Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-36437
Dorian LPG Ltd.
(Exact name of registrant as specified in its charter)
Marshall Islands
66-0818228
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
c/o Dorian LPG (USA) LLC
27 Signal Road, Stamford, CT
06902
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (203) 674-9900
Former name, former address and former fiscal year, if changed since last report: Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Common stock, par value $0.01 per share
LPG
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of January 27, 2023, there were 40,350,535 shares of the registrant’s common stock outstanding.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), including analyses and other information based on forecasts of future results and estimates of amounts not yet determinable and statements relating to our future prospects, developments and business strategies. Such forward-looking statements are intended to be covered by the safe harbor provided for under the sections referenced in the immediately preceding sentence and the PSLRA. Forward-looking statements are generally identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “might,” “pending,” “plan,” “possible,” “potential,” “predict,” “project,” “seeks,” “should,” “targets,” “will,” “would,” and similar terms and phrases, including references to assumptions. Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual future activities and results of operations to differ materially from future results expressed, projected, or implied by those forward-looking statements in this quarterly report.
These risks include the risks that are identified in the “Risk Factors” section of this quarterly report and of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, and also include, among others, risks associated with the following:
Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions or expectations proves to be inaccurate or is not realized. You should thoroughly read this report with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this report include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the forward-looking statements by these cautionary statements.
We caution readers of this report not to place undue reliance on forward-looking statements. Any forward-looking statements contained herein are made only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
As used in this quarterly report and unless otherwise indicated, references to “Dorian,” the “Company,” “we,” “our,” “us,” or similar terms refer to Dorian LPG Ltd. and its subsidiaries.
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets as of December 31, 2022 and March 31, 2022
1
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2022 and December 31, 2021
2
Unaudited Condensed Consolidated Statements of Shareholders' Equity for the nine months ended December 31, 2022 and December 31, 2021
3
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2022 and December 31, 2021
4
Notes to Unaudited Condensed Consolidated Financial Statements
5
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
20
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
32
ITEM 4.
CONTROLS AND PROCEDURES
PART II.
OTHER INFORMATION
LEGAL PROCEEDINGS
33
ITEM 1A.
RISK FACTORS
ITEM 6.
EXHIBITS
EXHIBIT INDEX
34
SIGNATURES
35
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets
(Expressed in United States Dollars, except for share data)
As of
December 31, 2022
March 31, 2022
Assets
Current assets
Cash and cash equivalents
$
129,816,670
236,758,927
Trade receivables, net and accrued revenues
8,290,143
853,060
Due from related parties
77,922,053
57,782,831
Inventories
2,612,904
2,266,351
Prepaid expenses and other current assets
9,415,894
10,232,083
Total current assets
228,057,664
307,893,252
Fixed assets
Vessels, net
1,193,974,225
1,238,061,690
Vessel under construction
26,045,036
16,401,532
Other fixed assets, net
37,241
54,101
Total fixed assets
1,220,056,502
1,254,517,323
Other non-current assets
Deferred charges, net
8,945,598
9,839,000
Derivative instruments
11,359,543
6,512,479
Due from related parties—non-current
20,900,000
19,800,000
Restricted cash—non-current
75,360
77,987
Operating lease right-of-use assets
38,877,468
8,087,014
2,134,886
635,038
Total assets
1,530,407,021
1,607,362,093
Liabilities and shareholders’ equity
Current liabilities
Trade accounts payable
9,965,969
9,541,131
Accrued expenses
6,201,359
3,801,448
Due to related parties
6,041,597
37,433
Deferred income
117,410
813,967
Current portion of long-term operating lease liabilities
8,396,020
8,073,364
Current portion of long-term debt
52,136,738
72,075,571
Dividends payable
1,011,126
494,180
Total current liabilities
83,870,219
94,837,094
Long-term liabilities
Long-term debt—net of current portion and deferred financing fees
577,202,083
590,687,387
Long-term operating lease liabilities
30,488,622
—
Other long-term liabilities
1,518,817
1,686,197
Total long-term liabilities
609,209,522
592,373,584
Total liabilities
693,079,741
687,210,678
Commitments and contingencies
Shareholders’ equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued nor outstanding
Common stock, $0.01 par value, 450,000,000 shares authorized, 51,595,898 and 51,321,695 shares issued, 40,350,535 and 40,185,042 shares outstanding (net of treasury stock), as of December 31, 2022 and March 31, 2022, respectively
515,960
513,217
Additional paid-in-capital
763,547,096
760,105,994
Treasury stock, at cost; 11,245,363 and 11,136,653 shares as of December 31, 2022 and March 31, 2022, respectively
(122,896,838)
(121,226,936)
Retained earnings
196,161,062
280,759,140
Total shareholders’ equity
837,327,280
920,151,415
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
Unaudited Condensed Consolidated Statements of Operations
(Expressed in United States Dollars)
Three months ended
Nine months ended
December 31, 2021
Revenues
Net pool revenues—related party
96,558,251
62,856,243
237,314,421
174,739,894
Time charter revenues
5,971,056
5,301,134
17,410,513
15,915,876
Other revenues, net
792,949
442,405
1,389,231
3,981,608
Total revenues
103,322,256
68,599,782
256,114,165
194,637,378
Expenses
Voyage expenses
424,343
779,746
2,567,506
3,200,751
Charter hire expenses
5,215,144
4,917,012
15,975,622
10,829,050
Vessel operating expenses
17,919,058
18,205,762
52,541,678
56,916,054
Depreciation and amortization
15,959,727
16,859,224
47,706,925
50,771,237
General and administrative expenses
6,947,964
5,867,454
24,537,134
23,257,989
Total expenses
46,466,236
46,629,198
143,328,865
144,975,081
Gain on disposal of vessels
3,466,210
Other income—related parties
638,055
580,388
1,793,595
1,793,663
Operating income
57,494,075
22,550,972
114,578,895
54,922,170
Other income/(expenses)
Interest and finance costs
(8,636,387)
(7,412,231)
(28,592,104)
(18,619,712)
Interest income
1,165,596
53,792
2,341,085
279,195
Unrealized gain/(loss) on derivatives
(700,015)
3,056,741
4,847,064
4,205,465
Realized gain/(loss) on derivatives
1,404,004
(895,782)
1,997,815
(2,714,337)
Other gain/(loss), net
536,437
(772,607)
1,250,140
(1,520,993)
Total other income/(expenses), net
(6,230,365)
(5,970,087)
(18,156,000)
(18,370,382)
Net income
51,263,710
16,580,885
96,422,895
36,551,788
Weighted average shares outstanding:
Basic
40,091,299
39,890,674
40,004,100
40,305,902
Diluted
40,254,774
40,025,399
40,178,642
40,460,665
Earnings per common share—basic
1.28
0.42
2.41
0.91
Earnings per common share—diluted
1.27
0.41
2.40
0.90
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
(Expressed in United States Dollars, except for number of shares)
Number of
Additional
common
Common
Treasury
paid-in
Retained
shares
stock
capital
Earnings
Total
Balance, April 1, 2021
51,071,409
510,715
(99,862,114)
756,776,217
289,400,512
946,825,330
Net income for the period
5,869,100
Restricted share award issuances
15,800
158
(158)
Stock-based compensation
647,124
Purchase of treasury stock
(14,793,180)
Balance, June 30, 2021
51,087,209
510,873
(114,655,294)
757,423,183
295,269,612
938,548,374
14,101,803
188,400
1,884
(1,884)
Dividend
(40,437,434)
1,290,254
(6,553,707)
Balance, September 30, 2021
51,275,609
512,757
(121,209,001)
758,711,553
268,933,981
906,949,290
678,823
(17,935)
Balance, December 31, 2021
759,390,376
285,514,866
924,191,063
Balance, April 1, 2022
51,321,695
24,847,720
15,750
(100,337,605)
658,872
(971,067)
Balance, June 30, 2022
51,337,445
513,375
(122,198,003)
760,764,708
205,269,255
844,349,335
20,311,465
240,751
2,408
(2,408)
(40,332,833)
1,740,328
(698,835)
Balance, September 30, 2022
51,578,196
515,783
762,502,628
185,247,887
825,369,460
17,702
177
(177)
(40,350,535)
1,044,645
Balance, December 31, 2022
51,595,898
Unaudited Condensed Consolidated Statements of Cash Flows
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of operating lease right-of-use assets
7,196,279
7,148,483
Amortization of financing costs
5,210,541
3,232,626
