KNOT Offshore Partners LP(KNOP) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenues for Q1 2025 were $84 million, with operating income at $23.4 million and net income at $7.6 million. Adjusted EBITDA was reported at $52.2 million [4] - The company closed Q1 with $101 million in available liquidity, consisting of $67 million in cash and cash equivalents, plus $34 million in undrawn capacity on credit facilities [4] - The company operated with a 99.5% utilization rate, accounting for the start of two drydockings, resulting in an overall utilization of 96.9% [4] Business Line Data and Key Metrics Changes - The partnership has a strong contracted revenue position of $854 million at the end of Q1, with fixed contracts averaging 2.3 years in duration [6] - The economic rationale for exercising transfer options has strengthened, with expectations for these options to be taken up due to market tightness [7] Market Data and Key Metrics Changes - Significant growth is anticipated in production fields relying on shuttle tankers, particularly in Brazil and the North Sea [5] - The company noted a projected shortage of shuttle tanker capacity in the coming years, necessitating newbuild orders [5] Company Strategy and Development Direction - The company aims to pursue long-term charter visibility and accretive dropdowns to support long-term cash flow generation [14] - The strategy includes increasing revenue backlog while lowering the average fleet age through dropdowns from the sponsor [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding industry dynamics and the partnership's positioning to benefit from market conditions [4] - The company is cautiously optimistic about securing additional coverage in the current tight market, with 96% of fixed charter coverage for the last three quarters of 2025 [12] Other Important Information - The company has a strong track record of refinancing success, even in less favorable market environments [10] - The average maturity of interest rate hedges is one and a half years, with new hedges being put in place as suitable terms arise [29] Q&A Session Summary Question: Timing of potential dropdowns from the sponsor - Management stated that each potential transaction is reviewed individually, and there is no clear timing for dropdowns [21][22] Question: Anticipated refinancing terms - Management indicated that they are working towards refinancing at similar or better terms, with ongoing discussions with lenders [25] Question: Impact of expiring interest rate hedges - Management noted that while the average maturity is one and a half years, new interest rate hedges will be put in place as suitable terms are available [29] Question: Details on refinancing specific facilities - Management clarified the timeline for refinancing various facilities, with some due in August to November 2025 [40] Question: Valuation and loan-to-value considerations - Management explained that banks generally use mark-to-market valuations for determining loan-to-value ratios [44][46] Question: Stability of ship valuations - Management confirmed that ship valuations have held steady, with no significant depreciation despite the aging fleet [51] Question: Future cash flow expectations - Management indicated that the full impact of dropdowns will be seen in the second quarter, leading to a potential increase in free cash flow [65]