Dorian LPG Ltd. — FY2018 Form 10-K
Reporting period: Fiscal year ended March 31, 2018. This is an annual report, not a report for calendar 2017 Q4; quarterly results for the three months ended March 31, 2018 are noted below. Dorian owns and operates VLGCs transporting liquefied petroleum gas (LPG). At June 26, 2018, its fleet comprised 22 vessels, including 19 ECO-design vessels, and 18 vessels participated in the Helios Pool.
Financial and operating performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $159.3 million | $167.4 million |
| Operating income | $3.8 million | $14.0 million |
| Net income (loss) | $(20.4) million | $(1.4) million |
| Basic and diluted EPS | $(0.38) | $(0.03) |
| Adjusted EBITDA (non-GAAP) | $74.5 million | $83.3 million |
| Operating cash flow | $57.2 million | $52.1 million |
| Capital expenditures | $0.3 million | $1.9 million |
| Cash and cash equivalents at year-end | $103.5 million | $17.0 million |
- Revenue declined 4.8%. Net pool revenue, about 67.1% of total revenue, fell 7.6% to $107.0 million; time-charter revenue rose 1.4% to $50.2 million.
- Operating margin was approximately 2.4% and net margin approximately negative 12.8%, calculated from reported revenue and income.
- Average TCE rate was $21,966 per day, nearly unchanged from $22,037; fleet utilization declined to 89.1% from 93.6%. The company reported that pool profit reallocation added about $260 to its FY2018 TCE rate.
- Vessel operating expenses declined 2.7% to $64.3 million, or $8,009 per vessel per calendar day. General and administrative expenses rose 20.5% to $26.2 million, mainly due to compensation and advisory costs.
- Interest and finance costs increased to $35.7 million from $29.0 million. Derivative results included an $8.4 million unrealized gain and a $1.3 million realized loss; a $4.1 million gain arose from early extinguishment of debt.
- Net cash increased $86.5 million during the year. Operating cash flow improved modestly, while financing included $261.0 million of borrowings and $252.0 million of debt repayments. Investing cash flow included releases of restricted cash, not solely operating investment returns.
- At March 31, 2018, total assets were $1.736 billion, shareholders’ equity $959.4 million, and total liabilities $776.7 million. Gross debt was $775.2 million; debt net of deferred financing fees was $759.1 million, including $65.1 million current. Current assets were $135.2 million and current liabilities $82.0 million.
Material changes and unusual items
- Compared with FY2017, revenue and adjusted EBITDA decreased, while the net loss widened substantially. The loss reflected operating income that was insufficient to cover financing costs and other expenses.
- As a longer-term comparison, FY2017 revenue had already fallen 42.1% from FY2016 amid a steep decline in LPG spot rates and new vessel deliveries.
- Independent appraisals indicated the fleet’s estimated market value was $131.7 million below its carrying value at March 31, 2018, versus a $272.1 million gap a year earlier. Management recorded no impairment, concluding estimated future cash flows supported carrying values. Its sensitivity analysis indicated a 40% reduction in assumed 10-year average TCE rates could trigger an estimated $131.7 million impairment.
- The company refinanced the Corsair, Concorde and Corvette during FY2018 through sale-and-bareboat-charter-back transactions treated as financing. Subsequent to year-end, it refinanced three older vessels and used cash and refinancing proceeds to repay the remaining $66.9 million bridge loan.
- FY2018 quarterly results were uneven: for the quarter ended March 31, 2018, revenue was $39.0 million, operating income $0.7 million and net loss $3.5 million, or $(0.06) per share.
Liquidity, outlook and risks
- Management expected cash on hand, operating cash flow and subsequent refinancing transactions to meet liquidity needs for at least the next 12 months, while noting future financing or amendments may not be available on acceptable terms.
- The company had $25.9 million of restricted cash at year-end. Its substantial debt, variable-rate exposure and financial and vessel-value covenants constrain flexibility. Dorian reported compliance with financial covenants at March 31, 2018; the facility’s required interest-coverage ratio increased beginning April 1, 2018.
- Under the debt amendment, dividends and share repurchases were restricted until the earlier of a qualifying common-stock offering with at least $50 million in proceeds or May 31, 2019. Dorian had not paid dividends since inception.
- Key business risks include volatile and potentially weak spot charter rates, industry vessel oversupply, reliance on the LPG shipping sector, customer concentration, and the Helios Pool’s importance (67% of FY2018 revenue). Two other charterers accounted for 13% and 11% of revenue; one pool charterer represented 28% of pool net revenue.
- Regulatory and cost exposures include the IMO 0.5% sulfur-fuel limit effective in 2020 and ballast-water treatment requirements. Six vessels were expected to require ballast-water systems between 2019 and 2023 at about $0.8 million each.
- Other disclosed risks include fuel and crew cost inflation, interest-rate and currency movements, environmental or maritime incidents, political and trade disruption, and possible impairment if vessel values or future cash flows weaken. The filing gives no numeric earnings or rate guidance.
- The auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness. The company reported no material pending or threatened legal proceedings.
Investor verification priorities
- Verify current charter rates, Helios Pool distributions and utilization, and the renewal terms or expirations of fixed time charters.
- Review covenant headroom, debt maturities, restricted-cash requirements and the financing terms and obligations arising from the vessel sale-and-charter-back arrangements.
- Assess the assumptions behind the no-impairment conclusion, especially TCE forecasts, vessel values and the stated sensitivity to a 40% rate decline.
- Confirm liquidity after the subsequent bridge-loan repayment and subsequent refinancings, and whether the dividend and share-repurchase restrictions remain in effect.
- Monitor customer concentration and regulatory compliance costs, including sulfur-fuel and ballast-water requirements.