Unrealized gain on derivatives
(4,847,064)
(4,205,465)
Stock-based compensation expense
3,443,845
2,616,201
Gain on disposal of vessel
(3,466,210)
Unrealized foreign currency (gain)/loss, net
527,028
205,279
Other non-cash items, net
(1,743,887)
1,342,894
Changes in operating assets and liabilities
Trade receivables, net and accrued revenue
(7,437,083)
202,221
274,780
(960,151)
(21,239,222)
10,148,374
(346,553)
(408,693)
310,393
(11,743)
Operating lease liabilities—current and long-term
(7,150,782)
(7,158,734)
(376,919)
(352,460)
Accrued expenses and other liabilities
2,392,779
(3,998,726)
6,004,164
242,879
Payments for drydocking costs
(304,514)
(3,128,235)
Net cash provided by operating activities
126,043,605
88,771,565
Cash flows from investing activities:
Payments for vessel under construction and vessel capital expenditures
(10,139,570)
(22,225,882)
Purchase of long-term investments
(1,801,582)
Purchase of investment securities
(2,250,681)
Proceeds from sale of investment securities
2,003,458
3,742,429
Proceeds from disposal of vessel
43,283,021
Net cash provided by/(used in) investing activities
(9,937,694)
22,548,887
Cash flows from financing activities:
Proceeds from long-term debt borrowings
290,000,000
83,400,000
Repayment of long-term debt borrowings
(324,390,585)
(100,526,209)
Repurchase of common stock
(1,669,902)
(21,346,885)
Financing costs paid
(6,266,267)
(1,357,545)
Dividends paid
(180,504,027)
(40,210,344)
Net cash used in financing activities
(222,830,781)
(80,040,983)
Effects of exchange rates on cash and cash equivalents
(220,014)
(119,817)
Net increase/(decrease) in cash, cash equivalents, and restricted cash
(106,944,884)
31,159,652
Cash, cash equivalents, and restricted cash at the beginning of the period
236,836,914
84,727,199
Cash, cash equivalents, and restricted cash at the end of the period
129,892,030
115,886,851
1. Basis of Presentation and General Information
Dorian LPG Ltd. (“Dorian”) was incorporated on July 1, 2013 under the laws of the Republic of the Marshall Islands, is headquartered in the United States, and is engaged in the transportation of liquefied petroleum gas (“LPG”) worldwide. Specifically, Dorian and its subsidiaries (together “we”, “us”, “our”, or the “Company”) are focused on owning and operating very large gas carriers (“VLGCs”), each with a cargo carrying capacity of greater than 80,000 cbm, in the LPG shipping industry. As of December 31, 2022, our fleet consists of twenty-two VLGCs, including nineteen fuel-efficient 84,000 cbm ECO-design VLGCs (“ECO-VLGCs”), one 82,000 cbm VLGC and two time chartered-in ECO-VLGCs. As of December 31, 2022, thirteen of our ECO-VLGCs, including one of our time chartered-in ECO-VLGCs, are equipped with exhaust gas cleaning systems (commonly referred to as “scrubbers”) to reduce sulfur emissions. We have commitments related to scrubbers on an additional three of our VLGCs. We provide in-house commercial management services for all of our vessels, including our vessels deployed in the Helios Pool (defined below), which may also receive commercial management services from Phoenix (defined below). Excluding our time chartered-in vessels, we provide in-house technical management services for all of our vessels, including our vessels deployed in the Helios Pool (defined below).
On April 1, 2015, Dorian and Phoenix Tankers Pte. Ltd. (“Phoenix”) began operations of Helios LPG Pool LLC (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. Refer to Note 3 below for further description of the Helios Pool.
The unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and related Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In our opinion, all adjustments, consisting of normal recurring items, necessary for a fair presentation of financial position, operating results and cash flows have been included in the unaudited interim condensed consolidated financial statements and related notes. The unaudited interim condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes for the year ended March 31, 2022 included in our Annual Report on Form 10-K filed with the SEC on June 2, 2022.
Our interim results are subject to seasonal and other fluctuations, and the operating results for any quarter are therefore not necessarily indicative of results that may be otherwise expected for the entire year.
Our subsidiaries as of December 31, 2022, which are all wholly-owned and are incorporated in the Republic of the Marshall Islands (unless otherwise noted), are listed below.
Vessel Subsidiaries
Type of
Subsidiary
vessel
Vessel’s name
Built
CBM(1)
CJNP LPG Transport LLC
VLGC
Captain John NP
2007
82,000
Comet LPG Transport LLC
Comet
2014
84,000
Corsair LPG Transport LLC
Corsair(2)
Corvette LPG Transport LLC
Corvette
2015
Dorian Shanghai LPG Transport LLC
Cougar(2)
Concorde LPG Transport LLC
Concorde
Dorian Houston LPG Transport LLC
Cobra
Dorian Sao Paulo LPG Transport LLC
Continental
Dorian Ulsan LPG Transport LLC
Constitution
Dorian Amsterdam LPG Transport LLC
Commodore
Dorian Dubai LPG Transport LLC
Cresques(2)
Constellation LPG Transport LLC
Constellation
Dorian Monaco LPG Transport LLC
Cheyenne
Dorian Barcelona LPG Transport LLC
Clermont
Dorian Geneva LPG Transport LLC
Cratis(2)
Dorian Cape Town LPG Transport LLC
Chaparral(2)
Dorian Tokyo LPG Transport LLC
Copernicus(2)
Commander LPG Transport LLC
Commander
Dorian Explorer LPG Transport LLC
Challenger
Dorian Exporter LPG Transport LLC
Caravelle(2)
2016
Dorian Sakura LPG Transport LLC(3)
Hull No. 1755
2023(4)
Management and Other Subsidiaries
Dorian LPG Management Corp.
Dorian LPG (USA) LLC (incorporated in USA)
Dorian LPG (UK) Ltd. (incorporated in UK)
Dorian LPG Finance LLC
Occident River Trading Limited (incorporated in UK)
Dorian LPG (DK) ApS (incorporated in Denmark)
Dorian LPG Chartering LLC
Dorian LPG FFAS LLC
COVID-19
Since the beginning of calendar year 2020, the COVID-19 pandemic has negatively affected economic conditions, supply chains, labor markets, demand for certain shipped goods both regionally and globally, and has also negatively impacted and may continue to impact our operations and the operations of our customers and suppliers. Over the course of the pandemic, measures taken to mitigate the spread of the COVID-19 virus have included travel bans, quarantines, social distancing, limitations on public gatherings, impositions on supply chain logistics, lockdowns and other emergency public health measures, resulting in a significant reduction in overall global economic activity and extreme volatility in the global financial markets.
At present, we cannot fully ascertain the impact of COVID-19 on the Company’s future operational performance and financial results. To date, we have experienced increases in crew wages and related costs, particularly in crew travel and medical costs and certain spares and stores and associated transport costs due to COVID-19. Further impacts may be of greater magnitude and may be reflected in different cost items than we have experienced up to this point. If a resurgence of COVID-19, including due to new variants, results in travel restrictions, supply chain disruptions, and other impediments
6
to the orderly conduct of seaborne trade, such as those caused by China’s “zero-covid” policy, there may be an additional material adverse effect on our results of operations, cash flows and financial condition.
2. Significant Accounting Policies
The same accounting policies have been followed in these unaudited interim condensed consolidated financial statements as those applied in the preparation of our consolidated audited financial statements for the year ended March 31, 2022 (refer to Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022).
Accounting Pronouncements Not Yet Adopted
In March 2020, the Financial Accounting Standards Board issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”).” ASU 2020-04 provides temporary optional expedients and exceptions to the guidance in U.S. GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. This ASU was effective for adoption at any time between March 12, 2020 and December 31, 2022. In December 2022, the Financial Accounting Standards Board issued ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”).” ASU 2022-06 defers the sunset date included within Topic 848 from December 31, 2022, to December 31, 2024. We have determined that the adoption of this ASU would have an immaterial effect 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 less than $0.1 million for both the three months ended December 31, 2022 and 2021 and $0.1 million for both the nine months ended December 31, 2022 and 2021.
As of December 31, 2022, $0.8 million was due from DHSA and included in “Due from related parties” in the unaudited interim condensed consolidated balance sheet. As of March 31, 2022, $1.0 million was due from DHSA and included in “Due from related parties” in the audited consolidated balance sheet.
