Operator: Good day, and welcome to the Cool Company Limited Third Quarter 2024 Business Update Call. At this time, all participants are in a listen-only mode. Following the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Please note, today's call will be 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 Tyrrell, Chief Executive Officer.

Please go ahead.

Richard Tyrrell: Good morning and good afternoon. Thank you, Todd, for the introduction. As many of you will have seen in our press release today, we've made important decisions concerning dividends and buybacks. These, along with a refinancing of our largest facility on more attractive terms, are intended to ensure that we can seize opportunities in the current market from a position of strength.

I'll be focusing on the current market drivers and how we see them developing in my pages. However, before delving into those, we have a quarter to report and Page 3 has the key figures. Our contracted fleet and efficient drydocking enabled us to reach the upper end of revenue guidance for the third quarter. This was supported by and will continue to be supported by our $1.7 billion backlog as at the end of the period. Revenue reached $82.4 million and adjusted EBITDA came in at $53.7 million.

Net income was $8.1 million after the impact of an unrealized $15.5 million negative mark on our interest rate swaps as highlighted in the footnote. Dividend has been reduced to $0.15 per share, while we added a $40 million share buyback program to offer an alternative channel for returning capital to shareholders. Unfortunately, following the quarter's end, we experienced a disappointing start to the winter season due to several factors which I'll discuss shortly. Much more positively, we have commercial bank approval for refinancing our $570 million facility. Our new facility includes a revolving credit component providing up to $120 million in additional borrowing capacity, all at a 20 basis point cost saving.

The maturity of the new facility has been extended from 2027 to late 2029 with two options to extend. John's going to provide more details, but this refinancing significantly enhances our flexibility to respond to market conditions and seize emerging opportunities. Turning to Page 4 and again, we highlight the $1.7 billion backlog. And you can see how this has been growing over time from the chart in the right-hand corner of the page. The slight pickup in TCE was related to a full quarter's contribution from a vessel that moved to a higher rate in Q2, so it wasn't so long ago that we saw vessels moving to higher rates.

The middle chart shows the effect on liquidity of the current drydocking cycle in its effect on EBITDA. Of course, we're off-hire for periods in drydocks. This is maybe a smaller factor in our variable dividend policy parameters that are now expanded to include the share repurchase program as a capital return alternative. The Kool Tiger delivered from the shipyard in October and repositioned to the Atlantic Basin for spot market employment while long-term employment is pursued. The Kool Glacier also delivered -- redelivered at the end of the quarter and it is today trading in the spot market.

I've mentioned the refinancing, dividend and buyback program already. Together, these are part of a strategic move aimed at maximizing value for shareholders during what we foresee could be a volatile but opportunity risk rich LNG shipping market. The prognosis for LNG remains strong in the medium to long term. LNG remains the transition fuel of choice with well-established geopolitical credentials that are highly supportive of future development. It is expected that the moratorium on new LNG export projects in the US will soon be relaxed resulting in material additional shipping demand towards the end of this decade.

Please turn to Page 3. By design, our backlog from our 10 vessels and one newbuild vessel that are on charters limit our exposure, but there's no getting away from how disappointing rates have been coming into this winter. The spot chart on the right shows how rates have gone below a floor not seen since 2018. This is meaning that no 12-month deals are getting done. The bid-ask spread between the charterers and the owners is too great.

There are examples of longer-term deals being done on newbuilds at rates rumored to be in the high 80s. However, the premium for early delivery is gone as you would expect given near-term rates. Sentiment has played a part and this often reverses quickly. Trades that require additional shipping can also swiftly return. Not that we're expecting a vintage winter.

Both the Tiger and Glacier have been delivered and redelivered into this market and will operate in the spot market until the term market improves. Tiger is positioned in the Atlantic Basin and Glacier is positioned in the Pacific Basin until it's dried up in February where it stands to be upgraded to LNGe specs and where the off-hire won't come at the usual cost as rates currently stand. Turning to Page 4, and here I know that everybody is keen to understand the short-term market and this is how we see it. A disconnect has opened up between the LNG and LNG shipping markets in the short term. LNG markets have been reasonably strong if you own the molecules.

