KNOT Offshore Partners (NYSE:KNOP) released first-quarter financial results and hosted an earnings call on Friday. Read the complete transcript below.

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Summary

KNOT Offshore Partners reported Q1 2026 revenues of $92 million, operating income of $14.7 million, net income of $2.6 million, and adjusted EBITDA of $56.5 million.

The company declared a cash distribution increase to $0.05 per common unit and emphasized improved liquidity and charter coverage.

Strategic updates include changing vessel useful life estimates to 20 years and securing new and extended time charters with Shell, ENI, and TotalEnergies.

Future outlook is positive with expectations of market tightening due to FPSO developments and a strong backlog of $858 million in fixed contracts.

Management highlighted the company's ongoing debt repayment strategy and potential for further distribution increases supported by accretive dropdown transactions.

Full Transcript

OPERATOR

Prepared remarks. We will host a question and answer session with an opportunity for equity research analysts to ask questions. If you would like to ask a question, please raise your hand. If you had dialed into today's call, please press Star1 to raise your hand. I will now hand the conference over to Derek Lowe. Please go ahead.

Derek Lowe (Chief Executive and Chief Financial Officer)

Thank you, Jade and good morning, ladies and gentlemen. My name is Derek Lowe and I'm the Chief Executive and Chief Financial Officer of KNOT Offshore Partners. Welcome to the Partnerships earnings call for the first quarter of 2026. Our website is connaughtoffshorepartners.com and you can find the earnings release there along with this presentation. On slide 2, you will find guidance on the inclusion of forward looking statements in today's presentation. These are made in good faith and reflect management's current views, known and unknown risks, and are based on assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied in forward looking statements and the partnership does not have or undertake a duty to update any such statements made as of the date of this presentation. For further information, please consult our SEC filings, especially in relation to our annual and quarterly results. Today's presentation also includes certain non US GAAP measures and our earnings release includes a reconciliation of these to the most directly comparable GAAP measures. We begin on Slide 4 with the Q1 financial and operational headlines. Revenues were $92 million, operating income was 14.7 million, net income was 2.6 million, adjusted EBITDA was 56.5 million and as of March 31, 2026, we had $140.7 million in available liquidity made up of 92.7 million in cash and cash equivalents, plus 48 million in undrawn capacity. This available liquidity was $3.7 million higher than December 31. We operated the 97.2% utilization, taking into account scheduled dry docking, which amounts to 92% utilization overall following the dry dockings of Tuva Knudsen and Bodel Knudsen. Following the end of the quarter, we declared a cash distribution of $0.05 per common unit, which was paid in May under the 1099 structure and which represented an increase from the previous level. We are pleased to have initiated the process of increasing the distribution after an extended period of low payouts during which we restored our charter coverage, improved our liquidity position, and addressed multiple refinancings and dry dockings. On Slide 5, we have developments during the quarter prospectively from January 1, 2026, we changed the useful life estimate of our vessels from 23 years to 20 years, reflecting longer term market trends. This will increase future depreciation quarter by quarter, but that is not a cash item. This step also does not prevent vessels from operating beyond 20 years and on slide 6 we have commercial developments. We exercised our option to continue the time charter of Hilde Knutsen with Shell through March 2027 and subsequently agreed a new time charter with ENI commencing in Q3 2027 for three years, fixed plus options up to a further three years. TotalEnergies exercised their option to extend the charter of Anna Knudsen for one year until May 2027 and we agreed a time charter for Recife Akanelsen with Transpetro to commence in Q3 2026 for a fixed period of two years. Turning to Slide 7 for a high level summary of our operating momentum in both Brazil and the North Sea we continue to see tightening markets driven by FPSO startups, ramp ups, expansions and new developments. This increase in shuttle tanker service volumes across both markets has been sustained and sufficient to tighten the supply demand balance. We have sustained a strong backlog with 858 million of fixed contracts averaging 2.4 years and rather more if all options are exercised at quarter end. Our fleet of 19 vessels had an average age of 10.5 years and we're continuing to repay debt at around $90 million per year which we consider prudent. With a depreciating asset base and having addressed prior refinancing activity, we now look ahead to a $220 million facility in September 2026 and the $65 million facility in October. Over slides 9 to 12 we provide the financials for Q1, the highlights of which we have covered already. On slide 13 is our debt maturity profile. While no guarantees can be made, we have historically benefited from access to a wide pool of lenders and attractive bank finance and we've been encouraged by our refinancing experience in recent years, including during significant weaker shuttle tanker markets than the current one. Notably, the average margin on our floating rate debt during the first quarter was 2.22% over sofa. Moving on to slide 15 and our charter portfolio. I believe this remains a very useful resource for investors looking to track the primary movements where change can occur in a highly stable portfolio of cash flows based on current charter rates, we believe charterers options are likely to be exercised given the strength of the charter market. On slide 16 you can see our strong coverage through the coming quarters, some charterers options that we believe have a good likelihood of being exercised and a small amount of open time. On slide 17 you can see the drop down inventory held at the sponsor. Drop downs have been the route to growth in the fleet throughout the life of the partnership and remain the means of replenishing and rejuvenating the fleet. As mentioned in the earnings release, we anticipate pursuing these acquisitions over the next four to five years to the extent that the relevant terms are attractive and are approved by our Conflicts Committee. At the same time, we believe that the combination of accretive dropdowns and improving charter market should support multiple gradual distribution increases over the coming quarters and years in addition to materially extending our long term cash generation Runway as certain of our vessels begin to age out in the years ahead. On slides 18 to 20 we include market commentary, particularly from Petrobras, which continues to highlight a strong and expanding offshore production outlook and continued FPSO deployment. We would encourage you to review this as well as the copious materials that Petrobus publishes as the largest player in the Brazilian market where we primarily operate. To Summarize on slide 21, during the first quarter we had strong utilization and solid financial results. We secured additional charter coverage across key vessels, we maintained a constructive backlog and market outlook, and we paid a quarterly distribution of $0.05 per unit. Looking ahead to the coming quarters and years, we believe the successful execution of accretive dropdown transactions combined with rechartering of vessels into a strong market environment should create conditions for multiple gradual increases to our sustainable distribution. With that, I'll hand the call back to Jade for any questions.

