StealthGas Inc (GASS) 2011 Q4 法說會逐字稿

Thank you for standing by and welcome to the StealthGas Inc. fourth-quarter 2011 results conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, February 23, 2012.

I would now like to turn the conference over to your first speaker today, Harry Vafias. Please go ahead, sir.

Thank you. Good morning, everyone. Welcome to our conference call and webcast to discuss the results for the fourth quarter and full year 2011.

I am Harry Vafias, the CEO of StealthGas, and I would like to remind you, please, we will be discussing forward-looking statements in today's call. And 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 fourth-quarter results.

With me today is Konstantinos Sistovaris, our CFO, and if you need any further information on the call or the presentation, please contact Konstantinos or myself.

Before I start with the slides, I would like to comment on the results we released this morning. I am pleased with the results we announced today. Not only did we post profits for the quarter and the full year, but our bottom line shows an improvement quarter-on-quarter and year-on-year in our operations.

We announced earnings per share of $0.22 for the quarter and $0.41 for the year. This includes some nonrecurring and non-cash items related to the swaps and the fair values of our swaps and foreign exchange and book losses on the sales of our vessels in the second quarter. Excluding these, our fourth-quarter earnings per share were $0.17 and our full-year were $0.56 compared to $0.41 last year.

I believe that we have started seeing the improvement in the LPG market filtering down to our earnings. This is a very difficult environment for shipping companies, and few are reporting earnings at all. As a result of our focus on the LPG market, we continue to operate profitably and have laid solid foundations for the Company, avoiding any difficult financial position that so many other shipping companies are already in.

So let's start with slide number 2. Our medium-term goal is to renew our fleet with the delivery of five newbuilding gas ships. During the first three quarters of 2011, we took delivery of the first three ships, which we then fixed on longtime time charters.

We also proceeded with the sale of four older vessels. The average age of the four vessels sold was 16 years, and three of them were operating in the spot market.

Last month, we sold the Gas Tiny, the smallest vessel in our fleet, also operating in the spot market. And this month, we agreed to sell the Gas Kalogeros, also operating in the spot market. From the sale of the Gas Kalogeros, we expect to book a small profit in the second quarter when its delivery is due.

Then in January of this year we took delivery from the yard of our first 7,500 cbm newbuilding, the Gas Husky, which we immediately deployed on a five-year bareboat charter to a Middle Eastern state oil company.

As I have said in the past, we wish to keep the average age of our fleet low and get rid of the older ships that operate in the spot market, so that we improve our contract coverage and operational efficiencies. That is the reason behind the sale of the five older ships.

As far as our newbuilding program is concerned, we have one more vessel to take delivery of. The vessel is being built in Japan and has already been launched in the water; and delivery to us is scheduled for May.

After taking into consideration the total fleet of 37 vessels, at the end of the fourth-quarter '11 our net debt-to-capitalization stood at 43.2%, similar to the previous quarter. And taking into consideration the last vessel delivery, we estimate that we will continue to have a model ratio of below 50%.

Our gross debt, which stood at approximately $350 million at the end of the quarter, will peak at about $360 million in the second quarter of 2012. So we do not expect any significant increase in our debt level from the delivery of the last newbuilding.

We continue to strive to obtain a secure and visible revenue stream with stable and predictable cash flows. At the moment, fixed deployment for our fleet for 2012 stands at 75%, with almost 40% already fixed for 2013. Just to remind you, within our previous presentation I had said that by the end of the first-quarter 2012 we were aiming to have around 70% of our ships fixed, whereas we managed to already have 75% fixed already.

Our fourth goal has been to own and operate a modern fleet of gas carriers, and in this respect the average ages of today is 11 years, not including our tankers, which is rather young compared to the industry average. Including the product tankers and the Aframax and the newbuildings of our fleet, the average age falls to 10.5 years.

We continue to believe that within our core sector this gives us a competitive advantage, as younger ships have less operating expenses, consume less bunkers, and are more appealing to blue-chip charterers. And that is a factor will be very important as we move forward into 2012 and beyond.

