Dynagas LNG Partners LP

Thank you for standing by, ladies and gentlemen, and welcome to Dynagas LNG Partners Conference Call on the second quarter 2021 financial results. We have with us Mr. Tony Lauritsen, Chief Executive Officer, and Mr. Michael Gregos, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There'll be a presentation followed by a question and answer session. At which time, if you wish to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today, Wednesday, September 8th, 2021. Please be reminded that the company announced its results with a press release that has been publicly distributed. At this time, I would like to remind everyone that in today's presentation and conference call, Dynagas LNG partners will be making forward-looking statements. These statements are within the meaning of the Federal Security Laws. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the safe harbour provision of the Private Securities Litigation Reform Act of 1995. The statements in today's conference call that are not historical facts, including, among other things, the expected financial performance of Dynagas LNG Partners' business, Dynagas Partners LNG ability to pursue growth opportunities, Dynagas Partners LNG expectations or objectives regarding future and market charter rate expectations and in particular the effects of COVID-19 on the financial condition and operations of Dynagas Partners LNG and the LNG industry in general may be forward-looking statements as such as defined in section 21e of the 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 being realized. I kindly draw your attention to slide two of the webcast presentation, which has the full forward-looking statement, and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. And now I pass the floor to Mr. Lauritsen. Please go ahead, sir.

Morning, everyone, and thank you for joining us in our three-month-ended 30 June 2021 earnings conference call. I'm joined today by our CFO, Michael Gregos. We have issued a press release announcing our results for the said period. Certain non-GAAP measures will be discussed on this call. We have provided a description of those measures as well as a discussion of why we believe this information to be useful in our press release. Let's move on to slide three of the presentation. We are pleased to report the results for the three months ended 30 June 2021. All six LNG carriers in our fleet are operating under their respective long-term charters with international gas producers. The COVID-19 outbreak is still causing operational and logistical challenges for the industry. Despite this, we are pleased to report 100% utilization for our fleet for the quarter. For the second quarter of 2021, we reported net income of 9.1 million, earnings per comment unit of 17 cents, adjusted net income of 10.4 million, adjusted earnings per comment unit of 20 cents, and adjusted EBDA of 23.6 million. We paid in May 2021 a quarterly cash distribution of 56 cents and a quarter per Series A preferred unit, for the period from February 12 to May 11, 2021, and a quarterly cash distribution of $0.54.11 per Series B preferred unit for the period from February 22 to May 21, 2021. Subsequent to the quarter, we paid in August 21 a quarterly cash distribution of $0.56.25 per Series A preferred unit, for the period from May 12 to August 11, 2021, and a quarterly cash distribution of 54 cents and 11 sixteenths per Series B preferred unit for the period from May 22 to August 21, 2021. During the quarter, we issued about $2.15 million worth of common units at an average price per unit of about $2.88 under the amended and restated $30 million ATM sales agreement, which has about $26.5 million of remaining availability. As previously announced, we were pleased to enter into a new time charter party agreement with Equinor for the employment of our LNG carrier named Arctic Aurora. Under the new time charter agreement, the Arctic Aurora is expected to be delivered to Equinor in September 21, immediately upon the expiration of the current charter party. The new time charter is about two years and the annual gross revenues from the time charter agreement are expected to be about 21.5 million. Equinor has had the ice class and winterized carrier on charter since her delivery from builders in 2013. Going forward, we intend to continue our strategy of using our cash flow generation to delever our balance sheet, reinforce our liquidity, and generate cash as to build equity value over time, which will enhance our ability to pursue future growth initiatives. I will now turn the presentation over to Michael, who will provide you with further comments to the financial results.

