FLEX LNG Ltd. Ordinary Shares 2026 Q2 Earnings Call

Welcome back to FLEX LNG second quarter 2026 result presentation. Hope you all had a great summer. My name is Marius Foss. I am the CEO of FLEX LNG, and today I am joined by our CFO, Knut Traaholt, who will walk you through the financial later in the presentation. Today, we will summarize the second quarter results and provide an update on the LNG shipping markets. As always, we will conclude this webcast with a Q&A session.

If you would like to ask questions, please use the chat function in the webcast or send questions by email to ir@flexlng.com. Before we start, we would like to highlight the following. We are using certain non-GAAP measures such as TCE, adjusted EBITDA, and adjusted net income. These are supplements to the earnings report reported in accordance with U.S. GAAP. The reconciliations of these non-GAAP measures are available in the earnings report released today. There are also limitations to the completeness of our presentation. Therefore, we encourage you to read the quarterly report together with today's presentation. With that, back to you, Marius.

Thank you, Knut. Let's begin with the highlights of the quarter. We are happy to present very strong results for the second quarter. We sailed in revenues of close to $107 million, or close to $103 million excluding the EUAs. This is our second-best quarter since the fourth quarter of 2021. The fleet average TCE during the quarter ended up at $86,100 per day. Net income for the second quarter came in at $44.9 million, implying an earnings per share of $0.83. When adjusting for unrealized gains and interest rates, swaps and FX, we ended up with adjusted net income of $42.5 million or adjusted earnings per share at $0.79. Flex Artemis and Flex Volunteer have traded in a strong spot market in the second quarter and contributed to our solid quarterly results.

We continue to see elevated geopolitical uncertainty in the LNG space as the conflict in Iran causes disruption to the LNG flow from the region. Lastly, with the dry docking of Flex Vigilant in June, we have completed all scheduled five-year special service for our fleets. We maintain our full year guidance from last quarter and expect revenues to come in between $345 million and $370 million. Similarly, we expect the TCE to come in somewhere between $73,000 and $78,000 per day. We expect adjusted EBITDA to come in between $255 million and $280 million. With our strong quarter, contract coverage, and solid balance sheets, the board has declared another dividend of $0.75 per share. This is the 20th consecutive dividend of $0.75 per share, and we have now distributed around $850 million since 2021, including special dividends.

Our last 12 months dividend is $3 per share, implying a dividend yield of around 9.7%. Flex Vigilant completed her dry dock in Denmark in June. This was the third and final dry docking for 2026. The average cost per dry docking came in around $6 million per vessel, as guided, and we spent averagely 17 days in dry dock per vessel. Flex Vigilant marks the final five-year special survey in our fleet of 13 vessels. Looking ahead, we have no dry dockings coming up in 2027, and we will commence our first 10-year docking in 2028. Let's have a look at our contract backlog. Looking at our total contracts coverage, we have 51 years of minimum firm backlog, which may grow to 78 years if all options are declared. In their term, we have close to 89% coverage for remaining available days in 2026.

Flex Artemis and Flex Volunteer have both been trading in the spot market in the second quarter and will come open at the end of the third quarter. We are now marketing the vessel both for spot and new term contracts. With our good contract coverage for the remainder of the year, we maintain our guiding with the upgraded last quarter. This means that we expect full year revenues to come in between $345 million to $370 million. Similarly, we expect TCE to come in somewhere between $73,000 and $78,000 per day. Lastly, we expect the adjusted EBITDA to come in between $255 million and $280 million. We are pleased to announce that the board has declared a dividend of $0.75 per share. Let us briefly revisit decision factors for the dividends. We maintain the orange level for market outlook.

This reflects a softer spot market and heavy schedule of new building deliveries. Looking ahead, we note that low European storage levels going into the cold winter season. Confidence in the long-term structural demand story remain intact, supported by the third wave of U.S. LNG export capacity currently under construction. We keep other considerations in orange given the continued elevated geopolitical risk. There is still uncertainty around the duration of the Iran conflict and the timing of normalization of the Qatari supply. Taking all factors into account, the board has declared another quarter dividend of $0.75 per share. This brings dividend paid over the last 12 months to $3 per share. The dividend will be paid on about 17th of September to shareholders of record as of 3rd of September. With that, I hand it over to you, Knut, for final financial updates.

