Flex LNG FLNG Q4 2025 Earnings Call Transcript

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DATE

Wednesday, February 11, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — H. Foss
• Chief Financial Officer — Knut Traaholt

TAKEAWAYS

• Revenue -- $87.5 million for the quarter and $340 million for the year, with quarterly revenue excluding EU emissions allowances at $85 million.
• Time Charter Equivalent (TCE) -- $70,100 per day for the quarter and $71,700 per day for the full year.
• Adjusted Net Income -- $23.3 million for the quarter, with adjusted earnings per share of $0.43; reported net income was $21.6 million or $0.40 per share.
• Adjusted EBITDA -- $251 million for the full year; guidance for next year is $225 million to $255 million.
• Dividend -- $0.75 per share declared for the eighteenth consecutive quarter; $3 per share over the last twelve months, resulting in an approximate dividend yield of 11.5%.
• Contract Backlog -- 50 years of minimum firm backlog, expandable to 75 years if all options are declared.
• Spot Exposure -- In 2026, limited to three vessels; 78% of available days fixed on long-term charters.
• Operating Expenses (OpEx) -- $16,600 per day for the quarter; $15,800 per day for the full year, modestly above guidance due to scheduled maintenance; 2026 budgeted at $16,000 per day driven by technical and crew costs.
• Cash Balance -- $448 million at year-end following operating cash flow of $44 million and $36 million net of dry docking and working capital movements.
• Fleet Utilization -- Nearly 100% technical uptime for 2025, excluding 64 dry docking days that were below the 80-day budget.
• Dry Dockings -- Four completed in 2025; three scheduled for 2026 with average cost budgeted at $5.9 million each.
• Interest Rate Hedging -- Portfolio valued at $17.5 million with a 2.5% fixed average rate and a 70% hedge ratio planned into mid-2027.
• LNG Market Dynamics -- Global LNG exports rose 4% to 429 million tonnes, driven by 25% U.S. supply growth; Europe’s LNG imports up 24% while China’s LNG imports declined 15%.
• Vessel Order Book -- 35 newbuild orders in 2025 versus 79 in 2024; approximately 290 vessels remain on order, with 90-95 deliveries anticipated in 2026 and 20 units delayed from 2025.
• Asset Values -- Modern 2-stroke vessel newbuilds priced around $250 million; management does not expect material declines in newbuild pricing.
• Dividend Policy Statement -- Management said, "The dividend payment is a decision made by the Board at each Board meeting ahead of the quarterly presentation."

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RISKS

• Management characterized the outlook for earnings from spot-exposed vessels as "modest," reflecting expectations of continued volatility.
• OpEx per day increased to $16,600 in the fourth quarter due to scheduled technical maintenance and crew-cost inflation, and is budgeted at $16,000 per day for 2026.
• Soft spot rates at the start of last year and ongoing spot market volatility were cited as factors reducing spot market earnings, with the company referencing "modest expectations" for 2026 spot exposure.
• Management noted that the supply of new LNG vessels is outpacing the ramp-up in new LNG volumes, potentially capping spot rate upside.

SUMMARY

Flex LNG (NYSE:FLNG) reported quarterly and annual results in line with prior guidance, including a high contract coverage rate for the coming year and disciplined financial management reflected in continued robust dividends. The company confirmed a conservative approach to newbuild investment, favoring existing high-quality tonnage and emphasizing fleet efficiency gains from fewer dry-dock days than budgeted. Operational leverage is highlighted by a substantial cash position and long-term backlog, while guidance points to sustained dividend policies amid rising operating costs and ongoing spot market volatility.

• The company referenced trading strategy flexibility, stating, "We are actively marketing all 3 vessels for both spot and long-term contracts."
• Management stated, "We expect 2026 to be equally volatile and active market with many fixtures," underscoring the anticipated trading environment.
• Regarding strategic discipline, management noted an intent to "be patient, disciplined," highlighting a reluctance to order ships without firm contracts attached.
• The Board has declared its eighteenth consecutive dividend at $0.75 per share, totaling around $770 million distributed since 2021.

INDUSTRY GLOSSARY

• TCE (Time Charter Equivalent): A metric representing average daily revenues for a vessel, normalized across voyage and time charter contracts.
• Dry Docking: Scheduled maintenance period during which a vessel is taken out of service for repairs, inspection, and regulatory compliance.
• Spot Market: Market for short-term chartering of vessels at prevailing rates, as opposed to long-term fixed contracts.
• EUAs (EU Emissions Allowances): Tradable permits under the European Union Emissions Trading System, allowing the emission of a specified amount of greenhouse gases.

