Knot Offshore Partners LP: Earnings Release — Interim Results for the Period Ended June 30, 2016
For the three months ended June 30, 2016,
-
Generated highest ever quarterly revenues of
\\$43 .1 million, operating income of\\$20 .2 million and net income of\\$11 .6 million.
-
Generated highest ever quarterly Adjusted EBITDA of
\\$34 .1 million.1
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Generated highest ever quarterly distributable cash flow of
\\$18 .5 million1 with a distribution coverage ratio of 1.23.1 - Achieved strong operational performance with 99.9% utilization of the fleet.
In addition:
-
On
June 30, 2016 , the Partnership entered into an amended and restated senior secured credit facility, which includes a new revolver facility tranche of\\$15 million , in order to further strengthen the balance sheet and increase financial flexibility.
- On May 18, 2016, the Partnership’s subordinated units, all of which were held by Knutsen NYK Offshore Tankers (“Knutsen NYK”), were converted to common units on a one-for one basis.
-
Due to the increase in the price of the Partnership’s common units
from
\\$16.40 onMarch 31, 2016 to\\$18.56 onJune 30, 2016 , the Partnership and the Partnership’s general partner elected not to repurchase any common units under the common unit repurchase program during the second quarter of 2016.
Subsequent events:
-
On
July 15, 2016 , the Partnership declared a cash distribution of\\$0.52 per unit with respect to the quarter ended June 30, 2016 to be paid onAugust 15, 2016 to unitholders of record as of the close of business onAugust 3, 2016 .
Financial Results Overview
Total revenues were
Vessel operating expenses for the second quarter of 2016 were
As a result, operating income for the second quarter of 2016 was
Net income for the three months ended
Net income for the three months ended
Ingrid
Knutsenbeing included in the Partnership’s results of operations
from
All ten of the Partnership’s vessels operated well throughout the second quarter of 2016 with 99.9% utilization of the fleet.
Distributable cash flow was
Amended and Restated Credit Facility
On
Financing and Liquidity
As of
As of June 30, 2016, the Partnership had entered into foreign exchange
forward contracts, selling a total notional amount of
As of
As of
The Partnership’s outstanding interest bearing debt of
Annual repayment |
Balloon repayment |
||||||
(US \\$ in thousands) | |||||||
Remainder of 2016 | \\$ | 30,042 | \\$ | — | |||
2017 | 50,084 | — | |||||
2018 | 48,495 | 154,927 | |||||
2019 | 28,582 | 237,678 | |||||
2020 | 17,650 | — | |||||
2021 and thereafter | 71,650 | 12,940 | |||||
Total | \\$ | 246,503 | \\$ | 405,545 |
Outlook
To date, during the third quarter of 2016, utilization of the Partnership’s fleet has been 100%. Operating income is expected to be at same level as in the second quarter of 2016, as there is no further scheduled off-hire for any of the Partnership’s vessels for the remainder of 2016.
As of
The Partnership has or expects to receive options to acquire five
vessels controlled by Knutsen NYK pursuant to the terms of the omnibus
agreement entered into in connection with the Partnerships initial
public offering (“IPO”). One of these vessels, the Raquel Knutsen,
delivered in 2015 and is chartered to Repsol Sinopec Brazil under a time
charter that expires in 2025, with options to extend until 2030. Four
vessels are under construction in
Pursuant to the omnibus agreement, the Partnership also 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 vessels from Knutsen NYK.
The Board believes that there may be opportunities for growth of the Partnership, which may include current identified acquisition candidates, and that the demand for offshore shuttle tankers will continue to grow over time based on identified projects. Future developments will influenced by the rate of growth of offshore oil production activities when the existing projects are completed.
The Board is pleased with the results of operations of the Partnership
for the quarter ended
About
The Partnership plans to host a conference call on
-
By dialing 1-855-209-8259 or 1-412-542-4105, if outside
North America .
