Thank you for standing by, ladies and gentlemen, and welcome to the Navigator Holdings’ Conference Call on the First Quarter 2020 Financial Results. We have with us Mr. David Butters, Executive Chairman; Mr. Harry Deans, Chief Executive Officer; Mr. Niall Nolan, Chief Financial Officer; and Mr. Oeyvind Lindeman, Chief Commercial Officer. [Operator Instructions] I must advise you that this conference is being recorded today. And I'll now pass the floor to one of your speakers, Mr. Butters. Please go ahead, sir.

Thank you. And good morning, everyone, and welcome to Navigator's first quarter 2020 earnings call. As we conduct today's conference call, we'll be making various forward-looking statements. These statements include, but not limited to, future expectations, plans and prospects from both a financial and operational perspective. These forward-looking statements are based on management assumptions, forecasts and expectations as of today's date and are as such, subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and financial forecast. Additional information about these factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission. Now, we are a few weeks later than normal in reporting our first quarter 2020 results. But considering that we only filed our 2019 20F about 20 days ago, we believe that the coordination with our new accounting team at E&Y is improving, and we will be able to progress from here. Now many of you know that for the last 18 months or so, we have been talking about Navigator's road to 2020. We believe, and still believe that during 2020 our operational fate would improve dramatically as various infrastructure projects would be completed and lead to a significant pickup in our export volumes on our specialized vessels. Those projects are namely: the Mariner East 2 and Mariner East 2X projects along the Delaware River; the completion of the Repauno, the new Repauno export terminal, again, on the Delaware River; our important ethylene export terminal in the joint venture with Enterprise in the Gulf of Mexico along the Houston Ship Channel; and largely, the important West Coast Canada and British Columbia export terminal that is expected will to be completed next year. Now unfortunately, shortly after we exited 2019 and into 2020, we were hijacked by the insidious and unexpected novel coronavirus, which shut down global trade and slowed down but did not stop our voyage. Ironically, we, the victims of the hijack are now wearing the face mask. But our team will outline this morning why we believe and have hope that we are now back on the road, albeit somewhat delayed. To give us a better insight on all of that, we will have speaking this morning, Harry Deans, our Chief Executive Officer; Niall Nolan, our Chief Financial Officer; and Oeyvind Lindeman, our Chief Commercial Officer. So why don't we have Harry begin and give us an outline of what has happened over the last quarter? Harry?

Thank you, David and good morning to everybody on the call. I hope you're all well and keeping safe. It's hard to believe we are now entering our eleventh week of lockdown. Our offices around the world remain closed, and our business is now run remotely from numerous home offices in several countries around the globe. This is a new normal. Remote working with all it entails has become a new modus operandi. I'm pleased to say our investment in robust information technology platforms and systems has paid off, allowing our team to interact seamlessly with each other, our customers and our vessels. Thankfully, the COVID-19 pandemic shows some early signs of abating. China and several other economies, especially in Southeast Asia, have reemerged from their lockdowns and have restarted manufacturing, thus providing a much easier stimulus for the global economy. North America and Europe, albeit a few months behind, are also beginning to cautiously ease this recording in lockdown measures and they talk about plans for a phased opening up. When this happens, it should jump-start both production and consumer demand. It's indeed early days on the road to recovery. However, the gradual lifting of lockdown will benefit the global economy, which has been severely buffeted by the effects of the pandemic, and we may witness the resurgence of a healthy ethylene arbitrage to Asia with differentials doubling from record all-time lows in the month. We've also seen an uptick in both propylene and butadiene export cargoes as producers attempt to balance local supply and demand with global export opportunities to maintain high-traffic utilization rates. In anticipation of the restrictions being lifted by national governments, Navigator Gas is working hard on a phased return to what's planned for our onshore personnel. Now this plan is not entirely straightforward as…

Ladies and gentlemen, please stand by whilst I reconnect your speaker.

