Navigator Holdings Ltd. (NYSE:NVGS) Q4 2023 Earnings Call Transcript

Navigator Holdings Ltd. (NYSE:NVGS) Q4 2023 Earnings Call Transcript March 14, 2024

Navigator Holdings Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Mads Peter Zacho: Thank you for standing by, ladies and gentleman, and welcome to the Navigator Holdings’ conference call for the Fourth Quarter 2023 Financial Results. On today’s call, we have Gary Chapman, Chief Financial Officer; Oeyvind Lindeman, Chief Commercial Officer; and myself, Mads Peter Zacho, CEO. I must advise you that this conference is being recorded today. 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’s assumptions, forecasts and expectations as of today’s date and are such subject to material risks and uncertainties.

Actual results may differ significantly from our forward-looking information and financial forecast. Additional information about these factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission. With that, please go ahead to Page #3, and we’ll get going on the presentation. Good morning, everybody, and thanks a lot for taking part in this Navigator Gas earnings call. I’ll begin with an overview of the highlights for the fourth quarter of 2023, and then I’ll talk a little bit about the outlook for the year that we just started. As always, Gary and Oeyvind will follow up in a couple of minutes with more color on our business. We generated a solid top-line with growth in operating revenues compared to both Q3 ’23 and same period 2022.

This was mainly driven by higher time charter rates. Adjusted EBITDA for Q4 was equal to the record of $72 million that we set in Q3, and it was a significant improvement over last year’s $55 million. The progress was reflected in adjusted net income, which more than doubled compared to same period last year. Our cash position remained robust even when we repaid on our credit revolver and invested into our ethylene terminal expansion. In Q4, we continued paying the cash dividend of $0.05 per share, and we repurchased own shares similar to previous quarters. You’ll see this continue as we now also declare a further $0.05 per share in dividends and some additional share buybacks. This will, in total, be equivalent to 25% of our net income following our fourth quarter results.

The average TCE, or time charter equivalent, rate per day earned by our vessels reached more than $28,000 for Q4 2023. This compares to less than $24,000 in Q4 of 2022. Fleet utilization stayed above 90% in Q4, and that was just shy of the utilization that we achieved in Q3 and same period 2022. Utilization at or above 90% typically allows for higher TCE rates. Throughput at our joint venture Ethylene Export Terminal was slightly down at 208,000 tonnes for the quarter, but it was nevertheless brought to a total of the terminal capacity of 1 million tonnes per annum. The expansion of the terminal continues to be on track for completion in Q4 ’24, and in ’23, we contributed progress payments of $35 million, made up of four payments of around $9 million each in April, August, October and December.

The outlook for our business remains robust. We expect utilization to remain near 90%, and we continue to renew our expiring time charters at higher rates. With solid NGL production and thereby demand for transportation on handysize gas carriers, combined with limited supply from new buildings in our segment, we expect this to continue. We also do not expect that the trade patterns through Panama Canal and Suez will be restored in the near future, which may lead to more cubic meter miles transport work for us. We work intensively with our customers to improve the efficiency and avoid idling or ballast voyages. The most recent examples of backhaul in propylene from Asia is a great example of that joint work. With that, I’ll just hand it over to Gary for more detail of our financial results.

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Q&A Session

Go ahead, Gary.

Gary Chapman: Thank you very much, Mads, and good morning or good afternoon, everybody. I’m pleased to report our latest fourth quarter 2023 results, in which we’ve continued our momentum with again some very positive results. On Slide 6, we see our total operating revenue up over $18 million or 14.9% to $141.6 million in the fourth quarter of 2023 compared to the fourth quarter of 2022, with much of this increase due to stronger time charter equivalent rates, as Mads has pointed out, that were on average 28,428 per day in the quarter compared to 23,622 in the fourth quarter of 2022. There were further positive effects as a result of having our five Navigator Greater Bay vessels fully operational in the fourth quarter of 2023.

