Dorian LPG Q4 2024 Earnings Call Transcript

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May 22, 2024

There are 7 speakers on the call.

Operator

Good morning, and welcome to the Dorian LPG Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Additionally, a live audio webcast of today's conference call is available on Dorian LPG's website, which is www.dorianlpg.com.

Operator

I'd now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young. Please go ahead.

Speaker 1

Thank you, Kevin. Good morning, everyone, and thank you all for joining us for our Q4 2024 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Limited John Lycouris, Head of Energy Transition and Chief Executive Officer of Dorian LPG USA as well as Tim Hansen, our Chief Commercial Officer. As a reminder, this conference call webcast and a replay of this call will be available through May 29, 2024. Many of our remarks today contain forward looking statements based on current expectations.

Speaker 1

These statements may often be identified with words such as expect, anticipate, believe similar indications of future expectations. Although we believe that such forward looking statements are reasonable, we cannot assure you that any forward looking statements will prove to be correct. These forward looking statements are subject to known and unknown risks and uncertainties and other factors as well as general economic conditions. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove to be incorrect, actual results may vary materially from those we express today. Additionally, let me refer you to our unaudited results for the period ended March 31, 2020 4 that were filed this morning on Form 8 ks.

Speaker 1

In addition, please refer to our previous filings on Forms 10 ks and 10 Q, where you'll find risk factors that cause our actual results to differ materially from those forward looking statements. Also, you may find it useful to refer to the slides we posted this morning as we will make our remarks during this call. Finally, please note that we expect to file our full 10 ks no later than May 30, 2024. With that, I'll turn over the call to John Hadjipateras.

Speaker 2

Thank you for joining John, Ted, Tim and me today. We're happy to report that our financial year 2024 was a record year with our highest ever net income and more than 30% return on book equity. Returns to shareholders since our IPO will total $730,000,000,000 after payment of our 8th consecutive irregular quarterly dividend of $1 per share declared at the end of last month. Even though these payments appear regular, I want to emphasize as Ted has consistently done in our past earnings calls that they will continue to be contingent on the company's results of operations, financial condition, prospects and capital funding needs. Post COVID, the LPG market benefiting from increasing product demand as well as geopolitical events and climate change has for the most part remained resilient and has generated strong earnings.

Speaker 2

The wars in Ukraine and Gaza as well as a deficit of rain in Panama significantly changed trading patterns adding ton miles helping our sector absorb a very large order book in 2023. Our management with the support of our board, while often navigating extreme spot market volatility and dealing with extraordinary issues caused by the pandemic, supply chain disruptions and the wars, played a critical role in our success by maintaining the right levels of debt and liquidity and by the diligent commercial and technical management of our ships. In the last 12 months, we expanded our fleet with 1 owned and 3 chartered in dual fuel newbuilding VLGCs. It's a good time to be a ship owner. Dorian's task now is to build on our success by continuing the careful allocation of capital and by sensibly expanding and renewing our fleet to meet the needs of the LPG market, while we also keep an eye out for market opportunities.

Speaker 2

We are optimistic for VLGCs for LPG transportation and for the emerging ammonia trade. We are confident in our team's skills to manage through cycles and we are resolute in pursuit of our duty to our investors to create value, maintain our strong balance sheet and continue returns by way of dividends and or buybacks as appropriate. Back to Ted.

Speaker 1

Thanks. My comments today will focus on our unaudited 4th quarter results and financial position, capital allocation and liquidity. At March 31, 2024, we reported $282,500,000 of free cash and available for sale of debt securities of $11,500,000 giving us total available liquidity, which is not a GAAP term of $294,000,000 As of Tuesday, May 21, 2024, our free cash balance stood at $270,000,000 which does not reflect the $40,600,000 dividend that we paid out to shareholders on May 30. With a debt balance at quarter end of $610,500,000 dollars our debt to total book capitalization stood at 37.4 percent, down from 43.2 percent a year ago and net debt to net total capitalization at 20.1% versus 33.5% a year ago. The improvement in these ratios is important and we are pleased that we are able to achieve those levels while still rewarding shareholders with over $160,000,000 in dividends over the same period.

