Dorian Lpg Ltd. Q1 FY2026 Earnings Call

Good morning, and welcome to the Dorian LPG First Quarter 2026 Earnings Conference Call. 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, Leo. Good morning, everyone, and thank you all for joining us for our first quarter 2026 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Limited; John Lycouris, Head of Energy Transition; and Taro Rasmussen, Vice President, Chartering. As a reminder, this conference call webcast and a replay of this call will be available through August 8, 2025. 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 quarterly period ended June 30, 2025, that were filed this morning on Form 8-K. We expect to file our 10-Q on August 5, 2025. In addition, please refer to our previous filings on Forms 10-K, where you'll find risk factors that could cause actual results to differ materially from these forward-looking statements. Finally, I would encourage you to review the investor highlight slides posted this morning on our website. With that, I'll turn over the call to John Hadjipateras.

Hello, and thanks for joining us. My colleagues, Ted, John, and Taro, will provide you with detailed comments on our financial results, our emission reduction and operational progress, and our market outlook. But first, I'd like to highlight the following: our dividend of $0.60 per share, totaling $25.6 million reflects our commitment to returning capital to shareholders in a manner that's aligned with market conditions and our policy of distributing earnings prudently. This will be our 16th dividend payment, bringing total dividends distributed to over $665 million and total capital of more than $900 million returned to shareholders. In the second quarter of the year, the market proved resilient. Freight rates strengthened, supported by healthy arbitrage economics and geopolitical tensions in the Middle East. Uncertainty caused by tariff escalation displaced ships from the U.S. Gulf to the Middle East and sent more cargoes to India. While a U.S. mediated ceasefire between Israel and Iran in late June brought some stability, charters remained cautious. U.S. LPG exports continued their multiyear growth. The growth trend was facilitated by ongoing expansion of U.S. fractionation plants and export terminal capacity as well as high NGL output. Middle Eastern exports were also higher following the partial unwinding of OPEC+ quotas and increased production from new regional gas projects. Taro will elaborate on the fundamentals of the VLGC market and on our outlook. On the operational side, we completed 10 of our 12 dry dockings planned for 2025. John L will provide an update on our initiatives and our decision to convert some of our VLGCs to facilitate the carriage of ammonia. I'll now pass you on to Ted for our quarterly financial overview.

