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StealthGas, Inc. (NASDAQ:GASS)

Q2 2013 Results Earnings Call

August 20, 2013 11:00 AM ET

Executives

Harry Vafias - Chief Executive Officer

Konstantinos Sistovaris - Chief Financial Officer

Analysts

Joshua Katzeff - Deutsche Bank

Jon Chapelle - Evercore Partners

Donald McLee - Wells Fargo

Urs Dür - Clarkson Capital

Jeff Geygan - Milwaukee Private Wealth Management

Chris Snyder - Sidoti

Operator

Thank you for standing by. And welcome to the StealthGas Q2 Results 2013 Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions)

I must advice you that this conference is being recorded today, Tuesday, the 20th of August, 2013 at 4 o’clock U.K. time. I would now like to hand the conference over to your speaker today, Harry Vafias, Chief Executive Officer. Please go ahead, sir.

Harry Vafias

Thank you. Good morning, everyone. Welcome to our conference call and webcast to discuss the results for the second quarter of 2013. I’m Harry Vafias, the CEO of StealthGas, and I would like to remind you please that we’ll be discussing forward-looking statements in today’s call and presentation. Regarding the Safe Harbor language, I would like you to refer to slide number one of this presentation as well to our press release in our -- of our second quarter results.

With me today is Konstantinos Sistovaris, our CFO, and if you need any further information on the call or the presentation, please contact Konstantinos or myself.

Before I start with the slides, I would like to comment on the results we released today. Overall, the second quarter was another quarter of healthy profits even though we did see a reduction in our net income. The majority of the vessels produced revenues in line with our expectations.

However, our performance was affected because of a couple of older ships in our fleet that were trading in the spot market and faced increased idle days, as well as the fact that we decided to drydock one vessel earlier than it’s scheduled drydocking time.

Let’s begin our presentation from slide number two. The main event of the second quarter was very successful equity offering we did with net proceeds of about $110 million. My family supported this effort by subscribing for 5% of the offering, while as we have stated before, this successful completion acts as clear testament of the faith-placed to a company by our existing shareholders and inventors.

The reason we did the offering was to enable us to pursue a more aggressive growth strategy as we fell this is an opportune time to expand our fleet, even we have established the freight markets on the right path with further room for improvement based on the favorable LPG industry fundamentals.

Over the next two years, our medium-term goal is to grow our already leading position and capture between 20% to 25% of the global pressurize market and maintain a fleet of about 50 to 52 LPG ships. We believe that based on our previously available cash, the money we raised through the equity offering and leverage, we could have up to $400 million firepower for investments going forward.

We already added three ships to the fleet in the second quarter for which we expect to receive about $30 million of net proceeds next month. We are cautiously looking for opportunities in the secondhand market for modern vessels (inaudible) these are scarce, so the majority of our growth will come from investments in newbulidings vessels.

We have already six vessels under construction with remaining CapEx of about $125 million, the equity portion of which is already funded through the follow-on offering mentioned. Of course, we are continuously looking out for additional orders and reputable shipyards to further expand the fleet. While increasing our leading position in our segment, we aim to maintain the core strategy that has made this company so successful.

So I have to say that every quarter we believe that the young fleet will give us operational advantages, while the current average age of our fleet is 11 years, below the industry average. We aim to maintain and preferably lower this by adding modern ecotype ships.

In terms of leverage, we have always been cautious to maintain moderate leverage and not to over burden the company. While we grow the company and add more ships and that we will continue to observe this principle and aim not to exceed the 55% to 60% debt to cap a level where we consider appropriate for our company.

We continue to strive to obtain a secure and visible revenue stream with stable and predictable cash flows and contract additional period charters when average profitable to do so. At the moment, fixed employment for our fleet for ‘13 stands at 83% and for ‘14 already 50% is fixed. We expect the percentage of our 14 fixed days to increase during the reminder of this year.

Now in terms of the cost efficiency of our operations, I believe we are managing these ships more efficiently than any competitors except the Chinese and as well growing our fleet, we will be able to improve our economies of scale.

Our net income breakeven level per ship per day was $5,968 per vessel per day, compared to $5,952 in the previous quarter and $5,816 in the same quarter last year, which puts us very comfortably in a profit making territory.

In additional, modern vessels can achieve around 15% to 20% savings in operating expenses that’s one of the reason why we focused on renewing the fleet with newbuldings and modern secondhand ships.

