DLNG - Dynagas LNG Partners LP (DLNG) Q4 2022 Earnings Call Transcript

2023-03-17 11:37:10 ET

Dynagas LNG Partners LP (DLNG)

Q4 2022 Earnings Conference Call

March 17, 2023 10:00 A.M. ET

Company Participants

Tony Lauritzen - Chief Executive Officer

Michael Gregos - Chief Financial Officer

Conference Call Participants

Ben Nolan - Stifel

Presentation

Operator

Thank you for standing by ladies and gentlemen, and welcome to the Dynagas LNG Partners Conference Call on the Fourth Quarter 2022 Financial Results. With us today we have Mr. Tony Lauritzen, Chief Executive Officer; and Mr. Michael Gregos, Chief Financial Officer of the company. At this time, all participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference call 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.

The 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.

Tony Lauritzen

Good morning everyone, and thank you for joining us in our three months ended 31 of December 2022 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] [ph]. Certain non-GAAP measures will be discussed in this call. We have provided a description of those metrics, as well as a discussion of why we believe this information should 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 three months ended 31, December 2022. All 6 LNG carriers in our fleet are operating under their respective long-term charters with international gas companies. The fleet utilization was a 100% for the eleventh consecutive quarter included reaching the testament to the fleets performance.

For the fourth quarter of 2022, 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 2022, we recorded 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 [indiscernible] of economic sanction in 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 brought the [extent of] [ph] LNG shipping and do not materially affect the business operations or financial conversions of the partnership. The partnership has one 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 a SDN, the partnership in agreement with all lenders with a voluntary prepayment of 80.7 million from the 50 million restricted cash collateral, which was a driving prepayment of the entire participation of Amsterdam Trade Bank to the credit facility. Consequently, Amsterdam Trade Bank is no longer 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 2023.

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

Michael Gregos

Thank you, Tony. Turning to Slide 4. Net income for the fourth quarter decreased by 31% to 11.6 million compared to Q4 2021, primarily due to a decrease in the unrealized gain on our interest rate swap transaction of 8.1 million, which was partly 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 impact us with 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 drug extinguishment of 2.1 million [following the] [ph] voluntary prepayment of one of our [indiscernible] 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 associated 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 risk growth as a 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. And charter equivalent for the quarter amounted to $62,200 per day with OpEx of $14,000 per day and the full vessel cash breakeven for the quarter of $47,900 per day, excluding distribution to preferred unitholders and the aforementioned voluntary pre-payments.

Turning to Slide 5. As of December, we had 500 million debt outstanding, which is 100% hedged until Q3 2024. 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 a CapEx installation of the ballast water treatment systems and [as seen] [ph] LNG carriers amounted to 11.3 million. Again, please 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 includes a 54 million in free cash flow, equivalent to free cash flow of about [1.45] [ph] per common unit.

Moving to Slide 6. Our cash balance for the quarter was reduced by [17.8 million to 80 million] [ph], primarily as a result of [indiscernible] prepayment, which was standard from the restricted cash collateral accounts. We have three dry docks for 2023, which are expected in the [third quarter] [ph] of 2023. However, [three] [ph] of our LNG carriers on OpEx and dry bulk [indiscernible] time charters with a dry bulk allowance of [20, 21 days] [ph] under which vessels remain on hire during dry bulks. That wraps it up to my side.

I will pass the presentation over to Tony.

Tony Lauritzen

Thank you, Michael. Let's move on to Slide 7. Our fleet currently counts six LNG carriers with an average age of about 12.6 years. The charterers of our vessels are Equinor of Norway, SEFE of Singapore, and Yamal Trade of Singapore. As of today, 17th of March 2023, the fleet's contract backlog is about $1 billion, equivalent to an average backlog of about $166 million per vessel, 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 LNG market, we entered into a new time charter project agreement with Equinor for the employment of our LNG carrier Arctic Aurora would expect the delivering in approximately September 2023.

The new time charter period is about 3 years adding about 116.5 million to the partnership's existing contracted revenue backlog. We are already pleased with the new charter and appreciate that Equinor has employed the vessel [indiscernible].

The earliest contract we delivered for any of our 6 LNG carriers is in the first quarter of [2026] [ph] for the clean energy subject to the terms of applicable charter. Barring the unforeseen events and vessel scheduled dry-dockings, our fleet is 100% employed until and including 2025.

Following the destruction of natural gas pipeline delivered 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 restructuring, and [indiscernible]. During 2022, European Energy imports rose by approximately 60%, which [indiscernible] largest [LNG importer] [ph] globally.

This was possible as China was on the left hand, which led to a reduction in demand, as well as new energy supply coming from the United States. Exiting 2022, the natural gas prices have contracted to healthier levels that currently is more supportive of the consumer's economic sustainability. That being said, we expect that gas prices will be volatile going forward and prices will be shown reflected by competition between Europe, which is expected to remain in major environment in [indiscernible] in the far east driven by return to internalized demand.

Going forward, we believe that [LNG] [ph] will continue to buy long-term LNG in order to manage their LNG security needs and prices volatility, which in-turn will support new energy projects reaching successful FIDs. 2022 saw record numbers for the total of 47 [indiscernible] for about [63.5 million tons] [ph] per annum.

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

In lights of the above, we believe there will be strong demand for our fleet going forward and we continue to like the healthy market to continue to develop important opportunities for our fleet.

Let’s move on to Slide 9. The partnership has remained committed to the strategy of reducing debt and has since [December 2019] [ph] until Q4 2022 period successfully repaid the 175 million in debt, reducing its net leverage from 6.6x to 4.7x. Moreover, it has increased its book equity value by 35% milestone at 423.9 million.

Going forward, we believe the partnership's continued efforts to deleverage will further enhance equity value through further 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 at a transitional rate from current and other parts of fuels in [indiscernible] energy sources continues.

Long-time energy 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] [ph] 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 will now open the call for questions. Thank you.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Thank you. We have a question coming from the line of Ben Nolan with Stifel. Please proceed with your question.

Ben Nolan

Thank you. Hey, Michael, Tony, can you guys hear me okay?

Tony Lauritzen

Yes.

Ben Nolan

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 increase in interest rate environment maybe potentially even lately assume 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?

Tony Lauritzen

Well, I think the crisis that have been going on, this has been recently happened 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 one-time was Silicon Valley Bank. And we get the impression that the markets will have opened despite the increase in interest rates.

What we are seeing with [those] [ph], a lot of demand for quality projects and what we have, we can provide something which in short supply in the shipping credit market, which is a quality project. So, and as we have said in the previous quarter, we do want to be proactive and arrange this refinancing nowhere before the maturity in September 2024.

We haven't had any, I mean, there's anything that's challenged. We found that we will be able to get pretty good times on this refinancing. And we'll just have to see what the impact of the prices will be, but my personal opinion is it is one of the [indiscernible] impacts, you know our markets given the LNG – the LNG market is – the fundamentals are so strong.

Ben Nolan

Right. Okay. And then I just did want to follow-up on 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 drydocks lasting is a reasonable assumption would you think?

Tony Lauritzen

20 to 30 days is a reasonable assumption.

Ben Nolan

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 a third 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 etcetera. At any point, does it just make sense to no longer be public?

Michael Gregos

Hi, Ben. Look, I can say that there's been no discussion on the [third project] [ph] level. So, no, that is not a consideration.

Ben Nolan

Okay. All right. That does it for my questions. I appreciate it guys.

Tony Lauritzen

Thank you very much.

Operator

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

Tony Lauritzen

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.

Operator

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

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