Dorian LPG Ltd.

Greetings, and welcome to the Dorian LPG fourth quarter 2021 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. I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young. Please go ahead.

Thank you, Christine. Good morning, everyone, and thank you all for joining us for our fourth quarter 2021 results conference call. With me today are John Hadjibateris, Chairman, President, and CEO of Dorian LPG Limited, John LaCouris, Chief Executive Officer of Dorian LPG USA, and Tim Hansen, Chief Commercial Officer. As a reminder, this conference call webcast and replay of this call will be available through May 26, 2021. Many of our remarks today contain forward-looking statements based on current expectations. 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 expressed today. Additionally, let me refer you to our unaudited results for the period ended March 31, 2021 that were filed this morning on Form 8-K. In addition, please refer to our previous filings on Forms 10-K and 10-Q, where you'll find risk factors that could cause actual results to differ materially from those forward-looking statements. Finally, please note that we expect to file our full 10-K in the first week of June. With that, I'll turn over the call to John Hadjibateris.

Thank you, Ted. Good morning from Stanford, where John, Ted, and I are speaking from. Tim Hanson is calling from Copenhagen. Thank you for joining us this morning to discuss our fourth quarter and fiscal year 2021 results. Rates made a high in January, followed by a steep drop to lows in March and have now recovered to healthy levels. Confronted by the COVID pandemic, fiscal 2021 brought considerable challenges which we navigated safely and successfully towards some major accomplishments. Thanks to the dedication and extraordinary efforts of our seafarers and shoreside staff, our ships and the company continue to operate smoothly. Highlighting our commitment to returning shareholder capital, we completed our self-tender, which we upsized from 100 million to 113 million. We have now returned over 200 million since our IPO in 2014. Our dry docking and scrubber upgrade program is nearly complete. We expect the last two ships to leave the shipyards within this month. In total, we will have installed 10 scrubber systems since the summer of 2019. Twelve of our 22 owned ships will be capable of operating with hybrid scrubbers, enhancing their earning potential and commercial flexibility. We contracted for delivery first quarter 2023 a dual fuel shallow drafted 84,000 cubic meters state-of-the-art ship to be built by Kawasaki Heavy Industries. As with all recent VLGC new buildings, she will be capable of burning either fuel oil or LPG. She will be financed in a Japanese leased bare boat structure. Since we commissioned a feasibility study with the American Bureau of Shipping in 2018, we have been evaluating LPG as fuel. The prospect of LPG as fuel is an exciting one, decreasing emissions while potentially lowering overall fuel and financing costs. Vessel emissions are coming to the forefront, and the International Maritime Organization is set to revise its greenhouse gas strategy in 2023. Environmental awareness features increasingly prominently in the minds of shipping investors and all stakeholders in maritime economy. Eight of our ships are candidates for conversion to dual fuel propulsion. Looking forward, we have reason to remain optimistic. Supply concerns in the U.S. are exaggerated from our perspective. Spare infrastructure capacity is in place to facilitate both production and export growth over the near and medium term. Many forecasters continue to revise production estimates higher, reflecting the bullish sentiment heard from U.S. producers over this earnings cycle. OPEC Plus is expected to push more tons into the market, increasing tons which will supply growing global demand, especially in Asia, as the market continues to grow steadily and healthily, particularly in the petrochemical sector. The fleet growth in 2022 will be the lowest since 2018. There are currently 42 ships built prior to 2000, which in some form may be less competitive and therefore candidates for removal in due course. We believe that expanding trade volumes should absorb the current order book of 61 to 62 ships. Nevertheless, it would be foolish to deny the risk which continued ordering at the recent pace could pose. We would like to believe that the bulk of it is now done. LPG supply demand growth, along with heavy maintenance of the global fleet this calendar year, should continue to support healthy market conditions. Back to you, Ted.

