Capital Product Partners L.P.(CPLP) - 2022 Q1 - Quarterly Report

First Quarter 2022 Financial Results Highlights Capital Product Partners L.P. reported strong Q1 2022 results with significant revenue and net income growth, driven by fleet expansion, and announced a common unit distribution and unit repurchases Q1 2022 Financial Highlights (vs. Q1 2021) | Metric | Q1 2022 | Q1 2021 | Increase | | :--- | :--- | :--- | :--- | | Revenues ($ million) | $73.4 | $38.1 | 93% | | Expenses ($ million) | $40.2 | $24.2 | 66% | | Net Income ($ million) | $25.1 | $10.9 | 130% | | Net Income per common unit ($) | $1.26 | $0.57 | 121% | | Average number of vessels | 21.0 | 15.2 | 38% | - Announced a common unit distribution of $0.15 for the first quarter of 2022[3] - Operating Surplus for Q1 2022 was $44.6 million, with $13.5 million remaining after the quarterly allocation to the capital reserve[4] - Repurchased 89,345 common units at an average cost of $15.67 per unit during the quarter[4] Overview of First Quarter 2022 Results Q1 2022 net income significantly increased due to a 93% revenue rise from fleet expansion, particularly LNG carrier acquisitions, while total expenses also grew due to increased operating costs and depreciation - Net income per common unit for Q1 2022 was $1.26, more than double the $0.57 reported in Q1 2021[6] - The 38% net increase in the average number of vessels was the primary driver of revenue growth, with the acquisition of six LNG carriers in H2 2021 alone contributed $37.6 million to total revenue in Q1 2022[7] - Total expenses increased to $40.2 million from $24.2 million in Q1 2021, with vessel operating expenses rising to $16.7 million and depreciation increasing to $18.4 million, both due to the larger fleet[8] - Interest expense and finance costs rose to $10.3 million from $3.4 million year-over-year, reflecting the increase in total outstanding indebtedness to finance fleet growth[9] Capitalization and Financial Position As of March 31, 2022, the Partnership maintained a solid financial position with $49.6 million in cash, increased partners' capital, and reduced total debt through scheduled payments Key Balance Sheet Items (as of March 31, 2022) | Item | Amount ($ million) | | :--- | :--- | | Total Cash | $49.6 | | Restricted Cash | $10.6 | | Total Partners' Capital | $546.4 | | Total Debt (gross) | $1,291.4 | - Total partners' capital increased by $20.9 million from December 31, 2021, primarily due to Q1 net income, offset by distributions and unit repurchases[11] - Total debt decreased by $26.0 million from year-end 2021, mainly due to scheduled principal payments of $22.5 million[12] Operating Surplus The Operating Surplus for Q1 2022 reached $44.6 million, showing an increase from prior periods, with $13.5 million remaining after capital reserve allocation Operating Surplus Trend | Period | Operating Surplus ($ million) | | :--- | :--- | | Q1 2022 | $44.6 | | Q4 2021 | $37.9 | | Q1 2021 | $24.5 | Corporate Developments and Outlook Management Commentary The CEO highlighted improved profitability from timely LNG market diversification and affirmed commitment to capital returns and accretive acquisitions in LNG and container sectors - The diversification into the LNG market was described as "very timely," with rising LNG charter market fundamentals and vessel values, partly due to the Russo-Ukraine war's impact on energy markets[18] - The company plans to continue returning capital via its $0.15 quarterly distribution and unit buyback program, while also seeking acquisitions to grow distributable cash flow[19] Capital Allocation The Partnership continues its capital return strategy through a consistent quarterly cash distribution and an active unit repurchase program - The Board of Directors declared a cash distribution of $0.15 per common unit for Q1 2022[22] - Under its $30.0 million unit repurchase program, the Partnership bought back 89,345 common units in Q1 2022 at an average price of $15.67 per unit[20] External Factors and Risks The Partnership monitors COVID-19 and the Russo-Ukrainian War, with minimal direct COVID-19 impact and the war creating uncertainty but potentially