StealthGas Inc (GASS) 2010 Q2 法說會逐字稿

Good day and welcome to the StealthGas Inc. second-quarter and first six months 2010 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to your host today, Mr. Harry Vafias, President and Chief Executive Officer. Please go ahead, sir.

Thank you and good morning, everyone. Welcome to our conference call and webcast to discuss the results for the first quarter -- second quarter and six months ended June 30, 2010. I am Harry Vafias, the CEO of StealthGas and I would like to remind you that we will be discussing forward-looking statements in today's conference call. Regarding the Safe Harbor language, I would like you to refer to slide number 1 of this presentation, as well to our press release on our second-quarter and six months 2010 results. With me today is Andrew Simmons, our CFO. If you need any further info on the conference call or the presentation, please contact Andrew or myself.

Slide number 2. Our primary objective continues to run a highly efficient and modern fleet of [unsecure] employment contract for first-class charters that serve a very specific niche market. Our core LPG fleet has no correlation whatsoever to more established (inaudible) sectors, so we continue to be both disappointed and surprised that our stock seems to continue to trade in tandem with the [served] movements of companies whose vessels trade in sectors completely unrelated to ours.

During the second quarter of 2010, we completed the sale of the final three of the five older gas carriers in our fleet, which has contracted to sell by May of this year. I am pleased to confirm that the majority of these sales were concluded at prices very close to the vessels' book values. These vessels have made our fleet more efficient as several of these vessels may have operated for this year at least in what continues to be a relatively soft spot market.

By moving them from the fleet, I believe it will improve the overall performance of the Company and as we have seen, the removal has already resulted in an improvement in the average time charter equivalent rate achieved by the fleet compared to the second quarter and first half of last year.

We have no further scheduled deliveries of ships until the first quarter of '11 and as we have previously highlighted, the circa $11 million of staged payments due during 2010 for the five Handy Size LPG carriers we have on order we will meet comfortably from our internally generated cash flows.

After taking into consideration the total fleet of 37 ships, at the end of the second quarter 2010, our net debt to capitalization ratio stood at 43%, which coupled with our employment charter profile and overall quality of our charters continue to underpin the financial stability of the Company.

Our further objective has been to secure and maintain the visible revenue stream with stable and predictable cash flows. At the moment, fixed deployment for our fleet for 2010 stands at about 70% of available days with about 35% already covered for '11. As we have announced during both the first and second quarters, we have secured some attractive period business for our fleet. We are in the final stages of securing some medium-term charters for three more of our vessels.

Although we would prefer to have more vessels fixed at attractive rates on a period basis, in some sectors, particularly in regard to our [assembly] of ships, this remains challenging. We are hopeful both that the period market would tighten and therefore, we prefer to keep some of our vessels in the spot market so we can take advantage of improved time and bareboat charter rates if they materialize later in the year.

As you will have seen from our results for Q2, our time charter equivalent rate was about 7000 per vessel per day compared to about 6600 in the corresponding quarter last year, represents an increase of about 5%. While this improvement was both welcome and encouraging, we continue to face challenges in the near term from a trading standpoint as we have a higher number of vessels trading in the spot market than was the case between 2005 and 2008.

We have also again included our just-in-time charter equivalent on a blended basis in our slide presentation for both our gas carriers and the product tankers as none of our vessels were on a bareboat charter. This not only gives you a more realistic figure in terms of the average time charter equivalent achieved by our fleet, but 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 our fleet.

On this basis, the daily PC was $7835 in Q2 2010 against $7857 at the same time last year, a reduction of only $22 a day underlying the steadiness of this fleet. The second and third quarters of each year are traditionally the two softer quarters for our Company in terms of seasonal trade and therefore, it is encouraging to see a little bit of stability in the average rates achieved by the fleet for the second quarter on a year-on-year basis.

Mostly importantly, I am pleased to report that yet again we continue to remain comfortably above our net income breakeven level as we will discuss later in the presentation. We currently have five of our LPG vessels, our three product tankers and one brand-new Aframax tanker and bareboat charters, which are the most secure in terms of operational risk. Plus we are protected from such expenses as bankers, crew (inaudible) as these and all other expenses are for the bareboat charters' account. However, as discussed in our press release, this has been a significant reduction in the number of vessels trading on a bareboat basis as compared to last year and earlier in the Company's history.

