Dorian LPG Ltd.

Q4 2024 Earnings Conference Call


spk05: Good morning, and welcome to the Dorian LPG fourth quarter 2024 earnings conference call. At this time, all participants are in 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 I'd now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young. Please go ahead.
spk06: Thank you, Kevin. Good morning, everyone, and thank you all for joining us for our fourth quarter 2024 results conference call. With me today are John Hajibateras, Chairman, President, and CEO of Dorian LPG Limited, John Makouras, Head of Energy Transition and Chief Executive Officer of Dorian LPG USA, as well as Tim Hanson, our Chief Commercial Officer. As a reminder, this conference call webcast and a replay of this call will be available through May 29, 2024. 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, 2024 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 our actual results to differ materially from those forward-looking statements. Also, you may find it useful to refer to the slides we posted this morning as we make our remarks during this call. Finally, please note that we expect to file our full 10-K no later than May 30, 2024. With that, I'll turn over the call to John Haji-Bateras.
spk01: Thank you for joining John, Ted, Tim, and me today. We're happy to report that our financial year 2024 was a record year with our highest ever net income and more than 30% return on book equity. Returns to shareholders since our IPO will total $730 million after payment of our eighth consecutive irregular quarterly dividend of $1 per share declared at the end of last month. Even though these payments appear regular, I want to emphasize, as Ted has consistently done in our past earning calls, that they will continue to be contingent on the company's results of operations, financial condition, prospects, and capital funding needs. Post-COVID, the LPG market, benefiting from increasing product demand as well as geopolitical events and climate change, has for the most part remained resilient and has generated strong earnings. The wars in Ukraine and Gaza, as well as a deficit of rain in Panama, significantly changed trading patterns, adding ton miles, helping our sector absorb a very large order book in 2023. Our management, with the support of our board, while often navigating extreme spot market volatility and dealing with extraordinary issues caused by the pandemic, supply chain disruptions, and the wars played a critical role in our success by maintaining the right levels of debt and liquidity and by the diligent commercial and technical management of our ships. In the last 12 months, we expanded our fleet with one owned and three chartered in dual fuel new building VLGCs. It's a good time to be a ship owner. Dorian's task now is to build on our success by continuing the careful allocation of capital and by sensibly expanding and renewing our fleet to meet the needs of the LPG market while we also keep an eye out for market opportunities. We are optimistic for VLGCs for LPG transportation and for the emerging ammonia trade. We are confident in our team's skills to manage through cycles, and we are resolute in pursuit of our duty to our investors to create value maintain our strong balance sheet, and continue returns by way of dividends and or buybacks as appropriate. Back to Ted.
spk06: Thanks. My comments today will focus on our unaudited fourth quarter results in financial position, capital allocation, and liquidity. In March 31, 2024, we reported $282.5 million of free cash and available for sale debt securities of $11.5 million, giving us total available liquidity, which is not a gap term, of $294 million. As of Tuesday, May 21, 2024, our free cash balance stood at $270 million, which does not reflect the $40.6 million dividend that we paid out to shareholders on May 30th. With a debt balance at quarter end of $610.5 million, our debt to total book capitalization stood at 37.4%, down from 43.2% a year ago, and net debt to net total capitalization at 20.1% versus 33.5% a year ago. The improvement in these ratios is important, and we are pleased that we were able to achieve those levels while still rewarding shareholders with over $160 million in dividends over the same period. Again, we have no refinancing until 2026, ample free cash, an undrawn $50 million revolver, and one debt-free vessel. Thus, we have a significant measure of financial flexibility. We expect our cash cost per day, OPEX, G&A, time, charter, and expense interest in principle for the coming year to be approximately $25,000 to $26,000 per calendar day. For the discussion of our fourth quarter results, You may also find it useful to refer to the investor highlight slides posted this morning on our website. I'd also remind you that my remarks will include a number of terms such as TCE, operating days, available days, and adjusted EBITDA. Please refer to our filings for the definitions of these terms. Turning to our fourth quarter chartering results, we achieved a total utilization of 87.7% for the quarter. and reported a daily TCE of $72,202 per operating day, yielding a utilization adjusted TCE or TCE revenue per available day of about 63,290. As our entire spot trading programs conducted through the Helios pool, its spot results reported are the best measure for our spot chartering performance. For the March 31 quarter, Helios earned a TCE of $70,822 for its spot COA voyages and $64,900 roughly for all voyages, including time chargers in the pool. On page four of our investor highlights material, you can see that we have five durian vessels on time charter within the pool, plus one MOL Energia vessel, indicating spot exposure about 80% for the 30 vessels in the Helios pool. Turning to the quarter ending June 30, 2024, we currently have over 75% of the available days in the Helios pool booked. Given the difficulty in predicting loading dates for the remainder of the quarter, which obviously have a huge effect on revenue recognition, we felt it more appropriate to share TCE revenue over all available days in the pool for the quarter, which suggests a TCE in excess of $40,000 per day on a load-to-discharge basis, which is in accordance with U.S. GAAP. This rate includes both spot fixtures