Dorian LPG Ltd

NYSE:LPG

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Good day, everyone, and welcome to the Dorian LPG First Quarter 2025 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 call 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.

[Theodore Young, executive]

Thank you, [ Nicky ]. Good morning, and thank you, everyone, for joining us for our first quarter 2025 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Limited; John Lycouris, Head of Energy Transition and Chief Executive Officer of Dorian LPG USA; and Tim Hansen, Chief Commercial Officer.

As a reminder, this conference call webcast and a replay of this call will be available through August 8, 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 express today.

Additionally, let me refer you to our unaudited results for the period ended June 30, 2024 that were published this morning on Form 10-Q. In addition, please refer to our previous filings on Form 10-K where you'll find risk factors that could cause actual results to differ materially from those forward-looking statements. Finally, you may find it useful to refer to the Investor Highlights slides posted this morning on our website as we make our remarks.

With that, I'll turn over the call to John Hadjipateras.

[John Hadjipateras, executive]

Thanks, Ted, and thank you all for joining to discuss our first quarter financial 2025.

We had a strong first quarter with net income of $51.3 million. During the quarter, our offering -- equity offering materialized a stra- significant strategic objective, further enhancing the strength of our balance sheet and positioning the company for future growth and fleet renewal.

As mentioned last quarter, we have one VLGC/VLAC on order from Hanwha -- from Hanwha shipyard, and we are investing in some retrofits on ammonia on our existing -- for ammonia carriage on our existing ships.

Our Board declared a $1 irregular dividend, bringing the total capital return since our IPO to more than $777 million. We believe that our strong balance sheet and good debt profile enable us to pursue opportunities when we determine that the timing is appropriate.

As you will hear from both Ted and Tim, market volatility featured again during the quarter and continued in July. We believe that these swings do not reflect any significant changes in the fundamentals of supply and demand for VLGCs. Rather, they define a near equilibrium where small changes can result in big price wins. Factors such as restrictions and restoration of Panama transits, weather events in the U.S. Gulf and the still-unresolved wars in the Middle East and the Black Sea alternately increase or inhibit our quarterly earnings, but the underlying fundamentals point to continued growth in the trade of LPG.

56 VLGCs have been added since the beginning of 2023, increasing the fleet by roughly 16% to 394 ships today, while, in 2023, global liftings were about 12% higher than in 2022. So clearly, the various disruptions have been contributing to profitability.

Looking ahead, we expect 5 ships to be delivered in 2024 and 13 in 2025, increasing the fleet by 1% and 3%, respectively, in each of those years before [ margin increases ] again in '26 and '27 in anticipation of potential demand for ammonia transportation. Meantime, the prospects for increased production and exports from the U.S. are favorable, as are the indicators for demand in Asia and elsewhere. These fundamental factors underpin our [ cost and the margin prospects for VLGCs ].

As you will hear from John L., our teams are working on reducing emissions and fuel and operating costs for our fleet. We have embarked on a top-down initiative to simplify and revamp onboard safety procedures. Our fully-integrated structure provides a real benefit in our pursuit of these objectives. As always, I acknowledge our dedicated seafarers and shore-side staff whose hard work and dedication make our results possible.

Now I give you Ted.

[Theodore Young, executive]

Thanks, John. My comments today will focus on our recent capital allocation events, our financial position, liquidity, and our unaudited first quarter results.

At June 30, 2024, we reported $353.3 million of free cash. The significant increase from March 31 reflects the net proceeds of our equity offering and strong free cash flow to equity generated less, of course, the dividend paid during the June 30 quarter. Also, as we previously disclosed, we'll pay another $1 per share as an irregular dividend, or roughly $43 million in total dividends, on or about August 21, 2024 to shareholders of record as of August 8.

With a debt balance at quarter end of $597.1 million, our debt to total book capitalization stood at 34.8% and our net debt to total book capitalization at 14.2% or even lower if one includes our short-term government bond holdings. Our weighted average cost of debt is about 4.7%, which is actually below the current 1- and 3-month SOFR rates. Our next refinancing event is not until the end of December 2026, which is the BALCAP facility.

We amortized about $13.4 million in principal per quarter, or roughly $53.5 million for the current fiscal year, which we consider quite manageable and largely in line with our book depreciation. With well-structured and attractively priced debt capital, an undrawn $50 million revolver and 1 debt-free vessel, coupled with our strong free cash balance, we have a comfortable measure of financial flexibility.

