Dorian LPG Ltd. — Form 10-Q Summary
Business and period: The company owns and operates very large gas carriers (VLGCs) transporting liquefied petroleum gas worldwide, with much of its fleet employed through the Helios Pool. This unaudited report covers the fiscal quarter and nine months ended December 31, 2020, compared with the corresponding 2019 periods. At quarter-end, the fleet comprised 24 VLGCs, including two chartered-in vessels.
Financial performance and position
| Metric | Three months ended Dec. 31, 2020 | Three months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2019 |
|---|---|---|---|---|
| Revenue | $88.5 million | $85.4 million | $216.4 million | $238.2 million |
| Operating income | $41.9 million | $41.8 million | $69.8 million | $111.3 million |
| Net income | $35.8 million | $35.6 million | $48.5 million | $82.4 million |
| Diluted EPS | $0.71 | $0.66 | $0.96 | $1.51 |
| Adjusted EBITDA | $60.1 million | $59.9 million | $123.5 million | $165.6 million |
Quarterly operating and net income were broadly steady year over year, while nine-month results declined. Quarterly revenue increased 3.6%; nine-month revenue fell 9.2%. Nine-month operating income declined 37.3% and net income fell 41.1%. Adjusted EBITDA is a non-GAAP measure, not a substitute for GAAP results.
- Margins: Operating margin was approximately 47.3% and net margin 40.5% for the quarter, versus 48.9% and 41.7%, respectively, in the prior-year quarter. For the nine months, operating margin was approximately 32.3% and net margin 22.4%, versus 46.7% and 34.6%.
- Cash flow: Nine-month operating cash flow was $87.6 million, down from $110.4 million. Investing activities provided $5.2 million, including $15.0 million from Treasury bill maturities and $9.3 million of vessel capital expenditures. Financing used $46.7 million, including $86.5 million of debt repayments and $11.7 million of treasury-share purchases.
- Liquidity: Cash and cash equivalents were $133.6 million at December 31, 2020, compared with $48.4 million at March 31, 2020. Current assets were $218.2 million and current liabilities $77.5 million. The company stated it expected cash on hand and operating cash flows to meet liquidity needs for at least the next 12 months.
- Debt: Total debt obligations were $615.0 million, or $603.9 million net of deferred financing fees, versus $646.1 million and $635.0 million, respectively, at March 31, 2020. $51.8 million of principal was scheduled for repayment within 12 months. The company reported compliance with financial covenants at quarter-end.
Material changes and management commentary
- Quarterly revenue rose primarily because of more available operating days, despite lower average time charter equivalent (TCE) rates and utilization. Fleet utilization fell to 96.2% from 98.4%; average TCE was $42,298 per day versus $43,410.
- For the nine-month period, lower average TCE rates ($36,271 versus $39,996) and lower utilization (92.0% versus 96.6%) contributed to weaker revenue. Management attributed lower market rates partly to weaker spot conditions; the cited Baltic LPG benchmark averaged $56.189 in the 2020 period versus $67.183 in 2019.
- Nine-month vessel operating expenses increased to $58.0 million from $52.6 million, with higher repair, maintenance, spares, and drydocking costs. General and administrative expenses rose to $22.8 million from $17.7 million, reflecting higher bonuses, compensation, and insurance premiums.
- Interest and finance costs decreased to $21.8 million from $27.8 million for nine months, reflecting lower average debt, lower LIBOR, and a reduced facility margin; refinancing-related financing-fee amortization partly offset the decline.
- On April 29, 2020, the company refinanced the commercial tranche of its 2015 debt facility. A July amendment relaxed certain covenants, including lowering the minimum liquidity covenant from $40 million to $27.5 million and minimum cash requirement per mortgaged vessel from $2.2 million to $1.0 million; it also raised the security value ratio requirement from 135% to 145% and eliminated the interest coverage ratio.
- In October 2020, the company repurchased the Captain John NP under its Japanese financing arrangement. It also refinanced the Cresques, a transaction accounted for as financing, with a 12-year bareboat charter-back arrangement and purchase options.
- The company repurchased approximately 1.0 million shares in the quarter for an average $10.07 per share. On February 2, 2021, it announced a tender offer for up to 7.4 million shares, approximately 14.8% of outstanding shares, at $13.50 per share, funded from available cash and other stated sources.
Outlook, risks, and contingencies
- Management provided no specific earnings or revenue guidance. It cited market rates, fleet employment and utilization, drydocking, operating costs, working capital, debt service, and regulatory compliance as important drivers of results and liquidity.
- COVID-19 reduced global demand for oil products and LPG and created uncertainty and potential additional crew-change costs. The company reported no significant operating impact to date other than an approximately 60-day delay to one vessel’s drydocking in 2020; management said future effects could not be estimated reliably.
- Interest-rate exposure remains: $376.0 million of amortizing principal was hedged at December 31, 2020. A hypothetical 20-basis-point LIBOR move was estimated to change interest expense on unhedged debt by about $0.1 million over the following 12 months, all else equal. The filing also identifies LIBOR transition risk.
- Ten ECO-VLGCs had scrubbers installed, with commitments relating to two additional vessels. Firm scrubber-purchase commitments were $1.5 million, excluding installation costs. The company also identified drydocking, environmental compliance, vessel values, charter rates, LPG shipping demand, and financing availability as risks.
- Independent appraisals indicated a potential impairment indicator for one vessel, but management’s recoverability analysis found no impairment necessary. The filing’s sensitivity analysis said a 50% reduction in assumed 10-year average TCE rates would trigger an estimated $0.2 million impairment on one vessel.
- A dispute arose in January 2021 concerning a vessel’s readiness to load a charterer’s scheduled cargo. The facts were disputed and the company could not reasonably estimate the outcome. The filing reported no other claim requiring disclosure or a provision.
Important facts for investors to verify
- Whether weaker nine-month TCE rates and utilization persist, and how spot-market and Helios Pool performance affect revenue and cash collections.
- The collectability and timing of Helios Pool receivables: the company reported net receivables of $97.6 million at December 31, 2020, including working capital contributed to the pool.
- Debt maturities, covenant headroom, refinancing terms, and remaining unhedged exposure as LIBOR transitions to replacement benchmarks.
- The cash required for the announced tender offer, share repurchases, debt service, drydockings, scrubbers, and other vessel commitments.
- The outcome and potential financial impact of the January 2021 charter dispute, and any subsequent developments in COVID-19 effects or vessel impairment indicators.