Good day, and welcome to the KNOT Second Quarter 2021 Earnings Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Gary Chapman, CEO. Please go ahead.

Thank you, and welcome, everybody, to our second quarter earnings call for 2021. As always our earnings release and this presentation are also available on our website at knotoffshorepartners.com. I have to remind you that our call includes mention of certain non-U.S. GAAP measures of distributable cash flow and adjusted EBITDA, although our earnings release does include a reconciliation of those non-GAAP measures to the most directly comparable GAAP measures. This presentation and our other publicly available information contain forward-looking statements and as such statements made during today's call are subject to risks and uncertainties. Actual events and results could materially differ from those statements and the partnership does not have or undertake a duty to update any forward-looking statements. Please refer to Slide 2 and our annual and quarterly SEC filings for further details. Straight on to Slide 3, we are reporting another strong set of quarterly results. Total revenues in the second quarter were $70.9 million, an operating loss of $1.2 million and a net loss of $10.9 million. The losses arise as a result of recording a non-cash write-down in the carrying value of the Windsor Knutsen. Adjusted EBITDA was $52.1 million, distributable cash flow was $24.0 million, and our coverage ratio is 1.32. We announced our 24th consecutive quarterly distribution of $0.52 per common unit. Available liquidity at 30 June was $101.6 million, which included cash and cash equivalents of $51.6 million and the average margin paid on our debt in the quarter was 2.04%. Scheduled fleet utilization was 96.9% in the second quarter, including the Windsor Knutsen, for the time of vessel received insurance proceeds equivalent to hire during the quarter. And at the end of the quarter, the partnership had 642 million of remaining firm contracted forward revenue, excluding options held by our customers.…

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Liam Burke with B. Riley. Please go ahead.

Thank you. Hi Gary, how are you?

I am very well, Liam. How are you? Nice to hear you.

Fine, thank you. Gary, you've got three vessels in 2022 that are coming off long-term charters that will be rechartered on a longer-term basis. But how do you feel about the near-term charter market for those three vessels as you move into 2022?

Yes. Look, we've already started talking to a number of potential customers for those vessels and some of those discussions have moved past a very light touch. But we're certainly not in a position to say anything firm at the moment. But we're not concerned right now, there's still time. We wouldn't necessarily expect to have contracts in place for those vessels at this moment in time. Obviously, there’s - it's a jigsaw puzzle of fitting our vessels in with what our customers want and need. But yes, at the moment, we're confident that we can find employment for those vessels. It may not be a perfect fit for those periods of time. But yes, we've got inquiries ongoing at the moment.

Great. And you mentioned that you have potentially one drop down in 2021. Again 2022, lots of potential acquisitions from the sponsor. How do you look at the acquisition if any -- if at all the acquisition cadence?

Yeah. I think we managed to do the Tove Knutsen last December. I think at the moment, we would like to be able to do one more vessel either similarly or in a different way by the end of this year if we can. We obviously, as I've said many times before, we won't put the wider business at risk just for a drop, a single vessel drop down or any drop down. And I think we put the ATM in place now, which gives us an extra tool to use if that becomes helpful. And we're also studying whether or not we can in a way replicate what we did for the Tove Knutsen last year with possibly a sale of leaseback of one of our vessels or potentially if the unit price increases there may be an equity opportunity for us to go into the market if the acquisition is accretive. So, we've got a few options. But you're right, in 2022, we - there are more vessels there. I think what KNOP has always been is patient, and I think we have an existing fleet that we need to look after and we will do that first and foremost. And there is no necessity to drop down, although obviously from an evaluation perspective, that's what we'd like to do as an MLP. But I think patience is the key. We've been patient for a few years already, and we managed to do one vessel. Hopefully, we'll do at least one more and then we just take it from there. We see what 2022 brings.

Great. Thank you very much, Gary.

Thank you, Liam.

The next question comes from Richard Diamond with Castlewood. Please go ahead.

Yes. Good morning, Gary, or good afternoon.

Yes. Hi, Richard.

We assume that the increase of 12% in the cost of a tanker new building is also applicable to new shuttle tankers or could the price of a new shuttle tanker even be higher?

