KNOT Offshore Partners LP: Earnings Release—Interim Results for the Period Ended June 30, 2018
Highlights
For the three months ended June 30, 2018, KNOT Offshore Partners LP (“KNOT Offshore Partners” or the “Partnership”):
- Generated total revenues of $69.8 million, operating income of $32.1 million and net income
of $21.7 million.
- Generated highest ever quarterly Adjusted EBITDA of $54.4 million.1
- Generated quarterly distributable cash flow of $27.0 million.1
- Reported a distribution coverage ratio of 1.50.2
- Fleet operated with 100% utilization for scheduled operations and 96.3% utilization taking into
account the scheduled drydocking of the Brasil Knutsen, which was offhire for 53 days in the second quarter of 2018.
Other events:
- On May 15, 2018, the Partnership paid a quarterly cash distribution of $0.52 per common unit with
respect to the quarter ended March 31, 2018 to all common unitholders of record on May 2, 2018. On May 15, 2018, the Partnership
also paid a cash distribution to Series A Preferred unitholders with respect to the quarter ended March 31, 2018 in an aggregate
amount equal to $1.8 million.
- On July 13, 2018, a subsidiary of Royal Dutch Shell (“Shell”) exercised its option to extend the time
charter of the Windsor Knutsen by one additional year until October 2019.
- On August 3, 2018, the Partnership entered into amended time charter with Eni Trading & Shipping
S.p.A. (“Eni”), extending the duration of the Hilda Knutsen time charter for four years and three one-year extension
options.
- On August 14, 2018, the Partnership paid a cash distribution of $0.52 per common unit with respect to
the quarter ended June 30, 2018 to all common unitholders of record on August 1, 2018. On August 14, 2018, the Partnership also
paid a cash distribution to Series A Preferred unitholders with respect to the quarter ended June 30, 2018 in an aggregate amount
equal to $1.8 million.
- On September 4, 2018, the Partnership entered into $375 million loan agreement to refinance the
credit facility secured by the Windsor Knutsen, the Bodil Knutsen, the Fortaleza Knutsen, the Recife
Knutsen, the Carmen Knutsen, and the Ingrid Knutsen
Financial Results Overview
Total revenues were $69.8 million for the three months ended June 30, 2018 (the “second quarter”) compared to $68.0 million for
the three months ended March 31, 2018 (the “first quarter”). The increase in revenues was mainly due to full earnings from the Anna
Knutsen, as the vessel was included in the results of operations from March 1, 2018, improved utilization on scheduled
operations for the fleet in the second quarter, and one additional calendar day in the second quarter. The increase was partly
offset by reduced revenues from the Brasil Knutsen as result of 53 offhire days incurred during the second quarter for the
vessel’s scheduled first special survey drydocking.
Vessel operating expenses for the second quarter of 2018 were $14.0 million, an increase of $0.8 million from $13.2 million in
the first quarter of 2018. The increase was mainly due to higher operating expenses due to the Anna Knutsen being included
in the results of operations from March 1, 2018 and bunkers consumption in connection with the drydocking of the Brasil
Knutsen that was charged in the second quarter. This was partially offset by the insurance claim in connection with the
propeller repairs of the Carmen Knutsen.
General and administrative expenses were $1.4 million for the second quarter, compared to $1.3 million in the first quarter.
Depreciation was $22.3 million for the second quarter, an increase of $0.7 million from $21.6 million. The increase was mainly
due to the Anna Knutsen being included in the results of operations from March 1, 2018.
As a result, operating income for the second quarter of 2018 was $32.1 million compared to $31.9 million in the first quarter of
2018.
Interest expense for the second quarter of 2018 was $12.5 million, an increase of $1.9 from $10.6 million for the first quarter
of 2018. The increase was mainly due to the additional debt incurred in connection with the acquisition of the Anna Knutsen,
higher LIBOR rate on average and increased leverage as a result of the refinancing of the Torill facility which took place in the
first quarter of 2018.