Thank you, John. My comments this morning will focus on our financial position and liquidity, as well as our unaudited fourth quarter results. At March 30, 2021, we had 79.3 million of free cash. As of Monday, May 17, 2021, our free cash balance stood at 84.4 million. Last quarter, we had estimated up to 60 million in free cash flow before the cash outlays associated with our self-tender offer, but we actually generated 65.7 million. The slight variance, however, in the closing cash that we had indicated last quarter is mostly due to the upsizing of our self-tender offer by 997,739 shares, or about $13.5 million. With a debt balance of $602 million at quarter end, our total debt to total book capitalization stood at a very comfortable 38.9%. We have no refinancings until 2025, ample free cash, an undrawn revolver, and one debt-free vessel. Thus, we have a significant measure of financial flexibility. In addition, we expect our operating cash costs per day for the coming year to be approximately $21,000 per day, excluding our remaining special surveys and an outlay associated with our new building. Turning to our fourth quarter results, you may also find it useful to refer to the investor highlight slide posted this morning on our website. For our chartering, we achieved a total utilization of 95.3% for the quarter with a daily time charter equivalent, that is time charter equivalent revenue over operating days, as we define those terms in our filings, of $49,474 per day, yielding a utilization-adjusted TCE, that's TCE revenue over available day, of about $47,155. Our spot TCE per available day, which reflects our portion of the net profits of the Helios pool for the quarter, was about $48,758. Also, overall, the Helios pool as an entity reported a spot TCE, including COAs, of approximately $54,278 per available day for the quarter. Daily OpEx for the quarter just ended was $9,819, excluding amounts expensed for dry docking. It was $10,198, including those costs. Our OPEX increased somewhat sequentially as we experienced higher costs in several categories. That said, we do expect running costs to decrease somewhat going forward. Our time-charger in-expense remains stable at $4.5 million. As a reminder, we do not include time-charger in-costs in our vessel operating expenses. The Astimos Earth has recently re-delivered, so our TC in-costs going forward should be about $2.4 million for the quarter starting July 1. Our total G&A for the quarter was affected by a $4 million provision for a charter dispute. Excluding that, total G&A was $7.1 million, and cash G&A, which is G&A excluding the non-cash comp expense we book, was about $6.6 million. A large part of the sequential increase versus last quarter was driven by statutory accruals that we make at the beginning of each fiscal year. We continue to maintain a watchful eye on our G&A costs. A reported adjusted EBITDA for the quarter was $65 million. We view cash interest expense on our debt as the sum of line items interest expense, excluding deferred financing fees and other loan expenses, and realized gain, loss, and interest rate swap derivatives. On that basis, total cash interest expense for the quarter was $5.6 million, representing a $325,000 reduction from last quarter. 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 in a small floating piece of 3.68%. As a reporting matter, our realized and unrealized gain loss and derivatives also include the effect of our FFA portfolio. The calculation of EBITDA in our filings adds back only the interest on the realized gain loss, not the FFA piece. John LaCourse will touch further on this topic, but we completed nine special surveys during the fiscal year just ended and have two more in progress, both of which we expect to complete no later than June 30, 2021. As John Hachibateris noted, we have entered into a Japanese financing arrangement, similar to what we have done for other vessels in our fleet, to take delivery of an 84,000 cubic meter shallow draft dual fuel new building, which we expect to be delivered in March 2023. As with the other Japanese structures, the debt financing is already committed, and we will contribute approximately $25 million of equity as part of the deal. We funded $8 million of that during April 2021, and the remaining payments are due based on achievement of vessel construction milestones. We currently expect to make two additional payments of $8 million each in the quarter ending March 31, 2022, and the quarter ending December 31, 2022. and a final amount of roughly $1 million at delivery. We expect to meet these obligations from cash on hand. Although we currently hold a roughly 70% economic interest in Helios, we do not consolidate its P&L or balance sheet accounts, which has the effect of somewhat understating our cash and working capital. Thus, we believe it is useful to provide some additional insight in order to give a more complete picture. As of Monday, May 17, 2021, the pool had roughly $33.5 million of cash on hand. Our self-tender offer resulted in the repurchase of 8,405,146 of our outstanding shares, which means that we have now repurchased nearly 30% of the shares outstanding at the time of our IPO. Cumulatively, we have returned approximately $207 million in cash to our shareholders, and we remain committed to returning cash in the future. We have $47.9 million remaining under our current repurchase authorization. We remain interested in accretive growth opportunities that meet our risk-reward criteria, but we will remain prudent in deploying cash. Our financial position does allow us to act quickly on meaningful opportunities as they may arise, including further opportunities to return cash to shareholders. With that, I'll pass over the call to Tim Hansen.

