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Dorian LPG LTD (NYSE:LPG)
Q1 2020 Earnings Call
Aug 7, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Dorian LPG First Quarter 2020 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young. Please go ahead.

Theodore B. Young -- Chief Financial Officer

Thanks, Devin. Good morning, all, and thank you for joining us for our first quarter 2020 results conference call.

With me today, are John Hadjipateras, Chairman, President and CEO of Dorian LPG Limited; and John Lycouris, Chief Executive Officer of Dorian LPG USA. As a reminder, this conference call webcast and a replay of this call will be available through August 14, 2019.

Many of our remarks today contains 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 or estimates prove to be incorrect, actual results may vary materially from these we express today.

Additionally, let me refer you to our unaudited results for the period ended June 30, 2019 that were filed this morning on Form 10-Q. In addition, please refer to our previous filings on Form 10-K and 10-Q where you'll find risk factors that could cause actual results to differ materially from these forward-looking statements.

With that, I'll turn over the call to John Hadjipateras.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Welcome to our first quarter 2020 earnings call. On our last call, I mentioned some historical rates. Allow me to do the same today as I think these put context to our market.

Four years ago, in August 2015, the Baltic rate was $101. Twelve months ago, in August 2018, it was $39. On the 1st of April of this year, the first day of our quarter, it was $41, and on the last, June 28, it was $78. Ted will shortly run through the numbers, and next, John will update you on the latest developments in the trade as well as our fleet.

I'm happy to be reporting a profitable quarter. A seven-fold increase in EBITDA from last year, which is reflective of the strong increase in the market. The TCE, we're reporting, is nearly double that of the same quarter of last year. At $29,671 a day, it represents results of about 70 voyages. Of these, almost half were booked in the January to March quarter. Hence, there is a lag which we have discussed in previous calls as well. To illustrate this, note that our fixtures in June, which of course, are for voyages that are not represented in these results, were booked at time charter equivalent of over $60,000 per day.

In the period since the end of June and the period to-date, the average TCE of our fixtures is about $50,000 a day. Assuming no dramatic changes, these stronger numbers will be reflected in the quarter -- in the next quarter results. The EIA reported yesterday record U.S. production and lower U.S. demand.

While U.S. cargoes are reaching new destinations in Asia, there are still markets such as Vietnam, Thailand and the Philippines, which have further potential. Even in India, where LPG has been a cornerstone of the Modi government's policy, the potential for further inroads is great considering that there are still 800,000 deaths annually attributable to indoor air pollution caused by cooking with solid fuels.

With the order book contained and the prospects of removals for regulatory compliance, we believe the market fundamentals provide some solid support for our optimism. With 12 of our ships fitted with exhaust gas cleaning systems by the beginning of next year, we believe Dorian will be very well positioned to navigate the IMO 2020 transition.

Our people diligently continue to pursue cost efficiencies. Our senior management remuneration is flat to lower than it has been in the four years since our IPO. We have commenced programs involving digital initiatives with performance management, including intelligent bunkering. You would have read that our Board has approved a stock buyback program. As you might guess, we cannot discuss the specifics of this other than to say that it underscores our Board's commitment to return value to all our shareholders.

I'm now passing the microphone back to Ted.

Theodore B. Young -- Chief Financial Officer

Thanks. My comments today will focus on our capital planning for the remainder of the year and our unaudited first quarter results.

In light of the favorable rate outlook, we've expanded and accelerated our scrubber installation and dry docking program. We now expect to have all 10 of our newly ordered scrubbers installed by the end of calendar 2019. Upon completion of the program, 12 of our 23 vessels will be able to profit from the expected fuel price differential between low sulfur fuel oil and high sulfur fuel oil upon implementation of IMO 2020.

Based on this revised plan, we now expect to have total cash outlays of roughly $31 million or about $5,000 per calendar day for the remainder of the fiscal year for the 10 dry dockings, including scrubber installation and ballast water management system installation. Thus, for the remainder of the year, we anticipate cash costs per day of $28,000, which is the sum of the $23,000 per day to which we have historically guided and the $5,500 just mentioned.

