Dorian LPG (LPG) Q2 2027 Earnings Call Transcript

John Hadjipateras:Thank you, Ted. Good morning, everyone, and thank you for joining us on a busy morning. We're proud to be following in the footsteps of Maersk, Genco, International Seaways, and last but not least. So before my colleagues provide you with detailed comments on our financial results and an interesting market overview, as well as progress of our operation, I'd like to provide some strategic perspective. The freight market, which hit new highs, as well as gains on sales, are reflected in the record earnings that we are reporting today. After the $1.25 per share dividend, irregular dividend declared by our board last week, the total return to our shareholders since our 2014 IPO will amount to over $1.1 billion.

We're confident in the sector's dynamics for the foreseeable future. With the refinancings completed in September, we feel that we have a balanced capital structure with capacity to support growth and withstand headwinds that may arise. Our fleet investment and reinvestment strategy has always been measured and deliberate. The ships we have on order will have improved technical and operational features, which will add to their earning potential. In market cycles where bigger investments are warranted, as was the case with our expansion in 2013, we will aim to be ready to take them on.

While in the last quarter, the strong rates stole the show, we found the fact that U.S. export facilities did not operate at maximum capacity to be the most interesting development, because it showed that the sector is currently short shipping. In the 12 years since our IPO, not only has U.S. production and exports been growing, but their growth has also surprised on the upside, absorbing with new building books, which at time had seemed excessive. We believe in LPG fundamentals, and we hope that together with potential growth in ammonia carried down the line, demand will continue to expand, as has been the case to date.

Having said that, we also believe that the order book is adequate and the restraint will be rewarded. Going back to the present, the Iran conflict and its recent developments effectively put a stranglehold on exports out of the Straits of Hormuz and out of the Red Sea, and highlighted the critical role that the U.S. plays in global LPG supply. The Panama Canal is once again heavily congested, pushing more VLGCs to ballast around the Cape of Good Hope. With the dry season approaching, we do not anticipate near-term relief.

While it's impossible to predict the outcome and implications of the Middle East conflict on our trade, we believe that peace is not a threat, as some have predicted, but rather it will restore and expand trade, replenish stocks, and potentially clear the dark fleet when it comes. I will now pass over to Ted, who will present our quarterly financial review.

Ted Young:Thanks, John. My comments this morning will focus on capital allocation, our financial position, liquidity, and our unaudited second quarter results. We've continued to opportunistically monetize our fleet since our last earnings call. In October, we completed the sale of both Clermont, which we had discussed on our last call, as well as the Captain John NP, the oldest ship in our fleet. The two sales generated proceeds of approximately $167.4 million net of commission. We also paid down debt associated with the Clermont of $16 million.

On September 2, we entered into a new seven-year, $368.4 million credit facility to refinance several credit facilities, including the 2023 amended and restated facility, the Cougar and Crest Japanese financings, and the Commander tranche of the BALCAP Facility. The new facility carries a margin of 140 basis points over SOFR, which is an improvement of around 60 points compared to the 2023 A&R Facility, and also has an age-adjusted profile of 22 years. The facility also has a revolving credit facility, which currently has a capacity of $154 million and a $200 million accordion facility, both of which give us financial flexibility and support our future growth.

We've also managed to keep in place an existing interest rate swap, which means that about 58.5% of the current term loan balance is currently fixed at 2.85%. We'd also note that the syndicate of banks includes all those previously part of the 2023 A&R Facility, in addition to three new banks. In September, we also announced that we entered into an agreement with Hanwha Ocean to build three 90,000 CBM dual-fuel Neo-Panamax VLGCs for delivery in 2030 for a price of approximately $338 million. This brings our total number of newbuildings to four. We made the 10% down payments on those vessels during the September quarter.

At September 30, 2026, we reported $578.8 million of free cash, an increase of $236.6 million, or nearly 70% from the previous quarter. Since September 30, we've received sale proceeds from Clermont and Captain John NP, and enjoyed continued strong freight markets as reflected in distributions from our Helios Pool, leading to our current cash balance of almost $785 million. Our debt balance of $484.8 million at quarter end was reduced following the sale of the Clermont and repayment of $16 million of debt, therefore bringing our pro forma debt balance at the 30th of September to $469 million.

