Q1 2021 Eneti Inc Earnings Call
Okay.
Hello, and welcome to an ASCII, Inc. First quarter 2021 classic Com I would now like to turn the call over to be great share Financial Officer. Please go ahead Sir.
Thank you operator, thank you all for joining us today on.
On the call with me and I'm on.
Oh on Chairman and Chief Executive Officer, Robert Bugbee, President Cameron Mackey.
<unk> operating officer, David Morant, managing director, James Doyle Senior financial Analyst day.
This morning before the market opened we issued our first quarter earnings press release, which is available on our website.
The information discussed on this call is based on information as of today Tuesday may the 18th 2021 and may contain forward looking statements involve risks and uncertainty.
Actual results may differ materially from those set forth in such statements for.
For a discussion of these risks and uncertainties you should review the forward looking statements disclosure in the earnings press release that we issued today as well as on our SEC filings, which are available at www dot in that cheap cash, Inc. Dot com and www Dot FCC dot Gov.
Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes.
Archives of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.
Well on the cool study there will be a short presentation with slides.
On the slides are available at www.
So net sheep Gosh, Inc. Dot com on the Investor Relations page on the reports and presentations.
This presentation is.
It will not be presented during the call, but it is available for you to look at on a on our website.
If you have any specific financial modeling questions. You can contact me later on we can discuss them offline now.
Now I'd like to introduce and Memorial day Laura.
Yeah.
Thank you Hugh.
Welcome everybody, thanks for being with us today.
And that is now firmly set on the path of growth in offshore wind energy.
I was pleased to have the opportunity on Thursday last week to share details of our new vessel new.
New building with the market together with my colleagues and on debt coal. We also discussed our focus on the emerging U S market as.
As far as offshore wind is concerned and our intention to build a Jones act compliant vessel.
Together these represent an exciting new trajectory for our company as we engage with all the opportunities of this important market that has been significant interest in our story from a.
Not only new shareholders, but also new customers new Counterparties in general.
We believe that offshore wind is a multi decade build out.
Around the world not only in the U S.
And this continues to accelerate.
This represents one of the most important opportunities to combat climate climate change.
So our work continues at pace to establish a net D. As a reborn company with structurally higher more visible and more stable returns.
At this stage, we can tie up some of the last few pieces of our exit from dry bulk we have announced the sale of 44 vessels.
We expect to be able to announce the sale of the remaining five vessels during the second quarter together, we'd be redemption of all remaining debt and all lease obligations.
So the resulting entity is and will be liquid and ready to embark on our Newbuild program.
And significant customer engagement continues.
We expect to announce an employment contract for our first new build vessel.
Within the summer of next year 2022.
It is worth reflecting that the company's now.
We're deploying capital swiftly into a space with extremely attractive unlevered returns on offer and we remain the only New York Stock Exchange listed company exposed to bargaining wave of.
Capex, we expect in offshore wind globally and in turn one of the most substantial and transformational U S energy build outs since the 19 seventies really.
As a group with our proud Maritime heritage, we are well positioned to manage the challenge the challenges.
This transition and we believe that under the under investment in the maritime supply chain.
Presents one of the greatest challenges for offshore wind, but at the same time in our view the dislocation exactly this dislocation represents one of the best opportunities in terms of maritime investments.
Management remains the largest share holder of the company and I.
I'm not only excited but also impressed with the focus on the drive.
Debt the organization has shown to make this transition happen.
We are respectful of the challenges these transition poses a.
But excited then undaunted by them. So I do look forward to updating.
As the business accelerates throughout the coming quarters.
I will now turn the call to Robert.
He has anything to add to my initial remarks. Thank you.
Thank you Emmanuel.
We've got quota share.
A larger presentation that we put out last Thursday, we announced.
The new building on the on the.
U S flag initiatives.
And what we'd like to do today is to give as much opportunity as possible for Q&A as we havent.
Talked about the company.
Much in the last months so with that.
I think we'd just like to turn it over to Q&A. Please thank you very much.
Thank you.
As a reminder to ask a question. Please press star one on your telephone again Thats Star one.
So a quick question, who phosphate on moments compile the Q&A roster.
Your first question comes from the line of Martin Auster from Clarksons Plateau Securities. Your line is open.
Thank you Hey, guys good morning, and good afternoon.
You know, obviously I thought last week with a very good debt to get an update from you guys on the offshore wind project then I wanted to maybe just ask a couple of questions here, maybe more on the specific cash.
Cash situation, obviously, you guys are building cash.
Pretty significantly here and maybe this one's for Hugh.
And I know I don't want to get too specific into the into the modeling, but just maybe generally speaking.