Yeah, thank you, Chet. For the first quarter of 2021, the global seabourn LBG volumes totaled 26.5 million tons, a year-on-year decrease of only 1.7%. U.S. exports remain strong and continue to outperform the forecast. U.S. volumes continue to grow, counterbalancing the declines in the Middle East volumes. During the second quarter, American export volumes increased by 7.1% year-on-year, to 11.8 million tons, the second highest total exports on record. Only the previous quarter was higher. Volumes would likely have been higher had the U.S. Gulf not experienced extreme weather that shut just about all LPG-related infrastructure for about two weeks in February and fell directly after the Lunar New Year. While February is generally the weakest month of the year for export volumes, February 2021 volume only totaled 2.9 million tons, marketing a 23-month low and a 19% decrease versus February 2020. Both January and March exports were on record levels at 4.4 and 4.5 million tons respectively, represented 21 and 18 year-on-year percent of growth. The Baltic market index on the Rasanur Chiba route averaged 54 metric tons per ton last quarter, and was another roller coaster quarter. The market continued the bull run from 2020 for the first decade of January, rising to $119 per metric tons on the benchmark route, Rastanova Chiba. This was actually the highest level since the summer of 2015. The market came to an abrupt halt after two weeks of record draws of the US inventory due to high exports and the cold weather in the US. U.S. LPG prices rose, and as a result of this, a nation's weather normalizing, the French demand moderated, while the arbitrage narrowed and buying interests reduced. Trade rates fell as buyers opted a wait-and-see pattern. Because of the dramatic pause in the U.S. exports, the backlog and delays at the Panama Canal reduced from around 10 days in mid-January to two days in mid-February. With the situation in the U.S. Gulf normalized, the lack of delays in the Panama Canal contributed to rates unwinding as the quarter progressed. The rates bottomed out at $29 per metric tons in early March. Rates, however, came steadily back since then, reaching $50 per metric tons by the end of March. as the U.S. production came back online and the Chinese importers returned to the market. Chinese and Indian demands were the bright spot last quarter, growing 14.6% and 17.4% respectively compared to the same period of last year. Three Chinese PDH plants began operating in first quarter 21, representing 1.9 million tons per year of demand. For 2021, China is estimated to have an LPG deficit of around 2 million tons and a demand increase of 6% driven by new PDH and steam cracker capacity coming online. Continued LPG penetration in India has grown demand. On February the 1st, the government announced plans for 10 million additional LPG connections in the next fiscal year. On the supply side, we continue to watch the US and gel production and inventories. The promise of higher production levels that we saw in the early last quarter was lastly derailed by the Texas February freeze, which shut in production for nearly two weeks. However, production normalized quickly. As a result, first quarter production was nearly flat year on year, while the IA forecasts that the U.S. propane production should increase by only 1% this year and by 3% next year. We believe that the U.S. production may surprise to the upside, given the dramatic increase in fractionation and pipeline capacity that was added last year. Storage levels, while tracking below last year's levels, are still within the trading five-year average, neither of which is surprising after such a heavy draw last quarter. A large degree of lower inventory levels can also be explained by the recent growth of the U.S. export capacity. Although we witnessed heavy inventory draws last quarter and especially high domestic and export-related demand, we are in the shoulder season now and inventories have already started to increase. With the OPEC Plus agreeing to increase production in the second quarter and possibly beyond, Middle East volumes should pick up as the year progresses. potentially reversing recent decline. Iranian supply, however, remains a big near-term question, although we believe that any 2021 impact is likely to be minor. With this, I will pass on to General Curtis to cover.