We expect our cash cost per day for the coming year to be approximately $26,000 per day, excluding capital expenditures for special surveys and upgrades. I will discuss those items in just a moment.

For the discussion of our first quarter results, you may find it useful to refer to the Investor Highlights slides posted this morning on our website. I would 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.

Looking at our first quarter chartering results, we achieved a total utilization of 90.4% for the quarter with a daily TCE per operating day of $55,228, yielding utilization adjusted TCE, or TCE per revenue -- revenue per available day, of about $49,900. Though sequentially lower than last quarter's results, the TCE still represents an attractive free cash flow to equity.

As our entire spot trading program is conducted through the Helios Pool, the reported spot results are the best measure of our spot chartering performance. For the June 30 quarter, the Helios Pool earned a TCE of $50,145 per day for its spot and COA voyages. On Page 4 of our investor highlights material, you can see that we have 5 Dorian vessels on time charter within the pool plus 1 MOL and [ Adea ] vessel, indicating spot exposure of about 80% for the 30 vessels in the pool.

Turning to the quarter ending June 30, 2024, we currently have nearly 50% of available -- sorry, September 30, 2024, we currently have nearly 50% of the available days in the Helios Pool booked. Given the difficulty in predicting loading dates and their significant effect on revenue net recognition, we feel it more appropriate to share TCE revenues over all available days in the pool for the quarter. On that basis, we see a TCE in the range of $30,000 per day on a load-to-discharge basis in accordance with U.S. GAAP. That rate includes both spot fixtures and time charters in the Helios Pool only.

Daily OpEx for the quarter was $10,618. Excluding some small expenditures for drydocking-related expenses, that amount was up a bit sequentially from last quarter. Our time-chartering expense for the 4 TCE vessels came in [Technical Difficulty]

[Operator]

[indiscernible] on hold, please stand by. We are having technical difficulties. Please remain on the line.

[John Hadjipateras, executive]

Operator, we could move on to -- we can move on to Tim Hansen and pick up Ted when he gets back online.

[Tim Hansen, executive]

I'm back online now.

[John Hadjipateras, executive]

Oh.

[Tim Hansen, executive]

Okay.

[John Hadjipateras, executive]

So do we have Ted online or not?

[Operator]

We don't have Ted at this time.

[John Hadjipateras, executive]

Okay. So don't we have Tim continue the presentation, and then we'll go back to Ted when he comes back. Tim?

[Tim Hansen, executive]

Okay. Yes, I can do that. You want me to start?

[Operator]

And it looks like Tim is disconnected as well.

[John Hadjipateras, executive]

Okay. Ted, we're going to go on to Tim, but you can finish up your -- your -- from your end, Ted. All right, guys. This is the summertime technical issues. How about, Tim, you go ahead, please?

[Tim Hansen, executive]

Okay. [indiscernible] All right. Good day, everyone. Tim Hansen here, Chief Commercial Officer. The quarter ending June 30, 2024 saw an improvement in the freight market compared to the quarter prior. The biggest improvements were seen in May when freight rates in the West were [ reminiscent ] of those seen in early January. April and June were relatively weaker months characterized mostly by external factors disrupting regular market movements such as dynamic fixing windows, sudden changes to the Panama Canal waiting time and an efficient balancing of vessel demand with the s- with the vessel supply. Despite significant swings in the [ market ] [indiscernible] and months, the underlying demand for VLGC shipping is firm.

April is not a month easily analyzed at first glance. The market for the month is reflective of commercial [ friction ] decisions, which was made as early as in February and as close as a few days prior to the loading dates. The snapshot, therefore, covers more than 1 month of market considerations. This is explained by many market players in Italy anticipating a weaker-than-usual export demand from the U.S. Gulf and then, on short notice, correcting offloads where it became clear that export cargoes was plentiful. Thus, cargoes and, similarly, [ cans ] were seen fixed at levels over $30 per metric ton [ per part and ] it speaks to the strength and the strong fundamentals of the VLGC market.

May built on the strong fundamentals but hit particularly high freight levels because of a sudden but very brief period of congestion in the Panama Canal. [ Option ] prices for [ transitory ] levels not seen since December 2023, but the bottleneck was quickly resolved. Again, 2 weeks of sudden delays in the Panama Canal, giving the market a bump, reflect positively on the fundamentals of the VLGC market.

