Knot Offshore Partners LP Earnings Release—interim Results for the Period Ended December 31, 2023

Financial Highlights

For the three months ended December 31, 2023 (“Q4 2023”), KNOT Offshore Partners LP (“KNOT Offshore Partners” or the “Partnership”):

Generated total revenues of $73.0 million, operating income of $18.1 million and net loss of $5.3 million.
Generated Adjusted EBITDA1 of $45.7 million
Reported $63.9 million in available liquidity at December 31, 2023, which was comprised of cash and cash equivalents of $63.9 million.

Other Partnership Highlights and Events

Fleet operated with 99.6% utilization for scheduled operations in Q4 2023, and 96.0% utilization taking into account the scheduled drydockings of the Torill Knutsen and the Ingrid Knutsen, which were carried out during Q4 2023.
On January 16, 2024, the Partnership declared a quarterly cash distribution of $0.026 per common unit with respect to Q4 2023, which was paid on February 8, 2024, to all common unitholders of record on January 29, 2024. On the same day, the Partnership declared a quarterly cash distribution to holders of Series A Convertible Preferred Units (“Series A Preferred Units”) with respect to Q4 2023 in an aggregate amount of $1.7 million.
On January 9, 2024, an extension to the existing bareboat charter party for the Dan Sabia was signed with Transpetro, extending the vessel’s fixed employment to early June 2024.
On December 15, 2023, Repsol Sinopec exercised its extension option to the existing time charter for the Carmen Knutsen extending the vessel’s fixed employment to mid-January 2025. A further 1 year’s option remains available to Repsol.
On December 15, 2023, the Partnership received the Dan Cisne back via redelivery, following expiry of its bareboat charter party to Transpetro. The Dan Cisne is being assessed for shuttle tanker operation in the North Sea and has also been deployed on short-term conventional tanker contracts in Europe.
The Hilda Knutsen, Torill Knutsen and Bodil Knutsen each continued to operate on separate time charter contracts with a subsidiary of the Partnership’s sponsor, Knutsen NYK Offshore Tankers AS (“Knutsen NYK”), at a reduced charter rate. On January 2, 2024, these rolling monthly contracts were extended to January 2025 (in the cases of the Hilda Knutsen and the Torill Knutsen) and March 2024 for the Bodil Knutsen, to terminate in time for delivery to Equinor.
The Partnership continues to market the Hilda Knutsen, Torill Knutsen, Dan Cisne and Dan Sabia for new, third-party employment and is in active discussions with both existing charterers and others, including Knutsen NYK.
On November 2, 2023, the Partnership entered into an at-the-market sales agreement with B. Riley Securities, Inc. (the “Agent”) pursuant to which the Partnership may offer and sell up to $100 million of common units (the “ATM program”), from time to time, through the Agent. This new sales agreement replaces and supersedes the prior sales agreement with the Agent entered into on August 26, 2021.

Derek Lowe, Chief Executive Officer and Chief Financial Officer of KNOT Offshore Partners LP, stated, “We are pleased to report another strong performance in Q4 2023, marked by safe operation at over 99% fleet utilization for scheduled operations, along with consistent revenue and operating income.

1 EBITDA and Adjusted EBITDA are non-GAAP financial measures used by management and external users of the Partnership’s financial statements. Please see Appendix A for definitions of EBITDA and Adjusted EBITDA and a reconciliation to net income, the most directly comparable GAAP financial measure.

Including those contracts signed since December 31, 2023, we now have 79% of charter coverage in 2024 from fixed contracts, which rises to 91% if charterers’ options are exercised. Having executed a number of new contracts, we remain focused on filling the remaining gaps in our charter portfolio.

In Brazil, the main offshore oil market where we operate, the outlook is continuing to improve, with robust demand and increasing charter rates. Driven by Petrobras’ continued high production levels and FPSO start-ups in the pre-salt fields that rely upon shuttle tankers, we believe the world’s biggest shuttle tanker market is tightening materially. Our secondary geography, in the North Sea, is taking longer to re-balance, where we anticipate progressive improvement during and beyond 2024.

