Thank you for standing by, ladies and gentlemen, and welcome to the Navigator Holdings conference call on the third 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 also advise you, the conference is being recorded. And now I pass the floor to one of your speakers, Mr. Butters. Please go ahead, sir.

Thank you very much, and good morning, everyone, and welcome to Navigator's third quarter earnings call. As we conduct today's conference, we will be making various forward-looking statements. These statements include, but not limited to, future expectations, plans and prospects from both a financial and an 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 our speakers today will include our usual, Harry Deans, our Chief Executive Officer, will lead off; followed by Niall Nolan, our Chief Financial Officer; and winding up our conference today will be comments from Oeyvind Lindeman, our Chief Commercial Officer. So Harry, why don't you take over the call?

Thanks, David. Good morning to everybody on the call. I hope you are well and keeping safe. At the beginning of September, in line with the prevailing government advice, we reopened our company offices on a phased team A, team B basis with staggered working hours to both reduce risk and to maintain social distancing. This turned out to be a temporary measure. However, as the second wave of COVID-19 started to take hold in late September, and we subsequently had to close our offices again, once more we're running our business remotely from numerous home offices worldwide. We expect this will remain the case well into Q1 2021, if not beyond. By now, we are all very familiar with the technology, thus ensuring a seamless transition and maintaining business as usual with no impact on our operations, our customers or our employees. This week, the prospect of the Pfizer vaccine provided a glimmer of hope for all of us and was a welcome shot in the arm for the global economy. We all live in hope that this vaccine or one of the others that are currently on the development, fast-track, will prove to have good efficacy and will be quickly rolled out globally, much to the relief of everyone. U.S. LPG production and exports have been remarkably resilient throughout this pandemic, and there's no sign of that abating. In fact, the recent modest uptick in U.S. rig counts helps further underpin confidence in LPG supply. That was needed. Heading into the winter season, U.S. LPG stocks are at 5-year highs. This coupled with former oil prices and improving naphtha LPG spread and robust demand in China should ensure export tons are priced to move. It was very pleasing to note that despite the impact of the weather headwinds…

Thanks, Harry, and good morning all. As Harry mentioned, the company generated profits of $1.5 million for the third quarter, the second consecutive quarterly profit. And this compares to a quarterly loss of $2.9 million for the third quarter of last year. EBITDA for this third quarter was $31.9 million with $4.4 million being generated from the operations of the terminal and $27.5 million from the shipping segment. Total operating revenue from the vessels was $81.4 million for the quarter, an increase of $5.7 million from the $75.6 million generated during the third quarter of last year. Net revenue for the third quarter of both years was the same at $62.2 million, however, with some differences. Cost revenue increased by $4.1 million between the 2 comparative quarters as a result of an increase in average charter rates, which rose to just under $700,000 per month or $22,892 per day from just over $650,000 per month or $21,466 per day for the third quarter of 2019. Average charter rates across the 9 months of this year averaged $21,733 per day, an increase despite any negative impacts of COVID-19 from the $21,000 a day achieved during this equivalent 9 months of last year. However, although charter rates continued to see some upward movement, utilization was a challenge during the third quarter, reducing to 78.8% from 90 -- from 84.6% for the third quarter of last year, primarily as a result of the effects of hurricanes Laura and Delta, that Oeyvind will refer to later. This reduction in utilization had a $4.5 million negative impact on revenue. However, notwithstanding this reduction, utilization over the 9 months of 2020 remained higher at 85.4% than the equivalent period in 2019. Our Luna Pool earnings, which are aggregated and allocated to pool participants in accordance with…

Thank you, Niall. As Harry mentioned initially, we were on a roll during the summer months, ramping up the ethylene export terminal with record-breaking export volumes of competitively-produced U.S. ethylene. The utilization levels were in excess of 90%, and our specialized fleet enabled Asian post-COVID Phase I demand to flourish. Ethylene as well as propane were required for the production of personal protection equipment such as face masks. Once the vessels completed discharge operations in Asian ports, the captains had standing orders to double back to U.S. Gulf to pick up next export parcel. This was all happening when the U.S. Gulf petrochemical industry took precaution in anticipation of hurricane Laura's landfall. From middle of August, 1/4 or 25% of the entire U.S. ethylene production was shut in preparation for Laura's landfall. The hurricane did make landfall right in the middle of the ethylene-heavy Lake Charles area. Luckily, minimal physical damage occurred at the petrochemical industrial parks, however, the shutdowns were prolonged due to slower repairs of the local electricity grid and continuing scare of additional hurricanes. Only after hurricane Zeta made landfall in October in exactly the same location as Laura did, did we see a meaningful restart of the crackers and subsequent production. Impact this year was extraordinary for the U.S. Gulf with a record 12 named storms and hurricanes making landfall in the area. Therefore, from mid-August through October, U.S. domestic ethylene prices rose as there were little to no excess production available. It went from its lowest level of $0.09 per pound in the summer reaching above $0.30 per pound during the hurricane period. Exports through the terminal reduced, which directly impacted our ethylene fleet. The vessels that have been ballasting back to U.S. Gulf for ethylene prospects had to either face idle time or look…

