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spk05: Greetings and welcome to the Dorian LPG first 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. dorianlpg.com. I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, and over to you, sir.
spk00: Thank you, Ryan. Good morning, everyone, and thank you all for joining us for our first fiscal quarter 2024 results conference call. With me today are John Hajbateras, Chairman, President, and CEO of Dorian LPG Limited. John LaCouris, Chief Executive Officer of Dorian LPG USA, and Tara Rasmussen, Vice President of Chartering. As a reminder, this conference call webcast and a replay of this call will be available through August 9th, 2023. 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 statement 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, 2023, that were filed this morning on Form 10-Q. Also, please refer to the investor highlights slides posted this morning on our website to accompany today's discussion. Finally, please refer to our previous filings on Forms 10-K, where you'll find risk factors that could cause actual results to differ materially from those forward-looking statements. With that, I'll turn over the call to John Hedgwateris.
spk03: Thank you, Ted. Good morning from pleasantly sunny Stamford, Connecticut. Thank you for joining John, Ted, Taro, who is calling in on behalf of Tim, who's on vacation, and me to discuss our first quarter financial 2024 results. The quarter's results reflect a strong freight environment, with Doering earning a time charter equivalent exceeding $50,000 per day. We generated $46.5 million of free cash flow, which more than funded our $40 million dividend last quarter. Including the dollar dividend declared on July 27, we will have returned nearly $610 million to our shareholders since our IPO. To strike the right balance in our capital allocation approach, our board considers current and expected freight market conditions the company's capital and operating needs, our net debt to total capitalization, which is roughly 32% at present, as well as potential strategic opportunities. Regarding fleet renewal, 25 ships with a useful life of approximately 25 years implies replacing one ship per year. We capitalized on a good set of market dynamics to build one ship, and to charter in three more on initial seven-year terms with options. These fleet renewal deals were economically attractive, as the chartered-in ships give us market exposure, optionality on length and the potential upside of the precious options, while not requiring a large upfront investment. We prize optionality in our investment decisions as we continue to evaluate fleet renewal and other opportunities. We see increasing demand for LPG, both for residential and for commercial use in the petrochemical markets, supported by the relative cheapness of LPG versus NAFTA and LPG's lighter environmental footprint. With additional delays expected due to the well-publicized drought conditions in the Panama Canal, we hope that our choice to charter in three ships whose beam enable them to transit both the Panama and the Neo-Panama locks will be rewarded. It is appropriate to mention the importance to our business of our relationships with our charters to whom we are committed to provide safe, reliable, and clean transportation, and with our people at sea and onshore to whom we commit to provide a safe, inclusive, and equitable workspace. These priorities, we believe, equips us to deliver the best returns for our investors. And a productive collaboration between our charters and seagoing and shore staff help us achieve efficiencies and reduce fuel consumption and emissions as we evaluate and deploy new energy-saving devices. I should also mention that in response to the crisis which continues to affect a number of our Ukrainian and Russian seafarers and their families, we introduced flexible arrangements for joining and repatriation, added free internet on board, supplemented medical insurance, and are providing a monthly allowance for displaced families. The current freight market level supports an optimistic financial outlook for the second quarter ending September 30th. Our cautious approach to capital allocation will continue to guide our decisions. As I hand over to Ted.
