FLEX LNG .(FLNG) - 2023 Q3 - Quarterly Report

Executive Summary & Highlights Q3 2023 Financial Highlights Flex LNG Ltd. reported strong financial results for Q3 2023, with significant increases in vessel operating revenues, net income, and Time Charter Equivalent (TCE) rates compared to Q2 2023. The company also declared a substantial dividend, including a special dividend Q3 2023 vs Q2 2023 Key Financial Highlights | Metric | Q3 2023 ($M) | Q2 2023 ($M) | Change (%) | | :--------------------------- | :----------- | :----------- | :--------- | | Vessel Operating Revenues | 94.6 | 86.7 | 9.1% | | Net Income | 45.1 | 39.0 | 15.6% | | Basic Earnings Per Share | 0.84 | 0.73 | 15.1% | | Average TCE Rate (per day) | 79,207 | 77,218 | 2.6% | | Adjusted Net Income | 36.1 | 28.2 | 27.9% | | Adjusted EBITDA | 74.7 | 66.2 | 12.8% | | Adjusted Basic EPS | 0.67 | 0.53 | 26.4% | - The Company declared a dividend for Q3 2023 of $0.875 per share, comprising a quarterly dividend of $0.75 and a special dividend of $0.125 per share[23] CEO Commentary & Outlook The CEO highlighted strong freight income and healthy earnings, attributing revenue growth to full fleet operation post-drydocking and a stronger spot market. The company is on track to meet its annual revenue and Adjusted EBITDA guidance, with a positive long-term outlook for shipping market tightness from 2026 onwards - All 13 LNG carriers were in full operation during Q3 after completing the drydock program in Q2, leading to a $7.9 million increase in quarterly revenues to $94.6 million[34] - The company expects further revenue increase in Q4 to $97-99 million, and is on track to deliver annual revenue guidance of $370 million, Adjusted EBITDA of $290-295 million, and an average TCE guidance of $80,000 per day[35] - The LNG product market is expected to remain tight for the next two years due to muted export growth, with incrementally tighter shipping market conditions anticipated from 2026 onwards as newbuilding deliveries peak at the end of 2025[26] - The company recorded $15.7 million in gains on interest rate swaps in Q3 2023, consisting of $6.7 million realized and $9 million unrealized gains, bringing total gains since early 2021 to $128 million[25] Business Update & Fleet Overview Fleet Operations & Contract Coverage Flex LNG maintained high technical uptime across its fleet and has strong contract coverage for the remainder of 2023 and 2024, with a portion of its fleet exposed to the spot market through a market-linked contract and charterer options - Technical uptime, excluding drydocks, was 99.4% for Q3 2023 and for the nine months ended September 30, 2023[38] - The fleet has 100% contract coverage for the remaining days in 2023 and 95% contract coverage (12.3 vessel years out of 13) for 2024[37] - The aggregate firm contract backlog for the fleet is 51 years, potentially increasing to 77 years with charterer options[37] - The company has 7.7% and 12.7% exposure to the spot market for the remainder of 2023 and 2024, respectively, primarily due to the Flex Artemis's market-linked contract and options for Flex Constellation[38] Fleet Details The company's fleet consists of 13 modern LNG carriers, built between 2018 and 2021, featuring advanced propulsion systems (MEGI, X-DF) and varying re-liquefaction capabilities, with charter expiration dates extending up to Q3 2030, and potential extensions to Q2 2033 Flex LNG Fleet Overview (as of November 8, 2023) | Vessel Name | Year Built | Shipyard | Cargo Capacity (cbm) | Propulsion | Boil off rate | Charter expiration | Expiration with Charterer options | | :----------------- | :--------- | :------- | :------------------- | :--------- | :------------ | :----------------- | :-------------------------------- | | Flex Endeavour | 2018 | DSME | 173,400 | MEGI+PRS | 0.075% | Q3 2030 | Q1 2033 | | Flex Enterprise | 2018 | DSME | 173,400 | MEGI+PRS | 0.075% | Q2 2029 | NA | | Flex Ranger | 2018 | SHI | 174,000 | MEGI | 0.085% | Q1 2027 | NA | | Flex Rainbow | 2018 | SHI | 174,000 | MEGI | 0.085% | Q1 2033 | NA | | Flex Constellation | 2019 | DSME | 173,400 | MEGI+PRS | 0.075% | Q2 2024 | Q2 2027 | | Flex Courageous | 2019 | DSME | 173,400 | MEGI+PRS | 0.075% | Q1 2025 | Q1 2029 | | Flex Aurora | 2020 | HSHI | 174,000 | X-DF | 0.085% | Q2 2026 | Q2 2028 | | Flex Amber | 2020 | HSHI | 174,000 | X-DF | 0.085% | Q2 2029 | NA | | Flex Artemis | 2020 | DSME | 173,400 | MEGI+FRS | 0.035% | Q3 2025 | Q3 2030 | | Flex Resolute | 2020 | DSME | 173,400 | MEGI+FRS | 0.035% | Q1 2025 | Q1 2029 | | Flex Freedom | 2021 | DSME | 173,400 | MEGI+FRS | 0.035% | Q1 2027 | Q1 2029 | | Flex Volunteer | 2021 | HSHI | 174,000 | X-DF | 0.085% | Q1 2026 | Q1 2028 | | Flex Vigilant | 2021 | HSHI | 174,000 | X-DF | 0.085% | Q2 2031 | Q2 2033 | - Propulsion systems include MEGI (M-type Electronically Controlled Gas Injection) and X-DF (Generation X Dual Fuel), with some vessels equipped with Full (FRS) or Partial (PRS) Re-liquefaction Systems[40] LNG Market Update Spot & Time-Charter Rates LNG spot rates peaked in late September at $240,000/day due to Asian arbitrage and floating storage economics, then stabilized around $200,000/day. One-year time-charter rates for modern vessels decreased from $155,000-$160,000/day in early July to $120,000/day by quarter-end, with 2024 coverage assessed at $100,000/day - Spot rates for modern two-strokes reached a peak of $240,000/day in late September, a 150% increase since the beginning of the quarter, before stabilizing at approximately $200,000/day[12] - One-year time-charter rates for modern two-stroke vessels dropped from $155,000-$160,000/day in early July to $120,000/day by the end of Q3, with current assessment for 2024 coverage at approximately $100,000/day[13] Physical LNG Cargo Market The physical LNG cargo market experienced turbulence due to supply-related events, causing gas price volatility. JKM gas prices fluctuated, influenced by potential strikes in Australia, geopolitical tensions in the Middle East, and maintenance on Norwegian gas fields - JKM gas price fell to $9.6 per MMbtu in July but hovered around $16/MMbtu in Asia and $14/Mmbtu in Europe for December pricing[14] - Supply uncertainties from potential Australian LNG facility strikes, Middle East geopolitical tensions, and Balticconnector damage contributed to spot LNG price surges in Asia-Pacific[14] - Extended maintenance on Norwegian gas fields and concerns about colder European winter weather also influenced gas prices[15] Vessel Orders & Global Trade Volumes LNG carrier orders slowed in Q3 2023, with only eight vessels ordered, the lowest since Q1 2021, due to high interest rates and newbuild prices. Global LNG trade volumes increased by 3% year-over-year, driven by robust Chinese imports and continued European buying, while US LNG exports also rose - Eight LNG carriers were ordered in Q3 2023, the lowest quarterly number since Q1 2021, with no speculative ordering[16] - Nine newbuilds were delivered in Q3, bringing the year-to-date total to 20, with 15-16 more expected by year-end[16] - Newbuilding prices stabilized around $265 million for modern Korean-built ships with 2027/2028 delivery[64] - Global LNG trade volumes reached ~340mt by end of October 2023, a 3% increase from October 2022[65] - Chinese LNG imports increased by ~12% year-to-date 2023, while US LNG exports rose by 6mt, mainly due to the restart of Freeport[65][66] - Qatar Energy secured contracts for 11mmtpa of capacity in recent weeks, including agreements with TotalEnergies, Shell, Eni, and Sinopec, all under 27-year contracts[66] Financial Performance - Quarterly (Q3 2023 vs Q2 2023) Income Statement Overview Flex LNG reported increased vessel operating revenues in Q3 2023, primarily due to fewer drydocking days and higher spot market rates. Net income and earnings per share also saw significant improvements quarter-over-quarter Q3 2023 vs Q2 2023 Income Statement Highlights | Metric | Q3 2023 ($M) | Q2 2023 ($M) | Change ($M) | Change (%) | | :--------------------------- | :----------- | :----------- | :---------- | :--------- | | Vessel Operating Revenues | 94.6 | 86.7 | 7.9 | 9.1% | | Voyage Expenses | 0.4 | 0.8 | (0.4) | -50.0% | | Vessel Operating Expenses | 16.9 | 17.3 | (0.4) | -2.3% | | Administrative Expenses | 2.3 | 2.2 | 0.1 | 4.5% | | Depreciation | 18.7 | 18.3 | 0.4 | 2.2% | | Operating Income | 56.2 | 48.2 | 8.0 | 16.6% | | Interest Income | 0.9 | 1.3 | (0.4) | -30.8% | | Interest Expense | 27.5 | 27.2 | 0.3 | 1.1% | | Gain on Derivatives | 15.6 | 17.1 | (1.5) | -8.8% | | Foreign Exchange Gain/(Loss) | 0.1 | (0.1) | 0.2 | -200.0% | | Other Financial Items Expense| 0.2 | 0.3 | (0.1) | -33.3% | | Net Income | 45.1 | 39.0 | 6.1 | 15.6% | - The increase in vessel operating revenues was primarily due to fewer offhire days from scheduled drydockings in Q3 2023 compared to Q2 2023, and an increase in spot market rates affecting the Flex Artemis's variable rate contract[44] Key Financial Metrics Key financial metrics for Q3 2023 showed improvements across the board, with basic EPS, Adjusted EBITDA, and Adjusted EPS all increasing compared to the previous quarter, reflecting stronger operational performance Q3 2023 vs Q2 2023 Key Financial Metrics | Metric | Q3 2023 | Q2 2023 | Change | Change (%) | | :--------------------------- | :----------- | :----------- | :----------- | :--------- | | Basic Earnings Per Share | $0.84 | $0.73 | $0.11 | 15.1% |\n| Adjusted EBITDA | $74.7 million| $66.2 million| $8.5 million | 12.8% |\n| Adjusted Net Income | $36.1 million| $28.2 million| $7.9 million | 27.9% |\n| Adjusted Earnings Per Share | $0.67 | $0.53 | $0.14 | 26.4% |\n| Time Charter Equivalent Rate | $79,207/day | $77,218/day | $1,989/day | 2.6% | - The gain on derivatives was $15.6 million in Q3 2023, including a net unrealized gain of $9.0 million, compared to $17.1 million in Q2 2023, which included a net unrealized gain of $10.9 million. This was influenced by increasing short and long-term interest rates[18] Financial Performance - Year-to-Date (9M 2023 vs 9M 2022) Income Statement Overview For the nine months ended September 30, 2023, Flex LNG reported increased vessel operating revenues and improved TCE rates compared to the same period in 2022, driven by fixed-rate contracts and a stronger spot market. However, net income decreased due to lower gains on derivatives and higher interest expenses 9M 2023 vs 9M 2022 Income Statement Highlights | Metric | 9M 2023 ($M) | 9M 2022 ($M) | Change ($M) | Change (%) | | :--------------------------------- | :----------- | :----------- | :---------- | :--------- | | Vessel Operating Revenues | 273.8 | 250.0 | 23.8 | 9.5% | | Voyage Expenses | 1.5 | 2.3 | (0.8) | -34.8% | | Vessel Operating Expenses | 49.9 | 47.2 | 2.7 | 5.7% | | Administrative Expenses | 8.4 | 6.9 | 1.5 | 21.7% | | Depreciation | 54.6 | 54.0 | 0.6 | 1.1% | | Operating Income | 159.4 | 139.6 | 19.8 | 14.2% | | Interest Income | 3.9 | 0.9 | 3.0 | 333.3% | | Interest Expense | 81.1 | 52.1 | 29.0 | 55.7% | | Extinguishment Costs of Long-Term Debt | 10.2 | 14.4 | (4.2) | -29.2% | | Gain on Derivatives | 29.9 | 74.8 | (44.9) | -60.0% | | Foreign Exchange Loss | 0.6 | 1.9 | (1.3) | -68.4% | | Other Financial Items Expense | 0.6 | 0.4 | 0.2 | 50.0% | | Net Income | 100.6 | 146.6 | (46.0) | -31.4% | - Vessel operating revenues increased due to a higher proportion of the fleet on improved longer-term fixed-rate contracts and a stronger spot market, partially offset by scheduled drydockings[53] - Interest income increased significantly due to higher floating interest rates on cash and cash equivalents[4] - Interest expenses rose primarily due to the increase in floating interest rates[5] Key Financial Metrics Year-to-date, basic earnings per share decreased, but Adjusted EBITDA and Adjusted net income showed growth, indicating improved operational performance when excluding non-recurring and non-cash items 9M 2023 vs 9M 2022 Key Financial Metrics | Metric | 9M 2023 | 9M 2022 | Change | Change (%) | | :--------------------------- | :----------- | :----------- | :----------- | :--------- | | Basic Earnings Per Share | $1.87 | $2.76 | ($0.89) | -32.2% |\n| Adjusted EBITDA | $213.4 million| $193.3 million| $20.1 million| 10.4% |\n| Adjusted Net Income | $99.5 million| $96.2 million| $3.3 million | 3.4% |\n| Adjusted Earnings Per Share | $1.85 | $1.81 | $0.04 | 2.2% |\n| Time Charter Equivalent Rate | $78,888/day | $69,809/day | $9,079/day | 13.0% | - The gain on derivatives decreased significantly from $74.8 million in 9M 2022 to $29.9 million in 9M 2023, primarily due to a lower net unrealized gain ($12.0 million in 9M 2023 vs $76.1 million in 9M 2022)[6] Financial Position & Cash Flow Balance Sheet Summary As of September 30, 2023, total equity decreased compared to December 31, 2022, mainly due to dividend payments offsetting net income. Total long-term debt increased, influenced by new drawdowns and prepayments Balance Sheet Highlights (as of September 30, 2023) | Metric | Sep 30, 2023 ($M) | Dec 31, 2022 ($M) | Change ($M) | Change (%) | | :--------------------------- | :---------------- | :---------------- | :---------- | :--------- | | Total Equity | 874.9 | 907.1 | (32.2) | -3.5% | | Net Book Value of Vessels & Equipment | 2,235.9 | 2,269.9 | (34.0) | -1.5% | | Total Long-Term Debt | 1,838.0 | 1,714.7 | 123.3 | 7.2% | | Current Portion of Long-Term Debt | 103.6 | 95.5 | 8.1 | 8.5% | | Cash, Cash Equivalents & Restricted Cash | 429.5 | 332.4 | 97.1 | 29.2% | - The decrease in total equity was primarily due to $134.2 million in dividends paid, partially offset by $100.6 million in net income and $1.4 million from share-based compensation[10] - The net book value of vessels and equipment decreased due to $54.6 million in depreciation, partially offset by $20.5 million in drydocking additions[28] Long-Term Debt & Financing Activities The company's