We would be ready to open the conference to questions and answers, please.

[Operator Instructions] And your first question comes from Omar Nokta from Clarksons Platou Securities.

I just wanted to talk about the terminal. Obviously, it turned to profit officially this quarter, which gives you a nice visible stream and can be counted on while the trading fleet can be a bit more volatile as we just saw this quarter. You mentioned in the release that the hurricane -- or the hurricanes impact the shipping business in the Gulf Coast. But you also mentioned it affected the terminal. Are you able to quantify what kind of impact that is, say, the fourth quarter?

I think during -- the point, Omar, the issue with these hurricanes is plural, is that the production capacity shut-in took a long time before they returned or are returning back to normal. So the impact of months have been kind of second half August, September or October. We've seen stronger throughput in November and we expect that to be back up to expectations for December. So December probably looking at similar levels as we saw in the -- in June, July.

Okay. And if we just think of it in terms of numbers, in the third quarter, you got $4.4 million of EBITDA, $3.1 million of earnings. Is that repeatable, you think, with what we've seen so far for the fourth quarter?

I think it may be -- given what we've seen in October, And the early part of November, that might be on the -- slightly on the high side, but not significantly so.

Okay. And then -- and just generally, how do the terminal contracts work when it comes to like these types of events, storms, hurricanes, are they take-or-pay hell-or-high water type contracts?

Yes, they are.

Okay. Great. And then just sort of one other follow-up. I just wanted to ask, it's been about 6 to 8 months since you guys formed the Luna Pool, and just wondering if you can give an update on how that's working. And also with the disruptions that we saw in the third quarter, hadn't that pool actually proved beneficial as you kind of work to try to figure out other employment opportunities for those ships ballasting into the Gulf?

Yes. So the Luna Pool, as we discussed last call as well, it's fully operational. It commenced 1st of April. And today, all the 14 ships are in the pool and performing accordingly. So it's the Luna Pool consists of ethylene ships, specialized ships. And of course, the pool is formed in order to better service the ethylene customers and of course, also the U.S. Gulf ethylene exports, including from Targa terminal and our own joint venture terminal. So of course, when there are less ethylene to be exported from there, it will impact the pool, but the whole concept of the pool is collaboration and sharing of earnings. So therefore, through the pool, we were during this time, more likely -- or we were more likely to have the right asset at the right location for other cargoes. So if we only had our own ships, and let's say, we navigated, ballasted most of them back to U.S. Gulf, we didn't have any other ships available for other opportunities. But through the pool, those chances are available to us.

And your next question comes from Ben Nolan from Stifel.

Actually, I wanted to -- it made me think there, a follow-up on Omar's last question there. In some ways, was the Luna Pool a little bit -- or did it drive down utilization across the fleet a little bit? Because, obviously, the Luna Pool is carrying ethylene specifically, and so you have to have vessels dedicated to that, whereas maybe in the past, if an ethylene cargo wasn't available, then you could just take propane or something else. And so as a function of dedicated cargo commitments, did you maybe forego business that might have kept utilization otherwise a little bit higher?

I don't think so. And it's a complex question. With the 14 ships, clearly the ambition is to trade with ethane and also ethylene. So whether the pool was in place or not, and you are facing this volatility that the hurricane caused, less exports in that one particular cargo grade, with the pool or not, we would be chasing other opportunities and working very hard to find alternatives. The point with the pool is that we have a more global footprint, therefore, the chances are more -- more likely that we can find other alternatives. So I wouldn't say that the pool has been detrimental in utilization for Navigator during this time. I think it would have been more or less the same, probably a little bit worse if we hadn't had the pool.