You've sold 44 ships, so far for $777 million just looking at the table. Excluding you know the Eagle and star bulk shares.
And from what I'm gleaming it looks like 453 of that was completed already in the fourth and first quarters am I just am I correct in assuming that basically that implies there's $323 million of cash coming in post quarter end.
Our apologies for that does that type of question, but just wanted to get a sense of the cash that's expected post quarter on.
I think I think we'd have to deal with that offline on that but no.
The cash.
For all the vessels, we sold the cash has been received except for the remaining.
Seven vessels that have to be delivered to buyers and the five vessels on it yet to be announced for sale.
Okay I'll take it with you offline.
And then just wanted to confirm a menu while we had mentioned the expectation is for all the committed sales that take place in the second quarter and then also.
You highlighted the reaching a decision to sell the remaining five that's all expected to but to also take place here in the second quarter as well.
That's correct Omer.
That is correct.
And delivered most of them within the end of the second quarter is weighted.
Okay, and then I guess, maybe just kind of big Big picture just on that with all the cash coming in how do you feel about how in that he stands now when all said and done with all the vessel sales youre going to have a good chunk of cash how how do you feel about the company's cash position as you look forward here and preparing for the.
On the installation that's sort of the installment payments on the <unk>.
The offshore wind vessel.
I think we feel very comfortable.
We can see from the.
Ah the installment payments are very very tail heavy anyway.
And.
The company.
Has no further.
Commitment support.
Those installments.
Cool.
Capital use so.
Whatever you want to look at it.
Around approximate.
Two eight to 300 300, or whatever you come up with.
You can see that says well done on more than sufficient cash to deal with on needs.
Yes.
Through this this particular project.
Okay, and then one final one.
And then I'll turn it over just kind of as you guys think about obviously you have a good amount of liquidity.
When you think about the Scorpio tankers position.
How are you guys thinking about that in this context as you move forward because obviously, it's doubled in value here over the past six months. What are you guys thinking about that stake at this point.
While it's still on he may have doubled in value on the last six months, there's still on the half of what it was pre COVID-19.
Its expectations.
Its market is gathering strength as we speak.
And.
I think whether it's the net.
Any of the share holdings, the net to us.
We certainly have put ourselves an ambition to be pressured.
Into selling so.
Right now.
The group itself is a better bar on staying that it is a seller.
Individuals have been.
They're on and Brian.
Bryant Glens today too.
Fellows.
So Scott the stockings thing imminently, but there will be a point as we move through this so the time that yes, we would expect to.
Fully realize all of the cash.
And not just the vessels themselves, but the share holdings as well.
Okay. Thanks, Robert and thanks, guys I'll leave it there.
Yeah.
Your next question comes from the line of Greg Lewis from D. C H.
Your line is open.
Yeah, Hi, Thank you and good morning, and good afternoon everybody.
I this is probably maybe for Cameron.
But anyway, I was hoping to kind of understand.
As we think about the.
The design of the wind installation vessels that you guys have on the water and that I assume you're thinking about a similar one in the U S. Gulf.
You know there's been some doing some digging around in turbine installation is obviously essential but one of the differentiators. It looks like is going to be your vessels ability to do foundation installation.
How much how much how much of a differentiator is that and how should we be thinking about that in terms of the potential that maybe.
We realized gain rate ranges are in our range.
Does that extra capability kind of put you at the higher end of the spectrum. When we think about chartering these vessels or from theory on just any kind of color around that and really the decision to kind of move forward with that.
The ability to do foundation.
Uh huh.
Thank you Gregg I'll take a stab at it and maybe maybe my colleague David can add but.
We're looking at an industry that is still on the come.
And consequently, a supply chain that is still in uneven stages of development.
So what I mean by that is that customers are trying to optimize their own plans.
Without a full set of full set of cards really and so having that extra capability gives us an offering for a customer like an option, which priced appropriately can really lead us to excess returns may not always be something that's used but it's a very very valuable option to have.
And when we price out very carefully as we modified our vessel design and specification from last August to when we signed the contract just a couple of weeks ago.
So that may not be a very specific enough answer for you, but I would say that based on feedback we've gotten from the customers its important option to give to them, particularly when you're talking about seasonality and weather conditions in places like the North Sea Northern Europe, the east coast of the United States for example.
And and what.
How reliable foundation installation will will give value will provide value to our customers.
Yeah, I think that's right.
It's David taking I I was just going to add debt as Cameron mentioned that it's been the result of significant customer feedback Greg to answer your question over the period since we announced and I think what you can see in the in the chart to be produced last week is that the sensitivity in terms of financial return.
Not just rate, but it looks like <unk>.
