Highlights

• Navigator Holdings Ltd. (the “Company”, “we”, “our” and “us”) (NYSE: NVGS) reported operating revenue of $85.9 million for the three months ended June 30, 2021, compared to $82.5 million for the three months ended June 30, 2020.
• Net income was $0.3 million (earnings per share of $0.01) for the three months ended June 30, 2021, compared to a net income of $3.0 million (earnings per share of $0.05) for the three months ended June 30, 2020.
• Adjusted EBITDA(1) was $28.2 million for the three months ended June 30, 2021, compared to $31.9 million for the three months ended June 30, 2020.
• Fleet utilization was 85.4% for the three months ended June 30, 2021, a reduction from the 88.3% achieved for the three months ended June 30, 2020.
• The ethylene export marine terminal at Morgan’s Point, Texas on the Houston Ship Channel (the “Marine Export Terminal”) had throughput volumes of 155,428 tons for the three months ended June 30, 2021, compared 103,220 tons for the three months ended June 30, 2020.
• Four 12-month time charters with Mitsui & Co. Energy Trading Singapore Pte. Ltd. commenced during the quarter, transporting LPG from Pembina Pipeline Corporation’s new LPG export facility at Prince Rupert, British Columbia, West Coast Canada. A fifth vessel is scheduled to enter service on this route in October 2021.
• Navigator loaded the first cargo from the new 20,000bbls per day Repauno LPG Export Terminal on the U.S. East Coast in April 2021, followed by two similar cargoes loadings in May.
• On August 4, 2021, the Company entered into the previously announced transaction with Naviera Ultranav Limitada (“Ultranav”) to merge the Ultragas ApS (“Ultragas”) fleet and business activities with Navigator. The addition of their 18 vessels will give a combined fleet of 56 vessels which will enhance our capability to provide flexibility, choice and support to our customers.
• In April 2021, we published our inaugural CSR report.

The Company’s financial information for the quarter ended June 30, 2021 included in this press release is preliminary and is subject to change in connection with the completion of the Company’s quarter-end close procedures and further financial review. Actual results may differ from these estimates as a result of the completion of the Company’s quarter-end closing procedures, review adjustments and other developments that may arise between now and the time such financial information for the quarter ended June 30, 2021 is finalized.

Recent Developments

Ultragas Transaction

On August 4, 2021, the Company entered into the previously announced transaction with Naviera Ultranav Limitada (“Ultranav”) to merge the Ultragas ApS (“Ultragas”) fleet and business activities with Navigator. Ultragas’ fleet, which had a broker assessed value of approximately $529.5 million, includes:

• seven modern 22,000cbm handysize semi-refrigerated vessels;
• five 12,000cbm ethylene vessels and;
• six gas carriers in the 3,770-9,000cbm range, three of which are ethylene capable.

The combined fleet of 56 vessels will enhance our capability to provide flexibility, choice and support to our customers.

In line with the original terms of the transaction, Navigator issued approximately 21.2 million new shares of its common stock to Ultranav, in consideration for its vessels less its approximate $180 million debt, giving a calculated price per Navigator share of $16.82. The combined entity has an aggregate net asset value of approximately $1.3 billion, based on internal/external estimates of the fleet, including an appraised $260 million valuation representing Navigator’s 50% ownership of the Marine Export Terminal at Morgan’s Point, Texas.

