Q4 2023 Navigator Holdings Ltd Earnings Call
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Thank you for standing by ladies and gentlemen, and welcome to the Navigator Holdings Conference call for the fourth quarter of 2023 financial results.
On today's call, we have Gary Chapman, Chief Financial Officer, Lindemann, Chief Commercial officer, and myself, Matt Peter <unk> CEO.
I must advice 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 forecast and expectations as of today's date and asset subject to material risks and uncertainties.
Actual results may differ significantly from all forward looking information and financial forecast.
Additional information about these factors and assumptions included in our annual and quarterly reports filed with the Securities and Exchange Commission.
With that please go ahead to page number three and we'll get going on the presentation.
Good morning, everybody and thanks, a lot for taking part in this theyre 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 Wavin 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, 'twenty three 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 said in Q3.
And it was a significant improvement over last year's 55 billion.
The progress was reflected in adjusted net income, which more than doubled compared to the 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 <unk> per share and we repurchased one shifts similar to previous quarters.
You'll see this continue as we now also declare for the five cents 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 $28000 for Q4 2023.
This compares to less than $24000 in Q4 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 allow us for higher TCE rates.
Throughput at our joint venture ethylene export terminal was slightly down at 208000 tons.
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 'twenty, three with Contributive progress payments of $35 million made up of full 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 charter at higher rates.
With solid NGL production and thereby demand for transportation on handy size get curious 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.
The most recent example yourself back hauling propylene from Asia is a great example of that joint work.
With that I'll, just hand, it over to Gary for a more detailed of our financial results go ahead Gary.
Thank you very much Matt and good morning, or good afternoon everybody.
I'm pleased to report our latest fourth quarter 2023 results in which we continued our momentum with again some very positive results.
On slide six we see our total operating revenue up high great teen million or 14, 9% to $141 6 million in the fourth quarter of 2023.
For the fourth quarter of 2022 with much of this increase due to stronger time charter equivalent rates as Martin pointed out that were on average 28428 per day in the quarter compared to 23622 in the fourth quarter tons 20 team.
We have a further positive effects as a result of having a five moffat gateway great debate vessels fully operational in the fourth quarter of 2023 and this was also reflected in our ownership days available days and operating days sickness 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.
91, 3% is still very healthy as Martin has already said on soybean will come down later.
Our ethylene terminal throughput volumes in 2023 were 987000 tons priced in line with nameplate capacity of 1 million tonnes.
And we currently expect to remain near capacity in tons 20 pool.
Our daily vessel operating expense in the fourth quarter of 2023 was essentially in line with the fourth quarter of 2022 at 9067 per day, noting that the fourth on the last quarter of the year is typically a little higher than the other quarters in 2023 was no different.
We are providing some full year tons 20 full expense guidance on slide nine for those that are interested in this.
Depreciation was up slightly over the same period in 2022, mainly due to the addition of the high navigate the great spot vessels that were acquired at various times from an after December 2022.
The noncash movements in the mark to market valuations of our interest rate swaps with a loss in the fourth quarter of $5 2 million as a result of softening forward interest rates on our interest expenses, where Cushing 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 24 cents for the fourth quarter 2023 compared to 13 since for the same period in 2022.
With adjusted EPS up 32.
And as Mark mentioned, the fourth quarter of 2023 results provide a record equaling 72 million adjusted EBITA.
And taken across the full year were reporting the highest annual adjusted EBITDA in navigators recorded history at $292 million.
The balance sheet slide shown on slide seven.
<unk> strong with a cash balance of over $158 million at December 31st.
This compares to a minimum total liquidity covenants on all of our bank loans and credit agreements of around $50 million.
This cash balance is after all of our recent buybacks or dividends paid in 2023 and got to repaying $23 8 million up a 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 31st and net debt to adjusted EBITDA was two six times for the 12 months to December 31st.
We see our cash be needed progress lean export expansion project.
Until we fix finance so that later in the year as well as for other projects and investments that enhance shareholder returns.
You would expect there are a number of projects that we're actively looking at.
In addition, under our five pillars that will 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 on potentially adds to our fleet.
Of course finance is very important to all of this and as shown on slide eight we have no long 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 banks of the case, we already have commenced discussions with our lending group and we've received very positive feedback already.
