FLEX LNG Ltd. Q1 FY2026 earnings call

• Contract and Backlog Updates:

  • Charterers exercised 2-year extension options for Flex Resolute and Flex Courageous, extending firm employment to 2032 with additional options that could extend to 2039.
  • Flex Aurora was fixed on a new 2-year firm time charter through 2028, with 2+2+2 additional year options that could extend employment to 2034.
  • Flex Constellation commenced its 15-year contract in early March 2026 as scheduled.
  • As of Q1 2026, 91% of remaining available shipping days in 2026 are covered by fixed contracts. The firm minimum contract backlog totals 54 years, growing to 81 years if all options are exercised.
  • Flex Artemis is currently on a multi-month spot contract through September 2026, and Flex Volunteer is on a multi-month contract becoming available in early July 2026.

• Drydocking Operations:

  • Two of the three scheduled 2026 drydockings (Flex Volunteer and Flex Freedom) were completed during Q1 2026, both finishing ahead of schedule. Flex Volunteer returned to spot trading, and Flex Freedom returned immediately to its existing charter.
  • The third drydocking for Flex Vigilant, which will complete the 5-year special surveys for Flex LNG's full 13-vessel fleet, is scheduled for May 2026 in Europe. The total expected average cost for all three 2026 drydockings is ~$6 million.

• Dividend Actions:

  • The Board declared a quarterly dividend of $0.75 per share, marking the 19th consecutive quarterly dividend at this level. This brings the trailing 12-month dividend to $3 per share, for a ~9.2% dividend yield. The dividend will be paid June 11 to shareholders of record as of May 29. Total distributions since 2021 exceed ~$810 million.

• LNG Market and Operational Dynamics:

  • Global LNG trade grew 3% year-over-year in the first four months of 2026, despite the 20% global supply shortfall caused by the shutdown of Qatari LNG production following the outbreak of war in Iran and closure of the Strait of Hormuz. The shortfall has been offset by increased exports from the U.S., Australia and other exporters.
  • U.S. annual LNG export volumes reached 130 million tonnes in Q1 2026, up 18% from full-year 2025, driven by project ramp-ups at Plaquemines, Golden Pass and the Corpus Christi expansion.
  • The shift in trade flows to longer-haul routes (Atlantic Basin supply, mostly U.S. LNG, serving Asian and European demand) has increased ton-mile demand, supporting shipping rates and long-term demand for modern LNG tonnage.

Flex LNG operates a single segment of LNG shipping. In Q1 2026, total reported revenue was $80.5 million, or $78 million excluding EU Emission Trading System (EUAs) allowances. Fleet average time charter equivalent (TCE) for the quarter was $65,700 per day. Reported net income was $19.5 million ($0.36 earnings per share), while adjusted net income (adjusted for unrealized interest swap and FX gains/losses) was $16.9 million ($0.31 adjusted earnings per share). Voyage expenses totaled $5.8 million, $2 million higher quarter-over-quarter due to higher bunker costs and drydock-related repositioning expenses. Average vessel operating expense (OpEx) was $16,000 per day, in line with full-year guidance. Interest expenses decreased due to lower loan margins and active revolving credit facility (RCF) management. Total $4.9 million in gains were booked on interest rate derivatives, split between $2.4 million realized and $2.5 million unrealized. Cash flow from operations was $37 million, with ending cash balance of $389 million after scheduled debt repayments and dividend distributions. Book equity stood at 27% of the balance sheet.

• Full-year 2026 financial guidance is upgraded from prior levels, driven by new contract additions, the improved spot market following the Iran conflict and Qatari supply disruption:
  • Revenue guidance is increased 10% to a range of $345 million to $370 million.
  • Fleet average TCE guidance is increased 8% to a range of $73,000 to $78,000 per day.
  • Adjusted EBITDA guidance is increased 11% to a range of $255 million to $280 million.
• Full-year 2026 vessel OpEx guidance is maintained at $16,000 per vessel per day.
• The company expects to maintain an interest rate hedge ratio (net of RCF utilization) of approximately 70% through mid-2027.

• Geopolitical risk: The ongoing war in Iran and associated uncertainty over the duration of the conflict and when Qatari LNG supply will return to normal operations has increased medium-term market uncertainty. Management downgraded its geopolitical risk assessment to orange (indicating elevated risk) in its dividend decision framework.
• Medium-term supply uncertainty: A high volume of new LNG carrier newbuildings are scheduled for delivery over the next five years, with an order book to fleet ratio of ~40%, creating medium-term downside pressure on shipping rates. Management maintains its market outlook assessment at orange, reflecting near-term strength alongside medium-term delivery-related uncertainty.
• Near-term spot market volatility: LNG spot rates spiked to over $250,000 per day in March 2026 after the Strait of Hormuz closure, but have since normalized from the peak, though rates remain above historical seasonal levels. Spot market performance for the company's two open vessels remains dependent on market conditions through the end of 2026.

Q: Do any of Flex LNG's vessels currently operate inside the closed Strait of Hormuz, what is the fleet status in the region?

A: Management confirmed none of Flex LNG's 13 global vessels are currently trading inside the Strait of Hormuz. Even before the closure, the company's charters had already selected alternative routes for this period, so no operations are impacted.

Q: What are the revenue prospects for Flex LNG's two spot-traded vessels (Flex Volunteer and Flex Artemis) for the rest of 2026?

A: Management noted prospects are far stronger than projected in February, prior to the Iran conflict and market rally. If both vessels are fixed at current spot market rates, Flex LNG could approach all-time high annual revenue for 2026.

Q: What is the status of marketing Flex LNG's available vessels for long-term contracts, and when will more capacity be fixed long-term?

A: The company is actively marketing available vessels for long-term contracts, and is engaging new tender opportunities that have emerged as long-term rates have risen. While management already holds 54 years of firm backlog and aims to grow this further, it remains disciplined and will only accept contracts with the right partners at attractive rates.

Q: Is the current $0.75 per share quarterly dividend sustainable given elevated geopolitical and market risk?

A: The Board uses a quarterly assessed risk framework, which maintains an orange rating for market outlook due to remaining open exposure in 2027 and 2028, and downgraded geopolitical risk to orange this quarter due to Iran conflict uncertainty. Even with this risk assessment, Flex LNG holds a robust balance sheet with $390 million in cash, a strong contracted backlog, and no debt maturities before 2029, supporting the maintained dividend level.