Cool Company Ltd. Price & Performance (CLCO)

Adding to this pressure has been the number of sublets in the market, These are vessels that are delivered ahead of the project for which they are intended. And are typically chartered out into the market without much consideration of rate. Something that is negative for sentiment. With headline rates at these levels, longer term deals are few and far between. The spread between spot levels and the levels required to commit a vessel on a term basis are simply too great. SchoolCo is seeking to bridge such conditions through a combination of spot, short term and floating rate deals. John has a breakdown of our backlog on one of his slides. In the next slide, we have our observations from the market. Turning to Page five. We see a list of new supply in 2025. That was the case until Costa Azor announced a delay of a few months earlier this week and you see that now slipping until 2026. While this story of delays is getting old, it does mean there's precision around timing important, when thinking about the shipping market The most significant near term projects we see in the market are venture globals, The first Pluckashu Pass moves to commercial operations in April And while the plant has been operating for some time, it's only now that the vessels that were originally intended for lifting its cargoes will be doing We're moving such vessels from the subland market going to help and the pattern will be repeated as more projects come online.

La Comidas is the other venture global project that will be a major contributor over the coming months. It's up and running. I think they're up to around 15 cargoes. Corpus Christi Stage three trains one to four. Coming on stream steadily over the course of 2025 LNG Canada is a big project for the middle of the year And in the back end, we have a handful of projects in including the first of the Qatari Northfield expansion, projects potentially. Because a number of these projects only started the back end of the year, the ton mile development is only expected to be 4% in 2025. But 2026 is a different story where we see the full benefit of annual production flowing into the 17% expected growth. Michelle? One of CoolCo's customers published its 2025 LNG outlook earlier this week, and commented on seeing 600,000,000 tonnes per annum of demand by 02/1930. Increasing to up to 700,000,000 tonnes per annum of demand by 02/1940. This demand will ultimately be a huge opportunity for CoolCo Cool. Sheldon also had a list of the delay factors that we're all too conscious of geopolitical tensions, regulatory hurdles, start up risks, civil unrest, labor shortages, and supply chain bottlenecks.

None of these are going away and the industry needs to become better at factoring them into their fleet plans. However, it is very reassuring to see Shell's 02/1940 projection and how it is aligned with our long term view of the LNG market. Page six looks at the developments in idling and newbuilds. I have long said that steam turbine vessels leaving the fleet will eventually balance the market, and we're starting to see it in the data. The chart on the left hand side of the page shows how closely idle bell pretzels are correlated with vessels reaching twenty years in age. What's happening here is that vessels are rolling off their initial contract and immediately being idled rather than drydocked. All are now warm stacked at best. And unlikely to play an active role in the market going forward. The number of vessels reaching twenty years Naij, is set to increase over the coming year and these vessels are not being scheduled to lift cargoes. This is enabling the customers to specify larger cargoes for which our TFDE vessels are the ship of choice. [indiscernible] are particularly attractive because of their size, and also the upgrades we're in the course of progressing These specifications make them ideal replacement vessels for the steam turbine vessels that are leaving the fleet.

Leaving us well positioned to take over such business. Just as steam turbine vessels reach retirement, newbuild orders have all but dried up. This is only natural in the current rate environment obviously a good thing for vessels that are already on the water. Went Moving to Page [indiscernible] we have some other factors. That are explain the part of the other things that are impacting the market. And here we think about how changes could improve matters. The swift onset of poor market conditions be quickly reversed And let's think about how. Firstly, increased LNG supply resulting in lower prices will create demand in the price sensitive markets especially Asian markets, which are more distant and therefore require more shipping. Geopolitics, can have an impact too. China at the moment, take only 5% of U. S. LNG volumes. That's clearly needs to adjust as trade rebalances. The return of limited Russian gas to Europe resulting less demands in Europe and would see U. S. LNG traveling further. So again, something that's positive for shipping. Floating storage, could increase as a result of contango trades reappearing. [indiscernible] that's in a market where seasonality now apply not just in the winter, but also in the summer I think overall, it's going to increasingly become the case that LNG shipping is a highly leveraged option on the trading dynamics connected to the increased LNG supply.

The top right chart shows how TTF prices in Europe are dragging up LNG prices to levels that make it less attractive to the price sensitive markets, It also shows how the forward curve is flat and has very little money in it for traders. In a more normalized conditions, volatility in this curve results in ships having option value and being used more for storage. And the chart below bears us out. It shows how this last winter wasn't so much the case vessels used for storage was 10 to 15 fewer than what we typically see at that time of year. This added to the market softness it's something that we'll monitor going forward. Now moving to Page nine, and this is where I comment on the dividend. Not being declared. And here's why. Well, It's fundamentally while rates languish at below breakeven on open days, Our firm backlog of more than $1,000,000,000 across the fleet is reasonably well spaced, but this doesn't take away our exposure to vessels that come up. Open over time. Instead of predicting the timing of when markets normalize and risk getting it wrong, we've not declared a dividend. This increases our runway in the event of delays to more normalized markets and provides capacity for opportunistic growth. [indiscernible] The chart on the right hand side includes our breakeven levels for reference.

