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

Thank you Brica [ph] and good morning ladies and gentlemen. My name is Derek Lowe and I'm the Chief Executive and Chief Financial Officer of KNOT Offshore Partners. Welcome to the Partnership's earnings call for the fourth 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 Q4. Revenues were $91.3 million, operating income $34.7 million, net income $23.3 million. Adjusted EBITDA was $63.1 million. We closed Q4 with $90 million in available liquidity made up of $67 million in cash and cash equivalents, plus $23 million in undrawn capacity on our credit facilities. We operated at 98.3% utilization and the vessel time available for scheduled operations was not impacted by any planned drydocking. Following the end of Q4, we declared a cash distribution of USD 0.026 per common unit which was paid in early February. On to Slide 4. Our outlook remains positive on both industry dynamics…

[Operator Instructions] We have the first question on the line from Liam Burke with B. Riley Securities.

Derek, you've got a long history of being able to refinance high-quality assets. You're improving -- your liquidity is improving. Your cash flow is up year-over-year, up nicely. How do you think about allocation of capital now that you've got a fairly safe lease book here?

Well, we are pleased -- thank you. We are pleased with the way things are going. I mean, I would say at the moment that we do count in our freely available liquidity, $50 million worth of RCF capacity. So $90 million isn't $90 million of cash without other considerations. That's probably the first thing to be mindful of as you look at those balances. We don't take anything for granted in our debt renegotiations and the world is perhaps a slightly more volatile place now than it has been in the last couple of years. And so we're going to proceed with those debt renegotiations in good time, well ahead of maturity dates, as we usually do. I agree our track record on that is good and we don't see any particular obstacles there. But nonetheless, that is a more immediate priority. And then, into the medium-term, we are still looking to fill spaces in our charter coverage next year. If you saw on Slide 14, I think, the coverage average is 75% fixed for next year. But clearly, it drops away over the course of the year. And that's something that from our chartering team we're particularly concerned to fill up. So there's a number of priorities there already. But the -- in terms of use of capital which I think was your basic question there and the Board continues to think it's in the long-term interest of the unitholders to -- both to consider accretive acquisitions and the long-term sustainable distribution and they have both of those things in mind as they look at decisions that they make.

Okay, fair enough. On the charter coverage, obviously, you mentioned 75% covered in the next year. If you're looking at the amount of FPSO or production activity coming online either in the North Sea or in Latin America, do you -- are you comfortable that your available vessels will fit into that demand profile?

Yes, we don't have any signals that they won't be and they all have a specification that fits.

We now have Poe Fratt with Alliance Global Partners.

Derek, can you address the open windows for 2026 for the Fortaleza? And is it the Recife, or Recife? Are we potentially facing the same situation we had with the Dan Sabia and the other smaller shuttle tanker that was on bareboat charter to Transpetro? Can you just address sort of the specs of those vessels and how you're looking at rechartering at this point in time?

Sure. Yes, Fortaleza and Recife -- and you're looking at Page 13, I think, aren't you, where they -- those charters expire outside the middle of next year. I think the main difference is -- between those and the 2 Dans [ph] is size. I mean the Fortaleza and Recife approximately double the capacity that Cisne and Sabia have. So we're far less concerned about the ability to continue deploying them than we were with Cisne and Sabia.

That's helpful. But there isn't any option or when -- are you currently trying to line up time charters for those? Or is it too early to work on those?

We work on all open periods all the time.

Okay. Any interest in those? Or can you give us a flavor for the -- you said you were confident. So what kind of confidence interval should I use?

Well, that's a market conditions observation. I mean we don't comment on individual negotiations until we've got something that's signed and announceable.

Okay. Can you just address the shift in -- with Shell on the Vigdis or Vigdis. Why did they decide to flip over to bareboat chartering the shuttle tanker? And can you just give us the dynamics of that decision? And then also, is there an impact to the net cash flow that will be generated from that shuttle tanker?

