StealthGas Inc (GASS) 2016 Q2 法說會逐字稿

Thank you. Good morning, ladies and gentlemen, and thank you for dialing in to our second-quarter 2016 earnings presentation and webcast. I am Michael Jolliffe, the Board Chairman of StealthGas, and joining me on the call today is Harry Vafias, the Chief Executive Officer of our Company; and our Finance Officer, Fenia Sakellaris, who will discuss our Company's financial performance.

Before we commence our presentation, I would like all of you to be reminded that we will be discussing forward-looking statements which reflect current views with respect to future events and financial performance. At this stage, if you could all take a moment to read our disclaimer on slide 2 of the presentation, it is noted that risks are further disclosed in StealthGas' filing with the Securities and Exchange Commission.

I would also like you to note that all amounts quoted, unless otherwise clarified, are implicitly stated in United States dollars. So let us move on to slide 3, so as to summarize our Company's key highlights for the second quarter of 2016.

It is acknowledged that our bottom-line results were not that satisfactory. This quarter rates in our segment showed no significant signs of improvement, and broader seaborne trade of LPG was affected by the narrowing of price arbitrage opportunities. In addition to this, our performance was affected by the cost of four scheduled dry dockings and a grounding incident on one of our LPG vessels.

Therefore, revenue lost due to technical off-hires coupled with increase to our operating costs, mostly due to extraordinary events, led to our Company marking an income loss this past quarter. Nevertheless, we concluded the newbuilding LPG delivery program for 2016 with the addition of our latest LPG newbuild, the Eco Dominator, at the end of June 2016.

In addition to this, and given our fleet expansion, we achieved a year-over-year increase in vessel calendar days of 15% while we managed to close the quarter with an operational utilization of 91%. We continued our conservative chartering strategy, maintaining, as customary, strong earnings with a visibility of close to $180 million and managed to reduce further our average fleet age to 9.1 years, with more than 75% of our fleet being below 15 years of age.

Proceeding to our financial highlights, in quarter-two 2016, we recorded revenues of $35.7 million, an increase of approximately 10% compared to quarter-two 2015, whilst our EBITDA amounted to $12 million. In terms of our leverage and cash position, we still maintained a low gearing of about 41%, with a net debt to assets ratio as low as 34% as our cash is about $72 million.

In terms of capital expenditure, our remaining CapEx plan includes solely the four 22,000 semi-refs to be delivered in 2017 for which, and as previously announced, we have secured financing at competitive terms. Briefly commenting on our stock repurchase plan in quarter-two 2016, and given tough market conditions, we strategically decided to reduce spending for stock repurchases so as to preserve Company cash.

Please go to slide number 4. This slide provides an analysis of our fleet employment. In terms of charter types, out of a fleet of 54 owned vessels and as of August 2016, we had 14 of these ships on bareboat, 26 on time charters, and 14 in the swap market. The only two vessels that are chartered in by our Company are also sublet on time charters.

As customary to our conservative chartering strategy and in spite of very hard market conditions, we managed to increase our earnings visibility through new contracts and contract extensions for the remainder of 2016 to 70% and preserve our secured revenue balance in the order of about $180 million.

One side of our investment plan success and, in extension, our Company's capabilities, is that 100% of our 12 newbuilding LPG vessels delivered in 2015 and 2016 are on period charters, while a satisfactory percentage of our vessels above 15 years of age is also fixed on a period contract basis. Of course, as freight rates still remain at very low levels, market conditions do not permit the negotiation of very long-term contracts, and therefore our activity in the spot market still remains higher than customary.

In terms of new employment contracts, since our quarter-one 2016 results announcement in May, we concluded five new period charters varying from 3 to 6 months duration, and three time charters extensions varying from one year to six months. I will now pass the floor to our Chief Executive Officer, Harry Vafias, who will discuss our fleet geography and CapEx plan.