Thank you, Marius. The second quarter were significantly improved quarter-over-quarter, mainly driven by higher revenues. Revenues were $106.8 million or $102.7 million excluding ERAIS. The higher revenues were driven by high spot earnings for Flex Volunteer and Flex Artemis, while both Flex Constellation and Flex Aurora contributed by having a full quarter of earnings under their new contracts that commenced in March. On the cost side, vessel OPEX was higher quarter-over-quarter as the second quarter was impacted by higher crew travel costs related to the disruptions in the Middle East. The average OPEX per day in the second quarter were $16,260, while the average OPEX for the first six months of the year was around $16,100 per day. We maintain our OPEX guidance of $16,000 per day for the full year.

Interest expense continued to improve, reflecting lower loan margins and active management of our RCF facilities. We booked $4.7 million in gains on our interest rate derivatives, of which $2.3 million was realized gains and $2.4 million was unrealized gains. Net income came in at $44.9 million or $0.83 per share, and adjusting for non-cash items like unrealized gains from the interest derivative portfolio, the adjusted net income was $42.5 million or equivalent to adjusted earnings per share of $0.79. This is more than double that of the first quarter. Overall, this was a very strong quarter, impacted by improved revenues from the spot market, new contracts, completion of dry docking, and continued cost control and improved financial efficiency. On the cash flow during the quarter, we generated strong cash flow from operations of $63 million, up from $37 million in the first quarter.

The increase was mainly driven by higher revenues, as explained on the previous slide. This excludes $19 million in positive change in working capital and $5 million of CapEx related to the dry dockings this year. The reduction in receivables during the quarter was related to timing of advanced charter hire receipts. We paid $28 million in scheduled debt installments and distributed $41 million to our shareholders. In sum, our net cash flow was $8 million in the quarter, and that resulted in a cash position of $397 million at the end of the quarter. Looking at our balance sheets, we maintain a clean balance sheet with mainly ships and close to $400 million in cash. Our debt financing comprises a combination of bank loans, which gives us flexibility and attractive long-term leases. Our first debt maturity is in the first quarter of 2029.

If you look at the book equity ratio, it is robust at 27.4%. As noted before, our book values reflect the historical cost adjusted with regular depreciations. Our interest rate swap portfolio is unchanged and was valued at $22 million at the end of the second quarter. The notional value of the portfolio is $775 million with an average fixed rate of 2.46%. We expect to maintain a hedge ratio of around 70% into mid-next year. With that, I hand it back to you, Marius, for the market outlook.

Thank you, Knut. Let's have a look at the LNG trade. Global LNG trade volumes are broadly flat year-to-date, down less than 1% compared with the same period last year. On the supply side, the key development has been significant reduction in the Qatari exports, down around 29 million tons. This shortfall has to a large extent been offset by strong growth from the U.S., where exports are up 23% or close to 40 million tons. We have also seen continued growth from Australia and Russia. Other exporters have contributed strongly and are up 6 million tons from last year. These include LNG Canada, but also West Africa exporters, including Nigeria and Senegal. Industry sources report that global export capacity ran at 96% utilization in July, excluding Qatar. This is about 90% utilization seen last year and a five-year average of 86%.

On the demand side, imports into JKT remain resilient while Europe and China are down compared to last year. At the same time, India and other importing markets have continued to grow. The key takeaway is that despite a significant disruption from one of the world's largest LNG exporters, Qatar, global trade volumes have remained resilient. More importantly for shipping, the growing share of U.S. supply means more LNG coming into the Atlantic Basin. This will likely have a positive ton mile effect when those volumes move into Asia. Let's have a look a bit closer to the supply side. The reduction in Middle East LNG volumes have been significant. Combined exports from Qatar and UAE are currently down around 63% compared to the normal levels.

As you can see from the left-hand side, exports dropped very sharply earlier in the year, and while volumes have started to recover, they remain below historical levels. At the same time, the U.S. have continued to ramp up LNG exports. U.S. liquefaction capacity is up around 14 million tonnes year-on-year, supported by the ramp-up of new capacity, particularly in Plaquemines. It is also worth a mention that the long-anticipated Golden Pass is slowly but steadily increasing its production. We expect to see increased loading from Golden Pass going forward and from Port Arthur as it comes on stream next year. Despite substantial loss from Middle East supply, this has mitigated by strong U.S. growth, and that shift is positive for the shipping demand. Let us have a look at the demand side on the competition between Europe and Asia for LNG.