Harry Vafias - President, CEO Fenia Sakellaris - Finance Officer

Charles Rupinski - Seaport Global Patrick Sheffield - Beach Point Capital Management Jeff Geygan - Global Value Investment Corp

Good day and welcome to the StealthGas Fourth Quarter Full Year Results 2015 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Harry Vafias. Please go ahead, sir.

Good morning, ladies and gentlemen and thank you for dialing in to our fourth quarter and full year 2015 earnings presentation. This is Harry Vafias, CEO of StealthGas and joining me on the call today is our Finance Officer, Mrs. Sakellaris, who will discuss the financial results at the later stage of the call. Before, we commence presentation. I would like for 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. It's noted that risks are further disclosed in StealthGas' filing with the Securities and Exchange Commission. I would also like to note that all amounts quoted, unless otherwise clarified, are stated in US dollars. So let's start from Slide 3, so to summarize our company's key highlights for the year. As an opening statement, it has to acknowledged that in 2015 we faced a difficult environment with slowing global economy and record low oil prices both affecting greatly the broader shipping sector. Particularly in the coastal LPG overall market conditions were poor with weak freight rates, fewer available cargos and more ships to compete with. Despite this challenging market conditions, we believe that our company stood strong, demonstrating throughout the year revenue growth was successfully concluding the rigorous capital investment plan for the year. As mentioned in our previous call throughout 2015. We took delivery of total of 10 new eco - LPG carriers all from top quality yards. Our fleet expansion assisted us to achieve year-on-year increase vessel calendar days of about 15%, while we manage to close a year with an operational utilization of 92.5%. We continued our conservative chartering strategy maintaining [indiscernible] customary stronger [indiscernible] visibility. Proceeding to our financial highlights in 2015, we recorded revenues of $141.3 million, an increase of about $9 million compared to 2014, while our adjusted EBITDA and measure which excludes non-cash items amounted to $58.4 million. In terms of our leverage and cash position, we still maintain a low gearing of about 41%, with a net debt to assets ratio as low as 31%, as our cash is above $100 million. Most importantly, we actively continue our stock repurchase plan, as we feel that this market evaluations is the soundest corporate strategy to follow. We have spent in now about $20 million from December, 2014 to today. Looking at our company's positioning against peers in Slide 4. StealthGas with an estimated market share of about 20% in terms of vessel zones, remains a leader in the small LPG segment. Our company successfully materializing in 2015 [indiscernible] expansion compared to any other of our market peers. In terms of our average fleet age, it was reduced with our new deliveries over the last 12 months by approximately 20% and is now close to 8.8 years on average. Indeed, we own a young efficient fleet, as 75% of our vessels are below 15 years of age, while only 11% are above 20 years of age. Slide 5 provides an analysis of our fleet employment. In terms of charter, pie chart of fleet of 53 owned vessels and as of February 15, we had 14 of these on bareboat. Two vessels came off bareboat in the last couple of months, 26 on time charters and 13 in the spot market. The only two vessels that are chartered in by company are also sublet on time charters. As customary to our conservative chartering strategy, we have 63% of our fleet on period charter. We secured revenues of above $200 million in an average quarter duration of 2.7 years. It's interesting to