Speaker 1

Again, we have no refinancings until 2026, ample free cash and undrawn $50,000,000 revolver and one debt free vessel. Thus, we have a significant measure of financial flexibility. We expect our cash cost per day, OpEx, G and A, time charter and expense, interest and principal for the coming year to be approximately $25,000 to $26,000 per calendar day. For the discussion of our 4th quarter results, you may also find it useful to refer to the investor highlights slides posted this morning on our website. I'd also remind you that my remarks will include a number of terms such as TCE, operating days, available days and adjusted EBITDA.

Speaker 1

Please refer to our filings for the definitions of these terms. Turning to our 4th quarter chartering results. We achieved a total utilization of 87.7 percent for the quarter and reported a daily TCE of $72,202 per operating day, nearing a utilization adjusted TCE or TCE revenue per available day of about 63,290 As our entire spot trading programs conducted through the Helios pool, its spot results reported are the best measure for our spot chartering spot and CO spot and CLA voyages and $64,900 roughly for all voyages including time charters in the pool. On page 4 of our investor highlights material, you can see that we have 5 durian vessels on time charter within the pool plus 1 MOL Energia vessel, indicating spot exposure of about 80% for the 30 vessels in the Helios pool. Turning to the quarter ending June 30, 2024, we currently have over 75% of the available days in

Speaker 3

the Helios pool booked.

Speaker 1

Given the difficulty in predicting loading dates for the remainder of the quarter, which obviously have a huge effect on revenue recognition, we felt it more appropriate to share TCE revenue over all available days in the pool for the quarter, which suggests a TCE in excess of $40,000 per day on a load to discharge basis, which is in accordance with U. S. GAAP. This rate includes both spot fixtures and time charters in the Helios pool only. Daily OpEx for the quarter was 10,047, excluding drydocking related OpEx.

Speaker 1

It was $10,699 per day including those amounts. Sequentially, our OpEx excluding dry docking was up only 1.4% or virtually flat, which was a good performance. Our time charter in expense for the 4 TCN vessels was $12,700,000 We expect that amount to return to the $10,500,000 range going forward, which is and has been the actual quarterly cash outlay. Total G and A for the quarter was $8,500,000 and cash G and A that is G and A excluding non cash compensation expense was about 6 point $6,000,000 This amount is up sequentially from the prior quarter, but most of the increase is due to statutory non cash accruals that we make for employee leave and retirement during the 1st calendar quarter 4th fiscal quarter every year. Reported EBITDA adjusted EBITDA for the quarter was $105,000,000 which is the 2nd highest quarterly EBITDA in our corporate history.

Speaker 1

For the year, our EBITDA was $417,000,000 also a corporate record, which is up nearly 54% from last year's $271,000,000 of EBITDA. We continue to benefit from our hedging policy and the favorable pricing of our Japanese financings, leaving us with a current interest cost fixed hedge and a small floating piece of 4.7%, which yielded a quarterly cash interest expense of $7,300,000 As a reminder, we calculate cash interest expense on our debt as the sum of interest expense, excluding deferred financing fees and other loan expenses and realized gain loss on interest rate swap derivatives as those numbers are reported on our income statement. Although we currently hold a roughly 83 percent economic interest in Helios, we do not consolidate its P and L or balance sheet, which has the effect of understating our cash and working capital somewhat. Thus, we believe it's useful to provide some additional insight in order to give a more complete picture. As of Tuesday, May 21, 2023 the 24th side, the pool had roughly $40,000,000 of cash on hand, which will decrease when the monthly distribution is paid out in the next few days.

