StealthGas Inc (GASS) 2008 Q4 法說會逐字稿

Good day, and welcome to the StealthGas, Inc. fourth-quarter and 12 months 2008 results conference call. For your information, today's conference is being recorded. At this time, all participants are on a listen-only mode.

I would now like to turn the conference over to your host today, Mr. Harry Vafias, President and Chief Executive Officer. Please go ahead, sir.

Thank you very much and good morning, everyone. Welcome to the conference call and webcast to discuss the results for the fourth quarter and 12 months ended December 31, 2008. I'm Harry Vafias, the CEO of Stealthgas, and I would like to remind you please that we will be discussing forward-looking statements in today's conference call and presentation. Regarding the Safe Harbor language, I would like to refer you to slide #1 of this presentation as well as to our press release on the fourth-quarter and 12 months '08 results. With me today is Andrew Simmons, our CFO. And if you need any further info on the conference call or the presentation, please contact Andrew or myself.

So let's start from slide #2. We have continued with our consistent business strategy despite the uncertainties presented by the world economy today. And I would like to highlight how we continued with its implementation in 2008 and the ongoing plan in '09. Our primary objective continues to run a highly efficient and modern fleet on secure employment contracts with first class charters that serves a very specific niche market, far removed from the other heavily suffering shipping segments. At the end of '08, our fleet numbered 40 vessels, 38 Handy-Size gas carriers and two Medium Range new product tankers. Looking at '09, we're contracted to take delivery of two more Product Carriers, one in April and one in November, both of which are secure and immediately accretive to bottom-line earnings employment of three years and double charters, respectively.

Also in '09, in April and June, we will take delivery of two more brand-new gas carriers, bringing the fleet in our core sector to 42 vessels.

Our second goal has been to maintain moderate leverage. After taking into consideration the total fleet of 40 ships at the end of fourth quarter '08, our net debt to capitalization ratio stood at 40.2%, which is, in our view, particularly in these challenging times, coupled with our employment and charter profile, should hold the Company in good stead going forward.

Our third goal has been to secure and maintain a visible revenue stream with stable and predictable cash flow, enabling us to continue to pursue a prudent growth strategy despite the significant uncertainties in today's world. The number of days of fixed employment for our fleet in '09 currently stands at 65% of available days with 37% already covered for 2010. However, as of today, all of our vessels are currently employed and overall rates in our core LPG sector continued to hold up reasonably well. In March '08, falling delivery of both the M.R. product carriers, our average time-charter equivalent rate per day for the fleet was $7,314 per day, whereas in January of '09, it was $7,447 per day. In the currently difficult economic climate, it illustrates the elevated steadiness of our segment despite the prevailing economic conditions.

We have again included an adjusted Time Charter Equivalent on a blended basis in our slide presentation for both the gas carriers and the M.R. product carriers and as if none of the vessels were on a variable charter. This not only gives you a more realistic figure in terms of the average Time Charter Equivalents, but we have also adjusted the vessel operating expense line later in the presentation as if we were to be responsible for the operating expenses of all the vessels in the fleet. We currently have 15 vessels in our fleet on variable charter, which are the most secure in terms of risk, plus we are shielded from such itemized bunker, crew and drydocking costs, as this and other all other expenses are for the variable charters' account.

Our fourth goal has been to own and operate a modern fleet of gas carriers, and in this respect, our average age is 11.4 years, not including the four product tankers and the seven brand-new gas carriers that we are contracted to acquire between April this year and the end of 2011, which will only enhance our competitive position further in terms of average age compared to the industry average. The industry average is 19.4 years. It is our belief that charters particularly in these challenging economic times will increasingly look for modern and efficient tonnage, so that relative use of our fleet is, in my opinion, important as we move forward in this uncertain period we are all facing.

Our fifth goal has been to maintain close customer relations. The quality of our customer relationship is exemplified by our continued and consistently high fleet utilization and the quality of our charters, which also lowers our counterparty risk. I am pleased to say that to date we continue not to have any issue in terms of charters' performance and that none of our charters have asked to renegotiate any of our charter agreements.