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | Six Months Ended | |||||||||||||||||||
(USD in thousands) |
June 30, 2016 |
March 31, 2016 |
June 30, 2015 |
June 30, 2016 | June 30, 2015 | |||||||||||||||
Time charter and bareboat revenues (1) | \\$ | 42,864 | \\$ | 41,826 | \\$ | 36,981 | \\$ | 84,690 | \\$ | 73,052 | ||||||||||
Other income (2) | 199 | 200 | 2 | 399 | 151 | |||||||||||||||
Total revenues | 43,063 | 42,026 | 36,983 | 85,089 | 73,203 | |||||||||||||||
Vessel operating expenses | 7,975 | 7,647 | 7,164 | 15,622 | 13,971 | |||||||||||||||
Depreciation | 13,913 | 13,892 | 11,560 | 27,805 | 22,960 | |||||||||||||||
General and administrative expenses | 948 | 1,308 | 984 | 2,256 | 2,052 | |||||||||||||||
Goodwill impairment charge | — | — | 6,217 | — | 6,217 | |||||||||||||||
Total operating expenses | 22,836 | 22,847 | 25,925 | 45,683 | 45,200 | |||||||||||||||
Operating income | 20,227 | 19,179 | 11,058 | 39,406 | 28,003 | |||||||||||||||
Finance income (expense): | ||||||||||||||||||||
Interest income | 0 | 2 | 2 | 3 | 3 | |||||||||||||||
Interest expense | (5,055 | ) | (5,029 | ) | (4,212 | ) | (10,084 | ) | (8,398 | ) | ||||||||||
Other finance expense | (334 | ) | (267 | ) | (79 | ) | (601 | ) | (99 | ) | ||||||||||
Realized and unrealized gain (loss) on derivative instruments(3) | (3,176 | ) | (3,184 | ) | 253 | (6,360 | ) | (5,370 | ) | |||||||||||
Net gain (loss) on foreign currency transactions | (82 | ) | (35 | ) | (132) | (117 | ) | (60 | ) | |||||||||||
Total finance expense | (8,646 | ) | (8,513 | ) | (4,168 | ) | (17,159 | ) | (13,924 | ) | ||||||||||
Income before income taxes | 11,581 | 10,666 | 6,890 | 22,247 | 14,079 | |||||||||||||||
Income tax benefit (expense) | (3 | ) | (3 | ) | (3 | ) | (6 | ) | (6 | ) | ||||||||||
Net income | \\$ | 11,578 | \\$ | 10,663 | \\$ | 6,887 | \\$ | 22,241 | \\$ | 14,073 | ||||||||||
Weighted average units outstanding (in thousands of units): | ||||||||||||||||||||
Common units (4) | 22,581 | 18,627 | 15,346 | 20,604 | 14,581 | |||||||||||||||
Subordinated units(4) | 4,613 | 8,568 | 8,568 | 6,590 | 8,568 | |||||||||||||||
General partner units | 559 | 559 | 488 | 559 | 472 |
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Time charter revenues for the second and first quarter of 2016 include
a non-cash item of approximately
\\$1.0 million and\\$1.3 million , respectively in reversal of contract liability provision, income recognition of prepaid charter hire and accrued income for the Carmen Knutsen based on average charter rate for the fixed period. Time charter revenues for the second quarter of 2015 include a non-cash item of approximately \\$0.9 million in reversal of contract liability provision and income recognition of prepaid charter hire. -
Other income for the second and first quarter of 2016 is mainly
related to guarantee income from Knutsen NYK. Pursuant to the omnibus
agreement, Knutsen NYK agreed to guarantee the payments of the hire
rate that is equal to or greater than the hire rate payable under the
initial charters of the Bodil Knutsen and the Windsor Knutsen
for a period of five years from the closing date of the IPO. In
October 2015 , the Windsor Knutsen commenced operating under a newBG Group time charter. The hire rate for the new charter is below the initial charter hire rate and the difference between the new hire rate and the initial rate is paid by Knutsen NYK. -
The mark-to-market net loss related to interest rate swaps and foreign
exchange contracts for the three months end
June 30, 2016 includes realized losses of\\$1.6 million and unrealized losses of\\$1 .6 million. Of the net unrealized loss for this quarter, a \\$0.1 million loss relates to foreign exchange contracts and hedging operational costs in NOK.