Market Trends

The Texas-freeze closed the ethylene arbitrage between the U.S. and the rest of the world during March and April of 2021 resulting in minimal ethylene exports from North America. During this period the vast majority of ethylene crackers in Texas and Louisiana that were impacted quickly commenced the necessary repairs and started ramping up production, albeit at less than maximum capacity. The available production was however sufficient to satisfy strong domestic demand and export opportunities. Consequently, the domestic ethylene price fell from a high of $0.64 per gallon to $0.26 per gallon, resulting in very healthy international ethylene arbitrage. Exports again began to flow from the Morgan’s Point Marine Export Terminal and the nearby Targa owned Terminal, which combined exported approximately 80,000mts during each month of June and July, and half of August. Towards the end of the quarter both the delayed start-up of Baystar’s new 600,000mts ethylene cracker, together with unplanned stoppages at Westlake, Sasol and Lyondell crackers, coupled with already low ethylene inventory levels post Texas Freeze, pushed U.S. ethylene prices higher to $0.55 per gallon, leading to a reduction in U.S. ethylene exports. U.S. domestic prices have since reverted to about $0.40 per gallon with more exports flowing to Europe. The pricing forecast for U.S. ethylene remains in backwardation due to the continued price advantage of domestic ethane cracker feedstock, which has remained very competitive within a band of $0.10 to $0.11 per gallon throughout 2021. While North American ethylene export volumes have been volatile throughout the year, ethane demand has increased providing employment opportunities for our ethane capable fleet. With rising oil prices comes more substitution of naphtha as a cracker feedstock by ethane. The North American propylene deficit has in parallel provided increased demand for deep-sea propylene transportation to the U.S. and the Navigator Gas fleet has capitalized on this surge of imports and has experienced record high propylene volumes. The vessels are currently utilizing backhaul opportunities by transporting propylene from Asia to the U.S. Gulf.

Four Navigator handysize semi-refrigerated vessels have now been delivered to the Pembina Canadian West Coast LPG export terminal. These vessels have safely, reliably and efficiently provided a means for the Canadian producers to deliver their cargo to Asian customers, without the need or cost of a Panama Canal transit. This new Transpacific handysize LPG trade is set to expand in October when a fifth vessel is scheduled to enter service on this route. U.S. LPG pricing remains at a high level of around $1.00 per gallon, which is double the price compared to the same period in 2020. The high cost of U.S. propane has dampened North American LPG exports during the last few months according to EIA despite an increasing level of natural gas liquids production within the continent. The forecasted strong oil price environment will continue to support gas production and use.

Results of Operations for the Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2021

The following table compares our operating results for the three months ended June 30, 2020 and 2021:

Operating Revenue. Operating revenue increased by $0.4 million or 0.5% to $80.3 million for the three months ended June 30, 2021, from $79.9 million for the three months ended June 30, 2020. This increase was principally due to:

• an increase in operating revenue of approximately $1.7 million attributable to an increase in average monthly time charter equivalent rates, which increased to an average of approximately $22,181 per vessel per day ($674,680 per calendar month) for the three months ended June 30, 2021, compared to an average of approximately $21,606 per vessel per day ($657,170 per calendar month) for the three months ended June 30, 2020;
• a decrease in operating revenue of approximately $2.1 million as a result of a decrease in fleet utilization to 85.4% for the three months ended June 30, 2021, from 88.3% for the three months ended June 30, 2020;
• a decrease in operating revenue of approximately $2.2 million attributable to seven vessels undertaking dry docking during the three months ended June 30, 2021, for a total of 114 days, compared to two vessels for a total of 44 days during the three months to June 30, 2020; and
• an increase in operating revenue of approximately $3.0 million primarily attributable to an increase in pass through voyage costs, due to more expensive bunker fuel and additional canal transits for the three months ended June 30, 2021, compared to the three months ended June 30, 2020.

The following table presents selected operating data for the three months ended June 30, 2020 and 2021, which we believe are useful in understanding the basis for movement in our operating revenues.

Non-GAAP Financial Measure—Time charter equivalent: Time charter equivalent (“TCE”) rate is a measure of the average daily revenue performance of a vessel. TCE is not calculated in accordance with U.S. GAAP. For all charters, we calculate TCE by dividing total operating revenues, less any voyage expenses, by the number of operating days for the relevant period. Under a time charter, the charterer pays substantially all of the vessel voyage related expenses, whereas for voyage charters, also known as spot market charters, we pay all voyage expenses. TCE rate is a shipping industry performance measure used primarily to compare period-to-period changes in a company’s performance despite changes in the mix of charter types (i.e., spot charters, time charters and contracts of affreightment) under which the vessels may be employed between the periods. We include average daily TCE rate, as we believe it provides additional meaningful information in conjunction with net operating revenues, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. Our calculation of TCE rate may not be comparable to that reported by other companies.