Slide three, as previously mentioned, we now have enough firepower to grow the fleet significantly over the next two years. Over the past two years, we held the fleet steady at about 37 ships and only engaging some fleets renewal by selling older vessels and adding other ones. We believe that market fundamental is justifying more aggressive growth strategy. As a result, we are now executing a more opportunistic fleet growth for we already added three ships in the second quarter going from 37 ships to 40 ships including the four oil tankers.

By the second quarter of 2014, we’ll have added two more ecotype newbuildings going to 42 vessels and by the first half of ‘15, we will have added another four ecotype LPG ships adding to 46 vessels, 42 of which are LPG and the rest are oil tankers.

In terms of CapEx that means we are going to spend $12 million in the current quarter, $38 million next year and $76 million in 2015, the portion of which will be of course financed by bank debt. We have room for significant more growth and I’m confident that we are going to conclude some acquisitions very soon. The recent weakening of the yen has enabled to Japanese the most experienced and reputable LPG builders to offering newbuildings slots at quite competitive prices.

I will now hand you to Konstantinos for some brief comments on the second quarter results, our financial position and later we’ll discuss the markets and industry outlook.

Konstantinos Sistovaris

Thank you, Harry. Good morning, everyone. Let me continue the presentation with slide number four, the financial highlights of second quarter and six months of 2013.

With an average of 38.1 vessels owned and operated in the second quarter, compared to 36.5 the last year. Our revenues came in at $30.3 million, higher than last year’s $29.1 million. We expected a high revenue figure, had not been for two of the older vessels that faced increased off-hire days into market.

Our voyage costs were increased to $4.6 million, mainly due to the higher number of vessels in the spot market and higher bunker consumption. We had an average six vessels in the spot market compared to four last year. We had a couple of our old -- our largest vessels come off charter during the quarter. And we temporarily operated them in the spot market. Although by July, we had re-chartered them on a TC basis.

Our operating expenses at $8.7 million increased from $7.5 million last year. Although operating expenses were slightly over our budgets. The main reason for the increase was the fact that compared to last year two of our vessels that were previously on bareboats.

One of these is one of our tankers are now in time charters, so we incurred their operating expenses. In addition, we also incurred operating expenses for the three vessels we took delivery off in the second quarter of 2013.

We also had drydocking costs of $0.9 million for two of our vessels, compared to one vessel drydocked for the same period of last year at cost of $0.5 million. The drydock of one of the vessels, the gas cycling was originally scheduled for next year but took place during this quarter. There was a need for certain repairs. So we decided to combine this with the forthcoming drydock, saving both in terms of cost and off-hire time as well.

Interest in finance costs were $2 million from $2.3 million last year, a reduction due to lower interest rates and lower outstanding loan balances. As a result, our net income for the quarter was $5.1 million compared to $7.2 million last year.

Earnings per share for the quarter were $0.18. Due to the equity offering, our average share count increased from 20.5 million to 28.3 million shares. EBITDA was $15 million. Included in the net income figure is a $0.2 million net gain from interest rate derivatives instrument.

Interest paid on these interest rates swaps amount to $0.5 million or $0.02 per share and change in fair value of the same -- arrangements amounted to $0.7 million. Excluding these items, our adjusted net income for the quarter was $4.4 million or $0.16 per share compared to $6.5 million or $0.31 per share for the same period of last year.

For the six months of 2013, with an average of 37.6 vessels owned and operated against 36.7 vessels for the same period of last year. Our net income was $11.5 million compared to $14.6 million. Voyage revenues were $59.7 million compared to $58.3 million. EBITDA were $32 million compared to $35.7 million last year. Adjusted net income for the six-month periods was $9.8 million or $0.40 per share, compared to $11.7 million or $0.57 per share for the same period of last year.

Slide number five, looking at our balance sheet, we can see significant changes from last year, mostly due to the net proceeds received from the follow-on offering in April. In terms of cash, we maintained a very healthy cash balance of $118.4 million including restricted cash.

As of June 30th, we had $19.5 million in advances for vessels under construct delivering by 2015 and 664 million in vessels book values, inclusive the delivery of the three secondhand vessels, the Gas Alice, Enchanted and Inspiration. Our total assets therefore increased from $713 million to $814 million at the end of the quarter.

In terms of liabilities, the current portion of our long-term debt, that’s what loan repayments are scheduled over the next 12 months increased to $47 million from $35.6 million by the end of last year.

We still have around $10 million of principle debt repayments per quarter. However, the increase in the current portion of our long-term debt is due to the $11 million balloon payment in one of our loans that expires in April 2014. We also have another balloon payment in July 2014 of approximately $22 million. So we expect the current portion to increase further in the next quarter.

