Navigator Holdings Ltd.

All right. Thank you for standing by, ladies and gentlemen, and welcome to the Navigator Holdings Conference Call for the third quarter 2024 financial results. On today's call, we have Maz Peter Zacco, Chief Executive Officer, Gary Chapman, Chief Financial Officer, Oiven Lindemann, Chief Commercial Officer, and myself, Randy Givens, Executive Vice President of Investor Relations and Business Development in North America. I must advise you that this conference call is being recorded today. As we conduct today's presentation, we will be making various forward-looking statements. These statements include, but are not limited to, 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, November 7, 2024. and are subject to material risk 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, I now pass the floor to Mads Akko, the company's CEO. Please go ahead, Mads.

Good morning, and thank you for joining this Navigator Gas Earnings Call for Q3 2024. Please turn to page three. To begin with, I will review the key data of our Q3 2024 performance, and then I'll go over the outlook for the rest of the year. Gerri and Øivind and Randy will then bring more detail and analysis. In the quarter, we generated more revenues, up 3% compared to the same period. This was driven by higher TCE rates. Adjusted EBITDA for Q3 came in at $68 million, slightly below the $72 million earned in the unseasonally strong Q3 of last year. The balance sheet is strong with a robust cash position, even after we repaid on our debt facilities and continued deploying capital into our Ethylene terminal expansion. The return of capital continued in Q3 with both the $0.05 fixed dividend and the share buyback, up to and in combination 25% of net income. This will continue after the Q3 result. In October, we issued $100 million of new unsecured bonds at 7.25%. This included the tightest spread of any dollar-denominated shipping bond issue in the Nordic market since 2008. Commercially, we continued pushing up TCE rates and secured an average Q3 TCE rate of just over $29,000. which is 11% higher than the same period last year. This is remarkable given the somewhat softer market conditions compared to the same quarter of last year. We achieved utilization above 90% in line with our guidance, albeit it was below the 93% that we saw same period last year. We are overall pleased with our ability to push up TCE rates in a market that was temporarily hit by softer transport demand. Throughput at our joint venture ethylene export terminal was significantly down at 122,000 tons for the quarter. This was caused by Hurricane Beryl and the following disruption to ethylene production and inventory levels. The expansion of the terminal continues on track for completion in Q4 2024, with progress payments continuing. We have for some time now talked about the significant opportunities lying ahead for Navigator within the transportation of CO2 and clean ammonia. So we're pleased to have announced progress on both fronts. Within CO2, we've entered into an MOU with Unipa, and within ammonia, we've committed a small but important investment into 1008. None of these will absorb or produce significant cash flows in the near term, but both are paving the way for new, potentially very significant markets for Navigator. We remain confident about the outlook for our business for both the near, mid, and long term. We expect vessel utilization to be higher in Q4 than what we've seen in Q3, and we expect to continue to renew our expiring time charters at higher rates. We'll also have more available vessel days as this year's intensive dry docking program is coming towards the end. We expect the ethylene terminal export volumes to return to near nameplate capacity in Q4. With solid demand for transportation on handy-sized gas carriers, older vessels being sold out of international trade and limited supply from new buildings in our segment, we expect that these robust market conditions will continue. Please turn to page number four. On this page, we just want to highlight our consistently improving ranking in the Weber Research ESG Scorecard, which was just released. As you may know, the Weber Scorecard places particular focus on corporate governance topics like absence of conflict of interest, board independence, and transparency. We are very pleased to be ranked third among the 64 listed companies, and many of these are leaders in the segments and also subject to SEC regulation as we are. So that means it's a strong benchmark we are comparing ourselves to. Going forward, we'll commit ourselves to continue striving for yet higher standards in governance and transparency. So that was just a summary. And with that, I'll just hand it over to you, Gary, so you can give us a little bit more detail about the financial result. Please go ahead.

