FLEX LNG (FLNG) Q1 2025 Earnings Call Transcript

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DATE

Wednesday, May 21, 2025 at 9 a.m. ET

CALL PARTICIPANTS

Chief Financial Officer — Knut Traaholt

Chief Commercial Officer — Markus Fos

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TAKEAWAYS

Headline Revenue: $88.4 million in headline revenues for Q1 2025, or $86.8 million when excluding EUS emissions trading systems; sequentially lower than the previous quarter due to seasonal spot market softness.

Adjusted Net Income: $29.4 million after non-cash adjustments, resulting in $0.54 in adjusted earnings per share.

GAAP Net Income: $18.7 million.

EBITDA Guidance: Maintained at $250 million to $270 million in EBITDA guidance.

Dividend: Quarterly payout of $0.75 per share approved, bringing trailing-twelve-months dividends to $3.00 per share and a stated yield of 12%.

Cash Position: Ended Q1 2025 with $410 million in cash; RCF capacity remains at $414 million.

Operating Expenses: $18.1 million, approximately $15,500 per day, aligning with full-year OpEx guidance.

Interest Expense: Interest expense was $22.2 million, $3.3 million lower than the previous quarter due to reduced base rates and refinancing activities.

Derivative Portfolio: Net loss of $7.3 million related to the derivative portfolio, including $11 million in unrealized losses and $3.7 million in realized gains.

Spot Market Activity: Flex Constellation and Flex Artemis operating in spot markets or on variable contracts, with planned redelivery in Q3 2025.

Charter Backlog: Minimum firm backlog of 59 years, backlog extendable to 88 years if options are exercised.

Contract Coverage: Management characterizes near-term coverage as “well covered" supporting 2025 revenue guidance of $340 million to $360 million and TCE expectation of $72,000-$77,000 per day.

Balance Sheet Optimization: Program 3.0 launched to unlock $120 million in free cash; secured $40 million JOLCO lease for Flex Courageous, expected to close next quarter, targeting similar structures for Flex Resolute and Flex Constellation.

Interest Rate Swap Portfolio: Increased swap notional to $850 million, with new swaps at an average 3.5% fixed for two years; stated 70% hedge ratio over the next 24 months.

Oslo Delisting: Application formally submitted; last trading day expected in second half of 2025, with migration guidance in place for Oslo-registered shareholders.

Upcoming Maintenance: Four vessels undergoing five-year survey/drydock in 2025, up from just two in 2024; drydock expenditure prepayments already included in cash flow figures.

ESG Performance: Achieved zero lost-time injuries in 2024 and received a B CDP climate rating; seventh ESG report released for the prior year.

SUMMARY

Management maintained 2025 revenue, earnings, and TCE guidance despite sequential revenue softness driven by the spot market. The board advanced structural capital initiatives, including a $120 million balance sheet optimization program and announced the formal Oslo delisting process, timed for second-half 2025 completion. New financing transactions released immediate cash and extended debt profiles, while the interest rate swap portfolio was materially expanded to actively manage rate risk over the next two years. The current contract backlog supports long-term cash flow visibility, and a formal dividend framework aligns future payouts with core financial metrics. LNG market commentary emphasized sectoral supply-demand adjustments, vessel idling and scrapping, and a multiyear wave of new project developments tied to U.S. and Qatar expansions.

CFO Traaholt said, “Operating expenses came in at $18.1 million, or around $15,500 per day.” clarifying cost discipline remains consistent with full-year forecasts.

The combination of $410 million in cash, unused revolving credit facilities, and minimal near-term CapEx or refinancing requirements underpins stated “fortress balance sheet” positioning.

The dividend payout remains supported by cash flow from long-term charter contracts, as management repeatedly framed the dividend policy as structurally governed by defined balance sheet, earnings, and maturity criteria.

Management noted LNG spot rates remain subdued, with single-digit to low double-digit daily rates, while highlighting visible long-term demand “momentum” from new U.S. and Qatar investments expected to drive charter tonnage absorption from 2028 onward.