Yes. I mean the first -- I'll answer your last point first. The bareboat terms are commercially comparable to the terms that would have applied under the previous time charter. So from a financial point of view, we are obviously content with that switch. It's also been extended as well. So the -- we've got fixed coverage for that vessel for longer as part of that negotiation process which obviously is welcome too. In terms of Shell's intentions, there are benefits of an oil major operating their own fleet rather than putting them out on management contracts and -- that's what I expect Shell, we're looking at. I mean they've had that -- an option to make that switch in place since the original time charters were put in place. So that option they've had -- they've contemplated that for some time.

It does lower your operating risk on that shuttle tanker, correct? And then, can you highlight whether any other time charters have the same option to shift to bareboat?

Yes, I don't think any come to mind at the moment. And if that's incorrect, we'll get back to you. But none come to mind at the moment.

Yes. It's interesting too because -- I'm not sure if you saw the recent award of -- I think it was 9 shuttle tankers where Petrobras or Transpetro intends to bareboat charter the vessels which seems -- I'm just trying to figure out why the shift to potentially bareboating instead of just straight time chartering?

Yes, that's probably a question for the -- for that vessel owner.

Okay. And then -- we always play a game of cat and mouse with the time charter rates and the renewals and extensions and it's always interesting and you never give sort of specific guidance. But can you just highlight the large jump sequentially in time charter revenue? You seem to be all of a sudden hitting a new level. And can you talk about the forward-looking time charter book? Will -- is $84 million in time charter revenue a reasonable expectation going forward? Or is there -- was there something in the fourth quarter, maybe bonuses or other things that would have pushed that number up, that won't recur in the first half of 2025?

Yes. I appreciate the question and the reason for it and we have the same competitive issue that we don't think it makes sense to expand on day rates too much. There weren't any bonus type elements in that number. So one-offs, for example, the insurance payment, you can see that was received and accounted for separately. So it's not as if that's included. The biggest difference is that we had some new operations starting in fourth quarter. So if you go back to, I think it's Slide 5 and those are developments that we discussed on the last call actually. So they happened already by that stage. We've got…

Yes, the Ingrid, the Hilda, the Torill. Yes.

Yes. And so the Ingrid and Torill are the new operational starts and the others were news about future contracts but they sort of don't count in that -- on that point. In terms of what will happen to that line, that 84 line in the future, well, that comes back to what are the new operations -- well, question, are there new operations that come through in Q1, Q2 and so on which would impact that? And the answer to that, yes. So we've got particularly the swap out of the Sabia and swap in of the Live which obviously was closed on the 3rd of March and therefore, will apply to a small extent to Q1 and then in full in Q2. And as you're aware, we've got the Hilda due to go on hire by the end of this month. And so, minimal impact from that in Q1 but the Q2 figures should reflect a full quarter of that Hilda commercial contract as well. So it's down to -- I'd say the more notable changes won't be particularly down to rate which I understand is what you're looking for as well but simply the fact of charter starting.

But we have hit a new level. And as you mentioned, that new level was driven by pretty much the Ingrid and the Hilda early in the quarter and then the Torill later in the quarter.

Yes.

Okay. And then can you share with us the potential impact to backlog of the Live acquisition? Because that potentially -- I assume that's not in the stated backlog of $870 million. Can you give me a ballpark on how that will change the backlog, the contracted backlog?

Yes. I mean we can't give specific numbers on that. But what you would want to look at is when was it that, that rate was set because -- the market really is around when you contract a rate rather than when the rate is being earned once the vessel's on hire. And of course, for a vessel that's on her first charter after delivery, that rate was set at the point when the newbuild order was made for her. So if you back date from the delivery date by a reasonable period to allow for construction, you're looking at market levels that were contracted around then. I can't guide you as to what those were specifically but that will give you an idea. So the fact that the vessels newly arrived in March of '25 doesn't make it a March '25 sort of rate.

Understood. But it will have a -- it will add, what, 5.5, 6 years of contract backlog or contracted revenue to that contracted backlog number? So in the second quarter...

Yes. It's under 5, November and...