Thank you, Tim. The upgrade of the last two of our vessels with high-based coverage is currently in progress, including the completion of those vessels five-year special survey requirements, and we anticipate completion of all the works in early June. By that time, Dorian will be operating a total of 12 scrubber vessels and would have completed the announced scrubber retrofit program for the retrofit of 10 hybrid scrubbers to our own fleet, which started in the summer of 2019. During a 2021 financial year, which ended in March 2021, We completed nine of our vessels, five-year special surveys, which is the same number of vessels that we completed in the 2020 financial year. The completion of special surveys on a total of 18 vessels during the last two financial years, along with the two vessels currently in progress, completes the five-year cycle for 20 vessels in the Dorian LPG fleet. The high-sulfur, low-sulfur bunker spread since the beginning of the year has stood at about $100 per ton of fuel, producing an earnings advantage for our scrubber-fitted vessels. Given the recent economic trends, we anticipate that an increase in the supply and demand for oil could maintain or perhaps widen the current bunker spread, not only further supporting our capital investment in hybrid scrubbers, but also improving our fleet's environmental footprint. Hybrid scrubbers not only reduce sulfur oxide emissions to levels below 0.5 and 0.1 of the compliant marine fuel oils being used, but they also reduce particulate matter and black carbon emissions by more than 80%, neutralizing effluent water levels with caustic soda. Depending on each country's water discharge restrictions, the hybrid scrubbers can operate either in open or in closed-loop mode, keeping in line with environmental sustainability requirements. Dorian has been evaluating LPG dual fuel technology since 2013, when our first new building vessels were ordered, and we have followed it closely since then. With a few dual fuel LPG retrofitted vessels now entering the service in the world fleet, and the first few new building dual fuel LPG vessels delivering from the shipyards, We will revisit this upgrade for some of our vessels. In line with our interest towards dual-fuel LPG-powered engines, we have recently taken a step in that direction by contracting an 84,000 cubic meter dual-fuel LPG new building vessel at Kawasaki Heavy Industries in Japan. This vessel's delivery is anticipated in March 2023. We are continuing to invest in our vessel's performance and efficiency to reduce emissions and lower operating costs. An improved environmental footprint is very important to Dorian LPG, and we continue to explore other incremental energy efficiency technologies, including vessels power management with hybrid battery storage systems and fuel cells. From 2023, it is mandatory for each vessel type to comply with its assigned energy efficiency existing ship index, or EEXI value, and the vessels EXI technical file, which will need to be approved by their classification society. This short measure adopted by the IMO for the reduction of greenhouse gases is based on the published resolutions and guidelines of the Marine Environmental Protection Committee, the MEPC 75. The entire fleet of existing VLGC vessels are required to meet a 30% reduction factor in their maximum continuous power rating of their main engines. Options available for the VLGC fleet are engine power limitation, energy efficiency technologies, or a dual fuel engine upgrade to LPGS fuel. Most of these available options will have a significant impact on the VLGC fleet over the next two years, while encouraging the scrapping of older vessels, increasing the order book, and encouraging further capital expenditure and upgrades of the fleet towards improved efficiencies to reduce the carbon intensity and opting for dual fuel upgrades. Our outlook is that from a regulatory perspective, there is an urgent need to consider energy efficiency for all existing vessels, and we conclude that a portion of the VLGC's fleet trading capacity will be reduced in order to address those upcoming compliance considerations. And with that, I will pass it over to John Hadjipateras.

Thanks, John. Thank you. Operator, can we open up for questions now?

With the prepared remarks completed, we will now open the line for questions. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Sean Morgan with Evercore. Please proceed with your question.

Hey, guys. So we talked a lot about adding scrubbers and the dual fuel potential of the new order and kind of the order book ticking up a little bit. And just in the context of just how rapidly investors and I guess regulatory authorities are starting to lift the carbon footprint, how comfortable are you that you'll be able to retrofit these vessels if the regulations kind of surrounding carbon emissions start to to kind of change? Because we're talking about capex for equipment that's going to last decades. So just kind of how do you think about new orders in the context of just kind of changing rules regarding carbon?

There are a lot of questions there and a lot of uncertainty, mainly because the regulations haven't really been solidified yet. So I think at this stage, like other shipping companies, the best we can do is comply with what's in sight. And because of the feature of our ships being LPG carriers, we have a leg up in a way in this whole equation because we can look at LPG as fuel, and it's not as complicated as it would be for, you know, container ships to go to LNG or crude carriers and bulk carriers to be – to be powered by LNG or other fuels. So I think we're in there. We're thinking about it all the time. We have solid plans, as is evidenced by what we did on the scrubbers. And in terms of converting the existing ships that I mentioned, we have eight of our existing ships who could be candidates. We're actively talking with providers and shipyards to see if we – but we haven't decided to take a final step and go ahead yet. We've watched BW do this, and they have a first mover advantage, and we have a second mover advantage, we feel. Okay.

Thanks, John. And then – Regarding the GNA charge this quarter, it sounds like there was a contract dispute, charter dispute. Has that been resolved? Is this a one-time charge? Should we think of this as kind of non-recurring, and do we expect that to reverse in a future quarter, or is it sort of done and dusted now?

We made a provision for a possible payment. That is our best estimate of what – we would be required to pay if we lose. So that's it. And it's not ongoing. It was a one-off relating to a delivery of a ship on a charter, and we don't expect that to have an impact more than what we've provided for at all.

But it could reverse at some point down the line? It could reduce.

It could reduce. We think it's a potential liability, and that's why we made the provision for it. So I wouldn't count that $4 million as being available.

Okay, but sort of non-recurring also. All right. Thanks a lot.

Thank you.

Our next question comes from the line of Omar Noctow with Clarkson's Plateau. Please proceed with your question.