Based on our stated quarter-end book debt at $484.8 million, our debt to total book capitalization stood at 25.6%, and our net debt to total capitalization at negative 5%. Using the pro forma sale proceeds, the debt repayment, and our current cash balance, we currently have net cash of about $320 million, and a current all-in debt cost of 4.94%, and our undrawn revolver of 154.8 million. Coupled with our healthy cash balance, we clearly have a comfortable measure of financial flexibility to support growth or whatever may come. We expect our cash cost per day for the coming year to be approximately $27,000 per day.

The slight increase versus our previous guidance is largely a function of the reduced number of vessel days following the vessel sales. For the discussion of our second quarter results, you may find it useful to refer to the investor highlights slides posted this morning on our website. For the second quarter, the Helios Pool earned a TCE for its spot and COA voyages of $115,163, and an overall TCE result of $99,915, reflecting the very strong rate environment. On page four of our investor highlights materials, you can see that we have seven Dorian vessels on time charter within the pool, indicating spot exposure of just over 73% for the 26 vessels in the Helios Pool.

Dorian's reported TCE revenue per available day for the quarter was just shy of $97,000, which, for the third quarter in a row, was the highest TCE rate we have earned in our corporate existence. The favorable variance versus our forward guidance is due to demurrage booked in September and favorable mark-to-market adjustments on our COAs. We plan to issue our forward booking information in the near future. Daily OPEX for the quarter was $10,273, excluding dry docking-related expenses, which was a modest decrease over the prior quarter due mainly to lower maintenance and repair costs. Our gross time charter-in expense for the five TCIN vessels came in at $18.2 million, or $36,635 per TCIN day.

Those vessels contributed positively to our quarterly profits. As we redelivered one vessel during the quarter, we note that we expect our TCIN expense to decrease to about $29,954 per TCIN day going forward, or about $13.8 million quarterly in aggregate. Total G&A for the quarter was $14 million, and cash G&A, that's G&A excluding non-cash comp expense, was about $8.2 million. The $8.2 million included about $1.3 million of incentive compensation expense accruals, which leaves our core G&A around $7 million. Our reported adjusted EBITDA for the quarter was $242 million, which is also a record, and included $63.6 million of gains on sale from the sales of the Corsair and the Constellation.

We will reflect the gains on the sales of the Clermont and the Captain John NP next quarter, and expect those to amount to in excess of $88 million. But for this quarter just ended, excluding the gains on the Corsair and the Constellation, EBITDA was $178.4 million. Total cash interest expense for the quarter was $5.7 million, which is down sequentially from the prior quarter, and principal amortization for the quarter was $9.9 million.

For the coming quarter ending December 31, after taking into account the changes in our financing structure, we expect cash interest expense to come in around $6.1 million and principal amortization to be about $9.8 million, excluding the $16 million we already paid in conjunction with the sale of the Clermont. The regular cash dividend declared at the beginning of the month of $1.25 per share is our 20th consecutive and 21st in total, and brings the total to $20.90 per share in regular dividends that we have paid since September of 2021.

Including that regular dividend to be paid this month, we have paid nearly $865 million of total dividends and have generated net income of $1.2 billion, including about $100 million of gains on sale over the same time period. As we've explained, our board weighs current earnings, our near-term cash flow forecast, fleet investment needs, and the overall market environment among a number of factors in making its determination the appropriate level, if any, for our dividends. Our sector can be a volatile one, and our dividend policy needs to reflect that. I would note, however, that the $1.25 per share dividend reflects a constructive market outlook while also allowing the company financial flexibility for future fleet reinvestment.

We continue to be on the lookout for fleet renewal opportunities and will be judicious with our free cash flow. With that, I'll pass it over to Taro Rasmussen.