long-term debt increased due to significant drawdowns from various facilities and sale and leaseback agreements, while also undertaking substantial prepayments and regular debt repayments - Material factors increasing long-term debt included drawdowns of $290.0 million, $180.0 million, and $330.0 million from various facilities and sale and leaseback agreements[29] - Material factors decreasing long-term debt included regular repayments of $84.4 million and prepayments of $136.9 million (Flex Amber Sale and Leaseback) and $458.5 million (Flex Freedom, Flex Vigilant, Flex Artemis, Flex Aurora tranches)[31] - As of September 30, 2023, the company had interest rate swap agreements with an aggregate net notional principal of $720.0 million, with a weighted average fixed interest rate of 1.35% and a weighted average duration of 3.6 years[42] Cash Flow Activities Net cash provided by operating activities increased in Q3 2023 compared to Q2 2023, driven by higher net income after non-cash adjustments and a drydocking credit. Net cash used in financing activities remained stable, primarily for debt repayments and dividend payments Q3 2023 vs Q2 2023 Cash Flow Highlights | Metric | Q3 2023 ($M) | Q2 2023 ($M) | Change ($M) | | :----------------------------------- | :----------- | :----------- | :---------- | | Net Cash Provided by Operating Activities | 46.2 | 40.9 | 5.3 | | Net Cash Used in Investing Activities | 0.0 | 0.0 | 0.0 | | Net Cash Used in Financing Activities | 66.7 | 66.3 | 0.4 | | Regular Repayments of Long-Term Debt | 26.4 | 25.9 | 0.5 | | Dividend Payments | 40.3 | 40.3 | 0.0 | - Net cash provided by operating activities in Q3 2023 included net income, after adjusting for non-cash items, of $55.6 million, compared to $47.6 million in Q2 2023[60] - The company had a drydocking credit of $0.1 million in Q3 2023, a significant improvement from an expenditure of $16.1 million in Q2 2023[60] Financial Statements Condensed Consolidated Statements of Comprehensive Income The condensed consolidated statements of comprehensive income present the company's financial performance for the three and nine months ended September 30, 2023, and comparative periods, showing net income and total comprehensive income Condensed Consolidated Statements of Comprehensive Income (Selected Data) | Metric ($ thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income | 45,101 | 39,016 | 46,587 | 100,648 | 146,608 | | Total Other Comprehensive Income/(Loss) | — | — | — | — | — | | Total Comprehensive Income | 45,101 | 39,016 | 46,587 | 100,648 | 146,608 | Condensed Consolidated Balance Sheets The condensed consolidated balance sheets provide a snapshot of the company's assets, liabilities, and equity as of September 30, 2023, and comparative periods, showing changes in cash, debt, and total equity Condensed Consolidated Balance Sheets (Selected Data) | Metric ($ thousands) | Sep 30, 2023 | Jun 30, 2023 | Dec 31, 2022 | | :------------------- | :----------- | :----------- | :----------- | | Cash and Cash Equivalents | 429,415 | 449,830 | 332,329 | | Total Current Assets | 463,987 | 482,500 | 354,048 | | Vessels and Equipment, Net | 2,235,873 | 2,254,727 | 2,269,946 | | Total Assets | 2,769,056 | 2,795,903 | 2,679,512 | | Current Portion of Long-Term Debt | 103,638 | 103,461 | 95,507 | | Total Current Liabilities | 159,797 | 165,722 | 153,198 | | Long-Term Debt | 1,734,341 | 1,760,455 | 1,619,224 | | Total Liabilities | 1,894,138 | 1,926,177 | 1,772,422 | | Total Equity | 874,918 | 869,726 | 907,090 | Condensed Consolidated Interim Statements of Cash Flows The condensed consolidated interim statements of cash flows detail the cash generated from or used in operating, investing, and financing activities for the three and nine months ended September 30, 2023, and comparative periods Condensed Consolidated Interim Statements of Cash Flows (Selected Data) | Metric ($ thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Cash Provided by Operating Activities | 46,158 | 40,871 | 71,933 | 120,774 | 166,528 | | Net Cash Used in Investing Activities | — | (2) | (1) | (2) | (5) | | Net Cash (Used in)/Provided by Financing Activities | (66,673) | (66,305) | (83,494) | (23,069) | (95,610) | | Net (Decrease)/Increase in Cash, Cash Equivalents and Restricted Cash | (20,420) | (25,549) | (12,537) | 97,100 | 69,998 | | Cash, Cash Equivalents and Restricted Cash at End of Period | 429,501 | 449,921 | 271,168 | 429,501 | 271,168 | Condensed Consolidated Interim Statement of Changes in Equity The condensed consolidated interim statement of changes in equity illustrates the movements in share capital, treasury