We continue to have strong charterers which lowers our counterparty risk. This is a key for any shipping company's performance in any segment, especially in the kind of environment where you very often see charterers defaulting on their commitments, especially in the drybulk segment. Because of the strength of the LPG market and the participation of more established names in it, we don't expect to have any issues with our counterparties.

Now in terms of the cost efficiency of our operation, I am pleased to report yet another good performance in the fourth quarter. Our net income breakeven level per vessel per day excluding losses on derivatives was $5,750 per ship per day, compared to $5,975 in the third quarter and $6,161 in the second quarter, which puts us comfortably in the profit-making territory. We continue to concentrate heavily on managing our cost base, and we expect (technical difficulty) have put on bareboat charters during last year and the addition of the brand-new vessels to the fleet we will be able to contain upward pressures on operating costs.

I would also like to remind you once more that in terms of our general and administrative expenses we are amongst the lowest in the public shipping sector. And we are working hard to control costs not only on the operational side but also on the managerial side.

Finally, regarding our share buyback program, during 2011 we bought back 550,000 shares; and since that program's inception, we have bought back approximately 1.8 million shares or 8% of our shares outstanding, at a cost of about $8.5 million.

Due to the uncertain economic environment, as I had mentioned in our last presentation, we did not proceed with any buybacks during the fourth quarter. However, the $50 million buyback program is still in place.

Slide number 3, this slide demonstrates the development of our fleet. What I would like our vessels to notice is that while our fleet since the second quarter of 2010 hovers around between 37 and 38 vessels, while in fact we have had very active to prudently renew our fleet. If you look at our balance sheet, the book value of our fleet in Q2 2010 was $560 million and today, in spite of the $40 million of depreciation since then and a number of sales, the book value of our fleet is $614 million. That is because we have steadily renewed the fleet with larger and newer ships.

The total fleet of 37 vessels at the end of the quarter comprised of 33 LPG ships, three product tankers, and one Aframax tanker. We continue to hold the number-one ranking in the world in the 3,000 to 8,000 cbm Handysize sector.

We are committed to the LPG segment and intend to hold on to our leadership. The improvement in our cash position over the last year allows us to seek new investments whenever we may spot opportunities.

Slide 4, this slide demonstrates our fleet employment profile and provide you with the earnings visibility for the 37 ships currently in our fleet. At the bottom of the employment chart, we have included a percentage of fleet employment dates for '12 and 2013, and this enables you to assess the stability and predictability of our earnings.

For 2012, 75% of days are already fixed and already 40% for 2013, with a number of charters extending into 2014 and beyond. 2011 was a good year for securing long-term employment. We managed to conclude new long-term charters for 16 of our ships, thus securing revenues of about $63 million over the next few years.

Total contracted revenues are approximately $165 million up to 2017. And the estimated TC equivalent for the LPG ships on long-term charters is now $9,000 a day.

In terms of charter types, out of a fleet of 37 ships, we have 14 of the vessels on bareboat charters, 20 on time charters, and three in the spot market.

The Company's policy is to find employment for long-term charters in order to secure its cash flow, and to reduce further our risk we have arranged for a number of bareboat charters. Therefore there is a risk that if we fix more ships on bareboat charters, we might end up being a PFIC, with potential disadvantages for US investors.

We now turn to the financial highlights for the fourth quarter to our CFO, Mr. Sistovaris.

Thank you, Harry. Good morning, everyone. So let me continue the presentation with slide number 5, the financial highlights for the fourth quarter of 2011.

With an average of 37 vessels owned and operated in the fourth quarter, we realized net income of $4.4 million on voyage revenues of $28.9 million. EBITDA was $13.6 million, and earnings per share for the quarter were $0.22.

Included in the net income figure is a $0.2 million loss on derivatives including a $1.2 million on swap interest paid. Our adjusted net income for the quarter was $3.4 million or $0.17 per share.

For the full year, we realized net income of $8.5 million on voyage revenues of $118 million. EBITDA for the year was $44.5 million, and earnings per share $0.41.

Again, in order to present what we consider a more meaningful picture of our operational performance, we adjust the net income figure for the $2.9 million loss on derivatives, including a $5.5 million on swap interest paid, and we adjust for $5.6 million loss on the sale of the vessels in the second quarter. Hence, our adjusted income for the year is $11.6 million or $0.56 per share.

