Dorian LPG sees profit grow

Dorian LPG

Dorian LPG, a leading owner and operator of modern very large gas carriers (VLGCs), reported its financial results for the three and six months ended September 30, 2019.

Highlights for the Second Quarter Fiscal Year 2020

  • Revenues of $91.6 million and Time Charter Equivalent (“TCE”)(1) rate for our fleet of $47,623 for the three months ended September 30, 2019, compared to revenues of $40.8 million and TCE rate of $20,973 for the three months ended September 30, 2018.
  • Net income of $40.7 million, or $0.74 earnings per diluted share (“EPS”), and adjusted net income(1) of $41.4 million, or $0.75 adjusted earnings per diluted share (“adjusted EPS”),(1) for the three months ended September 30, 2019.
  • Adjusted EBITDA(1) of $67.3 million for the three months ended September 30, 2019.
  • Completed the installation of exhaust gas cleaning systems (commonly referred to as “scrubbers”) on the Comet and the Corsair(2)
  • Repurchased $6.2 million of shares of our common stock under the $50 million stock repurchase program our Board of Directors authorized on August 5, 2019.

(1) TCE, adjusted net income, adjusted EPS and adjusted EBITDA are non-U.S. GAAP measures. Refer to the reconciliation of revenues to TCE, net income to adjusted net income, EPS to adjusted EPS and net income to adjusted EBITDA included in this press release under the heading “Financial Information.”

(2) Comet left drydock on October 11, 2019.

John C. Hadjipateras, Chairman, President and Chief Executive Officer of the Company, commented, “In this quarter, our EBITDA was 75% higher and our realized TCE rate was 60% higher compared to our fiscal year 2020 first quarter. Expansion of U.S. export capacity and increasing demand in Asia from both the domestic and petchem sectors continue to have a positive impact on freight rates, and our market outlook remains positive. We now own four scrubber-equipped ships and expect a further five within the next three months. I am confident that the professionalism of our people and the quality of our ships will earn good returns for our shareholders.”

Second Quarter Fiscal Year 2020 Results Summary

Net income amounted to $40.7 million, or $0.74 per diluted share, for the three months ended September 30, 2019, compared to a net loss of $(8.2) million, or $(0.15) per diluted share, for the three months ended September 30, 2018.

Adjusted net income amounted to $41.4 million, or $0.75 per diluted share, for the three months ended September 30, 2019, compared to an adjusted net loss of $(9.2) million, or $(0.17) per diluted share, for the three months ended September 30, 2018. Net income for the three months ended September 30, 2019 is adjusted to exclude an unrealized loss on derivative instruments of $0.7 million. Please refer to the reconciliation of net income/(loss) to adjusted net income/(loss), which appears later in this press release.

The $50.6 million increase in adjusted net income/(loss) for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, is primarily attributable (i) to an increase of $50.8 million in revenues, (ii) professional and legal fees related to the BW Proposal (defined below) of $1.8 million that did not recur, and (iii) a decrease of $0.9 million in interest and finance costs partially offset by (iv) increases of $2.1 million in charter hire expenses and $0.5 million in voyage expenses, and (v) a decrease of $0.3 million in other income—related parties.

The TCE rate for our fleet was $47,623 for the three months ended September 30, 2019, a 127.1% increase from a TCE rate of $20,973 from the same period in the prior year, primarily driven by increased spot market rates along with a reduction of bunker prices. Please see footnote 6 to the table in “Financial Information” below for information related to how we calculate TCE. Total fleet utilization (including the utilization of our vessels deployed in the Helios Pool) decreased from 95.8% in the quarter ended September 30, 2018 to 92.9% in the quarter ended September 30, 2019.

Vessel operating expenses per day remained relatively flat at $8,594 for the three months ended September 30, 2019 compared to $8,585 in the same period in the prior year. Please see “Vessel Operating Expenses” below for more information.