I think I shall take over what Harry was on his last sentence. He was just saying that Navigator Gas is a robust, resilient and innovative company. And our terminal is now starting to get fully into its stride, both operationally and financially, and our shipping business is ready and well placed to benefit from the economic upturn when it occurs. And with that, he was going to pass it over to me, but I think he was having power cut issues this morning, the challenges of working from home. So if I may proceed and say that the results of the first quarter of 2020 show a headline loss of $8.5 million. This comprises a number of differing factors. First, this loss includes $3.7 million of foreign exchange losses, generally as a result of COVID-19. $2.5 million of which relates to noncash movement on our cross-currency swap associated with our NOK 600 million bond and $1.2 million associated with revaluation losses relating to a significant weakening of the Indonesian rupiah against the U.S. dollar. We received Indonesian rupiah for a Pertamina for the charter of three of our vessels trading in Indonesia. A significant part of these losses has reversed since March 31, after the markets have absorbed the initial shocks of COVID-19. Secondly, the quarterly results included $3 million loss associated with the initial start-up operations of the ethylene terminal. And as Harry mentioned, the results for the terminal will improve during the second quarter as throughput volumes through the terminal ramp up. This leaves the loss relating to our vessels for the first quarter 2020 in the amount of $1.8 million compared to a loss of $3.3 million for the first quarter of 2019. Operating revenue for the vessels was $81.3 million for the first three months,…

Thank you, Niall. The Clarksons 12-month time charter assessment for semi-refrigerated vessels increased from $645,000 a month to $695,000 a month in January, reflecting an encouraging start of the year with utilization, as you’ve heard, at 97%. At the end of January, it became apparent that the COVID-19 was something more than a localized issue in Wuhan. The World Health Organization declared it to be an emergency of international concern on the 30th of January and characterized it as an a pandemic on the 11th of March. Our eastern countries went into lockdown, which were swiftly followed by the rest of the world. As we all know, economic activity fell drastically impacting demand for shipping services. As you have heard from Harry & Niall, our utilization reduced to the mid-80% level for February and March and April, and the Clarksons assessment declined 5% to $665,000 a month at the end of the quarter. Handysize LPG demand remained largely unaffected as the key source of demand for this product is relatively inelastic associated with domestic usage for heating and cooking. This demand is less affected by commodity substitutes and price volatility, which, in comparison, influences the larger gas carriers in a more profound way. For example, when naphtha is efficiently price competitive compared to LPG, the petrochemical industry will evaluate the cracker economic and take positions whether or not to switch feedstock. Such substitution effect has been evident in the recent period with low oil price. The minority of LPG being exported from the U.S. goes long haul on larger vessels. And fluctuations in the amount of exports, either due to price arbitrage or seasonal domestic demand, has a large impact on this to a very large gas carrier segment. Handysize vessels, however, are catering for regional distribution and is only…

Yes. I think we can now open up the call for a Q&A period, please.

Thank you very much, sir. [Operator Instructions] Our first question is from Ben Nolan from Stifel. Please go ahead.

Yes, good morning. And it’s good to hear those comments from Oeyvind at the end there about utilization picking up and more pet chems. Sort of along those lines, I thought it was interesting that you signed the last contract for the ethylene terminal in April when really everything was super locked down. Could you maybe talk through what your customers are saying or how maybe conversations are going about potential additional contracts for future expansion or some of those kind of things about sort of the longer-term outlook of customers with respect to the ethylene?

Oeyvind, why don't you handle that one?

Yes, from the customer perspective, Ben, literally, it's a race. Because of the dramatic increase of ethylene delivered price in Asia that we've seen over the last three, four weeks, so there's a run on the various ethylene terminals there's two of in U.S., combined. So at the moment, U.S. ethylene price still remain very attractive, competitively attractive at now $250 a ton or less, and people are trying to buy it at $700-plus in Asia. So this arbitrage is really encouraging spot trades and is obviously helpful for the existing contractual customers at the terminal to realize and crystallize gains. So literally, the terminal that – any available terminal space is being investigated for ethylene export for the month of June. And that is why also Harry mentioned early that we anticipate June to be quite, as per estimates, around the 45,000, 50,000 tons of exports of ethylene in June. So the question is, is this the start of a bull run on ethylene for over the summer? Time will tell, but Asia easing up from lockdown, restarting manufacturing, demand going up or back to slowly to where was, is encouraging. So the terminal operators are trying to optimize all the available jetty space to export as much as they can. The U.S. have the excess volume available in the various storage caverns, it's a matter of getting it through the terminal, onto the ships and off to Asia. I don't know whether that answers your question.

No. That was very helpful. Go ahead, David.

Let me just add one thing. I think you made a very important point. Right smack in the middle of a shutdown globally, we had a customer sign up for a long-term 200,000 tons a year, which says something. It says a hell of a lot as far as I'm concerned. But let me just step back and reflect that in January of this year, I was in Houston talking to our counterparts on the terminal. And the question and the conversation wasn't about when we were going to expand the terminal, but it was how, what configuration, how quickly could we do it and the need for it. Of course, three weeks later, we're in the midst of this pandemic and all that conversation is off the table. But the attractiveness of the expansion is still outstanding because the cost to double that size is a fraction of what the original cost simply because you don't need a lot of the extra equipment there. You don't need additional storage because the storage that's being built right now can accommodate significant expansion, the doubling of the size. So that conversation, of course, is off the table at the moment. But I do believe that if we have any kind of resolution of this pandemic, we will see that conversation back on the table and move forward on it.

