Dynagas LNG Partners - Q2 2024

Transcript

Operator (participant)

Thank you for standing by, ladies and gentlemen, and welcome to the Dynagas LNG Partners conference call on the second quarter twenty twenty-four financial results. We have with us today 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'll be a presentation followed by a question-and-answer session, at which time, if you ask a question, please press star one on your telephone keypad and wait for your name to be announced. I must advise you this conference is being recorded today. Please be reminded that the company announces results with a press release that has been publicly distributed. At this time, I'd like to remind everyone that in 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 on 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 are not historical facts, including, among others, the expected financial performance of Dynagas LNG Partners business, Dynagas LNG Partners ability to pursue growth opportunities, Dynagas LNG Partners 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 LNG Partners 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 are about risks and uncertainties that may result in such expectations not to be realized, not being realized.

I kindly draw your attention to slide two of the webcast presentation, which has the full forward-looking statement and the same statement which also included in the press release. Please take a moment to go through the whole statement and read it. And now let's turn the floor back over to Mr. Lauritzen. Please go ahead, sir.

Tony Lauritzen (CEO)

Good morning, everyone, and thank you for joining us in our three months ended thirtieth of June 2024 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 start the presentation and move on to slide number three. We today present the results for the three months ending on thirtieth of June 2024. We are pleased to announce that all six LNG carriers in our fleet were operating on the long-term charters with esteemed international gas companies.

For the second quarter of 2024, we reported net income of $10.7 million and earnings per common unit of $0.20. Our adjusted net income totaled $12.4 million, translating to adjusted earnings per common unit of $0.25. Furthermore, our Adjusted EBITDA for the same period is $28.6 million. We were pleased by the conclusion of a new lease financing agreement with China Development Bank Financial Leasing for four of our LNG carriers. The $344.9 million financing, along with $63.7 million from the partnership's existing cash reserves, was used to fully repay our previous credit facility of $408.6 million on June 27 ahead of its maturity in September 2024.

Following a sustained period of strategic deleveraging, we now have a substantially reduced our debt levels and secured a more flexible financing structure. With two of our LNG carriers now debt free, the partnership is well positioned for its next phase. I will now turn the presentation over to Michael, who will provide you with further comments to the financial results.

Michael Gregos (CFO)

Thank you, Tony. Turning to slide 4, and let me start with a summary of the headline numbers for the second quarter. We maintained 100% scheduled fleet utilization during the second quarter. Revenue was in line at $37.6 million compared to $38 million in the first quarter. Average TCE of $67,300 per day is down from $68,100 in the first quarter across our fleet of six vessels, affected by a small negative variation in the variable portion of the revenues contained in the time charter of two of our vessels compared to the previous quarter. Operating income for the second quarter was $18.8 million, a 2.6% decrease from the $19.3 million during the prior quarter. This was primarily related to the revenue variation mentioned earlier and slightly increased operating and general expenses.

Net income for the second quarter was $10.7 million or $0.20 per common unit, which is slightly lower from the $11.75 million reported for the first quarter of this year, primarily relating to a reduction in the realized and unrealized gains on our mark-to-market interest rate swap by $850,000 as the interest rate swap approaches maturity on September eighteenth, 2024. An additional one-off loss on debt extinguishment of $331,000 as a result of the early prepayment of our prior credit facility hit our P&L this quarter. Adjusted EBITDA for the second quarter was $28.6 million, compared to $29 million in the first quarter, and Adjusted Net Income for the quarter was $12.4 million, or $0.25 per common unit, unchanged from the prior quarter.

Our average cash breakeven cost per vessel per day for the quarter, taking into account our daily operating expenses, G&A expenses and debt service per vessel per day, net of realized swap gains amounted to $44,881 per day, resulting in a surplus of $22,450 per day, once deducted from our average TCE. Turning to our cash bridge on slide five, we began the quarter with a total of $76 million.

Following on the chart from the left to right on the cash bridge, we first had $28.5 million in Adjusted EBITDA in the second quarter, and we utilized $64 million of our own cash to cover the difference between the proceeds of our $345 million new sale and leaseback facilities on four of our LNG carriers and the $408.6 million outstanding under our prior senior secured facility, which was fully repaid. After a working capital benefit of about $1.8 million, plus proceeds of $6.1 million from our interest rate swap, less the fees for our new sale and leaseback financing and distributions to our preferred unitholders, we ended the quarter with $35.6 million in cash. Moving on to slide six.

Meanwhile, our total debt stands at $345 million, and our leverage metrics have improved as we have reduced our debt balance by $378 million since December 2018. Our financial leverage, Adjusted net debt divided by last twelve months Adjusted EBITDA, has reduced from 6.6 times at year-end 2018 to now 2.9 times. We continue to enhance our balance sheet to create the foundations and financial flexibility necessary to add more value to our common unitholders. As previously advised, we refinanced $408 million of our old credit facility with our $345 million sale and leaseback on four LNG carriers, and our remaining two LNG carriers are debt free.