Thanks, John. My comments today will focus on our unaudited first quarter results, our financial position, liquidity, and of course, capital allocation. For the discussion of our first quarter results, you may find it useful to refer to the investor highlight slides posted this morning on our website. Remember that my remarks will include terms such as TCE, available days, and adjusted EBITDA, please refer to our filings for the definitions of these terms. Looking at our first quarter chartering results, we reported a TCE per available day of $39,726, which was a good result despite our heavy dry dock schedule during the quarter that resulted in about 195 days that were not available for revenue generation. I would note that our June results were much stronger than the previous two months, which is indicative of the stronger market environment on which Taro will elaborate. Also, the Q1 results were sequentially stronger than the March 31 quarter. The Helios Pool reported spot rates for the quarter of about $37,700 and approximately $38,900 across the pool, underscoring the strength of our charterout portfolio in the pool. On Page 4 of our investor highlights materials, you can see that we have two Dorian vessels on time charter within the pool, indicating spot exposure of just over 93% for the 29 vessels in the pool. The forward bookings for the quarter ending September 30, 2025, reflect a strong increase in rates since late May into June. We currently estimate that we have fixed approximately 70% of the pool's fixable days in the quarter at a TCE in excess of $67,000 per day. The rate includes spot fixtures and time charters in the pool. As you know, loading dates, disport options, and COAs can all cause the estimates we quote during these calls and the rates actually realized to vary. Daily OpEx for the quarter was $10,108, excluding drydocking-related expenses, which was down meaningfully from the March quarter's $11,001. Spares and stores costs led to this decline. This quarter saw over a $1,300 per day difference between reported OpEx that includes expense drydocking amounts and our preferred measure of OpEx that excludes those costs. The noncapitalized drydocking expenses totaled about $2.6 million and equated to $0.06 per share for the quarter. Our time charter-in expense for the four TCN vessels came in right around $29,000 per day, which compares favorably to our fleet-wide TCE for the quarter, showing the profitability of our charter-in program. Dorian recently chartered in the Crystal Asteria, a dual fuel VLGC that will trade in the Helios Pool. Going forward, we anticipate the quarterly TCN expense will be approximately $14 million to $15 million. Total G&A for the quarter was affected by bonuses booked during the quarter of $8.3 million or $0.19 a share. Excluding the bonuses and the noncash compensation expense, cash G&A was around $6.5 million. For the September 30 quarter, we estimate that noncash compensation expense will increase by roughly $3 million over this quarter to reflect the impact of new share grants. Again, that amount is only for the coming quarter. Our reported adjusted EBITDA for the quarter was $38.6 million. But adjusting further for the bonuses and the expense drydocking amounts, it would have been $49.5 million. Total cash interest expense for the quarter was $7.1 million, which is marginally down sequentially from the prior quarter. You should note that we capitalized $500,000 of interest expense on our new building, which reduced the amount reported on the P&L. Principal amortization remains steady. As John mentioned, looking ahead, our dry dock program is largely complete, although we expect to dry dock two more vessels this quarter. Total drydocking costs for those two vessels and remaining costs for dockings completed in the April-June quarter are expected to be between $6.5 million and $7 million. We currently estimate that roughly one-third of that amount will be expensed as OpEx. After that, we only have shorter in-water surveys to complete. We do have two remaining progress payments on our new building in September and December 2025, each roughly $12 million. At June 30, 2025, we reported $278 million of free cash. Cash flow during the quarter was affected by our drydocking cash outlays and the foregone revenue, but we still finished with a very healthy cash balance. As disclosed this morning, we'll pay a regular dividend of $0.60 per share or roughly $25.6 million in total on or about August 27 to shareholders of record as of August 12. Including this dividend, we've returned over $900 million in cash through dividends, self-tender offers, and open market repurchases. With a debt balance at quarter end of $543.5 million, our debt to total book capitalization stood at 34.4% and our net debt to total cap at 16.8%. We have well-structured and attractively priced debt capital with an all-in cost of about 5.1%, an undrawn $50 million revolver, and one debt-free vessel. Coupled with our strong free cash balance, we have a comfortable measure of financial liquidity. We expect our cash cost per day for the coming year to be approximately $26,000 per day, excluding the remaining capital expenditures for dry docking and the progress payments on our new building. Including the regular dividend to be paid this month, we have paid over $665 million of dividends and have generated net income of $652 million over the same time period. Our Board weighs current earnings, our near-term cash forecast, future investment needs, and the overall market environment among several factors in making its determination at the appropriate level, if any, for our dividends. The $0.60 per share dividend reflects a constructive market view, considering our forward bookings, the more limited impact of drydockings, and a somewhat more stable global trade environment. We continue to be on the lookout for fleet renewal opportunities, and we'll be judicious with our free cash flow, balancing shareholder distributions, debt reduction, and fleet investment. With that, I'll pass over to Taro Rasmussen.

Thank you, Ted, and good day, everybody, and thank you for dialing in. The quarter ending June 30, 2025, witnessed dramatic impacts from the geopolitical situation for some weeks, but mostly saw a steady rise in freight markets. The primary geopolitical factor creating freight market volatility, albeit briefly, was the announcement of near-global tariffs by the United States. Bombing campaigns in the Middle East had several consequences but did not rattle the VLGC market to the extent of Liberation Day. Middle East hostilities did restrict the willingness of several VLGC players to call Middle East load ports, and the restricted Red Sea transit has kept longer vessel transits in place. VLGC market fundamentals remained firm despite the external impacts of tariffs and hostilities. NGL production in the United States continued to grow, and the inventory build season began as expected. Other than a two-week period following the tariff tit-for-tat, increased supply of LPG lowered Mont Belvieu prices and supported an open west-to-east arbitrage. U.S. exports of LPG on VLGCs remained stable for the quarter, with monthly exports in the 4.6 million to 4.8 million tonnes per month range. Middle Eastern exports continued in line with forecasts, and LPG as a commodity continued to find outlets in the Far East despite some rumblings about petchem profitability. With the benefit of some perspective, several things are notable. Firstly, the April 2 announcement of tariffs jolted many markets. The VLGC freight markets are approximately halved in the Baltic indices within four days. The correction was likewise swift, with most losses recovered within the next five working days. Secondly, the VLGC market reacted quickly to the shock, enabling the recovery in freight rates. Chinese LPG imports over the quarter were in line with expectations despite a dramatic fall in U.S. origin product. The average monthly import of U.S. origin LPG in China was about 500,000 metric tons over the quarter compared to the average monthly import of about 1.5 million tons in the eight preceding months back to August 2024. Imports of U.S. origin product duly increased in various other countries such as Japan and India. The end June, July period typically sees a low in activity with lower freight rates. This has not been the case in 2025. Adaptability by the VLGC industry and reaction to the tariffs likely preserved market profitability, helped by the inefficiencies arising from the need to recalibrate trade flows. Increasing tensions in the Middle East through June also contributed to a steady but firming freight market during the quarter. With the risk of direct hostilities increasing, fewer vessel operators were competing for Middle East cargoes. Furthermore, the Red Sea sailing passage was again unsafe for almost all vessels after a period of looking realistic. In January through May, four to five VLGCs transited the Red Sea late in a month, but only one in June. This inefficiency added ton miles to U.S., Algerian, and Red Sea LPG exports. Lastly, the exemption of restrictions on ethane exports from the U.S. to China meant that ethane carriers did not need to enter the VLGC market. Despite the brief shock to the freight market following the announcement of tariffs, the quarter ending June 30, 2025, avoided the otherwise seasonal summer low. The Eastern market improved about 46% over the quarter, and the Western market improved almost 16%. Expectations for the rest of the year remain positive with a limited delivery schedule of new builds and roughly 13% capacity expansion at U.S. Gulf terminals. Thank you. I will now pass over to Mr. John Lycouris.

