Capital Product Partners L.P. (NASDAQ:CPLP) Q1 2024 Earnings Call Transcript

Capital Product Partners L.P. (NASDAQ:CPLP) Q1 2024 Earnings Call Transcript April 30, 2024

Capital Product Partners L.P. beats earnings expectations. Reported EPS is $0.32, expectations were $0.31. Capital Product Partners L.P. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by, and welcome to the Capital Product Partners' First Quarter 2024 Financial Results Conference Call. We have with us today Mr. Jerry Kalogiratos, Chief Executive Officer; Mr. Spyros Leoussis; and Mr. Nikos Kalapotharakos, Chief Financial Officer of the company. At this time all participants are in a 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, April 30, 2024. The statements in today's conference call that are not historical facts, including our expectations regarding acquisition transactions and their expected effect on us, cash generation, equity returns and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts or unit buyback amounts, capital reserve amounts, distribution coverage, future earnings, capital allocation as well as our expectations regarding market fundamentals and the employment of our vessels, including re-delivery dates and charter rates, may also be forward-looking statements as such defined in Section 21E of the Securities Exchange Act of 1934 as amended.

These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we are expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectation to conform to actual results or otherwise. We make no prediction or statement about the performance of our common units. I would now like to turn the call over to your speaker today, Mr. Kalogiratos. Please go ahead, Sir.

A closeup of the bow of a Liquefied Natural Gas carrier on a calm ocean.

Jerry Kalogiratos: Thank you, Paul. And thank you all for joining us today. As a reminder, we'll be referring to the supporting slides available on our website as we go through today's presentation. In the first quarter of 2024, we did delivery of the LNG Carrier Axios II, the second delivery under our agreement acquire 11 latest generation two-stroke LNG carriers. Moreover, we concluded the sale of two container vessels, recognizing a gain on sale of $16.4 million. Furthermore, we announced a sale of three 10,000 new containers and two Panamax container vessels. Turning to the partnership's financial performance, net income for the first quarter of 2024 was $33.9 million or $17.5 million, excluding the gain on sale of vessels.

Our Board of Directors have declared a cash distribution of $0.15 per common unit for the first quarter of 2024. The first quarter cash distribution will be paid on May 14, the common unit holders of record on May 7. Finally, the partnership's current fleet, charter coverage for 2024 and '25, stands at 100% and 82% respectively, with a remaining charter duration corresponding to 7.3 years and contracted revenue backlog of $2.8 billion. Turning to slide 3, total revenue for the first quarter of 2024 was $104.5 million compared to $81 million during the first quarter of 2023. The increase in revenue was primarily attributable to the revenue contributed by the new building vessels we acquired between February 2023 and January 2024, partly offset by the sales of our.

So,le cape-sized vessel in the fourth quarter of last year and the two containers during the first quarter of this year. Total expenses for the first quarter of 2024 were $54.9 million compared to $45.1 million in the first quarter of last year; total vessel operating expenses during the first quarter of 2024 amounted $22.7 million compared to $19.3 million during the first quarter of 2023 and were higher mainly due to the net increase in the average size of our fleet. Total expenses for the first quarter of 2024 also include vessel depreciation and amortization of $24 million compared to $19.2 million in the first quarter of last year. The increase in depreciation and amortization during the first quarter of 2024 was mainly attributable to the net increase in the average size of our fleet.

General administrative expenses for the first quarter of this year increased to $4.4 million from $2.8 million in the same quarter last year, mainly attributable to certain one, of course, we recognized in connection to adequate incentive land. Interest expense and finance costs increased to $34 million for the first quarter of 2024 compared to $23.7 million for the first quarter of last year. The increase was mainly attributable to the increase in the partnership's average in debtness and the increase in the weighted average interest rate compared to the first quarter of 2023. Average interest rate for the quarter amounted to $7 million --. So,rry, to 7%. The partnerships recorded net income of $33.9 million or $17.5 million excluding the gain on sale of vessels for the quarter compared to net income of $10 million in the same quarter of last year.

Net income per common unit for the quarter was $0.61 or $0.32 excluding gain on vessel sales compared to $0.49 per common unit in the first quarter of last year. On slide 4, you can see the details of our balance sheet. As of the end of the first quarter, the partner's capital amounted to $1.204 billion, an increase of $29 million compared to $1.175 billion as of the end of 2023. The increase reflects net income for the first quarter of this year. Other comprehensive income and the amortization associated with the equity incentive plan of $2.6 million partly upset by distributions declared and paid during the period in a total amount of $8.3 million. Total debt increased by $156 million to $1.944 billion compared to $1.788 billion as of the end of 2023.

The increase is attributable to the assumption of $190 million of bank debt and $92.6 million of seller's credit in connection with the acquisition of the LNG Carrier Axios II in January of this year. Partly upset by the $7.2 million decrease in the US dollar equivalent of the Euro denominated bonds issued by the partnership, the scheduled principal payments for the period of $28.5 million. The early payment in full of the facility went into partly finance the acquisition of Akadimos and the partial prepayment of $52.8 million of the seller's credit we drew to partly finance the acquisition of LNG Carrier Axios II. Total cashers of the end of the quarter amounted to $157.7 million including the received cash of $11.2 million which represents the minimliquidity requirement under financing arrangements.

On slide 5, you can find an update on the progress of the container vessel sales. As mentioned earlier during the first quarter of 2024, which successfully. So,ld and delivered the containers Long Beach Express and Akadimos. In April 2024 we also completed the sale of the container vessels Athos, Athenian and Seattle Express. Finally we expect to complete the sales of the Aristomenes and the Force Express in early May. From the sale of container vessels we expect net proceeds after debt repayment of approximately $182.5 million.. So, far for the net proceeds of approximately $144 million received from the vessels delivered already to their new owners we have used $92.6 million to repay in full the amount we drew under the seller's credit for the acquisition of the LNG Carrier Axios II.

