Dorian LPG Ltd

NYSE:LPG

Earnings Call Analysis

Dorian LPG's Q2 2025: Stable Earnings Amid Market Challenges

In Q2 2025, Dorian LPG reported an EBITDA of $46.2 million and a net income of $9.4 million, attributed to challenges like weather disruptions. They've fixed over 60% of available days at TCE rates exceeding $40,000, signaling strong revenue potential ahead. Despite short-term market pressures, the company remains optimistic about winter demand growth, while ongoing capital returns have totaled $820 million since their IPO. A $1 per share dividend was declared, reinforcing their commitment to shareholder value. Investments in ammonia-capable vessels highlight a strategic focus on future energy transitions to enhance competitiveness.

Dorian LPG's Commitment to Shareholder Returns

Dorian LPG continues to prioritize returning value to its shareholders, having distributed over $820 million since its IPO. Recently, the company declared an irregular dividend of $1 per share, totaling around $43 million for shareholders as of November 5, 2024. This aligns with their policy of balancing shareholder returns with reinvestment strategies.

Solid Q2 Performance Amid Market Challenges

For the quarter ending September 30, 2024, Dorian LPG reported an EBITDA of $46.2 million and a net income of $9.4 million despite facing significant external challenges. Weather-related disruptions and an unusual supply-demand dynamic affected the LPG freight market, leading to fluctuations in rates.

Market Dynamics Affecting LPG Shipping Rates

The quarter showcased a volatile VLGC freight market influenced by the opening and closing of opportunities, with initial strength tapering due to external factors like Hurricane Beryl and operational challenges at U.S. Gulf terminals. Despite a record LPG export from the U.S. in August, the impact of terminal capacity issues and subsequent price caps is noteworthy.

Guidance for the Upcoming Quarter

Looking ahead to the quarter ending December 31, 2024, Dorian estimates to have fixed just over 60% of available days at a Time Charter Equivalent (TCE) rate exceeding $40,000 per day. This optimistic outlook indicates a positive trend in capacity utilization within its Helios Pool.

Financial Stability and Cost Management

Dorian maintains a strong financial structure, evidenced by a debt balance of $583.7 million and a net debt to total capital ratio, which stands at 13.4%. The cost of debt remains favorable at approximately 4.7%. Additionally, operational costs per day are projected to be around $26,000, signaling effective cost management strategies.

Strategic Fleet Upgrades and Sustainability Initiatives

Dorian LPG is advancing its fleet capabilities by upgrading vessels for ammonia transport and retrofitting existing vessels to meet decarbonization goals. With the completion of multiple dry dockings, the fleet will soon operate with three ammonia-capable VLGCs, supporting the company’s commitment to sustainability amidst tightening greenhouse gas regulations expected to come into force by 2027.

Overall Market Outlook and Future Potential

The company remains optimistic about medium-term prospects, especially as upcoming terminal expansions are expected to alleviate current capacity constraints. Dorian anticipates these changes, alongside continued growth in North American LPG production, will ultimately drive performance in the VLGC shipping segment.

Earnings Call Transcript 2025-Q2

[Operator]

Hello, and welcome to the Dorian LPG Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Additionally, a live audio webcast of today's conference call is available on Dorian LPG's website, which is www.dorianlpg.com.

I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young. Please go ahead.

[Theodore Young, executive]

Thank you, Nikki. Good morning, and thank you all for joining us for our second 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 Tim Hansen, Chief Commercial Officer. As a reminder, this conference call webcast and a replay of this call will be available through November 7, 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 December -- September 30, 2024, that were filed 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 these forward-looking statements.

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

[John Hadjipateras, executive]

Good morning, and Happy Halloween. Thank you for joining us. Our Board continues to be committed to returning value to our shareholders while retaining commercial flexibility, ensuring a strong balance sheet and the ability to invest in optimization and decarbonization initiatives. This is reflected in our capital allocation policy under which after paying out our recently declared dividend of $1 per share, we will have returned over $820 million to our shareholders since our IPO.

