Q3 2021 Dorian LPG Ltd Earnings Call
Greetings and welcome to the Dorian LPG third quarter 2021 earnings conference call at.
At this time all participants are in a listen only mode. A brief question answer session will follow the formal presentation.
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 dot Dorian LPG dotcom.
I would now like turn the conference over to Ted Young Chief Financial Officer.
Thank you Michelle Please go ahead.
Thank you Rob good morning, everyone and thank you all for joining us for our third quarter 2021 results Conference call with me today are John Hydro terrorists, Chairman President and CEO of Dorian LPG Ltd, John low chorus, Chief Executive Officer of Dorian LPG, USA, and Tim Hansen, our Chief commercial officer.
As a reminder, this conference call webcast a replay of this call will be available through February nine 2021.
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 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 31, 2020, there 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 those forward looking statements with that I'll turn over the call to John Hulbert terrorists.
Okay.
Thank you Ted good morning from my <unk>.
Medicaid, where John Ted and I are speaking to you from different locations and from Copenhagen, where Tim Hansen, who has joined.
I appreciate all of you joining us this morning to discuss our third quarter results.
Good day, we're happy to announce a $100 million itself kind of often having considered various options on our board decided the tender offer presents a very compelling way to return cash to our shareholders.
It accomplishes our main goal of making a meaningful distribution, while at the same time maximizing financial and option value for all our shareholders.
We believe that investors will value the optionality of our approach as those who wish to receive cash can sell as much of their holdings that fits their needs and those who wish to increase their ownership have that flexibility as well.
Through continued cooperation with our customers various regulatory bodies and local governments, we've been performing all work remotely when possible during the ongoing pandemic.
Did it digitalization and remote monitoring of enhanced efficiency offsetting some of the higher costs associated from COVID-19, while reducing potential exposure to the disease.
Through these efforts our seafarers on shortstop remains safe and able to perform their duties as we continue to focus on providing our customers safe reliable and clean and trouble free transportation.
It's a notch over it for jobs through the quarter or even better than we expected on last quarter's call on the potential effect that'd be combination of large amounts of U S supply coming on line a heavy dry docking schedule for the global fleet and the potential impact on they called Asian Winter could have on the market.
While rates have fallen dramatically from a Disney Pete the market environment remains promising and we think that it is sustainable for some time.
We expect a dry docking and maintenance on the global fleet will likely have a stronger impact this year than last year.
Wave of U S infrastructure came on line during 2020 that was weighted towards the end of the year introduction, introducing a large amount of spare export capacity and product supply to the market.
At the same time continue production cuts from OPEC plus are decreasing supply out of the middle East, leaving only a U S product to meet global demand.
U S. LPG exports have returned to China, where new PVH plants continue to start on <unk>.
And on other export markets continue to grow.
We continue to be a believer in the cargo and then our fleet transports LPG as a clean on flexible fuel.
Those that will bridge the potential transition to alternative vintages.
Next Ted Young book would provide an analysis of our quarterly financials flow.
Led by Tim Hansen on the markets and John is of course with an update on.
On environmental and operational activity.
Mike Yours.
Thanks, John.
My comments today will focus on our financial position and results in our on our and our liquidity as.
As well as some commentary on the self tender offer announced today.
At December 31, 2020, we had $133 6 million of free cash.
As of Friday January 29th our cash balance stood at $149 3 million.
The increase since year end as reflected in the strong chart on results that we are currently seeing.
Turning briefly to the tender at the tender price of $13 50 per share and based on the $49 9 million shares outstanding.
Currently outstanding we would be repurchasing seven 4 million shares or about $14 eight per cent of the shares currently outstanding.
Based on charters booked and our expected expenditures, we incur we currently anticipate that we will generate roughly 50 60 $50 million to $60 million of free cash flow this quarter, including the cash already generated in January.
Even after accounting for the $100 million buyback, we would maintain a cash balance that is consistent with our approach to balance sheet management without any borrowings.
In addition, the buyback is accretive to shareholders equity per share a key valuation metric for the investment community.
Overall, we view this transaction as an efficient and a highly accretive way to return capital to our shareholders. Further details on the mechanics on logistics will be available later today via the SEC website.
For the discussion of our third quarter results. You may also find it useful to refer to the investor highlight slides posted this morning on our website.
Turning to our third quarter chartering results, we achieved total utilization of 96, 2% for the quarter with a daily T. C. That's time charter equivalent revenue over operating days as both those terms are defined in our filings of $42298, yielding utilization adjusted TCE, that's TCE revenue per.