Thank you, Michael; and good morning, everyone. With regards to our fleet geography on slide 5, 54% of the fleet trades in the Middle and Far East; 30% in Europe; 7% in South America; and 6% in Australia; and, finally, 3% in Africa. In comparison to our fleet composition presented in the previous quarter, we had one vessel relocating from the Far East to Europe and two vessels commencing trade in Africa, which, according to our view, is an upcoming market for the shortfall LPG trade.

Slide 6 demonstrates our fleet development and any sale and purchase activity. As to date, our Company owns 54 ships.

In June 2016, we took delivery of our new Eco 7,200 cbm vessel named Eco Dominator. This was our last scheduled delivery for 2016, and we now have plenty of time to prepare for the delivery of our last four 22,000 semi-ref ships in 2017, pushing our fully owned fleet to 58 vessels by the end of next year.

Slide 7 provides you with an analysis of our remaining capital expenditure program scheduled to take place up to the end of 2017. For 2017, and as stated above, we expect to take delivery of the four new Eco 32,000 cbm semi-ref ships, which will add to our fleet a small element of diversification as we aim to offer to our customers a wider spectrum of services.

Looking at the table on the left-hand side, our remaining CapEx, excluding any related advances paid to date, is in the order of about $162 million. At the bottom of the table, we provide you with a detailed breakdown of our remaining capital expenditure as to advances and final payments for our future deliveries.

In relation to the financing of this capital expenditure, which is presented in the right graph: from a total contract value of $208 million, $47 million are advised -- advances already paid. $140 million is committed bank debt, a portion of which is still subject to definitive documentation, leaving us with an equity injection of close to $22 million.

I'll now turn you over to Mrs. Fenia Sakellaris for the financial performance discussion during Q2 2016 results, and later I will discuss the market and industry outlook.

Thank you, Harry, and good morning to everyone. The second quarter of 2016 did not generate the anticipated revenues, no profitability, as market rates still have not shown signs of improvement, nor oil prices have shown any sign of real stabilization or meaningful increase.

Let us move on to slide 8, where we see the income statement for the second quarter of 2016 against the same period of the previous year. Our voyage revenues came at $35.7 million, marking a 10% increase compared to the same period of 2015, mainly due to the net addition seven new Eco LPG vessels.

On a year-on-year basis, rates on virtually all segments of our market have marked a decline, a fact which undermines our earnings potential. Adding to this, in Q2 2016 we faced a higher than usual off-hire revenue loss due to the dry docking of four vessels, three of which are under time charter contracts, as well as the grounding incident of one of our LPG vessels, which unfortunately reduced its voyage days for this quarter by a whole month.

Voyage costs amounted to $3.6 million, marking a 6% decrease compared to Q2 2015. The key driver of voyage cost reduction was the decline of oil prices. It is noted that [bunkers account and others] to about 35% of our voyage expenses. Net revenues -- that is, revenues after deducting voyage costs -- came at $32.1 million. Running costs at $15.2 million increased by 33% compared to the same period of last year, given the net addition of seven vessels, the last two vessels coming off bareboat, and a quite significant cost to repair LPG vessel following the ground incident, cost of which will be paid back by the insurance in the fourth quarter of the year.

With regards to the dry docking costs, this amounted to approximately $1.5 million, given the unusual coincidence of four scheduled dry dockings taking place during the same quarter, while only one dry docking had taken place during the same period of last year. Overall, for the remainder of 2016 we have scheduled an additional three dry dockings that will take place until the end of the year. Our EBITDA for this first quarter of the year came at $11.7 million, quite low figure, attributed to the reasons explained above.

Interests and finance costs marked an increase of approximately $1.2 million as a result of the increase in our leverage in order to finance our CapEx plan. With a net loss of close to $1.5 million, our earnings per share for the second quarter of 2016 was minus $0.04; while for the six months of 2016, our net loss is close to $900,000, which gives us an EPS of minus $0.02.

