Navigator Holdings Ltd. (NYSE:NVGS) Q2 2023 Earnings Convention Name August 17, 2023 10:00 AM ET
Randy Giveans – EVP, IR and Enterprise Growth
Mads Peter Zacho – CEO
Oeyvind Lindeman – Chief Industrial Officer
Convention Name Individuals
Ben Nolan – Stifel
Omar Nokta – Jefferies
You have got joined the assembly as an attendee and can be muted all through the assembly.
Navigator Holdings Convention Name for the Second Quarter 2023 Monetary Outcomes. We now have with us Mr. Mads Peter Zacho, Chief Government Officer; Mr. Oeyvind Lindeman, Chief Industrial Officer; and myself, Randy Giveans, Government Vice President of Investor Relations and Enterprise Growth in North America. I need to advise you that this convention is being recorded at present.
As we conduct at present’s presentation, we’ll be making varied forward-looking statements. These statements embody, however will not be restricted to, the long run expectations, plans and prospects from each a monetary and operational perspective, and are based mostly on administration assumptions, forecasts and expectations as of at present’s date and are topic to materials dangers and uncertainties.
Precise outcomes might differ considerably from our forward-looking data and monetary forecast. Further details about these elements and assumptions are included in our annual and quarterly experiences filed with the Securities and Change Fee.
With that, I now move the ground to Mads Peter Zacho, the corporate’s Chief Government Officer. Please go forward, Mads.
Mads Peter Zacho
Good morning, and thanks for dialing in to the Navigator Gasoline earnings name. I will begin off by offering a short overview of our Q2 outcomes after which hand over to Oeyvind and Randy for larger particulars on enterprise drivers and up to date occasions. Our second quarter outcomes got here in just like Q1 and far stronger than Q2 2022, with revenues of $135 million. Adjusted EBITDA, slightly below $70 million and internet revenue of $27 million. The outcome was primarily pushed by greater constitution charges, whereas vessel utilization was beneath that of Q1.
Our stability sheet is strong with money of $180 million on the finish of the quarter. The preliminary $50 million share buy program was accomplished in Q2 and an extra $25 million licensed as a part of our new capital return program, opening up for each dividend funds and for additional share buybacks. Utilization got here in Q2 at 89%, beneath the 96% seen in Q1, however greater than Q2 2022 of 87%. Terminal throughput ran effectively above nameplate capability of 278,000 tonnes.
As beforehand introduced, we grew our vessel capability by means of the acquisition of 5 environment friendly fashionable secondhand vessels. The takeover was accomplished sooner than initially deliberate and accomplished mid-April. Enlargement of the Ethylene Export Terminal at Morgan’s Level has come off to an excellent begin. And the primary installment of $9 million have been paid, we’re anticipating to pay one other $9 million in August.
The enlargement will give us as much as 2 million tonnes of further export capability. Complete CapEx for our share is predicted to be round $125 million and accomplished by the tip of subsequent 12 months. We bought Navigator Orion in Might, above e book worth, and we additionally shaped Bluestreak, a three way partnership with Bumi Armada to move CO2 from a UK-based stranded emitters.
Outlook is nice. Q3 utilization is predicted to be above 90%, which is excessive in a historic context. Time constitution charges are strong which lays the inspiration for an additional sturdy EBITDA leads to Q3. Terminal throughput in Q3 is predicted to stay robust at or above important fleet capability, and the ethylene continues to stream lengthy distance to Asia.
The worldwide handysize order e book has not modified a lot. So together with good demand, the ocean bourne fuel transport and an growing older world fleet, we expect that the outlook is best than what we have seen for a very long time. That is usually the time when the presentation modifications to correct English language, albeit with a definite Irish accent. So this time round, you need to bear with my damaged English and the very English (ph) accent that I’ve acquired, I apologize for that.
Slide 6, please. The Q2 monetary outcome was a continuation and even slight enchancment in comparison with earlier quarter and a transparent enchancment over the identical interval final 12 months. The monetary outcome was primarily pushed by a stronger high line. Complete working income of $135 million was up 9.3% year-on-year, pushed primarily by greater TCE charges.
