Cool Company Ltd ((CLCO)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Cool Company Ltd painted a picture of cautious optimism. The company reported steady revenue and EBITDA growth, largely attributed to efficient cost management and positive developments in LNG supply. However, challenges such as declining TCE rates, difficult spot market conditions, and high drydock costs were also highlighted. Despite these hurdles, Cool Company Ltd’s strong liquidity and effective interest rate management provide a buffer against market volatility, offering some reassurance to investors.
Steady Revenue and EBITDA Growth
Cool Company Ltd reported total operating revenue of $85.5 million, maintaining its position from the previous quarter. The adjusted EBITDA saw an increase, reaching $56.5 million compared to $53.4 million in the first quarter. This growth underscores the company’s ability to manage costs effectively and maintain profitability.
Positive LNG Supply Developments
The company is optimistic about the future of LNG supply, with expectations of a 23% increase by 2026 and a 39% increase by 2028 compared to 2024 volumes. This growth is driven by projects such as Louisiana LNG and Calcasieu Pass 2, which are set to bolster the company’s supply chain.
Cost Efficiency in Vessel Operations
Operational efficiency has been a key focus, with average vessel operating expenses decreasing to $15,900 per day from $17,300 per day in 2024. This reduction reflects the company’s commitment to cost management and operational excellence.
Strong Liquidity Position
Cool Company Ltd boasts a robust liquidity position, with $226 million available. This financial flexibility allows the company to navigate market volatility and seize growth opportunities as they arise.
Interest Rate Management
The company has effectively managed its interest rate exposure, with 75% of its total notional debt hedged or fixed. This strategy, with an average interest cost of around 5.6%, enhances cash flow predictability and financial stability.
Decline in Average TCE
The average Time Charter Equivalent (TCE) experienced a slight decline, dropping to $69,900 per day in Q2 from $70,600 in Q1. This decrease reflects ongoing challenges in the market.
Challenging Spot Market Conditions
The spot market continues to present challenges, with high levels of newbuild deliveries and low rates impacting financial performance. This environment necessitates strategic navigation to maintain profitability.
High Drydock and Off-hire Costs
Drydock costs have been significant, affecting financial results despite nearing the end of the drydock cycle. The company has completed 9 drydocks, with performance upgrades on 4 vessels.
Reductions in Vessel Rates
Vessels such as Blizzard and ICE are expected to see significant rate reductions, with projections of decreases well over $100,000 per day in Q4 due to lower spot rates.
Steam Turbine Vessel Idling
Approximately 50 out of 215 steam turbine vessels are currently idle, impacting market balance and employment opportunities for older vessels.
Forward-Looking Guidance
Cool Company Ltd’s forward-looking guidance remains cautiously optimistic. The company highlighted the delivery of the Kool Tiger and GAIL Sagar vessels as contributors to improved EBITDA amidst a challenging market. Despite competitive rates due to a surplus of ships, the strength of its charter backlog provides a cushion. The company is well-positioned with a solid capital structure, 75% of its total debt hedged against interest rate fluctuations, and $226 million in available liquidity, setting the stage for potential asset acquisitions and navigating market volatility.
In summary, Cool Company Ltd’s earnings call reflects a balanced view of growth and challenges. While the company enjoys steady revenue and EBITDA growth, it must address declining TCE rates and challenging market conditions. However, with strong liquidity and effective interest rate management, Cool Company Ltd is well-equipped to navigate these challenges and capitalize on future opportunities.