Reconciliation of Operating Revenue to TCE rate

The following table represents a reconciliation of operating revenue to TCE rate. Operating revenue is the most directly comparable financial measure calculated in accordance with U.S. GAAP for the periods presented.

Operating Revenue – Luna Pool collaborative arrangement. Operating revenue – Luna Pool collaborative arrangement, which was our share of the other Luna Pool participants revenue increased by $3.0 million to $5.6 million for the three months ended June 30, 2021, compared to $2.6 million for the three months ended June 30, 2020. This increase relates, in part, to having all fourteen vessels in the Luna Pool for the quarter ended June 30, 2021, compared to an average of 10 vessels for the quarter ended June 30, 2020 and in part to improved utilization and time charter rates for the Luna Pool vessels for the three months ended June 30, 2021, compared to the three months ended June 30, 2020.

Brokerage Commissions. Brokerage commissions, which typically vary between 0.625% and 2.5% of operating revenue, decreased by 25.4%, to $1.0 million for the three months ended June 30, 2021, from $1.3 million for the three months ended June 30, 2020, primarily due to a charter negotiation direct with the charterer where no broker commission is payable.

Voyage Expenses. Voyage expenses increased by 20.5% to $17.7 million for the three months ended June 30, 2021, from $14.7 million for the three months ended June 30, 2020. This was primarily due to an increase in the price of bunkers used by our vessels, despite a reduction in the number of voyage charter days which decreased by approximately 12.0% during the three months ended June 30, 2021, as compared to the three months ended June 30, 2020. These increased voyage costs are typically pass through costs, corresponding to an increase in operating revenue of the same amount.

Voyage Expenses. – Luna Pool collaborative arrangement. Voyage expenses – Luna Pool collaborative arrangement, which was our other Luna Pool participants share of our revenue, was $5.4 million for the three months ended June 30, 2021 compared to $3.0 million for the three months ended June 30, 2020. The Luna Pool became operational during the quarter ended June 30, 2020, and this $2.4 million increase was due to having all fourteen vessels in the Luna Pool for the quarter ended June 30, 2021, compared to an average of 10 vessels for the quarter ended June 30, 2020, as well as improved utilization and time charter rates for the Luna Pool vessels for the three months ended June 30, 2021, compared to the three months ended June 30, 2020.

Vessel Operating Expenses. Vessel operating expenses increased by 8.8% to $28.8 million for the three months ended June 30, 2021, from $26.5 million for the three months ended June 30, 2020. Average daily vessel operating expenses increased by $675 per vessel per day, or 8.8%, to $8,336 per vessel per day for the three months ended June 30, 2021, compared to $7,661 per vessel per day for the three months ended June 30, 2020. This was primarily due to a general reduction in vessel operating expenses across the fleet in the three months ended June 30, 2020, as a result of COVID-19, which resulted in operating costs being deferred to subsequent quarters.

Depreciation and Amortization. Depreciation and amortization expense increased by 0.4% to $19.2 million for the three months ended June 30, 2021, from $19.2 million for the three months ended June 30, 2020. Depreciation and amortization expense included amortization of capitalized drydocking costs of $2.1 million and $2.0 million for the three months ended June 30, 2021, and 2020 respectively.

General and Administrative Costs. General and administrative costs increased by $1.8 million or 39.2% to $6.3 million for the three months ended June 30, 2021, from $4.5 million for the three months ended June 30, 2020. The increase in general and administrative costs was primarily as a result of a gain on a revaluation of an Indonesian Rupiah bank account last year, for the three months ended June 30, 2020, as well as an increase of $0.4 million on D&O insurances for the three months ended June 30, 2021.

Other Income. Other income was $0.1 million for both the three months ended June 30, 2021, and June 30, 2020, and consists of management fees for commercial and administrative activities performed by the Company for the Luna Pool.