Our fourth goal has been to own and operate a modern fleet of gas carriers and in this respect, our average age as of today is about 11 years, not including the tankers and the five brand-new gas carriers that we are contracted to acquire between February '11 and April 2012 compared to an industry average of about 22 years. We continue to believe that within our cost structure, it gives us a competitive advantage and that this factor will be important as we move forward into the latter part of 2010 and beyond. A point that we will discuss later is an expected contraction in the overall size of the Handy Size LPG fleet and like any other active shipping sector.

Our fifth objective has been to maintain close customer relations. The quality of our customer relationships is exemplified by our continuing to 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 issues in terms of charters' performance.

Our sixth goal has been to maintain cost-efficient operations. I am pleased to report yet another good performance in Q2 of 2010. Our net income breakeven level per vessel per day, excluding losses on derivatives, remained unchanged at $5523 per vessel per day compared to the previous quarter. Also, on a year-on-year basis, excluding losses on derivatives, our daily net income breakeven did increase from $5556 in Q2 '09 compared to $5962 in Q2 of this year due primarily to an increase in depreciation expense per vessel and higher operating expenses per vessel as a consequence of the reduction in the number of bareboat charter vessels.

For the half year, our daily net income breakeven also increased from $5557 in 2009 to $5734 this year again due primarily to increased depreciation expenses. We continue to concentrate heavily on managing our cost base and based on these results, these efforts continue to preserve the profitability of the Company at a time when we continue to trade in a relatively flat environment.

Finally, with regard to our stock repurchase program, I can report that, as at the close of business Friday the 20th, the number of shares we have purchased totaled 1,205,229 shares.

Slide number 3. This slide demonstrates the development of our fleet. By the end of the second quarter of 2010, we had a fleet of 34 gas carriers and three product tankers, thus continuing to be number one in the Handy Size LPG segment. Today, we continue to own 54 gas carriers and by the end of 2010, as currently structured, we will own the existing 34 ships, plus three more product tankers, plus the one brand-new Aframax oil tanker that we took delivery of in July and was immediately deployed on a five-year bareboat charter.

StealthGas continued to hold the number one ranking in owned vessels in the 3000 to 8000 CBM segment. We continue to believe this segment of the LPG space has shrunk fundamentals coupled with relatively stable charter rates as we will be demonstrating. Plus StealthGas has a favorable order book and fleet growth outlook compared to the average sized segment in the LPG sector and very significantly many other asset classes of shipping.

Slide number 4. This slide shows you the fleet employment profile and provides you with the earnings visibility for each of our 38 current ships. At the bottom of the employment profile chart, we have included a percentage of voyage days fixed. This enables you to assess the stability and predictability of our earnings. As you can see, 68% of voyage days are fixed for 2010 and 35% for 2011.

We now turn to the financial highlights of the second quarter and half-year results, so I will pass you on to our CFO, Mr. Simmons.

Thank you, Harry and good morning, everybody. With slide number 5, we now turn to the financial highlights of the second quarter and the first half of 2010. With an average of 37.6 vessels owned and operated in the second quarter of 2010, we realized net income of $4.1 million on voyage revenues of $26.9 million and we produced an EBITDA of $12.2 million.

For the second quarter of '10, we reported a loss of $200,000 on interest rate swap and currency hedging arrangements, which included an unrealized noncash profit of $1.2 million on currency hedging arrangements and a realized cash loss of approximately $1.4 million on interest rate swap arrangements, plus a gain on the sale of vessels of $1 million and a $50,000 non-cash provision for restricted stock deferred-based compensation. Excluding these non-cash items, our net income was $2.9 million, or $0.13 per share, calculated on 21.8 million average shares outstanding.

Our net debt to capitalization stood at 43% at the end of Q2 2010. We continue to believe that maintaining our leverage at moderate levels is important. Following the acquisition of the M.T. Spike in July as currently structured, no further debt will be incurred by the Company until early 2011 when delivery of the five new LPG vessels commences.

We now turn please to slide number 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 second quarter of 2009 when we had an average of 41.2 vessels in our fleet to the second quarter of this year when we had an average of 37.6 vessels in the fleet, revenues decreased by just 0.2%. EBITDA decrease by 16.4%, but increased by 23.2% over the first quarter of this year and our earnings per share, excluding non-cash items, was $13 per share compared to $15 per share in the same quarter last year.

