Dynagas LNG Partners LP (NYSE: NYSE:DLNG), an owner and operator of liquefied natural gas (LNG) carriers, reported a net income of $10.7 million for the second quarter of 2024.
The company's adjusted net income stood at $12.4 million, with earnings per common unit at $0.20 and adjusted earnings per common unit at $0.25. Dynagas LNG Partners also announced the successful refinancing of their credit facility and the reduction of their debt levels, positioning the partnership for future growth.
Key Takeaways
- Net income of $10.7 million and adjusted net income of $12.4 million for Q2 2024.
- Earnings per common unit at $0.20 and adjusted earnings per common unit at $0.25.
- Adjusted EBITDA reached $28.6 million.
- Successful refinancing of a $408.6 million credit facility with a new lease financing agreement.
- Reduction of debt levels and two of the company's LNG carriers now debt-free.
- 100% fleet utilization with long-term charters for all six LNG carriers.
- Average Time Charter Equivalent (TCE) rate of $67,300 per day.
Company Outlook
- The partnership has secured a stable and reliable income for the coming years with a robust charter profile.
- No contractual vessel availability until 2028, ensuring steady cash flow.
- Long-term demand for LNG expected to remain strong, driven by environmental benefits and rising global electrification needs.
Bearish Highlights
- Anticipated increase in interest expenses after interest rate swap matures on September 18, 2024.
- Shipping capacity may exceed demand in the short to medium term due to rapid fleet expansion.
Bullish Highlights
- A contracted backlog of approximately $1.04 billion, averaging $173 million per vessel.
- Global demand for transport and incremental LNG production is expected to absorb the current order book in the medium to long term.
Misses
- Slight decrease in net income from $11.75 million in Q1 2024 to $10.7 million in Q2 2024.
- A minor reduction in TCE rates from $68,100 per day in Q1 to $67,300 per day in Q2.
Q&A Highlights
- The Board of Directors is expected to evaluate and announce its capital allocation strategy in the next quarter.
Dynagas LNG Partners has effectively managed its financial position by reducing debt and securing long-term charters with esteemed international gas companies, which has resulted in a stable income stream. The partnership's strategic deleveraging and financial flexibility have positioned it for potential growth opportunities while maintaining a solid foundation for stable operations. Despite a slight decrease in net income and TCE rates, the company's overall financial health remains strong, with no contractual vessel availability until 2028 and a significant backlog ensuring reliable revenue. The global LNG market dynamics suggest a positive outlook for the company, with long-term demand for LNG expected to continue its upward trajectory.
InvestingPro Insights
Dynagas LNG Partners LP (DLNG) has shown a robust financial performance with several promising indicators. According to InvestingPro data, the company's market capitalization stands at $138.88 million, reflecting investor confidence in its business model and future growth prospects. The P/E ratio, a measure of the company's current share price relative to its per-share earnings, is notably low at 5.62 for the last twelve months as of Q1 2024, suggesting that the stock might be undervalued compared to its earnings potential. This is further supported by a strong revenue growth of 18.88% during the same period, indicating that the company is expanding its financial base.
One of the key InvestingPro Tips for DLNG is that analysts predict the company will be profitable this year, which aligns with the company's reported net income and adjusted net income for Q2 2024. Additionally, the company has been profitable over the last twelve months, and it has experienced a large price uptick of 29.07% over the last six months. This positive momentum in the stock price is a testament to the company's strong return over the last five years.
Moreover, DLNG has managed its assets efficiently, as evidenced by its gross profit margin of 65.31% for the last twelve months as of Q1 2024, and an operating income margin of 40.12%. These margins reflect the company's ability to control costs and maximize profitability from its operations.
It's also worth noting that Dynagas LNG Partners does not pay a dividend to shareholders, which could be a strategic decision to reinvest earnings back into the company for further growth and debt reduction, as seen with the successful refinancing of their credit facility.
