Dynagas LNG Partners LP (NYSE: NYSE:DLNG), an owner and operator of liquefied natural gas (LNG) carriers, has announced its financial performance for the fourth quarter of 2023, revealing a net income of $10.5 million and an adjusted net income of $10.3 million.
For the full year, the company achieved a net income of $35.9 million and an adjusted net income of $25.8 million. Additionally, the company has secured a term sheet for lease financing of four LNG carriers with a major Asian leasing company, totaling up to $345 million. This strategic financial move is set to bolster the company's position by enabling the repayment of its maturing debt in September 2024.
Key Takeaways
- Dynagas LNG Partners reports Q4 net income of $10.5 million and adjusted net income of $10.3 million.
- Full-year net income stands at $35.9 million, with adjusted figures at $25.8 million.
- Lease financing term sheet signed for $345 million to refinance debt due in September 2024.
- China's LNG imports have increased in Q1 2024; European demand reached record highs in 2023.
- Long-term LNG demand remains strong due to its low emissions and lack of superior alternatives.
- The company's LNG carrier charters, including agreements with NextDecade (NASDAQ:NEXT), are performing well.
- Discussions on refinancing and the use of excess cash flow took place during the earnings call.
Company Outlook
- The demand for LNG is expected to continue growing, driven by global electrification needs and the shift away from coal.
- The company has reduced its debt and increased book equity value, strengthening its financial health.
Bearish Highlights
- The company's debt will be subject to floating interest rates post-September when the current swap expires.
Bullish Highlights
- Strong market dynamics in China and Europe are likely to support continued demand for LNG carriers.
- The energy profile of LNG and its role in reducing emissions reinforce the company's market position.
Misses
- No specific misses were reported from the earnings call.
Q&A Highlights
- The company received term sheets for refinancing with an average profile of about eight years.
- The expected debt service is around $45 million for the principal and just under $20 million for interest annually.
- There are no restrictions on the use of excess cash flow or dividends, but plans for excess cash utilization remain undetermined.
Dynagas LNG Partners' financial results and strategic initiatives reflect the company's focus on maintaining a robust balance sheet while capitalizing on the growing global demand for cleaner energy sources. The lease financing agreement is a pivotal step in ensuring the company's financial stability and ability to meet future obligations. With the global shift towards cleaner energy and the favorable market conditions in key regions like China and Europe, Dynagas LNG Partners is poised to continue its positive trajectory in the LNG carrier industry. Investors and stakeholders will be watching closely as the company navigates the dynamic energy landscape and works towards executing its financial strategies in the coming year.
InvestingPro Insights
Dynagas LNG Partners LP (NYSE: DLNG) has recently showcased a solid financial performance, and the InvestingPro platform offers additional insights that could be of interest to investors evaluating the company's prospects. Notably, DLNG is trading at a low Price / Book multiple of 0.34, which might suggest that the company's stock is undervalued compared to the book value of its assets as of the last twelve months ending Q4 2023.
Investors may also find encouragement in the company's liquidity position, as its liquid assets exceed short-term obligations. This provides Dynagas LNG Partners with a cushion to manage its short-term liabilities and could be a sign of financial stability.
In terms of profitability, analysts predict that Dynagas LNG Partners will be profitable this year. This is supported by the company's track record of profitability over the last twelve months. However, it's worth noting that Dynagas LNG Partners does not pay a dividend to shareholders, which might influence the investment strategy for income-focused investors.
From a valuation standpoint, the P/E Ratio (Adjusted) stands at 3.22, which may appeal to value investors looking for stocks with lower price multiples. Additionally, the company's revenue growth of 21.89% over the last twelve months signals a strong top-line expansion, which could be a positive indicator for future earnings potential.
For those seeking further insights, there are additional InvestingPro Tips available on the platform, which can be accessed at https://www.investing.com/pro/DLNG. Plus, readers can use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more valuable tips and data to inform their investment decisions.
