Accounting Pronouncements Adopted During the Nine Months Ended December 31, 2018
In November 2016, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance to require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The pronouncement is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and are applied using a retrospective transition method to each period presented. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2017
|
|
|
Cash and cash equivalents
|
|
$
|
34,947,580
|
|
$
|
103,505,676
|
|
$
|
55,633,291
|
|
$
|
17,018,552
|
|
|
Restricted cash—non-current
|
|
|
35,635,252
|
|
|
25,862,704
|
|
|
29,082,958
|
|
|
50,874,146
|
|
|
Total cash, cash equivalents, and restricted cash
|
|
$
|
70,582,832
|
|
$
|
129,368,380
|
|
$
|
84,716,249
|
|
$
|
67,892,698
|
|
In August 2016, the FASB issued accounting guidance addressing specific cash flow statement issues with the objective of reducing the existing diversity in practice. The pronouncement is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The implementation of this guidance did not have a material effect on our condensed consolidated financial statements.
In May 2014, the FASB amended its accounting guidance for revenue recognition. The fundamental principles of the new guidance are that companies should recognize revenue in a manner that reflects the timing of the transfer of services to customers and consideration that a company expects to receive for the services provided. The amended guidance introduces a five-step process to achieve the fundamental principles and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. It also provides further guidance on applying collectability criterion to assess whether a contract is valid and represents a substantive transaction on the basis of whether a customer has the ability and intention to pay the promised consideration. The amended guidance requires additional disclosures necessary for the financial statement users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB voted to defer the effective date by one year for fiscal years beginning on or after December 15, 2017 and interim periods within that reporting period and permit early adoption of the standard, but not before the beginning of 2017. The amended guidance shall be applied either retrospectively to each period presented or as a cumulative effect adjustment as of the date of adoption. Under the amended guidance, voyage charter revenues are recognized based on load-to-discharge basis as compared to the previously used discharge-to-discharge basis, provided an agreed non-cancellable charter between the Company and the charterer is in existence, the charter rate is fixed and determinable, and collectability is reasonably assured. Additionally, voyage expenses related to voyage charters, including bunkers and port expenses, are deferred until load port and expensed on a load-to-discharge basis under the amended guidance. There is no modifications under the amended guidance for our method of recognizing net pool revenues—related party and time charter revenues. We adopted the amended guidance beginning April 1, 2018. The adoption of the amended guidance did not have any material impact on our condensed consolidated financial statements for the nine months ended December 31, 2018 or for prior periods, but may impact the timing with which voyage charter revenues will be recognized in future periods.
Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued accounting guidance to update the requirements of financial accounting and reporting for lessees and lessors. The updated guidance, for lease terms of more than 12 months, will require a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize a straight-line total lease expense. Lessor accounting remains largely unchanged from current U.S. GAAP. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. In July 2018, the FASB issued amended guidance to provide entities with relief from the cost of implementing certain aspects of the new leasing guidance. Entities may elect not to recast comparative periods presented when transitioning to the new leasing
guidance and, furthermore, lessors may elect not to separate lease and nonlease components when certain conditions are met. The pronouncement is effective prospectively for public business entities for annual periods beginning after December 15, 2018, and interim periods within that reporting period. Early adoption is permitted for all entities. We intend to adopt the new guidance on its required effective date of April 1, 2019 and are currently assessing the impact the amended guidance will have on our condensed consolidated financial statements. We currently have operating leases for our offices in Stamford, Connecticut, USA; London, United Kingdom; Copenhagen, Denmark; and Athens, Greece. Refer to Note 11 for further description of our commitments under leasing arrangements. Additionally, we expect that our time charter arrangements will be subject to the requirements of the new lease guidance as we will be regarded as the lessor under these arrangements. Since lessor accounting remains largely unchanged from current U.S. GAAP and we do not believe that our office operating leases are material, we do not believe that the adoption of the amended guidance will have a material impact on our financial statements.
3. Transactions with Related Parties
Dorian (Hellas), S.A.
Dorian (Hellas) S.A. (“DHSA”) formerly provided technical, crew, commercial management, insurance and accounting services to our vessels and had agreements to outsource certain of these services to Eagle Ocean Transport Inc. (“Eagle Ocean Transport”), which is 100% owned by Mr. John C. Hadjipateras, our Chairman, President and Chief Executive Officer.
Dorian LPG (USA) LLC and its subsidiaries entered into an agreement with DHSA, retroactive to July 2014 and superseding an agreement between Dorian LPG (UK) Ltd. and DHSA, for the provision by Dorian LPG (USA) LLC and its subsidiaries of certain chartering and marine operation services to DHSA, for which income was earned and included in “Other income-related parties” totaling $0.1 million for both the three months ended December 31, 2018 and 2017, respectively,
$0.2 million for the nine months ended December 31, 2018 and $0.3 million for the nine months ended December 31, 2017.
As of December 31, 2018, $1.1 million was due from DHSA and included in “Due from related parties” in the unaudited interim condensed consolidated balance sheets included herein. As of March 31, 2018, $0.9 million was due from DHSA and included in “Due from related parties” in the audited consolidated balance sheets.
Eagle Ocean Transport incurs office-related costs on behalf of us, for which we reimbursed Eagle Ocean Transport less than $0.1 million for the three months ended December 31, 2018 and 2017, respectively, less than $0.1 million for the nine months ended December 31, 2018, and
$0.1 million for the nine months ended December 31, 2017. Such expenses are reimbursed based on their actual cost
.
Helios LPG Pool LLC
On April 1, 2015, Dorian and Phoenix began operations of the Helios Pool, which entered into pool participation agreements for the purpose of establishing and operating, as charterer, under variable rate time charters to be entered into with owners or disponent owners of VLGCs, a commercial pool of VLGCs whereby revenues and expenses are shared. We hold a 50% interest in the Helios Pool as a joint venture with Phoenix and all significant rights and obligations are equally shared by both parties. All profits of the Helios Pool are distributed to the pool participants based on pool points assigned to each vessel as variable charter hire and, as a result, there are no profits available to the equity investors as a share of equity. We have determined that the Helios Pool is a variable interest entity as it does not have sufficient equity at risk. We do not consolidate the Helios Pool because we are not the primary beneficiary and do not have a controlling financial interest. In consideration of Accounting Standards Codification (“ASC”) 810-10-50-4e, the significant factors considered and judgments made in determining that the power to direct the activities of the Helios Pool that most significantly impact the entity’s economic performance are shared, in that all significant performance activities which relate to approval of pool policies and strategies related to pool customers and the marketing of the pool for the procurement of customers for the pool vessels, addition of new pool vessels and the pool cost management, require unanimous board consent from a board consisting of two members from each joint venture investor. Further, in accordance with the guidance in ASC 810-10-25-38D, the Company and Phoenix are not related parties as defined in ASC 850 nor are they de facto
agents pursuant to ASC 810-10, the power over the significant activities of the Helios Pool is shared, and no party is the primary beneficiary in the Helios Pool, or has a controlling financial interest. As of December 31, 2018, the Helios Pool operated twenty-nine VLGCs, including nineteen of our vessels, five Phoenix vessels, and five other vessels.