We had a solid quarter despite a freight market, which felt the brunt of weather-related disruptions on LPG exports. For the quarter ending September 31, our EBITDA was $46.2 million and net income was $9.4 million. Our net debt to total capitalization remains at about 14%. We feel well positioned to take advantage of opportunities for investments. Ted will give you details and answers to any questions you may have on our quarter's financial results.

VLGC freight rates started the quarter on a high note, but this initial strength was followed by a period of softening through mid-quarter. Despite a very healthy arbitrage between U.S. and Asian LPG prices, the VLGC freight market was hit with an unusual combination of forces that created temporary length in the market and weighed on rates.

Tim will provide you greater details in his comments. We're optimistic about near and midterm market prospects ahead of seasonally strong winter period. Recent volatility illustrates that the market is near equilibrium where disruptions cause sharp and up and down moves.

In the short term, Canal is likely to gain more traffic from container and LNG ships in the coming months. And an example of a midterm positive is terminal expansion projects, the first of which is slated to finish in the second half of 2026 and subsequent 2 years will provide ample capacity to accommodate production and export growth.

The Helios LPG Pool is performing well, and our mix of scrubber LPG dual fuel and Panamax VLGCs allows us to take advantage of favorable fuel prices and to offer commercial flexibility to our customers. We have one VLGC VLAC delivering in 2026 and will retrofit some of our existing ships to be able to carry ammonia. We already have the Captain John NP on the water, which is fully ammonia capable.

Our feeling is that the current order book is sufficient and further ordering needs to be restrained until the green ammonia trade develops. We are pleased to announce the addition of an eighth Board member. Mr. Mark Ross earlier stepped down -- earlier this year, stepped down from his position as President of Chevron Shipping after 9 years in that role and 34 years at Chevron.

Mark's knowledge of the global energy and shipping markets will contribute a valuable perspective, and we are proud to welcome him to the Dorian team. As always, I acknowledge our dedicated seafarers and shoreside staff whose hard work and dedication make our results possible.

And now I'd like to hand over to Ted.

[Theodore Young, executive]

Thanks. My comments today will focus on capital allocation, our financial position and liquidity, and our unaudited second quarter results. At September 30, 2024, we reported $348.6 million of free cash, which was virtually flat from the previous quarter. Cash flow for the quarter reflected the $42.8 million irregular dividend, which implies cash flow to equity of $44 million.

As disclosed last week, we will pay another $1 per share as an irregular dividend or roughly $43 million in total on or about November 25, 2024, to shareholders of record as of November 5. The debt balance at quarter end of $583.7 million, our debt to total book capitalization stood at 34.9% and with our strong cash balance, net debt to total cap at 13.4%. We're well structured and attractively priced debt capital. Our current all-in debt cost, by the way, is about 4.7%, an undrawn $50 million revolver and one 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 remainder of the coming year to be approximately $26,000 per day, excluding capital expenditures for dry docking and scrubbers. For the discussion of our second quarter results, you may 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, available days and adjusted EBITDA. Please refer to our filings for the definitions of those terms. I'd also like to point out that we have slightly amended our disclosures around fleet employment.

Specifically, we've amended our definition of available days to reflect unscheduled off-hire, which was formerly picked up in the calculation of operating days. We now define available days as calendar days minus scheduled and unscheduled off-hire. This approach is consistent with how the Helios pool reports and is more consistent with industry practice. We will no longer report operating days.

Turning to our second quarter chartering results. We achieved TCE revenue per available day of about $37,000. So sequentially lower than the prior quarter's results, the TCE still allowed us to generate over $40 million in free cash flow to equity for the quarter. As our entire spot trading program is conducted through the Helios Pool, its spot results that are reported are the best measure of our spot chartering performance. For the September 30 quarter, the Helios Pool earned a TCE of $38,019 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 one MOL Energia vessel, indicating spot exposure of about 80% of the 30 vessels in the pool.

