Dorian LPG Ltd. — Form 10-Q Summary
Business context and reporting period: Dorian owns and operates very large gas carriers (VLGCs) transporting liquefied petroleum gas worldwide. This unaudited filing covers the three months ended June 30, 2019, the first quarter of fiscal 2020, and compares results with the same quarter of 2018. At quarter-end, the company reported 23 VLGCs, including one time-chartered-in vessel; 19 company vessels participated in the Helios Pool.
Financial performance and position
- Revenue: $61.2 million, up 121.3% from $27.6 million. Net pool revenue rose to $50.1 million from $16.1 million; time-charter revenue was $11.0 million versus $11.5 million.
- Profit: Operating income was $20.3 million, compared with an operating loss of $13.2 million. Net income was $6.1 million, or $0.11 per diluted share, versus a net loss of $20.6 million, or $0.38 per share. Operating and net margins were approximately 33% and 10%, respectively.
- Adjusted EBITDA: $38.4 million, compared with $5.2 million. This is a non-GAAP measure and should not be treated as a substitute for GAAP results or cash flow.
- Operating indicators: TCE rate increased to $29,671 per day from $16,553; fleet utilization rose to 98.4% from 83.6%. Daily vessel operating expenses declined to $8,052 from $8,334.
- Cash flow: Operating activities generated $8.7 million, versus $10.6 million used in the prior-year quarter. Investing used $1.5 million and financing used $16.3 million, mainly for $16.0 million of debt repayments. Cash, cash equivalents and restricted cash decreased by $9.1 million to $57.4 million, including $21.7 million of unrestricted cash and $35.6 million of restricted cash.
- Debt and liquidity: Debt obligations were $694.1 million gross and $680.8 million net of deferred financing fees; $64.0 million was due within 12 months. Total liabilities were $700.0 million and shareholders’ equity was $919.1 million. Current assets of $92.9 million included $63.9 million due from related parties, principally the Helios Pool.
Material changes versus the prior-year quarter
- Higher spot-market rates, lower bunker prices and improved utilization drove the revenue increase and return to operating and net income. The Baltic Exchange LPG benchmark averaged $62.337 per metric ton versus $26.390.
- Net pool revenue accounted for most of the revenue growth. Pool receipts and working capital contributed to a $20.5 million operating-cash-flow use from increased amounts due from related parties.
- Interest and finance costs declined 6.5% to $9.7 million, primarily as average indebtedness fell to $707.9 million from $768.8 million.
- Derivative results swung to a $6.1 million unrealized loss from a $1.7 million gain, reflecting changes in forward LIBOR curves and swap notionals. Net derivative loss, including realized gains, was $5.0 million.
- General and administrative expenses fell 15% to $6.7 million, partly because employee cash-bonus approvals shifted in timing. The prior-year quarter also included $0.5 million of BW Proposal-related professional and legal fees; none were incurred this quarter.
Outlook, risks and unusual items
- Management expected cash on hand and operating cash flows to meet liquidity needs for at least the next 12 months, while noting that additional financing or credit-facility changes might be needed if available sources prove inadequate. There is no assurance such financing or modifications would be available on acceptable terms.
- On July 23, 2019, the company amended its 2015 debt facility. Minimum interest coverage is set at 2.00 through March 31, 2020 and 2.50 thereafter. If coverage falls below 2.50 during the specified period through March 31, 2020, minimum consolidated liquidity of $47.5 million applies.
- On August 5, 2019, the board authorized up to $50 million of common-stock repurchases through December 31, 2020. These are post-quarter events, not quarter-end cash uses under the new authorization.
- Scrubber contracts for ten vessels represented $10.0 million of remaining commitments, and ballast-water-system commitments for two vessels were $0.7 million. The filing notes potential material costs to comply with IMO low-sulfur rules effective January 1, 2020.
- Impairment indicators were identified for 18 VLGCs, but no impairment was recorded. Management’s sensitivity analysis indicated a 40% reduction in assumed 10-year average spot TCE rates would trigger an estimated $31.9 million impairment; a 30% reduction would not.
- Key risks include volatile LPG shipping rates and vessel values, reliance on the Helios Pool and related-party receivables, debt and covenant compliance, interest-rate exposure, customer credit, environmental compliance costs, and geopolitical disruption to shipping routes. The filing specifically cites heightened risks involving the Strait of Hormuz and other areas.
- The company reported no material legal claims requiring disclosure or provision. Disclosure controls were assessed as effective, and no material change in internal control over financial reporting was reported.
Most important facts for investors to verify
- Whether high TCE rates and utilization continue, and how much revenue depends on spot-market and Helios Pool performance.
- Collection timing and credit exposure for the $83.5 million of Helios Pool receivables disclosed at June 30, including $20.9 million of contributed working capital.
- Compliance with the amended interest-coverage and liquidity covenants, including the $47.5 million minimum-liquidity condition.
- Cash available after scheduled debt repayments, scrubber and ballast-water-system spending, and any stock repurchases.
- Vessel-value and impairment assumptions, given the identified impairment indicators and the disclosed sensitivity to lower TCE rates.