The blue line is the TTF European gas price and the orange line is JKM, the LNG price in the East. At today's LNG price, the cargo is worth almost $50 million and the spread versus Henry Hub at $2 per MMBtu is large. The supply of LNG has hardly increased over the year, which partly explains the strong pricing and highly favorable LNG value chain economics. However, what is good for the resource holders is neither good for the traders who thrive on volatility nor shipping. We can see in the chart just how flat the LNG prices have been over the past few months and we see this continuing in the forwards.

At flat prices, there's no contango between periods to support floating storage, something that would typically tie up around 30 ships at this time of year. LNG prices at the front end of the curve in Europe initially held up because of unscheduled maintenance to Norwegian gas production at the start of the season and subsequently because of uncertainty over the remaining gas still entering Europe via Ukraine through a transit agreement that finishes at the end of the year. These factors meant that onshore gas storage in Europe never quite reached full capacity, helping to support near-term pricing and flattening the curve. Cold weather in Europe over the past week or so has resulted in a steepening of the curve in anticipation of a colder winter and we've seen a few cargoes getting diverted. This is a bit of a double-edged sword for shipping, since while disruption and trading opportunities are generally positive, the distances to Europe are shorter and what we really need is colder weather in the East.

Fundamentals are also having an impact on the market. The bars show the newbuilds delivering every month this year and as you can see, the high number in September really kicked off this period of indigestion. These vessels are mainly matched to new LNG supply, something that the green curve shows is yet to come. In the meantime, these ships are unwelcome competition for us in the market. Fortunately, new supply and the exit of steam turbine ships is set to restore the balance to the market, as we shall see.

Turning to Page 7, we show how we expect the conditions to steadily improve over 2025. The chart is a continuation of what we saw on the previous page and the high level of visibility around the ramp up, especially in the first half of the year. Corpus Christi, LNG Canada, Plaquemines and Tortue amount to 34 million tonnes per annum. Then towards the end of the year, we have additional projects arriving. Many of the ships that delivered early in 2024 are targeted at the projects you see in the first half on the chart.

Many of the ships you see on this chart will serve the projects listed at the end of the year. Almost one-third of the ships delivering in 2025 will be chartered to QatarEnergy and are targeted at replacing their steam turbine fleet and huge north field expansion of which the 7.8 million tonnes per annum is only the first train. This is relevant because it reduces the number of ships that we see ourselves competing against while waiting for LNG projects to come online. In summary, we're expecting rates to steadily improve in the first half of 2025 as projects deliver. Additionally, Page 8 shows what will be meaningful demand for modern shipping from the retirement of the steam turbine fleet.

TradeWinds reported four ships were scrapped by SK a few weeks ago. Many are for sale and the transition is really happening. 92 of the 233 steam turbine vessels currently on the water are greater than 20 years old and this number will increase by 20 to 30 vessels per year between now and the end of the decade. The 20-year anniversary is significant because it's when many of the ships come off their initial charters and need expensive drydocks. Charterers can lay up a steam turbine, take a newer vessel, and save overall in this market.

Because of things like scheduling, the switch between steam turbines and newer tonnage doesn't happen overnight, but give it six months and we'll see it. The cost disadvantage of steam turbine vessels put them into negative territory at current rates and once the ship warms up, it becomes prohibitively expensive to cool down. This is akin to a shipping version of musical chairs where new ships arrive and older ships leave the market every round. Additionally, gas sales agreements require larger vessels. Smaller vessels have higher unit freight cost.

Steam turbine vessels have speed restrictions under CII environmental regulations and expensive drydocks that can cost up to $10 million. The chart shows that there's well over 100 opportunities to take over from steam turbine vessels in the next couple of years and this market is a major focus for CoolCo. Before I wrap up my section, I will say that I hope I've explained how we see the market and how it will develop in the short term, which I know is a key investor focus. For those focused on the longer term, I will add that we see regulation, politics, and geopolitics favoring LNG with over 100 million tonnes per annum of possible projects by the end of the decade looking increasingly probable. The current market indigestion will result in opportunities for CoolCo that we intend to seize from a position of strength.

