Cool Company Ltd.

Ladies and gentlemen, thank you for standing by and welcome to the Cool Company Limited second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. As a reminder, this conference is being recorded. With that, I will turn the call over to Mr. Richard, our Chief Executive Officer. Sir, please go ahead.

Hello and welcome to Coolco's presentation of the second quarter 2025. Thank you, Janine, for the introduction. Page three has the quarter at a glance and sets the agenda for what we're going to cover today. We're going to keep it relatively short because of the holiday weekend in the US. The left column has the quarter's numbers, while on the right side we provide some level of perspectives on the market and Coolco. During the presentation, we're going to elaborate on these, covering how rates are slowly recovering, how LNG supply, both in the near and longer term, is developing, how our backlog of charters provides support while the shipping market balances, and lastly, how we are faring with securing employment for our vessels as they roll off charters. Page four has the second quarter highlights. Our average TCE was slightly down at $69,900 per day. Total operating revenue remained steady at 85.5 million, and adjusted EBITDA was up at 56.5 million versus 53.4 million in the first quarter. As you can see from the EBITDA chart, EBITDA is modestly up year on year. We have the delivery of the Cool Tiger and Gale Saga to thank for that in a market that has otherwise been challenging. We've had to work hard to fix vessels that have rolled off charter, often fixing them multiple times in the spot market at unsatisfactory rates that reflect competition from the glut of the ships in the market. While we've been successful in chartering vessels as they come open, our results are very much underpinned by our backlog in this type of environment. Dry docks have also been a feature with their associated costs and up higher days. We're close to the end of this cycle at the busy third quarter that John will comment on in more detail. Last but not least, I'd like to highlight that we published our ESG report for 2024 over the summer. Inside, you'll see the progress that we're making in many areas with more to come in 2025 now that we have dry-dots and upgraded many of the vessels in the fleet. Please go to the website and download the report if you're interested. Page five includes a reminder of what we noticed in last quarter's presentation, including how LNG projects have been getting back on track Golden Pass is a clear example of this, and together with other projects, we see a 23% and 39% increase in LNG supply compared to 2024 volumes by the end of 2026 and the end of 2028, respectively. The arrival of new volumes is the primary way in which the LNG shipping market balances. In addition, we pay close attention to the volumes heading east. or the East-West arbitrage, as we call it. As of the end of last week, European storage stood at 76% compared to the 90% seen at this time last year in 2023 and 2024. The reason for the difference is the greater drawdown last winter and the lower starting points to the filling season. It means that US supply will continue to flow to Europe for a couple of months yet, which isn't great for ton miles, but I do like the tension for cargoes that it will introduce between the basins. Such competition could become highly relevant for the Cool Tiger, a vessel that is trading in the Atlantic spot market. Most significantly this quarter, and since the beginning of the year, we've seen a very positive development on the supply side. These include a number of projects reaching commerciality, such as Louisiana LNG, Katju Pass 2, and Argentina LNG, and a flurry of positive news flow from other projects. Many of these projects are in the US, which is good for shipping, given the distances involved. Page six puts this supply increase in perspective by comparing LNG supply announcements with previous year's levels. We're only halfway through 2025, and we're already at levels comparable to the last few years. If you annualize, you get to levels not seen since 2019. New projects take at least four years to reach production, but I'm sure you'll agree it points to a positive future for LNG. Turning to shipping and the new bills, What's remarkable about this year so far is how orders have fallen behind the supply curve. This is inevitable given the market and that the new building prices that remain suddenly high. And it's a signal of a natural balancing that is positive for Coolco's fleet longer term. Another positive for Coolco's fleet is scrapping and idling. Page 7 shows how we've reached 10 scrappings of LNG carriers to date in 2025, which isn't that many. But to complete the picture, you need to look at idling vessels. The chart on the right shows how the number of idling vessels have taken off in 2025. You always see a base of idle vessels