Good morning and thank you all for joining. I would like to welcome you all to the KNOT Offshore Partners' Third Quarter 2024 Earnings Call. My name is Brica and I will be your moderator for today. All lines will be muted during the presentation portion of the call with the opportunity for questions-and-answers at the end. I would now like to pass the conference over to your host, Derek Lowe, Chief Executive Officer and Chief Financial Officer at KNOT Offshore Partners. Thank you, you may proceed Derek.

Thank you, Brica and good morning ladies and gentlemen. My name is Derek Lowe, I'm the Chief Executive and Chief Financial Officer of KNOT Offshore Partners. Welcome to the partnership's earnings call for the third quarter of 2024. 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 forward-looking 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-U.S. GAAP measures and our earnings release includes a reconciliation of these to the most directly comparable GAAP measures. On Slide 3, we have the financial and operational headlines for Q3. Revenues were $76.3 million, operating income $17.2 million, and there was a net loss of $3.8 million. Adjusted EBITDA was $45.1 million. We closed Q3 with $77 million in available liquidity, made up of $67 million in cash and cash equivalents plus $10 million in undrawn capacity on our credit facilities. We operated with 98.8% utilization and the vessel time available for scheduled operations was not impacted by any planned dry docking. Following the end of Q3, we declared a cash distribution of $0.026 per common unit, which was paid in early November. On to Slide 4. Our outlook remains positive on…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We have the first question on the line from Liam Burke with B. Riley. Please go ahead.

Thank you. Hi Derek, how are you?

Hi Liam. Good. Thank you and you?

I'm fine. Thank you. This seems -- your OpEx jumped about $2 million sequentially. How much of that was related to the Torill repair or if any?

Pretty limited amount. Well under half of that amount off the top of my head. Probably quarter at the most.

Okay. There was some expense baked into that number related to the repair.

That's right. We are due to receive the insurance claim proceeds during this quarter. And until we receive it, we don't recognize it. So, you don't have the offsetting income to correspond with that and reduce the effect of the net cost to us.

Great. You announced four charters or extensions beginning this quarter, which included the Torill. Could you give us a sense -- I know you don't give specifics on the contracts, but can you give us some color generally how they look vis-à-vis where you've been sitting on the charter levels?

The new ones, the new news as it were for this quarter, you mean or the Torill specifically?

No, all of them or just a sense as to directionally how--?

Well, the rates reflect the market conditions at the time they were contracted. So on Ingrid, I don't have -- I'm just looking at them in order here on Page 7. On Ingrid, I don't have the signature date in front of me, but it would be -- it would reflect that. On Hilda, the signature date was October this year. So, that will reflect a current market. Torill is close to current because that signature was in July this year. And then Carmen will go back to the timing of the original contract, which was, I think, some years ago. So, Ingrid and Carmen will be older and Hilda and Torill will be close to current.

Great. Thank you, Derek.

Thank you.

Your next question comes from Jim Altschul. We now have-- the line should be open.

Hello.

Hello Jim, I can hear you. Yes, please go ahead.

Good afternoon. Thanks for taking my call. A couple of things. First of all, in your response to the previous question, you were talking about how a couple of the new charters are made to current market conditions. Does that mean that the rate is -- the rate -- the current market conditions are somewhat lower than they would have been a couple of years ago. Am I correct in thinking that?

It's the other way around. So, it's fair to say that market conditions have been strengthening reasonably steadily over that time. So, we don't have particular numbers to give you on those contracts, but it's more recent would typically imply better rates or higher rates.

Okay. And with regard to the operating expenses, -- again, in your answer to the previous question, you said that part of it relates to this repair and you're expecting to get at least some of that back from the insurance company. But what are some of the other factors that have increased operating expenses year-on-year?

General operating cost level. So, we see increased cost of crewing, particularly relating to travel and increased cost of supplies as well. It's a generally inflationary environment, unfortunately, for our work.

Understood. Thank you very much.

Thanks Jim.

We now have Poe Fratt with Alliance Global Partners.

Thank you.

Good afternoon Derek.

Hello Poe.

Just wondering -- hey. Can you just ensure that the presentation is up on the website? I mean I'm trying to -- I've been trying the whole call to access it, and it's just not up there yet. So, if you're getting the same feedback from other investors, I think you should be aware.