The company’s vessel mix and contract roll profile limit near-term EBITDA sensitivity to spot market conditions based on explicit comments regarding two spot-exposed ships and scheduled drydockings.

INDUSTRY GLOSSARY

JOLCO: Japanese Operating Lease with Call Option; a leasing structure allowing shipowners to access flexible financing with potential tax benefits, commonly used for vessel acquisitions or refinancings in maritime sectors.

RCF: Revolving Credit Facility; a type of credit line that allows the borrower to draw, repay, and redraw loans advanced to it within the agreed limit during the facility’s term.

Adjusted Net Income: Net income restated by management to exclude non-cash or non-recurring items, enabling comparability across periods.

CDP rating: Carbon Disclosure Project assessment measuring corporate environmental transparency and performance, with B denoting management-level action.

Time Charter Equivalent (TCE): A shipping industry metric that standardizes voyage revenues into a daily rate per vessel for comparison across charter types.

Full Conference Call Transcript

Knut Traaholt: Today's presentations will include forward-looking statements. We will also be using non-GAAP measures, and there is a limit to the completeness of detail. $0.7 million and earnings per share are $0.35. Adjusting for non-cash items, we booked $29.4 million in adjusted net income.

Markus Fos: Implying $0.54 in adjusted earnings per share.

Knut Traaholt: Last quarter, we added up to 37 new contracts backlog for Flex Constellation, Flex Courageous, and Flex Resolute. This opens up for a very attractive refinancing. We have, therefore, initiated the balance sheet optimization program 3.0. Knut will guide on this later in the presentation.

Markus Fos: On the fleet, Flex Constellation was redelivered from time charter in late February and has been traded in the spot market since.

Knut Traaholt: Lastly, Flex Artemis, who is currently trading on a variable index, will be redelivered

Markus Fos: from a five-year time charter. We expect to get her back

Knut Traaholt: sometime in Q3 2025.

Markus Fos: We reconfirm the full-year 2025 revenues and earnings guidance provided last quarter. We expect full-year revenues to come in at a range of $340 to $360 million

Knut Traaholt: and the expected TC to be between $72,000 and $77,000 per day. Similarly, we expect the EBITDA to approximate $250 to $270 million. The board has declared $0.75 per share dividend, implying the last twelve months' dividends of $3 per share or a dividend yield of 12%. This distribution to shareholders is supported by our fortress balance sheet

Markus Fos: with $410 million in cash and a solid contract backlog.

Knut Traaholt: Looking at our contract coverage, we are well covered over the next years.

Markus Fos: With 59 years of minimum firm backlog, which may grow to 88 years if the charters declare older options.

Knut Traaholt: Flex Artemis is currently on a variable market hire, and the financial impacts for having her redelivery in 2025 are limited. The vessel has the full relook on board, making her very attractive to charters

Markus Fos: in particular for long-haul transportation of LNG. Flex Constellation was relieved from her 312-day charter at the end of February and has since then been trading in the spot market. The vessel will commence her 15-year time charter during the first half of 2026.

Knut Traaholt: Overall, we have a solid backlog

Markus Fos: and we are well positioned to benefit from the increasing LNG export volumes coming 2028 to 2030.

Knut Traaholt: Despite lower freight

Markus Fos: rates and two of our vessels opened by Q3 2025, our strong backlog means that we expect 2025 revenues to be similar to the 2024 levels. TCE is expected to be in the mid-seventies per day, translating to revenues between $340 and $360 million.

Knut Traaholt: We have four ships undergoing

Markus Fos: five-year survey in 2025 compared to just two last year, which we have factored into our guidance. Flex Aurora and Flex Resolute will enter drydock no later

Knut Traaholt: the quarter. Whereas Flex Artemis and Flex Amber will enter into the third quarter.