Turning now to slide number 7. These are our operating highlights for four prior quarters, the second quarter of 2010, plus our full-year figures for 2008 and '09. In terms of fleet data in the first quarter 2010, we owned and operated an average of 37.6 vessels. Total charter days for the fleet during the second quarter of 2010 were 2454 and we also had 907 total spot market days. This compares to 743 spot days in the same quarter last year.

In terms of average daily results per vessel for the second quarter of 2010, we achieved a time charter equivalent of $7835 per day per vessel on the adjusted basis compared to $7857 per day per vessel in Q2 of '09 and $7989 per day per vessel in the prior quarter. Vessel operating expenses per day on the adjusted basis, i.e., no vessels on bareboat charter, were $3684 per day compared to $3868 in Q2 '09 and $3513 per day per vessel in the first quarter of this year.

We continue, as we have just discussed, to be relatively pleased with this performance in the day-to-day running expenses. The measures we instigated both last year and into this have helped defray, to an extent, the effect of a softer spot market and some commercial downtime.

With slide numbers 8 and 9, we now turn to the financial highlights of the first half of 2010. With an average of 39.3 vessels owned and operated in this period compared to 41.2 in the first six months of last year, we realized net income of $5.8 million on voyage revenues of $55.6 million and produced EBITDA of $22.1 million. For the first half of 2010, we reported a loss of $3.5 million on interest rate swap currency hedging arrangements, which included an unrealized noncash loss of $300,000 of currency hedging arrangements and a realized cash loss of approximately $3.2 million on interest rate swap arrangements. Plus a gain on the sale of vessels of $1 million and a $100,000 non-cash provision for restricted stock deferred-based compensation. Excluding the non-cash items discussed, net income was $6.2 million or $0.28 per share calculated on 22 million average shares outstanding.

The net debt to market values of our existing fleet at the end of the first half of 2010 stood at 51%, which we believe is among the lowest of the US-listed shipping companies and underlines, in our opinion, that our prevailing stock price continues as we have discussed previously and as we will later to undervalue the Company.

We now turn to slide number 10. As we already have discussed, we continue to try to run our fleet in a very cost-effective manner, concentrating extremely hard on operating our ships efficiently and safely. Our vessel operating expenses in Q2 of 2010 increased by 5.3% over the same period last year when we had four more vessels on average in the fleet and a higher number of vessels on bareboat charter in the second quarter of this year. So on a cash flow basis, our daily breakeven per vessel for the second quarter of 2010 was $6275 per day per vessel if we deduct the realized loss on derivatives compared to $5739 per day in Q1 of 2010.

What is encouraging from a cost standpoint is, if you turn back to slide number 7, is that our total operating, vessel operating expenses per day for Q2 2010 were lower than the corresponding quarter last year and just 6% higher than for all of 2009. On a net income basis, our daily breakeven per vessel net of realized costs on derivatives was $5963 per day in Q2 of 2010 compared to $5523 per day for the first quarter of 2010, an increase of $44 per day per vessel, or 8% due primarily to an increase in depreciation expense and direct operating expense as a consequence of the decrease in the number of ships on bareboat charter.

We now turn please to slide number 11. Using the input given on this slide, our shareholders can estimate our financial performance for the remainder of 2010. This slide provides you with the revenues we already have secured as of today until the end of this year based on contracted revenues under time and bareboat charters. Total contracted revenues to date are $96.8 million, which is 85.6% of total 2009 revenues. Plus we have the variable in revenues generated by those of our vessels with days that are not yet contracted for in the remainder of 2010 and we have provided you with that number of days, 2197, as the fleet stood at the first of July 2010. So you can input the rate you wish to assume our average vessel not yet chartered will earn for the remainder of 2010 and you can calculate our projected performance for this year.

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

Slide number 12. This slide illustrates the volatile freight markets over the past eight years for the medium-sized and large-sized gas carriers. In comparison, midsized and smaller semi-ref and fully pressurized vessels in our core sector have expressed a much lower volatility and until recently steady growth in freight earnings from mid-'05 onwards and a mild recovery in one-year charter rates in the sector is evident.

It is clear from this data that the type of ships which form the core of our business and that the [environment] from dry [weight] of the container markets have over the past eight years not experienced the wild fluctuations in rates and these average shipping sectors have seen and we are hopeful that this relatively nonvolatile trading pattern will continue as I believe we proved during a challenging 2009 and through our reported results for the first half of 2010 that we are discussing today.

