Thank you for standing by, ladies and gentlemen and welcome to the Navigator Holdings Conference Call on the First Quarter 2021 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. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today. And now, I pass the floor to one of your speakers, Mr. Butters. Please go ahead, sir.

Thank you and good morning, everyone and welcome to our quarterly conference call. Now, as we conduct today’s conference call, we will be making various forward-looking statements, these statements include, but not limited to future expectations, plans and prospects from both the 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, before we make - handling over the call to one of us, to Harry and our London team, it might be a little bit helpful to look back to where we were at the end of last year. As we entered 2021, we were full of conviction that we had reached an inflection point that we had been working on and waiting for, for the past number of years. Our export terminal was operational, and the critically important storage tank had just been commissioned in mid-December. Everything was good. Indeed, the operating results for December and January confirmed with an exclamation point that we were about to achieve operating performance not seen since 2015. But February Texas freeze changed all that. Extraordinary natural events shut down the Texas and Louisiana electric grid for weeks, and more importantly, inflicted severe mechanical damage to the area's refining and petrochemical plants. Ethylene became scarce, prices spiked to global highs, and domestic inventories depleted. No barrels moved through our terminal in March. During this period, we issued a force majeure on our terminal, and our tightly scheduled ethylene vessels experienced complete disruption. Nevertheless, we generated positive quarterly results and an improved balance sheet. January's strong performance, offsetting a very difficult February and March showed us Navigator's underlying strength and powerful earnings potential under normalized conditions. As Harry, Niall, and Oeyvind will shortly discuss, since the end of March, conditions have gradually improved, suggesting that we may still be entering into an environment more characteristic of those prevailing at the end of last year and the very beginning of this year. So now, as just before I pass the call over to Harry and his team, I would like you to - be sure that you open up your website to Navigator's site, and under the Investor Presentation section, refer to the supplemental information. I think that you will find to be very helpful as you follow along. So, Harry, why don't you pick up from there, please.

Thanks, David. Good morning to everybody in the call. I hope you're well and keeping safe. I'm pleased to report that Navigator Gas has performed robustly during the period and has had the best start to years since Q1 2016. This is our fourth profitable quarter in succession, with income translating into an earnings of $0.05 per share. During the period, the company achieved adjusted EBITDA of $31 million, representing a 22% increase in the same period in 2020. This reflects both strong operational performance by the company, as well as the fruition and completion of our significant investment into the business in prior periods. The final capital contribution to our Morgan's Point ethylene terminal joint venture was paid in late January, bringing our final investment in the terminal to $146.5 million. The Shipping business has performed well during the period, and we look forward to another - to more growth as a mark to a trading environment improves. And as we have previously announced, we completed the anticipated merger of Ultragas's fleet in business with Navigator. This transformative combination will create a fleet of 56 vessels, which will enhance our market offering and provide much needed flexibility and support to our customers. Ultragas's fleet of seven more than 22,000 cubic meters handysize semi-refrigerated vessels, five 12,000 ethylene vessels, and six gas carriers under 10,000 cubic meters will position us to engage new clients and new markets through increased coverage and geographical reach. We anticipate that the enhanced scale and combined fleet will provide cost savings, significant synergies, and efficiency throughout the business. The additional vessels will allow us to capitalize on the structural growth of LPG and petrochemical gases being exported from the Repauno, Pembina, and of course, our own Morgan's Point terminals. All of which are now on…

Thank you, Harry. And good morning, all. The company generated net income of $2.8 million during the first quarter 2021, which compares very favorable to the loss of $8.2 million made in the first quarter of last year. Last year, of course, was negatively impacted by the initial market's reaction to COVID-19, as the world at large reacted nervously to what was about to unfold. Who would have thought that a year on, the lasting effects of the pandemic would still be impacting our lives. Having said that, the recent quarter's profit has been the best, as Harry has mentioned, since the first quarter of 2016. The total operating revenue from the vessels during the first quarter was $85.7 million, up $4.5 million from the $81.3 million generated during the first quarter of last year, but slightly behind the $87.4 million generated during the previous quarter, Q4 of 2020. Average charter rates during the most recent quarter were $21,950 a day or $667,830 [ph] per month, an increase from the $20,850 per day in the first quarter of last year, as well as an increase from the $21,100 achieved last quarter. Utilization, however, was more challenging during the quarter. As both David and Harry mentioned, January started very strongly with utilization of 96%. But following the mechanical integrity issues with a 16 mile pipeline between the ethylene caverns and - at Mont Belvieu and our terminal, creating a force majeure, as well as the Texas winter freeze that initially hit on February 15, the vessels we had lined up to load ethylene at the terminal at that time were unable to do so and had to suddenly find alternative employment. This affected their earnings and utilization fell to the mid 80% during February and March, resulting in overall utilization of…