Taro Rasmussen:Thank you, Ted. The quarter ending September 30, 2026, has three headlines: escalating conflict in the Middle East, congestion at the Panama Canal, and record highs in the VLGC freight market. There are several aspects of the conflict in the Middle East that have had significant impacts on shipping and arbitrage economics, whether the initial collapse of the MOU, Houthi advances to the Red Sea coast, or the successful attack on the Saudi East-West pipeline. These aspects combine to create a backdrop for energy markets solving a shortage crunch for importing regions and explains energy markets acting with urgency. Meanwhile, the Panama Canal's critical role in U.S.-Asia trade cannot be ignored.

Record-high Panama Canal auction prices and severe delays were witnessed during the quarter amidst meteorologists concluding the coming El Niño season could be one of the most severe on record. These are the leading explanations for how the Baltic Exchange's BLPG3 calculated TCE climbed from about $82,000 per day on July 1 to about $198,000 per day on September 30. This nominal TCE is based on a roughly 60-day round trip rather than about 80 days if the ballast length is around the Cape of Good Hope, which increases the denominator for getting per-day earnings. Furthermore, the assessed TCE does not account for weather factors, delays, and other costs.

Increased delivered product prices after the MOU ceasefire and increasing freight rates incentivize solutions to increasing exports from the Arabian Gulf and vessels to chance transits through the Strait of Hormuz. Notably on oil tankers and VLGCs, Middle East exporters turned to own tonnage or willing ship owners to load at Arabian Gulf terminals and discharge to waiting vessels outside the Arabian Gulf. Additional seaborne tons of oil products and LPGs gave some relief to shortage-stricken countries in Asia and drove rates up.

However, because of irregular availability of vessels willing to transit the Strait of Hormuz, irregular scheduling to ensure a transit with least risk, and irregular supply of vessels to receive cargo in the Indian Ocean, sometimes with little notice, it is a logistically inefficient operation. Freight markets benefited from the inefficiencies, increasing vessel utilization. The requisite premiums for ship owners to take the risk of transiting the Strait of Hormuz acted as a locomotive on the reported rates. It should also be noted that while the shuttle services through the Strait of Hormuz have increased Middle East exports compared to the prior quarter, presently available data suggests export volumes are about half of pre-conflict levels.

The secondhand tonnage markets also benefited from the new trade, as Middle East exporting countries and risk-willing companies turned to purchase prompt tonnage to outright own vessels and secure a regular supply of vessels able to attempt transits through the Strait of Hormuz. The successful attack on the Saudi East-West pipeline to Yanbu by pro-Iranian interests had a significant impact on widening the arbitrage, as crude oil and LPG export capabilities were severely restricted. The Houthi alliance's capture of Mocha and Perim Island during September 10, 11 has further expanded their capacity to attack vessels in the Red Sea and drove up delivered prices in Asia.

Whereas several container alliances have committed to Red Sea transits, Bab-el-Mandeb is de facto closed to tankers and VLGCs because of expressed threats to Saudi origin cargo, as would be the case for Yanbu exports. The Houthi alliance's advance to the Red Sea coast happened immediately after a period of rising, record-setting auction prices at the Panama Canal. In August, there were 25 Neo-Panamax auctions with an average winning bid of about $2 million, with winning auction prices rising above $4 million five times. In July, there were 45 auctions with winning bids averaging about $1 million.

The reduced number of auctions reflected the reduced transit capacity and water management implemented by the Panama Canal authorities in preparation for El Niño. Through August and mid-September, the canal authorities issued multiple notices to the restrictions, adding planning uncertainty for ship owners and adding congestion when demand was peaking due to the elevated commodity markets. The new records set during this calendar quarter were primarily due to high demand from all shipping sectors, as seen the quarter prior, but it was the reduced transit capacity and ever-changing restrictions that made non-auction transits nearly impossible to accomplish. It should be noticed that the drought season in Panama has not yet commenced.