Our sixth goal has been to maintain cost-efficient operations. I am pleased to say despite increasing crew costs at the operating level, our net income breakeven decreased in Q4 '08 to 5,121 per ship compared to 6,149 per ship in Q3 of '08. This was due not only to the previously announced write-back of previously accrued cash bonuses to directors and officers in Q4 of '08, but also to a $215 a day per vessel reduction in actual operating expenses in the last quarter of '08 over the previous quarter.

The close and cost-effective management of our vessel continues to be a vitally important area of operation for our Company, given the relatively narrow margin which these vessels produce, and it's vital we keep a very tight control over these expenses going forward, as I believe we have already evidenced in Q4 '08.

Some of the cost pressures we have discussed in recent calls, particularly crew costs continue to be a factor, but our prudent policy of operating a relatively high number of vessels on variable charter is helping to heal us in some extent in these regards, as these costs are borne by the charter. We are slightly optimistic that if these economic conditions continue, we will see a stabilization of crew wages and maybe even a softening.

Lastly, on March 9, we will pay our 13th consecutive quarterly dividend of $0.1875 per share to shareholders of record on March 2, 2009.

Slide #3. This slide demonstrates the development of our fleet. By the end of '08, we had a fleet of 58 gas carriers and two product tankers, thus solidifying our number one position in the Handy Size LPG carrier sector. By the end of '09, this will increase to a total of 41 gas carriers and four product tankers, as we are contracted to take delivery of these ships. StealthGas continues to solidify its number one ranking in known vessels in the 3000 to 8000 cbm segment, upon which we are concentrating. We continue to focus on this segment because of its strong fundamentals, coupled with stable rates and a favorable order book and fleet growth compared to oversize segment in the LPG sector and, indeed, many of the other sectors of shipping.

We currently have a marketshare of about 14%, and after the acquisitions, [together both], we expect our marketshare to increase to about 17%, further enhancing, in our view, our growing position of some influence within this market.

Also, we believe that our moving to the Product Carriers sector was and continues to be well-timed and we have continued our policy of deploying our vessels on secure, medium to long-term charters with three of the vessels being on a variable charter basis, which as previously discussed, [shelters] the Company from such risk as crewing, bunkering and drydocking. And of course, the volatility of the spot clean tanker trades.

Slide #4. This slide demonstrates our fleet deployment profile and provides you with the earnings visibility for each of our 41 current ships and the two product tankers contracted to join the fleet in April and November '09, respectively. At the bottom of the employment profile chart, we have included the percentage of voyage days fixed. These enable you to assess the stability and predictability of our earnings. As you can see, 65% of voyages are already fixed for '09 and 37 for '10. The percentage of voyage days currently contracted for is lower than we have seen in the past, but in comparison with other shipping segments like dry-bulk and containers, there is still quite a healthy chartering activity and [find] no more than Handy-Size LPG carriers which are idle.

Our fleet deployment strategy which we have utilized since the inception of the Company continues to generate stable and predictable cash flows and has enabled us to pursue a prudent but vigorous growth strategy and implement to date a sustainable dividend policy.

We now turn for the financial highlights to our CFO, Mr. Simmons.

Thank you, Harry. Good morning, everybody. Please now turn to slide #5. We now turn to the financial highlights for the fourth quarter of 2008.

With an average of 39.6 vessels owned and operated in the fourth quarter 2008, we realized net income of $7.7 million on voyage revenues of $28.2 million and produced an EBITDA of $15.9 million. For the fourth quarter '08, we recorded a loss on interest rate swap arrangements, which included an unrealized loss of approximately $30,000 and a realized cash loss of approximately $200,000 plus a non-cash provision of approximately $300,000 for previously granted restricted stock portion of deferred stock-based compensation with the Company's directors and certain key employees of our management company, Stealth Maritime Corp.

Excluding these non-cash items, net income would have been $8 million. Our earnings per share for the fourth quarter of '08 were $0.35 per share, calculated on 22.2 million average shares outstanding.

As Harry mentioned earlier, our net debt to capitalization stood at 40.2% at the end of Q4 '08 and we believe that our leverage remains moderate and manageable when we take into account our period employment coverage and in comparison generally to the majority of publicly quoted shipping companies. Plus, it will allow us to continue to prudently grow our fleet over the next three years as has been outlined to you.