Per available day of about $40690. This quarter saw steady month over month improvements in rates and utilization.
Spot TCE per available day, which reflects our a portion of the net profits of the Helios pool for the quarter. It was about 41754.
Overall, the Helios pool reported a spot Tc, including Tcas T. A excluding CLA of approximately $45237 per available day.
Our daily Opex for the quarter was $9189 excluding amounts expense for dry dockings. It was 9004 87, including those costs sequentially Opex was down reflecting overall strong cost containment.
Our time charter in expense remained relatively stable at $4 4 million as a reminder, we do not include time charter in costs on our vessel operating expenses.
Total G&A for the quarter was $5 $5 million and cash G&A I E. G&A, excluding noncash comp expense was about $5 million, which was down about 10 per cent from the preceding quarter. We continue to look for efficiencies on our cost structure.
Our reported adjusted EBITDA for the quarter was $60 1 million similar to our chartering results. We saw steady month over month increases in EBITDA this quarter.
As a reminder, we look at cash interest expense on our debt is the sum of the line items interest expense, excluding deferred financing fees and other loan expenses and realized gain loss on interest rate swap derivatives on that basis total cash interest expense for the quarter was 6 million.
Representing a $900000 reduction from last quarter.
As I mentioned last quarter, we did blend and extend our $200 million notional swap, which resulted in our extending its maturity by three years to 2025 and reducing the fixed interest rate from 1.933% to one point O nine 1%.
We also did a similar transaction on our $50 million swap, which resulted in a decrease in rate from just over 2% to 1.145 per cent.
The swap remains at 50 million notional until March 'twenty, two 'twenty 'twenty, two at which point it will begin to amortize.
So a big part of the reduction that we witnessed was due to those favorable blend and extend transactions on the swaps overall, we continue to benefit from our hedging policy and the favorable pricing of our Japanese financing, leaving with us, leaving us with a current interest cost fixed hedge on a small floating piece of three points.
Seven 1%.
As a reporting matter are realized and unrealized gain loss on derivatives also include the effect of our F a portfolio.
The calculation of EBITDA and in our filings however, only adds back the interest on the realized gain loss not the FFA piece.
John will touch on our dry docking program, but our remaining dry docking commitments are quite manageable from a financial perspective.
Although we currently hold a roughly 70% economic interest in Helios, we do not consolidate its P&L or balance sheet accounts, which has the effect of understating our cash on working capital.
Thus, we believe it is useful to provide some additional insight in order to give a more complete picture of our financial condition.
As of Monday February one the pool had roughly $45 $7 million of cash on hand.
We feel that our liquidity and capital structure position us well for any rate environment and we believe that this allows our company to make capital allocation such as the one announced this morning from a position of strength.
Our board's decision to begin 100 million dollar self tender underscores its commitment to shareholder value creation and aggressively returning cash to shareholders when appropriate.
Assuming successful completion of this tender offer will repeat we will have repurchased roughly $16 3 million shares representing over 28 per cent of the shares outstanding following our IPO in 2014.
We continue to remain interested in accretive growth opportunities that meet our risk reward criteria as well, we will continue to be prudent in deploying cash, but our financial position allows us to act quickly on meaningful opportunities as they may arise.
With that I'll pass it over to Tim Hansen.
Thank you John.
On the calendar year 2200, the global seaborne LPG volumes sold by over.
2% year on year, $206 8 billion tons fourth calendar quarter volumes totaled 27 million tonnes.
On a list on one per cent decrease versus the same quarter in such a 90 day.
He was export growth continues to counterbalance the middle East volumes, that's about 4 million tonnes.
Meanwhile, 20, it's one of the American export volumes increased by 16 percentage of 46 million tons compared to only 39 7 million tons last year.
And so on the second quarter in a row U S export volume chip the records levels year on year.
Export volumes in the fourth quarter grew by 18, 8% followed up on 9 million.
Tons.
The American export volumes hit a monthly record pulp on 4 million tonnes in October and a rig on it can be in December with pulp on 5 million metric tons.
Asian wouldn't to increase demand why new export capacity came online in December with each of these expansions all day.
Terminal being completed.
The Baltic market index, the restaurant or a cheaper route average $76 per metric tons in the last quarter race rates increased.
Quarter progressed, increasing from 55 all of the John at the beginning of the call that's over $100 with John on the boat.
So it's a simple.
Several contributing factors that drove last colas raised very strange relation the Panama Canal coast weighted in times of increased their masks with you during the quarter. This was caused by heavily container traffic.
And then overall will increase in transits also COVID-19 related inefficiencies.
