FLEX LNG .(FLNG) - 2023 Q2 - Quarterly Report

Financial & Operational Highlights Q2 2023 Key Highlights The company reported Q2 2023 revenues of $86.7 million and net income of $39.0 million, completed scheduled drydockings, and declared a $0.75 dividend per share Q2 2023 Financial Highlights vs Q1 2023 | Metric | Q2 2023 | Q1 2023 | | :--- | :--- | :--- | | Vessel Operating Revenues | $86.7 million | $92.5 million | | Net Income | $39.0 million | $16.5 million | | Basic Earnings Per Share | $0.73 | $0.31 | | Average TCE Rate | $77,218/day | $80,175/day | | Adjusted EBITDA | $66.2 million | $72.5 million | | Adjusted Net Income | $28.2 million | $35.2 million | | Adjusted Basic EPS | $0.53 | $0.66 | - Successfully completed all scheduled drydockings for vessels delivered in 2018: Flex Endeavour, Flex Enterprise, Flex Ranger, and Flex Rainbow[5] - In August 2023, Cheniere exercised its first option for Flex Vigilant, extending the firm charter period by an additional 200 days[5] - The company declared a dividend of $0.75 per share for the second quarter of 2023[5] CEO Commentary The CEO confirmed Q2 revenues of $86.7 million were in line with guidance and reaffirmed H2 growth expectations, supported by a strong balance sheet and hedging strategy - Q2 revenues were $86.7 million, within the guided range of $85-90 million, and higher than Q2 2022 despite three ships being off-hire for drydocking[8] - Revenue guidance for Q3 ($90-95M) and Q4 ($90-100M) is reiterated, with expected full-year revenues of approximately $370 million[9] - The company benefits from a strong balance sheet with $450 million in cash, no debt maturities before 2028, and a significant earnings backlog of a minimum of 54 firm years[11] - Interest rate hedging strategy on an aggregate of $820 million resulted in gains of $17 million for the quarter, with $6.2 million realized[10] Business and Market Overview Business Update and Fleet Overview The company has 100% contract coverage for 2023 and a firm backlog of 54 years after successfully completing all scheduled drydockings for the year - Contract coverage is 100% for 2023 and 95% for 2024, with a firm contract backlog of 54 years, potentially extending to 80 years with charterer's options[13] - Four drydockings were completed in H1 2023, with the future schedule including two in 2024, four in 2025, and three in 2026[14] Fleet Overview as of August 16, 2023 | Vessel Name | Year Built | Propulsion | Charter Expiration (Firm) | Expiration with Options | | :--- | :--- | :--- | :--- | :--- | | Flex Endeavour | 2018 | MEGI+PRS | Q3 2030 | Q1 2033 | | Flex Enterprise | 2018 | MEGI+PRS | Q2 2029 | NA | | Flex Ranger | 2018 | MEGI | Q1 2027 | NA | | Flex Rainbow | 2018 | MEGI | Q1 2033 | NA | | Flex Constellation | 2019 | MEGI+PRS | Q2 2024 | Q2 2027 | | Flex Courageous | 2019 | MEGI+PRS | Q1 2025 | Q1 2029 | | Flex Aurora | 2020 | X-DF | Q2 2026 | Q2 2028 | | Flex Amber | 2020 | X-DF | Q2 2029 | NA | | Flex Artemis | 2020 | MEGI+FRS | Q3 2025 | Q3 2030 | | Flex Resolute | 2020 | MEGI+FRS | Q1 2025 | Q1 2029 | | Flex Freedom | 2021 | MEGI+FRS | Q1 2027 | Q1 2029 | | Flex Volunteer | 2021 | X-DF | Q1 2026 | Q1 2028 | | Flex Vigilant | 2021 | X-DF | Q2 2031 | Q2 2033 | LNG Market Update The LNG market softened in Q2 2023 with lower charter rates, though global trade volumes grew 2.5% and newbuilding activity has declined from 2022 levels - Q2 2023 saw a soft decline in gas prices and charter rates, with spot rates for modern tonnage climbing toward $100,000/day by the end of June[58] - Global LNG trade volumes reached 202.5 million metric tons in H1 2023, a 2.5% increase from H1 2022, with Europe being a key driver of demand growth[59] - Newbuilding contracting