We now please turn to slide #6. This slide provides you with an overview of the development of our income statement for five consecutive quarters. In comparing our results from the fourth quarter of 2007 to the fourth quarter of 2008, revenues have increased by 8%, EBITDA increased by 32.5% and net profit increased to $8 million from $7.7 million in Q4 of '07.

For the fourth quarter of 2008 if non-cash items are excluded, then our EPS based on 22.1 million shares average weighted shares now outstanding stood at $0.36 per share compared to $0.35 per share a year ago when some 4.2 million less weighted average shares were outstanding at that time.

Now please turn to slide #7. These are our operating highlights for the last quarter of 2007 plus the four quarters of 2008. It also provides a comparison for the years 2007 and 2008. In terms of fleet dates in the fourth quarter of '08, we owned and operated an average of 39.6 vessels and achieved 99.3% fleet utilization. Total charter days for the fleet during the fourth quarter of '08 were 3,243 and we also had 379 total spot market days.

In terms of average data results per vessel for the fourth quarter of '08, we achieved a Time Charter Equivalent of $8,614 per day per vessel on the adjusted basis compared to $9,284 per day per vessel in Q3 of '08. Vessel operating expenses per day on the adjusted basis, i.e. no vessels on bareboat charter, were $3,724 compared to $4,027 in Q3 '08. This reduction in operating expense was due primarily to recoveries of insurance-related claims that have been previously booked as operating expenses, plus we instigated an even more stringent management on costs as a consequence of the overall prevailing economic conditions.

We now please turn to slides #8 and #9. These slides provide details of our 12 months to December 31, 2008 financial highlights and a comparison to the same period in 2007. Net income for the 12 months of 2008 was $30 million, an increase of 33.3% while revenues grew by 25.1% to $112.6 million compared to revenues of $90 million and net profit of $22.5 million for the same period last year.

Net income net of non-cash items and excluding the gain on the sale of vessels in Q1 of '08 were $31.7 million for fiscal '08 compared to $26.4 million in 2007, an increase of 20%. Earnings per share for '08 were $1.50 per share compared to $1.47 per share in 2007. However, some 4.2 million less shares are outstanding at the end of Q4 '07 compared to the end of 2008.

Please now turn to slide #10. As we've already discussed, we continue to strive to run our fleet in a very cost-effective manner, concentrating extremely hard on operating our ships efficiently and safely. And this continues to be borne out by our very high fleet utilization percentages.

We were also pleased that the growth in our operating expenses and G&A costs slowed in Q4. And while we expect operating costs to rise in 2009, as crewing still remains a challenge, we are hopeful that the rate of increase in operating costs will abate as the year progresses, again, perhaps influenced by the slowdown in the world economic situation.

So on a cash flow basis, our daily breakeven per vessel for the fourth quarter of 2008 was $5,051 per day if we deduct the realized loss on derivatives compared to $5,676 per day in Q3, a significant increase due primarily to the previously discussed decreases in G&A and OpEx.

On a net income basis, our daily breakeven per vessel was $5,069 per day in Q4 of '08 compared to $5,855 per day for the third quarter of 2008, again reflecting the decline in OpEx and G&A expenses.

We now please turn to slide #11. This slide is our financial calculator. Using the input given on this slide, our shareholders and investors can estimate our financial performance for 2009. This slide provides you with the revenues we've already secured as of today till the end of 2009, based on contracted revenues under time and bareboat charters.

Total contracted revenues to date are $87.5 million, which is 78% of total 2008 revenues, plus we have the [variability in] revenues to be generated by those of our vessels with days that are not yet contracted forth in the remainder of 2009. And we have provided you with that number of days, 5,598 as the fleet currently stands. So you can input the rate you wish to assume our revenue vessel not yet chartered will earn and you can calculate or projected performance for 2009.

Thank you very much for your kind attention, and I now hand you back to Harry for some further comments.

Moving on to slide 12, this slide shows the highly volatile freight rates for very large gas carriers over the past seven years, plus the freight rates for the middle sized and the large sized gas carriers. In comparison, mid -sized and smaller semi-ref and fully pressurized vessels, our core sector, have experienced a much slower volatility and steady growth in freight earnings from mid '05 onwards. However, it's clear from these data that our ships over the past seven years have not yet experienced the wide fluctuations in rates that both related and unrelated sitting sectors have seen, and we are hopeful that despite the world economic outlook, that this relatively nonvolatile trading [problem] will remain intact.

