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StealthGas, Inc. (NASDAQ:GASS)

Q3 2011 Earnings Call

November 16, 2011 11:00 a.m. ET

Executives

Harry Vafias – President, CEO

Konstantinos Sistovaris – CFO

Analysts

Bruce Berger

George Berman – JP Turner

Jeff Geygan – Milwaukee Private Wealth Management

Operator

Thank you for standing-by and welcome to the StealthGas Inc. Third Quarter 2011 Results Call. (Operator Instructions) I must advise you that this conference is being recorded today on Wednesday 16th of November 2011. I would now like to hand the conference over to your speaker today, Mr. Harry Vafias. Please go ahead sir.

Harry Vafias

Thank you and good morning everyone. Welcome to our conference call and webcast to discuss the results for the third quarter 2011. I’m Harry Vafias, the CEO of StealthGas, and I’d 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 one of this presentation as well to our press release on our second quarter results. With me today is Konstantinos Sistovaris, our CFO, and if you need any further info on the conference call or the presentation, please contact Konstantinos or myself.

Let’s begin from slide number two to review how we are implementing our business strategy now. Our medium-term goal is to renew our fleet with a delivery of five newbuilding gas ships. In the first two quarters of 2011 we took delivery of the first two vessels, the 5,000 CBM Gas Elixir and Gas Cerberus, which we then fixed on long term time charters. We also proceeded with the sale of four older ships, the average age of the four ships sold was 16 years of age, and three were operating in the spot market.

Then in the third quarter of September 21 we took delivery of the third newbuilding the Gas Myth which we deployed on a three year time charter to a European oil company. We wish to maintain a strong focus on the operational chart and that is the reason behind the sale of these four older ships. We believe that as we remove older vessel from the fleet and replace them with brand new larger, more efficient and high specification ships the overall performance of the company will improve.

We have already seen a healthy interest from charters for using newbuilding vessels and as a result we manage to conclude long term charters for all three of them.

As far as our newbuilding program is concerned we have two more even bigger ships to take delivery of. One is scheduled for delivery January 2012 and the second one May 2012. After taking into consideration the total fleet of 37 ships at the end of third quarter ’11 our net debt to capitalization ratio stood at 44.3%, similar to the previous quarter. Taking into consideration the scheduled vessel deliveries, we estimate that we will continue to have a moderate ratio of below 50%. Our gross debt, which stood at approximately $360 million at the end of the quarter, will peak at about $370 million in the second quarter of 2012. So we do not expect any significant increase in our debt level from the delivery of the next 12 newbuildings in 2012.

We continue to strive to obtain a secure and visible revenue stream with stable and predictable cash flows.

At the moment, fixed employment for our fleet for the remainder of 2011 is at 80%. We have almost 55% fixed already for 2012 and 33% fixed for 2015. We will seek to increase these forward coverage numbers with more long term charters. By the end of the first quarter 2012 we aim to have around 70% of the fleet fixed one year forward. Our first goal has been to own and operate a modern fleet of gas carriers, and in this respect the average age of today is 11 years, not including the tankers that we have, which is rather young compared to the industry average.

Including the product tankers and the Aframax and the newbuilding vessels that we are building, we estimate that at the end of 2011, our fleet will have an average age of about 10.5 years. We continue to believe that, within our core sector, this gives us a competitive advantage, as younger vessels have less operating expenses, consume less bunkers and are more appealing to blue chip charters, and that’s the factor which will be more important as we move forward into 2012 and beyond.

Our next objective has been to maintain close customer relations. The quality of our customer relationship is exemplified by the quality of our charters, which also lowers our counterparty risk. Out of a total fleet of 37 vessels as we previously announced, we had only one incident whereby we agreed a minor rate reduction. Because of the strength of the LPG market and the participation of more established names in it, we don’t expect to have any issues with our counterparties.

Our sixth goal has been to maintain cost efficient operations. I’m pleased to report yet another good performance in the second quarter. Our net income breakeven level per day, excluding losses on derivatives, was $5,175 per vessel per day, compared to $6,161 in the second quarter and $6,426 in the first quarter.

As we had expected, we managed to decrease our daily operating expense compared to the first quarter where there was an unexpected increase and we expect further decreases in the next quarter. We continue to concentrate heavily on managing our cost base and we expect that with five vessels going on bare boat charters during the year, and the addition of brand new vessels to the fleet, we would be able to contain upward pressures on operating expenses. Crew (ph) remains one of the most challenging issues for the most shipping companies, but so far in 2011 we have managed to contain crew costs.

I’d also like to remind you once more that in terms of our general and administrative expenses, we have amongst the lowest in the public shipping sector, and we are working hard to control costs, not only on the operational side, but also on the managerial side. Personally I have not had pay rise since 2008 nor a bonus.

