Dynagas’ earnings fall short on lower revenue

dynagas

Dynagas Partners, an owner and operator of liquefied natural gas carriers, today announced its results for the three and nine months ended September 30, 2017.

Highlights:

  • Operating income of $15.9 million, net income of $4.0 million and earnings per common unit(1) of $0.06 for the three months ended September 30, 2017; Included in the third quarter 2017 results are $1.1 million of scheduled class survey and dry dock costs for one of the three steam turbine vessels in the Partnership’s fleet.
  • Adjusted Net Income (2) of $7.0 million, Adjusted Earnings per common unit (1) (2) of $0.15 and Adjusted EBITDA(2) of $26.4 million for the three months ended September 30, 2017;
  • Distributable Cash Flow (2) of $11.3 million during the three months ended September 30, 2017;
  • $70.5 million of cash and $100.5 million of available liquidity as of September 30, 2017;
  • Quarterly cash distribution of $0.4225 per common unit and $0.5625 per preferred unit.
  • Contracted revenue backlog of approximately $1.46 billion, with fleet-wide average remaining contract duration of 10 years.

(1) Earnings per common unit and Adjusted Earnings per common unit presentation excludes the Series A Preferred Units interest on the Partnership’s net income for the periods presented.

(2) Distributable Cash Flow, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per common unit are not recognized measures under U.S. GAAP. Please refer to the definitions and reconciliation of these measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP in Appendix B.

Recent Developments:

Quarterly Common Unit Cash Distribution: On October 4, 2017, the Partnership announced a quarterly cash distribution of $0.4225 per common unit in respect of the third quarter of 2017. This cash distribution was paid on October 19, 2017 to all common unitholders of record as of October 12, 2017.

Series A Preferred Units Cash Distribution: On October 24, 2017, the Partnership also announced a cash distribution of $0.5625 per unit of its Series A Preferred Units (NYSE: DLNG PR A) for the period from August 12, 2017 to November 11, 2017, which was paid on November, 13 2017 to all unitholders of record as of November 5, 2017.

CEO Commentary:

Tony Lauritzen, Chief Executive Officer of the Partnership, commented:

“We are pleased to report our earnings for the financial quarter ended September 30, 2017, which were within our expectations. We have previously communicated that this quarter would be partly affected by the scheduled class survey and related dry docking on one of the six vessels in our fleet, the Amur River, which would result in cost items and would also qualify as off-hire under the relevant contracts.

“Our reported earnings for the third quarter of 2017 were, as expected, below those of the third quarter of 2016 and were impacted by the following: (i) the class surveys and related dry dockings of the Amur River, as described above, (ii) the temporary employment of the Clean Energy on the spot market until July 2018, when she will commence an approximate 8-year time charter with Gazprom, and (iii) the longer term nature of our contracts following our decision to reduce the charter hire rate on two vessels, the Yenisei River and the Lena River, with effect from November 2016, in exchange for securing a long-term charter on the Clean Energy with an approximate eight year term. These transactions contributed substantially to our contracted backlog which at the time increased from approximately $1.5 billion to $1.6 billion, thereby enhancing significantly our revenue visibility.

“On October 19, 2017, we paid quarterly cash distribution of $0.4225 per common unit with respect to the third quarter of 2017. Since our initial public offering in November 2013, we have paid total cash distributions of $6.36 per common unit. In addition, on November 13, 2017, we paid a cash distribution of $0.5625 per unit on our Series A Preferred Units for the period from August 12, 2017 to November 11, 2017.

“Part of our strategy has been to enter into longer term charters for the employment of the vessels in our fleet. In general, based on the conditions of the charter market, long-term charters may be priced at day rates above or below shorter term charters. With our fleet 92% contracted through 2017 and 75% contracted through each of 2018 and 2019, and with an estimated fleet-wide average remaining contract duration of 10 years, we believe we have significant cash flow visibility. We expect to increase contract coverage going forward on the back of an improving LNG Shipping market.

“Our revenues are derived from the employment of our vessels on fixed multi-year charter contracts. The revenues we earn under those charter contracts are earned on a fixed day rate basis and not linked in any way to commodity price fluctuations.

“Our intent is to seek additional contract coverage, particularly in 2018, manage our operating expenses and continue the safe operation of our fleet.

