Harry Vafias - President & CEO Fenia Sakellaris - Finance Officer Michael Jolliffe - Chairman

Donald McLee - Wells Fargo Securities Patrick Sheffield - Beach Point Capital Bill Caton - First Wilshire Securities George Berman - IFS Securities

Welcome to the StealthGas First Quarter Results 2016 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Harry Vafias, CEO of StealthGas. Please go ahead, sir.

Good morning, ladies and gentlemen, and thank you for dialing into our first quarter 2016 earnings presentation. This is Harry Vafias, CEO of the Company and joining me on the call today is Mr. Michael Jolliffe, the Board Chairman and our Finance Officer, Mrs. Sakellaris, who will discuss our Company's financial performance. Before, we commence our 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 would all like to 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 implicitly stated in U.S. dollars. So let's us move on to slide 3. So as to summarize our Company's key highlights for the first quarter of 2016. As an opening statement, would like to say that this quarter was quite weak. As freight rates for our segment have remained stable at low levels, while mild weather conditions affected seasonal LPG demand. Nevertheless, our fleet expansion assisted us to achieve a period-on-period increase in vessel calendar days of 16%, while we managed to close the quarter with an operational utilization of 91%. We continued our conservative chartering strategy maintaining, as customary, strong earnings visibility. Most importantly, StealthGas maintains a market leading position in the coastal LPG segment with approximately 20% global market share. Owning a relatively young fleet of 9.3 years in average, with 75% of its fleet below 15 years of age. Proceeding to the financial highlights. In Q1 2016, we recorded revenues of $36.5 million, an increase of approximately $800,000 compared to Q1 2015, while our EBITDA amounted to $14 million. In terms of our leverage and cash position, we still maintain a low gearing of about 40% with a net debt-to-assets ratio of as low as 32% as our cash is about $84 million. Most importantly and as we announced some days ago, we now have a fully funded order book as in Q1 2016 we agreed on the main financing terms for our four Eco 22,000 semi-ref new build vessels scheduled to be delivered within 2017. In addition, we continue our stock repurchase plan, having spent close to $20.5 million from December 2014 till today. Slide 4 provides an analysis of our fleet employment. In terms of charter types, out of fleet of 53 ships and as of May 16, we had 14 of those on bareboat. Two vessels came off bareboat in the last quarter, 26 on time charters and 13 in the spot 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, we have 61% of our fleet on period charters. We secured revenues of about $185 million in an average contract duration of about two years. It's interesting to know that despite the soft market, we have the vast majority of our new billings on either time charter or bareboat. And one of our new deliveries is doing consecutive voyages. We have close to half of our fleet above 15 years of age employed on period contract basis. It's noted that our goal is to have a bigger percentage of our fleet on period, but given the weak freight market coupled with the mild weather conditions in Q1 2016, that did not assist us - assist our employment strategy and we chose not to commit to longer term charters and thus have a higher than customary number of vessels on the spot market. In terms of new employment contracts, since our Q4 2015 results announcement in February, we concluded two charter extensions and two time charters of approximately two months duration each. With regards to our fleet geography in Slide 5, 56% of the fleet is in the Middle and Far East, 30% in Europe, 7% in South America and another 7% in Australia. It's the nature of our business to benefit from geographical diversification as we have the flexibility to adjust our trading patterns according to market needs. In comparison to our fleet composition presented in the previous quarter, we had no significant changes in the pattern. Slide 6 demonstrates the fleet development and any sale and purchase activity. As to date, our Company owns 53 ships. In January 2016, we completed the sale of the Arctic for further trading, while in early February we took delivery of our new Eco 7,500 cubic meter vessel named Eco Nical. 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 characteristics, looking at the graph at the bottom right, we have 40 vessels between 3,000 and 5,500 cubic meters, while our average fleet capacity is somewhat higher in the order of 4,800 cubic meters. Moving to Slide 7, I will provide you with an analysis of our remaining capital expenditure program scheduled to take place up to the end of 2017. We took delivery of the Eco Nical, a brand new 7,500 Eco vessel in February and we expect delivery of yet another new 7,200 cubic meter Eco vessel to take place in the third quarter of this year and more specifically at the beginning of July. For 2017, we expect to take delivery of the four new Eco 22,000 cubic meters semi-ref vessels which will add to our fleet a small element of diversification. 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 $185 million. At the bottom of the table, we provide you with a detailed breakdown of our capital expenditure as to advances and final payments related to 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 $231 million, $46 million are advances paid to-date, $157 million is committed bank debt from which a $140 million is bank debt subject to definitive documentation related to the new 22,000 semi-ref vessels. In relation to these new loans, we're pleased to comment that we selected our finance counterparties after careful consideration, an analysis of about 10 offices and therefore we're confident that we managed to get the most competitive terms available. As a result of the remaining equity required for the acquisition of all the remaining vessels, it's as low as $29 million and is bound to decrease within 2016 as we have some remaining advance payments, all of which will be equity financed. I will now turn you over to Mrs. Sakellaris for our financial performance discussion and later I'll discuss the market and industry outlook.

