Capital Clean Energy Carriers Corp.

Thank you for standing by, and welcome to the Capital Clean Energy Carrier Corps Third Quarter 2024 Financial Results Conference Call. We have with us Mr. Jerry Kaloyerathos, Chief Executive Officer, Mr. Brian Gallagher, Executive Vice President, Investor Relations, and Mr. William Bjorn, Vice President, Commercial. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, you will need to press star 1 on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today, November 8, 2024. The statements in today's conference call that are not historical facts including our expectations regarding acquisition transactions and their expected effect on us, cash generation, equity returns, and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts or unit buyback amounts, capital reserve amounts, distribution coverage, future earnings, capital allocation, as well as our expectations regarding market fundamentals, And the employment of our vessels, including re-delivery dates and charter rates, may be forward-looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations to conform to actual results or otherwise. We make no prediction or statement about the performance of our common shares. I would now like to hand the call over to your speaker today, Mr. Brian Gallagher. Please go ahead, sir.

Thank you, operator. Good morning or afternoon to wherever you are listening to the Capital Clean Energy Carriers Q3 2024 earnings call. As a reminder, we will be referring throughout the presentation to the supporting slides available on our website as we go through the presentation today. Let's start with slide three, the third quarter highlights. The third quarter of 2024 was an important and a busy quarter for the company. As you know, we've changed our name to Capital Clean Energy Carriers. This reflects our new focus on gas transportation. And we've also moved from an MLP corporate structure to a C-Corp status with its customary and transparent corporate governance. We continued our strategic repositioning with the sale of five containers in September. releasing nearly $300 million in cash. Our finance team have continued their excellent work this quarter, refinancing an additional two LNG vessels and releasing another $73 million of additional liquidity. This has also reduced further the cost of our debt and also extended their maturities to 2031. If we turn now to slide four, we can see the wider progress the group has made. With the recent container sales, we are now left with just three very modern container vessels on very long-term time charters, following the sale of 12 container ships in total since March. Indeed, since 2021, as the slide shows, the group has been very proactive in selling non-core assets. generating in excess of $600 million in proceeds. That is without taking the latest five-vessel sale of containers into account. A large part of these proceeds has gone towards funding our pivot towards LNG carriers and other gas assets. Moreover, we continue to make progress not just strategically with our name change, but also in terms of our corporate governance, which has been reflected in a recent increase in our ranking in terms of ESG criteria and scorecards. We intend to build on these credentials going forward with our gas-focused strategy. We are, of course, though, very conscious of our need to focus on other objectives. We recognize that share liquidity is a key issue for current and prospective investors. and on a significant scale over the last 12 months to pivot to where it is operationally and strategically. We appreciate the need to continue to work hard to ensure our corporate side and our investability matches these significant changes. To that end, we are looking at tools that can help enhance our trading liquidity, such as putting an ATM in place to satisfy both potential and incoming demand from investors. We hope that such initiatives will facilitate liquidity in the trading of our shares, and we intend to back this up with further raising of the company profile, as we have done in recent quarters. Research coverage, for instance, has doubled in the last four months, and we expect to expand our coverage going forward. We know and appreciate that this will take time, but we are aware that this is a necessary process to provide the group with a trading currency in the future, and also progress our further strategic optionality. Part of this change is my appointment as a full-time dedicated investor relations manager. I'm excited by the challenge of delivering on the company's ambitions, and I'm here to assist investors in any way I can. I will now turn it over to our chief executive, Jerry Kalogirotis, to run through the financials.

