Cool Company Ltd.

Good day, everyone, and welcome to the Cool Company Limited Q1 2024 Business Update. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may remove yourself by pressing star 2. Please note today's call is being recorded. and I'll be standing by if you should need any assistance. It is now my pleasure to turn the call over to Richard Tyrell, CEO. Please go ahead.

Thanks, Todd. Good morning to those in the U.S. and good afternoon to those in Europe and further east. Welcome to Coolco's first quarter 2024 results presentation. Please turn to slide three, Coolco at a glance. I'm pleased to be able to present a set of results that have benefited from our charter backlog, something that has grown materially since the end of the quarter with the announcement of the largest single contract Coolco has ever entered into, namely last week's 14-year charter with Gale of India, who have the option to extend by two years at the end of the period. While this has taken some patience, this is an exciting development that I'll get back to later in the presentation. Our backlog held TCE for the quarter and partially offset the effects of a weakening spot market and some off-hire for one of our vessels that was in between charters. Our second quarter outlook is for a stabilization in LNG prices and shipping rates. This has been helped by an uptick in demand for air conditioning in Asian markets, something that typically preludes a stronger market for shipping with the refilling of storage in Europe coming next ahead of winter. Our expectation for the forthcoming fixing season is that rates will be higher compared to what we see today. Shipping distances will be up as more cargo is delivered to the east. Distributions, disruptions, excuse me, to Panama and Suez will continue to result in vessels taking the longer route around the Cape of Good Hope. and steam turbine vessels will bear the brunt of any falls in utilization levels as new builds deliver. Slide four takes the quarter in greater detail with a summary. The longer term employment for one of our new builds at attractive rates helps the seasonal downturn in rates and the in-between off-hire on one of our vessels. Total operating revenues were in line with guidance at just over $88 million. In a reversal from the fourth quarter of 2023, the rate on our solo variable charter fell with spot market rates from $102,000 per day to $55,000 per day, quarter on quarter. Between charter off hire of 51 days further weighed on the TCE, along with delivery-related voyage costs. This is the end of the quarter. We've had the new-build charter I've mentioned, and the first of our vessels for this dry dock cycle has entered the yard. Three more are scheduled to enter the yard in the third quarter of 2024, and you'll want to reflect this in your models. John will provide the relevant inputs for this later on slide 15. Our dividend for the first quarter of 2024 was maintained at 41 cents per share. The rate and adjusted EBITDA charts show seasonal weakness this quarter, but we expect an improvement in the second quarter based on contracted revenues. The backlog tells the story of the new charter, and that's something we're very pleased with. Please turn to slide five. The newly signed charter is for 14 years to Gale, India's leading natural gas company. Gale is investment grade and a significant importer of LNG into one of the highest potential markets. It is great to establish our relationship and we're aiming to work together on future projects. Gale is an end user for LNG in that it imports and trades the commodity, regasifies it, and sells on the gas to customers in the fertilizer city grid, power, refinery and petrochem sectors amongst others in India. Growth is underpinned by a booming economy and high growth niches like the compressed natural gas and LNG markets for transportation. You can see how LNG imports have bounced back now that the prices have stabilized after the Ukraine shock and are now back on their upward trajectory. The high teen return on equity that we achieved on the new build sets a supportive precedent for the second vessel around which active discussions continue. While talk of vessels that cost $260 million per day today before capitalized interest requiring more than $100,000 per day may prove, on the optimistic side, something well into the 90s will be required to cover even the most competitive costs of capital in the industry. We generated higher returns on this ship because of when we ordered it and how much we paid. And we can see how important this is to our performance on the next slide, slide six. Combining well-timed sales with purchases orders, fleet renewal, and the award of value-accreted charters is core to our value proposition, and the charter on the new build demonstrates this. In the last 18 months, we've acquired four vessels with a gain of 66 million based on fair market value accounting treatment. We've harvested a year of high rates on another vessel before selling it at a premium value with a gain of $78 million. And now we have the attractive charter on the new build that compares highly favorably with its