As of December 31, 2018, we had receivables from the Helios Pool of $76.6 million, including $20.9 million of working capital contributed for the operation of our vessels in the pool. As of March 31, 2018, we had receivables from the Helios Pool of $45.4 million (net of an amount due to Helios Pool of $0.3 million which is reflected under “Due to related Parties”), including $19.8 million of working capital contributed for the operation of our vessels in the pool. Our maximum exposure to losses from the pool as of December 31, 2018 is limited to the receivables from the pool. The Helios Pool does not have any third-party debt obligations. The Helios Pool has entered into commercial management agreements with each of Dorian LPG (UK) Ltd. and Phoenix as commercial managers and has appointed both commercial managers as the exclusive commercial managers of pool vessels. Fees for commercial management services provided by Dorian LPG (UK) Ltd. are included in “Other income-related parties” in the unaudited interim condensed consolidated statement of operations included herein and were $0.6 million and $0.5 million for the three months ended December 31, 2018 and 2017, respectively, and $1.7 million and $1.6 million for the nine months ended December 31, 2018 and 2017, respectively. Additionally, we receive a fixed reimbursement of expenses such as costs for security guards and war risk insurance for vessels operating in high risk areas from the Helios Pool, for which we earned $0.1 for both the three months ended December 31, 2018, and 2017, and $0.3 million and $0.1 million for the nine months ended December 31, 2018 and 2017, respectively, and are included in “Other revenues, net” in the unaudited interim condensed consolidated statement of operations included herein.
Through our vessel owning subsidiaries, we have chartered vessels to the Helios Pool during the nine months ended December 31, 2018 and 2017. The time charter revenue from the Helios Pool is variable depending upon the net results of the pool, operating days and pool points for each vessel. The Helios Pool enters into voyage and time charters with external parties and receives freight and related revenue and, where applicable, incurs voyage costs such as bunkers, port costs and commissions. At the end of each month, the Helios Pool calculates net pool revenues using gross revenues, less voyage expenses of all pool vessels, less fixed time charter hire for any chartered-in vessels, less the general and administrative expenses of the pool. Net pool revenues, less any amounts required for working capital of the Helios Pool, are distributed, to the extent they have been collected from third-party customers of the Helios Pool, as variable rate time charter hire for the relevant vessel to participants based on pool points (vessel attributes such as cargo carrying capacity, fuel consumption, and speed are taken into consideration) and number of days the vessel participated in the pool in the period. We recognize net pool revenues on a monthly basis, when each relevant vessel has participated in the pool during the period and the amount of net pool revenues for the month can be estimated reliably. Revenue earned from the Helios Pool is presented in Note 8.
4. Deferred Charges, Net
The analysis and movement of deferred charges is presented in the table below:
|
|
|
|
|
|
|
|
|
Drydocking
|
|
|
|
|
costs
|
|
|
Balance, April 1, 2018
|
|
$
|
1,574,522
|
|
|
Additions
|
|
|
578,537
|
|
|
Amortization
|
|
|
(402,212)
|
|
|
Balance, December 31, 2018
|
|
$
|
1,750,847
|
|
5. Vessels, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Cost
|
|
depreciation
|
|
Net book Value
|
|
|
Balance, April 1, 2018
|
|
$
|
1,728,987,980
|
|
$
|
(189,876,147)
|
|
$
|
1,539,111,833
|
|
|
Other additions
|
|
|
2,706,699
|
|
|
—
|
|
|
2,706,699
|
|
|
Depreciation
|
|
|
—
|
|
|
(48,667,621)
|
|
|
(48,667,621)
|
|
|
Balance, December 31, 2018
|
|
$
|
1,731,694,679
|
|
$
|
(238,543,768)
|
|
$
|
1,493,150,911
|
|
Additions to vessels, net mainly consisted of the first installment on the purchase of scrubbers for ten of our VLGCs during the nine months ended December 31, 2018. Our vessels, with a total carrying value of $1,493.2 million and $1,539.1 million as of December 31, 2018 and March 31, 2018, respectively, are first‑priority mortgaged as collateral for our long-term debt (refer to Note 6 below). No impairment loss was recorded for the periods presented.
6. Long-term Debt
2015 Debt Facility
Refer to Note 9 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018 for information on our $758 million debt financing facility that we entered into in March 2015 with a group of banks and financial institutions (the “2015 Debt Facility”).
2017 Bridge Loan
Refer to Note 9 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018 for information on our $97.0 million bridge loan agreement (the “2017 Bridge Loan”) with DNB Capital LLC that we entered into on June 8, 2017.
On June 4, 2018, we prepaid $22.3 million of the 2017 Bridge Loan’s then outstanding principal using cash on hand prior to the closing of the CJNP Japanese Financing (defined below). On June 20, 2018, we prepaid the remaining 2017 Bridge Loan’s outstanding principal of $44.6 million ($23.4 million related to the
Captain Nicholas ML
and $21.2 million related to the
Captain Markos NL
) using cash on hand prior to the closing of the CMNL Japanese Financing (defined below) and the CNML Japanese Financing (defined below).
Corsair Japanese Financing
Refer to Note 9 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018 for information on the refinancing of our 2014-built VLGC, the
Corsair
, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Corsair Japanese Financing”)
.
Concorde Japanese Financing
Refer to Note 9 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018 for information on the refinancing of our
2015-built VLGC, the
Concorde
, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Concorde Japanese Financing”).
Corvette Japanese Financing
Refer to Note 9 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018 for information on the refinancing of our
2015-built VLGC, the
Corvette
, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Corvette Japanese Financing”).
CJNP Japanese Financing
On June 11, 2018, we refinanced our 2007-built VLGC, the
Captain John NP
, pursuant to a memorandum of agreement and a bareboat charter agreement (the “CJNP Japanese Financing”). In connection therewith, we transferred the
Captain John NP
to the buyer for $48.3 million and, as part of the agreement, CJNP LPG Transport LLC, our wholly-owned subsidiary, bareboat chartered the vessel back for a period of 6 years,
with
purchase options from the end of year 2 through
a mandatory buyout by 2024
. We continue to technically manage, commercially charter, and operate the
Captain John NP
. We received $21.7 million, which increased our unrestricted cash, as part of the transaction with $26.6 million to be retained by the buyer as a deposit (the “CJNP Deposit”), which can be used by us towards the repurchase of the vessel either pursuant to an early buyout option or at the end of the 6-year bareboat charter term. This transaction is treated as a financing transaction and the
Captain John NP
continues to be recorded as an asset on our balance sheet. This debt financing has a fixed interest rate of 6.0%, not including financing costs of $0.1 million, monthly broker commission fees of 1.25% over the 6-year term on interest and principal payments made, broker commission fees of 0.5% paid upon the
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSI
S OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward
‑
looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Item 1A. Risk Factors” herein and in our Annual Report on Form 10-K for the year ended March 31, 2018, our actual results may differ materially from those anticipated in these forward
‑
looking statements. Please also see the section “Forward-Looking Statements” included in this quarterly report.