Realized and unrealized gain on derivative instruments was $2.0 million in the second quarter of 2018, compared to
$10.0 million in the first quarter of 2018. The unrealized non-cash element of the mark-to-market gain was $1.8 million
for the three months ended June 30, 2018 compared to $9.2 million for the three months ended March 31, 2018. Of the unrealized
net gain for the second quarter of 2018, $3.0 million is related to mark-to-market gains on interest rate swaps and a loss of $1.2
million is related to foreign exchange contracts. Of the unrealized gain for the first quarter of 2018, $8.9 million is related to
mark-to-market gains on interest rate swaps and an unrealized gain of $0.2 million is related to foreign exchange contracts. The
unrealized gains in 2018 were as a result of an increase in the US swap rate.
As a result, net income for the second quarter of 2018 was $21.7 million compared to $30.7 million for the first quarter of
2018.
Net income for the second quarter of 2018 increased by $4.8 million from net income of $16.9 million for the three months ended
June 30, 2017. The operating income for the second quarter of 2018 increased by $6.0 million compared to the second
quarter of 2017, mainly due to increased earnings from the Vigdis Knutsen, the Lena Knutsen, the Brasil
Knutsen and the Anna Knutsen being included in the Partnership’s results of operations from June 1, 2017, September 30,
2017, December 15, 2017 and March 1, 2018, respectively. Total finance expense for the three months ended June 30, 2018
increased by $1.2 million compared to the second quarter of 2017, mainly due to additional debt due to the acquisitions of the
Vigdis Knutsen, the Lena Knutsen, the Brasil Knutsen and the Anna Knutsen, refinancing of the Hilda
facility and the Torill facility, and higher LIBOR margin. This was partially offset by an increase in realized and unrealized gain
on derivative instruments.
Distributable cash flow was $27.0 million for the second quarter of 2018 compared to $27.9 million for the first quarter of
2018. The decrease in distributable cash flow is mainly due to reduced earnings from the Brasil Knutsen as a result of its
53 days of offhire due to scheduled drydocking in the second quarter of 2018. This was partly offset by earnings from the Anna
Knutsen being included in the Partnership’s results of operations from March 1, 2018. The distribution declared for the second
quarter of 2018 was $0.52 per common unit, equivalent to an annualized distribution of $2.08.
Operational review
The Partnership’s vessels operated throughout the second quarter of 2018 with 100% utilization for scheduled operations and
96.3% utilization taking into account the scheduled drydocking of the Brasil Knutsen.
The Brasil Knutsen went offhire on March 29, 2018 for the mobilization trip to a shipyard in Portugal in order to
complete her planned 5-year special survey drydocking. The Brasil Knutsen went back on charter on May 24, 2018 in
Brazil.
On July 13, 2018, Shell exercised its option to extend the time charter of the Windsor Knutsen by one additional year
until October 2019. Following the exercise of the option, Shell has four one-year options to extend the time charter.
On August 3, 2018, the Partnership entered into amended time charter with Eni, extending the duration of the Hilda
Knutsen time charter for four years. Eni has three one-year options to extend the time charter.
Financing and Liquidity
As of June 30, 2018, the Partnership had $58.1 million in available liquidity, which consisted of cash and cash equivalents of
$45.1 million and $13.0 million of capacity under its revolving credit facilities. The revolving credit facilities mature
in June and August 2019. The Partnership’s total interest-bearing debt outstanding as of June 31, 2018 was $1,117.0 million
($1,109.3 million net of debt issuance cost). The average margin paid on the Partnership’s outstanding debt during the quarter
ended June 30, 2018 was approximately 2.1% over LIBOR.
As of June 30,2018, the Partnership had entered into foreign exchange forward contracts, selling a total notional amount of
$25.0 million against the NOK at an average exchange rate of NOK 8.09 per 1.00 U.S. Dollar. These foreign
exchange forward contracts are economic hedges for certain vessel operating expenses and general expenses in NOK.
