DORIAN LPG LTD. annual report, FY2019

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Dorian LPG Ltd. — FY2019 Form 10-K

Reporting period: Fiscal year ended March 31, 2019. This is an annual report, not a standalone quarterly filing; the fourth fiscal quarter ended March 31, 2019. Dorian owns and operates very large gas carriers (VLGCs), with revenue primarily generated through the Helios LPG Pool and time charters.

Business and financial results

  • Fleet: 23 VLGCs as of May 24, 2019, including 22 owned vessels and one chartered-in vessel. The owned fleet had aggregate capacity of about 1.842 million cbm.
  • FY2019 revenue: $158.0 million, down 0.8% from $159.3 million in FY2018. Helios Pool revenue was $120.0 million, up 12.2%; time-charter revenue was $37.7 million, down 24.8%. No revenue came from voyage charters outside the pool, compared with $2.1 million in FY2018.
  • FY2019 earnings: Operating loss of $8.0 million versus operating income of $3.8 million in FY2018; net loss of $50.9 million, or $0.93 per share, versus a net loss of $20.4 million, or $0.38 per share. Adjusted EBITDA, a non-GAAP measure, was $64.4 million versus $74.5 million.
  • Fourth-quarter results: Revenue was $34.5 million and net loss was $16.0 million, or $0.29 per share, for the three months ended March 31, 2019.
  • Operating metrics: TCE rate was $21,746 per day versus $21,966 in FY2018; fleet utilization was 89.9% versus 89.1%. Daily vessel operating expense rose to $8,329 from $8,009.
  • Cash flow: Operating cash flow was $8.9 million, down from $57.2 million. Investing cash outflow was $4.5 million and financing cash outflow was $67.0 million; cash, cash equivalents and restricted cash decreased by $62.9 million.
  • Liquidity and debt: Cash and cash equivalents were $30.8 million and non-current restricted cash was $35.6 million. Total debt obligations were $710.1 million, or $696.1 million net of deferred financing fees; $64.0 million of principal was due within 12 months. The company reported $658.0 million of debt as hedged or fixed and compliance with its financial covenants at year-end.
  • Balance sheet: Total assets were $1.625 billion, total liabilities $712.7 million and shareholders’ equity $912.7 million. Current assets were $82.6 million and current liabilities $79.4 million.

Changes, unusual items and outlook

  • The net loss widened year over year amid higher interest and finance costs ($40.6 million versus $35.7 million), an $7.8 million unrealized derivative loss (versus an $8.4 million gain), and $10.0 million of professional and legal costs related to BW LPG’s unsolicited acquisition proposal and proxy contest. BW withdrew its proposals on October 8, 2018.
  • Operating cash flow fell substantially, which management attributed mainly to the operating loss and working-capital timing, particularly amounts due from the Helios Pool. Pool receivables, net of amounts due, were $62.5 million at year-end, including $19.8 million of working capital contributed to the pool.
  • Management expected cash on hand and operating cash flow to meet liquidity needs for at least the next 12 months, while noting that additional financing might be needed and was not assured on acceptable terms. No quantified earnings or rate guidance is provided.
  • Fixed time-charter receipts under non-cancelable contracts totaled $56.6 million, including $29.1 million due within one year. The filing describes a balanced chartering strategy across time charters, pool employment, spot voyages and contracts of affreightment.
  • Scrubber purchase commitments were $10.9 million, and ballast-water-system commitments were $1.0 million. Six further vessels were expected to require ballast-water systems at an estimated $0.8 million per vessel over the following years. IMO sulfur limits taking effect in 2020 could also raise compliance or fuel costs.
  • Independent vessel appraisals indicated fleet market value was $103.8 million below carrying value at March 31, 2019. No impairment was recorded because management estimated future undiscounted cash flows supported carrying values; its sensitivity analysis indicated a 40% reduction in benchmark TCE assumptions could trigger an approximately $104.1 million impairment.
  • Key risks include volatile LPG spot rates and vessel values, high customer and pool concentration, leverage and refinancing/covenant exposure, variable interest rates and the LIBOR transition, and environmental regulation. The Helios Pool and one other charterer accounted for 76% and 14% of FY2019 revenue, respectively. The company had no dividend history and disclosed temporary dividend and repurchase restrictions under its debt amendment through the earlier of a qualifying equity offering or May 31, 2019.

Important facts for investors to verify

  1. Whether Helios Pool distributions and the $62.5 million net pool receivable convert to cash on schedule, and how much of revenue remains concentrated among the largest charterers.
  2. Debt maturity and repayment capacity, covenant headroom, restrictions on dividends, and the cost and terms of any refinancing.
  3. Actual charter rates, utilization and operating costs relative to the assumptions supporting the no-impairment conclusion.
  4. Timing and final costs of scrubber and ballast-water-system installations, and the effect of 2020 sulfur rules on fuel and operating costs.
  5. Whether the company continues to qualify for the disclosed U.S. shipping-income tax exemption and avoids passive foreign investment company status; both depend on facts and tax authorities’ interpretation.