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DATE
Wednesday, May 21, 2025, at 8 a.m. EDT
CALL PARTICIPANTS
Chief Executive Officer — Richard Tyrrell
Chief Financial Officer — John Boots
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TAKEAWAYS
Total Operating Revenues: Total operating revenues were $85.5 million for Q1 2025, primarily due to higher revenue from vessel deliveries and more on-hire days, partially offset by dry dockings.
Time Charter Equivalent (TCE) Rate: The average TCE rate was $70,600 per day for Q1 2025, compared to $73,900 per day in Q4 2024, reflecting increased repositioning expenses and redelivery costs.
Adjusted EBITDA: Adjusted EBITDA totaled $53.4 million for Q1 2025, compared to $55.3 million in Q4 2024; calculation excludes $3.7 million in non-cash amortization.
Net Income: Net income totaled $9.1 million for Q1 2025, down from $29.4 million in Q4 2024. The decrease was due to both lower operating income and a negative $14.3 million swing in the mark-to-market value of swaps in Q1 2025.
Operating Margin: 41% of operating revenues, despite the decline in operating income.
Contracted Revenue Backlog: Total contracted revenue backlog exceeded $1.6 billion as of March 31, 2025, representing approximately 59 vessel years or an average of 4.5 years per vessel
Charter Coverage: 83% contract coverage for the remainder of 2025; approximately 72% coverage from now through the end of 2026; and 63% contract coverage through 2027 based on vessel days.
Spot Market Exposure: Ongoing spot market exposure on select vessels allows for participation in potential market upside through floating rate contracts with upside-sharing, as recent charters include variable elements and market-aligned base rates plus approximately $5,000 per day tied to operating parameters and LNG prices.
Average Vessel Operating Expenses: Average vessel operating expenses were $16,300 per day per vessel for Q1 2025, down from approximately $17,600 per day in the same period a year ago; trend attributed to completion of dry docks and addition of newbuilds.
Liquidity: Cash and equivalents totaled $136 million as of March 31, 2025, with $120 million in undrawn RRCS capacity as of March 31, 2025, resulting in total available liquidity of $256 million as of March 31, 2025.
Share Repurchases: 692,000 shares were repurchased after the quarter as of May 16, 2025, at an average price of $5.59, reducing the share count by 1.3% as of May 16, 2025.
LNG Market Dynamics: The company cited a projected LNG supply increase of over 20% from 2024 levels by the end of 2026, with an additional 6% growth in LNG supply in 2027 and 10% LNG supply growth in 2028, positioning market for increased shipping demand.
Fleet Utilization and Drydocking: The company has three additional dry docks planned over the next 12 months; completion of the dry dock cycle is expected to further reduce off-hire and support earnings.
Interest Rate Exposure: The company’s average interest obligations were approximately 5.7% as of March 31, 2025, and 75% of debt was either hedged or fixed as of March 31, 2025, following $248 million in interest rate swaps.
Debt Maturity Profile: No debt maturities until mid-2029, supporting financial stability post-2024 refinancing and covenant harmonization.
Asset Pricing: Richard Tyrrell said, "for two strokes, they have gone from costing something just shy of $200 million, maybe five years ago, to something closer to $260 million at the peak. They have maybe come off slightly. But, they have come off to $250 million, let us say."
Chinese Leasebacks & Regulatory Exposure: Vessels under Chinese leasebacks are not affected by new U.S. regulations on port fees until at least 2029-2030, according to management review.
SUMMARY
Cool Company (CLCO -1.63%) reported sequential growth in operating revenues, with higher utilization of newbuild vessels and contract backlog mitigating continued spot market weakness.
Share repurchases began in April and May 2025 at prices substantially below reported net asset value, signaling capital discipline and confidence in intrinsic value.
Management outlined that a substantial wave of LNG supply growth over the next three years is expected to absorb recent excess vessel deliveries, with visibility on long-term charter opportunities improving as a result. The balance sheet was further strengthened through debt refinancing and the extension of maturities, while the company executed significant interest rate swaps covering three-quarters of its notional debt as of March 31, 2025. During the call, management affirmed that drydock completions and new vessel additions are driving sustained reductions in daily vessel operating expenses.