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
7
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, 2022, the Helios Pool operated twenty-three VLGCs, including twenty vessels from our fleet (including two vessels time chartered-in from unrelated parties) and three Phoenix vessels.
As of December 31, 2022, we had net receivables from the Helios Pool of $91.9 million (net of amounts due to Helios Pool of $6.0 million which are reflected under “Due to related Parties”), including $22.0 million of working capital contributed for the operation of our vessels in the pool (of which $1.1 million was classified as current). As of March 31, 2022, we had net receivables from the Helios Pool of $76.5 million (net of an amount due to Helios Pool of $0.1 million which are reflected under “Due to related Parties”), including $23.1 million of working capital contributed for the operation of our vessels in the pool (of which $3.3 million was classified as current). Our maximum exposure to losses from the pool as of December 31, 2022 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 and has appointed both as the exclusive commercial managers of pool vessels. Dorian LPG (DK) ApS has assumed the responsibilities of Dorian LPG (UK) Ltd. under such agreements with the consolidation of our London, United Kingdom office into our Copenhagen, Denmark office. Fees for such services earned by Dorian LPG (DK) ApS are included in “Other income-related parties” in the unaudited interim condensed consolidated statement of operations and were $0.6 million and $0.5 million for the three months ended December 31, 2022, and 2021, respectively, and $1.6 million for both the nine months ended December 31, 2022 and 2021. 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 $0.6 million and $0.4 million for the three months ended December 31, 2022, and 2021, respectively, and $1.1 million and $1.9 million for the nine months ended December 31, 2022, and 2021, respectively, and are included in “Other revenues, net” in the unaudited interim condensed consolidated statements of operations.
Through our vessel owning subsidiaries, we have chartered vessels to the Helios Pool during the nine months ended December 31, 2022 and 2021. 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 as variable rate time charter hire for the relevant vessel to participants based on pool points (vessel attributes such as cargo carrying capacity, scrubber-equipped, fuel consumption, and speed are taken into consideration) and number of days the vessel participated in the pool in the period. 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. 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 12.
4. Deferred Charges, Net
The analysis and movement of deferred charges is presented in the table below:
Drydocking
costs
Additions
1,219,522
Amortization
(2,112,924)
8
5. Vessels, Net
Accumulated
Cost
depreciation
Net book Value
1,638,075,449
(400,013,759)
Other additions
1,505,563
Depreciation
(45,593,028)
1,639,581,012
(445,606,787)
Additions to vessels, net, mainly consisted of scrubber purchases and installation costs and other capital improvements for certain of our VLGCs during the nine months ended December 31, 2022. Our vessels, with a total carrying value of $1,157.0 million and $1,198.7 million as of December 31, 2022 and March 31, 2022, respectively, are first-priority mortgaged as collateral for our long-term debt (refer to Note 7 below). Captain John NP is our only VLGC that is not first-priority mortgaged as collateral for our long-term debt as of December 31, 2022 and March 31, 2022. No impairment loss was recorded for the periods presented.
6. Vessel Under Construction
As further described in Note 15, we have entered into a thirteen-year bareboat charter agreement for a newbuilding dual-fuel VLGC that is expected to be delivered from Kawasaki Heavy Industries in March 2023. The analysis and movement of vessel under construction is presented in the table below:
Installment payments
8,000,000
Other capitalized expenditures
642,707
Capitalized interest
1,000,797
7. Long-term Debt
2015 AR Facility
Refer to Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 for information on our $758 million debt financing facility that we entered into in March 2015 with a group of banks and financial institutions, and its amendments and restatements (the “2015 AR Facility”). On April 21, 2022, we prepaid $25.0 million of the 2015 AR Facility’s then outstanding principal using cash on hand, consisting of $11.1 million of the commercial tranche, $11.1 million of the Export-Import Bank of Korea (“KEXIM”) direct tranche, and $2.8 million of the Korea Trade Insurance Corporation (“K-sure”) insured tranche. On May 19, 2022, we prepaid $20.0 million of the 2015 AR Facility’s then outstanding principal related to Cougar using proceeds from the Cougar Japanese Financing (defined below). On August 4, 2022, we prepaid the outstanding balance of each tranche in full totaling $158.7 million using proceeds from the 2022 Debt Facility (defined below).
BALCAP Facility
Refer to Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 for information on our $83.4 million debt financing facility that we entered into in December 2021 with Banc of America Leasing & Capital, LLC and other financial institutions (the “BALCAP Facility”).
We were in compliance with all financial covenants as of December 31, 2022.
2022 Debt Facility
On July 29, 2022, we entered into a $260.0 million debt financing facility (the “2022 Debt Facility”) with Crédit Agricole Corporate and Investment Bank (“CACIB”), ING Bank N.V. (“ING”), Skandinaviska Enskilda Banken AB (publ) (“SEB”), BNP Paribas (“BNP”), and Danish Ship Finance A/S (“DSF”) to refinance indebtedness under
9
the 2015 AR Facility and the Concorde Japanese Financing, and to releverage Corvette following the repurchase of that vessel from its owners on July 21, 2022. The 2022 Debt Facility consists of (i) a term loan facility in an aggregate principal amount of $240.0 million and (ii) a revolving credit facility in an aggregate principal amount of up to $20.0 million. The loan comprised two separate drawdowns with $216.0 million drawn on August 4, 2022 relating to nine of our VLGCs, and the remaining $24.0 million relating to Concorde drawn on September 6, 2022. The term loan is for a period of seven (7) years with an interest rate of SOFR plus a margin of 2.20%. The margin can be decreased by five basis points if the leverage ratio (which is based on the ratio of the debt outstanding to the aggregate market value of our vessels secured under the 2022 Debt Facility) is less than 35% or increased by five basis points if it is greater than or equal to 45%. The 2022 Debt Facility agreement also includes a provision to receive a five basis point increase or reduction in the margin for reductions in our average efficiency ratio (which weighs carbon emissions for a voyage against the design deadweight of a vessel and the distance traveled on such voyage) versus the level set by the International Maritime Organization. This is calculated annually and, as of December 31, 2022, our margin has been reduced by five basis points to 2.15%.
The 2022 Debt Facility is secured by, among other things, (i) first priority Bahamian mortgages on the vessels financed, (ii) first priority assignments of all of the financed vessels’ mandatory insurances and earnings and management agreements; (iii) first priority pledge in respect of all limited liability company interests of the borrowers and vessel-owning guarantors; (iv) first priority charter assignments of all of the financed vessels’ long-term charters to non-Helios LPG Pool parties with an original tenor greater than 13 months; and (v) a guaranty by the Company guaranteeing the obligations of the borrower and other guarantors under the facility agreement. The 2022 Debt Facility further provides that the facility is secured by assignments of the borrower’s rights under any hedging contracts in connection with the facility.
The 2022 Debt Facility also contains customary covenants that require us to maintain adequate insurance coverage and to properly maintain the vessels. The loan facility includes customary events of default, including those relating to a failure to pay principal or interest, breaches of covenants, representations and warranties, a cross-default to certain other debt obligations and non-compliance with security documents, and customary restrictions on paying dividends if an event of default has occurred and is continuing, or if an event of default would result therefrom.
The following financial covenants are the most restrictive from the 2022 Debt Facility with which the Company is required to comply, calculated on a consolidated basis, determined and defined according to the provisions of the loan agreement and its amendments:
●
The ratio of current assets and long-term restricted cash divided by current liabilities, excluding current portion of long-term debt, shall always be greater than 1.00;
●Maintain minimum shareholders’ equity at all times equal to the aggregate of $400 million;
●The ratio of consolidated net debt to consolidated total capitalization shall not exceed 0.60 to 1.00;
Fair market value of the mortgaged ships plus any additional security over the outstanding loan balance shall not be less than 145%; and
Minimum liquidity covenant of the greater of (i) $27.5 million and (ii) 5% of consolidated interest-bearing debt.
Corsair Japanese Financing
Refer to Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 for information on the refinancing of our 2014-built VLGC, Corsair, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Corsair Japanese Financing”).
10
Concorde Japanese Financing
Refer to Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 for information on the refinancing of our 2015-built VLGC, Concorde, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Concorde Japanese Financing”). On June 6, 2022, we exercised our repurchase option under the Concorde Japanese Financing by providing a three-month notice to the owners of Concorde of our intent to repurchase the vessel for approximately $41.2 million, including fees, in cash and application of the deposit amount of $14.0 million. The repurchase transaction was completed on September 6, 2022.