The free cash balance at the end of the quarter was approximately $45.5 million. We also had about $5.3 million in restricted cash as part of our loan agreements.

We now turn to slide number 6 for a summary of our income statement in order to compare our results for the quarter and the year to last year's. So in comparing our results from the fourth quarter of 2010, when we had an average of 38 vessels in our fleet, to the fourth quarter of 2011, when we had an average of 37 vessels in the fleet, revenues were essentially flat.

The reason for that being not that we had one less special in the fleet, but the five vessels that switched from voyage charters to bareboat charters, the benefits of which we can see further down in our income statement. Voyage costs were up by $0.6 million due to higher fuel costs for the vessels operating in the spot market.

About 15% of our fleet was operating in the spot market last year. However, our running expenses were reduced by almost $2 million, as the vessels operating under bareboat charters do not have running expenses.

We had $0.5 million in additional drydock expenses because two more vessels were drydocked during this time. As a result of all of the above, our operating income was up by 16%.

Our net income was up by 2%. However, excluding the derivatives, our adjusted net income was $3.4 million compared to $2.4 million last year, an increase of 42%. Again, on an adjusted basis our earnings per share were $0.17 compared to $0.11 last year.

Comparing our full-year 2011 income statement to the previous year, our revenues were $118.3 million compared to $111.4 million last year, up by $6.9 million or 6%. For the same reasons I described previously, our voyage expenses -- that include bunker costs, port expenses, and freight commissions -- were increased by $4.1 million, while our operating expenses were decreased by $1.8 million.

Our operating income was $19.8 million compared to $23 million, a drop of $3.2 million last year. Taking out the effect of the book value gains -- losses on the sale of the vessels, which was $6.6 million year-over-year, our income from operations in effect improved by $3.4 million.

Our net income for 2011 was $8.5 million compared to last year's $11.1 million. But again on an adjusted basis our operations were much improved, so that our adjusted net income was $11.6 million compared to $8.4 million last year.

Our earnings per share for the full year on an adjusted basis were $0.56 per share compared to $0.39 per share last year.

Moving on to slight number 7, looking at our balance sheet, in terms of cash we continue to maintain a healthy cash balance of $51.8 million including the restricted cash. That was significantly strengthened this year by the addition of the net proceeds from the sales of the vessels of about $17 million, despite having cash outflows for our newbuilding program. As of December 31, we had $22 million in advances for the remaining two vessels to be delivered, one of which was delivered successfully in January of this year.

Our vessels' book value net of depreciation stood at $613.8 million compared to $603 million at the end of last year. With the scheduled deliveries of new vessels and the sale of Gas Kalogeros, we would expect to see this figure reach $645 million by the second quarter of this year.

In terms of liabilities, the current portion of our long-term debt -- that is the loan repayments that are scheduled over the next year -- it remains constant at around $34 million. Other current liabilities at $22.1 million are slightly reduced.

Our long-term debt increased slightly to $317 million from $310 million due to the new facilities for the Gas Elixir, the Gas Cerberus, and the Gas Myth. We would expect to see this figure top at around $320 million after we take delivery of the scheduled vessels.

We have around $9 million of principal debt remaining repayments per quarter -- that is $36 million per year -- that we can meet comfortably from our internally generated cash flow. I would also like to point out that we have no debt maturing over the next couple of years, so there is no need for refinance. The first balloon payment on our loans are due in mid-2014, and then the next one in 2016.

Other liabilities of $9.4 million relate to the interest rate swaps we have with our banks to protect us from increases in LIBOR rates. As of today, we have around 40% of the interest rate exposure on our loans hedged. These are multi-year hedging agreements for our loans that we did a few years back and still have some years left. On average, by 2013 we would expect half of our swaps to have expired or amortized, unless by this time we enter into new agreements.

Stockholders equity for the fourth quarter was $313 million. I would also like to point out that with our share trading at $4.50, we are greatly undervalued. The net book value of our fleet -- that is, our cash plus our book value minus our debt -- on a per-share basis is around $14.

We're now pleased to turn to slight number 8. These are our operating highlights for the fourth quarter of 2011 and 2010.