CEO Tyrrell stated, "We fixed two ships during the first quarter, reducing our exposure on TFTEs to just two vessels in the second half of this year."
CFO Boots said, "The operating margin remained strong at 41% of operating revenues for Q1 2025."
Management confirmed average firm and floating backlog rates were approximately $78,000 per day as of March 31, 2025, indicating higher contracted rates compared to current spot market levels.
LNG market potential is heightened by reduced European storage levels and new U.S. liquefaction projects nearing production, which may boost ton-mile demand if Asian markets increase cargo pull.
Charterers are showing interest in longer-term charters, particularly for newer vessels, though current market contango leads to term levels "significantly above" prevailing spot rates, according to CEO Richard Tyrrell.
INDUSTRY GLOSSARY
TFDE: Tri-fuel diesel electric; a type of LNG carrier propulsion system offering higher efficiency over older steam turbine vessels.
TCE (Time Charter Equivalent): Daily revenue earned by a vessel, standardized to remove variability between voyage and time charters.
RRCS: Revolving credit and security facility; a flexible credit agreement providing additional cash access for operational or expansion needs.
Ton-mile Demand: A measure of shipping demand that multiplies cargo volume by distance traveled, critical in the assessment of LNG carrier needs.
Full Conference Call Transcript
Richard Tyrrell: Hello, and I would like to welcome you all to the Cool Company Ltd. presentation of the First Quarter 2025. Carly, thank you for the introduction. We will begin on page three with Cool Company Ltd. at a Glance. Those who recall the last quarter's presentation will notice many of the same trends are continuing. And while rates on our open vessels remain under pressure, we are moving steadily closer to a rebalanced market. As this process unfolds, we intend to remain patient, disciplined, and focused on maximizing long-term shareholder value. In the meantime, we are working hard to deliver full employment for our vessels at the best possible rates. We also have a dry dock program to execute.
As highlighted in the headlines, on page four, we summarize the quarter. We achieved an average TCE of $70,600 per day, slightly lower than in the last quarter, primarily due to an increase in repositioning expenses. For example, the GAL saga was delivered in Korea and repositioned to the US Gulf for the start of this fourteen-plus-two-year charter to Gale at a cost of $1.9 million. We are not expecting to see the same level of these types of one-offs next quarter. $85.5 million in Q1, up from $84.6 million in Q4. The adjusted EBITDA for the period was $53.4 million. As mentioned, GAL saga was successfully delivered.
In addition, we secured floating and fixed rate employment on two vessels that came available during the quarter. One charter has already started, and the other starts in the third quarter of 2025. Both the vessels are equipped with LNG upgrades where we benefit from the upside sharing with the charterer. Our other newbuild vessel called Tiger has essentially achieved near continuous employment in the spot market over the period and has since continued in this state while we pursue long-term charter opportunities for this vessel. Because of our exposure to the spot market, the charts are showing some negative trends. However, these are mitigated by our strong backlog.
We also completed two drydocks in the quarter, which resulted in scheduled off hire. Having completed six of this cycle's dry docks by the end of the quarter, we have another drydock since, we only have two more of our TFDEs to go along with two-strokes. Once our dry dock program is complete, they will lose the ship icons from the chart, and the off hire that comes with them. And this will be supportive of EBITDA. So now turning to slide five, we have some strong market slides this quarter that aim to both explain why LNG carrier rates have declined and highlight potential catalysts for a recovery.
A key dynamic to understand is why so many cargoes have been delivered into Europe. This story revolves around the cold winter that needs to restock and healthy LNG prices for the time of year. Due to a cold winter, European storage levels have dropped to 34% in April, significantly lower than the 60% reached at the same time last year. This means more gas needs to be replenished and elevated gas prices for the time of year. LNG demand has also been supported by reduced pipeline flows into Europe. With the current TTF price of well over $11 per MMBtu compared to around $8 per MMBtu this time last year, setting the LNG price.
It is too expensive for many markets, particularly when alternatives like coal are trending downwards in price. This means we are yet to see a pull from the east for cargoes, and we are looking towards storage reaching a level where demand debates, prices moderate, etcetera, and this pull returns. The far right bar on the chart shows European storage levels rebounding to nearly 45% this month, which is encouraging given that we still have ten days left to run. Our expectation is that LNG prices will decline once Europe reaches more comfortable storage levels.