Thank you, Brian. It's good to have you on board, and I'm sure our listeners are glad to hear a new voice on the call. Now, turning to the financials from slide six. On a technical level, the sale of the 12 container vessels following the announcement of our strategic shift towards gas shipping means that we now report on these containers as discontinued operations. On a continued operation basis, the quarter was a fairly mechanical quarter, with five new LNG carriers making a full contribution to their revenue and expenses, driving operating income from continuing operations higher to $57.2 million from $30.5 million on the comparative quarter last year. Interest charges rose as the fleet increased in size to $40.7 million compared to $25.6 million during the same quarter last year. Net income from continuing operations rose to 15.8 million from 5 million in the comparative quarter in 2023, while the dividend was held flat at 15 cents for the quarter. Turning to slide 7, our balance sheet continues to grow with the addition of new vessels and with our asset base over 1 billion higher from the start of this year. The mix of our asset base has clearly changed in the past year, but our mix of funding has not, being 80% floating-based. This has obviously turned into an advantage for the group, now with interest rates in the U.S. and globally beginning to fall, and forecasted to move lower progressively in 2025. Our funding base would benefit with around 21 million lower interest costs for every 100 basis point move lower in rates. We expect our capital base to consolidate now for a period, as we have no delivery scheduled until early 2026. Returning to slide 8, as mentioned in our highlights page, we have refinanced year-to-date certain of our facilities, thus improving our liquidity position by $130 million, and at the same time reducing our annual debt amortization under these facilities by $4 million. Importantly, we have also improved our funding cost by 56 basis points when comparing the nine months of 2024 to the same period last year, and taken our average floating rate margin to 190 basis points. Where does this leave the group in terms of funding for its new building commitments? Slide 9 looks at our funding sources and commitments. Out of the total capex of 2.3 billion, we have already advanced 420 towards these acquisitions. Our cash at hand as of quarter end was 183 million. While we expect to generate nearly 300 million from the agreed sale of the five container vessels, less the repayment of 42 million of an outstanding seller's credit. Under conservative debt assumptions, we expect to raise more than 1.5 billion in debt, which is more than enough to cover our remaining capex program and actually leave some additional liquidity on the balance sheet. This, of course, without taking into account an incremental cash flow generated by the company, which, as you can see in the next slide, is well underpinned by our existing fleet and its contracted revenues. So on slide 10, you can see our revenue backlog of 2.6 billion. remaining highly diversified with no counterparty having more than 20% share. 2.3 billion of this backlog will come from our LNG assets. Our remaining sector duration is over 70 years and we expect to add to this strength as we start again taking delivers of our new builds in 2026 onwards and fixing long-term employment for these assets. Now moving to slide 12. The current spot LNG market deserves commentary given its pronounced weakness in recent weeks. The extent of the drop in spot rates has come as a surprise, but reflects certain key factors at play, such as a lack of LNG arbitrage opportunities, limited contango and storage place, again driven by warmer-than-usual weather patterns, oversupply of vessels. Put simply, there has been more ships available than has been required. A situation which, of course, has been further exacerbated by delays in certain LNG projects And as a result, charters end up long shipping due to these delays and then seek employment in the spot market at any cost. All of these factors have helped create something of a perfect storm in pushing rates lower. However, it is important to stress that our company, CCEC, has no exposure to spot markets. We have one existing LNG vessel coming up for charter renewal in the third quarter of 2026. And while the current market is certainly challenging in the short term, It will, if it stays at such levels, put extreme pressure on older donuts. We look to address this on the right-hand side of slide 13, illustrating that there are currently around 40 steam turbine vessels that are trading in the sport market, and this number will increase to almost 100 ships by the end of 2026. Our view remains firm that these vessels will find it very difficult to compete in a market like this, and will be led to exit the market either in the form of conversion to alternative uses, such as FSUs or FSRUs, layups, and more likely than not over time, to recycling yards. Moving now to slide 13 and the longer-term potential and drivers on the LNG market. Our thesis regarding the strong long-term fundamentals driving the market remain intact. Asset prices for the latest two-stroke technologies remain firm, underpinned by limited shipyard capacity, competition from other segments, a robust long-term time-shutter market pipeline, and high volume of liquefaction projects in the medium to long term. Clearly, as the chart on slide 13 at the top right shows, there is some oversupply of vessels in the short term, And as discussed, this is a contributory factor to the current spot rate environment. However, the focus on this pressure will be on the older technology portion of the global fleet. And as the chart also makes clear, once projects come online, the market will begin to require additional shipping to manage the higher volumes. Turning now to slide 14 on the longer-term charter market. While, as discussed, we see a challenging spot market in the short to medium term, the launch increase in LNG liquefaction capacity in the back of projects that have taken FID and licensing bodes well for the long-term charter market, even if there are slight delays when it comes to projects. With the incoming Trump administration of the U.S., we expect more tailwinds ahead in terms of regulatory approvals, as President-elect Trump has clearly stated that his administration will support all energy projects, including LNG liquefaction projects. From the third quarter onwards, we saw a corroboration of this thesis as a number of charters have come or are in the market to charter donuts on a long-term basis, with a focus from 2026 deliveries onwards. They are seeking to both cover additional LNG volumes that they will need to trade from these new projects, but also looking to replace steam turbine vessels that are coming off charter over the next three years. Almost all of these inquiries are for charter periods of seven years to 15 years, and the overwhelming majority is for more than one vessel. Hence, we remain constructive on the LNG market going forward, and we see the short-term pain in the spot charter market as a catalyst for the removal of older technology vessels, which in turn will help the market balance over the coming years as the new liquefaction capacity comes online, with potential to have even greater upside from new projects yet to take FID. But today, we intend to take advantage of the fact that we have no LNG market exposure until 2026 and take a break from our core market and Q3 commentary to focus on our liquid CO2 vessels currently under construction in Korea, as you can see on the next slide. We believe that spending some time on this sector would be interesting to our investors, as it is a new segment, and I wanted to share a bit of what we're seeing in this nascent market. So on slide 16, you can see a rubber gas fleet made up of six mid-sized gas carriers and four liquid CO2 carriers. As the slide shows, these are all due for delivery within an 18-month period starting early 2026. At this point, I want to hand over to William Bjorn, our Vice President of Commercial Projects for Energy Transition, to run through this next section. And we will, of course, be happy to take questions at the end of the call on this and all other discussion points after our prepared remarks. William, over to you.