This is the reason for securing the flexible financing, reducing the dividend, and introducing a buyback program that will enable us to create significant value through buying back shares when trading significantly below NAV. John, over to you.

John Boots: Thank you, Richard. I will provide the financial overview for the third quarter. Turning to Slide 9, in our earnings release earlier today we reported TCE revenues of $77.7 million, slightly exceeding the guidance provided during our August second quarter earnings call.

This represents an increase from last quarter's $76.4 million, primarily driven by one vessel transitioning to a one-year fixed charter at almost double the previous rate. This was partially offset by three vessels undergoing drydock during the third quarter. Time and voyage charter revenues yielded an average TCE rate of $81,600 per day across our fleet of 11 vessels on the water, up from $78,400 in Q2. Overall, operating revenues exceeded consensus estimates but were approximately $1 million lower than the prior quarter. Operating revenues also included $3.9 million in non-cash amortization of net intangible contract assets and liabilities as well as around $800,000 in third-party vessel management revenues.

As previously disclosed, the scaled to down third-party vessel management operations reduced our revenues but also lowered the related fleet management costs. Adjusted EBITDA for the second quarter -- for the third quarter was $53.7 million compared to $55.7 during the second quarter. This decrease was mainly due to lower operating revenues and note that adjusted EBITDA is calculated by excluding this $3.9 million in revenue amortization. Vessel operating expenses averaged $17,700 per day per vessel during the quarter, slightly higher than Q2, but generally consistent with 2023 levels. Regarding drydocking, all our TFD vessels were initially acquired around 2014-15, resulting in a concentrated drydock cycle over a two-year period.

Ideally, the schedule would have been more evenly distributed with two drydocks annually, but that's not the case. So we now have seven drydocks remaining, six in 2025 and one in 2026, impacting free cash flow to equity by some off-hire time and the associated drydock costs. Looking ahead, Q4 revenues reflect the completion of one drydock in late October, no other drydock starts during this quarter, and the renewal of one vessel contract in November, albeit at a low spot rate. Turning to Slide 10, operating income for the second quarter was $38.9 million, down $2.5 million from $41.4 million in the prior quarter. The decrease was driven by higher TCE revenues, offset by drydock impacts and lower third-party revenues.

The operating margin remained strong at 47% of operating revenues, though slightly lower than in Q2. Net income for the second quarter was $8.1 million compared to $26.1 million in Q2, with the decline primarily due to a swing of $16.5 million in net unrealized losses on the mark-to-mark interest rate swaps that are related to future quarters. Turning to Slide 11, our variable dividend policy states that the company intends to allocate its free cash flow to equity primarily to the payment of a quarterly dividend after allocations to drydocking and capital expenditures related to improving vessel efficiency. We generally have not excluded CapEx from the free cash flow to equity as these were funded previously. Today's announcement of the dividend of $0.15 is mainly a reflection of the finishing and/or starting of the three drydocks during the quarter and to some extent the announcement of a buyback program.

The dividend payout relative to adjusted net income, which excludes unrealized mark-to-market gains and losses, is much lower than in previous quarters. However, the dividend policy looks at free cash flow to equity, and drydock expenses have a significant impact on that by incurring loss of hire and the actual drydock expenses. The Board approved this dividend payout with an ex-dividend date of November 29 for the OSE and December 2 for the New York Stock Exchange and a record date of December 2. As you have observed in the press release, the Board approved a $40 million buyback program over a period of 24 months. The plan is to buy back shares either through discretionary or non-discretionary plans for a combination.

The details of the repurchases will be disclosed in accordance with our stock exchange obligations. From a valuation perspective, even with the impacts to free cash flow that we mentioned above, the disconnect between our recent market valuation and our own assessment of the company's inherent value is simply too wide not to put a buyback program in place. Turning to Page 12 on the backlog, our backlog as of September totaled more than $1.7 billion, including all the extension options, equivalent to around 60 years of backlog or an average of 4.6 per vessel considering all 13 vessels in our fleet. Average TCE rate for our backlog is approximately $80,000 per day per vessel, assuming all options are exercised to their maximum extent. The average TCE rate on our firm backlog, though, is even higher at $85,000 per day.

