Navigator Holdings Ltd. Form 6-K Summary
Business Context and Reporting Period
This report covers the three and nine months ended September 30, 2018. Navigator Holdings Ltd. is the owner and operator of the world's largest fleet of handysize liquefied gas carriers, transporting petrochemical gases, LPG, and ammonia. As of September 30, 2018, the fleet consisted of 38 vessels. The company is also a 50% partner in a joint venture to construct an ethylene export marine terminal in Texas, expected to begin commercial operations in Q4 2019.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2018 |
|---|---|---|
| Operating Revenue | $80,843 | $231,813 |
| Operating Income | $11,572 | $30,856 |
| Net Income (Loss) | $623 | $(1,840) |
| Operating Cash Flow | N/A | $55,774 |
| Cash and Cash Equivalents | $50,458 | $50,458 |
| Total Debt (Principal) | $729,800 | $729,800 |
| Available Borrowing Capacity | $20,000 | $20,000 |
| Fleet Utilization | 87.5% | 89.8% |
| Avg. Daily TCE Rate | $20,987 | $20,083 |
Material Changes vs. Prior Period
- Revenue Growth (Q3): Operating revenue increased 15.1% to $80.8 million in Q3 2018 compared to Q3 2017, driven by a larger fleet (38.0 vs. 36.8 vessels), higher utilization (87.5% vs. 85.0%), and increased pass-through voyage costs. A new revenue accounting standard (ASU 2014-09) also contributed to reported revenue increases.
- Profitability Shift (9 Months): While Q3 2018 returned to profitability ($0.6M net income), the nine-month period resulted in a net loss of $1.8 million, compared to a net income of $3.9 million in the same period in 2017. This decline was primarily due to a decrease in average charter rates (TCE dropped to $20,083/day from $21,170/day) and higher interest expenses.
- Expense Increases: Interest expense rose 18.6% year-over-year for the nine months ended September 30, 2018, largely due to increases in U.S. LIBOR. Voyage expenses increased 13.2% due to higher bunker costs, though these are largely pass-through costs.
- Balance Sheet: Current liabilities exceeded current assets by $5.7 million as of September 30, 2018, primarily due to cash outflows for the Export Terminal Joint Venture investment.
Guidance, Outlook, and Risks
- Market Outlook: Management notes a firming in utilization and positive sentiment due to a reducing orderbook and new infrastructure projects (e.g., Mariner East II pipeline). Q3 saw new time charters and a 30% rate increase on a renewal with Algeria's state oil company.
- Capital Projects: The company is investing heavily in the Marine Export Terminal Joint Venture. As of September 30, 2018, $25.0 million had been contributed toward a $155.0 million share. An additional $11.0 million was contributed in November 2018 using proceeds from new bonds.
- Debt Financing: On November 2, 2018, the company issued $72.0 million (600 million NOK) in senior secured bonds to finance the terminal. Dividends are restricted until December 31, 2020, under amended bank covenants.
- Risks: Key risks include fluctuations in charter rates, bunker costs, interest rates (LIBOR exposure), and foreign currency exchange rates. The company faces significant capital expenditure requirements for drydocking and the terminal construction.
Investor Verification Checklist
- Verify the impact of the new revenue recognition standard (ASU 2014-09) on reported revenue and retained earnings adjustments.
- Monitor the progress and capital drawdown schedule for the Marine Export Terminal Joint Venture, including the $130 million remaining committed contribution.
- Track the company's compliance with debt covenants, specifically the EBITDA to Interest ratio (amended to 2.0x through 2020) and minimum liquidity requirements ($25 million).
- Assess the sustainability of the Q3 2018 profitability given the nine-month net loss and the pressure on average charter rates in the LPG market.
- Review the schedule of vessel drydocking requirements and associated capital costs as the fleet ages.