Navigator Holdings Ltd. annual report, Q4 FY2020

Navigator Holdings Ltd. — FY2020 Form 20-F

Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 filing. Financial statements are prepared under U.S. GAAP and reported in U.S. dollars. Navigator owns and operates a 38-vessel liquefied-gas fleet and holds a 50% interest in an ethylene export-terminal joint venture.

Financial and operating performance

Metric	FY2020	FY2019
Total operating revenue, including Luna Pool	$332.5 million	$301.4 million
Operating revenue, excluding Luna Pool	$319.7 million	$301.4 million
Operating income	$41.8 million	$32.6 million
Net income (loss)	$1.3 million	$(16.6) million
Net income (loss) attributable to Navigator shareholders	$(0.4) million	$(16.7) million
Basic and diluted EPS	$(0.01)	$(0.30)
Net cash from operating activities	$44.7 million	$49.7 million
Net cash used in investing activities	$16.2 million	$90.4 million
Net cash used in financing activities	$35.4 million	Net cash provided: $35.3 million
Cash, cash equivalents and restricted cash at year-end	$59.3 million	$66.1 million

Revenue including Luna Pool rose 10.3%; revenue excluding pool arrangements increased 6.1%. Operating income grew 28.0%. Operating margin was approximately 12.6%, versus 10.8% in 2019.
Operating revenue growth reflected higher average TCE rates, more available vessel days and additional pass-through voyage costs. TCE rose to $21,573 per operating day from $20,831; fleet utilization remained 86.8%.
Vessel operating expenses declined 1.8% to $109.5 million; daily vessel operating expense fell 2.0% to $7,873. General and administrative costs increased 14.3% to $23.9 million, including higher audit/internal-control and terminal insurance costs.
Operating cash flow fell about 10% from 2019, which management attributed mainly to working-capital movements. Cash declined $6.9 million during 2020.
At December 31, current assets were $136.5 million and current liabilities $107.2 million. Cash was $59.3 million; the company also reported $37.6 million available under secured revolving facilities and $18.0 million undrawn under the Terminal Facility. The latter was drawn in January 2021.
Debt disclosures show $635.0 million outstanding under secured term/revolving facilities (including the $61.4 million Navigator Aurora VIE facility), approximately $70.3 million under secured NOK bonds, and $100.0 million under unsecured bonds. Balance-sheet debt carrying amounts are lower after deferred financing costs; the filing’s contractual-obligations table reports $863.5 million of total obligations, including scheduled principal and leases.
Reported EBITDA was $119.3 million, versus $107.6 million in 2019. Adjusted EBITDA figures are inconsistent within the filing: one table reports $124.2 million for 2020, while the reconciliation reports $119.1 million.

Material changes and notable developments

The Luna Pool began operating in Q2 2020, combining nine Navigator ethylene vessels with five vessels from another participant. The filing reports $12.8 million of pool collaborative-arrangement revenue and $12.4 million of related voyage expenses; a separate note reports $34.5 million of net income from participation in the pool.
The Marine Export Terminal’s storage tank was commissioned in December 2020. The terminal has stated capacity of at least one million tons of ethylene per year; offtake agreements provide for minimum annual throughput of 938,000 tons, with full post-tank commitments effective January 1, 2021. Navigator’s 2020 share of joint-venture results was $0.7 million income, compared with a $1.1 million loss in 2019.
In September 2020, Navigator issued $100 million of 8.0% senior unsecured bonds due in 2025 and redeemed its $100 million 2017 bonds due in February 2021. It also refinanced a revolving facility with a new $210 million facility maturing in 2024, subject to a possible extension.
On December 22, 2020, BW Group acquired WLR Group’s approximately 39.1% shareholding. BW Group obtained rights to designate two directors, subject to ownership conditions.
After year-end, Navigator announced a non-binding April 2021 letter of intent to combine with Ultragas. Proposed consideration included approximately 21.2 million new shares and assumption of about $197 million of Ultragas net debt. Completion remained subject to definitive agreements, approvals and other conditions.

Outlook, risks and unusual items

Management said available resources were expected to meet liquidity and working-capital needs for the next 12 months if market conditions remained relatively stable. It stated that the prior-year substantial-doubt conclusion on going concern had been resolved or mitigated through refinancing and added liquidity; a significant deterioration in markets could still pressure debt service and capital commitments.
No formal earnings or revenue guidance is provided. Management’s stated priorities include maximizing terminal throughput, maintaining a mix of time charters, voyage charters and COAs, pursuing ethane/ethylene transportation demand, and managing leverage.
Quarterly vessel utilization improved from 71.5% in September to 95% in December, averaging 91% in Q4. Management linked the recovery to resumed U.S. ethylene exports after Hurricane Laura and stronger seasonal LPG demand.
Texas winter storms in early 2021 disrupted U.S. LPG and ethylene exports and terminal utilization. Mechanical-integrity concerns temporarily halted pipeline operations; the issue was reported resolved March 24, 2021. Management expected ethylene exports to return toward pre-storm levels by the end of Q2 2021, but this was an expectation, not a guarantee.
Key risks include cyclical charter rates, spot-market exposure, customer concentration, COVID-19 and trade disruption, terminal operating/throughput risk, vessel values and impairment, drydocking and regulatory costs, sanctions exposure, currency and interest-rate movements, and debt-covenant compliance. Two customers each contributed more than 10% of 2020 revenue; together they represented 25.1%.
Debt is subject to financial and collateral covenants. The company reported compliance at December 31, 2020. A 100-basis-point change in U.S. LIBOR was estimated to change annual interest expense by about $6.9 million on relevant floating-rate debt. Terminal Facility principal repayments began in 2021.
Management reported one continuing material weakness in financial reporting controls: insufficient accounting and reporting personnel with appropriate U.S. GAAP and SEC-reporting experience. Two previously reported weaknesses were considered remediated. Management concluded disclosure controls were ineffective; the auditor issued an adverse opinion on internal control, while issuing an unqualified opinion on the financial statements.
The filing reports no known legal proceedings expected to have a material adverse effect and no material uncured payment defaults. Navigator had no current plan to pay common-stock dividends.

Most important facts for investors to verify

Reconcile the inconsistent Adjusted EBITDA disclosures and the reported $34.5 million Luna Pool net-income figure with the financial-statement presentation.
Confirm post-year-end liquidity, debt balances, repayments, covenant headroom and the effect of drawing the remaining Terminal Facility availability in January 2021.
Track terminal throughput, offtake performance, operating reliability and any continuing effects from the Texas storms and pipeline interruption.
Assess progress remediating the material weakness and the implications of the auditor’s adverse internal-control opinion.
Monitor the status, final terms, financing, dilution and approvals for the proposed Ultragas transaction; the letter of intent was non-binding.
Review customer concentration, charter expirations and spot exposure, as well as vessel appraisals and the assumptions supporting the no-impairment conclusion.