In terms of fleet data, we had 37 vessels in the fleet versus 38 vessels last year. Hence, the number of days for the fleet have not significantly changed. Our utilization ratio is slightly lower because of the two vessels that had to be drydocked and were therefore out of operation for some time during the fourth quarter of this year of 2011, and one vessel that had some engine problems and was off-hire.

Where there is a reversal of the trend we had over the last few quarters is with the large decrease in the number of spot days from 865 in Q4 2010 and 1,005 in Q2 2011, to 732 in Q3 2011 and 615 in Q4 2011. One reason for this was the sale of the vessels we did in the previous quarters, as these were vessels that were operating in the spot market.

A second reason is that we have concluded more period charters. We now only have three vessels operating in the spot market.

So to give you these numbers in percentage terms, while spot dates represented 25% of all our voyage days in the previous quarter, now they are down to 18%. On the other hand, bareboat days that represented 19% now present 35% of all our voyage days.

In terms average daily results, we continue to see our average TCE rates improving from last year. We achieved a time-charter equivalent of $8,882 per day per vessel on an adjusted basis, compared to $8,024 per day per vessel in the same quarter of 2010.

Our total operating expenses increased from $3,878 per day to $4,216 per day; and the net margin increased from 4,146 in 2010 to 4,666 in 2011. We still operate above breakeven levels in terms of income and cash flow.

We now turn to slide number 9, where as usual we are going to provide you with some of our estimates for 2012. We have contracted revenues under time and bareboat charters of approximately $81 million. Non-contracted voyage days for the vessels operating in the spot market or are coming off their charters are approximately 3,800.

We expect our operating expenses will be reduced to around $7.8 million per quarter. As far as drydock expenses, we have fewer vessels to drydock this year, six vessels compared to nine last year. Three of these vessels will be drydocked in the current quarter.

Interest payments on our loans and cash payments on our swaps we estimate to be around $15 million, and depreciation expenses of $28.5 million. As far as the payments for the newbuilding vessels are concerned, remaining payments for 2012 to the yard are approximately $40 million, of which $20 million was already paid in January. As we have said, we have committed finance for the remaining vessel covering the full amount of the future cash outflow.

Thank you very much, and I will now hand you back to Harry for some further comments on the market.

Slide number 10. In this light, we show you one-year charter rates for our market. We have updated this slide with the last year rates, current rates, and future estimates.

Looking at a 5,000 CBM pressure ship, the rates in Q4 '10 were $265,000 per month; in Q4 2011, $310,000 per month; and the forecast for this quarter is to go higher to $315,000 per month. In the segment we operate, which is the 3,000 to 8,000 cbm segment, we have seen a strengthening in the market compared to last year in the region of between 10% and 20% depending on the size and nature of the ship.

On a short-term basis, the winter was slow to come in most of the northern hemisphere, so the market was steady at these elevated levels. Lately, we have seen increased activity in Southeast and Northeast Asia, where the majority of our vessels trade; while in Europe, where the winter has been mild, the market was slow to take off, but there are signs it has been strengthening as colder weather set in.

We believe that the [softening] in our market has allowed us to conclude new charters at elevated levels, as previously announced, and most importantly for longer periods. At this point, we only have three vessels operating in the spot market; but because of our staggered employment profile, we expect 13 vessels will come off charter during 2012, and we hope to renew them at higher levels.

We are taking delivery of a newbuilding 7,500 cbm ship in May, and we are already seeing interest for chartering that ship on a long-term basis.

Slide 11. As we showed in the previous slide, charter rates have improved from last year, and we believe that the fundamentals in our core segment that relate to supply and demand are favorable. And as a result, the recovery will be sustainable in spite of any short-term seasonal ups and down.

The Middle East is the most important region for global LPG ship-borne trade, and it is well known that Middle Eastern countries are playing for expansion of their refining facilities and there is a number of LNG projects to be completed. This will benefit [terminal] demand for LPG.

Cargo shipped out of the Middle East were 28.8 million tons in 2010 and suggest that it could reach 35.2 million tons by the end of 2013, a 22% increase. While we only have three vessels trading in the region, most of the cargoes end up in the Far East, where they are locally distributed onboard ships like ours, since the bulk of our fleet is operating in that region. There are solid indications that the supply of LPG product will increase during 2011 and beyond, supported by strong economic growth in Asia.