Thank you, Tony. Turning to slide four, Our quarter results continue to reflect our stable operating model as our fleet continues to operate with 100% utilization. Adjusted net income for the quarter increased by 5% to $10.4 million compared to the second quarter of 2020, reflecting decreased finance costs, which were counterbalanced by an increase in operating and G&A expenses. Our adjusted EBITDA amounted to $23.6 million, a 2% decrease compared to the second quarter of 2020. Since our debt refinancing in 2019, our profitability has steadily increased and is now stabilized at current levels with adjusted earnings per common unit of $0.20 for the second quarter, reflecting our stable contract-based operating platform and financial profiles. Moving on to slide five, in line with our strategy of using our contracted cash flow to reduce leverage, for the quarter we utilized 71% of our adjusted EBITDA to service debt and interest payments. For the quarter we generated $15.8 million in operating cash flow, including a negative working capital adjustment of $3 million. Excluding the working capital changes, operating cash flow for the quarter was $18.8 million in line with the prior quarter. And after debt service payments and payments to preferred unit holders, we generated $4 million in line with the prior quarter and our prior guidance. For the quarter, our cash balance increased by about $2.7 million to $86.7 million. due to the aforementioned changes, and proceeds of 2.1 million from the issuance of common units under our ATM program, the last sale of which took place in May. Moving on to slide six, this slide gives you a snapshot of certain financial metrics. As of end June, we had 591 million of debt outstanding under one credit facility, all of which has been hedged with an interest rate swap for the life of the loan until its maturity in September 2024. We have no scheduled capital expenditures until 2022, which is when three of our LNG carriers will undergo their third special surveys and installment of their ballast water treatment plants. Moving on to slide seven, we are continuing to execute our strategy of organically deleveraging our balance sheet with the cash flows from our contracts, which we believe is the only sustainable way of positioning the partnership for future growth. Compared to the same period two years ago, before our refinancing in 2019, our weighted average interest has decreased by 54%, and our weighted average indebtedness has decreased by $114 million, which has resulted in a reduction in interest expense of $7.4 million per quarter. This natural deleveraging process takes time, and we expect that as a result of the $48 million amortization requirement on our sole credit facility, our total projected net leverage will decrease from 5.2 times to less than 3.4 times in 2024 on a steady-state basis. Moving on to slide eight, in this slide we show our fleet-wide cash flow breakeven per day per vessel versus our contracted time charter rates for the quarter. If we look at the breakdown, we have a competitive cash EBITDA breakeven of $18,300 per day per vessel. Cash interest expense represents $8,700 per day per vessel, and repayment of debt is around $22,000 per day per vessel. So our contracted fleet time charter equivalent of $60,879 per day per vessel is well above fleet cash break-even levels of $49,000 per day per vessel, excluding preferred distributions. That wraps it up from my side. I will pass the presentation over to Tony.

Thank you, Michael. Let's move on to slide 9. Our fleet currently counts six LNG carriers with an average age of about 11.1 years. Charterers of our vessels are substantial gas producers, namely Equinor, Gazprom, and Yamal LNG. As of today, 8 September, the fleet contract backlog is about 1.09 billion, equivalent to an average backlog of about 1.82 million per vessel, and the fleet's average remaining charter period per vessel is about 7.4 years. Moving on to slide 10, our strategy is to conclude long-term charters with reputable LNG producers. After concluding a new two-year charter contract with Equinor for the vessel Arctic Aurora, our earliest potential availability will be in the third quarter of 2023 for the same vessel. The next available vessel after the Arctic Aurora may be the Clean Energy, which contract expires in 2026. Bar any unforeseen events and except vessels scheduled to adopt Kings, our fleet is 100% employed for the remainder of 21, 100% for the year 22, and 95% for the year 23. All the vessels in our fleet are employed on time charter contracts with asset-strong counterparties, under which the charterer pays major voyage-related variable costs, such as fuel, canal fees, and terminal costs. Two of the vessels, namely the Lena and Yenisei River, are under dry dock and OPEX cost pass-through contracts that in general provide protection for reasonable inflation in operating expenses. Although we do not have immediate shipping availability, I think it's worth to mention that Q2-21, which season typically can be slow for LNG shipping, was active and healthy, in particular for charters for six months and above. There was, in general, strong demand for LNG, while at the same time also less than expected LNG supply from non-US suppliers, which led to high gas prices. This enabled the US to increase energy exports, and with most of the additional supply going to the Far East, coupled with waiting time in the Panama Canal, led to a high demand for available LNG carriers. In general, we are optimistic about the outlook for LNG shipping, driven by a growing demand for LNG and a mature global infrastructure network that supports worldwide trading of LNG and consequently an efficient pricing of both LNG and shipping. Although our charter income has not been affected by the COVID-19 situation, as all of our vessels are employed on term contracts, we are monitoring the situation and outlook. From an operational point of view, we are taking strict measures to protect our seafarers, office staff, and other stakeholders along the logistics chain. Moving on to slide 11. Five out of our six LNG carriers have been designed, constructed in accordance with, and are assigned with ICE class 1AFS notation. These LNG carriers are also winterized down to minus 30 degrees. While the ICE class notation is in part concerned with the vessel's hull and machinery and ice-breaking capability. The winterization features are installed to ensure travel-free operation in sub-zero areas. Our partnership and our sponsors represent a total market share of about 82% of the global Ice Class 1A FS, or equivalent LNG carrier fleet. Our fleet is frequently calling icebound and sub-zero areas, indicating our charterers are able to unlock the value of the ice glass notation and winterization features. The fleet's typical area of navigation with regards to icebound and or sub-zero areas are the northern sea routes where the vessels can operate during summer season, the Sakhalin Island, and northern Norway. As our fleet can perform operations in icebound, sub-zero, and conventional areas without any significant difference in operating costs between the two areas, we believe our fleet has a broader market reach compared to same type of vessels without ice class or winterization features. Let's move on to slide 12. We are an experienced energy company known as a reliable service provider, able to perform core operations in particularly harsh environments. Our fleet is unique and provides for trading versatility. Our focus continues to be on operational performance, which translates into high utilization and cost control. Our vessels are employed on term contracts with key industry participants, which cash flow is largely utilized to organically reduce debt. At the current, we are amortizing our debt with about $48 million per annum, and we expect that reduction of debt will reduce our break-even costs over time. We expect that the solid contract revenue backlog of $1.09 billion and competitive cost of debt will allow us to delever our balance sheet, reinforce our liquidity, and generate cash as to build equity value and our cash position over time, which we believe will enhance our ability to pursue future growth initiatives. We have now reached the end of the presentation, and I now open the floor for questions. Thank you.

Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. Again, that's star 1 for any questions. Our first question for today is from Ben Nolan from Stiefel. Please go ahead. Your line's open.

Hi. Good morning or afternoon. Michael, Tony. So I have just a couple questions. The first one is on OPEX. I know in the press release, and you talked a little bit about it, that the OPEX is a little bit higher than it had been and was related to COVID. Any color as to sort of how you expect that to play out going forward is sort of what we saw this quarter, kind of the run rate that you would expect?

Yeah, I think the current run rate is what we would expect. I think the increase was due to the fact that because of COVID last year, there weren't any food changes done. So the costs were, let's say, much lower than they would have been. So the current run rate is what we would expect going forward.

Okay. Thanks, Michael. And then secondly, I guess for you, Yeah, obviously there's not a whole lot of moving pieces in the capital structure here, but one of the ones that is at least maybe possible and I was curious about was you have the 9% preferreds that are now trading somewhat above par but are callable effectively any time. Yeah. Is there any thinking or any ability, do you think, to perhaps refinance those at maybe a lower coupon to enhance the organic cash retention?

Yeah. Well, I mean, I think it's challenging to be able to refinance them with similar type of products at a cost which would make sense. Hopefully, as we build up liquidity, let's say we look at the company at this particular stage more on an organic basis, what can be done organically? I think right now we have $87 million on the balance sheet, $50 million is restricted. We do want to maintain some free liquidity for whatever might happen as protection and and just in case something, you know, for an opportunity comes up, we can act quickly. But I think at this particular stage, we would rather maintain the current liquidity on the balance sheet rather than buy a small part of the preferred back. And if in the future organically we can do something with the preferred, that's something which is of great interest to us because it's the most expensive piece of our capital structure. So it's something that we're we're looking at and we're thinking about how we can deal with this in the best way.

Okay. But it sounds like for now, at least, you're waiting to sort of continue to pay down the debt and build the cash balance before there's anything probably really actionable there. Yeah. That's fair. Okay. All right. Cool. That does it for me. Appreciate it. Thanks, guys.

Thank you. Thank you.

Our next question is from Randy Givens from Jefferies. Please go ahead.

Howdy, gentlemen. How's it going? Hi.

Hi, Randy.

I guess two questions. You know, you mentioned your last ATM sale was May or back in May. Any plans on using that again this year? And also, what is your current unit counts?

No. At this particular stage, we don't have any plans to issue any further equity under our ATM. I think we mentioned this in our prior call that if we're going to make any further sales, we have to have a very good idea of what we're going to do with the money. So until that happens, I don't think we're going to make any further sales under the ATM right now. The share count is $36,802,247. Precise. All right.

Well, thank you very much for that. And then my final question, yeah, just looking at your fleet, and as you mentioned, maybe some drop-down opportunities or acquisitions, you have a fully chartered fleet for the next two-plus years. What is the partnership looking at in the meantime? Are there some growth potential opportunities, maybe from a new building side, secondhand side, or purely looking at kind of additional drop-downs from the sponsor?

Yeah, thank you, Randy. Listen, I think Michael also alluded to, you know, we don't have any immediate plans of acquiring any of the any of the parents' vessel or ordering new buildings. We want to keep, you know, status quo for a couple of more quarters to build up more cash on the balance sheet and, you know, and kind of reduce debt a little bit, you know, further. And we think the time is on our side. Our balance sheet is getting stronger. The debt on the parent vessels are getting lower. So, yeah, we don't have any immediate plans on the growth side, but at some point they will come.

Got it. All right, well, that's it for me. Thank you.

Thank you. Thank you, Randy. Thanks.

And there are no further questions waiting. I'll now hand the call back to CEO Tony Lauritsen.

Well, thank you to everyone for your time and for listening in on our earnings call. We look forward to speak with you again on our next call. And in the meantime, thank you very much and stay safe.

That does conclude the conference for today. Thank you, everyone, for joining. You may now disconnect.