As of June 30, 2018, the Partnership had entered into various interest rate swap agreements for a total notional amount of
$539.5 million to hedge against the interest rate risks of its variable rate borrowings. As of June 30, 2018, the Partnership
receives interest based on three or six month LIBOR and pays a weighted average interest rate of 1.82% under its interest rate swap
agreements, which have an average maturity of approximately 5.4 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 June 30, 2018, the Partnership’s net exposure to floating interest rate fluctuations on its outstanding debt was
approximately $493.0 million based on total interest bearing debt outstanding of $1,117.0 million, less interest rate
swaps of $539.5 million, less a 3.85% fixed rate export credit loan of $39.4 million and less cash and cash equivalents of
$45.1 million. The Partnership’s outstanding interest bearing debt of $1,117.0 million as of June 30, 2018 is repayable
as follows (prior to giving effect to the refinancing described below):
(U.S. Dollars in thousands) |
|
Period repayment |
|
|
Balloon repayment |
Remainder of 2018 |
|
$ |
41,362 |
|
|
$ |
18,427 |
2019 |
|
|
71,903 |
|
|
|
284,678 |
2020 |
|
|
61,083 |
|
|
|
— |
2021 |
|
|
61,683 |
|
|
|
70,811 |
2022 |
|
|
46,347 |
|
|
|
236,509 |
2023 and thereafter |
|
|
62,341 |
|
|
|
161,901 |
Total |
|
$ |
344,719 |
|
|
$ |
772,326 |
|
|
|
|
|
|
|
|
Refinancing
On September 4, 2018 the Partnership’s subsidiaries which own the Windsor Knutsen, the Bodil Knutsen, the
Fortaleza Knutsen, the Recife Knutsen, the Carmen Knutsen and the Ingrid Knutsen (“the Vessels”),
entered into new senior secured credit facilities in order to refinance their existing long term bank debt. The senior secured
credit facilities consist of a term loan of $320 million and a $55 million revolving credit facility. The term loan is repayable in
20 consecutive quarterly installments, with a balloon payment of $ 177 million due at maturity in September 2023. The term loan
bears interest at a rate per annum equal to LIBOR plus a margin of 2.125%. The revolving credit facility will mature in August
2023, and bear interest at LIBOR plus a margin of 2.125%. There is a commitment fee of 0.85% payable on the undrawn portion of the
revolving credit facility. The loans are guaranteed by the Partnership and secured by mortgages on the Vessels. The senior secured
credit facilities will refinance the previously existing term loan of $320.0 million and $35 million revolver credit capacity
secured by the Vessels which was due to mature between December 2018 and June 2019. Closing of the senior secured credit
facilities is anticipated to occur in mid-September 2018.
Distributions
On August 14, 2018, the Partnership paid a quarterly cash distribution of $0.52 per common unit with respect to the quarter
ended June 30, 2018 to all common unitholders of record as of the close of business on August 1, 2018. On August 14, 2018, the
Partnership also paid a cash distribution to Series A Preferred unitholders with respect to the quarter ended June 30, 2018 in an
aggregate amount equal to $1.8 million.
Outlook
The Partnership’s earnings for the third quarter of 2018 will be affected by the planned 5-year special survey drydocking of the
Hilda Knutsen and Torill Knutsen. Both vessels are operating in the North Sea and will undergo drydocking in Europe.
Each vessel is expected to incur offhire of approximately 18-20 days. Offsetting this offhire will be the Brasil Knutsen,
which is expected to operate for the entire third quarter after being offhire for 53 days in the second quarter due to its
scheduled drydocking. The Ingrid Knutsen is due for its 5-year special survey drydocking in the fourth quarter of 2018 and
is expected to incur offhire of approximately 18-20 days.
As of June 30, 2018, the Partnership’s fleet of sixteen vessels had an average remaining fixed contract duration of
4.1 years, after taking into account the contact extensions for the Hilda Knutsen and the Windsor Knutsen. In
addition, the charterers of the Partnership’s time charter vessels have options to extend their charters by an additional
4.4 years on average.