Finally, regarding our share buyback program, in our last report we said that we started buying back shares as we believe the share price is grossly undervalued. We have bought approximately 350,000 shares and to this we added another 200,000 shares. Since the program's inception, we have bought back approximately 1.8 million shares or 8% of the total shares outstanding.

Slide number three. This slide demonstrates the development of our fleet. During the first quarter of last year, we sold three older gas ships and we purchased a new Aframax crude oil tanker. During the first quarter of this year, we added to our fleet one newbuilding gas ship. During the second quarter, we sold three older vessels and we added another newbuilding gas ship. During the third quarter we sold one vessel and got delivery of the third newbuilding gas ship. Our total fleet of 37 vessels at the end of the quarter comprised of 33 gas carriers, three product tankers and one Aframax tanker.

With the additional two more LPG newbuildings, we will maintain a strong presence in the LPG sector. StealthGas continues to hold the number one ranking in owned vessels in the 3,000-8,000 CBM segment and while there is no other company that owns more than 15 such vessels. We continue to believe this segment of the LPG space has strong fundamentals, capital availability, and stable charter rates, as we are demonstrating.

As of today, we have taken delivery of three newbuildings, funded partly through bank finance and partly through internally generated cash flows. The same will apply for the remaining two as we have committed finance in place. As of September 30, $18 million have already been paid as advances for the remaining newbuildings, and we expect another $44 million in total of capital expenditures.

Slide number four. This slide demonstrates our fleet employment profile and provides you with the earnings visibility for each of the 37 vessels currently in our fleet. At the bottom of the employment profile chart, we have included the percentage of fixed employment days where we have also added 2013. This enables you to assess the stability and predictability of our earnings. For the remaining of 2011 80% of the wages are already fixed, 55% for ’12 and 33% for 2013, with a number of charters going also into 2014.

During the second quarter, we announced new time charters for five of our ships, securing revenues of $13.5 million over the next year. During the third quarter apart from short term expansions we concluded two time charters of three years each securing revenues of about $20 million over the next three years.

Total contracted revenues are approximately $150 million, and we estimate that this equivalent for the LPGs on long-term charters is on average $9100 per day. In terms of charter types out of the fleet of 37 vessels 13 are on bare boats, 16 are on time-charters. The company’s policy is to arrange for long term charters. However, with the staggered employment profile there will always be opportunities to take advantage of a firming market.

We now turn to the financial highlights for the third quarter 2011, so I’ll pass you to our CFO, Mr. Sistovaris.

Konstantinos Sistovaris

Thank you Harry. Good morning everybody. So let me continue the presentation with slide number five, the financial highlights for the third quarter of 2011.

With an average of 36 vessels owned and operated in the third quarter of 2011, we realized net income of $6.2 million on voyage revenues of $27.5 million. Our net income figure is unusually high because of gain from our derivative instruments that include the interest rate swaps and the currency hedges we had in place in order to pay for the newbuilding vessels. These amounted to $1.2 million gain for the quarter. We also had a $1.5 million noncash gain from the valuation of foreign currency deposits in Yen. We still hold one more foreign currency forward contract to buy Yen that we will execute in December of this year and we expect it to be a profitable one.

Beginning 2012 we have no more foreign currency instruments that will affect positively or negatively our results.

Excluding the items I just mentioned, our adjusted net income was $2.1 million or $0.10 per share, calculated on an average of 21.1 million shares outstanding compared to $0.04 per share for the same period of last year. We believe this is a more meaningful number for investors to see what level of profits or losses we incur on an operational level from chartering of our vessels.

The free cash balance at the end of the quarter was approximately $42.4 million. We also had about $7 million in restricted cash as part of our loan agreement. Our net debt to capitalization stood at 44.3% at the end of the quarter, slightly reduced compared to the previous quarter. We continue to believe that maintaining our leverage at moderate levels is important and believe that when all vessels have been delivered, we will maintain a debt to cap ratio below 50%.

We maintain excellent relationship with our banks, thanks to our moderate leverage and a healthy balance sheet. Now that banks are going through their own difficult times and it is getting increasingly more difficult to raise finance for new projects, we believe that our conservative approach will be a decisive factor if we need the support of our bankers for new projects.

We now turn to slide number six, which is the slide that provides you with an overview of the development of our income statement for the same quarter last year and the previous quarter. In comparing our results from the third quarter of 2010 when we had an average of 38 vessels in our fleet, to the third quarter of 2011 when we had an average of 36 vessels in our fleet, revenues increased by 3%, operating income was up 20%, and our net income was more than double. The smaller increase in revenues was despite the changing employment structure of our fleet.

