case of a softening export market, the period market also lost steam and charters started to pull back on their period interest. It’s, however, a market controlled by a very limited number of owners and time charter ads have held up reasonably well despite the reduced number of inquiries. With a more long-term view, we continue to strengthen the fundamentals for our core fleet of small pressurized ships continue to look promising with an aging fleet as almost a third of the fleet is over 20 years old, and although scrapping continues to be limited due to the firm markets, we continue to see only a handful of vessels being ordered, not enough to tip the supply-demand balance.
Similar picture in the Handysize fleet where there only five ships to be delivered over the next two years. On the other hand, in the MGC is indeed in a higher order book that grew further since our last call to over 30%, but that’s especially for vessels that will now join the fleet in ’26 and even ’27, until then over the next two years, supply is limited and our vessels ordered two years ago are now in the water earning money. The driving force for the increase in ordering of medium gas carriers as well as VLGCs is also related to ammonia trading and the fact that ammonia seems to become a serious contender for the future fuel of choice that will power the next generation of really environmentally friendly shift to replace gas oil.
On Slide 13, we are outlining some key variables that may affect our performance in the quarters ahead. In the short term, we’re entering the seasonally weaker summer months, and we would expect activity to slow somewhat, although the market is still firm as we speak. We continue to remain optimistic on the longer term for the reasons analyzed before. Today, we announced a record breaking quarter, profits of $17.7 million for Q1 are an all-time high for our company in the 20 years since its inception. These exceptional results were mainly driven by higher revenues and reduced expenses and the two new MGC vessels that were added to the fleet immediately started producing results. The reduced share count as a result of the share buybacks, further enhance the bottom line on the earnings per share basis. In the current quarter, we have so far repaid over $53 million of debt and now have 23 unencumbered or debt-free vessels and a debt ratio below 15%.
We continue to benefit from the positive market backdrop, and we look forward to continue rewarding our shareholders trust with more positive quarters. And even though our share price has climbed significantly over the last year as a result of the record profitability, we believe we continue to be a sound still undervalued investment, not just because we’re optimistic on the market and have been producing results, but also because we’re taking at the discount in terms of price to NAV and price to earnings.
We’ve now reached the end of the presentation. 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 again with us at our next call for our second quarter results in August.
Operator
This concludes conference call. Thank you all for participating. You may now disconnect your lines. Thank you.
Question-and-Answer Session
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