They of course reduce over time as debt is repaid at interest Cool. We took this decision through a position of strength We have more than €1,000,000,000 in firm backlog, We have €288,000,000 of liquidity at the end of twenty twenty four we're reporting strong operating results and we have no refinancings until mid twenty twenty nine. From here, John will take the quarter in more detail. Thanks, Richard. So I'll run you through the fourth quarter. Turning to Slide in our earnings release, earlier today, we reported TCE revenues of $18,800,000 dollars exceeding the guidance provided during our third quarter earnings call. This also marks an increase from the prior quarters $77,700,000 in TCE revenues, primarily driven a reduction in drydock days. Time and voyage charter revenues generated an average TCE rate of 73,900 per day across the fleet of 12 vessels in Q4. This compares to 81,600 in Q3 mainly the result of the newbuild vessel entering our fleet in mid October. Which operated in the spot market and one vessel finishing her contract during the quarter and also operating in the spot market. Total operating revenues of 84,600,000.0 surpassed both consensus estimates and Q3 levels. These figures include $3,100,000 in non cash amortization of net intangible contract assets and liabilities, along with around $700,000 in third party vessel management Adjusted EBITDA for Q4 reached $55,300,000 up from $53,700,000 in Q3 reflecting the increase in operating revenues.

To note, adjusted EBITDA does not take into account the €3,100,000 in non cash amortization that I mentioned previously. Vessel operating expenses averaged $17,000 per day per vessel during the quarter a decrease from Q3 and slightly lower than the full year average in 2024. Moving to Slide 11, where we show the bridge from Q3 to Q4. Both operating income and net income, Q4's operating income was $8,338,500,000.0 dollars sorry. Slightly lower than the 38,900,000.0 the previous quarter. This was driven by higher TCE revenues, offset by higher OpEx due to the addition of the Cool Tiger newbuild and its positioning expenses. The operating margin remained strong at 46% of operating revenues. Net income for the quarter was $29,400,000 up from $8,100,000 in Q3. This increase was primarily due to a $23,500,000 swing in net unrealized gains on mark to market interest rate swaps. Turning to Slide 12, as of December 31, our backlog exceeded €1,700,000,000 including all extension options. This equates to approximately sixty one years of backlog or an average of four point seven years per vessel. Across the entire fleet. Of 13 vessels. The average TCE rate of our firm backlog of approximately $1,000,000,000 is above $82,000 per day.

The chart on the left illustrates our backlog distribution over the next two years. Where near term coverage of consensus revenues remains robust Approximately 86% in 2565% in '26 Turning to Slide 13, where we show illustrative operating revenues It highlights the potential upside for 2526 revenues under different rate scenarios. Assuming an underlying rate of $20,000 per day for open TFDE days and an additional $20,000 per day premium for two stroke revenue opportunity is significant. If TFD spot rates were to rise to $70,000 per day, the outside potential exceeds €60,000,000 in $2,025,000,000 euros and €100,000,000 in 2026. To emphasize, these are not projections of rates for the respective years, but an exercise meant to show the company's performance in different hypothetical scenarios. [indiscernible] Also note at the low end of 20,000 per day for open TFDE vessels, as Richard has mentioned as well, is an extremely depressed level in any historical context. While such increases do not materialize overnight, it does underscore the increased earnings potential under improved market conditions. Turning to Slide 14, [indiscernible] In today's market environment, we are pleased to maintain a robust balance sheet with strong liquidity, no debt maturities until mid Over the past year, we effectively restructured most of our debt through refinancings and also covenant harmonizations reinforcing our financial flexibility.

The unwavering support from our lending partners has been instrumental in this process. Positioning us well for the future. As of December 31, cash and cash equivalents stood at approximately €165,000,000 up from €142,000,000 in the previous quarter. Largely due to the drawdowns under various financings Adjusted EBITDA was mostly offset by debt service income in the fourth quarter but note that our debt service in each of the second quarter and the fourth quarter of each year includes semiannual debt repayments. So these two quarters always show higher debt service amount In addition to the cash, we retained €123,000,000 in undrawn under the RRCF that we secured in December. And in addition to not have any debt maturities until '29, Our average interest rate is well below 67077% of our debt either hedged or fixed on a net debt basis.

To recap the presentation on Slide 15, In summary, we had strong revenues and operating results reflecting strong chartering performance The company delivered an adjusted EBITDA margin of 65% and an operating margin of 46%.