Full Conference Call Transcript

H. Foss: We sell in revenues of $87.5 million or $85 million, excluding the EUAs related to emission trading system. The fleet average TCE during the quarter ended up at $70,100 per day. Net income for the fourth quarter came in at $21.6 million, implying an earnings per share at $0.40. When adjusting for unrealized losses and interest rate swap and FX, ending up with adjusted net income of $23.3 million or adjusted earnings per share of $0.43. We completed the dry dock of Flex Volunteer in January. She is now trading in the spot market.

We received a notice from one of our charters that they will not declare the 1-year options on the good vessel Flex Aurora, and we expect to have her back in our fleet in March. Our spot exposure in 2026 is limited to 3 vessels, Flex Volunteer, Flex Aurora and the Flex Artemis, and all 3 vessels are marked for long-term contracts. The remaining 10 vessels are on time charters. We are today presenting guidance for the full year and with 3 vessels in the spot market, we are presenting wide ranges, reflecting exposure to the volatile spot markets.

We expect full year revenues to be between $310 million and $340 million, and the expected TCE per day around $65,000 to $75,000 per day. Adjusted EBITDA is expected to come in at around $225 million to $255 million for the full year. The Flex LNG has a very robust financial position. We are -- with a cash balance of $448 million at the year-end. No debt matures prior 2029, and we have a solid contract backlog. The Board has declared another $0.75 per share dividend. This is the 18th consecutive dividend of $0.75 per share, and we have distributed then around $770 million since 2021.

Our last 12 months dividend is $3 per share, implying a dividend yield of approximately 11.5%. When looking at the 2025 figures, the short summary is that we delivered in line with our guidance. The full year TCE ended at $72,000 per day and with sell-in revenues of $340 million. Our adjusted EBITDA came in at $251 million. We traded 2 vessels in the spot market in 2025, the Flex Artemis and the Flex Constellation, and we completed 4 dry dockings in 2025, Flex Aurora and Flex Resolute in Q2, Flex Amber and Flex Artemis in Q3. With that, let's have a look at our contract backlog. In 2026, we have 78% of available days fixed on long-term charters.

As you can see in the bottom of this slide, Flex Artemis and Flex Volunteer are now trading in the spot market, while Flex Aurora will be redelivered from her current charters in March. We are actively marketing all 3 vessels for both spot and long-term contracts. Further, in 2027, we have options for Flex Resolute, Flex Courageous and Flex Freedom. These options are due to be declared during this year. The spot market was a roller coaster last year with soft rates in the start of the year, while we saw a rally in Q4 with spot fixtures for modern 2 strokes reaching up to $175,000 per day.

We expect 2026 to be equally volatile and active market with many fixtures. There is a lot of new LNG export volumes ramping up, continued geopolitical uncertainties, potential congestions, both at import and export terminals, but at the same time, there's also a lot of new buildings being delivered. Therefore, we have modest expectations for the earnings from our spot exposure -- exposed vessel this year. Flex Constellation is due to complete her final voyage in March before she will commence her 15-year time charter delivered in direct continuation. Looking at our total contract coverage, we have today 50 years of minimum firm backlog, which may grow up to 75 years if the charters declare all the options attached.

We are optimistic about our open exposure later in this decade. We have greater open exposure during this period, which aligns well with our expectations of an attractive shipping market. Significant new supply volumes are set to come on stream, creating strong market fundamentals. Let's have a look at the guiding for 2026. We expect full year revenues to be between $310 million and $340 million, and correspondingly, we expect the TCE for 2026 to be around $65,000 to $75,000 per day. The range in revenues and TCE reflect our open position and exposure to the volatile spot markets. Adjusted EBITDA is expected to come in around $225 million to $255 million for the full year.

In addition, we will complete 3 dry dockings in 2026. The docking of the Flex Volunteer was completed in January, while Flex Freedom, it will enter dry dock later in February. Flex Vigilant is expected to dry dock in Q2. We have budgeted around 20 days of fire on average and the average cost of $5.9 million per docking. Before handing over to Knut, I want to touch base on the key factors behind the dividend decision. Most of our decision indicators are dark green with a few exceptions. Earnings and cash flow, we have adjusted this to a lighter green, reflecting more open exposure. Market outlook. We maintain a range level.

The supply of new LNG volumes is firm, but there are simply too many ships being delivered ahead of the new volumes. The long-term outlook is, however, very optimistic. Backlog and visibility. Even though we have a comfortable 50 years of minimum firm backlog, it is prudent to maintain light green. Based on these factors, the Board has declared another quarterly dividend of $0.75 per share. The dividend will be paid out on about 12th of March for shareholders on record 27th of February. And with that, I hand it back to you, Knut, for a walk through the financials.

Knut Traaholt: Thank you, Marius. In 2025, we had strong operational performance with close to 100% technical uptime, net of the days for dry dockings of our 4 vessels. The dry dockings in 2025 was completed on 64 days in total, significantly below the budgeted 80 days and hence providing more available days for revenue generation. The TCE for the fourth quarter ended up at slightly above $70,000 per day, resulting in a TCE of $71,700 per day for the full year and then on par with our guidance. OpEx for the fourth quarter was $16,600 per day. And as you can see, higher than the previous quarters. This is due to planned and scheduled engine maintenance performed based on running hours.