Okay. Thank you. I'm sorry about that. It was approved for publication. So--

No, I know and you were referring to it the whole call. So, I assume that you thought it was up there, but I haven't been able to access it. Maybe it's just technology. But you talked about the higher OpEx. So, there was a little bit of repair from -- in the third quarter, very -- what, 15 days or so. What -- is the run rate that we saw in the third quarter, would that -- maybe another way to ask it, would that be an appropriate run rate for the fourth quarter? Or will there be any other changes in OpEx when you look at the fourth quarter and into 2025?

It's probably a good guide or somewhere between the second and third. I don't have a sort of a fine-tuned comment for you on that, but it's not a bad guide.

Okay. And then I'm not sure if I heard it, but have you quantified the amount that you expect to recover in insurance in the fourth quarter?

We haven't done that -- well, in our discussion with the insurance company, we are close to that, but we haven't disclosed that in our release. That's a matter for a fourth quarter report or report in the quarter when we receive it, and we expect that to be the fourth quarter.

And -- but essentially, it's the differential between what the time charter contracted rate was when the -- when it was impaired operationally, it was still operating, but it wasn't at full capacity, right? So, it's just the differential for that -- I think it was the six-day [ph] period?

It's the difference for a number of days less the deductible that applies to that policy as well. But because she was able to operate on, as you say, an impaired basis rather than not able to operate at all, there's a discussion around how many days should be recognized. But that discussion is substantially complete.

Okay. And then you sort of mentioned the revolvers. Can you just talk about how the discussion on the revolvers? Do you expect them to get renewed? What sort of timeframe you're also -- we should also be expecting those to be if they will be renewed within?

We certainly expect to seek to renew them. That discussion with our lenders would normally be over the course of the first half next year. And we would typically, at least in the earlier one, expect to be complete with that discussion by the end of the first half. The second one is due that a little bit later in November. So, that might get into Q3 for that conclusion. And of course, you're aware of our pattern of results and news flow. So, it's likely that you'd hear about it on the earnings release date that followed any conclusion to those.

Understood. So, maybe possibly in late May or even as late as August, September of next year?

Yes, those are the likely dates of our earnings releases. So, we'd expect to include news within that. They aren't -- renewals of those will not be material enough to warrant a separate announcement, I expect.

Understood. And then just to clarify, you talked about like the Carmen, the exercise of the option, that original contract was done at an environment where rates were lower. And now rates are -- have improved. You've been talking about that, especially in Brazil, the tone of the market improving. Can you quantify or give us sort of a range -- percentage range on how much rates have improved vis-à-vis like the Carmen option? Is it 10%?

Yes, I don't think we can do that. I mean we -- as you're aware, we generally don't give too specific guidance on rates that the vessels are earning. You've obviously got an average rate that can be found from our revenues for the quarter.

And then to talk about that, how many actual down days were there during the quarter, Derek? In other words, your operating -- what was your operating days ex the idle days of the repair days?

Yes, we don't have that specific number available. It's quite complex because partial earnings were possible. And we're looking at the difference between rates and not just total day rates. So, it's too complex to go into on the call and for putting into a model, I'm afraid.

Okay. But -- and to clarify, the Dan Sabia did come off of bareboat and go into the conventional market. Hopefully, it will get into what its higher use potentially is. But that was -- I think I heard you say about three quarters of the increase in the OpEx in the third quarter?

That will be part of the increase in the OpEx.

Okay, great. Thanks for your help.

Great. Thanks Poe.

We now have Pavel Oliva with RockHill Global.

Hi. Good afternoon Derek. Great quarter. I just wanted to really thank you for all this hard work that you and your chartering department have done securing great charters and getting great coverage. So, I have a few questions, sort of some more specific and some sort of bigger picture. On the more specific side, the Dan Sabia, if you look on the map, they're going to Panama on a conventional voyage. Is there a thought to do a swap with the -- similar to the Dan Cisne to do a drop-down? Or Panama is halfway to Brazil or there is opportunities in Brazil? And just as a color, speaking to some of the clients in Brazil, the day rates now are hovering around $65 [ph]. So, even a smaller ship may be able to earn some very good daily rates. Can you maybe walk us through your thinking on the Dan Sabia?