Overview
We are a Marshall Islands corporation headquartered in the United States and primarily focused on owning and operating VLGCs, each with a cargo
‑
carrying capacity of greater than 80,000 cbm, in the LPG shipping industry. Our fleet currently consists of twenty-two VLGC carriers, including nineteen fuel-efficient 84,000 cbm ECO VLGCs and three 82,000 cbm VLGCs.
Two of our ECO VLGCs are fitted with scrubbers to reduce sulfur emissions. We have entered into contracts for an additional ten of our VLGCs to be fitted with scrubbers as of January 25, 2019.
Our nineteen ECO VLGCs, which incorporate fuel efficiency, emission-reducing technologies, and certain custom features, were acquired by us for an aggregate purchase price of $1.4 billion and delivered to us between July 2014 and February 2016, seventeen of which were delivered during calendar year 2015 or later.
On April 1, 2015, Dorian and Phoenix began operations of the Helios Pool, which entered into pool participation agreements for the purpose of establishing and operating, as charterer, under a variable rate time charter to be entered into with owners or disponent owners of VLGCs, a commercial pool of VLGCs whereby revenues and expenses are shared. The vessels entered into the Helios Pool may operate either in the spot market, pursuant to contracts of affreightment, or COAs, or on time charters of two years' duration or less. As of January 25, 2019, nineteen of our twenty-two VLGCs were employed in the Helios Pool.
Our customers, either directly or through the Helios Pool, include or have included global energy companies such as Exxon Mobil Corp., China International United Petroleum & Chemicals Co., Ltd., Royal Dutch Shell plc, Equinor ASA, Total S.A., Sunoco LP, and Oriental Energy Company Ltd., commodity traders such as Geogas Trading S.A.,Glencore plc, Itochu Corporation and the Vitol Group and importers such as E1 Corp., Indian Oil Corporation, SK Gas Co. Ltd. and Astomos Energy Corporation.
We pursue a balanced chartering strategy by employing our vessels on a mix of multi-year time charters, some of which may include a profit-sharing component, shorter-term time charters,
spot market voyages and COAs. Currently, three of our VLGCs are on fixed-rate time charters outside of the Helios Pool and three of our VLGCs are on Pool-TCO within the Helios Pool. See “Our Fleet” below for more information and the definition of Pool-TCO.
Selected Financial Data
The following table presents our selected financial data and other information for the three and nine months ended December 31, 2018 and 2017, and as of December 31, 2018 and March 31, 2018, and should be read in conjunction with our
unaudited interim condensed consolidated financial statements
and other financial information included in this quarterly report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
(in U.S. dollars, except fleet data)
|
|
December 31, 2018
|
|
December 31, 2017
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
55,113,295
|
|
$
|
44,545,589
|
|
$
|
123,565,119
|
|
$
|
120,300,082
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
287,221
|
|
|
386,637
|
|
|
822,618
|
|
|
1,901,603
|
|
|
Vessel operating expenses
|
|
|
16,773,634
|
|
|
15,794,381
|
|
|
50,834,364
|
|
|
48,420,108
|
|
|
Depreciation and amortization
|
|
|
16,430,363
|
|
|
16,466,322
|
|
|
49,133,072
|
|
|
49,224,187
|
|
|
General and administrative expenses
|
|
|
5,156,573
|
|
|
5,536,028
|
|
|
18,768,996
|
|
|
19,492,082
|
|
|
Professional and legal fees related to the BW Proposal
|
|
|
7,766,847
|
|
|
—
|
|
|
10,020,436
|
|
|
—
|
|
|
Total expenses
|
|
|
46,414,638
|
|
|
38,183,368
|
|
|
129,579,486
|
|
|
119,037,980
|
|
|
Other income—related parties
|
|
|
614,633
|
|
|
633,883
|
|
|
1,843,782
|
|
|
1,905,836
|
|
|
Operating income/(loss)
|
|
|
9,313,290
|
|
|
6,996,104
|
|
|
(4,170,585)
|
|
|
3,167,938
|
|
|
Other income/(expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and finance costs
|
|
|
(10,000,018)
|
|
|
(8,683,257)
|
|
|
(30,526,971)
|
|
|
(24,763,421)
|
|
|
Interest income
|
|
|
413,546
|
|
|
103,446
|
|
|
1,326,442
|
|
|
147,488
|
|
|
Unrealized gain/(loss) on derivatives
|
|
|
(6,669,266)
|
|
|
3,771,160
|
|
|
(3,910,190)
|
|
|
2,053,129
|
|
|
Realized gain/(loss) on derivatives
|
|
|
881,276
|
|
|
(369,941)
|
|
|
2,494,832
|
|
|
(1,418,724)
|
|
|
Gain on early extinguishment of debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,117,364
|
|
|
Other gain/(loss), net
|
|
|
(157,480)
|
|
|
(147,097)
|
|
|
(205,858)
|
|
|
(238,465)
|
|
|
Total other income/(expenses), net
|
|
|
(15,531,942)
|
|
|
(5,325,689)
|
|
|
(30,821,745)
|
|
|
(20,102,629)
|
|
|
Net income/(loss)
|
|
$
|
(6,218,652)
|
|
$
|
1,670,415
|
|
$
|
(34,992,330)
|
|
$
|
(16,934,691)
|
|
|
Earnings/(loss) per common share—basic
|
|
$
|
(0.11)
|
|
$
|
0.03
|
|
$
|
(0.64)
|
|
$
|
(0.31)
|
|
|
Earnings/(loss) per common share—diluted
|
|
$
|
(0.11)
|
|
$
|
0.03
|
|
$
|
(0.64)
|
|
$
|
(0.31)
|
|
|
Other Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(1)
|
|
$
|
27,230,044
|
|
$
|
24,696,206
|
|
$
|
50,270,795
|
|
$
|
56,278,367
|
|
|
Fleet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar days
(2)
|
|
|
2,024
|
|
|
2,024
|
|
|
6,050
|
|
|
6,050
|
|
|
Available days
(3)
|
|
|
2,024
|
|
|
2,023
|
|
|
6,025
|
|
|
6,048
|
|
|
Operating days
(4)(7)
|
|
|
1,821
|
|
|
1,934
|
|
|
5,410
|
|
|
5,585
|
|
|
Fleet utilization
(5)(7)
|
|
|
90.0
|
%
|
|
95.6
|
%
|
|
89.8
|
%
|
|
92.3
|
%
|
|
Average Daily Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent rate
(6)(7)
|
|
$
|
30,108
|
|
$
|
22,833
|
|
$
|
22,688
|
|
$
|
21,199
|
|
|
Daily vessel operating expenses
(8)
|
|
$
|
8,287
|
|
$
|
7,804
|
|
$
|
8,402
|
|
$
|
8,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dorian LPG Ltd.