We are aware that Knutsen NYK has recently ordered three new shuttle tankers with delivery over 2026-2027; and we note recent reports of another operator ordering three new shuttle tankers, with delivery by early 2027. We anticipate that all these new orders are backed by charters to clients in Brazil, and see this as a sign of confidence in the medium-long term demand for the global shuttle tanker fleet. These new orders bring anticipated deliveries to a total of eleven within the coming three years. While delivery of these orders will add to the supply of vessels into the global shuttle tanker fleet, we continue to believe that growth of offshore oil production in shuttle tanker-serviced fields across both Brazil and the North Sea is on track to outpace shuttle tanker supply growth in the coming years, particularly as increasing numbers of shuttle tankers reach or exceed typical retirement age.

As the largest owner and operator of shuttle tankers (together with our sponsor, Knutsen NYK), we believe we are well positioned to benefit from such an improving charter market. We remain focused on generating certainty and stability of cashflows from long-term employment with high quality counterparties, and are confident that continued operational performance and execution of our strategy can create unitholder value in the quarters and years ahead.”

Financial Results Overview

Results for Q4 2023 (compared to those for the three months ended September 30, 2023 (“Q3 2023”)) included:

Revenues of $73.0 million in Q4 2023 ($72.7 million in Q3 2023), with the increase due to loss of hire insurance recoveries in Q4 2023.
Vessel operating expenses of $25.5 million in Q4 2023 ($23.2 million in Q3 2023), with the increase due to higher costs for supplies, equipment and repairs.
Depreciation of $27.6 million in Q4 2023 ($27.5 million in Q3 2023).
General and administrative expenses of $1.6 million in Q4 2023 ($1.1 million in Q3 2023).
Operating income consequently of $18.1 million in Q4 2023 ($20.6 million in Q3 2023).
Interest expense of $18.1 million in Q4 2023 ($18.5 million in Q3 2023) with the decrease due to outstanding debt decreasing and lower fluctuations in interest rates.
Realized and unrealized loss on derivative instruments of $4.8 million in Q4 2023 (gain of $4.4 million in Q3 2023), including unrealized loss (i.e. non-cash) elements of $8.9 million in Q4 2023 (gain of $0.5 million in Q3 2023).
Net loss consequently of $5.3 million in Q4 2023 (net income of $12.6 million in Q3 2023).

By comparison with the three months ended December 31, 2022 (“Q4 2022”), results for Q4 2023 included:

a decrease of $1.5 million in operating income (to $18.1 million in Q4 2023 from $19.6 million in Q4 2022), driven primarily by higher vessel operating expenses;
an increase of $9.1 million in finance expense (to finance expense of $22.3 million in Q4 2023 from finance expense of $13.2 million in Q4 2022), due to fluctuations in interest rates; and
a decrease of $11.3 million in net income (to a net loss of $5.3 million in Q4 2023 from net income of $6.0 million in Q4 2022).

Fleet utilization

The Partnership’s vessels operated throughout Q4 2023 with 99.6% utilization for scheduled operations, and 96.0% utilization taking into account the scheduled drydockings of the Torill Knutsen and the Ingrid Knutsen, which were offhire for 23 days and 33 days respectively in Q4 2023.

Financing and Liquidity

As of December 31, 2023, the Partnership had $63.9 million in available liquidity, which was comprised of cash and cash equivalents of $63.9 million. The Partnership’s revolving credit facilities are fully drawn and mature between August 2025 and November 2025.

The Partnership’s total interest-bearing obligations outstanding as of December 31, 2023 were $963.0 million ($956.8 million net of debt issuance costs). The average margin paid on the Partnership’s outstanding debt during Q4 2023 was approximately 2.28% over SOFR. These obligations are repayable as follows:

(U.S. Dollars in thousands)

Sale & Leaseback

Period repayment

Balloon repayment

Total

2024

13,805

76,650

63,393

153,848

2025

14,399

68,581

181,583

269,563

2026

15,060

51,596

219,521

286,177

2027

15,751

26,481

—

42,232

2028 and thereafter

119,120

13,241

78,824

211,185

Total

178,135

236,549

548,321

963,005

As of December 31, 2023, the Partnership had entered into various interest rate swap agreements for a total notional amount outstanding of $426.5 million, to hedge against the interest rate risks of its variable rate borrowings. As of December 31, 2023, the Partnership receives interest based on SOFR and pays a weighted average interest rate of 1.9% under its interest rate swap agreements, which have an average maturity of approximately 1.8 years. The Partnership does not apply hedge accounting for derivative instruments, and its financial results are impacted by changes in the market value of such financial instruments.