Last year we had eight vessels on bare boat charters whereas this year we had 13. Having more bare boat charters means we receive less revenues, but on the flip side we don’t pay for operating expenses and that is why on an operational level our performance was much improved. Operating expenses for example were reduced from $10.2 million down to $8.4 million. In addition the market environment for vessels that operated under spot charges was healthier than last year and as a result we had increased spot market activity.

On an earnings per share basis excluding the gains and losses on derivatives and foreign exchange we went from $0.04 a share to $0.10 a share. Now compared to the previous quarter when we operated an average of 39 vessels compared to 36 for the third quarter of this year, our revenue figures decreased from $31 million to $27 million. This was firstly due to the fewer vessels we had in our fleet, secondly due to the fact that some vessels went on bare boat charters thus reducing our revenues in our OpEx.

Our operating expenses for example were reduced from $9.9 million to $8.4 million, and thirdly, due to the softer spot market during the peak of the summer LPG trade is typically a seasonal trade with more activity during the winter month and it is expected to see some slackening before the winter sets in again.

On the other hand our newbuilding vessel the Gas Myth was delivered late in the quarter at the end of September and so did not have time to contribute to in our results.

Slide number seven. Looking at our balance sheet, in terms of cash we continue to maintain a healthy cash balance. That was strengthened this year by the addition of the net proceeds from the sale of the vessels of about $17 million despite having cash out flows for our newbuilding program.

As of September 30th, we had $18 million in advances for the remaining two vessels to be delivered in January and May. Our vessels book value, net of depreciation stood at $621.7 million compared to $603 million at the end of the year. With scheduled deliveries of new vessels, we would expect to see this figure reach $650 million in a year’s time.

In terms of liabilities, the current portion of our long term debt that’s what loan repayments are scheduled over the next year remains constant at around $34 million. Other current liabilities at $21.6 million are slightly reduced.

Our long term debt increased slightly to $325 million from $310 million due to the new facilities for the Gas Elixir, the Gas Cerberus and the Gas Myth. And we would expect to see this figure top at around $335 million after we take delivery of the scheduled vessels. We have around $9 million of debt repayments for quarter that we can meet comfortably from our internally generated cash flow.

I would also like to point out that we have no debt maturing over the next couple of years, so there is no need for refinance. The first balloon payments on our loans are due in 2014 and then in 2016. Other liabilities of $10.7 million relate to the interest rate swaps we have with our banks to protect us from increases in LIBOR rates. As of today, we have around 43% of the interest rate exposure in our loans hedged.

These are multi year hedge in our agreements for our loans that we did a few years back and still have some years left. On average, by 2013, we would expect half of our swaps to have expired or amortize unless by this time we enter into new agreements.

Stockholder’s equity for the third quarter was $308 million. Total liabilities and stockholder equity was $700 million. I would also like to point out that with our share trading at 4% we are greatly undervalued and the net book value of our fleet that is our cash plus our book value minus our debt on a per share basis is around $14 per share.

Please turn to slide number eight. These are our operating highlights for the second and third quarters of 2011 and the third quarter of 2010. In terms of fleet data, in the third quarter of 2011, we owned and operated an average number of 36.3 vessels compared to 37.7 in the same period last year.

As a result, total voyage days for the fleet for the third quarter 2011 decreased by 4% to 3,247 days. During the third quarter, we can see a reversal of the trend we had over the last few quarters with a large decrease in the number of spot days from 881 in the same quarter of last year and 1005 in the previous quarter, down to 732 for the third quarter. One reason for this was the sale of the vessels we did in the previous quarter, as these were vessels that were operating in the spot market.

The second reason is that we start seeing the effect of the bare boat charges we concluded in the previous quarters now that all the vessels were delivered to their respected charters.

So, to give you these numbers in percentage terms, while spot days represented 29% of all voyage days in the previous quarter, now they are down to 22%. On the other hand bare boat days that represented 26% now represent 33% of all voyage days.

In terms of average daily results, we continue to see our average time charter equivalent rates improving from last year. We achieved a time charter equivalent of $8,691 per day per vessel on the adjusted basis compared to $7,792 per day per vessel in the same quarter of last year.

We can see a significant increase from last year’s numbers, approximately 12%, when comparing to last quarter we expect to see a small drop.

During the quarter we also saw a slight increase in our daily operating expenses, meaning that although in absolute numbers our operating expenses did fall we would have expected a larger drop.

We believe that in the current quarter operating expenses will be reduced further in both in absolute and daily terms. We still operate above breakeven levels in terms of income and cash flow.

We now turn to slide number nine, where we are going to provide you with some estimates for the remainder of the year that is the fourth quarter. We have contracted revenues under time and bare boat charters for approximately $20.7 million. We also expect our operating expenses will be reduced to around 8 million. As far as dry dock expenses, we have already dry docked seven vessels this year. It was an exceptionally heavy dry dock year.

