DLH Q1 2025 Earnings Call Transcript

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August 1, 2024

There are 6 speakers on the call.

Operator

Good day, everyone, and welcome to the Dorian LPG First Quarter 2025 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 call 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 would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young. Please go ahead.

Speaker 1

Thank you, Nikki. Good morning, and thank you, everyone, for joining us for our Q1 2025 results conference call. With me today are John Hodgebatteras, Chairman, President and CEO of Dorian LPG Limited John Liqueurs, Head of Energy Transition and Chief Executive of Dorian LPG USA and Tim Hanson, Chief Commercial Officer. As a reminder, this conference call webcast and a replay of this call will be available through August 8, 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 or 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 June 30, 2024 that were published this morning on Form 10 Q.

Speaker 1

In addition, please refer to our previous filings on Form 10 ks, where you'll find risk factors that could cause actual results to differ materially from those forward looking statements. Finally, you may find it useful to refer to the investor highlights slides posted this morning on our website as we make our remarks. With that, I'll turn over the call to John Hajjapateras.

Speaker 2

Thanks, Ted, and thank you all for joining to discuss our Q1 financial 2025. We had a strong Q1 with net income of $51,300,000 During the quarter, our offering equity offering materialized a significant strategic objective, further enhancing the strength of our balance sheet and positioning the company for future growth and fleet renewal. As mentioned last quarter, we have one VLDC VLAC on order from Hanwha shipyard. And we are investing in some retrofits on ammonia on our existing for ammonia carriage on our existing ships. Our board declared a $1 irregular dividend, bringing the total capital return since our IPO to more than $777,000,000 We believe that our strong balance sheet and good debt profile enable us to pursue opportunities when we determine that the timing is appropriate.

Speaker 2

As you will hear from both Ted and Tim, market volatility featured again during the quarter and continued in July. We believe that these swings do not reflect any significant changes in the fundamentals of supply and demand for VLGCs. Rather, they define a near equilibrium where small changes can result in big price wins. Factors such as restrictions and restoration of Panama transits, weather events in the U. S.

Speaker 2

Gulf and there's still unresolved wars in the Middle East and the Black Sea alternately increase or inhibit our quarterly earnings. But the underlying fundamentals point to continued growth in the trade of LPG. 56 VLGCs have been added since the beginning of 2023, increasing the fleet by roughly 16% to 3.94 ships today, while in 2023 global liftings were about 12% higher than in 2022. So clearly, the various disruptions have been contributing to profitability. Looking ahead, we expect 5 ships to be delivered in 202413 in 2025, increasing the fleet by 1% and 3% respectively in each of those years before larger increases again in 2026 and 2027 in anticipation of potential demand for ammonia transportation.

Speaker 2

Meantime, the prospects In the meantime, the prospects for increased production and exports from the U. S. Are favorable as are the indicators for demand in Asia and elsewhere. These fundamental factors underpin our cost in the market prospects for VLCCs. As you will hear from Jonelle, our teams are working on reducing emissions and fuel and operating costs for our fleet.

Speaker 2

We have embarked on a top down initiative to simplify and revamp onboard safety procedures. Our fully integrated structure provides a real benefit in our pursuit of these objectives. As always, I acknowledge our dedicated seafarers and shoreside staff whose hard work and dedication make our results possible. Now I'll give you Ted.

Speaker 1

Thanks, John. My comments today will focus on our recent capital allocation events, our financial position liquidity and our unaudited Q1 results. At June 30, 2024, we reported $353,300,000 of free cash. The significant increase from March 31 reflects the net proceeds of our equity offering and strong free cash flow to equity generated less of course the dividend paid during the June 30 quarter. Also as we previously disclosed, we'll pay another $1 per share as an irregular dividend of roughly $43,000,000 in total dividends on or about August 21, 2024 to shareholders of record as of August 8.

Speaker 1

With a debt balance at quarter end of $597,100,000 our debt to total book capitalization stood at 34.8% and our net debt to total book capitalization at 14.2% or even lower if one includes our short term government bond holdings. Our weighted average cost of debt is about 4.7%, which is actually below the current 1 3 months SOFR rates. Our next refinancing event is not until the end of December 2026, which is the Ballcap facility. We amortize about $13,400,000 in principal per quarter or roughly $53,500,000 for the current fiscal year, which we consider quite manageable and largely in line with our book depreciation. With well structured and attractively priced debt capital and undrawn $50,000,000 revolver and one debt free vessel coupled with our strong free cash balance, we have a comfortable measure of financial flexibility.