As you’ll be able to see from the decrease proper desk, TCE charges got here in at $27,241 in common, which is a transparent enchancment over the $24,630 earned identical time final 12 months, and in addition higher than the $25,620 earned in Q1. Utilization additionally elevated to 89.1% (ph) throughout Q2, up from 87.4% in the identical interval final 12 months. It was beneath the distinctive 96% that we achieved in Q1, however as you’ll admire, it has been greater than offset by greater TCE charges.
Our Larger Bay three way partnership, which is 60% owned by us, acquired its last vessel in the course of the second quarter of the 12 months, the third 22,000 cubic meter 2019-built ethylene succesful liquified fuel service, Navigator Vega, on the April 13 and the vessel acquisition is now accomplished. This additionally elevated vessel obtainable days, which contributed to a rise in income in the course of the quarter.
You will word that the working income from the Luna Pool diminished to virtually nil (ph). Following the acquisition of the fifth vessel by the Larger Bay three way partnership in April, the income from these vessels will now be totally consolidated into our monetary statements and won’t be proven as working revenues or voyage bills from the Luna Pool collaborative agreements.
Our vessel working bills or OpEx, as we name it, elevated by 11.3% to $43 million in Q2, in comparison with the identical quarter of final 12 months, which resulted in vessel working bills per vessel day rising 6% year-over-year to eight,500. This was a discount from the earlier two quarters as we proceed to concentrate on our vessel working prices.
Depreciation of our vessels elevated barely by 2.3% or $0.7 million, as the extra Larger Bay enterprise vessels joined the fleet. Remember the fact that we depreciate all our vessels to their scrap worth, recycling worth on the twenty fifth anniversary. We realized a e book achieve of $4.9 million from the sale of Navigator Orion within the month of Might. There was additionally an unrealized achieve on our by-product devices of $3.2 million in the course of the second quarter because the honest worth of our fastened rate of interest swaps elevated.
Curiosity expense for the second quarter was $16.9 million, in comparison with the $11.5 million for the second quarter of 2022, on account of greater rates of interest on the portion of our debt that’s topic to floating rates of interest. With fastened rates of interest which have rate of interest swaps had been slightly below 50% of our debt. The tax cost for the quarter was $2 million, it’s predominantly referring to each money and deferred taxes on our share to income from the Ethylene Terminal in Q2.
Our share outcomes from the time period mortgage was $6 million in Q2, down from the $6.8 million for the comparative quarter of final 12 months, in consequence, decrease fuel costs and due to this fact, diminished throughput charges. Throughput of 277,582 tonnes in comparison with 268,444 tonnes throughout the identical quarter of final 12 months. Internet revenue for the second quarter was $26.6 million or $0.36 per share.
If we flip to the stability sheet on Slide 7. You’ll be able to see that it stays robust with a money stability of $180 million at June 30. This compares to a minimal liquidity covenant on our financial institution loans and credit score agreements of $50 million. This money stability is after shopping for again $50 million price of [indiscernible] shares in the course of the first half of the 12 months. The robust money stability can be used for capital redistribution, the Ethylene Terminal enlargement. And as talked about earlier, we preserve searching for initiatives and investments that may improve our shareholder returns.
Whereas the debt has elevated because of the financing of 5 Larger Bay three way partnership vessels, our internet debt to capitalization stream at 36.9%, and the online debt to EBITDA quantities to a manageable 3.4 instances. Following the latest refinancing, the corporate now has no mortgage maturities till 2025, as proven on Slide quantity 8, please.
Maturities for 2025 contains the $100 million senior unsecured bond, which can or is probably not refinanced relying on any funding alternatives that will happen. The 2 financial institution amenities totaling $190 million will doubtless be refinanced at the next than present loan-to-value, because the vessel serving as per pure amongst our youthful vessels. So we anticipate that this refinancing when it happens in 2025 would be the cash-positive occasion.
On Slide quantity 9, we outlined the estimated money breakeven for 2023 at $19,460 per day. This low degree relative to the constitution price market allows us to generate optimistic EBITDA all through the transport cycle.