Non-operating Results

Foreign Currency Exchange Loss on Senior Secured Bonds. Exchange gains and losses relate to non-cash movements on our 600 million Norwegian Kroner 2018 Bonds which are translated to U.S. Dollar at the prevailing exchange rate as of June 30, 2021. The foreign currency exchange gain of $0.3 million for the three months ended June 30, 2021, was as a result of the Norwegian Kroner weakening against the U.S. dollar, being NOK 8.6 to USD 1.0 as of June 30, 2021, compared to NOK 8.5 to USD 1.0 as of March 31, 2021. The foreign currency exchange loss of $4.9 million for the three months ended June 30, 2020, was as a result of the Norwegian Kroner strengthening against the U.S. dollar, being NOK 9.7 to USD 1.0 as of June 30, 2020, compared to NOK 10.5 to USD 1.0 as of March 31, 2020.

Unrealized Gain on Non-designated Derivative Instruments. The unrealized loss on non-designated derivative instruments of $0.3 million for the three months ended June 30, 2021, relates to the fair value movement in our cross-currency interest rate swap and is primarily due to the weakening of the Norwegian Kroner against the U.S. dollar. The unrealized gain on this swap for the three months ended June 30, 2020, was $6.4 million.

Interest Expense. Interest expense decreased by $2.5 million, or 22.3%, to $8.6 million for the three months ended June 30, 2021, from $11.1 million for the three months ended June 30, 2020. This is primarily as a result of a reduction in 3-month US LIBOR interest rates.

Income Taxes. Income taxes related to taxes on our subsidiaries incorporated in the United Kingdom, Poland and Singapore and our consolidated variable interest entity (“VIE”), incorporated in Malta. For the three months ended June 30, 2021, we had a tax charge of $190,000 compared to taxes of $168,000 for the three months ended June 30, 2020.

Share of result of equity accounted joint venture. The share of result of the Company’s 50% ownership in the Export Terminal Joint Venture was a gain of $2.0 million for the three months ended June 30, 2021, primarily as a result of increased volumes through the Marine Export Terminal, compared to a loss of $0.2 million for the three months ended June 30, 2020, as a result of initial startup volumes following the operational commencement of the Marine Export Terminal in January 2020.

Non-Controlling Interest. We have entered into a sale and leaseback arrangement with a wholly-owned special purpose vehicle (“lessor SPV”) of a financial institution. While we do not hold any equity investments in this lessor SPV, we have determined that we are the primary beneficiary of this entity and accordingly, we are required to consolidate this VIE into our financial results. Thus, the income attributable to the financial institution of $0.4 million is presented as the non-controlling interest in our financial results.

Results of Operations for the Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2021

The following table compares our operating results for the six months ended June 30, 2020 and 2021:

Operating Revenue. Operating revenue, net of address commission, decreased by $0.3 million or 0.2% to $160.8 million for the six months ended June 30, 2021, from $161.1 million for the six months ended June 30, 2020. This increase was principally due to:

• an increase in operating revenue of approximately $5.0 million attributable to an increase in average monthly time charter equivalent rates, which increased to an average of approximately $22,064 per vessel per day ($671,100 per vessel per calendar month) for the six months ended June 30, 2021, compared to an average of approximately $21,228 per vessel day ($645,700 per vessel per calendar month) for the six months ended June 30, 2020;
• a decrease in operating revenue of approximately $3.7 million attributable to a reduction in vessel available days of 234 days or 3.4% for the six months ended June 30, 2021, due to an increase in the number dry dockings undertaken during the six months ended June 30, 2021 compared to the relatively low number of dry dockings undertaken for the six months ended June 30, 2020 as a result of the COVID-19 lockdowns at that time;
• a decrease in operating revenue of approximately $2.7 million attributable to a decrease in fleet utilization which was 87.3% for the six months ended June 30, 2021 compared to 88.7% for the six months ended June 30, 2020; and
• an increase in operating revenue of approximately $1.1 million primarily attributable to an increase in pass through voyage costs, due to additional fuel and canal transit costs for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The following table presents selected operating data for the six months ended June 30, 2020 and 2021, which we believe are useful in understanding the basis for movement in our operating revenues.

