Dynagas LNG Partners Q2 2024 Earnings Call Transcript

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September 10, 2024

There are 2 speakers on the call.

Operator

Thank you for standing by. Ladies and gentlemen, welcome to the Dynagas LNG Partners Conference Call on the Second Quarter 2024 Financial Results. We have with us today Mr. Tony Lorentzon, Chief Executive Officer and Mr. Michael Gregos, Chief Financial Officer of the company.

Operator

At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you this conference is being recorded today. Please be reminded that the company announced its results with a press release that has been publicly distributed. At this time, I'd like to remind everyone that in today's presentation and conference call, Dynagas LNG Partners will be making forward looking statements.

Operator

These statements are within the meaning of the federal securities laws. This conference call presentation of the webcast contains certain forward looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. The statements in today's conference call are not historical facts, including among others, the expected financial performance of Diamond Gas LNG Partners Business, Diamond Gas Partners LNG's ability to pursue growth opportunities, Diamond Gas Partners LNG expectations or objectives regarding future and market charter rate expectations and in particular, the effects of COVID-nineteen on the financial condition and operations of Diamond Gas Partners LNG and the LNG industry in general. Maybe forward looking statements as such as defined in Section 21E of Securities Exchange Act of 1934 as amended. Matters discussed may be forward looking statements, which are based on current management expectations that involve risks and uncertainties that may result in such expectations not to be realized not being realized.

Operator

I kindly draw your attention to Slide 2 of the webcast presentation, which has the full forward looking statement and the same statement, which also included in the press release. Please take a moment to go through the whole statement and read it. And now, let's turn the floor back over to Mr. Lawrenson. Please go ahead, sir.

Speaker 1

Good morning, everyone, and thank you for joining us in our 3 months ended 30 June 2024 Earnings Conference Call. I'm joined today by our CFO, Michael Douglas. We have issued a press release announcing our results for the period. Certain non GAAP measures will be discussed in this call. We have provided a description of those measures as well as a Before I turn the presentation, I'll move on to Slide number 3.

Speaker 1

We today present our results for the 3 months ending on 30 June 2024. We are pleased to announce that all 6 LNG carriers in our fleet were operating on the long term charters for the esteemed international gas companies. For the Q2 of 'twenty four, we reported net income of $10,700,000 and earnings per common unit of $0.20 Our adjusted net income stood at $12,500,000 translating to adjusted earnings per common unit of $0.25 Furthermore, our adjusted EBITDA for the same period reached $28,600,000 dollars We were pleased by the conclusion of the new lease financing agreement with China Development Bank Financial Leasing for 4 of our LNG carriers. The 344,900,000 financing along with $63,700,000 from the Partnership's existing cash results, was used to fully repay our previous credit facility of $408,600,000 on June 27, ahead of its maturity in September 24. Following a sustained period of strategic deleveraging, we now have a substantially reduced debt levels and secured a more flexible financing structure.

Speaker 1

With 2 of our LNG capital is now debt free, the partnership is well positioned for its next phase. I will now turn the presentation over to Michael, who will provide you with further comments to the financial results. It's time to turn it. Turning to Slide 4, and let me start with a summary of the headline numbers for the Q2. We maintained 100% scheduled fleet utilization during the Q2.

Speaker 1

Revenue was in line at $37,600,000 compared to $38,000,000 in the first quarter. Average TCE of $67,300 per day is down from $68,100 in the first quarter across our fleet of 6 vessels, affected by a small negative variation in the variable portion of the revenues contained in the time charter of 2 of our vessels compared to the previous quarter. Operating income for the 2nd quarter was $18,800,000 a 2.6% decrease from the $19,300,000 during the prior quarter. This was primarily related to the revenue variation mentioned earlier and slightly increased operating and G and A expenses. Net income for the Q2 was $10,700,000 or $0.20 per common unit, which is slightly lower from the $11,750,000 reported for the Q1 of this year, primarily relating to a reduction in the realized and unrealized gains on our mark to market interest rate swap by US850000 dollars as the interest rate swap approaches immaturity on September 18, 2024.

Speaker 1

In addition to one off loss and debt extinguishment of US331,000 dollars as a result of the early prepayment of our prior credit facility at our P and L this quarter. Adjusted EBITDA for the 2nd quarter was $28,600,000 compared to $29,000,000 in the first quarter and adjusted net income for the quarter was $12,400,000 or 0.2 $0.25 per common unit, unchanged from the prior quarter. Our average cash breakeven cost per vessel per day for the quarter, taking into account our daily operating expenses, G and A expenses and debt service per vessel per day, net of realized swap gains amounted to $44,881 per day, resulting in a surplus of $22,450 per day once deducted for our average TCE. Turning to our cash bridge on Slide 5, we began the quarter with a total of 76,000,000 dollars Following on the chart from the left to right on the cash bridge, we first had $28,500,000 in adjusted EBITDA in the 2nd quarter and we utilized $64,000,000 of our own cash to cover the difference between the proceeds of our $345,000,000 new sale and leaseback facilities and 4 of our LNG carriers and the $408,600,000 outstanding under our prior senior secured facility, which was fully repaid.

