Welcome to the Dorian LPG’s Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. Additionally, a live audio webcast of today’s conference call is available on Dorian LPG’s website, which is www.dorianlpg.com. I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young. Please go ahead.

Thank you, Darryl. Good morning, everyone, and thank you all for joining us for our third quarter 2023 results conference call. With me today are John Hadjipateras, Chairman, President, and CEO of Dorian LPG Limited; and Tim Hansen, Chief Commercial Officer. As a reminder, this conference call webcast and replay will be available through February 8, 2023. Many of our remarks today contain 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 those we express today. Additionally, let me refer you to our unaudited results for the period ended December 31, 2022, that were filed this morning on Form 10-Q. In addition, please refer to our filings on Form 10-K, where you’ll find risk factors that could cause actual results to differ materially from those forward-looking statements. Finally, you may find it useful to refer to the investor highlight slides posted this morning on our website. With that, I’ll turn over the call to John Hadjipateras.

Thank you, Ted. Good morning and thank you for joining Ted, Tim, and me to discuss our third quarter financial year 2023 results. John Lycouris isn’t with us this morning because he’s having knee surgery. John Lycouris has contributed a slide you will find in the deck with interesting information which I think you may want to note and take; we will follow with. We will have some remarks read by him at the end of our presentation, and feel free to ask any questions you may have. After me, Tim will present, and then ultimately, Ted will present. With the $1 irregular dividend announced today, we will have returned over $500 million to shareholders since our IPO. Our board has focused on returns to shareholders while retaining commercial flexibility and ensuring a strong balance sheet. We’re still investing in our business, as evidenced by one full vessel joining our fleet in this calendar year and our commitment to the installation of three additional scrubbers. For the quarter, our EBITDA was $76.2 million, and net income was $51.3 million. The net income is the second highest in our corporate history. Our net debt-to-capitalization was about 34%. Ted will give you details and, of course, answer any questions you may have on our quarter’s financial results. Global LPG market fundamentals strengthened in 2022 with increased volumes from both major export basins and more frequent cargo routes to Europe. Global exports increased 4% this past quarter, and up 6% for the year with support primarily from North America. Total exports for 2022 increased to 117.5 million from 110.9 million tons in 2021. U.S. exports increased 6% or 700,000 metric tons from the third calendar quarter supported by favorable arbitrage economics, which persist today. 2022 U.S. volumes were up 3%, an increase of 1.3 million tons from 2021. Middle East export volumes showed continued growth, despite maintenance in some terminals at the beginning of December. Annual volumes out of the region are up 18%, increasing by 6.4 million tons from 35.9 million tons in 2021 to 42.3 in 2022, driven by reversals to OPEC+ production cuts. Freight rates this past quarter were underpinned by a strong arbitrage and increased waiting time in Panama. Rates fell in early December as canal wait times eased and some terminals in the Middle East underwent maintenance while demand in Asia was subdued. We’re now seeing a rapid reversal and an increase in freight rates in both basins. Regarding Dorian’s operation, we continue to work hard to ensure the well-being of our crew, especially our Ukrainian and Russian seafarers and their families. On the performance side, we have been very focused on our strategy to comply with the 2023 IMO emission regulations, the EEXI and CII. We have built out dashboards and forecasting tools that assist our commercial team in optimizing our utilization and achieving a solid CII score for each vessel in the pool. Our team has spent the past two years preparing for these regulations and sees this year as a turning point and a journey to decarbonize shipping. We will continue our research efforts and installations of various energy-saving devices and premium paints to reduce consumption costs and carbon footprint. Looking ahead, market estimates for U.S. exports point to further growth in 2023 and 2024. In its January short-term outlook report, the EIA said its estimate for U.S. LPG exports will grow 15.9% in 2023 year-over-year. This is up from their October estimate of 11.3% in 2023. The U.S. is now producing well over 100 million tons of LPG a year, with 2022 numbers coming in at about 106 million tons. I’ll hand you over to Ted now for his remarks.

