Dorian LPG Ltd., a leading owner and operator of modern very large gas carriers (“VLGCs”), yesterday reported its financial results for the three and nine months ended December 31, 2019.

Highlights for the Third Quarter Fiscal Year 2020

• Revenues of $85.4 million and Time Charter Equivalent (“TCE”)(1) rate for our fleet of $43,410 for the three months ended December 31, 2019, compared to revenues of $55.1 million and TCE rate for our fleet of $30,108 for the three months ended December 31, 2018.
• Net income of $35.6 million, or $0.66 earnings per diluted share (“EPS”), and adjusted net income(1) of $34.2 million, or $0.63 adjusted earnings per diluted share (“adjusted EPS”),(1) for the three months ended December 31, 2019.
• Adjusted EBITDA(1) of $59.9 million for the three months ended December 31, 2019.
• Completed the installation of exhaust gas cleaning systems (commonly referred to as “scrubbers”) on the Constellation, Cresques) and the Copernicus(2)
• Time chartered-in the 2020-built, hybrid scrubber-fitted Future Diamond(3) to our fleet with an expiration during the first calendar quarter of 2023.
• Repurchased $8.6 million of shares of our common stock during the three months ended December 31, 2019 under the $50 million stock repurchase program our Board of Directors authorized on August 5, 2019.
• Board of Directors authorized an increase to our stock repurchase program to repurchase up to an additional $50 million of our common stock.
(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) Copernicus left drydock in January 2020.

(3) Future Diamond was chartered-in beginning February 1, 2020

John C. Hadjipateras, Chairman, President and Chief Executive Officer of the Company, commented, “Rates are healthy and the VLGC orderbook has been stable. With a young, fuel-efficient fleet, more than half of which will be scrubber equipped in the coming months, IMO 2020 has strengthened our market position. Quarterly revenue has increased 55%, while adjusted EBITDA has more than doubled compared to the same period last year. Our Board’s decision to increase the repurchase authorization reflects our constructive view of the industry outlook and our disciplined approach to capital allocation where we see discounts to our intrinsic value.”

Third Quarter Fiscal Year 2020 Results Summary

Net income amounted to $35.6 million, or $0.66 per diluted share, for the three months ended December 31, 2019, compared to a net loss of $(6.2) million, or $(0.11) per diluted share, for the three months ended December 31, 2018.

Adjusted net income amounted to $34.2 million, or $0.63 per diluted share, for the three months ended December 31, 2019, compared to adjusted net income of $0.5 million, or $0.01 per diluted share, for the three months ended December 31, 2018. Net income for the three months ended December 31, 2019 is adjusted to exclude an unrealized gain on derivative instruments of $1.4 million. Please refer to the reconciliation of net income/(loss) to adjusted net income/(loss), which appears later in this press release.

The $33.7 million increase in adjusted net income for the three months ended December 31, 2019, compared to the three months ended December 31, 2018, is primarily attributable (i) to an increase of $30.3 million in revenues, (ii) professional and legal fees related to the BW Proposal (defined below) of $7.8 million that did not recur, and (iii) a decrease of $1.2 million in interest and finance costs, partially offset by (iv) increases of $2.1 million in charter hire expenses, $2.3 million in vessel operating expenses, $0.9 million in voyage expenses, and (v) a decrease of $0.5 million in realized gain on derivatives.

The TCE rate for our fleet was $43,410 for the three months ended December 31, 2019, a 44.2% increase from a TCE rate of $30,108 from the same period in the prior year, primarily driven by increased spot market rates partially offset by 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) increased from 90.0% in the quarter ended December 31, 2018 to 98.4% in the quarter ended December 31, 2019.

Vessel operating expenses per day increased to $9,452 for the three months ended December 31, 2019 $8,287 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 $85.4 million for the three months ended December 31, 2019, an increase of $30.3 million, or 55.0%, from $55.1 million for the three months ended December 31, 2018. The increase is primarily attributable to an increase in average TCE rates and fleet utilization. Average TCE rates increased from $30,108 for the three months ended December 31, 2018 to $43,410 for the three months ended December 31, 2019, primarily as a result of higher spot market rates during the three months ended December 31, 2019 as compared to the three months ended December 31, 2018, partially offset by an increase in bunker prices when comparing these periods. 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 $73.300 during the three months ended December 31, 2019 compared to an average of $42.389 for the three months ended December 31, 2018. The average price of heavy fuel oil (expressed as U.S. dollars per metric tonnes) from Singapore and Fujairah increased from $466 during the three months ended December 31, 2018 to $473 during the three months ended December 31, 2019. Our fleet utilization increased from 90.0% during the three months ended December 31, 2018 to 98.4% during the three months ended December 31, 2019.

Charter Hire Expenses

Charter hire expenses for the vessel chartered in from a third party were $2.1 million for the three months ended December 31, 2019. No such costs were incurred during the three months ended December 31, 2018.

