Capital Clean Energy Carriers Corp. Q4 FY2025 Earnings Call

Thank you for standing by, and welcome to the Clean Capital Energy Carriers Corp. Fourth Quarter 2025 Financial Results Conference Call. We have with us today, Mr. Jerry Kalogiratos, Chief Executive Officer; Mr. Brian Gallagher, Executive Vice President, Investor Relations; and Mr. Nikos Tripodakis, Chief Commercial Officer. I must advise you that this conference is being recorded today, Thursday, March 5, 2026. Statements in today's conference call that are not historical facts, including our expectations regarding the seller acquisition transactions, their expected effects on cash generation, equity returns and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts, or share buyback amounts, dividend coverage, future earnings, future leverage, capital allocation, as well as our expectations regarding market fundamentals and the employment of our vessels, including delivery dates, redelivery dates, and charter rates may be forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements whether because of future events, new information, a change in our views or expectations to conform to actual results or otherwise. We make no prediction or statement about the performance of our common shares. I would now like to hand the call over to our speaker today, Mr. Brian Gallagher. Please go ahead.

Thank you, operator. Good morning or afternoon to wherever you are, and thank you for listening to the Clean Capital Energy Carriers Q4 2025 Earnings Call. As a reminder, we'll be referring to the supporting slides available on our website as we go through today's presentation. Let's start with the highlights on Slide 4. An exceptionally busy quarter has continued with subsequent events into the current quarter, but it's pleasing to report that the company continues to make progress on multiple fronts. The key highlights from Q4 included our contracting of three latest technology LNG carriers. This opportunistic transaction illustrated our capability to act with conviction and speed in capturing what we believe will be valuable and timely additions to our fleet. More details from Jerry on that later on. Early on in the quarter, we welcomed the Active into our fleet, the world's first 22,000 cubic meter liquid CO2 multi-gas carrier, but we also said goodbye to another container vessel as we pressed on with our focus on gas transportation. In terms of our governance and ongoing focus on sustainability, the company was pleased to gain accreditation from CDP in our first submission to that platform. Finally, the LNG shipping spot market had a robust if short-lived upturn during Q4 with freight rates touching $100,000 per day. This is an encouraging feature for future development and potential earnings power from the sector, and there are some key underlying trends, which will require consideration and they'll be covered later on in the presentation. We are acutely aware of the current and fast-moving dynamic in the Middle East, which is impacting the LNG and gas shipping sectors, which our Head of Commercial, Nikos Tripodakis, will provide some thoughts on later on. Naturally, management will be available to take questions after the formal presentation. Moving back to Q4, our reporting net income from continued operations for the quarter came in at $28.4 million, from which we fulfilled our commitment to a fixed distribution of USD 0.15 dividend per share to our shareholders, retaining the company record of distributing a cash dividend for every single quarter since our listing in March 2007. With that, I'll hand it over to our Chief Executive, Jerry Kalogiratos, to run through, firstly, the financial highlights.

