Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Three and nine months ended September 30, 2023
Filing Date: December 8, 2023
Business Overview: The Partnership owns and operates a fleet of six LNG carriers employed on multi-year time charters. As of September 30, 2023, the fleet had an estimated contract backlog of $1.16 billion with an average remaining term of 7.2 years.
Key Financial Metrics
| Metric (in thousands, except per unit) | 3 Months Ended Sept 30, 2023 | 9 Months Ended Sept 30, 2023 |
|---|---|---|
| Voyage Revenues | $37,012 | $111,928 |
| Net Income | $1,380 | $25,410 |
| Adjusted Net Income | $3,133 | $15,494 |
| Adjusted EBITDA | $20,384 | $66,963 |
| Operating Income | $9,394 | $47,036 |
| Net Cash from Operating Activities | $21,772 | $44,206 |
| Cash and Cash Equivalents (Sept 30, 2023) | $64,911 | |
| Total Debt Outstanding (Sept 30, 2023) | $431,188 | |
| Fleet Utilization | 99.8% | 97.1% |
| Time Charter Equivalent (TCE) Rate | $71,989/day | $68,970/day |
Material Changes vs. Prior Period
- Net Income Decline: Net income for the three months ended September 30, 2023, decreased 81.1% to $1.4 million from $7.4 million in the prior year. This was primarily due to increased vessel operating expenses, dry-docking costs for three vessels, and a decrease in interest rate swap gains.
- Revenue Growth: Voyage revenues increased 23.7% to $37.0 million for the quarter, driven by higher non-cash deferred revenue amortization from the new Arctic Aurora charter and increased available days for other vessels.
- Operating Expenses: Vessel operating expenses rose to $10.6 million ($19,288/day) from $7.0 million ($12,743/day) year-over-year, attributed to engine overhauling costs.
- Adjusted EBITDA Stability: Adjusted EBITDA remained relatively flat at $20.4 million for the quarter compared to $20.0 million in the prior year, despite the drop in GAAP net income.
- Debt Reduction: Since December 31, 2019, the Partnership has reduced its net leverage ratio from 6.6 to 4.1 and repaid $242.4 million in debt.
Guidance, Outlook, and Risks
- Contract Backlog: The Partnership has 100% time charter coverage for its fleet through 2027, with no contractual vessel availability until 2028 barring unforeseen events.
- Refinancing Priority: Management identified refinancing the partnership's debt as a main priority. The current $675 million credit facility has approximately $432.6 million outstanding.
- Preferred Unit Distributions: Series B Preferred Units converted to a floating rate distribution (successor base rate + 5.593%) effective November 22, 2023.
- Risks and Contingencies:
- Sanctions: Ongoing Russian sanctions related to the Ukraine conflict are monitored closely. While currently not materially affecting operations, future escalation or changes in sanctions could impact counterparties or payment systems (SWIFT).
- Geopolitical Instability: Risks include potential disruption of shipping routes due to the Israel-Gaza conflict and general international hostilities.
- LIBOR Transition: The discontinuance of LIBOR on June 30, 2023, impacts debt referencing this rate.
Investor Verification Checklist
- Verify the reconciliation of Non-GAAP measures (Adjusted Net Income, Adjusted EBITDA) to GAAP Net Income in Appendix B.
- Confirm the status of the $675 million credit facility and the timeline for the planned refinancing.
- Review the specific terms of the new time charter for the Arctic Aurora with Equinor ASA.
- Monitor updates on Russian sanctions and their potential impact on counterparties performing under existing charters.
- Check the calculation of the floating rate for Series B Preferred Units post-LIBOR transition.