Navigator Holdings Ltd. (NYSE:NVGS) Q3 2023 Earnings Call Transcript

Navigator Holdings Ltd. (NYSE:NVGS) Q3 2023 Earnings Call Transcript November 14, 2023

Randy Giveans: Welcome to the Navigator Holdings Conference Call for the Third Quarter 2023 Financial Results, live from Houston Texas. We have with us Mr. Mads Peter Zacho, Chief Executive Officer; Mr. Gary Chapman, Chief Financial Officer; Mr. Oeyvind Lindeman, Chief Commercial Officer; and myself, Randy Giveans, Executive Vice President of Investor Relations and Business Development in North America. I must advise you that this conference is being recorded today. And as we conduct today’s presentation, we’ll be making various forward-looking statements. These statements include, but are not limited to, the future expectations, plans and prospects from both a financial and operational perspective, and are based on management assumptions, forecasts and expectations as of today’s date and as such are subject to material risks and uncertainties.

Actual results may differ significantly from our forward-looking information and financial forecast. With that, I now pass the floor to Mads Peter Zacho, the Company’s Chief Executive Officer. Please go ahead, Mads.

Mads Peter Zacho: Thank you so much, Randy, and good morning, and thank you for dialing in to the Navigator Gas earnings call. First of all, I’d like to tell you how excited I am about introducing you to Gary Chapman, our new CFO, who joined Navigator just over a month ago. Gary’s long experience as a leader as well as a shipping and finance professionals has ensured that he has hit the ground running, and he is now already a value co-part of the Navigator Leadership team. You’ll soon see and hear more from him, as Gary will review the financial results with you in a couple of minutes. I will now kick us off by reviewing the highlights of the third quarter, and what a quarter it was. We generated operating revenues of $138 million in Q3 2023.

This is up a strong 29% compared to the same period last year. Adjusted EBITDA hit a new record $72 million for Q3, advanced improvement over last year’s $42 million and higher than the results for the same quarter — or the recent quarters this year. You may recall that Q3 is seasonally our weakest quarter, so we are pretty excited about this result for Q3. Adjusted earnings per share was $0.27 for Q3 2023. Our cash position remained robust at just below $108 million at quarter end, and that compares to $153 million when we entered 2023. As part of that picture, you should also be aware that this September, we bought $9 million worth of our own unsecured notes in open market using cash on hand. During the quarter, we paid a cash dividend of $0.05 per share and repurchased $3 million worth of our own shares.

We also now declare further $0.05 per share dividend plus just over $1 million worth of new share buybacks following our Q3 result. An important factor in our better operating result was fleet utilization running above 93% in Q3, comparing to just 85% same period last year. At the same time, our average TCE per day earned by our vessels were above $26,000 for Q3 2023 compared to about $22,000 in Q3 2022. Throughout — our throughput at our joint venture ethylene export terminal were 0.25 million tons for Q3 2023 compared to 189,000 tons same period last year. The new expansion of the terminal is well underway, and we’ve already contributed progress payments of $27 million, made up of three payments of $9 million in each of April, August and October this year.

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Q&A Session

We also announced a new investment alongside Yara Growth Ventures to acquire a 14.5% interest in Azane Fuel Solutions. The first green ammonia bunkering units are expected to be delivered in 2025. And that means that we are now really kicking off ammonia as a fuel for shipping, and that’s a central part of our Navigator company’s strategy. In recent news, you have seen that a number of Panama Canal transits are being reduced due to the lack of rainfall in Panama. This will increase the duration of voyages from U.S. to Asia. This, in turn, will impact tonnage availability and likely our utilization in a positive way. Our utilization is expected to hover around 90% in the final quarter of this year and TCE rates are typically stronger in the winter period.

Ethylene export volumes through the Mortgage Point Terminal is expected to remain near nameplate capacity in Q4. Adding to this, the supply picture remains attractive with a minimum handysize order book and large part of the global fleet is already more than 20 years old. And now I’ll hand it over to Gary, who will, for the first time, present as CFO for Navigator. Here you go, Gary.

Gary Chapman: Thank you very much, Mads, and good morning, everyone. Slide 6, please. I’m really pleased to be with you today, taking part in the story of Navigator and building on all the great work done up to this point. And I’m pleased to say that the third quarter of 2023 has continued that momentum with some very positive results. We saw operating revenue up 29% to $137.8 million in the third quarter compared to the third quarter of 2022, and up from $135 million in the second quarter of 2023 despite the summer months and hence, Q3 traditionally being seasonally quieter. Time charter equivalent rates or TCE was strong at $26,278 in the third quarter, as Mads said, up from $22,022 in the third quarter last year. The bottom right table on Slide 6 shows TCE, together with utilization for the quarter, which was 93.4%, above the 90% we guided last quarter, driven mainly by our ethylene-capable vessels and also ethane movements where there have been higher ton miles that help us.

This utilization is better than the 89% we reported last quarter and better than the 84.9% we reported this time last year. Although we have seen the overall TCE rate fall just a little compared to last quarter, this has been more than offset by the better utilization, leaving us with higher operating revenues than last quarter and a strong result overall. So when you have good rates and you have good utilization, you also need to look to your costs and total operating expenses decreased to $102 million compared to $104 million last quarter. If you exclude the one-off $5 million profit on the sale of the Navigator Orion that happened in the second quarter this year and $103 million for the same quarter in 2022. Within those total operating expenses, average daily vessel operating expenses decreased by $250 per vessel per day or 3.2% to $7,680 per vessel per day for the 3 months ended September 30, 2023, compared to $7,930 per vessel per day for the 3 months ended September 30, 2022.

Following all of this, this quarter, we’re reporting a record adjusted EBITDA of $72.2 million, the fourth quarter in a row that adjusted EBITDA has increased. Depreciation was steady and both interest income and interest expense for the third quarter of 2023 were affected by the higher interest rate environment we are living in today when compared to the figures reported for the third quarter last year, noting that we have fixed interest rates and have entered into interest rate swaps for around 45% of our total debt. The net income attributable to stockholders of Navigator was $19.1 million for the 3 months ended September 30, compared to $2.4 million for the 3 months ended September 30, 2022. Earnings per share was $0.26 for the 3 months ended September 2023 compared to $0.03 per share for the 3 months ended September 30, 2022.

And adjusted earnings per share, excluding unrealized gains and losses on derivative instruments, was $0.27 for the 3 months ended September 30, 2023, compared to a loss of $0.07 for the 3 months ended September 30, 2022. The Greater Bay joint venture, which is 60% owned by Navigator, acquired its final vessel during the second quarter of this year, and the vessel acquisitions under that program are now complete. This has resulted in an increase in vessel available days during the quarter and going forward. And now our operating revenue from the Luna Pool is nil also as the vessels are fully consolidated into our financial statements such that they are no longer featuring as operating revenues or voyage expenses from the Luna Pool collaborative arrangements.

The share of the results of the company’s 50% ownership in the export terminal joint venture was an income of $3.8 million for the 3 months ended September 30, 2023, with increased volumes exported through the terminal of 249,857 tons for the 3 months ended September 30 compared to 189,140 tons for the 3 months ended September 30 last year. The tax charge for the quarter again relates to current tax and deferred taxes mainly on our share of profits from the Ethylene Export Terminal. The balance sheet shown on Slide 7, remains strong, with a cash balance of a little over $178 million at September 30. This compares to a minimum liquidity covenants on our bank loans and credit agreements of $50 million. This cash balance is after all of our recent buybacks.