“We look forward to working towards meeting our goals, which we believe will continue to benefit our unitholders.”

Financial Results Overview:

  Three Months Ended   Nine Months Ended
(U.S. dollars in thousands, except per unit data)   September
30, 2017
(unaudited)
  September
30, 2016
(unaudited)
      September
30, 2017
(unaudited)
    September
30, 2016
(unaudited)
Voyage revenues $ 33,471 $ 43,087 $ 104,538 $ 128,466
Net Income $ 3,983 $ 17,278 $ 11,714 $ 51,379
Adjusted Net Income (1) $ 7,047 $ 19,091 $ 26,172 $ 56,777
Operating income $ 15,893 $ 26,049 $ 46,520 $ 77,776
Adjusted EBITDA(1) $ 26,434 $ 35,436 $ 80,626 $ 105,638
Earnings per common unit $ 0.06 $ 0.44 $ 0.16 $ 1.30
Adjusted Earnings per common unit (1) $ 0.15 $ 0.49 $ 0.57 $ 1.45
Distributable Cash Flow (1) $ 11,295 $ 22,999 $ 38,129 $ 68,320
(1) Adjusted Net Income, Adjusted EBITDA, Adjusted Earnings per common unit and Distributable Cash Flow are not recognized measures under U.S. GAAP. Please refer to the definitions and reconciliation of these measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP in Appendix B.

Three Months Ended September 30, 2017 and 2016 Financial Results

Net income for the three months ended September 30, 2017 was $4.0 million as compared to net income of $17.3 million in the corresponding period of 2016. The decrease, as further discussed below, was mainly attributable to (i) the decrease in period operating revenues, (ii) the increased interest costs for servicing the Term Loan B (defined below), and (iii) the scheduled expenditures of technical nature for the Amur River that underwent its special survey and dry-dock repairs in the third quarter of 2017.

Adjusted Net Income for the three months ended September 30, 2017 was $7.0 million as compared to Adjusted Net Income of $19.1 million in the corresponding period of 2016. The decrease in Adjusted Net Income, which eliminates the effect of non-cash and non-recurring items, discussed above and further presented in Appendix B, was mainly due the lower utilization and the lower revenues earned on certain of the Partnership’s LNG carriers and higher financing costs, as discussed in further detail below.

Adjusted EBITDA for the three months ended September 30, 2017 decreased by 25.4% across the quarters (third quarter 2017 Adjusted EBITDA of $26.4 million, compared to third quarter 2016 Adjusted EBITDA of $35.4 million) and was due to the factors outlined above.

The Partnership’s Distributable Cash Flow for the three-month period ended September 30, 2017 was $11.3 million, compared to $23.0 million in the corresponding period of 2016, which represents a decrease of $11.7 million or 50.9%.

For the three-month period ended September 30, 2017, the Partnership reported earnings per common unit and Adjusted Earnings per common unit, basic and diluted of $0.06 and $0.15, respectively, after taking into account the Series A Preferred Units interest on the Partnership’s net income. Earnings per common unit and Adjusted Earnings per common unit, basic and diluted are calculated on the basis of a weighted number of 35,490,000 units outstanding during the period, in the case of Adjusted Earnings per common unit after reflecting the impact of the non-cash items presented in Appendix B.

Please refer to the definitions and reconciliation of these measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP in Appendix B hereto.

Voyage revenues were $33.5 million for the three-month period ended September 30, 2017, compared to $43.1 million for the same period of 2016, which represents a decrease of $9.6 million, or 22.3%. This decrease was primarily due to (i) lower utilization and lower charter rate earned for the Clean  Energy while trading in the spot market during the third quarter of 2017 in comparison to the corresponding quarter of 2016, (ii) the charter hire reductions on the Yenisei River and the Lena River, with effect from November 2016, and (iii) the anticipated off hire period for the Amur River that has completed its scheduled dry-dock in July 2017 (as opposed to no off-hire days in the same quarter in 2016).

Vessel operating expenses decreased to $6.2 million, or a daily rate of $11,188, in the three-month period ended September 30, 2017, compared to $6.7 million, or a daily rate of $12,183, for the same period of 2016, which represents a decrease of $0.5 million or 8.2%. This decrease is primarily associated with crewing and technical efficiencies during the third quarter of 2017 as compared to the corresponding period of 2016.