This will be positive for price-sensitive buyers in the east, which in turn is good for LNG shipping as longer voyage distances drive higher ton-mile demand. So to further emphasize the point, with data page six shows just how much destination-flexible US LNG has been shipped to Europe. It reached 80% in March and remained close to that level in April, compared to less than 50% during the summer of last year. If LNG is not going to Europe, it is going to Asia. And the shipping sector is eagerly anticipating such a pivot.
Beyond fundamental market dynamics, it is also worth noting the potential for countries to increase LNG imports as a way to help address trade imbalances with the US. For example, Chinese offtakers sold fifteen cargoes of LNG into Europe during the first quarter, and if these cargoes have instead been delivered to China, approximately twelve additional ships would have been needed annually. Multiply this up for the portfolio players, also sending cargoes east, and its significance becomes clear. Turning to page seven, if the market is going to improve from a shipping perspective, we would expect to see it reflected in shipping distances and ton miles.
The metric is particularly strong at the moment, but recent years suggest that longer shipping distances typically begin to pick up from the start of the second quarter, which would support demand. Demand for accelerated restocking in Europe is unhelpful, but ultimately finite. Page number eight serves as a reminder of how much new LNG supply is coming and coming soon. In sharp contrast to the very flat supply growth we saw in 2024, 2023 if you go further back, that is shown in the chart. As projects near completion, timing is increasingly certain, and both this year and next present real catalysts for LNG shipping.
Venture Global has already announced production at 140% of nameplate capacity at Plaquemines, Corpus Christi is well underway with its ramp-up, and LNG Canada is expected to deliver significant volumes starting in the third quarter. Qatar's Northfield expansion project is scheduled for delivery in phases across 2026, 2027, and 2028. Even the first train at Golden Pass is getting back on track and scheduled to start production late this year, which means the volumes will come in 2026. In total, LNG supply is projected to increase by over 20% from 2024 levels by the end of 2026. With a further 6% growth in 2027 and an additional 10% growth in 2028.
This is the wave of supply that the LNG shipping industry is ramping up to transport. The ships that arrived early during the current period of flat LNG supply have dragged the market down. But this period is coming to an end, and they will steadily be absorbed by new LNG supply. With that, let me return to the market during the quarter and turn to page nine. As you know, market conditions have been challenging. And rates have yet to recover significantly. In this environment, Cool Company Ltd. is pursuing a portfolio strategy aimed at managing risk.
In practice, this means being positioned to capture upside on a limited number of vessels while taking on enough coverage to stagger our exposure. We fixed two ships during the first quarter, reducing our exposure on TFTEs to just two vessels in the second half of this year. One charter is for twelve months starting in April, while the second is on a variable rate basis with a floor commencing in August. Both the charters include upside sharing mechanisms which allow us to share the benefits of the recent upgrades with the charters.
The base rates are in line with the market and for that, you should add approximately $5,000 per day in upside sharing, which depends on the operating parameters and prevailing LNG prices. As noted, the second vessel is the Cool Husky and she is being traded in the spot market during an interim period. John has applied conservative assumptions for this in his second quarter guidance. Page ten provides an overview of the two-stroke market. The market has seen a record number of spot fixtures allowing Cool Company Ltd. to achieve nearly full employment for the Cool Tiger. Spot market rates are above recent lows as we enter a period that historically has seen seasonal strengthening.
Charters remain relatively comfortable with taking near-term spot market risk, which does limit the opportunity for term business. Widespread uncertainty related to geopolitics, tariff policy, and their impacts on trade patterns is another source of hesitation for certain charters. But it does not take away the fixed and tangible nature of their long-term LNG shipping needs and this is prompting inquiries into securing tonnage on a multi-year basis. In a positive signal, for the longer-term two-stroke markets, Capital recently announced two term charters starting in 2027, reportedly at reasonable rate levels. And Cool Company Ltd. remains confident that it will secure long-term employment for the Cool Tiger at strong rates in due course.
