Dynagas LNG Partners LP current report, Q3 FY2020

Business Context and Reporting Period

Dynagas LNG Partners LP (NYSE: DLNG) is a master limited partnership owning and operating a fleet of six liquefied natural gas (LNG) carriers. This Form 6-K, filed on September 4, 2020, reports financial results for the three and six months ended June 30, 2020. The fleet operates under long-term charters with an average remaining contract term of 8.1 years.

Key Financial Metrics

Metric3 Months Ended June 30, 20206 Months Ended June 30, 2020
Voyage Revenues$33.9 million$68.4 million
Net Income$6.4 million$13.4 million
Adjusted Net Income$9.9 million$17.0 million
Adjusted EBITDA$24.1 million$47.9 million
Earnings per Common Unit$0.10$0.21
Adjusted EPS$0.20$0.31
Net Cash from Operating Activities$8.1 million$26.8 million
Total Cash (including restricted)$63.3 million (as of June 30)N/A
Outstanding Indebtedness$639.0 million (as of June 30)N/A
Fleet Utilization100%99.5%
Average Daily Hire (Gross)$62,200N/A

Material Changes vs. Prior Period

  • Profitability Surge: Net income for the three months ended June 30, 2020, increased to $6.4 million from $0.9 million in the same period of 2019 (a 611% increase). Adjusted Net Income rose to $9.9 million from $0.8 million (a 1,137.5% increase).
  • Revenue Growth: Voyage revenues increased by $3.1 million (10%) to $33.9 million, driven by higher revenues from the vessel Lena River following its delivery to a multi-year contract with Yamal Trade Pte.
  • Cost Reduction: Interest and finance costs decreased by 49.6% to $6.3 million, attributed to lower weighted average interest rates and reduced average interest-bearing debt.
  • Utilization Improvement: Fleet utilization reached 100% in Q2 2020, compared to 94.4% in Q2 2019.
  • Derivative Impact: GAAP Net Income was reduced by a $3.4 million unrealized loss on a new interest rate swap transaction initiated in June 2020. This non-cash item is excluded from Adjusted Net Income.

Guidance, Outlook, and Management Commentary

  • Debt Management: The Partnership entered into a floating-to-fixed interest rate swap effective June 29, 2020, fixing the 3-month LIBOR rate at 0.41% (effective rate of 3.41% including margin) for 100% of its $675 million credit facility debt until September 2024. This strategy aims to de-risk interest rate volatility.
  • Liquidity and Capital: In August 2020, the Partnership entered an amended "at-the-market" (ATM) sales agreement to sell up to $30 million of common units. Management intends to use cash flow to deleverage the balance sheet and build equity.
  • Contract Backlog: As of September 3, 2020, the Partnership had a contracted revenue backlog of $1.18 billion. Fleet coverage is estimated at 100% for 2020, 92% for 2021, and 83% for 2022.
  • COVID-19 Impact: Operational challenges from the pandemic were managed via the manager's response plan, resulting in no disruption to fleet utilization.
  • Risks: Forward-looking statements highlight risks including global economic strength, charter rate fluctuations, bunker prices, regulatory changes, and the potential discontinuance of LIBOR after 2021.

Investor Verification Checklist

  • Verify the reconciliation of Non-GAAP measures (Adjusted EBITDA, Adjusted Net Income) to GAAP measures in Appendix B of the full press release.
  • Confirm the specific terms and maturity of the $675 million credit facility and the interest rate swap agreement.
  • Review the details of the $30 million ATM sales agreement and the volume of units sold under the prior program.
  • Assess the impact of the $3.4 million unrealized derivative loss on future cash flows versus reported GAAP earnings.
  • Monitor the scheduled re-delivery dates for the fleet, specifically the Arctic Aurora (Q3 2021) and Clean Energy (Q1 2026).