Yes. So, we are marketing in any market that she's capable of operating and obviously, that includes Brazil and with some modifications would include the North Sea for shuttle work as well. So, yes, we continue to market her directly. She is, as you say, rather smaller than is preferred in Brazil. So, despite the high current day rates that it's still difficult to get her deployed. And in fact, that's the reason she left Brazil in the first place once the -- that charter come to an end last summer. In terms of the potential for a swap similar to the Cisne-Tuva swap a few months ago, yes, that's absolutely a potential outcome for her. It obviously relies on the discussion and negotiation between us and Knutsen NYK. It needs to be commercially fitting for both parties. It would be reviewed by our independent conflicts committee, so the potential is there. The -- I guess the commercial thing to be aware of a little bit is that by sister vessel Dan Cisne going to the -- what's effectively the North Sea pool, that's used up that's provided some supply into that market. So, that market position, the ability of Sabia to be deployed there is somewhat impaired by the fact that the Cisne is there. So, the concept of a drop-down absolutely is there. It's got the usual governance process to follow, but the market commercial background to it is a little different from what we have with Cisne last summer.

Understood. That makes a lot of sense because the legal work should be pretty similar to the Cisne. You can even Xerox or copy the papers. And as long as the independent committee is fine with it, that should be helpful. Maybe on the Hilda, the one year is -- there is tightening in the North Sea. Obviously, the production is going up. Johan Casper is -- should be starting any day now. What's your projection or expectation on the North Sea side and especially since there are no newbuilds?

Yes. Well, we'll continue to market Hilda for the period beyond the charter that we've just signed, so that will be from Q1 2026 onwards. And we're certainly very optimistic about market conditions in the North Sea. But as we saw during the course of this year to actually get from the -- our view on the market to signature took rather longer than really anybody anticipated. And what we don't see yet is whether that will change or whether the charterers will be signing further in advance than they chose to this year.

Understood. Okay. Can I ask a sort of broader and bigger picture question, and that is I have been in investing for a long time, but I probably never seen a bigger disconnect between the cost of debt and cost of equity than in your company. The cost of debt is SOFR plus 220. You guys have refinanced everything immediately, zero problems with any refinancing or anything like that, knock on wood, but you have a very stable through the ownership as well as track record in financing. So, your funding costs are very low, yet the cost of equity is, I would call it infinite with the NAV of your -- or the replacement cost of the ships in mid to high teens, there is an incredible value gap between what the fleet is worth and how you have improved the performance with the share price. We -- there has been a good pickup in the cash available and the free cash flow even with the repayments. Can you give us a color a little bit on the dividend -- thoughts on dividend and especially buyback restarting the dividend gradually because as shareholders, we have not been remunerated almost at all? And for the Board members that are listening, it would be good to hear that they're also -- because they're getting their Board fees, if we could get the dividend restarted.

Yes, I do understand all of what you set out there, and I do appreciate it. The experience that we've had over the last -- well, it's at least the last couple of years has been that we really needed to rebuild the visible charter pipeline. You may remember two quarters ago, we said that four vessels concerned us. The last quarter, we said that two vessels concerned us. And now we're saying effectively that it's one plus wanting to renew on the Hilda. So, Dan Sabia is the one that concerns us at the moment. So, that's progress that we're very pleased with, and we're pleased also that that's been noted and recognized as well among our unitholders. The issue is that the Sabia still needs to be deployed, whether on charter or sold or swapped, whichever the best option is that arises. And we need to continue reviewing the -- what's visible as our forward pipeline. The partnership has always grown through drop-downs. And I appreciate that the swaps are very efficient and strategically very useful way of doing it. Well, there's only one further opportunity for drop-down swaps -- for a swap coming up. And -- but as I say, growth in the past has always been through the drop-down schedule, of which there are five candidates available on the water at the moment. So, we would -- what the Directors are going to be doing is looking at their own capital allocation policy considering which is the better route to be taking, whether it's -- or distribution increase or a combination of the two.

