Earnings Labs

StealthGas Inc. (GASS)

Q3 2009 Earnings Call· Tue, Nov 17, 2009

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Transcript

Operator

Operator

Good day and welcome to the StealthGas Inc. third quarter and nine months 2009 results conference call. (Operator Instruction) At this time I would like to turn the conference over to Mr. Harry Vafias, President and Chief Executive Officer. Please go ahead.

Harry Vafias

Management

Thank you and good morning everyone. Welcome to our conference call and webcast to discuss the results for the third quarter and first nine months ended September 30, ‘09. I’m Harry Vafias, the CEO of StealthGas and I would like to remind you that we will be discussing forward-looking statements in today’s conference call and presentation. Regarding the Safe Harbor language, I would like to refer you to slide number 1 of this presentation, as well as to our press release on our third quarter and nine months ‘09 results. With me today is Andrew Simmons, our CFO. And if you need any further information on this conference call or the presentation, please contact Andrew or myself. Let’s start from the slide number 2. We continued with our stated business strategy in the third quarter ‘09 and later I would like to discuss the outlook for the remainder of this year and 2010. Our primary objective continues to run to be driven highly efficient and modern fleet on secure employment contracts with first class charters that serves a very specific niche market our Courchevel fleet has no correlation whatsoever to most of our shipping sectors, many of which as you know will continue to experience significant downturns in both Charter levels and in particular vessel values. Following the delivery of the Alpine Endurance in July 14th, our fleet numbered 43 vessels which is 1400 size big ships and three medium range product tankers. Looking at the remainder of ‘09, the Stealth Argentina, a similar vessel to which Alpine Endurance is contracted for delivery this month, and to immediately deploy under three year bareboat charter thus continuing our consolidated position regard to the impairment profile of our fleet. Following the delivery of this vessel we have no further scheduled new deliveries…

Andrew Simmons

Management

Thank you Harry, and good morning everybody, we now turn to slide number. We turn to the financial highlights of the third quarter 2009. In an average of 42.9 vessels owned and operated in the third quarter of ‘09, we realize net income of $7.2 million on voyage revenues of $28.4 million and produced an EBITDA of $16.6 million. For the third quarter of 2009 we reported a profit of $2.7 million on interest rates local currency hedging arrangements which included an unrealized non-cash profitable approximately $4.5 million and a realized cash loss of approximately $1.8 million. Non-cash position of approximately $200,000 for restricted stock portion of deferred stock based compensation. Net income was $7.2 million or $0.32 per share. Our earnings per share for the third quarter of 2009 excluding these non cash items was $0.12 per share calculated on $22.2 million average shares of outstanding. As discussed earlier, our net debt capitalization stood at 47.3% at the end of Q3 ‘09. We continue to believe we are maintaining our leverage at moderate levels is important. As currently structured no further debt will be incurred by the company until early 2011 following the delivery of the Stealth Argentina later this month. We now turn please to slide number 6. This slide provides you with an overview of the development of our income statement for five consecutive quarters. In preparing our results from the third quarter of 2008 to the third quarter of 2009 revenues decreased by 1.7% EBITDA increased by 23%. Our EPS excluding non-cash items was $0.12 per share or $0.32 per share if these items are included. The improvement in our performance we believe when taking into account the prevailing market conditions quite creditable. Also in looking at this slide we would gain point to the relative…

Harry Vafias

Management

Okay, slide number 12 please. This slide shows you the volatile seg markets of last seven years for the medium sized and large sized gas carriage. In comparison mid-size and smaller semi and fully pressurized vessels in our core sector have experienced a much low volatility and until recently steady growth in freight earnings from middle 500s. It’s clear from this data that our type of ships which won the core of our business and that are far remote from dry wet and/or container markets about the past seven years not experienced wild fluctuations in rates but these other shipping sectors have seen and we are hoping that as these relatively non-volatile trading part will continue to remain intact. As I believe we have proven today despite the prevailing economic conditions that our reported earnings for the first nine months of this year. Slide 15 if you turn to it now, which shows the one year time charter equivalent volatile issue since like year 2000 between the dry bulk and crude tanker sectors into 3,500 fully pressurized LPG gas ships and 3,200 semi-vessel LPG gas ships which are typical of our majority of our fleet. As we can see, based on the mean average for these sectors over this quite extended period the level of volatility is far higher in the dry and what it spaces on our core sector. We continue to expect that the supply of product will increase in the next two to three years plus demand is expected to continue to be steady particularly in the far east and developing world and therefore we continue to believe that the outlook for our core market is encouraging and thus we will continue with the contracted development during the 2011 and 2012 while free to take advantage of…

Operator

Operator

(Operator Instruction) Your first question comes from Daniel Burke - Clarkson Johnson Rice.

