Dorian LPG Ltd. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended June 30, 2020; comparisons are with the three months ended June 30, 2019 unless otherwise noted. Dorian owns and operates very large gas carriers (VLGCs) transporting LPG worldwide. Its fleet comprised 24 VLGCs, including two time-chartered-in vessels; 22 company vessels were employed in the Helios Pool as of July 31, 2020.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Revenue | $73.2 million | $61.2 million | Up 19.6% |
| Operating income | $22.5 million | $20.3 million | Up 11.1% |
| Net income | $12.2 million | $6.1 million | Up 100.3% |
| Diluted EPS | $0.24 | $0.11 | Up $0.13 |
| Adjusted EBITDA (non-GAAP) | $41.1 million | $38.4 million | Up 7.1% |
| Operating cash flow | $53.0 million | $8.7 million | Up $44.3 million |
- Operating margin was approximately 30.8%, versus 33.1%; net margin was approximately 16.6%, versus 9.9%.
- Average TCE rate increased to $41,249 per day from $29,671. Fleet utilization fell to 82.3% from 98.4% under the company’s methodology; the filing also presents an alternate methodology showing 100% utilization and a lower TCE rate.
- Revenue growth reflected higher average TCE rates, partly offset by lower utilization. Net pool revenue rose 33.6% to $66.9 million, while time-charter revenue declined 53.7% to $5.1 million.
- Total expenses increased to $51.1 million from $41.5 million. General and administrative expenses rose 67.8% to $11.3 million, including higher annual cash bonuses, stock compensation, salaries, and legal and professional fees. Charter-hire expense more than doubled to $4.7 million as time-chartered-in days increased.
- Cash and cash equivalents were $142.9 million at June 30, 2020, compared with $48.4 million at March 31. Current assets were $216.1 million and current liabilities $86.7 million. Cash, cash equivalents, and restricted cash totaled $146.1 million.
- Gross debt obligations were $659.7 million; debt net of deferred financing fees was $647.5 million, including $53.3 million due within 12 months. Total shareholders’ equity was $990.0 million.
- Investing cash outflow was $3.7 million, principally vessel capital expenditures. Financing cash flow was positive $9.3 million, reflecting borrowings and refinancing proceeds offset by debt repayments, financing costs, and share repurchases.
Material changes, outlook, and risks
- Management attributed stronger TCE rates to a more favorable employment mix, lower fuel prices, and reduced bunker prices. The benchmark LPG spot index averaged $41.484 per metric ton, down from $62.337. The quarter included a pool-profit reallocation that reduced reported TCE by $916 per day; excluding it, TCE increased by $12,494 year over year.
- Operating cash flow benefited significantly from working-capital movements, especially a reduction in amounts due from the Helios Pool. Pool distributions vary with voyage timing, spot rates, and bunker prices. Dorian reported $68.0 million due from the pool at quarter-end, including $24.2 million of contributed working capital.
- COVID-19 had not significantly affected operations through the filing date, but caused an approximately 60-day delay in one vessel’s drydocking in China. Management cited uncertain impacts on LPG demand, markets, crew changes, and global operations; it could not estimate the eventual financial effect.
- Management expected cash on hand and operating cash flow to meet liquidity needs for at least the next 12 months, while noting that additional financing or amendments could be needed if those sources prove insufficient. No specific earnings or revenue guidance was provided.
- On July 14, 2020, lenders amended the 2015 AR Facility, effective retroactively to June 30: eliminated the interest coverage covenant, lowered minimum liquidity to $27.5 million from $40 million, lowered minimum cash per mortgaged vessel to $1.0 million from $2.2 million, set minimum equity at $400 million, and increased the security value ratio requirement to 145% from 135%.
- Dorian refinanced the Cresques in April through a sale-and-bareboat-leaseback structure treated as financing; it received $52.5 million and the buyer retained a $19.0 million deposit. In July, Dorian gave notice to repurchase the Captain John NP for approximately $18.3 million, applying a retained $26.6 million deposit.
- Independent appraisals indicated possible impairment indicators for 13 VLGCs, but management recorded no impairment after its recoverability analysis. Its sensitivity analysis indicated a 40% decline in assumed historical-average TCE rates could trigger an approximately $1.5 million impairment on two vessels.
- Other exposures include variable-rate debt tied to LIBOR, vessel values and charter rates, customer and Helios Pool concentration, environmental compliance and scrubber costs, and the uncertain effects of COVID-19. Firm scrubber purchase commitments were $3.6 million; ballast-water-system commitments were $0.7 million. No material legal contingency requiring disclosure or accrual was identified.
Important facts for investors to verify
- Whether higher TCE rates and the improvement in earnings persist despite lower reported fleet utilization and volatile LPG shipping markets.
- The sustainability and timing of operating cash flow, including Helios Pool distributions and the large quarter-to-quarter working-capital effect.
- Compliance with the amended debt covenants, debt-service requirements, refinancing terms, and exposure to LIBOR and derivative settlements.
- Whether vessel appraisals, charter rates, or market conditions change enough to require impairment charges.
- COVID-19 effects on demand, vessel operations, crew changes, drydockings, and compliance spending.
- Capital allocation under the share repurchase authorization: approximately $49.3 million had been repurchased and $50.7 million remained authorized as of July 31, 2020; repurchases are discretionary.