We will provide further updates on these as discussions progress over the coming quarters.
On slide nine we outline our estimated cash breakeven for 2024, which is $20705 per day, which figure includes schedule debt repayments and a heavier drydock schedule in this coming year compared to 2022 and 2023.
Even considering this with this relatively low breakeven level relative to Chaucer rates recalling our average TCE for the fourth quarter of 2023 was over $28000. It enables navigated to generate positive EBITDA throughout the shipping cycle.
Then to the rights on this slide these daily Opex expectations for 2020 full across our different vessel size segments.
<unk> from our smaller vessels.
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 things.
On slide 10, we outline our historic quarterly adjusted EBITA, showing a step up over the past four quarters and a continuing trend this quarter all nicely demonstrating a very positive results. We've been able to report across the whole of 2023, culminating in our highest adjusted EBITDA record of $282 million.
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We also expect the first quarter of 2024 to provide a healthy results.
On the right side of Slide 10, we sure historic adjusted EBIDTA.
Last 12 months, Bob essentially 2023.
And an annualized adjusted EBIT based on this quarter's results.
In addition, the EBITDA bars to the right show the effects of an increase in adjusted EBITDA based on incremental increases in average charter rates for the $1000 per day to give some further perspective.
And on slide 11.
We cover the important topic of our vessels scheduled drydocks.
We have 17 vessels scheduled drydocking during 2024 with an expected total of 399 after all five days.
With total Drydocking capex anticipated of $22 9 million all of which is fully budgeted.
Some more detail on the expected timing and cost of these dry docks as shown below.
That one vessel has already successfully completed its blocking in January of this year.
Also as we have announced before we will tightly drydocks as opportunities to install energy saving technologies online's vessels at a cost of around $4.8 million with many of those technologies, having a very short payback period.
Finally, we also provide some guidance on 2025 and 2026 schedule dry docks for those that are interested.
Then with that at the end of a good quarter and at the end of a very strong year and with a great Foundation setup for 2024, I'll stop that on a Honda or it's going to give you an update on our commercial position. Thank you.
Thank you Gary and good morning, all let's move to slide 13, we take a closer look at the reasons developments of American gas fundamentals.
The U S reported 210 million barrels of natural gas liquids production at year end, which is up 10 million barrels since our last earnings call.
This is a meaningfully increase but why is that important.
Well remember one barrel of natural gas liquids consist on average 42% of ethane, 45% of LPG and the remaining natural gas liquids.
U S domestic consumption of ethane that LPG is relatively flat and therefore.
And the additional production is more or less so really aim.
For export markets.
As a consequence American midstream companies are investing in additional gas processing plants.
<unk> natures and terminal expansions to allow for the increase in production. This is good for gas transportation.
In general it is great for navigator, and outgrowing ethane and ethylene business.
The graph in the middle shows global handler size demand measured in volume transported.
The volume includes LPG ammonia and petrochemical cargoes as you can see the total comp carried dropped during the last months of 2023.
This is mostly due to disruptions at the Suez and Panama canals.
Many of the handy sized petrochemical voyages were rerouted.
Longer voyages reduced frequency of loading operations, which in turn reduced volume. However, as you can see for the first two months of 'twenty 'twenty four the total volume is the more or less tracking historical seasonality.
Okay.
Look at handy sized ethane and ethylene exports specifically.
We see a positive development.
The right hand graph shows the positive counter seasonal development, we see more exports from the U S of these cargoes compared to previous years.
It tells us that despite the longer voyages.
U S ethane and ethylene remains highly attractive to international buyers.
The updated ethylene arbitrage between the us and Europe and Asia as shown on the left graph on slide 14.
The growing NGL production could pressure on the domestic price of ethane ethane price, which is the lower line continues to slide U S. Ethylene prices represented by the Grey line on the left hand graph and European and Asian landed price is shown by the two top lines.
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As we can see the arbitrage between the continent has widened since last earnings call.
This is positive of course.
It is also needed to cover additional freight due to the longer voyages.
However, as history on the middle graph ethylene export volumes declined somewhat.
This is counterintuitive.