Thank you, Harry. And good morning to everyone. The first quarter of 2016 did not generate anticipated revenues as markets rates did not show any signs of improvement. Let us move on to Slide 8, where we see the income statement for the first quarter of 2016, against the same period of the previous year. Our voyage revenues came at $36.5 million marking a 2% increase compared to the same period of 2015, mainly due to the net addition of seven new Eco LPG vessels. On a period-on-period basis, rates on all segments of our market have marked decline, fact which undermines on earnings potential. Voyage costs amounted to $4 million, marking a 6.5% decrease compared to Q1 2015. Although this quarter, our spot days increased by almost 60%, the key driver of voyage cost reduction is a significant decline of oil price, also on average we noticed a 30% decline compared to the same period of last year. It is noted that [voyage cost] [ph] account for more than 35% of our voyage expenses. Net revenues, that is revenues after deducting voyage costs came at $32.5 million. Running costs at $14.5 million increased by 24% compared to the same period of last year, given the net addition of seven vessels and two vessels coming off bareboat; one at the end of December and another at the beginning of February, both adding to our operating base. In terms of cost categories, this quarter we did not notice any significant percentage fluctuation when analyzing the total operating costs for the quarter. Meaning that costs were maintained at a rather even level. It's worth to mention, however, that our operating costs were burdened this quarter by an [extraordinary] [ph] item of $170,000 which reclaimed by our Company and then for real terms, OpEx would have been more or less in the order of the last quarter of 2015 in spite of vessel additions mentioned earlier on. With regard to drydocking costs, this amounted to approximately $700,000 given the completion of three scheduled drydockings, while no drydockings had taken place during the same period of last year. Overall for the remainder of 2016, we have scheduled an additional seven drydockings that will take place until the end of the year. Our EBITDA for this quarter of the year came at $14 million. Interest and finance cost marked an increase of approximately $1.1 million as a result of the increasing our leverage, with a net profit close to $650,000, our earnings per share was $0.02. Slide 9 demonstrates our performance indicators for the period examined. As mentioned earlier on and due to a rather mild winter faced in Q1 2016, our operational utilization was 91%, 5.5% lower compared than what it had been in Q1 2015. Focusing on the average daily results, adjusted time charter equivalent is lower by 10% period-on-period, indicating the weak state the market is still in. It is also noted that even compared to the fourth quarter of 2015, our adjusted TC has marked a 2% decrease again, a sign of prevailing freight rates. Looking at our adjusted operating expense this quarter compared to Q1 2015, we see a mild increase of 0.2%. Looking at our balance sheet in Slide 10, we have a strong asset base of more than $1 billion and our strong liquidity continues as we have cash of about $84 million in spite of our capital expenditure program. This quarter we did not see any significant change in our asset base rather of our vessels net value increasing by $11 million, mainly as a result of the delivery of one new Eco LPG vessel in February. Focusing on the equity and liability side, our gearings still remains low in the order of 40%. We have 14 vessels unencumbered as we repaid the balloon $9 million on one of our oldest loans during Q1 2016. There is another balloon to be paid during Q3, but we expect to refinance this portion. Most importantly and looking at the other annual principal repayment schedule excluding balloon payments, we'll have repaid more than 50% of our current outstanding debt by the end of 2017. Therefore, even when our debt increases with the delivery of the four new 22,000 semi-ref in 2017, our leverage ratio will not surpass 50%. Slide 11, presents the evolution of our breakeven as well as a brief analysis of our time charter equivalent earnings. Although LPG charter rates are close to the bottom of the rate cycle and as presented at the top graph to the left, our Company still operating above breakeven. We have one of the lowest breakeven in our segment and the increase of our daily breakeven this quarter compared to the last quarter of 2015 is solidly attributed to two vessels coming off bareboat. As the net addition of vessels in Q1 2016 was zero, this extra cost was not apportioned to a higher number of calendar days leading to an increase of daily cost. This is also evident from the fact that if we divide our total operating costs with a sum of spot and time charter days for the quarter, the derived daily OpEx is essentially lower than Q4 2015 by 4%. In addition, it is evident from the brief fleet contribution analysis in the bottom left, that our Company's strongest revenue stream is our time charters. While the weakness in the spot market is evident from the low contribution spot activity we had to 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 proceed now to the market update in slide 12. The U.S. LPG production still remains a key driver of LPG supply. Despite low oil prices that had slowdown production