Full transcript - Dynagas Lng Part (DLNG) Q4 2023:
Operator: Thank you for standing by ladies and gentlemen, and welcome to Dynagas LNG Partners Conference Call on the Fourth Quarter 2023 Financial Results. We have with us Mr. Tony Lauritzen, Chief Executive Officer; and Mr. Michael Gregos, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be presentation followed by a question-and-answer session. [Operator Instructions]. I must advise you that 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 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 are not historical facts -- 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 is 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 full year and three months ended 31st December 2023 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 its call, and 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 get started and move to Slide 3 of the presentation. We today present the results for the full year and three months period ending on December 31, 2023. We are pleased to announce that all six LNG carriers in our fleet were operating under long-term charters with esteemed international gas companies. For the fourth quarter of 2023, we reported net income of $10.5 million and earnings per common unit of $0.21. Our adjusted net income stood at $10.3 million, translating to adjusted earnings per common unit of $0.20. Furthermore, our adjusted EBITDA for the full period reached $27.4 million. For the full year 2023, we reported net income of $35.9 million and earnings per common unit of $0.66. Our adjusted net income stood at $25.8 million, translating to adjusted earnings per common unit of $0.39. Furthermore, our adjusted EBITDA for the full period reached $94.4 million. We are pleased to share that subsequent to the quarter, the partnership has signed a term sheet with a major leasing company in Asia for the lease financing of four of our six LNG carriers in an amount of up to $345 million. The financing has received credit approval and is subject to signing of documentation and customary closing conditions. The transaction is expected to close in the second quarter of 2024. The partnership intends to combine proceeds from this new financing with other sources of liquidity to fully repay the partnership's debt maturing in September 2024. I will now turn the presentation over to Michael, who will provide you with further comments to the financial results. Go ahead, Michael.
Michael Gregos: Thank you, Tony. Turning to Slide 4, net income for the full year amounted to $35.9 million or $0.66 per common unit. Adjusted net income amounted to $25.8 million or $0.39 per common unit and adjusted EBITDA for the year was $94.4 million. In the fourth quarter, net income saw a slight decrease of 9.5% to $10.5 million compared to the same quarter last year. This reduction is primarily linked to a decrease in unrealized gain on our interest rate swap of $3.2 million and the absence of a $2.1 million gain and debt extinguishment that we recognized in the previous year. However, this was partially mitigated by an uptick in voyage revenues of $3.9 million as a result of a higher charter rate on the Arctic Aurora, which entered the charter with Equinor in September 2023, as well as by the $2.9 million of other income recognized in the fourth quarter of 2023, which represents income from insurance claims. Adjusted net income for the quarter is reported at $10.3 million, a noteworthy increase from $7 million last year, driven mainly by the voyage revenue growth previously mentioned. This was counterbalanced by increased operating expenses by $0.6 million and finance costs by $0.4 million due to higher interest expenses under the floating leg of our credit facility. For consistency, we excluded cash receipts and unrealized gains on our interest rate swap from adjusted net income, which if included, brings our adjusted net income and earnings per common unit to $16.7 million and $0.37, respectively. The time charter equivalent rate per day for the fourth quarter stood at $65,700 with operating expenses at $15,172 per day, leading to a cash breakeven per vessel of $46,300 per day. Turning to Slide 5, our net debt to last 12 months' EBITDA ratio has improved to 3.7 times, indicative of a solid balance sheet and prudent capital management, culminating in a book equity value of $448 million and a net debt to total book capitalization ratio of 40%. Our consistent emphasis on using organic cash flow for debt reduction without diluting shareholder value has proven to be a prudent strategy as can be seen by the consistent increase in book equity value per common unit. Moving to Slide 6. We concluded the quarter with a strong cash position of $73.8 million, operating cash flow of $20.2 million and after accounting for the capital expenditures, like the installation of ballast water treatment systems on our steam LNG carriers, free cash flow of $17.4 million. For the full year, our operating cash flow amounted to $64.4 million and our free cash flow was $60.2 million. We are pleased to announce that we have signed a term sheet with a prominent Asian leasing company for the lease financing of four out of our six LNG carriers to address our September debt maturity. This financing will provide us with up to $345 million in funding. We're happy to report that this financing plan has already been granted credit approval and is contingent upon the completion of definitive documentation and the satisfaction of customary closing conditions. We plan to utilize the proceeds from this financing in conjunction with other sources of liquidity to completely repay the partnership's debt that's coming due in September 2024. We expect to close this transaction within the second quarter of 2024. Over the past few years, we've been strategically reducing our leverage in an organic manner. And by addressing the upcoming maturity of our debt, we're setting a solid foundation for financial stability. That wraps it up from my side. I will pass over the presentation to Tony.
