Earnings Call Transcript - CCEC Q3 2025

Operator, Operator

Thank you for joining us for the Capital Clean Energy Carriers Corp. Third Quarter 2025 Financial Results Conference Call. Present today are Mr. Jerry Kalogiratos, Chief Executive Officer; Mr. Brian Gallagher, Executive Vice President of Investor Relations; and Mr. Nikos Tripodakis, Chief Commercial Officer. Please note that this conference is being recorded today, Thursday, October 30, 2025. The comments made during this call that are not based on historical facts, including our expectations regarding sales or acquisitions and their anticipated impacts, cash generation, equity returns, future debt levels, growth opportunities, future distribution or share buyback amounts, dividend coverage, capital allocation, and our views on market fundamentals and vessel employment—including delivery and redelivery dates and charter rates—may include forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934. These forward-looking statements carry risks and uncertainties that could lead to significant differences between actual results and those projected. Except as legally required, we do not intend to update or revise these forward-looking statements in light of new information, changes in perspective, or actual results. We do not make predictions or statements regarding the performance of our common shares. I will now turn the call over to Mr. Brian Gallagher. Please proceed, sir.

Brian Gallagher, Executive Vice President of Investor Relations

Thank you, operator. Good morning or afternoon to you wherever you are, and thank you for listening to the Capital Clean Energy Carriers Q3 2025 Earnings Call. As a reminder, we will be referring to the supporting slides available on our website as we go through today's presentation. So let's kick off with a highlight slide on Slide 4. Q3 2025 saw the company make significant progress across three fronts in achieving its strategic objectives. Firstly, we increased our charter coverage with another long-term time charter for up to 10 years on one of our LNG carriers currently under construction. Secondly, we completed the sale of one of the three remaining container vessels under our ownership, leaving us now with only two container vessels, both of which were on long-term time charters. Lastly, we have now secured financing for all of our MGCs and LCO2 multi-gas carriers, whose deliveries commence from January 2026 onwards. Our net income for the quarter from continued operations came in at $23.1 million. I would like to note here that given the sale of the Manzanillo Express, the container vessel, we have now classified her under discontinued operations. So continued operations fleet refers to 12 LNG carriers and 2 container vessels. Our net income figure reflects the special surveys that two of our LNG carriers, 14% of our fleet, undertook during the quarter. The company fulfilled its ongoing commitment to fixed distribution of USD 0.15 per share to shareholders, thus retaining the company record of distributing a cash dividend for every single quarter since our listing way back in March 2007. Our Head of Commercial, Nikos Tripodakis, will guide us through another long-term charter contract addition and the encouraging dynamics within the LNG market landscape during the quarter later on. I will now hand it over to our CEO, Jerry Kalogiratos, to take us through, firstly, the financial highlights.

