FLEX LNG .(FLNG) - 2024 Q2 - Quarterly Report

Financial Highlights and Key Events Q2 2024 Financial Highlights The company reported Q2 2024 vessel operating revenues of $84.7 million and net income of $21.8 million, a decrease from Q1 due to seasonal factors Q2 2024 vs Q1 2024 Financial Highlights | Metric | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | GAAP Measures | | | | Vessel operating revenues | $84.7 million | $90.2 million | | Net income | $21.8 million | $33.2 million | | Earnings per share (basic) | $0.41 | $0.62 | | Balance Sheet | | | | Cash and cash equivalents | $370.2 million | $383.2 million | | Long-term debt | $(1,760.4) million | $(1,786.3) million | | Non-GAAP Measures | | | | Time Charter Equivalent rate | $72,385 | $76,539 | | Adjusted EBITDA | $63.2 million | $70.6 million | | Adjusted net income | $30.4 million | $37.9 million | | Adjusted earnings per share (basic) | $0.56 | $0.70 | Key Events The company completed two vessel drydockings, extended one time charter, secured a new one, and obtained refinancing term sheets post-quarter - Successfully completed scheduled drydockings for Flex Constellation and Flex Courageous on-time and on-budget in April and May 2024[3] - The charterer of Flex Endeavour extended the time charter by 500 days, now ending in Q1 2032[3] - In July 2024, received credit-approved term sheets for two refinancing deals totaling $430 million[3] - Declared a dividend of $0.75 per share for Q2 2024[3] Management Commentary CEO's Review of Q2 2024 The CEO highlighted that Q2 results met guidance despite seasonal weakness and confirmed a positive outlook with expected revenue growth and improved liquidity from new financing - Q2 2024 revenues of $84.7 million were in line with guidance, affected by seasonally low spot rates impacting Flex Artemis and Flex Constellation[4] - With two ships completing surveys and no more drydocking planned for 2024, revenues are expected to increase to approximately $90 million in Q3[5] - Announced two new financing facilities totaling $430 million, which will extend debt maturity and raise net cash proceeds of approximately $97 million[6] - The company's pro-forma cash balance will increase to a solid $467 million, and the firm contract backlog stands at a minimum of 47 years[7] Business and Financial Review Business Update and Fleet Overview The company extended and secured charters, completed drydocks, and maintains a firm contract backlog of 47 years with 100% coverage for 2024 - The charter for Flex Endeavour was extended by 500 days to Q1 2032, and drydocking for two vessels was completed in Q2 2024[8] - Flex Constellation secured a new time charter with a large Asian utility, with a firm period until the end of Q1 2025[9] - The aggregate firm contract backlog is 47 years, with contract coverage at 100% for the remainder of 2024 and 91% for 2025[10] Fleet Overview as of August 14, 2024 | Vessel Name | Year Built | Cargo Capacity (cbm) | Propulsion | Charter expiration (firm) | Expiration with options | | :--- | :--- | :--- | :--- | :--- | :--- | | Flex Endeavour | 2018 | 173,400 | MEGI+PRS | Q1 2032 | Q1 2033 | | Flex Enterprise | 2018 | 173,400 | MEGI+PRS | Q2 2029 | NA | | Flex Ranger | 2018 | 174,000 | MEGI | Q1 2027 | NA | | Flex Rainbow | 2018 | 174,000 | MEGI | Q1 2033 | NA | | Flex Constellation | 2019 | 173,400 | MEGI+PRS | Q1 2025 | Q1 2026 | | Flex Courageous | 2019 | 173,400 | MEGI+PRS | Q1 2027 | Q1 2029 | | Flex Aurora | 2020 | 174,000 | X-DF | Q2 2026 | Q2 2028 | | Flex Amber | 2020 | 174,000 | X-DF | Q2 2029 | NA | | Flex Artemis | 2020 | 173,400 | MEGI+FRS | Q3 2025 | Q3 2030 | | Flex Resolute | 2020 | 173,400 | MEGI+FRS | Q1 2027 | Q1 2029 | | Flex Freedom | 2021 | 173,400 | MEGI+FRS | Q1 2027 | Q1 2029 | | Flex Volunteer | 2021 | 174,000 | X-DF | Q1 2026 | Q1 2028 | | Flex Vigilant | 2021 | 174,000 | X-DF | Q2 2031 | Q2 2033 | Finance Update The company held $370.2 million in cash, managed its interest rate exposure, and secured refinancing term sheets expected to add $97 million in net cash Financial Position as of June 30, 2024 | Item | Amount | | :--- | :--- | | Cash and cash equivalents | $370.2 million | | Total long-term debt | $1,760.4 million | | - Current portion | $104.1 million | | - Non-current portion | $1,656.3 million | - In July 2024, the company received