This point is further emphasized by (technical difficulty) year 2000 between the drybulk crude tankers and the 3500 CBM fully pressurized gas carriers and 3200 semi-ref LPG vessels, which are typical of the majority of our fleet. As you can see, based on the mean average for these sectors over this quite extended period, the level of volatility is far higher in the dry and wet spaces in our core segment. There is a continued expectation that the supply of product will increase during 2011 and beyond.

Plus, demand is expected to continue to be steady, particularly in the Far East and developing world. Therefore, we continue to believe that the outlook of our core market is encouraging and we will continue with the contracted acquisition during 2011 and '12 of five brand-new gas carriers, while, in the meantime, we have already commenced looking to reduce in number some of our smaller and older vessels in the fleet.

Risk trimming will not only keep our fleet in terms of age at the forefront of the market, but the proceeds from these sales have already enhanced already strong liquidity position and reduced our debt level, which was already quite conservative. In addition, some of our increased liquidity has been utilized to repurchase some of our common stock and will also be deployed to selectively expand the Company if attractive opportunities are found.

Slide 15, this slide indicates the freight rate evolution for 12 months time charters for our market. The figure based on independent estimates by Lorentzen & Stemoco. You can see highlighted in yellow this segment continues to be, as I just discussed, characterized by a lack of stability. One-year time charter rates have been reasonably steady and the independent forecast for the third quarter of '10 is that rates will be similar to those currently being obtained. These projected rates was [slowed] down what we were achieving earlier in the Company's history. (inaudible) welcome did not in any way push the Company towards a lossmaking situation from a trading standpoint, as we have proven throughout 2009 and the first half of this year.

Slide 15. We continue to believe that the forecasted minimal fleet growth of the Handy Size LPG sector this year and the negative fleet growth in 2011 at the time when several large national gas projects are due to come onstream gives a defined and positive outlook for our core sector. The expectation of the supply of gas product must be shipped at this time will increase. We continue to believe that the supply demand actually is very encouraging for a company and is a virtually unique situation within the shipping industry, particularly given the order book situation being faced by many of the other sectors of shipping today, and the mix outlook for the world economy, particularly in the area of discretionary spending.

We now turn to slide 16. We have included this slide to reemphasize the point, as I have just made, refers to the different order books, outlook for the LPG sector as opposed to the more mainstream sectors of shipping. As regard of the figures shown here and the graph are all for all LPG sizes as we have just discussed and not only for our own Handy Size sector.

Last, as just discussed, the overall size of our specific fleet sector is projected to decline during 2010 and '11, which, given our market-leading position, should be a positive factor for the Company.

Slide 17. We have included this slide now for the past four quarters. These four quarters results, taking a sample of different types of listed shipping companies and making a comparison of their price to net asset value compared to ours. We have also included a comparison to the price to earnings ratio to further underline our point.

As you can see from the slide, based upon data made available to us recently, we seem to continue to present a very attractive prospect to investors when benchmarked against these companies who do not benefit from the same core fundamentals that we have been discussing. So my view on this basis, at least places I highlighted earlier, are comparatively low debt to market value level, who continue to be valued inappropriately by the market and still less in my view continues to be an attractive company to invest in based upon these valuations and the outline we have discussed here today.

To summarize, the Company is in good position to take advantage of improvements in our market and also opportunities as they present themselves going forward. Plus, if the world does not move back into recession, our strong financial base will demonstrate the steadiness of our core sector and the conservative employment profile of our tanker fleet, will be a good defense against any possible downturn.

I would also like to stress again that we have not needed to issue any negative equity or undertake any high-yield financing during the challenging period we have all experienced over the last two years or so and that the Company remains operational profitable and able to comfortably meet its ongoing obligations.

Finally, as announced in March, we have commenced our share repurchase program, which today totals about 1.2 million shares. We believe that the sale of several ships at prices close to their book value and invested some of these processes in our stock, which continues to trade at close to a 60% discount of NAV will also prove over time to have been a sound deployment of our capital.

We have now reached the end of our presentation and we would like to open the floor for your questions. So please, operator, open the floor. Thank you.

(Operator Instructions). Natasha Boyden, Cantor Fitzgerald.

Thank you, operator. Good morning, gentlemen or good afternoon. Harry, you mentioned in the release and during your prepared comments that you believe the fundamentals in the LPG sector are improving and getting better. Can you talk a little bit about why you think that is the case and what are you actually seeing on the demand side that makes you more optimistic? Or is it more of a supply equation?

