Cool Company Ltd.

Hello, and thank you for standing by. I would like to welcome everyone to the Cool Company Limited Q4 2024 Business Update. I would now like to turn the call over to our CEO, Richard Terrell. Please, go ahead.

Hello, and welcome to CoolCo's presentation of the fourth quarter 2024. Thank you, Dustin, for the introductions. Please turn to page three, Coolco, at a glance. The quarter was decent, even though the chartering market for new business is another story. From a rate perspective, winter was canceled this year, and we're contending with the lowest rates we have ever seen on our two spot market vessels. We have a reasonably well-spaced portfolio of charters and over one billion in firm backlog, but this does not take away our exposure to vessels that come open over time. While rates languish as below economic breakeven on open days, we have decided not to declare a dividend. Instead of predicting the timing of when markets normalise and risk getting it wrong, not declaring a dividend at this time provides the combined benefits of financial flexibility and creating capacity for opportunistic growth. We have a good track record in this area, and it's the kind of market where opportunities are likely to come along. For the quarter, revenue was up slightly, and the hard work of our chartering team enables us to guide towards similar levels for the first quarter 2025. We're going to get into the drivers of this market and when conditions are likely to normalize in the presentation. While we've often talked about how the market would rebalance in theory, this quarter we have some real data to show how it's happening in practice. Turning to page three and the quarterly highlights. Our portfolio of charters has provided solid support in the face of a rapidly deteriorating market. We see the impact of this market on our TCE after the Cool Tiger delivered in October and undertook a positioning voyage to the Atlantic Basin before being faced with the spot market rates that prevail. The same applied on the glacier after it delivered later in the quarter, re-delivered later in the quarter, I should say. The positioning voyage also had an impact on fleet utilization, and we shall see the same in the first quarter because of the positioning voyage on the Gale Saga. However, in stark contrast, the Saga has delivered onto its 14-year charter and has recently lifted its first cargo from Cove Point. As mentioned, revenue increased for the quarter to 84.6 million, primarily because of fewer dry-lock days. Adjusted EBITDA also increased modestly to 55.3 million. The backlog remains strong at 1.7 billion, of which over one billion is firm. Turning to page four. And we see the picture of the current market. It's a market that requires agility, differentiated vessels and strong customer relationships. Rates are well below break even. not unusual for them to be low at this time of year but what was unusual is the complete lack of a winter market this year's winter blew through the floor of anything we have seen for many years the tiger and the glacier have been exposed to this market but we've managed to keep them employed achieving 92 utilization in the fourth quarter and we expect to be this in the first quarter of 2025. Sustained high LNG prices in Europe, the resulting trading patterns, and the delivery of new vessels have put significant downward pressure on the near-term chartering market. Adding to this pressure has been the number of sublets in the market. These are vessels that are delivered ahead of the projects for which they are intended, and are typically chartered out into the market without much consideration of rate, something that is negative for sentiment. With headline rates at these levels, longer-term deals are few and far between. The spread between spot levels and the levels required to commit a vessel on a term basis are simply too great. Coolco is seeking to bridge such conditions through a combination of spot, short-term, and floating rate deals. John has a breakdown of our backlog on one of his slides. In the next slide, we have our observations from the market. Starting to page five, we see a list of new supply in 2025. That was the case until Costa Azul announced a delay of a few months earlier this week, and you see that now slipping until 2026. While this story of delays is getting old, it does mean that precision around timing is important when thinking about the shipping market. The most significant near-term projects we see in the markets are Venture Globals. The first, Carcashew Pass, moves to commercial operations in April. And while the plant has been operating for some time, it's only now that the vessels that were originally intended for lifting its cargoes will be doing so. Removing such vessels from the sublet market is going to help, and the pattern will be repeated as more projects come online. Tlacomitas is the other Venture Global. project that will be a major contributor over the coming months. It's up and running. I think they're up to around 15 cargoes so far. Corpus Christi stage three trains one to four. It's coming on stream steadily over the course of 2025. LNG Canada is a big project for the middle of the