StealthGas, Inc.

good morning everyone and welcome to our second quarter 2023 earnings conference call and webcast i'm michael jolliffe chairman of the board of directors and joining me on our call today is harry vafias our ceo to discuss market and company outlook and constantino sistovaris handling 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 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 US dollars. Today, we release our earnings result for the second quarter 2023. While we didn't break last quarter's record profits, we maintained a strong profitability of $10.5 million, resulting in our best performance on record for the first half of any year. 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 three, where we summarize some highlights. In terms of our sale and purchase activity, we continue to look for opportunities to sell some vessels now that asset prices are rising. We first concluded the previously announced sale of four vessels, and the last two were delivered in July, and then entered into a new agreement for the sale of two more of the smaller LPGs, the Echo Dream and Echo Green. to a third party with delivery in early 2024 for circa $35 million on block. In terms of chartering, we were less active and concluded two six-month period charters, but we continue to have secured with employment 80% of the remainder of 2023 days. We have locked in about $90 million in revenues for all subsequent periods. Looking briefly at our financial highlights, with on average four less vessels during the six-month period, our net voyage revenues came in at a very strong $67.2 million compared to $66.3 million last year, a 1% increase in spite of the much smaller fleet. Adjusted net income for the second quarter was $10.7 million compared to $11.3 million last year, a 5% decrease. Whilst for the recent six-month period, adjusted net income was $28 million compared to $20 million last year. As we have now reported half of 2023, so far our profits have been the best on record. We are delighted to announce earnings per share for the six months of $0.71. During that period, we have halved our debt by paying down facilities of $105 million and in just six months and still maintaining strong liquidity. To update you on the share repurchase program that was announced during the previous call, up until now, the company has used up about a third of the $15 million the board authorized and has repurchased 1.1 billion shares, which is close to 3% of our outstanding shares. Let us move on to slide four, for our fully-owned fleet employment update as of August. These being summer months, period activity was slower, and as previously stated, we entered into only two new time charters. However, our contracted days remained at an elevated 80% for the remainder of 2023, and we have secured circa $43 million in revenues. Our total contracted revenues for all periods up to 2026 are closer to $90 million. It is also worth noting that we currently have no vessels in the stock market as they are all fixed on period charters. Lastly, out of the three handy sized vessels due for dry docking this year, all have completed their dry dock, two of them during the second quarter and hence the elevated dry dock expense for that quarter. However, there are no more vessels due for dry dock in our fully owned fleet for the remainder of this year. In slide five, I would like now to provide an update on our two joint ventures comprising of five vessels. The first joint venture of four small LPG vessels did not enter into any new period charters, mainly due to the fact that three of the vessels were also due for dry dock this year. So here, three out of the four vessels operate in the swap market. The Gas Haralambos completed its dry dock in June and remains in the spot market. We may postpone one of the two remaining dry docks to 2024. The second joint venture currently comprises of a single medium gas carrier in the water, plus one more under construction. Following the sale of one vessel in the first quarter, Stealth Gas received $19.2 million cash in distributions in the second quarter, again boosting its liquidity. As previously discussed, the remaining vessel, the Echo Ethereal, is on a very profitable time charter for one year with a charter as option to extend one more year and a sell or purchase option, all at profitable levels. The operating cash flow of the Echo Ethereal allowed the joint venture to also pay off the $10 million debt on that vessel in June, so it is currently unencumbered. Regarding the new building vessel, there is no intention to fund the new building acquisition with stealth gas equity. The joint venture has sufficient cash in hand earmarked for this and recently secured a circa $30 million commitment from a financier for the debt needed for the delivery of the vessel subject to customary closings. In terms of our fleet geography, presented in slide 6, our company focuses on regional trade and local distribution of gas rather than long distance. This graph is a snapshot of the positioning of the fleet, including the Joint Venture Vessels, as of August 2023. The distribution of our fleet has not really changed since our last call, as 17 vessels are positioned in Europe, particularly in the Northwest and in the Mediterranean. The gap between time charter levels in the East versus the West continues to be considerable, and we may see some vessels deciding to position from East to West in the search for more lucrative period cover. For the time being, we have well positioned more than half of our fleet in the most lucrative market. In addition, Eight vessels are trading in the Middle and Far East, four vessels trading in the U.S. and Caribbean, and three in Africa. I will now turn the call over to Constantinos Sistovaris, who will discuss our financial performance.