As disclosed during our previous calls, these balloon payments will be addressed by either entering into negotiations with the two banks in default to extend the loan or we’ll opt to refinance them. We are not worried as a vessels import are quite older, so we believe we’ll get extensions especially now that we are seeing appetite from banks to finance LPG vessels.

Our long-term debt decreased to $280 million, mainly due to regular debt repayments and the reclassification of the balloon from long-term debt to current debt. We have also added the graph showing how we expect our debt levels to be over the next few years based on current data.

Finally, as of June 30, 2013, our total debt stands at $327 million. So we expect to add around $28 million of new debt by the end of the year and finish the year with $336 million of total debt. By the end of 2014, we expect to have total debt of $330 million based on around $30 million of new debt and including $33 million of balloon payments that we are going to extend.

By the end of 2015, when all our contracted vessels will have been delivered, we expect to have around $345 million of total debt. So, overall, with the regular debt repayment of close to $40 million per year, we expect to finishing 2015 with the debt level similar to where we started at the end of 2012 after having added nine more vessels to the fleet.

Of course this level of debt might increase going forward as we will add more debt for any new acquisitions that are going to be finance at levels between 60% and 70%. And I’m pleased to say that in general there is a lot of interest from banks to finance LPG vessels.

We’ll now please turn to slide number six, these are operating highlights for the second quarter and six months of 2013 and 2012. In terms fleet data, we had an average of 38.1 vessels due to the new acquisitions mentioned before. So, the total number of voyage days increased to 304 -- 3,470 from 3,319 last year.

Out of the 3,470 voyage days for the fleet in the second quarter, 687 were spot market days. So we had the considerable increase in the number of spot days compared to last year's 419 and compared to the first quarter 518. While our spot exposure is not significant at this point, we intend to keep it at the same levels or decrease it gradually.

In terms of our operational utilization ratio, our percentages at 91.7% have decreased from 94.3% last year and 95.9% in the first quarter. This is mainly due to the off-hire days for two of our vessels mentioned earlier. In terms of average daily results, our average time charter equivalent rate was $9,022 per day, compared to $9,853 per day for the same period of last year.

Our daily operating expenses remained more or less constant at $4,141 per day, compared to $4,144 per day for the same period last year. And our total vessel operating expenses were $4,302 per vessel per day, compared to $4,307 per vessel per day last year. We still operate comfortably above breakeven levels in terms of income and cash flow.

I will now hand you back to Harry to provide you with the market outlook.

Harry Vafias

Slide number seven, this slide demonstrate our fleet employment profile and provide you with the earnings visibility for our fleet. In terms of charter types, out of the fleet of 40 vessels we have 13 of them on bareboats, 21 on time charters and six in the spot market.

What we did experience in the current period is the two-tier market, whereby the demand for modern ships is healthy, whereas there was a slackening of demand for older tonnage.

We had a few older vessels in the spot market and we got mix results with some showing steady performance while a couple of the other face increase that idle time, which is also typical of the season and we’d expect the market fall the ships to improve during the winter.

While overall our aim is to add to the fleet modern ships, which is more stable demand. The company forces to fund per charters in order to secure its cash flow and the positive news is that we recently secured three long-term charters for three of our vessels that have come off charter. The Gas Haralambos and Gas Cathar charter for three years each while the Gas Flawless was contracted for one year.

With these new charters the company has secured approximately $30 million. For the remainder of 2013 we have two vessels that are off the charters, the Crystal and the Evoluzione.

For 2013, 83% of the voyage days are fixed and for 2014 already 50% is fixed with the number of charters expand to 2016 and beyond. We continue to take opportunities to put our vessels on medium and long-term charters, and we will try to keep the same level of charter coverage going forward. Our product bankers are chartered for about four years. It’s very positive that we have secured contracted revenues of beyond $180 million up to 2017 in total.

So let’s move to slide number eight. This slide highlights the steady growth of the international seaborne trade for LPG and Petrochemicals since 2005. LPG and seaborne trade has had a very stable growth over the past years at an annual 10-year average of about 5%. Only one year did we see negative growth and that was in 2009.

Going forward estimates are about 5% annual growth through to 2016. In 2012, LPG seaborne trade accounted for 67% and Petrochemical gases accounted for 14%. The key -- the main key driver behind this steady growth is firstly the growth from emerging countries, especially for domestic use. To give you some examples today in Japan the biggest importer of LPG and in matured market 50% of households use it.

So in emerging countries there still enormous potential for growth. In Nigeria 62% of the households still use charcoal and firewood. But it is not just for household usage, what drives LPG demand. In countries like Turkey, 40% of cars use autogas, which has surpassed gasoline to be the second fuel behind diesel.

