Dorian LPG Ltd. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2018. The company owns and operates 22 very large gas carriers (VLGCs); 19 were in the Helios LPG Pool as of the reporting date. Financial statements are unaudited.
Financial performance and position
| Metric | Three months ended Sept. 30, 2018 | Six months ended Sept. 30, 2018 |
|---|---|---|
| Revenue | $40.8 million, up 17.5% year over year | $68.5 million, down 9.6% |
| Operating loss | $0.3 million | $13.5 million |
| Net loss / loss per share | $8.2 million / $0.15 | $28.8 million / $0.53 |
| Adjusted EBITDA | $17.9 million | $23.0 million |
| Operating cash flow | $(9.2) million for the six months |
Quarterly operating and net margins were approximately -0.8% and -20.0%; six-month margins were approximately -19.7% and -42.0%. Adjusted EBITDA is a non-GAAP measure and is not a substitute for cash flow or GAAP earnings.
- At September 30, cash and cash equivalents were $48.2 million; restricted non-current cash was $35.6 million. Current assets were $95.5 million versus current liabilities of $82.9 million.
- Debt obligations were $742.1 million gross and $726.5 million net of deferred financing fees, including $64.0 million due within 12 months. Total liabilities were $746.7 million; shareholders’ equity was $932.5 million.
- Six-month cash, cash equivalents and restricted cash fell $45.5 million to $83.9 million. Investing outflow was $1.2 million and financing outflow was $35.0 million.
- Vessel operating expenses rose 4.4% for the six months; daily vessel operating expense increased to $8,460 from $8,104. Interest and finance costs rose 27.7% to $20.5 million.
Changes versus prior comparable periods
- Second-quarter revenue increased 17.5%, mainly as average TCE rates rose to $20,973 from $18,015 and fleet utilization improved to 95.8% from 91.8%. Higher spot rates were a key driver.
- Six-month revenue declined 9.6%; average TCE fell to $18,923 from $20,334 and utilization eased to 89.7% from 90.7%. Management cited higher bunker prices, partly offset by stronger spot rates.
- Quarterly net loss narrowed to $8.2 million from $11.9 million. For the six months, net loss widened to $28.8 million from $18.6 million, including higher interest expense and no repeat of the prior-year $4.1 million debt-extinguishment gain.
- Operating cash flow shifted from $32.3 million provided in the prior-year six months to $9.2 million used, primarily reflecting working-capital timing and increased amounts due from the Helios Pool.
Outlook, risks and notable items
- Management said it expects to meet liquidity needs for at least the next 12 months using cash on hand and operating cash flow, but acknowledged additional financing or amendments to existing arrangements may be needed if sources are insufficient; there is no assurance financing will be available on acceptable terms.
- The company prepaid the $66.9 million 2017 bridge loan in June and refinanced three older vessels through Japanese sale-and-leaseback-style financings. These transactions brought in cash but carry fixed 6% interest and future repurchase obligations.
- Two vessels had scrubbers installed; the filing describes contracts for additional scrubber installations and reports $5.4 million of scrubber purchase commitments. The filing also refers to options on three vessels exercised in October; verify the final vessel count and commitment scope.
- IMO low-sulfur fuel requirements take effect January 1, 2020. Compliance may require higher-cost compliant fuel or scrubber investment. Ballast-water systems are expected on six vessels between 2019 and 2023, at an estimated $0.8 million per vessel.
- Independent appraisals indicated potential impairment indicators for 21 vessels, but management recorded no impairment after its recoverability analysis. Its sensitivity analysis estimated a $38.3 million impairment on seven vessels if assumed 10-year average TCE rates fell 30%; a 25% reduction would not trigger impairment under that analysis.
- Helios Pool receivables were $62.2 million, including $20.9 million of working capital. The company’s maximum stated exposure to pool losses is limited to its receivables. Related-party pool performance and collection timing are important liquidity considerations.
- BW LPG’s unsolicited acquisition proposal and proxy contest were withdrawn on October 8, 2018. Dorian incurred $2.1 million of related expenses during the six months and warned that uncertainty, disruption and further costs could continue.
- No quantified earnings or revenue guidance was provided. Management noted results fluctuate seasonally and quarterly results may not indicate full-year performance. No impairment was recorded; the company reported no legal claim requiring disclosure or accrual and no off-balance-sheet arrangements.
Key investor verification points
- Track Helios Pool receivables, cash conversion and related-party exposure, given negative operating cash flow and the large pool balance.
- Confirm liquidity available for the $64.0 million current debt portion, scrubber commitments and other maintenance or regulatory spending; distinguish unrestricted cash from restricted cash.
- Review debt maturities, interest-rate exposure and vessel repurchase obligations under the Japanese financings; most 2015 facility variable-rate exposure is hedged, but not all debt is.
- Assess the assumptions behind vessel impairment testing, especially future TCE rates, utilization, vessel values and the 30% downside sensitivity.
- Verify scrubber installation plans, costs and timing, and the effect of fuel and regulatory compliance costs on vessel economics.
- Monitor whether the withdrawn BW proposal and proxy contest lead to further costs or operational disruption.