Dynagas LNG Partners LP current report, Q1 FY2017

Business Context and Reporting Period

Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Press Release)
Reporting Period: Three months and full year ended December 31, 2016
Business Overview: Owner and operator of six liquefied natural gas (LNG) carriers employed on fixed multi-year time charter contracts. The fleet operates at 100% utilization.

Key Financial Metrics

Metric (in millions, except per unit) Q4 2016 Q4 2015 Full Year 2016 Full Year 2015
Voyage Revenues $41.4 $37.0 $169.9 $145.2
Net Income $15.5 $14.8 $66.9 $60.1
Adjusted Net Income $17.3 $15.0 $74.1 $60.9
Adjusted EBITDA $33.9 $28.5 $139.5 $113.2
Distributable Cash Flow $21.3 $18.0 $89.6 $72.4
Earnings per Common Unit $0.39 $0.37 $1.69 $1.60
Adjusted EPS (Common) $0.44 $0.38 $1.89 $1.63

Liquidity and Debt (as of Dec 31, 2016):
- Cash and Cash Equivalents: $82.6 million (includes $25.0 million restricted).
- Available Liquidity: $112.6 million (includes $30.0 million revolving credit facility).
- Total Indebtedness: $722.5 million ($32.5 million current).
- Working Capital Surplus: $7.1 million.

Material Changes vs. Prior Period

  • Revenue Growth: Full-year voyage revenues increased 17% to $169.9 million, driven by the acquisition of the Lena River in late 2015, which increased revenue-earning days.
  • Profitability: Adjusted EBITDA for the full year increased 23% to $139.5 million. Q4 Adjusted EBITDA rose 19% year-over-year.
  • Operational Efficiency: Fleet utilization reached 100% for both Q4 and the full year 2016. Average daily hire gross of commissions was approximately $78,250 per vessel in Q4 2016, slightly down from $78,900 in Q4 2015.
  • Operating Expenses: Vessel operating expenses increased by $0.5 million in Q4 2016 compared to Q4 2015, exclusively due to the addition of the Lena River.
  • Cash Flow: Net cash from operating activities decreased to $23.3 million in Q4 2016 from $28.7 million in Q4 2015, primarily due to negative working capital variations offsetting the cash contribution from the new vessel.

Guidance, Outlook, and Risks

Management Commentary: CEO Tony Lauritzen described 2016 as a "record financial year." The partnership intends to focus on obtaining additional contract coverage for 2017, managing operating expenses, and maintaining safe fleet operations.

Contract Backlog: As of February 27, 2017, the fleet is 86% contracted through 2017 and 75% contracted through 2018 and 2019. The estimated contracted revenue backlog is $1.56 billion with an average remaining contract duration of 10.7 years.

Distributions:

  • Common/Subordinated Units: $0.4225 per unit for Q4 2016 (paid Jan 19, 2017).
  • Series A Preferred Units: $0.5625 per unit (paid Feb 13, 2017).

Risks and Contingencies:

  • Contract Conditions: Certain contracts with Yamal Trade Pte. are subject to conditions that, if not satisfied, could lead to cancellation or amendment.
  • Market Risks: Fluctuations in charter rates, vessel values, bunker prices, and general market conditions.
  • Operational Risks: Potential for vessel breakdowns, off-hires, dry-docking downtime, and political disruptions to shipping routes.

Investor Verification Checklist

  • Contract Backlog Validity: Verify the status of conditions precedent for contracts with Yamal Trade Pte. and the risk of cancellation.
  • Debt Maturity Profile: Review the schedule for the $32.5 million of debt repayable within one year and refinancing plans.
  • Non-GAAP Reconciliations: Review Appendix B for the reconciliation of Adjusted EBITDA and Distributable Cash Flow to GAAP Net Income.
  • Capital Expenditures: Assess the adequacy of maintenance and replacement capital expenditure reserves used in the Distributable Cash Flow calculation.
  • Unit Conversion: Confirm the impact of the conversion of 14,985,000 subordinated units to common units on future earnings per unit calculations.