A second key driver is LPG being a byproduct of LNG as it’s also correlated to the increased production of LNG and there are many LNG projects being developed around the world. The growth in LNG obviously impacts on LPG supply, which is too expensive to store and therefore needs to be shipped.

There are also increased distances between feedstock supplies, LPG production and end-users. Last but not least, the U.S. shale gas boom is also driving the increase in trade volumes.

Slide nine. We can see the LPG imports and LPG exports by country. The LPG trade has historically been driven by the Middle East accounting for 35 million tons of the total volume ship by sea with the principal sellers being Qatar, Saudi Arabia, Abu Dhabi and Kuwait.

Asia is the key region driving LPG imports which grew by 10% in 2012. And the traditional large volume buyers have been Japan, Korea and China, who now comes behind India from which we have lately seen increasing imports. The U.S. is shipping more LPG whenever as a byproduct of liquid natural gas output.

The U.S. cargoes offer Japanese barge with a cheaper alternative to supply from the Middle East and Asia. Propane cost $477 a ton in Texas compared to $793 in Japan and $675 in North Europe. LPG price differentials between Saudi Aramco, U.S. Mont Belvieu and Asia have seen Japan LPG imports from the U.S. surging.

The price of propane and butane cargoes for delivering along the Singapore-Japan route reached lowest levels since July 2010. Japan, which currently imports LPG at the rate of $12.5 million tons gram, has talked about switching to U.S. LPG for 10% to 20% of its supplies in a bid to reduce its costs.

Slide number 10. The LPG market in U.S. is experiencing a remarkable transformation due to the rapid increase in supplies been produced from both tight oil and shale gas formations. U.S. net exports of propane reached an all-time high of 449 million barrels per day in May versus 64 million average in 2012 and 104 million barrels per day average year to date.

Propane exports reached 308 million barrels per day versus 149 million barrels per day in 2012 while propane imports declined to 59 million barrels per day from 115 million barrels per day. [Recent abundant] supply in low prices expects to be game changer in global trade departments.

Current U.S. cash plan production of propane is 708 million barrels versus 694 million barrels in May 2012. Targa is expected to complete its propane export terminal expansion to load an additional 40 million to 50 million barrels for exports.

In the backdrop of a growing export capacity in terminals held by enterprise in Targa, we have seen a concentration of interest on the VLGCs to carry large LPG cargoes to distant markets. However, this has been obscured to the fact that there will also be a need for a bigger fleet of small fully pressurized ships to serve those customers in the small market to final destinations in the Caribbean, Latin America and the Atlantic Basin.

Market observation during the past couple of years has shown that markets have been strengthening for VLGCs in the summer months. And this summer has been perfectly strong, thanks to U.S. exports and slackening in the winter months. It’s normally the opposite for the smaller ships like ours. While the U.S. display developing story, we believe that our fleet could benefit from increasing product supply, especially if the markets at the time are already tight.

Slide 11, LPG carriers’ developing activity has picked up over the past year spurred by the promise of continued trade growth and attracting new building prices. We can see that the LPG fleet growth in our segment based on the current order books remain smaller than any other shipping segments. In our case, the order book over the next two years stands at 8% or 21 ships with the global demand expected to outpace supply in coming years as LPG exports are projected to grow at about 5% a year through 2016.

The combination of small order book and strong demand dynamics supports stable charter rates. And I believe this company is well-positioned to take advantage of such strong fundamentals. More than 20% of the 3,000 to 8,000 cubic meter fleet is over 20 years of age but only 21 vessels in the size of 3,000 to 8,000 cubic meters are on order for delivery over -- for next two years, including the ones that belong to us.

The support from our lending institutions allows us to seek further opportunities for growth. And we expect to add more ships to our fleet in the near future. What we can say about the LPG shipping market compared to the other shipping sectors as it has favorable demand and supply dynamics and future prospects.

It's not saturated and does not suffer from having new building orderbook. Small freight volatility and few issues to play established companies. We aim to position this company for the next phase of expansion at what I consider to be an ideal timing.

Once we have concluded all the acquisition, we are going to see the benefits of our latest moves. This is still a good entry point for investors in the shipping sector with strong fundamentals and the company with a solid balance sheet and growth potential.

I would like to conclude this presentation by saying that we are positive about the future. We have just concluded a very successful offering and notwithstanding in the short term dilutive effect, we are positioning the company for the next phase of expansion of what I consider to be good timing.

Once we have targeted all the acquisition, we are going to see the benefits of our latest moves. This is still a good entry point for investors in our company seeking strong fundamentals, solid balance sheet and a growth potential.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Justin Yagerman from Deutsche Bank. Please ask your question.