Markus Fos: We aim to provide a clear and transparent framework for dividends payout guided by a defined set of decision factors. These factors include earnings and cash flow, contract backlog, balance sheet strength,

Knut Traaholt: CapEx, and debt maturity profile. Over the last three to four quarters, we have maintained a cautious outlook for the near-term LNG market, and this view remains unchanged. Worth noticing that traffic lights and we are bullish on the long-term story. However, as shown on the previous slides, Flex benefits from a strong charter backlog and as Knut will guide shortly,

Markus Fos: maintains a fortress balance sheet.

Knut Traaholt: Considering these factors, the Board has declared an ordinary quarterly dividend of $0.75 per share. This brings our trailing twelve months' dividend to $3 per share, representing a yield of 12%. With that, I will hand it over to Knut. Thank you, Markus. So let's look at the financial highlights for the first quarter. Headline revenues came in at $88.4 million, or when we exclude the EUS emission trading systems, the revenues were $86.8 million. Equivalent to time charter per day of $73,900. The reduction in revenues compared to the fourth quarter is primarily due to seasonal lower spot market, impacting the variable hire contract for Flex Artemis.

And also then, Flex Constellation traded in the spot market in March after she was redelivered from her TC contract. Operating expenses came in at $18.1 million, or around $15,500 per day. And this is in line with our full-year guidance and slightly higher than the fourth quarter. But vessel OpEx can be a bit bumpy depending on timing effects. So for the third quarter or for the full year, we maintain our OpEx guidance of $15,500. Interest expense came in at $22.2 million, a reduction of $3.3 million compared to the fourth quarter.

This is explained by lower base rates, also the effect of amending one of the term loans to an RCF and therefore reducing our drawn debt during the quarter. On the derivative portfolio, we have a net loss of $7.3 million, and this includes net unrealized loss of $11 million and realized gains of $3.7 million. And the $3.7 million is then the positive carry, reducing our interest expense. Net income came in at $18.7 million. However, adjusting for non-cash items like the unrealized losses on the derivative portfolio, adjusted net income came in at $29.4 million, or $0.54 per share in adjusted earnings.

As a reminder, we adjust our numbers for non-cash items to have comparable numbers quarter over quarter. If we look at the differences in net income, of $26.5 million compared with the fourth quarter, all of this is related to unrealized gains and losses on our interest rate derivative portfolio. In the fourth quarter, we had $15 million on the unrealized gains, while in this quarter have $11 million of unrealized losses, in total $26 million. Looking at the cash flow for the quarter, we generated $49 million in cash flow from operations, which was offset by negative working capital movements of $5.7 million.

We have also paid $2.6 million in prepayment of dry dock expenditures for the four upcoming dockings this year. In addition, we have $27 million in scheduled debt installments, and we distributed $41 million to our shareholders for the dividend. Ending the quarter with a solid cash balance of $410 million. Looking at the balance sheet, we have an overall clear and transparent balance sheet with mainly cash and ships on the asset side. And as a reminder, these thirteen modern vessels with an average age of 5.5 years were ordered and delivered in a low point in the cycle. Therefore, these are recorded on the balance sheet at $165 million per vessel.

Looking at our capitalization, we have a decent book equity ratio. And with a net debt position of $1.4 billion, this accretes to a net debt per vessel of approximately $106 million per ship. Once again, interest rate markets have experienced significant volatility and this is also in the first quarter. In response, we have remained active in adding exposure by we deem it attractive. In the first quarter, $35 million of our existing interest rate swaps matured. And on the final day of the quarter, we entered into $100 million in new interest rate swaps, bringing our total notional swap exposure to $700 million at the end of the quarter.

We will put the volume have a weighted average duration of 3.5 years, and weighted average fixed rate of 2.1%. Following the liberation day, there was further volatility and we added an additional $150 million for two years swaps. Increased our swap portfolio to $850 million. These additional swaps were entered into at the weighted average rate of approximately 3.5% and a duration of two years. And these swaps provide us with the 75 to 80 basis point positive carry until the Fed begins to cut rates. If we look at our exposure, we have an ex hedge ratio of about 70% over the next 24 months. And we will continue to monitor the market to add even more exposure.