in 2015 the average monthly U.S. export volume was 1.7 million metric tons while during Q1 2016 it had increased to 2.1 million metric tons. It's anticipated that the majority of the U.S. LPG exports will still be directed to Asia. In addition, the widening of the Panama Canal estimated to be complete in mid-2016, will ease seaborne trade between U.S. and Asia positively affecting the larger vessels of our market. So as to briefly comment on another market player, we foresee that Iran with the lifting of the sections and numerous energy projects to be developed in the area will start playing a more important role in the LPG segment. Focusing on the demand side, the consumption of LPG in China has grown by almost 50% over the last five years and is expected to grow by further 10% in 2016. This increase is mostly driven by the use of LPG to make propylene as China has built 10 propylene plants over the past two years, six of which are expected to double capacity in the next two years. Slide 13 shows the evolution of the LGP charter rates. As evident by the table presented, the small LPG segment has experienced declining rates during the past year. Compared to Q1 2015, rates have dropped by as much as 10% with the highest rate decline evident in the 5,000 cubic meter segment. It's evident however that the market has remained more or less stable during Q1 2016. In terms of trade for the small pressurized vessels, we noticed in the past quarter, that in the west offshore areas, activity in the Mediterranean and Black Sea has been slower, while the arbitration on U.S. LPG exports to Europe has been more or less closed as the margins available for freight have been too low. Also in the East, the spot market has continued to be relatively difficult with TC rates still at poor levels as there is still an overhang of tonnage to be absorbed. Focusing on the fundamental factors that affect our market, its low oil prices coupled with the over-supply of pressurized ships and a mild weather conditions faced in the first quarter of 2016. Two elements that will affect freight rates in the years to come are vessel demolition and our segment's order book. In terms of scrapping and looking at the bottom left graph, 24% of our segment's fleet is above 20 years of age. From the beginning of 2015 and up to until February 2016, we saw quite intense scrapping activity as a total of 15 vessels were scrapped. During the last three months, we have recorded the demolition of a single vessel. Looking at our segments order book at the right-hand table, it still remains very low compared to our total fleet size. For the remainder of 2016, we expect the delivery 10 vessels, 3% of the total fleet. While in the year 2017 and 2018, we expect the delivery of yet another six vessels corresponding to a total of 2% of the current fleet. I'll now continue to discuss further our Company's outlook, commenting on our share performance for the last three months in 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 strong correlation to the oil price. However, it's noticeable in the past couple of months that companies with medium to large gas carriers, their share prices are no longer correlated to oil fluctuation and demonstrate a decline despite of the increasing oil price levels. Focusing on StealthGas, we know that during the interval examined, our stock value has increased by about 40% outperforming all its peers in the gas index. We believe that oil does indeed drive investor sentiment, but also that investors have shown more interest in our niche market segment, given the moderate volatility in rates and the small order book. Slide 15. We're showing different scenarios on the Company's performing for 2017, when the Company will be operating a total of 59 vessels. The different scenarios were created based on our existing fixed charter plus assumed number of open vessels for which we assume an average TCEs bridge category presented. We have assumed an average 88% utilization and 95% utilization for our 22,000 semi-ref vessels at conservative rates. As evident from the effect of various time charter rates on our EBITDA a hypothetical $1,000 increase in the spot daily rates leads to an approximate $9 million contribution to our annual EBITDA. Given our low cost base and our low breakeven, we're confident that should rates pick up this upside will also be reflected in our bottom line. Slide 16, we can see some valuation multiple of StealthGas against comparable companies. All peer group companies trade at 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, despite the head expansion that took place over the last few years. We believe that low share price combined with solid Company fundamentals makes a good investment for medium term investors. We continue our share buyback, having spent close to $20.5 million from December 2014 up to-date. And concluding our presentation on Slide 17, we summarize all reasons why we feel StealthGas is a good investment. The Company maintains a healthy capital structure, follows conservative chartering strategy, we operate top quality vessels and collaborate with top-tier charters, most importantly we managed to maintain profitability even in very poor market conditions, exerting steady performance despite of any market pressures. I'll now hand you over to our Board Chairman, Mr. Jolliffe, who'll summarize our concluding remarks for the period just examined.