As of December 31, 2023, the Partnership’s net exposure to floating interest rate fluctuations was approximately $294.5 million based on total interest-bearing contractual obligations of $963.0 million, less the Raquel Knutsen and Torill Knutsen sale and leaseback facilities of $178.1 million, less interest rate swaps of $426.5 million, and less cash and cash equivalents of $63.9 million.

On January 9, 2024, the loan facility secured by the Dan Sabia was repaid in full with a $10.4 million payment. The Dan Sabia and the Dan Cisne are now debt-free and there are no plans to incur additional borrowings secured by these vessels until such time as the Partnership has better visibility on the vessels’ future employment.

In May 2024, the loan facility secured by the Hilda Knutsen is due for repayment, for which the balloon repayment is $57 million. Negotiations are well-advanced with potential lenders for a new facility, to be secured also by the Hilda Knutsen, sufficient to finance the balloon repayment of the maturing facility. Management believe that such facility will be refinanced on acceptable and similar terms prior to maturity. However, there can be no guarantees of the success of any financing exercise.

On November 2, 2023, the Partnership entered into an at-the-market sales agreement with B. Riley Securities, Inc. for a new ATM program pursuant to which the Partnership may offer and sell up to $100 million of common units from time to time, through the Agent. This new sales agreement replaces and supersedes the prior sales agreement with the Agent entered into on August 26, 2021, which had provided for a $100 million at-the-market offering program for our common units. The Partnership intends to use the net proceeds of any sales of offered units for general partnership purposes, which may include, among other things, the repayment of indebtedness or the funding of acquisitions or other capital expenditures.

Assets Owned by Knutsen NYK

Pursuant to the omnibus agreement the Partnership entered into with Knutsen NYK at the time of its initial public offering, the Partnership has the option to acquire from Knutsen NYK any offshore shuttle tankers that Knutsen NYK acquires or owns that are employed under charters for periods of five or more years.

There can be no assurance that the Partnership will acquire any additional vessels from Knutsen NYK. Given the relationship between the Partnership and Knutsen NYK, any such acquisition would be subject to the approval of the Conflicts Committee of the Partnership’s Board of Directors.

Knutsen NYK owns, or has ordered, the following vessels and has entered into the following charters:

In February 2021, Tuva Knutsen was delivered to Knutsen NYK from the yard and commenced on a five-year time charter contract with a wholly owned subsidiary of the French oil major TotalEnergies. TotalEnergies has options to extend the charter for up to a further ten years.

In November 2021, Live Knutsen was delivered to Knutsen NYK from the yard in China and commenced on a five-year time charter contract with Galp Sinopec for operation in Brazil. Galp has options to extend the charter for up to a further six years.

In June 2022, Daqing Knutsen was delivered to Knutsen NYK from the yard in China and commenced on a five-year time charter contract with PetroChina International (America) Inc for operation in Brazil. The charterer has options to extend the charter for up to a further five years.

In July 2022, Frida Knutsen was delivered to Knutsen NYK from the yard in Korea and commenced in December 2022 on a seven-year time charter contact with Eni for operation in North Sea. The charterer has options to extend the charter for up to a further three years.

In August 2022, Sindre Knutsen, was delivered to Knutsen NYK from the yard in Korea and commenced in September 2023 on a five-year time charter contract with Eni for operation in the North Sea. The charterer has options to extend the charter for up to a further five years.

In May 2022, Knutsen NYK entered into a new ten-year time charter contract with Petrobras for a vessel to be constructed and which will operate in Brazil where the charterer has the option to extend the charter by up to five further years. The vessel will be built in China and is expected to be delivered in late 2024.

In November 2022, Knutsen NYK entered into a new fifteen-year time charter contract with Petrobras for a vessel to be constructed and which will operate in Brazil where the charterer has an option to extend the charter by up to five further years. The vessel will be built in China and is expected to be delivered in late 2025.