and time chargers in the Helios pool only. Daily OPEX for the quarter was 10,047, excluding dry docking related OPEX. It was 10,699 per day, including those amounts. Sequentially, our OPEX excluding dry docking was up only 1.4% or virtually flat, which was a good performance. Our time charter in expense for the four TCN vessels was $12.7 million. We expect that amount to return to the $10.5 million range going forward, which is and has been the actual quarterly cash outlay. Total G&A for the quarter was $8.5 million, and cash G&A, that is G&A excluding non-cash compensation expense, was about $6.6 million. This amount is up sequentially from the prior quarter, but most of the increases due to statutory non-cash accruals that we make for employee leave and retirement during the first calendar quarter, fourth fiscal quarter every year. Our adjusted EBITDA for the quarter was $105 million, which is the second highest quarterly EBITDA in our corporate history. For the year, our EBITDA was $417 million, also a corporate record, which is up nearly 54% from last year's $271 million of EBITDA. 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 4.7%, which yielded a quarterly cash interest expense of $7.3 million. As a reminder, we calculate cash interest expense on our debt as the sum of interest expense, excluding deferred financing fees and other loan expenses, and realize gain loss on interest rate swap derivatives. as those numbers are reported on our income statement. Although we currently hold a roughly 83% economic interest in Helios, we do not consolidate its PML or balance sheet, which has the effect of understating our cash and working capital somewhat. Thus, we believe it's useful to provide some additional insight in order to give a more complete picture. As of Tuesday, May 21st, 2023, the 24th, sorry, the pool had roughly $40 million of cash on hand. which will decrease when the monthly distribution is paid out in the next few days. The income for the year was $307.4 million, again, a corporate record. And with average shareholders' equity of $948.7 million over the year, we generated a return on equity of 32.4%, which is a testament to both great earnings and prudent balance sheet management. Turning to capital allocation, with the payment of another $1 irregular dividend, which again we remind you, and as John also mentioned, are irregular dividends subject to our board's evaluation of the business perspective market conditions, capital needs, and other items John outlined. We've now paid dividends in 11 of the last 12 quarters, totaling $12.50 per share, or over $500 million in aggregate. Coupled with $113.5 million soft tender offer and $116.5 million of open market repurchases, we've now returned nearly $735 million to our shareholders since our IPO. The significant dividend payments in the last quarter underscore our board's commitment to a sensible capital allocation policy that balances market outlook, operating and capital needs of the business, and an appropriate level of risk tolerance given the volatility of shipping. We remain cautiously optimistic about our cash flow generation over the coming months, but we will be vigilant for changes in the global macroeconomic and energy market outlook. With that, I'll pass it over to Tim Hansen.
spk04: Yeah, thank you, Chad. And good day, everyone.
spk02: So the quarter ending March 31st saw steep declines in the freight market. in January and a gradual upwards correction during February and March. The fall in freight rates in January were particularly steep after coming off the hikes in December 2023 and highlighted how significant imbalances in the market can occur. But the recovery even gradually reaffirmed that there are firm fundamentals in the VLGC market. The factors for the declining freight rates in January were the narrowing of the west-east arbitrage almost and almost one-third of expected 2024 new buildings delivering in a short window, and a drastic reduction of the congestion in the Panama Canal. The narrowing of the arbitrage through in January and February is a seasonal occurrence, reflecting of the reduced demand as the weather warms in most importing countries. The North American cold snap in January of this year exacerbated the situation. as domestic consumption increased and LPG prices in the US rose. The new building deliveries amidst an uncongested Panama Canal created a temporary oversupply in the US Gulf, which impacted the market with astonishing force. A reduction in container traffic after the holiday season rush was expected, but the degree of the reduced container traffic was unexpected. Lastly, the fact that there were zero transits in the near Panama Canal by dry cargo vessels was unprecedented. Ultimately, LPG production and exports from North America in particular are increasing and demand in the Far East remains robust. Furthermore, the Panama Canal was capped at the maximum number of transits to reduce the waiting time for those trying to take advantage of the of an open Panama Canal. And vessels sailing to Asia, the eastern route, were forced to sail the longer route via Cape of Good Hope, with Suez Canal being inaccessible. After the initial shock of the imbalance in January was suggested by the market, the market corrected upwards in February and March to better reflect the firm fundamentals of the VLGC markets. In the short to medium term, we see the market characterized by potential upside. Only about nine more VLGCs are scheduled to deliver this year at regular intervals. Propane is the preferred feedstock for steam cracking, and seven more PDAs planned in China are scheduled to start before the summer. North American exports are forecast to grow on the back of increased production. The Panama Canal is scheduled to increase transit capacity to over 30 transits per day before this summer. But we consider it likely that the congestion levels will reverse to that what was seen before October 2023, when the transit capacity was reduced. Furthermore, the sizable delivery schedule of LNG vessels and new Panamax container vessels will risk increasing the congestion. Thus, we do remain positive about the medium to long-term prospects for our business. With that, I'll pass over to John Lekers.