amounting to 15 to 20 in dry dock, depending on the season. But the current level of idling is many more. Most of these vessels are steam vessels that have come to the end of their initial charters. We've long speculated on what might happen to them once off charter, and this chart answers that question. There are 215 steam turbine vessels on the water today, of which approximately 50 are idle, leaving another 150 or so set to make way for newer tonnage as they roll off charters over the coming years. In the near term, the idling of older vessels is helping the market find its balance. Some people point to the potential of reactivation, but this won't happen unless the market becomes imbalanced in the other direction because of the costs involved. The immediate market backdrop obviously isn't as good as the macro picture, as shown on pages eight and nine. Page 8 is for TFDEs, where rates remain low despite a gradual recovery over the summer. You can see how active we have been in the spot market to maintain our record of close to full employment. Spot fixed years are shown on the left, and 12-month term deals are shown on the right. I'd be delighted to see the rate line for 2025 show the same kind of winter seasonality this year, rather than falling over, same kind of winter seasonality in 2025 as seen in 2023, rather than falling away like it did last year. There are a few factors that could make a difference in this regard, but we're still contending with high levels of new-build deliveries that will weigh on rates. At the end of the day, I'd be happy with a continuation of the gradual improvement in rates that we have seen so far this year. The vessels with stars against their names which are amongst the vessels that have come open and we're needing to find continued employment for, have benefited to the tune of about $5,000 per day from the LNG upgrades installed during their recent dry docks. And they're trading at levels which are above the line shown for more standard 160,000 cubic meter TFTE vessels. Depending on operating profile, These vessels, LNG e-vessels as we call them, save up to 30% in annual fuel consumption and emissions. Other points to highlight on these charts are the fact that blizzards and ice are already fixed on spot voyages for when they roll off their long-term charters later in September. Unfortunately, this means they come off their elevated rates, but it shows the attractiveness of these vessels in the market, albeit at lower rates. To put the lower rates into context, and this is important guidance, we're likely to be down well over 100 K per day across these two vessels come Q4, depending on how spot rates develop. We saw the effects of Glacier and Husky going on to lower rate deals earlier in the year, and we're fortunate that our backlog provides a cushion. As previously reported, Husky is now on a variable charter, This is a charter where we bumped along the minimum levels in the second quarter, which is to say the rates were around $20,000 per day with a $5,000 premium for the LNG upgrades. Moving to the two-stroke market and the Tiger on page nine, and you'll see that like some of our TFDE vessels, we've been working hard in the spot market. There's more of a pickup on two-stroke during the quarter, but levels remain unsatisfactory. We need to be patient on the Tiger before fixing long-term. The long-term market is better than either of these two charts suggest, but it remained very shallow in Q2. Activity has increased over the third quarter, with charters opportunistically picking up cheap tonnage. However, for now, we see option value in having the vessel open, even if it comes with a temporary cost of low rates in the spot market. Sublet continues to weigh on the 12-month market. And what you see on the right-hand chart is not reflective of the longer-term 5, 7, 10, 12, or even longer market that the Tiger will ultimately be targeting. Normally, John does a backlog chart on page 10. but I'm going to take it this quarter. The portfolio effect is an important way in which we de-risk the business, and as you can see in the chart, what this means in terms of firm charters, floating charters, and open days. We're sensitive to the fact that vessels come open over time, and turning the pink open days to blue fixed days is one of the most important parts of the job. We've achieved this in the third quarter, And this is something we aim to continue. Obviously, the current market isn't easy, and we've been grappling with poor rates. But this is where the backlog comes in. And as you can see from the chart, it provides for a healthy foundation when faced with a low in rates. 50% of our days are covered until 2027, by which time we anticipate the return of a much more balanced market, of course, with sentiment returning in advance. That's all I had on that page. Have I missed anything, John? If not, please go ahead with the quarter in more detail.