Corvette Japanese Financing
Refer to Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 for information on the refinancing of our 2015-built VLGC, Corvette, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Corvette Japanese Financing”). On June 6, 2022, we exercised our repurchase option under the Corvette Japanese Financing by providing a 45-day notice to the owners of Corvette of our intent to repurchase the vessel for $42.2 million, including fees, in cash and application of the deposit amount of $14.0 million. The repurchase transaction was completed on July 21, 2022.
CNML Japanese Financing
Refer to Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 for information on the refinancing our 2008-built VLGC, Captain Nicholas ML, pursuant to a memorandum of agreement and a bareboat charter agreement (the “CNML Japanese Financing”).
Cresques Japanese Financing
Refer to Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 for information on the refinancing our 2015-built VLGC, Cresques, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Cresques Japanese Financing”).
Cratis Japanese Financing
Refer to Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 for information on the refinancing our 2015-built VLGC, Cratis, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Cratis Japanese Financing”).
Copernicus Japanese Financing
Refer to Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 for information on the refinancing our 2015-built VLGC, Copernicus, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Copernicus Japanese Financing”).
Chaparral Japanese Financing
Refer to Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 for information on the refinancing our 2015-built VLGC, Chaparral, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Chaparral Japanese Financing”).
Caravelle Japanese Financing
Refer to Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 for information on the refinancing our 2016-built VLGC, Caravelle, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Caravelle Japanese Financing”).
11
Cougar Japanese Financing
On May 19, 2022, we refinanced a 2015-built VLGC, Cougar, pursuant to a memorandum of agreement and a bareboat charter agreement. In connection therewith, we transferred Cougar to the buyer for $70.0 million and, as part of the agreement, Dorian Shanghai LPG Transport LLC, our wholly-owned subsidiary, bareboat chartered the vessel back for a period of 10 years, with purchase options from the end of year 3 onwards through a mandatory buyout by 2032. We continue to technically manage, commercially charter, and operate Cougar. We received $50.0 million in cash as part of the transaction with $20.0 million to be retained by the buyer as a deposit (the “Cougar 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 10-year bareboat charter term. The refinancing proceeds of $50.0 million were used to prepay $20.0 million of the 2015 AR Facility’s then outstanding principal amount. The remaining proceeds will be used to pay legal fees associated with this transaction and for general corporate purposes. This transaction will be treated as a financing transaction and Cougar will continue to be recorded as an asset on our balance sheet. This debt financing has a floating interest rate of three-month SOFR plus a margin of 2.45%, not including financing costs of $0.4 million, monthly broker commission fees of 1.25% over the 10-year term on interest and principal payments made, broker commission fees of 0.5% on the exercise of the purchase option or obligation excluding the Cougar Deposit, and a quarterly fixed straight-line principal obligation of approximately $0.9 million over the 10-year term with a balloon payment of $14.0 million.
Debt Obligations
The table below presents our debt obligations:
Commercial Financing
91,651,888
KEXIM Direct Financing
44,406,733
KEXIM Guaranteed
47,190,358
K-sure Insured
23,132,295
Total 2015 AR Facility
206,381,274
230,000,000
Japanese Financings
35,208,334
37,645,833
42,269,231
42,807,692
43,095,000
45,660,000
46,600,000
49,660,000
62,934,348
64,662,242
47,000,000
49,700,000
48,200,000
Total Japanese Financings
329,637,682
382,064,998
75,992,178
81,574,172
Total debt obligations
635,629,860
670,020,444
Less: deferred financing fees
6,291,039
7,257,486
Debt obligations—net of deferred financing fees
629,338,821
662,762,958
Presented as follows:
12
Deferred Financing Fees
The analysis and movement of deferred financing fees is presented in the table below:
Financing
4,244,094
(5,210,541)
8. Leases
Time charter-in contracts
During the nine months ended December 31, 2022, we did not take delivery of any time chartered-in VLGCs. During this period, one existing charter was extended by 11 months that was excluded from operating lease right-of-use asset and lease liability recognition on our consolidated balance sheet. Also, during this period, one existing charter was extended for two years, with two consecutive one-year charterer’s option periods for up to an aggregate of four years, and initially recognized the applicable right-of-use asset and lease liability of $37.7 million on our balance sheet. As of December 31, 2022, the applicable right-of-use asset and lease liability was equal to $37.1 million. As of December 31, 2022, our time chartered-in VLGCs were deployed in the Helios Pool and earned net pool revenues of $9.2 million and $5.5 million for the three months ended December 31, 2022 and 2021, respectively, and $22.7 million and $12.3 million for the nine months ended December 31, 2022, and 2021, respectively.
Charter hire expenses for the VLGCs time chartered in were as follows:
Office leases
We currently have operating leases for our offices in Stamford, Connecticut, USA; Copenhagen, Denmark; and Athens, Greece, which we determined to be operating leases and record the lease expense as part of general and administrative expenses in our consolidated statements of operations. The lease for our office in London, United Kingdom expired in August 2022. During the nine months ended December 31, 2022, we extended the leases of our Stamford, Connecticut office and our Athens, Greece office for an additional five and four years, respectively, and entered into a 31-month lease for new premises for our Copenhagen, Denmark office.
Operating lease rent expense related to our office leases was as follows:
Operating lease rent expense
135,825
148,384
453,007
464,394
For our office leases and time charter-in arrangement, the discount rate used ranged from 4.92% to 6.34%. The weighted average discount rate used to calculate the lease liability was 6.32%. The weighted average remaining lease term of our office leases and time chartered-in vessel as of December 31, 2022 is 48.9 months.
13
Our operating lease right-of-use asset and lease liabilities as of December 31, 2022 were as follows:
Description
Location on Balance Sheet
Assets:
Non-current
1,766,167
Time charter-in VLGCs
37,111,301
Liabilities:
Current
Office Leases
Current portion of long-term operating leases
419,074
7,976,946
Long-term
Long-term operating leases
1,354,266
29,134,356
Maturities of operating lease liabilities as of December 31, 2022 were as follows:
Less than one year
10,577,878
One to three years
21,700,042
Three to five years
11,856,118
Total undiscounted lease payments
44,134,038
Less: imputed interest
(5,249,396)
Carrying value of operating lease liabilities
38,884,642
9. Dividends
On May 4, 2022, we announced that our board of directors (“Board of Directors”) declared an irregular cash dividend of $2.50 per share of our common stock to all shareholders of record as of the close of business on May 16, 2022, totaling $100.3 million. We paid $99.7 million on June 2, 2022, with the remaining $0.6 million deferred until certain shares of restricted stock vest.
On June 15, 2022, we paid $0.2 million of dividends that were deferred until the vesting of certain restricted stock.
On August 3, 2022, we announced that our Board of Directors declared an irregular cash dividend of $1.00 per share of the Company’s common stock to all shareholders of record as of the close of business on August 15, 2022, totaling $40.3 million. We paid $40.1 million on September 2, 2022 and the remaining $0.2 million is deferred until certain shares of restricted stock vest.
On August 5, 2022, we paid $0.4 million of dividends that were deferred until the vesting of certain restricted stock.
On October 27, 2022, we announced that our Board of Directors declared an irregular cash dividend of $1.00 per share of the Company’s common stock to all shareholders of record as of the close of business on November 7, 2022, totaling $40.4 million. We paid $40.1 million on December 6, 2022 and the remaining $0.3 million is deferred until certain shares of restricted stock vest.
These were irregular dividends. All declarations of dividends are subject to the determination and discretion of our Board of Directors based on its consideration of various factors, including our results of operations, financial condition, level of indebtedness, anticipated capital requirements, contractual restrictions, restrictions in its debt agreements, restrictions under applicable law, its business prospects and other factors that our Board of Directors may deem relevant.
14
10. Stock Repurchase Authority
On February 2, 2022, our Board of Directors authorized the repurchase of up to $100.0 million of our common shares (the “2022 Common Share Repurchase Authority”). Under these authorizations, when in force, purchases were and may be made at our discretion in the form of open market repurchase programs, privately negotiated transactions, accelerated share repurchase programs or a combination of these methods. The actual amount and timing of share repurchases are subject to capital availability, our determination that share repurchases are in the best interest of our shareholders, and market conditions. As of December 31, 2022, our total purchases under the 2022 Common Share Repurchase Authority totaled 0.05 million shares for an aggregate consideration of $0.7 million. We are not obligated to make any common share repurchases.