Thank you, Brian, and good morning or afternoon to everyone listening in today. It has almost become routine to report further container sales, and the fourth quarter of 2025 is no different. As Brian pointed out, we have now classified Buenaventura Express under discontinued operations due to its sale, which nevertheless had a full quarter before being delivered to its new owners in January. The sale of the Buenaventura represents the 14th container carrier sale in 24 months, consistent with the company's strategy to pivot to gas transportation. The classification of the Buenaventura Express under discontinued operations affected our results compared, for example, to the previous quarter. This leaves the company with just one container vessel, which continues to generate positive cash flows for the company as it is on a long-term charter with a blue-chip partner to 2033, with options to extend to 2039. We have made significant progress in our pivot, but we have always remained focused on ensuring value creation for our shareholders. We will only look to sell the last container asset if it is accretive. This strategy has served us well with the 14 other vessels, and we will continue on the same path. The dividend payout remains a core component of the company's value proposition to shareholders. The $0.15 dividend was paid on February 12 to shareholders of record on February 3. This was the 75th consecutive quarter that the company has paid a cash dividend. Moving now to the balance sheet on Slide 7. We closed the year with a solid cash position of $296 million, including restricted cash, and a net leverage ratio just short of 49%. As mentioned earlier, we also finalized the sale of a 13,700 TEU container vessel in early 2026, continuing our disciplined capital recycling strategy. Finally, just a week ago, we issued a 200 million-euro bond listed on the Aten Stock Exchange, further enhancing our balance sheet flexibility. We continue to work closely with different sources of finance for the funding of the nine LNG carriers still due for delivery, and we are very encouraged with the progress of these discussions. We hope to be able to report much more on this front in the next quarterly call. Moving to Slide 9. Our LNG fleet continues to provide long-term visibility and stability. We have 90 years of contracted backlog at an average of DCE of approximately 86,800 per day, representing $2.7 billion of contracted revenue. If all extension options are exercised, this increases to 123 years or approximately $3.9 billion in contracted revenues. I recently announced an order for three new LNG new builds shown at the bottom of this slide, which positions us to benefit from increased LNG demand towards the end of the decade. We continue to be in constant dialogue with counterparties regarding our LNG fleet in what has become an increasingly active market, looking for the right employment structure for our remaining six open new builds. In terms of fleet update, we will have four upcoming dry docks for our LNG fleet. In the first quarter of this year, we have the Adamas, and in the next quarter, we expect to have the dry docking of the Arista House, Tatas, and another vessel. In terms of cash cost, the guidance remains the same as in previous quarters at $5 million all-in cost per dry dock and around 20 to 25 days of hire. Importantly, we will welcome two more vessels during the second quarter of 2026, our second liquid CO2 carrier and LPG carrier, the Amadeus at the end of April, and also our first dual fuel 45,000 cubic meter LPG carrier in early June. Turning to the next slide. Funding of our new building program is well supported. We have already paid a portion of the required CapEx supported by generated cash flows, asset monetization, and attractive debt financing terms. As we progress through 2026 and 2027, we expect CapEx to be mostly weighted towards the LNG carriers for which we assume an average of approximately 70% debt financing. This leads neatly to a brief look at the key events for the company during the quarter, namely the contracting of three new LNG carriers on Slide 11. As mentioned earlier, we secured three state-of-the-art LNG carriers with deliveries scheduled of one vessel in the fourth quarter of 2028 and two in the first quarter of 2029. These vessels include enhancements to fuel efficiency, boil-off rates, as well as liquefaction capacity, placing them among the highest-performing LNG carriers globally. We secured the spares at HD Hyundai Samho in South Korea on attractive terms. The delivery profile is optimized for a market period where the order book looks particularly undersupplied in view of the anticipated demand, giving us significant commercial optionality. Now after the quarter end, we delivered the world's first 22,000 cubic liquid CO2 multi-gas carrier, the Active. This vessel is capable of transporting liquid CO2, LPG, ammonia, and other petrochemicals and remains fully competitive in the conventional semi-ref gas market. The vessel is already employed on a six-month charter, transporting LPG, with an optional extension, demonstrating immediate commercial demand. As mentioned earlier, we successfully raised last month EUR 250 million through a newly issued unsecured bond to take advantage of a favorable interest rate environment. After hedging the currency and interest rate exposure of the new bond, we expect the online cost to be approximately $295 million in dollar terms. The proceeds of the new bond will be used to refinance our outstanding bond of EUR 150 million issued in 2021, maturing later this year. The rest of the proceeds will be used to finance our new building program and for general corporate purposes. I would like now to turn to our Chief Commercial Officer, Nikos, who will run through our LNG market slides. I will then be available to answer your questions along with Brian and Nikos at the end of the call.

