Capital Clean Energy (CCEC) Financial Results Transcript

Capital Clean Energy Carriers Q1 2025 Earnings Call Summary

Source: The Motley Fool

Event Details

Date: Thursday, May 8, 2025, 10 a.m. ET

Participants

• Brian Gallagher – Chief Financial Officer
• Jerry Kalogiratos – Chief Executive Officer
• Nikos Tripodakis – Chief Commercial Officer

Conference Call Highlights

Brian Gallagher: Welcoming attendees, Brian noted the importance of Q1 2025 for Capital Clean Energy Carriers. Operational net income reached nearly $81 million, including a $46.2 million gain from selling two container ships. These were the last of five 5,000 TEU containers sold, delivered to new owners this quarter. Since December 2023, the company has generated $472.2 million from selling 12 container vessels, redirecting these funds toward gas transportation assets.

Employment contracts for two new LNG carriers were secured for five and seven years, each with an additional five-year option. Axios II, an LNG carrier, began a seven-year bareboat charter with a three-year extension option. These deals increased the firm charter backlog to $3.1 billion, reinforcing confidence in the long-term LNG shipping market and providing investors with clear visibility on future employment and cash flow.

Brian then handed the presentation to CEO Jerry Kalogiratos and CCO Nikos Tripodakis.

Financial Overview

Jerry Kalogiratos: Jerry highlighted a busy quarter reflected in the financials. The sale of two container vessels contributed $46 million in one-time gains. The company remains open to selling its three remaining modern eco-vessels, which have strong long-term cash flow potential.

The dividend remains a central part of shareholder value, marking the 72nd consecutive quarter of cash dividends. The capital base is consolidating, with additional ship deliveries expected next year. Cash reserves are robust at $420 million, bolstered by recent vessel sales.

With ongoing market volatility, the Fed is anticipated to cut interest rates by nearly 100 basis points in 2025. CCEC stands to benefit, as 80% of its funding is at floating rates. The balance sheet is strong, and the company has reduced its open LNG carrier exposure by one-third, increasing contract flexibility and financial resilience.

Strategic Developments

Average charter duration across the fleet is now 7.3 years, with the LNG fleet boasting 91 years of charter backlog or $2.8 billion in contracted revenue. Two of six LNG carriers under construction have been chartered to an energy supermajor for five and seven years, with options for further extensions. Additional options have been exercised for three existing vessels.

The average daily time charter equivalent across firm charters is about $87,300, rising to $91,150 when including all options. The charter book continues to grow as the company secures employment for remaining assets.

Recent charter extensions and new contracts have pushed the total contracted backlog to $3.1 billion, potentially reaching $4.5 billion if all options are exercised. The company maintains a diverse counterparty base, with no single customer accounting for more than 20% of the contracted revenue backlog. This diversity strengthens the gas transportation portfolio and supports future growth.

Capital Expenditure and Financing

CCEC ended the quarter with $420 million in cash, providing a solid financial buffer. The newbuilding program totals $2.3 billion, with $467 million in advances already paid. Assuming 70% debt financing for LNG carriers and 60% for other gas vessels, total debt would be around $1,560 million, leaving $105 million in excess equity, not including cash flow from the existing fleet. Nikos Tripodakis was invited to discuss LNG market trends.

LNG Market Commentary

Nikos Tripodakis: Nikos addressed two key issues before discussing the LNG market. First, the U.S. trade representative’s proposed port fees for ships entering U.S. ports have been reduced from initial estimates and are expected to have minimal impact on LNG shipping. The U.S. aims to increase the share of LNG exports transported on U.S.-flagged, operated, or built carriers from 2028, but LNG shipping is exempt from these fees until then. CCEC is unaffected, as none of its LNG fleet is built in China.

Second, tariffs have limited direct LNG trade between the U.S. and China, with no cargoes shipped since February. Bilateral agreements with other nations could help mitigate tariffs and boost LNG demand. However, persistent tariffs may increase project costs and delay final investment decisions (FIDs).

LNG Shipping Market Trends

• Newbuilding Prices: Remain high, with a single Q1 order exceeding $260 million. Prices have stayed above $250 million since February 2023, unaffected by spot market weakness.
• Long-Term Charter Rates: Remain stable in the high $80,000s to low $90,000s per day, reflecting a shortage of modern tonnage from 2026 onward.
• Short-Term Rates: Have rebounded from January lows, rising from below $10,000 per day to around $40,000 per day by April, driven by increased spot requirements, arbitrage opportunities, and vessel repositioning.

LNG Vessel Supply Dynamics

Weak spot markets have led to increased idling of older steam and tri-fuel vessels, with Q1 2025 seeing record numbers of idle and scrapped LNG ships. Three vessels were demolished in Q1, potentially totaling 12 for the year—a 50% increase over previous records. This trend supports the need for modern, efficient, regulation-compliant vessels.

Supply and Demand Outlook

A holistic analysis shows the market balancing by late 2026 and early 2027. From Q1 2028, a significant shortage of modern vessels emerges, with a deficit of about 100 ships by 2029, especially if pre-FID projects and limited yard capacity are considered. If more U.S. LNG is shipped to Asia, the market could rebalance earlier.

Summary and Outlook

Jerry Kalogiratos: Jerry emphasized the progress made in securing new charters and strengthening the company’s outlook. The company will continue to pursue long-term employment for remaining LNG carriers, as few uncommitted newbuildings remain. Discussions are ongoing for gas vessels, which will likely enter shorter-term markets. Remaining container vessels are secured on long-term contracts, offering flexibility.

CCEC has delivered on its objectives, expanding its LNG charter book and securing employment for two vessels, while maintaining a strong balance sheet with over $420 million in cash. The fleet remains young, offering low unit costs and minimal environmental impact—key factors for commercial success and regulatory compliance.

Looking ahead, CCEC is poised to operate the largest LNG 2-Stroke carrier fleet available to investors, along with 10 multi-gas vessels. The company enjoys substantial contract coverage and strong cash flow visibility, with a competitive edge in advanced gas technology vessels. Efforts will focus on deploying LPG and liquid CO2 assets, raising the company’s profile in capital markets, and attracting investors. The first quarter demonstrates the company’s growth potential.

Q&A Highlights

• CapEx Scheduling: Adjustments were made in partnership with shipbuilders to optimize delivery timing and charter opportunities.
• Gas Carrier Employment: Discussions are ongoing, with interest from companies needing multi-gas vessels for various cargos, including liquid CO2, LPG, and ammonia. Spot market demand is expected to increase closer to delivery.
• Supply-Demand Balance: Charterers recognize future capacity constraints and are negotiating rates that reflect anticipated shortages from 2027 onward.
• Regas Capacity: No issues are expected, as regasification capacity in China, Japan, and Europe exceeds liquefaction capacity.
• Floating Storage: Currently, floating storage is not incentivized due to boil-off costs and market conditions, though this could change with shifting seasonal and price dynamics.
• Newbuilding Charter Rates: Rates for newbuildings delivered in 2027 are expected to be near $90,000 per day.
• U.S. Port Fees and Shipbuilding: U.S.-built LNG carriers are projected to cost three to four times more than Korean-built ships, with unclear implementation responsibilities but likely falling on liquefaction operators.

Closing Remarks

Jerry thanked participants and concluded the call, with the operator ending the session.

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