Okay. That's helpful.

And Ben, it's Harry here. Just from my perspective, even before we spend another $0.01 over and above the CapEx that we've committed to the terminal, I think you've heard me say several times, we should be able to squeeze the assets a bit more. And typically, engineers love shiny things and they build excess capacity into the designs. So I'd be disappointed if we can squeeze at least another 100,000 tons throughput through our existing terminal with we've got once the tank is up and running. So I think there's an unbuilt expansion already priced into the CapEx before we have to spend more money on an additional work cost expansion.

Yes. So sort of following on with that, you're still under construction for the storage tank. Has all of this going on changed any of the timing there? Or could you maybe update us on when you expect the storage tanks to be operational?

Yes, look, I can do that, David. Yes, we expect storage tanks to be operational towards the end of the year, sometime late November, early December. COVID hasn't affected it in any shape or form.

Okay, that's good to hear. And then last and I'll turn it over. You guys have, by my account, a handful of vessels that are coming off contract. Some of them more shorter term, but I think there were some ethane contracts in there as well. Given sort of the commentary that you've outlined on ethylene, is there good appetite by – to charter ships on a longer-term basis right now? Or is that something that you're looking to do anyway? I'm curious. So....

I mean our Luna pool has just been operational for a month or two months, including May. So I think we will get a lot of benefit from that in terms of critical mass and catering for the customer needs in terms of spot activities and contractual statements and that sort of stuff associated with petrochemical cargoes. So I think we need to get that straightened out and realize benefits from the Pool before we talk about consolidating further.

Okay. Incidentally – and I was really thinking about some of the midsize, I think – there was I think 1 comes out contract next month. Are those in the Pool?

They are not. The midsize ships which fits the box for Navigator in terms of being the most flexible ship, so they are large. They bring economies of scale for longer voyages. They could do propylene, ethylene, ethane, LPG, all those cargoes. So in terms of whether they will play a role with the Morgan's Point ethylene terminal, I think so, for sure. They are quite large. If anybody fills up 20,000 tons of ethylene today, it will be a world record. So let's see.

Okay, great, I’ll turn it over. Thanks again.

Thank you very much. Our next question is from the line of Randy Giveans from Jefferies. Please go ahead.

Hi gentlemen how is it going?

Hi, Randy.

Hey. So you mentioned that utilization. It started the year great, 97%; fell down to maybe 85% February, most of March. Now I guess we're two thirds through the second quarter. So just trying to get a sense for utilization and in fact TCE rates compared to that first quarter, just to get a trend of revenue quarter-to-quarter.

As we talked on the call, Randy, the mid-80s utilization level continued into April. And then in May, we expect it to reach the 90% mark. It is early to see what it is for June yet. But May certainly looks to break the 90% mark, which is encouraging, considering where we've been and with all the havoc that this pandemic has caused.

Sure. And then on the rate side?

The closing 12-month time charter rates at the end of third quarter, they were at 600 – sorry, first quarter, $665,000 a month. And I think last week, they were down at $615,000, which is not a big decline considering – comparing our segment to other segments. So that’s where the independent brokers are setting the market to be, at least on a time charter level. So it’s not – we’re not seeing a cliff dive, but utilization is going up, which is quite positive.

Got it, okay. All right. And then I guess secondly, turning to the joint venture. Obviously, you came back on getting 95% contracted on the volume side, how many cargoes have been exported from that ethylene terminal so far? And have all those gone on Navigator ships? And then secondly, it looks like the share results for the JV was up $3 million loss during the first quarter. What are your expectations for like the second quarter, third quarter kind of run rate? When do you expect that to be positive and by how much?

The volume question I can take. So first half estimate from January to June, terminal is expecting to do 110,000 tons. There was about 40,000, 45,000 tons during the first quarter. And then sort of second half of May and into June, we’re looking at the remainder. So it’s a big ramp-up from mid-May and into June, particularly because the arbitrage also is encouraging the trade. So of that volume from the Enterprise terminal, we’ve done about 52% of that from Navigator ships, so just above half.

Okay.