The explanation lives with the restricted transit the Panama Canal.
The number of gas gas carrier transit through the canal went rapidly downhill from September of last year onwards.
The vast majority of our vessels, including ours rerouted via Cape of good hope.
Bound to Asia, the duration of our round trips from Houston to Asia increased by 60%.
Which in turn stretched vessel availability at Morgan's point export terminal.
From a shipping perspective, this is not a bad thing though.
What is interesting to comment on this type of ethane exports.
The routing of larger vessels, which serve is take or pay supply contracts.
The demand for handsets as the vessels.
We fill the cracks that open in their supply chains.
It is a nice increase in the handy sized ethane volume.
And you can see that on the right hand graph.
Okay.
Our earnings days mix on slide 15 reflects the flexibility in our fleet, 42% earnings days are derived from petrochemical cargoes kind of <unk>.
<unk> from ammonia, leaving only <unk>, 3% from LPG when taking into account the non utilization practical December.
Canal disruptions and knock on effects to logistics Nucor's fluke fluctuation in utilization.
And utilization is that the math dynamic metrics. It also includes unforeseen technical issues and downtime across the fleet.
We have mentioned in deposits.
You heard Marc mentioned it too.
I'll take the opportunity domestically that again that utilization around that above 90% Mark represents a very good market.
Around this level, we are in an environment, where freight rates are are relatively healthy.
These healthy freight rates that are shown on slide 16.
There was a knee jerk upswing in the current part D market assessment immediately after the Panama Canal issues, particularly for the Green ethylene index.
The assessment has now settled more in reality at quite robust levels.
We can say is the semi refrigerated now fully refrigerated vessels coming off time charters are being renewed at higher rates.
We have seen for many years.
Well typically ruins the shipping part is oversupply of vessels, we have said it in previous calls and it remains valid today.
We have clear visibility of supply coming into this segment over the next few years.
Yes.
It is low at 7% shown on slide 17.
Okay.
At the same time the segment up 21% of existing vessels over 20 years of age and therefore, we are quite comfortable with the supply side of things in our core segments and that's a good thing.
So I'm happy to take questions on all of the above topics, but first I'll hand, it over to Randy for him to go over a few exciting developments that navigator Brandon.
Thank you Ivan so yes following up on several announcements we've made in recent months, we want to provide some additional details on these developments regarding few of those announcements. So turning to slide 19, we are pleased to announce our return of capital for the fourth quarter in line with our recently announced return of capital policy and the table below where returns.
25% of net income or $4 $5 million to shareholders. This quarter. The board declared a cash dividend of <unk> <unk> per share that will be payable on April 25th to all shareholders of record as of April 4th and that will be a quarterly dividend payment totaling $3 7 million. Additionally.
Additionally, with our shares trading well below our NAV of at least $24 a share what is the variable portion of this policy to repurchase shares as a reminder between December 22nd in May of 2023, we repurchased three 8 million shares at an average price of $13 12 per share for a total of $50 million.
And subsequently the board authorized a new $25 million repurchase program of which we used $4 1 million. Thus far now looking ahead, we expect to purchase at least $800000 of <unk> common shares between now and the quarter end such that the dividend and the share purchases together.
Equally 25% of net income returning capital shareholders will remain a core focus for us.
On the next slide following up on a previous announcement regarding the expansion of our ethylene export terminal project is frankly progressing nicely engineering is now fully complete all the long lead items have been ordered and many of the key components have started to become delivered if you want to come down in Houston and see for yourself. Just let me know construction is expected to occur throughout two.
24 and be completed during the fourth quarter.
Total capital contributions required from us for the expansion project are expected to be less than $130 million to date, we've made five progress payments totaling $43 million.
And the remaining Capex is expected to be paid from cash on hand until those new financing agreements are completed likely later this year.
And as you can see on the bottom left chart. Despite some softness in December and January Jesu due to tight commodity spreads and limited vessel availability throughput is now back to nameplate capacity with March looking to be another strong month discussions are ongoing with current and new customers for the multi year offtake contracts and we expect the vast majority of the.
The additional capacity to be contracted during the construction days throughout the coming months, finishing.
