Navigator .(US:NVGS)2022-04-28 21:28PART I Key Information This section presents selected historical financial data and outlines significant business, stock, and tax-related risks Selected Financial Data The company's financial performance from 2017-2021 shows revenue growth but a net loss in 2021 due to vessel impairment Selected Historical Financial Data (2017-2021) | Indicator | 2017 | 2018 | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $298.6M | $310.0M | $301.4M | $332.5M | $406.5M | | Operating Income/(Loss) | $47.2M | $41.5M | $32.6M | $41.8M | ($3.0M) | | Net Income/(Loss) Attributable to Stockholders | $5.3M | ($5.7M) | ($16.7M) | ($0.4M) | ($31.0M) | | EPS (Basic & Diluted) | $0.10 | ($0.10) | ($0.30) | ($0.01) | ($0.48) | | Total Assets | $1,853.9M | $1,832.8M | $1,874.3M | $1,839.4M | $2,157.4M | | Net Cash from Operating Activities | $75.9M | $77.5M | $49.7M | $44.7M | $98.0M | | Adjusted EBITDA | $120.8M | $117.6M | $107.7M | $119.1M | $160.3M | Key Operational Metrics (2017-2021) | Metric | 2017 | 2018 | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Fleet Utilization | 87.6% | 89.0% | 86.8% | 86.8% | 87.4% | | Time Charter Equivalent (TCE) Rate | $21,018 | $20,284 | $20,831 | $21,573 | $22,145 | | Daily Vessel Operating Expenses | $7,635 | $7,694 | $8,037 | $7,873 | $7,954 | - In 2021, the company recorded a significant vessel impairment loss of $63.6 million, which was a primary driver of the net loss for the year2364 Risk Factors The company faces risks from charter rate cyclicality, customer dependency, geopolitical events, and internal control weaknesses - The international liquefied gas carrier market is cyclical, leading to volatility in charter rates, profitability, and vessel values42 - A significant portion of revenue is generated from a limited number of customers; in 2021, two customers accounted for approximately 20.7% of total operating revenues55 - The conflict between Russia and Ukraine could disrupt supply chains, impact charterparties with a Russian counterparty, and create crewing challenges798081 - The company has identified and is working to remediate a material weakness in its internal control over financial reporting related to a lack of sufficient accounting personnel181 - Major shareholders BW Group and Ultranav collectively own approximately 55.8% of the company's common stock, allowing them to exert considerable influence173 Information on the Company The company owns the world's largest fleet of handysize liquefied gas carriers and details its history, operations, and strategy History and Development of the Company Navigator Holdings Ltd was formed in 1997, completed its IPO in 2013, and acquired the Ultragas fleet in 2021 - The company was formed in 1997, redomiciled to the Marshall Islands in 2008, and completed its IPO on the NYSE (ticker: NVGS) in November 2013204205 - In August 2021, the company acquired the fleet and businesses of Ultragas by issuing 21,202,671 shares of common stock to Ultranav205 Business Overview The company operates a fleet of 53 liquefied gas carriers and a 50% stake in a marine export terminal, serving major energy companies - The company owns and operates 53 liquefied gas carriers and holds a 50% share in an ethylene export marine terminal with a capacity of one million tons per year206212 - Key business strategies include maximizing terminal throughput, achieving synergies from the Ultragas merger, and capitalizing on growing demand for seaborne ethane and ethylene transport213 - As of December 31, 2021, the fleet consisted of 55 vessels, with 26 on time charters and 17 in the spot market221 - The company provides in-house technical management for 33 of its 53 vessels, with the remaining 20 managed by third parties247 - Operations are subject to extensive environmental regulations, including MARPOL Annex VI air emission standards and the U.S. Oil Pollution Act of 1990 (OPA 90)285290302 Operating and Financial Review and Prospects This section analyzes the company's 2021 financial performance, liquidity, market trends, and critical accounting estimates Operating Results Operating revenues increased 22.3% in 2021, but a $63.6 million vessel impairment led to a significant net loss Comparison of Operating Results (2020 vs. 2021) | Metric | 2020 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Operating Revenues | $332.5M | $406.5M | 22.3% | | Total Operating Expenses | $290.7M | $409.4M | 40.8% | | Operating Income / (Loss) | $41.8M | ($3.0M) | -107.2% | | Impairment Losses on Vessels | $0 | $63.6M | N/A | | Share of Result of Equity Method Investments | $0.7M | $11.1M | 1612.3% | | Net Loss Attributable to Stockholders | ($0.4M) | ($31.0M) | -6912.4% | - The increase in 2021 operating revenue was primarily due to a 6.1% increase in vessel available days and a rise in average TCE rates to $22,145/day417418 - Vessel operating expenses increased by 19.8% to $131.2 million in 2021, while general and administrative costs rose 21.0% to $28.9 million425428 - The company recorded a $63.6 million impairment loss on eight vessels in 2021 after reducing the estimated useful life of vessels from 30 to 25 years427559 Liquidity and Capital Resources The company maintains strong liquidity with $124.2 million in cash and reports total outstanding debt of $993.1 million at year-end 2021 - As of December 31, 2021, the company had $124.2 million in cash and cash equivalents and $22.8 million available from credit facilities464 Summary of Cash Flows (in thousands) | Cash Flow Activity | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $49,700 | $44,673 | $97,989 | | Net Cash (Used in)/Provided by Investing Activities | ($90,409) | ($16,151) | $33,057 | | Net Cash Provided by/(Used in) Financing Activities | $35,324 | ($35,381) | ($66,094) | - The company has various debt instruments including secured term loans, NOK 600 million senior secured bonds due 2023, and $100 million senior unsecured bonds due 2025484495520527 - Debt facilities contain financial covenants, including maintaining minimum liquidity of $50.0 million and a minimum equity ratio of 30%, with which the company was in compliance516518525 Trend Information Key business trends include risks from the Russia-Ukraine conflict, strong