Hello, and welcome to the KNOT Third Quarter 2021 Earnings Results Conference Call. My name is Juan, and I will be coordinating your call today. [Operator Instructions] I would now hand over to our CEO, Gary Chapman to begin. Please Gary, go ahead.

Thank you, and welcome, everybody, to our third quarter earnings call for 2021. As usual our earnings release and this presentation are also available on our website at knotoffshorepartners.com. As always, I need to point you towards the notice on Slide 2, concerning the nature of this presentation and its contents, and in particular that the presentation includes forward-looking statements that we make in good faith today, but which contain risks and uncertainties, meaning that actual results may be materially different. We do ask that you take this on board as part of our presentation, noting that the partnership does not have or undertake a duty to update any forward-looking statements as referred on Slide 2. And our annual and quarterly SEC filings have further details if you wish to read. A presentation also includes mention of certain non-U.S. GAAP measures of distributable cash flow and adjusted EBITDA, although our earnings release doesn't include the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. So to Slide 3, total revenues in the third quarter was $66.6 million, operating income was $21.1 million, net income was $13.5 million, and adjusted EBITDA was $47.2 million. Scheduled fleet utilization was 91.9% in the third quarter, driven by several vessels experiencing temporary technical issues or transitioning between charters. Distributable cash flow was $18.6 million and our coverage ratio was 1.03. At the end of the quarter, the partnership had $592 million of remaining firm contracted forward revenue, excluding options held by our customers. Available liquidity on September 30 was $121.6 million, which included cash and cash equivalents of $66.6 million. And the average margin paid on our debt in the quarter was 2.06% over LIBOR. And we announced and paid our 25th consecutive quarterly distribution $0.52 per common unit. We closed…

[Operator Instructions] And our first question comes from Liam Burke from B. Riley Securities. Please Liam, your line is now open.

Thank you. Hi, Gary. How are you?

Hello, Liam. I'm well, thank you. How are you?

Good. Thank you. You do have four vessels up for rehire in 2022. It could – are you looking to just recharter on the short-term, or do you see opportunities for longer-term agreements?

Yeah. For our business, we will always seek to get longer-term business, if there's a choice. And we think that fits the income profile of what we're looking for. But nonetheless, I think it will be typical for a recharter situation that we probably should expect one, two, maybe three year charters. Generally speaking, we may obviously get longer. So I think there's a difference between what we'll probably get and what we would like to have. And I think right now we're in discussions with our customers across a range of different charter lengths. And I think the other point to make is that we do differentiate the price. Generally speaking, shorter charters cost our customers more than the longer-term charter. So we try to incentivize them to take the longer-term.

Great. And you said 2022 would be bumpy. But you're comfortable that utilization rates will remain in that historical range or historical area.

Yeah. I mean, we're quite open about the charter graphs or graphic that we show every quarter, I think people can see that. I think historically, we've found that our customers will often sign up well in advance when there are no vessels available in the market. They want to make sure that they've got a vessel coming available to them when they need it. And that's where the market softness right now is not helping us because it's allowing our customers to take their time. We know that they need vessels and we’re a critical part of their supply chain. The oil in the ground is worthless, practically if they can't transport it to shore. So we know the fundamental demand for our vessels. But as I say, I think the market softness and the fact that there's a little bit of spare tonnage in the market today, means that our customers are not feeling the pressure to sign up early like they historically would do. I do think if the market slightly tightens that could easily change. But at the moment that softness is not helping us to secure business in advance, like we perhaps would have been able to do historically. But at the moment, there's time yet and we're working on it and things can move quickly once something starts to formulate because, 80% to 90% of our contracts are, let's call it industry standard time charters. So, we can agree a position with a charter or a customer very, very quickly, actually.

Great. And just real quick question on the IDRs. Congratulations on negotiating them away. You issued B units. Why B units? Why not just issue all common units?