The additional costs associated with Panama Canal congestion translates to higher freight levels, and higher barriers to smooth canal transits incentivize sailings around the Cape of Good Hope. The longer transits from the U.S. to Asia absorbing vessel supply explain why VLGC loadings in the U.S. Gulf for this calendar quarter averaged about 102 a month, compared to about 113 a month the quarter prior, because North American production continues to grow. The Middle East conflict is therefore not the only point of attention for the VLGC market. The quarter ending September 30, 2026, mimics the prior quarter in that the Iran conflict has instilled urgency into worldwide commodity markets and exacerbated existing logistical inefficiencies.

Even with the VLGC market contributing to solutions for providing energy from the Arabian Gulf, knock-on inefficiencies have presented itself. While there are no obvious silver bullets to address congestion at the Panama Canal, past experiences and the company's flexible fleet will help overcoming those obstacles in the coming quarter, and we remain well-positioned to capture arising opportunities. Thank you. I will now pass on to Mr. John Lycouris.

John Lycouris:Thank you, Taro. At Dorian LPG, we remain committed to continually enhancing energy efficiency and promoting the sustainability of our business at sea and onshore. Of the 22 vessels we commercially operate, 14 are scrubber-fitted and five are dual-fuel LPG. The high oil prices driven by the ongoing Middle East conflict and frequent shipping disruptions in the Strait of Hormuz has caused bunker price differentials to remain elevated, underscoring the value of our fuel efficiency initiatives and installation of scrubbers on our vessels.

For the second fiscal quarter of 2027, scrubber vessel savings were higher than the previous 11 quarters, amounting to approximately $4,174 per calendar day per vessel, net of all scrubber operating expenses, and has benefited our vessels with improved voyage economics. Fuel differentials between high-sulfur fuel oil and very low-sulfur fuel oil averaged $174 per metric ton, while that of LPG as fuel versus the very low-sulfur fuel oil stood at about $314 per metric ton, making LPG economically attractive for our dual-fuel vessels. We remain committed to being at the forefront of energy efficiency advancements.

Our participation in the MIT Maritime Consortium continues to support and sharpen our focus on future sustainability and operational efficiency across several areas of maritime research. One topic that has received particular attention in a recent meeting was nuclear propulsion. A panel featuring representatives from the Maritime Administration, the Department of Energy, the U.S. Coast Guard, the American Bureau of Shipping, and the West P&I, which was moderated by a Dorian LPG board member and ex-American Bureau of Shipping CEO, Christopher Wiernicki, explored the potential of nuclear power in commercial shipping, particularly its ability to reduce emissions and enhance energy security.

Ongoing research into reactor and port safety has yielded encouraging results, with floating nuclear power plants potentially paving the way for broader adoption in commercial shipping. We continue to closely monitor developments at the IMO, particularly the ongoing discussions around the Net-Zero Framework ahead of the MEPC 85 in late November and early December of 2026. While the final regulatory framework and implementation timeline remain uncertain, we believe a practical and globally consistent approach is important to support long-term investment decisions rather than the fragmented regional regulations. In the meantime, our focus remains on improving fleet energy efficiency, reducing emissions, and maintaining flexibility in our future fuel strategy.

We have also developed an emissions simulation model to assess different regulatory scenarios and their potential financial implications for our fleet, allowing us to remain well-prepared as the regulatory landscape evolves. We are confident that the Dorian LPG fleet will be prepared to meet regulatory changes in the future. I would like to pass it over to John Hadjipateras for his final comments.

John Hadjipateras:Thank you very much, John. Chelsea, we are ready to take questions.

Operator:Thank you. At this time, if you would like to ask a question, please press star one on your telephone keypad. To leave the queue at any time, please press star two. Once again, that is star one to ask a question. Our first question will come from Omar Nokta with Clarksons Securities. Please go ahead.

Omar Nokta:Thanks. Thanks, operator. Good morning. Obviously nice results. Congrats on the record earnings and record achieved rates. The business is clearly, and the market, clearly are in a strong position. You did discuss a good amount of the Panama Canal dynamic here in your remarks. Clearly there were a lot of log jams definitely throughout the year, but I did want to ask about what we've seen here recently. It seems at least that over the past several weeks, there's been maybe an easing in the congestion levels there. It's been going on, it feels like maybe, call it for past six to eight weeks.