spk00: Thanks, John. My comments today will focus on the recent capital allocation events, our financial position and liquidity, and of course, our unaudited first quarter results. At June 30th, 2023, we reported $155.5 million of free cash which was net of the $40.5 million in dividends paid in the quarter. As of yesterday, we had $174.4 million in free cash, reflecting the current favorable market environment and free cash flow generation. Also, as previously disclosed, we'll pay another $1 per share dividend as an irregular dividend, or roughly $40 million in total of dividends on or about September 6th to shareholders of record as of August 10th. We fixed the interest rates on the Captain Marcos dual fuel and Cresk Japanese financings during the quarter and fixed the Cougar Japanese financing in late July with an effective start date in August following its next principal payment. With those fixings in place, our weighted average cost of debt is about 4.7%, which is actually below the current one- and three-month SOFR rates, which are around 5.3%. Our next refinancing event is at the end of December 2026, which is the ball cap facility. We amortize about $13.2 million in principal per quarter, or slightly less than $53 million annually, which we consider quite manageable and largely in line with our book depreciation. With a debt balance at quarter end of $650.3 million, our debt to total book capitalization stood at 42%, and our net debt to total book capitalization at 32%. With well-structured and attractively priced debt capital, an undrawn revolver, and one debt-free vessel, coupled with our strong cash balance, we have a comfortable measure of financial flexibility. We continue to expect our cash costs per day for the coming year to be approximately $23,000 per day, excluding capital expenditures for dry docking and scrubbers. For discussion of the first quarter results, you may also find it useful to refer to the investor highlight slides posted this morning on our website. Turning to our first quarter chartering results, we achieved a total utilization of 98% for the quarter with a daily TCE, that's time charter equivalent revenue operating days, as those terms are defined in our filings, of $51,156, yielding a utilization-adjusted TCE of about $50,142. which is our TCE revenue per available day. Though sequentially lower than last quarter's results, the TCE still represents an attractive free cash flow to equity given our $23,000 a day cash cost. Spot TCE per available day, which reflects our portion of the net profits of the Helios pool for the quarter, was about $51,356. Also, overall, the Helios pool reported a spot TCE, including COAs, of approximately 58,280 per available day for the quarter. We know that the previous guidance that we had given about using the trailing two-month Baltic did not hold true this quarter, which we attribute to more concentrated voyage bookings in May. This clumping reflects the regular ebb and flow of the VLGC trade. Daily OPEX for the quarter was $10,094, excluding dry docking-related expenses, which was sequentially down from last quarter's $10,304. Crew costs trended down, and other cost categories contributed to the reduction as well. Our time chartering expense for the five time chartering vessels totaled $10.5 million, consistent with our guidance last quarter. Note that the crystal ball, which delivered on July 10, 2023, will increase total TCN expense for the current quarter ending September 30 to approximately $12.2 million. Our total G&A for the quarter was $9.2 million, and cash G&A, which is G&A excluding non-cash compensation expense, was about $8.4 million. That number included $2.2 million of cash bonuses paid during the quarter. and it also included about $100,000 in support of the families of our seafarers affected by Russia's invasion of Ukraine. Taking account of those two items, our core G&A came in at about $6.1 million, which is largely consistent with our expectations. Our reported adjusted EBITDA for the quarter was $74.8 million. Turning the interest expense, which, as you'll recall, we view as the sum of the line items of interest expense, excluding deferred financing fees and other loan expenses, and the realized gain loss on interest rate swap derivatives, we reported cash interest expense for the quarter of $8 million. The sequential decrease versus the March 31 quarter was largely the impact of a full quarter of interest on the Captain Marcos dual fuel facility and higher SOFR rates on our floating rate Japanese financings, which are now fixed. Though we currently hold an 85.5% 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's useful to provide some additional insight in order to give a more complete picture. As of Tuesday, August 1, 2023, the pool had roughly $15 million of cash on hand. The dividend declared last week of $1 per share brings to $9.50 the total dividends that we have paid in the last nine quarters. While many investors and analysts like to suggest that these dividends are no longer irregular, we underscore that they are indeed irregular and subject to the discretion of our board and the various factors that John previously outlined in his comments. VLGC rates are not regular, and thus we don't think our dividend policy should be either. Together with our open market stock repurchases and our $113.5 million self-tender offer, we will have returned in excess of $610 million to our shareholders since our IPO. The significant dividend payments in the last year underscore our board's commitment to a sensible capital allocation policy that balances market outlook, operating and capital needs of the business, including fleet renewal, and an appropriate level of risk tolerance given the volatility in shipping in general and VLGC rates in particular. With a solid freight market backdrop, we remain cautiously optimistic about our cash flow generation over the coming months. With that, I'll pass it over to Taro Rasmussen.