credit-approved term sheets for a $270 million facility and a $160 million sale and leaseback, expected to yield net cash proceeds of about $97 million[14][15][16] - The company modified several interest rate swap agreements, generating total cash proceeds of $10.4 million during March and April 2024[16][17] Financial Results Analysis Q2 2024 vs. Q1 2024 Performance Q2 2024 revenues and net income decreased from Q1 due to lower spot rates and vessel off-hire days for scheduled drydocks - The decrease in Q2 2024 revenue was driven by a seasonal dip in spot market rates and off-hire days for the drydocking of Flex Constellation and Flex Courageous[18] Q2 2024 vs Q1 2024 Income Statement Highlights | Metric | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Vessel operating revenues | $84.7 million | $90.2 million | | Vessel operating expenses | $17.8 million | $16.7 million | | Net income | $21.8 million | $33.2 million | | Basic earnings per share | $0.41 | $0.62 | Q2 2024 vs Q1 2024 Non-GAAP Performance | Metric | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Adjusted EBITDA | $63.2 million | $70.6 million | | Adjusted net income | $30.4 million | $37.9 million | | Adjusted EPS (basic) | $0.56 | $0.70 | | TCE rate per day | $72,385 | $76,539 | H1 2024 vs. H1 2023 Performance H1 2024 revenues declined slightly year-over-year, while net income remained stable and adjusted net income increased - Vessel operating revenues for H1 2024 decreased compared to H1 2023 due to lower spot market impact and a negative revenue recognition effect from certain charter extensions[23] H1 2024 vs H1 2023 Performance Highlights | Metric | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Vessel operating revenues | $174.9 million | $179.2 million | | Net income | $55.1 million | $55.5 million | | Basic earnings per share | $1.02 | $1.03 | | Adjusted EBITDA | $133.8 million | $138.7 million | | Adjusted net income | $68.3 million | $63.5 million | | TCE rate per day | $74,472 | $78,720 | Cash Flow and Balance Sheet Analysis The company generated $47.5 million in operating cash flow in Q2 and ended the period with a cash balance of $370.3 million and reduced long-term debt Cash Flow Summary (Q2 2024 vs Q1 2024) | Cash Flow Activity | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $47.5 million | $34.9 million | | Net cash used in investing activities | $0 | $0 | | Net cash used in financing activities | $(60.7) million | $(61.8) million | Balance Sheet Summary (as of June 30, 2024) | Item | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Vessels and equipment, net | $2,189.9 million | $2,217.3 million | | Total long-term debt | $1,760.4 million | $1,812.1 million | | Total equity | $823.6 million | $847.7 million | LNG Market Update Q2 2024 saw diverging gas prices, a slight rise in global LNG exports, lower but recovering spot rates, and continued LNGC fleet expansion - European (TTF) and Asian (JKM) gas prices diverged in Q2 2024, with JKM rising from ~$10/MMBtu to $12.6/MMBtu, while TTF moved from ~$8/MMBtu to $10.6/MMBtu[32][33] - In H1 2024, the U.S. was the largest LNG exporter (43 MT), while China was the top importer (38 MT)[34] - Average spot rates for LNG carriers in Q2 2024 were ~$49,200/day, with current rates quoted at ~$83,000/day[36][37] - The LNGC fleet grew by 24 ships in H1 2024, with an orderbook of ~350 vessels, representing a 54% orderbook-to-fleet ratio[38] Unaudited Interim Financial Information Condensed Consolidated Financial Statements This section presents the company's unaudited U.S. GAAP financial statements for the three and six months ended June 30, 2024 Statements of Operations The company reported net income of $21.8 million for Q2 2024 and $55.1 million for the first six months of 2024 Condensed Consolidated Statements of Operations (in thousands of $) | | Three months ended June 30, 2024 | Six months ended June 30, 2024 | | :--- | :--- | :--- | | Vessel operating revenues | 84,697 | 174,932 | | Operating income | 44,494 | 96,429 | | Income before tax | 21,907 | 55,111 | | Net income | 21,835 | 55,059 | | Earnings per share (basic) | $0.41 | $1.02 | Balance Sheets As of June 30, 2024, total assets were $2,641.5 million, supported by $823.6 million in total equity Condensed Consolidated Balance Sheets (in thousands of $) | | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | 2,641,502 | 2,709,193 | | Cash and cash equivalents | 370,203 | 410,425 | | Vessels and equipment, net | 2,189,950 | 2,217,301 | | Total Liabilities | 1,817,890 | 1,861,540 | | Long-term debt (current + non-current) | 1,760,394 | 1,812,143 | | Total Equity | 823,612 | 847,653 | Statements of Cash Flows Net cash from operating activities was $82.4 million for H1 2024, with the cash balance decreasing by $40.3 million after financing activities Condensed Statements of Cash Flows (Six months ended June 30, 2024, in thousands of $) | | Amount | | :--- | :--- | | Net cash provided by operating activities | 82,350 | | Net cash used in investing activities | 0 | | Net cash (used in)/provided by financing activities | (122,439) | | Net decrease in cash | (40,289) | | Cash at beginning of period | 410,544 | | Cash at end of period | 370,255 | Notes to the Interim Consolidated Accounts The notes detail accounting policies, debt facilities, financial instruments, and subsequent events, including major refinancing activities Long-Term Debt Obligations as of June 30, 2024 (in thousands of $) | Facility Name | Type | Maturity Date | Total | | :--- | :--- | :--- | :--- | | Flex Resolute $150 Million Facility | Term | Dec 2028 | 136,992 | | Flex Enterprise $150 Million Facility | Term | Jun 2029 | 131,496 | | $375 Million Facility | Term and revolving | Jan 2028 | 335,492 | | $290 Million Facility | Term and revolving | Mar 2029 | 270,690 | | $320 Million Sale and Leaseback | Sale and leaseback | May 2032 | 275,665 | | $330 Million Sale and Leaseback | Sale and leaseback | Feb 2035 | 301,879 | | Flex Rainbow Sale and Leaseback | Sale and leaseback | Feb 2033 | 167,237 | | Flex Volunteer Sale and Leaseback | Sale and leaseback | Dec 2031 | 140,943 | | Total | | | 1,760,394 | - The company manages interest rate risk with swap agreements covering a net notional principal of $670.0 million as of June 30, 2024[65] - Subsequent to the quarter end, in July 2024, the company secured credit-approved term sheets for a $270 million facility and a $160 million sale and leaseback to refinance existing debt[82][83][84] - On August 13, 2024, the Board declared a cash distribution of $0.75 per share for Q2 2024, payable in September 2024[85] Reconciliation of Non-GAAP Financial Measures This section provides detailed reconciliations for key non-GAAP measures like Adjusted EBITDA, Adjusted Net Income, and TCE to their comparable U.S. GAAP figures Reconciliation to Adjusted EBITDA Net Income of $21.8 million for Q2 2024 is reconciled to an Adjusted EBITDA of $63.2 million after standard adjustments Reconciliation to Adjusted EBITDA (in thousands of $) | | Three months ended June 30, 2024 | Six months ended June 30, 2024 | | :--- | :--- | :--- | | Net income | 21,835 | 55,059 | | Interest, Tax, Depreciation | 44,983 | 89,254 | | EBITDA | 66,818 | 144,313 | | Adjustments (Derivatives, FX) | (3,609) | (10,518) | | Adjusted EBITDA | 63,209 | 133,795 | Reconciliation to Adjusted Net Income and Adjusted EPS Q2 2024 Net Income of $21.8 million is adjusted to $30.4 million, yielding an Adjusted Basic EPS of $0.56 Reconciliation to Adjusted Net Income (in thousands of $) | | Three months ended June 30, 2024 | Six months ended June 30, 2024 | | :--- | :--- | :--- | | Net income | 21,835 | 55,059 | | Change in assets/liabilities of derivative instruments | 8,735 | 12,971 | | Foreign exchange (gain)/loss | (147) | 263 | | Adjusted net income | 30,423 | 68,293 | | Adjusted basic earnings per share | $0.56 | $1.27 | Reconciliation to Time Charter Equivalent (TCE) Q2 2024 vessel operating revenues of $84.7 million are reconciled to a Time Charter Equivalent (TCE) rate of $72,385 per day TCE Reconciliation (Q2 2024) | Metric | Amount | | :--- | :--- | | Vessel operating revenues | $84,697 thousand | | Less: Voyage expenses | ($742) thousand | | Time charter equivalent income | $83,955 thousand | | Fleet on-hire days | 1,160 | | Time charter equivalent rate | $72,385 | Reconciliation to Operating Expenses per day Vessel operating expenses of $17.8 million for Q2 2024 are reconciled to an Opex per day of $15,055 Opex per day Reconciliation (Q2 2024) | Metric | Amount | | :--- | :--- | | Vessel operating expenses | ($17,810) thousand | | Available days | 1,183 | | Opex per day | ($15,055) |