Okay. Can we talk about OpEx? There was a big drop in OpEx in the fourth quarter versus the third quarter. You highlighted the impact of what -- was it the -- I think the return of the -- one of the Dans, right? Can you just talk about sort of the run rate for OpEx in the first half of 2025?

Yes. Well, you should see a similar impact of the other Dan coming out of the fleet. And in fact, a very close equivalent because the sale of each of those vessels was just 2 months into the quarter -- into the half year. And -- so you should find that the further impact of -- on OpEx of the Sabia being sold should be fairly similar.

Can you quantify the impact of the Dan Sabia in the third quarter? Because I don't recall that you actually talked about that on the December call?

If you look at a fairly reasonable OpEx rate assumption and then look at the times when she was on contract versus not, that would give you a good guide.

Okay. And just to summarize, so the first quarter will be impacted from a cost standpoint but then the second quarter of 2025 shouldn't see a similar impact?

Not for those reasons, no, because the -- we won't have had any vessels off-hire that we'd be paid for.

Okay. And is there any outstanding off-hire receivable any at this point in time? Or is that all cleared up and you have nothing in negotiations as far as off-hire reimbursement or anything like that, Derek?

No, nothing significant. The biggest one was the -- for the Torill claim which we've discussed on a number of quarters, I think and that completed in January.

[Operator Instructions] And we now have the next question from Mario Epelbaum with First New York.

I guess my first question is to see if I'm thinking about this right. If I take a quarter like this and -- a full year of a quarter like this, you would probably have like cash flow before debt amortization of about $160 million a year. And if you have $90 million a year of amortization, you're talking about almost $70 million of cash flow after amortizations per year. Am I wrong in my analysis?

If you included interest in the first line you gave us, did you do that?

Yes. Yes, of course, I did. I did. Yes. I subtracted the interest and the insurance from this quarter and you get like a $40 million of cash flow. You had a $63 million of EBITDA, something like that, take $6 million and then the $16 million of interest and that's where you land. So this is more than $2 per share of cash flow after amortizations now. And so it's quite a hefty number. Now I understand that you want to be secure with -- you want it to be recurring in order to pay the dividend or not but there's a lot of recurring cash flow that is already there. So do you think you have to have 100% charter coverage in order to increase the distribution to match it a little bit to the $2 change per year that -- and this is before the increases that you just described that are likely to come. So, I'm -- just a question of how -- I mean, could we see maybe a little bit more dividend because there's a big difference between paying all the cash flow and some of the cash flow? If you could give us a little bit more color on how to think -- how you're thinking about it, I would appreciate it.

Yes. Thank you for the question. Well, the Board's view is that the long-term interest of unitholders are served both through accretive investment and the long-term sustainable distribution. And those -- we think those things come together. The partnership starts with 4 vessels 12 years ago and is now at 18 vessels through that combination. So we expect that balance to continue in the minds of the Board as they look forward. You annualized some figures. Obviously, that -- we've had 1 quarter that you've used for that basis and that time needs to pass and the new charters that are starting need to feed through to the results, I think, to get to the position that you were describing. So that in itself is some way off. And the last point you say, would there be some sort of threshold passed if we had 100% charter coverage? Well, the thing is that there's a continuing -- there's a rolling need to renew charters. And so a high 90s percentage for a foreseeable period is not going to last simply with the passage of time. So clearly, a good level of coverage is always going to be sought and welcome. But there's a lot of optionality in the charter outlook, as you can see on slides, I think, 13 and 14, especially 14, you can see the fixed periods dropping away during the course of next year. So that's why there's a continuing rolling commercial focus on filling up the charter schedule.

I agree with that. But there is some sense of a connection between your decision to pay more dividends than the charters. And as you just said, you will always have some charters rolling off. So that would mean that you perhaps would never want to pay a dividend using that logic. I'm not suggesting that, that's your point of view but I'm just sort of extrapolating that logic As unitholders...

Yes, I appreciate that. Apologies, go ahead, sorry.