Well, one -- just pointing out that this is the smallest ship. We're one out of 18 now. And we have been waiting for a long time. It would be helpful if the Board of Directors and the sponsor, which also owns 30%, would recognize what an incredible opportunity this is to, for example, buy back stock at 30%, 40% of replacement cost and not a big amount, but just it will be helpful to have the Board and the sponsor sort of acknowledge that they also have shareholders that should reap some of the rewards as the operations have improved. And you have an opportunity with the declaration of dividend in January to kind of send a signal that you are -- you care about shareholders as well.

Yes, thank you, I do understand and the Directors are aware of that too. Thanks Pavel.

Thank you guys and great quarter. And you guys have done an incredible job on all the fronts, except one. And I think I would urge the Board to really reevaluate given the amount of cash flow that you're bringing in every quarter to send a signal to shareholders that you're there for them as well. Thank you.

Yes. Thank you.

Thank you. We now have Clement Mullins with Value Investor's Edge on the line.

Hi. Good afternoon. Thank you for taking my questions. Most has already been covered, but could you talk a bit about your current hedging strategy? You increased the average maturity on your swaps quarter-over-quarter. And I was wondering, looking ahead, do you expect to maintain the ratio of hedged versus unhedged debt more or less constant? Or are you willing to lower it a bit given the higher interest rate environment?

Thank you for the question. We certainly expect a bit to have in mind the current interest rate levels at the time we enter into any future interest rate swaps. So, it's not simply a matter of maintaining the percentage of our debt that is fixed or effectively fixed. We have quite a wide range of hedging policy available to us. So, it's between half and three quarters of our of our outstanding debt. And as I say, that includes debt that's effectively fixed or actually fixed. At the moment, we are on the higher side of that, but we expect that to reduce quite significantly during the course of 2025, which you'll see just from the average maturity of our interest rate swaps that we have disclosed. But we aren't going to be swapping where we think that there's -- that the rates are too high to do that. That's just -- there's no point economically in doing that. So, we don't expect to. But we have capacity within our hedging policy to allow existing swaps to mature without putting new ones on at rates that we don't like.

Right. That’s helpful. Thank you for taking my questions.

Thanks.

Thank you. We have a follow-up question from Jim Altschul with Aviation Advisory Service. Please go ahead.

This isn't really a question. It's more of a comment, just following up on next to previous comment about the rewarding the shareholders. Obviously, we'd all like to see an increase in both dividends and the stock price. But I don't have any specific numbers in mind, but I would urge you to continue on -- look at all these decisions with a conservative bank. I grew up in the airline industry. And I mean this is a different barrel [ph] of fish, but no pun intended. I look at all the airlines that went bankrupt after buying back stock even though they were heavily levered or much more heavily levered than you are. But part of shareholder value is preserving the value for the long-term. So, although I'd certainly like to see the dividends go back to where they were, I also want this company to survive and be strong for the long-term.

Thank you, Jim. Thanks for your input.

Thank you. I can confirm we currently have no further questions. [Operator Instructions] I can confirm we now have a question from Fredrik Dybwad with Fearnley Securities.

Hey Derek, congratulations doing a great job with the backdrop of the company. Just then Dan Sabia left, he did the option extension with [Indiscernible]. And then you have an upcoming firm period on Raquel, which expires at closer to the summer. Could you give more color on timing and of course, timing-wise, when you expect an option extension to be caught?

On the Raquel. Yes. We generally find that extensions get chosen pretty late. So, there is a chance that it's as late as within the month before commencement of the option period. Ideally, it's longer than that, but we -- because it's a charter option, and we generally don't have much influence over the timing.

Okay. Thanks. And now with Hilda getting a contract from March, it will exit the Knutsen pool. Won't that make it more attractive to sell Dan Sabia to sponsor and call it in the pool replacing Hilda with Sabia?

Yes, that certainly helps the demand/supply dynamics, yes.

Yes, cool.

Thanks Fredrik.

Thank you. I would now like to hand it back to Derek for some final closing comments.

Well, thank you all again for joining this earnings call for KNOT Offshore Partners' third quarter 2024. And apologies to those who couldn't get into the presentation on the website. It certainly was uploaded and approved for public viewing. So, -- and I'll be looking into that. Otherwise, I look forward to speaking with you again following the fourth quarter results.

Thank you all for joining. I can confirm that does conclude today's call. Please enjoy the rest of your day and you may now disconnect.