Non-GAAP Financial Measure—Time charter equivalent: Time charter equivalent (“TCE”) rate is a measure of the average daily revenue performance of a vessel. TCE is not calculated in accordance with U.S. GAAP. For all charters, we calculate TCE by dividing total operating revenues, less any voyage expenses, by the number of operating days for the relevant period. Under a time charter, the charterer pays substantially all of the vessel voyage related expenses, whereas for voyage charters, also known as spot market charters, we pay all voyage expenses. TCE rate is a shipping industry performance measure used primarily to compare period-to-period changes in a company’s performance despite changes in the mix of charter types (i.e., spot charters, time charters and contracts of affreightment) under which the vessels may be employed between the periods. We include average daily TCE rate, as we believe it provides additional meaningful information in conjunction with net operating revenues, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. Our calculation of TCE rate may not be comparable to that reported by other companies.

Reconciliation of Operating Revenue to TCE rate

The following table represents a reconciliation of operating revenue to TCE rate. Operating revenue is the most directly comparable financial measure calculated in accordance with U.S. GAAP for the periods presented.

Operating Revenue – Luna Pool collaborative arrangement. Operating revenue – Luna Pool collaborative arrangement, which was our share of the other Luna Pool participants revenue, was $10.8 million for the six months ended June 30, 2021 compared to $2.6 million for the six months ended June 30, 2020. The Luna Pool became operational during the quarter ended June 30, 2020 and consequently there was no Operating Revenue – Luna Pool collaborative arrangement during the first three months ended March 31, 2020 and a reduced share of the other Luna Pool participants revenue during the initial quarter of its operations.

Brokerage Commissions. Brokerage commissions, which typically vary between 0.625% and 2.5% of operating revenue, reduced by 15.4%, to $2.2 million for the six months ended June 30, 2021, from $2.6 million for the six months ended June 30, 2020, primarily due to a charter negotiation direct with the charterer where no broker commission is payable.

Voyage Expenses. Voyage expenses increased by 3.4% to $33.4 million for the six months ended June 30, 2021, from $32.3 million for the six months ended June 30, 2020. This was primarily due to an increase in the price of bunkers used by our vessels. These increased voyage costs are pass through costs, corresponding to an increase in operating revenue of the same amount.

Voyage Expenses. – Luna Pool collaborative arrangement. Voyage expenses – Luna Pool collaborative arrangement, which was our other Luna Pool participants share of our revenue, was $9.6 million for the six months ended June 30, 2021 an increase of $6.6 million compared to the $3.0 million for the six months ended June 30, 2020. The Luna Pool became operational during the quarter ended June 30, 2020 and consequently there were no Voyage Expenses – Luna Pool collaborative arrangement during the first three months ended March 31, 2020 and a reduced share of the other Luna Pool participants share of our revenue during the initial quarter of its operations.

Vessel Operating Expenses. Vessel operating expenses increased by 3.6% to $55.8 million for the six months ended June 30, 2021, from $53.9 million for the six months ended June 30, 2020. Average daily vessel operating expenses increased by $322 per vessel per day, or 4.1%, to $8,115 per vessel per day for the six months ended June 30, 2021, compared to $7,793 per vessel per day for the six months ended June 30, 2020. This was primarily due to a general reduction in vessel operating expenses across the fleet in the six months ended June 30, 2020 as a result of COVID-19, which resulted in operating costs being deferred to subsequent quarters.

Depreciation and Amortization. Depreciation and amortization expense increased by 0.4% to $38.5 million for the six months ended June 30, 2021, from $38.4 million for the six months ended June 30, 2020. Depreciation and amortization expense included amortization of capitalized drydocking costs of $4.3 million and $4.1 million for the six months ended June 30, 2021 and 2020 respectively.

General and Administrative Costs. General and administrative costs increased by $1.5 million or 14.0% to $12.6 million for the six months ended June 30, 2021, from $11.0 million for the six months ended June 30, 2020. This increase in general and administrative costs was primarily due to additional insurance costs of $0.9 million for D&O insurances.

Full Report

Source: Navigator Holdings Ltd.

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