KNOT Offshore Partners GP LLC Q1 FY2025 earnings call

• Positive outlook on industry dynamics and the partnership's positioning to participate in markets. Anticipated significant growth in production fields relying on shuttle tankers, with Brazilian FPSOs delivering ahead of schedule.
• Continued newbuild orders for shuttle tankers to service upcoming production.
• Strong contracted revenue position of $854 million at end of Q1 on fixed contracts (avg 2.3 years) and transfer options (avg 4.7 years).
• Declared a cash distribution of $0.026 per common unit paid in early May.
• Recent operational highlights: Swap of Dan Sabia for Live Knutsen, Hilda Knutsen on hire with Shell, addition of vessel to potential drop-down inventory, and extension of Brazil Knutsen's charter.

Revenues for Q1 were $84 million, operating income was $23.4 million, net income was $7.6 million, and adjusted EBITDA was $52.2 million. The company closed Q1 with $101 million in available liquidity, consisting of $67 million in cash and cash equivalents and $34 million in undrawn capacity on credit facilities. Utilization was 99.5%, with 96.9% overall when accounting for dry dockings.

• Positive outlook on industry dynamics and the partnership's ability to participate fruitfully in markets. Anticipated significant growth in production fields relying on shuttle tankers.
• Expectation that options will be taken up due to market strengthening and tightness.
• Plan to pursue long-term charter visibility and accretive drop-downs supportive of long-term cash flow generation.
• Intention to address four refinancings due during the year.

• Uncertainties in market conditions that could impact utilization and charter rates.
• Dependence on timely refinancing of debt facilities.
• Risk of not securing charter renewals or extensions, particularly for key vessels.

Q: Liam Burke inquired about the timing of drop-downs and the ability to refinance at similar or better terms.

A: Derek Lowe stated that each potential drop-down transaction is reviewed individually with no clear timing, and refinancing negotiations are underway with no negative indications so far.

Q: Jim Altschul asked about the impact of expiring interest rate hedges on the bottom line.

A: Derek Lowe responded that interest rate swaps expire, new ones are put in place periodically, but there was no direct comment on the bottom line impact.

Q: Pavel Oliva asked about drop-down timing, loan-to-value, ship valuations, and renewal of Brazil ships.

A: Derek Lowe said drop-downs take 2-4 months, loan-to-value is based on mark-to-market, ship valuations have been stable, and renewal of Brazil ships is common practice with potential for escalation.

Q: An unidentified analyst asked about the increase in long-term debt and drop-downs.

A: Derek Lowe explained that the long-term debt increase was due to a vessel swap where $73 million of debt was assumed, with the $47 million increase reflecting debt amortization.

Q: Mario Epelbaum asked about the Raquel charter, dry dockings, North Sea demand, and buybacks vs drop-downs.

A: Derek Lowe said the Raquel charter option runs to 2030, dry dockings impact fleet operations, North Sea demand is increasing, and the Board considers fleet growth vs buybacks in capital deployment decisions.

Q: Climent Molins asked about Tove drydocking and newbuild cost advantage.

A: Derek Lowe stated that Tove's drydocking straddles Q3/Q4 and there was no specific comment on newbuild cost advantage.

Q: An unidentified analyst asked about depreciation, loan balloon payments, and dividend increase.

A: Derek Lowe said depreciation is affected by fleet changes, loan balloon payments are typically replaced like-for-like, and the Board considers capital deployment with no specific target for dividend increase.