Turning to the quarter ending December 31, 2024, we currently estimate that we have fixed just over 60% of the available days in the quarter at a TCE in excess of $40,000 per day. That rate includes both spot fixtures and time charters in the Helios pool only.

Given the difficulty in predicting loading dates, which obviously have a huge effect on revenue recognition, disport options in some charters and the fact that our COAs are priced on average Baltic rates, the estimates we quote during these calls and the rates actually realized can vary. Daily OpEx for the quarter was $9,767, excluding drydocking-related expenses, which was down meaningfully from the prior quarter's $10,618.

Spares and stores and repairs and maintenance line items led the decrease. Our time charter in expense for the [ TCN ] vessels came in at $9.9 million or slightly less than $29,000 per day. Thus, those vessels contributed nicely to our quarterly profits. Total G&A for the quarter was $16.5 million and cash G&A, that's G&A excluding noncash compensation expense was $10.5 million. The $10.5 million included $4.1 million of cash bonuses that were paid during the quarter.

Thus, our core G&A came in at $6.4 million, which is consistent with prior quarters and our general expectations. The high level of stock compensation expense was largely a function of the price on the grant date, not an increase in shares granted. Our reported adjusted EBITDA was $46.2 million. Cash interest expense for the quarter was $7.1 million, again, reflecting the heavily hedged and fixed nature of our various pieces of debt and our all-in cost of debt of sub 4.7%.

For the current fiscal year, we have completed 3 dry dockings and anticipate dry docking 3 more of our vessels, including some upgrades. Year-to-date, we have incurred roughly $5 million in cash outlays for dry docking, and we anticipate about $8 million through fiscal year-end, which does include some payments for the dry docks already completed. Days in dry dock should be consistent with our disclosures.

Although we currently hold a roughly 83% economic interest in Helios, we do not consolidate its P&L or balance sheet accounts, which has the effect of understating our cash and working capital. Thus, we believe it is useful to provide some additional insight in order to give a more complete picture.

As of Wednesday, October 30, 2024, the pool had roughly $22 million of cash on hand. The irregular dividend declared last week of $1 per share brings to $14.50 per share in regular dividends that we have paid since September 2021. 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 a variety of factors that our Board considers and always remains at its discretion. The OTC rates are not regular, and thus we don't think our dividend policy should be either.

Looking at our dividends in a more traditional context, our net income since June 30, 2021, the quarter immediately prior to our first irregular dividend has been approximately $612 million. While including the dividend to be paid later this -- next month, we will have returned approximately $590 million of dividends. Note that, that amount excludes the $230 million that we've returned through open market stock repurchases and the self-tender offer. So the $590 million compares favorably to the $612 million -- in terms of cash flow to equity, that gap is much wider.

Thus, overall, we believe that we maintain a responsible and prudent balance between reinvestment and dividend payouts. We continue to be on the lookout for fleet renewal opportunities, and we'll continue to be judicious with our free cash flow, working to balance shareholder distributions, debt reduction, and fleet investment.

With that, I'll turn -- I'll pass it over to Tim Hansen.

[Tim Hansen, executive]

Thank you, Ted, and good day, everyone. The quarter ending September 30, 2024, saw a freight market challenged by external factors, complicating the product market and the shipping market alike.

With the Hurricane Beryl occurring shortly after the Chile repairs of various U.S. Gulf terminals, tropical storm Alberto and the severe reduction of congestion of the Panama Canal that was seen in May and June, it was an unusual quarter. It showed a wide-open arbitrage west to east, but little room for the freight market to capitalize. This was due to the length in vessels availability and temporary limited export capacity.