We continue to expect that the supply of product will increase in the next two to three years, plus demand is expected to continue to be [buoyant], particularly in the Far East and developing world. Therefore, we continue to believe that the outlook for our core sector is encouraging and thus will continue with the development of our fleet to take advantage of this expected outlook as it materializes.

Slide 13. This slide indicates the freight rate evolution for 12 months time charters for our market. The figures are based on independent estimates by Lorentzen & Stemoco. As you can see highlighted in yellow, this segment is characterized by relative stability and rates have been steady over the past two quarters and the independent forecast for the first quarter of '08 [sic - see slide presentation) is that rates will remain steady for the 3,200 semi-ref segment and will drop albeit slightly for the 3,500 cbm fully pressurized ships.

Slide 14 and slide 15. We continue to believe that the forecasted minimum fleet growth of Handy-Size LPG sector in the year 2010 and the negative fleet growth in 2011 at the time with several large-scale LNG projects come onstream, gives a defined and positive outlook for our core sector. There's an expectation that the supply of LPG product that must be shipped at this time will increase.

We continue to believe that this supply/demand access is virtually a unique situation within the shipping industry, particularly given the conditions being faced by many of the other sectors of shipping today but are overbuilt. This important factor has led us to continue to moderately expand the Company with this contract in newbuildings, thus positioning ourselves to take advantage of the expected positive market conditions in the years to come.

Don't forget that from any valuation metric, we're one of the cheapest publicly trading companies, trading at about one-third of our NAV and 3 times earnings.

So, we have now actually reached the end of our presentation and we would like to open the floor to your questions, so operator, please open the floor.

(Operator Instructions). Natasha Boyden, Cantor.

Thank you, operator. Good morning, gentlemen. You mentioned that asset values have held up better in the gas carrier market than other shipping sectors. Can you provide any details perhaps as a percentage if you have it, regarding how asset values have declined in your sector? And then furthermore, have you seen any more S&P activity of the LPG carrier market at all?

From our last call till today, two ships have been sold. I mean modern vessels. Of course we're not talking about 20 or 25-year-old vessels that have gone to scrap. One was well above the last [ton] and the other was below the last ton. So we cannot really comment on the values because the activity has been virtually non-existent.

Okay. So given this, I suppose what is your strategy going forward? Clearly then I suppose you would still be focused on Product Carriers if you're looking at acquisitions. Would that be fair to say?

We're not looking to acquire anything. We have a huge fleet, including our newbuildings; as you know it's close to 50 vessels. So I don't think we need to buy anymore. We need to keep our cash for bargains, let's say, if we can find some. But today, circumstances, the gas carriers, since the values have not dropped are not bargains, so if I had to buy something, then of course it would have been a tanker.

Okay. And then in terms of the newbuilds that you have, are they on track to be delivered on time? Do you see any possibility of early or delayed deliveries at all right now?

Japan shipyards, as you know very well, 99% of cases deliver vessels early. So at this stage, we don't foresee any delays.

Okay, great. And then just more of a macro question. I think there was an article recently that the European LPG coastal trade for the smaller carriers was extremely buoyant. Can you give us some more sort of color on that and what's driving that? Because it doesn't seem like the larger VLGC market is doing that well, but it seems like the smaller LPG market is acting very well, especially in Europe. Can you give us some color on that?

Natasha, as you know very well, the past two years, these small and little ships have been doing much, much better than the larger ships overall. So I don't think that's this, what you mentioned about [them] is a very different case.

Now, we don't have too many spot vessels in the Med. So I might not be the best man to comment on it, but always in the winter, since there are sudden cold spells and most of these plants are not very well stoked, there's sudden needs for pet [cams] and propane and butane. And these little steps, since they're very flexible as you know going basically loading and discharging directly to the plants, is the best way for a plant or a factory or an energy station getting 3,000 to 7,000 tons of these products.

We have seen it last year. We have -- I remember one of our ships was earning 20,000 to 25,000 a day, which is more than enough in [max was], from ex-tanker. We haven't seen these rates for our ships yet because we don't have too many spot, but if that continues, I'm sure that some of our ships will enjoy these rates too.

