Flex LNG Ltd. Form 6-K Summary
Business context and reporting period
Flex LNG is a Bermuda-based owner and operator of fuel-efficient, fifth-generation LNG carriers listed on the NYSE and Oslo Stock Exchange under “FLNG.” The filing presents unaudited U.S. GAAP interim results for the six months ended June 30, 2022, compared with the six months ended June 30, 2021. The Company operated 13 LNG carriers as of June 30, 2022 and August 25, 2022, primarily under long-term charters.
Key financial metrics
| Metric | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|
| Vessel operating revenues | $158.7 million | $147.1 million |
| Operating income | $86.8 million | $77.5 million |
| Operating margin | 54.7% | 52.7% |
| Net income | $100.0 million | $60.0 million |
| Net margin | 63.0% | 40.8% |
| Basic earnings per share | $1.88 | $1.12 |
| Net cash provided by operating activities | $94.6 million | $91.2 million |
| Cash, cash equivalents and restricted cash at period-end | $283.7 million | $144.2 million |
| Net outstanding debt | $1.709 billion | The filing does not provide a comparable net debt value for June 30, 2021 |
Total debt was $1.727 billion at June 30, 2022, including $75.5 million classified as current debt. Total equity was $909.9 million, and vessels and equipment, net, were $2.306 billion.
Material changes versus the prior comparable period
- Revenue increased $11.6 million, or approximately 7.9%, primarily because Flex Vigilant contributed more available days and a greater portion of the fleet operated under long-term fixed-rate charters.
- Operating income increased $9.3 million. Vessel operating expenses were essentially unchanged at $29.7 million, while depreciation increased $2.5 million because the fleet expanded from 10 to 13 vessels during 2021.
- Net income increased $40.1 million. The principal contributor was a $46.4 million derivative gain, compared with $10.2 million in the prior period, reflecting higher interest rates and increased fair values of interest-rate swaps.
- Interest expense increased $3.0 million to $30.5 million due to higher debt levels, fleet expansion and increased SOFR and LIBOR rates. The Company also recorded a $1.7 million write-off of debt issuance costs related to terminated or refinanced facilities.
- Operating cash flow increased $3.4 million to $94.6 million. Investing cash outflows fell to essentially zero because there were no newbuilding deliveries in 2022, compared with $266.2 million of investing outflows in 2021.
- Financing cash flow was a $12.1 million use of cash, compared with $190.2 million provided in the prior period. The 2022 activity included $79.7 million of dividends, $451.998 million of debt prepayments and $320.0 million of new long-term debt proceeds.
Guidance, outlook, risks and unusual items
- The Company did not provide explicit financial guidance in the filing.
- During 2022, Flex LNG entered into or announced multiple fixed-rate charters: Flex Volunteer and Flex Aurora with Cheniere, Flex Amber and Flex Enterprise with a supermajor, and Flex Rainbow with a large global trading company. The charters extend through 2026 to 2029 or 2033, depending on the vessel.
- The $375 million secured facility was used to refinance vessels and included a $125 million term tranche, a $250 million revolving tranche and an option to add up to $125 million for another vessel. The $320 million sale-and-leaseback financing for Flex Constellation and Flex Courageous generated $317.1 million of net proceeds after financing costs.
- At June 30, 2022, the Company had fixed the interest rate on approximately $849.7 million of amortized notional debt through swaps. It remained exposed to interest-rate risk on the unhedged portion of floating-rate debt and to the transition away from LIBOR.
- Management reported compliance with all financial covenants at June 30, 2022. Covenants include minimum book equity, positive working capital, minimum liquidity and collateral maintenance requirements. Breaches could restrict dividends, accelerate debt repayment or permit enforcement of vessel security.
- An out-of-period adjustment increased 2022 net income by $2.9 million to correct prior technical ship-management fee overstatements from 2020 and 2021. Management concluded the errors were not material to previously issued financial statements or expected full-year 2022 results.
- Risks include LNG charter-rate volatility, spot-market exposure, higher interest rates, refinancing and liquidity risk, vessel operations and dry-docking, environmental regulation and energy transition, geopolitical disruption from the Russia-Ukraine war, COVID-19-related operational effects, sanctions, supply-chain disruption and counterparty performance.
- Subsequent to quarter-end, Flex Enterprise was redelivered to the Company and was unencumbered as of the filing date. Flex Endeavour was scheduled for redelivery in September 2022, with an expected $125 million draw under the term tranche of the $375 million facility.
- On August 23, 2022, the Board declared a regular dividend of $0.75 per share and a special one-time dividend of $0.50 per share, both payable around September 13, 2022, subject to the stated record-date requirements and applicable restrictions.
Most important facts for investors to verify
- Whether the fixed-rate charter coverage and vessel redeliveries support revenue stability as existing charters expire.
- The Company’s debt maturity profile, available revolving capacity, covenant headroom and ability to refinance or repay debt as interest rates rise.
- The sustainability of dividends, including the regular and special dividends declared after June 30, 2022, given leverage and contractual restrictions.
- The extent to which reported net income depends on non-cash derivative gains rather than recurring charter operations.
- Exposure to spot and variable-rate charters, LNG shipping rates, vessel values and counterparty credit risk.
- The financial and operational effects of LIBOR discontinuation, SOFR-based financing, environmental rules and the transition away from fossil fuels.
- The impact of the $2.9 million out-of-period accounting adjustment and the related conclusion that prior-period errors were not material.