Welcome to the Navigator Holdings Conference Call for the Third Quarter 2023 Financial Results, live from Houston Texas. We have with us Mr. Mads Peter Zacho, Chief Executive Officer; Mr. Gary Chapman, Chief Financial Officer; Mr. Oeyvind Lindeman, Chief Commercial Officer; and myself, Randy Giveans, Executive Vice President of Investor Relations and Business Development in North America. I must advise you that this conference is being recorded today. And as we conduct today's presentation, we'll be making various forward-looking statements. These statements include, but are not limited to, the future expectations, plans and prospects from both a financial and operational perspective, and are based on management assumptions, forecasts and expectations as of today's date and as such are subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and financial forecast. With that, I now pass the floor to Mads Peter Zacho, the Company's Chief Executive Officer. Please go ahead, Mads.

Thank you so much, Randy, and good morning, and thank you for dialing in to the Navigator Gas earnings call. First of all, I'd like to tell you how excited I am about introducing you to Gary Chapman, our new CFO, who joined Navigator just over a month ago. Gary’s long experience as a leader as well as a shipping and finance professionals has ensured that he has hit the ground running, and he is now already a value co-part of the Navigator Leadership team. You'll soon see and hear more from him, as Gary will review the financial results with you in a couple of minutes. I will now kick us off by reviewing the highlights of the third quarter, and what a quarter it was. We generated operating revenues of $138 million in Q3 2023. This is up a strong 29% compared to the same period last year. Adjusted EBITDA hit a new record $72 million for Q3, advanced improvement over last year's $42 million and higher than the results for the same quarter -- or the recent quarters this year. You may recall that Q3 is seasonally our weakest quarter, so we are pretty excited about this result for Q3. Adjusted earnings per share was $0.27 for Q3 2023. Our cash position remained robust at just below $108 million at quarter end, and that compares to $153 million when we entered 2023. As part of that picture, you should also be aware that this September, we bought $9 million worth of our own unsecured notes in open market using cash on hand. During the quarter, we paid a cash dividend of $0.05 per share and repurchased $3 million worth of our own shares. We also now declare further $0.05 per share dividend plus just over $1 million…

Thank you very much, Mads, and good morning, everyone. Slide 6, please. I'm really pleased to be with you today, taking part in the story of Navigator and building on all the great work done up to this point. And I'm pleased to say that the third quarter of 2023 has continued that momentum with some very positive results. We saw operating revenue up 29% to $137.8 million in the third quarter compared to the third quarter of 2022, and up from $135 million in the second quarter of 2023 despite the summer months and hence, Q3 traditionally being seasonally quieter. Time charter equivalent rates or TCE was strong at $26,278 in the third quarter, as Mads said, up from $22,022 in the third quarter last year. The bottom right table on Slide 6 shows TCE, together with utilization for the quarter, which was 93.4%, above the 90% we guided last quarter, driven mainly by our ethylene-capable vessels and also ethane movements where there have been higher ton miles that help us. This utilization is better than the 89% we reported last quarter and better than the 84.9% we reported this time last year. Although we have seen the overall TCE rate fall just a little compared to last quarter, this has been more than offset by the better utilization, leaving us with higher operating revenues than last quarter and a strong result overall. So when you have good rates and you have good utilization, you also need to look to your costs and total operating expenses decreased to $102 million compared to $104 million last quarter. If you exclude the one-off $5 million profit on the sale of the Navigator Orion that happened in the second quarter this year and $103 million for the same quarter in 2022. Within…

Thank you, Gary, and good morning from Houston. If you take a look at Slide 13. U.S. natural gas liquids production continues to grow, surpassing the 200 million barrels per day production milestones reached in August. The Energy Information Administration predicts further growth by end of the year. This strong production trend bolsters two key aspects for us, competitive prices for American LPG and ethane and increased throughput at various U.S. export terminals. Notably, LPG exports in August exceeded 60 million barrels per day, making a 10% increase from the same period in 2022. During the third quarter, U.S. handysize export cargo saw a slight increase compared to the second quarter. Despite the typical inventory buildup during the pre-winter months, we anticipate that North American handysize LPG volumes will continue exceeding 100,000 metric tons per month. In the handysize segment, LPG is an important, but secondary story when talking about current North American shipping demand. The primary focus is linked to ethane, the largest component of the natural gas liquids production. On Slide 14, we direct attention to the graph in the lower left, illustrating the market dynamics. History shows that as long as ethane prices remain below $400 per metric ton, ethylene, being ethane’s derivative continues to flow from the U.S. to international markets. Currently, ethane is priced around $200 per metric ton, leading to an ethylene sale price in the U.S. of $480 per ton. This ethylene can be sold in Europe or Asia Pacific region for approximately $900 per ton today, leaving ample margin for terminal and marine transportation costs. Our joint venture, Ethylene Export Terminal, and our fleet both benefit from this reality. Additionally, which is important to keep in mind, a high-oil-price environment further enhances the attractiveness of U.S. ethane to ethylene production and exports…