Speaker 1

We expect our cash cost per day for the coming year to be approximately $26,000 per day, excluding capital expenditures for special surveys and upgrades. I will discuss those items in just a moment. For the discussion of our Q1 results, you may find it useful to refer to the investor highlights slides posted this morning on our website. I would also remind you that my remarks will include a number of terms such as TCE, operating days, available days and adjusted EBITDA. Please refer to our filings for the definitions of these terms.

Speaker 1

Looking at our Q1 charting results, we achieved a total utilization of 90.4% for the quarter with a daily TCE per operating day of 5500 $228,000 yielding utilization adjusted TCE or TCE per revenue revenue per available day of about $49,900 Though sequentially lower than last quarter's results, the TC still represents an attractive free cash flow to equity. As our entire spot trading program is conducted through the Helios pool, their reported spot results are the best measure of our spot chartering performance. For the June 30 quarter, the Helios pool earned a TCE of $50,145 per day for its spot and COA voyages. On Page 4 of our investor highlights material, you can see that we 5 Dorian vessels on time charter within the pool, plus 1 MOL Energia vessel, indicating spot exposure of about 80% for the 30 vessels in the pool. Turning to the quarter ending June 30, 2024, we currently have nearly 50% of the available sorry, September 30, 2024, we currently have nearly 50% of the available days in the Helios pool booked.

Speaker 1

Given the difficulty in predicting loading dates and their significant effect on revenue net recognition, we feel it more appropriate to share TC revenues over all available days in the pool for the quarter. On that basis, we see TCE in the range of $30,000 per day on a load to discharge basis in accordance with U. S. GAAP. That rate includes both spot fixtures and time charters in the Helios pool only.

Speaker 1

Daily OpEx for the quarter was 10,618 dollars excluding some small expenditures for drydocking related expenses, that amount was up a bit sequentially from last quarter. Our time charter in expense for the 4 TCN vessels came in

Speaker 2

Operator, We can move on to Tim Hansen and pick up Ted when he gets back online.

Speaker 3

I'm back online now.

Speaker 2

Okay. So do we have TED online or not?

Operator

We don't have TED at this time.

Speaker 2

Okay. So why don't we have Tim continue the presentation and then we'll go back to Ted when he comes back.

Speaker 1

It

Operator

looks like Tim is has disconnected as well.

Speaker 2

Okay. Ted, you we were going to go on to Tim, but you can finish off your from your end, Ted. All right, guys. This is the summertime technical issues. How about Tim?

Speaker 2

You go ahead, please.

Speaker 3

Okay. Just tell me what you're saying. Go for it. Hi. Good day, everyone.

Speaker 3

Tim Hansen here, Chief Commercial Officer. The quarter ending in June 30, 2024 saw an improvement in the freight market compared to the quarter prior. The biggest improvements were seen in May when freight rates in the West were variance of those seen in early January. April June were relatively weaker months characterized mostly by external factors disrupting regular market movements, such as dynamic fixing windows, sudden changes to the Panama Canal waiting time and an efficient balancing of vessels demand with the vessel supply. Despite significant swings in the market months on months, the underlying demand for VLCC shipping is firm.

Speaker 3

April is not a month easily analyzed at first glance. The market for the months is reflective of commercial fixing decisions, which was made as early as in February and as close as a few days prior to the loading dates. The snapshot therefore covers more than 1 month of market considerations. This is explained by many market players initially anticipating a weaker than usual export demand from the U. S.

Speaker 3

Gulf. And then on short notice, correcting upwards when it became clear that export cargoes was plentiful. Thus cargoes and similarly cans were seen fixed at levels over $30 per metric tons apart, and it speaks to the strength and the strong fundamentals of the VLCC market. May build on the strong fundamentals, but hit particularly high freight levels because of a sudden, but very brief period of congestion in the Panama Canal. Auction prices for transit reached levels not seen since December 2023, but the bottleneck was quickly resolved.

Speaker 3

Again, 2 weeks of sudden delays in the Panama Canal given the market of bump reflect positively on the fundamentals of the VLGC market. But where May demonstrated how external factors can start on a short term can start a short term bounce in the markets, June goes to a month exposing the flip side. Throughout June, it must be emphasized that the West to East arbitrage was positive. Nonetheless, rising Mount Belvieu prices over the months, nominally narrowed the arbitrage showing the market as charters was looking for rates to find a flow. The Mount Belvieu prices was on the rise due to a reduction in available spot cargoes.