Thank you, Michael, and good morning to everyone. I will discuss our financial performance for the second quarter of 2023. Let us turn to slide number seven, where we see the income statement for the second quarter and six months of 2023 against the same periods of 2022. Even though calendar days were reduced by 12%, net revenues came in at 33.1 million for the quarter and 67.2 million for the six months, a small increase of 1% compared to last year for the six-month period. That was mostly due to a reduction in voyage expenses but also due to the firmer rates. Operating expenses were $13.4 million for the quarter and $27.9 million for the six months. Overall, there has been a significant increase in operating expenses as a result of inflationary pressures. that was actually more pronounced during the first quarter, less so in the second quarter that the company is actually trying to control. In terms of dry docking costs, an item that had major differences in the comparison, but also depends on the timing of the dry dockings. We had $1.5 million in the second quarter and $2.6 million in the six months. an increase of $2 million or three and a half times in the six months. That was because we dry docked three out of the 400 size vessels in the fleet and they are the larger vessels and hence incur higher expenses when dry docked every five years. During the second quarter, the company also recognized a non-cash gain on the sale of two vessels that were delivered of $2.9 million and a non-cash impairment of $2.8 million on the agreed sale of two vessels that will be delivered in January 2024. Interest and finance costs were slightly reduced over the quarterly period and flat over the six-month period at $5.1 million, even though rates have more than tripled in the comparative periods. This is a result of the aggressive debt repayments the company engaged in order to control interest costs. For the six-month period, there was also a considerable increase in equity income in joint ventures, which is our share in the profits of our joint venture structures. That came in at $10.5 million and was mainly attributed to the profits from the sale of one joint venture vessel in the first quarter. As a result of all of the above, we ended the second quarter of 2023 with net income of $10.5 million compared to $12.2 million for the same quarter of last year. And for the six-month period, $27.3 million compared to $19.8 million last year. Profits for the six-month period were the highest this company has ever seen. Moving on to our balance sheet in slide 8, our liquidity, including restricted cash and short-term investments, was at the end of the quarter $55.1 million, reduced from $95.7 million at the end of last year due to the debt repayments. Vessels held for sale were $63.6 million as of June 30th, and it refers to the four vessels under agreement to sell. During July, the sale of the two vessels was completed and liquidity increased by about $35 million. Advances of $23.4 million remained unchanged and relate to the advance payments made on the medium gas carriers' vessels under construction. Vessels' book value decreased from $628 million to $515 million due to the sale of the vessels. The total book value of our investments in our joint ventures decreased to $38 million following a $19.2 million dividend we received during April after the sale of one vessel. The overall outstanding debt was $140.5 million compared to $277 million at the end of last year. Over a six-month period, the company has halved its outstanding debt. As a result of the solid results being reported, we increased shareholders' equity to $541 million. Concluding our financial commentary with slide 9, we will briefly have a look at the debt profile. As a result of both recent vessel sales and rising interest rates, there was a major focus on reducing leverage for the company. During the first quarter of 2023, $32 million of debt, including regular amortization, was repaid. During the second quarter, a massive $105 million was repaid, and that doesn't include the repayments the joint venture vessels did. Overall, debt has more than halved from $294 million a year ago to $141 million at the end of the second quarter. During the third quarter, another $13 million has so far been repaid. About 35% of the remaining debt is hedged with the interest rate swaps at an average of 2.1% that further mitigate the effect of interest rate rises. Overall, we continue to maintain a very low leverage and have increased the number of unencumbered vessels from 10 to 15. As far as the new building vessels are concerned, we have signed a new loan agreement with one of our existing financiers for the financing of the two 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, Harry Vafias, who will discuss the market and the company outlook.