11. Stock-Based Compensation Plans
Our stock-based compensation expense is included within general and administrative expenses in the unaudited interim condensed consolidated statements of operations and was $1.0 million and $0.7 million for the three months ended December 31, 2022 and 2021, respectively, and $3.4 million and $2.6 million for the nine months ended December 31, 2022 and 2021 respectively. Unrecognized compensation cost was $2.7 million as of December 31, 2022 and will be recognized over a remaining weighted average life of 2.08 years. For more information on our equity incentive plan, refer to Note 13 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022.
A summary of the activity of restricted shares and units awarded under our equity incentive plan as of December 31, 2022 and changes during the nine months ended December 31, 2022, is as follows:
Weighted-Average
Grant-Date
Incentive Share/Unit Awards
Number of Shares/Units
Fair Value
Unvested as of April 1, 2022
329,090
10.56
Granted
266,350
15.55
Vested
(264,558)
(11.96)
Unvested as of December 31, 2022
330,882
13.46
12. Revenues
Revenues comprise the following:
Net pool revenues—related party depend upon the net results of the Helios Pool, and the operating days and pool points for each vessel. Refer to Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022.
Other revenues, net mainly represent claim reimbursements and income from charterers relating to reimbursement of voyage expenses, such as costs for war risk insurance and security guards.
13. Financial Instruments and Fair Value Disclosures
Our principal financial assets consist of cash and cash equivalents, amounts due from related parties, investment securities, long-term investments and trade accounts receivable. Our principal financial liabilities consist of long-term debt, accounts payable, amounts due to related parties, accrued liabilities, and derivative instruments.
15
The following table summarizes the location on the balance sheet of the financial assets and liabilities that are carried at fair value on a recurring basis, which comprise our financial derivatives, all of which are considered Level 2 items in accordance with the fair value hierarchy:
Derivatives not designated as hedging instruments
Interest rate swap agreements
The effect of derivative instruments within the unaudited interim condensed consolidated statements of operations for the periods presented is as follows:
Location of gain/(loss) recognized
Interest rate swaps—change in fair value
Interest rate swaps—realized gain/(loss)
Gain/(loss) on derivatives, net
703,989
2,160,959
6,844,879
1,491,128
As of December 31, 2022 and March 31, 2022, no fair value measurements for assets or liabilities under Level 1 or Level 3 were recognized in the consolidated balance sheets with the exception of cash and cash
16
equivalents, restricted cash, and investment securities. We did not have any other assets or liabilities measured at fair value on a non-recurring basis during the three and nine months ended December 31, 2022 and 2021.
The summary of gains and losses on our investment securities included in other gain/(loss), net on our consolidated statements of operations for the periods presented is as follows:
Unrealized gain/(loss) on investment securities
206,691
(1,179,297)
Realized loss on investment securities
(305)
Net gain/(loss) on investment securities
(1,179,602)
1,013,794
(1,710,348)
Realized gain on investment securities
776,770
447,255
1,790,564
(1,263,093)
We have long-term bank debt related to the 2022 Debt Facility, the Cougar Japanese Financing, and the Cresques Japanese Financing for which we believe the carrying values approximate their fair values as the loans bear interest at variable interest rates, being SOFR and LIBOR, which are observable at commonly quoted intervals for the full terms of the loans, and hence are considered as Level 2 items in accordance with the fair value hierarchy. We also have long-term debt related to the Corsair Japanese Financing, Cratis Japanese Financing, Copernicus Japanese Financing, Chaparral Japanese Financing, and Caravelle Japanese Financing (collectively the “Japanese Financings”) that incur interest at a fixed-rate. We have long-term debt related to the BALCAP Facility that incurs interest at a fixed-rate. The fixed-rate Japanese Financings and the BALCAP Facility are considered Level 2 items in accordance with the fair value hierarchy and the fair value of each is based on a discounted cash flow analysis using current observable SOFR interest rates. The following table summarizes the carrying value and estimated fair value of our fixed debt obligations as of:
Carrying Value
33,730,112
36,904,683
41,352,417
41,862,894
42,940,476
46,716,277
61,084,562
64,321,963
43,312,327
46,792,400
70,577,748
77,063,912
14. Earnings Per Share (“EPS”)
Basic EPS represents net income attributable to common shareholders divided by the weighted average number of our common shares outstanding during the measurement period. Our restricted stock shares include rights to receive dividends that are subject to the risk of forfeiture if service requirements are not satisfied, and as a result, these shares are
17
not considered participating securities and are excluded from the basic weighted-average shares outstanding calculation. Diluted EPS represent net income attributable to common shareholders divided by the weighted average number of our common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period.
The calculations of basic and diluted EPS for the periods presented are as follows:
(In U.S. dollars except share data)
Numerator:
Denominator:
Basic weighted average number of common shares outstanding
Effect of dilutive restricted stock and restricted stock units
163,475
134,725
174,542
154,763
Diluted weighted average number of common shares outstanding
EPS:
No shares of unvested restricted stock were excluded from the calculation of diluted EPS for the three and nine months ended December 31, 2022, and 2021.
15. Commitments and Contingencies
Commitments under Contracts for Scrubbers Purchases
We had contractual commitments related to scrubbers to reduce sulfur emissions:
2,587,749
Commitments under Bareboat Charter Header Agreement
On March 31, 2021, we entered into a thirteen-year bareboat charter agreement for a newbuilding dual-fuel VLGC that is expected to be delivered from Kawasaki Heavy Industries in March 2023. The structure of the financing of the newbuilding is analogous to that of our Japanese Financings in which a third party will purchase the vessel and we will bareboat charter such vessel from the third party. As part of the agreement, we control the building of the vessel and the use of the vessel after it is delivered. The vessel will be built to our specifications; we will supervise the building of the vessel to meet these specifications; and we will technically and commercially manage the vessel after its delivery. Under the agreement, we had commitments of $24.0 million of predelivery costs as well as the cost of additional features to meet our specifications and supervision costs for an aggregate total of approximately $25.0 million. As of December 31, 2022, we had approximately $1.0 million of commitments under the agreement outstanding that we expect to settle during the year ending March 31, 2023. Construction of the vessel commenced in December 2021.
18
Time Charter-in
We had the following time charter-in commitments relating to VLGCs:
29,832,333
64,080,000
Thereafter
72,140,000
230,132,333
The time charter-in commitments as of December 31, 2022, relate to (i) three newbuilding dual-fuel Panamax LPG vessels that we previously entered into agreements to time-charter in with purchase options that are scheduled to be delivered during the first to third calendar quarters of 2023 for a period of seven years each; (ii) a less than one-year time chartered in VLGC that is scheduled to expire during the three months ended September 30, 2023; and (iii) excludes operating lease liabilities related to a VLGC that is recorded on the unaudited condensed consolidated balance sheets as of December 31, 2022.
Fixed Time Charter Contracts
We had the following future minimum fixed time charter hire receipts based on non-cancelable long-term fixed time charter contracts:
26,685,000
13,607,986
40,292,986
Other
From time to time, we expect to be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. Such claims, even if lacking in merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any claim other than that described below, which is reasonably possible and should be disclosed or probable and for which a provision should be established in the unaudited interim condensed consolidated financial statements.
16. Subsequent Events
Interest Rate Swap
On January 20, 2023, we entered into an interest rate swap agreement with ING in order to manage our variable interest rate exposure risk by effectively converting a portion of our debt from a floating to a fixed rate. The notional value increases as other swaps amortize and then decreases with the debt outstanding under the 2022 Debt Facility until final settlement in July 2029. The effect is to maintain a constant ratio between the debt outstanding under the 2022 Debt Facility and the notional hedges. The initial notional value is $3.5 million with an effective date of June 26, 2023 and a fixed interest rate of 2.8525%.
On February 1, 2023, we announced that our Board of Directors declared an irregular cash dividend of $1.00 per share of the Company’s common stock to all shareholders of record as of the close of business on February 15, 2023, totaling $40.4 million. The dividend is payable on or about February 28, 2023.
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS 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, 2022, 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, one 82,000 cbm VLGCs, and two time chartered-in ECO-VLGCs. We have equipped twelve of our ECO-VLGCs and time chartered-in one vessel with scrubbers and we have commitments related to scrubbers on an additional three of our vessels as of January 27, 2023. Vessels fitted with scrubbers allow us to reduce our emissions and to burn less refined fuel, which is frequently cheaper than more refined, lower sulfur grades. When the cost of more refined fuel exceeds that of less refined fuel, we are typically able to earn a higher TCE for spot voyages and to potentially contract time charters at higher rates compared to vessels without scrubbers.