Our fleet remains well positioned with the majority of open days secured under the $1,700,000,000 backlog. Balance sheet is in good shape and should allow for opportunistic growth.

On the strategic front, our asset purchases in previous years show our disciplined asset management approach to drive value creation. Given the current depressed spot rates, [indiscernible] economic breakeven and even operating costs we maintain a prudent prudent long term focus. Should rates improve meaningfully from these levels, free cash flow should become available to shareholders again. With the financial overview concluded, Richard, I'm handing it over back to you. For some closing comments.

Thanks, John. The one thing I'd like to just emphasize there is the significant upside when start rates start to improve and normalize. And with that, Justin, please can you open up the lines to questions?

Thank you.

And for our first question, this comes from the line of Rod Mordecal from Clarksons Securities.

Hi, guys. On the dividends, Tom first out there. I noticed you mentioned of course, it's taken from a position of strength and it's prudent to cut the dividend, which makes totally sense. But you also mentioned in the slides on Page nine.

Yes. You've considered the runway in the event of delays. Right? So maybe maybe you could talk about that consideration given what you have in terms of backlog and the balance sheet you have? What's how would you consider the runway? Sure. Yes. Obviously, the runway is something that we've felt the need for as rates have come down and we felt the need for a longer runway and hence the decision that we took And of course, what we typically do is look at where we have significant refinancing needs, which in our case are way out in 2029. And we have a balance sheet which can basically accommodate whatever the market throws at us between now and then now our [indiscernible] is that things will get better. Way, way, way in advance. So then.

But if they don't, then we can accommodate it. [indiscernible] the CapEx you've had in terms of upgrades and stuff like that, how that looking from now on? It's looking very good for a couple of reasons. And the it's only something that's actually been incurred on one vessel so far, which is now back on the water. The other vessels are getting in and out of the yard over the next few weeks and months. But on the vessel that we upgraded We have been making upside in excess of $5,000 a day. And that means under the terms of its contract, the total upside has been $10,000 a day and we've been sharing that with the Scotia. So there's real money in those upgrades. And I think almost more importantly in this market, it makes the vessels that much more attractive to charters and it helps with the employment of the vessels. So either way, we're getting good value out of those upgrades.

Okay.

On the market I noticed the layup slide you had on steam, but how the How would you consider the TFDE economical this [indiscernible] What's the layup cost today if you wanted or somebody in the industry wanted to layup ownership? Depends whether it's a sort of cold stack or warm stacking. I guess, in drilling terms. You save a bit of money if you're going to warm stack. Because you can reduce the number of crew on board and you also need less consumables. So there is something up of a saving [indiscernible] Does that answer the question or are you thinking about it slightly differently? No, I guess you haven't really considered doing that, I guess, It seems like people are trying to keep the ship cool, right? And then hoping for a turnaround, but at some point, I guess, people are need to consider idling a ship for a while. [indiscernible] Yes. I think that's what you referred to there, Frode, is like the first step. The first step is at what point do do people say we're not going to take heel? Allow the ship to wall up. And we haven't reached that stage on any of our ships.

But we know others that have and The issue with that and what makes people very reluctant to do it is that can ship back online again costs about $500,000 because you need to get it and you can do the math. So these kinds of grades, you need a jolly long contract in order to amortize that kind of amount of that kind of expense. So we are seeing a lot of vessels which have got warm. And plays across almost all asset [indiscernible] [indiscernible] So that's kind of the first step. And the next step is actually laying up properly where you go to an anchorage and then you finally get to the the step where things literally get mothballed and nothing or nothing Nothing other than the older steamships are in that kind of position. Okay. That's cool. Cool question I had is on scrapping. Why haven't to be seen more scrapping on the old steamers yet? I tend to look at idling more than more than scrapping because I just think there's a backlog building And whether they're idling or scrapping, they are are effectively out of the market for all intents and purposes.

Sure. Great. Thank you.

Thank you. Our next question comes from the line of Liam Burke from B. Riley. Your line is open. Thank you. Hi, Richard. How are you today?

Fine. Thanks, Lianne. How are you doing? I'm doing fine. Thank you. I think it's I mean pretty much can [indiscernible] supply of LNG carriers are going to be awfully tight.

Some people are speculating there'll even be a shortage In your prepared comments, you said that charters, I mean, there's very little discussion on any kind of long term charter. Understanding that A year and a half from now possibly, there's going to be a tightness of supply why isn't there more discussions about this?

Or charter is trying to grab assets while they can't.

Well, at the moment, the bid ask spread is is quite large. And I was talking a little bit about our runway. I mean, I think the actual charters, they view themselves as having a bit of runway as well.