Slide 9 demonstrates our performance indicators for the period examined. As mentioned earlier on, and due to a higher than usual technical off-hire in Q2 2016, our fleet utilization was reduced to 97.6% from almost 100% in the same quarter of last year. Our operational utilization was somewhat higher than in Q2 2015, in the order of 91%, in spite of the soft market we are facing.

Focusing on the average daily results, adjusted time charter equivalent is lower by 1.5% period on period, indicating that the market's still not picking up. Looking at our adjusted operating expense this quarter and compared to Q2 2015, we see an increase of 3.5%, which we attribute to the two vessels coming off bareboat and extraordinary technical events faced this quarter.

Looking at our balance sheet on slide 10, in the first six months of this year we did not see any significant change in our asset base, with our vessels' net value increasing by $25 million following the delivery of two eco LPG vessels. In addition to this and compared to the end of the year 2015, we marked a cash reduction, mainly as a result of our capital expenditure program.

Focusing on the equity and liability side, our gearing still remains low -- in the order of 40% -- while our net debt ratio lies in the order of 34%. During Q2 2016, we realized a drawdown of about $17 million in order to finance our final newbuilding delivery for this year.

Overall, we are pleased to follow a sensible and stable rolling payment schedule which allows us to preserve our debt at moderate levels in spite of capital expansion. In Q3 2016 and Q4 2016, we have scheduled principal repayments in the order of 5% of our current outstanding debt. Moreover, we successfully received bank commitment for the refinancing of a $25 million balloon payment due in Q3 2016 at competitive terms.

Slide 11 presents on a daily basis the evolution of our breakeven against our average time charter equivalent. It is clear that our average TCE is affected by the trend of the market, that of declining rates. With regards to our daily breakeven, which follows a rather stable trend in the past quarters, the slight increase marked in Q2 2016 is attributed to the rise of our operating costs and the dry docking charges incurred for reasons explained before.

Looking briefly at the fleet contribution analysis in the bottom left, our Company's strongest revenue stream is our time charters, while the weakness of the market is evident in the spot activity, which has a low contribution to our time charter equivalent earnings.

I will now hand you over to CEO, Mr. Harry Vafias, who will discuss market and Company outlook.

Let us proceed now with slide 12. Demand and overall growth of the LPG [rate] still stands strong, with the largest component of consumption being the residential commercial segment, and is forecasted to remain strong in the years to come. In terms of import and export activity, Asia and particularly China will play the leading role in terms of imports, while US LPG exports are expected to persist well into the next decade.

What we have noticed in the LPG market in the past few months is a narrowing of propane and butane price arbitrage opportunities mostly attributed to a reduction in US shale drilling, given the uncertainty that prevails in the oil markets. This is affecting our market, but mostly the larger gas ships.

Focusing on our segment, as evident, the pressurized market continues at a depressed state during the second quarter. West of Suez, both Northwest Europe and Mediterranean/Black Sea were negatively affected by an oversupply of tonnage and the continued closure of the arbitrage on LPG exports out of the US to Europe mentioned earlier on.

In Asia, the freights continue to be very depressed, but there are signs that the overhang of tonnage is shrinking and that we are gradually moving towards a more balanced market, which is needed in order for the freight market to improve.

Slide 13: we see the evolution of small LPG chart rates. As evident by the table presented, the small LPG segment has experienced declining rates during the past year, with the exception of the 7,500 cubic meter segment, in which rates have remained fairly steady.

Compared to 2Q 2015, rates have still marked a slight decline, indicating that the market remains at the bottom of the cycle. It is, however, important to know that compared to the prevailing rates in the broader shipping segment, our market is far more stable and therefore more secure.

In terms of scrapping in our market, even though the age distribution of the small LPG fleet favors scrapping, since the beginning of the year, we only noted three ships being scrapped. The strong point in our segment is the limited order book for the years to come.