And U S Gulf and Asia, and Port delays caused by winter weather for the increased depreciation on.
In addition to the elevated number of ships out of trading through to dry dock in all the surveys.
At the same time global LPG demand increased substantially particularly from Asia.
On the unusual cold weather, leading to a relative children's of gas in the region for Richard didn't show up in commercial air crashes.
Ohio and G prices in addition.
I'll, let you draw on.
LNG cargoes from the U S and creating a booming in LNG market incentive on substitution on LNG LPG and industrial applications.
With a resilient LPG U S LPG production on low inventory.
She wants from December until Christmas.
Mont Belvieu price competitively and opened the west East arbitrage in mid November which remained open for the remains on the corridor. The open arbitrage sports each east may traditionally based on various players in Congress to be used as well as margin what's bad on.
Versus the Cracker economics in Europe against Napoli, which created additional ton miles on this as large as ours concerns over the U S. In NGL production volumes remains propane storage levels are tracking well below both.
Both last year's levels on the trading part month's average.
However, what we do.
We continue to believe the U S supply.
The principal on the global demand GAAP lift.
From the low women at least production due to the salary cuts.
Saudi Arabia has agreed to take a run of the new OPEC cuts in favor of Russia since February and March.
Mitch growth removed fortune five years, she's cargos or about 400000 tons south.
Did you used to live in August two months on.
Although rates have come off.
Over the past weeks on the back book increased U S price.
Which have closed the arbitrage and resulting in a few U S chocolate cancellations prices on our adjusted and look more constitutes.
And we have seen market activities. He can I'll begin high utilization on the Panama Canal should continue resulting in a sustained delays and more regular UGC ruling around the Cape of good scope.
We remain optimistic looking into 2020 without I'll pass along to John for environmental and Pete update.
Okay.
Yeah.
Thank you Tim.
And the last calendar quarter of 2020.
We completed dry docking and third special survey on our vessel Captain John NP.
The past couple of weeks of January we completed dry docking on it first and for special survey on our vessel come on door.
We plan to fit two ships with scrubbers during this quarter, which will complete our announced scrubber program.
And Carryout those guys from five year dry docking cycles.
We expect out nature of $6 million to $8 million over the next couple of them on a quota.
Of course, sorry.
During 2020 core price is show an extreme volatility.
Half bunker fuel prices.
The very low sulfur fuel oil price spread however has steadily priced at 20% to 25% premium above that of heavy fuel oil and bunker fuel.
Even though in absolute dollars this spread ranged from a high of $300 per metric ton down to $50 per metric ton.
It currently stands at about $100 per metric ton.
As we look back to where I am on 2020 launch last year. We're now very confident that the decision to install hybrid scrubbers was justified.
Not only economically but osha environmentally.
Our fleet of hybrid scrubber vessels roll average, 0.04%, 2.07% sulfur oxide emissions shocks emissions against the blended and problematic fewer low 0.5, 0.1% shorter shipping for the year.
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As we have previously reported scrubbing, all should reduce particulate matter and black carbon emissions by 80% keeping in line with environmental sustainability.
We continue to invest in our vessels performance and efficiency and achieving reduced admissions and lowering operating costs.
An improved environmental footprint is very important to Dorian LPG and we hope to continue with additional energy efficiency technologies to our vessels, including dual fuel batteries and pure showers.
Dorian has been at the forefront of LPG drove your technology since 2013 in 2014, when first new building vessels were ordered and we followed that development closely since then.
After the most recent LPG dual fuel retrofit to get into a regular service and when the first new building dual fuel vessels delivered from the shipyards, we would hope to revisit this opportunity and consider our options.
Oh.
Given the urgency of fleet age profile last year.
It would have been a significant number of vessels.
For dry docking.
Which would have removed from trading but this year, we expect to see even stronger trends.
According to some brokers as men was 90 ships could opt for dry docking maintenance this year, which would almost be one third of the current global fleet.
With a strong freight rate environment in the second half of last year, and increasing COVID-19 disruptions at the yards many own those deferred maintenance, which has pushed now into 2021.
Considering LPG dual fuel engine retrofit ballast water treatment installation and some scrubber retrofits more ships could be out of the global fleet this year for longer periods than last year.
The car fleet order book remains at reasonable levels and supports the VLCC market for the immediate term.
Term.
It currently stands at 39 vessels or about 13% on the fleet with about 21 vessels and expanded in 2021 13 vessels in 2022 and nine in 2023.
There are currently 30 vessels in the fleet.
That are aged 25 years or older which are close to about 10% of the current fleet.
And with that I will pass it over to John had your potash.