We are scheduling to dry dock another two by the end of the year at a total cost of around $1 million. Interest payments on our loans and cash payments on our swaps we estimate to be $3.3 million, and depreciation expenses of $7 million.

Finally, as far as the payments for the newbuilding vessels are concerned, as we said, we have committed finance for the remaining two vessels covering the full amount of the future cash outflows, and we will be paying, like before, any pre-delivery installments and get the financing at the time of each one’s delivery. In fact the $3.6 million payment that you can see in the current quarter was recently paid. We still have about $40 million left to pay in 2012.

Thank you very much, and now I will hand you back over to Harry for some further comments on the market.

Harry Vafias

Slide 10. In this slide we will show you the one-year time charter rates for our market. The figures are based on independent estimates by Lorentzen & Stemoco. We have updated this slide with last year’s rates, current rates, and future estimates.

What you can deduce from the slide is we’ve experiencing in our chartering operations. In this segment, we operate 3,000-8,000 CBM. We have seen a strengthening in the market compared to last year, in the region of between 10% and 20% depending on the size and the area. The only part of the market that did not strengthen year-over-year but not caused (inaudible) is a small summary of the segment. We only own four such vessels since the majority comprises of pressurized ships.

Nevertheless it’s encouraging to see that rates in the larger category that are usually much more volatile have been in an upward trajectory and in fact rates have remained high over the past few months. $850,000 per month rates for VLGCs are solid numbers. Although we do not own this type of ships, we provide complementary services as VLGCs mostly trade on long haul routes, for example Middle East to Far East, and we perform the local distribution of the cargos in the Far East, but it does show our increasing volumes of LPG product coming out of the producing countries.

We believe that the strengthening in our market has allowed us to conclude charters at elevated levels as previously announced. Our fleet has a staggered employment profile, and as more vessels are coming off charters, we hope to use them at higher rates. We have already seen an improvement in our operational figures and we expect to see more of it in the future.

We are now focusing our attention on our two 750,000 CBM newbuildings what are coming in January and May 2012. If we charge by the interest that we show for the 5000 CBM newbuildings we believe we will be able to secure suitable employment very soon.

Slide number 11. We are discussing the strengthening of the LPG market as a longer term view. We provide an update of this slide that shows the development of the LPG (inaudible) fleet growth in all our presentations. As we saw on the previous slide, charter rates have been on an upward path recently. The most important question is whether this recovery will prove to be sustainable in the longer term.

We believe that the fundamentals in our core segments as related to supply and demand are favorable. On the demand side, we would expect a completion of several large scale gas projects that are due to come on-stream after unfortunate delays due to the financial crisis, but will prove to be a catalyst for this trade.

We have already seen increases in volumes of LNG being transported and the connecting link is that LPG is partly derived from the LNG production. There are 54 million tons of LPG shipped in 2010 and the estimates are for 58 million tons for 2011, and steady increases after that. There are solid indications that the supply of LPG product will increase during 2011 and beyond, supported by strong economic growth in Asia.

On the supply side, the order book for undersized LPG ships is quite small at the moment. On one hand, we expect the order book over the next years to remain steady, and while it is encouraging the fact that we still have not seen increases in the order book and newbuilding prices have not come down especially due to the strong Yen.

On the other hand, the existing fleet is relatively old, that means more vessels will need to be scrapped. Overall, net fleet growth is minimal, and depending on the level of scrapping, it can become negative in 2012 and beyond. If this projection is materialized, we believe that with a fleet of modern LPG ships, we will command a premium and we are positioning our company to take advantage of the strong fundamentals in this sector.

Slide 12. We have included in this slide to emphasize the point about the order book. The order books in this slide are spread over a period of at least three years although in most cases deliveries are frontloaded. I should add that the figures shown here in the graph are for all LPG sizes and as we have discussed, in our core (inaudible) sector, the order book is much lower. As you can see for the two main sub-shipping sectors, tankers and bulkers, at least 20% on the tanker side and 40% on the bulker side is very high historically. That could point to difficult years ahead.

For containers, the order book has grown once more over increasing container demand may stabilize the market. What we have also seen recently is renewed interest in LNG newbuildings due to the current slowly charting market.

At this point increasing LNG volumes may absorb the increase in the order book, but unless there is a restraint in the ordering of new vessels this space could be over supplied in the coming years. On the other hand in the product tankers the majority of the vessels on order have now been delivered.

The last bar in the graph is our own LPG segment with respect to smallest order book and at this point stone mile increases at an annual rate of 5% as some reports suggest, this could easily absorb the current order book.

I would love to close this presentation by saying that over the nine months period of this year we have managed to take advantage of improving markets and post solid operational profits. If you look through and beyond the one-off items from the accounting treatments of derivatives and foreign exchange hedges and focus on what we call the operational side, you will see that the market improvement in our figures.