purchase price, crystallizing at least $25 million in value. The third deal was funded by the second deal, thus allowing us to fund internally, along with competitively priced debt, which is another area where we have created value for our shareholders. Turning to slide seven, this is our familiar look at the LNG carrier market. It has been weaker, but our well-diversified portfolio of charters limits near-term exposure. The chart on the left has spot data for TFDEs, and you can see from the orange line that this has bottomed out. And last year, if anything to go by, it will be up from here. The longer-term 12-month market, which is where we focus, is also starting to show signs of life. is important that this develops positively before the blizzard and the glacier come off charter later this year both markets have an important bearing on sentiment which is also important for our second new build even though it is targeted at more long-term opportunities it's also worth highlighting the improvements that we see on the husky which is the dotted teal line in the second quarter now that it is delivered onto its 12-month charter, and on the glacier, which is the dotted grey line that has had a nice step-up in rate since March. Slide 8 lists some of the reasons why a mild rebound in shipping rates is on the cards. The price of LNG and margins the shippers can achieve, whilst not what it was, remains supportive to shipping. As is shown on the chart, LNG prices are stabilising at a level that includes an energy security premium compared to before the Ukraine war. This makes LNG nicely profitable, as shown by the margins in the middle chart. The value of a cargo today is approximately $30 million. and with more than 25% of this being margin, the shippers are motivated to maintain lengths in their fleet. While LNG prices have increased in absolute terms, it is competitive again as a commodity compared to oil and coal, which is an important factor in growth markets. We saw earlier how more LNG is flowing into India, and the same applies to China and elsewhere in Asia. Above average GDP growth in these regions is a primary driver with high summer temperatures for air conditioning adding seasonal demand. India is already hot and China is getting hotter, which means more cargoes are heading east, more tonne miles and more shipping requirements. The last factor that we think makes LNG shipping interesting is volatility. While Coolco has been quite defensive in its chartering strategy, It does have vessels that would benefit if volatility returns. We saw volatility in the cold winter of 2020-2021 and saw it again because of the war in the Ukraine. This year, the question marks around how Russian LNG volumes will reach end markets if banned from Europe. And if oil and tanker markets are having to go by, the volumes will flow to the more distant markets that are willing to take them, and this will soak up quite some shipping capacity. John will now get into the first quarter in greater detail.

Thank you, Richard. Today I will provide a financial overview for the first quarter of 24. So turning to slide 9, in our Q1 earnings release earlier today, we reported operating revenues of $88.1 million, a level consistent with our previous guidance and expectations. These operating revenues were inclusive of non-cash amortization of net intangible liabilities of 4.5 million and third-party vessel management revenues of 4.9 million. The latter number is slightly higher than previous quarter because it includes notice and termination revenues due to the reduction in the number of third-party vessels under management. Time and voyage charter revenues for the quarter amounted to 78.7 million, resulting in an average TCE rate of 77,200 per day across our fleet of 11 vessels. This decrease versus last quarter TCE revenues of 89.3 million is primarily due to lower floating and spot rates during the winter season for one of our vessels, and an off-hire period for another vessel as it transitioned from interim work in the spot market to a new one-year charter. Operating income for the quarter was 44.1 million, and the 11 million declined from the prior quarter, which was 55.1 million, which is mainly the result of the 10 million reduction in TCE revenues, and some incremental voyage and delivery expenses related to the vessel that transitioned to a new charter. The operating margin relative to revenues was 50%. Vessel operating expenses for the quarter were 17,600 per day per vessel, which was on par with our rolling four-quarter average. Adjusted EBITDA for the first quarter of 24 was 58.5 million compared to 69.4 million for the fourth quarter of 23, again, mainly the result of lower TCE revenues. I would like to reiterate that adjusted EBITDA is calculated by netting out non-cash amortization of intangibles, which are part of our revenues, resulting in adjusted EBITDA this quarter being 4.5 million lower than what an unadjusted EBITDA would have been. Turning to slide 10, the net income chart on the left depicts the transition from Q4 to Q1. Reported net income for the first quarter was 36.8, up from 22.4 million in the fourth