Okay.
Yeah.
Yeah, we are thank you John.
Rob do we have any questions.
Okay.
Thank you.
What's your prepared remarks completed we'll now open the line for questions.
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Thank you and our first question comes from the line of Sean Morgan with Evercore ISI. Please proceed with your questions.
Hey, guys. So in light of this you know large buyback and return of capital to shareholders. I think you still have 50 million reauthorized on the buyback authorization for the rest of the year.
Or at least through the rest of the calendar year. How do you think about how aggressive you'll be in terms of timing of using that and to what extent you use it won't be just dependent on the path of the share price and sort of how do you think about that that reauthorization of the buyback in.
In light of the change of circumstances with this big chunk of cash being used right upfront.
This tender offer.
Oh, Thanks, Good question John.
It's there and it will remain as an authorization and it.
It will be as before evaluated on on a day.
You are all the factors into consideration.
Including the price including.
On the.
Success hopefully on the.
On the tender.
The market for fragrance.
Okay.
Then.
I got one here for Tim regarding the Panama Canal, you you talked about the utilization spike between LPG vessels LNG vessels and container ships do we see this is as kind of a seasonal uptick for a one time event or is this sort of a new normal where all three of these these vessel categories are using them.
Panama Canal to an extent that it's going to become sort of a capacity constrained on an ongoing basis.
And I think for a more complete answer.
Can you hear me, yes, I can hear you.
Right.
Yeah, Okay. Yeah, I think there are some seasonality in it the.
That should be but container ships are on especially have have increased throughout the year.
590, plus small packages on the than the year before we see more container ships are being paid to hold the Panama and more lines going in that direction and so I think that's more on a continuous basis.
We haven't seen dry cargo for example increased quite a quite substantially but which has been there, which we expect will be somewhat seasonal.
It should be a cold.
Winter nation on them on tobacco.
Or.
What's on offer co Los Juarez.
<unk> or South America.
And LNG also is somewhat seasonal but we have seen net increase in transit or throughout the year, but especially this cold spell a lot that could happen there.
And in which they loosen Asia has drawn.
A lot more on LNG in net beverage, but totally weird were seeing like the yeah.
The increase of passengers in the canal behind by more than 200.
Frankly, since our 2019 and 2020, so so overall, we believe that there will be more or less.
Let's see delays and depend on that come out, but it will also have some seasonality swings.
Okay, and so in light of that as you're managing the Dorian fleet has that resulted in in Dorian just waiting at the Panama Canal longer along with a lot of other global players or are you actually having to send ships around the long way around Africa from like the U S Gulf to to Asia.
We are sending our ships around or the K I think that especially S. E delays on the Panama Canal search up to 12 to 14 days.
The economics actually on some.
I'm going on book through the canal and waiting for that long justify sending something ships around the Cape even from the North part of Asia and still were seeing eight to 10 base delays. So maybe day infection PON moved a little bit South of your book club.
We will send ships in that direction or more because of these delays also surged quite a lot on and it makes it hard to plan. The next the next tacos.
Also we have some kind of mess lots book throughout the years. So we can schedule the wrong dose.
But as you saw on on.
The Panama Canal has has changed their recommendations for low clean them up so on.
On the slots so that it's no longer possible on average.
Do you carry on through two pre book slots through.
From from from 'twenty to 'twenty one.
Oh, that's fine just wanted to on what's on what's already so.
So.
We'll always have changed again be a growth.
Dynamics of the Panama Canal transits.
Future this.
There is a number of players who have.
Okay. So on of course.
Yeah, Yeah sure on you can do on that obviously has a positive effect on ton mile. So it's right.
Yeah Yeah.
Right, Okay, alright, thanks, guys.
Thanks, John.
As a reminder to ask a question today you May press star one from your telephone keypad day.
The next question is from the line of Omar knocked out with Clarksons Plateau. Please proceed with your questions.
Yeah, Hi, Thank you Hey, guys Hi.
Hi, hope you're able to handle the snow okay.
[laughter].
Obviously, you just wanted to clear that the $100 million self tender offers is clearly the most aggressive shareholder reward program you guys have done since being public and with the firepower you have the earnings momentum and clearly the valuation it makes a lot of sense, but wanted to ask you know with that.
How do you feel about reinvesting in the business.
Clearly the market has become or at least it appears to be very tight.
Over the past call it year two years.
On the Covid window, there that last couple of months.
Do you feel that the market is short on vessels clearly there is some of that but how do you feel about your positioning do you think it makes sense to grow or are you more content with a return on capital.
Omar we're not we're not.
