Q2 2020 Earnings Call
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Greetings and welcome to the Dorian LPG second quarter 2020 earnings Conference call. At this time, all participants are they listen only mode. A brief question and answer session will follow the formal presentation.
A reminder, this conference is being recorded. Additionally, a live audio webcast of today's conference call is available on Dorian Lpgs Web site, which is www <unk> Dorian LPG dot com.
I would now like to turn the conference over to Ted Young Chief Financial Officer. Thank you Mr. Young. Please go ahead.
Thank you Stacy good morning, everyone and thank you all for joining us for our second quarter 2020 results conference call.
On the call today, or John Hadjipateras, Chairman, President and CEO , Dorian LPG limited and John Liquorice, Chief Executive Officer of Dorian LPG USA.
As a reminder, this conference call webcast a replay of this call will be available through November seven 2019.
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 are estimates proved to be incorrect actual results may vary materially from those we expressed today.
Additionally, let me refer you to our unaudited results for the period ended September 32019, there were filed this morning on Form 10-Q .
In addition, please refer to our previous filings on Form 10-K , and Form 10-Q , where you'll find risk factors that could cause actual results to differ materially from those forward looking statements with that I'll turn it over the call the John Hadjipateras.
Thank you Ted.
Welcome to our second quarter, it's why despite the earnings call.
I am in Singapore, where I had to the global Maritime Forum.
And where much of the discussion concerned climate change.
Although the long term goal as the industry is zero carbon emissions in the meantime, LPG provides a significantly better alternative fuel is currently being Joel.
John instead, our in Connecticut.
After I give you have a great report.
Ed will follow with a discussion of our quarterly numbers and John of the market and our fleet status, we will complete the call with questions.
Well this date last year the Baltic rate.
Was $41 on I know you had before that it was 30.
Good day, the Baltic getting above 70.
The market appears to have reached 80 degree of stability.
Having traded above $50 upon since April of this year.
And just this quarter the Baltic struck a highest level.
Since 2015 at $81 a couple of weeks ago.
This quarter's profitable results reflect the health of the alright, great market.
Our fleet as well position to capitalize on the potential price differential between most software and high sulfur fuel oil.
Two of our shifts recently came out of Drybulk, bringing our scrubbers equipped fleet for ships on the water trading.
We believe that isn't that there are about 20 in all scrub of fitted vlgcs.
Currently.
In addition, we expect to have.
For more Vlccs Vlgcs Anthony.
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Hi, more before the end of next year and three a in during next year.
The completion of our program, we will have to wait it.
Well bought about 22 ships scrubber fit it.
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The freight environment and cost control has contributed to strong cash flows enabling us to from describing some nation in stock buybacks from cash flow.
Today, we have repurchased $6.7 million stock in accordance with our previously announced 50 million buyback authorization.
This program underscores our board's commitment thoughtful capital allocation.
Our optimistic view of the market continues to be supported by market fundamentals.
Were they contain order book and prospects, we create them admissions.
And with this I will have you over to pet.
Thanks, John .
My comments today will focus on our unaudited second quarter results and our capital planning for the remainder of the year.
For the discussion of our second quarter results. You may also find it useful to refer to the investor highlights slide posted this morning on our website.
Beginning with our chartering results, we achieved total utilization of 92.9% for the quarter with a daily T. C that is TC revenue over operating days as defined in our filings a $47623 yielding utilization adjusted TC, which is TC revenue per available day again is to find.
In our filings about $44241.
Spot P C, which reflects our Helios pool results per operating day for the quarter were 51613.
Per day with utilization of 91.5% I'd also point out that our spot results are netted the administrative cost of the pool and as I've and as a result, our actual Tc is higher than this level.
Daily Opex for the quarter was 8594 or 8004 O three per day, excluding amounts expensed for dry dockings.
Those amounts compared to last quarter's 8052.
Increased insurance premiums and some lines played a role in the cost increase which we will seek to offset by efficiencies another kind of cost categories.
Total DNA for the quarter was 5.9 million in cash DNA I gene a excluding noncash compensation expense was about 5 million.
DNA for the quarter also reflects bonus payments to our executive team of about 1.1 million.
Excluding those payments cash DNA of 3.9 million was down from 600 K versus the prior quarter and 200000 versus the same quarter last year, excluding the professional legal fees related to BW Lpgs unsolicited proposal.
As we discussed last quarter, our DNA, including noncash compensation expense should decline.
Our not for noncash comp expense, we expect to see a decrease because the original awards granted in 2014 invested in 2017 18, and 19 have now been fully amortized. These awards hit RPL by roughly 700000, a quarter and thus we expect noncash comp expense to be lower by this amount.
Our reported adjusted EBITDA for the quarter was $67.3 million, which was a significant increase from the prior quarters 38.4 million and substantially stronger than the 19.6 million reported during the same quarter last year that 19.6 million does exclude the cost related to BW lpgs unsolicited takeover purpose.
