Harry Vafias - President and CEO Fenia Sakellari - Finance Officer

Randy Giveans - Jefferies Greg Weiss - Boston Partners

Good day, and welcome to the StealthGas Fourth Quarter and Final Year Results 2017 Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Harry Vafias, CEO. Please go ahead, sir.

Good morning everybody and welcome to our fourth quarter 2017 earnings conference call. This is Harry Vafias, the CEO of StealthGas and joining me on the call today is our Finance Officer, Mrs. Fenia Sakellari, who will provide commentary on our financial performance during the same period. 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. It’s noted that risks are further disclosed in StealthGas filings with the Securities and Exchange Commission. I would also like to note that all amounts quoted unless otherwise clarified are implicitly slated in U.S. dollars. Slide 3 summarizes our key highlights for the fourth quarter of 2017. Taking advantage of the positive momentum that the small LPG market is in. We managed to achieve a remarkable operational utilization of 97.2% looking out the whole of 2017, our idle days were reduced by 58% compared to 2016, while our average fleet days was reduced from 9.6 years in the beginning of 2017 to 9.2 years today. The market for our dominant segment that of small LPGs has clearly strengthened with rates increasing over the past year by about 25%. Although a number of our vessel are still legacy charters this is collection rates ensure they boost to our revenues, but obviously to be more evident from Q1 2018 onwards. We ended the fourth quarter of 2017 with $38.5 million in revenue, despite the reduced fleet resulting from the sale of the four older vessels and EBITDA $15 million. Looking at the whole of 2017 compared to 2016, our performance was evidently improved, as revenue increased by $10.2 million, our net income excluding non-cash items was in the order of $5.4 million. As per our leverage and cash position, our gearing remains at low levels are on 39%, while we still maintain a healthy unrestricted cash balance of approximately $52 million. Slide 4 provides an analysis of our fleet employment, in terms of charter types, out of a fleet of 54 operating vessels; we have 14 on bareboat, 29 on time charters, 11 spot, 4 of which are employed in the series of consecutive spot voyages. During the past three months, we successfully concluded 8 new period contracts and we are quite pleased at all of our newly delivered semi-ref vessels are employed under time charter contracts. We announced several new charters and charter extension in the past six months, around 25 in total. The majority of which commenced in January 2018. Therefore revenue impact from rising rates will be stronger starting from the first quarter of this year. We already have solid coverage for 2018 in the order of about 65%, with about $196 million in contracted revenues. With regards to our fleet geography presented in Slide 5, our company focus is on regional trade and local distribution of gas. This graph is a snapshot of the positioning of our LPG vessels as of February 10, 2018. Currently 46% of our LPG fleet rates in the Middle and Far East, 28% in Europe, 12% in Africa, 8% in America and 6% in Australia In the fourth quarter of 2017, we slightly increased our presence in Africa with 6 our vessels trading in that area. In terms of trading products, our mix is currently 60% trading LPG and 40% trading petchems that are chemicals. Slide 6 provides you with an analysis of our remaining capital expenditure program. In January 2018 we took delivery of the Eco Arctic and Eco Ice, our second and third 22,000 new eco semi-ref vessels. These deliveries were successful and in terms of funding our company resulted with an excess balance of $4 million following the loan drove downs for the aforementioned vessels. Our fourth and last delivery will take place mid-April and looking at the table on the left our remaining CapEx excluding any related advances paid to-date is in the order of about $32 million. In terms of advance payments we have paid a total of $20.8 million as advance payments for our last semi-ref new building and in relation to the financing, are shown on the graph on the right from a total contract value of $52.8 million, $20.8 million are advances paid up to date, $31 million is committed loan leaving us with an additional equity required of only approximately $1 million. I now turning the call to Mrs. Fenia Sakellari, for our financial performance discussion.