Within the field on the precise, Slide 8, we offer our every day OpEx expectations for 2023 throughout our completely different vessel dimension segments, starting from $7,600 per day for the smaller vessels, as much as $10,100 per day for the bigger, extra complicated ethylene vessels. We additionally present a price to the anticipated annual spend for the G&A value for depreciation and for curiosity expense preventions
On Slide quantity 10, we outlined our historic quarterly EBITDA displaying a step-up over the previous seven quarters and an extra step-up on this quarter. A trajectory that I discussed on the outset that we anticipate to proceed not less than within the close to time period. On the right-hand facet of Slide 10, we present our historic EBITDA bar with the final 12 months incorporating the newest quarter and an annualized EBITDA based mostly on this second quarter outcomes. As well as, the EBITDA bars to the precise of these, present the impact of a rise in EBITDA in common constitution charges had been to extend by increments of $1,000 per day.
With this, I will hand it over to you, Oeyvind. Please go forward.
Thanks, Mads, and good morning, all. Shifting to Slide 12. After a small drop in US pure fuel liquids manufacturing in the course of the first quarter, the EIA statistics are at present displaying a robust return to US manufacturing. The ultimate figures from Might got here in at a document degree of almost 200 million barrels per day manufacturing.
US worth of LPG is due to this fact engaging in opposition to oil equivalents, measured each in worth and vitality content material. It will proceed to assist export fundamentals. Up to now, LPG exports for the month of August, this month, is up 12% in comparison with August of ’22. These volumes are occurring concurrently to stock construct in Mt Belvieu, Texas. Sometimes, throughout summer season, inventory-build exports are gentle, however that is not the case for this 12 months.
The influence of latest US pure fuel manufacturing development will be seen on the worth of ethane on Web page 13. It has decreased over the past two months, additional rising the aggressive worth manufacturing of American ethylene. The value arbitrage of ethylene to Europe and Asia is widening. The present unfold not less than to Asia is about $400 a tonne, which is enough to permit for terminal dealing with and freight at first rate returns.
Asia Pacific customers are importing about 65% of complete US ethylene exports, with the remaining 35% heading to Europe. Our ethylene market situations profit with each cargo heading by means of the Panama Canal and throughout the Pacific Ocean because of the lengthy length of those voyages. Just like ethylene, ethane as a feedstock additionally enjoys US home extra provide. Subsequently, it’s low cost and its exports are rising. And bear in mind, all our ethylene succesful ships may also carry ethane.
On Web page 14, please. Ammonia has turn out to be an necessary commodity for us. Regardless of pure fuel costs are beginning (ph) to return to regular ranges, the demand for maritime logistics for ammonia’s enter to the fertilizer trade has remained. Europe continues to supply ammonia from throughout the oceans, each from North America and Asia. And this can be a shift from the previous, whereby a lot of the volumes had been provided from inside the continent.
European ammonia importers are likely to favor handysize and medium-sized vessels. Seven out of the 9 fuel carriers, we at present have contracted for ammonia employment, are servicing these European customers and ports. So it issues to Navigator. Asia has reached about 50% share of the 17 million tonnes of yearly quantity of ammonia exported by shares. Nonetheless, we strongly imagine that the sunshine blue line within the graph to the precise will improve over the following few years, as US Gulf, blue and inexperienced ammonia manufacturing comes on stream with a spotlight for exports, focused for world vitality demand.
Web page 15, please. On the again of wholesome pure fuel liquids manufacturing within the US, sturdy ethane and ethylene exports, in addition to continued demand coming from Asia Pacific, we’re glad to see utilization lowering much less this quarter as we’ve got traditionally skilled in the course of the summer season months. And we’re additionally completely satisfied to see that the utilization has bottomed out and, actually, elevated sooner than earlier summer season months. This provides us a sure diploma of confidence to information third quarter utilization for the three months above the 90% mark.
Web page 16, illustrates the newest fuel service price indicators, all pointing in the precise route. One level to notice, we’re far — away from the COVID dip throughout 2020 and 2021. And we see the trajectory persevering with.
On Web page 17, the graph right here illustrates the fuel service phase and the respective order e book and age profiles. As Mads talked about, the handysize phase has a meager 4% order e book in opposition to an present fleet of 122 vessels. Of those 122 vessels, 25 of them are over 20 years of age and can be recycled in some unspecified time in the future throughout this decade. With order e book lead instances of greater than three years, we’ve got a reasonably good line of sight of the vessel provide state of affairs in our segments.