As for published orders, in the years to come we have four vessels should be delivered until the end of 2016 and less than 3% of the total fleet on delivery in the period 2017/2018 compared to the other markets, as that of the VLGCs, where we had 32 vessels delivered in the first six months of 2016 onto a base of 200 ships, and a further 12% is anticipated fleet growth rate for 2017. It can be argued again that the small LPG segment depicts elements that could lead to a market correction in the near future.

I'll now continue to discuss further our Company's outlook, commencing with our share performance for the last three months on slide 14. The performance of our stock is presented along with selected gas carriers peer group.

It's worth mentioning that throughout 2015, virtually all stocks of our peer group exhibited a strong correlation to oil price movements. However, it is noticeable in the past quarter of 2016 that companies with medium to large gas ships -- their share prices are no longer correlated that much to oil and demonstrate a sharper decline.

Focusing on ourselves, GASS, we know that during the entire interval examined, our stock value has increased by about 4%, mostly affected by the oil price fluctuations. Proceeding to slide 15, we are showing different scenarios on the Company's performance for 2017. The different scenarios were created based on our existing fixed charters plus assumed number of open vessels for which we are assuming an average TCE as bridge category presented.

We estimate that the hypothetical $1,000 increase in spot daily rates will lead to approximately $9 million contribution to our annual EBITDA. It's noted that this forecast excludes the four 22,000 semi-refs to be delivered within 2017.

On slide 16, we can see some valuation multiples of StealthGas and gas comparable companies. All peer group companies trade at a discount to NAV, while asset values exceed current enterprise values.

As evident, our Company trades at a greater discount than its peers in terms of NAV but has a clear and safe capital structure with less gearing than its peers, in spite of the heavy expansion plan that took place over the last couple of years. We believe that low share price, combined with our solid Company fundamentals, such as healthy capital structure, make a good investment opportunity for medium-term investors.

Concluding our presentation on slide 17, we summarize all the reasons why we feel StealthGas is a good investment and present the market factors that, with any improvement, would allow our Company to express profitability to its fullest potential. We base this belief to our capital structure on solid management, both in terms of chartering our operations and our consistency in maintaining top-quality vessels, striving to provide top quality services to our customers.

At this stage, our Board Chairman, Mr. Jolliffe, will summarize our concluding remarks for the period examined.

During the second quarter of 2016, freight rates in our segment remained very weak, continuing to bounce along the bottom. As evident from the previous quarter, our market is presently at a breakeven level with suppressed profitability.

We continue to operate in an extremely difficult market environment with, however, a small order book that should assist this segment to balance itself. Unfortunately, there is limited scrapping activity that therefore does not reduce the number of vessels in the water. As for our Company's performance this quarter, it was affected by extraordinary events resulting in high off-hire and thus revenue loss.

Nevertheless, we managed to increase our fleet utilization for 2016 by almost 10% and keep our secured revenues in the order of $180 million in spite of bad market conditions. We feel confident as to our fleet, and, most importantly, our realized capital expansion, as 100% of our newbuilding deliveries in 2015 and 2016 are currently on period charters, providing steady cash flows.

In addition, we follow a sensible capital management, maintaining our gearing at moderate levels. As per our cash management this quarter, we strategically decided to cut back on our stock repurchase in order to preserve our cash in this turbulent environment. We look forward to monitor the broader market and our Company's performance in the next couple of quarters, as we have no new deliveries up until quarter-one 2017.

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

(Operator Instructions) Patrick Sheffield, Beach Point Capital.

First one is -- I noticed looking at slide 15 the EBITDA sensitivity at different time-charter rates. The numbers have come down by about $10 million versus the same presentation slides from the first quarter. And I'm wondering why that is.

It's very obvious. (laughter) The answer, Patrick -- the more the market weakness persists, the more conservative we should become, right? I don't think it's very sensible to add -- to expect very high numbers, and are therefore every quarter, even though the market remains bad, we lower the range.