Dorian’s 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 27, 2023, twenty of our twenty-two VLGCs were employed in the Helios Pool, including our two time chartered-in VLGCs.
Our customers, either directly or through the Helios Pool, include or have included global energy companies such as Exxon Mobil Corp., Chevron Corp., China International United Petroleum & Chemicals Co., Ltd., Royal Dutch Shell plc, Equinor ASA, Total S.A., and Sunoco LP, commodity traders such as Glencore plc, Itochu Corporation, Bayegan Group, Vilma Oil SL, and the Vitol Group and importers such as E1 Corp., Indian Oil Corporation, SK Gas Co. Ltd., Astomos Energy Corporation, and Oriental Energy Company Ltd. or subsidiaries of the foregoing.
We continue to 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, two of our VLGCs are on fixed-rate time charters outside of the Helios Pool. See “Our Fleet” below for more information and the definition of Pool-TCO.
Recent Developments
Our Fleet
The following table sets forth certain information regarding our fleet as of January 27, 2023.
Capacity
ECO
Scrubber
Charter
(Cbm)
Shipyard
Year Built
Vessel(1)
Equipped
Employment
Expiration(2)
Dorian VLGCs
Hyundai
Pool(4)
X
Corsair(3)
Time Charter(6)
Q4 2024
Cougar(3)
Time Charter(7)
Q1 2024
Pool-TCO(5)
Q4 2023
Q1 2023
Cresques(3)
Daewoo
Q2 2023
Cratis(3)
Chaparral(3)
Copernicus(3)
Caravelle(3)
1,678,000
Time chartered-in VLGCs
Future Diamond(8)
80,876
2020
Astomos Venus(9)
77,367
Mitsubishi
21
Results of Operations – For the three months ended December 31, 2022 as compared to the three months ended December 31, 2021
The following table compares our revenues for the three months ended December 31:
Increase /
Percent
2022
2021
(Decrease)
Change
33,702,008
53.6
%
669,922
12.6
350,544
79.2
34,722,474
50.6
Revenues, which represent net pool revenues—related party, time charters and other revenues, net, were $103.3 million for the three months ended December 31, 2022, an increase of $34.7 million, or 50.6%, from $68.6 million for the three months ended December 31, 2021 primarily due to an increase in average TCE rates, partially offset by a decrease in fleet utilization. Average TCE rates increased by $19,260 per operating day from $33,508 for the three months ended December 31, 2021 to $52,768 for the three months ended December 31, 2022, primarily due to higher spot rates despite 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 $119.106 during the three months ended December 31, 2022 compared to an average of $59.252 for the three months ended December 31, 2021. The average price of very low sulfur fuel oil (expressed as U.S. dollars per metric ton) from Singapore and Fujairah increased from $609 during the three months ended December 31, 2021, to $676 during the three months ended December 31, 2022. Our fleet utilization decreased from 98.5% during the three months ended December 31, 2021 to 97.8% during the three months ended December 31, 2022.
Charter Hire Expenses
Charter hire expenses for the vessels chartered in from third parties were $5.2 million and $4.9 million for the three months ended December 31, 2022 and 2021, respectively. The increase of $0.3 million, or 6.1%, was mainly caused by an increase in the number of chartered-in days from 169 for the three months ended December 31, 2021 to 184 for the three months ended December 31, 2022.
Vessel Operating Expenses
Vessel operating expenses were $17.9 million during the three months ended December 31, 2022, or $9,739 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. The decrease of $0.3 million, or 1.6% from $18.2 million for the three months ended December 31, 2021 was due to a reduction of calendar days for our fleet from 1,932 during the three months ended December 31, 2021 to 1,840 during the three months ended December 31, 2022, driven by the sale of Captain Nicholas ML prior to the three months ended December 31, 2022. The increase of $315 per vessel per calendar day, from $9,423 for the three months ended December 31, 2021 to $9,739 per vessel per calendar day for the three months ended December 31, 2022 was primarily the result of increases of $115 per vessel per calendar day in operating expenses related to lubricants, $110 per vessel per calendar day in operating expenses related to repairs and maintenance, and spares and stores, and $65 per vessel per calendar day in operating expenses related to crew wages and related costs, for the three months ended December 31, 2022.
General and Administrative Expenses
General and administrative expenses were $6.9 million for the three months ended December 31, 2022, an increase of $1.0 million, or 18.4%, from $5.9 million for the three months ended December 31, 2021. This increase was driven by $0.2 million in financial support for the families of our Ukrainian and Russian seafarers affected by the events in Ukraine and increases of $0.4 million and $0.4 million in stock-based compensation and other general and administrative expenses, respectively, for the three months ended December 31, 2022.
22
Interest and Finance Costs
Interest and finance costs amounted to $8.6 million for the three months ended December 31, 2022, an increase of $1.2 million, or 16.5%, from $7.4 million for the three months ended December 31, 2021. The increase of $1.2 million during this period was mainly due to an increase of $3.1 million in interest incurred on our long-term debt, partially offset by a decrease of $1.5 million in amortization of financing costs resulting from the refinancing of Commander and Constellation during the three months ended December 31, 2021, and an increase in capitalized interest of $0.3 million. The increase in interest on our long-term debt was driven by an increase in average interest rates due to rising SOFR on our floating-rate long-term debt, and an increase in average indebtedness, excluding deferred financing fees, from $576.0 million for the three months ended December 31, 2021 to $645.0 million for the three months ended December 31, 2022. The increase in average indebtedness is due to the 2022 Debt Facility refinancing prior to the three months ended December 31, 2022. As of December 31, 2022, the outstanding balance of our long-term debt, net of deferred financing fees of $6.3 million, was $629.3 million.
Unrealized Gain/(Loss) on Derivatives
Unrealized loss on derivatives amounted to $0.7 million for the three months ended December 31, 2022, compared to a gain of $3.1 million for the three months ended December 31, 2021. The $3.8 million swing is attributable to reductions in notional amounts and an unfavorable change in forward SOFR yield curves (forward LIBOR curves in the prior period).
Realized Gain/(Loss) on Derivatives
Realized gain on derivatives amounted to $1.4 million for the three months ended December 31, 2022, compared to a realized loss of $0.9 million for the three months ended December 31, 2021. The favorable $2.3 million difference is due to an increase in floating SOFR resulting in the realized gain on our interest rate swaps.
Results of Operations – For the nine months ended December 31, 2022 as compared to the nine months ended December 31, 2021
The following table compares our revenues for the nine months ended December 31:
62,574,527
35.8
1,494,637
9.4
(2,592,377)
(65.1)
61,476,787
31.6
Revenues, which represent net pool revenues—related party, time charters and other revenues, net, were $256.1 million for the nine months ended December 31, 2022, an increase of $61.5 million, or 31.6%, from $194.6 million for the nine months ended December 31, 2021 primarily due to an increase in average TCE rates, partially offset by a decrease in fleet utilization. Average TCE rates increased by $12,401 per operating day from $32,034 for the nine months ended December 31, 2021 to $44,435 for the nine months ended December 31, 2022, primarily due to higher spot rates despite 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 $86.882 during the nine months ended December 31, 2022 compared to an average of $51.201 for the nine months ended December 31, 2021. The average price of very low sulfur fuel oil (expressed as U.S. dollars per metric ton), from Singapore and Fujairah increased from $552 during the nine months ended December 31, 2021, to $827 during the nine months ended December 31, 2022. Our fleet utilization decreased from 96.8% during the nine months ended December 31, 2021 to 94.8% during the nine months ended December 31, 2022.
23
Charter hire expenses for the vessels chartered in from third parties were $16.0 million and $10.8 million for the nine months ended December 31, 2022 and 2021, respectively. The increase of $5.2 million, or 47.5%, was mainly caused by an increase in the number of chartered-in days from 399 for the nine months ended December 31, 2021 to 550 for the nine months ended December 31, 2022.
Vessel operating expenses were $52.5 million during the nine months ended December 31, 2022, or $9,553 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. The decrease of $4.4 million, or 7.7% from $56.9 million for the nine months ended December 31, 2021 was due to a reduction of calendar days for our fleet from 5,935 during the nine months ended December 31, 2021 to 5,500 during the nine months ended December 31, 2022, driven by the sales of Captain Markos NL and Captain Nicholas ML prior to the nine months ended December 31, 2022. On a per vessel per calendar day basis, vessel operating expenses were relatively flat, slightly decreasing $37 per vessel per calendar day, from $9,590 for the nine months ended December 31, 2021 to $9,553 per vessel per calendar day for the nine months ended December 31, 2022. The slight reduction was primarily the result of a decrease of $154 per vessel per calendar day in operating expenses related to repairs and maintenance, and spares and stores, partially offset by an increase of $134 per vessel per calendar day in operating expenses related to lubricants.
