KNOT Offshore Partners LP (KNOP) Q1 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for joining us and welcome to the KNOP First Quarter 26 Earnings Call. After today's prepared remarks, we will host a Q&A session. With an opportunity for equity research analysts to ask questions. You would like to ask a question, please raise your hand. If you had dialed in to today's call, please press 1 to raise your hand. I will now hand the conference over to Derek Lowe. Please go ahead.

Thank you, Jade, and good morning, ladies and gentlemen. My name is Derek Lowe, and I am the chief executive and chief financial officer of KNOT Offshore Partners. Welcome to the partnership's earnings call for the first quarter of 26. Our website is knotoffshorepartners.com, and you can find the earnings release there along with this presentation. On Slide 2, you will find guidance on the inclusion of forward looking statements in today's presentation. These are made in good faith and reflect management's current views, known and unknown risks, and are based on assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied in forward looking statements. And the partnership does not have or undertake a duty to update any such statements made as of the date of this presentation. For further information, please consult our SEC filings. Especially in relation to our annual and quarterly results. Today's presentation also includes certain non US GAAP measures, and our earnings release includes a reconciliation of these to the most directly comparable GAAP measures. We begin on Slide 4 with the Q1 financial and operational headlines. Revenues were $92 million Operating income was $14.7 million, Net income was $2.6 million. Adjusted EBITDA was $56.5 million. And as of March 31, 2026, we had $140.7 million in available liquidity made up of $92.7 million in cash and cash equivalents, $48 million in undrawn capacity. This available liquidity was $3.7 million higher than December 31. We operated at 97.2% utilization taking into account scheduled drydocking. Which amounts to 92% utilization overall following the dry dockings of 2 Knutsen and then-- Following the end of the quarter, we declared a cash distribution of $0.05 per common unit, which was paid in May under the 1.1 thousand structure. And which represented an increase from the previous level. We are pleased to have initiated the process of increasing the distribution after an extended period of low payouts during which we restored our charter coverage improved our liquidity position, and addressed multiple refinancings and dry dockings. On Slide 5, we have developments during the quarter. Prospectively from January 1, 2026 we changed the useful life estimate of our vessels from 23 years to 20 years reflecting longer term market trends. This will increase future depreciation quarter by quarter, that is not a cash item. This step also does not prevent vessels from operating beyond 20 years. On Slide 6, we have commercial developments. We exercised our option to continue the time charter of Hilde Knutsen with Shell through March 2027, and subsequently agreed to new time charter with Eni commencing in Q3 27 for 3 years fixed plus options up to a further 3 years. Total Energy has exercised their option to extend the charter of Anna Knutsen for 1 year until May 2027. And we agreed a time charter for Recife Knutsen with Transpetro to commence in Q3 26 for a fixed period of 2 years. Turning to Slide 7 for a high level summary of our operating momentum. In both Brazil and the North Sea, we continue to see tightening markets driven by FPSO start ups. Ramp ups, expansions, and new developments. This increase in shuttle tanker service volumes across both markets has been sustained and sufficient to tighten the supply demand balance. We have sustained a strong backlog with $858 million of fixed contracts averaging 2.4 years. And rather more if all options are exercised. At quarter end, our fleet of 19 vessels had an average age of 10.5 years. And we are continuing to repay debt at around $90 million per year, we consider prudent with a depreciating asset base. And having addressed prior refinancing activity, we now look ahead to a $220 million facility in September 2026, and the $65 million facility in October. Over Slides 9 to 12, we provide the financials for Q1, the highlights of which we have covered already. On Slide 13 is our debt maturity profile. While no guarantees can be made, we have historically benefited from access to a wide pool of lenders and attractive bank finance. And we have been encouraged by our refinancing experience in recent years. Including during significant weaker shuttle tanker markets than we than the current 1. Notably, the average margin on our floating rate debt during the first quarter was 2.22% over SOFR. Moving on to Slide 15 and our charter portfolio. I believe this remains a very useful resource for investors looking to track the primary movements where change can occur in a highly stable portfolio of cash flows. Based on current charter rates, we believe charterers' options are likely to be exercised given the strength of the charter market. On Slide 16, you can see our strong coverage through the coming quarters. Some charter options that we believe have a good likelihood of being exercised, a small amount of open time. On Slide 17, you can see the drop down inventory held at the sponsor. Drop downs have been the route to growth in the fleets throughout the life of the partnership. And remain the means of replenishing and rejuvenating the fleet. As mentioned in the earnings release, anticipate pursuing these acquisitions over the next 4 to 5 years to the extent that the relevant terms are attractive and are approved by our conflicts committee. At the same time, we believe that the combination of accretive drop downs and improving charter market should support multiple gradual distribution increases over the coming quarters and years. In addition to materially extending our long term cash generation runway as certain of our vessels begin to age out in the years ahead. On Slides 18 to 20, include market commentary, particularly from Petrobras, which continues to highlight a strong and expanding offshore production outlook and continued FPSO deployment. We would encourage you to review this as well as the copious materials that Petrobras publishes as the largest player in the Brazilian market where we primarily operate. To summarize on Slide 21, During the first quarter, we had strong utilization and solid financial results. We secured additional charter coverage across key vessels, We maintained a constructive backlog and market outlook. And we paid a quarterly distribution of $0.05 per unit. Looking ahead to the coming quarters and years, we believe the successful execution of accretive dropdown transactions combined with rechartering of vessels into a strong market environment should create conditions for multiple gradual increases to our sustainable distribution. With that, I will hand the call back to Jade for any questions.