Thank you, Jerry, and good morning or afternoon, everybody. Currently, of course, the war in the Middle East and how it will affect the energy model, and in our case, the shipping market is in everyone's mind. I will come back to this at the end of my presentation. Please allow me to start with the main highlights of Q4, which have been the unexpectedly strong spot market. As Slide 14 shows, spot rates rose strongly to exceed $100,000 a day in mid-December, the highest level of the past two years. An unexpected surge in LNG production from the U.S., pockets of East-West arbitrage, and logistical constraints led to an absorption of available tonnage and a significant increase in spot rates. This served as a stark reminder of the fragility of the LNG shipping supply-demand balance during winter months, when modest changes in economics, production volumes, or port and canal logistics can collectively have a disproportionate impact on freight markets. However, as we will see on Slide 15, all vessel types benefit in a similar way from a surge in spot rates. Turning to Slide 15. As we can see on the left-hand side, we see the five-year quarterly average freight rates up to 2024. What is interesting is that the charter rates for steam vessels during that period captured around 50% of the rate of a two-stroke modern vessel. But in 2025, that percentage dropped to 20%, even though the market has been consistently lower compared to the five-year average. It is also worth noting that, even though two-stroke charter rates rose by approximately $32,000 a day on average through Q4, steam rates only rose about $7,000 a day and continue to trade below OpEx levels. This clearly indicates that two-stroke vessels, like the ones CCP owns and operates, capture the lion's share of the benefits in a rising market, while older vessels remain unattractive as long as two-stroke vessels are available, even if the charter rate for two strokes is approximately 400% higher, as it was during Q4 of 2025. This widening rate gap underscores the increasing obsolescence of older technology and supports our strategy for investing exclusively in modern high-efficiency LNG carriers. Turning now to Slide 16. The challenging market conditions for older vessels described so far have led to 2025 becoming a record year in terms of scrapping, with 61 vessels exiting the fleet. Looking at the age, the redelivery profile from current charters and the fact that these vessels would operate below their OpEx breakeven in the spot market, even when the spot market goes through its seasonal spikes, the commercial removal of those vessels either through laying up or scrapping becomes inevitable. Our attention now turns to the other end of the spectrum and specifically new buildings on Slide 17. As we look at Slide 17, a clear pattern emerged in Q4 with an increase in ordering, something we were part of with a three-vessel order. In December alone, there were almost as many orders placed as for the rest of the year combined, indicating greater confidence among ship owners regarding the dynamics of the LNG market. This has led to a slight uptick in new building prices, as we can see on the right of Slide 17. We expect this trend to continue as limited yard capacity for deliveries in 2028 and 2029 meets the surge in demand for LNG carriers stemming from the doubling of U.S. LNG production. This limited capacity for 2028 and 2029 provides a very good opportunity to look at the order book availability and CCEC's market share of open new buildings. Turning to Slide 18. It is demonstrated that out of the 30 new buildings in the order book, six of those, or 20%, are controlled by CCEC. This makes us the owner with the largest market share of the open order book and in prime position to capitalize from the increased demand expected in 2027 onwards as chartering of molded tonnage. Moving on to Slide 19. We would like to summarize our view on the long-term supply and demand picture of LNG freight. As with any shipping segment, there are always a lot of cross currents and moving parts. We have tried to incorporate the recent supply and demand developments on this chart. Firstly, to explain the chart, the orange dashed line represents the maximum potential growth in demand for LNG carriers and global energy projects extending to 2032. The blue dashed line represents the number of LNG vessels required based solely on those projects that have reached FID status, which is a relatively conservative approach as we expect more projects to reach FID in the months to follow. The gray bar represents the gross number of LNG carrier deliveries expected on a cumulative basis year-on-year, with the orange bars being the estimate from CCEC on LNG vessel removals. The dark gray bars finally represent the net number between vessel deliveries and removals. In summary, we anticipate the LNG shipping market to reach an inflection point in late 2027 or early 2028, with new energy supply requiring a substantial number of additional vessels. Accounting for scrapping of older ships, demand is anticipated to outpace vessel supply, creating a constructive long-term outlook. Now as mentioned at the beginning of my presentation, we need to address the current situation in the Middle East. The U.S.-Iran conflict following the coordinated U.S.-Israel strikes on Iran on the 28th of February has significantly increased geopolitical risk in the Persian Gulf and particularly around the Strait of Hormuz, a critical energy shipping checkpoint. Most commercial vessels are avoiding the area due to security concerns, missile and drone attacks, AIS interference, and the withdrawal of more risk insurance. This has disrupted significantly any normal shipping patterns and the flow of energy commodities and has created a situation where Western-affiliated vessels faced particularly high risks and costs when transiting in the region. The conflict has major implications for the global LNG market, as roughly 20% of the global LNG exports originate from the Arabian Gulf, mainly from Qatar. More concerningly, Israel has shut down at least two major gas pipelines due to security concerns, potentially forcing Egypt and Jordan to increase imports by up to 65 cargoes per year to replace lost pipeline gas supply. Combined with the Arabian Gulf export disruptions and the withdrawal of more risk insurance for vessels operating in the region, the situation could significantly tighten global energy markets, as a prolonged closure of the Strait of Hormuz will lead to increased competition for the limited flexible supply, mainly from the U.S., resulting in significant price increases for gas worldwide. Now the most important unknown right now is the duration of the conflict. We cannot speculate on how long the situation will last, but the effect on the gas and shipping markets is already evident, as global gas prices have more than doubled at some point during this week, with Asian gas prices commanding a significant premium. The increase in global prices, combined with the surge in ton-mile demand due to opened arbitrage to the East, has led to an unprecedented rise in spot charter rates from around $40,000 a day last week to about $300,000 per day for March and April loadings, with even rates above $100,000 a day for 12 months on modern vessels. One thing is clear: the longer the situation continues, markets will price the risk accordingly and the rise in commodity prices will further support the increasing freight rates. This concludes our presentation for today, and I am happy to open the floor to any questions.

Our first question is from Alexander Bidwell with Webber Research & Advisory.

I just wanted to see if you could give a little bit more color on the potential implications of this shutdown of Middle Eastern supplies on the carrier market. We've seen, as you mentioned, spot rates climb pretty drastically over the last couple of days. But what are the longer-term implications of having a significant amount of supply taken offline?

It's probably more than a million-dollar question right now, but we'll try to answer it as best we can. As we mentioned, the supply from the Middle East mainly feeds into Asian markets. Unlike what happened in 2022, when Russian gas flows to Europe were cut and Europe replaced that with LNG from the U.S., there is no way to replace the Qatar volumes in Asia. So the only way Asia could replace this supply would be through fuel switching, which would require increasing the price. That would lead to an increased open arbitrage to the East, and the market is already undersupplied for vessels if this situation continues, i.e., an open arbitrage with healthy gas prices to the East. What this would mean for freight rates is that we already saw the spike in the front; if this were to continue, you could expect term rates to rise significantly. Now how much that translates to is something that remains to be seen.