Gerasimos Kalogiratos, CEO

Thank you, Brian, and good morning or afternoon to everyone listening in today. In terms of operational and financial performance, this has been a rather routine quarter. However, I would like to highlight, as Brian pointed out, that we have now classified the Manzanillo Express as discontinued operations due to its sale, which nevertheless had the full quarter before being delivered to its new owners early in the fourth quarter. I should add here that this is the 13th container carrier sale in 24 months, consistent with the company's strategy to pivot to gas transportation. Secondly, we reported the successful completion of our two special surveys during the quarter as our first two LNG carriers, the Aristos I and the Aristidis I, completed five years of service. This is an important milestone for CCEC as it represents the first LNG carrier special survey under our stewardship. I'm pleased to report that both were completed successfully and ahead of schedule with a combined total of 38 days of off-hire for the two vessels and total cost of approximately $8.8 million or $4.4 million per vessel. So both the reclassification of the Manzanillo Express under discontinued operations and the two special surveys affected our results compared, for example, to the previous quarter. Despite an ongoing capital investment program of over $2.3 billion in our new builds, the dividend payout remains a core component of the company's value proposition to shareholders. The $0.15 dividend will be paid on November 13 to shareholders on record on November 3. This will be the 74th consecutive quarter that the company has paid a cash dividend. Moving now to the balance sheet on Slide 7. The key development here was securing financing for two liquid CO2 carriers and multi-gas carriers and the six MGCs, which means that all 10 of our multi-gas carriers under construction have now secured debt funding as detailed in our earnings release. We will have more news on the financing of the six LNG carriers delivering in '26 and '27 in due course. And of course, I remind you that three of the six LNG carriers have already secured long-term employment. Our cash balance stood at a total of $332.2 million as of the end of the quarter. Our balance sheet remains strong with a sound net leverage ratio below 50%. You can see that our capital base continues to consolidate as we await the next schedule of ships to be delivered next year. Of our total debt, 79% is floating. Hence, looking ahead, we expect to benefit further now that the Fed has started cutting rates, including yesterday's 25-point cut. Moving to Slide 9. It is important to highlight the evolution of this chart since the beginning of the year as we have made significant progress in securing employment for new building vessels despite the challenging market conditions. The latest long-term time charter we have announced today is for seven years with three one-year options thereafter. The employment commences in the first quarter of 2028, and we expect to trade the vessel on short or index-linked time charters between its scheduled delivery from the shipyard in the first quarter of 2027 and the commencement of its long-term charter. I should add here that we have had a couple of questions already on the Attalos being allocated as the LNG vessel for the new contract announced today, as we had also suggested this would be the vessel for the two period charters we announced with our first quarter results in May. All six of our new builds under construction have optionality for our customers, as previously disclosed, and the specific vessel will be selected as and when the charter starts. So we have three charters to allocate to six vessels, and we'll do so nearer the time. And Slide 9 is illustrative of where we believe they will end up. Our average charter duration stands at 6.9 years across the fleet, and our LNG fleet showcases a firm period charter backlog of $2.8 billion of contracted revenue or 93 years and $4 billion of contracted revenue or 126 years if all options were to be exercised. To put this into context, in the fourth quarter of '24, we reported a firm charter backlog from our LNG fleet of $2.2 billion or 68 years. We continue to be in constant dialogue with counterparties regarding our LNG fleet in what has become an increasingly active market and looking for the right employment structure for our remaining open new builds. Turning now to Slide 10 and looking at the contracted revenue base in more detail. Overall, when it comes to CCEC, no single counterparty represents more than 19% of the $3 billion contracted revenue backlog. This diversification provides the company with a strong framework to build our gas transportation portfolio further with a mix of existing corporate relationships and new customers. I'm happy to disclose that the counterparty for the latest contract award is a new name to our roster of energy majors, utilities, and traders, thus diversifying further our customer base. I would like to finish off this section now with a quick look at our new building CapEx program and our expectations with regard to its financing described with more detail on Slide 11. We ended the third quarter with $332 million of cash on our balance sheet. This cash level is before we received the net proceeds from our latest container sale of $26 million. From our new building program of $2.3 billion, we have already paid advances by quarter end to the tune of $580 million. Assuming we draw the base financing amount for our new builds in line with the financing secured for the multi-gas carriers and the financing assumptions for the LNG carriers as outlined on Slide 11, we will be left after the delivery of all of our new builds with a net equity inflow of $216 million. That is without taking into account any cash flow generation from our existing fleet. I would like to turn now to our Chief Commercial Officer, Nikos Tripodakis, who will run through our LNG market slides. I will return with a summary and then be available to answer your questions along with Nikos and Brian at the end of the call.

