Flex LNG Q3 Earnings Call Highlights

Key Points

• Flex LNG reported a strong third quarter, with revenue of $97.4 million and net income of $42.8 million, supported by spot-market earnings from the Flex Artemis and Flex Volunteer. It maintained its full-year guidance but expects results toward the middle-to-lower end of its ranges.
• The company declared its 21st consecutive quarterly dividend of $0.75 per share. Its backlog includes 48 years of minimum firm contracts, but Flex LNG rated visibility and the market outlook “orange” amid spot-market exposure, soft conditions, and a large vessel-delivery schedule.
• Flex LNG ended the quarter with $371 million in cash and announced financing changes expected to free up about $34 million and reduce lease costs. Management said LNG shipping demand could be affected by low European inventories, competition with Asia, and uncertain timing of Qatari supply recovery.

Flex LNG NYSE: FLNG reported third-quarter revenue of $97.4 million and net income of $42.8 million, as earnings from vessels operating in the spot market helped the liquefied natural gas carrier operator post what it called its strongest third-quarter results.

The company declared a dividend of $0.75 per share, its 21st consecutive quarterly dividend at that level. It also maintained its full-year financial guidance, although CEO Marius Foss said results were expected to fall in the middle to lower end of the ranges.

Revenue excluding EUAs was $95.2 million, and the fleet’s average time charter equivalent, or TCE, was close to $79,000 per day. Net income amounted to $0.79 per share. Adjusted net income, excluding items including unrealized gains on interest rate swaps and foreign exchange, was $35 million, or $0.65 per share.

Foss said the Flex Artemis and Flex Volunteer contributed to the results through strong spot market earnings. CFO Knut Traaholt said revenue declined from the second quarter, primarily because the Flex Volunteer had operated at a higher spot rate for most of the earlier period. The decline was partly offset by the absence of off-hire days related to dry dockings.

Dividend and outlook

The dividend is payable Dec. 10 to shareholders of record on Nov. 27. Foss said Flex LNG has distributed more than $900 million since 2021, including special dividends.

The company maintained full-year guidance for revenue of $345 million to $370 million, TCE of $73,000 to $78,000 per day and adjusted EBITDA of $255 million to $280 million. It raised its full-year operating expense guidance to $16,200 per day from $16,000, with Traaholt citing higher travel and crew-change costs following the conflict in the Middle East among the reasons.

Flex LNG had 48 years of minimum firm contract backlog, potentially rising to 75 years if all options are exercised, Foss said. The Flex Volunteer is expected to remain in the spot market into the first quarter of next year, while the Flex Artemis remains available and the Flex Ranger is expected to return in the first quarter. The company is marketing the vessels for spot work and new contracts.

Foss said the company changed its backlog and visibility assessment to “orange” because of its spot-market exposure and the possibility of more exposure next year. Its market outlook also remained at orange, reflecting a soft spot market and a heavy schedule of new vessel deliveries.

Traaholt said the company does not provide dividend guidance and that the board makes a decision each quarter. He said the decision factors include revenue visibility, backlog, the financial position, debt maturities and capital spending obligations.

Cash flow and refinancing

Operating cash flow was $56 million in the third quarter, down from $63 million in the second quarter. Flex LNG repaid $28 million in scheduled debt installments and distributed $41 million to shareholders, ending the quarter with $371 million in cash.

The company announced a new sale-and-leaseback financing for the Flex Enterprise and amended lease terms for the Flex Artemis and Flex Amber. Traaholt said the Enterprise transaction, expected to close in the fourth quarter, would free up approximately $34 million in liquidity and had a blended cost of debt of SOFR plus 25 basis points.

For the Artemis and Amber, the amended leases reduce margins to 140 basis points from 215 basis points and lower combined quarterly repayments to $3.5 million from $4.3 million, Traaholt said. The Enterprise transaction also addresses one of the company’s 2029 debt maturities.

LNG shipping market

Foss said global LNG trade volumes were down about 2% from the same period a year earlier, with lower Qatari exports largely offset by growth from the United States and other suppliers. He said European gas inventories were low and that competition between Europe and Asia for U.S. LNG could affect shipping demand during the coming winter.

Although there were signs of seasonal tightening in vessel availability and a modest increase in spot rates, Foss said the historical winter market had not yet materialized. He said the LNG carrier order book stood at around 290 vessels, equivalent to roughly 35% of the existing fleet, though most were tied to QatarEnergy and other long-term projects.

Looking ahead, Foss pointed to expected U.S. export capacity additions and other LNG projects as potential sources of shipping demand. He also said the timing of a normalization of Qatari supply remained uncertain. None of Flex LNG’s 13 vessels had transited the Strait of Hormuz or been inside it since the invasion at the end of February, he said.

About Flex LNG (NYSE:FLNG)

Flex LNG Ltd. is an international shipping company focused on the transportation of liquefied natural gas (LNG). The company owns and operates LNG carriers that move natural gas by sea between producers and customers around the world. Flex LNG charters its vessels to energy companies and other participants in the LNG market. Its fleet includes ships equipped with modern propulsion technologies designed for efficient LNG transportation. Founded in 2006, Flex LNG is incorporated in Bermuda and has operations managed from Oslo, Norway.

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