No, no, that was it. I guess let me move on. I understand what you're saying. I wanted to sort of think that as a unitholder, there's quite a bit of room now to pay dividends. You could pay maybe -- you could have a policy where you pay 40% or 50% of the cash after amortizations and that might be the beginning of getting remunerated. So let me ask another question in terms of, when you -- I imagine that there's 4 vessels now that you may purchase in the -- that are now actually out there on the water. Two of them are in Brazil and 2 of them are in the North Sea. Would you buy some in the North Sea given that the long-term outlook for that market is smaller and the growth of it is not so -- not as secure as in Brazil?

Yes, that's a question that the -- our Conflicts Committee would be looking at definitely when we're looking at dropdown. So we have -- some listeners may not be aware, we have a committee of the independent members of our Board who look at any transaction that is contemplated with our sponsor. So it's called the Conflicts Committee and they take independent financial and legal advice when any potential transaction comes along. And that's exactly the type of question that they will be considering. Is any given vessel and the associated commercial exposure of that vessel the right thing to look at? It's not simply the terms of the transaction.

Okay. And then the final question is like, I understand that the dropdowns with [indiscernible] makes a lot of sense. But now if you do dropdowns like we're doing with cash, how would you look at the difference between the cash deployed to buying back shares versus a dropdown? I would think the cash to the shares is a lot higher return on investment right now than doing an additional dropdown. Would that be something that you would consider when you make a decision?

Well, the Board is looking at the long-term interest of unitholders. And so they look at the 2 together, not necessarily regarding them in some way competing with each other. So yes, those 2 factors are always considered. But the -- on the distribution side, particularly the sustainability of it is very much in the Board's minds.

We have a follow-up from Poe Fratt from Alliance Global Partners.

I apologize. Yes, you probably didn't think I had another question, Derek but I do. Can you look at first quarter utilization? And how has utilization been this quarter? And can you highlight any drydocking activity that you know about for the -- either the first quarter or the rest of the year?

Sure. We -- I don't have any specific disclosure to give you on utilization during the first quarter but we haven't had any issues that we'd like to disclose to you. Let's put it in those terms. The drydocks -- I appreciate the chart is a bit small but on Page 13, we've highlighted when in the year the drydocks are appearing and also which drydock it is in case you want to make different assumptions about the drydocks that happen at different stages in the vessel's life. So you can see those figures there. We are looking at 4 vessels during the course of this year.

Got you. The Windsor, the Raquel, the Tove and the Tuva, correct?

Yes. I think Tuva might be slightly later into '26.

Into '26?

Yes.

[Operator Instructions] And we now have Climent Molins with Value Investor's Edge.

I wanted to start by asking about your debt repayment schedule pro forma for the recent swap of the Dan Sabia for the Live Knutsen? Could you talk about how much the facility on the Live Knutsen adds to the scheduled debt repayment for 2025?

Yes. We will be disclosing more details of the debt facility on that vessel when we file our 20-F. And as we've not expanded on that detail in this disclosure, I think it's probably best if you wait for that. But it's -- you'll find it highly recognizable by comparison with other debt facilities.

Makes sense. And this one is more market related. Over the past couple of years, the North Sea had lagged behind the Brazilian market. Does the Penguins and Johan Castberg start-up have the potential to, let's call it, close the gap?

Well, they are -- we're not necessarily seeing the comparison in that way. I mean they're clearly extremely welcome and long-awaited production starts in the North Sea and they are -- the key difference to pick-up in the North Sea market, that's been anticipated for some time. But the -- aside from that, I mean, clearly, we welcome strengthening in both markets but it's quite hard to make a comparison as if one is catching up with the other and so on.

I can confirm we have no more questions in the queue. So I would now like to hand it back to Derek for some final closing comments.

Thank you Brica [ph] and everyone again for joining this earnings call for KNOT Offshore Partners fourth quarter in 2024 and I look forward to speaking with you again following the first quarter results.

Thank you all for attending today's earnings call. I can confirm today's call has now concluded. You may now disconnect and thank you all for your participation.