According to several brokers, July 2024 saw the lowest count of spot fixtures in the U.S. Gulf for many years. The West to East arbitrage was attractive, but Hurricane Beryl and continued chiller capacity issues at some terminals reduced the slot availability at the terminals for loading. The short supply of spot FOB cargoes saw terminaling fees increase dramatically and resales of cargoes, FOBs also saw large sums exchanged.

Ultimately, almost 0.5 million tonnes less export was seen in July, delaying the correction that the market wanted to see since June. August saw, however, a new record high for LPG export from the U.S. at about 6 million tonnes going a long way to clearing the backlog of VLGCs that has been building since June. The high level of fixing activity helped push the freight market upwards, but levels were capped by the long list -- by the long position list and aggressive relet of tonnage.

It was also relets in September that drove the U.S. to Far East VLGC market down to levels not seen since February 2024. The decisions made in September were mostly for October [ late hands ]. And like we saw in April 2024, it emerged that cargoes on similar late hands be $35 to $40 per metric tonnes apart depending on time of fixing. It can only be speculated on what drove some dramatic decision-making in September for those discounting the freight market. But it can be noted that there was uncertainty about how Hurricane Francine would impact the terminals in Texas and the Arab Gulf to Far East market was very weak at the time.

Regarding the Arab Gulf Far East market, it can be noted that for the entirety of the quarter, the focus of the spot market was inquiries by Indian public sector undertaking PSUs. And while the activity was significant for the Indian trade, the data flows to the Far East -- setting the freight market difficult. At least for all of August and September, the East market traded at significant discounts to the West market.

To the quarter -- though the quarter exposed again the importance of the U.S. Gulf exports for the entire LPG market, the belief in the fundamentals of strong LPG demand in the Far East were never undoubted. North American LPG production continues to grow. And although at times, more of the value within the supply chain can be taken by terminals rather than shipping, opportunities afforded by the U.S. exports also proved sufficient to rebalance the market quickly. Our expectations remain positive for VLGC shipping.

Based upon propane remaining the competitive feedstock, additional PDH plant in China, forecast of more export growth from the North America and potential for seeing an increased congestion in the Panama Canal.

Thank you. And with that, I will pass it over to Mr. John Lycouris.

[John Lycouris, executive]

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 in the marine sector.

Our scrubber vessel savings for the third quarter of 2024 amounted to $2.17 million or about $1,962 per day, net of all scrubber operating expenses. Fuel differentials between high sulfur fuel oil and low sulfur fuel oil averaged at $115 per metric tonne, while the differential of LPG as fuel versus the low sulfur fuel oil stood at about $185 per metric tonne, which is quite advantageous for the dual fuel LPG engine vessels.

The total number of owned vessels fitted with scrubber units in our fleet is now 15 after having retrofitted another vessel in the last calendar quarter during this vessel's regular dry-docking window. The added advantage with scrubber-fitted vessels is their eligibility for future installation of carbon capture modules. Marinized carbon capture modules present a significant opportunity for decarbonization, and we anticipate their adoption will become necessary in the medium term as greenhouse gas emission regulations tighten significantly in the future.

We have also completed the dry docking of 2 further vessels, including an ammonia as cargo upgrade for one of them. There is another ammonia as cargo upgrade for a vessel planned for dry docking by the end of this year. Upon completion of this last vessel, the Dorian LPG fleet will have 3 VLGC VLAC vessels capable for ammonia cargoes in the water and one newbuilding to be delivered in 2026.

We anticipate an intensive schedule of dry dockings this coming year and next for the global VLGC fleet. About 80 VLGCs were built in the 2015, 2016 period. Most Dorian LPG vessels were built in 2015. And for those that have not yet dry docked, we would be looking to dry dock and complete their second 5-year service cycle early this next year. The MEPC 82 took place at the IMO headquarters in London at the end of September and beginning of October.

Some of the significant outcomes of the MEPC 82 were the adoption of amendments to the MARPOL Annex VI to give effect to the Canadian Arctic and the Norwegian CECA's emission control areas for SOx and NOx, and it is expected to enter into force on the 1st of March 2026. There was also progression and refinement of the regulatory text for midterm greenhouse gas measures and scheduling for a further intersectional greenhouse gas working group in February 2025.