Good evening. Revenue generation and fleet utilization in the first quarter of 2016 was lower than expected due to mild weather conditions, volatility of oil prices, weak freight rates and the slowing down of demolition in the coastal LPG segments. In addition to this, we had two vessels coming off bareboat, one in the fourth quarter of 2015 and one in the first quarter of 2016. That's adding to our operating cost base. We believe that our Company's performance was commendable as we're currently operating in a very weak environment. Our contracted revenues have remained at steady levels close to a $185 million and we had only 12 days of technical off hire excluding three scheduled drydockings that took place this quarter, while our leverage is maintained at low levels close to 40%. In terms of our investment plan, we were happy to announce the financing of our total order book including our last four newbuildings to be delivered within 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]. We will take our first question today from Michael Webber from Wells Fargo. Please go ahead. Your line is now open.

This is Donald McLee on for Michael. My first question is just around your cash flows. Now that the order book is fully financed and there is more certainty around your liquidity needs, how do you intend to prioritize your cash going forward?

There's no question about it, we need to conserve cash. We're in a very difficult market. We don't know how long this market will last for so I think that acquisitions are out of the question unless it's an amazing opportunity. Share buybacks will continue, but at a slower pace again for the same reasons, because cash is king and we need to maintain a very healthy cash balance.

Okay. And I think year-to-date you've purchased about 2 million of shares, how does the --?

No, your numbers are wrong. We've spent $20.5 million to purchase --.

1.2 million, I think actually.

Anyway, we've spent till to today $20.5 million.

Right. So, I was just wondering how, I think you already mentioned that pace would be slower, but how does the year-to-date shrink in the stock effect that as well. Is that just kind of completely eliminated or there still some room for buybacks going forward?

We have another $9 million allowed from the Board to buy back stock.

[Operator Instructions]. We will take our next question today from Patrick Sheffield from Beach Point Capital. Please go ahead. Your line is now open.

Just a couple of follow-ups on comments you made during the call. One was, I thought I heard that the advance payments on new vessels for the duration of 2016 will be funded from balance sheet cash, is that right? So if I look at that slide --.

All our pre-delivery payments for all the newbuildings we've ever built are with Company's cash.

So the $20 million total for Q3 and Q4 is what I see on the slide.

It's on the slide, $28 million we need to pay for 2016 and 2017 in total for all the newbuildings left and $18 million of that million for 2016.

Okay, I thought it was $28.5 million for all new builds going forward would need to come from balance sheet cash, is that right from that bridge that you guys have?

No, sorry. We have a $160 million in committed bank debt. The total remaining payments including the final installments is $185 million. So, the total cash from Company's balance sheet for 2016 and 2017 is $28.5 million.

And what is the split between 2016 and 2017?

I don't have that information in front of me, but it's a very small part in 2016 and the majority is in 2017.

And then another question on Q2, have you any commentary you can have on what you're seeing in rates so far?

Same or worse.

And then as far as debt amortization payments in 2016 and 2017, how much cash you need to spend on that?

I don't have this information, if you want Patrick send me an e-mail and I'll answer it.

We will take our next question today from Bill Caton from First Wilshire Securities. Please go ahead. Your line is now open.

I'm referring to slide 12 regarding the Iranian energy market is about to play a key role in the broader LPG market. Can you just expand a little bit more on what type of impact you'd expect or what exactly that means?

Yes, we have not started to trade in Iran as not all the sanctions have been yet been eliminated, there are still sanctions there. So we have not been trading in Iran, despite the fact there are cargoes there for our ships that would boost our profitability. We think that this – all the sanctions are lifted and we can freely trade in Iran, it would be - it would boost by at least 5% to 10% the rates for our ships; for the ships of course trading in that area obviously.

And I didn't see in the slide presentation, but maybe you normally you don't put in but on the 22,000 semi-refrigerated vessels that you're - that are coming online in 2017, what is the current rate profile going on there? Is it softening or is it a little bit stronger than your smaller ships?

As you know very well, currently in shipping all segments are softening, but obviously the rates for these ships are much, much stronger than the small ships, currently earning around $20,000 to $23,000 a day. But that is just currently, so doesn't make any difference for us because we don't have the ships today, we're going to have them in one year's time.

Well, good job on the quarter, thank you.

[Operator Instructions]

Since there are no more questions, we like to thank you all for joining us at the conference 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 second quarter 2016 results in August 16. Actually there is a question I see.

We will take our next question today from George Berman from IFS Securities. Please go ahead. Your line is now open.

Quick question on the opening of the Panama Canal. You mentioned that briefly in your statement with LPG prices very, very low here in United Sates, what kind of impact do you think that might happen and when is the Canal widening actually done and when do you expect to make some shipments?

The widening of the Panama Canal will not affect our size of ships. So, it's [indiscernible] discussion.

Okay, is there any transport going over to Asia from the U.S. now?

With our ships, you're talking about?

Yes.

No, because our ships don't do the long haul voyages as you know, and anyway our ships as you know can pass the Panama Canal now, so even if it gets wider or not, it doesn't make a difference for us, this will affect the much larger ships.

There are no further questions over the phone at this time.

Okay. We would like to thank you for joining us at our conference call today. We look forward to having you with us again at the next conference call for our second quarter results in August. Thank you.

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