Dorian LPG Ltd. — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2019; filed February 4, 2020. Financial statements are unaudited. Dorian owns and operates very large gas carriers (VLGCs) transporting LPG worldwide. At December 31, its fleet comprised 23 VLGCs, including one chartered-in vessel.
Financial performance
| Metric | Three months ended Dec. 31, 2019 | Three months ended Dec. 31, 2018 | Nine months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2018 |
|---|---|---|---|---|
| Revenue | $85.4 million | $55.1 million | $238.2 million | $123.6 million |
| Operating income/(loss) | $41.8 million | $9.3 million | $111.3 million | $(4.2) million |
| Net income/(loss) | $35.6 million | $(6.2) million | $82.4 million | $(35.0) million |
| Diluted EPS | $0.66 | $(0.11) | $1.51 | $(0.64) |
| Adjusted EBITDA | $59.9 million | $27.2 million | $165.6 million | $50.3 million |
Revenue increased 55.0% for the quarter and 92.8% for the nine-month period. Management attributed the improvement principally to higher spot-market rates and fleet utilization. TCE rates rose to $43,410 per day from $30,108 for the quarter, and to $39,996 from $22,688 for the nine months. Fleet utilization increased to 98.4% from 90.0% for the quarter and to 96.6% from 89.8% for the nine months. Adjusted EBITDA is a non-GAAP measure; the filing cautions it should not be viewed as a substitute for GAAP results or cash flow.
Quarterly vessel operating expenses increased to $19.1 million from $16.8 million, including higher drydocking-related costs. Nine-month vessel operating expenses were $52.6 million, up from $50.8 million. Nine-month interest and finance costs declined to $27.8 million from $30.5 million, primarily as average debt fell. No BW Proposal-related professional or legal costs were recorded in 2019, compared with $10.0 million in the prior-year nine-month period; those prior-period costs were associated with an acquisition proposal and proxy contest withdrawn in October 2018.
Cash flow, balance sheet and debt
- Operating cash flow: $110.4 million provided in the nine months, versus $4.4 million used in the prior-year period. Management said the improvement primarily reflected higher operating income; cash generation was partly offset by working-capital movements, particularly amounts due from the Helios Pool.
- Investing and financing: Investing activities used $11.0 million, including $12.4 million of vessel-related capital expenditures. Financing activities used $63.8 million, including $48.0 million of debt repayments and $15.8 million of treasury-share purchases.
- Cash and liquidity: At December 31, cash and cash equivalents were $64.7 million, current restricted cash $1.6 million, and non-current restricted cash $35.6 million. Current assets were $143.8 million and current liabilities $86.0 million. Cash, cash equivalents and restricted cash totaled $101.9 million.
- Debt: Total debt obligations were $662.1 million before deferred financing fees and $650.3 million net of fees, down from $710.1 million gross at March 31, 2019. The balance included $64.0 million of principal scheduled for repayment within 12 months. Vessel assets secure the debt.
- Related-party exposure: Due from related parties totaled $69.1 million current and $22.0 million non-current. The company reported $89.8 million receivable from the Helios Pool, including $22.0 million of working capital contributed to the pool. Helios Pool is jointly controlled with Phoenix; Dorian’s stated maximum exposure to losses is limited to its receivables from the pool.
- Share repurchases: The company repurchased approximately 1.2 million shares for $14.8 million under its $50 million program by December 31. It reported $17.1 million of cumulative repurchases by January 31, 2020. On February 3, the board authorized an additional $50 million, leaving $82.9 million of stated remaining authorization; repurchases are discretionary.
Outlook, risks and contingencies
- Management said it expects to meet liquidity needs for at least the next 12 months using cash on hand and operating cash flow, while noting it may seek additional debt or equity financing and cannot assure such financing or credit-facility amendments will be available on acceptable terms.
- A July 2019 amendment to the 2015 debt facility set minimum interest-coverage requirements of 2.00 through March 31, 2020 and 2.50 thereafter. If coverage fell below 2.50 during the specified period through March 31, 2020, the company was required to maintain at least $47.5 million of consolidated liquidity.
- At December 31, six ECO-VLGCs had scrubbers installed; installations on additional vessels were underway or contracted. As of February 1, management reported seven vessels equipped and commitments related to five more. Firm scrubber purchase commitments at December 31 were $4.2 million, excluding installation costs. The IMO low-sulfur fuel requirement took effect January 1, 2020; compliant fuel and scrubber installation can add costs.
- Independent appraisals indicated impairment indicators for ten VLGCs, but management recorded no impairment after estimating future cash flows. Its sensitivity analysis indicated no impairment under a 30% reduction in assumed 10-year average spot TCE rates; a 40% reduction would trigger an estimated $12.4 million charge on seven vessels.
- On February 1, 2020, Dorian chartered in the hybrid-scrubber-fitted Future Diamond through the first quarter of 2023. No formal quantitative earnings or rate guidance is provided.
- Risk disclosures include shipping-rate and LPG supply-demand changes, fuel and regulatory compliance costs, debt and liquidity, customer and pool concentration, vessel employment, and geopolitical disruption. The filing specifically cites threats to shipping routes and vessels, including Middle East tensions, and public-health threats including coronavirus.
- The company reported no legal claim requiring disclosure or a financial-statement provision and no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether elevated LPG spot rates, TCE rates and fleet utilization persist, and how bunker costs affect realized vessel economics.
- The collectability and timing of the $89.8 million Helios Pool receivable and the company’s broader related-party balances.
- Debt covenant compliance, scheduled repayments, and liquidity after discretionary share repurchases and scrubber and drydocking spending.
- Actual scrubber installation costs and operating benefits, including the costs of complying with the IMO sulfur rules.
- Whether vessel values and forecast charter rates support management’s no-impairment conclusion if market conditions weaken.