Thanks, John. My comments today will focus on the recent capital allocation events, our financial position, liquidity, and our unaudited third quarter results. As of December 31, 2022, we reported $129.8 million in cash, which was net of the $40 million dividend payment made at the beginning of the month. As of January 30, 2023, we have roughly $165 million in cash, with the increase from December 31 reflecting the January distribution from the Helios pool. Also, as John mentioned, we will pay another $1 per share, which is an irregular dividend of roughly $40.3 million in total to shareholders of record as of February 15, 2023, on or about February 28, 2023. The irregular dividend reflects the strong rate environment and our resulting cash flow. Once paid at the end of February, Dorian will have paid over $300 million in dividends and repurchased nearly $229 million in stock, representing 18.8 million shares, totaling nearly $530 million in capital returned to our investors since our IPO in 2014. Our Board continues to take a pragmatic quarter-by-quarter review of the company’s performance, the LPG chartering market environment, and other macroeconomic and industry factors to determine whether to pay dividends and if so, how much. With a debt balance at quarter-end of $635.6 million, our debt to total capitalization stood at 43.2%, and our net debt to total cap is, of course, even lower given our large cash balance. Moving into this calendar year, we will take delivery of our dual-fuel new building from Kawasaki at the end of March, as well as three long-term time-chartered dual-fuel ships, representing nearly 20% growth in our commercially managed fleet. With these additional vessels, our cash cost per day will increase to $24,000 to $25,000 a day, but I would also note that these vessels offer higher earnings potential given their size, fuel efficiency, and dual-fuel optionality. For the discussion of our third-quarter results, you may find it useful to refer to the investor highlight slides posted this morning on our website. Turning to our third-quarter chartering results, we achieved a total utilization of 97.8% for the quarter with a daily TCE per operating day as those terms are defined in our filings of $52,768, yielding a utilization-adjusted TCE of about $51,630, again, TCE per available day. Spot TCE per available day, which reflects our portion of the net profits of the Helios pool for the quarter, was about $52,583. Also, the overall Helios pool reported the spot TCE, including COAs of approximately $57,000 per available day for the quarter. You will note that these results are somewhat correlated with the average Baltic rate recorded on a two-month lag. As many investors and analysts look to model the business, we would note that a two-month lag Baltic is more in line with the actual cycle of the business. Our team books voyages about 30 days out, and the average load-to-discharge voyage—i.e., a one-way voyage—is about 30 days. It is also worth reminding the investment community that the published Baltic rate assumes 100% utilization and is based only on the Ras Tanura-Chiba route. Turning to the cost side, our daily OpEx for the quarter was $9,739, which is up marginally from the quarter ended September 30, 2022. The crew costs, which include crew travel, appear to have found a new normal as crew costs per day have been relatively stable over the last three quarters, with spares and stores actually down sequentially. Repairs and maintenance and lubricant costs drove the increase this quarter. Our time charter-in expense for the two TCE vessels remained stable at $5.2 million. Total G&A for the quarter was $6.9 million, and cash G&A, which excludes non-cash compensation expense, was $5.9 million. Included in the $5.9 million is approximately $200,000 spent to provide accommodation and food for the families of our seafarers affected by the war in Ukraine. We also recognized about $250,000 of performance-based bonuses for some employees in the quarter. Thus, our core G&A for the quarter was about $5.5 million, which is consistent with our expectations. Our reported adjusted EBITDA for the quarter was $76.2 million, up sharply from the prior quarter’s $46.2 million. We look at cash interest expense on our debt as the sum of the line items interest expense, excluding deferred financing fees and other loan expenses, and realized gain loss on interest rate swap derivatives. On that basis, total cash interest expense for the quarter was $6.6 million. Our hedges saved us $1.4 million in cash interest this period, and we recently extended our existing hedge profile to ensure that the 2022 debt facility is 80% hedged toward maturity in 2029. Although we currently hold an 87.5% economic interest in Helios, we do not consolidate its P&L or balance sheet accounts, which has the effect of understating our cash and working capital. Thus, we believe it’s useful to provide some additional data to give a more complete picture. As of Monday, January 30, 2023, the Helios Pool held $20.5 million in cash on hand. Page 5 of the investor highlights outlines the economics of our scrubber investments, and clearly this investment has been valuable for our shareholders. Of note, the total scrubber cost savings have now paid back the entire initial investment. In addition, as John noted, we’ve committed to three additional scrubbers, and I would note that the installed cost of these three scrubbers will be roughly two-thirds of the cost that we incurred on the first ten retrofits. You also note that our investments in performance monitoring have also proven their value as both our AER and EEOI have, based on unaudited figures for calendar year 2022, fallen by mid-single-digit percentages versus the prior year. Thus, Dorian’s contribution to a cleaner environment continues unabated. The significant irregular dividends in the last 12 months underscore our Board’s commitment to a sensible capital allocation policy, balancing market outlook, operating and capital needs of the business, and appropriate level of risk tolerance given the volatility in shipping. We also continue to evaluate potentially interesting investment opportunities that may represent attractive risk-adjusted returns. With a continuing solid freight market backdrop, we remain cautiously optimistic about our cash flow generation over the coming months. With that, I’ll pass it over to Tim Hansen.