The chart on the left shows the breakdown of the backlog over the next two years, where we have substantial coverage in the near term of the consensus revenues, namely 80% in 2025 alone. Turning to Slide 13, the chart on the left presents our gross and net debt positions as of September 30, as well as on a pro forma basis assuming the newbuilds have been delivered and including the funding we received on November 14 for the refinancing of the two sale and leaseback facilities that were scheduled to mature in the first quarter of 2025. We are delighted to share the excellent news that this week we successfully secured bank approvals to refinance our existing $570 million bank facility into a reducing revolving credit facility. This demonstrates the confidence and trust our banking partners have placed in us and reflects the strength of our relationships. Their unwavering support and collaboration have been instrumental in this refinancing process.

This new facility not only strengthens our financial foundation, but also provides us with enhanced flexibility to seize growth opportunities. This refinancing increases the loan-to-value ratio from the low 50s to the mid-60s and adding approximately $120 million in borrowing capacity. Closing is expected in December. By then, this will extend the facility by about three years, reduces the margin, pushes the next debt maturity out to 4.5 years from today. And excluding this RRCF, our current average interest rate stands at approximately 5.95%.

So after closing of this refinancing, we believe we have a well-balanced debt structure, no debt maturities until the second quarter of 2029, while maintaining a healthy interest rate hedge ratio. Turning to Page 14, as of September, our cash and cash equivalents totaled $142 million, up from $84 million in the previous quarter, mainly due to the drawing of the remaining debt capacity under our newbuild financings, but excluding the final milestone payment for early January for the Kool Panther, which will be known as the Gail Sagar. Currently, our available liquidity position, including the $54 million from the November 14 funding, stands at a solid position of approximately $200 million. And in addition, we'll have an additional $120 million of borrowing capacity under the new RRCF. So, with the financial overview concluded, I'm handing it back to Richard.

Richard Tyrrell: Thank you, John. I actually wanted to save as much time as possible for questions, so if we could open up the lines, please, Todd?

Operator: Yes, the floor is now open for questions. [Operator Instructions] Our first question will come from Frode Morkedal with Clarkson Securities. Please go ahead.

Frode Morkedal: Thank you.

Hi, guys.

Richard Tyrrell: Hey, Frode. Good morning.

Frode Morkedal: Good morning. Yeah, you mentioned that you -- that current market conditions could create growth opportunities.

Maybe you could elaborate on the type of investments you are anticipating here.

Richard Tyrrell: Sure. Happy to. We've gone through the past few years of very robust markets and we've always had an ambition to grow. And maybe it's not been so easy to find things that made sense over the past couple of years, but now we're going to go into an environment where we do think things will start to make sense.

Of course, we've got to be a little bit careful what we wish for, because if asset prices come down, it might make growth opportunities more attractive. But of course, we have to think about our own, the impacts on our own fleet by the same token. But our view is that we are strategically very, very well placed to consolidate the market. And we've now put what we need in place to ensure that we can do that when these opportunities come along. The kind of opportunities we're looking at might be assets or might be corporate in nature.

And of course, if our share price continues to trade well below NAV, maybe you can throw that in as an opportunity as well, and hence the buyback program.

Frode Morkedal: Okay. And generally speaking, what makes you feel confident that now is a good time to invest?

Richard Tyrrell: The long-term market is looking exceptionally strong. The short-term we view as being more a period of indigestion as these vessels come in advance of the projects for which they were originally chartered, on the one hand, and come in advance of when they actually switch out the older vessels in the fleet. One of them is a function of when projects arrive and the other one is a function of just how long it takes for older vessels to get sort of scheduled out of the fleet.

So both those things we see as coming. And however, for those who don't have a strong balance sheet, maybe they'll be keen to sell, given those dynamics.

Frode Morkedal: Okay. You also mentioned that you're trading well below NAV and you have announced the share buyback program, which is good, but are you also open to selling ships in the current market? For example, could you consider selling the newbuild without firm contract?

