StealthGas, Inc.

Thank you and good morning, everyone, and welcome to our first quarter 2021 earnings conference call and webcast. I'm Michael Jolliffe, the board chairman of Stealth Gas, and with me on our call today is Harry Vachas, the CEO of Stealth Gas, along with our finance officer, Fenja Sekalaris. 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 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 United States dollars. Slide 3 summarizes the key highlights of our first quarter 2021 results that we released today. Although we concluded a fair amount of new period charters, these slightly improved market conditions were not reflected in our revenues and profitability. Our performance remained quite similar to the fourth quarter of 2020 as we still chartered a high number of our vessels in the spot market, thereby facing high voyage and of higher costs. Indeed, in this first quarter our spot days were equivalent to the full operation of 13 vessels in the spot market. The increase in bunker costs, along with the fact that we operated two of our product tankers throughout this quarter in the spot market, led to a sharp rise of our voyage costs, thus suppressing our spot earnings capacity even further. we do look at autumn with cautious optimism. As the global vaccination process accelerates, this gives us hope for a more substantial market recovery. In addition to this, our market fundamentals remain strong with a low order book and a heightened demolition activity, thus assisting our segment even further. We believe that the combination of these parameters will most probably lead our market rate to pre-pandemic levels. However, the speed and timing of this anticipated recovery still remains uncertain. Focusing on our operations, our fleet utilization for quarter one 2021 was 98.7%, with about 50 days of technical off hires, mainly as a result of the dry docking of one small LPG carrier. In terms of our operational utilization, This came in at 93.1%, mainly due to more than 15 of our ships operating predominantly in the spot market, the equivalent to 31% of our voyage days and unusually high spot presence. Going forward, our fleet coverage has improved. We have 61% of our fleet days secured on period charters for the remainder of 2021, with total fleet employment days for all subsequent periods generating $87 million in contracted revenues, including the time charter agreements of our joint venture structures, totally secured revenues, increases to about $100 million. We need to highlight that this quarter, leveraging upon our proven and long-standing sale and purchase experience and grasping the value momentum in the MGC segment, we took the strategic decision to sell the 35,000 cubic meter MGC carrier, the Gaschem Hamburg, owned by our MGCJV, a decision that proved to be profitable as the selling price resulted in an aggregate gain of US$7 million. The sale was concluded within May 2021 and proved that our expanded presence and diversification approach within the broader LPG segment has indeed been both profitable and strategically sound. Focusing on our financial performance, and compared to the first quarter of 2020, our revenues came in at $37.4 million, while our daily time charter equivalent decreased by about $100. As our spot exposure increased, so did the voyage costs incurred, thus suppressing our daily time charter equivalent earnings. With an EBITDA of about $13.5 million, our net income came in at $750,000, corresponding to an EPS of 2 cents. Our capital structure remains healthy, with low gearing and zero capital commitments in the near-term future. Slide number four provides an analysis of our fleet employment. In terms of charter types, Out of a fleet of 42 operating vessels, excluding our seven JV vessels, we have five of these on bare boat, 28 on time charters, and nine in the spot market. Compared to our previous announcement, we managed to reduce our spot presence and fix all of our tankers on period charters, thus narrowing our spot exposure to the small LPG market. Indeed, We successfully concluded 10 new charters and charter extensions of short durations. We have 16 vessels concluding their period charters up until the end of 2021, which we view as a real opportunity. Our period coverage for the remainder of 2021 is in the order of 61%. Currently, our period coverage for the second quarter of this year is in the order of 80%. We have close to $90 million of secured revenues, and including our joint venture vessels, total secured revenues increased to about $100 million. In slide 5, 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 vessels, currently has three out of the five total vessels under time charter contracts. The time charter contract for the medium gas carrier, the EcoNabula, was recently extended for another three months, while we recently fixed the Gas Heralambos on a one-year time charter. Focusing on our second joint venture, comprising of two medium gas carrier vessels, these are all under time charter contracts, thus producing steady cash flows. Following the aforementioned sale of the Gaschem Hamburg, which produced considerable gains, total free cash base within our joint venture arrangements has increased, and it is now in the order of about 40 million. In terms of our fleet geography, presented in slide six, 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 May 24th, 2021. Currently 16 vessels of the LPG fleet trade in Europe, 14 vessels in the Middle East, five vessels trade in South America, and three in Africa. I will now turn the call over to Fenia Sakalaris for our financial performance. Thank you, Fenia.

