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.” This unaudited Form 6-K reports results for the three months ended March 31, 2022, prepared under U.S. GAAP. The company operated 13 LNG carriers as of March 31, 2022, primarily under long-term time charters, with additional exposure to spot and market-indexed contracts.
Financial performance and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Vessel operating revenue | $74.6 million | $81.3 million | Down $6.7 million |
| Operating income | $38.4 million | $47.8 million | Down $9.4 million |
| Operating margin | Approximately 51.4% | Approximately 58.8% | Down approximately 7.4 percentage points |
| Net income | $55.8 million | $47.2 million | Up $8.5 million |
| Net margin | Approximately 74.8% | Approximately 58.1% | Up approximately 16.7 percentage points |
| Basic and diluted EPS | $1.05 | $0.88 | Up $0.17 |
| Net cash from operating activities | $42.5 million | $43.9 million | Down $1.4 million |
Revenue declined because of weaker spot-market conditions, affecting three market-linked vessels and approximately 1.5 vessels trading in the spot and short-term time-charter markets. The larger fleet and improved average fixed charter rates partially offset this decline.
Operating expenses included a $2.9 million out-of-period adjustment that increased Q1 2022 net income. Management stated that the adjustment corrected prior overstatements of technical ship-management fees for 2020 and 2021 and was not material to previously issued financial statements or expected full-year 2022 results.
Interest expense increased to $14.6 million from $13.5 million, primarily due to the larger fleet and higher average LIBOR rates. A $31.9 million gain on derivatives, compared with $12.9 million in the prior-year period, substantially increased pretax and net income. The derivative gain reflected higher interest rates and increased fair values of interest-rate swaps.
Cash, cash equivalents and restricted cash totaled $174.5 million at March 31, 2022, down from $201.2 million at December 31, 2021. Operating cash flow of $42.5 million was offset by $69.1 million of financing cash outflows, including $39.8 million of dividends and $28.6 million of scheduled debt repayments. Investing cash flow was approximately zero.
Total debt was $1.623 billion at March 31, 2022, compared with $1.652 billion at December 31, 2021. Long-term debt was $1.523 billion, while current debt was approximately $81.8 million before related presentation adjustments. Net outstanding variable-rate debt after interest-rate swaps was reported at $1.605 billion. The company had fixed the interest rate on $876.3 million of amortized swap notional at a weighted average fixed rate of 1.25% and a weighted average duration of 4.6 years.
Total equity was $905.4 million, and vessels and equipment had a net book value of $2.324 billion at March 31, 2022. The company reported compliance with all financial covenants, including minimum book equity, positive working capital, minimum liquidity and collateral-maintenance requirements.
Material changes and subsequent events
- In March 2022, Flex LNG signed a $375 million secured term and revolving facility to refinance vessels Flex Endeavour, Flex Ranger and Flex Rainbow. The facility includes a $125 million term loan, a $250 million revolving facility, an accordion option of up to $125 million and pricing of SOFR plus 210 basis points.
- In April 2022, the company drew $125 million under the new facility and prepaid the $100 Million Facility and the Flex Rainbow sale-and-leaseback obligations. The remaining $113.6 million, after financing costs, was paid from cash; the $125 million revolving commitment remained available for general corporate purposes.
- In April 2022, Flex LNG signed $320 million of sale-and-leaseback agreements for Flex Constellation and Flex Courageous. The transactions closed in May 2022, generating net proceeds of $317.1 million, of which $217.2 million was used to repay the existing $250 Million Facility.
- An amendment to the Cheniere Marketing International charter nominated Flex Volunteer as the fourth vessel and accelerated commencement to April 2022, with a fixed-rate firm period through the first quarter of 2026.
- Cheniere exercised an option for a fifth time charter covering Flex Aurora, commencing in the third quarter of 2022 with a fixed-rate firm period through the first quarter of 2026.
- The board declared a first-quarter 2022 cash dividend of $0.75 per share, payable on or around June 7, 2022, to shareholders of record on May 25, 2022.
- In April 2022, 15,000 share options were exercised and settled using 12,491 treasury shares. On May 10, 2022, the company granted 50,000 management options with a $25.00 exercise price, a five-year term and three-year vesting schedule.
Outlook, risks and unusual items
The filing does not provide specific earnings or revenue guidance. Management emphasizes a strategy of balanced vessel employment across term and spot markets. Results remain sensitive to LNG carrier charter rates, vessel availability, LNG supply and demand, and the ability to secure employment after current charters expire.
Key risks include weaker or volatile spot and short-term charter rates, higher interest rates, refinancing and liquidity requirements, covenant breaches, vessel values and collateral maintenance, dry-docking and operating costs, crew-change restrictions, COVID-19 effects, supply-chain disruption, port and canal congestion, cyber and operational risks, environmental regulation and the Russo-Ukrainian war. The company stated that its charter contracts had not been affected by the conflict as of the filing date, but future effects remain uncertain.
Interest-rate exposure is partly hedged through swaps, but the company remains exposed to floating-rate debt, LIBOR discontinuation and the transition to SOFR. The filing also identifies credit concentration with several major banks and unhedged currency exposure from expenses denominated in GBP, CHF and NOK.
Investor verification checklist
- Verify the effect of the $2.9 million out-of-period adjustment on comparable operating expenses, earnings and trend analysis.
- Reconcile reported net income and EPS with the substantial $31.9 million derivative gain and assess the recurring versus nonrecurring components.
- Confirm completion, proceeds and debt effects of the $375 million refinancing and $320 million sale-and-leaseback transactions.
- Review debt maturities, sale-and-leaseback balloon payments, covenant headroom and minimum liquidity requirements.
- Assess exposure to spot and market-indexed charters, including the timing of charter expirations and extension options.
- Confirm the declared $0.75 per-share dividend and its consistency with cash generation and financing covenants.
- Monitor SOFR transition, floating-rate debt costs and the effectiveness and fair-value volatility of interest-rate swaps.
- Review the impact of LNG shipping rates, vessel values, geopolitical events, environmental rules and operational disruptions on future results.