Tony Lauritzen: Thank you, Michael. Let's move on to Slide 7 on our presentation. At present, our fleet consists of six LNG carriers with an average age of approximately 13.6 years. Our current charters include gas companies such as Equinor of Norway, SEFE and Yamal Trade of Singapore, as well as Rio Grande LNG, a subsidiary of NextDecade for the forward chartered vessels, Clean Energy and Arctic Aurora. As of 20 March 2024, the fleet's contracted backlog amounts to approximately $1.11 billion, equating to an average backlog of about $185 million per vessel. Furthermore, the fleet enjoys an average remaining charter period of approximately 6.9 years. We are confident that our chartered profile is strong and positions our partnership for stable income in years to come. Let's move on to Slide 8 of the presentation. Our commercial strategy is securing long term charters for the gas companies. We have built up a solid contracted backlog and by no unforeseen events, we have no contractual vessel availability until 2028 when the Clean Energy, Ob and Amur River will be available. The next availability after this is the Arctic Aurora, which will come off of Rio Grande LNG contract in 2033 following by Yenisei and Lena River in 2034, provided that charter's extension options are not exercised. The global fleet of energy carriers currently comprises approximately 670 large vessels exhibiting a diverse range of sciences and propulsion systems. The delivery order book accounts for roughly 53% of existing fleets, mainly scheduled for delivery between now and 2028. The majority of these orders are already committed to specific charters leaving only 28 carriers without dedicated employment. The main objectives of the global order book are twofold, to replace aging vessels and to accommodate the growing energy production capacity. Notably, around 18% of the existing fleet comprises steam powered vessels below approximately 140,000 cubic meters in capacity with an average age when above 20 years, rendering them undersized and inefficient in today's operational environment. Current liquefaction capacity stands at approximately 471 million metric tons, with an additional 46% of new liquefaction capacity already FID'd and at various stages of construction for start-up before 2030. The expansion is primarily driven by projects in the U.S., Canada, and Mexico region, representing about 46%, followed by Qatar at 30% with additional contributions from various other regions including Russia, Africa, Australia and Malaysia. In the medium to long term, we anticipate the order book being absorbed through the replacement of older vessels and the transportation of additional LNG production. However, in the short term, the charter market may face short-term challenges as vessel deliveries are front-loaded compared to the multi-year growth in energy production. Given these factors, we believe our portfolio is well structured, with contractual availability only in 2028. Nevertheless, global demand for LNG remains robust. Questions have been raised regarding the impact of Chinese economic growth and LNG demand. Beijing has maintained its growth target of 5% for 2024, mirroring the figure set for 2023, and recent data from [indiscernible] suggest a notable increase in China's LNG imports during Q1 2024 compared to 2023. European LNG import volumes reached historical highs in 2023 and are expected to continue increasing in the medium term up to 2026, projected to rise from approximately 120 million tons in 2023 to 140 million tons in 2026. In general, we anticipate that the long-term demand for LNG will remain robust due to several factors. These include its favorable emission profile compared to traditional fossil fuels, the growing global demand for electrification, the efficiency of the combined cycle power plant fueled by LNG, the existing global infrastructure of energy production and distribution, and the absence of a superior alternative on a comparable scale. At the vessel level, our carrier charters are performing and fulfilling their obligations with the vessels actively trading. While President Biden's temporary pause on pending permits for new energy projects has been announced, it is not targeted to impact already permitted ground field or expansion