Navigator Holdings Ltd. Q1 FY2025 Earnings Call

Thank you for standing by, ladies and gentlemen, and welcome to the Navigator Holdings Conference Call for the First Quarter 2025 Financial Results. On today's call we have Mads Peter Zacho, Chief Executive Officer; Gary Chapman, Chief Financial Officer; Oeyvind Lindeman, Chief Commercial Officer; and myself, Randy Giveans, 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'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 assumptions, forecasts and expectations as of today's date, May 15, 2025. 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 Peter Zacho, the company's Chief Executive Officer. Please go ahead, Mads.

Thank you for joining the Navigator Gas earnings call for Q1 2025. I will start by reviewing key data from our performance this quarter and then discuss our outlook for the remainder of the year. Following my remarks, Gary, Oeyvind, and Randy will provide more detailed insights into our results. In the first quarter, we saw a 13% increase in revenue compared to the same quarter last year, setting a new record for quarterly revenue, driven by high utilization and increased rates. However, income from our joint venture terminal dropped significantly. Our adjusted EBITDA for Q1 reached $73 million, consistent with both Q1 2024 and Q4. We maintain a strong balance sheet with a solid cash position, even after investing in three second-hand vessels and making further payments for MGC newbuildings. With our recent $40 million bond tap and $300 million refinancing proceeds, our cash balance will be much stronger in the second quarter. The $300 million refinancing was completed as planned during a highly volatile trading environment, demonstrating the strong support we have from our banking partners. Capital return continued in Q1 with a fixed dividend of $0.05 and a share buyback totaling 25% of net income. We are pleased to announce an additional $50 million share repurchase authorization, which will help enhance shareholder returns, earnings per share, and return on equity. Commercially, we successfully increased TCE rates, achieving an average of $30,475 for Q1, which is 8% higher than both the previous quarter and the same period last year. We achieved over 92% utilization, consistent with our guidance and greater than both Q4 of 2024 and the same quarter last year. We are satisfied with our ability to maintain strong TCE rates and utilization despite softer demand for ethylene transport. Our joint venture Ethylene Export Terminal's throughput was limited to 86,000 tons this quarter, significantly below capacity due to ongoing U.S. cracker turnarounds, impacting domestic supply and pushing domestic prices higher, resulting in a tighter arbitrage. We expanded our fleet with the acquisition of three second-hand ethylene-capable vessels at attractive prices, which have now been taken over and deployed as planned. We also sold Navigator Venus, one of our original vessels, which was approaching 25 years of age, securing $17.5 million in cash and realizing a book gain of nearly $13 million. We remain focused on gradual fleet renewal and may sell more older vessels in the future. The past four months have presented significant strategic challenges, but uncertainty is beginning to ease. We believe the recently announced port fees by the U.S. Trade Representative will not negatively impact Navigator Gas, given our vessel size and role as a service provider for U.S. energy exports. It also appears that tariffs on Chinese imports from the U.S. may be limited to 10%. Over the past five years, China has received less than 10% of the ethylene shipped from Morgan's Point. That said, the situation can still change. Thanks to our diversified customer base, trading capabilities, and strong balance sheet, we remain resilient even if geopolitical conditions change unexpectedly. In April, we experienced lower utilization due to cargo cancellations and some customers delaying new vessel fixtures. However, this has already turned around, with May showing a recovery in vessel utilization and possibly record throughput at Morgan's Point. The supply of vessels remains favorable, with a handysize order book at 9%, and 22% of the global handysize fleet on the water is over 20 years old, indicating a healthy supply situation. Now, I will pass it over to Gary to provide more details about our financial results.