If both short-term and long-term rates drop.

Markus Fos: So

Knut Traaholt: As announced earlier, we have initiated balance sheet optimization program 3.0 with the aim to free up an additional $120 million in free cash. Today, we also announced that we have secured an attractive JOLCO financing. It's a lease for the Flex Courageous on the back of the new contract announced last quarter. This financing is expected to be closed in the second quarter. And will release about $40 million in cash proceeds. Will reduce our cost of debt by 1.5% per annum. And then further extend our debt maturities. The two other ships we are targeting are the Flex Resolute and the Flex Constellation.

If we look here, then we are addressing the debt maturity in 2028 for Flex Resolute. And the aim here is to secure a similar JOLCO financing as the Flex Courageous. So Flex Constellation has a very attractive 15-year contract to a solid counterparty. So we are targeting here a back-to-back financing for that ship. We are in discussions for both the Flex Resolute and Flex Constellation. And we target to secure commitments and signing and drawdown of these. In the second half of 2025. Both today's balance sheet but also after this balance sheet optimization 3.0. We maintain our fortress balance sheet. We have stable cash flows from our contract portfolio.

We have a very solid cash position at the quarter end of $410 million, which is then set to grow following the planned refinancings. And as a reminder, we maintain an RCF capacity of $414 million. Which is used for cash management and reduced interest rate cost. We have limited CapEx liabilities. Our first debt maturity is for Flex Resolute in 2028. But as just mentioned, this is being addressed and then our next maturity would be in 2029. So the fortress balance sheet supports the Flex journey. And giving commercial and financial flexibility. Today, we have also released our seventh ESG report. It's the ESG report for 2024. And we recommend that you have a reading of it.

It explains how we deal with the ESG matters. And in particular also emissions. And safety and governance, in our operations. We are proud to show that we have very efficient and safe operations with zero lost time injury frequency for 2024. And that's a true testament to the health and security of our seafarers. And in Flex, everyone deserves to be safe at the workplace. And get home safely to their loved ones after work. As reported earlier, we have also this CDP rating where we achieved a B scoring for 2024. So thank you to the FLEX LNG Ltd. team for great achievements and also for helping out producing this report.

Today, we have also submitted the application for the delisting to Oslo Stock Exchange. The proposal to delist was approved by our AGM on the eighth of May. We have now commenced the full process for a formal delisting on the stock exchange. Expect that Oslo Stock Exchange will conclude on the application to delist within the second quarter. And that the last day of trading will be sometime in the second half of 2025. The last day of trading is decided by Oslo Stock Exchange, and they will separately announce this by a stock exchange disclosure.

If you have shares trading on Oslo Stock Exchange and you would like to continue on the Flex Journey, we encourage you to reach out to your bank or your broker to initiate the process of transferring from Euronext, Oslo Securities to our New York Stock Exchange traded shares. We have prepared a Q&A section on our website under investors and also delisting where you may find more information about the next steps and the process. And that concludes the financial sections. And over to you, Markus, for an update on the LNG market.

Markus Fos: Thank you, Knut. I am sure you will have more questions about also delisting. The LNG trade from January to April 2025 grew approximately 1% to 143 million tons compared

Knut Traaholt: to the same period last year. The top three main exporters, USA, Qatar, and Australia,

Markus Fos: represent more than 60% of the total LNG trades.

Knut Traaholt: US LNG exports increased with more than 20% year over year. And this is explained by new volumes arrived from Venture Global Plaquemans

Markus Fos: and expansion at the Cheniere's Corpus Christi.

Knut Traaholt: Australia exports declined with circa 7% in the period and is largely explained by Woodside shutting down a train at Northwest Shelf

Markus Fos: LNG terminal due to declining feedstock and slow upstream developments. Europe has really increased its LNG appetite over the last few months, and it comes as Russia halted its pipeline gas export through Ukraine last December.