Joshua Katzeff - Deutsche Bank

Hi. Good afternoon. It’s Joshua Katzeff on for Justin.

Harry Vafias

Hi Josh.

Joshua Katzeff - Deutsche Bank

Just want to quickly maybe jump right into, I guess, your time charter revenue for Q2. And just maybe try and get a better sense of how much of, I guess, the lower TCE rate that you reported was due to lower rates versus just your commercial off-hire. I mean, can you -- maybe give us a sense of what was the bigger contributing factor?

Konstantinos Sistovaris

Josh, from the two ships, we lost in excess of $1 million to give you some color.

Joshua Katzeff - Deutsche Bank

Okay. That actually helps. And can you maybe talk about Q3, I guess, the date, we’re now almost two months through it. If you can, maybe, give us any sort of general sense of -- do you expect to see an increase of commercial utilization and maybe where you’ve seen greatest trend in the quarter there?

Harry Vafias

Listen, I mean, from July to -- from June to August, we have not seen a fantastic movement in the spot market especially for the older ships. Don’t forget that the majority of the ships that we have in the spot market are the older ships that are not only penalized because of the season but they are also penalized because of their age.

We’re recently seen renewed interest from charters to take those ships on period which for me was unexpected -- positive and unexpected. We’ve announced three very strong charters for the modern ships which we just announced, which again is positive because it’s not only strong from a numbers point of view but they are long charters. So that shows the charter is believing in this market for the next two, three years.

And we are certain that the spot market from September, October onwards is going to be much from here. Now, we cannot predict the future. We don't how much so far we are going to have on this particular vessels going forward but we are sure it’s going to be better than what we saw in these last two, three months.

Joshua Katzeff - Deutsche Bank

Got it. Because lot of those things were one-time in nature and now they are being scrapped?

Konstantinos Sistovaris

Yeah. And don’t forget also that the drydockings we mentioned, one was a completely one-off event. And two, two of these drydockings happened in places where geographically where they are far more expensive than our typical drydocking area which is the Far East. So not only did we have to drydock one ship completely out of schedule, but for two of for that ship plus another one, we have to schedule drydockings in areas due to the trading that repairs and time for repairs is much costlier than if we did the repairs in Far East as we normally do. So we were a bit unlike on that.

Joshua Katzeff - Deutsche Bank

Maybe switching topic, so you mentioned fleet expansion and since it sounds like you guys are now maybe preferring newbuildings over secondhand just given the lack of secondhand vessels for sale? Can you give us a sense of where you see yard pricing just trending now in some of the Japanese yards and I guess, when do you think you’ll be able to get delivery slots available?

Harry Vafias

We are lucky that the time being for this particular ship there are six to seven yards in Japan that are active. We’re obviously speaking to the majority of these yards. Only one other competitor has actually placed orders in big numbers. So from a competition point of view there is only one active buyer.

We think we can get 2015 slots. We are in discussion. I didn’t have long vacations because of these discussions and I’m sure we’re going to be reporting some acquisitions very soon. We couldn’t report them just yet, but I think we are working on it and we’ll be reporting some of these acquisitions very soon.

Joshua Katzeff - Deutsche Bank

And then just one more before I turn it over. You mentioned U.S. exports, we saw one terminal come online in Q2 and then you mentioned the target which is I guess is going to come on pretty shortly. I guess we’ve seen some of the U.S. exports go to Latin America. Have you seen any sort of activity in your fleets directly from the U.S. or maybe kind of secondary from the U.S. in the South America?

Harry Vafias

Don’t forget that the majority of the ships that we have are on period, therefore the direct benefit is felt by the charters themselves and not us. But in general, I would say, yes, obviously, especially in the Caribbean there are lots of ports that are very, very small, in some cases even our ships cannot fit in them.

Therefore, yes, we’ve seen our ships doing spot voyages and some of our chartered ships have gone in these places and we think that in 2014 next year we’re going to see an increased activity of our ships in that area due to the U.S. exports.

Joshua Katzeff - Deutsche Bank

Harry, I’ll turn it over. I appreciate the time. Thanks.

Harry Vafias

Thank you.

Operator

Your next question comes from Jon Chapelle from Evercore Partners. Please ask your question.

Jon Chapelle - Evercore Partners

Thank you. Good afternoon, Harry.

Harry Vafias

Hi Jonathan.

Jon Chapelle - Evercore Partners

I just want to follow-up on a couple things that Josh asked about, the two older ships, what your status today, have they been employed all in the third quarter, are they currently employed, are they still kind of waiting for cargos?