spk06: Thank you, Ted. Good day, everyone, and thank you for dialing in. The first quarter fiscal year 2024 saw increased global seaborne trade of LPG. The April-June 2023 period was the strongest quarter on record in terms of seaborne LPG trade. This is seen on slide five of our accompanying slide deck. Regarding seaborne LPG trade, North American exports were buoyed by weak domestic consumption during the tail end of the mildest winter since 2010 and a warmer than normal summer minimizing the need for early crop drying. This was amidst continued record-setting production levels. The quarter ending June 2023 was the quarter with the highest export volumes on record from North America. Middle East export volumes for the quarter also set a record for highest exports. Although exports into India grew modestly, Southeast Asia and China absorbed much of the Middle East exports. The healthy import demand into China was partly driven by increased demand for propane as a feedstock for the pet chem industry. This was a factor seen in the prior quarter, but also the quarter ending June 2023. For Far East steam crackers, propane was at about an average 15% discount to NAFTA in January through March, but an average 30% discount April through June for making one ton of ethylene. This testifies to the attractiveness of propane over the quarter. Regarding the development of the freight market over the quarter, historically the April-June period for the VLGC freight market is characterized by an upward correction in the front and softening as summer approaches. In 2023, however, the start of summer surprised positively, with worries of a summer lull quickly eroding. This was affirmed as the east of Suez market saw the BLPG-1, the benchmark Arabian Gulf Chiba rate, correct significantly upwards from the beginning of the quarter, with a momentum carrying through the period. Somewhat unusually for the eastern market, Lay cans were reaching more than one month ahead of the fixing window in April. This is significant, as the fixing of tonnage just a month ahead of lay cans tends to indicate stronger demand and a firming freight market, but also raises the likelihood of inefficiencies due to delays. The west of Suez Market mirrored the east of Suez Market. April saw an upward adjustment in activity, and the widening arbitrage facilitated an upward correction in the freight market as Mont Bellevue prices declined at a faster pace than Far East delivered prices. This is seen on slide four of our accompanying slide deck. For most of the quarter, lay cans were being fixed about eight weeks forward. The benchmark Houston Chiba rate, the BLPG-3, steadily rose from the start of the quarter from about $102 per metric ton to about $184 per metric ton by the end of the quarter. Particularly towards the end of the quarter when the freight market improved, we saw Far East importers concentrated on vessels scheduled for September arrival to begin stockpiling for the winter. To wrap up, About 20 VLGCs have been delivered in the first half of 2023, including our own new builds, and about 21 more are forecasted to be delivered in the second half of the year. Absorption of the 2023 order book was a primary concern previously, but increasing seaborne trade, healthy demand for LPG, and inefficiencies in the market allowed for a positive order. The positive market Fundamentals for VLDCs remain in place as the focus soon shifts to the inventory building season in the Far East, which will provide further market support. And it seems oversupply risk in 2023 has been mitigated to a large extent. Thank you.
spk04: I will now pass over to Mr. John LaCouris. Thank you, Taro.