Thank you, Mr. Jolliffe, and good morning to everyone. I will continue the presentation focusing on our financial performance for the first quarter of 2021. As mentioned earlier in our call, in this first quarter of the year, our spot activity remained high, thus undermining both our revenue and profitability potential. Let us move on to slide 7, where we see the income statement for the first quarter of 2021 against the same period of the previous year. Voyage revenues came in at $37.4 million, marking a $3 million increase compared to the same period of last year. This increase is attributed to seven fewer vessels on bare boat now operating at their spot or on a time-chartered contract. Voyage costs amounted to $7 million, marking a $4.1 million increase compared to Q120, as our spot vessels more than doubled. Our intense spot activity brought upon a sharp rise in costs, particularly for bunkers, which increased by 50% compared to the previous quarter, when we had the same number of spot days. This increase is primarily due to the fact that this quarter we had two of our product tankers operating primarily in the spot market, yielding high costs and poor time charter equivalents due to the soft tanker market. Based on all of the above, our net revenues for the period were 30.5 million. Running costs at 15.1 million marked about a 14% increase compared to Q120, mostly attributed to seven fewer vessels on bare board, for which now we incur operating costs along with a $150 rise in our daily crew costs attributed to the COVID-19 pandemic. As already discussed in our previous calls, the COVID-19 pandemic has increased our quarterly crew costs by about $500,000 per quarter. Based on all of these, our EBITDA is in order of $13.4 million. Interest and finance costs marked close to $1.1 million, mainly attributed to LIBOR decrease. In terms of interest costs, we did witness a sharp decline in costs. It is worth to mention that our average margin, including LIBOR, is now in the region of 2.8, while for the same period of last year, the average margin was about 4.5%. With regards to income from our JV, both of our JVs entered the quarter with a profit of which 1.1 million is accounted to Stealth Gas. Based on all the points analyzed above, we ended the first quarter of 2021 with a net income of $750,000, corresponding to an EPS of $0.02. Slide 8 demonstrates our performance indicators for the period examined. As mentioned earlier on, our operational utilization for Q1-21 was in the order of 93.1%, as increased sport activity led to a higher number of adult days. Our average daily TC, including all stealth gas vessels, small LPGs, semi-refs, and tankers, but excluding JV vessels, is slightly lower than our average daily break-even, marking, though, a noticeable increase if the performance of our spot vessel is excluded. Looking at our balance in the slide 9, our pre-cash is in the order of $37 million, while to date we have no further capital expenditure, i.e. no cash commitments in the near future. Our gearing is now in the order of 38%. Based on our scheduled principal repayments, we will reduce our leverage by around 42 million per year. We have no balloon refinancing obligation for the remainder of 2021 and have already arranged for the refinancing of about 65% of the balloons due in 2022 and 2023 as well. I will now hand you over to our CEO, Mr. Harry Vafios, who will discuss market and company outlook.