Thank you, Niall. And morning, everybody. If you take a look at page eight of the supplementary presentation, the ethylene graph is quite telling on the right hand side. It shows that global ethylene prices have gone through a roller coaster over the last six months. At year end, US ethylene price stood at $700 a ton, the dark blue line, and US ethylene exports reached an aggregate i.e., from both Targa terminal and our joint venture terminal of 100,000 tons. Nearly 80,000 tons of this was exported through our joint venture terminal. Now we consider a total of 100,000 tons per month a normal state of operations from the US. Today, the US ethylene prices quoted at $670 a ton, nearly half of what it was during its peak in April. The US ethylene price is projecting further backwardation, i.e., reducing in the future, and exports are increasing as a result of this widening arbitrage to international markets. And why is that? Well, we are seeing the fundamentals of continued cheap ethane available in the US and excess domestic production getting back up, which will move the market to a more normal state of play. And that is good for us. The export volumes are reacting positively, increasing month-on-month, as you can see on page nine, illustrating the aggregate US ethylene exports. As you can see, the exports are moving toward what we call the normal state of 100,000 tons per month for July. A high oil scenario further underpins the attractiveness of these derivatives produced by natural gas liquids. To put into perspective, these 100,000 tons of exports of ethylene per month translates into about 16 handysize ethylene vessel demand, which from a fleet of 38 ships on the water today, it captures nearly half the available tonnage,…

Annie, you can open up the call for the question and answers now.

Thank you very much, sir. [Operator instructions] Our first question today is from Sean Morgan from Evercore. Please go ahead. Your line is open.

Hey, guys. So, we've talked a lot about back to normal on the call. It's kind of a bit of a theme. But back to normal, we really, you know, haven't had a lot of normal because there is been all these sort of one-off disruptions that were sort of macro-related and exogenous to the company. So, if we look at January as maybe a good benchmark for the ethylene export terminal, what does Q2 look like in terms of, you know, kind of utilization that you see in, I guess, over the quarter of kind of a normalizing quarter? And how does that compare with Q3 if we can kind of hold the rates that we've seen in June so far?

Thanks, Sean. So, it kind of - what illustrates part of the answer to your question is on page nine, the US ethylene export graph. You can see the middle sort of peak there, which we call normal operation, everything was at our standard being 100,000 tonnes exported from the US during that period of December, January. So, then, of course, we know what happened. And you see that and through March, April, May. So, the utilization, as a result didn't exceed 90%, it continued in sort of the same vein as the first quarter because of that valley [ph] as you see on that graph. Now - but then since then, June is kicking up as you can see picking up, and then July. Our expectation is back up to the $100,000 aggregate mark with roughly 80% from the joint venture terminal.

And then in terms of actual dollar contribution for the income statement, we feel kind of targeting, I mean, it's been really lumpy, obviously, because of all these sort of one-offs. But are we thinking maybe like $9 million a quarter? Is that like a good - is that still kind of a good estimate? Or it was just 10% debottlenecking and then maybe bring that a little higher?

Sean, yeah. I mean, the terminal from Q2 is still going to be lumpy because of the reasons that both David mentioned at the outset and Oeyvind, subsequently. I think from what - when we're talking about normal, we're talking about from June onwards. And we have said that at that level, it would be around $20 million to $25 million of EBITDA on an annualized basis. So, it's about $6 million per quarter.

Yes. And if I could just squeeze in one macro question real quick. In terms of the US demand, I appreciate that the spreads are widening and that's going to be very advantageous. But do we - are you sort of contemplating a much more normal scenario for when we get back to say colder winter months and essentially like a lower domestic consumption, so that that spread can kind of be maintained through the end of the year?

Yeah, I think the - on the ethylene spread, our sort of belief is that that's not very much - it's not relating so much to seasonality because the feedstock is ethane. Now, if you talk about propane LPG, yes, there is some seasonality in the US market because traditionally, consumption goes up in the winter for obvious reasons. But the - what have caused kind of narrowing of LPG arbitrage from the US, not ethylene, LPG as its lack of reduction in production during the freeze, increased consumption, as I mentioned about people working from home is quite interesting, and therefore, the arbitrage sort of shut - reduces trade of LPG. Now, we don't do - our business is less LPG from the US from the spot market. We do a lot now because of the projects we have talked about, and they are projects and - that contracted and so forth, the less impact. But I think that LPG arbitrage will sort of increase again in general once the historic inventory levels get back up to where it's supposed to be, and that is ongoing.

