Flex LNG Q3-2026 Video Webcast - FLEX LNG LTD

Financial Performance:

• Q3 revenue reached $97.4 million ($95.2 million excluding EUAs), the company's strongest quarterly result to date.
• Fleet average Time Charter Equivalent (TCE) was approximately $79,000 per day.
• Net income was $42.8 million ($0.79 per share); adjusted net income was $35 million ($0.65 per share) excluding non-cash interest rate swap gains.
• Operating expenses (OPEX) totaled $19.5 million, or $16,300 per day; full-year OPEX guidance updated to $16,200 per day due to higher crew and travel costs.
• Strong cash flow from operations generated $56 million, down from $63 million in Q2 due to lower revenues and $13 million in working capital changes.
• Cash balance stood at $371 million at quarter-end; net hedge ratio for interest rates is maintained at 70–75%.
• Book equity ratio is 28%; interest rate portfolio average fixed rate is 2.46% on a notional value of $775 million.

Guidance and Future Outlook:

• Full-year guidance remains unchanged: Revenue $345–370 million, TCE $73–78k/day, Adjusted EBITDA $255–280 million; expected to finish in the mid-to-lower end of guidance.
• Board declared a Q3 dividend of $0.75 per share (21st consecutive at this level), paying out over $900 million since 2021; 12-month dividend yield approx. 11.5%.
• Market outlook rating remains "orange" due to soft spot market conditions and heavy newbuilding deliveries in 2025.
• Backlog visibility downgraded to "orange" due to two vessels in the spot market with potential additional spot exposure in 2026.
• Total firm backlog is 48 years, potentially growing to 75 years if all options are exercised; Flex Enterprise, Flex Artemis, and Flex Volunteer are key contract contributors.

Business Segments and Product Lines:

• Fleet performance driven by strong spot market earnings from Flex Artemis and Flex Volunteer.
• New financing announced for Flex Enterprise via sale-and-leaseback at a blended cost of SOFR + 25 bps, closing in Q4 and freeing ~$34 million liquidity.
• Existing leases for Flex Artemis and Flex Amber amended to reduce margins from 250 bps to 140 bps and extend repayment profiles.
• Flex Ranger expected back in the market in Q1 2025; Flex Freedom charter has an extension option due later in the quarter.
• No off-hire days during Q3, contributing to operational efficiency.

Market and Competitive Landscape:

• Global LNG trade volumes flat (-2% YoY); Qatar exports down ~65% (45 million tonnes) while US exports rose 20% (80 million tonnes).
• European gas inventories at 73% (lowest in 15 years); strong demand from India, Egypt, and other markets offsetting European decline.
• Spot market faces pressure from fleet growth (290 newbuilds on order, ~35% of existing fleet), though most are contracted; modern two-stroke vessels now comprise >50% of existing fleet.
• Upcoming US capacity (Golden Pass, Port Arthur, Rio Grande, Venture Global) expected to ramp significantly in H2 2025, adding ton-mile demand.
• Winter 2025 expected to see a "tug-of-war" between Europe and Asia for US volumes; seasonal spot tightening has begun but historical winter peaks not yet materialized.

Risks and Challenges:

• Geopolitical risks elevated ("orange") due to Middle East conflicts, potential Strait of Hormuz closure, and uncertainty around Qatari supply normalization.
• Heavy schedule of newbuilding deliveries in 2025/2026 creating overcapacity pressure in the spot market.
• Seasonal El Niño weather patterns and Panama Canal transit restrictions due to heat could impact shipping dynamics.
• Low European gas storage levels create vulnerability to supply disruptions and cold snaps.
• Speculative newbuilding orders indicate confidence in long-term demand but may exacerbate near-term supply imbalances.

Management Commentary and Tone:

• CEO and CFO expressed high confidence in long-term structural demand driven by the US third wave of export capacity and global energy transition needs.
• Tone remained pragmatic regarding short-term volatility, acknowledging a "choppy" 12–18 months while highlighting potential upside from geopolitical shifts and weather events.
• Management emphasized a robust balance sheet, debt optimization, and transparency regarding dividend decisions and market outlook factors.
• Confirmed no newbuild orders placed recently, leveraging existing fleet value amidst high newbuilding prices (~$245 million/ship).

Analyst Questions and Answers:

• Q4/2027 Market Outlook: Management predicted a volatile year, citing "X-factors" like El Niño (weather volatility), Panama Canal restrictions, and EU sanctions on Russian gas post-Jan 1, which could boost US LNG shipping.
• Strait of Hormuz/Qatar: Clarified that Flex's vessels have not transited the Strait since Feb 2022; if the Strait reopens, Qatari spot market participants are expected to disappear, and scrapping of older steamers may increase.
• Debt Maturities: 2029 debt maturity is currently on schedule, but the company will proactively refinance if attractive opportunities arise; no specific action planned immediately.
• Dividend Policy: No guidance on future dividends; decisions are made quarterly by the Board balancing visibility, backlog, financial position, and capex/debt maturity cycles (next dry dock in 2028).

Other Key Points:

• Qatari LNG exports are currently rerouted via ship-to-ship transfers to Oman rather than exiting through the Strait of Hormuz.
• 70% of Golden Pass (US) volumes are contracted by Qatar Energy and likely transported on their own fleet.
• First train of Qatar's North Field East project expected to start in H1 2025 if the Strait of Hormuz reopens.
• The company has distributed over $900 million to shareholders since 2021, including special dividends.