And on top of that, don't forget that this includes the vessels that are fixed. Therefore, if every quarter we fix lower -- we fix lower rates, these are translated into lower EBITDA, right?

Right. So I guess why I was confused is the way the chart's shown, it gives a certain time-charter equivalent rate range. So I thought, I guess -- using the same exact rate range, the numbers came down by $10 million. Is that because --?

Yes, because we excluded the four semi-refs, where in the previous quarter they included the four semi-refs.

Ah, okay. That --.

So that's another reason.

Okay, that makes sense.

I think in the bottom of the page it says, forecast excludes the four newbuilds.

Yes, yes, I see that now. So the --.

Yes.

-- the EBITDA from those four might have been (multiple speakers)

Yes, yes, yes.

So that would be around $10 million, or --?

Was, was. (laughter) These were the starships up to three or four months ago; they are not anymore. So, yes.

Okay. And just a related question on the semi-refs -- what did the rates -- what does the rate environment look like with those?

We don't have the ships yet, so we don't have, like, fresh -- our own experience. But today for a modern ship of that size, I would say that the period rates are low to mid teens.

Okay.

And we have estimated high teens. So, what is that? Is -- 20% down, 25% down.

Right. They are not immune from all the pain that we are seeing.

No, but thank God we don't have them anymore. I mean, we don't have them now.

Right, right.

So we are -- [inaverticom] is immune until they deliver, and the average delivery date is mid-2017. So we have 10 months, let's say, on average.

Got you, okay. And then you guys mentioned in the quarter that you had four dry dockings and a grounding incident, and I am --.

Yes.

I was just wondering, how much of an EBITDA impact did those factors have in the second quarter?

I don't have this information. But these were scheduled dry dockings, so that was not a surprise. The surprise was the grounding, obviously. It was one of our highest-earning ships, so that did hurt from an EBITDA point of view.

Right.

But obviously, it was a one-off.

Yes, yes, so you said it was, like, a -- (multiple speakers)

So the vessel is now repaired and fixed. We're going to get all the repair money back. I would guess, off my head and without any guarantee, of course, because I don't have the information, I would guess about $1.5 million.

Okay. And then you guys also mentioned that you should get something back from insurance in the fourth quarter?

Correct, correct. Yes.

How much would that -- how much --?

I don't really want to say, because, as you know, these things are not 100% clear. You have to -- you have the other adjuster; you have to prove all your expenses, and the damages, and so on. And then you have to -- you take percent of that minus the deductible.

So I wouldn't like to say a number until the calculations and maps with the insurance company is finalized. I wouldn't want to say a number to you and then, like, three months later get half of that, you know what I mean?

Yes, I know; I understand, but --.

I prefer to leave it open, and when it happens -- when it happens, we announce that, look, we got X amount back from the insurance company.

Yes, okay. But if it costs you $1.5 million in EBITDA, you are certainly not going to get more than that back from the insurance. Right?

It's not $1.5 million, because we don't have insurance for the off-hire. You get insurance for the repairs, not the lost EBITDA.

Right, okay.

So it's not $1.5 million. $1.5 million is the lost EBITDA. We are talking about the repairs, what money we paid to repair the ships.

Understood, and I just --.

Which is far less than $1.5 million.

Exactly, okay. That's all I wanted to know.

Yes.

Okay, great. And then just from a cash-flow standpoint, you guys have some balloon -- a balloon payment, I believe, coming in September, $25.5 million. And I was wondering if you had any plans to refinance that, or if that was going to be --.

We -- Fenia read about it; I don't know if you heard it. She was very specific. This has already been refinanced.

Okay, great. She -- I apologize. She was being a bit quick. I was trying to get it down.

No worries. Yes, yes. It was one of the specific things she mentioned, that it was a balloon pending, and it was already refinanced a couple of months ago.

Okay, great.