I think you could probably read across from tankers into shuttle tankers. I think there have been no new orders placed recently. And actually, there are hardly any slots available now for at least a couple of years delivery. So -- but no, you're right. I think the cost of a newbuild shuttle tanker would read across from the general market.

Secondly, do you have any updates on a potential investor meeting in 2021 or early 2022?

Yes. We've got a tentative date in early October penciled in. And I hope once we've got this Q2 out of the way and finished that we will be able to turn our attentions to that and get something out there in terms of notice to period -- to people very shortly. So yes, watch this space, we are hoping for -- we're targeting for October.

Well, and lastly, one of your competitors has challenges from -- in their business model, not from their shuttle tankers, but from their SFOs that are problematic. Does that impact the competitive dynamics in the marketplace at all?

Yeah, that's a very good question. I would say not. I think at the moment, I don't see that happening, I don't see that impacting our market dynamic too much. I think, obviously, volatility around our industry and around our business is actually not good for anybody. But no, I think at the moment, we wouldn't necessarily expect that to have an impact on our business.

Thank you very much, Gary. You had solid quarter and you have KNOP always seems to deliver. Thank you.

Yes. Thank you, Richard.

The next question comes from Jim Altschul with Aviation Advisory Service. Please go ahead.

Good afternoon.

Hi, Jim.

Thanks for taking my question. Couple of questions. First of all, excuse me, one minute. Sorry, I got a little something in my throat. The first question I was asking about [Technical Difficulty]. But looking at the chart, it seems that all the ships for which the firm charter period ends next year, except for those going to go into dry dock, there is an option period for the charter. Are you in discussions both with the current charters have the option and other potential customers if the current charter chooses not to exercise the option?

Yeah, very much said, Jim. I mean, our market is very small. There's probably three suppliers and maybe a dozen customers. It's quite a well-known market to those players involved. And it's a moving target all the time. So where customer doesn't want a vessel one week, you may go back the next week and their trading strategy or they've had a problem on another vessel and suddenly they do want the vessel. So it's a moving target. But in terms your question, we are talking with all of our customers all of the time.

Okay. Next, if I am reading this chart correctly I guess, next for all or part of next year, you'll have four ships in dry dock. Am I reading that right, Bodil, Tordis, Vigdis?

Yes.

Is that kind of, what kind of an impact is that going to have on your results?

Well, those…

You may have asked this question, anyway.

Yeah, no. It is a fair question and the dry dock does have an impact and definitely, obviously there's enough higher period. The cost is sort of built up in advance so that we've got cash to pay for that dry dock, but it does impact our revenue to a degree because of the fact that the vessel is off hire for a period of time. So, I think it's scheduled, that obviously has to be done. The work has to be performed for the vessel to remain functioning. So I think yes, it will have an impact, but like with all of our dry dock it sort of skims off the top a little bit, it doesn't sort of exposes to crazy losses or anything. It's usually -- if the dry dock is in Europe and it is a Brazilian vessel then it is 50, 55 day off high period?

Okay. And one more if I may. Looking at the distributable cash flow sure, in the first half of this year, first two quarters, the estimated maintenance and replacement capital expenditures are significantly not dramatically but significantly higher than the last three quarters of last year. Why was that and do you have any outlook as to what the trends like to be in those expenses?

Yes. That line in the distributable cash flow it depends on there are two main drivers there, underneath that number or probably three main drivers. The first one is the original vessel costs, the second one is the average age of the fleet, and the third one is interest rates because actually it's an annuity discount calculation underlying that number. So you will generally find that as the fleet ages, that number goes up. So I think what you're seeing there between 2020 and 2021 is the aging of the fleet. We recalculate once a year but also, as I mentioned the preferred element there is vessel cost and obviously in 2021, we've got one extra vessel as well.

Okay. This has been very helpful. Thank you very much.

No problem, Jim. Thank you.

[Operator Instructions]. The next question comes from Robert Silvera with R.E. Silvera & Associates. Please go ahead.

Thank you Gary for taking my call. The first item I'd like to talk about is on your total operating expenses. I am right I think in assuming that the comp write down of 29 million for 2021 [ph] is included in that top total operating expense number for the quarter -- up 44 million to 72 million, it is approximately 30 million so, I assuming that that write down is included in that total operating expense number.