Puzzle.
The strong rate environment, and lower DNA accounted for most of the improvement.
We look at cash interest expense on debt as the some of the line items of interest expense, excluding deferred financing fees and other loan expenses and realized gain loss on derivatives.
On that basis total cash interest expense for the quarter was 7.6 million, which was down about 100000 from the prior quarter largely due to continued debt pay down.
We continue to benefit from our hedging policy in the favorable pricing of our Japanese financings, leaving us with the current interest cost fixed hedged in the small floating piece of 4.3%.
For the quarter.
We had cash outlays of roughly 3.6 million for drydockings or $1719 per fleet day.
Leap day is calendar days plus time charter in days both of those latter two terms are used our defined further in our filings.
We also managed to repurchase $6.2 million and stock during the quarter and an additional 500000 since the end of the quarter.
Free cash flow to equity, which I remind you as a non-GAAP term before outlays for stock buybacks and Drydockings with 20 feet 25.3 million or roughly $12000 per calendar day for the three months ended September 32019.
Clearly our cash flow and liquidity remains strong since quarter end through October 29th our restricted and unrestricted cash is up about 13 million to somewhat over $96 million.
Although we hold an 80 plus percent economic interest in the Healios pool, we do not consolidated balance sheet accounts, which has the effective understating our cash from working capital.
As we believe it is useful to provide some additional insight in order to give a more complete picture.
As of Tuesday October 29 of the pool had roughly $35 million of cash on hand as reminder, the pool has no debt whatsoever.
In light of the strong rate environment, we have taken advantage of a disruption.
One of the shipyards to postpone installation of three scrubbers until the first calendar quarter of 2020, well we remain very.
Constructive on the rate outlook historically, we've seen a bit of a rate pullback in the winter months, and thus felt that a slight delay reduced our opportunity cost from the installation.
Based on this revised plan, we now expect to have total cash outlays of roughly 25 million or about $6000 per day for the remainder of the fiscal year.
For the 10, drydockings, including scrubber installation ballast water management systems.
Since we do get Ics been extended payment terms from a number of our Ben vendors. Some additional amounts in respect of these drydockings will not be payable into our fiscal year 2021.
On completion of the program 12 to 23 vessels in our fleet will be able to profit from the expected fuel price differential between low sulfur fuel oil and high sulfur fuel oil following the implementation of IMO 2020.
For the remainder of the fiscal year, we therefore anticipate cash cost per day of $29000, which is the some of the $23000 a day to which we have historically guided plus the 6000 just mentioned.
With a solid market.
Backdrop, and a strong balance sheet, we maintain our constructive view on our business and expect to continue to be able to generate solid cash on cash returns for our shareholders with that ill pass it over to John Liquorice.
Thank you Dan.
Libre seaborne LPG has grown 15% year to date over 2018, while us export volumes in recent months how for the first time taken the global supply lead over the middle East exports.
According to waterborne Hs us LPG exports to date are at 34 million tons, while at middle all the middle East Liftings at 32.3 million tons. This might be a direct result of yet tax last month in Saudi Arabia, reducing lifting volumes intercept of September and October .
The us LPG supply has grown by 4.8 million tons year over year. The rest of the wells supply growth has kept pace growing 4.4 million tons year over year and recovering to roughly 2016 levels.
Australia in Southeast Asia, and European volumes have experienced the largest growth, which we believe our favorable for ton mile demand.
During the third quarter, we saw 187, VLGC liftings out of the U.S.
About six monthly cargoes on average more than last year and are likely attributable to energy transfers Marcus Hook terminal increased capacity during the year to about 15, VLGC liftings per month.
We expect increased number of Liftings in this quarter and next year on account of expanding us expert and fractionation capacity by enterprise Targa, and Nederland terminal, which would increase that bubble monthly VLGC lifting for multifamily to about 100 vessels.
You asked propane inventories are still at high end of their five year range, hitting 100 million barrels last week, 22% higher than last year same time.
A wider LPG pricing spread between the U.S. and that far east had drove demand last quarter in China to PDH unit started up operations.
No one grand resource in technology, 600000 metric tons per annum PDH plant construction conducted trial production and the Headley petrochemical and dial in started a single train do at origination unit SP chemicals put into operation to steam cracker, which utilizes both propane and ethane as feedstock demand also.
Increased in South Korea, Us hand, what total and G. Chemical both restarted production of the steam Cracker is after meant and then which were expanded to increase their propane feedstock capabilities.
The order book overall remained stable representing 30% of the current fleet and with implementation of IMO 2020, we remain hopeful that the cost of compliance may drive less efficient chips demolition.
The scrubber adoption rate in all marine sector continues to be strong and for the VLGC fleet, we expect more than 40 vessels to have scrubbers installed by the end of first quarter 2020.