Speaker 3

The reduction has been attributed by market players to downtime on the chillers amidst a heat wave in the North America and capacity reduction in the U. S. Gulf terminals in anticipation of the hurricane barrel at the end of June. Meantime, it can be mentioned that in the Arabian Gulf Far East market followed the trends of the U. S.

Speaker 3

Gulf export market. Particularly in May, it could be seen that charters reacted to the strength in West market paying off on freight to ensure that VLGCs would be available for loading in the Arabian Gulf. When the Western premium eroded in June, the Middle East export market duly followed downwards. Though the quarter showed significant swings in the market over the months, the underlying red threat is one of robust demand for LPG in the Far East and in open arbitrage. The sensitivity to available exports from North America was made clear, but it should be noted that North America LPG production and export continue to grow.

Speaker 3

Meantime, most market players anticipate a gradual return to congestion of the Panama Canal. Despite healthy Continental severe disease demand driven by growing ton miles and robust import demands, there are challenges to the market in the short term. The reduced availability of spot cargoes from the U. S. Gulf seen in June has a considerably knock on effect.

Speaker 3

Delaying at export terminals due to the hurricane barrel continued into July and the declarations of force majeure by various terminals seriously hindered the optimization of the export capacity. Amidst a wide open Panama Canal with full utilization close to full utilization, enabling tonnage to converge near to the U. S. Gulf and increase the backlog of vessels. Delays at the terminals was an unwelcome complication.

Speaker 3

Lastly, the tragic events from 10 days ago when a capsized tugboats in the who choose the ship channel limited the market's corrective movements to normalize the export levels. Finally, returning to the demand side for VLGC shipping, we're eager to see the effect of the 7 odd opening of PDH plants in China. North American exports, external factors of size offer the most hard forecasted to grow as is the congestion of the Panama Canal. Thus, we do remain positive on the medium to long term prospects for our business. With that, I will pass you I think back to Ted maybe.

Speaker 2

Yes. I think we'll go to John Lycouris and then Ted will come back. He's back online, but we'll have him wrap up at the after John Lycouris. Thank you. All

Speaker 1

right.

Speaker 4

Thank you, John, and thank you, Tim. In continuation of our commitment to sustainability, Dorian LPG strives to improve the energy efficiency of its vessels with a focus on operational and technical performance, while continuing to follow and employ technological advances and innovations as they become commercially available to the marine sector. Our scrubber vessel savings for the Q2 of 2024 amounted to $2,800,000 or about $2,561 per day, net of all scrubber operating expenses. Fuel differentials between the high sulfur fuel oil and very low sulfur fuel oil average $136 per metric ton, while the differential of LPG has fuel versus VLSFO very low sulfur fuel oil stood at about $2.17 per metric ton, which is quite advantageous for the dual fuel LPG engine vessels. The total number of vessels fitted with scrubber units in our fleet is 14 and we're about to retrofit another vessel in the current calendar quarter during vessel regular dry docking window.

Speaker 4

The CII project initiated by the Mos McKinney Moller Center for 0 carbon shipping focuses on engaging with the IMO for a review process of the carbon intensity indicator. The objective is to propose process improvements and carbon reduction targets for the next phase, which begins in 2026. The project group's goal is to provide clear recommendations to the IMO on necessary amendments and updates to the CII regulation for greater effectiveness in the next phase. The center presented the project's findings at the last MEPC meeting in March 2024 and anticipates preparing 2 papers for presentation at the next MEPC session in October, where it is hoped they are agreed for revising the CII regulation ahead of its 2026 amendment window. Dorian LPG is a mission ambassador to the center and has actively contributed to this project.

Speaker 4

The new biofouling management plans, which were adopted by the IMO by an IMO resolution last year are currently being developed for the entire Dorian LPG fleet. The key points of these new ballast biofouling management plans comprise of monitoring how and fuel performance caused by biofouling, taking actions to alleviate biofouling and finally logging the actions taken. This entails shore and crew training and familiarization of the biofouling risk parameters and the actions which must be taken proactively and or reactively to mitigate adverse performance results. We expect to complete the biofouling management plans for the whole fleet by the end of August 2024. The European Union has adapted FuelEU Maritime Regulation to promote the use of renewable fuel and low carbon fuels in maritime transport.