On the performance, you’re right, we did have a loss of $3 million for Q1. April what was pretty much of the same vintage. May, the volumes are ramping up and June where they’re fully at capacity I think or at least pre-tank capacity. So I would expect Q2, maybe around the breakeven, maybe as much as $1 million loss, but that would be the extent of it. And then Q3, which is also pre-tank, would be or any period thereafter, pre-tank would be about $1.5 million of a profit. And post-tank, we’ve already suggested that the EBITDA would be around $25 million – $24 million, $25 million, which is, whatever, $6 million a quarter.

Perfect. Good deal. Thanks for the color, and keep up the good work. You all stay safe.

Thanks, Randy.

Our next question is from Sean Morgan from Evercore. Please go ahead.

Hey guys, so I was wondering, you mentioned that the deep-sea petrochemical trade, especially down at the Far East, has been fairly resilient despite COVID and despite a lot of the trade issues are going on with China. So I was wondering, if you look at some other markets like crude and even large-scale LPG and LNG, China has been kind of shadow banning a lot of imports from U.S. suppliers. But it seems like some of the propylene butadiene and some of the products you guys carry on a smaller vessel has been relatively unfazed by that. So I was wondering, do you have any insights as to why that was? It’s just stronger demand that just supersedes any kind of trade implications? Or how would you sort of look at that?

Well, the tariff situation on propylene and ethylene and ethane, you can’t speak to get dispensations on the people, on these players that, based on the U.S., are supporting and chartering our vessels. They – as far as I’m aware, they have these dispensations from China. So they don’t – they’re not facing the tariffs and therefore are equally competitive as products from elsewhere. So that is why some of the products are going from Asia, but – from U.S. to Asia. It’s more also to do with the attractiveness of the price of U.S.-produced petrochemicals because the diesel is relatively cheap. Therefore, with or without tariffs, they are competitive and they will move because the crackers are running at high operating margins, again, because diesel is relatively cheap. And for the Europeans, they are switching – we talked about the substitution effect of naphtha over LPG. So that has happened in Europe whereby more naphtha is being consumed as feedstock. And because you are doing enough signs that of LPG like the feedstock, you get more heavy for C4 products than butadiene. So suddenly, they have more butadiene than normal. And with the lower domestic demand in Europe, therefore, they have access. And the guy who’s going to buy is in Asia. And Asia I guess is two months ahead of the European lockdown and the manufacturing processes and so forth are sort of coming back. And they are buying this excess butadiene from Europe or the propylene from U.S. or the ethylene from U.S. So that’s why we’ve seen the utilization pick up in the month of May. But that – those trades are hard to come by during February, March, April, but they seem to be slowly emerging back now.

Okay, great. And that’s all I have today. So I’ll turn it over.

Thank you very much. [Operator Instructions] The next is from Mike Webber. Please go ahead.

Hey, good morning, guys. How are you?

Good morning, Mike.

So I wanted to dig in a little bit on the contracting activity from April, obviously, stands out as kind of a data point that kind of runs against the grain. So without getting into too much detail, can you give us some color around the duration and the rate, for lack of a better term, on the business that you guys were able to sign in April relative to the business that underpins the initial investment?

I think it’s exactly the same as the previous ones.

So identical in terms of the terms and returns to last rates?

Yes. Oeyvind, correct me if I’m wrong, but I believe that’s the case. Yes.

Yes. Mike, it’s very similar in terms of duration and in terms of pricing and date of pay.

So how should we think about that? Is that a conversation that’s been going on since kind of the inception of the terminal itself? Or should we look at that as an indication that despite the volatility that if you guys were to engage in kind of new conversations around either an expansion or tapping into maybe some capacity beyond nameplate that we would expect similar economics there? Is that on-the-run market indication? Or is that something that’s more of double legacy price indicator from when you guys started this closing?

We have been in – the joint venture has been in discussions with counterparties for a while, but they didn’t have to sign it. So I think it’s the sentiment that the counterparty wanted to say that when we’re in the middle of the COVID crisis and so confident in the Board and arbitrage going forward long-term. So hopefully that gets your correction, Mike.

No. That’s a fair point. That’s certainly positive. In terms of the notion of expanding, that’s something we’ve heard elsewhere in the midstream space too around that facility specifically. David, I think you mentioned, obviously, the incremental investment wouldn’t be on par with the amount of some costs that went into kind of getting the feel, get them up and running in the first place. Can you give us a vague sense of scale around what kind of capital call we could be looking at if you guys were to expand that facility? And obviously, expanding that on the back of additional business would be good news for Navigator. But just trying to get a sense of what the capital cost could look like specifically because it seems like that would likely overlap with some significant refinancing activities you guys will be doing in the next 18 months.