Thank you, Richard. I will go through the financials for the second quarter of 2025, turning to slide 11. In our Q2 earnings released today, we reported total operating revenues of $85.5 million in line with the prior quarter and above the guidance provided during our last call quarter-to-quarter variations were mainly driven by time and forage charter revenues with q2 benefiting from fewer dry dog days and a full quarter of the gale cigar contributions offset by lower average tces across the rest of the fleet operating results were further supported by the absence of positioning costs following the delivery of the gale cigar in the first quarter. Fleet-wide time and voyage charter revenues translated to an average TCE of $69,900 per day in Q2 versus $7,600 in Q1. The modest decline reflects the Gale-Sacar's higher TCE being more than offset by lower rollover rates on open vessels. Adjusted EBITDA for the quarter was $56.5 million, compared to $53.4 million in Q1, largely reflecting the absence of the forage-related expenses tied to the new build in January this year, which is a separate line item in the income statement. Adjusted EBITDA excludes $3.7 million of non-cash amortization of intangible assets and liabilities recognized in reported revenues Again, often a source of variance versus consensus estimates. For Q3, we anticipate total operating revenues to be at a similar level as Q2, but I'd like to note, as Richard mentioned, that towards the end of the quarter, two vessels will be re-delivered from their existing contracts, but each with a first spot forage already secured. This will obviously impact our average TCE rate going forward as well. Turning to slide 12, the revenue bridge summarizes the changes quarter over quarter. Operating income, on the other hand, on the top right, for Q2 was positively impacted by the forage expenses, as previously mentioned. And the net income for Q2 of 11.9 million is an increase of 2.8 million versus Q1. which was also impacted by left unrealized interest rate losses on the swaps. The operating margin remained strong at 43 percent of operating revenues. Turning to slide 13, with the completion of nine dry docks, four of which included performance upgrades to our existing vessels by installing subcoolers, Alongside the addition of two new builds, our vessel operating expense per day per vessel continues to trend positively. In the current quarter, average vessel operating expenses were $15,900 per day across the fleet of 13 vessels, a decrease from both Q1 and also from the average 2004 run rate, which was approximately $17,300 per day. Looking ahead, we have two more dry dog plans over the next couple of quarters, and we expect to continue realizing benefits from operational dry dog efficiencies and economies of scale. Moving to slide 14, where I want to spend a little moment on the capital structure and interest rate management. During the second quarter, but also after quarter end, we entered into a significant number of additional interest rate swap agreements. These swaps cover two of our major debt facilities, and they meaningfully reduce our exposure to floating rates. As a result of these hedging actions, our average interest cost now stands at around 5.6%. And importantly, today approximately 75% of our total notional debt is hedged or fixed. But if you adjust for net debt rather than gross debt, that coverage ratio increases further to 82%. We believe the additional hedges are a prudent approach, especially given the size and tenor of our facilities, and it provides greater predictability in our cash flows. Finally, on this slide, with interest rates trending downward, we may see more opportunities to selectively add further swaps on favorable terms. While we might not rush, we will continue to look for opportunities to lower our all-in cost of debt and enhance balance sheet efficiency. Moving to slide 15 on the liquidity, as of June 30, Cash and cash equivalents total approximately $109 million. And you see in the graph the breakdown of how we moved from the end of the first quarter to the end of this quarter. We also have $117 million in undrawn availability under the revolving credit facility that we secured in December 2024. Taking this together with our existing cash, we ended the quarter with total available liquidity of 226 million. This strong liquidity provides us with the flexibility not only to weather volatility in the markets, but also to act opportunistically if the right opportunity arises. Additionally, since April 25, we have repurchased shares under our previously announced buyback program. As of August 22nd this year, we bought back approximately 859,000 shares at an average price of $5.77 per share, well below our net asset value per share, reducing our total share count by 1.6%. Looking ahead, the pace and the size of further repurchases will depend on market conditions and the company's financial position. Turning to slide 16, looking ahead here as well, our financial position remains solid, giving us both stability and the flexibility to pursue growth when opportunities arise. Our revenue and operating results underscore the strength of our chartering backlog, with adjusted EBITDA margin of 66 percent and operating margin of 43 percent of total revenues. Despite more open vessels near-term, the fleet is well protected by its bad luck against market volatility. On the strategic side, we remain disciplined in looking for asset acquisitions, focusing on transactions that enhance long-term value through active management. Finally, given the spot market rates are still below economic rate even, we continue to manage to manage the business with a prudent long-term perspective. So we have the financial overview concluded. Handing the call back to the operator for questions.

