Dorian LPG Ltd. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2022, the company’s fiscal first quarter. Comparative results are for the three months ended June 30, 2021. Financial statements are unaudited.
Business context
Dorian owns and operates very large gas carriers (VLGCs) transporting liquefied petroleum gas worldwide. At June 30, 2022, its fleet comprised 22 VLGCs, including two time-chartered-in vessels. Twenty of its vessels participated in the Helios Pool, a 50%-owned joint venture whose pool revenues are reported as related-party revenue.
Financial and operating performance
- Revenue: $76.8 million, up 22.0% year over year. Net pool revenue rose 27.2% to $70.2 million; time-charter revenue increased 16.8% to $6.2 million. Other revenue declined 83.2% to $0.4 million.
- Profit: Operating income was $28.9 million versus $13.3 million; net income was $24.8 million versus $5.9 million. Basic and diluted EPS were $0.62, compared with $0.14.
- Margins: Operating margin was approximately 37.7% and net margin approximately 32.3%, calculated from reported revenue and income.
- Adjusted EBITDA: $46.9 million, compared with $29.8 million. This is a company-defined non-GAAP measure and should not be viewed as a substitute for GAAP results or cash flow.
- Rates and utilization: Average TCE rate increased to $39,608 per day from $31,571, primarily reflecting higher spot rates. Fleet utilization edged down to 95.9% from 96.1%. Average very low sulfur fuel oil prices rose to $955 per metric ton from $508.
- Costs: Vessel operating expenses fell 15.8% to $17.1 million, partly because of a smaller fleet following vessel sales; daily vessel operating costs declined to $9,378 from $10,131. Charter-hire expense rose 54.0% to $5.4 million. General and administrative expense increased 17.1% to $9.4 million, including $1.6 million of executive cash bonuses expensed and paid during the quarter.
- Interest and derivatives: Interest and finance costs increased 40.9% to $8.0 million, attributed mainly to higher rates and average debt. Unrealized derivative gains were $2.5 million; realized derivative losses were $0.1 million.
- Cash flow: Operating cash flow was $34.1 million, down from $38.1 million. Investing activities used $6.8 million, including $8.8 million of vessel and construction capital expenditures, partly offset by $2.0 million from investment-security sales. Financing activities used $108.3 million, including $99.9 million of dividends and $56.4 million of debt repayments, partially offset by $50.0 million of Cougar financing proceeds. Cash and restricted cash decreased $81.2 million.
- Liquidity and debt: Cash and cash equivalents were $155.5 million at June 30. Gross debt obligations were $663.7 million; debt net of deferred financing fees was $657.0 million, including $51.9 million due within 12 months. The company reported compliance with covenants under its existing facilities. Current assets were $230.2 million and current liabilities $71.7 million.
- Balance sheet: Total assets were $1.523 billion and shareholders’ equity $844.3 million. Related-party receivables included a $79.6 million net receivable from the Helios Pool, for which the company’s stated maximum loss exposure is limited to its receivables.
Material changes and significant transactions
- On April 21, the company prepaid $25.0 million of its 2015 AR Facility. In May it refinanced Cougar through a 10-year bareboat charter-back transaction, receiving $50.0 million in cash and applying $20.0 million to repay the 2015 AR Facility. Cougar remains recorded as an asset; its financing has a floating rate of SOFR plus 2.45%.
- The company declared and paid an irregular $2.50-per-share dividend totaling approximately $100.3 million. It repurchased approximately 50,000 shares under its $100 million authorization for an aggregate $0.7 million by quarter-end; quarterly share purchases also included shares reacquired for tax withholding.
- After quarter-end, Dorian repurchased Corvette on July 21 for $42.2 million, including fees, applying a $14.0 million deposit toward the price. On July 29, it entered into a $260 million debt facility: a $240 million, seven-year term loan at SOFR plus 2.20% and a revolving facility of up to $20 million. The facility is intended to refinance debt and support the Corvette and planned Concorde transactions.
- Dorian gave notice in June to repurchase Concorde for approximately $41.2 million, including fees, with a $14.0 million deposit applied; completion was expected around September 6, 2022. The company also announced an irregular $1.00-per-share dividend after quarter-end, totaling approximately $40.1 million and payable around September 2, 2022.
- A dual-fuel VLGC under construction is expected to be delivered in March 2023 under a 13-year bareboat charter. Approximately $1.0 million of related commitments remained at quarter-end. The company also reported $231.6 million of time-charter-in commitments, including future newbuilding vessels.
Outlook, commentary, and risks
Management said it expects cash on hand and operating cash flow to meet liquidity needs for at least the next 12 months, while noting that financing needs could require additional borrowing, equity financing, or amendments to existing arrangements. No earnings or rate guidance was provided. Management attributed improved revenue mainly to higher TCE rates despite slightly lower utilization, and lower operating cash flow mainly to working-capital timing, including Helios Pool distributions.
Key risks include volatile LPG shipping rates and vessel values, fuel and operating costs, interest-rate exposure and LIBOR transition, dependence on charterers and the Helios Pool, debt and refinancing requirements, vessel aging and maintenance, regulatory and decarbonization costs, and geopolitical, pandemic, supply-chain, and trade disruptions. The filing reports no impairment charge and no legal claim requiring disclosure or provision. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Actual performance and collection timing of Helios Pool receivables, including the reported $79.6 million net pool receivable and related-party revenue concentration.
- Execution and final economics of the 2022 Debt Facility, including refinancing of the 2015 AR Facility and Concorde, and the effect of floating SOFR-based borrowing costs.
- Cash available after the large irregular dividends, debt repayments, vessel repurchases, and remaining capital and charter commitments.
- Whether higher spot rates persist and how fuel prices, utilization, and pool distributions affect TCE rates and operating cash flow.
- Completion and funding of the Concorde repurchase and delivery of the dual-fuel newbuilding and planned time-chartered-in vessels.