Randy will take over from right here to present an thrilling — rundown of the newest developments. Over to you, Randy.
Thanks, Oeyvind. So following up on some a number of bulletins we made in latest months, we need to present further particulars on these up to date developments concerning just a few of those bulletins.
In order you’ll be able to see on Slide 19, we’re happy to announce our return of capital for the second quarter of 2023, together with our first-ever dividend as a public firm. In step with our just lately introduced return of capital coverage and the illustrated desk beneath, we’re returning 25% of internet revenue or $6.7 million to shareholders this quarter. The Board has declared a money dividend of $0.05 per share, payable on September 22, 2023, to all shareholders of document as of September 8, 2023, equating to a quarterly dividend cost of $3.7 million.
Moreover, with NVGS shares buying and selling effectively beneath our NAV of above $20, we’ll use the variable portion of the return of capital coverage to repurchase gross sales. As a reminder, between December and this previous Might, we repurchased 3.8 million shares at a mean worth of $13.12 per share for a complete of $50 million. Subsequently, the Board licensed a brand new $25 million repurchase program. As such, we’ll repurchase roughly $3 million of widespread shares between now and quarter finish, such that the dividend and share repurchase collectively equal 25% of internet revenue, $6.7 million. Returning capital to shareholders is comparatively new to Navigator, however one thing we see as a requirement for a shareholder centered on.
Now turning to Slide 20. Following up on our earlier announcement concerning the enlargement of our Ethylene Export Terminal, beneath our present 50-50 three way partnership with Enterprise Merchandise Companions over at Morgan’s Level, we agreed to a capital challenge to extend the export capability from roughly 1 million tonnes per 12 months as it’s at present, to not less than 1.55 million tonnes and as much as over 3 million tonnes per 12 months by changing an present ethane refrigeration prepare to additionally refrigerate ethyl, and you will see that within the yellow field. The challenge is now underway because the long-lead objects have been ordered. Groundwork is progressing, and development remains to be anticipated to be accomplished by the tip of subsequent 12 months.
The whole capital contributions required from us to the three way partnership are roughly $125 million, nearly all of which can be paid in 2024. You’ll be able to see the schedule within the bottom-right nook. We contributed the primary progress cost of $9 million in April and the following cost is scheduled for late August. Remaining CapEx is predicted to be paid from money available, till new financing agreements are accomplished someday in early 2024.
As you’ll be able to see on the bottom-left chart, the terminal continues to run at or above nameplate capability, with 20 — with second quarter ’23 throughput, reaching a brand new quarterly document scorching of 278,000 tonnes. The slight dip in July, which is because of an early loading of a cargo in late June and August is already trending greater. Discussions are ongoing, present and new clients for multiyear offtake contracts with the overwhelming majority of the extra assured capability anticipated to be contracted in the course of the development part subsequent 12 months.
On Slide 21, our fleet renewal program continues to be applied as we promote our oldest vessels and change them with fashionable second-hand sort vessels. Beginning with the sale on Might 2, 2023, we bought our oldest vessel, the Navigator Orion, a 2000-built 22,000 cubic meter LPG service to a third-party for $20.9 million, leading to a $4.9 million revenue. That leaves us with solely three of our unique Navigator vessels in-built 2000, and we proceed to interact consumers who’re displaying curiosity to buying these older vessels.
On the acquisition facet, our new three way partnership, owned 60% by Navigator and 40% by Larger Bay Gasoline has now taken supply of all 5 vessels, finishing the acquisitions sooner than beforehand anticipated. As a reminder, the overall price is $233 million and 65% was financed by the $151 million financial institution mortgage with 60% of the remaining prices, roughly $49 million paid from our obtainable money. So on account of this S&P exercise, our present fleet consists of 56 vessels, common age of, proper at 10 years, and a mean dimension of 21,000 cubic meters.
Now ending on Slide 22, I need to personally invite all of you to our upcoming 2023 Analyst Investor Day right here in Houston, Texas, just a few months from now. So on Wednesday afternoon, November 15, we’ll be internet hosting our Morgan’s Level Excursions of the Ethylene Export Terminal and [indiscernible] vessels. So simply check out that center image and picture your self climbing on board that lovely ethylene service.