So we put it in there all utilization expectations, but clearly.
Having this degree of flexibility.
He's going to be those numbers to be potentially.
Reliable base case numbers I would describe it as on.
On the other thing I'd suggest is that we've obviously seen an equally should based on the industry in terms of the turbines, which have been announced and will say some of the vessels, which have been announced over the last 12 to 18 months and you can see in a customer that way, it's sort of convergence thinking in that space around having some flexibility in the deployment to the vessel on the contract structures that are likely.
They come about.
As a result, very much reiterated what Cameron said its a thoughtful considered additionally, incremental investment on which we think that the financial module financial return looks very interesting.
Okay. Okay perfect. Thank you for that and then and then yeah.
You were realizing there there's a lot of moving parts.
On that Q2 is probably not going to really be indicative of later this year on next year, but any kind of quarterly or annual run rate, how we should be thinking about.
SG&A as we kind of move forward.
Taking delivery of the first.
P IV on a couple of years.
Q, what do you have.
I think that.
We're still trying to work that out Greg.
Okay, I think that sounds good obviously.
There are a lot of changes there and it's still something that's somewhat under discussion internally.
I think what do you have Greg as it.
It's a little bit longer because we've got.
We're obviously on one hand.
Sure.
And the costs related to one business, which is a positive with costing on Yahoo.
Moving now to our.
Our own.
<unk>.
Related to wind.
Okay sounds good. Thank you all for the time as soon as we can.
Yeah.
We have your next question is coming from the line of Cerner.
From.
Tax on certain Securities. Your line is open.
Hey, good morning, gentlemen, and congratulations on the on the firming up of the order of the wind basketball I think I'm just speaking from a renewables perspective.
It's a it's a very welcome investment Theres definitely.
It looks like a shortage of vessels going forward. So so glad to see new players coming in and looking to fill that gap on the supply chain.
Had one question on on the back of the vessel just just post the upgrades.
How many of the next generation turbines do you guys expect to carry and sort of where does that.
Put you from on a competitive perspective.
Sure I can take that it depends of course on the specification of the turbines.
But somewhere between four and six.
Obviously at the time of designing and taking feedback from the customers and designed to upgrade the crane.
We're balancing a save.
Same logistical capability, depending on the geography, where we're going to deploy the vessel.
And capital efficiency as well so.
There's no question that our vessel can install the biggest turbines up to 20 megawatt turbines.
The issue is in and of itself, how our customers think about their supply chain.
On the turnaround times and the distance to the field and so again, it's not always the case that more is better it really is a more horses for courses conversation with our customers and so we're quite satisfied with where we were we've arrived.
Okay very good I guess, though it's fair to say that puts you on the high end of.
The fleeting, including from adults with debt.
And then just just one more from me. It's a two part question on the Jones Act.
On a on a high level.
How does.
How does the net the sort of comply with the Jones Act.
And you know from an ownership or operational perspective, and then the second part of the question is just if you're seeing similar.
Similar type dynamics on the sort.
Sort of potential contracts.
If you were to go ahead with the Jones Act Newbuild as compared to the international market.
Thanks, very much for the question turn or so.
We may have touched on this in our call at the time, we announced the contract, but I'll walk through it again for your benefit which is obviously to comply with the Jones Act you need a few things you need a vessel that's constructed in the United States, but you also need a U S citizen owner and a U S citizen operator, so as we.
<unk> said before were not planning on being the 100 per cent or even the 51% owner of this vessel we have.
On the number of discussions with capital partners that are U S. Citizens and we also have several conversations going on with partners from the operation of the asset credible credible partners. So we will be involved but in order to comply with the Jones Act we cannot be.
Either majority owners or majority operators of the asset.
We identified this opportunity and carefully evaluating some of these potential partners before we dove in and made this announcement, but there's a fair bit of work still to work still to do what we know is that the opportunity.
Is.
Exciting, but it's also our initial announcement has been very well received in our initial conversations with customers. Most importantly has been very enthusiastic because they don't see many of them don't see.
The current solution of trying to avoid the Jones act is operationally or even politically tenable.
So as we get further into our process here again, we'll be talking not only to the to.
To the Jones Act partners, but also the particular developers of U S field, because those those conversations have been very.
Like I said very very constructive so far.
Okay, Alright, thank you very much gentlemen, appreciate it turn it back thank you.
And your next question comes from the line of Mark Wilson from Jefferies. Your line is open.
Hi, Thank you for taking my question. The first point is to say in terms of the U S. Jones Act vessel.
They expect to get to do you expect any differences in the back of that vessel versus what you've shown for the DNS.
