Navigator Holdings Ltd. — FY 2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. This is an annual filing, not a standalone fourth-quarter report; the filing text does not provide clear Q4-only results. Figures are in U.S. dollars unless noted.
Business context
Navigator owns and operates gas carriers transporting LPG, petrochemical gases and ammonia. At year-end it reported a 38-vessel fleet and a 50% interest in a joint venture with Enterprise Products Partners to build an ethylene export terminal at Morgan’s Point, Texas.
Key financial metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Operating revenue | $310.0 million | $298.6 million |
| Operating income | $41.5 million | $47.2 million |
| Operating margin | 13.4% | 15.8% |
| Net income (loss) | ($5.7) million | $5.3 million |
| Basic and diluted EPS | ($0.10) | $0.10 |
| EBITDA / Adjusted EBITDA | $114.8 million / $117.6 million | $120.8 million / $120.8 million |
| Cash from operating activities | $77.5 million | $75.9 million |
| Cash from investing activities | ($42.3) million | ($183.0) million |
| Cash from financing activities | ($25.8) million | $111.9 million |
| Cash and cash equivalents at year-end | $71.5 million | $62.1 million |
EBITDA and Adjusted EBITDA are non-GAAP measures and should not be treated as cash available for discretionary spending. Operating revenue less voyage expenses was $248.4 million; average TCE was $20,284 per day versus $21,018 in 2017. Fleet utilization improved to 89.0% from 87.6%.
At December 31, 2018, total assets were $1.833 billion, total liabilities $877.6 million and stockholders’ equity $955.1 million. Secured term loans and revolving credit facilities had $675.7 million principal outstanding, with $55.0 million of undrawn capacity. The company also had $100 million of 7.75% senior unsecured bonds and NOK 600 million (approximately $71.7 million) of senior secured bonds. Cash plus undrawn facility capacity was approximately $126.5 million; required liquidity under bank facilities was approximately $42.4 million.
Changes versus FY 2017
- Revenue increased 3.8%, principally from a larger average fleet (38.0 vessels versus 36.2) and improved utilization. Lower TCE rates, attributed mainly to a weak LPG market, partly offset these gains.
- Operating expenses rose 6.8% to $268.6 million. Higher voyage expenses largely reflected increased voyage activity and were described as pass-through costs; vessel operating costs, depreciation and G&A also increased.
- Operating income fell 12.1%; net income swung to a $5.7 million loss. Interest expense rose 19.2% to $44.9 million, primarily due to higher U.S. LIBOR.
- Investing outflows declined sharply as the newbuilding program ended; 2018 investing outflows primarily reflected $41.0 million contributed to the terminal joint venture.
- Navigator adopted ASC Topic 606 in 2018 using the modified retrospective method. It recorded a $3.4 million adjustment to opening equity, and 2017 comparatives were not restated. The filing estimates that without the new standard, 2018 revenue would have been $308.8 million and net loss $6.8 million.
Outlook, commentary and risks
- Management expected the terminal to begin commercial operations in Q4 2019, with refrigerated storage completion expected in late 2020. Planned capacity is about one million tons of ethylene annually. These are forward-looking expectations, not reported outcomes.
- The company expected to contribute approximately $155 million toward terminal construction. It had contributed $41.0 million by year-end 2018 and made further contributions totaling $31.5 million in January–March 2019. A $75 million terminal construction facility was entered into in March 2019; borrowing is subject to conditions.
- Management said cash forecasts for the following 12 months were expected to be sufficient to meet liquidity needs. The filing also reports a March 2019 $107 million secured term loan to refinance four vessels, generating $31.4 million net proceeds for general corporate purposes.
- Charter markets are cyclical; 16 vessels were exposed to the spot market at year-end. Revenue concentration is material, and charter expirations and rate changes can affect earnings and cash flow. The filing contains inconsistent customer concentration figures: one passage reports three customers at 45.4% of 2018 revenue, while others report four customers at 55.1%.
- Other key risks include floating-rate debt and covenant requirements, vessel values and collateral coverage, drydocking and regulatory costs, customer concentration, sanctions and geopolitical exposure, and construction, financing and operating risks for the terminal. The company ceased operations with PDVSA following sanctions in February 2019.
- No impairment was recorded for vessels at year-end, although aggregate vessel carrying value exceeded shipbroker appraisals by approximately $205.3 million. Management’s impairment test relied on estimates of future rates, utilization, expenses and residual values.
- The company reported no current plans to pay common-stock dividends in the near term. Secured facility amendments restrict dividends through December 31, 2020; bond agreements also impose dividend limits.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of year-end.
Important facts for investors to verify
- Reconcile the filing’s conflicting 2018 customer-concentration disclosures and confirm the correct customer count and revenue share.
- Review current vessel employment, charter expirations, spot exposure and realized TCE rates against the reported year-end fleet mix.
- Track terminal construction, permits, committed throughput, remaining equity contributions, facility draw conditions and actual commencement timing.
- Assess debt maturities, floating-rate exposure, collateral valuations, covenant headroom and the effect of the 2019 refinancing and terminal financing.
- Evaluate the assumptions supporting vessel impairment tests and the gap between carrying values and broker appraisals.
- Confirm the realized effect of ASC 606 and subsequent accounting and reporting changes, including lease accounting adopted in 2019.