Nikolaos Tripodakis, Chief Commercial Officer

Thank you, Jerry, and good morning or afternoon, everybody. I would like to address three main subjects today. Firstly, the strong rise in the expected demand for LNG shipping on the back of an unprecedented surge in LNG supply growth. Secondly, the recent ban of Russian LNG from the European Union and the implication of this ban on the demand for LNG shipping. Lastly, how scrapping and commercial removals of older vessels will facilitate the market rebalancing towards 2027 and 2028. Starting with Slide 13, we can see that the acceleration in the LNG growth that we commented on during the Q2 earnings call has gathered further pace during Q3. There has been a surge in LNG projects reaching final investment decisions, that is LNG projects, which have secured firm financing and are moving ahead with the construction of their LNG production facilities. Three of these FIDs alone came during Q3. In total, demand for LNG carriers from the seven projects that have achieved FID in 2025 is ranging approximately between 70 to 120 vessels on assumptions as highlighted on Slide 13. The ignition for this growth has come from the Trump administration since January, and we anticipate even more FIDs to be achieved in the coming months, which will in turn create further demand for shipping. Now turning to another important development within our wider sector, the intention of the EU to ban Russian LNG imports. We can see on Slide 14 that recently, as part of its 19th sanctions package, the EU announced plans to bring forward the ban of Russian LNG in the beginning of 2027 from the previous target date of 2028. From an LNG freight perspective, in simple terms, this would require a replacement of a relatively short-haul voyage of 2,500 nautical miles from Yamal to Rotterdam with one of approximately double its length from the U.S. Gulf. According to analysts, Russian LNG is likely to flow East with a mix of transit in winter and summer. Overall, it is estimated that global LNG shipping ton mile demand would gain approximately 2% compared to 2024 levels. Clearly, there are additional considerations at play here, but overall, this development should be net positive for LNG freight. Moving now on the supply side developments, which are on Slide 15. We can see that the main development has been the record level of vessels removed, with 14 vessels sold for scrap so far this calendar year. This is illustrated on the right-hand side of Slide 15, while the average age of LNG carriers exiting the fleet was 26 years, a new record low in a continuous downward trend since 2022. If we focus on the left-hand side of Slide 15, we can see the rising numbers of older vessels that are idling and as such, effectively commercially removed from the market. Since the second quarter, there has been a sustained rise in steam and tri-fuel vessels standing idle, around 16% to 18% of steam vessels, which equates to approximately 35 ships are sitting idle, which means that nearly one-fifth of all steam vessels stand without long-term or spot employment. Owners of these vessels have chosen to idle or lay up rather than sell these vessels for scrap in an effort to exhaust any commercial opportunities that may arise, but it seems almost unavoidable for the majority of those vessels that after a sustained period of idleness, the lack of commercial opportunities in combination with an impending costly special survey will lead to even more demolition sales. The trend set in 2025 is very strong, and we feel that it is set to continue. In addition to the increasing number of vessels idling, we can also see the pipeline of vessels that are redelivering from long-term charters in Slide 16. As the chart shows, according to brokers, 86 steam LNG carriers are due to come off long-term time charter contracts between now and 2030, which reflects approximately 45% of the entire steam fleet. This pipeline of redeliveries of steam vessels from long-term contracts in combination with the increasing numbers of older tonnage approaching the fourth and fifth special surveys, as shown in Slide 17, enhances the argument around the inevitability of the removal of these vessels. On the left-hand side of Slide 17, we can see that an increasing number of vessels are entering the age range for the fifth or sixth special surveys. Some of these vessels may still be on long-term charter at the time of those special surveys, but the combination of the age profile as shown in Slide 17, the redelivery profile as shown in Slide 16 and the ramping up of idling as shown in Slide 15 paint the overall picture that these vessels are reaching the twilight of their commercial life and utility in the LNG market. Moving on to Slide 18, we summarize our view on the long-term supply and demand picture for LNG freight. As with any shipping segment, there are always a lot of cross currents and moving parts, but 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 LNG demand for LNG carriers in view of global LNG projects extending to 2032, let's say, our high case demand scenario. The blue dashed line represents the number of LNG vessels required based solely on those projects that have reached FID status, a relatively conservative approach as we expect many more projects to reach FID in the months to follow. The dark gray bar represents the gross number of LNG carrier deliveries expected on a cumulative basis year-on-year, while the orange bars being the estimate from CCEC on LNG vessels removals. Lastly, the dark blue bars represent the net number between vessel deliveries and removals. So overall, we expect to see the inflection point in the LNG vessel supply moving from surplus to deficit sometime between 2027 and 2028, with the potential that this could even be earlier than that, given the trends outlined earlier. I will now hand the presentation back to Jerry for a summary of the third quarter and the company's position going forward.

