Dorian LPG Ltd

NYSE:LPG

Earnings Call Transcript 2024-Q4

[Operator]

Good morning, and welcome to the Dorian LPG Fourth Quarter 2024 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'd 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, Kevin. Good morning, everyone, and thank you all for joining us for our fourth quarter 2024 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Ltd.; John Lycouris, Head of Energy Transition and Chief Executive Officer of Dorian LPG USA; as well as Tim Hansen, 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 express 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 Hadjipateras.

[John Hadjipateras, executive]

Thank you for joining John, Ted, Tim and me today. We are 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 earnings 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 1 owned and 3 chartered-in dual-fuel newbuilding VLGCs. It's a good time to be a shipowner. 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.

[Theodore Young, executive]

Thanks. My comments today will focus on our unaudited fourth quarter results and financial position, capital allocation and liquidity. At 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 GAAP 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 30.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 refinancings until 2026, ample free cash, an undrawn $50 million revolver, and 1 debt-free vessel. Thus, we have a significant measure of financial flexibility.We expect our cash cost per day, OpEx, G&A, time charter-in expense, interest in principal 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 Highlights 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 program is 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 charters in the pool.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 Energia vessel, indicating spot exposure of 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 feel it's 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 charters in the Helios Pool only.Daily OpEx for the quarter was $10,047, excluding drydocking-related OpEx. It was $10,699 per day including those amounts. Sequentially, our OpEx excluding drydocking as up only 1.4% or virtually flat, which was a good performance.Our time charter-in expense for the 4 TC-in 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 increase is 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 reported EBITDA -- 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 the current interest cost fixed, hedged and 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 realized gain/loss on interest rate swap derivatives, as those numbers are reported in our income statement.Although we currently hold a roughly 83% economic interest in Helios, we do not consolidate its P&L 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 21, 2023 -- '24, 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.Net 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, prospective 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 our $113.5 million self-tender offer and $116.5 million of open market repurchases, we have 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.

[Tim Hansen, executive]

Yes. Thank you, Ted, and good day, everyone. So the quarter ending March 31 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 heights in December 2023 and highlighted how significant imbalances in the market can occur. But the recovery, even gradual, 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 1/3 of expected 2024 newbuildings delivering in a short window and a drastic reduction of the congestion in the Panama Canal. The narrowing of the arbitrage during January and February is a seasonal occurrence, reflecting -- reflective 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 U.S. rose.The newbuilding deliveries amidst an uncongested Panama Canal created a temporary oversupply in the U.S. 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 0 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 kept at the maximum number of transits to reduce the waiting time for those trying to take advantage of an open Panama Canal. And vessels sailing to Asia, the Eastern routes were forced to sail the longer route via Cape of Good Hope with Suez Canal being inactive -- or inaccessible, sorry.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 9 more VLGCs are scheduled to deliver this year at regular intervals. Propane is the preferred feedstock for steam cracking, and 7 more PDH plants 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 transits 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 you over to John Lycouris.

[John Lycouris, executive]

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, in clean fuels, emissions reduction, 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 ships 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. At Dorian LPG, we firmly believe that we should be part of and provide long-term solutions to the world's decarbonization objectives and goals. We have found these initiatives to be both ecological, as well as economical.Our scrubber vessel savings for the first quarter of 2024 amounted to $3.8 million, net of all scrubber operating expenses, or about $3,480 per day for 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. In 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 drydocking of that vessel. The installation of energy-saving devices and silicone hull coatings to our vessels will continue as we provide -- 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 newbuilding VLGC/VLAC vessel at Hanwha Ocean, we are able to upgrade and outfit some of our vessels for ammonia's cargo.Green hydrogen's future economy will depend on the transportation of large quantities of ammonia, most likely in VLGC 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 newbuilding tonnage.In continuation of Dorian's commitment to sustainability, we strive to improve our energy efficiency on board 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 Hadjipateras for his closing remarks. Thank you.

[John Hadjipateras, executive]

Thank you, John. Kevin, we're ready to take questions.

[Operator]

[Operator Instructions] Our first question today is coming from Omar Nokta from Jefferies.

[Omar Nokta, analyst]

A couple of questions for me for -- regarding the market. And obviously, you were just touching on this in the opening comments. The markets 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 4-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?

[John Hadjipateras, executive]

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 in the supply-demand equilibrium is what has made the markets bounce back in a healthy way. But Tim, can give you a little more color, or a lot more color maybe. Tim?

[Tim Hansen, executive]

Yes. You're right that 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 we 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 higher auction fees to go through the Canal was 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.

[Omar Nokta, analyst]

Okay. And then, just 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?

[Theodore Young, executive]

Yes, Omar [indiscernible]. Okay, yes. I'll just give you [indiscernible]. Yes. So, Omar, 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 are, the team has booked 75% of the available days in the pool for the quarter ending June 30. And on that basis, those days as the denominator, the TCE for those vessels or those voyages is in excess of $40,000 a day on a load-to-discharge basis.

[Omar Nokta, analyst]

Okay. So 75% of the pool days, including the pool TCOs, is that...

[Theodore Young, executive]

Correct.

[Omar Nokta, analyst]

Just over $40,000. Okay.

[Theodore Young, executive]

Yes, somewhat over $40,000. It is the reason -- the reason we're doing that is just to -- the revenue recognition gets awfully tricky with these things. Anyway, thank you.

[Omar Nokta, analyst]

I see. And maybe just a final one. Maybe -- you mentioned the order book for VLGCs and 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 -- the way this ammonia opportunity is developing, do you think that -- do you think a VLAC becomes more of like a project-based asset, similar to the VLECs, and not necessarily impactful to the broader VLGC trade? What do you think of that and the future of that?

[John Hadjipateras, executive]

Omar, that's a great question. And 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 that 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 then, we're still -- like I said, we are 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 are hopeful and optimistic on beyond that.

[Operator]

The next question is coming from Climent Molins from Value Investor's Edge.

[Climent Molins, analyst]

I wanted to start by asking about your financial profile. Leverage is sitting at very manageable levels, even pro forma for the recent newbuild order. Could you provide some color on where you see the sweet spot? And secondly, do you plan to continue to organically delever going forward?

[John Hadjipateras, executive]

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 50% or more than 50% or less. But because it depends on -- at the spot -- at the point where you are in the market for that. So I can't really tell you that we have a sweet spot that we're targeting. We're happy with where we are right now.

[Climent Molins, analyst]

That's helpful. You own a modern fleet, and almost the whole fleet is [ equal ]. 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?

[John Hadjipateras, executive]

I'll let John Lycouris talk to you about CO2 transport. Regarding additional ships, we don't think we need to add newbuildings to the order book. So we are in the process of -- as you said, we have a modern fleet. And we have -- but we do have to consider fleet renewal. So depending on opportunities going forward, it may be newbuildings but could also be purchases in the secondhand market.But on the question of CO2 transport, which is a great question, John may have a few interesting remarks to make on that.

[John Lycouris, executive]

Yes. Thank you, John. What -- 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 because you may need to transport CO2 to a de-bunkering 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 would be able to transport CO2 to the location where it's going to be sequestered or stored. That's the end.

[Climent Molins, analyst]

That's all from me. And congratulations for the quarter.

[Operator]

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.

[John Hadjipateras, executive]

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.

[Operator]

Thank you. 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.