To put the cash generation of our business in context in the current rate environment, at a realized fleet wide TCE rate of $40,000 a day, we would generate roughly $76 million of free cash flow for the remaining nine months of this fiscal year, after all debt payments and paying for the scrubber and dry docking and investments.

John also mentioned our stock buyback authority and we expect that we'll have sufficient liquidity to fund our scrubber dry docking program and any stock repurchase under the program as market conditions may allow. We end up debt financing any portion of our scrubber program. We'll obviously have additional liquidity, which we may deploy toward stock buybacks.

I'd now like to turn to our financial results for the quarter. 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 achieve total utilization of 98.4% for the quarter with the time charter equivalent, that is time charter equivalent revenue over operating days, as those are defined in our filings, of $29,671, yielding a utilization adjusted TCE, that's TCE revenue per available day of about $29,200. Spot TCE, which reflects our Helios Pool results, per operating day for the quarter, was $29,659, with utilization of 98.1%. I'd also point out that our spot results were net of the administrative costs of the pool, and as a result, our actual TCE is higher than this level.

Daily OpEx for the quarter was $8,052, which compared favorably to last quarter's $8,104. We're pleased with the quarter-over-quarter trend and our technical management team continues to keep a sharp eye on costs.

Total G&A for the quarter was $6.7 million and cash G&A, that is G&A excluding non-cash compensation expense, was around $5.4 million. G&A for the quarter also reflects bonus payments to a number of non-executive employees of about $900,000. Excluding those payments, cashing G&A was roughly flat versus the prior quarter.

Please note that for the prior period, G&A does exclude the professional and legal fees associated with BW LPG's unsolicited proposal, which we separately reported. Going forward for the remainder of the fiscal year, we expect our G&A, including non-cash compensation expense to decline. Specifically, we expect to see the decrease because the original awards granted in 2014 invested in 2017, 2018, 2019 have now been fully amortized. Those awards hit our P&L by roughly $700,000 a quarter, and thus we expect non-cash comp expense to be reduced by this amount going forward.

Our reported adjusted EBITDA for the quarter was $38.4 million, which was a significant increase from the fourth quarter, reflecting the more favorable rate environment that we enjoyed in the quarter just ended.

As you know, we look at cash interest expense on debt as the sum of the line items interest expense, excluding deferred financing fees, amortization and other loan expenses and realized gain loss on derivatives. On that basis, total cash interest expense for the quarter was $7.7 million, which was down about $100,000 from the prior quarter, largely due to continued debt pay down. We continue to benefit from our hedging policy and the favorable pricing of our Japanese Financings, leaving us with the current interest cost fixed hedge in a small floating piece of 4.3%.

On July 23, we finalized a modest amendment with our bank group that, among other things, allows us to add back the costs associated with the BW proposal to our EBITDA for purposes of the calculation of the interest coverage ratio. We did not pay a fee in connection with this amendment. All the details are in our 10-Q. I would note, however, we do expect based on the rate environment, that we will be comfortably in compliance with all of our covenants for the current fiscal year.

Our cash flow and liquidity remained strong. Since quarter end, through to August 5, our restricted and unrestricted cash is up about $9 million to over $65 million. Although we hold an 80-plus-percent economic interest in Helios, we do not consolidate this balance sheet, which has the effect of understating our cash and working capital. Thus, we believe it is useful to provide some additional insight in order to give a more complete picture of our cash and liquidity.

As of Monday, August 5, the pool had roughly $45 million of cash on hand, and no debt. With a solid market backdrop and a strong balance sheet, we maintain a very constructive view in our business and expect to continue to be able to generate solid cash on cash returns for our shareholders.

With that, I'll pass it over to John Lycouris.

John Lycouris -- Chief Executive Officer

Thank you, Ted. U.S. LPG exports year-to-date through July have grown 22% to 22.5 million tons, and Middle East exports have grown 3.5% to 22.6 million tons compared with the same period of 2018. For the first time, U.S. and Middle East volumes were equal. And the expectation is that the U.S. exports will grow faster than those from the Middle East as additional export capacity comes on line.

