FLEX LNG .(FLNG) - 2023 Q4 - Annual Report

Interim Financial Information This section presents the company's unaudited interim financial results, operational performance, market insights, and detailed financial disclosures for the periods ended December 31, 2023 Financial and Operational Highlights For the fourth quarter of 2023, Flex LNG reported a net income of $19.4 million, with basic earnings per share of $0.36, Adjusted EBITDA stood at $76.2 million, and the company declared a quarterly dividend of $0.75 per share, while operationally, the charterer for Flex Resolute extended its contract, and the option for Flex Constellation was not utilized Q4 2023 Key Financial Metrics | Metric | Q4 2023 | Q3 2023 | | :--- | :--- | :--- | | Net Income | $19.4 million | $45.1 million | | Basic EPS | $0.36 | $0.84 | | Adjusted EBITDA | $76.2 million | $74.7 million | | Adjusted Net Income | $37.8 million | $36.1 million | | Adjusted Basic EPS | $0.70 | $0.67 | | Vessel Operating Revenues | $97.2 million | $94.6 million | | Average TCE Rate | $81,114/day | $79,207/day | - The Board of Directors declared a cash dividend of $0.75 per share for Q4 2023, payable around March 5, 2024[82] - In January 2024, the charterer of Flex Resolute extended the firm period by an additional two years to Q1 2027[88] - The charterer of Flex Constellation did not utilize its extension option; the vessel will be redelivered and marketed for new contracts after its scheduled dry-docking[87] CEO Commentary The CEO highlighted that the company successfully met its 2023 guidance for revenues, TCE rate, and Adjusted EBITDA, delivering revenues of $371 million, and despite anticipating a more challenging freight market in the next two years, the company is well-positioned with 94% charter coverage for 2024 and a strong balance sheet, declaring a quarterly dividend of $0.75 per share, totaling $3.125 per share for 2023 - Delivered on all 2023 guidance: revenues of $371 million (vs. ~$370M guided), full-year TCE rate of $79,500/day (vs. ~$80,000 guided), and Adjusted EBITDA of $290 million (vs. $290-295M guided)[91][92] - The company is well-positioned for a potentially challenging market with 94% charter coverage for 2024 and a minimum firm charter backlog of 50 years[93] - The Board declared a quarterly dividend of $0.75 per share, with total dividends for 2023 amounting to $3.125 per share, providing an approximate 11% annual yield[94] Business Update and Fleet Overview The company's firm contract coverage is 94% for the remainder of 2024, with an aggregate firm contract backlog of 50 years, potentially increasing to 71 years with options, while technical uptime was 100% in Q4 2023, and the fleet consists of 13 modern LNG carriers, holding $410.5 million in cash and $1,812.1 million in long-term debt as of year-end 2023 - Firm contract coverage for the remainder of 2024 is 94%, and the aggregate firm contract backlog is 50 years, with the potential to increase to 71 years if all charterer options are exercised[97] - Recent charter updates include the non-extension of Flex Constellation's charter, making it available in Q2 2024, and a two-year extension for Flex Resolute, securing its contract until Q1 2027[95][96] Financial Position as of Dec 31, 2023 | Item | Amount (millions) | | :--- | :--- | | Cash, cash equivalents and restricted cash | $410.5 | | Total long-term debt | $1,812.1 | - The company has interest rate swap agreements with an aggregate net notional principal of $720.0 million, swapping floating rates to a weighted average fixed rate of 1.35%[101] Financial Results Analysis This section provides a detailed comparison of financial performance, where for Q4 2023 versus Q3 2023, revenues increased to $97.2 million, but a loss on derivatives led to a lower net income of $19.4 million, and for the full year 2023 versus 2022, revenues grew to $371.0 million from $347.9 million, driven by higher charter rates, but higher interest expenses and lower gains on derivatives resulted in a decreased net income of $120.0 million for 2023 compared to $188.0 million in 2022 Q4 2023 vs Q3 2023 Performance In Q4 2023, vessel operating revenues rose to $97.2 million from $94.6 million in Q3, driven by higher spot market rates, but a significant loss on derivatives of $11.6 million (compared to a $15.6 million gain in Q3) due to falling forward interest rates caused net income to decrease to $19.4 million from $45.1 million, while Adjusted EBITDA increased slightly to $76.2 million Q4 2023 vs Q3 2023 Financial Comparison | Metric (in millions) | Q4 2023 | Q3 2023 | | :--- | :--- | :--- | | Vessel Operating Revenues | $97.2 | $94.6 | | Vessel Operating Expenses | $18.4 | $16.9 | | (Loss)/Gain on Derivatives | $(11.6) | $15.6 | | Net Income | $19.4 | $45.1 | | Adjusted EBITDA | $76.2 | $74.7 | FY 2023 vs FY 2022 Performance For the full year 2023, vessel operating revenues increased to $371.0 million from $347.9 million in 2022, due