Thank you. We will now begin the Q&A session. which is open to equity research analysts. If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question, And if you are muted locally, please remember to unmute your device. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Fredrik Dybwad from Fearnley Securities. Please go ahead.

Thank you. Hello, Derek. Good day with the results. They are-- they have a pretty robust cash position, even more robust liquidity position. I am happy to hear that you are talking about modestly increasing the dividend or distributions going forward. In addition to being able to take the potential dropdowns as well. But how should we think about when you say modest gradual increases in the dividend, in what in terms of magnitude, how should we think about this?

Well, that is something that gets decided on by the board each time they make a dividend or distribution declaration, and that can only follow the end of each respective quarter. So we do not have specific guidance on numbers that may be coming and the board will make their decision following the end of first quarter for the sorry, the end of second quarter for the next distribution.

Yeah. But if you can provide some color about you know, if you look at the backlog and cash flow or cash generation going forward, you can sustain deals much higher than 5¢ per unit. Should we think about when you say modest increases, should we think about an increase similar to the 1 you did this time or should it be more? that is just for you know, in terms of how we should think about it. As investment.

I appreciate the question, but until we have a distribution decision from the directors over the after the end of the second quarter, we do not have a number to provide you with.

Okay. Thank you. That was all I had in terms of questions.

Thanks, Roger. Yeah.

Your next question comes from the line of Liam Burke from B. Riley Securities. Please go ahead.

Thank you. Hi, Derek. How are you today?

Hi, Liam. Good. Thank you. And you?

I am fine. Thanks.

Derek, I had a macro question for you. there is more oil obviously being sourced out of the non-Gulf area due to the conflict in the Mideast.

Now, eventually, the Strait Of Hormuz will be reopened but you anticipate even post Strait of Hormuz opening, see an increase higher than normal increase in offshore oil production development. Or does it change your markets for the better?

Well, I do not particularly have a view over the medium to longer term. I can understand people being quite cautious in the nearer term as developments come along because the news flow varies from 1 day to the next. And I am sure people will be seeking to interpret that as best they can and even remain cautious once the straights are open again. But I do not really have a view on whether it would change what will otherwise happen in the medium to long term because there could be other factors relating to that as well. Okay. Fair enough.

And on the supply side, I mean, just in the vein where you reduce the useful life of the asset, Could you give me a sense as to where we are in terms of the order book and the aging of the shuttle tanker fleet. Globally?

Well, you can you can see the aging of our And Right. I guess twentieth is the best place to look at that to get that listed out. Although, do not particularly have a comment on the aging of other ship owners' fleets But clearly, the ramp up, particularly in Brazil, the new build inventory is clearly in excess of what is going to retire from the market. it is intended to serve new volumes that are coming online. Okay.

But there is an aging of the fleet on the other end of it that could further tighten supply.

that is right. Yep.

Okay. Great. Thank you, Derek.

Thank you.

Your next question comes from the line of Charles Fratt from Alliance Global Partners. Please go ahead.

Hey, Derek. I apologize. I logged in a little late. And you may have addressed this on your prepared in your prepared remarks. But could you just talk about the sequential decline in revenues? And was that totally associated with the downtime you experienced? Or were there some time charter rollovers that impacted revenues?

Yeah. Thanks, Poe, and no problem. We did not address that at the time earlier on. Yes. It will relate to the dry dock schedule. And also simply the terms of the contracts charters that are outstanding between different periods. Great. Thank you.

Thanks. Thanks.

At this time, there are no further questions. I will now turn the call back to Derek for closing remarks.

Thank you, Jason. Thank you all again for joining this earnings call for KNOT Offshore Partners' first quarter of 26. We look forward to speaking with you again following the second quarter results. Thank you.

This concludes today's call. Thank you all for attending. You may now disconnect.