projects. Our agreements with U.S. LNG exporter NextDecade for the clean energy and the Arctic Aurora are proceeding as planned [indiscernible] 1 to 3, which are fully permitted. According to NextDecade, construction of the Rio Grande Energy facility is progressing in line with schedule with overall completion for [indiscernible] is approximately 14% and 4.4% for [indiscernible]. Let's move to Slide 9. The partnership has demonstrated its commitment to its debt reduction strategy. Since December 2019 until 28 March 2024, it successfully repaired $254.4 million in debt, significantly lowering its net leverage from 6.6 times to 3.7 times. Additionally, the partnership has increased its book equity value by 44%, standing at $448 million as of 31, December 2023. Looking ahead, we are confident that the partnership's ongoing efforts to reduce debt would further augment equity value through stable long-term cash flow visibility. We firmly believe that LNG plays a pivotal role in building the future with reduced emissions. The demand for LNG is projected to continue as the world progressively shifts away from coal and other polluting fossil fuels in favor of cleaner energy sources. Natural gas has a relatively low emission profile when combusted. Another key drivers of natural gas is its ability to generate power swiftly and effectively as and when needed and the existence of a well-developed global infrastructure facilitating its production, transportation, storage, and consumption. Thank you all for your attention. We now have completed the presentation and invite you to ask any questions you may have. Operator, you can now open the floor for questions.
Operator: Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Ben Nolan with Stifel. Please proceed with your question.
Ben Nolan: Yes, hi, Good morning and congrats on getting some term sheets for the refinancing. I was curious, Michael, if you could give a little color on what the cash outflows would look like on a quarterly basis or the interest in amortization, any thoughts as to sort of what that would look like?
Michael Gregos: Yes. So, I mean, its -- let's say on average this will have a profile of about eight years. So on an age adjusted basis, it's about 23 years. The margin on this financing is right below where we are today. But let's not forget that in September our swap expires, so we will be, let's say, our debt will be under a floating interest. So that's all we can provide at this stage. I am pleased to say that the margin is quite below where we are today.
Ben Nolan: Right. So I guess what I'm trying to get to is, relative to your cash flows coming in, how much is going out or would you anticipate going out onto the debt service? What's the market…
Tony Lauritzen: Well, let's say, [indiscernible] depending on where interest rates, let's say, [indiscernible] element would be about close to $45 million and the interest element would be, let's say, somewhere slightly south of the $20 million. So there is post debt on that. There is a cash buildup.
Ben Nolan: Okay. And are there any restrictions on what you can do with the excess cash after [indiscernible] interest?
Michael Gregos: No, there's no restrictions. There's no dividend restrictions either, yes, on the…
Ben Nolan: Okay, perfect. And just since you mentioned it, any thoughts as to what the -- what you might would do with the excess cash flow after debt service?
Michael Gregos: I think it's a bit too early to say. Our next step is just to close the financing and I think it's a bit too early to say what the next step will be on how to utilize this excess cash.
Ben Nolan: Okay. Yeah, and I appreciate that. I just thought it asked. All right. Well, again, it's important news, so I appreciate the feedback.
Tony Lauritzen: Okay. Thank you, Ben.
Operator: [Operator Instructions] There are no further questions at this time. At this point, I'd like to turn the call back over to Tony Lauritzen for closing comments.
Tony Lauritzen: Okay. Thank you, Joel. We appreciate your time and attention to this. Thank you for your participation and look forward to connecting with you again on our next call. Take care. Goodbye.
Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
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