Speaker 1

After a working capital benefit of about $1,800,000 plus proceeds of $6,100,000 from our interest rate swap, less the fees for our new sale and leaseback financing and distributions to our preferred unitholders, we ended the quarter with $35,600,000 in cash. Moving on to Slide 6. Meanwhile, our total debt stands at $345,000,000 and our leverage metrics have improved as we have reduced our debt balance by $378,000,000 since December 2018. Our financial leverage adjusted net debt divided by last 12 months adjusted EBITDA has reduced from 6.6x at year end 2018 to now 2.9x. We continue to enhance our balance sheet to create the foundations and financial flexibility necessary to add more value to our common unitholders.

Speaker 1

As previously advised, we refinanced $408,000,000 of our old credit facility with a $345,000,000 sale and leaseback on 4 LNG carriers, and our remaining 2 LNG carriers are debt free. Over the next 12 months, our debt amortization is expected to be $44,000,000 $4,000,000 less than our prior credit facility and our weighted average spread is 2.18%. But from September 18, we will have full exposure to floating interest rates as our interest rate swap matures. Since the inception of our swap program in September 2020, our cumulative realized swap gains have been quite significant with $42,000,000 in realized gains. So our hedging program paid off extremely well.

Speaker 1

We expect an additional approximately $5,000,000 of realized gain to be received at its maturity on September 18. Going forward, based on where SOFR rates are today, we expect our interest expenses to increase when our swap matures despite our lower leverage and our slightly lower amortization. And as a result, our 4th quarter debt service per day is anticipated to increase by about $5,200 per day, resulting in a pro form a cash breakeven of approximately $50,000 per day for Q4 2024. Obviously, we expect to be getting the benefit of lower interest rates as we are projected to reduce over time. Our nearest debt maturity is in June 2029 for 3 of our LNG carriers and June 2,034 for our remaining vessel.

Speaker 1

So in summary for this quarter, we had a full utilization of 100% and a good quarter without any surprises. That's it from our side. I will pass the presentation over to Tony. Thank you, Michael. Let's continue and move on to Slide 7.

Speaker 1

Currently, our fleet comprises 6 LNG carriers with an average age of approximately 14.1 years. Our present charters include notable gas companies such as Equinor, SEKTA and Yamal Trade. Additionally, Rio Grande LLC, NextDecade, has forward chartered our vessels Clean Energy and Arctic Aurora. As of September 10, 2024, our fleet contracted backlog stands at approximately 1,040,000,000 which translates into an average of about $173,000,000 per vessel. The fleet also enjoys an average remaining charter period of approximately 6.4 years.

Speaker 1

We are confident that our charter profile is robust, positioning our partnership for stable and reliable income in the years ahead. Moving on to Slide 8. Our current commercial strategy is centered on securing long term charters with government gas companies, ensuring a stable revenue stream. As a result of this approach, we have accumulated a solid contract backlog. In barring any unforeseen events, we have no contracts for vessel availability until the year 2028, when the Clean Energy of Lobo and Ami River will be available.

Speaker 1

Following these, we are at Picarora will come up our Rio Grande LNG contracts in 2,030 with the Yalitay River and the Loma River becoming available in 2,034, provided that the charters do not exercise our expansion options. The global fleet of LNG carriers has expanded rapidly with the newbuilding order books being at about 50% of the existing fleet. Most of these newbuilds are scheduled for delivery between now and 'twenty eight, and a significant majority of these orders have already been committed to specific charters. In the short to medium term, shipping capacity will exceed demand. However, in the medium to long term, we anticipate that the current order book will be absorbed as aging vessels are replaced and global demand for transporting incremental LNG production increases.

Speaker 1

Given these factors, we believe our portfolio is strategically well positioned with no contractor availability until 20 28. We expect long term demand for LNG to remain strong, driven by several key factors. This includes its lower emissions compared to traditional fossil fuels, the rising global demand for electrification, the efficiency of combined cycle power plants powered by natural gas, the well established global infrastructure for LNG production and distribution and the lack of a superior alternative at a comparable scale. Let's move on to Slide 9. Our new financing arrangements are not only low leverage, flexible and low cost, but also comes with long termers significantly enhancing our strategic flexibility for future initiatives.

Speaker 1

A major achievement in our financial management has been the substantial reduction in debt. We have successfully lowered our outstanding debt from $675,000,000 in September 2019 to $345,000,000 today. This reduction has also improved our net debt to EBITDA ratio, bringing it down from 6.6x in September 2019 to 2.9x by June 2024. Also, a notable portion of our fleet amounting to 33 percent now operates free of debt, thereby strengthening our asset base and providing a robust foundation. Our strategy of organic deleveraging supported by contracted cash flow has been instrumental in maintaining a stable and predictable financial profile.

Speaker 1

As of today, we maintain a contracted average revenue backlog of $173,000,000 per vessel, ensuring sustained income streams. In summary, with new found financial flexibility, a solid foundation of contracted cash flows, reduced leverage and a broadened strategic mission, we believe the partnership is in a stable phase. In the next quarter, we expect that the Board of Directors will evaluate and announce its capital allocation strategy. Thank you for your attention. We have now concluded the presentation, and we invite you to ask any questions you may have.

Speaker 1

Thank you.

Operator

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

Speaker 1

Well, we appreciate your time and attentiveness. Thank you for your participation and we look forward to connecting with you again on our next call. Take care and goodbye.

Operator

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

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Dynagas LNG Partners Q2 2024
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