know, that despite the soft market we have 100% of our new deliveries on period charters and have managed to have 45% of our fleet above 15 years of age, employed on period contract basis. As a business policy, we usually strive to have a bigger percentage of our fleet on period by given the current market and as stated in our previous call. We prefer not to commit, to long-term charters at the time owned rates are closed to their all-time lows. Therefore, we have higher than usual number of vessels on the spot market. In terms of new employment and contract, since our Q3 results announcement in November we concluded five charter extensions, four time charters of half year duration, two charters of 12 months duration and 18 months’ time charter this one for our upcoming newbuilding delivery, which will happen in June or July 2016. With regards to our fleet geography on Slide 6, 56% of the fleet trades in the Middle East and Far East, 30% in Europe, 7% in South American and 7% in Australia. It's the nature of our business to benefit from geographical diversification as we have the flexibility to adjust our trading partners according to the market needs. In comparison to our fleet composition presented in the previous quarter during Q4, we had only one charter expiring Brazil and that ship was relocated to the Caribbean. Slide 7, demonstrates our fleet development and any sale and purchase activity. As to date, our company owns 53 ships, we took no deliveries of new vessels during the fourth quarter of 2015. However, in January 2016 we completed the sale of Gas Arctic for further trading, while early this month. We took delivery of our new 7,500 cubic meter eco vessel, the Eco Nical. It's also been noted, during 2015 with our 10 new equal eco LPG vessels deliver, we expanded our fleet by 22%. Continuing our schedule expansion, we'll have a fully-owned fleet of 58 vessels by the end of 2017. Just to briefly touch upon our fleet GASS. Graph at the bottom left, majority of the vessels we operate fall in the 3,000 to 4,000 cubic meter category, while average fleet capacity somewhat higher about 4,700 cubic meters. Slide 8, is the analysis of our remaining capital expenditure program scheduled to take place this year and the next. We took delivery of the Eco Nical early this month and we expect the delivery of yet another new 7,200 eco LPG vessel to take place in the third quarter. For 2017, we expect to take delivery of the four new 22,000 cubic meter semi-ref vessels which we allow to our fleet a small element of diversification, without really deviating from our core segment. Looking at the table on the left, our remaining CapEx excluding any related advances paid to-date is in the order of about $196 million. At the bottom of the table, we provide you with a detail breakdown of our capital expenditure as to advances in final payments related to our future deliveries. In relation to the financing of this capital expenditure, which is presented in the left graph from a total contract value of $231 million, $35 million our advances paid to-date, $17 million is committed bad [ph] debt, while $135 million is debt under negotiation. Related to our new 22,000 semi-ref vessels. Equity requirement is as low as $44 million, which is around 22% of our remaining CapEx. We're planning to finalize the financing of these vessels by end March 16 as initially directed by our Board of Directors. The willingness exerted by financial institutions to finance more of our newbuilds under difficult market conditions, gives us comfort not only for the sake of our company, but also for the good rating of the seaborne LPG trading business. Now we turn the call over to Mrs. Sakellaris for our financial performance discussion, during the fourth quarter and full year 2015 and later, we will continue with the market and the industry outlook.