In February 2024, Knutsen NYK entered into a new ten-year time charter contract with Petrobras for each of three vessels to be constructed and which will operate in Brazil, where the charterer has an option to extend each charter by up to five further years. The vessels will be built in China and are expected to be delivered over 2026 - 2027.

Outlook

At December 31, 2023, the Partnership’s fleet of eighteen vessels had an average age of 9.7 years, and the Partnership had charters with an average remaining fixed duration of 2.0 years, with the charterers of the Partnership’s vessels having options to extend their charters by an additional 2.1 years on average. The Partnership had $699 million of remaining contracted forward revenue at December 31, 2023, excluding charterers’ options and excluding contracts agreed or signed after that date.

The market for shuttle tankers in Brazil, where fourteen of our vessels have been operating, has continued to tighten in Q4 2023, driven by a significant pipeline of new production growth over the coming years, a limited newbuild order book, and typical long-term project viability requiring a Brent oil price of only $35 per barrel. While the Dan Cisne and Dan Sabia stand out among the Partnership’s fleet as being of a smaller size than is optimal in today’s Brazilian market, we remain in discussions with our customers and continue to evaluate all our options for the Dan Cisne and Dan Sabia vessels, including but not limited to redeployment in the tightening Brazilian market, deployment to the North Sea, charter to Knutsen NYK (subject to negotiation and approvals) and sale.

Shuttle tanker demand in the North Sea has remained subdued, driven by the impact of COVID-19-related project delays. We expect these conditions to persist for several more quarters until new oil production projects that are anticipated come on stream.

Looking ahead, based on supply and demand factors with significant forward visibility and committed capital from industry participants, we believe that the overall medium and long-term outlook for the shuttle tanker market remains favourable.

In the meantime, the Partnership intends to pursue long-term visibility from its charter contracts, build its liquidity, and position itself to benefit from its market-leading position in an improving shuttle tanker market.

The Partnership’s financial information for the year ended December 31, 2023 included in this press release is preliminary and unaudited and is subject to change in connection with the completion of the Partnership’s year end close procedure and further financial review, Actual results may differ as a result of the completion of the Partnership’s year end closing procedures, review adjustment and other developments that may arise between now and the time the audit for the year ended December 31, 2023 is finalized.

About KNOT Offshore Partners LP

KNOT Offshore Partners LP owns, operates and acquires shuttle tankers primarily under long-term charters in the offshore oil production regions of Brazil and the North Sea.

KNOT Offshore Partners LP is structured as a publicly traded master limited partnership but is classified as a corporation for U.S. federal income tax purposes, and thus issues a Form 1099 to its unitholders, rather than a Form K-1. KNOT Offshore Partners LP’s common units trade on the New York Stock Exchange under the symbol “KNOP”.

The Partnership plans to host a conference call on Tuesday, February 27, 2024 at 9:30 AM (Eastern Time) to discuss the results for the fourth quarter of 2023. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:

By dialing 1-833-470-1428 from the US, dialing 1-833-950-0062 from Canada or 1-404-975-4839 if outside North America – please join the KNOT Offshore Partners LP call using access code 617850.
By accessing the webcast on the Partnership’s website: www.knotoffshorepartners.com.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Year Ended December 31,

(U.S. Dollars in thousands)

December 31, 2023

September 30, 2023

December 31, 2022

2023

2022

Time charter and bareboat revenues

72,039

72,188

66,084

277,084

262,797

Voyage revenues (1)

—

4,689

8,849

4,689

Loss of hire insurance recoveries

505

—

758

2,840

758

Other income (2)

485

1,943

341

Total revenues

73,029

72,683

71,614

290,716

268,585

Vessel operating expenses

25,457

23,164

19,820

93,351

86,032

Voyage expenses and commission (3)

306

375

2,814

5,536

2,814

Depreciation

27,594

27,472

27,785

110,902

107,419

Impairment (4)

—

49,649

—

General and administrative expenses

1,571

1,083

1,606

6,142

6,098

Total operating expenses

54,928

52,094

52,025

265,580

202,363

Operating income (loss)

18,101

20,589

19,589

25,136

66,222

Finance income (expense):

Interest income

992

932

472

3,468

822

Interest expense

(18,101

)

(18,493

)

(15,358

)

(72,070

)

(42,604

)

Other finance expense

(176

)

(228

)

