Dynagas LNG Partners LP (DLNG) 2022 Q4 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to Dynagas LNG Partners Conference Call on the Fourth Quarter 2022 financial results. With us today is Mr. Tony Lauritzen, Chief Executive Officer; and Mr. Michael Gregos, Chief Financial Officer of the company. (Operator Instructions) I must advise you that this conference is being recorded today.

Please be reminded that the company announced its results with a press release that has been publicly distributed.

At this time, I would like to remind everyone that today's presentation and conference call, Dynagas LNG Partners will be making forward-looking statements. These statements are within the meaning of the federal securities laws. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Statements in today's conference call that are not historical facts, including, among other things, the expected financial performance of Dynagas LNG Partners business; Dynagas Partners LNG ability to pursue growth opportunities; Dynagas Partners LNG expectations or objectives regarding future and market charter rate expectations; and, in particular, the effects of COVID-19 on the financial condition and operations of Dynagas Partners LNG and the LNG industry in general, may be forward-looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended.

Matters discussed may be forward-looking statements, which are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized.

I kindly draw your attention to Slide 2 of the webcast presentation, which has the full forward-looking statement, and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it.

And now I pass the floor to Mr. Lauritzen. Please go ahead, sir.

Good morning, everyone, and thank you for joining us in our 3 months ended 31st of December, '22, earnings conference call. I'm joined today by our CFO, Michael Gregos. We have issued a press release announcing our results for the said period. Certain non-GAAP measures will be discussed on this call. We have provided a description of those measures as well as a discussion of why we believe this information to be useful in our press release.

Let's move on to Slide 3 of the presentation. We are pleased to report the results for the 3 months ended 31st December, '22. All 6 LNG carriers in our fleet are operating under their respective long-term charters with international gas companies. The fleet utilization was 100% for the 11th consecutive quarter included, which is a testament to the fleet's performance. For the fourth quarter of '22, we reported net income of $11.6 million, earnings per common unit of $0.24, adjusted net income of $7 million, adjusted earnings per common unit of $0.11 and adjusted EBITDA of $23.6 million.

For the full year of '22, we reported net income of $54 million, earnings per common unit of $1.15, adjusted net income of $30.6 million, adjusted earnings per common unit of $0.52 and adjusted EBITDA of $89.5 million.

Our thoughts go out to everyone affected and continues to suffer as a result of the crisis in Ukraine. We continue to closely monitor this ongoing situation, including the implications of economic sanctions, trading restrictions and other considerations that may affect our business. It is our understanding that the current U.S. and EU sanctions regime have broadly exempted LNG shipping and do not materially affect the business operations or financial conditions of the partnership.

The partnership has 1 syndicated credit facility in place. One of the lenders in this credit facility was Amsterdam Trade Bank. However, following the designation of Amsterdam Trade Bank by OFAC as an SDN, the partnership, in agreement with all lenders, made a voluntary prepayment of $18.7 million form the $50 million restricted cash collateral, which was applied in prepayment of the entire participation of Amsterdam Trade Bank to the credit facility. Consequently, Amsterdam Trade Bank is no longer a lender under the credit facility.

On the back of a very strong LNG market, we entered into a new approximately 3-year time charter party agreement with Equinor for the employment of our LNG carrier Arctic Aurora with expected delivery in September '23.

I will now turn the presentation over to Michael, who will provide you with further comments to the financial results.

Thank you, Tony. Turning to Slide 4. Net income for the fourth quarter decreased by 31% to $11.6 million compared to Q4 '21, primarily due to a decrease in the unrealized gain on our interest rate swap transaction of $8.1 million, which was partially offset due to changes in the realized gain on our interest rate swap, and due to an increase of $3.2 million in interest and finance costs, which, in practice, were offset with an interest rate swap cash received of $4.3 million, as can be seen in the cash flow statement.