Revenues

Revenues, which represent net pool revenues—related party, time charters and other revenues earned by our vessels, were $91.6 million for the three months ended September 30, 2019, an increase of $50.8 million, or 124.5%, from $40.8 million for the three months ended September 30, 2018. The increase is primarily attributable to an increase in average TCE rates, partially offset by fleet utilization. Average TCE rates increased from $20,973 for the three months ended September 30, 2018 to $47,623 for the three months ended September 30, 2019, primarily as a result of higher spot market rates during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 along with a reduction in bunker prices. The Baltic Exchange Liquid Petroleum Gas Index, an index published daily by the Baltic Exchange for the spot market rate for the benchmark Ras Tanura-Chiba route (expressed as U.S. dollars per metric ton), averaged $65.991 during the three months ended September 30, 2019 compared to an average of $40.245 for the three months ended September 30, 2018. The average price of heavy fuel oil (expressed as U.S. dollars per metric tonnes) from Singapore and Fujairah decreased from $467 during the three months ended September 30, 2018 to $417 during the three months ended September 30, 2019. Our fleet utilization decreased from 95.8% during the three months ended September 30, 2018 to 92.9% during the three months ended September 30, 2019.

Charter Hire Expenses

Charter hire expenses for the vessel that we charter in from a third party were $2.1 million for the three months ended September 30, 2019. No such costs were incurred during the three months ended September 30, 2018.

Vessel Operating Expenses

Vessel operating expenses were $17.4 million during the three months ended September 30, 2019, or $8,594 per vessel per calendar day, which is calculated by dividing vessel operating expenses by calendar days for the relevant time-period for the vessels that were in our fleet. This was relatively flat when compared to the three months ended September 30, 2018 as vessel operating expenses per vessel per calendar day increased by $9 from $8,585 for the three months ended September 30, 2018 to $8,594 for the three months ended September 30, 2019.

General and Administrative Expenses

General and administrative expenses were $5.9 million for the three months ended September 30, 2019, an increase of $0.2 million, or 3.6%, from $5.7 million for the three months ended September 30, 2018. This increase was due to a shift in the timing of approvals in cash bonuses to certain employees during the current period compared to the prior year period and resulted in an increase of $0.9 million in cash bonuses. This increase was partially offset by reductions of $0.4 million in stock-based compensation and $0.3 million in other general and administrative expenses.

Professional and Legal Fees Related to the BW Proposal

In 2018, BW LPG Limited and its affiliates (“BW”) made an unsolicited proposal to acquire all of our outstanding common shares and, along with its affiliates, commenced a proxy contest to replace three members of our Board of Directors with nominees proposed by BW. BW’s unsolicited proposal and proxy contest were subsequently withdrawn on October 8, 2018 (the “BW Proposal”). Professional (including investment banking fees) and legal fees related to the BW Proposal were $1.8 million for the three months ended September 30, 2018. No such costs were incurred during the three months ended September 30, 2019.

Interest and Finance Costs

Interest and finance costs amounted to $9.3 million for the three months ended September 30, 2019, a decrease of $0.9 million, or 8.4%, from $10.2 million for the three months ended September 30, 2018. The decrease of $0.9 million during this period was due to a decrease of $0.8 million in interest incurred on our long-term debt, primarily resulting from a decrease in average indebtedness, and a reduction of $0.1 million in amortization of deferred financing fees. Average indebtedness, excluding deferred financing fees, decreased from $756.1 million for the three months ended September 30, 2018 to $692.0 million for the three months ended September 30, 2019. As of September 30, 2019, the outstanding balance of our long-term debt, net of deferred financing fees of $12.6 million, was $665.5 million.

Unrealized Gain/(Loss) on Derivatives

Unrealized loss on derivatives was approximately $0.7 million for the three months ended September 30, 2019, compared to an unrealized gain of $1.1 million for the three months ended September 30, 2018. The $1.8 million difference is attributable to a decrease of $2.7 million in the fair value of our interest rate swaps caused by changes in forward LIBOR yield curves and reductions in notional amounts, and is partially offset by $0.9 million of unrealized gains on our freight forward agreement positions.

Market Outlook & Update

A favorable commodity price environment during the quarter supported strong liquefied petroleum gas (“LPG”) demand. LPG prices remained soft compared to the second calendar quarter of 2019, as increased supply out of the U.S. offset increased petrochemical demand, including new plants that opened during the quarter. Mt. Belvieu propane prices fell from approximately 40% of WTI in the second calendar quarter of 2019 to approximately 33% of WTI in the third calendar quarter of 2019.