Speaker 1

Net income for the year was $307,400,000 again, a corporate record and with average shareholders' equity of $948,700,000 over the year, we generated a return on equity of 32.4%, which is a testament to both great earnings and prudent balance sheet management. Turning to capital allocation, with the payment of another $1 irregular dividend, which again we remind you and as John also mentioned, our irregular dividend subject to our Board's evaluation of the business, prospective market conditions, capital needs and other items John outlined. We've now paid dividends in 11 of the last 12 quarters totaling $12.50 per share or over $500,000,000 in aggregate. Coupled with a $113,500,000 self tender offer and $500,000 of open market repurchases, we have now returned nearly $735,000,000 to our shareholders since our IPO. The significant dividend payments in the last quarter underscore our board's commitment to a sensible capital allocation policy that balances market outlook, operating capital needs of the business and an appropriate level of risk tolerance given the volatility of shipping.

Speaker 1

We remain cautiously optimistic about our cash flow generation over the coming months, but we will be vigilant for changes in the global macroeconomic and energy market outlook. With that, I'll pass it over to Tim Hanson.

Speaker 4

Yes. Thank you, Chad, and good day, everyone. So the quarter ending March 31 saw steep declines in the freight market in January and a gradual upwards correction during February March. The fall in freight rates in January were particularly steep after coming off the hikes in December 2023 and highlighted how significant imbalances in the market can occur. But the recovery, even gradual, reaffirmed that there are firm fundamentals in the VLGC market.

Speaker 4

The factors for the declining freight rates in January were the narrowing of the West East arbitrage almost and almost onethree of expected 2024 newbuildings delivering in a short window and a drastic reduction of the congestion in the Panama Canal. The narrowing of the arbitrage between January and February is a seasonal occurrence, reflecting of the reduced demand as the weather warms in most importing countries. The North American code snap in January of this year extrapolated the situation as domestic consumption increased and LPG prices in the U. S. Rose.

Speaker 4

The newbuilding deliveries amidst an uncongested Panama Canal created a temporary oversupply in the U. S. Gulf, which impacted the market with astonishing force. A reduction in container traffic after the holiday season rush was expected, but the degrees the degree of the reduced container traffic was unexpected. Lastly, the fact that there were 0 transits in the Neo Panama Canal by dry cargo vessels was unprecedented.

Speaker 4

Ultimately, LPG production and exports from North America, in particular, are increasing, and demand in the Far East remains robust. Furthermore, the Panama Canal was kept at the maximum number of transits to reduce the waiting time for those trying to take advantage of the of an open Panama Canal. And vessels sailing to Asia, the Eastern route were forced to sail the longer route via Cape of Good Hope with Suez Canal being inactive or inaccessible, sorry. After the initial shock of the imbalance in January was suggested by the market, the market corrected upwards in February March to better reflect the firm fundamentals of the VLGC markets. In the short- to medium term, we see the market characterized by potential upside.

Speaker 4

Only about 9 more VLGCs are scheduled to deliver this year at regular intervals. Propane is the preferred feedstock for steam cracking, and 7 more PDH plant in China are scheduled to start before the summer. North American exports are forecast to grow on the back of increased production. The Panama Canal is scheduled to increase transits capacity to over 30 transits per day before this summer. But we consider it likely that the congestion levels will revert to that what was seen before October 2023 when the transit capacity was reduced.

Speaker 4

Furthermore, the sizable delivery schedule of LNG vessels and new Panamax container vessels will risk increasing the congestion. Thus, we do remain positive about the medium- to long term prospects for our business. With that, I'll pass you over to John Lycouris.

Speaker 3

Thank you, Tim. Last July, Rymos MEPC 80 agreed to change the net zero emission standard for shipping to a 2,050 target date instead of 2,100. As a result, the industry's peak urbanization pathway has been challenged to deliver significant improvements in energy efficiency in clean fuels, emissions, reduction and offer viable green market dynamics. Shipping throughout history has proven its ability to adapt to new circumstances and challenges. Shipping's value to the world markets is based on its ability to move resources efficiently around the world.

Speaker 3

Ships have been built to achieve economies of scale and to optimize operations and logistics. The shipbuilding challenges today are in building the right ship for the purpose aiming to achieve the task at hand. What we require right now are newly designed vessels built to cope with the world's current and future environmental changes, while achieving the main purpose of moving resources efficiently around the world. Shipping's energy transition and transformation has commenced. During OPTG, we firmly believe that we should be part of and provide long term solutions to the world to globalization objectives and goals.