Thank you, Harry and good morning to everyone. As an opening statement and as mentioned early on. We acknowledge that this year's profitability potential was appraised due to market conditions, but we feel we managed for yet another quarter in consistently doing the year to materialize successful cost effective management policies. Let us move on to Slide 9, where we see the income statement for the fourth quarter of 2015 and full year results against the same periods of the previous year. Looking at the fourth quarter results, our voyage revenues came at $37.4 million marking a 7% increase compared to the same period of 2014. Mainly due to the realization of our new deliveries, which are all charters on period [ph] charters. We must note that, since rates have marked the year-on-year decline in excess of 23%, in the 2005 cbm segment. Our revenue increased could have potentially been stronger. Voyage cost amounted to $4.2 million marking a 20% increase compared to Q4, 2014 as this quarter as spot market days more than doubled as we had 12 vessels on the spot market, this period compared to five in the fourth quarter of last year. Net revenues, that is revenues impacting voyage cost, came at $33.2 million. Running cost at $14.2 million and given a positive fleet expansion marked a 20% increase. Key drivers of operating costs at the net additional rate of vessels and one vessel coming off very good. While in terms of cost cutting always key driver of OpEx increase, where the higher crew [ph] cost. At this point, it's worth to mention that this quarter we had no new vessel deliveries embedded in our cost base and compared to the third quarter of 2015, we managed to contain cost as OpEx increased by only 5%, while as spot and time charter days, by more than 8%. With regards to drydocking cost, they amounted to approximately $800,000 given the completion of the schedule drydocking of Gas Pasha and Gas Texlana [ph]. Overall for 2016, we have scheduled for seven drydockings that will take place throughout the year. With regards to the impairment loss of $4.7 million, we took this quarter. We strategically decided to impair our oldest vessel, the Gas Ice which is the sister vessel of the Gas Arctic that we impaired in the first half of the year. And we also took an impairment loss for Gas Marathon another old vessel. Our EBITDA for this fourth quarter of the year came at $10.1 million increase in finance cost marked an increase of approximately $800,000 as a result of the increase in our leverage. With a net loss of close to $3 million, our earnings per share was minus $0.08 while our adjusted EPS for the quarter was $0.04. So as to briefly summarize our full year results for 2015, we generated net revenue of almost $124 million increased by $6 million compared to 2014. Our adjusted EBITDA came at $58.4 million, where adjusted EPS at $0.26 compared to $0.48 in 2014. Slide 10, demonstrates the performance highlight for the period examined. As mentioned early on, in due to soft market conditions, our operational utilization was 91% in Q4, 2015 lower compared to the same quarter of last year. As we had high spot market activity. Focusing on the average daily results, our adjusted time charter equivalent is lowered by 8% to period-on-period indicated the weak state of the market is in. At this stage, we would like to note that despite of hard market condition, it is as a result of our efficient management and the expansion of our fleet with eco new vessels, that we see for yet one more period, the reduction of our daily operational expenses. It is noted that, daily OpEx marked a year-on-year decline of 11%. Looking at that balance sheet in Slide 11, we have a strong asset base of more than $1 billion and are strongly if it continues, as we have of cash of about $100 million in spite of our capital expansion. Compared to our nine months figures, our cash increased as we do debt for two vessels delivered within Q3, 2015. Focusing on the equity and liability side, our billing still remains low in the order of 41%, since our company leverage increased by $100 million as a result of our CapEx program. We have 10 vessels unencumbered and this number will increase within the year. We have a schedule of annual [indiscernible] repayment excluding balloon payments of approximately 11% of outstanding loan balance for the years to come. Therefore, even when our leverage increases with the delivery of for new 22,000 semi-refs in 2017, our leverage ratio will not surpass 50%. Slide 12 represents the evolution of our breakeven as well as brief analysis of our time charter equivalent earnings. Although, LPG charter rates are close to the bottom of the rate cycle and as presented in the top graph to the left. Our Daily TCE follows a declining trend but so does our daily breakeven. For 2015, our daily breakeven was $6,092 compared to $6,385 in 2014. This decrease is primarily driven by dedication in total [ph] OpEx. In addition, it's evident from the briefly contribution analysis that our company's strongest revenues stream is our time charters, while the weakness in the spot market is evident from the low contributions, productivity, high to [indiscernible] time charter equivalent earnings. I will now hand you over to our CEO, Mr. Harry Vafias. Who will discuss market and company outlook.