Thank you, Oeyvind. So following up on several announcements we made in recent months, we want to provide additional details on updated developments regarding a few of those announcements. So Slide 22, we are pleased to announce our return of capital for the third quarter of 2023, in line with our recently announced return of capital policy and the table below, we're returning 25% of net income or $4.8 million to shareholders this quarter. The Board has declared a cash dividend of $0.05 per share, payable on December 21 to all shareholders of record as of December 7, equaling to a quarterly dividend payment of $3.7 million. Additionally, with NBGS shares trading well below our NAV of greater than $22 a share, we will use the variable portion of the return of capital policy to repurchase additional shares. As a reminder, between December and May of 2023, we repurchased 3.8 million shares at an average price of $13.12 per share for a total of $50 million. Subsequently, the Board authorized a new $25 million share repurchase program, of which we used $3 million during the third quarter. And looking ahead, we will repurchase at least $1.1 million of NVGS common shares between now and the quarter end, such that the dividend plus the share repurchases equal 25% of net income. Returning capital to shareholders is relatively new to Navigator, but something we see as a requirement for a shareholder-friendly company. Turning to Slide 23, and following up on our previous announcement regarding the expansion of our Ethylene Export Terminal under the existing 50-50 joint venture with Enterprise, over at Morgan's Point, we agreed to a capital project to increase the export capacity from around 1 million tons per year to at least 1.55 million tons and up to 3.2 million…

Thanks a lot, Randy. Yes. And as you can see here, Navigator is sailing strong and it's well positioned for the future. I do hope that you like the direction that we're heading. We are delivering a growing and consistent amount of revenues and earnings. Utilization in the gas tank or feed stays tight, and it allows for higher charter rates. And now we are going into the typically strong winter months. The midterm outlook for our gas tanker business is robust with a limited number of handysize vessels on order, and with continued strong natural gas liquids production growth, not least in Houston. Our balance sheet is in its best shape ever, with leverage and cash allowing us to return capital and grow our business at the same time. We remain strongly committed to growing Navigators business. The good progress in expanding our mortgage Point terminal joint venture as well as our investment into Azane is some of the best. So the best is yet to come. And with that, I'll hand it back to you, Randy.

Thank you, Mads. Operator, we'll now open the lines for some Q&A. So to raise your hand, press star 9, and then you have to unmute yourself by pressing star 6. Or if using zoom, just use the raise hand function. So first question on your line [indiscernible].

Good morning, team. This is Emily on for Omar. Thank you for taking our questions. We first wanted to ask for more detail on how the Panama Canal congestion is impacting demand on your business. Are you seeing higher demand as these issues have tightened VLGC availability trickling into the midsize and smaller segments? Wondering if you could please provide some more color there?

Thank you, Emily. It's a very topical question. And you're right. I mean the Panama Canal will -- by reducing capacity by 50% will obviously have an impact on the shipping trade lanes. Longer voyages will be a result, which is generally good for shipping and also good for Navigator. We have seen immediate impact on ethane. So ethane demand for handysize ships have -- we've seen some examples of that where the rates are high because there's little availability of ethylene or ethane-capable vessels in the spot market. So that is an immediate positive impact. On the ethylene trade, the voyages clearly will be longer. There is room in the arbitrage today to add the freight of $75, as we mentioned in the prepared remarks, to facilitate Houston connecting with Asia Pacific customers through the Suez or Cape. The immediate changes we've had, so which you will see on Thursday, if you come to Houston Morgan's Point for our Investor Day. We'll go on board and Navigator Orion. She was scheduled to go via Panama. However, she will not deviate via Cape and go to Indonesia to discharge. So longer voyages already. So this will tighten the market generally, which in shipping speak is a positive.

Thank you for that explanation. I wanted to follow up with a question on fleet utilization. You started this year off very strong with 96% utilization, and it fell to 89% in 2Q and bounced up to 93% this quarter, so nicely done. Your presentation revealed that 4Q utilization is expected to be around 90%. But I'm wondering how should we think about modeling it in 2024? Any detail that you could provide there would be super helpful. Thank you.

Sorry, I can just say a few comments here before you had to take it over for in -- when we look at our utilization, typically, when it's 90% or slightly above that, that's a good number. And it's a robust market. As we've indicated in the previous discussion here, we think that the supply-demand situation overall for Navigator looks good with the order book of new ships that are coming in is very limited and also with natural gas liquids production, in particular, in North America continuing to grow. So that means that with the growing demand and the supply situation that isn't really changing much. And that overall is good for utilization. So I think, you should expect that there’ll be numbers going up and down, when we are at 95% above, that’s pretty exceptional. And it’s not something that you should count on as just being the normal. So looking at 90% or just over that, it’s really good number and it’s something that allows us to push the rate upwards. But Oeyvind please anything to add any color you'd like.

I think you hit the nail on the head. Thank you.

That makes sense. Thank you. I’ll turn it over.