Speaker 3

We have found these initiatives to be both ecological as well as economical. Our scrubber vessel savings for the Q1 of 2024 amounted to $3,800,000 net of all scrubber operating expenses or about $3,480 per day per each ship. Fuel differences between high sulfur fuel oil and very low sulfur fuel oil averaged $184 per metric ton, while the pricing differential for RPG versus very low sulfur fuel oil stood at about $197 per metric ton. In fact, that was helpful for the dual fuel engine vessels when operating without the due. The total number of vessels fitted with scrubber units in our fleet are 14, and we plan to retrofit another vessel in the next calendar quarter during the regular dry docking of that vessel.

Speaker 3

The installation of energy saving devices and silicon hot coatings to our vessels will continue as we provide as they provide significant performance improvements fuel savings, reduction of the fleet CO2 emissions and improved CII ratings. Besides our vessel, Captain John MP, which was originally built as a VLGC VLAC and 93,000 newbuilding VLGC VLAC vessel at Hanwha Ocean. We are able to upgrade and outfit some of our vessels for ammonia's cargo. Green Hydrogen's future economy will depend on the transportation of large quantities of ammonia, most likely in PLGC vessels, And we are ensuring that the Dorian LPG fleet can be ready to handle this cargo at the earliest possible time without adding more newbuilding tonnage. In continuation of Dorian's commitment to sustainability, we strive to improve on energy efficiency on board our vessels with a focus on vessel operational performance while continuing to follow technological innovations sector.

Speaker 3

And now I would like to pass it over to John Hachapatera for his closing remarks. Thank you.

Speaker 2

Thank you, John. Kevin, we're ready to take questions.

Operator

Certainly. We'll be conducting a question and answer session. Our first question today is coming from Omar Nokka from Jefferies. Your line is now live.

Speaker 5

Thank you. Hi, guys. Good morning. Couple of questions for me regarding the market. Obviously, you were just touching on this in the opening comments.

Speaker 5

The market's clearly lifted quite a bit here since the bottom in late January, early February. Rates have been climbing and that's coming despite the fact that the Panama Canal restrictions are being lifted. More ships are going through than we've seen in the past several months, yet spot rates are at a 4 month high. Just kind of from your perspective, what's driving the strength we're seeing in spot rates despite the fact that you've got loosening in the canal?

Speaker 2

Well, in short I'll give you a short answer and then I'll give you Tim who can expand on it a bit. But my short answer is that the positive fundamentals and the supply demand equilibrium is what has made the market bounce back in a healthy way. But Tim can give you a little more color or a lot more color maybe. Tim?

Speaker 4

Yes. Yes. I mean, you're right that the lowest point was partly, as we mentioned also in the last call, due to the huge drop in the congestion in the Panhandle Canal. It has come back to some extent, the delays, as we also projected. And we still do see a lot of owners balancing the long way around, especially when the market was a bit lower, the risk of facing high auction fees to go through the Canal was still there and still is.

Speaker 4

So the auction fees have gone up to around €2,000,000 again. So the congestion has come back in the Panama Canal. So I think the as John says, it's still also as we expected that the fundamentals would be strong coming into this year. And that's really what we see now. Part of that is, of course, that a lot of ships is going via the Cape still.

Speaker 5

Okay. Thanks, Tim, for that. And then just in terms of kind of market averages thus far, what you've been able to achieve. I know, Ted, in the past, you have given sometimes an indication. And I can't remember if you maybe I missed it in your opening comments.

Speaker 5

Is there any color you can give on how the quarter is shaping up thus far, the current quarter?

Speaker 1

Yes, Omar. Okay. Yes. I'll just where there's some feedback on. So yes, so Omar, we historically have given it the percentage of fixed days and the rate for those days.

Speaker 1

So we're going to we're modifying that a little bit. So the relevant statistics, the team has booked 75% of the available days in the pool for the quarter ending June 30. And on that basis basis those days as the denominator, the TC for those vessels or those voyages is in excess of $40,000 a day on a load to discharge basis.