So that's not pending anymore.

Great. And then just from a broader market outlook, you made some commentary, but in previous years I think -- isn't there a seasonal pickup in the fourth quarter? Is there any hope for that?

Every year, every year there was a small pickup in the winter and a small softening in the summer. But after the oil crash collapsed, this nice winter bonus didn't happen.

So I don't know about this winter; it's a bit early to guess. I guess we have to wait for October-November to see if we are going to see a pickup or not. It depends also how harsh the winter is.

Okay, I got you. I know it's obviously tough to guess that.

We are still in the middle of the summer, so I don't want to make a prediction.

Okay. And any -- and apologies if you already mentioned it, but any reactions or impressions from the third quarter, from what we've seen through August? Or is it more of the same, or --?

No, no, I would say -- I would say following the same trend.

Okay. Okay, great. Thanks, Harry. I appreciate it.

Thank you. We have no further questions at present. (Operator Instructions) Jeff Geygan, Global Value Investment Corp. (Operator Instructions) Please go ahead, sir.

Harry, I'm curious what your cost of debt is, and if you could use the recent $25 million refi as an illustration of that?

The cost of debt? What do you mean? Of the recent refinancing, or of the average cost of debt on our whole debt?

Actually, both would be ideal.

These are in our 20-F. These are in our 20-F, Jeff. I don't have it in front of me. You can easily find out.

You don't happen to know what the cost of that $25 million was?

We have not announced that publicly, but it will be in our 20-F as well.

I see. Then humor me and tell me what your cost of debt was from your 20-F.

I don't have my 20-F, Jeff. It's very easy for you, I guess, to find out, if you want.

Fair enough. I guess it begs the further question -- you've suspended your stock purchase at the present time. I'm a little bit surprised, given how cheap your shares trade relative to NAV or book. I'm a little surprised by that.

That's the Board decision. We had a special discussion just for that today. And because we see what is happening around us, I guess we have to protect the Company as much as we can. We still have four very expensive newbuildings to pay for next year.

As you know, all pre-delivery installments are with cash. We are starting to burn cash to pay for our debt amortization. So I think it's a prudent thing to do. I agree that is very cheap, and we have discussed that before. And that's why we have spent up to now all this money to buy back stock. But I think the health of the Company is above the share repurchase program.

I would agree. And I think that's fair, although with the net cash due of $20 million and roughly cash and restricted of $90 million, it still leaves you a fair amount of liquidity. Again, I'm surprised that with the potential return on the equity investment you might not take advantage of that at this point.

Yes, but if the market falls for another 10%, and we don't find new period charters for the ships that are coming open in Q1 and Q2 2017, what will happen then, Jeff?

Very good. Given the -- it appears that your peers are trading pretty cheaply. Are there acquisition opportunities for someone else or for you?

For us, no, because they are still trading -- some of them, at least -- at above NAV; or have too much debt; or have zero equity in them -- some of them, again, not all of them, of course. And don't forget, a majority of our peers are [VAGC] players that are currently, for those that have not -- for those that don't have their ships on-period, burning cash at an extremely fast rate.

So, as discussed before, we are very conservative; we want to have a low debt. Acquiring a company like that might be strategically good for the future, but I think it would destroy us financially in the short term.

Fair enough. I was thinking more the other way around: maybe there would be an opportunity for the benefit of all shareholders, to consider liquidating or selling StealthGas at a premium to where we have traded for the last couple of years.

I don't think someone has approached us to do that.

All right. Well, I appreciate --.

If someone does, it will be put to the Board, as with all major decisions, I guess.

Thank you. Good luck; I appreciate it's a challenging environment for you.

Thank you, Jeff.

We have no further questions at this point. (Operator Instructions)

I think everyone is happy, so we'd like to thank you for joining us on the conference call today, and for your interest and trust in our Company. And we look forward to having you with us again for our Q3 results in November. Thank you very much.

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