General and administrative expenses were $24.5 million for the nine months ended December 31, 2022, an increase of $1.2 million, or 5.5%, from $23.3 million for the nine months ended December 31, 2021. This increase was driven by $0.8 million in financial support for the families of our Ukrainian and Russian seafarers affected by the events in Ukraine and increases of $0.8 million and $0.7 million in stock-based compensation and other general and administrative expenses, respectively, for the nine months ended December 31, 2022. This was partially offset by a reduction in employee-related expenses of $1.1 million for the nine months ended December 31, 2022.
Interest and finance costs amounted to $28.6 million for the nine months ended December 31, 2022, an increase of $10.0 million, or 53.6%, from $18.6 million for the nine months ended December 31, 2021. The increase of $10.0 million during this period was mainly due to increases of (1) $8.0 million in interest incurred on our long-term debt, (2) $2.0 million in accelerated amortization of financing costs resulting from the repayment of the 2015 AR Facility and long-term debt on Concorde and Corvette, (3) $1.0 million in loan expenses driven by increases in average interest rates on our long-term debt due to rising SOFR on our floating-rate long-term debt, and $0.9 million in capitalized interest. The increase in interest on our long-term debt was driven by an increase in average interest rates due to rising SOFR on our floating-rate long-term debt, and an increase in average indebtedness, excluding deferred financing fees, from $587.7 million for the nine months ended December 31, 2021 to $663.6 million for the nine months ended December 31, 2022, driven by the 2022 Debt Facility refinancing during the nine months ended December 31, 2022. As of December 31, 2022, the outstanding balance of our long-term debt, net of deferred financing fees of $6.3 million, was $629.3 million.
Unrealized Gain on Derivatives
Unrealized gain on derivatives amounted to $4.8 million for the nine months ended December 31, 2022, compared to $4.2 million for the nine months ended December 31, 2021. The $0.6 million difference is primarily attributable to favorable changes in forward SOFR yield curves (forward LIBOR curves in the prior period).
Realized gain on derivatives amounted to $2.0 million for the nine months ended December 31, 2022, compared to a realized loss of $2.7 million for the nine months ended December 31, 2021. The favorable $4.7 million difference is due to an increase in floating SOFR resulting in the realized gain on our interest rate swaps.
24
Gain on Disposal of Vessel
Gain on disposal of vessel amounted to $3.5 million for the nine months ended December 31, 2021 and was attributable to the sale of Captain Markos NL. There was no gain on disposal of vessel for the nine months ended December 31, 2022.
Operating Statistics and Reconciliation of GAAP to non-GAAP Measures
To supplement our financial statements presented in accordance with U.S.GAAP, we present certain operating statistics and non-GAAP measures to assist in the evaluation of our business performance. These non-GAAP measures include Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) and time charter equivalent rate. These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for net income and revenues, which are the most directly comparable measures of performance prepared in accordance with GAAP.
We use these non-GAAP measures in assessing the performance of our ongoing operations and in planning and forecasting future periods. These adjusted measures provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance. We believe that these adjusted measures, when considered together with the corresponding U.S. GAAP measures and the reconciliations to those measures, provide meaningful supplemental information to assist investors and analysts in understanding our business results and assessing our prospects for future performance.
(in U.S. dollars, except fleet data)
Financial Data
Adjusted EBITDA(1)
76,200,480
39,370,204
169,320,890
107,067,810
Fleet Data
Calendar days(2)
1,840
1,932
5,500
5,935
Time chartered-in days(3)
184
169
550
399
Available days(4)
1,993
2,054
6,019
6,176
Operating days(5)(8)
1,950
2,024
5,706
5,976
Fleet utilization(6)(8)
97.8
98.5
94.8
96.8
Average Daily Results
Time charter equivalent rate(7)(8)
52,768
33,508
44,435
32,034
Daily vessel operating expenses(9)
9,739
9,423
9,553
9,590
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.
25
The following table sets forth a reconciliation of net income to Adjusted EBITDA (unaudited) for the periods presented:
(in U.S. dollars)
8,636,387
7,412,231
28,592,104
18,619,712
Unrealized (gain)/loss on derivatives
700,015
(3,056,741)
Realized (gain)/loss on interest rate swaps
(1,404,004)
895,782
(1,997,815)
2,714,337
Adjusted EBITDA
26
The following table sets forth a reconciliation of revenues to TCE rate (unaudited) for the periods presented:
(in U.S. dollars, except operating days)
(424,343)
(779,746)
(2,567,506)
(3,200,751)
Time charter equivalent
102,897,913
67,820,036
253,546,659
191,436,627
Pool adjustment*
(99,984)
(514,015)
(2,978)
Time charter equivalent excluding pool adjustment*
102,797,929
253,032,644
191,433,649
Operating days
TCE rate:
Time charter equivalent rate
TCE rate excluding pool adjustment*
52,717
44,345
* Adjusted for the effect of reallocations of pool profits in accordance with the pool participation agreements due to adjustments related to speed and consumption performance of the vessels operating in the Helios Pool.
Company Methodology:
Operating Days
Fleet Utilization
Alternate Methodology:
6,002
6,173
100.0
99.7
51,630
33,019
42,244
31,012
We believe that the Company Methodology using the underlying vessel employment provides more meaningful insight into market conditions and the performance of our vessels.
27
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, 2022, we had cash and cash equivalents of $129.8 million and non-current restricted cash of $0.1 million.
Our primary sources of capital during the nine months ended December 31, 2022 were $126.0 million in cash generated from operations and $29.9 million in net proceeds from the refinancing of Cougar. As of December 31, 2022, the outstanding balance of our long-term debt, net of deferred financing fees of $6.3 million, was $629.3 million including $52.1 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, commitments under the bareboat charter for a newbuilding dual-fuel VLGC, and drydocking on certain of our VLGCs represent our short-term, medium-term and long-term liquidity needs as of December 31, 2022. 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 by drawing down our $20.0 million senior secured revolving credit facility or 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.
On May 4, 2022, we announced that our Board of Directors declared an irregular cash dividend of $2.50 per share of our common stock to all shareholders of record as of the close of business on May 16, 2022, totaling $100.3 million. We paid $99.7 million on June 2, 2022 with the remaining $0.6 million deferred until certain shares of restricted stock vest.
28
These were irregular dividends. All declarations of dividends are subject to the determination and discretion of our Board of Directors based on its consideration of various factors, including our results of operations, financial condition, level of indebtedness, anticipated capital requirements, contractual restrictions, restrictions in its debt agreements, restrictions under applicable law, its business prospects and other factors that our Board of Directors may deem relevant. 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.
On May 19, 2022, we refinanced a 2015-built VLGC, Cougar, pursuant to a memorandum of agreement and a bareboat charter agreement. We received $50.0 million in cash as part of the transaction with $20.0 million to be retained by the buyer as a 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 10-year bareboat charter term. The refinancing proceeds of $50.0 million were used to prepay $20.0 million of the 2015 AR Facility’s then outstanding principal amount.
On July 21, 2022, we repurchased Corvette for $42.2 million in cash and the application of the deposit amount of $14.0 million. Corvette was subsequently refinanced under the 2022 Debt Facility.
On July 29, 2022, we entered into a $260.0 million debt financing facility with CACIB, ING, SEB, BNP, and DSF to refinance indebtedness under the 2015 AR Facility and the Concorde Japanese Financing (upon its repurchase in September 2022) and to releverage Corvette following the repurchase of that vessel from its owners on July 21, 2022. The 2022 Debt Facility consists of (i) a term loan facility in an aggregate principal amount of $240.0 million and (ii) a revolving credit facility in an aggregate principal amount of up to $20.0 million. The loan comprised two separate drawdowns with $216.0 million drawn on August 4, 2022 relating to nine of our VLGCs, and the remaining $24.0 million relating to Concorde drawn on September 6, 2022. The term loan is for a period of seven (7) years with an interest rate of SOFR plus a margin currently at 2.15%.
