Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three and nine months ended September 30, 2020
Filing Date: November 13, 2020
Business Overview: A master limited partnership owning and operating six LNG carriers employed on multi-year time charters. The fleet has an aggregate capacity of approximately 914,000 cubic meters.
Key Financial Metrics
| Metric (in thousands, except per unit) | 3 Months Ended Sept 30, 2020 | 9 Months Ended Sept 30, 2020 |
|---|---|---|
| Voyage Revenues | $34,346 | $102,730 |
| Net Income | $10,015 | $23,409 |
| Adjusted Net Income | $10,203 | $27,161 |
| Adjusted EBITDA | $24,221 | $72,091 |
| Operating Income | $16,149 | $48,018 |
| Net Cash from Operating Activities | $27,587 | $54,423 |
| Total Cash & Restricted Cash | $76,046 (as of Sept 30, 2020) | |
| Outstanding Indebtedness | ||
| Earnings per Common Unit (GAAP) | $0.20 | $0.41 |
| Adjusted EPS (Non-GAAP) | $0.21 | $0.52 |
Note: Adjusted Net Income and Adjusted EBITDA are non-GAAP measures. See Appendix B in the source text for reconciliations.
Material Changes vs. Prior Period
- Profitability Turnaround: Net income improved from a loss of $4.7 million in Q3 2019 to a profit of $10.0 million in Q3 2020 (a 312.8% increase). For the nine-month period, net income rose from a loss of $1.9 million to a profit of $23.4 million.
- Interest Costs: Interest and finance costs decreased significantly by $14.9 million (71.3%) in Q3 2020 compared to Q3 2019. This was driven by lower weighted average interest rates, reduced debt levels, and the absence of a $7.5 million one-time write-off of deferred loan fees recorded in 2019.
- Operating Expenses: Vessel operating expenses decreased slightly to $7.2 million in Q3 2020 from $7.5 million in Q3 2019, resulting in a lower daily rate per vessel ($13,074 vs. $13,531).
- Utilization: Fleet utilization reached 100% in Q3 2020, compared to 99% in the prior year period.
- Cash Flow: Net cash provided by operating activities increased by 102.9% to $27.6 million in Q3 2020 from $13.6 million in Q3 2019.
Guidance, Outlook, and Management Commentary
- Contract Backlog: The Partnership has an estimated contracted revenue backlog of approximately $1.15 billion with an average remaining contract term of 7.9 years.
- Employment Outlook: The fleet is contracted to be employed 100% for 2020, 92% for 2021, and 83% for 2022 through 2025. The earliest re-delivery date is Q3 2021.
- Strategy: Management intends to use cash flow generation to deleverage the balance sheet and reinforce liquidity to build equity value.
- COVID-19 Impact: Operational challenges due to the pandemic have been manageable due to the manager's response plan, with no impact on fleet utilization reported for Q3 2020.
- Financing Activity: The Partnership entered into an amended and restated ATM Sales Agreement for up to $30.0 million, terminating a prior program under which $0.4 million was sold.
- Risks: Forward-looking statements are subject to risks including global economic conditions, charter rate fluctuations, bunker prices, regulatory changes, and the potential discontinuance of LIBOR after 2021.
Investor Verification Checklist
- Debt Structure: Verify the terms of the $675.0 million Credit Facility and the $30.0 million interest-free revolving credit facility with the Sponsor.
- Non-GAAP Reconciliations: Review Appendix B to understand the specific adjustments made to derive Adjusted Net Income and Adjusted EBITDA from GAAP figures.
- Preferred Unit Distributions: Confirm the payment status and rates for Series A ($0.5625) and Series B ($0.546875) Preferred Units.
- Revenue Backlog Accuracy: Note that $0.16 billion of the backlog relates to Yamal contracts with variable hire rates subject to yearly adjustments based on actual operating costs.
- LIBOR Transition: Assess the potential impact of the expected discontinuance of LIBOR after 2021 on the Partnership's debt interest rates.