Flex LNG Ltd. — Form 6-K Summary
Business Context and Reporting Period
Flex LNG is a Bermuda-based owner and commercial operator of fuel-efficient, fifth-generation LNG carriers listed on the NYSE and Oslo Stock Exchange. The filing presents unaudited U.S. GAAP interim results for the six months ended June 30, 2023, compared with the six months ended June 30, 2022. The company operated 13 LNG carriers as of June 30, 2023.
Key Financial Metrics
| Metric | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Change |
|---|---|---|---|
| Vessel operating revenues | $179.2 million | $158.7 million | +$20.5 million |
| Operating income | $103.2 million | $86.8 million | +$16.4 million |
| Operating margin | 57.6% | 54.7% | +2.9 percentage points |
| Net income | $55.5 million | $100.0 million | -$44.5 million |
| Net margin | 31.0% | 63.0% | -32.0 percentage points |
| Basic earnings per share | $1.03 | $1.88 | -$0.85 |
| Net cash from operating activities | $74.6 million | $94.6 million | -$20.0 million |
| Cash, cash equivalents and restricted cash | $449.9 million | $283.7 million | +$166.2 million |
| Net outstanding debt | $1.864 billion | Not clearly provided for the comparable period | Not clearly provided |
Operating expenses included voyage expenses of $1.0 million, vessel operating expenses of $33.0 million, administrative expenses of $6.1 million and depreciation of $35.9 million. Interest expense increased to $53.5 million from $30.5 million, primarily due to higher floating interest rates and increased debt.
Net income was reduced by a $10.2 million extinguishment-of-debt charge, including an $8.8 million write-off of unamortized debt issuance costs and $1.4 million of direct exit costs. Gain on derivatives was $14.3 million, compared with $46.4 million in the prior-year period, reflecting a substantially lower unrealized gain on interest-rate swaps.
Cash generated by operations was $74.6 million. Financing activities provided $43.6 million, including new debt and lease-financing proceeds, partly offset by debt prepayments, scheduled repayments, financing costs and $93.9 million of dividend payments. Four vessels underwent scheduled drydockings, with $20.7 million of drydocking expenditure.
Material Changes Versus the Prior Comparable Period
- Revenue increased 12.9%, driven by a greater proportion of the fleet on improved longer-term fixed-rate contracts and stronger spot-market conditions affecting Flex Artemis.
- Revenue growth was partly offset by 77.3 off-hire days associated with four scheduled drydockings.
- Operating income increased, and operating margin improved, despite higher vessel operating and administrative expenses.
- Net income declined sharply because higher interest expense, lower derivative gains and debt-extinguishment costs more than offset the increase in operating income.
- Interest income increased to $3.0 million from $0.3 million because of higher deposit rates.
- Cash and restricted cash increased to $449.9 million from $332.4 million at December 31, 2022, while total debt increased to $1.879 billion from $1.733 billion on a gross carrying-value basis.
- The company refinanced or restructured several facilities during 2023, including the $330 million sale-and-leaseback, $290 million facility, and $180 million Flex Rainbow sale-and-leaseback.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide quantitative earnings or revenue guidance. Management stated that the business remains focused on operating its long-term charters and pursuing accretive growth opportunities. In August 2023, Cheniere exercised its first option on Flex Vigilant, extending the firm charter period by 200 days to June 2031. No vessels remained scheduled for drydock in 2023; two were scheduled for 2024, four for 2025 and three for 2026.
Management highlighted increased short- and long-term interest rates, which raise the cost of floating-rate debt but have also generated significant mostly unrealized gains on interest-rate swaps. The company had fixed rates on $820.0 million of amortized swap notional, including $660.0 million based on SOFR and $160.0 million based on LIBOR-related terms.
As of June 30, 2023, the company was in compliance with all financial covenants. Key requirements include a minimum book equity ratio of 0.20 to 1.0, positive working capital, minimum liquidity and vessel collateral maintenance tests. Breaches could restrict dividends, accelerate debt repayment or permit lenders to enforce security over vessels and other assets.
Principal risks include LNG charter-rate and vessel-value volatility, customer and counterparty performance, high leverage and refinancing needs, floating interest rates, drydock costs and off-hire periods, vessel accidents, geopolitical disruptions including the Russia-Ukraine war, sanctions, environmental regulation, energy-transition risks, port or canal congestion, cybersecurity threats and potential restrictions on dividend payments.
Subsequent to quarter-end, the board declared a second-quarter 2023 cash dividend of $0.75 per share, payable around September 5, 2023, subject to the stated record and ex-dividend dates and board discretion.
Important Facts for Investors to Verify
- Confirm the composition, duration and counterparty exposure of the company’s long-term charter backlog.
- Reconcile gross debt, net debt, lease liabilities, scheduled amortization and balloon payments with the company’s liquidity and covenant requirements.
- Assess sensitivity of earnings and cash flow to SOFR, remaining unhedged floating-rate debt and the expiration of interest-rate swaps.
- Review the economic terms, repurchase options and covenant restrictions associated with the 2023 sale-and-leaseback transactions.
- Evaluate the effect of planned 2024–2026 drydockings on off-hire days, maintenance spending and operating cash flow.
- Verify the sustainability of dividends against operating cash flow, debt service, capital requirements and contractual restrictions.
- Monitor LNG charter rates, vessel values, geopolitical developments and environmental or energy-transition regulation.