On September 6, 2022, we repurchased Concorde for $41.2 million in cash and application of the deposit amount of $14.0 million. Concorde was refinanced under the 2022 Debt Facility.
As part of our growth strategy, we will continue to consider strategic opportunities, including the acquisition or charter-in of additional vessels. We may choose to pursue such opportunities through internal growth, joint ventures, business acquisitions, or other transactions. 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:
Operating Cash Flows. Net cash provided by operating activities for the nine months ended December 31, 2022 was $126.0 million, compared to $88.8 million for the nine months ended December 31, 2021. The increase in cash generated from operations of $37.2 million is primarily related to an increase in cash flows from operating profits (refer to Results of Operations – For the three months ended December 31, 2022 as compared to the three months ended December 31, 2021, for drivers of changes in revenues and expenses for the applicable periods), partially offset by changes in working capital. The unfavorable change in working capital was mainly from amounts due from the Helios Pool as distributions from the Helios Pool are impacted by the timing of the completion of voyages, spot market rates and bunker prices.
29
Net cash flow from operating activities depends upon our overall profitability, market rates for vessels employed on voyage charters and in the Helios Pool, 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 $9.9 million for the nine months ended December 31, 2022 compared with net cash provided by investing activities of $22.5 million for the nine months ended December 31, 2021. For the nine months ended December 31, 2022, net cash used in investing activities was comprised of $10.1 million of capital expenditure payments for vessels and vessels under construction and a $1.8 million purchase of long-term investments, partially offset by $2.0 million in proceeds from the sale of investment securities. For the nine months ended December 31, 2021, net cash provided by investing activities was comprised of $43.3 million in proceeds, net of commission, on the sale of our 2006-built VLGC Captain Markos NL and $3.7 million in proceeds from the sale of investment securities, partially offset by $22.2 million of capital expenditure payments for vessels and vessels under construction, and $2.3 million in purchases of long-term investments.
Financing Cash Flows. Net cash used in financing activities was $222.8 million for the nine months ended December 31, 2022, compared with $80.0 million for the nine months ended December 31, 2021. For the nine months ended December 31, 2022, net cash used in financing activities primarily consisted of (i) repayments of long-term debt of $324.4 million, including the voluntary prepayment of a portion of the 2015 AR Facility ($25.0 million), the prepayment of a portion of the 2015 AR Facility in relation to the refinancing of Cougar ($20.0 million), and the prepayment of the remaining outstanding balances of the 2015 AR Facility ($158.7 million), the Corvette Japanese Financing ($42.8 million) and the Concorde Japanese Financing ($42.3 million) in order to refinance 10 VLGCs under the 2022 Debt Facility; (ii) dividend payments of $180.5 million; (iii) payments of financing costs totaling $6.3 million, and (iv) payments to repurchase common stock of $1.7 million.
This is partially offset by proceeds of $290.0 million from the 2022 Debt Facility ($240.0 million) and the refinancing of Cougar ($50.0 million). For the nine months ended December 31, 2021, net cash used in financing activities primarily consisted of (i) repayments of long-term debt of $100.5 million, including the prepayment of a portion of the 2015 AR Facility in relation to the refinancing of two VLGCs ($47.1 million) and the repayment in full of the CMNL/CJNP Japanese Financing, (ii) a dividend payment of $40.2 million, (iii) payments to repurchase common stock of $21.3 million, and (iv) payments of financing costs totaling $1.4 million, partially offset by proceeds of $83.4 million from the BALCAP Facility.
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 generally required to complete a special survey for a vessel once every five years. Drydocking of vessels occurs every five years unless an extension is granted by the classification society to seven and one-half years and the vessel is not older than 20 years of age. Intermediate surveys are performed every two and one-half years after the first special survey. Drydocking each vessel takes approximately 10 to 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 cash outlay for a VLGC special survey to be approximately $1.0 million per vessel (excluding any capital improvements, such as scrubbers and ballast water management systems, 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. In order to comply with the International Maritime Organization mandated reductions in sulfur emissions that came into effect January 1, 2020, we have installed scrubbers on twelve of our vessels and have one chartered-in scrubber-equipped vessel, which allows us to burn heavy fuel oil. We have entered into contracts to purchase scrubbers on three of our VLGCs, in which we have $3.4 million in remaining contractual commitments as of December 31, 2022. Our other vessels currently consume compliant fuels on board (0.5% sulfur), which are readily available globally, but at a significantly higher cost. Our newbuilding will have the capability to burn LPG. Please see "Item 1A. Risk Factors—Risks Relating to Our
30
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, 2022.
On March 31, 2021, we entered into a thirteen-year bareboat charter agreement for a newbuilding dual-fuel VLGC that is expected to be delivered from Kawasaki Heavy Industries in March 2023. The structure of the financing of the newbuilding is analogous to that of our Japanese Financings in which a third-party will purchase the vessel and we will bareboat charter such vessel from the third party. As part of the agreement, we control the building of the vessel and the use of the vessel after it is delivered. The vessel will be built to our specifications; we will supervise the building of the vessel to meet these specifications; and we will technically and commercially manage the vessel after its delivery. Under the agreement, we had commitments of $24.0 million of predelivery costs as well as the cost of additional features to meet our specifications and supervision costs for an aggregate total of approximately $25.0 million. As of December 31, 2022, we had approximately $1.0 million of commitments under the agreement outstanding that we expect to settle during the year ending March 31, 2023. Construction of the vessel commenced in December 2021.
Debt Agreements
For information relating to our secured term loan facilities, refer to Note 10 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 and Note 7 to our unaudited interim condensed consolidated financial statements for December 31, 2022 included herein.
Off-Balance Sheet Arrangements
We currently do not have any off‑balance sheet arrangements.
Critical Accounting 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, 2022.
Impairment of long-lived assets. We review our vessels 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:
31
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, 2022, independent appraisals of our commercially and technically-managed VLGCs in our fleet had no indications of impairment on any of our VLGCs in accordance with ASC 360 Property, Plant, and Equipment. No impairment charges were recognized for December 31, 2022.
Recent Accounting Pronouncements
We have considered all recent accounting pronouncements issued and believe that none of these recent pronouncements will have a material effect on our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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, 2022.
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 2022 Debt Facility agreement and certain Japanese financings as described in footnote 7 contain interest rates that fluctuate with SOFR and LIBOR. We have entered into interest rate swap agreements to hedge exposure to fluctuations of interest rate risk associated with our 2022 Debt Facility. We have hedged $195.2 million of amortizing principal of the 2022 Debt Facility as of December 31, 2022 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, 2022, a hypothetical increase or decrease of 20 basis points in the underlying SOFR and LIBOR rates would result in an increase or decrease of our interest expense on all of our non-hedged interest-bearing debt by $0.3 million assuming all other variables are held constant.
ITEM 4. CONTROLS AND PROCEDURES
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 Exchange Act) as of December 31, 2022. 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, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we expect to be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. Such claims, even if lacking in merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any claim that is reasonably possible and should be disclosed or probable and for which a provision should be established in the accompanying unaudited interim condensed consolidated financial statements.
ITEM 1A. RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common shares. The following is an update to the risk factors that may cause actual results to differ materially from those anticipated as set forth in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2022.
Our business may be affected by macroeconomic conditions, including rising inflation, higher interest rates, market volatility, economic uncertainty, and global supply chain constraints.
Various macroeconomic factors, including rising inflation, higher interest rates, global supply chain constraints, and the effects of overall economic conditions and uncertainties such as those resulting from the current and future conditions in the global financial markets, could adversely affect our results of operations and financial condition. Inflation and rising interest rates may negatively impact us by increasing our operating costs and our cost of borrowing. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the operation of our business and our ability to raise capital on favorable terms, or at all.
ITEM 6. EXHIBITS
See accompanying Exhibit Index for a list of exhibits filed or furnished with this report.
Exhibit Number
31.1
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1†
Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2†
Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Document
101.SCH
Inline XBRL Taxonomy Extension Schema
101.CAL
Inline XBRL Taxonomy Extension Schema Calculation Linkbase
101.DEF
Inline XBRL Taxonomy Extension Schema Definition Linkbase
101.LAB
Inline XBRL Taxonomy Extension Schema Label Linkbase
101.PRE
Inline XBRL Taxonomy Extension Schema Presentation Linkbase
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101)
†
This certification is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant)
Date: February 1, 2023
/s/ John C. Hadjipateras
John C. Hadjipateras
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Theodore B. Young
Theodore B. Young
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)