|
|
|
|
|
As of
|
|
As of
|
|
|
(in U.S. dollars)
|
|
December 31, 2018
|
|
March 31, 2018
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
34,947,580
|
|
$
|
103,505,676
|
|
|
Restricted cash—non-current
|
|
|
35,635,252
|
|
|
25,862,704
|
|
|
Total assets
|
|
|
1,659,567,083
|
|
|
1,736,110,156
|
|
|
Current portion of long-term debt
|
|
|
63,968,414
|
|
|
65,067,569
|
|
|
Long-term debt—net of current portion and deferred financing fees
(9)
|
|
|
647,362,343
|
|
|
694,035,583
|
|
|
Total liabilities
|
|
|
732,091,345
|
|
|
776,696,794
|
|
|
Total shareholders’ equity
|
|
$
|
927,475,738
|
|
$
|
959,413,362
|
|
|
|
(1)
|
|
Adjusted EBITDA is an unaudited non-U.S. GAAP financial measure and represents net income/(loss) before interest and finance costs, unrealized (gain)/loss on derivatives, realized (gain)/loss on derivatives, gain on early extinguishment of debt, stock-based compensation expense, impairment, and depreciation and amortization and is used as a supplemental financial measure by management to assess our financial and operating performance. We believe that adjusted EBITDA assists our management and investors by increasing the comparability of our performance from period to period. This increased comparability is achieved by excluding the potentially disparate effects between periods of derivatives, interest and finance costs, gain on early extinguishment of debt, stock-based compensation expense, impairment, and depreciation and amortization expense, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income/(loss) between periods. We believe that including
|
|
adjusted EBITDA as a financial and operating measure benefits investors in selecting between investing in us and other investment alternatives.
|
Adjusted EBITDA has certain limitations in use and should not be considered an alternative to net income/(loss), operating income, cash flow from operating activities or any other measure of financial performance presented in accordance with U.S. GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income/(loss). Adjusted EBITDA as presented below may not be computed consistently with similarly titled measures of other companies and, therefore, might not be comparable with other companies.
The following table sets forth a reconciliation of net income/(loss )to Adjusted EBITDA (unaudited) for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
(in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
(6,218,652)
|
|
$
|
1,670,415
|
|
$
|
(34,992,330)
|
|
$
|
(16,934,691)
|
|
|
Interest and finance costs
|
|
|
10,000,018
|
|
|
8,683,257
|
|
|
30,526,971
|
|
|
24,763,421
|
|
|
Unrealized (gain)/loss on derivatives
|
|
|
6,669,266
|
|
|
(3,771,160)
|
|
|
3,910,190
|
|
|
(2,053,129)
|
|
|
Realized (gain)/loss on derivatives
|
|
|
(881,276)
|
|
|
369,941
|
|
|
(2,494,832)
|
|
|
1,418,724
|
|
|
Gain on early extinguishment of debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,117,364)
|
|
|
Stock-based compensation expense
|
|
|
1,230,325
|
|
|
1,277,431
|
|
|
4,187,724
|
|
|
3,977,219
|
|
|
Depreciation and amortization
|
|
|
16,430,363
|
|
|
16,466,322
|
|
|
49,133,072
|
|
|
49,224,187
|
|
|
Adjusted EBITDA
|
|
$
|
27,230,044
|
|
$
|
24,696,206
|
|
$
|
50,270,795
|
|
$
|
56,278,367
|
|
|
|
(2)
|
|
We define calendar days as the total number of days in a period during which each vessel in our fleet was commercially managed. Calendar days are an indicator of the size of the fleet over a period and affect both the amount of revenues and the amount of expenses that are recorded during that period.
|
|
|
(3)
|
|
We define available days as calendar days less aggregate off hire days associated with scheduled maintenance, which include major repairs, drydockings, vessel upgrades or special or intermediate surveys. We use available days to measure the aggregate number of days in a period that our vessels should be capable of generating revenues.
|
|
|
(4)
|
|
We define operating days as available days less the aggregate number of days that the commercially-managed vessels in our fleet are off
‑
hire for any reason other than scheduled maintenance. We use operating days to measure the number of days in a period that our operating vessels are on hire (refer to 7 below).
|
|
|
(5)
|
|
We calculate fleet utilization by dividing the number of operating days during a period by the number of available days during that period. An increase in non
‑
scheduled off
‑
hire days would reduce our operating days, and, therefore, our fleet utilization. We use fleet utilization to measure our ability to efficiently find suitable employment for our vessels.
|
|
|
(6)
|
|
Time charter equivalent rate, or TCE rate, is a non-U.S. GAAP measure of the average daily revenue performance of a vessel. TCE rate is a shipping industry performance measure used primarily to compare period
‑
to
‑
period changes in a shipping company’s performance despite changes in the mix of charter types (such as time charters, voyage charters) under which the vessels may be employed between the periods. Our method of calculating TCE rate is to divide revenue net of voyage expenses by operating days for the relevant time period, which may not be calculated the same by other companies.
|
The following table sets forth a reconciliation of revenues to TCE rate (unaudited) for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
(in U.S. dollars, except operating days)
|
|
December 31, 2018
|
|
December 31, 2017
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
55,113,295
|
|
$
|
44,545,589
|
|
$
|
123,565,119
|
|
$
|
120,300,082
|
|
|
Voyage expenses
|
|
|
(287,221)
|
|
|
(386,637)
|
|
|
(822,618)
|
|
|
(1,901,603)
|
|
|
Time charter equivalent
|
|
$
|
54,826,074
|
|
$
|
44,158,952
|
|
$
|
122,742,501
|
|
$
|
118,398,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating days
|
|
|
1,821
|
|
|
1,934
|
|
|
5,410
|
|
|
5,585
|
|
|
TCE rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent rate
|
|
$
|
30,108
|
|
$
|
22,833
|
|
$
|
22,688
|
|
$
|
21,199
|
|
|
|
(7)
|
|
We determine operating days for each vessel based on the underlying vessel employment, including our vessels in the Helios Pool, or the Company Methodology. If we were to calculate operating days for each vessel within the Helios Pool as a variable rate time charter, or the Alternate Methodology, our operating days and fleet utilization would be increased with a corresponding reduction to our TCE rate. Operating data using both methodologies is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Company Methodology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Days
|
|
|
1,821
|
|
|
|
1,934
|
|
|
|
5,410
|
|
|
|
5,585
|
|
|
|
Fleet Utilization
|
|
|
90.0
|
%
|
|
|
95.6
|
%
|
|
|
89.8
|
%
|
|
|
92.3
|
%
|
|
|
Time charter equivalent
|
|
$
|
30,108
|
|
|
$
|
22,833
|
|
|
$
|
22,688
|
|
|
$
|
21,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternate Methodology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Days
|
|
|
2,023
|
|
|
|
2,023
|
|
|
|
6,023
|
|
|
|
6,048
|
|
|
|
Fleet Utilization
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
Time charter equivalent
|
|
$
|
27,101
|
|
|
$
|
21,828
|
|
|
$
|
20,379
|
|
|
$
|
19,576
|
|
|
We believe that the Company Methodology using the underlying vessel employment provides more meaningful insight into market conditions and the performance of our vessels.