Thank you, Ted, and good day, everyone. Thank you for dialing in. The October to December 2022 period called for increased LPG export as well as import demand, which translated into a stronger freight market. North American exports were buoyed by a relatively mild winter, dampening domestic LPG consumption, and continued record-setting production levels. The quarter is often characterized by seasonality as Asian importers tend to stockpile for the winter, and 2022 was no exception. North American exports set a record for the quarter, while South Korea and Japan posted strong import levels also driven by demand for LPG to navigate the cold winter. Middle East export volumes were slightly down compared to the previous quarter, but nonetheless, it was a record high fourth-quarter export. The East of Suez market saw the BLPG1, which is a benchmark for the AG to Chiba route, continually offering strength compared to the previous quarter, despite a free flow during the golden week holidays in the Far East. Several delays at key discharge ports in India and the Far East saw considerable tonnage during October and November. Meanwhile, market players also had to plan with long lead times, as the west market was seen fixing in those five to six weeks in advance of the low delay hands. The result of the favorable product markets coupled with tonnage discharge port delays and navigating long lead times was a bullish market in October and November. On November 21st, we observed a record high BLPG1 posted at $148 per metric ton. December was relatively quiet, with seasonal back rotation in the markets impacting the product market, and a significant downward correction was seen in the second half of December. The rest of the Suez market likewise saw a rising market in October and November, followed by a downward correction in December. The rest of the Suez market was also impacted by delays at discharge, but also had to contend with increasing delays for transiting the Panama Canal. These delay factors resulted in market players having to secure tonnage well in advance. The Western Suez market did not climb at the same pace as the Suez market, partly due to the fact that ship owners were enticed to lock in firm earnings and longer voyages, increasing competition for cargoes known to be destined for the Far East discharge ranges. By September, a weakening in arbitrage was observed due to the forward delivery prices of products in the Far East. The activity levels in the last few trading days of calendar 2022 resulted in significant reductions in the freight market. The East and West market freight indicated a well-balanced shipping market, supported by strong fundamentals. While summer doldrums challenged the VLGC market, early insights indicated resilience when shipping demand increased. The positive fundamentals of the market have remained present over the quarters. However, market players are still attempting to understand the impact of the new COVID-19 normal in China and whether a world recession looms on the horizon. Despite the present external risks, propane inventories continue to build in North America, and demand for LPG remains robust. Additionally, there’s reasonable optimism regarding increasing demand for LPG in China once a hard landing of sudden opening is effectively managed, allowing for more PDH to recover on-stream and the industry to operate on a more stable basis. With that, I’ll hand it back to John.

Yeah, thank you. As I said in the beginning, I think we’ll have the remarks briefly that John Lycouris had prepared read now, and then we’ll go back for questions. Thank you.