On slide 10, our brief insight on the LPG market. So far, the first half of the year has been very positive as far as LPG supply is concerned, with global exports estimated to have risen by 3.5% as per Banquero Costa reports. The U.S., being a main exporter, has been exporting record amounts, with 12% increases year-on-year, consistently exporting above 1.5 million tons a month. With current inventors being at high levels, it's likely this trend will continue. With the main destination of U.S. exports being China and Japan, this has provided firm support for the larger LPG rates and subsequently the medium-sized ships as well. The Middle East countries have also been exporting increased amount of LPG, particularly in the second quarter, although the recent OPEC cut in oil production may moderate this growth, but that remains to be seen. Overall, in 2023, there has been a positive price differential with NAFTA that has supported use of LPG as feedstock by crackers. This had less effect in Europe as plants were operating at lower margins in general, but a more pronounced effect in Asia. There has been a lot of talk in the news lately about China, a main importer of LPG and its economic recovery post-COVID, with references to declining imports and export numbers. But as far as LPG is concerned, April saw records amount being imported, and then in May, again, an all-time high with 3.3 million tons being imported. Higher U.S. exports, lower propane prices, recovery utilization rates above 70%, and capacity additions boarded well for LPG demand from Chinese PDH plants. We have touched on PDH plants quite a few times before as we see it as a macro theme. China wants to control its propylene production, hence major investments have been made for increasing its capacity. It has been a bumpy ride for these plants, but the rapid expansion of PDH capacity in China over the last few years is certain. Two more plants were added in the second quarter and five more are expected until the end of the year. On slide 11, we present some of the key fundamentals in our shipping market, commencing with market rates for our market. As stated in our previous column, on a year-over-year basis, we see significant increases in time charter rates up to 15%. During Q2-23, time charter rates remained steady for the smaller ships while increasing further for the larger ships. Looking at the small LPG trade west of Suez, The spot market remained tight for the majority of Q2. Since the second half of June, the spot market has started to cool off a bit, in line with the usual seasonal pattern we see more or less every year. On the period side, the market continued in a healthy and fairly active state through Q2. We have seen a stabilization of rates on the smaller pressure ships and a continuous strengthening on the 7K cubic meters and above. Expectations are strong for the coming winter period and for the next couple of years in and we see keen interest from charters to lock in tonnage going forward. East of Suez, in Asia, the spot market did not perform as strong as the Western markets did. At the time of the writing, the market is relatively quiet, with the expectation of a pick-up from September-October onwards. The period market in Asia remained rather quiet through Q2, with charters still enjoying relatively high TC coverage. We expect more activity towards Q4. For the hand-sized vessels of the spot market, continues to remain tight through Q2, as well with little tonnage available on either side of Suez. There was also a spillover effect from the very tight medium-sized market, which again was held up by strong, very large gas carrier market. On the period side, rates remain relatively stable, and the small order book for this size bodes well for the coming years. I'd like to reiterate that the fundamentals for our core fleet of small pressure ships continue to look promising, As almost one-third of the fleet is over 20 years old, we saw a handful of vessels being scrapped while market rates hold firm. By this quarter, we also did not see any new ordering of vessels in an already subdued new building market. As per recent published orders, there are about 18 vessels on order to be delivered until the next couple of years. A sub-2% annual increase in the fleet before scrapping should eventually lead to a death of vessels in the mid-term. We continue to believe that the risk of seeing bulk ordering of new vessels in this segment that could keep the supply-demand balance is improbable. On slide 12, we are showing the evolution of our LPG fleet. In this slide, for comparison purposes, we excluded the tanker ships that we held until 2021, and we focused the pure LPG fleet in terms of cubic capacity, including our JV vessels. We have always been active in the sell and purchase market, buying and selling ships. In a rising market, we continued to sell some vessels. After selling four in 2022 and eight more this year, as well as one sold by RJV, we entered into an agreement to sell another two vessels for circa $35 million in aggregate. While we recorded an impairment on this last sale, we extended the timing of the delivery to early 2024, so we will take advantage a little longer of the profitable charters that these ships are under. We're looking to sell more vessels if the price is right. Through such sales, we have maintained the average age of our fleet to 10 years, which is quite modern for the industry standards. Moreover, we have been investing in more than new building vessels, and our order book consists of three Korean-built medium gas ships with 40,000 cubic capacity each. The first one, owned by RJV, is near completion and will take delivery in October, while the other two will take delivery in Q124. It's a strategic decision to diversify the fleet between the smaller vessels that we have traditionally operated and the larger ships, handy-sized and medium-sized 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. We remain optimistic on the longer term for the reasons we analyzed earlier. Despite many uncertainties, mostly related to the macroeconomic environment, in the short term, We are in the summer months and the market has held up pretty well so far. We expect as we enter the winter for the northern hemisphere the rates will start increasing as they normally do. Summing up, after having reported record annual profits last year and record quarterly profits in Q1, the market remained firm and we had another strong second quarter allowing us to report record six months profit and keep us on target to break last year's annual record. In terms of strategy, during the second quarter, we further divested assets in the rising market. We continued to diversify the fleet with a timely addition of larger, more eco-friendly ships. We were also largely focused on reducing debt, repaying $105 million during this quarter alone, thus greatly reducing our interest rate expenses. At the same time, our board authorized us to repurchase shares that we started doing late in the previous quarter. Up to now, we have repurchased over 1 million common shares and we will continue to do so. We are at the fortunate position where we can leverage, diversify, repurchase stock, and maintain strong liquidity at the same time. This is the way we are creating shareholder value for investors, and even though our share price has climbed significantly over the past six months, we believe we continue to be a sound investment for anyone wishing to invest in our company at this time. We've now reached the end of our presentation. We would like to open the floor for your questions.

Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

We will now take the first question. One moment, please.

From the line of Tate Sullivan from Maxim Group. Please go ahead.

Hello. Thank you. I'm starting for you.

I'm starting the repurchase plan late in the second quarter. We're with the majority of the one.

Sorry, Tate. I cannot hear you. If you can speak louder and more clearer, sorry.

We're most of the repurchases in the quarter.

I can't hear your data.

We will go now to the next question. From the line of David Cohen, please go ahead.

Yes. What is the current plan to destroy a stockholder value as you did with Imperial Petroleum? Next question, please.

What is the plan?

We will now take the next question. From the line of Clement Molins from Value Investors Edge.

Please go ahead.

Hi, good morning or afternoon. Thank you for taking my questions. On the press release, You mentioned you want to continue to diversify with larger vessels, and I was wondering, could you provide some more insight on this regard? Is this something you're planning to do, let's say, in the immediate future, or once asset valuations normalize? And secondly, do you have a preference for new builds, for modern tonnage, or what's your stance?

Thank you for your question, Clement. Basically, with the way the market is and with the way that LPG is such a small business with very few players, basically we don't have a choice. If we find a good quality vessel, it doesn't really matter if it's second-hand or new building and it's valued properly, we're going to buy it. Unfortunately, it's not like dry bulk where you have hundreds of ships and you can pick and choose when you want to buy and what you want to buy. This is a really small market with very few quality ships for sale. And therefore, if we want to diversify and buy bigger ships, we have to be a bit more easy on our decisions.

Makes sense. Turning towards the share buybacks, it seems you started to use the authorization towards the end of the quarter. What was the reasoning behind this decision? And going forward, could you provide some commentary on how you plan to continue to allocate capital?

What was the first part of the question?

Yeah, like what was the reasoning to start to use the authorization towards the end of the quarter?

Because you need to do legal paperwork, you need to take approvals, and all this takes time.

Makes sense. And regarding the second one, so how you plan to continue to allocate excess capital, so how do you think about repurchases versus new build orders? How do you plan to balance it?

As we have discussed before, we are in a fortunate position that we can do both. We will buy back stock. We have another approximately 10 million to spend. And we have also to rebuild the company because we have sold a lot of donuts over the last two years.

Yeah, makes sense. And final question from me. It's more on the modeling side. As of quarter end, how much debt did the joint ventures have after the repayment of the loan on the Echo Ethereal company?

Please send us an email on that because I don't want to give you a wrong number. If you want to send us an email and we can check and come back to you.

Yeah, let's do that. Okay, that's all from me. Thank you for taking my questions. Thank you.

Thank you.

We will now take the next question. From the line of Tate Sullivan, please go ahead from Maxim Group.

Hello, thank you. Can you hear me now, Harry? A bit better. Okay, thank you. Just for the new build deliveries, so the joint venture new build is delivered in October, and then your first year new builds in the fourth quarter, the second in the first quarter, 24, I believe. Can you talk about the remaining commitments for those new builds, please?

Okay. For the JV, we don't need to put any new money. For the two other ones that are due in both in Q124, we need to spend about $20 million.

$20 million. Okay. And then with part of the decision to sell the EcoDream and EcoGreen related to financing those commitments or totally separate consideration?

You said financing? Yes.

Or are you using some of the proceeds from selling Eco Dream and Eco Green to buy the new-built ships?

Not at all, Tate. Probably you're a bit confused. We have 15 unencumbered vessels. We can raise hundreds of millions of debt very easily and very cheaply. Not at all. We just sold the ships because we saw a very good price for the size and age that the ships were.

And then can you share the current number of shares outstanding or after the repurchases? Or maybe can you do that in the future?

It's whatever it was, minus 1.1 million shares that we have bought back.

Okay. Yeah, just to report the diluted shares. Okay. And then the... When would you look to start a book contracts for the new builds for the ships under construction? Is that something that you do well ahead of delivery or how does it usually work in LPG industry, please?

It all depends on the numbers. If we see good numbers in advance, we book. If we don't, we wait. Normally, we book 30 to 60 days prior delivery.

Great. Okay. All right. And then you mentioned you already have $70 million of financing for the new build, and did I hear you right that you will be two shifts for $35 million? Yes. Okay, perfect. Yes. Okay, thank you very much.

Thank you, Dave.

There are no further questions at this time. I would like to hand back over to management for final remarks.

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