Dorian LPG Ltd. — Form 10-Q Summary
Reporting period: Third quarter and nine months ended December 31, 2016, compared with the same periods in 2015. Dorian owns and operates 22 very large gas carriers (VLGCs); 17 vessels were employed in the Helios Pool at quarter-end. Figures are in U.S. dollars.
Key financial results
| Metric | Three months 2016 | Three months 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $35.7 million | $93.3 million | $119.9 million | $203.9 million |
| Operating income (loss) | ($3.5) million | $54.0 million | $4.7 million | $116.3 million |
| Net income (loss) | $5.0 million | $54.7 million | ($3.4) million | $109.5 million |
| Adjusted EBITDA (non-GAAP) | $13.9 million | $68.7 million | $56.8 million | $145.8 million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $49.2 million | $83.0 million |
Revenue fell 61.7% in the quarter and 41.2% for the nine months. Management attributed the decline primarily to lower VLGC rates. TCE rate was $17,796 per operating day for the quarter and $21,131 for nine months, versus $56,253 and $60,050, respectively, in 2015. Fleet utilization was 98.4% for the quarter and 92.7% for nine months.
Operating margin was approximately (9.7)% for the quarter and 4.0% for nine months; the comparable 2015 margins were 57.9% and 57.1%. Net margin was approximately 14.1% for the quarter and (2.8)% for nine months. Quarterly net income included substantial derivative gains; these margins should not be read as a measure of underlying shipping-rate performance.
Financial position and cash flow
- At December 31, 2016, cash and cash equivalents were $31.8 million, down from $46.4 million at March 31, 2016. Restricted cash was a further $50.8 million.
- Current assets were $62.9 million against current liabilities of $86.1 million. The resulting current ratio was approximately 0.73.
- Debt obligations were $787.7 million gross and $766.7 million net of deferred financing fees, including $66.0 million due within 12 months. Total liabilities were $787.3 million.
- Nine-month operating cash flow of $49.2 million was below the prior-year $83.0 million. Investing used $1.8 million; financing used $61.7 million, including $48.6 million of debt repayments and $13.0 million of share repurchases. Cash decreased $14.6 million.
- Helios Pool receivables were $43.2 million, including $19.8 million of working capital contributed to the pool. Management states the company’s maximum exposure to pool losses is limited to its receivables.
Changes, outlook and risks
- Lower shipping rates were the principal driver of the steep year-over-year revenue and earnings decline. Nine-month vessel operating costs rose to $49.5 million from $30.5 million, primarily as more vessels operated; depreciation increased to $48.9 million from $26.7 million as the fleet expanded.
- Interest and finance costs increased to $21.5 million for nine months from $5.7 million, largely due to higher average debt and lower capitalized interest. The company repaid $48.6 million of debt during the period.
- Derivative results were volatile: nine-month unrealized gains were $26.5 million and realized losses were $13.0 million. Dorian terminated interest rate swaps related to its RBS facility during the quarter; the termination affected both reported derivative results.
- Management expects to meet liquidity needs with cash on hand and operating cash flow, but says alternative financing or credit-facility modifications may be required if those sources prove insufficient; availability and terms are not assured. The filing provides no specific earnings or rate guidance.
- Management found no vessel impairment at December 31, 2016, despite appraisal indicators. Its sensitivity analysis estimated that a 40% decline in assumed 10-year average spot TCE rates would trigger an approximately $221.4 million impairment on 19 VLGCs; a 30% decline would not trigger impairment on any of the 22 vessels.
- Risks include depressed spot rates, vessel oversupply and the Panama Canal expansion, which may shorten U.S. Gulf-to-Asia voyages and increase effective vessel capacity. The filing reports the Baltic Exchange LPG index fell 77% from its July 2014 peak to January 26, 2017.
- The board adopted a shareholder rights plan, exercisable upon specified acquisition or offer thresholds beginning at 15% ownership, and expiring August 31, 2018. The plan could make an unsolicited change of control more difficult. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
- The company reported no legal claim requiring disclosure or accrual and no material off-balance-sheet arrangements. It stated it did not expect ballast-water convention compliance costs to be material.
Important facts for investors to verify
- Whether VLGC spot and pool rates recover, and how much the company’s 17 Helios Pool vessels are exposed to market-rate changes.
- Helios Pool distributions and collection of the $43.2 million receivable, including the related-party nature of the pool revenue and working-capital balance.
- Liquidity coverage for scheduled debt repayments, vessel maintenance and drydocking, given cash balances, restricted cash and current liabilities.
- Derivative cash settlements and valuation changes, including the effect of terminated RBS swaps and remaining unhedged LIBOR exposure.
- Vessel valuation assumptions behind the impairment analysis and the potential effect of weaker charter rates or vessel values.
- Share repurchases and the rights plan: the filing reports $13.0 million of treasury-stock purchases over nine months and 15,870 shares bought in the December quarter.