No not on excluding growth, but we are focused first on return on it.
At this stage they they they they are much more compelling to do to return money to our shareholders than it is to.
A quiet ships.
That's a very precise and concise answer to your question I think.
Yeah, No that's fair and you know the.
The.
Maybe just thinking about the spot market has been fairly robust.
And we haven't really seen much time charter activity I think maybe from my perspective.
Is that the case that that's how you see it do you see the period market opening up or because I know in the past you've been more willing to put vessels on contract, but we havent really seen that.
The past several quarters.
Could you describe the period market right now.
I'll, let Tim answer that.
Okay.
Yeah, I think we have seen samekh, Jamie cheaply and.
October November or shorter term time charters for one to two years.
I think still on the longer term to us or that has been very limited I think people is also looking ahead at what.
What types of ships on and what was their recommendations on so on that encompass book.
Well John served as hold as soldiers the spike or the beginning of August spike with itchy.
Quite a lot of renewables on ships, which.
For once a two year, which is normally for that time of year. So so yeah on the contracts would come into or to renew I think also we saw very difficult product Margaret just meeting at through.
Both quota or kind of on the corner.
So and so on that at that time, most tradeoffs on was very very cautious on committing to anything and so on so that might have been the reasons, both low machine and EBIT listen to what you see in that front than in previous years.
Thank you.
And then just maybe just on maybe the topic of U S. Exports on you touched on this a bit on the opening comments.
On this I'm trying to think about it from say what happened in this past summer when the VLCC market came to life after the spring shutdown.
And you know things started to come to life that despite the OPEC plus cuts or the middle East cuts in the U S made for a lot of those lost volumes.
And really got some market share on that kind of sprung B L. G C.
The higher levels now with the Saudis now talking about taking off a million barrels of crude here in February and again in March did you see a similar situation arising that being a loss of middle East cargoes being replaced with with the U S.
Tim do you want to have a job at it.
Yeah.
Yeah, I think we could see something or something similar.
Well the demand in the in the East is really are you still there. So it was it was definitely not.
No appetite on the tonnes a day or so when tons are.
Interest you can export cuts on the Middle East day, we expect them to be replaced by our U S and.
And on.
Also on the on the backup.
We should see improve or our price on them and therefore, I'm, making we're cracking.
Cracking or more attractive in the U S as well and you see.
Well as you saw this earlier in the year that that's when tons on lacking then.
Basically.
The challenge on that that could go into a naphtha cracking.
Go into the on the demand in Asia. So so.
So everything you see the comments on all of these or are these tons will be replaced on would be replaced in the east our U S launch, which should give more on lines as well, albeit it moves on lines as well.
Yeah, Yeah yeah.
Thanks.
Yeah, Yeah go ahead.
I think the dynamic of the increased ton miles.
From that and from the Canal has been very helpful. So we've seen continued volatility in the end.
This year, we gotta be thankful for it because even though the volatility took us down to breakeven early last year. It bought us off to a wonderful returns at the end of the year now markets rolled up again, but on average I think probably would be.
We would be looking at prospects that are.
Better even than we had anticipated last year for going forward.
Yeah.
Yeah, I agree with that definitely and maybe John just one final one final question and I've asked you. This before on calls and you've been pretty firm with the response, but how do you feel about investing in new buildings.
On today are their customers requesting that of you.
So no we haven't seen that yet and I and I do think the new building market is getting to them.
On an inflection point, where I think that day. They the prices have been either slide in more or less steady for a long time in the next the next move will be up.
But.
But hum.
I thought I saw that before [laughter]. So yeah, I don't think there's a rush to do anything certainly not for us.
And certainly not for the rest of the market there.
We can handle the fleet can handle the demand that's there and it's it's a challenge going forward for not just our sector, but all sectors to know them well.
What kind of fuel mix to put into to future and when you're designing and building ships for their future and in our case in the LPG business, it's a bit easier because the obvious answer would be LPG.
As the deal is it your fuel.
But you know we we do look at it we continue to look at it but we're not there yet.
We have and as I said before we're prioritizing.
On our return to shareholders on that day.
At the prices at a price of our.
Of our stock we continue to think the best way to do it is by what we've done we've announced the day.
Yeah.
Very good thanks, Thanks, John that's very clear.
Thank you Omar.
Thank you at this time, we've reached it and there's plenty of time for questions and I'll turn the call back to management for closing remarks.
Thank you very much I think that might.
In my closing remarks, thank you all for joining us and I hope.
That you join US again next quarter and we have even better news for you then.
Have a great day.
Thank you everyone. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.