StealthGas, Inc.

Good morning, everybody, and welcome to our first quarter of the 2023 earnings call and webcast. This is Haivati, the CEO of Stelgas, to discuss market and company outlook, and with me is Mr. Stovaris, handling investor relations, to discuss the financial aspects. Before we commence the presentation, I'd like to remind you that we will be discussing four weekly 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 the presentation. The risks are further disclosed in the still glasses filing with the Securities and Exchange Commission. I would also like to point out that all amounts quoted unless otherwise clarified are stated in U.S. dollars. Today, we released our earnings results for the first quarter of 2023, reporting yet again another quarter of strong profitability. So let's proceed to discuss these record results and now take you on the company strategy and the market in general. On slide three, we'll summarize some of these highlights. The first quarter is usually a seasonally strong quarter for LPG trading, so we continue with our strategy of fixing more shifts on time charters at improved levels. The reduction in support market days by 13% and the fact that we had a single vessel to dry dock increased the operational utilization of the fleet to 97.3%. We saw increased interest from travelers in lodging longer periods, and we took advantage of that. We thus managed to have secured today 8% of the remainder of 2023 days contracted out. We have locked in about $115 million in revenues for all subsequent periods. In terms of our sale and purchase activity, we continue to look for opportunities to sell some vessels in a boosting market. Together with our joint venture partners, we sold the medium gas carrier Ecoevoluzione for a profit of about $14 million in March. Following that, we recently entered into an agreement to sell four more vessels for a combined sale value of about $70 million. We will incur a profit that will be reflected in over the next couple of quarters, depending on when the deliveries will take place to their new owners. Looking briefly at our financial highlights, Virginia's revenue came in at a very strong $38.1 million compared to $35.9 last year, a 6% increase, despite having a much smaller fleet. Our income from operations, that is after operational expenses, came in at $9.7 million compared to $8.2 million last year, a 19% increase. While our net income assisted by the return on investment from our joint venture scheme in at $16.9 million compared to $7.6 million last year, more than double, translating to an EPS of $0.44 for the quarter. These profits were the best profits we have had for a single quarter. We continue to maintain a healthy balance sheet with ample liquidity of $92.6 million as we continue to pay down debt. I would also like to announce that at board approved today, a $15 million share buyback program that we are going to implement going forward. Due to high interest rates, our priority will be to pay down our debt. Therefore, the share buyback program may be gradual. We are confident that our cash flow will remain healthy for the rest of the year, thus giving us the confidence that we will be able to meet both the above targets. On slide 4, for a fully-owned 3-day planning update as of May, Last time, we announced eight new charters. This time, we announced nine new charters and charter extensions at similar or better levels, and we continue to see charters interested in locking in longer than usual periods as we recently entered into yet another three-year time charter, which is always a good sign for the market. As such, we increased our contracted days to 80% for the remainder of 2023 and have secured about $70 million in revenues. and our total contractor revenues for all tiers have increased to $115 million. We have almost our entire fully-owned fleet on time charges and only two vessels trading in the spot market. Lastly, out of three Humvee-sized vessels due for dry dock this year, one was dry docked in the first quarter, one was dry docked in April, and we expect to dry dock the third one around the middle of June. On slide 5, we are providing an update on our two JVs, comprising of five vessels in total. Our first JV of four smaller vessels, we did not enter into any new time charges, mainly due to the fact that three of these vessels are due for dry dock this year, and we have the gas Haralambos scheduled to begin imminently. We are in discussion for jumping the Haralambos post each dry dock. We may postpone one of the two remaining dry docks to 2024. As such, we currently have two of the best operating in the stock market. The second, JV, had the comprising of a single medium gas carrier in the water, plus one more under construction. During the first quarter, JV decided to sell the other medium gas carriers it owned, the Ecovoluciona, for close to $40 million. This was a very profitable sale, and the share of the profits was shown in the income statement for the quarter. Following the story, in April, Stelgas received 19.2 million in cash in distributions from the JV. In terms of chartering, the remaining vessel, the Equatorial, entered a very profitable time charter for one year, with charter's option to extend one more year, and in addition, charter's option to buy the vessel instead, that if it doesn't get exercised, there is an option for the JV to sell the vessel back to the charterer. all at very profitable levels. As previously discussed, we do not intend to fund a new training acquisition with our own equity. The JV has sufficient cash in hand, earmarked for this, and have already entered into discussions with financiers to provide the debt. In terms of our fleet geography in slide 6, our company focuses on regional, trade, and local distribution of gas. This graph is a snapshot of the positioning of the fleet, including the JV vessels, as of May 23. The distribution of our fleet has not really changed since our last call, as we continue to position more than half of our fleet in Europe, where it is currently better, and the rest mostly in Asia. Currently, we have 16 ships trading west of Suez, particularly in northern Europe, nine vessels in the Middle East and Far East, slightly less than before, four vessels in the U.S. and Caribbean, and the last two vessels in Africa. Mr. Stovallis will now update you on our financial performance.