We currently expect our scrubber installation will be completed by the end of the first quarter 2020, which will mean that 12 out of a 22 ships will be scrubbers equipped as Ted mentioned, we have decided to opportunistically pushed back installations, allowing our vessels to continue trading and take advantage of strong market rates and vessel demand.
Given our fleet of installed than scrubber retrofit installations, we expect that our fleet will be commercially flexible and compliant with any regulatory or sovereign restrictions.
Thank you very much I'll pass it over to John Hadjipateras.
Thank you tag language on stage, we have any questions.
With their prepared remarks completed we will now open the lines for questions.
I would like to ask your question. Please press star one on your telephone keypad and confirmation total indicate your line is in the question Q.
Hey Press Star too if you would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star King.
Our first question comes from Art Dr. with Clarkson. Please go ahead.
Hi, Thank you.
Hi, John John and Ted.
Hey, Mark Hello Omar.
Hi, there, though is very good overview, you gave us on the market fundamentally for this year and and the outlook, especially with the VLGC liftings being about 100 or so.
Each month.
When you think about where things are right now obviously vlgcs are very strong, earning 60000, a day or so we're supposed to be approaching or we're supposed to be feeling some of the winter seasonality that tends to be.
Lead so weaker market.
Yes for the next several months.
Clearly that's not happening.
Is there something that's different this year relative to last year the year before that's causing the strength that persist as we get into the winter.
Yeah.
Omar I think that there are many decided that that market the seasonality that aspect of the market has been distorted for awhile anyway, and there's less less little bit and each year. We go on you see that the seasonality not sort of playing out as well as we expect it.
Good day because of.
The u.
Supply that we're getting it will be closed on the new terminals that are being.
Published in the far east, but I.
Myself don't try to count on seasonality I look through through it and I think we should be looking at the average for the year more more.
If we wanted to make a prediction than when.
We're going to be spiking or four Lang.
Uh huh.
I don't think the market will follow the goal as usual patent was anymore.
Okay, Yeah that that makes sense that there's probably more cyclical themes that play that are driving these seasonality issues, maybe a bit towards the way side.
The you know just based on how strong the market's been really as you said since effectively April .
What the inquiry looking like.
For longer term deals from charters.
It's beginning.
It's beginning again there is there is you know after a long period of course, all about market.
As reluctance on that part of joggers.
And then except that in that Spike earlier this year that for the when the markets by during this year and it also spiked a little bit the year before but when when its bike that.
There was a little bit of a rush for people to cover.
And.
You would see that maintenance and it was to avoid.
That being exposed to the spot rates and so that period was maybe a year spirit in August at the moment, I think youre getting maturing a little bit and people are looking further ahead and.
But we see inquiries for two and three years and of course, we also at the same time of have been seeing inquires for projects you know for a longer period.
Our job so it's coming it's coming.
Thank you read the but we haven't seen anything.
Ah Ah moment, which would choose.
For us.
Actionable.
But where were watching it very closely.
Okay got it and just maybe just some color than on the potentially on lets say you mentioned that the project deals would those be in the ones you're seeing are those for existing ships are ones that would be against a newbuild order.
Yeah, we try not to say that word [laughter] [laughter].
Yeah, I look I think both.
Well.
Okay, and maybe just one one final one for me and maybe just taking a step back and thinking of Dorian obviously now pure play VLGC company 22 ships owned a obviously cash machine at the moment.
What are your thoughts on.
The fleet from here as you think about the next phase and Dorians life span you had an aggressive investment.
Five years ago and building up the fleet. When you think about the next time, it's you're ready for growth. The do you want to continue on with Vlgcs or do you look elsewhere within the LPG Jane.
That's a very good question no. We look the further it gets drawn from the VLGC the more opportunistic we would be.
But in terms of investing in and build you see.
As long as we feel some confidence in the and the prospects of the all over the long term and.
We would we would be ready to do that but I think we we'd be very cautious not so much because of we fear that market, but we fear that they start of a newbuilding program.
Could create a you know.
Very unwelcome sort of.
[noise] Yep no understood well good that'll do it for me. Thanks, so much for for the answers.
Thanks Omar.
Our next question comes from Nikolay diving with Dnbi. Please go ahead.
Good morning.
Just so just a quick question on the enterprise or terminal the water here in terms of volume ramp up then.
You asked inventories are high investments living for scrub retrofit the time LPG them on this one this strong after we gauge while non point PDH ramps up stuff you talked about.
You know higher terminal volumes I, just wanted to see if you haven't implied or how about the shaping up and ramp up.
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John H.
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Nikolai the enterprise Stansted already to 175000 barrel expansion and the their operational already a we've seen that a this month.
And we expect another expansion from.
Enterprise for 260000 barrels or in the third quarter of 2020, So we really expect that a with their 85% utilization or they will be able to push a lot of cargo some liftings forward.