On the supply side, the order book for Handysize LPG ships is fairly small at the moment. On the one hand, we expect the order book over the next years to decline; and what is encouraging is the fact that we still have not seen new orders for pressurized ships, and newbuilding prices have not come down especially due to the strong yen.

On the other hand, the existing fleet is relatively old, which means more vessels will need to be scrapped. Overall net fleet growth is small, suggesting that demand for vessels will be higher than the supply. If these projections materialize, we believe that with a fleet of modern ships we will command premium rates, and we are positioning our Company to take advantage of the strong fundamentals in our sector.

Slide 12. We have included this slide to emphasize a point about the order book. The order books in this slide are spread over the period of at least three years, although in most cases deliveries are frontloaded. I should add that the figures shown here in the graph are for all LPG sizes.

As you can see, for the two mainstream shipping segments overall numbers are better than last quarter. The order book continues to be elevated at 18% for tankers and 33% for bulkers. Offshore and container segments also have high order books.

Of the other sectors what we have seen recently is there is renewed interest in LNG newbuildings due to the current solid chartering market. At this point, increasing LNG volumes may absorb the increase in the order book. But unless there is a restraint in the ordering of new vessels this space could be oversupplied in the coming years.

Also, the order book for product tankers, of which we own three, has recently increased slightly as there has been renewed interest due to the fact that most of the past order book has been absorbed, and there is optimism regarding the refinery expansions in the Middle East. We hope that there will be restraint in the new ordering in that sector.

The last bar in this graph is our own LPG sector, with an 8% order book. It's the sector with the smallest order book, but does not get as much attention. At this point if ton-mile increases at an annual rate of 5%, as some reports suggest, this could easily absorb the current order book.

I would like to close this presentation by saying that over the last year we have managed to take advantage of improving markets and posted solid operational profits. If you look through and beyond the one-off terms and the accounting treatments of derivatives and foreign exchange hedges, and focus on what I call the operational side, you will see a marked improvement in our figures.

The market has not reached yet the 2008 strong levels, but it's steadily improving and we can be optimistic about the future. On our part, we have managed to renew our fleet and we will continue to do so and increase our liquidity position. We do our business with a long-term view and I believe that our decision in the previous quarter to sell some of the older spot vessels and replace them with new ones on long-term time charters has already proven to be the correct one.

We have also significantly improved our available cash recently, and this will assist us in our future growth. We are looking in the market for opportunities to grow our fleet.

The biggest impediment to growth these days, the bank finance market. We have seen a lot of banks unwilling or unable to provide finance. However our Company has earned the support of its banks, and we have solid indications that our banks will be there to finance our future growth.

As far as our stock price is concerned, I repeat that they present a very attractive prospect for investors. We are a solid Company in an industry in which outlook is brighter, and we are valued very cheaply, far below our breakup value. Just consider what we have $50 million in cash, $300 million in shareholder equity, and below $100 million in market cap.

We have now reached the end of our presentation and would like to open the floor for your questions. Operator, please open the floor. Thanks.

(Operator Instructions) Natasha Boyden, Cantor Fitzgerald.

Thank you, operator. Good morning, gentlemen, or good afternoon. Harry, what is your strategy going forward now that you have got the majority of your newbuilds been delivered and I think you said in the presentation you have one left? I mean, do you find asset values in the LPG space attractive here and intend to expand the fleet? Or is your focus now going to be more on cash flow generation and deleveraging?

I think we have very low debt, so deleveraging won't be a very clever idea since our debt is very cheap anyway. So our strategy would be cautious growth.

Okay. Obviously you are primarily in the LPG space, but you do have vessels in a couple of other sectors. Would you primarily be focusing on the LPG space?

And if so, what is the liquidity like in the LPG space, given the very small order book and whatnot going forward?

If we buy assets on the basis of just value, I guess we don't have to go for LPG ships because the values have not dropped and therefore are not considered cheap. So we will go for tankers.