Knut Traaholt: And the European gas inventory levels are at low levels currently

Markus Fos: at only 45% full. It should also be noted that we are seeing recovery in overall European gas consumption.

Knut Traaholt: As the last four months have seen a decline in renewables consumption. While Europe LNG imports have soared as the

Markus Fos: continent tries to maintain the fragile gas balance, this has driven up the LNG prices globally. And overall Asian LNG imports have

Knut Traaholt: retreated. This is especially evident by a drop in LNG imports to China, which is down by 24%. China has completely halted the imports from US LNG since February

Markus Fos: and is rather reselling its contracted volume in the markets.

Knut Traaholt: India has also set the flattish growth year over year and this compares by double-digit LNG imports growth last year. Relatively high LNG prices and other sources of more affordable energy help to explain this trend as many of the developing Asian countries are price sensitive when it comes to LNG imports. The more mature JKT economies Japan, South Korea, and Taiwan have seen their LNG imports drop by only 3%.

Markus Fos: The new building prices for modern LNG carriers built in South Korea have stabilized. Ship brokers continue to quote prices of $250 to $255 million per vessel.

Knut Traaholt: It should be noted that shipyards are quite busy and slots offered on these levels are already risen to 2028. And onwards. This means that the cost of carrying from financing in the period

Markus Fos: and building supervision would probably push up the all-in-all delivery price for new buildings substantially. We expect new building prices to stay at these levels going forward.

Knut Traaholt: Term rate for five-year and ten-year TCPs are currently quoted between $75,000 and $85,000 per day. However, there are very few recent deals concluded.

Markus Fos: Approximately 300 LNG

Knut Traaholt: vessels are scheduled for delivery over the next five to six years, with over 90% of these secured a long-term charters. A significant proportion of this order book relates to Qatar fleet renewal program. In a compliant chart, the dark blue bars represent vessels

Markus Fos: either ordered by Qatar Energy or tied up to Qatar-related TCPs.

Knut Traaholt: While the light blue bars reflect non-Qatar related new buildings. Notably, while more than 70 vessels were originally planned for delivery now in 2024, only around 60 were actually delivered from the shipyards.

Markus Fos: Approximately ten vessels have been pushed into the 2025 delivery window.

Knut Traaholt: And we will not rule out the possibility of similar slippage occurring now in 2025

Markus Fos: into 2026.

Knut Traaholt: Now when we talk about the new building delivery profile, it's crucial to look at the full picture. Not just what's coming in, but also what's quite slipping out of the active fleets. Take a look at this chart. On the left, you will see the number of idle vessels split between steamers in gray and tri-fuel blue ships in blue. What we are witnessing is a growing group of older vessels, those with inefficient cargo economics, and outdated propulsion systems, essentially being parked. By the end of March 2025, close to 60 vessels were idling. That's not a small number. And it matters because fewer available vessels mean less supply. Which helps bring balance to the overall markets.

But it doesn't stop there. More and more of these vessels are being put in layup. Either warm or cold. And it's not just steamers anymore. We see tri-fuels

Markus Fos: also starting to join that list.

Knut Traaholt: Bringing a cold layup vessel back into service is not cheap. It's very costly and it's very time-consuming. So what happens next? Well, the natural conclusion is scrapping. So far in 2025, only three steamers

Markus Fos: have already gone for recycling.

Knut Traaholt: But the number might be even higher. Several others are quietly being offered for sale. And frankly, the chances for them finding a new buyer are slim. Scrapping is therefore becoming a more realistic option. Bottom line, while the order book is substantial,

Markus Fos: the market is shedding the least efficient vessels and plays a big role in shaping a future balance between supply and demand.

Knut Traaholt: Let's wrap up the market section with a slide that might

Markus Fos: look familiar, but one that's very important to revisit. The outlook for new LNG supply remains strong and the wave is building.