benefiting the LNG carrier market long-term - The estimated incremental operating and voyage costs associated with COVID-19 were approximately $0.2 million in Q1 2022[14] - The Russo-Ukrainian conflict could disrupt supply chains and cause global economic instability, but it is also expected to benefit the LNG/C market as Europe reduces its reliance on Russian gas[17] Market Commentary Update Container Market The containership market remained exceptionally strong in early 2022 with high charter rates, though trade growth is expected to moderate, while the vessel orderbook has expanded - Clarkson's time charter rate index reached a record 434 points by late March 2022, a 279% year-over-year increase[23] - Container trade growth is projected to slow from 6.3% in 2021 to 3.0% in 2022 and 2.6% in 2023[24] LNG Carrier Charter Market The LNG charter market is experiencing a fundamental shift due to increased European LNG imports, leading to strong demand for period charters, rising newbuild prices, and a significant orderbook - The Russo-Ukraine war has caused a greater share of US LNG cargoes to be directed to Europe, altering traditional trade dynamics[25] - The price for a newbuild LNG carrier has surpassed $225.0 million, with limited construction slots available before 2025[26] - Analysts assess the one-year time charter rate for a modern 2-stroke LNG carrier at over $140,000 per day, with period rates continuing to climb[26] Financial Statements Unaudited Condensed Consolidated Statements of Comprehensive Income The income statement for the three months ended March 31, 2022, shows total revenues of $73.4 million and a net income of $25.1 million, a substantial improvement from the prior year Q1 2022 Income Statement Highlights (in thousands USD) | Line Item | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Revenues | 73,356 | 38,143 | | Vessel operating expenses | 16,702 | 9,217 | | Vessel depreciation and amortization | 18,371 | 11,080 | | Operating income | 33,170 | 13,956 | | Total other expense, net | (8,021) | (3,077) | | Partnership's net income | 25,149 | 10,879 | | Net income per common unit | $1.26 | $0.57 | Unaudited Condensed Consolidated Balance Sheets The balance sheet as of March 31, 2022, reflects total assets of $1.880 billion, total liabilities of $1.334 billion, and total partners' capital of $546.4 million Balance Sheet Highlights (in thousands USD) | Line Item | March 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | 38,954 | 20,373 | | Vessels, net | 1,764,366 | 1,781,858 | | Total assets | 1,880,154 | 1,885,170 | | Current portion of long-term debt, net | 97,962 | 97,879 | | Long-term debt, net | 1,185,559 | 1,211,095 | | Total liabilities | 1,333,769 | 1,359,706 | | Total partners' capital | 546,385 | 525,464 | Unaudited Condensed Consolidated Statements of Cash Flows For Q1 2022, the Partnership generated $48.4 million in net cash from operating activities, resulting in a net increase in cash of $18.6 million after investing and financing activities Q1 2022 Cash Flow Highlights (in thousands USD) | Cash Flow Category | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | 48,375 | 25,158 | | Net cash used in investing activities | (2,844) | (35,988) | | Net cash (used in) / provided by financing activities | (26,952) | 17,078 | | Net increase in cash | 18,579 | 6,248 | | Cash at end of period | 49,566 | 60,584 | Appendix A – Reconciliation of Non-GAAP Financial Measure Reconciliation of Operating Surplus This section reconciles the non-GAAP 'Operating Surplus' to 'Net Income', showing a Q1 2022 Operating Surplus of $44.6 million before capital reserve allocations Reconciliation of Net Income to Operating Surplus (in thousands USD) | Line Item | Q1 2022 | Q4 2021 | Q1 2021 | | :--- | :--- | :--- | :--- | | Partnership's net income | 25,149 | 40,021 | 10,879 | | Adjustments (Depreciation, etc.) | 16,310 | 16,485 | 11,954 | | Adjustments (Charters, etc.) | 3,118 | 2,808 | 1,651 | | Operating Surplus prior to capital reserve | 44,577 | 37,886 | 24,484 | | Capital reserve | (31,064) | (31,019) | (10,128) | | Operating Surplus after capital reserve | 13,513 | 6,867 | 14,356 |