|
|
(8)
|
|
Daily vessel operating expenses are calculated by dividing vessel operating expenses by calendar days for the relevant time period.
|
|
|
(9)
|
|
Long-term debt is net of deferred financing fees of $14.8 million and, $16.1 million as of December 31, 2018 and March 31, 2018, respectively.
|
Our Fleet
The following table sets forth certain information regarding our fleet as of January 25, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity
|
|
|
|
|
|
ECO
|
|
|
|
Charter
|
|
|
|
|
(Cbm)
|
|
Shipyard
|
|
Year Built
|
|
Vessel
(1)
|
|
Employment
|
|
Expiration
(2)
|
|
|
VLGCs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Captain Markos NL
(3)
|
|
82,000
|
|
Hyundai
|
|
2006
|
|
—
|
|
Time Charter
(4)
|
|
Q4 2019
|
|
|
Captain John NP
(3)
|
|
82,000
|
|
Hyundai
|
|
2007
|
|
—
|
|
Pool
(5)
|
|
—
|
|
|
Captain Nicholas ML
(3)
|
|
82,000
|
|
Hyundai
|
|
2008
|
|
—
|
|
Pool
(5)
|
|
—
|
|
|
Comet
|
|
84,000
|
|
Hyundai
|
|
2014
|
|
X
|
|
Time Charter
(6)
|
|
Q3 2019
|
|
|
Corsair
(3)
|
|
84,000
|
|
Hyundai
|
|
2014
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Corvette
(3)
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Cougar
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Concorde
(3)
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Cobra
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Continental
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Constitution
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Commodore
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Cresques
|
|
84,000
|
|
Daewoo
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Constellation
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Cheyenne
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool-TCO
(7)
|
|
Q1 2019
|
|
|
Clermont
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Cratis
|
|
84,000
|
|
Daewoo
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Chaparral
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Copernicus
|
|
84,000
|
|
Daewoo
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Commander
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Time Charter
(8)
|
|
Q4 2020
|
|
|
Challenger
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Caravelle
|
|
84,000
|
|
Hyundai
|
|
2016
|
|
X
|
|
Pool
(5)
|
|
—
|
|
|
Total
|
|
1,842,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents vessels with very low revolutions per minute, long
‑
stroke, electronically controlled engines, larger propellers, advanced hull design, and low friction paint.
|
|
|
(2)
|
|
Represents calendar year quarters.
|
|
|
(3)
|
|
Operated pursuant to a bareboat chartering agreement. See Note 6 to our unaudited condensed consolidated financial statements included herein.
|
|
|
(4)
|
|
Currently on time charter with an oil major that began in December 2014.
|
|
|
(5)
|
|
“Pool” indicates that the vessel operates in the Helios Pool on a voyage charter with a third party and receives as charter hire a portion of the net revenues of the pool calculated according to a formula based on the vessel’s pro rata performance in the pool.
|
|
|
(6)
|
|
Currently on time charter with an oil major that began in July 2014.
|
|
|
(7)
|
|
“Pool-TCO” indicates that the vessel is operated in the Helios Pool on a time charter out to a third party and receives as charter hire a portion of the net revenues of the pool calculated according to a formula based on the vessel’s pro rata performance in the pool.
|
|
|
(8)
|
|
Currently on time charter with a major oil company that began in November 2015.
|
Results of Operations – For the three months ended December 31, 2018 as compared to the three months ended December 31, 2017
Revenues
The following table compares our Revenues for the three months ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
Percent
|
|
|
|
|
2018
|
|
2017
|
|
(Decrease)
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pool revenues—related party
|
|
$
|
46,683,295
|
|
$
|
31,610,427
|
|
$
|
15,072,868
|
|
47.7
|
%
|
|
Time charter revenues
|
|
|
8,370,000
|
|
|
12,498,849
|
|
|
(4,128,849)
|
|
(33.0)
|
%
|
|
Voyage charter revenues
|
|
|
—
|
|
|
335,244
|
|
|
(335,244)
|
|
NM
|
|
|
Other revenues, net
|
|
|
60,000
|
|
|
101,069
|
|
|
(41,069)
|
|
(40.6)
|
%
|
|
Total
|
|
$
|
55,113,295
|
|
$
|
44,545,589
|
|
$
|
10,567,706
|
|
23.7
|
%
|
Revenues, which represent net pool revenues—
related party
, time charters, voyage charters and other revenues earned by our vessels, were $55.1 million for the three months ended December 31, 2018, an increase of $10.6 million, or 23.7%, from $44.5 million for the three months ended December 31, 2017. The increase is primarily attributable to an increase in average TCE rates, partially offset by reduced fleet utilization. Average TCE rates increased from $22,833 for the three months ended December 31, 2017 to $30,108 for the three months ended December 31, 2018, primarily as a result of higher spot market rates during the three months ended December 31, 2018 as compared to the three months ended December 31, 2017, partially offset by higher 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 $42.389 during the three months ended December 31, 2018 compared to an average of $29.857 for the three months ended December 31, 2017. The average price of heavy fuel oil (expressed as U.S. dollars per metric tonnes) from Singapore and Fujairah increased from $362 during the three months ended December 31, 2017 to $466 during the three months ended December 31, 2018. Our fleet utilization decreased from 95.6% during the three months ended December 31, 2017 to 90.0% during the three months ended December 31, 2018.
Vessel Operating Expenses
Vessel operating expenses were $16.8 million during the three months ended December 31, 2018, or $8,287 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
an increase of $1.0 million, or 6.2%, from $15.8 million for the three months ended December 31, 2017. Vessel operating expenses per vessel per calendar day increased by $483 from $7,804 for the three months ended December 31, 2017 to $8,287 for the three months ended December 31, 2018. The increase in vessel operating expenses
for the three months ended December 31, 2018, when compared with the three months ended December 31, 2017
, was primarily the result of a $1.0 million, or $470 per vessel per calendar day, increase in
spares, stores
, and repairs and maintenance costs largely due to our regular preventive maintenance programs.
General and Administrative Expenses
General and administrative expenses were $5.2 million for the three months ended December 31, 2018,
a decrease of $0.3 million, or 6.9%, from $5.5 million for the three months ended
December 31, 2017. The decrease was mainly due to a $0.4 million decrease in professional and legal fees unrelated to the BW Proposal.
Professional and Legal Fees Related to the BW Proposal
BW made an unsolicited proposal to acquire all of our outstanding common stock 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.
Interest and Finance Costs
Interest and finance costs amounted to $10.0 million for the
three months ended December 31, 2018
, an increase of $1.3 million, or 15.2%, from $8.7 million for the
three months ended December 31, 2017
. The increase of $1.3 million during this period was due to an increase of $2.1 million in interest incurred on our long-term debt, primarily resulting from an increase in LIBOR, partially offset by a decrease in average indebtedness and a reduction of $0.8 million in amortization of deferred financing fees and loan expenses. Average indebtedness, excluding deferred financing fees, decreased from $751.3 million for the three months ended December 31, 2017 to $739.9 million for the three months ended
December 31, 2018
. As of December 31, 2018, the outstanding balance of our long-term debt, net of deferred financing fees of $14.8 million, was $711.3 million.
