Welcome back to Flex LNG's Second Quarter 2026 Results Presentation. I hope you all have a great summer. My name is Marius Foss, and I'm the CEO of Flex LNG. Today, I'm joined by our CFO, Knut Traaholt, who will walk you through the financials later in the presentation. We will summarize the second quarter results and provide an update on the LNG shipping market. As always, we will conclude this webcast with a Q&A session.
If you would like to ask questions, please use the chat function on the webcast or send questions by e-mail 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 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. And 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 reported revenues of close to $107 million, or close to $103 million excluding 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 earnings per share of $0.83. When adjusting for unrealized gains on interest rate swaps and FX, we ended up with adjusted net income of $42.5 million, or adjusted earnings per share of $0.79. Flex Artemis and Flex Volunteer 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 LNG flows from the region. With the dry docking of Flex Vigilant in June, we have completed all scheduled 5-year special surveys for our fleet. 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 sheet, 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, and 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 on average 17 days in dry dock per vessel. Flex Vigilant marks the final 5-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 contract coverage, we have 51 years of minimum firm backlog, which may grow to 78 years if all options are declared. In the near term, we have close to 89% coverage for the 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 vessels both for spot and new term contracts. With our good contract coverage for the remainder of the year, we maintain our guidance, which we upgraded last quarter. This means that we expect full-year revenues to come in between $345 million and $370 million. Similarly, we expect TCE to come in somewhere between $73,000 and $78,000 per day. Lastly, we expect 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 a heavy schedule of newbuilding deliveries. Looking ahead, we note low European storage levels going into the cold winter season. Confidence in the long-term structural demand story remains 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 Qatar supply. Taking all factors into account, the Board has declared another quarterly dividend of $0.75 per share. This brings dividends paid over the last 12 months to $3 per share. The dividend will be paid on or about 17 September to shareholders of record as of 3 September. And with that, I hand it over to you, Knut, for final financial updates.
Thank you, Marius. The second quarter was a significantly improved quarter quarter-over-quarter, mainly driven by higher revenues. Revenues were $106.8 million, or $102.7 million excluding EUAs. 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 the 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 was $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 noncash items like unrealized gains from the interest derivative portfolio, the adjusted net income was $42.5 million, equivalent to adjusted earnings per share of $0.79. This is more than double that of the first quarter. So 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 repaid $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, resulting in a cash position of $397 million at the end of the quarter. Looking at our balance sheet, we maintain a clean balance sheet with mainly ships and close to $400 million in cash. Our debt financing is comprised of 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. The book equity ratio is robust at 27.4%. As noted before, our book values reflect historical cost adjusted with regular depreciation. 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. And 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 a significant reduction in Qatari exports, down around 29 million tonnes. This shortfall has to a large extent been offset by strong growth from the U.S., where exports are up 23% or close to 14 million tonnes. We have also seen continued growth from Australia and Russia. Other exporters have contributed strongly and are up 6 million tonnes 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 above the 90% utilization seen last year and the 5-year average of 86%. On the demand side, imports into JKT remained 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. Looking closer at the supply side, the reduction in Middle East LNG volumes has been significant. Combined exports from Qatar and UAE are currently down around 63% compared to normal levels. As you can see from the left-hand side, exports dropped very sharply earlier in the year. While volumes have started to recover, they remain below historical levels. At the same time, the U.S. has 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 mentioning 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. So despite substantial loss from Middle East supply, this has been mitigated by strong U.S. growth, and that shift is positive for shipping demand. Looking at demand and the competition between Europe and Asia for LNG: Europe entered the year with relatively low gas inventories. Inventories are today 61% full, the lowest level in over 15 years and below the 73% seen last year. This means Europe still has a substantial requirement to rebuild inventories ahead of the winter season. At the same time, U.S. LNG is highly flexible and can move between Europe and Asia depending on relative pricing. Historically, there have been significant swings in U.S. LNG flows between the two regions. So far this year, both Europe and Asia have attracted additional U.S. LNG volumes, although the balance has shifted through the year. Looking forward, this sets up a continued tug-of-war for U.S. LNG exports. If European storage remains low, Europe will need to keep bidding on Atlantic cargoes, while lack of Qatari volumes could pull more of those volumes into Asia. Regarding newbuildings, ordering activity remains very strong, even with newbuilding prices holding around $250 million and term rates at more moderate levels. We have already seen around 60 