Finishing on slide 21, and shipping consistently making money is obviously important and so we are spending this money wisely asset for you just wanted to highlight our five key pillars for capital deployment, we remain focused on reducing debt primarily to quarterly debt amortization, we remain committed to paying out consistent cash dividends and also will continue.
New to repurchase shares, especially at these steeply discounted levels. We've recently renew the fleet by selling our oldest vessels, replacing them with modern secondhand vessels and we will continue to grow our energy infrastructure business. Most recently highlighted by the ethylene export terminal expansion and our investment in Zain fuel solutions for ammonia, but grade.
Moving forward management will remain diligent and being good stewards of the capital with that I'll now turn it back over to Mark for his closing remarks.
Good. Thanks, Thanks, a lot Ryan and depth.
On this page will just take a quick look back at 2023 and as you can see here. We finished the year with strong earnings improvements over previous years and with progress on pretty much all parameters.
Entering into an exciting 2020 for navigator is heading in the right direction and is well positioned for the future.
Our leading market position strong customer relationships and experience and engaged team and our efficient fleet of handy sized gas carriers that leaves us with a really strong foundation for growth.
The balance sheet is in its best shape ever and it gives us the flexibility now to grow our business and return capital to capital to shareholders at the same time.
The best is yet to come and with that I'll just hand, it back to you Randy.
Thanks, So much labs, operator, we'll now open the lines for some Q&A. So to raise your hand, you can press star nine and then Youll have to on mute yourself by pressing star six.
Using this zoom function just use the raise hand function.
First question your line should be open.
Alright, Thanks, Randy Hi, guys. This is omar knock the call from Jefferies and the like coming through okay.
Elmar loud and clear alright, Thank you Randy yes, thanks for the update.
Good morning, good afternoon.
Just a couple of questions from me wanted to get a sense of how the market thus far.
For your shifts has progressed.
The first couple of couple of months.
You mentioned, obviously I think.
And you're one of the early slides that showed utilization being kind of maybe closer to 90%. So far in <unk>, which is still obviously strong slightly down.
And you mentioned rates being firm just wanted to get a sense.
And in terms of say the volatility that we saw in the larger <unk>.
Have a good amount of volatility with rates starting to gear up very strongly then they fell off a cliff and then they started to rebound again.
Just wanted to get a sense from you.
That same type of dynamic translated into the handy segment.
<unk> why don't you give a few words to that one.
Yes, so of course Omar the very large gas carriers dropped off a cliff earlier in the year.
Not happened with the handy sized segment contrary give increased.
Both in the the broker assessments that we show every or an earnings call, but the filter through to.
To the rates that we were able to renew app or some of the ethylene ethane spot fixtures. So.
We did not experience the same as the Vlccs radio was positive for us and remains positive.
Okay. Thank you.
And then I guess, maybe just perhaps maybe for you Randy or just for everyone.
Just in terms of the terminal expansion.
Thinking about the contracts that could be entered into.
How do you how do you envision those starting to develop as we move through 'twenty four.
Do you think that there is.
Obviously, you have the existing nameplate capacity with a big chunk of that million contracted million tonnes, but for the expansion part there is a 550000 tons that are coming on.
Do we think of is that where we can see contracts coming and then also.
What about contracts for the potential upwards, I'd say, the extra $1 million and a half is that become contracted also this year is it more of a spot.
Yes, Omar I'll start on that so in terms of the scale of contracting clearly we have the 94% on the existing million contracted but those unwind over the coming years. So we expect some extensions there and then for additional new contracting we would expect that to happen frankly this year. So when you look at it as a portfolio we'll have about one point.
Five 5 million tonnes that we can sell forward starting January one 2025, let's call. It the plan. The goal is to sell probably 90% of that forward I think thats the enterprise and navigator model for this asset so that would be one 4 million tons roughly that we'd want to have sold in advance right.
We think that the first few of these contracts both on the Upsized extension, new customers should be happening here in the coming weeks months at the latest so that's kind of your first part in terms of contracting additional tonnage for now we are guaranteed the 550000 tonnes from the new training. The flex trained that can do up to.
$2 2 million tons. In addition to the million that we already have now in terms of contracting that we cannot contract that forward because we are not guaranteed that capacity now maybe in future years, we will start buying additional guaranteed capacity per se, but for contracting purposes. The most we could sell forward is <unk>.