The mark-to-market net loss related to interest rate swaps and foreign exchange contracts for the three months endedMarch 31, 2016 includes realized losses of\\$0.9 million and unrealized losses of\\$2 .3 million. Of the net unrealized loss for this quarter,\\$2 .1 million gain relates to foreign exchange contracts and hedging operational costs in NOK.
The mark-to-market net loss related to interest rate swaps and foreign exchange contracts for the three months ended June 30, 2015 includes unrealized gain of\\$1.6 million and realized loss of\\$1.3 million . Of the unrealized gain for this quarter,\\$0.4 million relates to foreign exchange contracts hedging operational costs in NOK. -
On
May 18, 2016 all subordinated units converted into common units on a one-for-one basis.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
At June 30, 2016 |
At December 31, 2015 |
|||||||
(USD in thousands) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | \\$ | 25,667 | \\$ | 23,573 | ||||
Amounts due from related parties | 25 | 58 | ||||||
Inventories | 774 | 849 | ||||||
Derivative assets | 232 | — | ||||||
Other current assets (1) | 1,705 | 1,800 | ||||||
Total current assets | 28,403 | 26,280 | ||||||
Long-term assets: | ||||||||
Vessels and equipment: | ||||||||
Vessels | 1,351,838 | 1,351,219 | ||||||
Less accumulated depreciation | (183,598 | ) | (158,292 | ) | ||||
Net property, plant, and equipment | 1,168,240 | 1,192,927 | ||||||
Derivative assets | — | 695 | ||||||
Accrued income | 706 | — | ||||||
Total assets | \\$ | 1,197,349 | \\$ | 1,219,902 | ||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Trade accounts payable | \\$ | 1,949 | \\$ | 1,995 | ||||
Accrued expenses | 3,469 | 3,888 | ||||||
Current portion of long-term debt (1) | 53,888 | 48,535 | ||||||
Derivative liabilities | 3,747 | 5,138 | ||||||
Income taxes payable | 18 | 249 | ||||||
Contract liabilities | 1,518 | 1,518 | ||||||
Prepaid charter and deferred revenue | 6,999 | 3,365 | ||||||
Amount due to related parties | 492 | 848 | ||||||
Total current liabilities | 72,080 | 65,536 | ||||||
Long-term liabilities: | ||||||||
Long-term debt (1) | 594,621 | 619,187 | ||||||
Derivative liabilities | 6,028 | 1,232 | ||||||
Contract liabilities | 8,998 | 9,757 | ||||||
Deferred tax liabilities | 919 | 877 | ||||||
Other long-term liabilities | 1,799 | 2,543 | ||||||
Total liabilities | 684,445 | 699,132 | ||||||
Equity: | ||||||||
Partners’ equity: | ||||||||
Common unitholders | 502,756 | 411,317 | ||||||
Subordinated unitholders | — | 99,158 | ||||||
General partner interest | 10,148 | 10,295 | ||||||
Total partners’ equity | 512,904 | 520,770 | ||||||
Total liabilities and equity | \\$ | 1,197,605 | \\$ | 1,219,902 |
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Effective
