Dorian LPG Ltd. — Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended September 30, 2020; comparisons are with the periods ended September 30, 2019. The company owns and operates very large gas carriers (VLGCs) transporting LPG worldwide. Its fleet included 24 VLGCs, including two chartered-in vessels, and 22 of its vessels were in the Helios Pool as of October 28, 2020.
Financial performance
| Metric | Three months ended Sep. 30, 2020 | Three months ended Sep. 30, 2019 | Six months ended Sep. 30, 2020 | Six months ended Sep. 30, 2019 |
|---|---|---|---|---|
| Revenue | $54.7 million | $91.6 million | $127.9 million | $152.8 million |
| Operating income | $5.4 million | $49.3 million | $27.9 million | $69.5 million |
| Net income | $0.5 million | $40.7 million | $12.7 million | $46.8 million |
| Diluted EPS | $0.01 | $0.74 | $0.25 | $0.85 |
| Adjusted EBITDA | $22.3 million | $67.3 million | $63.4 million | $105.7 million |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $56.7 million | $60.8 million |
| Time charter equivalent (TCE) rate | $26,015/day | $47,623/day | $33,002/day | $38,321/day |
| Fleet utilization | 97.4% | 92.9% | 89.8% | 95.7% |
Quarterly operating and net margins were approximately 9.9% and 1.0%, respectively, compared with 53.8% and 44.4% a year earlier. Six-month operating and net margins were approximately 21.8% and 9.9%, versus 45.5% and 30.6%.
Balance sheet and liquidity
- At September 30, cash and cash equivalents were $145.1 million; current and non-current restricted cash totaled about $0.5 million. Current assets were $209.4 million and current liabilities $97.8 million, a current ratio of approximately 2.1.
- Debt obligations were $646.3 million gross and $634.5 million net of deferred financing fees, including $70.2 million due within 12 months. Total liabilities were $684.5 million and shareholders’ equity was $989.6 million.
- Six-month cash flow: operating activities provided $56.7 million; investing activities provided $7.4 million; financing activities used $6.1 million. Cash, cash equivalents and restricted cash increased by $58.2 million.
- Current assets include $55.1 million due from related parties. The company reported $76.8 million in receivables from the Helios Pool, including working capital contributions; maximum exposure to pool losses is limited to receivables from the pool.
Material changes and drivers
- Quarterly revenue declined 40.3%; six-month revenue declined 16.3%. Management attributed the reduction principally to lower spot-market rates and TCEs. Quarterly TCE fell by $21,608 per day, while fleet utilization improved; six-month utilization fell to 89.8% from 95.7%.
- Quarterly operating income fell to $5.4 million and net income to $0.5 million. Higher vessel operating expenses, charter hire and depreciation outweighed lower interest costs. Six-month general and administrative expenses increased 36.3%, mainly due to bonuses, compensation, insurance and legal and professional fees.
- Interest and finance costs decreased year over year, primarily from lower LIBOR and reduced average indebtedness. Derivative results were volatile: six-month unrealized gains were $3.5 million versus losses of $6.7 million in 2019, while realized derivative results were a $2.9 million loss versus a $1.7 million gain.
- Cash and cash equivalents rose from $48.4 million at March 31 to $145.1 million at September 30, supported by operating cash generation, investment maturity proceeds, and vessel and debt refinancing transactions.
Outlook, risks and notable items
- Management said it expects to meet liquidity needs for at least the next 12 months using cash on hand and operating cash flow. No numeric earnings or revenue guidance is provided.
- On April 29, 2020, the company amended and restated its debt facility, including a $155.8 million term loan and a revolving facility of up to $25 million. A July amendment eliminated the interest coverage covenant, lowered minimum liquidity to $27.5 million and minimum cash requirements to $1 million per mortgaged vessel, and increased the security value ratio to 145%. The company reported compliance with all financial covenants at quarter-end.
- COVID-19 had not materially affected operating activity through the filing date, apart from an approximately 60-day delay in one vessel’s drydocking in China. Management cited uncertainty around LPG demand, global activity, crew changes and future pandemic developments.
- Independent appraisals indicated potential impairment indicators for nine VLGCs, but management recorded no impairment, concluding carrying values were recoverable. Its sensitivity analysis estimated that a 45% reduction in assumed 10-year average spot rates could trigger an $11.6 million impairment.
- The company had $2.2 million of firm scrubber purchase commitments and $27.4 million of time-charter-in commitments. It identified regulatory compliance, vessel maintenance and drydocking, market rates, customer and pool performance, financing and interest-rate exposure among key risks.
- Subsequent events: on October 13, 2020, the company repurchased the Captain John NP for $18.3 million cash plus a $26.6 million deposit applied to the purchase. An interest rate swap amendment reduced the fixed rate from 1.933% to 1.0908% and extended maturity to March 2025.
Key facts for investors to verify
- Whether LPG spot rates and TCE performance recover, and how Helios Pool distributions and utilization develop.
- The collectability and concentration of related-party and Helios Pool receivables.
- Debt amortization, covenant headroom, refinancing terms and exposure to LIBOR/reference-rate transition; reported net debt excludes operating lease liabilities.
- Vessel operating costs, scheduled drydockings, scrubber and ballast-water commitments, and the assumptions underlying impairment recoverability.
- How COVID-19, LPG supply and demand, environmental rules and charter-market conditions affect operations and liquidity.
- Adjusted EBITDA and TCE are non-GAAP measures; review the company’s definitions and reconciliations alongside GAAP results.