Later that night, with the administration group and a few members of the Board of Administrators, we’ll host a dinner for our analysts and buyers. After which the following morning, Thursday, November 16, we’ll host firm and trade displays masking present market developments, a monetary replace, in addition to our medium-term technique. We are going to then have lunch adopted by an appreciation occasion for our analysts, shareholders, clients, and companions. And in contrast to at present’s warmth, the climate can be pretty. So you will not need to miss it. We actually hope to see you in November.
And with that, I will now flip it again over to Mads for closing remarks.
Mads Peter Zacho
Excellent. Thanks loads, Randy, maybe. Yeah, simply to spherical it off and I simply wished to make clear that to emphasise right here that Navigator is on an excellent path, earnings are trending in the precise route with sturdy utilization and regularly greater constitution charges. Each are supported by the excessive utilization of our ethylene export facility at Morgan’s Level, with extra to return as soon as the enlargement is full by finish of ’24.
The stability sheet is in its finest form ever with an acceptable degree of debt and in addition just lately refinanced in portfolio. This provides us capability for additional development, balancing development, redistribution of capital by means of dividends and additional share buybacks, and now we’ll do each with dividends to be acquired on the twenty second of September and share buybacks to be initiated imminently.
We revealed our annual ESG report in June. I hope you had an opportunity to learn it. Our efforts in making our enterprise extra sustainable and vital and had been shortly picked up by the Webber Analysis 2023 ESG Scorecard. We now ranked seventh amongst 64 transport corporations and we’ve got extra initiatives able to local weather up additional. So trying ahead to seeing you in November in Houston, and thanks very a lot.
Again to you, Randy.
A – Randy Giveans
Thanks, Mads. So, operator, we’ll now open the traces for some Q&A. [Operator Instructions] So first query, your line must be stay.
Hey, guys. Did I — are you able to hear me? Am I unmuted?
Loud and clear.
Mads Peter Zacho
Hey, good. Figured it out. Hey, good quarter. I’ve a few questions. First, Oeyvind, you talked about, it looks as if increasingly of cargoes of all varieties are going to Asia. However on the identical time, I imply, we’re seeing seemingly information on daily basis about congestion across the Panama canal water ranges and so forth. I assume that is a optimistic for your online business, however is there any technique to form of take into consideration the implications or how optimistic it’s? Is it modest or one thing that is making a significant distinction?
Ben, glorious query. It is one thing we’re taking a look at each day, as a result of we — our ships transit there each week. And it has an influence optimistic. Now for the trade, for the fuel trade, any inefficiencies or from a transport viewpoint, takes capability out of the obtainable market. So that’s — in case you take a look at it from a transport viewpoint, that is an excellent factor. And that’s very a lot relevant for the larger ships that has to transit by means of the brand new Panama locks. And the brand new locks solely enable for 9 transit every manner every day. And the fuel carriers are competing with the larger ships of containers and LNG and so forth.
So we’re beginning to see giant delays there, whereby ships are being deviated across the Cape, in the event that they go to Asia. So clearly, a optimistic from a transport capability viewpoint. For us, a few of our midsized ships which are buying and selling on ethane, so taking ethane from US to additionally Asia, have additionally began to maneuver through Suez or Cape, so that’s a direct influence on our enterprise. Our handysize ethylene ships are fairly nimble. In order that they — we’ve got a reasonably fastened schedule on them, so we will reserve canal slots and so forth prematurely. So, we see much less of an influence on the handysize ethylene ships going throughout the Pacific. However I feel, it’s undoubtedly one to observe, the extra delays, the much less transport capability, and that is an excellent factor.
Now, the opposite query that you simply may be considering of, if that is the case and that’s going to be for a very long time, then does the market lack vessels to get again in time to load LPGs, ethane, ethylene and that is a wholly completely different query. However for now, it brings some optimistic implications to our freight market.