Turning to page eleven, lastly, before I hand over to John for a more detailed look at the quarter, I would like to close with a few comments on LNG vessel supply and the rebalancing that is currently taking place. Some might argue that the number of vessels ordered during the 2022 to 2024 period was excessive. And while we see these ships being absorbed through new volumes and replacement demand, LNG ordering has all dried up in 2025. A typical market response that is positive for the prospects and the value of existing vessels in the more medium term. We track idle vessels as an indicator of replacement demand.
And in the charts on the right, we are seeing a strong and growing correlation between vessels reaching twenty years of age under retirement. Are the new builds delivering? Only around twenty-nine remain open compared to replacement demand of up to sixty vessels by the end of 2026. That is a good market, and it is the way in which the market helps balance the soon-to-be-delivered vessels. This is thanks to their greater efficiency and lower unit rate costs. They will continue to displace older tonnage as part of a natural rebalancing process and this is something that is now playing out with increased speed. John, over to you. I will now provide an overview of the first quarter.
Turning to slide twelve, in our Q1 earnings release, earlier today. We reported total operating revenues of $85.5 million exceeding the guidance provided during our last earnings call. This also represents an increase from the prior quarter's revenue of $84.6 million primarily driven by a combination of higher revenue from our second newbuild, Miguel Sagar, which was delivered in early January, and increased on hire days for the other new build, the Cool Tiger, as it secured spot charters. These gains were partially offset by two vessels undergoing drydock during the quarter. Total operating revenues also include $3.7 million in non-cash amortization of net intangible contract assets and liabilities as well as $740,000 in third-party vessel management revenues.
Time and voyage charter revenues generated an average TCE rate of $70,600 per day across our fleet of thirteen vessels. Compared to $73,900 in the fourth quarter. The decrease reflects higher periods related to repositioning and redelivered vessels for the spot market and moving the new build Gale Sagar from its delivery location in Korea to its first loading terminal. Adjusted EBITDA for the quarter was $53.4 million, down from $55.3 million in Q4. Due to increased vessel operating and voyage-related expenses, associated with the newbuild delivery. Notably, adjusted EBITDA excludes the $3.7 million in non-cash amortization often a source of variance versus consensus estimates.
Moving to slide thirteen, as of March thirty-first, our total contracted revenue backlog exceeded $1.6 billion including all extension options. This represents approximately fifty-nine vessel years of backlog. Or an average of four and a half years per vessel across our fleet. Recent charter announcements further reinforce our strong backlog coverage and we remain focused on securing additional long-term contracts. The average TCE rate on our firm and floating backlog of approximately $1 billion is around $78,000 per day. For the remainder of 2025, our contract coverage measured in vessel days is approximately 83%.
Looking further ahead from today through the end of 2026, the coverage is roughly 72% and from today through the end of 2027, it is on average or cumulative 63%. With new LNG volumes coming online, and the expected extensive scrapping of aging steam turbine vessels after they come off contract, we are well-positioned to benefit from additional charter opportunities and further build on our backlog base. Moving to slide fourteen, with the completion of several dry docks, some of which included performance upgrades to our existing vessels, alongside the addition of two new builds, our vessel operating expense per day per vessel is trending in the right direction.
In the current quarter, average vessel operating expenses were $16,300 per day per vessel, across the fleet of thirteen vessels. A decrease from both Q4 and the average 2024 run rate and also down from approximately $17,600 per day a year ago. From the second quarter of 2024 through early 2025, we saw successfully completed the dry docks for seven vessels delivered on time and within budget. Strong adherence to the drydock schedule minimized downtime and ensured uninterrupted service post-completion. Looking ahead, we have three more dry docks planned over the next twelve months. And we expect to continue realizing the benefits from operational efficiencies and economies of scale. Moving to fifteen, for the operating and the net income bridges.
Operating income for Q1 was $34.6 million, a decrease of $3.9 million versus the last quarter. The decline was driven by higher time and voyage charter revenues, which were more than offset by increased positioning expenses as well as vessel operating costs related to the addition and position of the newbuild, Gale Sagar. Despite the decline, the operating margin remained strong at 41% of operating revenues. Moving to the chart on the right, the net income for the quarter was $9.1 million, down from $29.4 million in Q4.