We've issued the B units, because they're essentially the distribution on those Class B units are different to the distribution on the common and that the Class B will convert to common units, 1/8 each quarter provided. We maintain the distribution at $0.52. So there's an element of contingency there for the sponsor in terms of will it receive a distribution on its Class B units. And, can it convert from those Class B to common units. So we negotiated with the sponsor that there are eight, or up to eight quarters, they may not be consecutive quarters. But every time that we pay $0.52 1/8 of their Class B units can be converted to common units. So it gave the majority common unit holders some protection that we weren't just crystallizing the current IDR valuation and just giving it to the sponsor. So actually, the sponsor accepted that level of sort of extra contingency if you like. And we thought that was good for the partnership and good for the common unit holders, because it meant that as I say, we weren't just simply giving away straightforward value. We gave them 50% in normal common units and 50% in this Class B unit.

Great. Thank you, Gary.

No problem. Thanks very much, Liam.

Thank you. And our next question comes from Robert Silvera from R.E. Silvera & Associates. Please, Robert, go ahead.

Hi, Gary. Gary, the prognostications that you gave are very positive for what's going on. And it's going to be a long time before oil is not necessary in this carbon footprint issue. And so, I know we have a long life ahead of us as a company. Your performance has been very good. You've more than met the distribution, although this time, it's lower, it's 1.03. The long-term debt as that I looked at has gone down on the current portion of long-term debt. And the total current liabilities have gone down significantly. The equity has gone down a little bit, and the total assets have gone down a little bit. But in your perspective, as you see, our stock traded the units traded, why do you think the market gives us a price on our units that yields 11% plus, when you have done steady $0.52 for years? You've been a good steady company, what do you in your mind see as why the market puts such a high interest rate price on our units?

Yeah. I wish I could give you an absolutely firm and clear answer on that. In my personal view, I think, our market cap is maybe $600 plus million. In the market we're unfortunately quite small. And we get bounced around the market with the bigger companies and the market generally. I think we've had pretty negative sentiment around energy, shipping, MLPs generally, for quite some time, maybe energy is starting to turn a corner if you look carefully. But I think our volume and our liquidity and our units because of our size, I think all of those sorts of things contribute to where we are. And getting that education and knowledge of our business out there into the market is something that is difficult when you're competing for attention from lots of other companies and often bigger companies. So, we've started to try to do more of that, as the last year has gone on. And we will continue to do that. But I think, we're in an environment where bigger companies are yielding not far off what we're yielding. And then puts our yield in perspective in the market. So, I think it's not an easy or clear answer. But in my view, it's not particularly aligned to our business, really, when you actually scratch the surface and actually look closely. But it is what it is. And, we, in the height of the COVID downturn, our units ended up at $8 something. We've done nothing that changed for us. But we ended up at $8.90, I think, at some point. And we're back up at $18 today. So, the market will move our units because of our size to some degree. And we're just doing our very best to explain what we do and why we're good at it.

So, you don't see anything in our structure or as a business that warrants this view of weakness that makes the dividend reflective of a very high risk. You don't see anything in our business structure or future that I think that portrays why the risk should be so high.

I think there's a difference between business structuring and commercial. I think the business structure, I think you've just got to look at what has been going on with lots of other MLPs. There are not -- you can maybe less than that -- there are not many that has been consistent with their distribution in a positive way. I think the structure of our MLP business suits shuttle tankers very well, it suits the sponsor very well. I think it's suited our unit holders very well for many years.

Yes.

I'm not talking about our commercial position here. I'm talking about the corporate structure that we've got. But, we've operated in a relatively bad neighborhood. We've had some MLPs that have not performed. We've had energy that's not performed. We've had shipping. Okay, today, some elements of shipping are doing very, very well, containers and LNG, but other parts of shipping are not -- still average. So I think, we structurally if you don't look at all of that noise around us, then I think structurally, our business is fine. It still works for us.

Yes, I've enjoyed the dividend for years now. And although my original company, when we purchased the shares, our average price was around $20. And we've taken opportunity to add to positions which has brought it down. But the four or five years that we've enjoyed the $0.52 a quarter has sure paid off for us. How do you visualize the company in the next couple of years changing around the idea of the long-term assets falling and rather stabilizing or increasing?

Sorry, Robert, could you just repeat that question?

Okay. In this last reporting period from December 31 2020 to September 30 2021, our long-term assets have gone down about $100 million round numbers from $1.7 billion to $1.6 billion. How do you visualize stabilizing that or turning it around and have the long-term assets begin to climb?