spk07: Thank you, Tim. Last July, the IMO's MEPC-80 agreed to change the net zero emission standard for shipping to a 2050 target date instead of 2100. As a result, the industry's decarbonization pathway has been challenged to deliver significant improvements in energy efficiency and clean fuels emissions production and offer viable green market dynamics. Shipping throughout history has proven its ability to adapt to new circumstances and challenges. Shipping's value to the world market is based on its ability to move resources efficiently around the world. Ships have been built to achieve economies of scale and to optimize operations and logistics. The shipbuilding challenges today are in building the right ship for the purpose, aiming to achieve the task at hand. What we require right now are newly designed vessels built to cope with the world's current and future environmental changes, while achieving the main purpose of moving resources efficiently around the world. Shipping's energy transition and transformation has commenced. During OPG, we firmly believe that we should be part of and provide long-term solutions to the world's urbanization objectives and goals. We have found these initiatives to be both ecological as well as economical. A scrubber vessel savings for the first quarter of 2024 amounted to $3.8 million net overall scrubber operating expenses, or about $3,480 per day per each ship. Fuel differentials between high sulfur fuel oil and very low sulfur fuel oil averaged $184 per metric ton, while the pricing differential for LPG versus very low sulfur fuel oil stood at about $197 per metric ton, a fact that was helpful for the dual-fuel engine vessels when operating with LPG. The total number of vessels fitted with scrubber units in our fleet are 14. and we plan to retrofit another vessel in the next calendar quarter during the regular dry docking of that vessel. The installation of energy-saving devices and silicon hull coatings to our vessels will continue as they provide significant performance improvements in fuel savings, reduction of the fleet's CO2 emissions, and improved CII ratings. Besides our vessel, Captain John NP, which was originally built as a VLGC VLAC, and our 93,000 new building BLGC VLAC vessel at Hanwha Ocean. We are able to upgrade and outfit some of our vessels for ammonia as cargo. Green hydrogen's future economy will depend on the transportation of large quantities of ammonia, most likely in BLGC vessels, and we are ensuring that the Dorian LPG fleet can be ready to handle this cargo at the earliest possible time without adding more new building tonnage. In continuation of Dorian's commitment to sustainability, we strive to improve on energy efficiency on both our vessels with a focus on vessel operational performance while continuing to follow technological innovations as they mature and become commercially viable in the future for the marine sector. And now I would like to pass it over to John Hechebeter for his closing remarks. Thank you.
spk01: Thank you, John. Kevin, we're ready to take questions.
spk05: Certainly. When I'll be conducting a question and answer session, if you'd like to be placed into question queue, please press star 1 on your telephone keypad. You may press star 2 if you'd like to remove your question from the queue. Once again, that's star 1 to be placed into question queue. If you're using speaker equipment, it may be necessary to pick up your handset before pressing star 1. Our first question today is coming from Omar Noca from Jeffries. Your line is now live.
spk03: Thank you. Hey, guys. Good morning. A couple questions for me regarding the market. Obviously, you were just touching on this in the opening comments. The market's clearly lifted quite a bit here since the bottom in late January, early February. Rates have been climbing, and that's coming despite the fact that the Panama Canal restrictions are being lifted. More ships are going through than we've seen in the past several months, yet spot rates are at a four-month high. Just kind of from your perspective, what's driving the strength we're seeing in spot rates, despite the fact that you've got loosening in the canal?
spk01: Well, in short, I'll give you a short answer, and then I'll give you Tim, who can expand on it a bit. But my short answer is that the positive fundamentals and the supply-demand equilibrium is what has made the market bounce back in a healthy way. But Tim can give you a little more color, or a lot more color, maybe. Tim?
spk02: Yeah. You're right that the The lowest point was partly, as we mentioned also in the last call, due to the huge drop in the congestion in the Panama Canal. It has come back to some extent, the delays, as you also projected, and we still do see a lot of owners balancing the long way around, especially when the market was a bit lower, the risk of facing high auction fees to go through the canal was were still there and still is. So the auction fees have gone up to around 2 million again. So the congestion has come back in the Panama Canal. So I think, as John says, it's still also as we expected that the fundamentals would be strong coming into this year. And that's really what we see now. Part of that is, of course, that a lot of ships is going via the Cape still.