Gerasimos Kalogiratos, CEO

Thank you, Nikos. Now focusing on our present and future fleet on Slide 20 provides an opportunity to round up where CCEC is and our direction going forward. We continue to be opportunistic about fixing long-term employment for our three open new build LNG carriers as there are increasingly fewer uncommitted LNG new buildings available at a time when we see growing activity in the LNG industry with both new SPAs being signed and the FIDs moving ahead. As the slide clearly shows the ticks against each vessel indicate those with term employment. Remember, just three quarters ago, we had six open LNG carriers and owned a total of eight containers. Today, we only have three uncommitted LNG carriers under construction and just two containers remaining in our portfolio. Our ten multi-gas carriers are complementary to our LNG portfolio and leverage to the energy transition, and we expect to have more color with regard to their employment closer to their delivery. Finally, our two legacy container vessels are well underpinned on long-term charters, potentially out to the end of the next decade, but provide optionality for CCEC going forward. In short, in all parts of the CCEC fleet, we have focused and are executing on the chosen strategy in its specific area. So turning to the final slide, #21. And looking forward, CCEC is expected to control the largest LNG carrier fleet available on the U.S. Stock Exchange in addition to the other 10 multi-gas vessels. The company has considerable contract coverage of 6.9 years already and strong visibility on cash flows, while we believe that we have an advantage over many of our peers in only being invested in the latest generation gas vessels. That concludes the prepared remarks by management for the third quarter of 2025. And with that, I will now pass it back to the operator for questions.

Operator, Operator

And the first question comes from Alexander Bidwell with Webber Research & Advisory.

Unknown Analyst, Analyst

So taking a look at the new build charter, my math has shown the rate to be roughly in line with the two other charters that you signed earlier this year, sitting somewhere in the 80s. How do you feel these rates sit compared to the general market appetite? And do you see any room for long-term rates to push up or down?

Nikolaos Tripodakis, Chief Commercial Officer

The first comment is that this latest charter is higher than the previous two. We feel that this is on the high end of where the market has been over the past four to five months. In general, it is in line with the view that have been consistent throughout the year that long-term rates, seven years plus or five years plus for these latest generation two-stroke vessels from 2027 and 2028 are in the very high 80s to low 90s range. Given the amount of demand that's coming from FID projects and all these new volumes that are expected to hit the market by the end of the decade, we feel that this has been sort of the low end of where the rates will be in the future. For later deliveries, it will be even stronger.

Unknown Analyst, Analyst

All right. Looking at the relationship between carriers and new liquefaction capacity, I understand that last week, Qatar delayed its guidance for the North Field expansion by about six months, which affects approximately 32 million tonnes of production. Considering the potential delays in some of the LNG projects currently under construction, what impact should we anticipate on the carrier market balance? Is there anything owners might do to help mitigate the effects, such as adjusting the delivery schedule for new builds to better match when some of these volumes come online?

Nikolaos Tripodakis, Chief Commercial Officer

As far as delays are concerned in these projects, what I can say is that most of these delays have already been priced in. We have seen the biggest delay in the market has come from the Biden administration pausing the permits on these LNG facilities and production permits. Now with the Trump administration, there has been this resumption in permits and FIDs. Any delays that we should have hedged ourselves against have already taken place. We don't expect too many delays moving forward. Most of these projects will start in a range of 2028 to 2030. We are very positioned for that. What we can do, just to answer your question, in the interim is either secure very short-term time charters, one to two years, just to get redelivery of the vessels back in the part of the curve that we feel is significantly short, which is '28, '29 onwards or just go for straight TCs from '27 and '28. It's always an exercise for us, and we just choose whatever we feel is the best choice at the time.