For readers interested in deeper analysis and additional insights, there are more InvestingPro Tips available for DLNG at https://www.investing.com/pro/DLNG, which could provide further guidance on investment decisions.
Full transcript - Dynagas LNG Partners LP (DLNG) Q2 2024:
Operator: Thank you for standing by. Ladies and gentlemen, welcome to the Dynagas LNG Partners Conference Call on the Second Quarter 2024 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 will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you 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 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, slide presentation and 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 others, 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. Maybe 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 to be realized. I kindly draw your attention to Slide 2 of the webcast presentation, which has the full forward-looking statement and the same statement which was also included in the press release. Please take a moment to go through the whole statement and read it. And now, I'd like to turn the floor back over to Mr. Lauritzen. Please go ahead, sir.
Tony Lauritzen: Good morning, everyone, and thank you for joining us in our three-month ended 30 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 third period. Certain non-GAAP measures will be discussed in 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. So with that presentation, we'll move on to Slide number 3. We today present the results for the three-month ending on 30 June 2024. We are pleased to announce that all six LNG carriers in our fleet were operating on the long-term chances for the 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 stood at $12.4 million, translating to adjusted earnings per common unit of $0.25. Furthermore, our adjusted EBITDA for the same period reached $28.6 million. We were pleased with the conclusion of the 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 partnerships 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 24. Following a sustained period of strategic deleveraging, we now have a substantially reduced debt levels and secured a more flexible financing structure. With two of our LNG carriers is 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: Thank you, Tony. Turning to Slide 4, let me start with the 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 charters of two of our vessels compared to the previous quarter. Operating income for the second quarter is $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 G&A expenses. Net income for the second quarter is $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 its maturity on September 18, 2024. In addition, a one-off loss on debt extinguishment of $331,000 as a result of the early per-payment of our prior credit facility [indiscernible] 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 break even costs 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 loans 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 5, 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 distribution to our preferred unit holders, we ended the quarter with $35.6 million in cash. Moving on to Slide 6, 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 12 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 unit holders. As previously advised, we refinanced $408 million of our old credit facility with our $345 million sale and lease back on four LNG carriers and our remaining two LNG carriers are debt free. Over the next 12 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 18th, 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 gain to be received at its maturity on September 18th. 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. And as a result, our fourth quarterly debt service per day is anticipated to increase by about $5,200 per day, resulting in a pro-forma cash rate even of approximately $50,000 per day for Q4 2024. Obviously, we expect to be building 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. So 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: Thank you, Michael. Let's continue and move on to Slide 7. Currently, our fleet comprises six LNG carriers with an average age of approximately 14.1 years. Our [first time] (ph) charters include multiple gas companies such as Equinor, SEFE, and Yamal Trade. Additionally, Rio Grande LLC, a subsidiary of NextDecade (NASDAQ:NEXT) has forward-chartered our vessels, Clean Energy and the Arctic Aurora. As of September 10th, 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 8. Our current commercial strategy is centered on securing long-term charters with prominent gas companies, ensuring a stable revenue stream. As a result of this approach, we have accumulated a solid contract backlog. Barring any unforeseen events, we have no contractual vessel availability until the year 2028, when the Clean Energy, Ob and Amur River will be available. Following this, the Arctic Aurora will come off the Rio Grande energy contract in 2033 with the Yenisei and Lena River becoming available in 2034, provided that the charters do not exercise their extension options. The global fleet of LNG carriers has expanded rapidly, with the new building order book 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 a 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 observed as aging vessels are replaced and global demand for transport and incremental LNG 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 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-termers 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 EDITDA ratio, bringing it down from 6.6 times in September 2019 to 2.9 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 and solid foundation of contracted cash flows, reduced leverage, and a broadened strategic vision, 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 question you might have. Thank you.
Operator: Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] We have reached the end of our question-and-answer session. I'd like to turn the floor back over to the CEO for any further or closing comments.
Tony Lauritzen: Well, 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: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
End of Q&A:
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