Flex LNG Ltd. Form 6-K Summary
Reporting period: Fourth quarter and year ended December 31, 2019. The February 2020 Form 6-K furnished unaudited interim financial information prepared under U.S. GAAP. Flex LNG operates a fleet of LNG carriers and its shares trade on the NYSE and Oslo Stock Exchange.
Financial Results and Key Metrics
| Metric | Q4 2019 | Q4 2018 | FY 2019 | FY 2018 |
|---|---|---|---|---|
| Vessel operating revenues | $52.0 million | $36.1 million | $120.0 million | $77.2 million |
| Operating income | $33.0 million | $21.5 million | $55.0 million | $29.0 million |
| Net income | $23.9 million | $15.2 million | $17.0 million | $11.8 million |
| Adjusted EBITDA | $41.9 million | $28.3 million | $83.6 million | $46.4 million |
| EPS, diluted | $0.44 | $0.30 | $0.31 | $0.29 |
| TCE rate | $94,000/day | $97,571/day | $63,475/day | $57,396/day |
- Calculated Q4 margins were approximately 63.4% operating income, 45.9% net income, and 80.6% adjusted EBITDA as a percentage of revenue.
- Calculated full-year margins were approximately 45.9% operating income, 14.1% net income, and 69.7% adjusted EBITDA as a percentage of revenue.
- Q4 net cash provided by operating activities was $37.3 million, compared with $23.5 million in Q4 2018 and $8.4 million in Q3 2019. Full-year operating cash flow was $51.5 million, compared with $35.7 million in 2018.
- Cash, restricted cash and cash equivalents were $129.1 million at December 31, 2019, up from $55.1 million at December 31, 2018.
- Total long-term debt was $778.8 million, including $34.6 million classified as current, compared with $455.0 million at year-end 2018. Total equity was $839.3 million.
- Q4 cash flow benefited from $49.3 million drawn under the revolving tranche of the $100 million facility. Q4 financing cash flow also included $8.6 million of debt repayment and $5.4 million of dividends paid.
Material Changes Versus Comparable Periods
- Q4 revenue increased 44.0% from Q4 2018 and 74.4% from Q3 2019, primarily reflecting stronger LNG freight-market conditions and the larger operating fleet.
- Q4 net income increased 56.6% from Q4 2018 and rose from $0.5 million in Q3 2019 to $23.9 million.
- Full-year revenue increased 55.4% and adjusted EBITDA increased 80.2% versus 2018. Full-year net income increased 44.0%.
- Q4 operating expenses increased with a full quarter of six vessels in operation and planned maintenance and training. Depreciation rose to $8.7 million from $6.9 million in Q4 2018.
- Interest expense increased to $11.1 million in Q4 from $6.5 million in Q4 2018, reflecting additional borrowings and a full quarter of interest on the Hyundai Glovis sale-and-charterback transaction.
- The company delivered Flex Constellation and Flex Courageous in June and August 2019, respectively. It ended the year with six vessels on the water and seven newbuildings under construction.
- During 2019, $363.5 million was capitalized to vessels and equipment, while year-end vessel purchase commitments totaled $937.0 million.
Guidance, Outlook, Risks and Unusual Items
- Based on fixtures through February 2020, management expected Q1 2020 TCE to be approximately $70,000 per day.
- Management cited a record warm winter, low gas prices and the coronavirus outbreak as factors causing a 2020 LNG-demand slump. Modern two-stroke LNG carrier freight rates were reported at approximately $50,000 per day at the end of February 2020.
- Management maintained the quarterly dividend at $0.10 per share to preserve liquidity. The dividend was declared February 25, 2020 and was expected to be paid around March 25, 2020.
- The company entered into a long-term charter for Flex Artemis with a period of up to ten years, including five firm years. Flex Ranger entered a 12-month charter with Endesa, and Flex Enterprise received a 12-month extension option, creating a firm period through the end of Q1 2021.
- In February 2020, the company signed a $629 million financing facility for five newbuildings scheduled for delivery in 2020. The facility is subject to customary conditions and includes financial covenants covering minimum equity ratio, positive working capital and minimum liquidity.
- Management expects long-term LNG trade growth of approximately 3% to 4% annually over the next two decades, but near-term results remain exposed to charter-rate volatility, vessel values, LNG demand, financing and refinancing availability, covenant compliance, interest rates, counterparty performance, vessel downtime, regulatory changes and geopolitical or shipping disruptions.
- Q4 results included a $1.6 million unrealized gain on interest-rate swaps. Full-year results included a $1.6 million unrealized derivative loss and a $3.4 million write-off of debt issuance costs related to refinancing.
Investor Verification Priorities
- Verify the timing and funding conditions for the $629 million newbuilding facility and the related vessel-delivery schedule.
- Assess liquidity and covenant headroom against $937.0 million of vessel purchase commitments and $785.9 million of gross long-term debt obligations.
- Monitor LNG freight rates, vessel utilization and the impact of coronavirus-related demand disruption on Q1 2020 and subsequent TCE.
- Review the sustainability of the $0.10 per-share dividend policy given capital requirements, debt service and market conditions.
- Confirm charter commencement dates, variable-rate provisions, extension options and counterparty exposure under the Clearlake/Gunvor, Endesa and Flex Enterprise arrangements.
- Reconcile non-GAAP TCE and adjusted EBITDA measures to U.S. GAAP results and compare definitions with other shipping companies.