spk03: Okay. Thanks, Ben, for that. And then just in terms of, you know, in terms of kind of market averages thus far, what you've been able to achieve, I know, Ted, in the past you have given sometimes an indication, and I can't remember if you – maybe I missed it in your opening comments. Is there any color you can give on how the quarter is shaping up thus far, the current quarter?
spk06: Yeah. Yeah, Mark.
spk03: Okay, yeah.
spk06: I'll just reiterate what I said. where there's some feedback on. So, yeah, so OMO, we historically have given it the percentage of fixed days and the rate for those days. So we're going to, we're modifying that a little bit. So the relevant statistics, the team has booked 75% of the available days in the pool for the quarter ending June 30th. And on that basis, basis those Based on those days as the denominator, the TC for those vessels or those voyages is in excess of $40,000 a day on a load-to-discharge basis.
spk03: Okay, so 75% of the pool days, including the pool TCOs, is that right? Just over 40. Okay.
spk06: Yeah, somewhat over 40.
spk03: Okay, all right. The reason, yeah, and just...
spk06: The reason we're doing that is just to – the revenue recognition gets awfully tricky with these things. So, anyway, thank you.
spk03: I see. Thank you. And maybe just a final one. Maybe, you know, you mentioned the order book for VLGCs, and, you know, last year was a big delivery year. It starts to – it's been abating this year and next. But I noticed you've kind of separated the order book for VLGCs from the VLACs and VLECs. is that how we should think about this market in the future? Do you think, you know, the way this ammonia opportunity is developing, uh, do you think that the, do you think a VLAC becomes more of like a project based asset similar to the VLEC, um, and not necessarily impactful to the broader VLGC trade? What do you, what do you think of, of, of that in the future?
spk01: Omar, that's a great question. And, um, The true answer is that the VLAC should be looked at as a VLGC. And the ammonia trade, the expansion of the ammonia trade, hopefully, is going to absorb the VLACs. But now the timing of it and the extent of it is still kind of in play, right? And the ships are on order. When I look at it, I look at VLGC and the VLACs, nearly 90 ships on order, I think. I look at them as that's the fleet on order. And, you know, we're still, like I said, we're quite optimistic in spite of the fact that this large order book, it's, as you know, the 25 and 26 is pretty much restricted deliveries. And hopefully we'll be ramping up with the ammonia trade, which we're hopeful and optimistic on beyond that.
spk04: Okay. Very good. Thanks, John, Tim, and Ted.
spk03: I'll turn it over.
spk05: Thanks, Omar. Thank you. Next question is coming from Clement Mullins from Value Investors Edge. Your line is now live.
spk00: Good morning. Thank you for taking my questions. I wanted to start by asking about your financial profile. I mean, leverage is sitting at very manageable levels, even pro forma for the recent new build order. Could you provide some color on where you see the sweet spot? And secondly, do you plan to continue to organically deliver going forward?
spk01: I think if you're talking about the sweet spot, I imagine you're asking about the leverage ratio, and I would say that it's a moving target in our business. You cannot say that you want to have, you know, 50% or more than 50 or less, but, you know, because it depends at the point where you are in the market for that. So I can't really tell you that we have a sweet spot.
spk04: that we're targeting. What happens is where we are right now. Thank you.
spk00: You own a modern fleet, and I mean, almost the whole fleet is eco, but is there maybe any appetite to go out and pursue additional fleet renewal? And additionally, some color in your overall view on underlying asset values would also be helpful. And finally, in conjunction with this, This is more of a medium-term question, but is CO2 transport something that could or would be considered?
spk01: I'll let John LaCouris talk to you about CO2 transport. Regarding additional ships, we don't think we need to add new buildings to the order book. So we are in the process of... As you said, we have a modern fleet, but we do have to consider fleet renewal. So depending on opportunities going forward, it may be new buildings, but there could also be purchases in the second-hand market. But on the question of CO2 transport, which is a great question, John may have A few interesting remarks to make on that.
spk07: Yes, thank you, John. We like CO2 transport because it may have to do something with the future of shipping, meaning carbon capture on vessels, and CO2 would be part and parcel of carbon capture You may need to transport CO2 to a debunkering location or to another purpose-built vessel. So we think that CO2 will be the next items to be looked at either on existing ships with adding special tanks that can carry CO2 or with vessels that... will be able to transport CO2 to the location where it's going to be sequestered or stored. That's the end.
spk00: Thanks for the floor. That's all from me. Thank you for taking my questions, and congratulations for the quarter.
spk05: Thank you. Thank you. Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.
spk01: Well, thank you very much for joining us, everybody, and for your interesting questions. And I wish you a happy summer, and we look forward to talking with you all again at the end of our next quarter. Thank you. Bye-bye. Thank you.
spk05: That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

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