And this was also reflected in our ownership days, available days and operating days figures as shown on the right-hand side. Against this, utilization was a little down in the fourth quarter of 2023 compared to the fourth quarter of 2022, but at 91.3%, it is still very healthy, as Mads has already said, and Oeyvind will confirm later. Our ethylene terminal throughput volumes in 2023 were 987,000 tonnes, closely in line with nameplate capacity of 1 million tonnes, and we currently expect to remain near capacity in 2024. Our daily vessel operating expense in the fourth quarter of 2023 was essentially in line with the fourth quarter of 2022 at 9,067 per day. Noting that the fourth and the last quarter of the year is typically a little higher than the other quarters, and 2023 was no different.

We are providing some full year 2024 expense guidance on Slide 9 for those that are interested in this. Depreciation was up slightly over the same period in 2022, mainly due to the addition of the five Navigator Greater Bay vessels that were acquired at various times from and after December 2022. The non-cash movements in the mark-to-market valuations of our interest rate swaps was a loss in the fourth quarter of $5.2 million as a result of softening forward interest rates, and our interest expenses were cushioned by interest income earned on our cash balances in the quarter. Our income tax line reflects current tax and deferred taxes, mainly on our share of profits from our Ethylene Export Terminal at Morgan’s Point. Overall, our earnings per share for the quarter was $0.24 for the fourth quarter of 2023 compared to $0.13 for the same period in 2022, with adjusted EPS up at $0.32.

And as Mads mentioned, the fourth quarter 2023 results provide a record equaling $72 million adjusted EBITDA. Then taken across the full year, we’re reporting the highest annual adjusted EBITDA in Navigator’s recorded history of $282 million. The balance sheet, shown on Slide 7, remains strong with a cash balance of over $158 million at December 31. This compares to a minimum total liquidity covenant on all of our bank loans and credit agreements of around $50 million. This cash balance is after all of our recent buybacks, our dividends paid in 2023 and after repaying $23.8 million of the $111 million term loan and revolving credit facility, which funds remain available to be redrawn under the terms of the facility agreement. This basically means that we had around $182 million of liquidity at the end of 2023.

Our net debt to capitalization was just under 35% as of December 31, and net debt to adjusted EBITDA was 2.6x for the 12 months to December 31. We see our cash being needed for our ethylene export expansion project until we fix finance for that later in the year as well as for other projects and investments that enhance shareholder returns. As you would expect, there are a number of projects that we’re actively looking at. In addition, under our five pillars that we’ll mention later, will continue to reduce our debt, look to capital distributions and share buybacks and we’re always looking at how we can renew and potentially add to our fleet. Of course, finance is very important to all of this. And as shown on Slide 8, we have no loan maturities until 2025.

The maturities for 2025 include $100 million senior unsecured bond, which we might refinance depending on investment opportunities. And the two bank facilities totaling $190 million that will likely be refinanced in a cash positive transaction. On these 2025 maturing bank facilities, we already have commenced discussions with our lending group, and we’ve received very positive feedback already. We’ll provide further updates on these as discussions progress over the coming quarters. On Slide 9, we outline our estimated cash breakeven for 2024, which is $20,705 per day, which figure includes scheduled debt repayments and our heavier drydock scheduling this coming year compared to 2022 and 2023. Even considering this, with this relatively low breakeven level relative to charter rates, recalling our average TCE for the fourth quarter of 2023 was over $28,000, it enables Navigator to generate positive EBITDA throughout the shipping side.

Then, to the right on this slide is daily OpEx expectations for 2024 across our different vessel size segments, ranging from our smaller vessels to our larger, more complex ethylene vessels. We also provide a range for the expected annual spends for vessel OpEx, general and admin costs, depreciation and net interest expenses, all of which are broadly in line with 2023 figures. On Slide 10, we outline our historic quarterly adjusted EBITDA, showing a step-up over the past four quarters and a continuing trend this quarter, all nicely demonstrating the very positive results we’ve been able to report across the whole of 2023, culminating in our highest adjusted EBITDA on record of $282 million. We also expect the first quarter of 2024 to provide a healthy result.