In addition to the lower operating income, this decrease was also due to $2.8 million in interest expenses associated with the new build, the Gale Sagar, which began accruing on its delivery date on January sixth. And it is also due to a $14.3 million swing in the fair value of our mark-to-market swaps shifting from an unrealized gain of $9 million in Q4 to an unrealized loss of $5.3 million in Q1, which is a factor of the development of market interest rates. Turning to slide sixteen, the balance sheet and liquidity. Following our successful refinancing initiatives, in 2024 we are pleased to maintain a strong balance sheet in today's environment.
Characterized by solid liquidity and no debt maturities until mid-2029. To recap, in 2024, we refinanced a portion of our debt and implemented further covenant harmonization measures. Enhancing our financial flexibility. As of March thirty-first, our cash and cash equivalents totaled approximately $136 million. And you can see in the movement from the starting cash and the ending cash, that we took delivery of the Gale Sagar and its final yard payment was financed. To a sale and leaseback arrangement. We entered into $50 million in interest rate swaps during the quarter. And executed an additional $198 million in swaps subsequent to quarter end. Covering two of our debt facilities.
Our average interest rate obligations currently stand at approximately 5.7% with three-quarters of our notional debt either hedged or fixed. On the liquidity slides, we also retain approximately $120 million in undrawn capacity under the RRCS. That we secured in December 2024. Resulting in total available liquidity of $256 million. Subsequent to the quarter, during April and May 2025, the company initiated purchases under its previously announced share repurchase program. As of May sixteenth, we have repurchased approximately 692,000 shares at an average price of $5.59 per share. Well below our net asset value per share. And reducing the total share count by 1.3%.
Going forward, the timing, pricing, and the amount of any additional repurchases will depend on the various factors, including market conditions, and the company's financial position. Moving to slide seventeen, in summary, given the current LNG market conditions, and the charter rates, especially in the spot market, we retain a strong financial runway while preserving flexibility for growth. Our solid revenue and operating performance reflect our effective chartering strategy with the company delivering an adjusted EBITDA margin of 62% and an operating margin of 41%. The fleet remains well-positioned with the majority of open days covered under our $1.6 billion revenue backlog. Our balance sheet remains healthy and supports the potential for opportunistic expansion.
Strategically, our selective asset acquisitions in the past have demonstrated a disciplined approach to value creation through active asset management. Our strong balance sheet and available liquidity also provide optionality to pursue corporate transactions should attractive opportunities arise. In light of current depressed spot market rates, which remain below economic levels, we continue to take a prudent long-term view. And with that, I open the line for questions, Carly.
Operator: At this time, I would like to remind everyone in order to ask a question, your first question comes from Alexander Bidwell with Webber Research Advisory.
Alexander Bidwell: Good afternoon, Richard. Appreciate the time. So where are you seeing the tipping point with respect to terms or fixed rate versus floating rate charters? Is the appetite for fixed rate deals more or less capped at twelve months or are you seeing any interest in longer durations?
Richard Tyrrell: Hey, Alexander. We are seeing interest in longer durations. How much depends a little bit on the type of vessel, of course, it is greater interest for the newer vessels. When it comes to longer-term charters as typically been the case. But even for the TFTEs, they are interested. Anything up to three, four, even five years in terms of duration. Of course, with respect to that kind of interest, the question is whether the types of rates are interesting. And generally, there is, I guess you call it contango in the market where the near-term rates, you can sort of maybe sort of get comfortable with or you just sort of have to accept.
But I do not think any owner in the market is thinking these rates are going to be what they are today in three, four, five years' time. So, if there is interest in a longer-term charter, the levels are significantly above where they are today. Which sometimes results in charters accepting or getting something a little bit shorter. Alright. Appreciate the color.
Alexander Bidwell: And then just taking a look at the market, so that three to five years from now, we are looking or we are seeing the amount of uncontracted volumes coming out of the US Gulf ramping materially. How do you see those portfolio and merchant volumes impacting the carrier market?
Richard Tyrrell: Well, I think, could you highlight that? Because I think one thing which it is easy to underappreciate when talking about these volumes, quarter in, quarter out. Is that a lot of them are still yet to arrive. And I highlighted that in one of my slides where it shows that supply was really flat over the last twelve months, and even longer if you go back. And now we are seeing these volumes that are coming. And they are getting really are coming now. They are already here in the case of the Venture Global volumes, for example. So they are going to make a material difference to the market.