Let's now proceed with Slide 13, despite of a soft global economy and oil prices. Seaborne trade of LPG is expected to grow by 26% in the period 2016-2018. The slowing down of China's economy in 2015 had created much concern over seaborne trade, but for LPG's China mark in the aforementioned yearly rise in LPG volumes of 71% primarily driven by the opening of the PDH plants and an increased domestic consumption. The US is bound to remain on one of the key drivers of the LPG business. As export market share to Asia is expected to increase significantly in the upcoming years. In terms of LPG product pricing, which is currently at low levels. As the price is affected by fluctuations in oil prices. Besides any change in LPG supply and demand fundamentals may affect pricing in a positive way. Slide 14, shows the evolution of the LPG charter rates. As evident by the table presented, the Small LPG segment has experienced declining rates during the past year. Compared to Q4, 2014 rates have dropped by as much as 16%, while from the beginning of 2014 rates have declined by about 23%. Indeed this is a sharp decline that inevitably has affected the profitability of seaborne trade. It's noted however and as built in the top left table that during the last month, we see a minor positive ascent in the evolution of rates in all categories of our segment. And other element which might positively affect cost of LPGs, is the potential increase of scrapping. A logical step since high number of vessels in the market, but most importantly due to the fact that 24% of the fleet is above 20 years of age. Since the beginning of 2015, we show the demolition of 15 vessels including some ethylene ships and we feel that this trend might continue in the near future. One is the most significant facts considering our market is the limited order book for the upcoming years. We expect new deliveries corresponding to approximately 3% of the fleet in 2016, only 1.4% in 2017. While for 2018, we only expect the delivery of single vessel. Again the limited order book together with demolition of older vessel might help our market to balance itself. I would now to continue to discuss further company's outlook and mentioned with our share performance for the last five months. The performance of our stock is presented along with selected gas carriers peer group. It's evident that oil price volatility strongly affects energy related stocks. As we closely monitor the market, we feel that for energy-related stocks price will volatility reflects more oil in broader economy movements, rather than specific company fundamentals. This fact is evident by the high year-to-date decline that our stock and the stocks most of our peers have experienced. Additionally, looking at the left bottom graph presented change in oil prices versus the change in LPG rates. We see that rates seem quite stable and less correlated to the oil price movement, particularly in the last couple of months. We're north of minor upward trending rates in spite of the sharp decline in oil prices. On Slide 16, we're showing different scenarios on the company's performance for year 2016, when the company will operate a total of 56 ships. In general, we hold the conservative view in making such predictions. The different scenarios were built based on our existing fixed charters plus open based, with current market rates. As evident from the table presented, which indicates the effects of various time charter rates on our EBITDA. Lower rates narrow the EBITDA potential, with our strong modern fleet in place, we have the capacity in 2016 to reach an EBITDA of about $90 million should market condition permit so. To summarize, we have the infrastructure, the technical superiority, the market share and the solid balance sheet to navigate safely, even during weak times and this can be deemed as our company's biggest success. On Slide 17, we consist some evaluation multiples for StealthGas and gas comparable companies. All peer group company straight at the discount to NAV, while asset values exceed current enterprise values. As stated earlier on, it's obvious that market caps of our segment are mostly driven by reaction to oil prices and broader market move-ins rather than company fundamentals. Taking as an example, our company. We trade - with focused ratio in the last couple of months, that the market closed to our company's cash balance. This means, that the market gives zero value to our larger rejuvenated fleet, despite of our low leverage and strong cash position. It's however because of our low valuation, that we feel we offer an interesting opportunity for medium term investors. We actively continue our share buyback having spent closely $20 million from December 14, until today and we're authorized by the board to spend an additional $10 million on top. Concluding our presentation with Slide 18, we summarize all the reasons why we feel StealthGas is a good investment. The company has proved its leading position, the cost of LPG business having acquired a total of 45 bps since its IPO, while it maintains a heavy capital structure and flows a conservative chartering strategy. We operate good quality vessels and collaborate with top tier charters. Most importantly, we manage to maintain profitability, even in very poor market conditions, exerting a steady performance in spite of any market pressure. Year 2015 presented challenges timing from the global economic environment. Nearly all sectors of shipping faced considerable obstacles. But as to our segment, we face an environment of low freight rates at - to low oil prices and imbalance of supply demand of costal LPG ships. Our company managed to close the year demonstrating the growth in revenue and positive income results. We have successfully executed our expansion plan, reduced our operating cost base and have preserved the superior technical efficiency. In addition, we feel that we're in a good position as we enjoy full capital structure with net gearing as low as 31%, assets exceeding $1 billion and contracted revenues of about $200 million. Indeed we believe that's the company's managerial capabilities and strength are more evident in periods of weak markets. Our stock has been trading at about 25% of NAV. So by mark, our own stock has been an obvious decision for us. We have spent closed to $20 million in buyback our own stock and buying back our own stock. Coupled with strong balance sheet and rejuvenated high quality fleet and probably better market conditions going forward, it makes us feel optimistic for our company's future. We have now reached the end of our presentation. We'd like to open the floor for your questions, please.