Thanks, Gene. We're ready for questions when you are.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. To ask a question, you may press star one on your touchtone phone. And to answer a question, please press star one again. Our first question comes from the line of Alexander Bidwell from Weber Research Advisory. Sir, your line is open.

Good afternoon, Richard and John. How are you doing? Good. Thanks, Alexander. Thank you. Taking a look at some of the recent activity on the liquefaction side, I mean, we've seen over a dozen SPAs signed in the past couple of months, two FIDs in the U.S. Gulf, and then the U.S.-EU energy deal. Could you give us a sense of how this recent activity has impacted sentiment within the charter market, and has it prompted any discussions with potential charters?

Yes, it has. In 30 days, And the people who are coming into the market now, I think they're bottom fishing a little bit. But certainly, this positive news flow is starting to get people focused on their long-term shipping needs. And of course, that's something that we've been waiting for for a while now.

All right. I appreciate the color. And then I wanted to just quickly touch on, John, I believe you mentioned potential asset acquisitions. Can you sort of, I guess, walk through what that may look like or what opportunities you guys might be looking at?

Nothing in particular at this point. We're always looking at... at acquisitions, whether it's companies and vessels. So it's more a continued effort to look at these opportunities, but nothing concrete.

And we've got the flexibility there with the RCS to do things. Obviously, we've done things in the past, and I think at the right time, we've created quite some value by doing that. As John says, we're always on the lookout, but nothing to say.

All right. That makes sense. Thank you, guys. I'll turn it back over.

Thanks, Alex.

Thank you. Our next question comes from the line of Liam Burke from B-Rally. Sir, your line is open.

Thank you. Hi, Richard. Hi, John. How are you today? Good. Good. Thanks, Liam. How are you? Good. Thank you. Good. Thank you. You highlighted during the year you have four vessel upgrades. You pointed out you've got a premium for the fixtures on the upgraded vessel. Are you satisfied with the return you're getting on this investment?

Yeah, that's been a pretty good return. Investment was around $10 million. So we're going to get the well, at the moment at least, we're getting the $5,000 per day. I think we could potentially get a little bit more than that. I think at the moment we're kind of sharing the upside, if you like, with the charters. So maybe we can capture more of that going forward. And if you combine those cash flows with the benefits you get from the standpoint of extending the best of life, you get really quite decent returns on those investments.

Great. And on your dry docking, did you change any of your scheduling based on sort of a weaker chartering environment in anticipation of improvement as we get into 2026?

Not really. I mean, of course, we always dry dock in the shoulder seasons where possible. And that's no different from what it would be otherwise. So we are obviously quite pleased to be done with the dry docks. It's quite nice to get some dry docks done when the opportunity cost is relatively low because the rates are low. Going forward, now we're nearly through with them all, we're not going to have the off-hire days that are associated with dry docks. And that'll be helpful.

Great. Thank you, Richard.

Thank you. Again, to ask a question, please press star 1 on your touch-tone phone. Our next question comes from the line of Frodo Markadall from Clarkson Security AS. Sir, your line is open.

Hey, guys. Thank you. Thank you for taking my question. Hi, Frodo. On the prior question you had, On the prior question on the LNG e-upgrades, maybe you can remind us how far along in the upgrade program you are, how many ships have been completed, how many remain, what's the total cap expense and what's remaining, and also on that premium of 5,000, how that's derived, so to speak, if it's a floating...

Yeah, sure. Four out of five are completed, so there's one more which will take place in the fourth quarter. A lot of the down payments have obviously been made, so there's limited incremental cost on these upgrades. They did cost about $10 million each for the subcoolers. The type of deals we've done on them, they fall into two buckets. We have the ones where we do upside sharing with the charters, which is fundamentally where we have a baseline. And to the extent we beat that baseline, we share in the upside. That baseline applies for when the ship is sailing and also for when the ship is stationary and basically waiting or being used as storage. So these upgrades, they do actually provide value whether you're in either of those two modes. And how much the total value is depends on the price of LNG. It depends on exactly how the charter achieves to operate the vessels. But our guidance on that is the $5,000 per day. So that applies to three of the vessels. And then on the last two vessels, they are the Boreas and the Baltic, which are longer term charters to Shell. We did get paid for the dry docks, sorry, for the upgrades on a fixed basis. So that's something which just means the number without any further complexity.

Okay, that's a good comment. I had a question on the demand, really. Basically, when do you see the balance shifting from Europe to Asia, with more US volumes? Do you think that will start heading east? I guess that's a big difficult question, right? But do you think the inflection is months away or maybe years away?

Yeah, I mean, I think you've got two things to look at there. And one is the sort of macro picture, which might be sort of a little bit further out. But then you always have this shorter term volatility. And that is related to various things. It might be outages with nukes in Japan through to the refilling of storage in Europe to just jumpiness for whatever reason. And those are the types of things which I think nearest could see vessels heading east. And of course, that would be very positive for 10 miles. The other thing that we do think is supporting the market is the exit of the older steam turbine vessels. And of course, the way the worse the market is, and it has been pretty bad, the quicker they exit the market and the quicker things find balance. So we're in a period where you've got the pull on one side, and you've got the push on the other. And well, you can see from how the rates are gradually increasing, the effect of those things, which ultimately will result in the more balanced market that we're all looking forward to.