All right. And then just kind of switching gears. So I believe one container vessel left in the fleet. Can you give us a sense of how you're looking at disposal options and just a general idea of what that timeline might be?

Yes. We have been quite opportunistic in how we have approached the sale of our container vessels. The last three we have sold – we are now down to one. It has a long-term charter and strong cash flow visibility with a good partner. The financing structure on this vessel is less flexible than others. So while it is not impossible to transfer or sell this asset, it is more difficult due to the tax equity structure. We will be opportunistic if we see an attractive deal; we will consider selling the vessel, or we may simply stick with it until closer to the end of the charter. We feel quite comfortable having sold 14 out of the 15.

Our next question is from Jon Chappell with Evercore ISI.

Given the capital exposure to the conversation and what's happening today, it looks like the more the Middle East becomes open later in '26, one new build delivers later this year and one in early '27. Is it right to assume that this parabolic move in spot rates does not have any immediate term effect on you? And as some of these new builds get closer to their delivery dates, and as mentioned, some of the time charter rates are moving up as well, is it kind of a wait-and-see approach or is there any increased inquiry or opportunity to maybe time charter some of the new builds even at a shorter duration?

Let me comment on the first part, and then maybe Nikos can pick up the second part regarding the long-term curve. But you are right to point out that in terms of redeliveries, the first vessel we have is due in Q3; however, we do have some new builds coming much earlier in Q3, and while some of them already have employment in place, we have flexibility in swapping with others. So there is potential for us if we see market interest to offer earlier positions, maybe late Q2 or early Q3. I think it will very much depend on how long this situation lasts. Nikos, would you like to say a few words regarding how you see the long-term curve being affected right now?

Yes. As mentioned, this all depends on how long the situation will last. We need to clarify that many charters were operating in the spot market given the arbitrage pointing to Europe and the oversupply of vessels in the Atlantic. However, this situation has created a very tight market. The longer the situation lasts, the more companies will try to secure shipping even at higher rates to lift those volumes. We are already seeing inquiries for terms for some of our new buildings, which, while not at the spot rates we've mentioned, are already higher than what we saw two or three weeks ago. So it has certainly affected the market, but we need to see the situation last for a bit longer for deals to be concluded in the medium to long-term.

Okay. The terms might be commercially sensitive, but I think it's important to understand the new market for the LCO2. Is there any way to frame the charter rate for the Active for the six months and the potential extension? Additionally, I don't see the delivery schedule in the presentation or press release anywhere. Just want to confirm that the delivery schedule remains the same for the remainder of this year.

Yes, of course, Jon. The table has not changed; deliveries have not changed. As I mentioned during my prepared remarks, we are expecting the next LCO2 and the LPG carrier towards the end of April and the 45,000 cubic medium LPG carrier in early June. These are the next couple of deliveries, and the delivery schedule for the rest remains as previously described. Regarding the Active, it went directly into trade as a semi-ref LPG ammonia carrier. It is how we should think about it until we see a more mature LCO2 market. In terms of numbers, for the first six months, you can assume close to $21,000 per day for the charter. While the rate was $25,000, repositioning impacted the first six months since it had to be repositioned from the shipyard. There is an option for the charter; if it’s exercised, the headline rate is $32,000 per day. Assuming that option is exercised, the blended average, including repositioning, is around $25,000 to $26,000 per day for the entire year.

Our next question is from Liam Burke with B. Riley Securities.

Jerry, I know the timing is not great in light of the shortage of LNG carriers, but what is the general tenor of discussions on the future deliveries of the non-LNG carriers for longer-term charters?

Yes, this market is generally shorter term. So typically, you will find a lot of liquidity anywhere between six to twelve months. There is some demand for periods of 2 to 3 years, occasionally extending to 5 years, but definitely shorter than the 7, 10, or 12 years you see in the LNG market. I would say that the most liquid part is on the 6 to 12 months time charters.

If you look at the longer durations being discussed, is there a sufficient return on those rates? Or do you prefer to keep them on the shorter 6 months to a year?

With the kind of rates we see nowadays, since the delivery of the first vessel, the market has tightened for both handysize LPG carriers and MGCs. I think the returns are quite decent. If we see the opportunity, we will try to lock them in for longer, as the market today for a 45,000 cubic dual-fuel vessel is around the $40,000 per day mark, give or take, which is quite decent returns.

There are no further questions at this time. I would like to turn the conference back over to Mr. Kalogiratos for closing remarks.

Thank you, operator, and thank you, everyone, for joining us today.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.