Daniel Burke - Clarkson Johnson Rice

Analyst

Harry, I was wondering if you could talk about rates in Q4 a more of a short term basis, one of the things I noticed on your slide 14 the charter market rate indicator, was that, I appreciate that you don’t put together this forecast but that Q4 ‘09 the rate forecast were actually slightly lower than the Q3 ‘09 rate averages, and it strikes me that for business that sort of typically peaks into winner, that’s not exactly a typical trend. I was wondering if you could share your outlook for maybe the next couple of quarters during the winter period and maybe what reasons rates on a 12 month time chatters stock could actually soften a bit Q4 potentially.

Harry Vafias

Management

Yes, as you know from our previous results always in the winter rates we have seen quite a strengthening. These estimates are not ours; obviously it doesn’t mean that we disagree with them. But my personal opinion for next years is that the rates will be flat, meaning that they will remain low for mainly the majority of the year, I expect at least for the next nine months from Christmas onwards. I’m happy to say that even if in the bottom of the market we will still make money which is very rare for our shipping segments as we know very well and we are quite hopeful from the end of next year onwards where obviously the economic environment is going to be better and as you know very well there is going to be a shortage of modern ships and an increased scrapping of all the vessels. So we believe the rates will remain at the current low levels for at least nine months with obviously some small decisional hiccups and some volatility but generally will remain at these levels.

Daniel Burke - Clarkson Johnson Rice

Analyst

Then another question, Harry, did you mention in Q1 ‘10 that you would begin to cement the financing on the new bills or did I mishear you as you addressed that description.

Harry Vafias

Management

That was correct.

Daniel Burke - Clarkson Johnson Rice

Analyst

In Q1 ‘10 we could expect to hear something, okay. And then just last question it’s actually half feedback is, I do appreciate the inclusion of the operational utilization information, certainly speaks to some of the challenges you are seeing in the spot market. Do we have decent visibility? I mean should Q4 sort of implied spot utilization looks similar to Q3.

Harry Vafias

Management

Normally Q4 as we discussed should be better, but if you want to be conservative we should leave it the same.

Operator

Operator

Your next question comes from Noah Parquette - Cantor Fitzgerald.

Noah Parquette - Cantor Fitzgerald

Analyst

Can you just talk a little bit more about your expansion strategy going forward, I mean what types of classes look attractive to you, if you are going to stick with LPG or if you consider dry bulk even?

Harry Vafias

Management

As we have discussed we are not looking to expand. We have already the largest fleet in the gas sector in the world. We don’t want to expand when we don’t have clarity about one of the rate environment and the bank environment will be better. So we have no such plans. What we have said is that this indeed in 2011, the LPG freight rates increase significantly then obviously we have many options, some of which are inside the dividend by ships now the type of ship we will buy obviously depends. If the gas ships prices have not dropped, obviously we will look at other types, anything but containers. But all of these discussion is useless at the moment and irrelevant because my discussion is for 2011 and not for 2010. So at the moment there is no plans for expansion.

Noah Parquette - Cantor Fitzgerald

Analyst

And then Andrew what was the $618,000 charter termination fee gain I guess during the quarter?

Andrew Simmons

Management

Yes, I think we had two ships I think where the charter had the option to extend the chatters on those vessels or that they didn’t extend the charter. They had to pay off a termination fee. So both of those crystallize in Q3 and therefore that those fees were taken to the income statement during the third quarter.

Noah Parquette - Cantor Fitzgerald

Analyst

Okay, that’s arguably you include that in your operating income because it’s mostly it’s essentially revenue right.

Andrew Simmons

Management

It’s essentially, Yes, it’s a revenue which instead of receiving a charter hire going forward, because they took the option not to extend but they had to pay us that fee so it came in as a revenue, we are showing it in some sort of and the expenses aligned it’s actually obviously a credit in that area.

