Business Context and Reporting Period
Navigator Holdings Ltd. (NYSE: NVGS), a foreign private issuer, filed this Form 6-K on November 8, 2017, to report preliminary financial results for the third quarter ended September 30, 2017. The Company operates the world's largest fleet of handysize liquefied gas carriers, transporting LPG, petrochemical gases, and ammonia.
Key Financial Metrics
Quarter Ended September 30, 2017 (Three Months):
- Operating Revenue: $70.2 million
- EBITDA: $27.1 million
- Net Loss: $1.1 million ($0.02 loss per share)
- Operating Income: $8.3 million
- Interest Expense: $9.4 million
Balance Sheet Position (as of September 30, 2017):
- Total Assets: $1.81 billion
- Cash and Cash Equivalents: $35.1 million
- Short-term Investments: $25.0 million
- Total Liabilities: $848.6 million
- Stockholders' Equity: $961.8 million
Cash Flow (Nine Months Ended September 30, 2017):
- Net Cash Provided by Operating Activities: $52.0 million
- Net Cash Used in Investing Activities: $(150.6) million
- Net Cash Provided by Financing Activities: $76.5 million
Material Changes vs. Prior Period
Compared to the three months ended September 30, 2016:
- Revenue: Increased slightly from $69.7 million to $70.2 million.
- Profitability: Operating income declined significantly from $14.6 million to $8.3 million, resulting in a net loss of $1.1 million compared to a net income of $6.5 million in the prior year quarter.
- Expenses: Total operating expenses rose from $55.2 million to $61.9 million, driven by higher vessel operating expenses ($25.1 million vs. $22.1 million) and depreciation ($18.8 million vs. $15.8 million).
- Interest Costs: Interest expense increased to $9.4 million from $8.0 million.
For the nine-month period, net income dropped from $37.0 million in 2016 to $3.9 million in 2017, largely due to one-time charges including the write-off of deferred financing costs ($1.3 million) and redemption charges on unsecured bonds ($3.5 million).
Outlook, Commentary, and Risks
Management Commentary and Strategic Moves:
- Fleet Expansion: The Company took delivery of two new vessels: Navigator Jorf (38,000 cbm fully-refrigerated) on July 20, 2017, and Navigator Prominence (37,300 cbm semi-refrigerated) on November 8, 2017. The latter was partially financed by a $51.2 million drawdown from a bank loan facility.
- Charter Strategy: Spot revenue remained heavily focused on petrochemicals (96% of spot revenue). Management noted a lack of LPG arbitrage in the summer of 2017 but achieved charter rates at a premium to the general market due to a mixed portfolio strategy.
- Joint Venture: Strong demand continues for the proposed ethylene marine export terminal on the Houston Ship Channel in a joint venture with Enterprise Product Partners L.P.
- Contract Renewals: Discussions are underway to renew charters for at least eight vessels with contracts maturing in the coming months.
Risks and Contingencies:
- Forward-looking statements are subject to risks including fluctuations in charter rates, currency and interest rate volatility, and the ability to refinance indebtedness.
- Success of the proposed Houston Ship Channel terminal depends on securing long-term customer commitments and financing.
- Operational risks include vessel availability, drydocking requirements, and potential litigation.
Investor Verification Checklist
- Verify the impact of the $51.2 million new loan drawdown on future interest expense and debt covenants.
- Confirm the status of contract renewals for the eight vessels with maturing charters to assess future revenue stability.
- Monitor the progress of the Houston Ship Channel joint venture, specifically regarding customer commitments and financing closure.
- Review the reconciliation of EBITDA to net income to understand the magnitude of non-cash charges (depreciation) and interest costs.
- Assess the liquidity position given the decrease in cash and cash equivalents from $57.3 million (Dec 2016) to $35.1 million (Sep 2017) amidst significant capital expenditures.