Okay. All right, all right. Thanks. Thanks for the time, guys.

Thanks, Sean.

And our next question for today is from Randy Giveans from Jefferies. Please go ahead. Randy your line is open. Please ask your question. Randy Giveans, your line is open. Please go ahead and ask your question.

Okay. We might take another call if there is another one.

Yes, sir. We'll move to the next question. Ben Nolan from Stifel. Please go ahead.

Morning, Ben.

I have a couple, though. So, as - you know, as you laid out, especially with the addition of the Pembina volumes, now all this, you know, within the course of a month and a half, the 13%, I think you said 13% to 18% of all of the semi-refrigerated vessels are - or should have dedicated to that to that trade at the same time that, you know, the ethylene terminal is coming back online, or I guess it is now back online. How - any color as to what you think is a reasonable assumption for utilization for you guys in the third quarter now that things are sort of where you thought it would be?

I think, look, it's all positive. So, if you talk about third quarter, the Pembina ships, the last one is delivering in about 10 days time. So, then that is concluded. The ethylene terminal is getting back up to normal days as we have discussed from July onwards. We also have a potential merger happening in the third quarter. So, all these things should assist in our utilization rate trending positive from the second quarter and the first quarter. I mean, that is quite logical.

Right. But when you say positive, I mean, are we talking mid 90s or what sort of - if third quarter is the new run rate, what does that run rate look like do you think?

Yeah. A good utilization core number and quarter troughs would be 90% -plus.

90% plus. Okay. And then to that end, just been keeping an eye on the day rates and they've been okay, but they haven't really moved, and I thought that they might, you know, with the addition of, again, the Pembina terminal and the vessels sort of being incrementally taken out of the market. Do you think that's coming? Or what - is it the fact that the LPG are bidding quite open enough and that sort of is keeping a cap on day rates? Or what would you sort of attribute that to, or am I just being unreasonable?

I mean, the textbook is on supply demand balance, so we remove available ships and there are no ships to replace that with. Therefore, it should be positive. Now it's not like turning on a switch and it happened overnight. Our expectation is that it is happening, but over a short period of time.

Okay. So it's your anticipation that the day rates are probably moving up?

Correct.

Okay. And then lastly for me, I could keep going, but Randy might be in the background somewhere. The - it is related to the ethylene terminal. Things are kind of getting back up and running. I know pre - the three years that you guys had made mention that you were maybe talking with customers about potential additions to contracts and expansion and all these kinds of things. Any color as sort of whether that has, you know, recommenced or if you feel like there's an incremental long-term business that could be coming around the corner sometimes soon?

You want me to take it, David, or you're going to take it?

Harry, why don't you answer that, you know, that would be helpful.

Yeah. Okay. Thanks, David. Thanks for the question, Ben. Yeah, obviously, we're anxious to get the terminal up and running to full capacity. And as I said in my prepared remarks, we think we've identified 10% that we can squeeze out, but we haven't really run it flat out [ph] yet. We're semi-optimistic that'll be more tons available. And as we've spoken about several times in this call, the best debottleneck is a free one. You will spend a lot of money and we want to see some return from that money and see flow back to our bottom line. But we're constantly in discussion with customers about expanding and we're constantly in discussion with customers about plans for the future for that terminal. But what we need to do now is actually sweat [ph] the asset and see it run and run reliably. Does that answer your question, Ben?

Yeah. That's - so - sorry. That is sort of the next for - I suppose what you're saying is before we should expect to see any incremental announcements or whatever, we kind of need to get a little bit of time under your belt for utilization and so forth? Is that…

That's right. Let's sweat [ph] the assets and sell it. You know, as we've talked again before in this call, the cheapest incremental ton of expansion capacity will be on our terminal. So if anybody who's going to - another dollar and to ethylene terminals, it would be us and our joint venture partners because all the infrastructure is already there. You know, you've got the vessels [ph] you've got the jetties, you've got other infrastructure. So all things being equal, any ethylene terminal expansion will be in our terminal. It's just a matter of time.

Right. Okay.

But you can imagine, Ben, you know, since the terminal became operational over a year ago, what happens? Well, first came the pandemic that really is not the pants off of everything, negative pricing of oil. Then came of course the hurricane in the summer of last, which shut down the electricity and distorted pricing and availability of ethylene. And just as we were getting ramped up again, the - along came the deep freeze. Now, if you're trying to plan, if you're a buyer of ethylene, and particularly a long-term buyer, you don't know what to look at the moment. It's been such a distorted market. So I think those things have to settle down a bit. And as Harry says, you first focus on debottlenecking, getting an extra 10% or 20% out of the existing capacity. And then as things settle down, negotiations on long-term supply and how to get those long-term supply barrels up and running and whether that's an expansion of whatever have you or a new facility, that would be the decision. But, boy, it couldn't make any decisions here in the last year and a half, impossible.