Under the Umbrella Agreement and the provisions of the seller's credit any sale proceeds net of debt repayment are applied first or towards repayment of any balance outstanding under the facility. Moving to slide 6, the Partnerships Contracted Revenue backlog stands at $2.8 billion with over 85% of contracted revenue coming from LNG vessels with a highly diversified and high quality customer base of 10 charters. This is excluding the seven container vessels we have. So,ld or agreed to sell. On slide 7 you can see the chapter profile of our LNG fleet. We have a contracted backlog of 76 years at an average daily rate of 88,500, which could increase to 111 years if all options were to be exercised. I should stress that we have no open vessels between now the first quarter of 2026.

In total we have four LNG carriers coming up for delivery from the shipyard and one being re-delivered from its charters in the fourth quarter of 2026. In 2027, we have an additional two vessels being delivered from the shipyard in the first quarter of the year and potentially one additional vessel coming up for renewal in the fourth quarter of 2027 if its charters do not exercise certain options. These vessels are expected to be seeking employment when the new wave of about 170 mtpa of additional and new liquefaction capacity is expected to come online between 2026 and 2028. We estimate that these projects alone which have taken FID and export permits will require between 190 and 220 additional vessels with only 156 vessels due for delivery during that period.

This is without taking into account the replacement of older technology vessels and the particular steam turbine vessels which are expected to incremental demand for two-stroke vessels like ours. Currently we count only 31 vessels in the order book between now and 2028 that are not committed to a certain project. We see PLP controlling six or about 20% of these uncommitted vessels. On slide 8, you can see the charter expiration of the container fleet. Once all agreed sales are complete we will have. So,ld the total of seven container vessels leaving us with a fleet of eight vessels. Our contracted backlog on the container fleet spans 32 years, at a weighted average daily rate of 38,200 and could increase to 51 years if all options are exercised.

We continue to seek to divest opportunistically from containers provided we deem the sale price reasonable in view of the contracted cash flows, our market views and our expectations with regard to residual value. And with this I will pass on the floor to our Chief Commercial Officer Mr. Leoussis.

Spyros Leoussis: Thank you Jerry.. So, turning to slide 9, we review the LNG market. After a period of historical high rate following the start of the Russian cream conflict rates are normalizing towards labor levels. One weather and high gas storage levels in Europe and Asia have led to decreased demand for LNG causing sport rates to weaken. Today combined with the long availability of vessels throughout the year have kept charter rates lower compared to previous years. Sport rates for two-stroke vessels average at $58.57 thousand per day, $5 per day in Q1.'24. With the average one year time charter, charter rate hovered around $76,000 per day. On the other hand the three year time charter stands today at $85,000 per day, while for longer periods as for example for five years rates are even higher indicating that the market is pricing in and anticipating tightening from 2026 onwards.

Geopolitical disruptions are key for the LNG carrier sector and while we are yet to see any major upside movement for day-rate we expect high volatility rate later in the year. LNG carrier transit through the Panama Canal remain highly limited with just four ships having transplants since start of February. At the same time no LNG vessels have crossed the Suez Canal since January 16. Overall it is fair to say that the LNG shipping market appears more balanced for 2024 and 2025 with multiple new buildings being delivered and only incremental new LNG volumes coming online. Charter markets for two-stroke vessels are expected to remain generally healthy in 2024 and 2025 due to the attractive unit freight cost they offer compared to DFT and steam turbine vessels, as well as environmental benefits that deliver to charters as EUT -- EU ETS, CII and other regulations start to have an economic and reputation impact on LNG charters.

Global LNG imports remain strong at both basins with China continuing to import decision records. Overall Tonne-miles have been higher in Q1 this year versus last year due to a close west canal and limited use of the Panama Canal. Total gas in storage also remains high and with the recent mild climate conditions putting further downward pressure on gust demand, Europe has finished the winter period with near record levels of inventories. Russian gas applied to the EU is now at less than two million tons per month. Finally the LNG fleet order book currently stands at approximately 50% of the total fleet encompassing 332 vessels on order. CPRs responding to heightened demand find themselves mostly fully booked throughout 2027. Appetite remains high for LNG carrier new builds following elevated contracting activity across 2021 and 2023 with 44 new building orders being placed in 2021-2024.

35 orders were part of the second phase of ordering for the Qatar expansion and with Qatar related orders now complete the pace of ordering for the remainder of the year is expected to be slower. Looking at the [indiscernible] project in March NextDecade announced plans to take FID on a fourth train for Rio Grande LNG in the second half of 2024. The company took FID on phase one of the project last year comprising three trains of 5.4 mtpa which is time to expect to come online in 2027. And with this I'll pass back to Jerry.

Jerry Kalogiratos: Thank you Spyros. Now to the final slide slide 10 you can see an updated timeline of the transaction we closed in the fourth quarter of 2023 for the acquisition of the 11 LNG carriers. They have. So, far taken delivery of two LNG carriers the Amore Mio-I and the Axios-II. We have. So,ld five container vessels and agreed to sell another two while we continue with our LNG carrier C building program. Looking ahead we are focused on taking delivery of the next three LNG carriers which are expected at the end of May early June and then July and of course we continue to make progress with the conversion of the partnership with the corporation as previously communicated which we expect to conclude over the coming months. And with that I'm happy to answer any questions you may have.

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