Richard Tyrrell: It's a little bit. We want to buy low, sell high.

And of course, we do look at options for selling ships. We have sold ships in the past and those types of things are not off the table. What kind of ships of ours have the highest value to potential buyers? Well, if you're excluding those which maybe are owners you couldn't sell to, then you've got to say the ships that have the potential for converting into an SIU have a premium value and we have a few of those. Would we sell a newbuild? At a certain price, of course. However, our newbuild program is part of our fleet renewal program and we -- if nothing sold a newbuild, we'd be looking to buy a couple more down the line with the proceeds.

Frode Morkedal: Okay, understood. Thanks, guys.

Richard Tyrrell: Thanks.

Operator: Thank you. Our next question will come from Alexander Bidwell with Webber Research.

Please go ahead.

Alexander Bidwell: Good afternoon, guys. How are you doing?

John Boots: Good, thanks. Alexander, how are you?

Alexander Bidwell: Doing great. Thanks.

So with the current softness in the spot market, could you provide a little bit of color on what sort of appetite you're seeing for long-term charters?

John Boots: Right now I'd say there's a bid-ask spread for, I guess, more medium-type charters which applies to one to three years. So you're not seeing so many of those deals close. But if you're talking about the real long-term charters like we did with GAIL a few months ago, then it's not a particularly liquid market. But as I mentioned, there is action and the last done is a 2027 delivery on a long-term basis in the high 80s.

Alexander Bidwell: All right.

Appreciate the color there. And then actually shifting over to the supply-demand side of things. So with the next wave of LNG projects coming online in 2025-2026, what sort of activity are you seeing on the downstream end to soak up new LNG supplies? Is there any particular region where you're seeing an uptick in interest for import terminals or FSRUs?

Richard Tyrrell: There are a few projects out there. I don't think they're particularly meaningful in the overall scheme of things because these are the kind of terminals that are going to take a few million tons each at most. But there are a handful of projects, FSRU-type projects, which look interesting.

When it comes to the real big markets, who's going to take the LNG? Well, this year, Europe's obviously taken a lot less, Asia's taken some of that. And the rest has actually gone to Latin America because of the weather and the need for gas to provide backup when there's not enough hydro. So that particular effect has been in barter rates because of course Latin America is very, very close to the US and doesn't involve many ton-miles. However, this is a sort of a cyclical phenomenon and in general, we see the bulk of the forthcoming volumes going more to Asia than elsewhere, which, of course, is good for shipping because of the distances involved.

Alexander Bidwell: All right.

Thank you. I'll turn it back over.

Richard Tyrrell: Thanks, Alex.

Operator: Thank you. Our next question will come from Liam Burke with B.

Riley. Please go ahead.

Liam Burke: Thank you. Hi, Richard. Hi, John, how are you?

Richard Tyrrell: Good, thanks.

Liam, how are you?

Liam Burke: Fine, thank you. Can we get a little more specific on long-term charters on the Kool Tiger? And then the second newbuild. You're going to keep them in the spot market, obviously, until you see a contract or a charter agreement that's more in line with expectations on the return you'd get from those investments. But is there any thought about just doing a medium-term charter just to stabilize things or is that just off the table?

Richard Tyrrell: No, I mean, I think there is. If you're going to do a bad charter, you want to do a short one.

So I'll say that first. So there will be maybe shorter term periods of employment pending longer-term employment for the Kool Tiger. That's the only one which is open, by the way. The only of the newbuild vessels, the other ones on the 14-year charter to GAIL once that delivers next year. The disappointing thing about the Kool Tiger, of course, is that the benefit of having an early delivery is kind of gone because the charterers in this market, they say they can get a ship for a very, very cheap price over the next 12 months, or that's what they think.

So they don't see much benefit in that. However, the market for 2027, 2028 delivery, based on the recent precedent is still quite strong, as you'd expect, given the price of newbuilds and the need of owners to cover that cost of capital, as you mentioned.