Thank you. Hey, guys. Good morning. Yeah, generally good overview, I thought, in the, you know, your opening remarks. And then just maybe wanted to just dig maybe a little bit further, you know, on the new building deals you see. You know, John, in the past, when we talked about it on conference calls, you haven't really been interested in new buildings. And just wondering, you know, what's changed in your eyes to make you more comfortable with this order? And also, what's the appetite look like for potentially more than just this one?

I think that it speaks for itself in a way. It's one ship. We're putting our toe in the water with dual fuel. We're doing something which is a bit centric to customer needs as we perceive them developing in terms of the Japanese market. We're taking advantage of attractive financing opportunity, and I think it in no way imperils or inhibits our ability to continue to focus on capital allocation with a bias towards returns to shareholders. That's fair, John. Thank you.

Um, yeah, I was just going to ask, I mean, that makes clearly that makes sense. And, you know, do you think there's, do you have a desire to expand that, you know, from what you see now, whether it's from your discussions with, with your customers or, you know, attractive financing or, or, you know, slot capacity, do you see an opportunity or an interest on your part to, to add more than just the one?

I can give you a non-politician's answer to that. No.

Okay. That's clear. And then I guess, obviously, as you said, dipping your feet into the dual fuel a bit more, how does this kind of change or how should we think about the perspective of you adding secondhand vessels I know you haven't been acquisitive, but generally speaking, do you think outright acquisitions of, you know, existing vessels would also happen with capital or do you prefer more of like the TCN approach that you've done here in the recent past, you know, in order to add, you know, to increase your existing footprint?

You know, we've taken a portfolio approach and, you know, the TCN approach we find very interesting and we will continue to execute on that. And hopefully not by adding – we'd like to see the order book kind of stabilize here. As I said, I think it's – the prospects of it getting absorbed are good, and we're confident in the expanding trade, et cetera. But we At this stage, and I don't want to exclude anything, but at this stage, we do not have the appetite for more new building. And as regard secondhand, you could see us being a seller as much as you could see us be a buyer. It depends totally opportunistically on where we see value and whether it will be accretive or not.

Okay, yeah, that speaks to your portfolio approach. One final one, just back to the new building. Do you think that this is a vessel, at least from your conversations with your customers, is this a ship that you can intend to deploy on a long-term charter? Is that kind of what, I don't know if you hinted at that, or is that just a general conversation that there is interest for these types of ships in the future?

Yeah. Not necessarily, Omar. I think because of her draft, she's suitable for the trade, but we're not counting on a long-term charter. If it comes and it's at the right price, we'd be happy to do it, but we're not counting on that.

Got it. Okay.

Thank you.

I'll leave it at that.

Thanks, Omar.

As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Eirik Havelsen with Perito Securities. Pleased to speak with your question.

Yeah, hi. Just one on your three older ships then, because there's obviously a lot of talk on the Duel Food and Moderns. But what do you see as a market for the kind of pre-eco ships like the three captains you have post-2023? And is the ambition, I mean, the S&P market for those type of ships is, perhaps surprisingly liquid and strong, really. Is that something you're looking at thoroughly, then, when you say you could be a seller?

As much as we're looking at everything thoroughly, yes. But we're not focusing on selling those three ships. But I think the values are solid, and that's very encouraging. So the option of selling, and as a as a renewal ultimately, et cetera, is there, and we are examining it. But we don't have anything right now that we can report on in terms of a transaction. A couple of them are engaged in time charters, and I think that to go beyond the regulatory and all that at the moment is too speculative to know what – how these ships will be performing relative to the others.

Okay, but when you talk about retrofitting, those three wouldn't be in that field. You wouldn't think about retrofitting, no. Okay, and then finally... Exactly. And when you talk about shareholder returns, you still have a preference towards buybacks rather than dividends? Is that a fair assumption?

We think our self-tender was a successful and positive way to make that return. We do have the option of buybacks, and we do not want to exclude the possibility of doing dividends. sorry about that that's not very committal one way or the other except to say that we will be with this market continuing the way it is we expect to be making returns okay and then finally then on the the cost of the new build i i missed it was it 84 million you said uh it was 84 000 cubic meter and it we can't tell you the price but it's not 84 million

Okay, thank you. Okay.

We have reached the end of the question and answer session. Mr. Hadjipateris, I would now like to turn the floor back over to you for closing comments.

Well, thanks, everybody, for attending, and thank you for your questions. We look forward to seeing you again in three months.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.