And Thats a newbuild on the LOI now.
Yes, we do.
So as you probably know there is one Jones Act vessel currently under construction in Texas and that is.
Owned by Dominion energy.
They have very particular.
The plans for that vessel.
It may appear to one that it would be easiest for us to.
Repeat that design and with that shipyard, but we're not sure that that's the.
The best thing to do again from the point of view of capital efficiency and also from the customer needs that we've assessed so far so while we haven't concluded on a design, we're thinking that something slightly smaller provides both the right capability given the distances from the marshaling arbor's to the fields.
The right capital efficiency and also needless to say at some point down the line and another decade or more there's going to be a market for operation and maintenance of U S. Wind farms that the vessel will be needed.
Needed to address.
Address so with all of those things in mind, we're thinking of something slightly smaller, but again, we haven't finalized those plans yet we're still in discussion with several yards.
Got it okay. Thank you very much and I'm sure. This was covered on the call last week, but in terms of the.
You mentioned the crane in terms of the difference between the debt.
The price of the.
The first vessel to.
To 330 and also the timeline <unk>.
<unk> 24 versus the 2023 can you just explain the delta.
And the cost on the timeline that please.
Sure I can address that in part I mean, we can all have.
You know 2020 hindsight, but of course, it would have been cheaper to order a vessel a year ago in the middle of the COVID-19 pandemic, when demand where would that its weakest for components and for steel.
And for ships frankly.
So there's no question that as the world recovery economic recovery from the pandemic has started taking taken shape.
The price of steel has risen.
Quite markedly by some measures, 50% to 70% off its lows last year.
The Korean won.
As.
Moved quite significantly and of course, there's competition for other vessel classes, not just in Korea, but Japan, China for <unk>.
Assets like LNG and.
And container ships that one has to compete with.
So for all of this for all these reasons the price of our vessel.
Again, we took advantage of time to get customer feedback to get more sure of our position and our path forward.
Yes that came on some cost of the overall pricing position, we were able to attain.
So again, probably a two 8% to 10% difference in the price of the asset.
Okay, all right. So the actual the spec is as you would've expected.
Material costs.
Increased understood.
Sorry, just to clarify we changed the specification during that time from last August to the time that we announced the contract two weeks ago. So we've upgraded the specification on a number of ways.
Most notably in the capacity of the Crane. So it's a much bigger crane, but also in improving the green credentials of the asset which took a lot of time in the study.
So it's a combination of.
The price of the.
The price of the vessel, increasing but also the specification increasing.
Understood understood Okay.
Absolutely.
Last question from me.
I'll go back to last.
Last year as you talked about an additional 10.
Installation vessels required to meet 2020 for demand that was over 10 megawatt turbines. How would you think that delta looks today, given the both yourselves and.
The.
Borders.
On that timeline.
David you want to address that.
Yeah, I think mark. Thank you for the question I mean, we we've looked obviously at a low that the alloys that have come in.
Last 12 months and it's clear that they're all there is interest in building additional vessels. However, you'll notice that many of those have not yet come to a full contract not to say we are we expecting to file but clearly it has to be question marks around how many of those will actually.
Get built as you'll see from al.
Patients.
That we gave back a lot.
Last week.
Could you just the numbers that we believe the deficiency is still at least that.
Partly because we have seen additional ideas come trade on wholesale obviously very sticky as you'd be focused on with the accelerating from U S. Small ports wrap out by the political changes after the bite and administration.
I didn't have him staying on my colleague he speaks a lot on the industry might have anything to add to that answer Tim do you have anything to add.
I think the other thing I'd add is that just some of the specifications of the turbine come out in the last year or say that being kind.
Kind of even more demanding than were expected to say hey that GAAP.
It's still very much that and <unk>.
Project demand pipeline is still incredibly strong and particularly strong in 2025 and 26.
Okay. Thank you very much and congratulation on regions, reaching the stage and good luck with the build schedules.
Thanks, a lot.
Keith.
Yes.
Your next question comes from the line of one day given from Jefferies. Your line is open.
Hi, gentlemen, how's it going.
Hey, Randy.
Hey, so on the.
On the W. T. I V on last week's call. You mentioned, you have attractive vessel financing, but what kind of terms or maybe loan to value do you expect to secure for that and then for the timing of the drawdown is that not until delivery in 2024.
Yeah.
Randy Let me, let me answer the first part of that question.
We don't know yet what are what terms are available, but we've been discussing.
At a very high level. This work with banks for quite a while now and we're certainly confident that a very standard export credit agency financing.
It would be made available and we've had a lot of interest from.
Export credit agencies in Korea and elsewhere.
Because obviously.