to improved long-term contracts and a stronger spot market, and despite higher revenues, net income fell to $120.0 million from $188.0 million, primarily due to a significant increase in interest expense ($108.7 million vs. $76.6 million) and a smaller gain on derivatives ($18.3 million vs. $79.7 million), with Adjusted EBITDA for 2023 at $289.6 million, up from $272.3 million in 2022 Full Year 2023 vs 2022 Financial Comparison | Metric (in millions) | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Vessel Operating Revenues | $371.0 | $347.9 | | Interest Expense | $108.7 | $76.6 | | Gain on Derivatives | $18.3 | $79.7 | | Net Income | $120.0 | $188.0 | | Adjusted EBITDA | $289.6 | $272.3 | - The Time Charter Equivalent (TCE) rate for FY 2023 increased to $79,461 per day from $72,806 per day in FY 2022[122] Cash Flow and Balance Sheet As of December 31, 2023, the company's cash position was strong at $410.5 million, with net cash from operating activities in Q4 at $54.3 million, and total long-term debt increased to $1,812.1 million from $1,714.7 million at year-end 2022 due to refinancing activities, while total equity decreased to $847.7 million from $907.1 million, mainly because dividend payments of $181.2 million exceeded the net income of $120.0 million for the year - Net cash provided by operating activities was $54.3 million in Q4 2023, up from $46.2 million in Q3 2023[131] - Net cash used in financing activities was $73.5 million in Q4 2023, primarily due to dividend payments of $47.0 million and debt repayments[133][167] - Total equity decreased from $907.1 million at YE 2022 to $847.7 million at YE 2023, as dividends paid ($181.2M) outpaced net income ($120.0M)[138] LNG Market Update The LNG market saw spot charter rates decline in Q4 2023 from their Q3 peak due to mild winter conditions, while global LNG trade volume grew 3% to a record 412MT in 2023, with the US leading exports, and China regaining its status as the world's largest LNG importer, with the market anticipating a tighter balance from 2026 onwards, and in 2024, approximately 14MTPA of new export volume is expected, while 69 newbuild vessels are scheduled for delivery, creating near-term supply pressure - LNG spot freight rates peaked in Q3 2023 and declined in Q4 due to mild weather, though they remained at elevated levels, averaging around $93,000-$97,000/day for 2023[140] - Global LNG trade volume reached a record high of 412MT in 2023, a 3% increase, with the US as the leading exporter, and China becoming the largest importer again[143][144] - The LNG carrier fleet is growing, with 69 newbuilds scheduled for delivery in 2024, compared to ~14MTPA of new export volumes expected to be added, suggesting potential near-term market softness[145][147] - The Biden administration's halt on new LNG project approvals could risk delays for future Final Investment Decisions (FIDs), particularly for US-based projects[146] Financial Statements This section contains the unaudited condensed consolidated financial statements for the periods ended December 31, 2023, including the Statements of Comprehensive Income, Balance Sheets, Statements of Cash Flows, and Statement of Changes in Equity Condensed Consolidated Statements of Comprehensive Income Presents the company's revenues, expenses, and net income for the three months and year ended December 31, 2023, compared to the same periods in 2022 Condensed Consolidated Balance Sheets Details the company's assets, liabilities, and equity as of December 31, 2023, compared to September 30, 2023, and December 31, 2022 Condensed Consolidated Interim Statements of Cash Flows Outlines the cash flows from operating, investing, and financing activities for the three months and year ended December 31, 2023, and 2022 Condensed Consolidated Interim Statement of Changes in Equity Shows the changes in the company's equity components, including share capital, treasury shares, and accumulated deficit, for the years ended December 31, 2023, and 2022 Notes to the Interim Consolidated Accounts This section provides detailed explanations and supplementary information for the line items presented in the consolidated financial statements, covering accounting policies, earnings per share, debt, financial instruments, related party transactions, and other key financial details Note 3: Earnings per share This note details the calculation of basic and diluted earnings per share (EPS), where for the year ended December 31, 2023, basic EPS was $2.24 and diluted EPS was $2.22, and dividends paid per share for the full year totaled $3.38 Earnings and Dividends Per Share | Per Share Data | Q4 2023 | Q3 2023 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Basic EPS | $0.36 | $0.84 | $2.24 | $3.53 | | Diluted EPS | $0.36 | $0.84 | $2.22 | $3.51 | | Dividends Paid | $(0.88) | $(0.75) | $(3.38) | $(3.50) | Note 7: Vessels and equipment, net The net book value of vessels and equipment decreased from $2,269.9 million at the start of 2023 to $2,217.3 million at year-end, reflecting a depreciation charge of $73.4 million, partially offset by $20.7 million in additions for drydocks, with four vessels completing their first scheduled drydocks during 2023 Movement in Vessels and Equipment, Net (in thousands) | Description | Amount | | :--- | :--- | | Net Book Value at Jan 1, 2023 | $2,269,946 | | Additions (Drydocks) | $20,714 | | Depreciation Charge | $(73,359) | | Disposals | $0 | | Net Book Value at Dec 31, 2023 | $2,217,301 | - Flex Enterprise, Flex Endeavour, Flex Ranger, and Flex Rainbow all completed their first scheduled drydocks in 2023[11][12] Note 9: Long-term debt As of December 31, 2023, the company's total long-term debt obligations amounted to $1,812.1 million, an increase from $1,714.7 million at the end of 2022, with the debt spread across various term loans and sale and leaseback facilities Long-Term Debt Summary (in millions) | Date | Total Long-Term Debt | | :--- | :--- | | Dec 31, 2023 | $1,812.1 | | Dec 31, 2022 | $1,714.7 | Note 10: Financial Instruments To manage interest rate risk, the company utilizes interest rate swap agreements, and as of December 31, 2023, these agreements covered an aggregate notional principal of $720.0 million, with the company recording a total gain on derivatives of $18.3 million for the full year 2023, comprising a $25.0 million realized gain and a $6.7 million unrealized loss - The company has interest rate swap agreements on an aggregate notional principal of $720.0 million as of December 31, 2023, to swap floating interest rates to fixed rates[15] Gain/(Loss) on Derivatives (in thousands) | Period | Change in Fair Value | Realized Gain/(Loss) | Total Gain/(Loss) | | :--- | :--- | :--- | :--- | | Q4 2023 | $(18,673) | $7,051 | $(11,622) | | FY 2023 | $(6,686) | $24,967 | $18,281 | Note 16: Subsequent Events Following the end of the fourth quarter, the charterer of Flex Constellation did not exercise its extension option, with the vessel expected to be redelivered in Q1/Q2 2024, and conversely, the charterer of Flex Resolute exercised a two-year extension option, extending the firm charter period to Q1 2027, while the Board declared a Q4 2023 dividend of $0.75 per share in February 2024 - In January 2024, the charterer of Flex Constellation did not utilize its extension option, and the vessel is expected to be redelivered in Q1 or early Q2 2024[43] - In January 2024, the charterer of Flex Resolute exercised its first extension option, extending the firm charter period by two years to Q1 2027[44] - On February 6, 2024, the Board of Directors declared a cash dividend of $0.75 per share for Q4 2023[45] Non-GAAP Financial Measures Reconciliations This section provides reconciliations of non-GAAP financial measures to their most directly comparable U.S. GAAP counterparts, including detailed tables for EBITDA and Adjusted EBITDA, Adjusted Net Income and Adjusted EPS, Time Charter Equivalent (TCE) Income and Rate, and Operating Expenses (Opex) per day, which are used by management and analysts to assess performance Reconciliation to EBITDA and Adjusted EBITDA This reconciliation bridges Net Income to EBITDA and Adjusted EBITDA, where for the full year 2023, Net Income of $120.0 million reconciled to an EBITDA of $306.1 million and an Adjusted EBITDA of $289.6 million EBITDA and Adjusted EBITDA Reconciliation (FY 2023, in thousands) | Line Item | Amount | | :--- | :--- | | Net income | $120,039 | | Interest expense, net & other | $112,739 | | Depreciation | $73,363 | | EBITDA | $306,141 | | Adjustments (Derivatives, etc.) | $(16,498) | | Adjusted EBITDA | $289,643 | Reconciliation to Adjusted Net Income and Adjusted EPS This table adjusts Net Income for non-recurring or non-operational items like extinguishment costs of debt and changes in derivative values, where for the full year 2023, Net Income of $120.0 million was adjusted to an Adjusted Net Income of $137.3 million, resulting in an Adjusted Basic EPS of $2.56 Adjusted Net Income Reconciliation (FY 2023, in thousands) | Line Item | Amount | | :--- | :--- | | Net income | $120,039 | | Extinguishment costs of long-term debt | $10,238 | | Change in assets/liabilities of derivative instruments | $6,686 | | Foreign exchange (gain)/loss | $350 | | Adjusted net income | $137,313 | Reconciliation to Time Charter Equivalent (TCE) This section defines and calculates Time Charter Equivalent (TCE) income and rate, a standard shipping industry metric, where for the full year 2023, vessel operating revenues of $371.0 million translated to a TCE income of $369.3 million, yielding an average TCE rate of $79,461 per day TCE Rate Calculation (FY 2023) | Metric | Value | | :--- | :--- | | Vessel operating revenues | $371,022 thousand | | Voyage expenses | $(1,678) thousand | | Time charter equivalent income | $369,344 thousand | | Fleet onhire days | 4,648 | | Time charter equivalent rate | $79,461 / day |