I think I'd add something to that, Oeyvind, that when you have been doing ethylene and intend to do ethylene and you're sitting around, and you don't want to take a cargo or propane or butane or whatever else because when you get back to the ethylene, you have to stop, clean and refrigerate. And it's a process that takes time and money. So in the case where you are temporarily down, such as caused by the hurricanes, your choice is just sit there and wait until it clears and the ethylene becomes available because it's just too expensive and time-consuming to take a spot cargo of propane, do that cargo and then come back to do the ethylene, much more expensive. So that causes an extra delay, if you follow me.

Yes, sure. So you probably would not have picked up a cargo one way or the other...

Unlikely. It would have been unlikely to do. As long as you can see -- anticipate that you'll be back doing the ethylene very quickly. And that's what we did because the shutdowns were believed to be temporary. They extended longer than we expected because the electricity was down longer than people had expected.

Right, right. Were there -- in the release, you mentioned a new multiyear contract on a vessel, I believe, with a Chinese counterparty. Any color that you might be able to provide there with respect to rate at all?

This was in our Q2, actually, announcement, I think we put it in, where it's a 3-year contract at higher than mid-$30,000 rate per day.

Got you. Okay. So it wasn't incremental to 2Q. Okay. That's helpful. And then lastly, from me, this is a little bit more strategic, I guess, David or Harry, As you look at the company, and you've made a lot of progress taking delivery of a lot of ships, obviously, the terminal has come along nicely, but yet the share price has languished at levels below sort of where you traded initially after the IPO for some time here. Is there any -- has this changed your strategic thinking about the place of the company? Do you -- does it push you more towards maybe thinking about consolidation or anything else that, given the progress and yet the lack of share price performance, has your thinking begun to change at all about the long-term view of the business?

David, you go first.

Okay. On the contrary, if you think about in the last couple of years, what Navigator has gone through from sanctions, through tariffs, through the coronavirus shutdown, global shutdown, negative pricing of oil and then back-to-back hurricanes right down the mainstream of where the petrochemical complex is located, and yet we're generating profit. What it has done is put a kind of a fog over the future. The fog being simply a more difficult time, a period in which to focus on where we anticipate it going. Now I think a great event occurred this week with the Pfizer vaccine. Now we know a vaccine can be, whether it's the Pfizer one or another one or multi. It clarifies some of that fog, it takes it away. People can now begin to plan. And what I see is what I've always believed that America will begin accelerated export of not just the raw materials, the propane and the butanes, but we will be exporting more and more of the intermediate chemicals, the olefins, the propylenes, the ethylenes. And the infrastructure required for that is still in its infancy. I mean our little terminal, it's not little, it's a world-class terminal, but it is the beginning. I see far more of that type of infrastructure required, more infrastructure required on the receiving end and more companies willing to start producing these olefins for export, not for domestic use but tailoring down, shrinking down the capital requirement and focusing on building the infrastructure such as an ethylene cracker simply for export, propylene crackers for export. I mean, enterprise is doing that, now with the second propylene facility being built in Texas, solely for export. So no, I -- look, everyone has taken a step back because of all of these convergent factors…

Well, thanks, David. Yes, I think you covered it very well. I think that now our strategy is on track and it's starting to deliver, as you can see from the terminal. In the next -- [indiscernible], we'll virtually be doubling the capacity through that terminal. And who else is better placed than Navigator to bring together suppliers of ethylene and consumers of ethylene and supply them with the product in the United States to wherever they require it. So I think our strategy is starting to play out, and we're excited about it. And I think there's other ways that we can develop the strategy going forward. So we're all frustrated about this share price, but that's life, isn't it, Ben? So.

And your next question comes from Sean Morgan from Evercore.

David, so I think one of the things you said in your response just now that you kind of view yourself as a value but also a growth company. And we look at the sort of CapEx and cash requirements, 3 vessels that need dry docking, and then probably, I think you said only $4 million of additional capital needs to be paid for the existing terminal and Morgan's Point. But then there was also a lot of work done to refinance the credit facilities and working in the debt capital markets. I think you have about $120 million of availability now. So that's not quite one full terminal contribution, but it's close. So is there a reason sort of in light of this idea of growth that you made that capital available? Or is it just kind of going back to what you said about black swans and being prepared for rainy days?