activity has significantly declined in 2023, with 36 ships ordered year-to-date versus 66 in the same period in 2022[63] Financial Results Financial Performance Analysis Q2 2023 net income was boosted by derivative gains, while H1 2023 net income declined from the prior year due to smaller gains and higher interest expenses Quarterly Performance (Q2 2023 vs Q1 2023) Q2 revenues decreased due to drydocking off-hire days, but net income rose sharply to $39.0 million, driven by a $17.1 million gain on derivatives Q2 2023 vs Q1 2023 Performance | Item | Q2 2023 ($M) | Q1 2023 ($M) | Change Driver | | :--- | :--- | :--- | :--- | | Vessel Operating Revenues | 86.7 | 92.5 | More off-hire days for drydocking in Q2 | | Vessel Operating Expenses | 17.3 | 15.7 | Increase in technical expenditure | | Administrative Expenses | 2.2 | 3.9 | Decrease due to performance bonuses in Q1 | | Gain/(Loss) on Derivatives | 17.1 | (2.8) | Favorable movement in long-term interest rates | | Net Income | 39.0 | 16.5 | Primarily driven by the gain on derivatives | Half-Year Performance (H1 2023 vs H1 2022) H1 2023 revenues increased to $179.2 million, but net income fell to $55.5 million due to smaller derivative gains and higher interest expenses than in H1 2022 H1 2023 vs H1 2022 Performance | Item | H1 2023 ($M) | H1 2022 ($M) | Change Driver | | :--- | :--- | :--- | :--- | | Vessel Operating Revenues | 179.2 | 158.7 | Higher proportion of fleet on improved fixed-rate contracts | | Interest Expenses | 53.5 | 30.5 | Increase in floating interest rates | | Gain on Derivatives | 14.3 | 46.4 | Smaller unrealized gain in 2023 compared to 2022 | | Net Income | 55.5 | 100.0 | Lower gain on derivatives and higher interest expense | | Adjusted EBITDA | 138.7 | 122.4 | Reflects stronger core operational performance | Financial Position (Balance Sheet) As of June 30, 2023, the company maintained a strong liquidity position with $449.9 million in cash, while total equity stood at $869.7 million Balance Sheet Summary | Item | June 30, 2023 ($M) | Dec 31, 2022 ($M) | | :--- | :--- | :--- | | Cash, Cash Equivalents & Restricted Cash | 449.9 | 332.4 | | Vessels and Equipment, net | 2,254.7 | 2,269.9 | | Total Long-term Debt | 1,863.9 | 1,714.7 | | Total Equity | 869.7 | 907.1 | - To mitigate interest rate risk, the company has interest rate swaps on an aggregate notional principal of $820.0 million as of June 30, 2023[19] Cash Flow Analysis Net cash from operations was $40.9 million in Q2 2023, while financing activities used $66.3 million, primarily for debt repayment and dividends Q2 2023 vs Q1 2023 Cash Flow Summary ($M) | Activity | Q2 2023 | Q1 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | 40.9 | 33.7 | | Net Cash from Investing Activities | 0.0 | 0.0 | | Net Cash from Financing Activities | (66.3) | 109.9 | - Key cash outflows in Q2 2023 included $16.1 million for drydocking and $40.3 million for dividend payments[47][49] Unaudited Interim Financial Statements Condensed Consolidated Statements of Operations and Comprehensive Income The company reported Q2 2023 net income of $39.0 million on revenues of $86.7 million, driven by operating performance and a significant gain on derivatives Condensed Consolidated Statements of Operations (in thousands of $) | Metric | Q2 2023 | Q1 2023 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Vessel operating revenues | 86,727 | 92,477 | 179,204 | 158,728 | | Operating income | 48,223 | 55,010 | 103,233 | 86,811 | | Gain/(loss) on derivatives | 17,110 | (2,846) | 14,264 | 46,358 | | Net income | 39,016 | 16,531 | 55,547 | 100,021 | | Basic Earnings per share | 0.73 | 0.31 | 1.03 | 1.88 | Condensed Consolidated Balance Sheet As of June 30, 2023, the