Liam Burke: That's fair. You touched on the first in bloc recycling of four of the old steam turbines. Do you expect that trend to accelerate and maybe possibly tighten capacity in 2025, as well as new projects coming online?

Richard Tyrrell: Massively.

And it'll take a few months because a lot of these vessels were scheduled for the cargoes that they're picking up today. But if you're looking 6, 12 months down the line, you're not going to schedule one of these vessels. You're going to schedule a vessel which is more efficient if it's available at the kind of price it is today. And the result of that is that these older vessels will fall out of the fleet. And as you know, once they fall out of the fleet, they go warm and it's quite expensive to bring them back.

And where do they go into the rakers yard, immediately or whether they sit idle for a while before being broken up, that will depend on how patient their owners are. But we're seeing it already with those four ships going to scrap, many, many more up for sale, it really is only a matter of time.

Liam Burke: Great. Thank you, Richard.

Richard Tyrrell: Thanks, Liam.

Operator [Operator Instructions] Our next question will come from Peter Hagen with ABG. Please go ahead.

Peter Hagen: Yes, hello. A few questions have been answered now, but one perhaps. Yeah.

Hi, guys. A more technical question on the covenants. So now mid-60s, I assume that covenant is relative to a market sort of aligned quote. So -- and if that's true, how many brokers are involved in setting those asset prices?

John Boots: So first of all, when I said mid-60s, I meant close to low 60% LTV. The covenant, however, is a certain percentage of the outstanding debt.

So we have quite some room, some headway for that particular loan-to-value covenant. We generally need two brokers. If they're more than 110% apart, then we have three brokers and then we take the average. So we have sufficient headroom there..

Richard Tyrrell: So, John, it's a way to think about this, if you take the 570 facility, that's backed by five ships.

So you divide -- 570 divided by five, so 110. And then the covenant is at about 1.2x.

John Boots: Yeah. But keep in mind, the current -- on this particular facility, the current outstanding amount is, call it, 440. This RRCF or the increased borrowing capacity is not going to be drawn until we need it at some point.

Richard Tyrrell: Yes, that's an important point. Those numbers that I put out there were based upon drawing the numbers.

John Boots: Yeah, exactly.

Peter Hagen: Understood. Thank you.

And just then, quickly, on the scrapping. We haven't mentioned a growing Russian dark fleets. So is there, do you think, a viable option for the steamships to go into the Russian trades?

Richard Tyrrell: People are talking about it. However, you're not seeing a massive number of ships here. I mean, of course, this is a business which is heavily brokered, so there's always a lot of people talking about a lot of things.

But it doesn't really feel to me like it's getting established in the same way that it did on the liquids side. And all the ships which are known to be owned by parties who are close to Russia or rumored to be close to Russia, they don't feel like they're delivering many cargoes. So will it come? Maybe, but as of yet, it's hard to say with any certainty.

Peter Hagen: Okay, thanks. And just then finally on vessel valuations here.

So vessel valuations are keeping up, I would say, surprisingly well in light of what we just discussed on the TCE rates. In terms of perhaps if you could shed some light on what you think would be now the price for a newbuild and if there are any options out there, what a resale could be done at.

Richard Tyrrell: Okay. Well, the newbuilds market has been relatively quiet as well as you'd expect. One market tends to follow the other.

People were getting a little bit sensitive to the price of newbuilds. And our sense is that it has started to come up a little, but we're not talking about big amounts. We're talking about 5% as opposed to 10% or more. So our feeling is that maybe there's a little bit further to go, but no more than that. The second-hand market, it very much depends on what kind of vessel you're talking about.

Of course, if you have a vessel which is good for some bespoke purpose, then it has quite considerably more value. If you have a vessel which is a little bit more generic in nature, you might struggle to agree a price on that at the moment because I'm just not sure that the buyers are going to be there at a price that sellers are willing to transact at.

Peter Hagen: Okay, thank you. That was all from me.

Richard Tyrrell: Thanks, Peter.

Operator: Thank you. At this time, it appears we have no further questions in queue. This will conclude today's Cool Company Limited third quarter 2024 business update call. Thank you for your participation. Please disconnect your line and have a wonderful day.