OPERATOR

Thank you. We will now begin the question and answer session which is open to equity research analysts. If you'd like to ask a question, please press STAR followed by the number one on your telephone keypad. To withdraw your question, press Star one again. Please pick up your handset when asking a question and if you're muted locally, please remember to unmute your device. We'll pause for just a moment to compile the Q and A roster. Your first question comes from the line of Frederick DeBod from Fernley's. Please go ahead.

Frederick DeBod (Equity Analyst)

Thank you. Hello Derek. Congratulations with the results. They have a pretty robust cash position, even more robust liquidity position. I'm happy to hear that you are talking about modestly increasing the dividends or distributions going forward in addition to be able to take the potential drop downs as well. But how should we think about when you say modest gradual increases in the dividend in terms of magnitude, how should we think about it?

Derek Lowe (Chief Executive and Chief Financial Officer)

Well, that's something that gets decided on by the board each time they make a dividend or distribution declaration. And that can only follow the end of each respective quarter. So we don't have specific guidance on numbers that may be coming. And the board will make their decision following the end of first quarter. Sorry, the end of the second quarter for the next distribution.

Frederick DeBod (Equity Analyst)

Yeah, but if you can provide some color about, you know, if you look at the backlog and cash or cash generation going forward, you can sustain a dividend much higher than $0.05 per unit. Should we think about. When you say modest increases, should we think about an increase similar to the one you did this this time, or should it be more. That's just, just for, you know, in terms of how we should think about it as investors.

Derek Lowe (Chief Executive and Chief Financial Officer)

Yeah, I appreciate the, the question, but until we have a distribution decision from the directors after the end of the second quarter, we don't have a number to provide you with.

Frederick DeBod (Equity Analyst)

Okay, thank you. That was all I had in terms of questions. Thanks, Richard.

OPERATOR

Your next question comes from the line of Liam Burke from B. Riley Securities. Please go ahead.

Liam Burke (Equity Analyst)

Thank you. Hi Derek, how are you today?

Derek Lowe (Chief Executive and Chief Financial Officer)

Hi, Liam. Good, thank you. And you?

Liam Burke (Equity Analyst)

I'm fine, thanks. Derek, I had a macro question for you. There's more oil obviously being sourced out of the non Gulf area due to the conflict in the Mideast. Now, eventually the Strait of Hormuz will be reopened, but you anticipate even post Strait of Hormuz opening a higher than normal increase in offshore oil production development or does it change your markets for the better?

Derek Lowe (Chief Executive and Chief Financial Officer)

Well, I don't particularly have a view over the medium to longer term. I can understand people being quite cautious in the nearer term as developments come along because the news flow varies from one day to the next. And I'm sure people will be seeking to interpret that as best they can and even remain cautious once the straits are open again. But I don't really have a view on whether it would change what will otherwise happen in the medium to long term because there could be other factors relating to that as well.

Liam Burke (Equity Analyst)

Okay, fair enough. And on the supply side, I mean, just in the vein where you reduce the useful life of the assets, could you give me a sense as to where we are in terms of the order book and the aging of the shuttle tanker fleet globally?

Derek Lowe (Chief Executive and Chief Financial Officer)

Well, you can, you can see the, the aging of our vessels and I guess the 20-F is the best place to look at that. To get that listed out. I don't particularly have a comment on the aging of other ship owners fleets, but clearly with the ramp up, particularly in Brazil, the new build inventory is clearly in excess of what's going to retire from the market. It's intended to serve new volumes that are coming online.

Liam Burke (Equity Analyst)

Okay. But there is an aging of the fleet on the other end of it that could further tighten supply. That's right, yeah. Okay, great. Thank you, Derek.

Derek Lowe (Chief Executive and Chief Financial Officer)

Thank you.

OPERATOR

Your next question comes from the line of PO frat from Alliance Global Partners. Please go ahead here.

PO Frat

Derek, I apologize. I logged in a little late and you may have, you know, addressed this on your prepared. In your prepared remarks, but could you just talk about the sequential decline in revenues and was that totally associated with the downtime you experienced or were there some, you know, time charter rollovers that impacted revenues?

Derek Lowe (Chief Executive and Chief Financial Officer)

Yeah, thanks, Pone. And no problem. We didn't address that at the time earlier on. Yes, it will relate to the dry dock schedule and also simply the terms of the contracts that are outstanding between different periods.

PO Frat

Great. Thank you. Thanks.

OPERATOR

At this time, there are no further questions. I will now turn the call back to Derek for closing remarks.

Derek Lowe (Chief Executive and Chief Financial Officer)

Thank you, James. And thank you all again for joining this earnings call for KNOT Offshore Partners, first quarter of 2026. We look forward to speaking with you again following the second quarter results. Thank you.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.