spk02: We report on the daily scrubber savings realized last quarter by our scrubber fitted vessels of about $2,740 per calendar day net of all operating expenses. During the second quarter of 2023, price differentials between the benchmark light sweet WTI and the medium and heavy sour crude narrowed as refining margins declined on supply and demand concerns. The average fuel cost differential in the last quarter between high sulfur fuel oil and very low sulfur fuel oil, the high five spread as it's called, was $169.3 per metric ton, less than the VLSFO fuel. In the next quarter, we expect a further narrowing of that spread as the middle distillate market supply has grown while the high sulfur residual fuel supply has tightened. With most of the VLGC spot forages originating from Houston, our LPG dual fuel engine vessels have benefited from the good availability and the attractive pricing differential of LPG as fuel versus the very low sulfur fuel oil. It currently stands at about $210 per metric ton less than the VLSFO, after taking into consideration the energy density differential of the two fuels. On the technical front, during the recent dry docking of one of our vessels, we completed the retrofit of a scrubber unit, thus increasing our fleet of scrubber vessels to 13. Installations of energy-saving devices on our vessels are continuing as we also continue in reviewing new devices like, for example, wind-assisted propulsion or air lubrication. We are progressing with the implementation of engine power limitation on our vessels in compliance with the 2023 EXI regulations and with installation of engine software upgrades that are expected to improve our CII ratings. In July, the IMO's MEPC committee met and adopted a revised greenhouse gas strategy that aspires to reach net zero emissions by 2050. Also, to ensure a peak in emissions is reached as soon as possible. The committee also set intermediate checkpoints on the total amount greenhouse gas emissions, indicating at least a 20% reduction needed by 2030 and a 70% reduction by 2040. It also agreed that to achieve such emission targets, there will need to be an increase in the uptake of zero and near zero greenhouse gas emission technologies on new fuels and energy sources, all of which should comprise about 5 to 10% of the energy used in shipping by 2030. Life cycle assessment guidelines were also adopted that address the well-to-wake greenhouse gas intensity of marine fuels. Some further development is anticipated in the next committee meetings regarding methodologies, default emission factors, sustainability aspects, and certification processes for these fuels. The global greenhouse gas objectives have become more urgent as we experience daily extreme climate changes around the world. The EU, followed by the IMO more recently, have tightened their greenhouse gas strategies to net zero emissions by 2050 or earlier. a target that will necessitate significant reductions of greenhouse gas within this decade and the next. After considering the numerous technical and operational improvements being implemented by the marine industry, the EXI and CII regulations of 2023, and the increased use of alternative marine fuels, we still believe that additional measures will need to be implemented to achieve those tighter greenhouse gas objectives for the 2030s and 2040s. In the medium term, we expect that carbon capture and storage will become one of those necessary measures, much like the SOx scrubbers of the 2020s, which will enable the marine industry to transition to more advanced fuels and engine technologies that can produce near zero emissions. And now, I would like to pass it over back to John for closing remarks. Thank you.
spk03: Thank you.
spk04: We're happy to take questions.
spk05: Ladies and gentlemen, with the remarks completed, we will now open the line for questions. If you'd like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 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. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Omar Noctow with Jefferies. Please go ahead.
spk07: Thank you. Hey, guys. Good afternoon. Oh, sorry. Good morning. Wanted to sort of just follow up on a couple of items you mentioned in your opening remarks and perhaps maybe, you know, first on sort of capital allocation. You know, you've added the final of the four dual field ships into your fleet here recently. You've got no commitments from here or no meaningful commitments. How are you thinking about the strategy of the company, the capital allocation? Obviously, you know, Ted, you're pretty clear with irregular dividends being irregular. You reiterated that. How are you kind of thinking about just the use of capital or use of cash as it comes in? Are there more deals available similar to the way you structured those three TCNs on the seven-year durations? Can that be repeated? Is that something that's interesting? Maybe just big picture, how do you think about the use of cash going forward?
spk03: I think that what you heard is more or less everything we have to say at the moment. I can't repeat those deals because history kind of repeats itself, but circumstances are not right now right to do the exact same thing with the exact same ships. But similar deals and other opportunities are always in front of us, and we're evaluating them in the context of the discipline that we talked about.
spk04: Okay.
spk07: No, thanks, John. That's fair. And maybe then just sort of thinking about the market, clearly it's been much stronger than many anticipated, especially with the new building deliveries coming on. It was interesting just hearing the comments about the market and And I think one of the things that maybe is somewhat interesting is the fact that despite the OPEC cuts, you noted that the Saudi volumes or the Middle East volumes were higher. Is that still the case? Is that a surprise? Normally, we would have assumed that crude production declines have an associated decline of LPG. What's happened there to cause that decline not to happen this time?