No not just it's not just being built in Korea Theres a lot of.
European equipment. So we are getting a very positive input from the.
Export credit agencies and from commercial lenders.
So our expectation is that it would be.
A very standard approach.
Finance and we would be expecting terms.
Roughly approximately similar to what we would get.
For normal maritime lending I think the advanced rate is likely to be.
On a slightly smaller and lower on that would be.
Probably on a preference as well so our anticipation is we would anticipate.
Approximately 60% finance for this asset.
Give or take five per cent.
Okay.
And then Tyler.
Our timing is.
This is something that we will begin to discuss.
With institutions this year.
But this is a very export credit agency financing has a long lead time, so I think that it's going to be next year that we would be able to.
Get credit approval for such financing, but I think that on.
On a level of comfort on what we can achieve is gonna be.
Established this year.
Got it okay.
And then looking at the Drybulk fleet I know the initial goal was to sell all those vessels by March obviously now it's may still have a few vessels is that because the market improved much quicker and better than you expected or was that buying appetite for your vessels, which just maybe less than expected.
No I think you can.
Going on here please.
It's a good question Randy the vessels are specific five five vessels remaining are financed.
Japanese leasing structure debt.
Presents some complexities in there.
And it's transfer so.
We do expect to announce the conclusion is we discussed by the end of the quarter, but there are no no issues, neither with the market nor with the specific.
Vessel transaction is just an issue of announcing it when old Ts.
You know what when when everything is.
In place. So it's just a question of timing.
Okay Fair and.
And then I guess last day real quick no revenue coming after this quarter, if you sell those five vessels.
How long do you plan on keeping the dividend and then do further share repurchases.
It would make more sense with the share still trading at a big discount to NAV.
I think that's something that we and the board is being focused right now on ex.
Excluding the sales when the building and that's a worthwhile question on something that we will.
We will shortly discuss.
Alright.
Youre correct given the stock is trading.
He is going to be trading or is trading well below its.
What its cash realized value is going to be.
Sure.
Thank you.
Thank you.
Your next question comes from the line of Liam Burke from Euro.
Your line is open yes. Thank you.
David.
When do you begin to gather management talent and the team too.
<unk> build the W. W. T IV business and do you think there'll be a lot of competition for talent.
Alright, Thank you very much sure the question Liam.
I'll have a stab at it and then I'll hand, it on to Cameron, who has been very involved with that.
Definitely an industry that is growing very quickly and I think what you can see.
With all people as they look to make a career in it in an industry, which is set from multi decade of growth.
Is that they like working with great excitement and I think at this stage as a new entrant, it's quite clear that we have the opportunity to build our infrastructure with a with a relatively clean sheet of paper to think carefully about how we want to structure the business.
And on the sort of people that we want to bring in.
And also on footprint, we've mentioned, obviously the U S, which is going to be important part for net going forward.
And that's something that very much a focus for us in the context of what we're looking to do.
I'll, maybe hand on the camera and if you have anything to add to what I've said that to liam's question.
Cameron.
Sorry there.
If the if the question is when and how the answer is we've already started and.
We have as David implied.
A choice from.
Very credible and experienced personnel, it's hard to give much more specific than that except to say that.
As our plans become more widely known Theres, a number of people reaching out to us and we we have the chance now with with some lead time to methodically build a.
Very credible.
World class structure to match the assets that were ordering.
Great. Thank you.
I think I think Mike I think one way debt.
Im.
Pretty constant from what I can say it is.
To the extent that people see that we're building this they will come.
And that's sort of about the simplest position.
Okay.
They are coming.
Okay, you're in discussions with the U S. Shipyards, you have an option on the day will for another vessel thinking about the offshore markets do you have a particular bias towards growth.
On with Jones Act and U S offshore or.
Like the first appointment of overseas do you have a preference going that way.
Right.
Try to answer that Liam you probably know our style by now which is to.
Try and set up alternatives and then have a competition for capital for the best returns at the time so.
To the extent, we don't have to say and we don't have to make a decision today.
We'll keep establishing alternatives.
In order to make the best decision when we have to make it not before before that time.
So we.
We may each may have biases, but the scene is changing so rapidly.
That it's just something we'll have to address as and when those those choices come due.
Great. Thank you.
And I am showing no further questions at this time I would like to turn it back to the speakers for any further comments.
Great. Thank you very much everybody for your time today on your interest.
Hopefully, we'll have many opportunities to.
Update you in the future and come back to it.
More specifically with.
Some of your questions.
And just thank you very much appreciate everybody dialing in thank you bye bye.
And this concludes today's conference call. Thank you all for joining you may now disconnect.
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Yeah.
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