Sure. Thank you, Mads. And welcome, everybody. Third quarter 2024 financials show another robust result, maintaining a solid trend over many recent quarters now. Jumping straight in on slide seven. Following a good operating period, adjusted EBITDA was 67.7 million in the third quarter of 2024, coming from continuing robust charter rates and stable utilisation, but somewhat offset by marginally lower time charter equivalent rates in this third quarter compared to the second quarter of 2024, as we typically expect due to seasonality. Results from our terminal, which Shoyvin will explain shortly, and also slightly elevated general and admin costs. Unfortunately, we can't report yet another record quarter this time, but to keep context, we consider the results are still strong and we are already seeing the fourth quarter of this year looking like it will be better than this quarter. Then overall, our total operating revenue was £141.8 million in the third quarter of 2024, with a still robust utilisation of 90.9%, against 91.4% on average for the first two quarters of 2024, and continuing very healthy time chart equivalent rates that were on average $29,079 per day in the third quarter compared to $28,954 per day on average in the first two quarters of 2024 and up from $26,728 per day for the third quarter of 2023. In this third quarter of 2024, vessel operating expenses were slightly up at $43.5 million compared to the third quarter of 2023, but flat compared to the second quarter of 2024. and depreciation was broadly in line with the previous quarter at £33.3 million and only marginally up compared to the third quarter of 2023. Our general and admin costs of £9.4 million in the third quarter are down compared to the second quarter of 2024, though they were still slightly elevated compared to our run rate as we booked some further non-recurring costs in the third quarter, mainly legal costs related to the secondary public offering of 7 million common shares by the BW Group, recalling that we concurrently bought back 3.5 million of those shares, which were then cancelled. Our non-cash unrealised movements on our non-designated derivative instruments resulted in a further loss in the third quarter of 5.2 million against a loss in the second quarter of 2024 of 1.6 million and a loss of 1 million in the third quarter of 2023. This all being related to movements in the fair market value of our long-term interest rate swaps, which affects our net income, but which had no impact on our cash or liquidity. We also reported a non-cash unrealised gain on foreign exchange in this third quarter of $3.2 million. Our income tax line reflects current tax and mainly deferred taxes, primarily derived from our investment and share of profits in our ethylene export terminal at Morgan's Point. Then overall, net income attributable to stockholders of Navigator Holdings Limited was $18.2 million, with a basic earnings per share of 26 cents, an adjusted net income, which excludes unrealised gains and losses on derivative instruments and foreign currency, being 20.1 million, or 29 cents per share. Ethylene terminal throughput volumes in Q3 2024 were 121,634 tonnes, resulting in a contribution of $2.2 million from our ethylene terminal joint venture. And as usual, Randy will give some more detail on the terminal shortly. Our balance sheet, shown on slide 8, remains very strong, with a cash and cash equivalents balance of over $127 million at September 30, 2024. This is despite paying out $24.1 million for scheduled loan repayments and share buybacks in the second quarter, $8 million in progress payments for our Ethylene Terminal Expansion Project, and on September 4, 2024, we repaid a further $40 million against one of our revolving credit facilities. These repaid revolving credit facilities remain available for us to be redrawn, meaning that our total available liquidity at September 30, 2024, was over $196 million. And we currently anticipate further positive cash generation from our operations in the fourth quarter. On slide nine, we recently closed two transactions that have helped us to push out some of our debt maturities, further improve our liquidity and at the same time lower our average cost of debt. In August 2024, we entered into a new six year secured term loan involving credit facility of up to one hundred and forty seven point six million dollars. which was used to refinance our existing March 2019 secured loan facility that was to mature in March 2025, to repurchase on October 29 the Navigator Aurora pursuant to our existing October 2019 sale and leaseback arrangement, and also for general corporate and working capital purposes. This new facility in total released just over $43 million in additional liquidity to the company on improved terms over our existing 2019 facility and was fixed at a new lower margin of 190 basis points compared to the facility that it replaced, and which margin is significantly below the margin within the then existing sale and leaseback arrangement. We're also very pleased to repeat that the margin of 190 basis points includes a sustainability-linked adjustment of five basis points, reflecting our continued commitment to concentrating our efforts on the environmental impact of our fleet. Then on October 17, 2024, the company successfully issued $100 million of new senior unsecured bonds in the Nordic bond market. These new 2024 bonds will mature in October 2029 and bear a fixed coupon of 7.25% per