SFL Corporation Ltd. Q2 2024 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated August 14, 2024, reports preliminary financial results for SFL Corporation Ltd. for the quarter ended June 30, 2024. SFL is a Bermuda-based maritime asset owner and operator specializing in container vessels, car carriers, tankers, dry bulk carriers, and offshore drilling rigs. The company operates primarily on long-term time charters to high-quality customers.
Key Financial Metrics
- Revenue: Total U.S. GAAP operating revenues were $190.9 million. Total charter hire received (including non-GAAP items) was $198.8 million.
- Profitability: Net income was $20.6 million ($0.16 per share). Adjusted EBITDA was $123.3 million from consolidated subsidiaries and $7.8 million from associated companies.
- Cash Flow: Net cash provided by operating activities was $124.4 million. Net cash used in investing activities was $115.6 million.
- Liquidity: Cash and cash equivalents totaled $186.1 million as of June 30, 2024. Unencumbered vessels and marketable securities exceeded $180 million.
- Debt: Short-term and current portion of long-term interest-bearing debt was $571.0 million. Long-term interest-bearing debt was $1.71 billion. Finance lease liabilities totaled $391.6 million (current) and $552.9 million (long-term).
- Dividend: The Board declared a quarterly cash dividend of $0.27 per share, marking the 82nd consecutive quarterly dividend.
Material Changes vs. Prior Period
- Revenue Decline: Operating revenues decreased to $190.9 million from $229.1 million in Q1 2024. This decrease is primarily attributed to the drilling rig Hercules being in mobilization mode for half the quarter and the rig Linus undergoing a special survey.
- Net Income Drop: Net income fell to $20.6 million from $45.3 million in Q1 2024, driven by lower operating revenues and non-recurring items including a $0.4 million loss on bond buybacks.
- Operating Cash Flow Increase: Despite lower net income, operating cash flow increased significantly to $124.4 million from $63.0 million in Q1 2024, reflecting the timing of cash receipts versus accrual accounting.
- Asset Growth: The company delivered the newbuild LR2 product tanker SFL Tucana and the LNG dual-fuel chemical tanker SFL Aruba (subsequent to quarter end).
Guidance, Outlook, and Management Commentary
Management highlighted a strong growth strategy, adding over $2 billion to the charter backlog in 2024. The fixed-rate charter backlog now stands at approximately $4.9 billion with a weighted remaining term of 6.7 years.
- New Orders: SFL ordered five new LNG dual-fuel 16,800 teu container vessels for delivery in 2028 at a cost of ~$1 billion. These vessels are secured with 10-year time charters, adding ~$1.2 billion to the backlog.
- Recent Charters: Secured five-year charters for seven existing container vessels with Maersk, adding ~$485 million to the backlog.
- Capital Markets: Subsequent to quarter end, SFL issued 8 million common shares in a U.S. public offering, raising $100 million in gross proceeds.
- Outlook: The company expects newbuild yard prices to remain elevated (30-40% increase over recent years) due to inflation. Management emphasizes the value of owning modern, fuel-efficient assets to capture future value and reduce carbon footprint.
- Risks: Risks include cyclical market conditions, fluctuations in charter rates and vessel values, geopolitical instability affecting shipping routes, and potential delays in newbuild deliveries.
Investor Verification Checklist
- Verify the impact of the drilling rig survey and mobilization costs on Q3 2024 revenue recognition, as Q2 results were suppressed by these timing factors.
- Confirm the funding structure for the $1 billion newbuild order for five container vessels, specifically the mix of cash and debt financing.
- Review the details of the $100 million equity offering completed in July 2024 and its dilution effect on earnings per share.
- Monitor the delivery schedule and charter commencement dates for the remaining newbuild tankers and the five new container vessels.
- Assess the credit quality of charterers, particularly given the company's exposure to long-term contracts with specific liner and energy companies.