Vessel Operating Expenses

Vessel operating expenses were $19.1 million during the three months ended December 31, 2019, or $9,452 per vessel per calendar day, which is calculated by dividing vessel operating expenses by calendar days for the relevant time-period for the technically-managed vessels that were in our fleet. Vessel operating expenses per vessel per calendar day increased by $1,165 from $8,287 for the three months ended December 31, 2018 to $9,452 for the three months ended December 31, 2019. The increase in vessel operating expenses for the three months ended December 31, 2019, when compared with the three months ended December 31, 2018, was primarily the result of a $2.1 million, or $1,030 per vessel per calendar day, increase in operating expenses related to the drydocking of vessels including repairs and maintenance, spares and stores, coolant costs, and other drydocking related operating expenses.

General and Administrative Expenses

General and administrative expenses were $5.0 million for the three months ended December 31, 2019, a decrease of $0.2 million, or 2.3%, from $5.2 million for the three months ended December 31, 2018. This decrease was due to a reduction of $0.6 million in stock-based compensation, partially offset by an increase of $0.4 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. Professional (including investment banking fees) and legal fees related to the BW Proposal were $7.8 million for the three months ended December 31, 2018. No such costs were incurred during the three months ended December 31, 2019.

Interest and Finance Costs

Interest and finance costs amounted to $8.8 million for the three months ended December 31, 2019, a decrease of $1.2 million, or 12.2%, from $10.0 million for the three months ended December 31, 2018. The decrease of $1.2 million during this period was due to a decrease of $1.1 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 $739.9 million for the three months ended December 31, 2018 to $676.0 million for the three months ended December 31, 2019. As of December 31, 2019, the outstanding balance of our long-term debt, net of deferred financing fees of $11.8 million, was $650.3 million.

Unrealized Gain/(Loss) on Derivatives

Unrealized gain on derivatives was approximately $1.4 million for the three months ended December 31, 2019, compared to an unrealized loss of $6.7 million for the three months ended December 31, 2018. The $8.1 million difference is attributable to (1) an increase of $7.5 million in the fair value of our interest rate swaps caused by changes in forward LIBOR yield curves and (2) $0.6 million of unrealized gains on our FFA positions.

Fleet

The following table sets forth certain information regarding our fleet as of February 1, 2020.

Market Outlook & Update

For quarter ended December 31, 2019, the Baltic Index averaged $73 per metric ton, compared to an average of $66 per metric ton in the previous quarter. Freight rates benefitted from a significant rise in the U.S.-Asia propane spot arbitrage, which averaged over $70 per metric ton during the quarter ended December 31, 2019 compared to approximately $16 per metric ton in the previous quarter ended September 30, 2019.

Average Middle Eastern LPG contract price (CP) remained firm averaging $430 per metric ton during the quarter ended December 31, 2019, a quarter-over-quarter increase of $65 per metric ton. In comparison, Mt. Belvieu prices averaged only $255 per metric ton during the same time period, a quarter-over-quarter increase of $28 per metric ton.

In October 2019, there was an increase in U.S. LPG exports to India, possibly due to the September 2019 drone attacks in Saudi Arabia, lowering Saudi Arabian exports and increasing CP prices. According to ship tracking, in October approximately 300,000 metric tons were exported from the U.S. to India, which was the highest amount during 2019. During 2019, Indian LPG imports have been higher than expected due to strong retail demand.

During the quarter ended December 31, 2019, the propane-naphtha spread in NW Europe averaged $(116) per metric ton. As a result, propane remained a favorable feedstock for flexible steam crackers. A key driver of the spread was the increased availability of product in the west, particularly increased U.S. LPG export volumes. With the expansion of Enterprise Products Partners’ Houston Ship Channel LPG export facility completed during the quarter ended December 31, 2019, U.S. LPG exports increased to nearly 10.8 million metric tons compared to approximately 10.3 million metric tons in the quarter ended September 30, 2019. The Asia/Pacific region remained a key destination of U.S. LPG export volumes despite ongoing U.S.-China trade negotiations and Chinese tariffs on U.S. propane and butane exports. During the quarter ended December 31, 2019 the volume of U.S. LPG exports to the Asia/Pacific region was around nearly 5.5 million metric tons.

Petrochemical demand for LPG as a feedstock for propane dehydrogenation (PDH) and steam cracking remains strong. However, during the quarter ended December 31, 2019, petrochemical margins fell significantly and as a result some operators lowered production volumes or brought forward maintenance. This was due in part to the high feedstock prices coupled with weak olefin prices. While the margin for utilizing propane as an ethylene feedstock decreased in both NW Europe and Asia, it remained positive overall, unlike the margin for naphtha cracking.

At present, the VLGC orderbook stands at approximately 15% of the current global fleet. An additional 42 VLGC are expected to be added to the global fleet by calendar year-end 2022. The average age of the global fleet is now approximately ten years old.

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 expires 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.

Financial Information

The following table presents our selected financial data and other information 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.

Source: Dorian LPG Ltd.