Great. Thank you, Harry and just a very quick question for me. Something just jumped out at me on your numbers for the fourth quarter. It looks like you have negative G&A this quarter. Can you just give me some clarity on that, please?

Yes. Basically, as we announced, I think it was back in earlier, either earlier this year or late last year, management and the Board took a decision to -- not to pay bonuses for 2008. So those bonuses to officers and directors that had been accrued in the first three quarters of 2008 were written back in the fourth quarter. Hence, the profit, if you like, in G&A in the fourth quarter.

Great. Okay. Thank you very much, gentlemen.

Jeff Geygan, Milwaukee Private Wealth Management.

I'm sorry. Jeff actually just stepped out of the room. We would get ourselves backing queue.

Charles Rupinski, Maxim Group.

Good afternoon. Congratulations on the quarter.

Thank you.

I just had a quick question. Just -- and you really addressed this mainly about vessel acquisitions. But if you were not looking at LPG, you mentioned that you might look at a tanker if the price was right. Just looking over the next year and seeing what asset values have done, is tankers really the only space potentially that you would consider or would you even cast a wider net on different vessel types?

Good question. As you know very well, the private group that controls Stealthgas has shipping involvement in all kinds of sectors -- [crude], clean, dry. So I don't think we would be let's say pressured to invest only in gas or clean. We are a publicly listed company managing money for our shareholders. So if, for example, there was a fantastic bargain in dry, we might look at it or there might be a fantastic opportunity in chemical tankers, I don't know. But at the moment, we're not looking at anything because we think that the values, especially in the segments I mentioned will drop further. So it's too early to discuss that.

Thank you very much.

Matt Beeby, Morgan Keegan.

Thank you. Guys, I was curious. I think it's the Catterick and the Zael roll off their current contracts I believe next month. I was just curious. I think you have a few more that roll off in 2Q. I was just curious about the discussions regarding putting those two longer-term contracts or putting those into the spot market. Could you guys talk about that?

Yes. Basically, it's up to us, I guess. The charters want to do a short time charter period for the vessels at quite an attractive, for them, rates. We want to do longer period charters with higher rates of course, or we won't bow to the pressure and play them spot, which we have done a lot in the past anyway.

So it all depends on how the negotiations go. If we don't get the numbers we want, there is no need to accept a low rate. We can play them spot. And when we really feel the need to use the vessels, then we can corner them a bit and get close to the number we want.

So you are comfortable in the spot market or under term?

Every year, we had four or five ships spot. So having seven or eight out of a total of 40, 42 I don't think makes a big difference.

Okay, very good. Then you guys had the several deliveries this year. Can you kind of remind us about the balances outstanding that you are going to have as payments and what kind of debt you are looking at, maybe adding for 2009?

We don't have so many newbuildings this year. It's two vessels in -- two gas carriers in '09 and two product tankers in '09. Don't forget that we have already paid for the prototype tankers 10% deposits, so that's already done long time ago.

For the LPG newbuildings, we have paid close to 20% because they are newbuilding contracts and we have to pay stage payments. And the finance is between 65% and 70%. So there's actually very little equity remaining to be paid.

So you are taking about 65% to 70% of the remaining balance.

No. No. 65% to 70% of the total purchase price.

It's going to be financed with debt. Okay. Thank you, guys.

Thank you.

(Operator Instructions). Daniel Burke, Clarkson Johnson Rice.

How are you?

We saw already your quick take, so now we're going to do the slower take.

I see. You touched on it earlier on the call when you said you were going to hold your cash for a potential bargain. But could you more broadly address it? I think you addressed it on the last call and I'm sure on the next you will as well, how you think more broadly about cash deployment here? Encouraging to see of course the announcement of the dividend for the first quarter. Could you kind of tick back through how you think about priorities for your cash? We have seen a lot of dividends go away and yours haven't. And then maybe expand on that and talk about how attractive ships look relative to your own equity.

We were very happy that when we did our follow-on Roadshow in '07, summer of '07, everybody was -- the majority of investors were a bit snobby saying why should we buy StealthGas stock; we can buy a dry-bulk stock or container stock and make more money or make bigger dividends. And I'm happy to say that after today's announcement, in this very, very difficult last five, six months, not only did we announce record results, but we also kept our dividend intact, which, as you know very well, many other dry or wet container companies are chopping or completely eliminating. So that speaks for itself.