Right. Okay. That's - well, maybe there's a little bit. Last question and just as a reminder, capital allocation priorities or near term debt repayment is that fair?

For the terminal?

No, in general. The company's capital allocation, and we should we expect you to be focused on debt repayment there?

Sorry. Yes, yes.

Okay. All right. I appreciate it. Thanks.

Thanks, Ben.

Thank you.

[Operator instructions] We have had Mr. Giveans come through again. Randy, your line is open. Please go ahead and ask a question.

Gentlemen, can you hear me now?

We can.

Yes, Randy, we're waiting for you.

Reunited and it feels so good. Two questions for me. First, does the Ultragas merger, does that limit any future plans or maybe an expansion of the ethylene terminal? And secondly, now that you have acquired some small LPG carriers, is there any appetite for further acquisitions and consolidation on the smaller LPG side?

Yeah, the first one, let me take it, Randy. No, it doesn't. So we're completing the mergers, the cashless [ph] merger, you know, which is wonderful. It doesn't over leverage our balance sheet. And that would give us much more opportunity. So it's not either or.

Okay.

On the second question, on the small vessels, Randy, we're still looking at it. It is something that is new to us. And we can't wait to actually get in because, as you know, we're not allowed to discuss certain things ahead of the close of the merger, so we can't wait to get and talk more details with our new partners at Ultragas to find out how these vessels operate and where they operate and look for other opportunities with them. We know they've done a very strong pool called the Unigas [ph] fill, which has been around for a long period of time and those guys manage those vessels very efficiently and very well.

Got it. All right. And then, I don't know if you answer this earlier. Clearly, I had some phone issues but I'll ask it. Obviously, on the Pembina, Repauno, great to see those both online. Were you able to quantify how many, maybe handysize semi-rapid vessels will be employed on those projects on an annual basis? And I know you showed some cargoes per month in your slide deck, but do you have an annual number on how many of those vessels are pulled out of the market?

Yeah. So, Randy, excellent question. The first part is easy to answer. So Pembina one, there are four ships on 12-month charters, so they will then reflect for ship demand on an annual basis. Now, they're also talking about the fifth ship, so there might be more coming from that opportunity. On the other side, on the Atlantic side, the Repauno terminal, so we've loaded two cargos in May and that translated to full employment for one ship. And that went to the Caribbean. So we paid those tons to go further afield while they need more ships. Now, the specification or nameplate capacity of the Repauno, to the best of my knowledge, is 20,000 barrels a day or even more. Now, in the month of May, they only did 10,000, so half. So you'd be safe to say that that terminal once fully operational, that they got experience under their belts should be at least two handysize ships on an annual basis. So if we combine both of them, then it will be six or seven, and that is overnight going from zero to that number in our little segment is pretty cool.

Sure. Clearly impactful. I'm going to throw the third question because I think of it at the end of the queue, which is completely my fault, sorry. You mentioned current utilization. I think high to mid 80% range, continuing to climb. Is that your expectation for Q2 and Q3 now as a run rate? And how is that higher utilization impacted some of the spot handysize shipping rate?

So utilization, as we talked about on this call from Q1 to Q2, is pretty much a straight line. So it's continuing that thing, as you just mentioned. Now, I think, it was Ben's question earlier in terms of the third quarter and for the reasons, we discussed those projects, ethylene ramping up, and so forth, et cetera, we expect the utilization of the third quarter to be 90 plus.

Perfect. And then in terms of impact on rates…

That should represent [ph] and a normal state. So we're talking about the back to normalization. So that is definitely our expectation, so hopefully, that will materialize.

And is that kind of the threshold for when you really start to see rate inflection? Just trying to get the impact on rates…

Past experience, definitely. So if you go back five months to January where we have 95% utilization, it's fantastic. I think we've said that being able to push the market in the right direction in terms of freight. So by sensing, the past experience is anything to go by, we want to get 90 plus. You are getting into that zone, whereby you can actually move the needle.

Got it. All right. Well, hey, thanks again for the patience. And it's been a long two years, but great to see things heading in the right direction. Thank you.

Thanks, Randy.

Thanks, Randy.

Thank you. Ladies and gentlemen, I'll now hand back to your speakers for any closing comments.

Okay. Well, thank you very much for joining us this morning. And let's hope we don't have any other disruptions before our next call, and we look forward to that. Thank you very much.

Thank you very much, sir. Ladies and gentlemen, that does conclude the call. Thank you all for joining and participating. You may now disconnect.