Knut Traaholt: Over the next few years, we will see a steady stream of new volumes entering into the market.

Markus Fos: Driven in particular by Qatar and the United States. And in just the past few weeks, we have seen two major developments from the US that underscore this momentum.

Knut Traaholt: Woodside had taken FID on the Louisiana LNG project,

Markus Fos: This is a significant greenfield development. Three trains, each of 5.5 million tons per annum, for a total of 16.5

Knut Traaholt: kilotons. The project has been expansion capacity and permits for two additional trains, which would bring the total capacity up to 27.6 kilotons.

Markus Fos: First LNG is expected in 2029.

Knut Traaholt: Energy Transfer made headlines during its first-quarter call announcing its ambition to take FID on the Lake Charles LNG project. Also, 16.5 million tons per year by the end of the year. Another major step forward. So what does that mean for FLEX LNG Ltd.?

Markus Fos: It means momentum. It means confidence in the long-term demand for LNG and most importantly, it means more ships will be needed.

Knut Traaholt: With these projects on the horizon, we see a bright future

Markus Fos: for LNG shipping, and we are well positioned to ride the next wave.

Knut Traaholt: We delivered strong quarterly results with solid profitability and robust cash generation. Our balance sheet optimization program is underway.

Markus Fos: Our guidance for 2025 remains firmly intact.

Knut Traaholt: With continued

Markus Fos: earnings strength and a healthy charter outlook, as well as a reported dividend yield of 12%, we are well positioned to deliver long-term value to our shareholders. With that, let's open the floor for questions.

Knut Traaholt: Then we are ready for the Q&A session. And we have received a number of questions. So thank you to everyone who has submitted. A number of these questions relate to the market. And with the soft spot market rates and Artemis being delivered. And the Constellation trading in the spot market until she commences her long-term contract. How do you view the summer market and the winter market? And prospects for these two ships. Thank you, Knut. Artemis has not been delivered yet.

Markus Fos: She will be reliving later in the year, but you look at 2025 so far, we have amazingly seen the highest amount of fixtures been concluded in the spot markets for two strokes. And at the same time, we have seen the rates are hovering on a very low side from single digits up to double digits, maxing at, say, $35,000 to $40,000 per day. So Flex Constellation is currently trading in the spot market, and she will or we plan to do so until delivery in the first quarter of 2026. While, as you mentioned, Flex Artemis is coming back to us in August, and she will do the dry dock. So we are marketing the vessel open thereafter.

She has since delivery been trading on the market index. With our customer. And I am sure when we put her back to market, we will at least be able to play in the market. She has been one of our best contributors since delivery. And, of course, we are seeking term employment on her this autumn. You mentioned that there's been

Knut Traaholt: very high activity in the spot market. Some of the questions are related to activity in more of the longer-term contracts. Can you say about the number of fixtures or activity tenders in so for long-term contracts?

Markus Fos: The charters are in a rush to secure long-term contracts while the spot market is at it right now. So while we have high activity on the spot, the levels are hovering along. So we are currently in the doldrums waiting for things to pick up, and then I am sure there are a lot of people who will enter and secure tonnage. But it will be a bit early as of now, but we are seeing signs of contracts and interest for particularly the Artemis this autumn and also into Q1 2026. So we are hopeful that she will be employed.

Knut Traaholt: Then we have a number of questions for our delisting. On the Oslo Stock Exchange. Some of them are detailed. So we do recommend going to our website. We have a special or separate Q&A session for our delisting. And if there are further questions, please reach out to us on our investor email, IR at flexlng.com. And as a reminder, first, Oslo Stock Exchange will need to conclude on the application, and they will have a separate announcement of that. Also, then announcing the last day of trading.

Markus Fos: With that, I would like to thank everybody for listening to our web broadcast and we wish you or want to welcome you back to our Q2 presentation in August.

Knut Traaholt: Thank you.

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