Over the next twelve months, our debt amortization is expected to be $44 million, $4 million less than our prior credit facility, and our weighted average spread is 2.18%. But from September eighteenth, we will have full exposure to floating interest rates as our interest rate swap matures. Since the inception of our swap program in September 2020, our cumulative realized swap gains have been quite significant, with $42 million in realized gains. So our hedging program paid off extremely well. We expect an additional approximately $5 million of realized gains to be received at its maturity on September eighteenth. Going forward, based on where SOFR rates are today, we expect our interest expenses to increase when our swap matures, despite our lower leverage and our slightly lower amortization.

As a result, our fourth quarter debt service per day is anticipated to increase by about $5,200 per day, resulting in a pro forma cash breakeven of approximately $50,000 per day for Q4 2024. Obviously, we expect to be getting the benefit of lower interest rates as we are projected to reduce over time. Our nearest debt maturity is in June 2029 for three of our LNG carriers and June 2034 for our remaining vessel. In summary, for this quarter, we had a full utilization of 100% and a good quarter without any surprises. That's it from my side. I will pass the presentation over to Tony.

Tony Lauritzen (CEO)

Thank you, Michael. Let's continue and move on to slide seven. Currently, our fleet comprises six LNG carriers with an average age of approximately 13.1 years. Our present charters include multiple gas companies such as Equinor, SEFE, and Yamal Trade. Additionally, Rio Grande LNG, a subsidiary of NextDecade, has forward chartered our vessels, Clean Energy and Arctic Aurora. As of September tenth, 2024, our fleet's contracted backlog stands at approximately $1.04 billion, which translates into an average of about $173 million per vessel. The fleet also enjoys an average remaining charter period of approximately 6.4 years. We are confident that our charter profile is robust, positioning our partnership for stable and reliable income in the years ahead. Moving on to slide eight.

Our current commercial strategy is centered on securing long-term charters with permanent gas companies, ensuring a stable revenue stream. As a result of this approach, we have accumulated a solid contract backlog, and barring any unforeseen events, we have no contractual vessel availability until the year 2028, when the Clean Energy, Ob River, and Amur River will be available. Following this, the Arctic Aurora will come off our Rio Grande LNG contract in 2033, with the Yenisei River and the Lena River becoming available in 2034, provided that the charters do not exercise their expansion options. The global fleet of LNG carriers has expanded rapidly, with the newbuilding order books being at about 50% of the existing fleet.

Most of these new builds are scheduled for delivery between now and 2028, and a significant majority of these orders have already been committed to specific charters. In the short to medium term, shipping capacity may exceed demand. However, in the medium to long term, we anticipate that the current order book will be absorbed as aging vessels are replaced and global demand for transporting incremental energy production increases. Given these factors, we believe our portfolio is strategically well-positioned, with no contractual availability until 2028. We expect long-term demand for LNG to remain strong, driven by several key factors.

This includes its low emissions compared to, in addition to, traditional fossil fuels, the rising global demand for electrification, the efficiency of combined cycle power plants powered by natural gas, the well-established global infrastructure for LNG production and distribution, and the lack of a superior alternative at a comparable scale. Let's move on to Slide 9. Our new financing arrangements are not only low leverage, flexible and low cost, but also comes with long tenures, significantly enhancing our strategic flexibility for future initiatives. A major achievement in our financial management has been the substantial reduction in debt. We have successfully lowered our outstanding debt from $675 million in September 2019 to $345 million today.

This reduction has also improved our net debt to EBITDA ratio, bringing it down from six point six times in September 2019 to two point nine times by June 2024. Also, a notable portion of our fleet, amounting to 33%, now operates free of debt, thereby strengthening our asset base and providing a robust foundation. Our strategy of organic deleveraging, supported by contracted cash flow, has been instrumental in maintaining a stable and predictable financial profile. As of today, we maintain a contracted average revenue backlog of $173 million per vessel, ensuring sustained income streams. In summary, with newfound financial flexibility, a solid foundation of contracted cash flows, reduced leverage, and a broadened strategic mission, we believe the partnership is in a stable phase.

In the next quarter, we expect that the board of directors will evaluate and announce its capital allocation strategy. Thank you for your attention. We have now concluded the presentation, and we invite you to ask any questions you may have. Thank you.

Operator (participant)

Thank you. We'll now be conducting a question-and-answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Once again, that's star one to be placed into question queue. One moment, please, while we poll for questions. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to the CEO for any further closing comments.

Tony Lauritzen (CEO)

We appreciate your time and attentiveness. Thank you for your participation, and we look forward to connecting with you again on our next call. Take care, and goodbye.

Operator (participant)

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.