spk03: Yeah, well, there's two elements of that. One is that when you see crude production cuts, that doesn't include gas production. So a lot of the LPG that we carry is associated with natural gas. And the other is timing. And you never know with the production cuts, especially with Saudi Arabia, whether they'll be fully implemented, partly implemented, or not implemented at all, it's kind of a bit all over the place. So it can't really, it can't say that what we've seen is we can use to predict what will happen. Another aspect, going back to your question before about our investment, how we're looking at deploying cash, et cetera, Ted pointed out to me, Of course, we're also mindful of the cyclicality of our market. And it's a question of whether now is the right time or in a cycle, which we can never play. But that's why I said, given a 25-ship fleet, which is approximately where we are, and a 25-year life, which is approximately what it is, you really kind of as a guide to stand still, you should be doing the equivalent of one ship a year. Not faithfully every year, but over time, over sort of a trailing period, the average, you should be doing that to be keeping the same kind of fleet age profile and exposure and performance. basically, to be able to offer a quality product to our charters.
spk07: Yeah, definitely. Thanks for that, John. And maybe just one more. Just kind of thinking about, I think I noticed in your fleet table, a couple of vessels that were in the pools have been put on time charter here. You know, any color you can give on what those charters look like, and then maybe just bigger picture on that, given the strength of the market, has there been a jump in overall opportunities to stick ships out on the medium-term contracts, and is that something that's interesting to you guys?
spk03: I think if you compare to six months ago, there has been a bit more interest in period. It's the kind of interest that you observe when the market spikes, really, and the charters are incentivized to commit for longer periods to save the money up front. So at the moment, there's nothing from our point of view that is actionable, but we're always in the market and we do have a percentage of our Helios exposure committed on short, medium term time shutout. We think we have a good product mix, but I'm not sure that we want to disclose exactly what it is.
spk00: It's better for our competitors. It's for our investors.
spk07: Yeah. No, I get it. Thank you. Thanks, Ted, and thanks, John. That's it for me.
spk04: Thanks, Omar.
spk07: Thank you.
spk05: Thank you. Our next question comes from the line of Brian Reynolds with UBS. Please go ahead.
spk08: Hi, good morning, everyone. In your prepared remarks, you talked about firming of demand in the LPG market. So just curious if you could discuss whether you're seeing a bottoming in China PDH demand, you know, just given some of the deferrals that we've seen on some of those projects. And perhaps, you know, how could that impact the ARB, given that we're trading at historical lows for propane and butane as a percentage of crude? Thanks.
spk03: Yeah, well, Ted will pick that one up. We all have very firm opinions, and we're all aligned on it. So you'll hear the party line from Ted.
spk00: Look, Brian, as you know, there's a lot of PDH capacity that's come on in China. You know, the economic recovery there has not been as steep as everyone hoped, but it's still coming along. So I guess the short answer is, you know, we expect to see continued growth, you know, given the attractive pricing on LPG, it's a good time to build inventories. You know, the other thing that's important to recognize in petrochemical demand, broadly in Asia, but particularly in China, is that a lot of the steam cracker capacities come on over the last couple years and is on the books to come on, is actually more flexible than in the past with respect to taking LPG. So, you know, we don't think that segment should be overlooked either. So, You know, I think you look at LPG continuing to be very attractively priced to NAFTA, as Taro talked about. And you look at, I think, what we all believe will be a more sustained, if not as steep, economic recovery in China. And I think that sets up pretty well for PDH demand over the coming quarters.
spk08: Great. Thanks. Appreciate all that color. And then my second question is just around, you know, IMO. With the meeting behind us, just curious if management is looking at any, you know, subtle or maybe more than subtle strategic adjustments after the meeting, or was that kind of in line with the current expectations and future strategic decisions? Thanks.