In total, from the U.S., we saw 68 VLGC lifitngs in April, 64 in May, 63 in June, and for July, a new record of 70 liftings. U.S. propane inventories continue to push toward the higher-end of their five year range, hitting 80 million barrels in July 26. These levels are 21.4% higher than last year at this time and almost equal to export volume increases.

EIA short-term energy forecast estimates LPG monthly production increased Permian volumes from the Shin Oak pipeline and we expect further volume increases to continue in third quarter of 2019 with the opening of the Grand Prix pipeline.

Altagas' new Ridley Island terminal on the west coast of Canada is now exporting two cargoes a month, while Enterprise expects its LPG Marine Terminal expansion to be ready by the end of September followed by an even more substantial expansion in the third quarter of 2020. Targa Resources announced an expansion project of 200,000 [Phonetic] barrels per day by next year, and Energy Transfer Partners announced scheduling changes this summer to facilitate vessel loadings and increased refrigeration capacity for their Nederland terminal by September 2020. Sunoco's Marcus Hook terminal has maintained a strong loading schedule last quarter, exporting 9 VLGC cargoes in April, 10 in May and 9 in June.

Over the past few months, LPG volumes from the U.S. East Coast have primarily been directed to Europe, where U.S.-sourced LPG has been highly competitive as a cracker feedstock with a propane-naphtha spread averaging $130 per metric ton. We continue to see increased U.S. cargoes destined to Japan and Korea, but also toward India, Indonesia and Taiwan, with Middle East volumes increasingly absorbed by Chinese buyers.

In terms of global demand, China currently has nine PDH plants in operation and a further two PDH plants are expected to start up in the second half of 2019. Each of these new PDH plants represent a potential of over 700,000 tons per annum of LPG demand. In Korea, two large LPG crackers built in the first half of the year are now currently ramping up operations and represent potential LPG demand of 1.8 million metric tons per annum as feedstock.

With ballast water treatment regulations coming into effect this September and the IMO 2020 regulations at the beginning of next year, the global fleet will be evolving with major equipment retrofitting. According to Clarksons, there are now 35 VLGCs in the fleet that are 20 years of age or older, and a similar number of vessels in the new building order book. Given the fleet's age profile and the increases in owners' cost from environmental regulations, we believe that scrapping considerations of older tonnage will come into focus. With a stable order book of about 12% of the global fleet, we expect the near-term VLGC market to remain healthy.

In terms of the evolving regulatory landscape, it is worth pinpointing that Dorian LPG designed and diligently prepared its fleet with a view to capitalize on the IMO 2020 regulations that are now in sight. We have been operating scrubbers in our fleet since 2015, gaining experience and knowledge in real-time scrubber equipment operations. We currently expect 10 of our vessels to have scrubbers installed by calendar year end, meaning that more than half of our fleet will be scrubber equipped. Those [Phonetic] will be hybrid, multi-screened scrubbers, enabling our vessels to operate in all global ports, either in open or closed loop in fresh or salt waters. We expect our fleet to be commercially flexible and compliant with any regulatory or sovereign restrictions.

Thank you. I'll pass it over to John.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Thank you, John. Devin, can we -- are there any questions?

Questions and Answers:

Operator

With the prepared remarks complete, we will now open the lines for questions. [Operator Instructions] Our first question comes from the line of J Mintzmyer -- well, of John Deysher with Pinnacle Capital Management. Please proceed with your question.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Who is it?

Operator

We actually may have lost that line. [Operator Instructions] There appear to be no questions at this time. I'd like to turn the floor back over to Mr. Hadjipateras for closing comments.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Thank you very much, Devin, and thank you all for listening. Thank you for making part of your time during the summer. And we wish you a good rest of the summer, and look forward to having you again on our next quarterly call in due course. Bye-bye.

Operator

[Operator Closing Remarks]

Duration: 18 minutes

Call participants:

Theodore B. Young -- Chief Financial Officer

John Hadjipateras -- Chairman, Chief Executive Officer and President

John Lycouris -- Chief Executive Officer

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