I think there's two questions there. I think as an MLP, we operate wasting assets. So our $0.52 that we pay out every quarter a proportion of that is a capital return and a portion of that is an income return. So, everything else being equal, over time the MLP will diminishing in asset value. I think what you're referring to, however, is the growth of new vessels coming in. And, that's what we did in December of last year where we were able to do an accretive dropdown without using equity. And I think that would be the ultimate target to be able to consistently do that, because that would then bring in that growth at no cost to the existing unit holders. So, that's the thing that we're always targeting. I think, at this stage, we have to balance that growth and get the timing right and make sure that we're making the best decisions with all the information that we've got. So we very much hope we will grow that long-term asset value figure that you referred to. When that will happen? We've said, we're not going to do it this year, but we're always looking at it. And the sponsor has got three vessels that we could purchase right now and six, overall, eventually. So, we very much hope that we can get all of those in due course. But when that happens, we've just got to be really careful with our timing.

Right. Well, I guess that's another question but it slipped. I just am concerned that we're just somebody who is really just benefiting the bankers, and that I want to see us be stable for the next 10-years. And do you feel that that's a reality, and that the business can continue to stay stable, perhaps grow a little bit? I don't necessarily need growth for our objectives. I need stability. And you have met the payout. Do you see any -- your ratio has been over one for a long time? Do you see any possibility of increasing the dividend over time, because of the nature of our business and the profitability?

I think it would be wrong for me to make too many comments on that right now. And we're not in a position where we're considering an increase. That's quite clear. That's not to say that we never will. But that's not currently on our agenda. We've been a stable business since we floated eight or nine years ago. And our sponsor has been running shuttle tankers for 30, 40-years, very stably over that time and good growth, as and when it becomes available, taking that. So our strategy hasn't changed. And hopefully some of the slides that you've seen today, and that we've put up in the past show that there are opportunities in the coming years. And I think regardless the sponsor is committed to this business, it's the sponsors business. So they are not about to move away from it. I can't speak for the sponsor, obviously, but to the best of my knowledge the sponsor is committed to this business. It's been doing it for 30-years, and we want it to be stable. We've said it many times, and sometimes people criticize us for being a little bit too conservative. But, we're still here. So I think that says a lot.

Do you see any possibility in the next year to not just amortizing debt, but accelerating debt reduction, which of course yields us more free cash flow on operations?

Well, I think, we already pay around $90 million a year in repayments. And given the price of debt that we can access, it's very, very cheap. So for us, it's a really good source of funding, and we feel that our debt level today is actually very comfortable which we could take more. And I think, we're not really looking to accelerate that, because obviously it would take chunks of -- whilst it would free up free cash flow in future periods, we'd obviously have to find a chunk of cash to make a payment if we were to accelerate that repayment of debt. So it's not something we're looking at the moment to do.

Can you give me some better understanding color, as they say, on the ATM, which kind of took me by surprise that you started selling units to raise capital? Do you anticipate doing more of that during this next year? And if so, why?

I think, well, we put the ATM in place, as we stated before, just to give us an extra option of raising equity, rather than doing a block sale of equity. It's fair principally, if we have a good use for the funds, and if the numbers work. And what that means for us is typically an acquisition. But the facility costs us nothing, if we don't use it, it's just sitting there. And it gives us optionality, it's nothing more than that. So whereas before, if we wanted to acquire a vessel, we may have gone and done a block issuance of equity. This way, we've got two choices, we can use the ATM we or we can still do a block issuance of equity. So it's just an extra tool in our toolbox really. We don't think of it as any more different.

So, I think build some [multiple speakers] Okay. Every time units are issued, then the dividend payout increases incrementally. Okay. Well, thank you, Gary. I like your conservative approach, and I like your steadiness. Thank you.

Thank you. Thank you, Robert.

Thank you. [Operator Instructions] We currently have no further questions. I will hand over back to Gary Chapman, for any final remarks.

Yeah, I just want to say thank you very much everybody for listening. And I'm not sure if there are any technical problems with people joining, but hopefully everyone was able to get on and listen. And thank you very much and have a good day.

This concludes today's call. Thank you for joining. You may now disconnect your lines, and enjoy the rest of your day.