Thank you. The operation results of our near-term ESG strategy are as follows. Starting with our scrubbers, fuel spreads for the fourth quarter of 2022 and the third quarter of 2023 widened between LSFO and HFO, benefiting our scrubber vessels with improved wage economics averaging about $5,831 per day net of our scrubber operational expenses. The realized average savings were about $246 per metric ton of HFO consumed by our scrubber vessels compared to the cost of LSFO. The hybrid features of our scrubbers provided additional upside for all ECA and SECA trading areas. Furthermore, scrubbers not only reduced costs but also significantly diminished particulate matter and black carbon emissions, which we view as essential for implementing future carbon capture systems on our vessels. Focusing on our ESG strategy, our immediate priority is on our fleet’s IMO mandated EEXI and CII rating, which will be implemented in phases starting in 2023. We are reducing emissions and enhancing commercial performance by installing various energy-saving devices. We've also introduced real-time data monitoring with sensors that track performance and optimize onboard operations and voyage completion. We complement this with robust crew training efforts, which we consider crucial to achieving our goals. In addition, we have contracted three more scrubbers to be installed over the next two quarters for three of our vessels undergoing drydocks. Looking ahead, we are exploring the potential for carbon capture and storage onboard our vessels. We continue to enhance our energy efficiency with a focus on vessel performance and emission reduction while researching technological innovations and advancing them as soon as possible. With that, I’ll pass it back to our Chairman.

Thank you. Thank you. And Darryl, we can move on to the questions now. Thank you very much.

Thank you. Now that we have completed the prepared remarks, we will open the line for questions. Our first question comes from Omar Nokta with Jefferies. Please go ahead with your questions.

Thank you. Hey guys, good morning.

Hi, Omar.

Hi there. It’s a nice solid quarter, obviously, and it looks like more is on the way here, especially given what we’ve seen in the spot market here in the past week or so.

From your mouth to God’s ear.

Sorry, John, what was that?

I said, from your mouth to God’s ear. I’m sure God is listening to the analysts, right?

He’s looking happily on you.

Well, thank you.

I would say the dollar dividend you declared, I think, clearly you’re conditioning us to – or I think I’m being conditioned to expect these payments. And I know you’re still viewing them as irregular. And you mentioned in your opening remarks, the Board takes a more pragmatic approach to the payout each quarter. But how should we think of Dorian’s use of cash here as we think about the near- to medium-term? Are dividends the number one priority?

No. Our capital allocation is our number one priority. The way we think about dividends is as part of a whole, which includes past buybacks, dividends, obviously, and reserves for a rainy day and for investments, including renewal. So up until now, as you know, we’ve invested only in one new ship; we feel that we’re covered with the three dual-fuel ships that we’ve chartered in, plus the new building that we’re taking for ourselves. We’re investing a little more in the scrubber because we feel that has given us good returns and we think the prospects are good. So while dividends are right up there, I think you asked specifically, are they the first priority? I think we should say that they are equal weight. That’s how we view them within every quarter’s capital decision allocation, which is kind of long-term and medium-term.

Okay. That’s fair enough. I appreciate that color. Maybe you did mention the investment, and you’ve got the one new build, the three charter-in. At this point, it looks like you’re deploying capital on those three scrubbers. Just out of curiosity, you mentioned that those will carry a cost that’s about two-thirds of the initial program a few years ago. I think generally, people have just assumed that it would be more costly today. And so, I just want to get a sense of what makes it cheaper this time around?

I think the production really, because you’re right, it should be more expensive. But if you compare it to the first time we put scrubbers on board, which was in our initial two new buildings, it’s probably about a third of the cost, not just a third offer. So they’re just – they keep coming down; I’m sure they will level off somewhere. But they’re more efficient and more compact, easier to install. And that’s it really. I think, Ted, do you want to add?

I mean, I think the other thing is there were some costs when we initially did the first retrofits, like high-tech MRIs of the structure to see exactly where to put stuff. Well, now we know the plan of the ship. So some of that we’ve avoided, and we’ve gotten better at installing them, our piece of it, and the yards have gotten better too. So it’s all part of the learning curve, I think like John said.

Okay. Yeah. What do you think in terms of timing? It sounds like Theodore had mentioned in the second and third quarters; you expect to complete them. What’s the expected sort of off-hire time for those ships?

We’ve modeled for the time being at 30 days. That’s what it’s worked out to historically. We’ve done a little bit better than that, sort of 27, 28 days, but we’ve assumed 30 for our internal modeling purposes.

Okay. And that will happen anyway with the surveys that are due?

It would, except it’s worth remembering, Omar, that when we normally do our special surveys, we are only in dock for 15 days. So it takes sort of an additional two weeks to install the scrubber. So we normally do not have 30-day regular drydocking.