Thank you, Harian. Good morning to everyone. I will discuss our financial performance for the first quarter of 2023. Let us turn to slide seven, where we see the income statement for the first quarter against the same period of 2022. Net revenues came in at $34 million for the quarter, a considerable increase by 8% compared to last year, considering that there was a reduction of around 12% in total fleet days. Operating expenses were $14.5 million for the quarter, similar to the previous quarter number. Operating expenses were elevated compared to last year, despite the fewer vessels, and we expect them to come down in the next quarter even though we faced some inflationary pressures, particularly with crew costs. In terms of dry docking, we had one million in the first quarter as we dry docked one of the hand-designed vessels and incurred expenses for the preparation of two more dry docks that would follow. Depreciation is another item that we saw a decrease to 6.6 million due to the decrease in the number of vessels. Interest and finance costs increased to $2.6 million due to the increases in interest rates, but they were low for this quarter as we included profits from the sale of two interest rate swaps. We expect these costs to increase going forward. This quarter, we also had a considerable increase in equity income in investees, which is our share in the profits of our JV structures. that came in at $8.8 million for the quarter as a result of the profits from the sale of the joint venture vessel. As a result, we ended the first quarter of 2023 with a net income of $16.8 million compared to $7.6 million for the same quarter of last year. This was a record quarterly net income figure for Stealth Gas. Looking at our balances in slide 8, our liquidity, including restricted cash, short-term investments, that is time deposits, was at the end of the quarter $92.6 million, close to where we were at the end of last year, despite having paid down $32 million in debt during that quarter. The liquidity came from vessel sales and from improved operating cash flows. Advances of $23.4 million relate to the payments made on the medium-gas carrier vessels under construction. Our vessels' net book value decreased from $628 million to $619 million due to regular depreciation and the sale of vessels. The total value of our investments in RJVs increased to $55.5 million. We did not invest more funds in the JV. This increase was the result of the profits of the joint ventures. The overall outstanding debt was $245 million compared to $277 million in the previous quarter. As a result of the solid profits being reported, we increased shareholders' equity to $532 million. Concluding our financial commentary with slide nine, we will briefly reiterate the debt profile and capital structure. Following the refinancing done over the last couple of years, we have extended the maturity of the loans to 2025 and beyond. Recently, the focus has been towards paying down debt. During the first quarter of 2023, 32 million of debt, including regular amortization, was repaid, releasing five vessels. During the current quarter, another $36 million has already been paid, including full repayment of the debt on two more vessels. We expect by the end of the quarter to repay another $30 million related to the vessels that were agreed to be sold. We expect to continue to reduce debt through regular repayments as well as repayments, as the case may be, in order to reduce our expenses. Overall, debt has been reduced from $302 million a year ago to below $250 million at the end of the first quarter. About 32% of the current debt is hedged with interest rate swaps at an average of 2% that mitigates the effect of interest rate rises. During the quarter, we had to close a couple of these positions as a result of the debt repayments. We thus incurred profits that further reduced the interest rate expenses for that quarter. Overall, we continue to maintain very low leverage and have increased the number of unencumbered vessels from 6 to 10. We have also signed a new loan agreement with one of our existing financiers, for the financing of the two new building vessels, whereby we expect to receive up to $70 million in finance proceeds for the delivery of these vessels, subject to customary closings. I will now hand you over to our CEO, Arif Vafias, who will discuss Smart Company and Outlook.