annum. And we use the proceeds to call and cancel our previous 2020 bonds that paid a coupon of 8%. And this call transaction settled on November 1st, 2024. We then have one debt maturity due in just over one year's time in September 2025. which refinancing is already being planned and which may result in a positive liquidity event for the company again. And we'll provide more updates on this as it progresses. On slide 10, our leverage remains in a strong position and reducing quarter on quarter with net debt to adjusted EBITDA at 2.3 times for the 12 months to September 30, 2024. And our net debt to capitalisation was under 32% as of September 30, 2024. We're continuing to reduce our debt with more than $100 million of average annual scheduled debt and more solidisation payments during 2024 through 2027. And with our refinancing workstreams, we're also looking to target further reductions in the average cost of our debt. There remain a couple of cash calls in the fourth quarter of 2024 that total around $63 million for our terminal expansion project that are still scheduled to be paid from cash on hand until potential new financing arrangements are completed, likely in 2025. Just to note that there may be some smaller capex contributions for the terminal expansion project that end up scheduled in Q1 2025 as project invoices close out. But importantly, noting that Q1 2025 is also when revenues from the capacity expansion are expected to commence. On slide 11, we outline our latest estimated cash break even for 2024 at $20,930 per day, which shows a slight increase per day compared to the previous quarter estimate. but which figure is all in and includes our scheduled debt repayments and our heavier dry dock schedule this year. Even considering this, our breakeven level relative to today's charter rates, recalling our average TCE for the third quarter was $29,079, provides very substantial headroom for Navigator to generate positive EBITDA throughout the shipping cycle. As usual, on the right is our daily OPEX guidance for 2024 across our differing vessel segments, ranging from our smaller vessels to our larger, more complex ethylene vessels. And following below is guidance for the fourth quarter of 2024, as well as updates for the full year across vessel OPEX, general and admin costs, depreciation and net interest expense, all of which are substantially unchanged from the guidance given in our second quarter of 2024 presentation. Slide 12 outlines our historic quarterly adjusted EBITDA, showing this third quarter's steady figure and demonstrating yet again the very positive and consistent results we've been able to report for many quarters now, And despite a temporary dip in the ethylene arbitrage this quarter, which Oiven will cover shortly, we currently expect our results to continue their trend in the fourth quarter of 2024. On the right side of slide 12, we show our historic adjusted EBITDA bar for 2023, our last 12 months adjusted EBITDA and an annualised adjusted EBITDA based on the average of the three quarters results. In addition, the EBITDA bars then to the right provide some sensitivity and illustrate an increase in adjusted EBITDA of approximately $18 million for each $1,000 increment in the average time charter at equivalent rates per day. Then on slide 13, we have 18 vessels scheduled for dry docking during 2024, of which 12 were completed as of September 30, with an expected total for the 18 vessels of 584 off-hire days and total dry docking capex estimated to be $31.8 million, all of which, as we often say, is scheduled, fully costed and included in our cash flow plans. As we've set out before, some further detail on the expected timing and costs of these dry docks is then shown below. Also, as we've explained previously, we take our dry dock opportunities to install energy saving technologies on our vessels at a total cost of around $4.8 million in 2024, with many of these technologies having a very short payback period helping us to improve our environmental impact, improve our operating efficiency, and gather better data to make further future improvements. On slide 14, we wanted to provide some more colour on our recent bond issues. Many of you will know that the bond market today is issuer-friendly, and with our fourth and previous 2020 bond coming up for maturity in 2025, we decided somewhat opportunistically to refinance that bond early. Given the terms we believed we could achieve, and as the bond market environment can change abruptly. We were able to mobilize quickly and get to a $100 million book that was oversubscribed with many high-quality names, eventually settling at a coupon of 7.25%. We issued $100 million of bonds but have $200 million as borrowing limit, giving us flexibility to potentially draw up to a further $100 million in the future. The bond priced, as Mads has mentioned, with the tightest spread for any US dollar denominated shipping bond in the Nordic market since the financial crisis in 2008 at 371 basis points. And we have data to show that point on slide 15. And there are some well-known names on this list. Navigator has a long history of bond issuances, and we think making the top of this list demonstrates that we have, over time, strengthened our credit story substantially from our initial bond in 2012 to today, and even since 2020. And although we are in a favourable market, which we recognise, we would not be at the top of this list if it was not also a strong reflection.