The third calendar quarter of 2019 also saw the establishment of another two propane dehydrogenation units in China: Dongguan Grand Resource & Technology conducted trial production at its 600,000-metric ton per year PDH plant and Hengli Petrochemical (Dalian) started its single-train dehydrogenation unit. Furthermore, SP Chemicals put into operation its steam cracker, which utilizes both propane and ethane as feedstock. With the continuation of U.S.-Chinese tariffs, the Middle East region remains the major supplier of LPG.

Demand also increased in South Korea as Hanwha Total and LG Chem both restarted production at their steam crackers after they underwent maintenance. The steam crackers have been expanded to increase their consumption of propane.

In the western hemisphere, the U.S. continued to export high levels of LPG at close to export capacity. Approximately 10.3 million metric tons of LPG were exported in the third calendar quarter of 2019, similar to the level observed in the prior calendar quarter. Monthly exports year to date are now observed averaging over 3.2 million metric tons per month.

Furthermore, the third calendar quarter of 2019 saw LPG exports continuing to ramp up from Australia and Canada. Australia saw an increase in LPG exports of approximately 150,000 metric tons compared to the previous quarter, according to ship tracking. In Canada, a full quarter of the new AltaGas Prince Rupert terminal resulted in approximately 256,000 metric tons added to the seaborne LPG market in the third calendar quarter.

Overall, the third calendar quarter of 2019 saw additional LPG demand, particularly for propane in the Far East region. The widening spread between prices in the U.S. and prices in the Far East region accommodated an increase in freight rates in the third calendar quarter of 2019.

For the third calendar quarter of 2019, the Baltic Index averaged $66 per metric ton, compared to an average of $62 per metric ton in the second calendar quarter. The Baltic VLGC Index began the quarter at $79 per metric ton, falling to $52 per metric ton in August, before regaining strength to $69 per metric ton on the last day of the calendar quarter. For the fourth calendar quarter of 2019 to date, the Baltic Index has averaged $75 per metric ton.

The VLGC orderbook stands at approximately 13% of the current global fleet. An additional 36 VLGCs, equivalent to approximately 3.0 million cbm of carrying capacity, are expected to be added to the global fleet by calendar year-end 2021. The average age of the global fleet is now approximately 9.4 years old.

A continuation of the favorable commodity price environment, the ongoing increase in secular demand for LPG as a more environmentally friendly alternative to other forms of energy and forecast high levels of U.S. exports as evidenced by export capacity and pipeline investments are expected to provide support for VLGC demand going forward.

The above summary is based on data derived from industry sources, and there can be no assurances that such trends will continue or that anticipated developments in freight rates, export volumes, the VLGC orderbook, or other market indicators will materialize.

Seasonality

Liquefied gases are primarily used for industrial and domestic heating, as a chemical and refinery feedstock, as a transportation fuel and in agriculture. The LPG shipping market historically has been stronger in the spring and summer months in anticipation of increased consumption of propane and butane for heating during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and the supply of certain commodities. Demand for our vessels therefore may be stronger in the quarters ending June 30 and September 30 and relatively weaker during the quarters ending December 31 and March 31, although 12-month time charter rates tend to smooth these short-term fluctuations and recent LPG shipping market activity has not yielded the expected seasonal results. To the extent any of our time charters expire during the typically weaker fiscal quarters ending December 31 and March 31, it may not be possible to re-charter our vessels at similar rates. As a result, we may have to accept lower rates or experience off-hire time for our vessels, which may adversely impact our business, financial condition and operating results.

In addition to the results of operations presented in accordance with U.S. GAAP, we provide adjusted net income/(loss) and adjusted EPS. We believe that adjusted net oncome/(loss) and adjusted EPS are useful to investors in understanding our underlying performance and business trends. Adjusted net income/(loss) and adjusted EPS are not a measurement of financial performance or liquidity under U.S. GAAP; therefore, these non-U.S. GAAP financial measures should not be considered as an alternative or substitute for U.S. GAAP. The following table reconciles net income/(loss) and EPS to adjusted net income/(loss) and adjusted EPS, respectively, for the periods presented:

TCE, adjusted net income, adjusted EPS and adjusted EBITDA are not recognized measures under U.S. GAAP and should not be regarded as substitutes for revenues, net income and earnings per share. Our presentation of TCE, adjusted net income, adjusted EPS and adjusted EBITDA does not imply, and should not be construed as an inference, that its future results will be unaffected by unusual or non-recurring items and should not be considered in isolation or as a substitute for a measure of performance prepared in accordance with U.S. GAAP.

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