But where May demonstrated how external factors can start on a short-term -- can start a short-term bounce in the markets, June was the month exposing the flipside. Throughout June, it must be emphasized that the West to East arbitrage was positive. Nonetheless, rising Mt. Belvieu prices over the months nominally narrowed the arbitrage, [ slowing the market ] as charters were [indiscernible] rates to find a floor. The Mt. Belvieu prices was on the rise due to a reduction in available spot cargoes. The reduction has been attributed by market payers to downtime on the [ chuggers ] amidst a heat wave in North America and capacity reduction in the U.S. Gulf terminals in anticipation of the Hurricane Beryl at the end of June.

In the meantime, it can be mentioned that, in the Arabian Gulf/Far East market, they followed the trends of the U.S. Gulf export market. Particularly in May, it could be seen that charters reacted to the strengthening West market, paying [ off ] on freight to ensure that VLGCs would be available for loading in the Arabian Gulf. When the Western premium eroded in June, the Middle East export market [ truly followed ] downwards.

Though the quarter showed significant strength in the market over the months. The underlying retraces one of robust demand for LPG in the Far East and an open arbitrage. The sensitivity to available export from North America was made clear, but it should be noted that North America LPG production and export continue to grow. Meantime, most market players anticipate a gradual return to congestion of the Macan -- despite healthy fundamentals VLGC demand driven by growing ton miles and robust import demands, there are challenges to the market in the short term. The reduced availability of spot cargoes from the U.S. Gulf seen in June has a considerably knock-on effect. -- telling of the export terminals due to the hurricane ball continued into July, and the declarations of course, mature by various terminals seriously hindered the optimization of the export capacity. -- amidst a wide open Panama Canal with [ oscutilization ], enabling tonnage to converge near to the U.S. Gulf and increase the backlog of vessels. Relate terminals was an on complication. Lastly, the traffic events from 10 days ago when a capsid topotecan ship channel limited the market's corrective movements to normalize the export levels. Finally,

returning to the demand side for VLGC shipping. We're eager to see the effect of the 7-odd opening of PDH plants in China. North American exports external factors aside after the most part forecasted to grow as is the congestion of the Panama Canal. Thus, we do remain positive on the medium- to long-term prospects for our business.

With that, I will pass you back to [indiscernible].

[John Hadjipateras, executive]

Yes. I think we'll go to [Technical Difficulty] first and then Ted will come back. He is back online, but we'll have him wrap at the -- up after John Lycouris. Thank you.

[Theodore Young, executive]

All right.

[John Lycouris, executive]

Thank you, John, and thank you, Tim. In continuation of our commitment to sustainability, Dorian LPG strives to improve the energy efficiency of its vessels with a focus on operational and technical performance while continuing to follow and employ technological advances and innovations as they become commercially available to the marine sector.

Our scrubber vessel savings for the second quarter of 2024 amounted to $2.8 million, or about $2,561 per day, net of all scrubber operating expenses. Fuel differentials between high sulfur fuel oil and very low sulfur fuel oil averaged $136 per metric ton, while the differential of LPG has fuel versus VLSFO, very low sulfur fuel oil, stood at about $217 per metric ton, which is quite advantageous for the dual-fuel LPG engine vessels.

The total number of vessels fitted with scrubber units in our fleet is 14, and we are about to retrofit another vessel in the current calendar quarter during the vessel regular drydocking window.

The CII project initiated by the Maersk McKinney Moller Center for zero-carbon shipping focuses on engaging with the AMO -- with the IMO for a review process of the Carbon Intensity Indicator. The objective is to propose process improvements and carbon reduction targets for the next phase, which begins in 2026. The project group's goal is to provide clear recommendations to the IMO on necessary amendments and updates to the CII regulation for greater effectiveness in the next phase. The Center presented the project's findings at the last MEPC meeting in March 2024 and anticipates preparing 2 papers for presentation at the next MEPC session in October, where they hope they are agreed for revising the CII regulation ahead of its 2026 amendment window. Dorian LPG is a mission ambassador to the Center and has actively contributed to this project.

The new [ biofiling ] management plans, which were adopted by the IMO -- by an IMO resolution last year, are currently being developed for the entire Dorian LPG fleet. The key point of this new ballast [ biofiling ] management plans comprise of monitoring [ high-end ] fuel performance caused by [ biofiling ], taking actions to alleviate [ biofiling ] and finally logging the actions taken. This entails shore and crew training and familiarization of the [ biofiling ] risk parameters and the actions which must be taken proactively and/or reactively to mitigate adverse performance results. We expect to complete the [ biofiling ] management plans for the whole fleet by the end of August 2024.