Thank you, Mads. Welcome, everyone. As Mads mentioned, we've been quite engaged over the past few months for various reasons. Our first quarter 2025 financial results demonstrate another strong performance, continuing our trend from previous quarters, showcasing the quality and diversity of our business. This success is largely due to our flexible fleet, resilient charter rates, high utilization, and effective cost management. As shown in the numbers, our TCE has exceeded $30,000 per day, resulting in a record high quarterly net operating revenue of $151 million and adjusted EBITDA of $72.8 million for the first quarter of 2025. Utilization reached 92.4%, an increase of 3.1% compared to the first quarter of 2024. The average time charter equivalent rate of $30,476 per day this quarter is the highest we've achieved in nearly ten years. While voyage expenses have significantly increased, mainly due to our larger fleet, these costs are passed on to customers, leading to higher operating revenues. Vessel operating expenses rose slightly to $47 million compared to the first quarter of 2024, primarily due to the timing of maintenance costs incurred during the first quarter of 2025. Depreciation has also increased slightly due to our expanded fleet, and our general and administrative costs were $8.1 million, which, while up year-on-year, decreased compared to the fourth quarter of 2024. We recorded an unrealized loss of $2.3 million this quarter related to fluctuations in the fair value of our long-term interest rate swaps, impacting net income but not affecting our cash position. Our net interest expense was lower in the first quarter of 2025 compared to the same period last year, partly due to reduced sulfur rates. The other income of $4.8 million in this quarter relates to a successful legal settlement for damages from a collision that occurred about ten years ago, which we did not anticipate, resulting in a direct addition to our income statement. Our income tax line reflects a significant decrease in current and deferred taxes compared to Q1 2024, primarily from our investment and share of profits in our Ethylene Export Terminal at Morgan's Point. Randy will provide more details, but ethylene terminal throughput volumes in Q1 2025 were low at 85,553 tons, leading to a loss of $0.9 million. However, we expect throughput to return to normal trading levels in the second quarter and beyond. Overall, net income attributable to stockholders was $27 million in the first quarter of 2025, marking our highest quarterly net income in three years and the second highest in nine years, with basic earnings per share of $0.39 and adjusted net income, excluding unrealized gains and losses, of $25.5 million or $0.37 per share. Our balance sheet remains strong, with a cash and cash equivalents balance of $139 million as of March 31, 2025, despite significant expenditures. Our liquidity will be further enhanced by several items not reflected in these first-quarter results, including a $40 million bond issue from early April, the sale of the Navigator Venus completed this week, and a debt refinancing we anticipate completing by the end of May 2025. We have been actively extending our maturities, enhancing liquidity, and lowering financing costs. In February 2025, we secured a new senior loan facility to help fund the purchase of three new ethylene-capable vessels that are already positively impacting our finances. After successfully issuing $100 million in new senior unsecured bonds in October 2024, we took advantage of favorable market conditions and issued an additional $40 million in bonds on March 28, 2025. On May 2, 2025, we secured a new senior term loan and revolving credit facility for up to $300 million to repay existing loans and support general corporate purposes. We currently have no debt maturities due within the next year. I want to express our gratitude to our lenders for their continued support. We believe in the robustness of our business model, and it's encouraging to see others share this view. Our leverage remains strong, with a net debt-to-adjusted EBITDA ratio of 2.6 times for the past 12 months and a net debt to capitalization of 38% at the end of the first quarter of 2025. We will continue to make substantial debt repayments, with approximately $124 million projected in annual debt amortization payments for the next three years. We finished the quarter with a healthy cash balance despite our many financial commitments. Our estimated all-in cash breakeven for 2025 is $20,600 per day, well below our average TCE revenue for the first quarter. The guidance for operational expenses remains unchanged from our last update. We are committed to investing in energy-saving initiatives, which we view as beneficial for both financial and environmental reasons. Now, having shared these strong results, I'll turn it over to Oeyvind, who will discuss our commercial environment in light of the current macro uncertainties. Thank you.

