Dynagas LNG Partners LP

NYSE:DLNG

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by, ladies and gentlemen, and welcome to the Dynagas LNG Partners Conference Call on the Second Quarter 2024 Financial Results. We have with us today Mr. Tony Lauritzen, Chief Executive Officer; and Mr. Michael Gregos, Chief Financial Officer of the company. [Operator Instructions] I must advise you that this conference is being recorded today.

Please be reminded that the company announced its results with a press release that has been publicly distributed. At this time, I'd like to remind everyone that in today's presentation and conference call, Dynagas LNG Partners will be making forward-looking statements. These statements are within the meaning of the federal securities laws. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities and Litigation Reform Act of 1995.

The statements in today's conference call are not historical facts, including, among others, the expected financial performance of Dynagas LNG Partners business, Dynagas Partners LNG has 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 are about risks and uncertainties that may result in such expectations not to be realized -- not being realized. I kindly draw your attention to Slide 2 of the webcast presentation, which has the the full forward-looking statement and the same statement, which is also included in the press release. Please take a moment to go through the whole statement and read it.

And now I would like to turn the floor back over to Mr. Lauritzen. Please go ahead, sir.

[Tony Lauritzen, executive]

Good morning, everyone, and thank you for joining us in our 3 months ended 30 June 2024 earnings conference call. I'm joined today by our CFO, Michael 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 start the presentation and move on to Slide #3. We today present the results for the 3 months ending on 30 June 2024. We are pleased to announce that all 6 LNG carriers in our fleet were operating on the long-term chances with esteemed international gas companies. For the second quarter of '24, we reported net income of $10.7 million, and earnings per common unit of $0.20. Our adjusted net income stood at $12.4 million, translating to adjusted earnings per common unit of $0.25.

Furthermore, our adjusted EBITDA for the same period reached $28.6 million. We were pleased with the conclusion of the new lease financing agreement with China Development Bank Financial Leasing for 4 of our LNG carriers. The $344.9 million financing along with $63.7 million from the partnership's existing cash reserves was used to fully repay our previous credit facility of $408.6 million on June 27, ahead of its maturity in September '24.

Following a sustained period of strategic deleveraging, we now have a substantially reduced debt levels and secured a more flexible financing structure. With 2 of our LNG carriers now debt-free, the partnership is well positioned for its next phase. I will now turn the presentation over to Michael, who will provide you with further comments to the financial results.

[Michael Gregos, executive]

Thank you, Tony. Turning to Slide 4, and let me start with a summary of the headline numbers for the second quarter. We maintained 100% scheduled fleet utilization during the second quarter. Revenue was in line at $37.6 million compared to $38 million in the first quarter. Average TCE of [ $67,300 ] per day is down from $68,100 in the first quarter across our fleet of 6 vessels affected by a small negative variation and the valuable portion of the revenues contained the time charter of 2 of our vessels compared to the previous quarter.

Operating income for the second quarter was $18.8 million, a 2.6% decrease from the $19.3 million during the prior quarter. This was primarily related to the revenue variation mentioned earlier and slightly increased operating and G&A expenses. Net income for the second quarter was [ $1.7 million ] or $0.20 per common unit which is slightly lower from the $11.75 million reported for the first quarter of this year, primarily relating to a reduction in the realized and unrealized gains on our mark-to-market interest rate swap by USD 850,000 as the interest rates swap up purchases maturity on September 18, 2024.

In additional one-off loss on debt extinguishment of [ $331,000 ] as a result of the early prepayment of our prior credit facility in our P&L this quarter. Adjusted EBITDA for the second quarter was $28.6 million compared to $29 million in the first quarter, and adjusted net income for the quarter was $12.4 million or $0.25 per common unit, unchanged from the prior quarter.

Our average cash breakeven cost per vessel per day for the quarter, taking into account our daily operating expenses, G&A expenses and debt service per vessel per day net of realized swap gains amounted to $44,881 per day, resulting in a surplus of $22,450 per day once deducted from our average TCE.

Turning to our cash bridge on Slide 5. We began the quarter with a total of $76 million. Following on the chart from the left to right on the cash flow, we first had $28.5 million in adjusted EBITDA in the second quarter. And we utilized $64 million of our own cash to cover the difference between the proceeds of our $345 million new sale and leaseback facilities on 4 LNG carriers, and the $408.6 million outstanding under our prior senior secured facility, which was fully repaid.

After a working capital benefit of about $1.8 million plus proceeds of $6.1 million from our interest rate swap less the fees for our new sale and leaseback financing and distributions to our preferred unitholders, we ended the quarter with $35.6 million in cash.