Unrealized Gain/(Loss) on Derivatives
Unrealized loss on derivatives was approximately $6.7 million for the three months ended December 31, 2018
, compared to an unrealized gain of $3.8 million for the three months ended December 31, 2017
. The unfavorable $10.5 million change is attributable to changes in the fair value of our interest rate swaps caused by changes in forward LIBOR yield curves and reductions in notional amounts.
Realized Gain/(Loss) on Derivatives
Realized gain on derivatives was approximately $0.9 million for the three months ended December 31, 2018
, compared to a realized loss of $0.4 million for the three months ended December 31, 2017
. The favorable $1.3 million change is attributable to increases in floating LIBOR resulting in realized gains on interest rate swaps related to the 2015 Debt Facility.
Results of Operations – For the nine months ended December 31, 2018 as compared to the nine months ended December 31, 2017
Revenues
The following table compares our Revenues for the nine months ended December 31:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
Percent
|
|
|
|
|
2018
|
|
2017
|
|
(Decrease)
|
|
Change
|
|
|
Net pool revenues—related party
|
|
$
|
94,816,738
|
|
$
|
80,554,166
|
|
$
|
14,262,572
|
|
17.7
|
%
|
|
Time charter revenues
|
|
|
28,477,881
|
|
|
37,570,898
|
|
|
(9,093,017)
|
|
(24.2)
|
%
|
|
Voyage charter revenues
|
|
|
—
|
|
|
2,068,491
|
|
|
(2,068,491)
|
|
NM
|
|
|
Other revenues, net
|
|
|
270,500
|
|
|
106,527
|
|
|
163,973
|
|
153.9
|
%
|
|
Total
|
|
$
|
123,565,119
|
|
$
|
120,300,082
|
|
$
|
3,265,037
|
|
2.7
|
%
|
Revenues, which represent net pool revenues—
related party
, time charters, voyage charters and other revenues earned by our vessels, were $123.6 million for the nine months ended December 31, 2018, an increase of $3.3 million, or 2.7%, from $120.3 million for the nine months ended December 31, 2017. The increase is primarily attributable to an increase in average TCE rates, partially offset by reduced fleet utilization. Average TCE rates increased from $21,199 for the nine months ended December 31, 2017 to $22,688 for the nine months ended December 31, 2018, primarily as a result of increased spot market rates during the nine months ended December 31, 2018, as compared to the nine months ended December 31, 2017, partially offset by higher 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 $36.404 during the nine months ended December 31, 2018 compared to an average of $26.870 for the nine months ended December 31, 2017. The average price of heavy fuel oil (expressed as U.S. dollars per metric tonnes) from Singapore and Fujairah increased from $330 during the nine months ended December 31, 2017 to $455 during the nine months ended December 31, 2018. Our fleet utilization decreased from 92.3% during the nine months ended December 31, 2017 to 89.8% during the nine months ended December 31, 2018.
Vessel Operating Expenses
Vessel operating expenses were $50.8 million during the nine months ended December 31, 2018, or $8,402 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
an increase of $2.4 million, or 5.0%, from $48.4 million for the nine months ended December 31, 2017. Vessel operating expenses per vessel per calendar day increased by $399 from $8,003 for the nine months ended December 31, 2017 to $8,402 for the nine months ended December 31, 2018. The increase in vessel operating expenses
for the nine months ended December 31, 2018, when compared with the nine months ended December 31, 2017
, was primarily the result of a $3.2 million, or $531 per vessel per calendar day, increase in spares, stores, and repairs and maintenance costs largely due to our regular preventive maintenance programs, and a $0.3 million purchase of coolant for one of our VLGCs coming off drydock in July 2018 resulting in an increase of $54 per vessel per calendar day. Partially offsetting the increases was a reduction of crew wages and related costs of $1.0 million, or $167 per vessel per calendar day.
General and Administrative Expenses
General and administrative expenses were $18.8 million for the nine months ended December 31, 2018,
a decrease of $0.7 million, or 3.7%, from $19.5 million for the nine months ended
December 31, 2017. The decrease was mainly due to a $0.9 million decrease in professional and legal fees unrelated to the BW Proposal, partially offset by a $0.2 million increase in stock compensation.
Professional and Legal Fees Related to the BW Proposal
BW made an unsolicited proposal to acquire all of our outstanding common stock 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 $10.0 million for the nine months ended December 31, 2018.
Interest and Finance Costs
Interest and finance costs amounted to $30.5 million for the
nine months ended December 31, 2018
, an increase of $5.7 million, or 23.3%, from $24.8 million for the
nine months ended December 31, 2017
. The increase of $5.7 million during this period was due to an increase of $7.7 million in interest incurred on our long-term debt, primarily resulting from (i) an increase in LIBOR, (ii) an increase in margin on the 2017 Bridge Loan that we repaid in June 2018 and (iii) an increase in average indebtedness, partially offset by a reduction of $2.0 million in amortization of deferred financing fees and loan expenses. Average indebtedness, excluding deferred financing fees, increased from $751.0 million for the nine months ended December 31, 2017 to $754.9 million for the nine months ended
December 31, 2018
. As of December 31, 2018, the outstanding balance of our long-term debt, net of deferred financing fees of $14.8 million, was $711.3 million.
Unrealized Gain/(Loss) on Derivatives
Unrealized loss on derivatives was approximately $3.9 million for the nine months ended December 31, 2018
, compared to an unrealized gain of $2.1 million for the nine months ended December 31, 2017
. The favorable $6.0 million change is attributable to changes in the fair value of our interest rate swaps caused by changes in forward LIBOR yield curves and reductions in notional amounts.
Realized Gain/(Loss) on Derivatives
Realized gain on derivatives was approximately $2.5 million for the nine months ended December 31, 2018
, compared to a realized loss of $1.4 million for the nine months ended December 31, 2017
. The favorable $3.9 million change is attributable to increases in floating LIBOR resulting in realized gains on interest rate swaps related to the 2015 Debt Facility.
Gain on Early Extinguishment of Debt
Gain on early extinguishment of debt amounted to $4.1 million for the nine months ended December 31, 2017 and was attributable to the repayment of our loan facility with the Royal Bank of Scotland, net of deferred financing fees. There was no gain on early extinguishment of debt for the nine months ended December 31, 2018.
Liquidity and Capital Resources
Our business is capital intensive, and our future success depends on our ability to maintain a high
‑
quality fleet. As of
December 31, 2018
, we had cash and cash equivalents of $34.9 million and restricted cash—non-current of $35.6 million.