Thank you, Gary, and good morning, good afternoon, everyone. I'll spend the next few minutes walking you through the freight markets, our utilization trends and the recent impact of tariffs. I'll also touch on the latest ethylene arbitrage and wrap up with a quick view on vessel supply. So let's start with the market. If you turn to Page 13, you'll see the latest time charter assessments across the gas carrier segments. The story here is stability. Rates for our core segments, ethylene and semi-refrigerated vessels, which cover 88% of our fleet, have held firm. That's reassuring, especially given the recent backdrop of tariffs, trade uncertainties and most people pushing the pause button. Now on to utilization. On Page 14, it shows the makeup of our earnings base across petrochemicals, LPG and ammonia as well as fleet utilization. We came in strong in the first quarter with utilization of 92.4%, but things took a sharp turn in April. On 10th of April, China imposed tariffs up to 125% on a range of U.S. energy products, including ethane, ethylene and LPG. That made the trade between the two countries completely uneconomical. We had three handysize ethane cargoes to China canceled and zero new inquiries followed during this time. And we weren't alone, the industry saw widespread disruptions and cancellations. But right after Easter, China quietly dropped the ethane tariffs back down to 1%. Immediately activity came back. We concluded two ethane fixtures overnight, and that's how quickly tariffs can swing the markets. With tariffs down and sentiment improving, utilization is now recovering, and we expect a more normalized trading pattern from May onwards. Our forward cover helps smooth things out. As of today, 41% of our ship days over the next 12 months are fixed at an average rate of $31,040 per day. Now let's take a closer look at the tariff situation. On the next page, we have the three charts showing the direct impact of the tariff spike. First, on LPG. This isn't a core trade for us, but the ripple effect has some impact on the overall freight markets and sentiment. The 125% tariff made U.S. to China LPG uneconomical. Cargoes diverted instantly to South Korea, Japan, Indonesia, and India, while China turned to Middle East and nearby suppliers to backfill their demand. These ships increased inefficiencies, which can actually benefit shipping. In the middle chart, you'll see handysize ethane liftings dropped in April. Not surprising as most of these trades are on a spot basis; all spot activity was put on pause. But with the tariff now back to 1%, I fully expect May volumes to bounce back. On the right, it shows ethylene. China has never been the main buyer of U.S. ethylene. They have, on average, imported about 10% of U.S. ethylene exports during the first five years. Last year in 2024, just 85,000 tons went to China and have declined since 2023. And yet, our ethylene freight rates are up. It illustrates that China is not an essential driver for U.S. ethylene exports or our ethylene freight markets. In any event, and similar to ethane and LPG, the 125% tariff shut the trade during April for ethylene. Now, with an 11% tariff and a healthy arbitrage, we could see China come back into play for this commodity. Speaking of arbitrage, the ethylene arbitrage is wide open. On Page 16, if you take a look at the gray line on the left-hand chart, U.S. ethylene prices have come down to around $400 per ton, significantly down. And that's great news, wait for trade, for our terminal and for freight. The mid-graph shows where freight sits in the ethylene value chain. And if you look in the light blue box, $300 per ton to Europe or Asia on paper, it works for us. Terminal volumes in April were up. And as Mads mentioned, May is shaping up even better. Our terminal is set to use its flex capacity to meet that demand. On supply on Page 17, it shows the fleet picture. Supply in our Handysize segment remains very manageable, single-digit growth from the yards. A good chunk of the fleet is over 20 years of age. The larger segments are seeing more newbuilds, but we are in a comfortable position in the segments we operate. So to wrap it up, April was turbulent, but the fundamentals are back for ethane and ethylene. Utilization is rising, rates are holding and volumes are flowing through the terminal. So we're entering May with solid momentum and a bit of spring optimism. With that, I'll hand over to Randy for the latest corporate developments.

