Business Context and Reporting Period
Company: Dorian LPG Ltd.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Unaudited interim condensed consolidated financial statements for the three and nine months ended December 31, 2014.
Business Overview: Dorian is a Marshall Islands corporation engaged in the global transportation of liquefied petroleum gas (LPG). As of December 31, 2014, the fleet consisted of seven LPG carriers (three 82,000 cbm VLGCs, three 84,000 cbm ECO-design VLGCs, and one 5,000 cbm pressurized vessel). The company is executing a VLGC Newbuilding Program with contracts for 16 additional fuel-efficient VLGCs scheduled for delivery between April 2015 and January 2016.
Key Financial Metrics
| Metric | Three Months Ended Dec 31, 2014 | Nine Months Ended Dec 31, 2014 |
|---|---|---|
| Revenues | $32.6 million | $68.8 million |
| Net Income | $9.0 million | $16.4 million |
| Operating Income | $10.8 million | $19.5 million |
| Adjusted EBITDA | $15.1 million | $30.1 million |
| Earnings Per Share (Basic & Diluted) | $0.16 | $0.29 |
| Cash and Cash Equivalents (Dec 31, 2014) | $182.8 million | |
| Total Debt (Outstanding) | $122.6 million | |
| Fleet Utilization | 78.8% | 85.7% |
| Time Charter Equivalent (TCE) Rate | $57,077/day | $48,251/day |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 137.7% to $32.6 million for the three months ended December 31, 2014, compared to $13.7 million in the prior year period. This was driven by the delivery of two new VLGCs in 2014 and a shift of one vessel from time charter to the spot market.
- Expense Increases: Total expenses rose to $21.8 million (Q3 2014) from $9.8 million (Q3 2013). Voyage expenses increased $5.0 million due to higher bunker costs and port charges associated with spot market operations. General and administrative expenses increased $4.2 million, primarily due to the transition of vessel management services from a related party to wholly-owned subsidiaries and increased costs of being a public company.
- Derivative Losses: The company reported a net loss on derivatives of $1.3 million for the quarter, compared to a net gain of $0.3 million in the prior year. This was primarily due to a realized loss of $1.3 million on interest rate swaps.
- Equity Capitalization: Shareholders' equity increased significantly to $863.8 million from $692.2 million at March 31, 2014, following the May 2014 IPO and subsequent private placements.
Outlook, Risks, and Management Commentary
- Financing Commitments: On January 12, 2015, the company received final commitments for up to $761 million in debt financing for its VLGC Newbuilding Program. The financing is structured in four tranches with a blended margin over LIBOR of approximately 2.1% and a weighted average amortization profile of 14 years.
- Newbuilding Deliveries: The company took delivery of the Corvette on January 2, 2015. Remaining contractual commitments for newbuildings total approximately $0.9 billion as of February 2, 2015.
- Liquidity: Management believes current cash balances, proceeds from equity offerings, and the new debt commitments will be adequate to fund operations and vessel construction for the upcoming 12 months.
- Risks: Key risks include volatility in shipping market rates (TCE), oversupply of LPG vessels, delays in vessel construction, counterparty performance on charter agreements, and the company's dependence on a limited number of customers and assets. The company also faces risks related to its ability to incur additional indebtedness and comply with debt covenants.
Investor Verification Checklist
- Debt Financing Closing: Verify the final closing of the $761 million debt facility announced in January 2015 and the specific terms of the four tranches.
- Newbuilding Schedule: Monitor the delivery schedule for the 16 remaining newbuildings (April 2015 – January 2016) for potential delays or cost overruns.
- Charter Rates: Track spot market TCE rates for VLGCs, as a significant portion of the fleet operates on the spot market, impacting revenue volatility.
- Derivative Exposure: Review the impact of interest rate swaps on future earnings, given the recent realized losses reported.
- Dividend Policy: Note that dividends are restricted by Marshall Islands law and the company's credit facility covenants, which limit payments to free cash flow.