155 million tons, and then incremental cargoes would be then sold on a spot basis.
Okay. Thanks, Randy.
Okay, that's a very very clear.
Final one for me and I'll pass over so a separate topic, but something you guys have highlighted for several quarters now and thats the ammonia trade.
As an area of growth and you guys are very active in that already and you mentioned recently seeing a good amount.
Cargoes there.
We have seen owners in the shipping segment kind of or shipping starts to kind of go after the BLA sees as a way to capitalize on this trade going forward over the long term I.
I guess, one is that something that navigator has an interest and to explore the larger ammonia carriers.
And then or do you think that perhaps the ammonia is more easily or realistically shift on the mid size and smaller ships that you currently operate.
Maybe I can just kick us off on this and then I'll invite my colleagues to to add to it.
We think that the majority of ammonia in the future is going to be.
Be transported on mid size, they are very flexible and theyre very well suitable for ammonia trade its not very expensive for VLCC owners today, if they want to.
Ora and Newbuild VLCC to add you can say a small cost onto that and then make it capable of transporting ammonia. So you could say, it's not I don't think necessarily you should assume that these VLCC owners necessarily expect that they will be transporting ammonia on those new build orders that they've put in.
When it comes to all of you on it we are talking to a number of customers around this and we do expect that over time, we will be building our vessels set being handy size all mid sized vessels that will be carrying ammonia.
For now we would probably be looking to do it against that.
The contract so that we have.
You could say at least the first couple of years covered.
Kelly if it comes to building vessels.
<unk> also by ammonia.
So we do expect to take part in this market. We also expect to take part in the wider supply chain Saint <unk> solutions is a good example of that and we think also upstream replicating.
It is set up like we have with with enterprise today on Morgan's point for ethylene if we can do something similar on on production of ammonia or the marine logistics around it would be quite interested in doing so.
Okay. Thank you much for that very helpful color and thanks, guys for the time I'll turn it over.
I appreciate it thanks Omar.
Next caller your line should be open.
Speech aircrafts star sixth on mute yourself.
Okay, while we wait for that one we had a question come in around Zane. So let me now turn this over to you for the <unk> joint venture. It seems like there is a lack of ammonia.
Infrastructure to use as a tool for the shipping community Hello, Zane to meet this need.
So it's very simple.
In order to encourage the ship owning industry to construct the confidante Indians constructing vessels.
Use ammonia as fuel fuel needs to be available.
Or is <unk> solution, which is one of the first infrastructure companies covering that particular challenge.
Is there do you unlock that.
The program. So there has been the vein presents investments in so-called et cetera.
A few people have come confidently ordering vessels with ammonia fuel knowing that ammonia fuel will be available in their short sea trades also oil majors, particularly one in Norway.
Since then launched a tender for offshore vessels exactly youre seeing him on <unk>. So you can see it to start to see if the forefront them pushing the button to start the change and it will happen slowly in the Permian in the first instance, and then grow exponentially that is there a belief and a vein is part of that.
Transition.
Thank you Ivan.
Operator, any other questions with their hands raised.
Yes.
I have one last question here on Drydocking are we anticipating any delays in materials equipment, which might delay the dry docking or make it longer how confident are you in the schedule that you provide.
I can kick us off here and say that that we are well under way in terms of planning and executing on the dry docking set with plant for 'twenty to 'twenty four.
And we don't expect per se that there will be any delays in DS and we also expect that they will.
Stick to the schedule in terms of duration and also in terms of cost that we laid out so where yes. There is inflationary pressure in the world around us. It's abating somewhat now and then we think we planned well for this so we're so we don't expect that there'll be cost overrun seoul or delayed.
Hercules.
Sounds good.
Okay.
I know we have one other analysts looking ask the question.
As your line available.
Alright, well, you know where to find us so we'll take that offline, but thank you again for joining us for <unk> 23 earnings call feel free to email Investor relations at navigator gas Dot Com. If you have any follow ups and we look forward to speaking with you in may for our first quarter 2024 results have a great day.
<unk>.
Thank you.
Goodbye.
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