Operator, Operator

The next question comes from the line of Omar Nokta with Jefferies.

Omar Nokta, Analyst

I wanted to ask about the market. Jerry, I want to make sure I understood your comments correctly. Is the latest charter that you've announced today set to be higher than the two that you fixed about six months ago?

Gerasimos Kalogiratos, CEO

Yes. That was Nikos. But yes, indeed, this charter is higher than the previous two charters, but do note also the slightly later delivery.

Omar Nokta, Analyst

I wanted to ask about the market. When we look at charter rates, particularly spot rates, they've been quite weak. From a broader perspective, the market appears soft, yet you're still managing to secure contracts, even if the deliveries are later. It seems that charter rates are holding up better than what we experienced during the last downturn in LNG shipping, when long-term contracts were almost nonexistent. What is different this time that allows for a soft market today while still maintaining a resilient term charter market?

Nikolaos Tripodakis, Chief Commercial Officer

It's a very accurate question. This situation is a paradox unique to the LNG industry. It stems from a mix of factors, primarily the oversupply in the current market and trading conditions that favor U.S. deliveries to Europe. This results in shorter tonne miles and an oversupplied spot market, combined with an abundance of steam carriers and tri-fuel vessels eager for employment, which depresses market rates. Conversely, looking ahead to 2027 and 2028, we anticipate a 50% increase in global LNG trade, necessitating vessels for transport. These vessels must be efficient and compliant with the latest regulatory standards and emission controls, but there will not be enough of them during that time frame. Thus, the current market is oversupplied with inefficient ships, while the future market will be significantly undersupplied due to the volume of LNG coming online. This discrepancy is why charterers are still paying rates three to four times higher than the spot market reflects. It is evident to everyone that the market lacks efficient tonnage. The spot market is oversupplied, and the key question is when this transition will occur. We believe it will happen in 2027 or 2028.

Omar Nokta, Analyst

Yes, that makes sense. I mean clearly, as you're highlighting in the slides, '27, '28 being the inflection point, it's interesting to see the market actually priced accordingly as opposed to wait until we get there. And then maybe just a quick follow-up. Just in terms of the spot market. Obviously, it's evolved in recent years to being perhaps maybe a bigger percentage of the overall trade, but what's your guess or what's your estimate, what you would say that the spot market represents in terms of total LNG shipping?

Nikolaos Tripodakis, Chief Commercial Officer

The percentage of vessels trading in the spot market is likely below 15% to 20%. While the market has become more liquid due to the increasing number of vessels, it still does not compare favorably to the tanker or dry segments. This situation primarily impacts older vessels, such as steam and tri-fuel ships. In contrast, the latest technology vessels we control are highly sought after for long-term time charters, as they offer superior economic advantages.

Operator, Operator

And the next question comes from Liam Burke with B. Riley Securities.

Liam Burke, Analyst

Jerry, this sounds like nitpicking, but you do have one vessel coming off charter in '26. Have there been discussions? I mean, how are those discussions gone in terms of renewing on a longer-term basis?

Gerasimos Kalogiratos, CEO

Let me pass this on to Nikos.

Nikolaos Tripodakis, Chief Commercial Officer

What we can share for now is that we have mostly been turning down bids for this vessel. We have had a range of discussions from short-term time charters, one to two years on either floating or fixed rate. Our view is that we will not have any issues whatsoever in securing employment for this vessel. It just comes down to making sure we secure the right type of employment and get the redeliveries we want for potentially in 2029 and then capitalize further on the tightness of the market. So we still have one year to make a decision on that. But yes, we feel confident about this.