Okay. That is useful. And I admire all the colour there, Oeyvind. I assume, for my second query and I will flip it over. We did see — there’s hardly something so as, however we did see a special transport firm, or as a multi-gas service in final month or so that may do ammonia, CO2, LPG, all kinds of various issues. I am curious if that’s one thing that you simply guys have thought of doing simply you are going by means of the fleet renewal program as Randy have outlined, there’s not a lot on order. You continue to have some older belongings that you are looking to divest. Any ideas about perhaps changing them with one thing like that?
Mads Peter Zacho
If I can simply begin out after which you’ll be able to complement me, Oeyvind and Randy. It is unlikely at this time limit that we’ll be constructing ships that may transport CO2, in addition to different gases. Proper now, there’s nonetheless some uncertainties across the know-how. It’s miles from sure that given CO2 applied sciences akin to low strain or mid strain goes to be the precise one. And we can be working with quite a few initiatives as we do by means of our Bluestreak three way partnership. And right here, we can be working very carefully with the emitters to make sure that the know-how and the capability that we are going to be constructing for can be matching what’s required right here. We do not assume that the danger of constructing that on hypothesis proper now it is worthwhile.
Sorry. Excuse me. All proper. I admire. Thanks, guys.
Thanks, Ben. Okay, operator, I see Omar has his arms up.
Hello. Thanks. Hello, Randy. Hello, group. Good morning. Thanks for the replace. And clearly, as you might have continued to spotlight, it looks as if the previous few quarters, the enterprise continues to thrive and EBITDA is pushing greater. I wished to ask, the TCE price you guys captured on the useful fleet this previous quarter was at 27,000-plus quantity. Even with utilization, having come off in direction of 89%, which is traditionally nonetheless pretty first rate. How can we take into consideration, say, the very close to time period? I do know it is too short-term. However usually, concerning the — you have talked about utilization for 3Q now being above 90%. What do you consider — what are you able to give us by way of steerage on the speed? Can we anticipate the speed to even be climbing with utilization right here within the close to time period?
Thanks, Omar. We’re very — the ready remarks was actually about, we sometimes have guided on utilization. And also you may need picked up that the underside in utilization in the course of the summer season months was greater than in earlier years throughout the identical interval, and it additionally has shopped up. So we talked about within the slide deck that July was near 94%. In order that’s an enormous bounce from the overall of Q2. So in that respect, charges must also transfer. However within the handysize phase, issues take somewhat little bit of time.
Typically, in the summertime months, the speed setting is somewhat bit gentle. It is lower than this 12 months. So I feel because of this we’re being assured or speaking about ahead steerage on EBITDA, as a result of it’s doubtless, it’s going to proceed to rise due to our confidence in utilization. And the speed degree can be sturdy. I am unable to offer you extra steerage on the precise charges that we’re seeing proper now, besides what your colleagues are — what the completely different ship progress and so forth are placing out available in the market. So, there is a slide deck on that, and you’ll have a look, however it’s transferring in the precise route.
Thanks. Thanks, Oeyvind. I admire that. And perhaps only one follow-up by way of the fleet renewal and your exercise within the S&P market. I wished to ask about your non-handy ships, by way of, I do know the small LPG carriers maybe aren’t essentially core to the primary enterprise, however what concerning the 5 12,000 ethylene carriers? How are these because the merger? How are these transitioned into the fleet? Or do you view these as a significant piece of Navigator going ahead? Or do you assume these are monetizable?
Mads Peter Zacho
We’re very proud of our midsized vessels. We predict they’ve constructed with a fast know-how. They’re very environment friendly ships, and we expect they’ve a vibrant future forward inside Navigator to serve the ethylene and ethane market. So it is undoubtedly core. And we do see, usually, that the infrastructure over lengthy intervals of time, it has been operated globally, in order that bigger and bigger ships. I imply, you see that in just about all segments. So we’ll assume over time that there could be additionally regularly bigger ships serving the markets that we’re at present effectively positioned in. So I feel that we outline on — for certain, our solely 4 markets have been within the handysize, but additionally the midsize phase.
Okay. Obtained it. Thanks, Mads for that. That is it from me. I will flip it over.
Thanks, Omar. Okay, I don’t see another arms. So I feel that concludes our Q&A time. Thanks once more for dialing in. We stay up for talking quickly and definitely seeing you in just a few months. Have an incredible day.