newbuildings ordered so far this year. A number of these are ordered without any employment contracts. This year, orders are well above last year's figure of 35 vessels. That tells us there's still significant confidence in the long-term LNG shipping markets. At the same time, elevated newbuilding prices continue to provide support for the value of modern existing tonnage, including our fleet. The order book remains substantial with around 285 vessels to be delivered going forward, equivalent to roughly 38% of the existing fleet. However, the majority of these vessels are already tied up with Qatar or other long-term employment, and the number of open vessels remains fairly limited. Contracting activity remains at very high levels. LNG SPA volumes signed in the first half of 2026 are already above 30 million tonnes per year. This continued appetite for long-term LNG supply is important because it provides the commercial basis required for new projects to reach FID. We have already seen around 28 million tonnes of projects that reached FID so far this year, including Venture Global's expansion of CP2, Commonwealth and Delfin. There are additional projects that could reach FID later this year, up to 39 million tonnes. These potential projects include LNG Canada Phase 2, Ksi Lismis in Canada, Delfin Phase 2 and Brownsville in the U.S. This would take the potential FIDs in 2026 up to around 67 million tonnes. The key takeaway is that the next wave of LNG supply continues to gain momentum, supported by strong customer contracting and a healthy pipeline of projects moving forward to FID. Let's have a look at the spot market for modern two-stroke vessels. We have seen increasing vessel availability in both West and East of Suez, and that continues to put pressure on spot rates. It is worth mentioning that the number of vessels available today is in line with 5-year historical averages. This comes at a time when the LNG fleet is growing, which shows that newbuildings are being absorbed by going straight into programs after being delivered from the shipyards. We did see a sharp spike in rates earlier this year, but since then rates have normalized and we have seen some pressure on spot rates over the last few weeks. As we move into the second half of the year, we would normally expect some historical seasonal tightening. We have two vessels coming open at the end of the third quarter, well positioned for a potentially strong winter market. With that, let's turn to a Q&A session.
Thank you, Marius, and thank you to everyone who has submitted questions on our webcast and also to our Investor Relations e-mail. It's been an active quarter with a lot of things happening during the quarter, particularly in the Middle East and with the Strait of Hormuz. We have a number of questions coming in around that and also how that has impacted our operations. Specifically, the question is: do we have any trade in that area or in the Strait of Hormuz? And have we had any ships being stuck inside the Strait of Hormuz?
Yes, thank you. I can confirm that none of the 13 vessels in the Flex fleet have been trading inside the Strait of Hormuz since the end of February. Our charterers are trading elsewhere for the time being.
There is also a follow-up question: there are a number of additional insurances required to trade in the Strait of Hormuz. Who pays for this insurance and what insurance is needed to trade there?
It is required to have additional insurance when you sail into high-risk areas. If and when our ships are ordered to such areas, this extra coverage will be paid for by the charterers instructing the vessel to those areas.
Sticking with the Strait of Hormuz, what's your view on the resumption of LNG exports out of Qatar and the UAE, and on the normalization of transit through the Strait of Hormuz?
We believe the Strait of Hormuz will remain closed throughout 2026. This could create an interesting market going forward for LNG and other shipping segments.
Moving on, you mentioned in the presentation that we have seen a slightly softer spot market. What are your expectations for the LNG shipping market in the third quarter and then the fourth quarter?
Q3 is normally a shoulder month before we head into the winter season. The spot market has softened: where it was maybe around $120,000 for round trips during the last Q3, it has now come down to $30,000. Our next ship comes open at the end of Q3, so we are preparing for the Q4 market, which historically has been profitable. We are hopeful that we can contribute a little bit more to our Q3 and Q4 results later. If the Strait of Hormuz remains closed, I think this will automatically find its way back to where the LNG market should be.
Good. Then we have some questions on financing. First, on our interest rate derivative portfolio: as we say, we have 70% coverage until mid-next year. When do we expect to add more interest rate hedging to our books? In general, we act when the markets are favorable. We are pleased with the coverage we have today, but when there are opportunities—either for short-term or longer-term interest rate hedging—that is our aim to pursue. There is also a follow-up question on our debt maturities in Q1 2029 and when we will address that. It's a bit early to address that refinancing now unless we see an attractive opportunity to add more or better terms to our financings. That is something we are continuously evaluating, and if there are attractive opportunities, we will act on them. A final recurring question is about dividend sustainability and the outlook for future dividends. As we have repeatedly said, each dividend is declared by the Board each quarter. We are fairly transparent on the decision factors, which we have also presented today. That is a repeat of the decision factors from last quarter, which reflected a downgrade of certain factors. However, with the strong balance sheet, cash position and contract backlog, the Board was pleased to confirm a dividend for this quarter of $0.75. Future dividends will be decided by the Board, which will reassess all these factors, including the backlog for open vessels. And with that, that concludes the Q&A session.
Thank you. Thank you for participating in our Q2 presentation. We would like to welcome you back in November for our Q3 presentation. Thank you.