Thank you, Oeyvind. So following up on several announcements we made in recent months, we want to provide some additional details and updates on our recent developments. Starting on Slide 19. We're pleased to announce our return of capital for the first quarter of 2025. But before we get to that, I want to highlight that during the first quarter, we repurchased more than 136,000 common shares in the open market totaling $1.9 million for an average price of $14.17 per share. Now looking ahead, in line with our return of capital policy and the illustrative table below, we're returning 25% of net income or a total of $6.8 million to shareholders during the second quarter. The Board has declared a cash dividend of $0.05 per share payable on June 17 to all shareholders of record as of May 29, equating to a quarterly cash dividend payment of $3.5 million. Additionally, with NVGS shares trading well below estimated NAV of around $27 a share, we will use the variable portion of the return of capital policy for share buybacks. As such, we expect to repurchase $3.3 million of common shares between now and quarter end, such that the dividend and share repurchases together equal 25% of net income, again, $6.8 million in total this quarter. As seen over the past few years, returning capital to shareholders will remain a primary focus for us going forward. And that's not all for capital returns. Just wait, there's more. Now looking at Slide 20. Included in our earnings release yesterday afternoon, we announced the Board's authorization for a new share repurchase program of up to $50 million of NVGS common stock, most likely to be implemented via open market purchases. To be clear, this new share repurchase authorization is in addition to our quarterly share repurchases connected to our return of capital policy. So the $3.3 million mentioned earlier will not eat into this new $50 million authorization. Now there are several compelling reasons for us to repurchase shares. Buying back at a discount boosts our NAV per share, it reduces the share count and increases earnings per share, supporting the share price. And as we explained through our five pillars of capital deployment, it diversifies our uses of cash. In terms of funding the buybacks, we recently raised almost $200 million of excess liquidity through the unsecured bond tap, the most recent credit facility refinancing and the sale of the Navigator Venus, which I'll touch on in a second. As Gary displayed on Slide 8, a large portion of the excess cash will be used to repay more expensive debt. Some will be used for growth projects, some will be kept on the balance sheet, and some will be used for the share repurchase program. And as you can see on the bottom left of the slide, the equity analysts who cover us agree that our share price is very attractive with lots of upside from here. So all that being said, there are many factors that come into play regarding the timing and scale of incremental repurchases, but we do plan on implementing this program in the near future, especially at the current very cheap share price. Now turning to our Ethylene Export Terminal on Slide 21. As we mentioned on our previous earnings call, U.S. Gulf ethylene cracker turnarounds persisted throughout the first quarter, resulting in reduced U.S. ethylene supply and high U.S. ethylene prices. As a result, throughput volumes during the first quarter decreased to 85,000 tons. However, as the U.S. crackers ramped production in April, the domestic ethylene price fell from $0.30 a pound or $660 per metric ton to $0.20 a pound or $440 per metric ton, as you can see on the bottom right chart, substantially widening the arbitrage to both Europe and Asia. So this led to throughput in April increasing to a six month high of 66,000 tons. And with the domestic ethylene price now back down to $400 a ton, throughput in May will exceed the volumes in April and the flex train will be utilized soon. So looking at the forward curve for ethylene prices, we expect the terminal throughput to remain fairly strong and our net income from the joint venture to return to historical profitability levels this quarter. As a reminder, we completed the final flex train CapEx payment of $4 million in January for a total contribution of $128 million, all paid from cash on hand. As for the contracting of the expansion volumes, interest in the offtake contract has increased in recent weeks, and we continue to expect that additional offtake capacity will be contracted in the coming months as new customers continue to request terms. Now finishing on Slide 22. Our fleet renewal program continues to be implemented as we sell our oldest vessels and replace them with modern secondhand tonnage. So starting with the divestiture. Two days ago, we completed the sale of our oldest vessel, Navigator Venus, a 2000-built, 22,000 cubic meter gas carrier to a third party for $17.5 million, resulting in a $12.8 million profit to be included in our second quarter net income. That leaves us with only two of our original vessels built in 2000, and we continue to engage buyers who are showing interest in acquiring those older vessels. On the replacement side, during the first quarter, we took delivery of all three secondhand handysize ethylene carriers that we agreed to acquire in December of 2024, complementing the increased export capacity from our Ethylene Export Terminal joint venture. Now the vast majority of that $83.9 million total purchase price was financed through new debt totaling $74.6 million. So the acquisition only required less than $10 million of our cash. As a result of our recent sale and purchase activity, our current fleet is now 11.9 years of age with an average size of 20,816 cubic meters. So not too young, not too old, not too big, not too small, basically the Goldilocks fleet. With that, I'll now turn it back over to Mads for closing remarks.

