Dorian LPG Ltd. — Form 10-Q Summary
Business context and reporting period. Unaudited results cover the three and six months ended September 30, 2015 (the company’s fiscal second quarter and first half). Dorian owns and operates LPG carriers, primarily very large gas carriers (VLGCs). A new 50%-owned joint venture, Helios LPG Pool LLC, began operations on April 1, 2015; pool revenue is reported as related-party revenue. As of September 30, the company had 11 newbuildings delivered under its program and eight newbuildings remaining under construction. Two more vessels were delivered in October; management then reported six remaining, with delivery dates through February 2016.
Financial performance and position
| Metric | Three months ended September 30 | Six months ended September 30 |
|---|---|---|
| Revenue | $74.9 million, versus $20.4 million in 2014 | $110.6 million, versus $36.2 million in 2014 |
| Operating income | $48.4 million, versus $3.5 million | $61.7 million, versus $8.7 million |
| Net income | $41.2 million; diluted EPS $0.72, versus $3.8 million and $0.07 | $54.9 million; diluted EPS $0.96, versus $7.4 million and $0.13 |
| Adjusted EBITDA | $57.7 million, versus $7.3 million | $77.2 million, versus $15.0 million |
| Operating margin / net margin | Approximately 64.5% / 55.0% | Approximately 55.8% / 49.6% |
Quarterly revenue growth was primarily attributable to vessels delivered since September 2014 and the introduction of Helios pool revenue. The quarter’s $49.3 million of pool revenue was related-party revenue. In the six-month comparison, net pool revenue was $64.7 million. TCE rates were $68,330 per day for the quarter and $63,746 for the half-year, compared with $45,716 and $42,560, respectively, in 2014. Fleet utilization was 98.0% for the quarter and 94.7% for the half-year.
- Expenses and unusual items: Quarterly vessel operating expense rose to $9.5 million as the fleet expanded, while expense per calendar day fell to $8,663 from $11,764. Depreciation and amortization increased with additional operating vessels. A $6.3 million quarterly net derivative loss (including $5.1 million unrealized) reduced reported earnings; the six-month derivative loss was $6.2 million.
- Cash flow: Six-month operating cash flow was $46.8 million, compared with $7.9 million in 2014. Investing cash use was $486.3 million, mainly newbuilding payments; financing cash provided $315.2 million, largely from debt drawdowns. Cash and cash equivalents decreased $124.5 million to $80.3 million.
- Liquidity and debt: September 30 restricted cash was $42.0 million. Total debt obligations were $528.3 million, of which $42.4 million was current; $338.6 million remained available under the 2015 Debt Facility. Current assets were $138.5 million and current liabilities $59.8 million. Vessels with a carrying value of $1,047.8 million were pledged as first-priority collateral.
Changes, outlook, and risks
Compared with 2014, results reflect a substantially larger operating fleet and improved TCE rates; the new Helios Pool also makes period comparisons less directly comparable. Management said it expected to fund approximately $252.0 million of remaining newbuilding payments using available cash and borrowings under the 2015 Debt Facility. The filing provides no earnings or revenue guidance. Management described a strategy combining multi-year time charters with spot and shorter-term employment, and said it may pursue further vessel acquisitions.
As of September 30, shipbuilding and supervision commitments totaled $405.5 million for eight newbuildings, expected to be settled within 12 months. Subsequent October deliveries reduced the remaining commitments to approximately $252.0 million for six vessels. In September, the company entered into swaps fixing $250 million of 2015 Debt Facility principal; $250 million of that facility remained exposed to floating rates at quarter-end. Management estimated that a 20-basis-point LIBOR change would alter interest expense on unhedged debt by approximately $0.3 million over the following 12 months, all else equal.
Key risks include vessel delivery delays or cost overruns, LPG shipping-market and charter-rate volatility, vessel oversupply, customer and counterparty concentration, dependence on continued access to financing, and debt covenants and debt service. The company reported $40.5 million receivable from Helios, including $6.6 million of contributed working capital; its stated maximum loss exposure to the pool was limited to that working-capital investment. Management reported no material off-balance-sheet changes and no legal claim requiring disclosure or a financial-statement provision. A $100 million share repurchase program was authorized through December 31, 2016; 352,100 shares were repurchased during the quarter for $4.3 million. Disclosure controls were judged effective.
Important facts for investors to verify
- Whether remaining newbuildings were delivered on schedule and within budget, and whether the stated funding plan covered all payment and operating needs.
- Cash availability after distinguishing unrestricted cash from restricted cash, and the terms, availability, and covenants of undrawn debt capacity.
- Collection and ongoing balance of the Helios Pool receivable, the pool’s operating results, and the implications of related-party revenue concentration.
- How charter rates, vessel utilization, and fleet supply affect earnings as the new vessels enter service.
- Debt-service exposure and the future earnings and cash-flow effects of interest-rate swaps, including derivative fair-value volatility.
- The remaining authorization and subsequent activity under the stock repurchase program, including October repurchases disclosed after quarter-end.