Thank you, Harry and good morning to everyone. Fourth quarter 2017 had strong performance aspect. Demanding the small LPG segment had clearly picked up with our operational utilization reaching a 97.2%, that is exceeding the levels of 2012 were market rates in our segment were much higher than current levels. We concluded that contracts have improved to 8 and we expect the impact will be more visible in the first quarter of 2018. Our profitability however was quite hindered for reasons that will be explained in full detail below. Let us move on to Slide 7 were we see the income statement for the fourth quarter of 2017 against the same period of the previous year. Voyage revenues came at about $38.5 million and increased of 2.5% compared to the fourth quarter of 2016. This increase is attributed to the high utilization of our fleet and improved rates as in the fourth quarter we operate with vessels than in 2016 following the sale of some of our older vessels. In the last quarter of 2016, the revenue contribution of the vessels we sold was $2 million in addition to this, due to softer market conditions our revenues from the tankers and our fleet were reduced by 10% compared to 2016 and other factors hindering our revenue. Voyage cost amounted $4 million marking a 6% increase compared to Q4 2016 due to high number of vessels operating spot in the quarter-on-quarter increase of average market price by 19%. Net revenues that is revenues after detecting voyage costs came at $34.5 million corresponding to a net revenue margin of 90%. Running cost at $50 million marked to $500,000 increase compared to Q4 2016. This increase is attributed to the operation of our 22K semi ref vessel, the Eco Frost delivered in 2016 and one of our prudent tankers operating on time charter ending the spot market which was previously on bareboat during the fourth quarter of 2016. In addition to this quarter we faced slightly higher maintenance cost for some of our older vessels that previously facing this kind of idle time. With regards to drydocking costs which amounted to approximately $1 million is already from the drydocking of 2 vessels for which we face increased cost into the trading areas. Our EBITDA for the fourth quarter of the year came at $15 million marking a $5.6 million rise compared to Q4 2016. Interest and finance costs marked an increase of about $750,000, mostly as a result of an increase in LIBOR rates. With a net income of $750,000, our earnings per share for the fourth quarter of 2017 was $0.02. Looking briefly at our annual results, our improved performance is much more evident as we mark the revenue increase of $10.2 million while excluding the non-cash items, 2017 generates a profit of about $5.4 million. Slide 8 demonstrates our performance indicator for the periods examined. As mentioned earlier, all our operational utilization for Q4 2017 was in the order of 97.2% and 96.2% for the whole of 2017, a clear improvement compared to the previous years. High demand and an improvement in day rates which is related to a stronger adjusted time charter equivalent of about 8,500, marking a 7.5% increase against the same period of last year. Looking at our balance sheet in Slide 9. In 2017, we managed to preserve very good liquidity of $52 million in free cash and maintained our gearing at low levels in the order of 39%. At this stage, we would like to mention, that we have received commitment for the refinancing of $26.3 million that is all the balloon payments due in 2018, for the Gas Myth, the Gas Cerberus and the Gas Elixir. These vessels will be scheduled based on our repayments for 2018 of about $42 million more over in light of recent LIBOR hikes we increased our hedging coverage of about 25% of our outstanding loan portfolio, as we recently entered into some new swap deals. Slide 10 presents on a daily basis, the evolution of our breakeven against our average time charter equivalent, what we note is, is that our average time charter equivalent has stabilized at high leverage compared to previous quarters. I will now hand you over to our CEO, Harry Vafias, who will discuss market and company outlook.