Interest and finance costs were $11.8 million in the third quarter of 2017, compared to $8.7 million in the third quarter of 2016, which represents an increase of $3.1 million, or 35.8%. As discussed above, this increase is commensurate with the increase in the current period weighted average interest mainly as a result of the increased costs associated with the Term Loan B facility that the Partnership entered into on May 18, 2017.

The Partnership reported average daily charter hire gross of commissions(1) of approximately $65,200 per day per vessel in the three months ended September 30, 2017, compared to approximately $81,300 per day per vessel in the same period of 2016. During the three-month period ended September 30, 2017, the Partnership’s vessels operated at 97% utilization compared to 100% in the same period of 2016.

(1) Average daily hire gross of commissions represents voyage revenue without taking into consideration the non-cash time charter amortization expense and amortization of prepaid charter revenue, divided by the Available Days in the Partnership’s fleet as described in Appendix B.

Amounts relating to variations in period–to–period comparisons shown in this section are derived from the condensed financials presented below.

Liquidity/ Financing/ Cash Flow Coverage

As of September 30, 2017, the Partnership reported free cash of $70.5 million. Total indebtedness outstanding as of September 30, 2017 was $728.8 million (gross of unamortized deferred loan fees), which includes the Partnership’s $250.0 million senior unsecured notes due October 2019. As of September 30, 2017, $4.8 million of the Partnership’s outstanding indebtedness was repayable within one year.

The Partnership’s liquidity profile is further enhanced by the $30.0 million of borrowing capacity under the Partnership’s revolving credit facility with its Sponsor, which is available to the Partnership at any time until November 2018 and remains available in its entirety as of the date of this release.

On May 18, 2017, the Partnership refinanced its existing secured commercial bank facilities with a  $480.0 million institutional Senior Secured Term Loan B facility due in 2023 (the “Term Loan B”). Arctic LNG Carriers Ltd., a wholly-owned subsidiary of the Partnership, serves as borrower under the Term Loan B. The Term Loan B provides for 0.25% quarterly amortization on the principal and a bullet payment at maturity. The Term Loan B has a term of six years and is secured by, among other things, the six LNG carriers in the Partnership’s fleet.

As of September 30, 2017, the Partnership reported working capital surplus of $49.4 million (Q4 2016: $7.1 million) which is the result on the strengthening of the Partnership’s balance sheet following the Term Loan B refinancing discussed above.

During the three months ended September 30, 2017, the Partnership generated net cash from operating activities of $14.8 million compared to $27.0 million in the same period of 2016, which represents a decrease of 12.2 million, or 45.3%. This decrease was mainly attributable to the decrease in period net income due to the factors discussed above.

Vessel Employment

As of December 5, 2017, the Partnership had contracted employment (2) for 92% of its fleet estimated Available Days for 2017, 75% of its fleet estimated Available Days for 2018, and 75% of its fleet estimated Available Days for 2019.

As of the same date, the Partnership’s contracted revenue backlog estimate (3) was approximately $1.46 billion, with average remaining contract duration of 10 years.

(2) Time charter coverage for the Partnership’s fleet is calculated by dividing the fleet contracted days on the basis of the earliest estimated delivery and redelivery dates prescribed in the Partnership’s current time charter contracts net of scheduled class survey repairs by the number of expected Available days during that period.

(3) The Partnership calculates its contracted revenue backlog by multiplying the contractual daily hire rate by the expected number of days committed under the contracts (assuming earliest delivery and redelivery and excluding options to extend), assuming full utilization. The actual amount of revenues earned and the actual periods during which revenues are earned may differ from the amounts and periods shown in the table below due to, for example, dry-docking and/or special survey downtime, maintenance projects, off-hire downtime and other factors that result in lower revenues than the Partnership’s average contract backlog per day. Certain time charter contracts that the Partnership entered into with Yamal Trade Pte. are subject to the satisfaction of important conditions, which, if not satisfied, or waived by the charterer, may result in their cancellation or amendment before or after the charter term commences and in such case the Partnership may not receive the contracted revenues thereunder.

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