shares, additional paid-in capital, and accumulated deficit for the nine months ended September 30, 2023, and 2022, reflecting the impact of net income, dividends, and share-based payments Condensed Consolidated Interim Statement of Changes in Equity (Selected Data) | Metric ($ thousands) | At January 1, 2023 | Share-based payments | Net income | Dividends paid | Distributed treasury shares | At September 30, 2023 | | :------------------- | :----------------- | :------------------- | :--------- | :------------- | :-------------------------- | :-------------------- | | Share Capital | 5,452 | — | — | — | — | 5,452 | | Treasury Shares | (8,082) | — | — | — | 522 | (7,560) | | Additional Paid in Capital | 1,203,407 | 1,386 | — | — | (522) | 1,204,271 | | Accumulated Deficit | (293,687) | — | 100,648 | (134,206) | — | (327,245) | | Total Equity | 907,090 | 1,386 | 100,648 | (134,206) | — | 874,918 | Notes to the Interim Consolidated Accounts General Information & Accounting Principles Flex LNG Ltd. is a Bermuda-registered company focused on LNG transportation, listed on NYSE and OSE. The interim financial statements are unaudited, prepared under U.S. GAAP, and consistent with prior annual statements. No material impact from recent accounting pronouncements is expected - Flex LNG Ltd. is a limited liability company, registered in Bermuda, focused on seaborne transportation of liquefied natural gas (LNG), with ordinary shares listed on NYSE and OSE[89] - The unaudited interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP and are consistent with the accounting policies from the annual financial statements for the year ended December 31, 2022[90][91] - Recently issued accounting pronouncements are not expected to materially impact the Company[92] Earnings Per Share Basic and diluted earnings per share are calculated by dividing net income by the weighted average number of ordinary shares outstanding, with adjustments for dilutive potential ordinary shares. Dividends paid per share are also reported - Basic EPS is calculated by dividing net income by the weighted average number of ordinary shares outstanding[93] - Diluted EPS includes the weighted average number of ordinary shares that would be outstanding if all dilutive potential ordinary shares were issued[94] Earnings Per Share Data | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income | 45,101 | 39,016 | 46,587 | 100,648 | 146,608 | | Weighted Average Number of Ordinary Shares | 53,689,275 | 53,682,140 | 53,171,086 | 53,684,544 | 53,148,397 | | Basic EPS | 0.84 | 0.73 | 0.88 | 1.87 | 2.76 | | Diluted EPS | 0.84 | 0.72 | 0.87 | 1.87 | 2.74 | | Dividends Paid Per Share | (0.75) | (0.75) | (1.25) | (2.50) | (2.75) | Cash, Cash Equivalents and Restricted Cash The company's cash, cash equivalents, and restricted cash balances are detailed, with restricted cash specifically allocated for Norwegian tax authorities related to employee social security Cash, Cash Equivalents and Restricted Cash ($ thousands) | Metric | Sep 30, 2023 | Jun 30, 2023 | Dec 31, 2022 | | :--------------------------- | :----------- | :----------- | :----------- | | Cash and Cash Equivalents | 429,415 | 449,830 | 332,329 | | Restricted Cash | 86 | 91 | 72 | | Total | 429,501 | 449,921 | 332,401 | - Restricted cash is held for Norwegian tax authorities for employee social security[98] Other Current Assets and Liabilities Details of other current assets include trade accounts receivable, accrued income, prepaid expenses, and other receivables. Other current liabilities comprise accrued expenses, deferred charter revenue, and provisions Other Current Assets ($ thousands) | Metric | Sep 30, 2023 | Jun 30, 2023 | Dec 31, 2022 | | :--------------------------- | :----------- | :----------- | :----------- | | Trade Accounts Receivable, Net | 5,410 | 5,409 | 4,859 | | Accrued Income | 9,508 | 7,058 | 2,152 | | Prepaid Expenses | 8,377 | 7,881 | 5,940 | | Other Receivables | 5,378 | 5,669 | 3,376 | | Total | 28,673 | 26,017 | 16,327 | Other Current Liabilities ($ thousands) | Metric | Sep 30, 2023 | Jun 30, 2023 | Dec 31, 2022 | | :--------------------------- | :----------- | :----------- | :----------- | | Accrued Expenses | 17,090 | 22,118 | 20,686 | | Deferred Charter Revenue | 31,630 | 31,771 | 32,963 | | Other Current Liabilities | 964 | 1,328 | 1,673 | | Provisions | 896 | 727 | 247 | | Total | 50,580 | 55,944 | 55,569 | Vessels and Equipment, Net Movements in vessels and equipment, net, for the nine months ended September 30, 2023, reflect additions from drydocking and depreciation. Several vessels completed their first scheduled drydocks