Dynagas LNG Partners Q2 2024: Contradictions Emerge on Cash Flow Allocation, Debt Refinancing, and Yamal Vessels' Financing Impact

Date of Call: June 30, 2024

Financials Results

• Revenue: $37.6M, roughly flat vs $38.0M in Q1 2024
• EPS: $0.20 per common unit (GAAP), slightly lower than prior quarter; adjusted EPS $0.25, unchanged from prior quarter

Guidance:

• Pro forma cash breakeven expected at approximately $50,000/day for Q4 2024 as interest-rate swaps mature and debt service rises.
• Debt service per day anticipated to increase ~ $5,200/day after swap maturity; interest expense expected to be higher despite lower leverage.
• Expect ~ $5M additional realized swap gain at maturity on Sept 18, 2024.
• Board to evaluate and announce capital allocation strategy next quarter.

Business Commentary:

* Financial Performance and Debt Reduction: - Dynagas LNG Partners reported net income of $10.7 million, and earnings per common unit of $0.20 for the second quarter of 2024. - The company's adjusted EBITDA reached $28.6 million. This was driven by the conclusion of a new lease financing agreement with China Development Bank Financial Leasing, which led to a significant reduction in debt levels and a more flexible financing structure.

• Fleet Utilization and Revenue Trends:
• 
• The company maintained 100% scheduled fleet utilization during the second quarter. However, revenue was $37.6 million, slightly down from $38 million in the first quarter.

• The decrease in revenue was partially due to a small negative variation in the average TCE (Time Charter Equivalent) per day, as well as a change in the composition of revenues with the time charter of 2 of their vessels.

• Debt Management and Interest Rates:

• Dynagas LNG Partners refinanced $408 million of their old credit facility with a $345 million sale and leaseback on 4 LNG carriers, leaving their remaining 2 LNG carriers debt-free.

• Despite this reduction in debt, the company anticipates an increase in debt service per day by about $5,200 per day in the fourth quarter due to the maturity of their interest rate swap and exposure to floating interest rates.

• Long-term Charter Profile and Demand Outlook:

• Dynagas LNG Partners have a solid charter profile with an average remaining charter period of approximately 6.4 years and a contracted backlog of about $1.04 billion.
• The company anticipates a long-term demand for energy due to factors such as natural gas's low emissions and the increasing global demand for electrification. However, they acknowledge the short to medium-term capacity over-demand issue due to the rapid expansion of the LNG carrier fleet.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted substantial deleveraging and improved flexibility: “we now have a substantially reduced debt levels and secured a more flexible financing structure,” reduced net debt/EBITDA to 2.9x, 100% fleet utilization, and described the quarter as “a good quarter without any surprises,” signaling confidence.

Contradiction Point 1

Cash Flow Allocation Strategy

It involves the strategic direction of cash flow allocation, which is crucial for investor expectations and the company's financial health.

Did the company release its earnings results via a public press release prior to this call? - Operator

2024Q2: We just paid $63 million of our own cash to fully repay our previous credit facility. So I guess we have to evaluate this on a quarter-by-quarter basis given the prevailing circumstances at the time, and whether to utilize our cash for growth or distribution to common unitholders or otherwise. It's a what's the space situation. - Michael Gregos(CFO)

Will there be a change in the coming quarter or is it further out? - Benjamin Nolan (Stifel)

2024Q1: Well, as I said, we are going to evaluate this on a quarter-by-quarter basis. I don't have something to tell you now. We cannot commit on the timeline of when a decision will be made and what the decision will be, but it's on the radar screen. - Michael Gregos(CFO)

Contradiction Point 2

Cash Flow and Financial Projections

It involves changes in financial forecasts, specifically regarding cash flow projections, which are crucial for investors to assess the company's financial health.

Has the company announced its results via a public press release and reminded participants of forward-looking statements on today's call? - Operator

2024Q2: The company has made forward-looking statements within the meaning of federal securities laws. These statements include expectations about financial performance, growth opportunities, charter rate expectations, and the impact of COVID-19 on the company and the LNG industry. - Operator

Can you provide details on expected cash outflows, interest, and amortization from the new refinancing? How do these compare to your incoming cash flows? - Benjamin Nolan(Stifel)

2023Q4: This financing has a profile of about 8 years, with an amortization element of about $45 million and interest of slightly less than $20 million, indicating a cash buildup post that amount. There are no restrictions on the use of excess funds. - Michael Gregos(CFO)

Contradiction Point 3

Debt Refinancing and Fleet Financing

It involves differing explanations regarding the challenges and timeline for debt refinancing and fleet financing, which could impact financial strategy and investor confidence.

Are there any forward-looking statements in this disclosure? - Not Applicable

2024Q2: We're trying to find the optimal -- there is demand for financing our vessels. So I don't -- I wouldn't say there's a holdup. - Michael Gregos(CFO)

What factors are causing the delay in the debt refinancing—internal challenges or banks' hesitancy related to the Yamal vessels? - Benjamin Nolan (Stifel)

2023Q3: We're trying to find the optimal -- there is demand for financing our vessels. So I don't -- I wouldn't say there's a holdup. - Michael Gregos(CFO)

Contradiction Point 4

Yamal Vessels and Fleet Financing Impact

It involves inconsistencies regarding the impact of Yamal vessels on financing options, which could influence financial flexibility and strategic decision-making.

Are there any forward-looking statements in the disclosure? - Not Applicable

2024Q2: Listen, our -- we have -- if you look at our whole fleet, we have a strong contract backlog, if you look at it in its totality. - Michael Gregos(CFO)

Is the Yamal matter not a factor or problem? - Benjamin Nolan (Stifel)

2023Q3: Listen, our -- we have -- if you look at our whole fleet, we have a strong contract backlog, if you look at it in its totality. - Michael Gregos(CFO)