The European Union has adopted [ new regime ] maritime regulation to promote the use of renewable fuel and low carbon fuels in maritime transport. This regulation aims to reduce greenhouse gas emissions by providing a clear legal framework for ship operators and fuel suppliers, thereby increasing the demand for and consistent use of cleaner fuels in the maritime sector. The regulation sets targets for the greenhouse gas intensity of energy used in vessels. Companies are required to submit electronic monitoring plans that document the methods of monitoring and of reporting, which will be subject to third-party verification by accredited independent entities to ensure their accuracy.

Recently, wind-assisted ship propulsion system technologies have attracted considerable interest in the maritime industry to potentially reduce the fuel consumption and emissions from vessels. These systems use wind power to supplement vessel propulsion by creating aerodynamic forces. By tapping into an unlimited, free and zero-carbon energy source, WAsP as it is called, can significantly improve the efficiency of maritime operations and support the industry's decarbonization goals.

Various sailing technology concepts are being developed, or have been developed, such as [ rubber ] sails, [ wing ] sails, [ hard ] sails and suction sales. Each technology has a different method of harnessing the wind and producing thrust, necessitating a thorough analysis investigation to assess their potential and implications to safe operation in trade, if installed. We will continue to modern- to monitor developments and results of this technology in the future.

And now I pass it back to John Hadjipateras and to Ted Young.

[Theodore Young, executive]

Yes, I'll quickly finish off my remarks with apologies for the technical issue. We'll be sure to pay our phone bill next quarter.

So very quickly, just to summarize, I believe I was cut off just talking about the Helios Pool. The pool had roughly $11 million of cash on hand at the end of July, reflecting the dividend just paid.

To recap, we've now paid $13.50 per share in dividends since September 2021. Again, we want to remind you that these dividends are irregular. Our market and our business is not regular, and therefore, our dividend policy is not either. Our total capital return from dividends, open market repurchases and our self tender now totals $777 million, gross.

I'd finally like to note that the dividend payment reflected our strong earnings and cash flow generation. And at the same time, we were able to accomplish the strategic objective of raising additional equity capital to increase our financial flexibility as we look at fleet renewal and expansion. I think that underscores our Board's commitment to balancing returns to shareholders with growth in the business. Again, we remain optimistic about the prospects for our business, as my colleagues have outlined.

And with that, I'll turn the call back to John Hadjipateras.

[John Hadjipateras, executive]

Thank you, Ted, and apologies again to everyone who joined us. I hope we didn't distract too much from three very -- 3, I think, very interesting presentations by my 3 colleagues with lots of material for you to hopefully digest.

And [ Nicky ], we're happy to take questions now, if anyone has any.

[Operator]

Thank you. And with the prepared remarks completed, we will now open the line for questions. [Operator Instructions] We will take our first question from

Omar Nokta with Jefferies.

[Omar Nokta, analyst]

Thank you. Hey, guys. Good morning. Just I had a handful, hopefully not too many, but just at least a couple of questions for you. John, John H., you talked a bit about the swings we've seen in the VLGC market, especially in July. I just kind of wanted to touch a bit on that and get a sense of what's been driving it. I know, Tim, you mentioned a variety of things. There's obviously the Panama Canal returning a bit to normal. You've got Hurricane Beryl in the Gulf, Middle East volumes. I guess I just wanted to ask if you could rank maybe or highlight which of these issues would you say is the biggest -- has had the biggest impact on the market? And what can you see kind of coming on the horizon that would alleviate that?

[John Hadjipateras, executive]

Million-dollar question. Tim, I think you are the best of us to answer that one.

[Tim Hansen, executive]

Yes, I think what -- the biggest factor is really the U.S. Gulf production, which in June was hampered by these delays with the [ chiller ] problems and some force majeure. So we saw less exports. And because [ Terminus ] is really running very close to full capacity, once they have a problem, it takes them a long time to catch up again. So you can see the -- they're so busy that you still have the -- a couple of months after these events, you still have a backlog of 3 to 5 days in most of the terminals. Even though they're running on full capacity now, it still takes a long time to clear the backlog of ships and then catch up on the exports. And then this coincided in June with, as I mentioned, the Panama Canal, from the delays I described in May, suddenly coming back fully open and everybody turning their ships around and heading straight to the Canal instead of via the Cape. Of course [indiscernible] a number of more ships in the U.S. Gulf available in July. So there was basically no overhang of ships from June into July, but the effect of what happened in June and then the Beryl and the capsized [ tuck ] in the Houston ship channel, of course, increased the problems. So I think we will see probably this again with the U.S. Gulf being -- any problems hitting the U.S. Gulf will take a longer time to catch up than what we saw last year. [ We are seeing they're ] closer to capacity now.