Okay. Got it. And then maybe just one more. I guess maybe a bit more bigger picture just on what we’re seeing in the market. You referenced this early in the commentary. And maybe, Tim, just what’s been going on with the spot market here recently? It kind of came into the year a bit softer, looks like the first couple of weeks; and then here a bit of the past week or so we’ve seen a big jump. Just wondering what’s driving that uptrend here recently?

Tim, do you want to try and make a stab at that?

Yeah, I think it’s a combination of things. At the end of December, we came from a very high point, and as we closed in on Christmas, the arbitrage closed in a little bit. I think people got quite eager to take the cargo that was there before the holidays, making the rates fall. Then you had kind of two weeks of quietness before people got back. During that time, the broker setting the politics dictated the market without much action. So the market probably felt more than it should have from that perspective. However, as we came back, we normally see the quiet of the Chinese New Year, but this year, due to cold spells suddenly hitting Asia, we actually saw the Chinese coming back during the Chinese holidays, which they usually take a week or so before they get back in their seats. So the demand really picked up due to the cold spells in Asia, and we saw them scrambling for tons even during the holidays, which we normally don’t observe. So, of course, that demand opened up and kicked back action in the market. And when we realized there was actually no length in the shipping market, that became apparent quite quickly. That said, as there was no demand the previous week or activity at least, that kind of made the market drop quickly, and then it rebounded to probably where it should have been.

Got it. Thank you. Thanks for that color. I appreciate the time, guys. Congrats again on a solid quarter. I’ll turn it over.

Thank you very much, Omar.

Thank you. Our next question comes from Sean Morgan with Evercore. Please go ahead with your questions.

Hi, team. I want to wish John Lycouris a speedy recovery from his knee surgery.

Thank you.

Yeah. And just kind of, I guess, sort of a macro question about the market? How do you sort of think about the current order book, one in five, I guess, versus the existing fleet, and that’s the delivery schedule in 2023 versus kind of some of the petchem build-out in Asia and sort of the ability of the market to absorb that new tonnage. How do you get comfortable with the rate outlook in that context?

We think about it a lot. And we never get comfortable. We just weigh the balance of probability to the best of our ability. So I let Tim give you some insight into some of the conclusions we’ve reached on the projected equilibrium. We’re generally, I think, a little more optimistic than some other people, and he’ll tell you why.

Yeah. So, of course, one thing that you can’t hide is that it’s evident to everybody that 46 ships are delivering this year. However, what we believe will balance this out is the additional production, especially from the U.S., which has surprised quite a lot on the upside. We see that most of the U.S., about 80% of whatever is produced, will go to the Far East. Thus, the demand side is really in the Far East. When we model that, we see around 20 ships absorbed due to that increase in volume at least, and that's without any inefficiency. On top of that, when we have more congestion at borders—resulting from the fact that the infrastructure isn’t built out for the increased volume, especially in countries like India—we’re also seeing more demand going into Europe due to the war in Ukraine. Here, we also see more delays when larger volumes are coming in. Additionally, as we mentioned a few times, the delays in the Panama Canal are increasing as more ships are being built for the next year, including significant numbers of LNG carriers. So we do see an increased congestion in the Panama Canal. Also regarding the new regulations on the EEXI and CII, this will impact the shipping fleet noticeably. We see these factors as being able to absorb the new shipping fleet coming in.

That’s really interesting. So, basically, you have a little bit of a natural hedge against the downside, more VLGCs coming into the market, and obviously a larger impact from the big container ships, right? But what you’re saying is that there’s still only one Panama Canal, so you're thinking that the new steady state is just constant congestion in the Panama Canal that’s effectively slowing down fleets for not just obviously VLGCs, but just the global fleets and increasing utilization based on wait times?