Now, about the cash, we never know what the future holds. We don't know if this crash is for -- how long it will last. We discussed that before. So we don't want to increase the dividend. We don't want to start buying back stock because we don't think we are at the end of the tunnel. I think we are maybe even before the middle of the tunnel. Sure, we have to be very, very careful because if that continues for longer than expected, we need to have the cash to hold on and take care of all these ships we have and all these newbuildings joining the fleet from this year until 2011.

Great, thanks. That's useful. And then maybe one more specifically for Andrew. We also peripherally addressed the capital commitments you currently face, but I don't know if Andrew would have available maybe the latest update on what the absolute CapEx figures are for '09, '10, and '11 and maybe where you see a current, your net debt to cap sort of peaking out?

We cannot comment on that because some of the finance for the future newbuildings has not been finalized, so we don't know what the actual commitment for the Company would be. The prices for the ships, you know them. You know the approximate amount of finance the banks are giving today. So it's not difficult to calculate what the equity would be from our side.

That's right. I'll go to the filings for it. Thanks.

(Operator Instructions). Jeff Geygan, Milwaukee Private Wealth Management.

Good morning. Thanks for your time today. Regarding your contracted '09 revenue or percent utilization at $65 million or $87 million, what is your expectation for how this year will play out in terms of utilization?

It's not $65 million; it's 67% of the [days].

Yes, well, what's your expectation?

I cannot really know that. If I knew that, I would be Bill Gates. I wouldn't be Harry Vafias. But, I think that, as always in the gas segment, which is very, very stable in comparison with, as we discussed, the other segments, there is always a firming in rates between end of November and let's say end of March. And then closer to the summer, there's always a softening, which lasts until, again, September, October time. So I think it will be one of the same with maybe bigger spikes because some of the charters have problems getting their hands on cargoes because the banks, as you know very well, are not giving credit letters as easily as they were doing before.

I appreciate that, but Harry, you've got seven vessels, judging by this table here, that have charter expirations in February or March. Is -- what is your expectation today about the use of those vessels? Are you going to be seven vessels short? Or are those in part or entirely rebooked?

I think you are a bit confused. Having a vessel finish its contract doesn't mean it's going to be idle. It means it's going to be employed in the spot market doing short voyages in one or two different trading areas. That is what I answered five minutes ago to the other gentleman.

We said if we see that the charters of these vessels want to extend the charter arrangements, and the money they offer is too low for us, then we are not going to budge. We're going to have the vessels play the spot market until we get a longer contract or a higher rate than the one that has been offered to date.

I appreciate it. And I had stepped away for a few minutes so I did not hear your explanation there.

Sorry about that.

No, that's fine. This question may have been asked too about your dividend, but there was some discussion about suspending the dividend to buy stock and, by your own admission, the share is trading at a third of NAV and 3 times earnings. Is there no way you would budge on that and opt to buy in your stock?

If we stop the dividend, the dividend will go to $3. And if it goes to $3, that means that we're going to be the cheapest publicly trading company -- profitable publicly traded company that has not reached its covenants with the banks, and therefore, any man with money and a [dip] of IQ will come and do a hostile takeover of us. So we have to be very careful how and when we touch the dividend.

All right. Well you are making an assumption that if you cut the dividend, the stock will go to $3. I'm not sure that's a completely rational conclusion, but fair enough. I just thought I would (multiple speakers)

My brief experience in the last five months from other publicly listed companies that have either reduced or completely eliminated the dividend is that we have seen huge erosions in share price.

If they were profitable at the time, and I'm not sure they all were.

Correct.

Okay. Thank you. I think you guys are doing a good job. We're just trying to do our due diligence here. So (multiple speakers) keep up the good work.

Of course. Thank you very much. We're trying our best too.

Thank you.

(Operator Instructions). There are no further questions at this time, gentlemen, so I would like to turn the call back over to you for any additional or closing remarks.

Thank you all for participating and joining our conference call today and for your interest in trusting our company. We look forward to having you with us again at our next conference call for our first-quarter '09 results. Thank you very much.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.