terminal performance, and positive shipping market dynamics - The Russian invasion of Ukraine creates uncertainty, potentially affecting four charterparties and the crewing of vessels with approximately 120 Russian and Ukrainian officers540542543 - The Marine Export Terminal achieved a record monthly export of 106,000 metric tons of ethylene in January 2022544 - Vessel utilization improved significantly from 80.8% in September 2021 to 95.4% in December 2021, with handysize freight rates rising 15% in Q4 2021545 - A high oil price environment is making U.S. ethane-based ethylene more competitive globally, increasing demand for exports547 Critical Accounting Estimates Key estimates involve vessel valuation and impairment, with a change in useful life triggering a $58.2 million impairment charge in 2021 - The valuation of vessels acquired in the Ultragas Transaction was a critical estimate, using a discounted cash flow model551553 - In 2021, the company reduced the estimated useful life of its vessels from 30 to 25 years, which triggered an impairment review559 - The impairment review indicated that eight vessels were impaired, leading to an aggregate impairment loss of $58.2 million recognized in 2021559810 - The impairment analysis relies on subjective assumptions, including 10-year historical average TCE rates for unfixed vessels561 Directors, Senior Management and Employees This section details the company's board composition, executive compensation, committee structure, and employee count - The Board of Directors includes designees from major shareholders Naviera Ultranav Limitada and BW Group566571572 - Executive officers include Oeyvind Lindeman (CCO), Niall Nolan (CFO), and Michael Schroder (Executive Officer)575576577 - For fiscal year 2021, aggregate cash compensation for all officers was $1.4 million, supplemented by 22,135 shares of restricted stock582584 - The company had 124 employees as of December 31, 2021, an increase from 80 employees at the end of 2020612 Major Shareholders and Related Party Transactions BW Group and Ultranav collectively own a majority stake of 55.8% and have significant influence through Investor Rights Agreements Major Shareholders as of April 27, 2022 | Beneficial Owner | Shares Beneficially Owned | Percentage | | :--- | :--- | :--- | | BW Group | 21,874,716 | 28.3% | | Naviera Ultranav Limitada | 21,202,671 | 27.5% | | Neil Gagnon | 4,058,179 | 5.3% | - The company entered into Investor Rights Agreements with BW Group and Ultranav, providing each with the right to designate two members to the board of directors619620 Financial Information The company does not anticipate paying dividends in the near term and reports no material legal proceedings - The company does not anticipate declaring or paying any cash dividends in the near term and plans to retain earnings for business growth624 - The company is not aware of any legal proceedings or claims that would have a material adverse effect on its financial statements623 Additional Information This section outlines material contracts, U.S. federal income tax consequences, and the company's non-PFIC status - Material contracts include multiple secured credit facilities, bond agreements, the PTNK Joint Venture Agreement, and Investor Rights Agreements632633634 - The company believes it was not a Passive Foreign Investment Company (PFIC) for any prior taxable year and does not expect to be one in the future197199649 - As a Marshall Islands corporation, the company is not subject to Republic of the Marshall Islands income, capital gains, or withholding taxes667 Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from interest rates, foreign currency exchange rates, and inflation - The company is exposed to interest rate risk on $466.3 million of outstanding variable-rate debt; a 1% change in LIBOR would result in a $4.7 million change in annual interest expense675 - Foreign currency risk is primarily associated with NOK 600 million in senior secured bonds, which is economically hedged using a cross-currency interest rate swap679 - Inflation poses a risk to operating expenses such as crewing, insurance, and drydocking costs681 PART II Controls and Procedures Disclosure controls were deemed ineffective as of year-end 2021 due to an unremediated material weakness in financial reporting - Management concluded that disclosure controls and procedures were not effective as of December 31, 2021688 - A material weakness in internal control over financial reporting persists, relating to a lack of sufficient accounting personnel with expertise in U.S. GAAP and SEC requirements691693 - The audit of internal controls for 2021 excluded the newly acquired Ultragas entities, which represented approximately 19% of consolidated total assets695 Corporate Governance and Accountant Information This section covers the change in principal accountant, audit committee composition, and differences from NYSE governance standards - The company changed its independent registered public accounting firm from Ernst & Young LLP to PricewaterhouseCoopers LLP, effective November 30, 2021699708 - The change in auditors was not the result of any disagreements on accounting principles or practices708 - As a foreign private issuer, the company's corporate governance practices differ from NYSE standards for U.S. companies, notably in committee structure710711713 PART III Financial Statements This section contains the company's audited consolidated financial statements and reports from its independent auditors Notes to the Consolidated Financial Statements The notes detail key accounting policies, the Ultragas acquisition, debt facilities, and subsequent events - The company completed the acquisition of Ultragas on August 4, 2021, for a total consideration of $410.4 million863864 - In 2021, the company changed its estimate for the useful life of its vessels from 30 years to 25 years, resulting in a $58.2 million impairment charge on eight vessels810 - The company has multiple debt facilities with various financial covenants and was in compliance with all covenants as of December 31, 2021939944947 - Subsequent to year-end, the company sold two older vessels in January and March 2022 for combined proceeds of $27.1 million10331034