Our primary sources of capital during the nine months ended
December 31, 2018
were
(i) $22.9 million in proceeds from the refinancing of the
Captain Nicholas ML,
(ii) $21.7 million in proceeds from the refinancing of the
Captain John NP
, and (iii) $20.6 million in proceeds from the refinancing of the
Captain Markos NL
. Proceeds from the refinancings of the
Captain John NP
,
Captain Markos ML
, and
Captain Nicholas ML
were used to prepay the 2017 Bridge Loan.
On June 4, 2018, we prepaid $22.3 million of the 2017 Bridge Loan’s then outstanding principal using cash on hand prior to the closing of the CJNP Japanese Financing. Refer to Note 6 to our unaudited interim condensed consolidated financial statements included herein for further details on the pr
epayment of the 2017 Bridge Loan.
On June 11, 2018,
we entered into
the CJNP Japanese Financing. The refinancing proceeds of $21.7 million increased our unrestricted cash after we prepaid $22.3 million of the 2017 Bridge Loan on June 4, 2018 using cash on hand prior to the closing of the CJNP Japanese Financing. Refer to Note 6 to our unaudited interim condensed consolidated financial statements included herein for further details on the refinancing of the
Captain John NP
.
On June 20, 2018, we prepaid the remaining 2017 Bridge Loan’s outstanding principal of $44.6 million (related to the
Captain Nicholas ML
and the
Captain Markos NL
) using cash on hand prior to the closing of the CMNL Japanese Financing and the CNML Japanese Financing. Refer to Note 6 to our unaudited interim condensed consolidated financial statements included herein for further details on the pr
epayment of the 2017 Bridge Loan.
On June 25, 2018,
we entered into
the CMNL Japanese Financing. The refinancing proceeds of $20.6 million increased our unrestricted cash after we prepaid $21.2 million of the 2017 Bridge Loan on June 20, 2018 using cash on hand prior to the closing of the CMNL Japanese Financing. Refer to Note 6 to our unaudited interim condensed consolidated financial statements included herein for further details on the refinancing of the
Captain Markos NL
.
On June 26, 2018,
we entered into
the CNML Japanese Financing. The refinancing proceeds of $22.9 million increased our unrestricted cash after we prepaid $23.4 million of the 2017 Bridge Loan on June 20, 2018 using cash on hand prior to the closing of the CNML Japanese Financing. Refer to Note 6 to our unaudited interim condensed consolidated financial statements included herein for further details on the refinancing of the
Captain Nicholas ML
.
As of
December 31, 2018
, the outstanding balance of our long-term debt, net of deferred financing fees of $14.8 million, was $711.3 million including $64.0 million of principal on our long-term debt scheduled to be repaid within the next twelve months.
Operating expenses, including expenses to maintain the quality of our vessels in order to comply with international shipping standards and environmental laws and regulations, the funding of working capital requirements, long-term debt repayments, financing costs, and contractual
commitments to purchase scrubbers on ten of our VLGCs
represent our short
‑
term, medium
‑
term and long
‑
term liquidity needs as of December 31, 2018. We anticipate satisfying our liquidity needs for at least the next twelve months with cash on hand and cash from operations. We may also seek additional liquidity through alternative sources of debt financings and/or through equity financings by way of private or public offerings. However, if these sources are insufficient to satisfy our short-term liquidity needs, or to satisfy our future medium-term or long-term liquidity needs, we may need to seek alternative sources of financing and/or modifications of
our existing credit facility and financing arrangements. There is no assurance that we will be able to obtain any such financing or modifications to our existing credit facility and financing arrangements on terms acceptable to us, or at all.
Our dividend policy will also impact our future liquidity position. Marshall Islands law generally prohibits the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent by the payment of such a dividend. Further, under the 2015 Debt Facility, we are temporarily restricted from paying dividends and repurchasing shares of our common stock until the earlier of (i) when we complete common stock offerings with net proceeds of at least $50.0 million and (ii) May 31, 2019.
As part of our growth strategy, we will continue to consider strategic opportunities, including the acquisition of additional vessels. We may choose to pursue such opportunities through internal growth or joint ventures or business acquisitions. We expect to finance the purchase price of any future acquisitions either through internally generated funds, public or private debt financings, public or private issuances of additional equity securities or a combination of these forms of financing.
Cash Flows
The following table summarizes our cash and cash equivalents provided by/(used in) operating, financing and investing activities for the nine months ended December 31:
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|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
Net cash provided by/(used in) operating activities
|
$
|
(4,397,790)
|
|
$
|
40,946,250
|
|
|
Net cash used in investing activities
|
|
(3,203,999)
|
|
|
(302,839)
|
|
|
Net cash used in financing activities
|
|
(50,942,251)
|
|
|
(23,901,827)
|
|
|
Net increase/(decrease) in cash, cash equivalents, and restricted cash
|
$
|
(58,785,548)
|
|
$
|
16,823,551
|
|
Operating Cash Flows.
Net cash used in operating activities for the nine months ended December 31, 2018 was $4.4 million, compared with net cash provided by operating activities of $40.9 million for the nine months ended December 31, 2017. The decrease of $45.3 million is primarily related to an increased operating loss and changes in working capital, mainly from amounts due from the Helios Pool as distributions from the Helios Pool are impacted by the timing of the completion of voyages and spot market rates.
Net cash flow from operating activities depends upon our overall profitability, market rates for vessels employed on voyage charters, charter rates agreed to for time charters, the timing and amount of payments for drydocking expenditures and unscheduled repairs and maintenance, fluctuations in working capital balances and bunker costs.
Investing Cash Flows.
Net cash used in investing activities was $3.2 million for the nine months ended December 31, 2018 compared with net cash used in investing activities of $0.3 million for the nine months ended December 31, 2017. For the nine months ended December 31, 2018 and 2017, net cash used in investing activities was comprised of our capital expenditures of $2.7 million and $0.5 million in purchases of investment securities.
Financing Cash Flows.
Net cash used in financing activities was $50.9 million for the nine months ended December 31, 2018, compared with $23.9 million for the nine months ended December 31, 2017. For the nine months ended December 31, 2018, net cash used in financing activities consisted of repayments of long-term debt of $114.2 million, payments for treasury stock repurchases of $1.2 million, and payment of debt financing costs of $0.6 million, partially offset by long-term debt borrowings of $65.1 million related to the CJNP Japanese Financing, CMNL Japanese Financing, and CNML Japanese Financing. Net cash used in financing activities for the nine months ended December 31, 2017 consisted of repayments of long-term debt of $168.8 million, payment of debt financing costs of $3.0 million, and treasury stock repurchases of $1.1 million, partially offset by long-term debt borrowings of $149.0 million related to the 2017 Bridge Loan and Corsair Japanese Financing
Capital Expenditures.
LPG transportation is a capital
‑
intensive business, requiring significant investment to maintain an efficient fleet and to stay in regulatory compliance.
We are required to complete a special survey for a vessel once every five years until 15 years of age and thereafter every 2.5 years and an intermediate survey every 2.5 years after the first special survey. Drydocking each vessel takes approximately 10
‑
20 days. We spend significant amounts for scheduled drydocking (including the cost of classification society surveys) for each of our vessels.