January 1, 2016 , the Partnership implemented ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability rather than as an asset. The recognition and measurement guidance for debt issuance costs is not affected. Therefore, these costs will continue to be amortized as interest expense using the effective interest method. The new guidance is applied retrospectively for all periods presented. As ofJune 30, 2016 andDecember 31, 2015 the carrying amount of the deferred debt issuance cost was\\$3.5 million and\\$4.0 million , respectively.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended June 30, |
||||
(USD in thousands) | 2016 | 2015 | ||
Cash flows provided by operating activities: | ||||
Net income | \\$ 22,241 | \\$ 14,073 | ||
Adjustments to reconcile net income to cash provided by operating activities: | ||||
Depreciation | 27,805 | 22,960 | ||
Amortization of contract intangibles / liabilities | (759 ) | (759 ) | ||
Amortization of deferred revenue | (886) | (957 ) | ||
Amortization of deferred debt issuance cost | 573 | 570 | ||
Goodwill impairment charge | — | 6,217 | ||
Drydocking expenditure | (2,595) | — | ||
Income tax expense | 6 | 6 | ||
Income taxes paid | (241) | (336 ) | ||
Unrealized (gain) loss on derivative instruments | 3,868 | 3,011 | ||
Unrealized (gain) loss on foreign currency transactions | 63 | (46) | ||
Changes in operating assets and liabilities | ||||
Decrease (increase) in amounts due from related parties | 33 | 968 | ||
Decrease (increase) in inventories | 75 | 124 | ||
Decrease (increase) in other current assets | 94 | (1,903 ) | ||
Increase (decrease) in trade accounts payable | (87) | 825 | ||
Increase (decrease) in accrued expenses | (419) | 567 | ||
Decrease (increase) in accrued revenue | (706) | — | ||
Increase (decrease) prepaid revenue | 3,776 | 432 | ||
Increase (decrease) in amounts due to related parties | (356) | (1,625 ) | ||
Net cash provided by operating activities | 52,485 | 44,127 | ||
Cash flows from investing activities: | ||||
Disposals (additions) to vessel and equipment | (521) | (770) | ||
Acquisition of Dan Sabia (net of cash acquired) | — | (36,843) | ||
Net cash used in investing activities | (521 ) | (37,613) | ||
Cash flows from financing activities: | ||||
Proceeds from long-term debt | 5,000 | — | ||
Repayment of long-term debt | (24,642) | (46,859 ) | ||
Repayment of long-term debt from related parties | — | (12,000) | ||
Payment on debt issuance cost | (144) | (8) | ||
Cash distribution | (30,107) | (23,514 ) | ||
Proceeds from public offering, net of underwriters’ discount | — | 116,924 | ||
Offering cost | — | (321 ) | ||
Net cash provided by (used in) financing activities | (49,893) | 34,222 | ||
Effect of exchange rate changes on cash | 23 | (79 ) | ||
Net increase in cash and cash equivalents | 2,094 | 40,657 | ||
Cash and cash equivalents at the beginning of the period | 23,573 | 30,746 | ||
Cash and cash equivalents at the end of the period | \\$ 25,667 | \\$ 71,403 |
APPENDIX A—RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Distributable Cash Flow (“DCF”)
Distributable cash flow represents net income adjusted for depreciation,
unrealized gains and losses from derivatives, unrealized foreign
exchange gains and losses, goodwill impairment charges, other non-cash
items and estimated maintenance and replacement capital expenditures.