For the fourth quarter, we had a gain on debt extinguishment of $2.1 million following the voluntary prepayment of 1 of our lenders in our syndicated loan facility. Adjusted net income for the fourth quarter amounted to $7 million compared to $11.3 million same time last year, the decrease being attributable to the increase in interest and finance costs as a result of the higher interest expense paid under our credit facility.

For consistency purposes with prior quarters, adjusted net income excludes cash receipts and unrealized gains on our interest rate swap and, of course, the gain on the debt extinguishment. If we add this quarter's realized gain from our interest rate swap of $4.3 million, adjusted net income would have amounted to $11.3 million or $0.23 per common unit instead of $0.11.

Adjusted EBITDA for the fourth quarter was relatively stable at $23.6 million as compared to $24.7 million last year. Time charter equivalent for the quarter amounted to $62,200 per day, with OpEx of $14,000 per day and the per vessel cash breakeven for the quarter was $47,900 per day, excluding distribution to preferred unitholders and the aforementioned voluntary prepayments.

Turning to Slide 5. As at end of December, we had $500 million debt outstanding, which is 100% hedged until Q3 '24. We are continuing our comprehensive deleveraging path, which commenced in the first quarter of 2020, resulting in a decrease in our net leverage to 4.7x from 6.6x, and a steady increase in our book value of equity, which today stands at $424 million.

Operating cash flow for the quarter was $13.4 million and free cash flow after CapEx installation of the ballast water treatment systems on our steam LNG carriers amounted to $11.3 million. Again, pleased be reminded that this excludes the $4.3 million in realized swap gains.

For the full year, we generated $57 million in operating cash flow and close to $54 million in free cash flow, equivalent to free cash flow of about $1.45 per common unit.

Moving to Slide 6. Our cash balance for the quarter was reduced by $17.8 million to $80 million, primarily as a result of the aforementioned $18.7 million voluntary prepayment, which [responded] from the restricted cash collateral accounts. We have 3 dry docks for 2023, which are expected in the third quarter of 2023. However, 2 of our LNG carriers are on OpEx and dry bulk pass-through time charters, with a dry bulk allowance of 21 days, under which vessels remain on hire during dry docks.

That wraps it up from my slide. I will pass the presentation over to Tony.

Thank you, Michael. Let's move on to Slide 7. Our fleet currently counts 6 LNG carriers with an average age of about 12.6 years. The current charters of our vessels are Equinor of Norway, SEFE of Singapore, and Yamal Trade of Singapore. As of today, 17th of March, '23, the fleet contracted backlog is about $1 billion, equivalent to an average backlog of about $166 million per vessel that and the fleet's average remaining charter period is about 6.4 years.

Moving on to Slide 8. Our strategy is to conclude long-term charters with LNG producers. On the back of a strong energy market, we entered into a new time charter party agreement with Equinor for the employment of our LNG carrier Arctic Aurora with expected delivery in approximately September '23. The new time charter period is about 3 years, adding about $116.5 million to the partnership's existing contracted revenue backlog. We are very pleased with the new charter and appreciate that Equinor has employed the vessel since her delivery from the shipyard in [2013].

The earliest contract redelivery date for any of our 6 LNG carriers is in the first quarter of '26 for the Clean Energy subject to the terms of the applicable charter. Barring any unforeseen events and the vessels scheduled dry dockings, our fleet is 100% employed until and including 2025.

Following the disruption of natural gas pipeline deliveries from Russia to Europe, the price for natural gas reached record levels and extreme volatility during 2022. The drop in Russian pipeline supply to Europe was offset by LNG imports, demand [destruction] and luckily a warm winter. During 2022, European LNG imports rose by approximately 60%, which made -- which made Europe by far the largest LNG importer globally. This was possible as China was under lockdown, which led to a reduction in demand as well as new LNG supply coming from the United States. Exiting 2022, the natural gas prices have contracted to healthier levels that currently is more supportive of the consumers' economic sustainability. That being said, we expect that gas prices will be volatile going forward and prices will be strongly affected by competition between Europe, which is expected to remain a major and dominant import of LNG, and the Far East, driven by resurgence in Chinese demand.