Hence, we performed more of this in the fourth quarter compared to previous quarter. For the full year, OpEx per day was $15,800 and slightly above our guided level of $15,500 per day. For 2026, we budget OpEx per day to be $16,000. The increase is primarily driven by technical expenses for scheduled maintenance and cost inflation, in particular, related to crew changes. In summary, the fourth quarter revenues, net of EUAs for EU emissions trading system was $85 million and $340 million for the full year. The $15 million reduction year-on-year is primarily explained by higher market exposure with Flex Constellation and Flex Artemis trading in a softer spot market.

Adjusted EBITDA and adjusted net income for the full year ended up at $251 million and $101 million, respectively. This is fully in line with our guidance provided earlier last year. As a reminder, in our adjusted number, we adjust for unrealized gains and losses from the interest rate swap portfolio, FX and write-offs of debt issuance costs and access fees related to the 3 refinancings completed last year. We generated cash flow of $44 million from operations and net of working capital movements and dry docking expenditures, we generated approximately $36 million in net operating cash flow. We repaid $27 million in scheduled debt installments and distributed $41 million to our shareholders.

In sum, our cash position was reduced with $31 million. This left us with a robust cash balance of $448 million at the end of the year. In addition to our cash position of $448 million, we maintain a book equity ratio of 27%. As noted before, our book values reflect the historical low acquisition cost and then adjusted with the regular depreciations. We have also an interest rate swap portfolio for interest rate hedging, which is valued at $17.5 million on the balance sheet. The average fixed rate of this interest rate swap portfolio is fixed at 2.5%, and we expect to maintain a hedge ratio of around 70% into mid-2027.

And since January 2021, this swap portfolio has generated unrealized and realized gains of around $132 million. And with that, I hand it back to you, Marius, for the market section.

H. Foss: Thank you, Knut. Well done, this robust financial position provide us highly commercial and financial flexibility going forward. Summarizing the export volumes for 2025, it was a year of growth for LNG with Europe clearly leading the demand. Global LNG export rose 4% on a year-to-year for around 429 million tonnes, driven by strong U.S. growth up to 25% versus '24. The rapid ramp-up from Plaquemine LNG, combined with new supply from Corpus Christi accounted to the majority net growth in the U.S. Outside North America, new volumes additional were limited, while Russia LNG exports declined 2 million tonnes, largely due to sanctions. Australia saw a large decline due to heavy maintenance.

On the demand side, Europe absorbed the majority of the increased volumes with imports up to 24% year-to-year, reinforcing its role as a key balancing market. Asia, on the other hand, was more mixed. Fast-growing markets such as China and India saw reduced import year-to-year. In 2025, China reduced its imports with 15% from 2024 and relied more on domestic production, increased pipeline imports, especially from the Power of Siberia pipeline. This is also impacted by the geopolitical events and the trade war with the U.S. India is typically a price-sensitive LNG importer. And while JKM traded above the $10 mark, India tend to import more LPG.

On the more mature LNG market, Japan, South Korea and Taiwan, LNG imports were in some unchanged from 2024. The U.S. supply most of the new volumes in Europe in 2025, and Europe has effect switched its reliance from Russian pipeline flows with the U.S. LNG. The explanation of the big jump in LNG imports in 2025 is clear on the right-hand side of this slide. European gas storage levels entered 2026, well below normal and are now said to be around 40% at the risk to fall to levels not seen since 2022.

If Europe ends the winter with low storage levels, huge amount of gas will be needed to inject to return stock to minimum levels ahead of next winter. Most are used to meet daily demand, so Europe's total buying requirements in the coming months could be enormous. Hence, we expect strong demand pull from Europe. As long as Europe will maintain a high demand in 2026, there will be fewer intra-basin voyages, putting a lid on the spot market. This is also reflected in the expectation for 2026 spot rates.

However, the third wave of LNG supply is underway, and we saw in Q2 last year, ramp-up of new export capacity can suddenly absorb a lot of tonnage in short time. This is very well illustrated in the ramp-up of LNG Canada, which moved a lot of tonnage away into the Pacific Basin. Total new building orders in 2025 was 35, down from 79 in 2024. Ordering momentum has carried out in 2026 with around 20 new building orders record as early in February. Vessels ordered in 2025, 2026 are scheduled for delivery late 2025 or 2029. A meaningful share of these orders remain without attached contracts.