No formal decisions on future emission regulations were made at this MEPC meeting. The most reliable insight into the likely outcome of the next MEPC 83 in mid-2025 comes from the nature of the ongoing debate at the MEPC 82 floor. That discussion included detailed proposals and increasingly focused options for each of the following elements, which are well to wake and tank to wake for the greenhouse gas fuel intensity.

Most of the discussion at the MEPC 82 was converging on a technical and an economic measure for emissions and the firm agreement for this midterm decarbonization measures is expected at the next MEPC 83 meeting with enforcement starting in 2027. Wind assisted propulsion system offers benefits within current and upcoming regulatory frameworks.

In particular, vessels equipped with WAPS, this wind-assisted propulsion systems technology may qualify for the wind reward factor under FuelEU maritime, which effectively lowers the vessel's calculated energy intensity and helps vessels meet emission targets while reducing their overall regulatory costs. Selecting WAPS technology that is both efficient and straightforward to install and operate can be a pivotal step in the energy transition, delivering a cost-effective path toward reduced emissions and seamless regulatory compliance.

And now I would like to pass it over to John Hadjipateras for his final comments.

[John Hadjipateras, executive]

Thanks, John. Thank you. We can take any questions if anyone has any questions for us. Before we do, I'd like to make -- I'd like to go back on the comment I made about the medium term. Our medium-term optimism amongst other factors is based on 2 terminal -- big terminal expansions that we can see. I said second half '26, but in fact, the first is coming in the second half of 2025 with Targa and Energy Transfer up to 8 million tonnes and the other one will be Enterprise second half 2026 with 10 million to 15 million tonnes.

Nikki, over to you.

[Operator]

[Operator Instructions] We will take our first question from Omar Nokta with Jefferies.

[Omar Nokta, analyst]

A couple of questions from my side. And maybe, John, sort of on your last comments there. And Ted, I know you and I have spoken about this quite a bit, just regarding the VLGC spot rates, what we've been seeing here recently, especially with what's going on with U.S. terminal capacity. Obviously, capacity here near term has been limited. That's causing a jump in spot terminal fees, which in turn is compressing the export arb and putting maybe a cap on freight rates at the moment.

The expansion projects that come on next year and then in '26 look like that could start to loosen up and perhaps some of that tightness on the terminal side. So I just wanted to ask maybe, John, I guess you sort of hinted at it, but you did say some reasons for optimism as that capacity expands. Do you think that, that means we're perhaps in a soft patch for the next few quarters in which VLGC rates maybe not -- they may not capture the historical ratio of that arbitrage. But then once those terminals expand, we can start to see the rates revert to their norms. And when I say norms, norms in relation to the ARB.

[John Hadjipateras, executive]

Yes. I don't really, to be honest. I think that the factors like the efficiency of the Canal transit feature more prominently than the export capacity restriction. So that's kind of what I feel. I think that there's -- with an arb as open as it is, the reason we haven't been able to capture it is more to do with the absence of any kind of inefficiencies in fleet utilization, which is a feature of what we -- that we saw last year to a great extent due to the Panama Canal transits. And I think it's reasonable to expect in the next couple of quarters that the Canal will become less efficient for VLGCs because the demand for transits from LNG and containers will increase. So as much as anyone can guess and it's obviously very difficult to do. I don't think that there's a cap necessarily on that and certainly not because of the terminal capacity.

[Omar Nokta, analyst]

And kind of on where we are in the marketplace, I guess we're at that time of the year where U.S. LPG inventories start to maybe level out after building for several months. Do you think that this winter, based off what you're seeing, will bring that same type of seasonality where U.S. consumption rises, leads to higher prices domestically here, also putting pressure on the arb and then impacting rates? Or do you think something is different perhaps this winter. Anything you can talk about there?

