DORIAN LPG LTD. quarterly report, Q2 FY2017

Dorian LPG Ltd. — Form 10-Q Summary

Reporting period: Fiscal second quarter and six months ended September 30, 2016; filed October 27, 2016. Dorian owns and operates 22 very large gas carriers (VLGCs), including 19 fuel-efficient ECO vessels. Eighteen vessels were in the Helios LPG Pool at quarter-end.

Financial performance

Metric	Three months ended Sep. 30, 2016	Prior-year quarter	Six months ended Sep. 30, 2016	Prior-year period
Revenue	$33.6 million	$74.9 million	$84.1 million	$110.6 million
Operating income (loss)	$(4.2) million	$48.7 million	$8.2 million	$62.3 million
Net income (loss)	$(7.1) million	$41.2 million	$(8.4) million	$54.9 million
Diluted EPS	$(0.13)	$0.72	$(0.16)	$0.96
Adjusted EBITDA	$13.3 million	$57.7 million	$42.8 million	Prior-year value is inconsistent across filing tables

Revenue fell 55.2% in the quarter and 23.9% for the six-month period. Management attributed the decline chiefly to lower VLGC rates and utilization on vessels operating in both comparable periods; nine additional newbuildings partly offset the declines. Quarterly operating and net margins were approximately -12.5% and -21.3%, respectively; six-month margins were approximately 9.8% and -10.0%.

Quarterly time charter equivalent (TCE) rate was $19,137 per day, versus $68,330 a year earlier; six-month TCE was $22,921, versus $63,746.
Quarterly fleet utilization was 85.7%, versus 98.0%; six-month utilization was 89.9%, versus 94.7%.
Vessel operating expense per vessel per calendar day declined to $8,073 in the quarter and $8,056 for six months. Depreciation rose substantially as more vessels entered service.
Interest and finance costs rose to $7.2 million in the quarter and $14.2 million for six months, principally reflecting increased debt outstanding and financing costs. Derivative fair-value movements were material: a quarterly unrealized gain of $6.5 million partly offset realized swap losses.

Cash flow, debt and liquidity

Six-month operating cash flow was $44.7 million, compared with $46.8 million a year earlier. Investing used $1.4 million, versus $486.3 million, largely because prior-year spending included newbuilding payments. Financing used $46.2 million, including $33.3 million of debt repayments and $12.9 million of share repurchases.
Cash and cash equivalents were $43.6 million at September 30, 2016, down from $46.4 million at March 31; restricted cash was $50.8 million.
Total debt obligations were $803.1 million, or $781.1 million net of deferred financing fees. $66.0 million of debt was scheduled for repayment over the following 12 months. Total liabilities were $819.2 million and shareholders’ equity was $966.8 million.
Receivables from the Helios Pool were $50.0 million, including $18.7 million of contributed working capital; the company states its maximum exposure to pool losses is limited to its receivables. Pool receivables and timing of distributions are relevant to liquidity.
Management expected to meet liquidity needs through cash on hand, operating cash flow and/or external financing. Debt agreements restrict dividends, and certain vessel-owning subsidiaries require lender consent to pay them.

Material changes, outlook and risks

The operating environment weakened materially: the Baltic Exchange LPG spot index fell 87% from its July 2014 peak to a September 2016 low, and was $27.500 on October 26, 2016. Management warned that further or sustained low rates could impair profitability, debt-service capacity and ability to pay dividends.
The Panama Canal expansion was completed in June 2016. Shorter U.S. Gulf-to-Asia voyages may increase effective vessel supply and pressure TCE rates.
Independent vessel appraisals indicated impairment indicators, but the company recorded no impairment after its recoverability analysis. Its sensitivity analysis estimated no impairment at TCE rates 30% below the 10-year historical average; a 40% reduction would trigger an estimated $266.4 million impairment on 19 vessels.
Four vessels were on fixed time charters; the remainder were employed in the pool or pool-related arrangements. Fixed time-charter receipts under non-cancelable contracts totaled $137.8 million, including $50.8 million due within one year.
The company repurchased 138,400 shares during the quarter at an average $7.22 per share. The $100 million authorization had $66.4 million remaining at quarter-end and ran through December 31, 2016.
No specific earnings or rate guidance was provided. Management described the business as capital intensive and identified operating costs, drydockings, debt repayments, working capital and potential repurchases or acquisitions as funding needs. It reported effective disclosure controls and no material changes in internal control over financial reporting.
Interest-rate exposure remains despite swaps: approximately 99% of RBS facility exposure was hedged, while $542.4 million of 2015 facility principal was hedged. A 20-basis-point LIBOR move was estimated to change interest expense on unhedged debt by about $0.3 million over the following 12 months.
The filing reported no legal claim requiring disclosure or a provision and no off-balance-sheet arrangements. A shareholder rights plan could be triggered at 15% ownership and was subject to shareholder ratification by December 20, 2016.

Important facts for investors to verify

Current and forward VLGC spot rates, pool distributions, utilization and the effect of Panama Canal-enabled capacity on market supply.
Cash availability, Helios Pool receivable collection and working-capital requirements, covenant headroom, and the timing and terms of debt repayments.
Assumptions underlying vessel recoverability and the sensitivity of appraised vessel values and projected cash flows to lower TCE rates.
Reconcile the filing’s inconsistent prior-year six-month Adjusted EBITDA figures: the selected-data table shows $77.2 million, while the reconciliation shows $77.1 million.
Remaining share-repurchase authorization, dividend restrictions and any shareholder action on the rights plan.