How much of a difference they will make will depend on where the molecules go, of course, that drives the shipping requirements. And there is quite a range. If the molecules go to Europe, the number of ships they need is far fewer than if the molecules go to Asia. And it is that will be the real pivot factor when it comes to LNG shipping in our opinion.
Alexander Bidwell: Alrighty. Thank you. I will turn it back over.
Richard Tyrrell: Thanks, Alexander.
Operator: Your next question comes from Liam Burke with B. Riley.
Liam Burke: Thank you. Hi, Richard. Hi, John. How are you today?
John Boots: Good. Thanks. Hi, Liam. Good.
Richard Tyrrell: Good. Thanks, Liam.
Liam Burke: Richard, we are seeing an aging fleet at one end and we are seeing more production inevitably coming down the road. Where are asset prices for non-older vessels?
Richard Tyrrell: That is still quite high. And very much sort of hanging off the new builds. Levels. So of course, for two strokes, they have gone from costing something just shy of $200 million, maybe five years ago, to something closer to $260 million at the peak. They have maybe come off slightly. But, they have come off to $250 million, let us say. Not a big change in percentage terms. And people's expectations when they do float vessels for sale in the market are anchored on those kinds of levels.
Liam Burke: Fair enough. I know you have flexibility, and I also know you have patience. But is there any potential to add to the fleet?
Richard Tyrrell: We are always looking for opportunities, Liam. And we have been, reasonably effective, I think, in the past. When we have added. But you have got to be disciplined. And at the moment, we have not yet found a landing zone. In respect of the opportunities that are out there. That is not to say one will come and we always look at, look at such things.
Liam Burke: Great. Thank you, Richard.
Operator: Again, if you would like to ask a question, press. Your next question comes from Bendix Knittingness with Clarkson Securities.
Bendix Knittingness: Thank you. You mentioned the capital contract that starts in 2027. Is that sort of an option you are considering? For the fuel fiber? I mean, forward fixing maybe one and a half to two years ahead just to get that transparency.
Richard Tyrrell: Absolutely. Bendix, we are. And obviously, it is a competitive market, and we did not get that piece of business. But there are other opportunities which are along the same lines. And it would be it as being a positive that it was done at the level that it was done at even people noted, and there is a problem.
Bendix Knittingness: Okay. So I guess you sort of answered my question there. But would the mid-eighties be sort of the level that would be acceptable for such a charter?
John Boots: Yeah. Hi. I think mid-eighties or higher.
Bendix Knittingness: Yeah. Makes sense. And just one more on the new builds. They have Chinese leases, both of them, I think. Is that an issue with the USTR port fees? If it is, how easy is it to sort of refinance without penalties?
Richard Tyrrell: It is a question that we looked into very, very closely. When the rules first came out. I think it was over Easter a few weeks ago. And, these things are subject to change, of course. But as of now, the LNG fleet and that includes our vessels, of course, is not affected until 2029/2030 when the various targets around US-built vessels come into place. So in other words, the LNG sector has special rules that are in annex four and otherwise is not affected in the same way that other areas of shipping are.
Bendix Knittingness: And your first call options on the leasebacks, Bernard?
Richard Tyrrell: Ahead, Richard.
John Boots: Yeah. Go ahead, Joe.
John Boots: So we have call options from day one, but the initial three years has a prepayment penalty of 3% and then followed by 1.5% for the next three years.
Bendix Knittingness: You know, but the Chinese leases are obviously a big issue, not only for LNG, for other ships as well. There is a lot of objection against the ambiguity about sale and leasebacks. As a matter of fact, I got a letter from a tax adviser in the mail earlier this week, highlighting that as well. On the Chinese-owned legally owned vessels. So ambiguity is there. There will be probably further developments. So, you know, we are keeping an eye on it. It is not going to be applicable to us at least now for the next three years. So but we will closely monitor.
Bendix Knittingness: Okay. Perfect. Thank you for good answers, guys.
Operator: Ladies and gentlemen, there are no further questions at this time. This will conclude today's conference call. Thank you all for joining. You may now disconnect.