Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Three months and year ended December 31, 2017
Filing Date: February 16, 2018
Business Overview: The Partnership owns and operates a fleet of six liquefied natural gas (LNG) carriers employed primarily on multi-year time charters. As of February 15, 2018, the fleet had an aggregate carrying capacity of approximately 914,000 cubic meters.
Key Financial Metrics
| Metric (in thousands, except per unit) | 3 Months Ended Dec 31, 2017 | Year Ended Dec 31, 2017 |
|---|---|---|
| Voyage Revenues | $34,452 | $138,990 |
| Net Income | $5,625 | $17,339 |
| Adjusted Net Income | $7,559 | $33,731 |
| Adjusted EBITDA | $26,919 | $107,545 |
| Distributable Cash Flow | $11,793 | $49,922 |
| Earnings Per Common Unit (GAAP) | $0.11 | $0.27 |
| Adjusted EPS (Non-GAAP) | $0.16 | $0.74 |
| Cash and Cash Equivalents | $67,464 (as of Dec 31, 2017) | |
| Total Indebtedness | $727.6 million (as of Dec 31, 2017) | |
| Available Liquidity | $97.5 million (as of Dec 31, 2017) |
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased 16.8% to $34.5 million in Q4 2017 compared to $41.4 million in Q4 2016. This was driven by lower charter rates for the vessel Clean Energy on the spot market and reduced charter hire rates on the Yenisei River and Lena River effective November 2016.
- Profitability Drop: Net income fell 63.7% to $5.6 million in Q4 2017 from $15.5 million in the prior year. Adjusted Net Income decreased 56.5% to $7.6 million.
- Increased Interest Costs: Interest and finance costs rose 33.3% to $11.8 million in Q4 2017 from $8.9 million in Q4 2016, primarily due to the Term Loan B facility entered into in May 2017.
- Operating Expenses: Vessel operating expenses remained relatively flat at $6.7 million for both periods, with a daily rate of $12,192 in 2017 versus $12,149 in 2016.
- Utilization: Fleet utilization was 99.3% in Q4 2017 compared to 100% in Q4 2016.
Guidance, Outlook, and Management Commentary
- Contract Backlog: The Partnership reported significant revenue visibility with 85% of the fleet contracted through 2018, 92% through 2019, and 100% through 2020. The estimated contracted revenue backlog is approximately $1.49 billion with an average remaining contract term of 10.4 years.
- New Charter: A new three-year charter agreement was secured for the Arctic Aurora with Statoil ASA, expected to commence in Q3 2018 following a special survey.
- Strategic Shift: Management noted that Q4 2017 earnings were impacted by the temporary spot market employment of the Clean Energy and rate reductions on two other vessels. However, these decisions secured a long-term 8-year charter with Gazprom for the Clean Energy, enhancing long-term revenue stability.
- Distributions: A quarterly cash distribution of $0.4225 per common unit was paid for Q4 2017. A distribution of $0.5625 per Series A Preferred Unit was also paid.
- Outlook: Management expects to increase contract coverage in 2018 as the LNG shipping market improves. Revenues are derived from fixed day rates and are not linked to commodity price fluctuations.
Investor Verification Checklist
- Debt Servicing: Verify the impact of the Term Loan B facility on future interest expenses and cash flow coverage ratios.
- Charter Rate Volatility: Confirm the specific day rates and terms for the Clean Energy under the new Gazprom charter versus the spot market rates experienced in Q4 2017.
- Capital Expenditures: Review upcoming dry-docking and special survey costs, particularly for the Arctic Aurora scheduled for Q3 2018.
- Liquidity Position: Assess the $30.0 million revolving credit facility availability and its expiration in November 2018.
- Non-GAAP Reconciliations: Review Appendix B for the reconciliation of Adjusted EBITDA and Distributable Cash Flow to GAAP Net Income to understand the magnitude of non-cash adjustments.