It doesn't appear that there's as much of a delay dynamic as there was before, and yet, VLGC spot rates remain at exceptionally high levels, if not still at the near record figures. Just want to get from your perspective, are we perhaps maybe overplaying the impact of the Panama Canal dynamic? Are spot rates maybe structurally supported by something else beyond just the congestion that we have been seeing there? Thank you. If you're able to answer that, I appreciate it.

John Hadjipateras:I think, like I said in my remarks, but also Taro more completely, there are several factors, and Panama is just one of them. I think that I'd let Taro give you a more complete explanation, but I think that the Panama effect, you don't get it until you get it, and when it comes, it exasperates, and then it unwinds slowly. But, Taro, you can tell Omar a little more about why it seems to linger in the freight market, or whether you think other factors are more influencing the freight market more than the Panama effect.

Taro Rasmussen:Sure. Thank you for the question, Omar. The quick answer is that a lot of the decisions about ballasting were made weeks before, several weeks before. That reduces some of the immediate congestion and adds to the ton miles. It also is a reflection that what I mentioned about changing rules and transit advisories, that causes a lot of unease because you need to make your ballasting decisions a month before your laycans. That is a reflection of that.

Also, we know some will try to predict the weather way too far in advance, but we are very aware of the fact that October, November is typically the wet season in the area, and the drought season starts around the new year. We just have to look at mitigating potential risks here, and I do not think we are alone because otherwise we would see more congestion. I think it is a perfectly fair reflection, the spot market of where we are vis-a-vis Panama.

Omar Nokta:Okay. Thank you. Appreciate that.

John Hadjipateras:In addition to the Panama effect, the ton mile effect, do not forget also the inefficiency. The 50% of the volumes that are coming out of the Middle East do not travel efficiently. There is transshipment that delays both at the loading and the crossing of Hormuz and the transshipment, and then the delay and then the reloading. That whole system also creates a shortage.

Omar Nokta:Yeah. Thanks, John. Maybe just as a quick follow-up to that point, are you able to give a sense of the volumes coming out of the Middle East? What portion are coming out of, say, the Hormuz via the STS and what's coming out of the Red Sea?

John Hadjipateras:Taro?

Taro Rasmussen:We don't have the most recent figures. I think most are scrambling to put that data together. What you will see is, for many VLGCs, to answer your point about the proportion coming out of the Red Sea, they might have loaded around now, but you would not see the data until much later because those vessels are presently heading north into the Mediterranean around Africa, so you'll have a delay in data. Unfortunately, I don't have the best answer for you right now. I'm sure we'll all get more clarity later on.

Omar Nokta:Thank you. Okay. Yeah, that certainly makes sense. I appreciate it. Just one more, and maybe on kind of Dorian-specific. Certainly, you've been taking advantage of the strong market, especially the run-up in asset values to monetize for the older VLGCs, and you've been basically rolling the proceeds effectively into the newbuildings. How are you thinking about the capital allocation from here that I know you've mentioned in your comments, looking at modern tonnage? But, should we expect you maybe to continue this approach of monetizing some of the older vessels in this environment and perhaps replacing them with newbuildings? Or do you maybe look for on-the-water tonnage?

John Hadjipateras:We sold five ships this year, and the average age of those ships was almost 13 years, and the average price that we got for them was about $83 million. The market has continued to advance, and it reflects abnormal conditions. So, I'm not going to say that we won't sell anymore, but I will say that we're not, at the moment, actively seeking to sell. On the newbuilding front, yes, we're content with where we are at the moment, and we're not in a rush to go add to the order book. But a natural replacement cycle would require us to do more newbuildings in the next few years.

But whether we do them in the next year or beyond that is still up in the air. We're content to wait and see how the prices develop.

Omar Nokta:Got it. Thank you, John, for that. That is it for me. I will pass it back.