On slide 10, we are providing some insight on the energy market as a product, and the increase in trade we've been witnessing so far. According to data from Baikal, of course, during the first three months of 2023, LPG exports increased 6%, slightly better than was expected. The many exporters of LPG in the US and Middle East countries continue to show significant double-digit increases in exports, with US firms planning capacity additions to further increase exports in the future. We expect European imports to start stalling and we may see some declines, especially as summer sets in. However, the theme of increased on-mire imports as loss of containers to be shut down, even though LPG is not sanctioned, remains valid as data show. Apart from Europe, the largest importers of LPG, India, China, Korea and Japan, have increased their imports. The late reduction in LPG contract prices by price set to Saudi Arabia to be an opportunity for importers to restock. As far as China, the lifting of COVID restrictions led to a 4.5% increase in GDP in the first quarter and a significant increase in imports of LPG. Also positive for the short-term outlook is the fact that margins for PDH plants have finally turned positive, and we see reported an increase in utilization rates for the production of polypropylene. We have mentioned before that the main catalyst for Chinese LPG demand will be the increased capacity of PTH plants that use imported propane as a feedstock. These plants have been plagued by capital delays and low production run rates due to their favorable margins, but the rapid expansion of PTH capacity in China over the last few years is certain. On slide 11, we are presenting some of the key fundamentals in our shipping market, commencing with the market rates for our market. During Q1 23, time-shorty rates remained firm. Looking at the table with the published rates on a one-year-over-year basis, there continues to be healthy growth between 4% and 15%, depending on the size of the location. Looking at the small L2Gs, West of Swiss and spot market has remained tight since our last call, and charters have been left with few choices of vessels for their cargos, and consequently, owners have been able to keep rates at strong levels while also keeping idle time at a minimum. East of Suez, the sport market in Asia has been a bit more active lately on both petcams and LBG, but there continues to be a high degree of TV coverage amongst the charters in the area. The period market has been relatively quiet as the PC coverage amongst charters was already high. Rates are nudging upwards slightly, but the gap with the TCRs being fixed west of Suez is increasing. For the hand-designed vessels, the spot market has continued to be tight, with very limited tonnage coming available for spot cargoes. Charters have on several locations found themselves with potential cargoes to lift, but no vessels to lift them. On the period side, we have seen a bit of activity. Several existing charters have been extended, and a couple of new ones concluded. The market remains tight, even though we've seen some of the short-term ammonia tank charges coming to an end and the vessels switching back to LPG. The fundamentals of our core fleet of small tertiary ships continue to look promising, as almost a third of the fleet is over 20 years of age. As the market remains strong, trapping activity continues to remain subdued. Even the older vessels that we recently sold were destined for further trading. We should expect that tighter regulation in the future will push some of these vessels to get scrapped. The ordering activity continues to be subdued with only a handful of additional vessels being ordered. As per recent published orders, there are about 21 ships on order to be delivered in the next couple of years, including a couple that are set for 2023 deliveries, but have gone under the radar. Such an order book in itself is not posing a risk of upsetting the balance of the markets. We continue to believe that the risk of seeing bulk ordering of new vessels that could keep the supply-demand balance is improbable. A sub-2% annual increase in the fleet before scrapping is one of the smallest, if not the smallest, in all shipping segments. On slide 12, we are showing the evolution of our LPG fleet. In this slide, for comparison purposes, we have excluded the tank investments that we held up until 2021, and we are focusing on the pure LPG fleet in terms of cubic capacity and including the JV vessels. We have always been active in the sell and purchase market, buying and selling ships. With the asset values rising as a result of the strong market, we find it an opportune time to sell some ships. After selling four of them in 2022 and four more this year, as well as one vessel sold by our JV, we entered into an agreement to sell another four vessels for about $70 million in aggregate. We will record profits from these sales but we are looking to sell more vessels if the price is right. Through such sales, we have reduced the average age of our fleet to nine years, which is quite more than for Endless Stranded. Our JVs will also opportunistically sell vessels and occasionally buy, as for example, the one new building, Medium Gas Carrier, that our JV invested in and is now expected to deliver in September this year. In Arco Fleet, we expect that with the addition of the 40,000 cubic meter new buildings starting in late 2023, we will once again increase the capacity in terms of cubic meters while being able to better serve the diverse needs of our customers with ships of all sizes. It's a strategic decision to diversify the fleet in and split in between smaller vessels that we have traditionally operated and larger vessels and medium gas carriers that have slowly been entering our fleet since 2018. In slide 13, we are outlining some of the key variables that may affect our performance in the quarters ahead. Obviously, the most important development is that we have mentioned earlier the reopening of China after a long awaited two years. With the Chinese economy back on track, we already see increased LPG trading. On the other hand, we are entering the summer months where normally demand for LPG is less strong. Summing up, we are reaping the fruits of the favorable market conditions in our sound business strategy and execution. After having reported in the previous quarter record annual profits, it is with great pleasure that we announce this time the record quarterly profits. The lovable bottom line results were driven by two factors, the strong performance of every new generation from our existing fleet and the returns realized from the investments in our JVs following the sale of one vessel. The profitable sale of four vessels that we announced today will further boost our future results. We are taking the opportunity to invest assets in a rising market and will continue to diversify the fleet with the timely addition of bigger ships. At the same time, we are renewing our efforts to contain our cost base and will make use of our liquidity to deliver it in a rising industry environment and return value back to our shareholders via $50 million share buyback. We expect these steps will solidify the company's future while at the same time will remain positive for the medium-term outlook for the LPG market. We have entered a period where the yields that we can provide to our shareholders can be substantial. We are taking advantage of the strong markets and have continued strengthening our balance sheet, which we believe will enable the seamless continuous operations of our company. Lastly, we remain committed in our discipline and balance strategy that should continue to allow us to generate shareholder value throughout the market cycles. We've now reached the end of our presentation and we should open the floor for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will take our first question. And the question comes from the line of Tate Sullivan from Maxim Group. Please go ahead. Your line is open.