Pursuant to the omnibus agreement the Partnership entered into with Knutsen NYK Offshore Tankers AS (“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.
The Board believes that demand for newbuild offshore shuttle tankers will continue to be driven over time based on the
requirement to replace older tonnage in the North Sea and Brazil and further expansion into deep water offshore oil production
areas such as in Pre-salt Brazil and the Barents Sea. The Board further believes that significant growth in demand exists and that
this will continue for new shuttle tankers as the availability of existing vessels has reduced and modern operational demands have
increased. Consequently, there should be opportunities to further grow the Partnership.
About KNOT Offshore Partners LP
KNOT Offshore Partners owns operates and acquires shuttle tankers under long-term charters in the offshore oil production
regions of the North Sea and Brazil. KNOT Offshore Partners owns and operates a fleet of sixteen offshore shuttle tankers with an
average age of 5.0 years.
KNOT Offshore Partners is structured as a publicly traded master limited partnership. KNOT Offshore Partners’ common units trade
on the New York Stock Exchange under the symbol “KNOP.”
The Partnership plans to host a conference call on Wednesday, September 5, 2018 at noon (Eastern Time) to discuss the results
for the second quarter of 2018, and invites all unitholders and interested parties to listen to the live conference call by
choosing from the following options:
- By dialing 1-855-209-8259 or 1-412-542-4105, if outside North America.
- By accessing the webcast, which will be available for the next seven days on the Partnership’s
website:
www.knotoffshorepartners.com.
|
September 4, 2018 |
KNOT Offshore Partners L.P. |
Aberdeen, United Kingdom |
|
Questions should be directed to: |
John Costain (+44 7496 170 620) |
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
(U.S. Dollars in thousands) |
|
|
June 30,
2018
|
|
|
March 31,
2018
|
|
|
June 30,
2017
|
|
|
June 30,
2018
|
|
|
June 30,
2017
|
Time charter and bareboat revenues3 (1)
|
|
$ |
69,221 |
|
$ |
67,386 |
|
$ |
51,537 |
|
$ |
136,608 |
|
$ |
95,284 |
Loss of hire insurance recoveries |
|
|
450 |
|
|
— |
|
|
2,276 |
|
|
450 |
|
|
3,426 |
Other income (2) |
|
|
94 |
|
|
655 |
|
|
593 |
|
|
750 |
|
|
687 |
Total revenues |
|
|
69,765 |
|
|
68,041 |
|
|
54,406 |
|
|
137,808 |
|
|
99,397 |
Vessel operating expenses |
|
|
13,974 |
|
|
13,247 |
|
|
9,427 |
|
|
27,221 |
|
|
19,709 |
Depreciation |
|
|
22,332 |
|
|
21,574 |
|
|
17,372 |
|
|
43,906 |
|
|
33,125 |
General and administrative expenses |
|
|
1,350 |
|
|
1,345 |
|
|
1,493 |
|
|
2,695 |
|
|
2,962 |
Total operating expenses |
|
|
37,656 |
|
|
36,166 |
|
|
28,292 |
|
|
73,822 |
|
|
55,796 |
Operating income |
|
|
32,109 |
|
|
31,875 |
|
|
26,114 |
|
|
63,986 |
|
|
43,601 |
Finance income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
161 |
|
|
136 |
|
|
44 |
|
|
296 |
|
|
80 |
Interest expense |
|
|
(12,526) |
|
|
(10,594) |
|
|
(7,252) |
|
|
(23,119) |
|
|
(13,466) |
Other finance expense |
|
|
(288) |
|
|
(337) |
|
|
(328) |
|
|
(626) |
|
|
(630) |
Realized and unrealized gain (loss) on derivative instruments (3) |
|
|
1,968 |
|
|
9,977 |
|
|
(1,536) |
|
|
11,944 |
|
|
(1,017) |
Net gain (loss) on foreign currency transactions |