quarter. This increase is primarily due to a 24.5 million unrealized mark-to-market valuation swing on our interest rate swaps, and partially offset by the aforementioned lower TCE revenues. On the chart on the right, excluding the non-cash items, the approved dividend of 41 cents per share represents approximately a 91% payout. Turning to slide 11, As we reported last week, our backlog now includes the newly announced new-builds charter with GAIL. Including extension options, our backlog totals nearly 1.9 billion, equivalent to approximately 64 years of backlog, or an average of close to five years per vessel, which considers all 13 vessels in our fleet, including the currently un-contracted new-builds. We have one vessel available in late July, early August, and another in late November. With last week's new build announcements, the TCE rate from our backlog increased from approximately $76,000 per day per vessel to more than $79,000 per day per vessel, accounting for all exercise options to the maximum extent. Turning to slide 12. This slide demonstrates that on a cumulative basis, since the inception of our dividend policy, we have paid out slightly more than our free cash flow to equity. Free cash flow to equity is calculated as adjusted EBITDA minus regular debt service plus interest income. The Board has approved a dividend payout of 41 cents per share with an ex-dividend date set for the New York Stock Exchange at May 31st, and the OSE at May 30th, and a record date of May 31st. From May 28 onwards, the standard settlement cycle for transactions executed in securities traded on the New York Stock Exchange will be shortened from T plus 2 to T plus 1, while the Oslo Exchange, will continue to settle its trades on a T plus 2 basis. As a result, there will be different dates between the two exchanges as set out in our dividend press release. During these interim days, investors may be restricted to move shares between the New York Stock Exchange and the OSC. The dividend will be distributed to DTC registered shareholders on and around June 10th. with Norwegian registered shareholders receiving their payouts approximately three trading days later, which will be on around June 13. Turning to slide 13 on the financing, in late March, we reported a successful refinancing of our sale and leaseback facility, maturing in the first quarter of 25. by increasing the existing 520 million bank facility by 200 million. Given the very low interest rate on this existing Salem-Eastback debt, we structured the refinancing with a delayed drawdown to ensure we continue to benefit from the low interest rates during the interim period until the maturity of the Salem-Eastback. Along with this increase, the banks approved certain changes to the financial covenants the most significant one being a relaxation of the cash covenant to 4% of total debt. The chart on the left illustrates that once we draw on this upsize, our first debt maturity will not be until February 27. Our average interest rate is below 6%, and we have hedges in place for approximately 90% of our pro forma debt, which takes into account the new-build financing. As of March 31st, cash and cash equivalents were approximately 106 million, which is a decrease versus the last quarter's cash balance of 133 million, which is mainly due to a new bill milestone payment of 22 million during the quarter. As you may recall, the proceeds of our opportunistic sale of the seal in the first quarter of 23 provided the equity to fund these new bills. As a result, the March 31st cash balance is exclusive of the available pre-delivery liquidity of around $49 million under our new-built financing, which we have opted not to draw yet. Turning to slide 14, this slide presents the breakdown between realized and unrealized mark-to-market gains and losses. which are combined into a single line item on our income statements. Since the inception of our swap program in July 22, our cumulative realized swap gains have been quite significant, with 14 million in net gains. As of March, the unrealized gains for the interest rate swaps that have not yet matured are approximately $13 million. As previously mentioned, for those modeling Coolco's performance on a quarterly basis. Please take note of these significant and largely unrealized mark-to-market swings in our earnings reports. Then turning to slide 15, this slide provides selected guidance for the second quarter of 24. Second quarter revenues are expected to align closely with our previous guidance. I'd like to reiterate that on one of our debt facilities, the principal repayments are on a semi-annual basis, which affects our quarterly free cash flow to equity figures. Finally, we anticipate four dry docks this year, one currently ongoing, and three scheduled to start in the third quarter of 24. We expect these dry docks to begin and end within their respective quarters. though the exact dates may shift based on cargo delivery schedules and charterers' needs. The resulting unpaid dry docking time accounts for some of the anticipated revenue decline from Q1 to Q2. With the financial overview concluded, I'll hand it back to you, Richard.