Let’s proceed now with Slide 11. Seaborne trade in 2017 total 92.9 million tonnage, up by 2.5 from the previous year. China remains the biggest importer at 17 million tonnage. However, India is the country expensing the largest increase in LPG imports surpassing Japan and therefore becoming the second largest LPG importer. The Indian government continues to incentivize the use of LPG through subsidies. U.S exports continued its rapid expansion recording a growth of 4.2 million tonnage to a total of 29.6 million tonnage. Focusing on coastal LPG trading areas, Europe is the largest markets for sure of the whole trade followed by the intra-regional trade between Far East countries. In terms of trading of products, we see a solid growth in petrochemical trade which is anticipated to grow further benefiting mostly the smaller tonnage. On Slide 12, we see the during Q4 2017 rates, for almost all LPG segments continue to be on rise, the stand of half thousand cubic meter segment and in the year with around 230,000 per month, having started the year at around 180,000 a month, a gain of nearly 25%, overall is evident in the past quarter that your experiencing a gradual upward market trend which is anticipated to continue. In terms of trade west of Suez, spot rates have reached their highest in two, three years, is there also less competition from semi-ref vessels. There is still a significant number of the larger pressurized vessels of 7K cubic meters and up in the spot market, but they have been keeping busier the last couple of months. In the East, on the period side, the activity has continued and charters have been come to lock in charter coverage to avoid the risks of a tight spot market. 5,000 cubic meter ships remain in tight supply. We expect to see a stable to firming trend on the period rates throughout the year. In terms of scrapping, the small LPG pressurized segment has substantial all tonnage, 23% of the fleet is above 20 years of age. Taking into consideration, the new environment regulations which will come in effect are on 2020. We anticipate a boost in energy and recycling activity, which might even trigger a contraction of the global LPG coastal fleet. As per published orders there are six vessels that is only 1.7% of the total fleet to be delivered in the period 2018, 2019. The limited order book of our segment is another positive factor for age in existing tonnage demand. Slide 13, we continue with our share performance. The performance of our stock is presenting along with the selected gas carrier peer group. It’s evident that all stocks presented follow a broad correlation with oil price movement. During this period, we show a rise in oil prices largely driven by the crude output cuts from producing nations, particularly after November 2017 when OPEC and other big oil producers agreed to extend production curbs until the end of 2018, oil prices rose significantly. During the past year our company stock clearly follows an upward trend, led mostly by improved financial performance and overall improved sentiment around energy related stocks. In order to be more specific, StealthGas stock as marked an increase of about 15% year-on-year. On Slide 14, we are showing different scenarios in our company’s performance for 2018. The different scenarios were created based on our existing fixed charters, plus vessels open on the spot market are showing no new charters on the exploration of the fixed vessel. Revenues were calculated in using an estimated spot rate based on current market and an individual utilization rate for each vessel. This forecast includes the last largest semi-ref building which with its expected delivery for which we have used a very conservative assumption. We can see throughout the quarters examined that the hypothetical $500 increase in spot rates will significantly leverage our earnings, while a $2,000 hike in daily rates will lead to a boost of approximately $14.5 million to our annual EBITDA. This table shows our company’s potential if there is a further rate strengthening, a realistic scenario given current market condition and the fact that the rates climbed by almost 7% only in the last quarter. Proceeding to Slide 15, we can see some valuation multiples of StealthGas against comparable companies As evidenced, our company trades at a greater discount than its peers in terms of net asset value despite its safe capital structure, less gearing with its peers and a market leading share of the pressurized market. We would like to point out that this selected peer group is comparable in terms of broader seaborne LPG trade, as no other company in the small LPG segment that we operate in is listed on any U.S. stock exchange. The lack of a true comparable company and also low share volume are additional reasons why we think our stock is undervalued. Concluding our presentation with Slide 16, we summarize all the reasons why we feel StealthGas is a good investment as a market-leading company in a niche market with promising fundamentals. But during the past quarters have slowly started to materialize. At this stage, I will summarize our concluding remarks for the period examined. The fourth quarter of 2017 was mixed; on the one hand we were pleased that our core market of small LPGs shows clear signs of improvement, which should continue to leverage our earnings. In this market, we achieved an outstanding fleet operational utilization of 97.2%. On the other hand, the sale of our four older vessels and the weakening of the tanker market affected our revenue growth somewhat excluding the improved revenues of our core fleet. Nevertheless, excluding impairment charges, our annual results demonstrated clear improvements both in revenues and profitability. In addition with the delivery of our 22,000 semi-ref new buildings in January 2018, our asset based increased to $1.1 billion. We have numerous charters which commenced at the beginning of 2018 and several vessels yet to fix all of these in a better market environment, reflecting the benefits of our chartering policy. In terms of strategy, we intend the upcoming year to take advantage of the positive market momentum of the small LPG market. We’ll focus our efforts on capitalizing our dynamic fleet of the past couple of years by placing strong emphasizes or taking advantage of the unique and improving supply and demand fundamentals for our core segment. With assets totaling $1 billion low gearing and CapEx of around $31.2 million of which equity is only $1 million. We’re looking forward to an exciting 2018. We have now reached the end of our presentation. We would like to open the floor for your questions. So operator, please open the floor.

[Operator Instructions]. We’ll take our first question today which comes from Randy Giveans from Jefferies. Please go ahead. Your line is now open.

Hey thanks operator, how is it going Harry. Quick questions on the…

Hi Randy.

Hey on the, Arctic and the Ice for the charters through 2020, what are those rates on average or an estimate 15,000 a day, 12,000, 18,000?

Yes good question, we have not disclosed publicly the rates, but I can tell you that they are about breakeven levels. So you can do your math on that.

Got it, breakeven it’s okay.

All inclusive breakeven, just to clarify all inclusive breakeven, not OpEx of course, all inclusive breakeven.

Not just cash, net income breakeven. Okay. And then you have 7 vessels older than 20 years of age, so what are your kind of fleet growth or renewal plans for those and with that do you expect your fleet to be little large, little smaller than it is current of last year?

Randy excellent question, I mean as I think we’ve discussed the idea last year was to sell some of those for scrap, but the good market quoted up with us and we found trading sellers for them and thus we were able to sell those very old ships at a nice premium over demolition, sometimes in some cases up to 200%, which is an amazing boost to our bottom-line. The idea is to slowly dispose of the vessels, how quickly, you know who knows. The plan is not to immediately replace them as we’ve have been taken delivery of brand new ships, non-stop over the last three years. So, it all depends on, what the market does, what the prices do and what our share price does, because if we still trade at such discount to NAV, there is no point of adding more ships at NAV, right.