|
|
260 |
|
|
(330) |
|
|
(124) |
|
|
(70) |
|
|
(218) |
Total finance expense |
|
|
(10,425) |
|
|
(1,148) |
|
|
(9,196) |
|
|
(11,575) |
|
|
(15,251) |
Income before income taxes |
|
|
21,684 |
|
|
30,727 |
|
|
16,918 |
|
|
52,411 |
|
|
28,350 |
Income tax benefit (expense) |
|
|
(3) |
|
|
(3) |
|
|
(3) |
|
|
(6) |
|
|
(6) |
Net income |
|
|
21,681 |
|
|
30,724 |
|
|
16,915 |
|
|
52,405 |
|
|
28,344 |
Weighted average units outstanding (in thousands of units): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units |
|
|
32,694 |
|
|
32,694 |
|
|
29,694 |
|
|
32,694 |
|
|
29,694 |
General Partner units |
|
|
615 |
|
|
615 |
|
|
559 |
|
|
615 |
|
|
559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Time charter revenues for the second quarter of 2018, the first quarter of 2018 and
the second quarter of 2017 include a non-cash item of approximately $0.9 million, $1.2 million, and $0.8 million, respectively,
in reversal of contract liability and asset provision, income recognition of prepaid charter hire and accrued income for the
Carmen Knutsen and for the Brasil Knutsen based on the average charter rate for the fixed period. |
(2) |
|
Other income 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 Partnership's initial public offering. In October 2015, the Windsor Knutsen commenced operating under a new Shell
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 was paid by Knutsen NYK until April 15, 2018. |
(3) |
|
Realized gains (losses) on derivative instruments relate to amounts the Partnership
actually received (paid) to settle derivative instruments, and the unrealized gains (losses) on derivative instruments related
to changes in the fair value of such derivative instruments, as detailed in the table below: |
|
|
Three Months Ended |
|
Six Months Ended |
(U.S. Dollars in thousands) |
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Realized gain (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts |
|
$ |
57 |
|
$ |
(304) |
|
$ |
(938) |
|
$ |
(247) |
|
$ |
(1,607) |
Foreign exchange forward contracts |
|
|
134 |
|
|
1,105 |
|
|
(97) |
|
|
1,239 |
|
|
(166) |
Total realized gain (loss): |
|
|
191 |
|
|
801 |
|
|
(1,035) |
|
|
992 |
|
|
(1,773) |
Unrealized gain (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts |
|
|
2,995 |
|
|
8,946 |
|
|
(1,334) |
|
|
11,942 |
|
|
(275) |
Foreign exchange forward contracts |
|
|
(1,218) |
|
|
230 |
|
|
833 |
|
|
(990) |
|
|
1,031 |
Total unrealized gain (loss): |
|
|
1,777 |
|
|
9,176 |
|
|
(501) |
|
|
10,952 |
|
|
756 |
Total realized and unrealized gain (loss) on derivative instruments: |
|
$ |
1,968 |
|
$ |
9,977 |
|
$ |
(1,536) |
|
$ |
11,944 |
|
$ |
(1,017) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
(U.S. Dollars in thousands) |
|
|
|
|
|
|
At June 30,
2018
|
|
|
At December 31,
2017
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
$ |
45,085 |
|
|
$ |
46,104 |
Amounts due from related parties |
|
|
|
|
|
|
|
1,381 |
|
|
|
571 |
Inventories |
|
|
|
|
|
|
|
2,495 |
|
|
|
2,241 |
Derivative assets |
|
|
|
|
|
|
|
3,875 |
|
|
|
1,579 |
Other current assets |
|
|
|
|
|
|
|
2,199 |
|
|
|
5,610 |
Total current assets |
|
|
|
|
|
|
|
55,035 |
|
|
|
56,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Vessels, net of accumulated depreciation |
|
|
|
|
|
|
|
1,803,204 |
|
|