Speaker 5

Okay. So 75% of the pool days, including the pool TCOs, is that just over 40? Okay.

Speaker 1

Yes, somewhat over 40.

Speaker 5

Okay, all right.

Speaker 1

Thanks, Dan. The reason yes, and just the reason we're doing that is just to the revenue recognition gets awfully tricky. So anyway, thank you.

Speaker 5

I see. Thank you. And maybe just a final one. Maybe you mentioned the order book for VLGCs and last year was a big delivery year. It starts to it's been abating this year and next.

Speaker 5

But I noticed you've kind of separated the order book for VLGCs from the VLACs and VLECs. Is that how we should think about this market in the future? Do you think the way this ammonia opportunity is developing, do you think that do you think a VLAC becomes more of like a project based asset similar to the VLEC and not necessarily impactful to the broader VLGC trade? What do you think of that in the future?

Speaker 2

Omar, that's a great question. And the true answer is that the VLAC should be looked at as a VLGC and the ammonia trade, the expansion of the ammonia trade hopefully is going to absorb the VLACs. But now the timing of it and the extent of it is still kind of in play, right? And the ships that are on order, when I look at it, I look at VLGC and the VLACs, nearly 90 ships on order, I think. I look at them as that's the fleet on order.

Speaker 2

And then we're still, like I said, we're quite optimistic in spite of the fact that this large order book, it's as you know the 2526 is pretty much restricted deliveries. And hopefully, we'll be ramping up with the ammonia trade, which we're hopeful and optimistic on beyond that.

Speaker 5

Okay. Very good. Thanks, John, Tim and Ted. I'll turn it over.

Speaker 1

Thanks, Omar.

Operator

Thank you. Next question is coming from Clement Mullens from Value Investors Edge. Your line is now live.

Speaker 6

Good morning. Thank you for taking my questions. I wanted to start by asking about your financial profile. I mean, leverage is sitting at very manageable levels, even pro form a for the recent new build order. Could you provide some color on where you see the sweet spot?

Speaker 6

And secondly, do you plan to continue to organically delever going forward?

Speaker 2

I think if you're talking about the sweet spot, I imagine you're asking about the leverage ratio. And I would say that it's a moving target in our business. You cannot say that you want to have 50% or more than 50% or less, but because it depends on the at the spot at the point where you are in the market for that. So I can't really tell you that we have a sweet spot. We're happy with where we are right now.

Speaker 2

That's something. Yes. Thank you.

Speaker 6

You own a modern fleet and I mean almost the whole fleet is eco. But is there maybe any appetite to go out and pursue additional fleet renewal? And additionally, some color in your overall view on underlying asset values would also be helpful. And finally, in conjunction with this, this is more of a medium term question, but is CO2 transport something that could or would be considered?

Speaker 2

I'll let John Lycouris talk to you about CO2 transport. Regarding additional ships, we don't think we need to add new buildings to the order book. So we are in the process of as you said, we have a modern fleet and we have but we do have to consider fleet renewal. So depending on opportunities going forward, it may be new buildings, but could also be purchases in the secondhand market. But on the question of CO2 transport, which is a great question, John may have a few interesting remarks to make on that.

Speaker 3

Yes. Thank you, John. What we like CO2 transport because it may have to do something with the future of shipping, meaning carbon capture on vessels and CO2 would be part and parcel of carbon capture because you may need to transport CO2 to debunkering location or to another purpose built vessel. So we think that CO2 will be the next items to be looked at either on existing ships with adding special tanks that can carry CO2 or with vessels that would be able to transport CO2 to the location where it's going to be sequestered or stored. That's the end.

Speaker 6

Thanks for the color. That's all from me. Thank you for taking my questions and congratulations for the quarter.

Speaker 3

Thank you.

Speaker 2

Thank you.

Operator

Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

Speaker 2

Well, thank you very much for joining us everybody and for your interesting questions. And wish you a happy summer and we look forward to talking with you all again at the end of our next quarter. Thank you. Bye bye.

Operator

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

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Dorian LPG Q4 2024
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