Dorian LPG Ltd. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2016, compared with the three months ended June 30, 2015. The company owns and operates very large gas carriers (VLGCs); its fleet comprised 22 vessels, including 19 ECO-design VLGCs. Eighteen vessels were deployed in the Helios Pool at quarter-end.
Financial and operating results
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $50.5 million | $35.6 million |
| Operating income | $12.4 million | $13.6 million |
| Net income (loss) | $(1.3) million | $13.7 million |
| Adjusted EBITDA (non-GAAP) | $29.6 million | $19.4 million |
| Operating cash flow | $29.8 million | $16.9 million |
| Investing cash flow | $(1.2) million | $(207.4) million |
| Financing cash flow | $(27.6) million | $120.3 million |
| Time charter equivalent (TCE) rate | $26,398/day | $55,474/day |
| Fleet utilization | 94.2% | 89.4% |
Revenue increased 41.7%, primarily because 14 newbuilding VLGCs contributed $30.4 million; lower VLGC rates and the sale of a pressurized gas carrier partly offset the increase. Net pool revenue rose to $37.7 million from $15.3 million, while voyage charter revenue fell to zero from $14.9 million. Operating income declined despite higher revenue. Revenue growth also came with substantially higher vessel operating expenses and depreciation as the fleet expanded. Operating margin was approximately 24.6%, versus 38.1% a year earlier; net margin was approximately -2.6%, versus 38.3%.
The net loss reflected higher interest and finance costs ($7.0 million versus $0.1 million) and derivative losses: $4.4 million unrealized and $2.3 million realized. The filing attributes the unrealized change chiefly to movements in forward LIBOR curves. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP earnings or operating cash flow.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $47.3 million and restricted cash was $50.8 million. Total assets were $1.82 billion and shareholders’ equity was $973.9 million.
- Total debt obligations were $820.7 million before $22.9 million of deferred financing fees; the balance-sheet carrying amount was $797.8 million. $66.0 million was scheduled for repayment within 12 months.
- Current assets were $96.4 million and current liabilities $86.1 million. Current assets included $44.6 million due from related parties; total Helios Pool receivables were $62.3 million, including $18.7 million of working capital contributions.
- Operating cash flow exceeded the prior-year quarter by $12.9 million, which management primarily attributed to working-capital timing. The company spent $11.9 million repurchasing treasury shares and repaid $15.7 million of debt during the quarter; cash increased by $0.9 million.
Material changes, outlook and risks
- Daily TCE fell about 52% year over year, even as utilization improved. Daily vessel operating expenses decreased to $8,040 from $10,203, partly due to newer vessels and lower crew-training costs.
- Management said liquidity needs—including vessel operations, maintenance, debt service and potential security repurchases—are expected to be met through cash on hand, operating cash flow and/or external financing. The filing gives no quantified earnings or revenue guidance.
- The June 2016 Panama Canal expansion allows VLGC transit and may shorten U.S. Gulf-to-Asia voyages by about 15 days. Management cautioned that this could increase available vessel capacity and pressure TCE rates.
- Independent appraisals indicated possible impairment indicators for 18 VLGCs, but management recorded no impairment after testing estimated cash flows. Its sensitivity analysis indicated no impairment at a 30% decline in daily TCE assumptions; a 40% decline would trigger an estimated $62.0 million impairment on 16 vessels. Vessel values and future rates remain uncertain.
- Most RBS facility exposure was hedged; the company had also hedged $552.2 million of 2015 Debt Facility principal. A hypothetical 20-basis-point LIBOR change was estimated to affect interest expense by approximately $0.3 million over the following 12 months on unhedged debt.
- Helios Pool operations and revenues are variable, and the company’s pool receivable is a significant credit exposure. The company reported no probable or reasonably possible legal claim requiring disclosure or provision. It repurchased 1,255,300 shares for $11.9 million in the quarter under its $100 million authorization; an additional 138,400 shares were repurchased for $1.0 million in July.
Important facts for investors to verify
- How much of the $62.3 million Helios Pool receivable was collected after quarter-end, and what are the pool’s operating and customer concentration risks?
- Whether market charter rates, vessel values and Canal-related capacity growth could weaken cash generation or lead to vessel impairment.
- Debt repayment schedules, covenant headroom, interest-rate swap exposure and the availability and cost of refinancing.
- Whether operating cash flow remains sufficient for debt service, maintenance and any further share repurchases, given the working-capital contribution to the quarter’s cash flow.
- The assumptions underlying management’s impairment analysis, particularly long-term TCE rates, utilization and residual vessel values.