Dorian LPG Ltd. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2021, the first quarter of fiscal 2022 (fiscal year ended March 31). Comparatives are for the three months ended June 30, 2020. The interim financial statements are unaudited.
Business context
Dorian owns and operates very large gas carriers (VLGCs) transporting liquefied petroleum gas worldwide. At June 30, 2021, its fleet comprised 23 VLGCs, including one time-chartered-in vessel; 12 of its 19 ECO-design vessels had scrubbers. Twenty-one company vessels were in the Helios Pool at July 31. Pool revenue depends on vessel performance, operating days, spot and time-charter markets, and pool distributions.
Financial performance and liquidity
| Metric | Three months ended June 30, 2021 | Prior-year period |
|---|---|---|
| Total revenue | $63.0 million | $73.2 million |
| Operating income | $13.3 million | $22.5 million |
| Net income | $5.9 million | $12.2 million |
| Diluted EPS | $0.14 | $0.24 |
| Adjusted EBITDA (non-GAAP) | $29.8 million | $41.1 million |
| Operating cash flow | $38.1 million | $53.0 million |
- Approximate operating margin was 21.1%, versus 30.8% a year earlier; approximate net margin was 9.3%, versus 16.6%.
- Average TCE rate fell to $31,571 from $41,249; fleet utilization increased to 96.1% from 82.3%. Daily vessel operating expense rose to $10,131 from $8,686.
- At June 30, cash and cash equivalents were $78.3 million; total assets were $1.565 billion and shareholders’ equity was $938.5 million. Current assets were $180.9 million and current liabilities $88.1 million.
- Total debt obligations were $589.1 million, or $579.1 million net of deferred financing fees; $51.8 million was classified as current. Debt declined from $602.1 million at March 31. The company reported compliance with all financial covenants.
- Investing cash outflow was $12.0 million, including $9.8 million for vessel construction and capital expenditures and $2.3 million for investment securities. Financing cash outflow was $27.1 million, including $13.0 million of debt repayments and $14.1 million of share repurchases. Cash, cash equivalents and restricted cash decreased $1.1 million to $83.7 million.
Material changes and notable items
- Revenue declined 14.0%, primarily due to lower average TCE rates and fleet availability, partly offset by higher utilization. Net pool revenue fell 17.6%; time-charter revenue rose 5.1% and other revenue rose 112.4%.
- Management attributed weaker TCE rates primarily to higher bunker prices, partly offset by stronger spot-market rates. Average very-low-sulfur fuel oil prices cited rose from $272 to $508 per metric ton.
- Vessel operating expense increased, principally due to crew wages and related costs—including COVID-related crew travel and medical costs—and repairs and maintenance. G&A fell 28.9%, mainly reflecting lower cash bonuses and stock-based compensation.
- Interest and finance costs declined 37.8%, reflecting lower average debt, a reduced financing margin and prior-year accelerated financing-cost amortization.
- The company classified the 2006-built Captain Markos NL, with a $39.0 million carrying value, as held for sale after entering a sale agreement; completion was expected within 12 months. Depreciation was suspended, and no gain or loss had been recorded at quarter-end.
- During the quarter, the company repurchased shares for approximately $14.1 million. It reported $33.7 million of remaining authorization under its repurchase program at June 30.
- Subsequent to quarter-end, the board declared an irregular $1.00-per-share cash dividend, totaling over $40 million, payable on or about September 8, 2021. Future dividends are discretionary.
Outlook, risks and contingencies
- Management said it expected cash on hand and operating cash flow to meet liquidity needs for at least the next 12 months. Needs include debt service, maintenance and drydockings, environmental compliance, and commitments for a newbuilding. The filing cautions that additional financing may not be available on acceptable terms if required.
- A dual-fuel VLGC is expected to be delivered in March 2023 under a 13-year bareboat charter. Approximately $17.0 million of related commitments remained at June 30; construction had not commenced. Scrubber and ballast-water-system commitments were $1.3 million and $0.5 million, respectively.
- COVID-19 and the Delta variant could affect operations, crew costs, LPG shipping demand and cash flows; the duration and financial impact were uncertain. Other stated risks include volatile freight rates and fuel prices, vessel values and aging, charterer and pool counterparty credit, regulation and environmental compliance, interest-rate exposure, and access to financing.
- The company had $64.5 million of net receivables from the Helios Pool, including contributed working capital; its maximum loss exposure to the pool was limited to those receivables. Related-party and pool balances merit attention.
- A disputed charterer claim regarding a vessel’s readiness to load cargo resulted in a $4.0 million contingent liability recorded in accrued liabilities.
- No vessel impairment was recorded. Management stated that independent appraisals indicated no impairment at June 30. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Reconcile the MD&A statement that primary capital sources included $87.6 million of cash generated from operations with the cash-flow statement’s $38.1 million of net cash provided by operating activities; the filing text does not clearly reconcile these figures.
- Track Helios Pool collections and related-party receivables, and assess the impact of pool distributions and market conditions on reported cash flow and revenue.
- Monitor TCE rates, bunker costs, fleet utilization, and rising vessel operating costs for evidence of margin recovery or further deterioration.
- Review the Captain Markos NL sale outcome, the newbuilding’s construction progress and funding, and scheduled debt repayments and covenant compliance.
- Confirm the $1.00 dividend payment and consider that it was expressly described as irregular, not a commitment to recurring dividends.
- Follow developments in the $4.0 million charter dispute and the ongoing operational and financial effects of COVID-19 and environmental requirements.