Thanks a lot, Randy. Yes, in summary, I guess, that we can conclude here that Navigator Gas got off to a robust start to 2025. I probably should add here that the past month has added quite a few sleepless nights and probably also some gray hairs. But I think in Q1, we delivered another solid quarter with strong operating cash flows. And we have in front of us a Q2 that maybe started a little bit shaky, but has now returned to almost normal, dare I say so. We've built resilience by refinancing well ahead of maturity at lower margins and better terms. And this is why we, despite less overall visibility than usual, continue to pay quarterly cash dividends and add another substantial share buyback program at $50 million. This buyback program will significantly enhance the shareholder returns, our EPS and our return on equity. We remain confident about the demand fundamentals of the business. Continued growth in U.S. natural gas liquids production and the significant build-out in U.S. export infrastructure over the next four years will support exports and thereby transport demand. Near term, we expect the terminal throughput for Q2 to be materially higher than Q1 and with a widening ethylene arbitrage. The vessel supply picture remains attractive with a small handysize order book and an aging global fleet. So thanks a lot for listening. And now I'll hand it back to you, Randy, and we'll go to Q&A.

Thank you, Mads. Operator, we'll now open the line for some Q&A.

Hi, Randy. Thank you. Thanks for the update, guys. A couple of questions from my end. I think, Oeyvind, you spent a good amount of time talking about the market in April and how things have improved thus far in May as the tariffs have gotten removed or lowered. Just wanted to ask when the China U.S. trade got to a bit of a standstill, as you highlighted, what ended up happening elsewhere? Did you see any cargo opportunities to send to other areas in the Far East or was it just a complete lull in the market?

LPG is a deep and large market that is quite interchangeable, allowing us to find other outlets. Since there is no LPG being shipped from the U.S. to China, China is sourcing from other suppliers. We even conducted trades that we haven't previously attempted, sending LPG using a handysize vessel from the Middle East to China. Typically, those ships are too small for long deep-sea routes for LPG, which are generally suited for VLGCs, but it did happen. This can be viewed as a positive occurrence. However, LPG has generally led to inefficiencies, with ships waiting fully loaded, diverting, and exploring different routes, which has been beneficial for the LPG market. Ethane shipments stopped until China announced it would be exempt from import duties, reducing from 126% to just 1%. This is certainly advantageous, and both of these developments had an impact.

Thank you. In the first quarter, it appears that your realized rate remained quite robust. You noted that the decision to move cargo leaned towards short-haul routes to Europe rather than to the Far East. Would you characterize this as a delayed reaction, perhaps indicating that we might see a softer rate in the second quarter? After all, $30,000 is still a strong figure, even with the shorter routes.

In the first quarter, we experienced lower volumes of ethylene passing through the terminal while maintaining high rates. Now, however, we are seeing an increase in volumes, which is a positive indicator for the second quarter. More supply means more volumes that need to be transported on the same number of ships. Most of the first quarter's shipments were transatlantic to Europe, focusing on ethane and ethylene with shorter voyage times. Now, we're also witnessing shipments going to Indonesia and other longer destinations. Therefore, we are optimistic about the situation.

Okay. And one final one, and I'll turn it over. Maybe to you, Gary, you've got the new credit facility in place now that refinances this year's maturity. You paid for the terminal expansion with your cash resources. And on the last call you mentioned that you're aiming to put some debt in place on the terminal now that it's completed. You've got the small balance left on that original loan for the pre-expansion part of the terminal. What are you thinking right now in terms of putting some debt on the project now? Any sense of timing or amount?