At the same time we have managed to renew our fleet and increase our liquidity position. During the first quarter we expect to see some softening in the market due to seasonal factors. The softening did occur and the impact was more in the employment of our older spot trading ships.

In the winter the market is already picking up, but we view our business with some long term view and I believe that our decision in the previous quarter to sell some of the older spot vessels and replace them with new ones on long term time-charters is already proving to be the correct one. I believe that we have already significantly improved our balance sheet and liquidity recently and this will assist us in our future growth.

What troubles me most is the bank fiancé market where we have seen a lot of banks unwilling or unable to provide finance. Although we have no need for new loans traditional bank finance will remain a viable option for our future growth. In this environment it’s imperative to earn the trust that binds the support for your business and I believe that with our actions we have earned that.

As far as our stock price is concerned I repeat it represent a very attractive prospect for investors where a storage company in an industry whose outlook is bright and we are valued very cheaply far below our break of value and far below our NAV. We are supporting our claim with actions and we have repurchased more shares during the third quarter since we believe it’s the cheapest asset we can buy and since our buyback program established over a year ago we have repurchased approximately 8% of all our outstanding shares.

We have now reached the end of our presentation. We would like to open the floor for questions. So please open the floor. Thank you.

Question-and-Answer Session

Operator

Thank you. We will now begin the question and answer session. (Operator Instructions) Your first question comes from the line of Bruce Berger. Please ask your question.

Bruce Berger

Hello Harry. I'm somewhat surprised that the EBITDA growth was not a little higher. 3200 CBM ship rates have gone up from what appears to be $8500 a day to $10,000 and yet you are not seeing that translate to the bottom line, but I also see that you’ve said that operating costs have also gone up. So, in your presentation key CE rates have gone up 11%, but the operating costs have gone up 12%. So I was just wondering if you could explain what's going on there?

Harry Vafias

Very simple, first of all I have to disagree with you. The rates for 3200 CBM vessels have not gone to $10,000 per day, this is the average of the fleet and this includes all sizes between 3000 and 8000. 3,500 CBM vessels which are the smallest that we have, are in the region – in the spot market or one year period in the region of 8.5. The average size of our ships are 5000 CBM which are currently getting something below $10,000 as you said correctly. So that’s point number one.

Point number two, the past question, I did not say that in as per our slides and presentation which we obviously get in our site, we had increasing running cost and operational cost in first and second quarter. As you can see the running costs now are getting reduced not increased as you said, are getting lower, and we hope that in the fourth quarter it will be even lower than the third quarter.

More ships are going on bare boat. We have a better hold on cost thus the result will be lower cost. Last but not least, a lot of good charters we did in the second and third quarter, as again Konstantinos said, and a lot of newbuildings that we took delivery of are too fresh and therefore we have not seen yet the benefit in the bottom-line. I guess the benefit of all these, I mean the ships going on bare boats, ships getting recharted at high rates and newbuilding deliveries that are starting good long employments. You will see the benefit in the fourth quarter and definitely in the first quarter of 2012.

Bruce Berger

I was just also wondering if you could comment on the product tanker market as it stands right now, and if you are interested in buying any product tankers given the price weakness and which I think about VLGC?

Harry Vafias

I will not comment a lot on the chartering market because our ships are fixed and we have rates well above the current market. The other thing I will say about that is that rates for product tankers have not dropped as much as we could tankers, and that answers your question. If we buy something it will definitely not be product tankers because the values have not dropped as much as other types of ships. So I don’t think we are actively looking to buy any product tankers.

Bruce Berger

Okay, thanks.

Operator

(Operator Instructions) Your next question comes from George Berman. Please ask your question.

George Berman – JP Turner

Good morning gentlemen. Thanks for taking my call. Quick question, how much is left in terms of cash under your existing buy back program?

Harry Vafias

Seven million about.

George Berman – JP Turner

Seven million?

Harry Vafias

Yeah.

George Berman – JP Turner

Okay. The quarter looks great. The future looks very bright according to your presentation. It seems to me that for some reason you are getting lumped into with all the oil and product tanker market companies who have experienced almost like a complete oblivious market crash. I guess your buying back your own shares shows your commitment to the value, but if this continues for some time are you possibly considering may be taking the company private?

Harry Vafias

It all depends if we are going to have a Europe in 2012 or not.

George Berman – JP Turner

Okay. And the day wages as they roll over are expected to be even higher in the coming years, correct?

Harry Vafias

That is what we think, yes.

George Berman – JP Turner

Okay, good. Look forward to a bright future.

Harry Vafias

Thank you my friend.

Operator

Next question comes from Jeff Geygan. Please ask your question.