Harry Vafias

It’s not just two ships. As I said, we had at the moment one, two, three, four, five, six vessels in the spot. Out of the six vessels, I would say that three are considered. All the other are medium to young. We are discussing for one of these two old ships that we faced the problems in the summer period coverage.

If that happens it’s going to be very good use, as I mentioned before to Justin’s question. If that happens it’s going to be very positive and unexpected because these ships are in excess of 20 years of age and as you can understand with the oil majors and the national oil companies wanting modern ships, it’s not so easy to find period employment for them.

Jon Chapelle - Evercore Partners

Well, given your growth profile on the six new ships and plus anything else coming down peak, have you entertained the thought of maybe scarping those ships, helping the supply demand and maybe removing some of the off-hire overhanging fleet?

Harry Vafias

Scarping them, no, because obviously scarping the ship will end up to quite a big loss for the company. Selling them at lower prices, yes, trying to fix them at period so we obviously won’t be having any idle time in the future, yes, but scraping is a very radical option and we don’t want to do that before the winter because we don’t want to consider that before the winter, because if in the winter we see what we saw last year which was quite a considerable strong spot market and interest for period. Then it would be -- it won’t be worth it.

Just to remind you last year we fixed two 20-year old ships for one year to a very reputable charter because there was so much demand that they couldn’t find suitable ships. So we don’t want to take that decision and hit the company with a book loss before we see what will happen during the winter.

Maybe we are wrong and maybe the winter will be weak then obviously that will be again on the table for discussion. But our experience has showed us that in the winter the spot market is much stronger and if we cannot find period business in the summer for these old ships, maybe we can find in the winter. So we are not in a hurry to make such decision.

Jon Chapelle - Evercore Partners

Okay. So just to conclude before I move on, should we assume the utilization of the older ships in the third quarter will be similar to that in the second quarter and then hopefully in the seasonal upturn improve in the winter?

Harry Vafias

To be on the safe side, I would say, yes.

Jon Chapelle - Evercore Partners

Okay. And then also can you provide an update of the drydocking schedule, given the heavier load in the second quarter and the acceleration of one for ’14?

Harry Vafias

Yeah. Give me one second. One in the third quarter and two drydockings in the fourth quarter.

Jon Chapelle - Evercore Partners

And do you have the ’14?

Harry Vafias

’14 we have zero in the first quarter, two in the second quarter and only one in the fourth quarter, for the time being nothing else.

Jon Chapelle - Evercore Partners

Okay. That’s helpful. The new charters that you revealed today, can you -- I know you give the total number and you don’t have to give us the rates specifically, but how does those rate stack up relative to, one, it’s about market today and then two time charter rates of that duration that you may have been able to achieve six to nine months ago?

Harry Vafias

On the first part of the question, higher, on the second part of the question, same.

Jon Chapelle - Evercore Partners

Okay. And then finally on the growth initiative, I saw in a broke report over the weekend that Brave Maritime placed an order for newbuilds, is the ultimate goal of StealthGas to expand through new builds and are you looking at kind of ordering on your own or should we expect sales from Brave directly to Stealth in the near future?

Harry Vafias

Brave Maritime has not ordered any newbuildings and so that is my comment on that question.

Jon Chapelle - Evercore Partners

Okay. Newbuild versus secondhand?

Harry Vafias

There is no such question. I mean we buy anything that is available for sale, if we find modern secondhand fantastic, if we don’t we have to end up with newbuilding. So I would say 30% secondhand if we can find them then 70% newbuildings.

Jon Chapelle - Evercore Partners

Okay. Thanks a lot Harry.

Harry Vafias

Thank you.

Operator

Your next question comes from Michael Webber from Wells Fargo. Please ask your question.

Donald McLee - Wells Fargo

Hey guys. This is Donald McLee in for Michael.

Harry Vafias

Hi Donald.

Donald McLee - Wells Fargo

One quick question just about the current market, where current LPG’s spot rates and I guess what kind of premium are you seeing for the modern fuel system tonnage?

Harry Vafias

I cannot answer your question because it’s too general. I mean the current rates for which size, for modern -- older?

Donald McLee - Wells Fargo

For the MGC the 3,500 to 7,000 cbm vessels.

Harry Vafias

Not the MGC, MGC is 35,000, they are the very big ones. I think you’re talking about the small 100-size ships.

Donald McLee - Wells Fargo

Okay. Right.

Harry Vafias

For the average size ship, let say 5,000 cbm ship which is the average size of our fleet, for a modern vessel the spot rate is between $9,000 and $10,000.