Moving on to Slide 6. Meanwhile, our total debt stands at $345 million, and our leverage metrics have improved as we reduced our debt balance by $378 million since December 2018. Our financial leverage, adjusted net debt divided by last 12 months adjusted EBITDA has reduced from 6.6x at year-end 2018 to now 2.9x. We continue to enhance our balance sheet to create the foundation and financial flexibility necessary to add more value to our common unitholders.

As previously advised, we refinanced $408 million of our old credit facility with $345 million sale and leaseback on 4 LNG carriers, and our remaining 2 LNG carriers are debt free. Over the next 12 months, our debt amortization is expected to be $44 million, $4 million less than our prior credit facility, and our weighted average spread is 2.18%, but from September 18, we will have full exposure to floating interest rates as our interest rate work matures. Since the inception of our swap program in September 2020, our cumulative realized swap gains have been quite significant with $42 million in realized gains. So our hedging program paid off extremely well. We expect an additional approximately $5 million of realized gain to be received at the maturity on September 18.

Going forward, based on where sulfur rates are today, we expect our interest expenses to increase when our swap matures despite our lower leverage and our slightly lower amortization and as a result, our fourth quarter debt service per day is anticipated to increase by about $5,200 per day, resulting in a pro forma cash breakeven of approximately $50,000 per day for Q4 2024.

Obviously, we expect to be getting the benefit of lower interest rates as we are projected to reduce over time. Our nearest debt maturity is in June 2029 for 3 of our LNG carriers and June 2034 for our remaining vessel. So in summary, for this quarter, we had a full utilization of 100% and a good quarter without any surprises.

That's it from my side. I will pass the presentation over to Tony.

[Tony Lauritzen, executive]

Thank you, Michael. Let's continue and move on to Slide 7. Currently, our fleet comprises 6 LNG carriers with an average age of approximately 14.1 years. Our present charters include multiple gas companies such as Equinor, SEFE and Yamal Trade. Additionally, Rio Grande LLC, a subsidiary of next decade has forward chartered our vessels Clean Energy and the Arctic Aurora.

As of September 10, 2024, our fleets contracted backlog stands at approximately $1.04 billion, which translates into an average of about $173 million per vessel. The fleet also enjoys an average remaining charter period of approximately 6.4 years. We are confident that our charter profile is robust, positioning our partnership for stable and reliable income in the years ahead.

Moving on to Slide 8. Our current commercial strategy is centered on securing long-term charters with prominent gas companies, ensuring a stable revenue stream. As a result of this approach, we have accumulated a solid contract backlog. And barring any unforeseeable events, we have no contractual vessel availability until the year 2028, when the Clean Energy Ob River and Amur River will be available. Following this, the Arctic Aurora will come up for Rio Grand LNG contracts in 2033, with a Yenisie River and Lena River coming available in 2034, provided that the charters do not exercise their expansion options.

The global fleet of LNG carriers have expanded rapidly with the new building order book being at about 50% of the existing fleet. Most of these newbuilds are scheduled for delivery between now and '28 and a significant majority of these orders have already been committed to specific charterers. In the short to medium term, shipping capacity may exceed demand. However, in the medium to the long term, we anticipate that the current order book will be absorbed as aging vessels are replaced and global demand for transporting incremental LNG production increases.

Given these factors, we believe our portfolio is strategically well positioned with no contractual availability until 2028. We expect long-term demand for energy to remain strong, driven by several key factors. This includes its low emissions compared to traditional fossil fuels, the rising global demand for electrification, the efficiency of combined and cycle power plants powered by natural gas the well-established global infrastructure for LNG production and distribution and the lack of a superior alternative at a comparable scale.

Let's move on to Slide 9. Our new financing arrangements are not only low leverage, flexible and low cost, but also comes with long tenors significantly enhancing our strategic flexibility for future initiatives. A major achievement in our financial management has been the substantial reduction in debt. We have successfully lowered our outstanding debt from $675 million in September 2019 to $345 million today. This reduction has also improved our net debt-to-EBITDA ratio, bringing it down from 6.6x in September -- in September 2019 to 2.9x by June 2024. Also, a notable portion of our fleet amounting to 33% now operates free of debt, thereby strengthening our asset base and providing a robust foundation.

Our strategy of organic deleveraging is supported by contracted cash flow has been instrumental in maintaining a stable and predictable financial profile. As of today, we maintain a contracted average revenue backlog of $173 million per vessel, ensuring sustained income streams. In summary, with new financial flexibility and solid foundation of contracted cash flows, reduced leverage and a broadened strategic vision, we believe the partnership is in a stable phase. In the next quarter, we expect that the Board of Directors will evaluate and announce its capital allocation strategy.

Thank you for your attention. We have now concluded the presentation, and we invite you to ask any questions you may have. Thank you.

[Operator]

[Operator Instructions] We've reached end of our question and answer session, I'd like to turn the floor back over to the CEO for any further closing comments.

[Tony Lauritzen, executive]

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

[Operator]

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