Correct, yes, yes. The 29,421 is included in the 72,138.

Okay, that makes more sense then. And the second question I had is, could you give us some more color on why you play in place this ATM for about 100 million and the reason I say that is, if you were to sell 100 million of units and assume $18 sale price, which is approximately where we are now, you would in effect be paying 12% for that money because for every share, obviously that you sell, you're going to have $2.08 of dividend cost. And so could you give me some reason why with a 1.32 cover you feel the need to put that 100 million in place?

Yes, I mean just bear mind Robert, first of all, I need to direct you to the filings. But the 100 million isn't actually drawn equity. It's just a facility. It's a potential for us to issue units.

Yeah, I know but you'd be selling at an $18 price. You'd be selling sufficient numbers of units to get to the 100 million, correct?

I think we've put in place is a facility like where we today we haven't sold into the facility. And we won't do so unless it makes sense to do that. So I think that's probably the short answer to what you're saying. Well, the reason we've done it is because it gives us extra flexibility if in the future we do want to raise equity finance through the market.

So, it's just in case you find a good reason…

Yes, that's right.

Now you've been talking about possibly at the end of the year getting another drop down. Would this be employed to pay for the drop down, something like that?

Only if the numbers work. We know we put the item in place as a tool and to give us optionality but we're not making any comment about whether we will or won’t use it.

Very good. But it hangs like a kind of Damocles sword over the price of the stock. In any case…

I would just say Robert that lots peers have got these in place, and it's really just as I say, it gives you the option. It's no more than that.

Yes. I understand. But when those options are exercised then the share count goes up and can be significant at times and affects the overall depending on the condition in terms of the business at the time, it can affect the price of the stock in the marketplace. But anyhow as far as…

It can, but I think just to be clear, we will only be doing something regardless of whether it's through an ATM or not, we would only be doing something if it was accretive.

Okay, good. I trust you, that's what you've done in the past. So, anyhow I needed a little clarity on that. Now, as far as the common units are concerned, quarter-over-quarter, you went up by about 90,000 common units. And can you give us a little clarity without me digging deeply into your 10-Q, where those shares came into existence, for what purpose, were they options exercised or…?

It was one of our private preferred unit holders converted some of our units into common units. That’s why preferred number of common units have gone up.

And that's coming from those convertible preferred?

Yes. So you'll see the number of preferreds have going down and the number of common has gone up.

Just out of curiosity, I can't look at it right now, but how many of those do we have left, the preferreds?

Sorry. The number I don't have, sorry, give me one minute and I will tell you. Yeah. Sorry, Robert I don't have that number to hand, but I can send it to you. I can let you know.

Well, okay. Obviously, they feel good about this, security of the dividends if they want to go from the preferred to the common units. In case now, the other question I have is, we have 1.32 coverage ratio, which dropped a little bit from the past because we were up 1.5 in the past. Have you thought about eliminating at a more rapid pace some of the debt rather than increase the dividend, which I think is great idea, you just keep it where it is, but take this extra coverage and accelerate debt reduction because LIBOR and those kinds of things at some point, depending on what this crazy United States is doing with its dollar interest rates may just absolutely have to go up unless we turn into a republic [ph]. So I think anticipating in the future that interest rates could rise significantly, reducing debt would seem to me a very smart move relative to extra coverage money, what do you have to talk about that?

I mean at the moment we quite like our coverage. It gives us the flexibility quarter-by-quarter to the extent we have any off hire for vessels, etcetera. And the distribution that we're paying we think is a fair rate today. We like [Multiple Speakers]. But no, I think we already pay down our debt pretty quickly, actually. And at the moment, we're not really looking at accelerating that any further.

Are we ahead of depreciation rate? Well ahead of depreciation rate and paying down debt?

It's not a simple question to answer but a little bit yes. Yes. We tend to have 20 year tenants on our debt. And obviously, our useful life depreciation is now 23 years.

Okay. Thank you Gary. Good job. [Multiple Speakers]. Okay, thank you.

We will get through. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Gary Chapman for any closing remarks.

Thank you everybody for listening to the call and being interested in KNOP, and I wish you a very good day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.