Yeah, that's a good point. On the steam turbine chips, how many of these, let's say 150 remaining that are not idle, are actually occupied in the spot market, right? So if you see more ships potentially being idled because rates are low, yeah, just like how important are they in the spot market?

They're not really idled in the spot market. They might be sort of idled or certainly underutilized within a charter as fleet. So that's two different things. But either way, once they get to the end of their initial periods, they will be idled. They will ultimately get scrapped. So it's something that you do see. I mean, right now, at the low cost of more modern tonnage, some charters are willing to just lay up a steam turbine vessel while still paying for it, because that's cheaper than running that vessel. So, I mean, that's something that we see now. And, of course, what it means, once the vessel comes to the end of its charter, it means they haven't got any hope of getting any further employment.

Okay. Got it. Thank you.

Thank you. Our last question. Thank you. Our last question comes from the line of Peter Hogan from ABG. Sir, please go ahead.

Good afternoon, guys. A couple of questions from my side. Is it possible to share some of the, well, some of the factors, some of the metrics within the three-year variable charter you announced now? Is there an index plus, and what is the index plus? any floors or ceiling in that charter?

Sure. I'm happy to. Thanks for the question. It is tied to an index. So I won't go into the details of that, but it will track the charts that you see from brokers for these types of vessels. And the floor, excluding the upside from the stock cooler and the other upgrades, is 20, and then the ceiling is 100, plus or minus.

That's very helpful. Thank you. And I guess, adjacent to that, the upside from the upgrades, Is it possible for you now to quantify that and also perhaps shed some light on what factors, which is making it sort of higher or lower? I suppose that gas prices in itself makes it more valuable to use those upgrades when gas prices are high rather than low, for instance. But just to get sort of a sense of the magnitude in the dollars per day perspective?

Sure. We're typically sharing the upside. So if we're getting $5,000 a day, the actual upside is $10,000 a day. So that's why I was referring to that earlier and suggesting that we maybe get a little bit more than $5,000 going forward once the charters appreciate the savings. What drives that $10,000 a day? Well, it's It's two things. One is when the vessel is going below its natural boil-off speed, then you run the subcoolers and you avoid sending gas through what we call the GCU, which is where the saving comes from. So that is quite a material saving, and it's very material in this kind of market, especially when I mean, the vessels are relatively underutilized, right, even if they are on charter. You can see that from average vessel speeds and so on. So that's why we've been creating quite decent value there. And that's one of the factors. The other factor, of course, is, as you mentioned, is the price of LNG, which still remains reasonable, I'd say, and obviously quite high, in fact, by historic standards.

Okay, that's very helpful again, Richard. Thank you. I guess my final question, and you will have a few other ships now coming off contracts in the side of 2026. How do you now plan to fix those in terms of the lead time for the fixture? And have you potentially already decided that those will more or less regardless now, trade spot unless something dramatic happens to the TC rates?

Yeah, I mean, you know, I wouldn't say necessarily that I'd be trading spot, but there's, you know, a range of kind of deals you can do. You've got at one end of the spectrum, you've got spot. You've then got short term, maybe 12 months, maybe 18 months. And the TFE vessels are still very much eligible for that type of business. I'll tell you, in this current market, longer term is very shallow for TFE. So if you're talking three plus, that's not really a market which exists today. However, of course, for the two-throats, it's a different story. Then you have, obviously, the option of doing spot like we're doing at the moment, or you have the option of doing something longer term in between. What drags down the spot market a little bit, and also the short-term market, so let's say 12-month market, is the fact that those are markets where you have sublets. they end up competing with us on those kinds of periods. But when you get to the longer-term periods, of course, sublets are generally available for those kinds of terms. So when you're talking five-year, seven-year, 10-year, 12-year, whatever the time period might be, the picture's quite different. And I wouldn't say that's a robust picture at the moment, but it's a lot, lot higher than what you see in the spot. And the 12-month width And it's got a reasonably healthy market, and it's a market where we're seeing quite a lot more inquiries as of the current quarter, even if it was a bit quieter than Tuesday.

Okay, that's also interesting. Thank you so much, Jasper. That's all from me.

Jasper, the question is set up.

Thank you.

Thank you. This concludes our question and answer session. Thank you for joining the call today. You may now disconnect.