Thank you very much, Mr. Vafias. [Operator Instructions] we will now take our first question from Charles Rupinski from Seaport Global. Please go ahead sir, your line is now open.

Good afternoon, thanks for taking my question.

Hi, Charles.

I'm just curious, you'd mention scrapping is being, the territorial [ph] catalyst last couple quarter and also mentioned that, as a leadership role StealthGas has views on this. Are you seeing anything on the marketplace, do you think this might accelerate or is this something that's going to be maybe something steady over the next few quarters in terms of the role fleet?

Yes, thank you. Charles. As you know, these things cannot be predicted, but it all depends on the rate. If rates stay as they are or for further, I think you'll see more vessels going for scrap. If we see, an improvement in rates. I guess you'll see a slower rate of scrapping because owners will think twice before scrapping their valuable assets despite their age. Their point is, big percentage of the fleet is over 20 years of age. So sooner or later, these ships will go. Now [indiscernible] this year or the next, obviously nobody can say.

Okay, great well. Appreciate you managing through this downturn. Thanks for taking the question.

Thank you. Charles.

Our next question comes from Patrick Sheffield from Beach Point Capital. Please go ahead, sir. Your line is now open.

Thanks for taking, my question. Harry, a quick one on seasonality. In the past, you've described Q1 and Q4 is being relatively strong compared to Q2 and Q3. Do you, does that relationship still exists? You mentioned in Q4 rates roughly slightly from Q3, is that based on seasonality or any kind of math?

Excellent question, Patrick. I think from the point that the oil price collapsed, that seasonality has basically evaporated meaning that, the rates; winter, summer have become somewhat same. Of course there are sometimes special conditions like icy ports and delays and fogs and stuff like that happen sometimes in North Europe or the Black Sea, which spike the spot market for a little bit. But generally speaking, I think we had relatively warm winter, thus we haven't seen the seasonality factor that we have been seeing the last five years.

Got it and then looking at your at the outlook for supply and demand for your ships. You have a couple charts in here that, that try to describe it, but could you kind of provide any more color, that you might have on the outlook of supply and demand and what that might mean to rates going forward?

Yes, I mean again Patrick, I'm not somebody that can predict the future, but it depends on three things. I mean, it depends what your view is on those three things. One is scrapping as we just discussed. Two is, global economy in China. What are we going to do, are they going poof [ph], are they going to be in a worst shape and three is the price of oil. So I'm not an oil trader to give you my opinion. Most people think that the oil will stay low for at least hits year. So we have to take a defensive approach and got to have a very good balance sheet. We have our nice pre-contracted revenues of about $200 million and because of our low breakeven we can still survive, in this weak environment. Instead of burning cash like some other shipping companies especially in dry or LNG shipping are at the moment doing. So, we have lots of ships, we hope for an improvement now. If it will come this year or the next, again it's just a guess. One, it happens though obviously that will mean very, very good result for the company because we're such a large fleet. There is a very, very important multiplier effect.

Is that your point, as you've got $6,100 a day in cash breakeven spot rates are still above that level?

Yes, on average, yes because for example, if you're comparing 24-year old ship. If you include the idle time, it's below that, but on any ships that are above 15 years of age including the idle time. Yes I would say, that it's about $1,000 above.

Got it. All right, thanks Harry.

Thank you.

[Operator Instructions] and we will now take our next question from George Vermin [ph] from IFS Raymond James. Please go ahead, sir.

[Indiscernible] gentlemen, thank you for taking my call.

Hi, George as always.

I've got a quick question. Looking at your StealthGas fleet, you currently have four crude oil tankers in the fleet and that's about the only area in the ship market, where weights and values are pretty high. Have you given any thought looking at the current tremendous discount that you're trading to the value, to maybe monetize these four ships and taken the chunk of stock out of the market?

Very good comment, George. Just to correct you. We don't have four crude tankers, we have one crude tanker and three product tankers, just to be correct. Yes, as you can understand because of the moment, LPG ships don't make real profits, we are basically breakeven. These tankers are providing a very nice cash inflow for the company and have been supporting the company during these weak times. If we didn't have the cash that we just announced, it would be our first thing to do. But because we have as you saw quite a big pile of cash and because we have been actively buying back stock and as we discuss, we have another $10 million to spend on top. I don't think it's our number one priority because these ships as I told you in the beginning are very, very good in helping the cash flow of StealthGas and have been cash money making machines especially over the last two years.