Speaker 4

This regulation aims to reduce greenhouse gas emissions by providing a clear legal framework for ship operators and fuel suppliers, thereby increasing the demand for and consistent use of cleaner fuels in the maritime sector. The regulation sets targets for the greenhouse gas intensity of energy used in vessels. Companies are required to submit electronic monitoring plans that document the methods of monitoring and of reporting, which will be subject to 3rd party verification by accredited independent entities to ensure their accuracy. Recently, wind assisted chip propulsion system technologies have attracted considerable interest in the maritime industry to potentially reduce the fuel consumption and emissions from vessels. These systems use wind power to supplement vessel propulsion by creating aerodynamic forces.

Speaker 4

By tapping into an unlimited free and 0 carbon energy source, WASP as it is called can significantly improve the efficiency of maritime operations and support the industry's de carbonization goals. Various sailing technology concepts or have been developed such as rotor sails, wing sails, hard sails and suction sails. Its technology has a different method of harnessing the wind and producing thrust, necessitating a thorough analysis investigation to assess their potential and implications to safe operation and trade if installed. We will continue to monitor developments and results of this technology in the future. And now I pass it back to John Hedgpateras and to Ted Young.

Speaker 1

Thanks, John. I will quickly finish off my remarks with apologies for the technical issue. We'll be sure to pay our phone bill next quarter. So very quickly just to summarize, I believe I was cut off just talking about the Helios pool. The pool had roughly $11,000,000 of cash on hand at the end of July, reflecting the dividend just paid.

Speaker 1

To recap, we've now paid $13.50 per share in dividends since September 2021. Again, we want to remind you that these dividends are irregular. Our market and our business is not regular and therefore our dividend policy is not either. Our total capital returned from dividends, open market repurchases and our self tender now totals $777,000,000 gross. I'd probably like to note that the dividend payment reflected our strong earnings and cash flow generation And at the same time, we were able to accomplish a strategic objective of raising additional equity capital to increase our financial flexibility as we look at fleet renewal and expansion.

Speaker 1

I think that underscores our Board's commitment to balancing returns to shareholders with growth in the business. Again, we remain optimistic about the prospects for our business as my colleagues have outlined. And with that, I'll turn the call back to John Hadjipateras.

Speaker 2

Thank you, Ted, and apologies again to everyone who joined us. I hope we didn't distract too much from the very 3, I think, very interesting presentations by my 3 colleagues with lots of material for you to hopefully digest. And Nicky, we're happy to take questions now if anyone has any.

Operator

Thank you. And with the prepared remarks completed, we will now open the line for questions. I will take our first question from Omar Nochta with Jefferies. Please go ahead.

Speaker 5

Thank you. Hey, guys. Good morning. Just had a handful, hopefully not too many, but just at least a couple of questions for you. John H, you talked a bit about the swings we've seen in the VLGC market, especially in July.

Speaker 5

And just kind of wanted to touch a bit on that and get a sense of what's been driving it. I know, Tim, you mentioned a variety of things. There's obviously the Panama Canal returning a bit to normal, you've got Hurricane Barrel in the Gulf, Middle East volumes. I guess I just wanted to ask if you could rank maybe or highlight which of these issues would you say is like the biggest has had the biggest impact on the market? And what can you see kind of coming on the horizon that would alleviate that?

Speaker 2

$1,000,000 question. Tim, I think you are the best of us to answer that one.

Speaker 3

Yes. I think what the biggest factor is really the U. S. Gulf production, which in June was hampered by these delays with the chiller problems and some force majeure. So we saw less exports.

Speaker 3

And because the terminals is really running very close to full capacity, once they have a problem, it takes them a long time to catch up again. So you can see the they're so busy that you still have the so close to a month after these events, you still have backlog of 3 to 5 days in most of the terminals. Even though they're running on full capacity now, it still takes them a long time to clear the backlog of ships and then catch up on the exports. And then this coincided in June with, as I mentioned, the Panama Canal from the delays I described in May suddenly coming back fully open and everybody turning the ships around and heading straight to the canal instead of via the Cape. So that of course gave a number of more ships in the U.

Speaker 3

S. Gulf available in July. So there was basically no overhang of ships from June into July, but the effects of what happened in June and then the barrel and the capsize tuck in the Houston Ship Channel, of course, increased the problems. So I think we will see probably this again with the U. S.