[John Hadjipateras, executive]

Well, the weather predictions have been sort of for colder winter here. So that should put a bit of pressure on the arb. And so far, at least, they have been for a kind of moderate -- more moderate winter in Asia -- but just as this was revised for here, it can easily be revised for Asia, too. So it's kind of betting on the weather, I think, to a large extent, looking for the immediate term. And that's my feeling. I don't know whether -- Tim could add a little more color being on the front lines of the market. Tim, do you want to have a go at it?

[Tim Hansen, executive]

Yes. I think, as you say, the weather and the Panama Canal are really the 2 most important things. So we haven't -- I mean, we have a very warm weather in the East right now. So the urgency for stocking up for the winter have not really started yet, but that could change very quickly. I mean, as you said, there was a prediction it was going to be warmer in the East than usual. But the latest we saw was another analyst saying that it was going to be colder. So again, the sentiment can change very, very quickly in the East. And when there's a pull on the East, the [ half ] will adjust itself to open that up even if the U.S. prices also go up. And we have seen big inventories in the U.S. So I don't think that the U.S. prices will -- there will be no panic in the U.S. to withstand the exports. So we expect maximum exports to the East still and with the production sufficient product to satisfy the U.S. market, albeit the inland prices may go up a bit. So really, the shipping market depends on the -- on the pull from the East and especially the Panama Canal.

[Omar Nokta, analyst]

And then just the final one for me. And Ted, I think you did mention it, but can you just remind -- say it again, sorry, just the bookings that have been covered thus far and then just what those refer to?

[Theodore Young, executive]

Yes. So for this current quarter, the one ending December 31, '24, we estimate that we have fixed just over 60% of the available days at a TCE in excess of $40,000 per day. That's only for the Helios pool, and that includes both spot fixtures, time charters and estimates for the COAs.

[Operator]

Our next question comes from Climent Molins with Value Investor's Edge.

[Climent Molins, analyst]

I wanted to start by asking about the year-to-date decline in exports from the Middle East. To what extent is that attributable to the oil output cuts? And should those be eased going forward? Do you expect Middle Eastern volumes to increase?

[John Hadjipateras, executive]

The answer to the last point, yes. And yes, yes, they do. The exports of LPG from the Middle East are very related to the output. And so if OPEC+ increase, then we expect -- so it's not a perfect correlation, but there is -- all in all, it's correlated. Sometimes there's some distortions that like Saudi Arabia uses LPG internally. And -- but in general, we would expect if OPEC+ ease, they increase their production, their exports, then we would see more volume of LPG also from the Middle East.

[Climent Molins, analyst]

I also wanted to ask about the ammonia trade. It will still take a while for this trade to truly, let's say, live up to expectations. But could you talk a bit about the time line you see? When do you expect volumes to start to have a meaningful effect on the overall VLCC trade?

[John Hadjipateras, executive]

So it's one of those things. The way I look at it is one of those things that's long and coming and then comes suddenly. So at the moment, we are not seeing as much development of green ammonia trade as had generally been expected by the industry, which caused this new building kind of surge in the last 12 months or so. But there is -- there are prospects for it to develop. There are some projects that are already kind of a little bit beyond the planning stage. And there's more consideration of blue ammonia. So I think that while at the moment we don't have anything that would kind of give us comfort that all the ammonia capable ships will be carrying ammonia when they're delivered. I think when it happens, it could happen quickly enough to have a positive effect and absorb that tonnage. And that's how we're looking at it at the moment.

[Operator]

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

[Theodore Young, executive]

Yes. Well, my closing remark is to thank you all. Have a -- we're beginning to enter the holiday season. So hopefully higher freight rates and everybody have a good time, and see you again in January.

[Operator]

Thank you.

[Theodore Young, executive]

Thank you.

[Operator]

And this will conclude today's call. Thank you all for your participation. And you may disconnect at any time.