|
1,723,023 |
Intangible assets, net |
|
|
|
|
|
|
|
2,195 |
|
|
|
2,497 |
Derivative assets |
|
|
|
|
|
|
|
19,765 |
|
|
|
9,850 |
Accrued income |
|
|
|
|
|
|
|
2,577 |
|
|
|
1,693 |
Total Long-term assets |
|
|
|
|
|
|
|
1,827,741 |
|
|
|
1,737,063 |
Total assets |
|
|
|
|
|
|
$ |
1,882,776 |
|
|
$ |
1,793,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable |
|
|
|
|
|
|
$ |
4,866 |
|
|
$ |
5,224 |
Accrued expenses |
|
|
|
|
|
|
|
6,860 |
|
|
|
6,504 |
Current portion of long-term debt |
|
|
|
|
|
|
|
80,206 |
|
|
|
92,985 |
Current portion of derivative liabilities |
|
|
|
|
|
|
|
261 |
|
|
|
978 |
Income taxes payable |
|
|
|
|
|
|
|
18 |
|
|
|
175 |
Current portion of contract liabilities |
|
|
|
|
|
|
|
1,518 |
|
|
|
1,518 |
Prepaid charter and deferred revenue |
|
|
|
|
|
|
|
9,686 |
|
|
|
9,980 |
Amount due to related parties |
|
|
|
|
|
|
|
1,766 |
|
|
|
5,450 |
Total current liabilities |
|
|
|
|
|
|
|
105,181 |
|
|
|
122,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
1,029,053 |
|
|
|
933,630 |
Derivative liabilities |
|
|
|
|
|
|
|
— |
|
|
|
164 |
Contract liabilities |
|
|
|
|
|
|
|
5,963 |
|
|
|
6,722 |
Deferred tax liabilities |
|
|
|
|
|
|
|
632 |
|
|
|
624 |
Total long-term liabilities |
|
|
|
|
|
|
|
1,035,648 |
|
|
|
941,140 |
Total liabilities |
|
|
|
|
|
|
|
1,140,829 |
|
|
|
1,063,954 |
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Units |
|
|
|
|
|
|
|
89,264 |
|
|
|
89,264 |
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Partners’ capital: |
|
|
|
|
|
|
|
|
|
|
|
|
Common unitholders |
|
|
|
|
|
|
|
640,969 |
|
|
|
628,471 |
General partner interest |
|
|
|
|
|
|
|
11,714 |
|
|
|
11,479 |
Total partners’ capital |
|
|
|
|
|
|
|
652,683 |
|
|
|
639,950 |
Total liabilities and equity |
|
|
|
|
|
|
$ |
1,882,776 |
|
|
$ |
1,793,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
Other |
|
|
|
Series A |
|
|
|
|
Comprehensive |
|
Total Partners' |
|
Convertible |
|
|
Partners' Capital |
|
Income (Loss) |
|
Capital |
|
Preferred Units |
|
|
Common |
|
General Partner |
|
|
|
|
|
|
(U.S. Dollars in thousands) |
|
Units |
|
Units |
|
|
|
|
|
|
Consolidated balance at December 31, 2016 |
|
$ |
511,413 |
|
$ |
10,297 |
|
$ |
— |
|
$ |
521,710 |
|
$ |
— |
Net income |
|
|
61,651 |
|
|
1,160 |
|
|
— |
|
|
62,811 |
|
|
5,253 |
Other comprehensive income |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Cash distributions |
|
|
(64,307) |
|
|
(1,210) |
|
|
— |
|
|
(65,517) |
|
|
(3,453) |
Net proceeds from issuance of common units |
|
|
119,714 |
|
|
1,232 |
|
|
— |
|
|
120,946 |
|
|
— |
Net proceeds from sale of Series A Convertible Preferred Units |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
87,443 |
Consolidated balance at December 31, 2017 |
|
$ |
628,471 |
|
$ |
11,479 |
|
$ |
— |
|
$ |
639,950 |
|
$ |
89,264 |
Net income |
|
|
47,904 |
|
|
901 |
|
|
— |
|
|
48,805 |
|
|
3,600 |
Other comprehensive income |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Cash distributions |
|
|
(35,402) |
|
|
(666) |
|
|
— |
|
|
(36,068) |
|
|
(3,600) |
Net proceeds from issuance of common units |
|
|
(4) |
|
|
— |
|
|
— |
|
|
(4) |
|
|
— |
Consolidated balance at June 30, 2018 |
|
$ |
640,969 |
|
$ |
11,714 |
|
$ |
— |
|
$ |
652,683 |
|
$ |
89,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
(U.S. Dollars in thousands) |
|