Jeff Geygan – Milwaukee Private Wealth Management

Good morning Harry and Sistovaris. Regarding Alpine Endurance which comes off contract in July of 2012, there has been quite a bit of speculation among investors that I had spoken to about the value of that and you could relieve some of that uncertainty by giving us a sense of if and/or at what price you think that can re-leased.

Harry Vafias

The ship becomes open in May not in July. And I'm already looking to fix her out. I have not done anything yet. The product tankers at the moment for period fetching between 13,500 and 14,500 time charter for a couple of years employment. If nothing changes I guess we will fetch something similar.

Jeff Geygan – Milwaukee Private Wealth Management

And just to clarify, I'm through your release today which shows charter expiration on that Alpine Endurance is July of 2012, but if it’s May then you may want to update your information.

Harry Vafias

Thank you we will check it.

Jeff Geygan – Milwaukee Private Wealth Management

Number two, with respect to your LPG fleet, it’s my observation you have a number of these vessels on spot market. It seems the smaller and/or older vessels can do end up in spot not completely but as rule. What is your thought with respect to selling some of the older tonnage?

Harry Vafias

We want to sell the older tonnage that’s a fact.

Jeff Geygan – Milwaukee Private Wealth Management

Is there anything in it?

Harry Vafias

No, as you know as soon as we sell something we announce it. So, any of our older ships can be sold, of course at a decent price. So it all depends if there is buying interest and if there is finance for these new buyers to buy those ships.

Jeff Geygan – Milwaukee Private Wealth Management

Very good. With regard to the two new builds, the Husky and the Esco, it seems that your total cost from this is round numbers about $62 million, is that correct?

Harry Vafias

Slightly below 60.

Jeff Geygan – Milwaukee Private Wealth Management

And currently roughly $18.5 million of that is effectively prepaid?

Harry Vafias

Yeah.

Jeff Geygan – Milwaukee Private Wealth Management

I assume you’ll lever those roughly 50:50.

Harry Vafias

What do you mean 50:50?

Jeff Geygan – Milwaukee Private Wealth Management

You will have $30 million in cash equity, $30 million in bank financing against them?

Harry Vafias

No, we are still generous 70:30.

Jeff Geygan – Milwaukee Private Wealth Management

70:30, so 70 equity or 70 debt?

Harry Vafias

70 debt.

Jeff Geygan – Milwaukee Private Wealth Management

Oh, so you have effectively – all the money that you need to pay is already been prepaid on this with your $18 million?

Harry Vafias

Of course, we don’t have to pay anything.

Jeff Geygan – Milwaukee Private Wealth Management

Yeah, so that means you have $48 million in cash?

Harry Vafias

We have a lot of cash.

Jeff Geygan – Milwaukee Private Wealth Management

And by your own description of book value on a net asset of $14 a share, right?

Harry Vafias

Yeah.

Jeff Geygan – Milwaukee Private Wealth Management

And your stock trade at $4 and you’ve got an $80 some odd million market cap, as a shareholder I only have one question, why aren’t we taking our existing cash and buying back our company?

Harry Vafias

You mean buying back stock or taking the company private, you mean?

Jeff Geygan – Milwaukee Private Wealth Management

Well, I prefer that there are two remaining shareholders, you and me, but I don’t think you need to go private to buy back stock.

Harry Vafias

We are already buying back stock. If we are going to take the company private it is another discussion.

Jeff Geygan – Milwaukee Private Wealth Management

Understood. However, you have substantial amount of free cash flow, half of your stock price in cash and your balance sheet and you are buying in a de minimus amount of stock. I don’t understand that?

Harry Vafias

Yes, but what happens if Italy goes bankrupt?

Jeff Geygan – Milwaukee Private Wealth Management

What does that have to do with your charters?

Harry Vafias

It has to do with our share price.

Jeff Geygan – Milwaukee Private Wealth Management

I'm not a market timer. Your stock is $4.

Harry Vafias

I think that if Italy goes bankrupt we will go to $2.

Jeff Geygan – Milwaukee Private Wealth Management

Are you telling me that if the stock is $2 you are going to be aggressive buyers?

Harry Vafias

In fact if the company is at $2 I'm going to buy the whole company. I think that covers you.

Jeff Geygan – Milwaukee Private Wealth Management

Then to address George Berman - JP Turner’s question earlier you said in response to his question about going private, it depends upon what the Euro looks like in 2012. What do you mean by that?

Harry Vafias

Didn’t say that Euro, I said that Europe.

Jeff Geygan – Milwaukee Private Wealth Management

Oh, I'm sorry, with your accent I didn’t hear that. So it depends upon what Europe is like. What do you mean by that?

Harry Vafias

If it exists or not exists.

Jeff Geygan – Milwaukee Private Wealth Management

Why does that matter Harry, I don’t understand?