Before they have to have to worry too much. So They are there and they've been sitting on their hands We're seeing a few signs they might be starting to I don't know, want to rig on their hands free. But it's very early stages as of now. I think fundamentally for these guys, a longer term deal is going to be still in the high 80s. And very, very difficult to take up to your management a deal at that kind of level. When they're looking at the press and they're seeing the spot market at levels that it is today.

Okay. You also mentioned the current state of the spot market, which I mean is pretty indescribable at this point, Just creating opportunities for assets coming online. Have you seen an attractive pipeline and how would you manage balance Attractive asset values with having to own this vessel through [indiscernible] unpredictable period of tough times. [indiscernible] to get right, obviously, if you want to get down that path. It's exactly the way you got to think about it. And then the added sort of complicating factor in the LNG space is that there isn't a liquid market for these these assets. So it's not like drybulk [indiscernible] the deal is happening day in, day out and you've got reference points. So we'll obviously we've got in our mind what prices make sense for what kind of vessels We'll have to see if we get into a landing zone for a deal. But obviously, in this kind of market, it's quite possible if we find the right kind of deal, it will be a nice opportunity to grow the business. And create some more value. Great. Thank you, Richard. Thank you, Liam.

Again, Our next question comes from the line of Clement Mullins from Value Investors. [indiscernible] the line is open.

Most has already been covered, but I wanted to follow-up has already been covered, but I wanted to follow-up on Frode's question on the dividend.

As well as on Laim's last question.

You mentioned that part of the reasoning for cutting the dividend was also to set you up to potentially acquire some vessels on the road. [indiscernible] could you give us some more commentary About How you currently view the trade off between potential growth, let's say, and repurchases?

It's a good question. And there's sort of three things that you've got to [indiscernible] distribution via repurchases and then distribution via via dividend.

We have very much left the repurchase program in place So we do believe that there's value to be created there. And of course, that is that you can move on quite quickly when the time is right. And ultimately, I think it's what any sort of growth opportunity is going to be measured against.

Makes sense. Thanks for the color. You also mentioned that vessels used for storage this year have been kind of lower than in previous years. And I was wondering, on top of the lower volatility, in the TTF, have you seen any other large drivers for the trend?

No. But I think it is very much Well, I mean, it is the very flat curve. That's driving that trend. Now why have we got a flat curve There's a few reasons. I mean, I think we've gone from a market which was very much focused on the winter season Now you have a bit more of a winter season and a summer season. That's because the air conditioning demand in the more emerging LNG markets which in itself doesn't make the contango go away. Because you still got the shoulder periods in between. But I think what has created some of the issue This year, is that it's the refilling of storage. In Europe. And that has sort of elevated the price of the LNG in periods where maybe you wouldn't normally have expected it to be quite so high. Which of course has taken away that contango that the traders like to trade around.

Yeah. That makes sense. I'll turn it over. Thank you for taking my questions. Thank you very much, Claude.

Thank you. And your next question comes from the line of Nino Thompson from Hernie Securities.

The line is open. [indiscernible] Just quickly on Cool Tiger, and I guess it ties a bit into the other questions. But is it the most likely outcome that you're going to enter some sort of an index deal and then at a fixed rate, [indiscernible] or are you looking at other sort of setups?

And if it's the index with fixed, at what point do you think that charters are are willing to commit on on fixed charter rates, Thomas?

Is it '27? Is it '28? Where do you see sort of the demand for that?

Yes, I think that having a floating type deal is a good way to bridge any valuation disconnects between [indiscernible] and the charters, so we could well go down that route. We do think there's quite a lot of demand for 2027 and certainly 2028 for longer term. Business. That's the kind of business where people charges are still sitting on their hands, because they don't feel they need to lock that in quite yet. But of course, vessel is eligible for that business and maybe something which combines that kind of deal with something floating in in the short term. Is something that I could definitely foresee. And then you've got this other category of [indiscernible] actually do have near term demand, but of course they're wanting to use their bargaining power at the moment to try and get a very, very good deal. So our job is to try and flush that out a little bit and maybe [indiscernible] But when you've got a market of other owners looking to looking to compete for business like that It takes real discipline on the part of the market to actually win those business at half decent rate.

Yes, that's good Cool. Thanks. Thank you. And seeing as there are no more questions in the queue, that concludes our question and answer session. I will now turn the call back over to our CEO, [indiscernible] Thank you, Dustin, and thank you for everybody who's dialed into the call and for those who asked some excellent questions. Those who will be in Norway next week, I'll be at the DNB conference, so see you there. And then for those which are or those who are attending the Capital Link at the March in New York, I'll be there also. So hopefully, we'll see a few people at those events. And if not, catch you next time. Thank you.

The meeting has now concluded.

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