If we go for cash flow generation, then we will go for LPG ships, because obviously the rates that will be generated by the LPG ships in the next two or three years are generally speaking going to be pro rata much stronger than those of the tankers. So it depends what we find and how the Board will react.

There are very few LPGs available for sale. Definitely being the largest company in the segment, we are presented with opportunities. If we don't find anything interesting, I guess we have no choice but to go for newbuildings.

So is second -- so the new or secondhand versus newbuild is more preferable to you at this point, because you can get them on the water immediately?

Definitely. But there is nothing for sale at the moment.

Okay. Okay, just moving over to your share repurchase program, you said you hadn't repurchased any shares this quarter, but you still have a fair amount available under that facility. What's going on, given your view that the stock is considerably undervalued?

Are you keeping the cash for asset acquisitions? Or what's going on there with the share repurchase program?

The share price is very cheap as you can see yourself, and from an NAV point of view, and from any other formula point of view. The point is we don't know what is best at the moment, buying back stock or buying ships.

We want to keep a leading position in this segment. Our competitors are ordering ships, but not on the pressurized size, on the ethylene type primarily. So we are probably going to buy ships. If we can't, or if we buy newbuildings and therefore the delivery is far forward, we are definitely going to buy stock as well. Having bought close to 2 million shares, I don't think that's a small accomplishment.

Okay. Then you just actually led right into my last question. Harry, what do you estimate that the NAV of StealthGas is currently?

Around $14.

Around $14?

Which is with the fresh valuations taken in January.

Okay. All right, well, thank you very much.

Jeff Geygan, Milwaukee Private.

Good afternoon, gentlemen. The 13 ships that will be coming off of off charter in 2012, do you have an estimate of the average TCE for that group?

No, because it's ships that have been on long and short charters. Some are on bareboat, some are on TC. No; if you ask me completely off my head, just to guess, it would be between $7,000 and $8,000.

Okay, thank you. A second question is -- some of the new charters you put in place have been for longer terms than I have experienced historically with your Company, i.e. for five years. What do you think has changed in the mind of your charterer that they are willing to lease for such a period?

It's obvious. They are very optimistic about the market.

Last question, the Kalogeros, which you announced you are selling is a relatively young ship built in 2007. Historically, it seemed to me that you were selling older ships to try and keep your average age around that 10, 11 year age. Does this represent a change in your thinking or strategy?

No, we want to sell only older ships and buy only young ships. So this has been an exception in our strategy.

Okay, thank you.

(Operator Instructions) [Bruce Berger], private investor.

Yes, I had a question in regards to your statement with the passive foreign investment company. What are you planning to do to get around that? And what are the repercussions to US investors?

If you are a PFIC you cannot do anything to get around that. If you are one, you are one.

The implication is higher tax. The implication for US investors is higher tax on the dividend -- we are not giving any dividend -- and higher tax on capital gains when you sell the stock, if you sell the stock, and if we have been a PFIC and we stay a PFIC. Because we might be a PFIC for a short while and then we might add more assets that are not passive assets, therefore get out of the PFIC.

At the moment, we are not a PFIC. We are just warning people because we don't like surprising our investors.

Thank you.

(Operator Instructions) Jay Weinstein, Highline Wealth.

Hey, good morning. When you take delivery of your final newbuild, I believe the book value of the assets would be around -- of the vessels would be about $640 million. Approximately how much of that is allocated to the LPG fleet, and how much is allocated to the four ships that are in the tanker segment?

Around one-quarter.

I'm sorry, a quarter to which one?

One-quarter to the tankers and the rest is gas.

Okay, thank you, that's great.

Bruce Berger.

Yes, Harry, I wanted to get your thoughts on product and Aframax tanker prices and your interest in purchasing at these levels.

I didn't understand the question.

Do you think that the current valuations for product tankers is such that you want to start buying some with the cash that you have?

No, we would not buy product tankers in any case.

What about Aframax?

Aframax, if you see brand-new ships falling below $40 million, it starts to make sense.

Okay, thanks.

(Operator Instructions) There are no further questions at this time. Please continue.

We'd like to thank everyone for joining us at 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 call for our first quarter results in May. Thank you.

This concludes the conference for today. Thank you for participating. You may all disconnect.