Yeah. That is our view. I mean, you have about 260 new Panamax container ships on order and about 250 new Panamax LNG ships on order. Not all of these will use the canal, but there are more ships going in that way. Though, I think the LNG from the U.S. will eventually, even though you’ve seen it lately due to the war, go into Europe. There will be more going to the East as well. So I think the utilization of the Panama Canal will increase. We’ve also seen LPG carriers probably being ahead in the queue because we are excluded from booking ahead. Other larger liners and LNG carriers can book slots a year ahead, while LPG ships can only book 14 days ahead for the canal. The larger container lines have higher rankings. Hence, we see this increase continue. The Panama Canal authorities have also increased the cost for LPG carriers passing through, as LPG carriers are the smallest ship that can pass the canal. This gives the least revenue. We see significant increases in the actual transit cost, and auction fees are unpredictable, ranging from $100,000 to $2 million. Additionally, more operators are opting to take longer routes around the Cape or to the Suez Canal to ensure they can actually meet their schedules. This reconfiguration is a result of the growing delays and uncertainties regarding auction fees.

And then if I could just squeeze in one more, I think Ted in the prepared remarks said that the Baltic rate reflects the Ras Tanura-Chiba route. And if I’m hearing correctly, it’s almost something like he doesn’t view that as maybe as central to the important route relative to the actual rates that you guys are seeing at your charter desks. What routes do you think are now kind of more indicative of how the trade is really happening for VLGCs on a weekly basis?

Sean, let me take this as two questions, actually, and we’ll give you two answers. Tim will answer you on the specific part of your question regarding the trade mix, because it’s not just AG East; it’s also the western route. Even the West has both AG and U.S. Gulf East, as well as U.S. Gulf to the continent and other short routes. So I let him give you that. But first, I want to let Ted address the reason why he said the lag and the 100%, because I’ve noticed that most analysts now use a one-month lag on the VLGC rate on the AG rate. And, of course, it’s still 100% utilization, which is fine. But I’d like Ted to explain why we think the one-month lag will not reflect the actual earnings, because the lag in the freight receipt is at least two months. Ted, do you want to elaborate?

Sure. So, Sean, what John said is spot on. Aside from there being a mix, it’s really the business cycle. Our guys are booking now here at the beginning of February for voyages that won’t complete until at the earliest sort of April and maybe even further out. As a result, when you’re undertaking a modeling exercise, and given how the revenue recognition accounting works, you really tend to find that a two-month lagged average is going to be a lot better than a one-month lag. Tim will give you more on the specific trade lines, and we’ve seen U.S. Gulf to Northwest Europe be a sweet spot in terms of rates, but Tim will elaborate more on that. It’s really just a better way to provide guidance to the investment community regarding how to narrow or make it somewhat more accurate.

Okay. Thanks.

Do you want to hear from Tim about the mix, actually?

Yeah, that would be good, actually.

Okay. But as Ted mentioned, there are basically three routes: the Ras Tanura-Chiba, or East from the Middle East to the Far East; then there’s a route from U.S. Gulf to the Far East and U.S. Gulf to Europe. There are indexes for these three routes, but they are not widely used as there hasn’t been enough liquidity for the routes. Our trading, however, is probably 80% out of the U.S. and 20% out of the AG. The U.S. East is the most active spot market route of the routes, and it’s also the longer route. Therefore, it will have a more considerable impact on fixing in the U.S. to the East route than the AG to East or U.S. to the West. What I would recommend paying more attention to is U.S. to the Far East, as it will likely reflect the overall trend more accurately. The rates that some of these routes experience will depend on where we come open and which cargo we take, based on how we deploy our vessels. Additionally, fixing times can vary; in tight markets, we will fix four to six weeks ahead, while in other instances, we may fix two to three weeks ahead in the West. In the East, we will be more like 10 to 30 days ahead, depending on market tightness.

Thanks, Tim. Sean, is that giving you more than you want?

Yeah. No, that’s great, Tim. Thanks. A lot of deep nuance on how it works.

We thought it would be useful.

Thank you. Darryl, I think we’re done. Thank you very much to everyone for joining us, and we look forward to next quarter’s call.

Thanks, John.

Thanks, guys. Thank you very much. Thank you. Darryl, I think we’re done. Thank you very much everyone for joining us, and we look forward to next quarter’s call. Thanks again. Bye-bye.

Thank you. This does conclude today’s teleconference. We appreciate the participation. You may disconnect your lines at this time. Thank you and enjoy the rest of your day.