Okay, you're limited by the average daily share of volume on the StealthGas. On how many shares you can actually purchase back, right?

Correct.

My thought was, looking at the situation of buying low and selling high. That the disposal of those crude and product tankers at this time and then coming into the market and making a general offer for a chunk of stock. Might prove very, very good especially in light of the fact that you sold in place, when you see couple years ago few million shares in the $10, $11, $12 range.

Again a very good comment, but don't forget that our tankers have been money making machines because they have charters attached. So there are not many buyers that want tankers with charter attached. The majority of the buyers want tankers that are charter free, so that they can take advantage of the spot market. So it's not easy to sell ships with charters attached and we would have to take quite a considerable discount to do so.

Okay, then that makes sense. Then one last question, in your weight scenario for the LPG ships, your fleet generally has smaller cubic meters 5,000 to 7,500 whereas the larger ones have significantly more. Would you consider yourself like a specialty operation, are there any companies that have like view only smaller size ships or are you basically one of a kind, facilitating the coastal transfer?

Yes, I think we discussed that before, we're the largest company in the world in the small scale LPG transportation, there are other companies of course with similar size ships, but obviously not as big fleets as ours.

And the super LPG, LNG tankers that are flowing around, that usually don't have access to the ports, that use service, correct?

Very correct. The majority of the port we share have a 100 meters length restriction in our ships. The majority of them at least are designed to be 99 meters.

Okay, great. Thank you very much.

Thank you, George.

Our next question comes from Jeff Geygan from Global Value Investment Corp. Please go ahead, sir. Your line is now, open.

Good morning, Harry. Thanks for taking my call.

Hi, Jeff.

I'm looking at Slide 14 of your presentation and by the way, I would complement you as I think this presentation has become better and better overtime with more valuable information as to shareholders.

This congratulations would be directed to Mrs. Sakellaris because she's the one that did it, not me but she's hearing you. She's next to you.

Yes, great. Well, thank you. I like the additional detail. I'm looking at the complexion of the fleet on Slide 14 and you indicated the 24% of fleet is 20 years or older. What would actually motivate an owner to scrap a ship?

Very simple I think question, Jeff. Two things; either very low freight rates or very high debt demolition prices.

Then, would you expect given the modest amount of new Belgium place that there might be reluctant for some of these older ships to be scrapped, if in fact rates firm up.

100%. When you're making, when you don't have any debt on the ships and you're making $5,000 or $6,000 and you're running courses about that. So you're not burning any cash, why would you be in a hurry to scrap your ships.

Yes, yes I agree. So it's not, although the statistics almost suggested this fleet might contract on its own through scrapping, but you need to just to rate set a circumstances in order for that to happen, while rates are firming.

Listen Jeff, in the end of the day, it doesn't really matter because the majority of the oil majors in the oil or gas receiving terminals in the developed nations, do not exist over 17, 18 years of age. So if these ships go for scrap or not, they don't really compete with our new generation expensive ships. So of course we want them to get scrapped, of course we want to make space for this new ships, but in the end of the day. Their quality business is awarded to the quality ships.

I appreciate that, you said that in the past too and my last question and observation. The order book out to 2018, what is the lead time in order to get an order and to have a ship built? In other words, could the 2018 order book still up or are we beyond that, we're looking at 2019 right now?

Listen, with market like this I doubt, I doubt anyone will place new orders. Of course, you can never be 100% certain, but we don't expect a surge, in orders but yes, now you can place an order for 2018. If you want to buy, that why should anyone place an order now in such an environment. I mean it doesn't make any sense.

Unless you expect, outlook to improve in the future.

What active? Do you expect the market to be as good as it was in beginning of 2014, yes but I don't see yet any signs of evidence of that.

Thank you and good luck.

Thank you, Jeff.

There are no further questions at this time. Sir, I will hand back over to you for any closing remarks. Thank you all for so much.

We would like to thank everybody 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 conference call for our Q1 results in May. Thank you very much.

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