Dorian LPG Ltd. — Form 10-Q Summary
Business context and reporting period. Dorian owns and operates very large gas carriers transporting liquefied petroleum gas (LPG). The unaudited report covers the quarter and nine months ended December 31, 2018, the company’s fiscal third quarter. Its fleet comprised 22 VLGCs; 19 were fuel-efficient ECO-design vessels. Nineteen of the 22 vessels were in the Helios Pool as of January 25, 2019.
Financial performance and position
| Metric | Three months ended Dec. 31, 2018 | Prior-year quarter | Nine months ended Dec. 31, 2018 | Prior-year period |
|---|---|---|---|---|
| Revenue | $55.1 million | $44.5 million | $123.6 million | $120.3 million |
| Operating income (loss) | $9.3 million | $7.0 million | $(4.2) million | $3.2 million |
| Net income (loss) | $(6.2) million | $1.7 million | $(35.0) million | $(16.9) million |
| Diluted earnings (loss) per share | $(0.11) | $0.03 | $(0.64) | $(0.31) |
| Adjusted EBITDA | $27.2 million | $24.7 million | $50.3 million | $56.3 million |
| Average TCE rate per day | $30,108 | $22,833 | $22,688 | $21,199 |
| Fleet utilization | 90.0% | 95.6% | 89.8% | 92.3% |
- Revenue and operating drivers: Quarterly revenue rose 23.7%, mainly from higher spot-market rates and a 47.7% increase in net pool revenue, partly offset by lower utilization and reduced time-charter revenue. Nine-month revenue increased 2.7%. Higher bunker prices partly offset stronger TCE rates.
- Costs and earnings: Vessel operating expenses rose 6.2% in the quarter and 5.0% for nine months, with increased maintenance, spares and stores. Quarterly net loss included $7.8 million in BW Proposal professional and legal fees; nine-month fees were $10.0 million. Nine-month interest and finance costs increased to $30.5 million from $24.8 million.
- Cash flow: Operating activities used $4.4 million in the nine months, versus $40.9 million provided in the prior-year period. Management attributed the deterioration chiefly to working-capital changes, particularly amounts due from Helios Pool and the timing of pool distributions. Investing activities used $3.2 million; financing activities used $50.9 million. Cash, cash equivalents and restricted cash declined $58.8 million to $70.6 million.
- Liquidity and debt: At December 31, cash and cash equivalents were $34.9 million and non-current restricted cash was $35.6 million. Debt obligations were $726.1 million gross and $711.3 million net of deferred financing fees, including $64.0 million due within 12 months. Total liabilities were $732.1 million and shareholders’ equity was $927.5 million.
- Related-party exposure: Helios Pool receivables were $76.6 million, including $20.9 million of working capital contributed for vessel operations. The pool is jointly operated with Phoenix, and Dorian’s maximum stated exposure to pool losses is its receivable balance.
Material changes, outlook and risks
- Three Japanese vessel financings raised $65.1 million in the period; proceeds, together with cash on hand, supported repayment of the $66.9 million 2017 Bridge Loan. The vessel sale-and-bareboat-leaseback arrangements are accounted for as financing transactions, and the vessels remain on the balance sheet.
- Management said it expects cash on hand and operating cash flow to meet liquidity needs for at least the next 12 months, while noting that additional financing may be needed if those sources are insufficient. No specific earnings or revenue guidance is provided.
- The BW acquisition proposal and proxy contest were withdrawn on October 8, 2018, but generated $10.0 million of fees over nine months. The filing warns that continued uncertainty could disrupt operations and affect counterparties, employees and the share price.
- Scrubber contracts for ten VLGCs carried $12.3 million of remaining commitments at December 31, 2018, including $11.1 million due within one year. The company also identified future costs from environmental rules, drydockings and vessel maintenance; IMO low-sulfur fuel requirements were scheduled to take effect in 2020.
- Independent appraisals indicated potential impairment indicators for 21 vessels, but management recorded no impairment after its recoverability analysis. Its sensitivity analysis estimated a $34.5 million impairment on six vessels if assumed long-run TCE rates fell 30%; a 25% reduction would not trigger impairment in that analysis.
- Interest-rate swaps hedge a majority, but not all, of exposure on the 2015 Debt Facility. Derivative fair-value changes were volatile: the quarter included a $6.7 million unrealized loss, versus a $3.8 million unrealized gain a year earlier.
- The filing reports no claim requiring disclosure or a provision and no material change in internal control over financial reporting. It also states that dividends and share repurchases under the 2015 Debt Facility are temporarily restricted until the specified equity-offering threshold is met or May 31, 2019, whichever occurs first.
Important facts for investors to verify
- Whether Helios Pool collections and distributions improve, given the sizable related-party receivable and its effect on operating cash flow.
- Whether improved spot rates persist and offset lower utilization, higher operating costs and bunker-price volatility.
- Remaining debt-service requirements, covenant and dividend restrictions, and the cash impact of the Japanese financings and bridge-loan repayment.
- Actual scrubber installation costs and schedule, along with other environmental compliance and drydocking expenditures.
- The assumptions behind vessel impairment testing, especially forecast TCE rates, utilization, operating costs and vessel values.
- The company’s ability to fund near-term liquidity needs from operations and cash, as management’s 12-month expectation is not a guarantee.