Harry Vafias

I will repeat for once more. If Italy goes bankrupt that does means that a lot of banks will close. That means there is going to be a lot of problems in the U.S. and that means that small cap stocks will become nano caps. I feel that because no one gives us any credit for our good balance sheet, our very conservative approach, our low debt, and our leading position in this healthy segment our share price will fall as well. This is what I believe. I hope I'm wrong, of course because nobody wants Italy to go bankrupt and nobody want the banks in Europe at least to have more problems. Therefore being conservative I think that chances are that this might happen.

Jeff Geygan – Milwaukee Private Wealth Management

Well, I agree with all your comments about the quality and value of the company and I comment you and Sistovaris for a job well done in managing this. My last question is to Sistovaris, with regard to a comment you made during the call about your OpEx being a little bit higher than expected, can you expand on that please?

Konstantinos Sistovaris

Based on the budgets we are doing, I mean we had about $8.4 million in OpEx. We would expect this to decrease to around $8 million, and although we saw a huge drop from the previous quarter and from the first quarter as well, because we have vessels going on bare boat if you look at the results on a daily basis OpEx is still around the same. So, we would expect a further drop in the next quarter. I mean we hope, at least we are working hard on doing that.

Jeff Geygan – Milwaukee Private Wealth Management

And is the (inaudible) OpEx a function of your product mix that is TC versus BV or is there some other fundamental driver that is causing your OpEx to decline?

Konstantinos Sistovaris

The majority of it is from vessels going on bare boats where we don’t have obviously to pay for the operating expenses of these ships.

Jeff Geygan – Milwaukee Private Wealth Management

But there is a concurrent reduction in revenue when you go to bare boat versus time-charter, right?

Konstantinos Sistovaris

Correct.

Jeff Geygan – Milwaukee Private Wealth Management

So how was the shareholder where I got this collection of assets, should I think about the deployment and return on investment with the asset given that trying to use the top line is not a good measure because whether your TC or BD is going to affect my top line, so it’s confusing. How do you think about the return on the investment of these assets?

Konstantinos Sistovaris

This has more to do with our chartering policies, and we are trying to do the best in terms of chartering. If we can find a long term employment on a bare boat for one of our vessels, I mean obviously we are going to put that vessel on a bare boat, and it’s much safer as well I mean if you think about it. Because we don’t have to pay for the operating expenses, we also don’t have to pay for the dry dock expenses, and we also don’t have any off hires, so we have none of these risks. I don’t know if that covers you.

Jeff Geygan – Milwaukee Private Wealth Management

No, I do appreciate it. Thank you for your time and I'm going to jump out of the queue here and give other people a chance to talk, thank you.

Operator

Your next question comes from Bruce Berger. Please go ahead.

Bruce Berger

Yes, Harry, I just wanted to follow-up on your recent comments about anticipating the share price go to $2 a share. I have recently purchased a substantial amount of stock, have a lot of capital tied up, and as Mr. Geygan had said, it’s sort of surprising that you are waiting for Italy to absolve, you think the share price will go to $2. What that means to me as a shareholder is that if the public becomes convinced now that you are going to not buyback shares because you are going to go wait $2, the share price is going to go a lot lower? So it’s like a self fulfilling prophecy. And I just – I'm a little surprised that I just heard that given I have a substantial amount of capital invested in the stock right now. So I was wondering whether you wanted to backtrack or rethink what you just said.

Harry Vafias

Bruce, listen, I have a lot of money and I made a lot of money because I was always honest and that is to my banks, to my charters, and to my shareholders. So I don’t backtrack in anything because it is what I believe. Obviously I don’t want this to happen because if you lose money I will lose more money than you will. So I hope I'm wrong, but this is what I feel. I'm based in Europe, I read the papers and see what's happening, and unfortunately I'm pessimistic. I'm very optimistic for this business, but I'm very pessimistic about Europe. I appreciate you are a big shareholder in your world but I am a bigger shareholder. So, you know what I mean.

Bruce Berger

I understand what you are saying. But I guess, well, one of the fears that a shareholder would have is that if the share price goes to $2 a share then you tender for the stock at $4 or $5. I think if the investment community realizes that you are in this for the long run and if it goes to $2 you will take $20 or $30 million and shrink the share price and allow all of the rest of us to participate in the huge upside that we see. That will have a wonderful effect on the share price going forward. Can you give us some assurances that if it goes to $2 you are not going to take it private at $4? But as Jeff is saying, to take $20 million or $30 million and shrink the share price if it’s $2, then that would be exciting for the remaining shareholders.