Let's proceed with slide 10. During Q1 21, market sentiment slightly firmed, mostly due to the increase in demand from India and China. Going forward, the LPG demand in Asia, subject of course to COVID-19 remission, is expected to increase further, driven by the petrochemical and retail sector. In China, we witnessed two new PDH plants that came online in 2020, one more since the beginning of 21, and four additional PDH plants are scheduled to commence operations at the end of 2022. As these plants heavily rely on imported propane, this is positive for LPG trade. Focusing on retail demand, this is expected to increase as a result of the growth in population in the Asian region along with investments in industrialization and urbanization that take place in the area. Another factor that heavily affects the LPG market is the price of oil. It should be noted that a further recovery in the oil market will make LPG more competitive relative to NAFTA, hence LPG in demand for industrial use will increase. Indeed, the price of oil has risen about 70% since October 2020, as prices increased due to higher demand. On slide 11, we see that during Q1 2021, rates for small LPGs marked a slight increase compared to the previous quarter, but still remain much lower than pre-pandemic level. Looking at the small LPG trade west of Suez, the effects of COVID-19 were still visible in the market, but we saw signs of improvement, particularly from mid-January onwards, which materialized more fully towards the end of the quarter. Number of cargoes increased, thus beginning to reduce a significant number of idle ships. We therefore witnessed an increase in rates, although we are still far away from a balanced market. We expect that as Europe slowly emerges from the pandemic, it will add further activity and confidence to the market. East of Suez, the market remained more stable, both in LPG and PETChem cargoes. We still witness a resistance from charters for material freight increase, and in terms of period charges concluded, these have only been for short periods. It seems that charters are still hesitant to take longer-term charter positions, which is most probably linked to the pandemic. It's expected that, though, that as the COVID-19 pandemic subsides, period coverage and confidence will increase. Focusing on our market fundamentals, the small LPG pressurized segment has a substantial old tonnage. 31% of the fleet is already above 20 years of age, which is the driving force behind the increased scrapping. Since the beginning of the year, we have witnessed the demolition of four small pressurized ships. It's highly likely that scrapping activity will increase further within the remainder of 2021 if the market remains unchanged. As per recent published orders, there are 19 vessels on order, 11 to be built in Japan and Korea, and 8 to be built in China, and to be delivered until the end of 2023. On slide 12, we discuss our company's outlook commencing with our short performance since the beginning of 2021. The performance of the stock is presenting along with selected gas carriers peer group and the price of oil. Since the beginning of this year, the majority of shipping stocks follow a correlation to oil price increasing trend. It's expected that as economy bounces back from the COVID-19 pandemic and the global This will favor all segments of the shipping industry. Focusing on our companies since the beginning of 2021, our share price has increased by about 30%. However, we still trade at the discount to NAV. In slide 13, we are outlining the key variables that will affect our performance in the quarters ahead. Given the market turmoil, it's quite difficult to make firm predictions. We have isolated a few key points that may assist our financial performance in the upcoming quarters. First point is that we have a total period coverage of about 100 million in pre-contracted revenues. In addition, we have several vessels expiring the period charters in the short term, plus about 10 ships in the spot market, which poses a risk, but at the same time gives a significant operating leverage should period activity pick up and market rates improve. Moreover, we have all of our 22K semi-ref and MGC vessels and tankers on time charters, At improved rates, that's securing revenues and shielding our voyage costs. Fourth point is that we are under a very low LIBOR rate environment, hence our finance costs will decrease even further. Last but most important is that should vaccines bring the pandemic into remission, we anticipate our market to leverage on its strong fundamentals, such as low order book and accelerated scrapping, and therefore recover relatively fast. Concluding our presentation, slide 14, we present a brief summary of our company's and market's strong points. As mentioned in our previous earnings call, we are all firm believers that our healthy capital structure, along with our market expertise, will help us grasp the benefits of the small LPG market recovery when it arrives. At this stage, our chairman will summarize our concluding remarks for the period examined.

Our performance in the first quarter of 2021 was still governed by the COVID-19 pandemic. Although demand for small LPG carriers slightly strengthened and rates seemed to have gained a positive momentum, these effects began to materialise towards the end of the quarter, thus were not reflected in our results for quarter one 2021. Due to market conditions, our presence in the spot market remained high and compared to the last quarter of the year, What mostly undermined our spot profitability was the operation of two of our product tankers in the spot market for the whole duration of the quarter, thus incurring high voyage costs against poor freight compensation. What we find important amidst these market conditions is that we have designed our fleet employment so as to grasp the positive market turn expected with the remission of the COVID-19 pandemic. We have 16 vessels concluding their period employment up until the end of 2021, and along with our ships currently in the spot market, it gives us the opportunity to recharter 60% of our fleet at a time when hopefully the market is expected to improve. 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.