Sure. Harry, why don’t you take that one?

Yes. No problem, Mike. Mike, it has to be just and true to the actual study. It’s not to give any numbers. But typically, when you expand the facility you already have, I think all the civils are already there, all the concrete and the reinforcing’s been done, the electricals are there, the pumps are there, the jetties are there, all the infrastructures there. And it typically sets the tone on what we’d normally take for a greenfield site. And I think it can be anywhere between 50% and 70% of a normal new build. So all things being equal, once you’ve expanded the assets to whatever you can get the maximum capacity to, that should be the most logical investment in the industry because you’ve already sort of pre-invested in all those stifles and all the underpinning work that’s required for the infrastructure for the tank.

Okay. So 50% to 70% seems reasonable – not holding into it, but just the sense of scale that seems – that’s all in this ballpark we should be thinking on a preliminary basis statement if and when...

Yes. That’s just sort of rough rule of thumb, Mike, that’s usually used in the chemical industry. So...

Okay. Great. All right, guys. That’s all I’ve got. Appreciate the time.

Thank you very much. Our next question is from [indiscernible] from the Value Investor.

Hey, good morning, gentlemen. Congrats on getting up to 95% on the take or pay.

Thank you.

Just digging into that one first. That 95%, is that totally fixed price? Or is it a percentage like on a per-ton basis that fluctuates with the ethylene market?

It’s a fixed price, nothing to do with the price of the product. So if demand there will – quoted price of ethylene moves from one day to the other, that doesn’t influence the price terminal fee, that has nothing to do with the product.

Excellent. That’s good to hear. And I heard your response to Mike Webber about a 50% to 70% sort of CapEx spend to model in there. I know you’re on pause because of COVID, but if you decided, say, this fall or next winter to maybe pull the trigger and move forward with expansion, what would the time line be between the FID and actually rolling out that capacity?

I’ll take that one. Thanks, good question. It’s difficult to say because you’ll be working in amongst a live plant, which is – has its own limitations, as you can imagine. And that’s why the CapEx estimate is a range because it all depends on what you’ve already got and if you’re constrained for space, et cetera, et cetera. So it’s quite difficult to say until you’ve actually properly worked up the project and done the proper analysis.

All right. It sounds like we’ll need to circle back on that one and maybe hopefully, we’ll get some color this fall or next winter. Just looking at the cash economics of the joint venture, it looks like you had I think you said about $9 million post quarter and then about $13 million-or-so excess CapEx left. You also mentioned you could draw down some more debt at the joint venture. So how do we think about that in terms of net cash right from March 31 into the end of 2020? What’s the net cash call at the Navigator level?

So the – if I understand your question – well, there’s kind of two questions. One is the facility and one is what’s left to draw. So we have now paid as of today, $133 million of the $150 million expected or budget, albeit that, that budget has some contingency in there. So it may not be the full $150 million. But assuming it is, we’ve got $17 million to go, which is principally the remainder on the tank, the construction of the tank. So that’s it. From the facility, it’s a $75 million total facility, of which we’ve drawn down so far just $7.5 million of that. So if you take the 17 – if you take the $7 million we’ve already drawn down and assume we’ll draw down the other $17 million to pay for the remaining tank, there’s about $40-odd million, $40 million to $50 million, where essentially, we have overequitized the investment in the terminal. So we would draw down on that facility to rebalance – to do a true-up to rebalance those two.

Okay. Great. Well, we’ll have to model that one out. As far as looking at remainder of joint venture financing, it sounds like the leverage ratio is quite low in terms of EBITDA. I think you guided EBITDA up to $25 million. I would speculate that you could get financing of 5 times or more. Is there a possibility to expand that financing and pull some more cash back to the parent level? Or are you just going to keep it where it’s at?

It is possible. But you’ve got to bear in mind that this is a joint venture, and there is no debt allowed within the joint venture entity itself. So each of the each of the participants, i.e., ourselves and enterprise, have to finance the terminal – the proportion of the terminals up there in their own entities. And consequently, there is no security of the terminal allowed being given to any debt providers, and that’s a challenge. So therefore, how’s the debt, in our case, is to do with the quality of the – or the existence and the quality of the offtake agreements, which is why it’s proportionately being ramped up as the offtake agreements kick in.

Understandable. Thanks for the color on that. And congrats on getting that up and running.

Thanks.

There are no further questions, so I’ll hand back to your speakers for today.

Okay. Well, thank you very much, everyone, for joining us, and we look forward to our next meeting.

Ladies and gentlemen, thank you all for joining. You may now disconnect your lines.