company reported total assets of $2.80 billion, total liabilities of $1.93 billion, and total equity of $869.7 million Condensed Consolidated Balance Sheet (in thousands of $) | Metric | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | 449,830 | 332,329 | | Vessels and equipment, net | 2,254,727 | 2,269,946 | | Total Assets | 2,795,903 | 2,679,512 | | Current portion of long-term debt | 103,461 | 95,507 | | Long-term debt | 1,760,455 | 1,619,224 | | Total Liabilities | 1,926,177 | 1,772,422 | | Total Equity | 869,726 | 907,090 | Condensed Consolidated Statements of Cash Flows For H1 2023, the company generated $74.6 million in operating cash flow and increased its cash balance by $117.5 million after financing activities Condensed Consolidated Statements of Cash Flows - H1 2023 (in thousands of $) | Activity | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | 74,616 | 94,595 | | Net cash used in investing activities | (2) | (4) | | Net cash provided by/(used in) financing activities | 43,604 | (12,116) | | Net increase in cash | 117,520 | 82,535 | | Cash at end of period | 449,921 | 283,705 | Notes to the Interim Consolidated Accounts Long-term Debt and Financial Instruments The company managed its $1.86 billion long-term debt with interest rate swaps on a notional $820.0 million, resulting in a $14.3 million gain in H1 2023 - Total net long-term debt outstanding was $1,863.9 million as of June 30, 2023[123] - The company has interest rate swap agreements on an aggregate notional principal of $820.0 million to reduce risk from interest rate fluctuations[107] Gain on Derivatives - H1 2023 (in thousands of $) | Component | H1 2023 | | :--- | :--- | | Change in fair value (unrealized) | 3,032 | | Realized gain on derivatives | 11,232 | | Total Gain on Derivatives | 14,264 | Subsequent Events Post-quarter, the Board declared a $0.75 per share dividend, and Cheniere exercised a charter option for the Flex Vigilant - On August 15, 2023, the Board declared a Q2 2023 cash dividend of $0.75 per share, payable around September 5, 2023[154] - On August 14, 2023, Cheniere declared its option to extend the charter for Flex Vigilant by 200 days, with the charter now scheduled to expire in Q2 2031[136] Non-GAAP Financial Measures Reconciliation of Net Income to EBITDA and Adjusted EBITDA For Q2 2023, Net Income of $39.0 million was reconciled to an Adjusted EBITDA of $66.2 million by excluding non-core items like derivative gains Reconciliation to Adjusted EBITDA (in thousands of $) | Metric | Q2 2023 | Q1 2023 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income | 39,016 | 16,531 | 55,547 | 100,021 | | EBITDA | 83,191 | 67,625 | 150,816 | 167,787 | | Adjusted EBITDA | 66,194 | 72,491 | 138,685 | 122,403 | Reconciliation of Net Income to Adjusted Net Income Q2 2023 Net Income of $39.0 million was reconciled to an Adjusted Net Income of $28.2 million, resulting in an Adjusted Basic EPS of $0.53 Reconciliation to Adjusted Net Income (in thousands of $) | Metric | Q2 2023 | Q1 2023 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income | 39,016 | 16,531 | 55,547 | 100,021 | | Adjusted net income | 28,220 | 35,233 | 63,453 | 56,361 | | Adjusted basic EPS ($) | 0.53 | 0.66 | 1.18 | 1.06 | Reconciliation to Time Charter Equivalent (TCE) Rate The company's TCE rate for Q2 2023 was calculated at $77,218 per day based on TCE income of $86.0 million and 1,113 on-hire days TCE Rate Calculation | Metric | Q2 2023 | Q1 2023 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Time charter equivalent income (k$) | 85,965 | 92,204 | 178,169 | 156,862 | | Fleet onhire days | 1,113 | 1,150 | 2,263 | 2,352 | | Time charter equivalent rate ($) | 77,218 | 80,175 | 78,720 | 66,691 |