Yes that’s fair. So speaking about, first look at that, so your price been averaged 30%, so you are saying your NAV is what $14?

I haven’t done the math today, because you know it changes weekly, but a safe number would be $13.

Okay, so it’s hard to calculate that obviously unlike the drydock market there is not a huge S&P market for these kind of smaller LPG vessels. So I guess what value you are using there is the big difference, because already these on a $7, $8. So, you are using kind of last done asset valuations or how are you getting to your - I guess the…

Randy, I would tend to agree with you is not of course as liquid as dry as, but especially in 2017 we saw a big number of ships being sold, which gives some valuation ideas. And every six months we take two independent valuations for the whole fleet and basis on those valuations, we come up with a NAV. So, this is how we do it and the number is around $13.

Sounds good. And then with that, I guess looking at your cash balance, looking at pretty significant free cash, you only have one delivery coming, I guess in April now, so kind of uses of free cash going forward, if you had a 30% of the NAV seems like the share repurchases might seem attractive here.

Yes, if when we announce the Q1 results, the market continues to be going, as strongest as it has been until now and we have shorter doubt the tankers as well, because we have phenomenon where tankers are going down and LPGs are going up, I think go through only have four tankers, yes and the stock is still such a huge discount to NAV, then obviously we will go to the Board with the request for further share repurchase, don’t forget that during the bad times we spent close to $21 million to buyback our own stock.

Yes, no I think that was a good play there and hope going forward you have more opportunities, obviously the share price recovers maybe not, but well thanks again for the time and…

I hope we don’t have the opportunity.

Right that’s fair. Good talking with you and I’ll hop off.

Thank you, Randy.

Thank you. [Operator Instructions]. And our next question today comes from Greg Weiss from Boston Partners. Please go ahead. Your line is open.

Hi Harry, how are you?

Hi Greg.

So, I’m kind of intrigued by, the supply demand case you outlined just looking at your presentation. Obviously your fundamentals have been getting better recently, but, with as you say 23% of the fleet over 20 years old and virtually no orders, I just kind of what’s the tipping point, one if you order ship stay when can you order ships for and if we are going to have with essentially, either no growth or a negative fleet growth and increasing demand what seems like your pointing to, or is this are you losing share to bigger ships or is your fundamentals going, is your market going to continue to get tighter going forward?

First of all if you order ship now you need between 18 and 24 months to take delivery. Secondly, we are very lucky, because the huge Chinese yards of our building bulkers and container ships like crazy don’t want to build those little LPG ships. So we are protected from these Chinese mega yards. Thirdly, the big ships cannot really hit in our business, because they don’t have the size, they don’t have the small size needed to go to the majority of the ports that we visit. So, I think it will all lead to a tighter market, which hopefully will lead to tighter rates as we saw back in 2012, again back in 2008 and again back in 2005.

Got it. Okay, so why do you think we have not seen ordering in your sector?

Because, it’s quite simple Greg, in this business there are only two big companies of which both don’t, don’t want to order ships. Then you last with another 10, 15 smaller companies of which half of them were nearly bankrupt and the other half don’t have finance because, they were bleeding money for the last three years. If the market continues to improve, some of these people will find money and might order. But we are not worried as we are going to see a huge wave of ordering like it happened in the last nine months on the dry side on the container side. We are protected from that, because of the bottleneck of the yard capacity.

All right, congratulations. It sounds like hopefully things continue to move in the right direction, which based on supply demand and…

It seems to have, fingers crossed for the Q1 results.

I recommend you Harry, but I don’t think you have given up credit sometimes on navigating the bottom of the cycle without a stress balance sheet you deserve versus what we’ve seen in other classes of the shipping sector, where becoming extremely proud. This could…

That is frankly, I most hear the negative things and very few people do say the positive things. You are one of the older shareholders and an old friend. So, I do appreciate the comments, because you know how hard we’ve been working in the last three years to keep the ship steady and keeping the balance sheet in a healthy mode.

Okay, thank you, Harry.

Thank you.

Thank you. [Operator Instructions]. Okay, we don’t seem to have any further questions today. I’ll hand back over to you for any closing remarks. Thank you.

We would like to thank everyone for joining us at our conference call today and for your interest and trust in our company. And we look forward to having you with us again at our next conference call for our first quarter results in May. Thank you.

Thank you. Ladies and gentlemen, that will conclude today’s conference call. Thank you so much for your participation today. You may now disconnect.