spk03: Subtle. John Licouris, are you capable of being subtle in answering that? We are pursuing a lot of initiatives, but John, on the specific IMO results, Can you comment for me, for us, please?
spk02: Yeah. Yes, of course, John. So, Brian, it was all expected. The IMO was obliged to tighten the strategy and revise it to 2050, just like everybody else has done. And it was expected. It is what we have been working for. that we will be looking at a tighter strategy for greenhouse gas emissions and hence our comments about doing all that we can and is available to us at this time. And looking at new technologies as they come around. I'm highlighting again the last few lines of my comments which say that, you know, we're going to be looking at alternative fuels, advanced fuels. We will be looking at various measures that we could do, but also carbon capture and storage is one of those measures that we will have to undertake, just like we did scrubbers in 2020s.
spk08: Great, thanks. And maybe as just a quick follow-up on that, I know you guys are investigating potential, you know, CCS technologies for your vessels. Just kind of curious if there's any you know, initial comments from some of your early findings of, you know, how that would work on a lot of your fleet and potential CapEx implications there. Thanks.
spk03: John, you can continue.
spk02: Brian, yes. Thank you, John. Brian, the key to carbon capture is marinizing the technology and reducing the footprint so it can be installed on board ships. This is what's been going on right now. We think it will happen and we expect that eventually we will be able to install marine capture technology on board ships. Initially to be able to capture part of the CO2, eventually more. It's just a matter of the technology improving in the next few years. And it is there. It has been used by industry for decades, the oil and gas industry. And it will be marinised and it will be on board ships. CAPEX will come down, of course, as more sets of technology are being installed on board ships. I think it is viable and possible and likely.
spk08: Great. I appreciate all the color. I'll leave it there. Enjoy the rest of your morning. Thanks, guys. Thank you, Brian. Thanks, Brian.
spk05: Thank you. Our next question comes from the line of Clement Mullins with Value Investor Edge. Please go ahead.
spk01: Good morning. Thank you for taking my questions. It's been a few months since you took delivery of the first dual fuel. Could you provide some commentary on the savings you are generating relative to burning BLSFO? And secondly, is there any appetite to explore potential dual fuel retrofits on the existing fleet?
spk03: The answer to your second question is no. The answer to the first question, John LaCouris will provide you.
spk02: Hi, we just mentioned or discussed this and I'm happy to repeat part of my comments that the benefit of burning LPG as fuel versus very low sulfur fuel oil currently stands at about $210 per metric ton on an energy density adjusted basis. because as you probably know, LPG has higher energy density than low sulfur fuel oil by about 10 or 11%. So yes, it is beneficial and it is attractive.
spk01: Indeed, that's helpful. And I also wanted to ask a bit about the Captain John. I mean, you have a modern eco fleet and that would be the sole exception. How do you think about it? Is it kind of non-core, or are you happy to hold onto it going forward?
spk03: We're happy with the ship. She's a good performer, and she's not as new as the other ships, but we still consider her to be a very viable asset to use. So she's there for, you know, we never say no about selling anything. But at the moment, she's not held for sale, put it that way.
spk00: Yeah, and I also, Clemens, it's worth noting that, you know, first, nothing's ever court shipping, nothing's strategic. So like John said, you know, we'll consider anything. But also that ship, because of when she was constructed, actually is ammonia capable of to a great degree. So that does provide some optionality as ammonia becomes an increasing part of the decarbonization discussion.
spk01: Makes sense. That's everything from me. Thank you for taking my questions and congratulations for the quarter.
spk03: Thank you, Clemens. Thank you so much. And Ryan, we're done here, I think. Wishing everybody a happy August and looking forward to seeing you again in October. Thank you.
spk05: Thanks, sir. The conference of Dorian LPG has now concluded. Thank you for your participation. You may now disconnect your lines.
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