As our vessels age and our fleet expands, our drydocking expenses will increase. We estimate the current cost of a VLGC special survey to be approximately $1.0 million per vessel (excluding any capital improvements to the vessel that may be made during such drydockings) and the cost of an intermediate survey to be between $100,000 and $200,000 per vessel. Ongoing costs for compliance with environmental regulations are primarily included as part of our drydocking and classification society survey costs. Additionally, ballast water management systems are expected to be installed on six VLGCs between July 2019 and July 2023 for approximately $0.8 million per vessel. Further, in October 2016, the International Maritime Organization (the “IMO”) set January 1, 2020 as the implementation date for vessels to comply with its low sulfur fuel oil requirement, which cuts sulfur levels from 3.5% to 0.5%. We may comply with this regulation by (i) consuming compliant fuels on board (0.5% sulfur), which is likely to be more readily available globally by 2020, but likely at a higher cost; (ii) continuing to consume high-sulfur fuel oil by installing
scrubbers
for cleaning of the exhaust gases to levels at or below compliance with regulations (0.5% sulfur); or (iii) by retrofitting vessels to be powered by liquefied natural gas or LPG, which may be a viable option subject to the pricing of compliant low-sulfur fuel (0.5% sulfur). Such costs of compliance with the IMO’s low sulfur fuel oil requirement may be significant. Currently, two of our VLGCs are equipped with
scrubbers
and we have entered into contracts to purchase s
crubbers
on ten of our VLGCs, in which we have $1.2 million in remaining contractual commitments per vessel as of December 31, 2018. We are not aware of any other future regulatory changes or environmental laws that we expect to have a material impact on our current or future results of operations that we have not already considered. Please see “Item 1A. Risk Factors—Risks Relating to Our Company—We are subject to regulation and liability, including environmental laws, which could require significant expenditures and adversely affect our financial conditions and results of operations” and “Item 1A. Risk Factors—Risks Relating to Our Company—We may incur increasing costs for the drydocking, maintenance or replacement of our vessels as they age, and, as our vessels age, the risks associated with older vessels could adversely affect our ability to obtain profitable charters” in our Annual Report on Form 10-K for the year ended March 31, 2018
.
Debt Agreements
For information relating to our secured term loan facilities, refer to Notes 9 and 23 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018
and Note 6 to our
unaudited interim condensed consolidated financial statements for
the three and nine months ended December 31, 2018 included herein
.
Off-Balance Sheet Arrangements
We currently do not have any off
‑
balance sheet arrangements.
Critical Accounting Policies and Estimates
The following is an update to the Critical Accounting Estimates set forth in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended March 31, 2018.
Impairment of long-lived assets.
We review our vessels and other fixed assets for impairment when events or circumstances indicate the carrying amount of the asset may not be recoverable. In addition, we compare independent appraisals to our carrying value for indicators of impairment to our vessels. When such indicators are present, an asset is tested for recoverability by comparing the estimate of future undiscounted net operating cash flows expected to be generated by the use of the asset over its remaining useful life and its eventual disposition to its carrying amount. An impairment charge is recognized if the carrying value is in excess of the estimated future undiscounted net operating cash flows. The impairment loss is measured based on the excess of the carrying amount over the fair market value of the asset. The new lower cost basis would result in a lower annual depreciation than before the impairment.
Our estimates of fair market value assume that our vessels are all in good and seaworthy condition without need for repair and if inspected would be certified in class without notations of any kind. Our estimates are based on information available from various industry sources, including:
|
|
·
|
|
reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;
|
|
|
·
|
|
news and industry reports of similar vessel sales;
|
|
|
·
|
|
approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated;
|
|
|
·
|
|
offers that we may have received from potential purchasers of our vessels; and
|
|
|
·
|
|
vessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.
|
As we obtain information from various industry and other sources, our estimates of fair market value are inherently uncertain. In addition, vessel values are highly volatile; as such, our estimates may not be indicative of the current or future fair market value of our vessels or prices that we could achieve if we were to sell them.
As of December 31, 2018, independent appraisals of our VLGC fleet had indicators of impairment on twenty-one of our VLGCs in accordance with ASC 360 Property, Plant, and Equipment. We determined estimated net operating cash flows for our VLGCs by applying various assumptions regarding future time charter equivalent revenues net of commissions, operating expenses, scheduled drydockings, expected offhire and scrap values. These assumptions were based on historical data as well as future expectations. We estimated spot market rates by obtaining the trailing 10-year historical average spot market rates, as published by maritime industry researchers. Estimated outflows for operating expenses and drydocking expenses were based on historical and budgeted costs and were adjusted for assumed inflation. Utilization was based on our historical levels achieved in the spot market and estimates of a residual value consistent with scrap rates used in management's evaluation of scrap value. Such estimates and assumptions regarding expected net operating cash flows require considerable judgment and were based upon historical experience, financial forecasts and industry trends and conditions. Therefore, based on this analysis, we concluded that no impairment charge was necessary because we believe the vessel carrying values are recoverable. No impairment charges were recognized for the three and nine months ended December 31, 2018.
In addition, we performed a sensitivity analysis as of December 31, 2018 to determine the effect on recoverability of changes in TCE rates. The sensitivity analysis suggests that we would not incur an impairment charge on any of our VLGCs if daily TCE rates based on the 10-year historical average spot market rates were reduced by 25%. An impairment charge of approximately $34.5 million on six of our VLGCs would be triggered by a reduction of 30% in the 10-year historical average spot market rates. The amount, if any, and timing of any impairment charges we may recognize in the future will depend upon the then current and expected future charter rates and vessel values, which may differ materially from those used in our estimates as of December 31, 2018.
Recent Accounting Pronouncements
Refer to Note 2 to our unaudited interim condensed consolidated financial statements included herein for a discussion of recent accounting pronouncements.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
S ABOUT MARKET RISK
For additional discussion of our exposure to market risk, refer to “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” included in our Annual Report on Form 10-K for the year ended March 31, 2018.
Interest Rate Risk
The LPG shipping industry is capital intensive, requiring significant amounts of investment. Much of this investment is provided in the form of long-term debt. Our 2015 Debt Facility agreement contains interest rates that fluctuate with LIBOR. We have entered into interest rate swap agreements to hedge a majority of our exposure to fluctuations of interest rate risk associated with our 2015 Debt Facility. We have hedged $250 million of non-amortizing principal and $204.3 million of amortizing principal of the 2015 Debt Facility as of December 31, 2018 and thus increasing interest rates could adversely impact our future earnings due to additional interest expense on our unhedged debt. For the 12 months following December 31, 2018, a hypothetical increase or decrease of 20 basis points in the underlying LIBOR rates would result in an increase or decrease of our interest expense on all of our non-hedged interest-bearing debt by approximately $0.1 million assuming all other variables are held constant.
ITEM 4.
CONTROLS AND PROCEDURE
S
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of December 31, 2018. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those internal control systems determined to be effective can provide only a level of reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three and nine months ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.