during the period Movements in Vessels and Equipment, Net (9M 2023, $ thousands) | Metric | Vessels and Equipment | Drydocks | Total | | :--------------------------- | :-------------------- | :------- | :-------- | | Cost at January 1, 2023 | 2,467,470 | 32,500 | 2,499,970 | | Additions | — | 20,530 | 20,530 | | Disposals | — | (10,000) | (10,000) | | Cost at September 30, 2023 | 2,467,470 | 43,030 | 2,510,500 | | Accumulated Depreciation at January 1, 2023 | (209,647) | (20,377) | (230,024) | | Charge | (49,157) | (5,446) | (54,603) | | Disposals | — | 10,000 | 10,000 | | Accumulated Depreciation at September 30, 2023 | (258,804) | (15,823) | (274,627) | | Net Book Value at January 1, 2023 | 2,257,823 | 12,123 | 2,269,946 | | Net Book Value at September 30, 2023 | 2,208,666 | 27,207 | 2,235,873 | - Flex Enterprise, Flex Endeavour, Flex Ranger, and Flex Rainbow completed their first scheduled drydocks in Singapore and Denmark during March, April, and June 2023[103][104] Capital Commitments & Long-Term Debt The company's capital commitments are primarily related to long-term debt obligations, including sale and leaseback arrangements. Total long-term debt increased to $1,838.0 million as of September 30, 2023, with a detailed breakdown by facility Capital Commitments (Long-Term Debt Obligations, $ thousands) | Period | Sale & Leaseback | Period Repayment | Balloon Repayment | Total | | :---------- | :--------------- | :--------------- | :---------------- | :-------- | | 1 year | 51,603 | 54,361 | — | 105,964 | | 2 years | 52,275 | 54,361 | — | 106,636 | | 3 years | 52,998 | 54,361 | — | 107,359 | | 4 years | 53,751 | 54,361 | — | 108,112 | | 5 years | 54,562 | 46,671 | 250,000 | 351,233 | | Thereafter | 667,880 | 12,973 | 392,786 | 1,073,639 | | Total | 933,069 | 277,088 | 642,786 | 1,852,943 | Long-Term Debt Obligations (as of Sep 30, 2023, $ thousands) | Facility Name | Type | Current Portion | Non-current | Total | | :---------------------------- | :--------------- | :-------------- | :---------- | :---------- | | Flex Resolute $150 Million Facility | Term | 7,647 | 135,083 | 142,731 | | Flex Enterprise $150 Million Facility | Term | 9,549 | 129,111 | 138,660 | | $375 Million Facility | Term and revolving | 21,740 | 330,043 | 351,783 | | $290 Million Facility | Term and revolving | 14,215 | 267,143 | 281,358 | | $320 Million Sale and Leaseback | Sale and leaseback | 18,412 | 271,030 | 289,442 | | $330 Million Sale and Leaseback | Sale and leaseback | 16,715 | 297,659 | 314,374 | | Flex Rainbow Sale and Leaseback | Sale and leaseback | 8,411 | 165,109 | 173,520 | | Flex Volunteer Sale and Leaseback | Sale and leaseback | 6,948 | 139,164 | 146,112 | | Total | | 103,638 | 1,734,342 | 1,837,979 | Financial Instruments & Fair Value The company utilizes interest rate swap agreements to manage interest rate risk, with an aggregate notional principal of $720.0 million. Derivative instruments are measured at fair value, classified under Level 2 inputs, and movements in their fair value and realized gains/losses are detailed - As of September 30, 2023, the company had interest rate swap agreements with an aggregate notional principal of $720.0 million (up from $691.0 million at Dec 31, 2022) to reduce interest rate fluctuation risk[108] - In Q3 2023, the reference rate for some interest rate swap agreements transitioned from LIBOR to SOFR plus a Credit Adjustment Spread (CAS) of 0.26161%[111][115] Gain/(Loss) on Derivatives ($ thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Change in Fair Value of Derivative Instruments | 8,955 | 10,909 | 27,346 | 11,987 | 76,110 | | Realized Gain/(Loss) on Derivative Instruments | 6,684 | 6,201 | 1,103 | 17,916 | (1,303) | | Gain/(Loss) on Derivatives | 15,639 | 17,110 | 28,449 | 29,903 | 74,807 | - Fair value measurements for derivative instruments and debt are classified as Level 2, using discounted expected cash flows and observable market-based inputs[119][121][123][126] Related Party Transactions The company engages in various transactions with related parties, including administration and technical management services, office facilities, and chartering services, as well as administrative support income Summary of Receivables Due From Related Parties ($ thousands) | Related Party | Sep 30, 2023 | Jun 30, 2023 | Dec 31, 2022 | | :--------------------------- | :----------- | :----------- | :----------- | | Seatankers Management Norway AS | — | 15 | 16 | | Frontline Management (Bermuda) Limited | 634 | 942 | — | | Sloane Square Capital Holdings Ltd | 19 | 19 | 9 | | Paratus Management (UK) Limited | 2 | 2 | — | | Total | 655 | 978 | 60 | Summary of Payables Due To Related Parties ($ thousands) | Related Party | Sep 30, 2023 | Jun 30, 2023 | Dec 31, 2022 | | :--------------------------- | :----------- | :----------- | :----------- | | Flex LNG Fleet Management AS | (358) | (715) | (293) | | Total | (358) | (755) | (328) | Summary of Transactions with Related Parties (9M 2023 vs 9M 2022, $ thousands) | Transaction Type | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------- | :-------------------------- | :-------------------------- | | Administration Services Fees | (669) | (642) | | Technical Management Fees | (2,622) | (2,585) | | Office Facilities | (65) | (34) | | Chartering Services Fees | — | (32) | | Administrative Support Income | 187 | 14 | | Total Related Party Transactions | (3,171) | (3,279) | Share Capital, Treasury Shares & Share-Based Compensation The company's share capital remained stable, with no new shares issued under ATM or DRIP in 9M 2023. Treasury shares decreased due to the exercise of share options by management, impacting outstanding non-vested and vested share options - As of September 30, 2023, the company had an issued share capital of $5.5 million, divided into 54,520,325 ordinary shares[134] - No new shares were issued under the at-the-market (ATM) offering or dividend reinvestment plan (DRIP) during the nine months ended September 30, 2023[135] - The company held 784,007 treasury shares at a cost of $7.6 million as of September 30, 2023, a decrease from 838,185 shares at December 31, 2022[136] - In September 2023, 75,250 share options were exercised by management, settled by transferring 54,178 treasury shares[137] - Outstanding non-vested share options decreased to 271,500 (from 488,750 at Dec 31, 2022), while vested share options increased to 142,000 (from nil at Dec 31, 2022)[138][139] Subsequent Events Subsequent to the quarter-end, the Board of Directors declared both a regular quarterly cash dividend of $0.75 per share and a special cash dividend of $0.125 per share for Q3 2023, payable in December 2023 - On November 7, 2023, the Board declared a cash dividend for Q3 2023 of $0.75 per share, payable around December 5, 2023[140] - Additionally, a special cash dividend of $0.125 per share for Q3 2023 was declared, also payable around December 5, 2023[141] Non-GAAP Financial Measures Reconciliation EBITDA and Adjusted EBITDA Reconciliation The company provides reconciliations for EBITDA and Adjusted EBITDA, non-GAAP measures used to supplement understanding of operating performance by excluding items not directly affecting core operations, such as interest, taxes, depreciation, amortization, and certain gains/losses - EBITDA is defined as net income/(loss) plus net interest expense, write-off of debt issuance costs, income tax expense, and depreciation and amortization[151] - Adjusted EBITDA further excludes extinguishment costs paid on long-term debt, gain/loss on derivatives, and foreign exchange gain/loss to provide a clearer view of core operational performance[152] EBITDA and Adjusted EBITDA Reconciliation ($ thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income | 45,101 | 39,016 | 46,587 | 100,648 | 146,608 | | Interest Income | (945) | (1,284) | (649) | (3,918) | (945) | | Interest Expense | 27,543 | 27,203 | 21,563 | 81,069 | 52,058 | | Write-off of Unamortized Debt Issuance Costs | — | — | 1,698 | 8,805 | 3,422 | | Income Tax Expense | 33 | 5 | 27 | 74 | 54 | | Depreciation | 18,736 | 18,251 | 18,204 | 54,606 | 54,020 | | EBITDA | 90,468 | 83,191 | 87,430 | 241,284 | 255,217 | | Extinguishment Costs Paid on Long-Term Debt | — | — | 10,933 | 1,433 | 10,933 | | (Gain)/Loss on Derivatives | (15,639) | (17,110) | (28,449) | (29,903) | (74,807) | | Foreign Exchange (Gain)/Loss | (95) | 113 | 947 | 605 | 1,921 | | Adjusted EBITDA | 74,734 | 66,194 | 70,861 | 213,419 | 193,264 | Adjusted Net Income and Adjusted EPS Reconciliation Adjusted net income and adjusted EPS are non-GAAP measures used to assess financial and operating performance by excluding specific items like debt extinguishment costs, unrealized derivative gains/losses, and foreign exchange impacts, enhancing comparability across periods - Adjusted net income represents earnings before write-off and accelerated amortization of unamortized loan fees, fees in relation to the extinguishment of long-term debt, foreign exchange gains/loss, and gain/loss on derivatives financial instruments held for trading[147] - Adjusted EPS is calculated by dividing adjusted net income by the weighted average number of shares outstanding[147] Adjusted Net Income and Adjusted EPS Reconciliation ($ thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income | 45,101 | 39,016 | 46,587 | 100,648 | 146,608 | | Extinguishment Costs of Long-Term Debt | — | — | 12,631 | 10,238 | 14,355 | | Change in Assets/Liabilities of Derivative Instruments* | (8,955) | (10,909) | (17,958) | (11,987) | (66,722) | | Foreign Exchange (Gain)/Loss | (95) | 113 | 947 | 605 | 1,921 | | Adjusted Net Income | 36,051 | 28,220 | 42,207 | 99,504 | 96,162 | | Weighted Average Number of Ordinary Shares | 53,689,275 | 53,682,140 | 53,171,086 | 53,684,544 | 53,148,397 | | Adjusted Basic Earnings Per Share | 0.67 | 0.53 | 0.79 | 1.85 | 1.81 | - The calculation of Adjusted Net Income was changed in Q3 2022 to deduct changes in derivative instrument assets/liabilities from net income, rather than just gain/loss on derivatives, to better reflect the company's underlying business performance given increased materiality of realized gains/losses[155] Time Charter Equivalent (TCE) Income and Rate Reconciliation TCE income and TCE rate are non-GAAP measures used in the shipping industry to compare revenue performance across different charter types. TCE income is calculated as operating revenues less voyage expenses, while TCE rate is the weighted average daily TCE income - TCE income is defined as operating revenues less voyage expenses, used to compare revenue from voyage charters to time charters[156] - TCE rate represents the weighted average daily TCE income of the entire operating fleet, calculated by dividing TCE income by onhire days[160][161] Time Charter Equivalent Income Reconciliation ($ thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Vessel Operating Revenues | 94,584 | 86,727 | 91,260 | 273,788 | 249,988 | | Less: Voyage Expenses | (421) | (762) | (434) | (1,456) | (2,300) | | Time Charter Equivalent Income | 94,163 | 85,965 | 90,826 | 272,332 | 247,688 | Time Charter Equivalent Rate Reconciliation | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Time Charter Equivalent Income ($ thousands) | 94,163 | 85,965 | 90,826 | 272,332 | 247,688 | | Fleet Onhire Days | 1,189 | 1,113 | 1,196 | 3,452 | 3,548 | | Time Charter Equivalent Rate ($/day) | 79,207 | 77,218 | 75,941 | 78,888 | 69,809 | Operating Expenses per Day Reconciliation Operating Expenses (Opex) per day is a non-GAAP measure used to compare the average daily operating performance of the fleet, calculated by dividing vessel operating expenses by available days - Opex per day represents the weighted average daily vessel operating expenses of the entire operating fleet[164] - It is calculated by dividing vessel operating expenses by the available days during a reporting period, assisting management in evaluating financial and technical performance[165][166] Operating Expenses per Day Reconciliation ($ thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Vessel Operating Expenses | (16,937) | (17,293) | (17,492) | (49,936) | (47,210) | | Available Days | 1,196 | 1,183 | 1,196 | 3,549 | 3,549 | | Opex per Day ($) | (14,161) | (14,618) | (14,625) | (14,071) | (13,302) | Corporate Information & Disclaimers Result Presentation Details Flex LNG hosted a video webcast on November 8, 2023, to discuss its Q3 2023 financial results, with presentation materials available on its website - Flex LNG released its Q3 2023 financial results on November 8, 2023, and hosted a video webcast at 3:00 p.m. CET (9:00 a.m. EST)[68] - Presentation materials and replay details are available on **www.flexlng.com**[69](index=69&type=chunk) Forward-Looking Statements This section provides a cautionary statement regarding forward-looking statements, emphasizing that such statements are based on assumptions and subject to significant uncertainties and contingencies, and actual results may vary materially. The company disclaims any obligation to update these statements - Forward-looking statements are based on various assumptions and are subject to significant uncertainties and contingencies, meaning actual results may differ materially from projections[72] - The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by applicable law[72] - Key factors that could cause actual results to differ include general market conditions, changes in demand, operating expenses, financing availability, governmental regulations, and geopolitical events such as the Russia-Ukraine conflict and developments in the Middle East[73][75] Board of Directors The Board of Directors of Flex LNG Ltd. is listed, with David McManus serving as Chairman - The Board of Directors includes David McManus (Chairman), Steen Jakobsen, Ola Lorentzon, Nikolai Grigoriev, and Susan Sakmar[77][78]