Speaker 3

Golf being any problems hit in the U. S. Golf will take longer time to catch up than what we saw last year because they are closer to capacity now. And on the Panamax side, we have seen it swing heavily from over a few days basically from heavy congestion to fully open. And I think longer term or coming into the winter, I think we will see the trends that we've seen the last few years that the Panama Canal will be heavily delayed from September, October onwards throughout the winter and then clear up early in the spring.

Speaker 3

Yes.

Speaker 5

Okay. Thanks, Timpreet, for that.

Speaker 2

I just wanted to In the winter Sorry, go ahead. No, no. Omar, I was just going to say, it's ironic that in the winter, we had delays caused by a freeze and in the summer, we have delays caused by the chiller, but which is because of the heat waves and the extremes of the weather are pretty impactful. Again, when you're running it close to full utilization and the export infrastructure.

Speaker 5

Yes. No, good point. So just on that then, in terms of state of backlog that has been hampering activity in the from barrel in the Gulf Coast. Have we kind of started to work through that? Has it have we improved from, say, where it was, I guess, perhaps a month ago when that happened?

Speaker 3

Yes. I mean the terminals are fully up and running and reducing and they are back at the same export levels as they were and trying to then catch up and clear the ships that has been fixed already waiting for the late canceller. We are seeing the delays or the delays waiting for loading for the ships already booked is coming down. So that should allow hopefully the terminals to catch up within this month and more spot to become available after that. So we expect to see they're back on full swing now and that should be possible to squeeze out more towers eventually.

Speaker 3

Touch wood that everybody everything keeps running normal without any further incidents and problems.

Speaker 5

Got it. And we have seen

Speaker 3

more activity now for August.

Speaker 5

Okay. Yes. So maybe we'll start to see the reversal potentially. Ted, just before

Speaker 3

you got cut off earlier.

Speaker 2

We had a

Speaker 5

lot of

Speaker 3

time to 3 months ago,

Speaker 1

yes. Okay.

Speaker 5

Go ahead, Omar. Yes, Ted. So just before you got cut off in your earlier comments, you had been I think you had mentioned about the bookings for the pool thus far into the quarter. And if I recall, it was roughly around 50% of available days on that basis, around 30,000 or higher.

Speaker 1

That's right. Yes, around 30,000. Yes.

Speaker 5

Okay. All right. And so just and this is like clearly, this is beneath kindergarten math. But last quarter on the call you had mentioned having booked a good chunk of Helios at about 40,000, you end up realizing 50. With this 30,000, what kind of magnitude do you think if you were to adjust this for like an operating day basis?

Speaker 5

And recognizing that you said in your comments that it's hard to figure what the actual operating days will be, but any best guess is that 30 become 40? Or we're looking at 30 maybe becoming 33? Any kind of if you're willing to step out?

Speaker 1

It's so hard to it's really hard to say, Omar. I'd like to think there is some upside to that number. I will say that the upside last quarter surprised us to the upside. But it's really tricky to say. I think probably while I know you're focused on trying to get a good number for the quarter, I'd say more that Tim's comment about activity picking up, whether some of that may fall into this quarter and the rest of it may fall into the following quarter.

Speaker 1

So I don't have a very good answer to your question, but I'd say at least the trend line seems to be above that number. How much we realize in this quarter from an accounting perspective versus next is a little tricky.

Speaker 5

Understood. I appreciate that. And sorry if I'm going long in my session, but just maybe one more and I'll let you go. Just obviously, in terms of the equity issuance back in June, any thoughts or anything you're willing to say in terms of kind of plans with that extra $80,000,000 or so of proceeds? It's obviously gone on the balance sheet, but just anything you're willing to share on thoughts with that?

Speaker 2

There's nothing really that we can share. There's nothing active at the moment, but we've been looking at opportunities that we believe could put money to good use and we'll keep you appraised if anything when anything comes to fruition.

Speaker 5

Okay. All right. Well, thank you. Thanks, John, Tim, Ted. Appreciate it.

Speaker 1

Thanks.

Speaker 2

Thank you, Omar, as always. Thank you.

Operator

Thank you. And this will conclude our Q and A session. I will now turn the call over to John Hajjapateras for closing remarks.

Speaker 2

Well, thank you for coming on a summer day to listen to us and have a good rest of the summer.

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DLH Q1 2025
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