Going forward, we believe that LNG (inaudible) will continue to buy long-term LNG in order to manage their energy security needs and pricing volatility, which in turn will support new LNG projects reaching successful FIDs. 2022 saw record levels with a total of 47 SPAs being signed for about 63.5 million tonnes per annum.

On the back of a strong European demand, we believe that 150,000 to 160,000 cubic meter LNG tariff segment is ideal to supply LNG to the land-based and FSRUs import terminals in Europe. This is in particular relevant for the FSRUs, which typically have less flexibility to manage the imputation of large cargo sizes due to their limited storage capacity versus a land-based terminal.

In light of the above, we believe there will be strong demand for our fleet going forward, and we would utilize the healthy market to continue to developing forward opportunities for our fleet.

Let's move on to Slide 9. The partnership has remained committed to it's strategy of reducing debt and has since December 2019 until Q4 2022 included successfully repaid $175 million in debt, reducing its net leverage from 6.6x to 4.7x. Moreover, it has increased its book equity value by 35%, now standing at $423.9 million. Going forward, we believe the partnership's continued efforts to deleverage will further enhance equity value through stable, long-term cash flow visibility.

We believe that LNG is a critical ingredient to a future with lower emissions. Demand for LNG is expected to continue to grow as a transition away from coal and other fossil fuels in favor of cleaner energy sources continues.

Long-term LNG shipping rates remain robust. The rates are driven by long-term demand for LNG shipping, which is underpinned by long-term SPAs from buyers that are in the need to manage their energy security and price volatility. Consequently, we believe that the outlook for energy shipping remains positive.

We have now reached the end of the presentation, and we now open the floor for questions. Thank you.

(Operator Instructions) We have a question coming from the line of Ben Nolan with Stifel.

Michael, Tony, can you guys hear me okay?

Yes.

Yes.

Okay. Great. So I have a couple. The first relates to sort of how you're thinking about the -- maybe the timing and the availability of refinancing the loan that's been in place for a while now, and you've prepaid in some cases. But does the -- does the increase in interest rate environment, maybe potentially even lately some disruptions in the debt financing market, does that change at all how you're thinking about when is -- maybe when it's possible or when it's prudent to think about a new credit facility?

Well, I think that the crisis that has been going on has been recently happening in the past couple of weeks. So we don't really know what the effect will be. We've had some preliminary discussions prior to what went on with Silicon Valley Bank. And we got the impression that the markets are wide open despite the increase in interest rates.

What we are seeing is that there's a lot of demand for quality projects. And what we have -- we can provide something which is in short supply in the shipping credit market, which is a quality project. So as we have said in the previous quarter, we do want to be proactive and arrange this refinancing well before the maturity in September '24.

We haven't had any noise that anything has changed. We think that we will be able to get pretty good terms on this refinancing. And we'll just have to see what the impact of the crisis will be. But my personal opinion is that there will not be really no impact on our markets given the LNG market is -- the fundamentals are so strong.

Right. Okay. And then I just did want to follow up for modeling purposes. You said that there's 3 vessels that are scheduled for dry dock in the third quarter, 2 of which are covered under the terms of the contract for 21 days. Do you -- how long do you anticipate each of these dry docks lasting is a reasonable assumption, would you think?

20 to 30 days is a reasonable assumption.

Okay. That's helpful. And then lastly for me, this is just maybe more strategic. We've seen a number of other LNG-focused MLPs go private or seek to go private. You guys are trading at about 1/3 of your common book value of equity, and that's sort of despite adding on to your contract coverage at good rates, deleveraging the balance sheet, improving the risk profile of the partnership, et cetera. At any point, does it just make sense to no longer be public?

Hi. Ben, look, I can say that there's -- I mean, there's been no discussion on [it at] private level. So no, that is not a consideration.

At this time, I'll turn it over -- the call over to CEO, Tony Lauritzen for closing remarks.

Okay. Thank you, everyone. We would like to thank you for your time and for listening in on our earnings call. We look forward to speaking with you again on our next call. Thank you very much.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.