Navigator Holdings Ltd. Form 6-K Summary
Business Context and Reporting Period
This report covers the three and six months ended June 30, 2019. Navigator Holdings Ltd. is the owner and operator of the world's largest fleet of handysize liquefied gas carriers, transporting petrochemical gases, LPG, and ammonia. As of June 30, 2019, the fleet consisted of 38 vessels. The company is also a 50% partner in the Export Terminal Joint Venture, constructing an ethylene export marine terminal in Texas.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2019 |
|---|---|---|
| Operating Revenue | $73,586 | $149,689 |
| Operating Income | $4,360 | $12,573 |
| Net Loss | $(7,733) | $(10,990) |
| Operating Cash Flow | N/A | $16,737 |
| Cash and Cash Equivalents | $47,285 (as of June 30, 2019) | $47,285 (as of June 30, 2019) |
| Total Debt (Principal) | $692,026 (Secured Term Loans) | $692,026 (Secured Term Loans) |
| Senior Bonds Outstanding | $100,000 (2017 Unsecured) + ~$71.7M (2018 Secured) | $100,000 (2017 Unsecured) + ~$71.7M (2018 Secured) |
Key Operational Metrics (6 Months):
- Fleet Utilization: 85.0% (down from 91.0% in 2018).
- Average Daily TCE Rate: $20,864 (up from $19,641 in 2018).
- Investment in Joint Venture: $93,814 (as of June 30, 2019).
Material Changes vs. Prior Period
- Revenue: Operating revenue for the six months decreased 0.8% to $149.7 million. This was driven by a decrease in fleet utilization (91.0% to 85.0%) and fewer available days due to drydocking, partially offset by higher average charter rates and increased pass-through voyage costs.
- Profitability: Operating income declined 34.8% to $12.6 million for the six months. Net loss widened significantly to $11.0 million (from $2.5 million in 2018) due to higher interest expenses, foreign exchange losses on bonds, and the joint venture expense.
- Expenses: Vessel operating expenses increased 7.9% due to higher costs for older vessels, drydocking, and unplanned repairs. Interest expense rose 11.4% primarily due to the 2018 Bonds and new term loans, partially offset by capitalized interest for the terminal project.
- Liquidity: Cash and cash equivalents decreased from $71.5 million to $47.3 million. Current liabilities exceeded current assets by $2.0 million, a position the company states is covered by undrawn credit facilities.
Guidance, Outlook, and Risks
Outlook: Management anticipates the handysize market will improve later in 2019 as the Very Large Gas Carrier (VLGC) and Medium-size Gas Carrier (MGC) sectors tighten. The Marine Export Terminal is expected to begin commercial operations in Q4 2019.
Management Commentary: The handysize market faced headwinds from increased supply (vessels released from Venezuelan cabotage) and reduced demand due to European chemical plant turnarounds. However, spot rates in larger sectors have risen, which is expected to eventually benefit the handysize segment.
Risks and Contingencies:
- Market Risk: Exposure to interest rate fluctuations (LIBOR) and foreign currency exchange rates (NOK, EUR, GBP).
- Regulatory/Compliance: Three vessels were named in a U.S. Treasury OFAC advisory regarding potential ship-to-ship transfers to sanctioned areas (Syria).
- Capital Requirements: Significant capital contributions remain for the Marine Export Terminal ($32.5 million expected in 2019 and $19.5 million in 2020).
- Dividend Restrictions: Covenants on secured term loans and bonds restrict dividend payments until December 31, 2020.
Investor Verification Checklist
- Joint Venture Progress: Verify the timeline and funding status of the Marine Export Terminal, including the $12.5 million contribution made in July 2019.
- OFAC Advisory: Assess the potential impact of the OFAC advisory naming three vessels on future chartering and insurance costs.
- Debt Covenants: Confirm continued compliance with liquidity and interest coverage ratios, particularly given the net current liability position.
- Market Recovery: Monitor the correlation between rising VLGC/MGC rates and the anticipated recovery in handysize spot rates.
- Subsequent Events: Review the October 2019 sale and leaseback of the Navigator Aurora and the amendment to the 2017 Bond covenants.