Business Context and Reporting Period
This Form 6-K filing by Navigator Holdings Ltd. (NYSE: NVGS) reports preliminary financial results for the second quarter ended June 30, 2016, and the six months ended June 30, 2016. The Company is the owner and operator of the world's largest fleet of handysize liquefied gas carriers, transporting LPG, petrochemical gases, and ammonia. As of June 30, 2016, the fleet consisted of 31 vessels on the water, with a total of 38 vessels including six newbuildings scheduled for delivery by July 2017.
Key Financial Metrics
| Metric | Q2 2016 | Q2 2015 | YTD 2016 | YTD 2015 |
|---|---|---|---|---|
| Revenue | $72.5 million | $84.1 million | $148.9 million | $158.3 million |
| Net Income | $11.1 million | $27.4 million | $30.5 million | $50.5 million |
| Earnings Per Share (Diluted) | $0.20 | $0.49 | $0.55 | $0.91 |
| EBITDA | $34.2 million | N/A | N/A | N/A |
| Operating Cash Flow (YTD) | $39.0 million (vs. $67.6 million YTD 2015) | |||
| Cash and Equivalents | $66.9 million (as of June 30, 2016) | |||
| Total Debt (Current + Non-Current) | $526.1 million (as of June 30, 2016) |
Note: EBITDA is a non-GAAP measure. Q2 2015 EBITDA is not explicitly stated in the text but can be inferred from the income statement components if required, though not provided as a headline figure.
Material Changes vs. Prior Period
- Revenue Decline: Q2 2016 revenue decreased 13.8% compared to Q2 2015, driven by a significant weakening in the handysize LPG seaborne transportation market.
- Profitability Drop: Net income fell 59.4% year-over-year in Q2 2016, primarily due to lower charter rates and reduced vessel utilization.
- Operational Volume: The fleet loaded only 5 cargos in the first six months of 2016, compared to 11 in the same period in 2015.
- Charter Rates: Market charter rates for handysize semi-refrigerated vessels dropped from $920,000 per calendar month (pcm) in January 2016 to $625,000 pcm by the end of Q2 2016.
- Debt Structure: The current portion of long-term debt increased significantly from $59.0 million at year-end 2015 to $186.2 million at June 30, 2016, while non-current debt decreased.
Outlook, Risks, and Management Commentary
Market Conditions: Management reports a challenging pricing environment for propane and butane, narrowing global arbitrage spreads. There has been an increase in hydrocarbon supply, with LPG competing against light and heavy hydrocarbons. Significant cargo cancellations from U.S. origins were reported in June and July 2016, with similar levels expected for August.
Future Outlook: The Company expects market softness to continue for the remainder of 2016 due to the forward curve of hydrocarbon pricing and additional vessels entering the global fleet. However, management notes that rising U.S. LPG inventories may eventually create arbitrage opportunities.
Strategic Developments:
- On August 2, 2016, the Navigator Aurora, a midsize semi-refrigerated ethane vessel, was delivered and is scheduled to commence a ten-year time charter in December 2016.
- Trading patterns for handysize vessels are shifting toward long-haul transportation of petrochemical gases (ethylene and butadiene), which may help offset LPG market weakness.
Risks: Key risks include the ability to refinance indebtedness maturing in 2017, fluctuations in charter rates, currency and interest rate volatility, and the potential for further contract renegotiations or cancellations by end users.
Investor Verification Checklist
- Debt Maturity: Verify the Company's ability to refinance the significant portion of debt maturing in 2017 amidst current market softness.
- Utilization Rates: Monitor vessel utilization and charter rate trends, given the sharp decline in cargo volumes and rates in H1 2016.
- Newbuild Deliveries: Confirm the timing and charter status of the six remaining newbuildings scheduled for delivery by July 2017.
- Liquidity Position: Assess the impact of the $20.9 million decrease in cash and cash equivalents during the first half of 2016 on working capital.
- Market Arbitrage: Track U.S. LPG inventory levels and arbitrage spreads to gauge potential recovery in demand for handysize vessels.