2018 |
|
2017 |
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net income |
|
$ |
52,405 |
|
$ |
28,344 |
|
Adjustments to reconcile net income to cash provided by operating
activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
43,906 |
|
|
33,125 |
|
|
Amortization of contract intangibles / liabilities |
|
|
(456) |
|
|
(632) |
|
|
Amortization of deferred revenue |
|
|
(743) |
|
|
(743) |
|
|
Amortization of deferred debt issuance cost |
|
|
1,271 |
|
|
755 |
|
|
Drydocking expenditure |
|
|
(3,803) |
|
|
(3,800) |
|
|
Income tax expense |
|
|
6 |
|
|
6 |
|
|
Income taxes paid |
|
|
(172) |
|
|
(182) |
|
|
Unrealized (gain) loss on derivative instruments |
|
|
(11,253) |
|
|
(757) |
|
|
Unrealized (gain) loss on foreign currency transactions |
|
|
(44) |
|
|
(2) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease (increase) in amounts due from related parties |
|
|
(290) |
|
|
38,590 |
|
|
Decrease (increase) in inventories |
|
|
4 |
|
|
(216) |
|
|
Decrease (increase) in other current assets |
|
|
3,516 |
|
|
(1,914) |
|
|
Decrease (increase) in accrued revenue |
|
|
(884) |
|
|
(300) |
|
|
Increase (decrease) in trade accounts payable |
|
|
(1,222) |
|
|
71 |
|
|
Increase (decrease) in accrued expenses |
|
|
(656) |
|
|
826 |
|
|
Increase (decrease) prepaid revenue |
|
|
449 |
|
|
360 |
|
|
Increase (decrease) in amounts due to related parties |
|
|
(3,800) |
|
|
4,490 |
|
Net cash provided by operating activities |
|
|
78,234 |
|
|
98,021 |
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Disposals (additions) to vessel and equipment |
|
|
(10) |
|
|
(180) |
|
Acquisition of Tordis Knutsen (net of cash acquired) |
|
|
— |
|
|
(32,374) |
|
Acquisition of Vigdis Knutsen (net of cash acquired) |
|
|
— |
|
|
(28,321) |
|
Acquisition of Anna Knutsen (net of cash acquired) |
|
|
(15,376) |
|
|
— |
|
Net cash provided by (used in) investing activities |
|
|
(15,386) |
|
|
(60,875) |
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
145,500 |
|
|
130,000 |
|
Repayment of long-term debt |
|
|
(146,002) |
|
|
(167,460) |
|
Repayment of long-term debt from related parties |
|
|
(22,535) |
|
|
(70,663) |
|
Payment of debt issuance cost |
|
|
(1,114) |
|
|
(1,140) |
|
Cash distribution |
|
|
(39,668) |
|
|
(33,403) |
|
Net proceeds from issuance of common units |
|
|
(4) |
|
|
54,879 |
|
Net proceeds from sale of Convertible Preferred Units |
|
|
— |
|
|
87,443 |
|
Net cash provided by (used in) financing activities |
|
|
(63,823) |
|
|
(344) |
|
|
Effect of exchange rate changes on cash |
|
|
(45) |
|
|
35 |
|
Net increase in cash and cash equivalents |
|
|
(1,019) |
|
|
36,837 |
|
Cash and cash equivalents at the beginning of the period |
|
|
46,104 |
|
|
27,664 |
Cash and cash equivalents at the end of the period |
|
$ |
45,085 |
|
$ |
64,501 |
|
|
|
|
|
|
|
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, distributions on the Series A Convertible Preferred Units, 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 the common unitholders, the Partnership’s general
partner and holder of the incentive distribution rights. 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 KNOT Offshore Partners’ performance calculated in accordance
with GAAP. The table below reconciles distributable cash flow to net income, the most directly comparable GAAP measure.