(103

)

(589

)

(628

)

Realized and unrealized gain (loss) on derivative instruments (5)

(4,806

)

4,361

1,663

5,369

35,510

Net gain (loss) on foreign currency transactions

(224

)

(237

)

220

Total finance income (expense)

(22,315

)

(13,414

)

(13,245

)

(64,059

)

(6,680

)

Income (loss) before income taxes

(4,214

)

7,175

6,344

(38,923

)

59,542

Income tax benefit (expense)

(1,068

)

5,466

(317

)

4 595

(875

)

Net income (loss)

(5,282

)

12,641

6,027

(34,328

)

58,667

Weighted average units outstanding (in thousands of units):

Common units

34,045

34,009

34,045

33,882

Class B units (6)

252

289

252

416

General Partner units

640

(1) Voyage revenues are revenues unique to spot voyages. (2) The Bodil Knutsen has received $1.2 million as of December 31, 2023 related to the volatile organic compound emission ("VOC") control equipment installation. (3) Voyage expenses and commission are expenses unique to spot voyages, including bunker fuel expenses, port fees, cargo loading and unloading expenses, agency fees and commission. (4) The carrying value of each of the Dan Cisne and the Dan Sabia was written down to its estimated fair value as of June 30, 2023. (5) Realized gain (loss) on derivative instruments relates to amounts the Partnership actually received (paid) to settle derivative instruments, and the unrealized gain (loss) on derivative instruments relates to changes in the fair value of such derivative instruments, as detailed in the table below.

Three Months Ended

Year Ended December 31,

(U.S. Dollars in thousands)

December 31, 2023

September 30, 2023

December 31, 2022

2023

2022

Realized gain (loss):

Interest rate swap contracts

4,141

3,963

1,229

14,648

(2,478

)

Foreign exchange forward contracts

—

(79

)

(502

)

(79

)

(502

)

Total realized gain (loss):

4,141

3,884

727

14,569

(2,980

)

Unrealized gain (loss):

Interest rate swap contracts

(8,947

)

352

(282

)

(9,200

)

38,490

Foreign exchange forward contracts

—

125

1,218

—

Total unrealized gain (loss):

(8,947

)

477

936

(9,200

)

38,490

Total realized and unrealized gain (loss) on derivative instruments:

(4,806

)

4,361

1,663

5,369

35,510

(6) On September 7, 2021, the Partnership entered into an exchange agreement with Knutsen NYK, and the Partnership’s general partner whereby Knutsen NYK contributed to the Partnership all of Knutsen NYK’s incentive distribution rights (“IDRs”), in exchange for the issuance by the Partnership to Knutsen NYK of 673,080 common units and 673,080 Class B Units, whereupon the IDRs were cancelled (the “IDR Exchange”). As of December 31, 2023, 420,675 of the Class B Units had been converted to common units.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(U.S. Dollars in thousands)

At December 31, 2023

At December 31, 2022

ASSETS

Current assets:

Cash and cash equivalents

63,921

47,579

Amounts due from related parties

348

1,998

Inventories

3,696

5,759

Derivative assets

13,019

15,070

Other current assets

8,795

15,528

Total current assets

89,779

85,934

Long-term assets:

Vessels, net of accumulated depreciation

1,492,998

1,631,380

Right-of-use assets

2,126

2,261

Deferred tax assets

4,358

—

Derivative assets

7,229

14,378

Total Long-term assets

1,506,711

1,648,019

Total assets

1,596,490

1,733,953

LIABILITIES AND EQUITY

Current liabilities:

Trade accounts payable

10,243

4,268

Accrued expenses

14,775

10,651

Current portion of long-term debt

151,796

369,787

Current lease liabilities

982

715

Income taxes payable

699

Current portion of contract liabilities

—

651

Prepaid charter

467

1,504

Amount due to related parties

2,106

1,717

Total current liabilities

180,413

389,992

Long-term liabilities:

Long-term debt

804,993

686,601

Lease liabilities

1,144

1,546

Deferred tax liabilities

127

424

Deferred revenues

2,336

3,178

Total long-term liabilities

808,600

691,749

Total liabilities

989,013

1,081,741

Commitments and contingencies

Series A Convertible Preferred Units

84,308

Equity:

Partners’ capital:

Common unitholders

510,013

553,922

Class B unitholders

3,871

General partner interest

9,285

10,111

Total partners’ capital

523,169

567,904

Total liabilities and equity

1,596,490

1,733,953

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL

Partners' Capital

Accumulated

Series A

(U.S. Dollars in thousands)

General

Other

Total

Convertible

Three Months Ended December 31, 2022 and 2023

Common Units

Class B Units

Partner Units

Comprehensive Income (Loss)

Partners' Capital

Preferred Units

Consolidated balance at September 30, 2022

566,079

5,301

10,365

—

581,745

84,308

Net income

4,220

—

4 327

1,700

Conversion of Class B to common units (1)

1,283

(1,283

)

—

Other comprehensive income

—

Cash distributions

(17,660

)

(175

)

(333

)

—

(18,168

)

(1,700

)

Consolidated balance at December 31, 2022

553,922

3,871

10,111

—

567,904

84,308

Consolidated balance at September 30, 2023

517,751

3,871

9,431

—

531,053

84,308

Net income (loss)

(6,853

)

—

(129

)

—

(6,982

)

1,700

Conversion of Class B to common units (1)

—

Other comprehensive income

—

Cash distributions

(885

)

—

(17

)

—

(902

)

(1,700

)

Consolidated balance at December 31, 2023

510,013

3,871

9,285

—

523,169

84,308

Year Ended December 31, 2022 and 2023

Consolidated balance at December 31, 2021

568,762

9,453

10,492

—

588,707

84,308

Net income

50,297

619

951

—

51,867

6,800

Conversion of Class B to common units (1)

5,238

(5,238

)

—

Other comprehensive income

—

Cash distributions

(70,375

)

(963

)

(1,332

)

—

(72,670

)

(6,800

)

Consolidated balance at December 31, 2022

553,922

3,871

10,111

—

567,904

84,308

Consolidated balance at December 31, 2022

553,922

3,871

10,111

—

567,904

84,308

Net income (loss)

(40,368

)

—

(760

)

—

(41,128

)

6,800

Conversion of Class B to common units (1)

—

Other comprehensive income

—

Cash distributions

(3,541

)

—

(66

)

—

(3,607

)

(6,800

)

Consolidated balance at December 31, 2023

510,013

3,871

9,285

—

523,169

84,308

(1) On September 7, 2021, the Partnership entered into an exchange agreement with Knutsen NYK and the Partnership’s general partner whereby Knutsen NYK contributed to the Partnership all of Knutsen NYK’s IDRs, in exchange for the issuance by the Partnership to Knutsen NYK of 673,080 common units and 673,080 Class B Units, whereupon the IDRs were cancelled. As of December 31, 2022, 420,675 of the Class B Units had converted to common units. As of December 31, 2023, 420,675 of the Class B Units had converted to common units. No Class B Units were converted in the fourth quarter of 2023.

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

Year Ended December 31,

(U.S. Dollars in thousands)

2023

2022

OPERATING ACTIVITIES

Net income (loss) (1)

(34,328

)

58,667

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation

110,902

107,419

Impairment

49,649

—

Amortization of contract intangibles / liabilities

(651

)

(1,442

)

Amortization of deferred revenue

(467

)

—

Amortization of deferred debt issuance cost

2,503

2,692

Drydocking expenditure

(19,375

)

(17,614

)

Income tax expense

(4,595

)

875

Income taxes paid

(665

)

(422

)

Unrealized (gain) loss on derivative instruments

9,200

(38,490

)

Unrealized (gain) loss on foreign currency transactions

Changes in operating assets and liabilities:

Decrease (increase) in amounts due from related parties

1,650

723

Decrease (increase) in inventories

2,139

(2,163

)

Decrease (increase) in other current assets

6,735

(9,689

)

Decrease (increase) in accrued revenue

—

1,450

Increase (decrease) in trade accounts payable

5,867

251

Increase (decrease) in accrued expenses

4,125

3,528

Increase (decrease) prepaid charter

(1,504

)

(4,682

)

Increase (decrease) in amounts due to related parties

389

(210

)

Net cash provided by operating activities

131,641

100,942

INVESTING ACTIVITIES

Disposals (additions) to vessel and equipment

(2,779

)