Thank you. Thank you, Harry. And to start, so you ended the quarter, the first quarter with 32 ships, but the sale of an additional ship has already been completed this quarter and selling four other ships. bringing your fleet down to 27 and then adding two new builds. So is the fully delivered size of the fleet 29 today with five JVs vessels?

Please, just start.

Sorry, what was the question?

What is the fully delivered size of the fleet, Harry? Just to confirm, is it 29 after you finalize all the sales that you announced today?

It's a very fluid environment as we're buying and selling ships on a monthly basis, but I think your number is right.

Okay, so interesting. And then announcing the $70 million sale, does it support the previously disclosed net asset value that you disclosed with it a month ago or so longer at $1,450? And can you talk about the gains on that sale or are you not finalized?

I think that makes the energy higher than what was presented.

Okay. So the higher value. Okay. And then how about the opportunity to buy larger ships in this rising rate environment? And then, I mean, would you consider new builds? Is it still extended delivery timelines for new builds? Are there opportunities to buy larger ships? Can you comment on that market?

Not really. The ships are now very expensive. That's why we're selling ships. New building slots are, if you find any, they're going to be very forward. So not a big advantage to our shareholders. So, yeah, it's going to be difficult.

Okay. And then you mentioned paying down. So the sales, the sales of the four ships, bringing in and reducing the debt that you mentioned earlier in the marks, Did you say that the initial pace of the repurchase activity might be a bit slow compared to paying down debt? And how long is the repurchase authorization? Please, two questions.

Sorry, I didn't get the last part of your question.

Well, let's start with how long is the repurchase authorization for the $15 million?

They haven't given us a timeline.

Okay. And then can that start immediately? as well, or when can Stump Gas start repurchasing shares?

Yes, yes. We are authorized now to start whenever we want. So yeah, the idea is to start straight away.

But did you mention earlier, maybe in the near term, more of a focus on paying down debt?

No, we didn't say that. We said we wanted to do both things concurrently, but because obviously we're not generating hundreds of millions, We have to prioritize the debt repayments over shared purchases, which means that we're going to do both, but maybe in a gradual way.

Okay, great. I'll hop back in the queue. Thank you.

Thank you. Thank you. We will take our next question.

And your next question comes from the line of Clement Mullins from Value Investors Edge. Please go ahead. Your line is open.

Good morning. Thank you for taking my questions. I wanted to follow up about recent asset sales. You had previously strived to sell some of the oldest vessels on the fleet. And I was wondering, what's the reasoning behind the decision to sell some of the more modern assets? Is it just taking advantage of a strong pricing environment or is there something else?

Very good question. One, yes, the values for these ships now are quite high, so it's a good time to sell. And two, we want, as we have said many, many quarters again and again, we want to have a bigger balance, a better balance between smaller ships and larger ships. So we need to sell smaller ships and when the time is right, buy bigger ships. So that's why we've done it.

That's helpful. Thank you. And looking ahead, we're going to enter the seasonally weaker period of the year. Could you provide some guidance on where do you see profits going for Q2 and whether you have any visibility for Q3?

No, we don't give guidance, but as we have already said, 80% of the 2023 days are already fixed, so we don't expect huge changes in our numbers.

All right. Thanks for the call. That's all from me. I'll pass it over. Congratulations for the call.

Thank you. Thank you. Once again, if you wish to ask a question, please press star 1 and 1 on your telephone. We will take our next question. Your next question comes from the line of Tate Sullivan from Maxim Group. Please go ahead. Your line is open.

Thank you for taking my follow-up. And then in terms of the joint venture income in first quarter, $8.8 million. I think before you've mentioned how much of that was the gain on the sale versus the JV income, if you can disclose that.

Seven million was the gain out of eight and a half. Okay, great.

And then did I hear you mention earlier that operating expenses will decline quarter over quarter in 2Q23? I mean, but average operating expenses per ship, are you saying? I mean, the total level based on the selling of the ships?

That's what we are trying for, but inflation is a big enemy. Okay. Great. Great.

All right. Thank you very much. Have a good day.

Thank you.

There seems to be no further questions at this time. Please continue.

We'd like to thank all of you for joining us at the conference call today and for your interest and trust in our company, and we look forward to having you with us again for our Q2 results in August. Thank you.