Thanks so much, Emily. You sounded much better than Omar. Next question. Your line is open.

This is Ben Nolan. Hopefully, you can hear me. Actually, I was going to follow up on Emily's question there. You were at -- was over 93% in the third quarter on the utilization number, which is, as you said, normally a little bit softer period as it relates to utilization. I'm curious why you're expecting a little bit of a dip or at least not -- well, I guess, a little bit of a dip in the fourth quarter in that utilization numbers that just sort of to be determined and may be conservatism?

I think here that I don't think that we're guiding that there will be a dip as such. I think we're guiding that in the 90% neighborhood that probably includes 93% or so, is very difficult to forecast with a high level of precision whether it's going to be 90% or 92% or 93%. I think overall, you should be left with the impression here that we are relatively confident around the supply-demand outlook, and we think that the utilization is going to remain robust as you've seen in recent quarters. So that's probably more the conclusion rather than you can say, looking at 1 or 2 percentage points up and down is simply the operating pattern here that can influence it. And sometimes having a little bit of a downtime is not a bad thing. It may be an opportunity for us to maybe sit back and be -- holding back, let's say, shift for a little bit or too.

Okay. Understood. I was going to also ask on the Azane announcement. It's small here, but understandably, hopefully leading to bigger things. Was curious though, as and when it does make its final investment decision, are there future cash calls or anything else that would be necessary on your part as and when it moves forward?

No. The $3 million investment is for now, the total investment, right, additional units will not be held at the company, they will pay us for the order, pay us upon delivery, and then we have the option of operating those assets. But in terms of additional investment dollars, we do not foresee that going forward.

Okay. And I was going to also ask on the JV. The volumes were good, the contribution was a little bit lower than it was in the second quarter. Was there anything specific around that? Or how should we think about the JV contribution going forward?

Yes, higher in 4Q. I think we mentioned that on 1 of the slides there, but they had a very high electricity pricing in August here in Houston. It was extremely hot, most summers, but especially this August. So electricity really went up. And then we had a little bit of deficiency, some accounting that will roll forward positively in the fourth quarter. So the fourth quarter contribution will certainly be higher than the third quarter.

All right. Very good. Appreciate it. Thanks guys.

Thank you, Ben. Next question. I see a hand there.

Good morning. Climent Molins, from Investors Edge. Thank you taking my question. You provided ample commentary on Panama Canal congestion, but I was wondering whether you've seen scaling effects from high VLGC rates we've seen over the past few months?

Hi, Climent. You're correct. So when the larger ship segments above the handysize segment are doing well, it does trickle down. So it's very a mental game whereby, when the larger ships are doing better, it is easier probably enough, for us to push rates also higher. Because conceptually, it is very difficult to think about paying more for a ship that is half the size than a bigger ship. So it helps, and it's a cascading effect. What dollars and cents that translates into for the handysize, that's a more difficult question because we do ethylene, we do ethane, we do ammonia, we do easy petrochemicals in addition to LPG. So, as you know the larger ships only do LPG largely. But there is a positive effect uplift from the larger ships doing better. Correct.

That’s helpful. I was wondering about the nuances of that. That’s all for me. Thank you taking my questions.

Thank you, Clement. I see another hand here from OpCo [ph].

Yes. Sorry, I emailed the question. But what's your long-term plan for the Morgan Point investment? Is it a strategic asset for you over the next decade? Does APD have a buyout option? Sort of can you just give me an idea of what you're thinking longer term on that investment?

Yes, I can maybe start out and Oeyvind you can add your color. We're super happy with the joint venture and the partnership that we have with enterprise. It's very stable. It's a very well-functioning joint venture we have here. And that's, of course, also evidenced by us now together expanding the terminal with a relatively large addition to it. So we see it as a stable relationship. It's a 50-50 joint venture. We do not have a purchase option, neither does enterprise. So we see this remaining a 50-50 joint venture for the long term. We see it as a very cash-generative asset. So it's good holding, and we see some very clear commercial synergies also for our shipping business in being part of the bigger part of the value chain than just the shipping part. It gives us much better opportunity to commercially manage our ships and understanding what the customers are doing and how the flows are materializing. So it has tremendous value for our shipping business. So we are very pleased and would like to hold on to it.

And then can you talk about, are there any -- does enterprise have any preferred terms on shipments or sort of how that arrangement works with once you're actually exporting or shipping out of that terminal?

So it's an open terminal. And it should be like that. But it's a little bit akin to the George Bush International Airport here in Houston, whereby if you go to the airport, there's a lot of United flights. It's their hub. Same here. If you go to Morgan's Point, if you're joining on Thursday, you'll see a Navigator ship and there's a lot of Navigator ships calling that terminal. So that's the analogy I usually use for that question.

Okay, great. Thank you so much.

I believe that concludes our Q&A. So I just want to thank you again on behalf of the management team of Navigator Gas. Hopefully, we'll see a lot of you this week. And if not, we'll certainly talk soon. Happy holidays.