Donald McLee - Wells Fargo

Okay. And then given the seasonality during Q2, I guess, how much upside do we is -- how much upside potential there for the winter months?

Harry Vafias

Aim the summer -- for the modern ships always -- there is always a weakening of between 10% and 15% on the spot rates and then in the winter again you see the reversal i.e. an increase of between 5% and 15% on the spot rate. So the TC rates are fairly stable.

Donald McLee - Wells Fargo

Okay. That sounds good. That’s all my questions.

Harry Vafias

Thank you.

Operator

Your next question comes from Urs Dür from Clarkson Capital. Please ask your question.

Urs Dür - Clarkson Capital

Hey. Good afternoon, guys.

Harry Vafias

Hi Urs.

Urs Dür - Clarkson Capital

Hi. I noticed that you guys, we saw your shelf show up earlier this year and you are obviously very excited about expansion, but had some off-hire time and shut up a little bit lower on revenues in the Street as expected. I mean what’s your intention with the shelf here on the expansion? Is that shelf that you want to keep in place simply to do accretive acquisitions down the road, separate from the fire power you have now or what’s your intention with the shelf?

Harry Vafias

Thank you. First of all I discussed we have $400 million in fire power. So, I think that’s more than plenty for our current needs and plans. This was more of a housekeeping item, which has an active -- an active shelf. I don’t think we will be using it for the time being. You never know -- you should never say never.

If we find a big acquisition or something, we should have an active shelf so that we can use in rapid manner. Otherwise we will now start using the offering process. And as I said before we hope to announce some nice acquisitions within the next 45 days to 60 days from now.

Urs Dür - Clarkson Capital

To be funded by the most recent issuance and not by anything new there?

Harry Vafias

Correct.

Urs Dür - Clarkson Capital

Great. On the free rates that you mentioned for the 5,000 cbms, I know you guys have mentioned in the past a breakeven rate for your fleet in that size range. What -- can you remind us what that is, I believe it’s below $6,000 a day?

Harry Vafias

It’s in the -- yeah. It’s high fives.

Urs Dür - Clarkson Capital

High fives. And is that a net income or just to remind everybody net income or cash flow breakeven?

Harry Vafias

Give me one sec. Our net income breakeven level was $5,168 compared to $5,952 in the previous quarter and $5,816 in the same quarter of last year.

Urs Dür - Clarkson Capital

Okay. And spot revenues right now are $9,000, $10,000 a day?

Harry Vafias

No, I didn’t say that. I said for a more than 5,000 CBM ship which is the average size ship of our fleet. The spot rates are between $9,000 and $10,000 obviously for the older ships is less -- for the 3,500 ships is less, and for the 7,000 CBM ships is more. I gave some general guidance to have the figure in your minds.

Urs Dür - Clarkson Capital

Yeah, absolutely. That’s more where I was getting to.

Harry Vafias

Yeah. If you take -- let’s say you want to do a calculation, if you want do calculation and use that figure, take off the ships -- the old spot ships out, then of course you can use this number.

Urs Dür - Clarkson Capital

Yeah. Yeah. Got you. No -- no, fair enough, I just want to remember where they were for the modern ships.

Harry Vafias

Yeah. Between nine in the east and about 10 in the west, to be precise.

Urs Dür - Clarkson Capital

Yeah. Now that’s extremely helpful. I think it’s been asked. So maybe I am repeating a question, I don’t believe so, but do you ask -- you mentioned all of this interest again on the U.S. and the LPG exports and how that has changed the game, but your ships are smaller. You actively involve in the day-to-day of the U.S. export or is this something describing a rising tide lifts all boats?

Harry Vafias

U.S. exports arising on a per annum basis with huge -- huge leaps and bounds. This year we saw a big increase compared to 2012. Next year, we are going to see an even higher increase of exports. As I told you before, the majority of our ships are on period charter with charters, the majority of which don’t trade actively in the U.S.

Therefore, we don’t -- since our charters don’t actively trade in the U.S., we don’t actively trade in the U.S. But a good example of what’s happening is that, a. lots of exacts exports are going to the Caribbean. And they need our ships in the Caribbean for the short-distance distribution of their cargo.

And number two, two of our older ships last year were chartered for a period for trading in the Caribbean. So that shows that not only you need old ships, but in some cases they cannot find modern ships. So they end up taking older ships and that’s why we fixed two of our ships for this kind of business.

Urs Dür - Clarkson Capital

Perfect. All right. Well, thank you for that insight and I appreciate your time and thank you very much.

Harry Vafias

Thank you.

Operator

Your next question is from Jeff Geygan from Milwaukee Private Wealth Management. Please ask your question.