year. On the back end, we have a handful of projects, including the first of the Qatari Northfield expansion projects, potentially. Because a number of these projects only start at the back end of the year, 10-mile development is only expected to be 4% in 2025. But 2026 is a different story, where we see the full benefit of annual production flowing into the 17% expected growth. Shell, one of Coolco's customers, published its 2025 LNG outlook earlier this week, and commented on seeing 600 million tons per annum of demand by 2030, increasing up to 700 million tons per annum of demand by 2040. This demand will ultimately be a huge opportunity for Coolco. Shell also had a list of the delay factors that we're all too conscious of. Geopolitical tensions, regulatory hurdles, startup risks, civil unrest, labor shortages, and supply chain bottlenecks. None of these are going away, and the industry needs to become better at factoring them into their fleet plans. However, it is very reassuring to see Shell's 2040 projection and how it is aligned with our long-term view of the LNG market. Page six looks at the developments in idling and new belts. I have long said that steam turbine vessels leaving the fleet will eventually balance the market, and we're starting to see it in the data. The chart on the left-hand side of the page shows how closely idle vessels are correlated with vessels reaching 20 years in age. What's happening here is that vessels are rolling off their initial contracts and immediately being idled rather than dry docked. All are now warm stacked at best and unlikely to play an active role in the market going forward. The number of vessels reaching 20 years in age is set to increase over the coming year, and these vessels are not being scheduled to lift cargoes. This is enabling the customers to specify larger cargoes for which our TFTE vessels are the ship of choice. CORCO vessels are particularly attractive because of their size and also the upgrades that we're in the course of progressing. These specifications make them ideal replacement vessels for the steam turbine vessels that are leaving the fleet, leaving us well positioned to take over such business. Just as steam turbine vessels reach retirement, new build orders have all but dried up. This is only natural in the current rate environment, and obviously a good thing for vessels that are already on the water when thinking about the years ahead. Moving to page eight, we have some other factors that are explaining the part of the other things that are impacting the market. And here we think about how changes could improve matters. The swift onset of poor market conditions could be quickly reversed. And let's think about how. Well, firstly, increased LNG supply resulting in lower prices will create demand in the price sensitive markets, especially the Asian markets, which are more distant and therefore require more shipping. Geopolitics can have an impact too. China at the moment take only 5% of US LNG volumes, and that clearly needs to adjust as trade rebalances. The return of limited Russian gas to Europe would result in less demand in Europe and would see US LNG traveling further. So again, something that's positive for shipping. Floating storage could increase as a result of contango trades reappearing. And that's in a market where seasonality now can apply not just in the winter, but also in the summer. I think overall, it's going to increasingly become the case that LNG shipping is a highly leveraged option on the trading dynamics connected to the increased LNG supply. The top right chart shows how TTF prices in Europe are dragging up LNG prices to levels that make it less attractive to the price sensitive markets. It also shows how the forward curve is flat and has very little money in it for traders. Under more normalized conditions, volatility in this curve results in ships having option value and being used more for storage. And the chart below bears this out. It shows how this last winter it wasn't so much the case, and vessels used for storage was 10 to 15 fewer than what we typically see at that time of year. This added to the market softness, and it's something that we'll monitor going forward. Now moving to page nine, and this is where I comment on the dividend not being declared. And here's why. Well, it's fundamentally while rates languish at below breakeven on open days. A firm backlog of more than one billion across the fleet is reasonably well spaced, but this doesn't take away our exposure to vessels that come open over time. Instead of predicting the timing of when markets normalize and risk getting it wrong, not declared a dividend this increases our runway in the event of delays to more normalized markets and provides capacity for opportunistic growth the chart on the right hand side includes our break-even levels for reference they of course reduce over time as debt is repaid and interest falls we took this decision from a position of strength we have more than 1 billion in firm backlogs We have 288 million of liquidity at the end of 2024. We're reporting strong operating results. And we have no refinancing until mid-2029. From here, John will take the quarter in more detail.