Estimated maintenance and replacement capital expenditures, including
estimated expenditures for drydocking, represent capital expenditures
required to maintain over the long-term the operating capacity of, or
the revenue generated by, the Partnership’s capital assets. The
Partnership believes distributable cash flow is an important measure of
operating performance used by management and investors in
publicly-traded partnerships to compare cash generating performance of
the Partnership from period to period and to compare the cash generating
performance for specific periods to the cash distributions (if any) that
are expected to be paid to our unitholders. Distributable cash flow is a
non-GAAP financial measure and should not be considered as an
alternative to net income or any other indicator of
(USD in thousands) |
Three Months Ended June 30, 2016 (unaudited) |
Three Months Ended March 31, 2016 (unaudited) |
|||||||
Net income | \\$ | 11,578 | \\$ | 10,663 | |||||
Add: | |||||||||
Depreciation | 13,913 | 13,892 | |||||||
Other non-cash items; deferred costs amortization debt | 287 | 287 | |||||||
Unrealized losses from interest rate derivatives and foreign exchange currency contracts | 1,608 | 4,348 | |||||||
Less: | |||||||||
Estimated maintenance and replacement capital expenditures (including drydocking reserve) | (7,894 | ) | (7,894 | ) | |||||
Other non-cash items; deferred revenue and accrued income | (1,032 | ) | (1,319 | ) | |||||
Unrealized gains from interest rate derivatives and foreign exchange currency contracts | — | (2,089 | ) | ||||||
Distributable cash flow | \\$ | 18,460 | \\$ | 17,888 | |||||
Distributions declared | \\$ | 15,027 | \\$ | 15,095 | |||||
Distribution coverage ratio(1) | 1.23 | 1.19 | |||||||
(1) | Distribution coverage ratio is equal to distributable cash flow divided by distributions declared for the period presented. |
Adjusted EBITDA
Adjusted EBITDA refers to earnings before interest, depreciation, taxes, goodwill impairment charges and other financial items (including other finance expenses, realized and unrealized gain (loss) on derivative instruments and net gain (loss) on foreign currency transactions). Adjusted EBITDA is a non-GAAP financial measure used by investors to measure the Partnership’s performance.
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 Adjusted EBITDA assists 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 Adjusted EBITDA information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest, other financial items, taxes, goodwill impairment charges and depreciation, 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 Adjusted EBITDA as a financial measure 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. Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to net income or any other indicator of Partnership performance calculated in accordance with GAAP. The table below reconciles Adjusted EBITDA to net income, the most directly comparable GAAP measure.
(USD in thousands) |
Three Months Ended
June 30, |
Three Months Ended
March 31, |
|||||
Net income | \\$ | 11,578 | \\$ | 10,663 | |||
Interest income | — | (2) | |||||
Interest expense | 5,055 | 5,029 | |||||
Depreciation | 13,913 | 13,892 | |||||
Income tax benefit | 3 | 3 | |||||
EBITDA | 30,549 | 29,585 | |||||
Other financial items (a) | 3,592 | 3,486 | |||||
Adjusted EBITDA | \\$ | 34,141 | \\$ | 33,071 |
(a) Other financial items consist of other finance 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;
- 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;
- forecasts of KNOT Offshore Partners’ ability to make or increase distributions on its units and the amount of any such distributions;
- KNOT Offshore Partners’ ability to integrate and realize the expected benefits from acquisitions;
- KNOT Offshore Partners’ anticipated growth strategies;
- the effects of a worldwide or regional economic slowdown;
- turmoil in the global financial markets;
- fluctuations in currencies 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;
- 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;
- KNOT Offshore Partners’ ability to make additional borrowings and to access debt and equity markets;
- 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 purchase vessels from Knutsen NYK in the future;
-
KNOT Offshore Partners’ continued ability to enter into long-term
charters, which
KNOT Offshore Partners defines as charters of five years or more;
- KNOT Offshore Partners’ ability to maximize the use of its vessels, including the re-deployment or disposition of vessels no longer under long-term charter;
- the financial condition of KNOT Offshore Partners’ existing or future customers and their ability to fulfil 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;
- termination dates and extensions of charters;
- the expected cost of, and KNOT Offshore Partners’ ability to, comply with governmental regulations, 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;
- 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 KNOT Offshore Partners’ unitholders;
- estimated future maintenance and replacement capital expenditures;
- KNOT Offshore Partners’ ability to retain key employees;
- customers’ increasing emphasis on environmental and safety concerns;
- 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, 2015.
All forward-looking statements included in this release are made only as
of the date of this release on. New factors emerge from time to time,
and it is not possible for
1 Adjusted EBITDA and distributable cash flow are non-GAAP financial measures used by investors to measure the performance of master limited partnerships. Please see Appendix A for definitions of Adjusted EBITDA and distributable cash flow and a reconciliation to net income, the most directly comparable GAAP financial measure.
2 Distribution coverage ratio is equal to distributable cash flow divided by distributions declared for the period presented.
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