Noah Parquette - Cantor Fitzgerald

Analyst

Okay, and then just lastly on Friday’s press releases you announced another charters, and you said the average rate was about $10,800 per day. Do you have a number excluding the Stealth Argentina, just for the LPG charters?

Andrew Simmons

Management

No. We only give out when we announce the battery of charters we give out the average rate for, in this case, I think it was five chatters and we have to stick with that, we can’t break that out separately so to speak.

Noah Parquette - Cantor Fitzgerald

Analyst

You can’t give an average excluding one of the vessels?

Andrew Simmons

Management

We prefer not to

Noah Parquette - Cantor Fitzgerald

Analyst

Okay. And then I guess, what were the progress payments for next year, I think you said that but I didn’t catch it.

Andrew Simmons

Management

We have about $11 million to pay next year to the yard for the next stage.

Noah Parquette - Cantor Fitzgerald

Analyst

Nothing this quarter?

Andrew Simmons

Management

Nothing this quarter, no.

Operator

Operator

(Operator Instructions) Your next question comes from Jeff Geygan - Milwaukee Private Wealth.

Jeff Geygan - Milwaukee Private Wealth Management

Analyst

Regarding the two ships that were not, where the 618,000 charter determination gain occurred, what became of those ships after that? Was it a case of the charter didn’t want them at all or do they renegotiate in spot environment?

Harry Vafias

Management

We will have to revert on that because I don’t have any information of this specific ships. If you want you can email us and we will reply on an email on that if you want, I don’t have this information right in front of me.

Jeff Geygan - Milwaukee Private Wealth Management

Analyst

All right. Secondly, with respect your swap contracts what would a rising interest rate environment look like for you with respect to your swaps, what you would perceive the market rates might look like and finally your profitability?

Andrew Simmons

Management

I didn’t quite get the first part of the question Jeff, sorry, could you say that again?

Jeff Geygan - Milwaukee Private Wealth Management

Analyst

How does your business look in rising interest rate environment given your interest rate swaps?

Andrew Simmons

Management

Well, currently we have about 51% of our debt swapped out at an average rate of about 3.70%. So, that’s roughly about a $175 million. So, obviously, as rates rise but unfortunately I don’t think we expect any rise in rates to probably, sometime around this time next year, we are somewhat out of the money as you can see from our results on those swaps. Obviously if rates start to rise then we will start to. The loss that we are experiencing in the moment will diminish somewhat and if rates go back to where they have been historically then these swaps will be in the money for us at some point in the future.

Jeff Geygan - Milwaukee Private Wealth Management

Analyst

All right. And then last question, given that you have a substantial amount of your fleet either in spot today or going to be in spot throughout 2010, what would prompt you to try to lock into longer term charter rates as opposed to stock market rates?

Andrew Simmons

Management

Could you repeat the question Jeff, sorry Harry didn’t quite catch the question.

Jeff Geygan - Milwaukee Private Wealth Management

Analyst

Sure. Given the large amount of your fleet that’s either in the spot market or will be in the spot market in 2010, what circumstances would cause you to want to try and lock in longer term rates?

Harry Vafias

Management

First of all I think that argument is wrong. At the moment we have 10 ships out of 44 that are in the spot markets. So that’s less than one quarter. Secondly, as we mentioned before, we hope to have 60% of 2010 days fixed by Christmas. So let’s take it from there. So let’s say that we have 10 or 15 vessels in the stock market next year, obviously we want to fix them but as we’ve said many-many times again and again we want to fix just any number, just to be fixed we would fix that a number, the number one doesn’t destroy the current market, and secondly makes a certain kind of profit for us. Otherwise we will trade them in the spot market, obviously there will be more waiting days but if the spot market yields between 6.5 and $8,000 depending on the specific trade it’s still quite profitable.

Operator

Operator

(Operator Instruction). As there are no further questions, I would like to hand the call back over to you gentlemen for any additional or closing remarks.

Harry Vafias

Management

We’d like to thank you 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 fourth quarter and end of ‘09 results. Thank you very much.

Operator

Operator

Thank you. That will conclude today’s conference call. Thanks for participation ladies and gentlemen. You may now disconnect.