This signals growing confidence in a firm shipping market later in this decade, a period that aligns well with our open exposure. The new building prices remained fairly stable for $250 million for a standard 2-stroke vessel built in Korea. This is supportive for asset values for existing tonnage, including our fleet. We do not expect new building prices to fall materially anytime soon. 23 new buildings were delivered in the fourth quarter 2025, bringing the total deliveries up to 79, up from 60 in 2024. With 6 vessels already delivered this year, the remaining order book is estimated to around 290 vessels, equivalent to around 40% of the existing fleet.

90 to 95 vessels are expected to be delivered in 2026, including roughly 20 units that slipped from 2025. Of the total order book, approx 45 vessels are currently uncommitted. This profile means that while there will be a lot of new tonnage entering the market in 2026 and '27. With a lot of new modern tonnage entering the market, the steam vessels rolling off long-term contracts, we saw a record high 15 steam vessels scrapped in 2025. This is a strong signal. We expect recycling activity to continue. Spot rates for steam vessels are quoted currently under $5,000 per day, effectively pushing these vessels out of the market.

The ship broker, SSY believes close to 100 steam vessels will roll off their long contracts over the coming years. And these vessels are expected to exit the active trade either scrapped or enter into regional trades. This slide shows the 3 waves of global LNG capacity and why the period we are now entering really matters. We are entering the third wave of LNG, and it's larger than ever seen before. Over 200 million tonnes of new export capacity is expected to come on stream or around 50% growth in the global liquefaction capacity. Most of this growth is concentrated in 2 places, the North America and Qatar.

Qatar North Field East is expected to begin deliveries late this year with new trains coming online thereafter. In addition, LNG Canada will continue to ramp up towards full capacity in 2026, alongside increased output from Corpus Christi in the U.S. This widely anticipated start-up of Golden Pass LNG is expected later in 2026, providing a further boost of U.S. liquefaction capacity. With that, let's move on to the Q&A session.

Knut Traaholt: Thank you, Marius. That hands us over to the Q&A sessions and questions that have been submitted. And thank you for all of those who have sent us questions for this quarterly presentation. There's a number of questions regarding the upcoming options that you walked through in the fleet overview. Can you give any more color around these options and the likelihood of being declared?

H. Foss: Thank you. That's a good question. We are also waiting for that. I can't really comment on when these options are due, but the charters will do so during 2026 regardless if they are declared not these options have -- will not have an effect with our fleet portfolio of 75% in 2026. So we all have seen in our presentation, 2027 and 2028 is an interesting period with the increased volumes. So it's -- yes, we're also interesting to see if the charters are sharing the same as we have shared in this presentation today or not. So we will report back when these options are due and inform the market accordingly.

Knut Traaholt: And now with Flex being redelivered and we have increased market exposure. There are also a number of questions on the decision factors and how this should be viewed regarding future dividend payments. I think we can start off by saying that each dividend payment is a decision made by the Board by each -- at each Board meeting ahead of the quarterly presentation. So there's difficult to say something about the future of dividends. But what we can say is on the decision factors, yes, we have adjusted some, but the majority of the decision factors are dark green or light green.

In the decision, it's important here to view that we have a very solid financial position with a high cash balance to support the dividend. And we also have a large contract backlog, which are not subject to options being declared or not. One thing that we are monitoring and will be assisted into evaluating future decision factors will be the visibility, in particular, the trading of the spot vessels and also if any of these open ships will get another long-term contract. There are also a number of questions here on new buildings and the recent surge in new building orders, in particular in the start of the year and on flex and on fleet growth.

Do you consider new buildings similar to these owners?

H. Foss: Thank you. With what you have explained now with the position we are in, we are in a position to order ship if needed, but we are trying to be, say, disciplined and not to order if we don't have a contract attached. As explained in our presentation now is that the new building in modern 2-stroke today is about $250 million. and the benchmark for a 10-year contract is, say, $85,000, give and take. And in our calculations, that's not really a good investment for a shipowner.

So we are trying to be patient, disciplined and also working with our charters that if new building should be needed, we are ready to go to the yard and discuss new contracts with our charters if somebody wants to support with us. But speculatively, we see others are ordering that, and that's a good sign of where we are heading. I think the exposure we have with the current open ships coming open later is -- will mean that we are in a very good position to get these ships extended or new contracts.

Knut Traaholt: Yes, there is a follow-up comment to that to support to that. There is will we order ships newbuildings, while we have nearly half of the fleet exposed in the market for '28, '29.

H. Foss: No, I think we should take the benefit of what we have on the water, which still is considered as new building. They have now -- basically the entire fleet has been through a 5-year service, and I believe all our ships leaving dry docks now are better than you. So I think we have a good quality tonnage, which the size is in line with the new orders. So we will focus on that first, stay disciplined.

Knut Traaholt: And that covers the main topics of the questions we received today. So that concludes the Q&A session.

H. Foss: Thank you, Knut. Thank you for all joining into our webcast today. We would like to welcome you all back to our Q1 2026 presentation, which will be back in May. Thank you.

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