Harry Vafias

I have no plans to take the company private. I just gave you my personal view of what I think about Europe. I hope I'm wrong. I'm not the Italian Minister, I'm not the head of the European Central Bank. I just gave you my personal opinion, I hope I'm wrong. Nobody wants this to happen. It will be a huge problem for all the listed companies not only for us, healthy and unhealthy, and I said it because I am always honest I will never trick or think one thing and say another thing. This is not my style.

We made money, we are here for long term, all our promises to our shareholders since the IPO are still there intact, and we will continue the same way. If some people don’t like it then of course or they think that the share price will go to $2 they better sell now.

Bruce Berger

If it’s so I guess what I am hearing from you is that if it goes to $2 a share you will buy back a lot of stock.

Harry Vafias

I don’t need to comment on my private businesses.

Bruce Berger

No, I mean there is $40 million in cash, as a shareholder I am hoping that if it’s $2 you will buy back, not take it private, but you will then – if you are anticipating it’s going to $2, so you are not buying back shares at $4…

Harry Vafias

It’s going to be trading at one eighth of NAV. So, Bruce, you better need to be an Einstein to get to see what you are going to do. Of course we are going to buyback share. We bought back stock at $7 and $5 and $4. If it goes to $2, are we not going to buy back stock? Of course we will.

Bruce Berger

But you would become much more aggressive obviously?

Harry Vafias

Yeah, sure. If all other things remain the same, yes.

Bruce Berger

Okay, thank you.

Harry Vafias

Thank you.

Operator

Your next question comes from George Berman, please ask your question

George Berman - JP Turner

Hi guys.

Harry Vafias

What happened, did you forget anything?

George Berman - JP Turner

No I had to chime in. This conversation is almost ridiculous. A thought from my end. I understand when you went public StealthGas was paying a nice dividend and it could be – because I myself flabbergasted by the low stock price that you had a lot of income oriented investors in the company. With the cash position and stock buyback ongoing would it make sense to we evaluate paying a cash dividend at this point in time. Just to get to say a 4% or 5% dividend yield it wouldn’t take a lot of cash and since you own quite a bit of stock you will get some money back on your investment as well, and it would possibly attract additional shareholders. There are other companies that I have seen that in the 2008-2009 market disaster stopped paying a dividend and since then they have quarter by quarter increased dividend a little bit more, little bit more, and the company’s share price and evaluation has significantly appreciated upon this news.

Harry Vafias

Since we are trading at a quarter of NAV the last thing on our mind is starting a dividend policy.

George Berman - JP Turner

Okay, fair enough.

Harry Vafias

The cash will be used to pay down debt, buy back stock and even on bargains and opportunities may be to expand, that’s it.

George Berman - JP Turner

That’s what I like to here as a shareholder, thanks.

Operator

The next question comes from the line of Jeff Geygan.

Jeff Geygan – Milwaukee Private Wealth Management

Gentlemen, just to clarify. I think there are two separate issues. I invest in businesses and it’s my understanding that your business is really renting or leasing these ships to individuals to move LPG around and that the majority of this activity takes place in Asia Pacific.

Harry Vafias

Two-third is Asia Pacific, one-third Europe.

Jeff Geygan – Milwaukee Private Wealth Management

Yeah, all right. So, the event that you are anticipating may occur, some major economic disaster across Europe would only affect the stock price and bank lending, but given that your financing is in place and your fleet is in place, as long as LPG is produced and needs to be shipped it really should have a minimal impact on your business, correct?

Harry Vafias

That’s a 100% correct. But unfortunately the shareholders don’t get that and when they hear such bad news they sell everything that is my personal experience on that.

Jeff Geygan – Milwaukee Private Wealth Management

Yeah, and I appreciate that Harry which makes sense. Back to George Berman - JP Turner’s point, however – and just in consideration, a 10% dividend is $0.40 on – your $20 million outstanding as $8 million, it’s meaningless amount of your cash balance to distribute, and if you wanted to see your shares trade higher I would be willing to bet you a beer that you put a $0.40 dividend and this new stock would be north of $4 pretty quickly, and you haven’t really indicated that you have non-standard uses for that cash. You just said we are going to pay down debt and will look opportunistically to buy other capacity. But in the mean time why not boost the price by paying a dividend?

Harry Vafias

Because when we were paying the dividend nobody gave – nobody cares about it.

Jeff Geygan – Milwaukee Private Wealth Management

The world has changed.

Harry Vafias

I know that very well and I will think it will change more. So we have to be very conservative.

Jeff Geygan – Milwaukee Private Wealth Management

I appreciate that. Okay, thanks guys. Have a good day.

Operator

I have no further questions please continue.

Harry Vafias

We would like to thank everybody for joining us at our conference calls today and for your interest and trust in our company. We will look forward to having you with us at our next conference calls for our fourth quarter results in February 2012. Thank you.

Operator

Thank you. That does conclude our conference for today and thank you all for participating, you may now disconnect.

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