Jeff Geygan - Milwaukee Private Wealth Management

Good morning. Thanks for your time today.

Harry Vafias

Hi, Jeff.

Jeff Geygan - Milwaukee Private Wealth Management

With respect to your pro forma $345 million in debt at the end of the year 2015, I assume that it is for the -- all of the acquisitions new builds that you have announced today?

Harry Vafias

Yeah.

Jeff Geygan - Milwaukee Private Wealth Management

What were your cash balance speaking of that $118 million of cash and restricted cash at the same time?

Harry Vafias

Well, I don’t have it in front of me. If you want, Konstantinos can email you that. I don’t have it in front of me to tell you.

Jeff Geygan - Milwaukee Private Wealth Management

All right. Thanks. The 21 ships that are in order, are six of those yours?

Harry Vafias

Yeah.

Jeff Geygan - Milwaukee Private Wealth Management

That is why 28% of the new order -- where StealthGas with respect to marketshare today?

Harry Vafias

This -- generally in the total fleet you mean?

Jeff Geygan - Milwaukee Private Wealth Management

Yeah.

Harry Vafias

15%.

Jeff Geygan - Milwaukee Private Wealth Management

So this would imply your increase in market share?

Harry Vafias

The goal as we discussed is to get to 20% to 25% micro share as we soon as we spend the money from our follow-on offering. We want to add minimum another 10 new billings on that of the ones we have already ordered. This is the goal.

Jeff Geygan - Milwaukee Private Wealth Management

Okay. Of the $400 million in fire power that you mentioned, is that inclusive of the ships that you’ve currently contracted for or in addition to?

Harry Vafias

I would say it is an additional.

Jeff Geygan - Milwaukee Private Wealth Management

Additional, really.

Harry Vafias

Yeah. Really.

Jeff Geygan - Milwaukee Private Wealth Management

That’s interesting.

Harry Vafias

Yeah.

Jeff Geygan - Milwaukee Private Wealth Management

And the gentlemen from Deutsche asked a question about the ships -- the Japanese yards -- I was -- just wasn’t clear on the pricing with these six yards you may solicit, what have the trends been in pricing for newbuilds today versus historic?

Harry Vafias

I would say average, but we have seen in the last six months them being more active and taking more orders because of the yen weakening.

Jeff Geygan - Milwaukee Private Wealth Management

All right. And last question from me at this point, the -- historically you have stayed in this niche space, but there have been a couple of instances where you have been out, what’s the chance as you look at the VLGC market?

Harry Vafias

The VLGC market, you mean?

Jeff Geygan - Milwaukee Private Wealth Management

Yeah. Thank you.

Harry Vafias

Slim, I would say.

Jeff Geygan - Milwaukee Private Wealth Management

Slim?

Harry Vafias

Yeah.

Jeff Geygan - Milwaukee Private Wealth Management

I see. All right. Thanks. Good luck.

Harry Vafias

Thank you.

Operator

Your next question comes from Chris Snyder from Sidoti. Please ask your question.

Chris Snyder - Sidoti

Hey good afternoon, Harry.

Harry Vafias

Hi Chris.

Chris Snyder - Sidoti

So the average rate, year-over-year was down substantially, is that just a result of vessels coming off contract in being, for instance, spot rate at lower rates or are you seeing a good decline year-over-year in the charter rate environment?

Harry Vafias

No, the opposite. We are seeing an increase year over year.

Chris Snyder - Sidoti

That’s really odd, just vessels coming off higher price contracts and being put in the spot market where they are being achieving low utilization and lower rates?

Harry Vafias

Yeah. If it’s the summer you achieve low utilization and lower rates, and then in the winter you hopefully achieve higher utilization and you fix it on period. That is what we normally do and it works.

Chris Snyder - Sidoti

My second question is -- was about, I mean you guys have seen a lot of -- dry powder strictly from the April equity offering, but yeah -- yeah, I mean you bought, I think minimum $90 million worth. Is it taking a while because you guys were looking for some second hand tonnage that’s difficult to come by or are you just parting your time waiting to place newbuildings?

Harry Vafias

No. It’s because the Japanese yards need two to three months from initial discussion to signing of the contract.

Chris Snyder - Sidoti

Okay.

Harry Vafias

That’s why.

Chris Snyder - Sidoti

Okay. And that’s all from me. Thank you.

Harry Vafias

Thank you.

Operator

There are no further questions at this time sir, so please continue.

Harry Vafias

We would like to thank you all 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 third quarter results in November. Thank you very much.

Operator

That does conclude our conference for today. Thank you for participating. You may all disconnect.

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