Well, one has to be prepared for the rainy days. I mean we've been just hit so frequently that these black swans are commonplace. But no, look, balance sheet strength and building up is obviously key, and yet being prepared to have additional capital for these potential expansions clearly, if the -- I mean, the most obvious capital requirement early on will be to consider whether or not we need to expand that ethylene terminal. If things go as we anticipate and continue volumes ramp-up, we'll need more money for that. But that's pretty obvious for anyone who looks at the situation. I don't think we would have built this thing for 1 million tons, I think there's a lot of capacity. If that happens, obviously, we need more vessels. There wouldn't be enough vessels to accommodate an expansion of that. Whether or not we need to put capital involved into the international expansion, again, it's a logical thing that we would be doing. So I don't know if this answers -- do we have enough of that? No, probably not. We would -- as these things unfold and the visibility, hopefully, this begins the period of visibility of earnings and our share price would respond, we would see the kind of appreciation that one would expect with the growth and value orientation. And we will be able to fund and keep apace with what we think is probably our most promising period for growth and profitability. I mean, I talked a lot, but did I say enough? I don't know.

Yes. I mean, I think so the takeaway there is there's plenty of room for expansion at the existing facility, and I was kind of maybe hinting at another footprint, but maybe that's kind of further down the road. So for my last question, I just also -- you said that there was some disruption in terms of utilization in October, and you were given kind of a current rate of mid- to high 80s utilization. So 1.5 months in, there's -- we have about 50% of this quarter on the books. So what does it look like right now in terms of the blended utilization for the first half of November and October?

Yes, October was higher than the third quarter, but we see the trend going north through November and also into December. So where it is at today is the mid-80s, high 80s percent level. Whether the average at the end of the quarter will be that? I certainly hope so, but that's the direction of travel.

Sean, sorry, just to come back on your previous question about the opportunities. We've got a lot of opportunities in the business, both, as David said, typically, the best debottleneck is a free debottleneck where you spread the assets, and we're pretty confident we can at least get 10% adjusted capacity at our current footprint at Morgan's Point. And then the next best one is if you expand in an existing facility because the cost per ton of installed capacity is dramatically reduced. So that's a good opportunity. But equally, in this marketplace with low share prices and low profitabilities, there's other opportunities out there as well in the traditional shipping market. So we're looking at all those options and assessing them, but there's nothing imminent in the pipeline today.

And your final question comes from Randy Giveans from Jefferies.

I guess 2 questions from me. First, any updates on Repauno or Pembina? I know those have been kind of in the pipeline for quite some time here. So seeing if you have any moves on those.

Yes. The Pembina, Randy, has been on schedule to commence operations back end of first quarter, maybe April next year. So no change there and no change in the volume or the specifications, requiring then 4 to 5 or 6, depending on the destination of that Canadian volume, the incremental demand of handysize ships. So that is going as far as we are aware and talking to Pembina and looking what they publish publicly. So that's on schedule. Repauno, on the East Coast in New Jersey, they have -- as they have completed their terminal, they are starting to fill it up. They have a cavern there with LPG. They intend to trade domestically in the initial phase and learn to walk before they run, I suppose, and they have publicly stated that they intend to start exporting, which is obviously we're interested in and will impact our business from -- at the same time frame as Pembina. So I think come back end of first quarter next year, if you have Pembina, Repauno both starting, you have a big kicker in our segment.

Got it. All right. And then I guess, one more quick modeling question. In terms of interest expense, that continues to fall here in the last 3 or 4 quarters. So is this kind of current number, the $9.8 million or so, a fair run rate, which we use for the fourth quarter? And same for G&A, that has certainly bounced around this year. Where is that going to shake out this quarter and then maybe a run rate for '21?

Yes. So the interest charge should be something similar to Q3. There's been a slight further reduction in interest rates from Q3 to Q4, but then they have increased debt on the terminal that we mentioned. So there's further interest on that. So one will generally offset the other. So it should be there or thereabouts. G&A, I mentioned the various component parts, the Indonesian rupiah million dollars should probably -- well, certainly -- not certainly, is unlikely to repeat itself. As of today, it has abated somewhat. So there should be somewhat of a reduction in that. The terminal additional insurance will remain as is, and the audit and related fees will be something -- would be repeated to some extent, but not that full amount that was partly a catch-up.

And we now have no further questions.

Good. Well, thank you for joining us this morning, and we welcome you back in a few months' time. Thank you.

Thank you. That does conclude today's presentation. Thank you for joining. You may now disconnect.