|
|
|
Three Months Ended |
|
|
Three Months |
|
|
|
June 30, |
|
|
Ended March 31, |
|
|
|
2018 |
|
|
2018 |
(U.S. Dollars in thousands) |
|
|
(unaudited) |
|
|
(unaudited) |
Net income |
|
$ |
21,681 |
|
$ |
30,724 |
Add: |
|
|
|
|
|
|
Depreciation |
|
|
22,332 |
|
|
21,574 |
Other non-cash items; deferred costs amortization debt |
|
|
697 |
|
|
574 |
Unrealized losses from interest rate derivatives and foreign exchange currency
contracts |
|
|
— |
|
|
— |
Less: |
|
|
|
|
|
|
Estimated maintenance and replacement capital expenditures (including drydocking
reserve) |
|
|
(13,250) |
|
|
(12,776) |
Distributions to Series A Convertible Preferred Units |
|
|
(1,800) |
|
|
(1,800) |
Other non-cash items; deferred revenue |
|
|
(599) |
|
|
(600) |
Other non-cash items; accrued income |
|
|
(295) |
|
|
(589) |
Unrealized gains from interest rate derivatives and foreign exchange currency
contracts |
|
|
(1,777) |
|
|
(9,176) |
Distributable cash flow |
|
$ |
26,989 |
|
$ |
27,931 |
Distributions declared |
|
$ |
18,034 |
|
$ |
18,034 |
Distribution coverage ratio (1) |
|
|
1.50 |
|
|
1.55 |
(1) Distribution coverage ratio is equal to distributable cash flow divided by distributions declared for the period
presented.
EBITDA and Adjusted EBITDA
EBITDA is defined as earnings before interest, depreciation and taxes. 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). EBITDA is used as a
supplemental financial measure by management and external users of financial statements, such as our lenders, to assess our
financial and operating performance and our compliance with the financial covenants and restrictions contained in our financing
agreements. Adjusted EBITDA is used as a supplemental financial measure by management and external users of financial statements,
such as investors, to assess our 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,
goodwill impairment charges 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 |
|
|
Three Months Ended |
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
|
|
|
|
2018 |
|
|
2018 |
(USD in thousands) |
|
|
|
|
|
|
(unaudited) |
|
|
(unaudited) |
Net income |
|
|
|
|
|
$ |
21,681 |
|
$ |
30,724 |
Interest income |
|
|
|
|
|
|
(161) |
|
|
(136) |
Interest expense |
|
|
|
|
|
|
12,526 |
|
|
10,594 |
Depreciation |
|
|
|
|
|
|
22,332 |
|
|
21,574 |
Income tax expense |
|
|
|
|
|
|
3 |
|
|
3 |
EBITDA |
|
|
|
|
|
|
56,381 |
|
|
62,759 |
Other financial items (a) |
|
|
|
|
|
|
(1,940) |
|
|
(9,310) |
Adjusted EBITDA |
|
|
|
|
|
|
54,441 |
|
|
53,449 |
(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 common units
and to make distributions on its Series A Convertible Preferred 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
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;
- 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 its 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, 2017 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 on. 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.
1 EBITDA, Adjusted EBITDA and distributable cash flow 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, 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.
3 In May 2014, the Financial Accounting Standards Board (the “FASB”) issued accounting standards update (“ASU”)
2014-09 “ Revenue from Contracts With Customers (Topic 606) ” and subsequent amendments. The Partnership has adopted the new
revenue standard on January 1, 2018 and there is no impact on the adoption of this standard on the Unaudited Consolidated Financial
Statements.
KNOT Offshore Partners LP
John Costain, +44 7496 170 620
View source version on businesswire.com: https://www.businesswire.com/news/home/20180904005501/en/