Hi, I'm here with and stuff.
Okay ramp up it's all over then all fully operational or or or yet to come.
We've seen a in the last two weeks a very high utilization of the terminal we assume it is and we have oh, sorry, I heard that they have tested it and it days operational from there.
From the call a week ago.
Hi, Thanks.
How should we think about a you know you bought back them. So yeah. This quarter, how should we think about cash dividends versus buybacks or a in our modeling for 21 thing.
Okay, you know look like John UAN.
Yeah, I mean, I'm back on I mean, I left to Omar.
Well when I was talking about the things I don't want to talk about [laughter] well did you catch nickel I, if you want to pick up your timings impact well nickel asked.
About dividends versus stock buybacks, if you'd like to take that one how how do you should think about that as they model out a that the coming 12 months.
I'd give you guidance on that because I think well look at a complex supply and our board is I'm looking at the most efficient way.
All of returning.
Due to our shareholders so at the moment.
We can say that the buyback program is now.
We don't want to explored the possibility of dividends or any other way of returning value will be also that reduction.
Okay.
Okay all for me.
Thank you. Thanks Nicholas Thank you once again, if he would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Greg was Alaska with Weber Research. Please go ahead.
Hey, good morning, how are you guys.
Good I don't Greg.
Okay.
So a I'll I'll bring out the scrubbers. So I just want to get the numbers right, where the original schedule is to have all 12 done prior to January 1st right, but now where we are expecting nine to be done by Jefferson and three of those to slip past right.
Correct.
Okay. Okay. So.
What what maybe what is causing those delays as it is it too many orders at the yards or is it more you know the installations are just taking a little bit longer than expected.
Oh, it's more interesting it's not the answer flashing the wherever wet weather our shifts are going into that should be and to the yards that come out and good time and.
Within expected both in terms of the cost then they and they are time. However, we've not we've not being far from our estimate so and we don't expect to be makes a lot, but the the three ships were denied worst stand in.
China and and.
There were the only watch in China, but they were three and that in a particular.
Chinese shipyards, which had problems and so we have so we have we're being.
How many alternatives, but we frankly have not been.
You know, we've been a little bit relaxed.
Luckily about looking for alternatives because in the meantime.
We're taking advantage of the high earnings so.
You know.
I expect that early next year will be proceeding and its just but by no means that we placed bowman type of any significance or just that in reaction to.
Something that just came up.
Unexpectedly, we kind of Opportunistically took advantage of it we continue with some boy Oh Boy just before we open ships I'm not sure.
Okay and it was it.
Was it specific like like operationally or to the yard specifically or is it is it a broader issue.
No. It's it's anything specific to the yard that yard actually was closed down because by the local authority because of the dispute between its owner in the local or sorry.
Oh, I mean, Jon Gacek sources more with all the details, but yeah. It does not have made that you'll see that in general I.
I think you may have heard also from from other markets said that they are.
Or delays and and and sensors, particularly in China, where there are over books.
Uh-huh vis vis a vis might Bobby.
I was much impact now that that you know people are taking should be lccs order out of the lined up and keeping them, creating too so right.
Like that it.
It's not going to be an issue.
Well I saw that people want to complete that the scrubber programs.
Even if there is a little bit of a delay.
Okay that makes sense and then the remaining five for this quarter are they a I'm assuming they are not in China.
Oh, two are in China, right there right.
Sure in China.
Okay.
Yeah. Okay. One then for just from on is there right.
Yeah, Okay cool right and then from just from a modeling perspective can you remind us how long we should expect those ships to be off hire or Q4.
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[noise], we gave we've given guidance previously.
Given guidance previously that its a.
25 to 30, 30 days could slip a little bit, but sometimes it can slip a little bit either way it sounds a little faster sounds a little slower.
Right. Okay. That's helpful.
Alright, and then just switching gears real quick Irish enjoy hearing about a your developments. This LPG has a marine fuel you guys had something going with man in Hyundai. If memory serves did you have any any updates there and then you know like a when do you think is a we can start to talk about LPG engine retrofits.
Becoming more realistic.
Correct, Yes, Jr, and John is where can I just like locally.
Yeah, John and of course, you wanting to take that you've been following it closely.
Thank you John .
Yes, Greg we we are continuing those discussions and we have a progressed a our engineering.
Studies with.
The all the parties concerned and we will be.
Trying to put the whole project together.
As an economic proposition for the board to consider.
Sometime ER and the at towards the later into here.
Okay.
Alright very helpful. Thanks for your time guest.
Well. Thank you I will now turn the floor to John Hadjipateras for closing comments.
Thank you say actually in fact, you all.
And I wish you all are happy Halloween good day.
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<unk> for me and good morning to a lot of view.
This concludes today's teleconference. Thank you for your participation.
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