Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Three and nine months ended September 30, 2017
Filing Date: December 5, 2017
Business Overview: Dynagas LNG Partners LP is a master limited partnership owning and operating a fleet of six liquefied natural gas (LNG) carriers. The fleet operates primarily on fixed multi-year time charter contracts, providing revenue visibility independent of commodity price fluctuations.
Key Financial Metrics
| Metric (in thousands, except per unit) | 3 Months Ended Sept 30, 2017 | 9 Months Ended Sept 30, 2017 |
|---|---|---|
| Voyage Revenues | $33,471 | $104,538 |
| Operating Income | $15,893 | $46,520 |
| Net Income | $3,983 | $11,714 |
| Adjusted Net Income | $7,047 | $26,172 |
| Adjusted EBITDA | $26,434 | $80,626 |
| Distributable Cash Flow | $11,295 | $38,129 |
| Earnings Per Common Unit (GAAP) | $0.06 | $0.16 |
| Adjusted EPS (Non-GAAP) | $0.15 | $0.57 |
| Cash and Cash Equivalents | $70,518 | $70,518 |
| Total Indebtedness | $728.8 million | $728.8 million |
| Available Liquidity | $100.5 million | $100.5 million |
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased 22.3% year-over-year for the quarter ($33.5M vs. $43.1M) and 18.6% for the nine-month period. This was driven by lower utilization (97% vs. 100%), the temporary spot market employment of the Clean Energy, and reduced charter rates on the Yenisei River and Lena River.
- Profitability Impact: Net income dropped significantly to $4.0M from $17.3M in the prior year quarter. Adjusted EBITDA decreased 25.4% to $26.4M.
- One-Time Costs: The quarter included $1.1 million in scheduled class survey and dry-dock costs for the vessel Amur River, which also resulted in off-hire days.
- Increased Interest Costs: Interest and finance costs rose 35.8% to $11.8M due to the refinancing of commercial bank facilities into a $480 million Term Loan B in May 2017, which carries a higher weighted average interest rate.
- Operating Efficiency: Vessel operating expenses decreased 8.2% to $6.2M due to crewing and technical efficiencies.
Guidance, Outlook, and Management Commentary
- Contract Backlog: The Partnership maintains a contracted revenue backlog of approximately $1.46 billion with a fleet-wide average remaining contract duration of 10 years.
- Utilization Outlook: As of December 5, 2017, the fleet was 92% contracted for 2017 and 75% contracted for both 2018 and 2019. Management expects to increase contract coverage as the LNG shipping market improves.
- Strategic Shift: Management highlighted a strategy to secure longer-term charters, even if priced lower than short-term spot rates, to enhance revenue visibility. The Clean Energy is expected to commence an approximate 8-year time charter with Gazprom in July 2018.
- Distributions: A quarterly cash distribution of $0.4225 per common unit was paid on October 19, 2017. A distribution of $0.5625 per Series A Preferred Unit was paid on November 13, 2017.
- Risks: Key risks include counterparty non-performance (revenue derived from limited charterers), fluctuations in charter rates, vessel breakdowns, and changes in bunker prices or regulatory rules.
Investor Verification Checklist
- Debt Structure: Verify the terms and interest rate implications of the $480 million Term Loan B refinanced in May 2017, which increased interest expenses.
- Contractual Obligations: Confirm the status of the Clean Energy transition from spot market to the 8-year Gazprom charter scheduled for July 2018.
- Non-GAAP Reconciliations: Review Appendix B for the reconciliation of Adjusted EBITDA and Distributable Cash Flow to GAAP Net Income, noting the exclusion of class survey costs and amortization.
- Liquidity Position: Assess the $100.5 million available liquidity against the $4.8 million debt repayable within one year and upcoming capital expenditure reserves.
- Charter Coverage: Monitor the 75% contract coverage for 2018 and 2019 to ensure no significant gaps in revenue visibility.