As a reminder, you will need to press star and 1 on your telephone to ask a question. To withdraw your question, please press the pound or hash key. And your first question comes from the line of Randy Givens from Jefferies. Please go ahead. Your line is now open.

Howdy, Team Stealth Gas. How's it going?

Hi, Randy. Hope you're well.

Yes, sir. All good. A few questions for me. You know, you stated in release there was some positive momentum materializing towards the end of the first quarter. As such, how much stronger are you expecting rates and maybe utilization to be here in the second quarter? And what is utilization currently?

Listen, Randy, you know, in this environment with COVID still raging in certain countries like India, vaccination percentage is still very low. huge increases on crude change expenditure and the big hit we got previously from the big gas bankruptcy makes us very very cautious and I don't believe that Q2 will be in any way better than Q1. As you saw from our commentary we expect that we're going to see some improvement after the summer. So if I was you, I would continue to calculate the financials and making your analysis basis that Q2 is not very dissimilar from Q1.

Okay, fair. And then I guess the consolidation that continues to take place throughout the LPG sector, Are you open at this time to either selling further vessels or purchasing vessels or maybe even switching vessels, right, changing out some of your handy-sized LPG carriers for additional small LPG carriers? Obviously, you recently sold the Gas Cam Hamburg for a profit, so additional vessel sales likely here?

Again, Randy, you know how we think. If we can make a nice profit or a clever move, we're going to make it. If it's not in our traditional fleet, we, as you know, own shifts in Stealth Gas in four different segments. The pressurized LPGs, semi-ref LPGs, fully ref LPGs, Product tank is an Afromax, so that's actually five segments. So, indeed, we are open for anything that will add shareholder value. And the gas can Hamburg Sail, which is a ship that we bought last year, we managed to make a profit out of the ship and sell it for a $7 million profit in less than 12 months. I consider that, in this environment, quite a successful asset play.

Okay. And then you mentioned shareholder value there. Any updates on additional tender offers, share repurchases going forward?

I don't think we have the financial strength at this moment to do big things like we did previously with the share buybacks and the tender offer. Unfortunately, the COVID pandemic has lasted longer than we expected last year. of course our board is always eager and ready when we see better times better rates and obviously more cash on our balance sheet because don't forget that 40 million is in the JV structures and not in the stealth gas purse and of course the stealth gas share price being as low as it is now of course, to rediscuss and re-approve further share repurchases as we have done a lot of them in the last three to four years.

All right. That makes sense. And I guess lastly, there was a report out this morning saying that massive levels of LPG scrapping may be needed in the coming months. I guess two questions. What are your thoughts on this and why hasn't there been much scrapping in recent quarters?

I think that refers, Randy, on the larger ships. It wasn't a reference on the smaller ships because... Yes. Again, I think the article mostly referred on the VLGC side where you have a lot of new buildings and quite a modern fleet. This is the exact opposite of the pressurized market where you have a relatively small order book and a huge percentage of overage ships. I think it has happened. I mean, four ships being scrapped in the pressurized segment is a number that we haven't seen for many years previously. Don't forget that the scrap prices currently are very high, which induces people to sell for scrap. But, of course, don't forget that it's all a matter of expectations. If people have a debt-free 25-year-old ship and expect the market to be good in Q3 or Q4, maybe they want to hold on to it. If their expectations don't materialize, then obviously then she's a scrap candidate. But I think this year will be a clear sign of what people believe because we hope it will be the end of COVID-19 pandemic. and also we'll see what the rates will do towards the end of the year. Will they go up or will they stay the same at low levels? We are one of the few segments of shipping that has not had a good run-up in the last few years like the other segments have had. I mean, containers and dry are doing really well. Tankers are doing really badly but had a boom here last year. So I think sooner or later our turn should come. We don't know when that's going to be, but let's hope it's in the end of Q3 or Q4 this year.

Got it. All right. Okay, I'll turn it over. Thank you so much. Good luck.

Thank you, Randy. There are no further questions. Once again, if you do wish to ask a question...

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. I look forward to having you again for our second quarter results in August 21. Thank you very much.