Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Press Release dated July 28, 2016)
Reporting Period: Three and six months ended June 30, 2016
Business Overview: Owner and operator of liquefied natural gas (LNG) carriers employed on multi-year charters. The fleet consists of six LNG carriers with an aggregate capacity of approximately 913,980 cubic meters. Revenues are derived from fixed charter contracts, insulating income from commodity price fluctuations.
Key Financial Metrics
| Metric (in millions, except per unit) | 3 Months Ended June 30, 2016 | 6 Months Ended June 30, 2016 |
|---|---|---|
| Voyage Revenues | $42.6 | $85.4 |
| Net Income (GAAP) | $17.0 | $34.1 |
| Adjusted EBITDA | $35.0 | $70.2 |
| Adjusted Net Income | $18.8 | $37.7 |
| Distributable Cash Flow | $22.6 | $45.3 |
| Adjusted EPS (Common Unit) | $0.48 | $0.96 |
| Cash and Cash Equivalents | $82.2 million (as of June 30, 2016) | |
| Total Indebtedness | $738.8 million (as of June 30, 2016) | |
| Available Liquidity | $112.2 million (as of June 30, 2016) |
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenues increased 20% year-over-year for the three months ended June 30, 2016 ($42.6M vs. $35.6M), driven by an increase in revenue-earning days from 455 to 546 due to the acquisition of the Lena River in December 2015.
- Profitability: Adjusted EBITDA rose 27% to $35.0M for the quarter, and Adjusted Net Income increased 28.4% to $18.8M. Distributable Cash Flow grew 30% to $22.6M.
- Operating Expenses: Vessel operating expenses increased by $0.7M to $6.7M, exclusively attributable to the addition of the Lena River.
- Utilization: Fleet utilization reached 100% for the quarter, compared to 97% in the prior year period.
- Cash Flow: Net cash from operating activities for the three months ended June 30, 2016, was $29.7M, a significant increase from $14.3M in the same period of 2015.
Guidance, Outlook, and Risks
Management Commentary: CEO Tony Lauritzen highlighted a strong financial quarter with 100% fleet utilization. The partnership intends to focus on obtaining further contract coverage and managing operating expenses.
Contract Backlog: As of July 27, 2016, the fleet was 100% contracted through the end of 2016, 88% through 2017, and 64% through 2018. The contracted revenue backlog is estimated at approximately $1.6 billion with an average remaining contract duration of 10.1 years.
Distributions:
- Common/Subordinated Units: $0.4225 per unit (paid July 19, 2016).
- Series A Preferred Units: $0.5625 per unit (payable August 12, 2016).
Risks and Contingencies:
- Contract Conditions: Certain time charter contracts with Yamal Trade Pte. are subject to important conditions; failure to satisfy these could result in cancellation or amendment.
- Market Risks: Fluctuations in charter rates, vessel values, bunker prices, and general market conditions.
- Operational Risks: Vessel breakdowns, off-hires, and potential disruption of shipping routes due to accidents or political events.
Investor Verification Checklist
- Verify the status of conditions precedent for the Yamal Trade Pte. contracts to ensure the $1.6 billion backlog remains secure.
- Confirm the $25.0 million minimum cash liquidity requirement imposed by lenders is maintained within the reported $82.2 million cash balance.
- Review the reconciliation of Non-GAAP measures (Adjusted EBITDA, Distributable Cash Flow) in Appendix B to understand adjustments for non-cash items like time charter amortization.
- Monitor the $30.0 million revolving credit facility availability with the Sponsor, which expires in November 2018.
- Assess the impact of the Lena River acquisition on future maintenance and replacement capital expenditure reserves.