John Hadjipateras:Thanks, Omar.

Operator:Thank you. Our next question will come from Stephanie Moore with Jefferies.

Stephanie Moore:Hi, good morning. Thank you. I think you noted today that U.S. terminals still did not run at full capacity because ships were effectively short. How much spare terminal capacity is there? When do the new export projects come online? Is the constraint now shipping rather than actually terminals? My second question, just to put it all together at once here, is, we always think it is important to know, if we do see some kind of normalization in the Middle East and Gulf cargoes return, how quickly would you expect to see rates adjust? I know that is a pretty complicated question, but would just love to get your thoughts on that dynamic too. Just those two. Thank you.

John Hadjipateras:Not too complicated for Taro, but it is a very interesting question. Thanks, Stephanie. Taro?

Taro Rasmussen:Thanks for the question, Stephanie. The way we see it right now is that the main constraint is indeed the availability of tonnage, short and sweet. In terms of the capacity or the utilization rate, I do not have the percentage off the top of my head here. Refer to what I mentioned that compared to what we saw last quarter, we are down about 10 loadings just in the U.S. Gulf a month. So, you are 10% inefficiencies, plus or minus. I forgot, what was the third question, sorry? Or maybe it is difficult to do the follow-up. I hope that addressed it. Oh, there you are.

Stephanie Moore:The first question was just about terminal capacity.

Taro Rasmussen:Yeah.

Stephanie Moore:The second was just on the Hormuz and how fast, if we were to see some form of peace, when we would start to see rates move.

Taro Rasmussen:Excellent question. I hope my previous remarks covered the capacity there. About Hormuz, I think, as with anything geopolitical, the initial wave is one of sentiment, then comes the realignment of the trade. So it's probably going to be in two phases. In terms of the normalization of rates, we certainly, as Mr. Hadjipateras mentioned, peace is an attractive enabler of trade, so may that happen. With regards to answering your question properly, I think it's difficult to start making predictions about when peace happens, also a key consideration is what kind of peace.

I think there's many options up in the air right now, whether it's the discussed tolls or whether it is a ceasefire or a permanent peace, I think that's a few too many scenarios for me to digest right now. I think that's a question for everybody to consider, what peace actually means.

John Hadjipateras:Yeah. No, Stephanie, you also asked how fast. It could be very fast. The market may react, very fast, but I don't believe that in the medium to long term, we're looking at a net negative. So you saw when the MOU was signed, the market went down, then within days, it bounced again. The volumes are still there to be shipped, if the Hormuz opens, there'll be more volumes to be shipped. It takes time for the market to rebalance, for tonnage to get into an efficient mode. So I really find, as I said before, that when the threat of peace is viewed as a negative, it's a little bit silly.

I don't view it as a negative in the long run. Thank you anyway. I thought it was a nice, challenging question. Also, the first part of it about the capacity, the capacity, it's difficult to pinpoint when you don't know, when it's a new situation. It's a wonderful situation to find yourself in when you're on the supply side, where the demand exceeds supply. We haven't had that too often in shipping until recently. So, it's kind of in play, let's see how it goes. Thank you, Stephanie. I think, Chelsea-

Operator:Thank you very much.

John Hadjipateras:We're done with the questions, right?

Taro Rasmussen:She's saying yes from Stephanie.

Operator:Yes, sir.

John Hadjipateras:Do you have any

Operator:This does conclude the Q&A portion of the call, so I'd like to turn it back to John Hadjipateras for any additional or closing remarks.

John Hadjipateras:Thank you, Chelsea. Yes, indeed. Thank you very much, Omar. Thank you, Stephanie, for your participation, and everyone else.

Taro Rasmussen:See you next quarter.

John Hadjipateras:Have a good fall, and see you in January. Thank you.

Operator:Thank you, ladies and gentlemen. This brings us to the end of today's meeting. We appreciate your time and participation, and you may now disconnect.

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Dorian LPG (LPG) Q2 2027 Earnings Call Transcript was originally published by The Motley Fool