And on the Panama Canal side, we have seen it swing heavily from, over a few days, basically from heavy congestion to fully open. And we think, longer term or coming into the winter, I think we will see the trends that we've seen the last [ few ] years, that the Panama Canal will be heavily delayed from September, October onwards throughout the winter and then clear up early in the spring, yes.

[Omar Nokta, analyst]

Thanks, Tim, for that. I just wanted to [Technical Difficulty] sorry, go ahead.

[John Hadjipateras, executive]

No, no, Omar, I was just going to say it's ironic that, in the winter, we had delays caused by a freeze and, in the summer, we have delays caused by the chiller, which is because of the heat waves. And the extremes of the weather are pretty impactful, again, when you're running at close to full utilization and the export infrastructure.

[Omar Nokta, analyst]

Yes, that's a good point. And so just on that then, in terms of, say, the backlog that has been hampering activity in the -- from Beryl in the Gulf Coast, have we kind of started to work through that? Has it improved from, say, where it was, I guess, perhaps a month ago when that happened?

[Tim Hansen, executive]

Yes. I mean the terminals are fully up and running and producing and we are back at the same export levels as they were and trying to then catch up and clear the ships. So that has been fixed already. We are waiting for the [indiscernible]. We are seeing the delays or the [ delayed waiting for ] loading for the ships already booked is coming down. So that should allow, hopefully, the terminals to catch up within this month and more spot to become available after that. So we expect to see -- they are back on full swing now and then that should be possible to squeeze out more [ cargoes ] eventually [indiscernible] everybody. Everything keeps running normal without any further incidents and problems.

[Omar Nokta, analyst]

Got it. [indiscernible]

[Tim Hansen, executive]

[indiscernible] more activity now for August, yes.

[Omar Nokta, analyst]

Okay, yes, so maybe we'll start to see a reversal potentially. Ted, just before [indiscernible].

[Tim Hansen, executive]

[indiscernible].

[Theodore Young, executive]

Go ahead, Omar.

[Omar Nokta, analyst]

Yes, Ted, so just before you got cut off in your earlier comments, you had -- I think you had mentioned about the bookings for the pool thus far into the

quarter. And if I recall, it was roughly around 50% of available days on that basis, around $30,000 or higher.

[Theodore Young, executive]

That's right, yes, around 30,000, yes.

[Omar Nokta, analyst]

And so just -- and this is like -- clearly, this is beneath kindergarten math, but last quarter, on the call, you had mentioned having booked a good chunk of Helios at about $40,000. You end up realizing $50,000. With this $30,000, is -- what kind of magnitude do you think -- if you were to adjust this for an operating day basis -- and recognizing that you said in your comments that it's hard to figure what the actual operating days will be -- but any best guess? Does that $30,000 become $40,000? Are we looking at $30,000 maybe becoming $33,000? Any kind of -- if you're willing to step out, you know?

[Theodore Young, executive]

So it's really hard to say, Omar. I'd like to think that there is some upside to that number. I will say that the upside last quarter surprised us, to the upside. But it's really tricky to say. I think probably -- well, I know you're focused on trying to get a good number for the quarter. I'd say more that -- Tim's comment about activity picking up, whether -- some of that may fall into this quarter and the rest of it may fall into the following quarter. So I don't have a very good answer to your question, but I'd say at least the -- that the trend line seems to be above that number. How much we realize in this quarter from an accounting perspective versus next is a little tricky.

[Omar Nokta, analyst]

Understood. I appreciate that, Ted. And then sorry if I'm going long in my session, but just maybe one more and I'll let you go. Just obviously, in terms of the equity issuance back in June, any thoughts or anything you're willing to say in terms of kind of plans with that extra $80 million or so of proceeds? It's obviously gone on the balance sheet, but just anything you're willing to share on thoughts with that?

[John Hadjipateras, executive]

There's nothing really that we can share. There's nothing active at the moment, but we've been looking at opportunities that we believe could put the money to good use. And we'll keep you appraised if anything -- when anything comes to fruition.

[Operator]

Thank you. And this will conclude our Q&A session. I will now turn the call over to John Hadjipateras for closing remarks.

[John Hadjipateras, executive]

Well, thank you for coming on a summer day to listen to us, and have a good rest of the su- [Technical Difficulty] bye-bye.

[Operator]

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.