At the moment, we are not seeing much. We are seeing a bit more interest on the period side for 2011, which is a very positive sign. Charters and traders and national gas companies are getting interested to get their hands on mod investments for next year, so something must be going on.

Secondly, as you have seen on the graph, there is a negative fleet growth for next year, which I guess is very good news, especially for us that we have a modern fleet. And thirdly, it all depends on the winter. Again, if it is going to be a cold winter or not. So I guess we will have to see what will happen from let's say October onwards.

Okay, great. And then just moving to your newbuilds, are all those on track to be delivered on time and do you foresee any potential delay deliveries at all or even a little move away from that?

As you know very well, Japanese shipyards never delay by even one day.

Okay, all right. So they are not going to be early, they are not going to be late, they are just going to be exactly as you forecast?

Unless there is a damage or something that could damage the ships, I think they will be right on time.

Okay. And maybe, Andrew, you can help with this. What is the remaining CapEx requirements for '10 and '11 for those ships and do you have all the financing in place for them?

We have just begun negotiating with several -- a large number of banks in regards to the potential financing of these ships. And we are very pleased to have seen the level of interest that we have had from the banks. So we will be I think finalizing that over the next three to four weeks.

In terms of the CapEx that is required as we have discussed I think a number of times before, we are only looking for postdelivery finance on these ships that we have sufficient cash to meet the staged payments that are required on those ships as they come for delivery for in 2011 and the last one in May of 2012.

Okay, all right, great. That's very helpful. Lastly, just really want to focus on -- Harry, you gave us some pretty good information on your strategy so far. But going forward, LPG asset values, where are they in terms of your view? Are they attractive or not? Are they still not -- still haven't come down to a level where there isn't enough availability for you to look at or would you look at other sectors and continue to look at perhaps product?

When you trade at the 60% to NAV then the best strategy is to sell ships and buy stock.

Okay, all right. Thanks very much. And then how many -- do you have any older ships left that you still want to sell or have you pretty much finished there?

We have another three or four. It all depends at what price we might fetch, but if we fetch a reasonable price, we would sell them, yes.

Okay, great. Thank you very much.

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

Good morning. Given your share buyback program in place and the apparent lack of any recent purchasing say within the last 60 days, is there the possibility that you are preserving cash right now for something other than the newbuild program, which may be opportunistically looking for additional capacity?

You hit it right in the spot. You are 100% correct. We wait to finalize the financing arrangements for the five-year buildings depending on what percentage we are going to get from the banks. Then we will either restart purchasing search or we are going to see if there is something better to do with the money. I think that if nothing changes in the marketplace, we will continue buying back stock.

Great. And what kind of timeframe should we be thinking about in terms of your either going to the market to purchase more stock or potentially announcing further fleet acquisitions?

Maximum 60 days.

Thank you very much.

(Operator Instructions). Jason Selch, Providence Capital.

Yes, I was just wondering on the acquisition of the tanker that was announced in June, how much equity did you have to contribute into that ship and what is the expected internal rate of return of that investment?

Good morning, Jason. One minute because we are calculating on the spot. One sec.

Okay, thank you.

Actually $11.5 million.

About $11 million in cash we put.

Okay. And what kind of return do you expect to get on that?

I think it is between 8% to 10%, but obviously since it's a new building, it has a very long life, it all depends what will happen in the end of the current bareboat charter. Meaning if the market is good, obviously you can get a much higher rate and obviously the return will go up and of course if the market is bad for Aframax tankers in 2015, the opposite. So it is a bit of a guess.

Okay, okay. Thanks a lot.

Sean Milligan, Johnson Rice.

Hey, Harry. Good morning. I know earlier you mentioned that you were seeing a pickup in 2011 period demand, but could you talk a little bit about your expectations for spot demand over sort of the second half of 2010? Thank you.

As I told you, it all depends on the winter time and there is always a pickup in the autumn and the winter. Sometimes it is 5%, sometimes it is 15% on the spot side. We don't have any clues yet, but as I told you, a positive thing is, but since more and more charters are coming and asking for ships for 2011, then that probably means that the spot market for 2011 will definitely be stronger than it has been in the last, I don't know, 12 months.

Okay, thank you, Harry. That was very helpful.

(Operator Instructions). Gentlemen, we currently have no questions on the queue.

Okay. We would like to thank everyone for joining us on our conference call today and for your interest and trust in our Company. We look forward to having you with us again at our next conference call for our third quarter and nine months 2010 results in November 2010. Thank you very much.

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