Yeah. I think what we can say is it's not imminent. I don't think it's top of our list. I think it's something that we've been looking at for a while, and I think there are various different things we can look at. Obviously, for Navigator, it's not ships. So it's something a little bit different for us to finance. And I think with the contractual situation from the flex train there, we've been waiting for that situation, which is coming along nicely. But because we've not been in a rush, I think we've been prioritizing our more expensive bank debt and our other facilities and getting that out of the way first. But it's certainly still on our list. But in terms of priority and timing, yes, it's probably not right at the top of the list. I think we've got other things that we can go for first.

Okay. Thanks, Gary. Thanks, guys.

Thank you.

All right. Next question. Your line should be open.

Hi. Just starting off on the buyback program. How do you think about deploying the new buyback program? And is there a mechanism for how you determine the amount of buybacks in any given quarter?

Yeah. Thanks for that, Charles. So in terms of scale, looking back over the last couple of years, we bought back around $55 or so million each year. In 2022, we announced the program, the first $50 million share buyback program and implemented it pretty soon thereafter. So certainly planning on putting this one to good use as well. In terms of the scale, there are certain parameters and volume limitations that you can buy back on any given day and kind of an open market share repurchase program. So obviously, we have to stay in line with those. But that said, again, we're going to do the $3.3 million for sure in terms of share buybacks based on the return of capital policy and the incremental one we plan on utilizing here in the near term as well. So a lot of variables will determine the exact timing and scale of that, but it is something we plan on implementing in the near term.

Understood. And just a second question, has volatility that you've seen in the market recently changed how you're approaching the chartering strategy?

Charles, you mentioned that we included a note about our percentage cover for the next 12 months and its average rate, which is something we haven't done before. This certainly contributed to our performance in April. I think the 41% cover might be a bit low, so we intend to increase it by a few percentage points. It's an area we monitor closely, and we are influenced by market conditions. However, historically, we maintain just under 50% cover because the petrochemical sector is primarily driven by spot prices. We believe the market is starting to recover, and having some ships available for spot charters is advantageous.

Understood. Thanks for the time.

Thanks, Charles. I believe that is it in terms of Q&A. So I'll turn it back to Mads for one final goodbye.

Good. Thanks for staying with us and listening into our Q1 results. I think you can see that this is better-than-expected Q1. It was quite a robust result that we demonstrated here with good cash returns. And of course, that cash return then is translated into returning cash to shareholders. So we are pleased to see that even in a time when things have been very dynamic around us that we can finance our vessels with strong support from our banks, and we can also generate excess liquidity so we can launch another share buyback. We've seen that as being a very good instrument in the past to return shares or capital to shareholders, and this is one that we'll keep prioritizing. So stay tuned, and thank you so much for listening in.

Wait one more second. It looks like we have a late addition to the Q&A. Climent, there he is. Your line is open.

Hi, team. Thank you for taking my questions. I wanted to delve a bit further into the TCE increase quarter-over-quarter. Was the bulk of the uplift attributable to solid performance on the spot market or was it mostly due to vessels on time charters being rolled at higher rates?

You're muted Oeyvind.

Yeah, hopefully. Mostly on the time charter market, Climent. The spot market was getting a little bit choppy leading into April. So generally attributed to time charters, which proves the point that also customers are viewing 2025 as being quite tight or tighter on ships. So that's just a reflection of that.

Right. That's helpful. And this one is more on the modeling side, but should we expect the co-pay payments on the Ethylene Export Terminal to provide a tailwind to the JV's contribution in the second quarter?

Yes, please proceed, Mads.

No, no. That will certainly be the case. The deficiency payments tend to vary from contract to contract. So it depends on which customer is, but typically, they will fall into the following quarter portion of it. So yes, you'll see a benefit or a positive impact from it.

That’s helpful. Thank you. Thank you for taking my questions.

Absolutely. Thanks for joining. All right. With that, we're out of time. Thanks again, and we look forward to seeing you all in August.