Thanks, Richard. So I'll run you through the fourth quarter, turning to slide 10. In our earnings release earlier today, we reported TCE revenues of 80.8 million, exceeding the guidance provided during our third quarter earnings call. This also marks an increase from the prior quarter's 77.7 million in TCE revenues, primarily driven by a reduction in dry dock days. Time and voyage charter revenues generated an average TCE rate of 73,900 per day across the fleet of 12 vessels in Q4. This compares to 81,600 in Q3, mainly the result of the new-built vessel entering our fleet in mid-October, which operated in the spot market, and one vessel finishing her contract during the quarter and also operating in the spot market. Total operating revenues of 84.6 million surpassed both consensus estimates and Q3 levels. These figures include 3.1 million in non-cash amortization of net intangible contract assets and liabilities, along with around $700,000 in third-party vessel management fees. Adjusted EBITDA for Q4 reached 55.3, million up from 53.7 in Q3, reflecting the increase in operating revenues. To note, adjusted EBITDA does not take into account the 3.1 million in non-cash amortization that I mentioned previously. Vessel operating expenses averaged 17,000 per day per vessel during the quarter, a decrease from Q3 and slightly lower than the full year average in 24. Moving to slide 11, where we show the bridge from Q3 to Q4 for both operating income and net income. Q4's operating income was $38.5 million, slightly lower than the $38.9 million in the previous quarter. This was driven by higher TCE revenues offset by higher OPEX due to the addition of the CoolTiger new build and its positioning expenses. The operating margin remains strong at 46% of operating revenues. Net income for the quarter was 29.4 million up from 8.1 in Q3. This increase was primarily due to a 23.5 million swing in net unrealized gains on mark-to-market interest rate swaps. Turning to slide 12. As of December 31st, our backlog exceeded 1.7 billion, including all extension options. This equates to approximately 61 years of backlog, or an average of 4.7 years per vessel across the entire fleet of 13 vessels. The average TCE rate of our firm backlog of approximately 1 billion is above $82,000 per day. The chart on the left illustrates our backlog distribution over the next two years, where near-term coverage of consensus revenues remains robust, approximately 86% in 2025 and 65% in 2026. Turning to slide 13, where we show illustrative operating revenues, it highlights the potential upside for 25 and 26 revenues under different rate scenarios. Assuming an underlying rate of $20,000 per day for open TFDE days and an additional $20,000 per day premium for two-stroke vessels, the revenue opportunity is significant. If TFDE spot rates were to rise to $70,000 per day, the upside potential exceeds 60 million in 25, and 100 million in 26. To emphasize, these are not projections of rates for the respective years, but an exercise meant to show the company's performance in different hypothetical scenarios. Also note that the low end of 20,000 per day for open TFDE vessels, as Richard has mentioned as well, is an extremely depressed level in any historical context. While such increases do not materialize overnight, it does underscore the increased earnings potential under improved market conditions. Turning to slide 14, in today's market environment, we are pleased to maintain a robust balance sheet with strong liquidity, no debt maturities until mid-29. Over the past year, we effectively restructured most of our debt through refinancings and also covenant harmonizations reinforcing our financial flexibility the unwavering support from our lending partners has been instrumental in this process positioning us well for the future as of december 31st cash and cash equivalents to that approximately 165 up from 142 million in the previous quarter largely due to the drawdowns on the various financings. Adjusted EBITDA was mostly offset by debt service in the fourth quarter, but note that our debt service in each of the second quarter and the fourth quarter of each year includes semi-annual debt repayments. So these two quarters always show a higher debt service amount. In addition to the cash, we retain 123 million in undrawn capacity under the RRCF that we secured in December last year. And in addition to not have any debt maturities until 29, our average interest rate is well below 6% and 77% of our debt either hatched or fixed on a net debt basis. To recap, the presentation on slide 15. In summary, we had strong revenues and operating results reflecting strong chartering performance. The company delivered an adjusted EBITDA margin of 65% and an operating margin of 46%. Our fleet remains well positioned with the majority of open days secured under the 1.7 billion backlog. The balance sheet is in good shape and should allow for opportunistic growth. On the strategic front, our asset purchases in previous years show our disciplined asset management approach to drive value creation. Given the current depressed spot rates, which remain below economic breakeven and even operating costs, we maintain a prudent long-term focus. Should rates improve meaningfully from these levels, free cash flow should become available to shareholders again. So with the financial overview concluded, Richard, I'm handing it over back to you for some closing comments.