(3,309

)

Acquisition of Synnøve Knutsen (net of cash aquired)

—

(32,205

)

Net cash used in investing activities

(2,779

)

(35,514

)

FINANCING ACTIVITIES

Proceeds from long-term debt

250,000

167,000

Repayment of long-term debt

(349,642

)

(166,609

)

Payment of debt issuance cost

(2,461

)

(889

)

Cash distributions

(10,407

)

(79,470

)

Net cash used in financing activities

(112,510

)

(79,968

)

Effect of exchange rate changes on cash

(10

)

(174

)

Net increase (decrease) in cash and cash equivalents

16,342

(14,714

)

Cash and cash equivalents at the beginning of the period

47,579

62,293

Cash and cash equivalents at the end of the period

63,921

47,579

(1) Included in net income (loss) is interest paid amounting to $69.3 million and $37.3 million for the year ended December 31, 2023 and 2022, respectively.

APPENDIX A—RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

EBITDA and Adjusted EBITDA

EBITDA is defined as earnings before interest, depreciation and taxes. Adjusted EBITDA is defined as earnings before interest, depreciation, impairments, taxes and other financial items (including other finance expenses, realized and unrealized gain (loss) on derivative instruments and net gain (loss) on foreign currency transactions). EBITDA is used as a supplemental financial measure by management and external users of financial statements, such as the Partnership’s lenders, to assess its financial and operating performance and compliance with the financial covenants and restrictions contained in its financing agreements. Adjusted EBITDA is used as a supplemental financial measure by management and external users of financial statements, such as investors, to assess the Partnership’s financial and operating performance. The Partnership believes that EBITDA and Adjusted EBITDA assist its management and investors by increasing the comparability of its performance from period to period and against the performance of other companies in its industry that provide EBITDA and Adjusted EBITDA information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest, other financial items, taxes, impairments and depreciation, as applicable, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income between periods. The Partnership believes that including EBITDA and Adjusted EBITDA as financial measures benefits investors in (a) selecting between investing in the Partnership and other investment alternatives and (b) monitoring the Partnership’s ongoing financial and operational strength in assessing whether to continue to hold common units. EBITDA and Adjusted EBITDA are non-GAAP financial measures and should not be considered as alternatives to net income or any other indicator of Partnership performance calculated in accordance with GAAP.

The table below reconciles EBITDA and Adjusted EBITDA to net income, the most directly comparable GAAP measure.

Three Months Ended,

Year Ended

(U.S. Dollars in thousands)

December 31, 2023 (unaudited)

December 31, 2022 (unaudited)

December 31, 2023 (unaudited)

December 31, 2022 (unaudited)

Net income (loss)

(5,282

)

6,027

(34,328

)

58,667

Interest income

(992

)

(472

)

(3,468

)

(822

)

Interest expense

18,101

15,358

72,070

42,604

Depreciation

27,594

27,785

110,902

107,419

Impairment

—

49,649

—

Income tax expense (benefit)

1,068

317

(4,595

)

875

EBITDA

40,489

49,015

190,230

208,743

Other financial items (a)

5,206

(1,641

)

(4,543

)

(35,102

)

Adjusted EBITDA

45,695

47,374

185,687

173,641

(a) Other financial items consist of other finance income (expense), realized and unrealized gain (loss) on derivative instruments and net gain (loss) on foreign currency transactions.

FORWARD-LOOKING STATEMENTS

This press release contains certain forward-looking statements concerning future events and KNOT Offshore Partners’ operations, performance and financial condition. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” “plan,” “intend” or words or phrases of similar meanings. These statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond KNOT Offshore Partners’ control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements include statements with respect to, among other things:

market trends in the shuttle tanker or general tanker industries, including hire rates, factors affecting supply and demand, and opportunities for the profitable operations of shuttle tankers and conventional tankers;
market trends in the production of oil in the North Sea, Brazil and elsewhere;
Knutsen NYK’s and KNOT Offshore Partners’ ability to build shuttle tankers and the timing of the delivery and acceptance of any such vessels by their respective charterers;
KNOT Offshore Partners’ ability to purchase vessels from Knutsen NYK in the future;
KNOT Offshore Partners’ ability to enter into long-term charters, which KNOT Offshore Partners defines as charters of five years or more, or shorter- term charters or voyage contracts;
KNOT Offshore Partners’ ability to refinance its indebtedness on acceptable terms and on a timely basis and to make additional borrowings and to access debt and equity markets;
KNOT Offshore Partners’ distribution policy, forecasts of KNOT Offshore Partners’ ability to make distributions on its common units, Class B Units and Series A Preferred Units, the amount of any such distributions and any changes in such distributions;
KNOT Offshore Partners’ ability to integrate and realize the expected benefits from acquisitions;
impacts of supply chain disruptions that began during the COVID-19 pandemic and the resulting inflationary environment;
KNOT Offshore Partners’ anticipated growth strategies;
the effects of a worldwide or regional economic slowdown;
turmoil in the global financial markets;
fluctuations in currencies, inflation and interest rates;
fluctuations in the price of oil;
general market conditions, including fluctuations in hire rates and vessel values;
changes in KNOT Offshore Partners’ operating expenses, including drydocking and insurance costs and bunker prices;
recoveries under KNOT Offshore Partners’ insurance policies;
the length and cost of drydocking;
KNOT Offshore Partners’ future financial condition or results of operations and future revenues and expenses;
the repayment of debt and settling of any interest rate swaps;
planned capital expenditures and availability of capital resources to fund capital expenditures;
KNOT Offshore Partners’ ability to maintain long-term relationships with major users of shuttle tonnage;
KNOT Offshore Partners’ ability to leverage Knutsen NYK’s relationships and reputation in the shipping industry;
KNOT Offshore Partners’ ability to maximize the use of its vessels, including the re-deployment or disposition of vessels no longer under charter;
the financial condition of KNOT Offshore Partners’ existing or future customers and their ability to fulfill their charter obligations;
timely purchases and deliveries of newbuilds;
future purchase prices of newbuilds and secondhand vessels;
any impairment of the value of KNOT Offshore Partners’ vessels;
KNOT Offshore Partners’ ability to compete successfully for future chartering and newbuild opportunities;
acceptance of a vessel by its charterer;
the impacts of the Russian war with Ukraine, the conflict between Israel and Hamas and the other conflicts in the Middle East;
termination dates and extensions of charters;
the expected cost of, and KNOT Offshore Partners’ ability to, comply with governmental regulations (including climate change regulations) and maritime self-regulatory organization standards, as well as standard regulations imposed by its charterers applicable to KNOT Offshore Partners’ business;
availability of skilled labor, vessel crews and management, including possible disruptions due to the COVID-19 outbreak;
the effects of outbreaks of pandemics or contagious diseases, including the impact on KNOT Offshore Partners’ business, cash flows and operations as well as the business and operations of its customers, suppliers and lenders;
KNOT Offshore Partners’ general and administrative expenses and its fees and expenses payable under the technical management agreements, the management and administration agreements and the administrative services agreement;
the anticipated taxation of KNOT Offshore Partners and distributions to its unitholders;
estimated future capital expenditures;
Marshall Islands economic substance requirements;
KNOT Offshore Partners’ ability to retain key employees;
customers’ increasing emphasis on climate, environmental and safety concerns;
the impact of any cyberattack;
potential liability from any pending or future litigation;
potential disruption of shipping routes due to accidents, political events, piracy or acts by terrorists;
future sales of KNOT Offshore Partners’ securities in the public market;
KNOT Offshore Partners’ business strategy and other plans and objectives for future operations; and
other factors listed from time to time in the reports and other documents that KNOT Offshore Partners files with the U.S. Securities and Exchange Commission, including its Annual Report on Form 20-F for the year ended December 31, 2022, and subsequent reports on Form 6-K.

All forward-looking statements included in this release are made only as of the date of this release. New factors emerge from time to time, and it is not possible for KNOT Offshore Partners to predict all of these factors. Further, KNOT Offshore Partners cannot assess the impact of each such factor on its business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward- looking statement. KNOT Offshore Partners does not intend to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in KNOT Offshore Partners’ expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240226692794/en/

KNOT Offshore Partners LP Derek Lowe ir@knotoffshorepartners.com

KNOT Offshore Partners (NYSE:KNOP)
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