Thank you, Taro. At Dorian LPG, we are committed to continually enhancing our energy efficiency and promoting the sustainability of both our operations and our vessels. Our scrubber vessel savings for the first fiscal quarter of 2026 amounted to $961,000 or $813 per calendar day, net of all scrubber operating expenses. The savings were impacted by the dry docking of several vessels during this quarter, as well as by the market volatility caused by global tariff announcements and geopolitical events. Fuel differentials between high sulfur fuel oil and low sulfur fuel oil averaged $55 per metric ton, while the differential of LPG as fuel versus low sulfur fuel oil stood at $71 per metric ton, making LPG economically attractive for our dual fuel vessels. We now operate 16 scrubber-fitted vessels and five dual-fuel LPG vessels. Since the start of this calendar year, we have completed ten vessels' special survey combined with their dry docking. We have two further vessels scheduled for special survey and dry dock in the fourth quarter of 2025. There are four vessels that had dry dock last year during the third and fourth quarters of 2024, which are now due to pass their special survey within this calendar year. This dry docking program was structured to ensure that all necessary repairs, class surveys, and retrofits were consolidated within the vessels' mandated special survey and dry dock periods. The approach minimizes the risk of vessels requiring unscheduled dockings at a later time. Continuous monitoring of vessel performance has allowed emerging issues to be addressed proactively during scheduled dry dockings, reducing the likelihood of future interruptions. It ensures technical and operational continuity with optimized fleet availability throughout the year. As previously reported, the third VLGC vessel to carry ammonia cargo is planned to be upgraded during its dry docking slot in the fourth quarter of 2025. Once this last vessel is completed, five VLGC vessels in our Dorian VLGC LPG fleet will be able to carry ammonia cargoes, which includes our new building VLGC-VLAC vessel, which delivers in 2026. We believe the ammonia cargo capability upgrade enhances the fleet's commercial optionality and its readiness for employment when the first ammonia projects develop and the large ammonia cargo markets are established. Unaudited fleet AR for the second quarter of 2025 was 8.5% better than the IMO 2025 target. We expect further improvement in the third and fourth quarters as the dry dockings and the installation of energy-saving devices on recently completed vessels are fully reflected. AR is the annual efficiency ratio metric, which calculates the carbon intensity of our vessels' operations. The Dorian LPG fleet exceeds the IMO's EEXI and CII regulations. CII, in particular, is the carbon intensity index, which assesses the operational efficiency of our vessels and their contribution to greenhouse gas emissions. An in-house developed decarbonization planning tool models IMO CII ratings, EU and IMO regulatory scenarios across our fleet by incorporating projected ESG installations, alternative fuel mixes, and differing operational profiles. Finally, we have developed a compliance cost planner for ETS, FuelEU, and the IMO Net Zero frameworks. This tool enables real-time forecasting of compliance costs, penalties, and cargo level impacts, supporting the creation of decarbonization strategies, both at the vessel level and across the fleet. Our continued focus on energy and emission savings reflects our belief that environmental responsibility aligns with long-term value creation for our shareholders. And now I would like to pass it over to John Hadjipateras for his final comments.