Liam Burke, Analyst

Great. Jerry, you mentioned that you'll be able to provide insight on the potential charters for the multi-gas carriers in the future. What is your sense of the interest in those early discussions?

Gerasimos Kalogiratos, CEO

The first vessel expected to arrive is in January, a handy 22,000 cubic multi-gas carrier liquid CO2 carrier. This is a sophisticated semi-ref handy LPG carrier that can transport liquid CO2 as well as LPG, ammonia, and petrochemical cargoes. It provides strong operational flexibility due to its specifications and is unique, enabling efficient performance across various trades and cargo types. We have noticed interest from charterers in this flexibility. By the time of our next quarterly earnings call, we anticipate the vessel will be delivered, as it is scheduled for early January. This vessel will operate in the semi-ref segment, which is currently experiencing solid momentum despite broader market volatility. Specific LPG projects and sustained activity in the petrochemical parcel trades have kept tonnage in this segment well balanced and utilization high, supporting firm and healthy freight levels. Currently, most requirements are in the 4- to 12-month range with TCE levels typically just below the mid-900s. On a monthly basis, these vessels can command up to around $1 million, depending on terms and trade. This gives an idea of the expected duration and TCE rates, which are subject to market developments until delivery, as these types of vessels are usually fixed closer to their availability window, unlike LNG carriers, which can be fixed years in advance.

Operator, Operator

And the next question comes from the line of Climent Molins with Value Investor's Edge.

Climent Molins, Analyst

You talked a bit about the EU's move to fast track the ban on Russian LNG. But could you provide some commentary on whether we should expect an impact on the LNG market from recent sanctions by the U.S. on both LUKOIL and Gazprom?

Gerasimos Kalogiratos, CEO

Personally, I don't think there should be any additional impact because all major LNG projects, except for Yamal, have already been sanctioned. We shouldn't expect any direct impact. If anything, we've recently seen a decline in trade, with Russian LNG being shipped from Arctic LNG 2 and the port of Vaya to China using dark fleet vessels. I believe that we might see an increase in this trade if the EU pursues that path. I don't think the recent U.S. sanctions will directly affect trade. There have been discussions, especially in Asia and Japan, regarding their imports of LNG from the Sakhalin project. The U.S. is encouraging imports from U.S. projects instead of Russia, which would be beneficial for the market. This would lead to long-haul trade rather than short-haul trade, but it remains to be seen how this situation will evolve.

Climent Molins, Analyst

That's helpful. And this one is a bit more on the strategy side. You've been clear your two remaining container ships are up for sale at the right price. But is there any appetite to look for incremental acquisitions, be it on new builds or secondhand assets?

Gerasimos Kalogiratos, CEO

If you refer to the CapEx slide we discussed, it's evident that we have significant capital expenditures planned for the future. However, our cash position is strong, and once all vessels are delivered, based on conservative financing assumptions, we will see a net equity inflow exceeding $200 million before considering cash flow from the fleet. By the conclusion of our new building program, we may have a healthy cash position to explore further acquisitions and growth opportunities. It's still early to talk about growth since securing more employment and visibility is crucial for us. We are consistently making progress in this area each quarter. As we establish a more stable foundation with our new builds, we can also consider additional acquisitions. Our perspective on the market indicates that the LNG sector is likely to face a shortage of ships around the 2027 to 2028 timeframe, which will create a demand for vessels. The longer we wait without new orders being placed in shipyards, the tighter the market will become over the next few years. We aim to capitalize on this anticipated tightness while ensuring that our operations are stable.

Climent Molins, Analyst

Yes, I meant on top of your current order book, but you did answer my question.

Operator, Operator

There are no further questions at this time. I'd like to turn the call back to Mr. Jerry Kalogiratos for closing remarks.

Gerasimos Kalogiratos, CEO

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

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.