Thank you very much. Thank you for everyone who's checked in today. I don't think we have any questions. So if we don't, I leave you with it and wish you a happy rest of the summer until next time.

We'll take a question from Omar Nokta of Jefferies.

Thanks for the update. I did have a couple of questions, just a bit more on the macro side of the business. Clearly, the market has gotten quite a bit stronger. I just wanted to ask, and you touched on this in your comments earlier. But just when we think about how the second quarter developed, there was obviously quite erratic tariffs, but we didn't just recover in terms of VLGC spot rates, they've actually really strengthened. And it's almost like things have kick-started into high gear. And when we compare it to, say, last year where you're earning basically double last year's spot rate at this time. Could you maybe just give a sense of what's driving this market? What has really propelled it from where it was earlier this year?

Sure. Happy to, Omar, and very happy to hear your voice. I'm going to give you Taro to answer your question because I think he can make the case and give you on the field feedback better than I can.

Thank you, John. Thank you for the question, Omar. I believe the answer lies in the fundamentals primarily with the strength of the U.S.'s ability to produce NGLs and get it exported. Is it different from last year? Well, it's the growth and it shows that the balance in the market is easily made positive with incremental growth, and long may that continue. I think it's a very healthy reflection of the wider market that using experiences from the past, whenever there's been trade barriers between the U.S. and China, industry players were able to reflect on past learnings, adapt them, and get trade going back to normal as soon as possible, which made all of this possible because if the trade flows couldn't realign, you wouldn't be able to take advantage of the healthy fundamentals. The last point I would make on your question is that the Red Sea transit difficulties that have escalated this year at various points have helped lengthen ton miles. I hope that answers your question.

It does provide some good context. And I guess, maybe perhaps somewhat related, and if it gets perhaps a bit more complex, but just generally, when we think about the U.S. export arb, it feels like the freight rate is capturing the lion's share of that arb versus a year ago where it was getting a much smaller piece. What do you think has kind of changed? If you can point to it, that's allowed the freight part to capture such a much wider part of the export spread?

Yes. There was an increase in terminal capacity. But Taro, can you elaborate?

Yes. I think last year was in many ways an anomaly. It's been several years since we had seen such capability and strength in the terminals to absorb more value of the arbitrage that was, I would argue, driven partly last year due to reaction to weather phenomena and the knock-on effects of delays that hurricanes leading to and concurrently, upended tugboats in the Houston Ship Channel, et cetera. So it was unique factors with a long trail of effects. This year has been more driven by other external factors in other parts of the world and political in nature, and that may not be the full explanation to a very good question, but I hope it helps.

I just would point out, Omar, just as Taro touched on, terminal fees were way down year-over-year.

And that's, I guess, the function of the expansion.

Taro, do you want to?

Expansion of the terminal capacity, yes.

Yes, with more coming online this year, yes.

Got it. And for the last point, you mentioned that while the ethane segment is not strictly part of the LPG market, there was initial concern that ethane would shift to other markets. In a scenario where ethane in the U.S. cannot be transported and those carriers are seeking new opportunities, do you think it is more probable they would enter the VLGC trade or transition to the LNG trade? Have you considered this, or can you provide any insights on how those ships might navigate if we enter that type of market?

We consider them as a potential issue. If the ethane trade were to cease, those ships would likely enter the VLGC market. That's our perspective. I haven't sensed any inclination for them to enter the LNG sector, as I don't believe they have the capability. However, we are fairly confident this scenario won’t occur since a large portion of our exports is consumed by China, and they rely heavily on our supply. Therefore, I don't foresee this happening. But if it were to occur for any reason, there have already been discussions about some ships possibly entering our market. Additionally, if they took this route, they would need to revert to ethane, as transitioning back and forth between ethane and LPG isn't straightforward. While it's easy to switch from ethane to LPG, the opposite is not as simple.

Okay. Thanks for that explanation. And thanks, guys, for the detail and update.

Thank you, and it appears that we have no further questions at this time.

Okay. Well, thank you all again. Thank you, Omar, and have a good rest of the summer.

Thank you.

This does conclude today's conference. You may now disconnect. Everyone, have a great day.

Thanks, Leo.

Thank you, Mr. Leo.