Q2 2021 Eneti Inc Earnings Call

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Hello, and welcome to the annuity Inc. Second quarter 2021 conference call I would now like to turn the call over to Hugh Baker, Chief Financial Officer. Please go ahead Sir.

Thank you operator.

On the call with me are minimally Lauro, Chairman and Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief operating Officer Tim.

Tim Sanger, managing director, David Morant, Managing director, James Doyle Senior financial Analyst and today, we're also joined us.

For the first time by Blair Ainsley, who is C O C jacks and Sebastien Brooke Who's the Chief operating Officer C Jacks.

Earlier today, we issued our second quarter earnings press release, which is available on our website www dot and that's E ink Dash, Inc. Dot com.

Formation discussed on this call is based on information as of today August 17, 2021 and may contain forward looking statements that involve risk and uncertainty.

Actual results may differ materially from those set forth in such statements for a discussion of these risks and uncertainties you should review the forward looking statement disclosure in the earnings press release that we issued today as well as Scorpio as well as <unk>.

And that's G SEC filings, which are available on our website and at Www SEC Gov. Copel 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.

An archive of the webcast will be available for two weeks.

On our website.

Now I'd like to introduce and memory Laura.

Thank you Hugh.

Good morning, or afternoon, everybody and thanks for being with us today.

Our second quarter press release lively EG.

Interest rates are final steps of divestments on dry cargo.

One year ago, we laid out our rationale and our plan to exit about business.

And the last several quarters reflects the execution of that plan.

However.

What we find most exciting today is our future.

Our recently announced acquisition of <unk> is now closed and we are tightening our full focus to the business of turbine installation and the compelling fundamentals of the offshore wind industry.

We could not be more pleased with <unk> as our platform to drive and deliver shareholder value.

And it's a brief history <unk> has established a leadership position in turbine installation.

First in the U K first in Taiwan priced in Japan and.

First in the United States.

All of these first really represents a tenacity and a commitment to the highest standards of service that we respect, but more importantly are clearly respected by our customers.

So that being said and as I mentioned on our call on August 5th announcing the transaction.

Work really starts today.

Up to us to leverage on the features that both <unk> and <unk> bring to the table to make this a success.

<unk> large and versatile fleet will be further enhanced by DNS. These high specification, New building announced previously DCA and together these fully integrated fleet will be able to install modern Terry volumes anywhere in the world.

More efficiently than ever before.

I am delighted as Hugh has just.

Mentioned in his introduction that Blair and Sebastien could join us for the call today, and we will do our best to answer questions. Please bear in mind that.

The <unk> acquisition.

Only closed a few days ago, so keep that in mind when.

And when asking questions, but with that.

I would now like to turn the call to Robert.

Thank you very much and I know it's like.

To echo or millennials.

No respect.

Thank you for joining.

Really great too.

To.

<unk> managed to do this merger with <unk>, we're really looking forward to meeting all the.

All that group not just Blair.

Sebastian in the near future.

With that we'd like to open it up for questions. Thank you.

Ladies and gentlemen, if you have any questions at this time. Please press the star and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Yeah first question is from the line of Greg Lewis with the BP I T.

Yes.

Yeah, Hey, Thank you and good afternoon, and good morning, everybody.

I guess just.

As we think about trying to.

Start to build out our model assumptions.

For next year.

Any kind of color and I believe I asked this on the last call any kind of color and how we should be thinking about you know how.

However, we want to thank however, you guys want to talk about.

Read the news or utilization for some of these smaller for the vessels that that just have less contract coverage.

And later this year and in 2012.

So I'd like to.

I think it's worthwhile to start with Sebastian, giving us a overview of those smaller vessels, what they do and what their prospects are.

Sure.

So the smaller vessels are primarily engaged in maintenance activities in the European sector.

But that contracting horizons.

Typically quite short so the budget cycles thoughts at the end of each year. So it is very difficult to be granular about.

<unk> contract will be in place next year.

But based on historical utilization and day rates, we would expect those to continue going forward.

As the installed capacity of turbines and Substations increases.

Utilization in following years to increase accordingly.

Okay, and so as I think about as I think about the utilization for these vessels.

It kind of tracks similar to the oil and gas industry, where maybe when the weather is more harsher than the <unk>.

At the start of the year, that's when utilization is going to kind of be a little bit weaker and then as it becomes more of a.

Okay.

I'm more comfortable working environment, we expect a lot of that bulk of that maintenance and utilization to be more in periods of time, when theres longer daylight hours is that kind of a fair way to think about it.

I think that's a.

Fair way to look at it but I'd also caveat that with the fact that there are a number of longer term contracts out there.

For substation commissioning.

So on the maintenance side so.

That has historically if you go back a few years in longer term contracts available.

Market, but.

But generally yes, it has been seasonal and in recent years.

Okay, Great and then just just as I think about this I mean, hey, welcome to the team that Mehdi I mean this must be.

It's going to be interesting to see how the two companies merge but I guess a question for you is as you think about.

CJ <unk> and really know that.

You're a public company inside.

Part of it.

What types.

How do we how should we think about that expanding seat jacks ability too.

Maybe.

Bigger.

Leverage this seat jacks existing platform through a natty I E.

Should we be thinking about.

A lot more growth opportunities that maybe previously assumed drax as a standalone private company weren't there.

Yes, I think that I think that.

The industry as a whole at the moment has gone from being a kind of single single market in Europe being a multimarket industry by your you.

You see a number of opportunities in Asia Pacific you see opportunities in America as well as.

In Europe and to be able to leverage of our operating platform.

Wade.

The kind of expansion plans of great plans to entity have I think is a very powerful combination.

Okay and then.

Understanding that.

Maybe there's still a profit there still.

Things need to be discussed with Dominion realizes see JAKKS has done.

Has had an existing relationship.

With Dominion prior to.

The merger with <unk> is there any exclusivity around <unk>.

The work you've done with Dominion in terms of.

The company's go forward ability to do things in the U S image U S market.

Beyond Dominion or is there some sort of exclusivity we need to be thinking about.

Cameron if you'd like to take that.

The U S jewelry.

Sure sure.

Yes.

So obviously, our first priority is to sit down with Dominion and understand how we can fulfill their.

Expectations.

And see where the potential may lie to work together going forward.

Yeah.

I don't think that.

Our destiny in the states is necessarily tied to dominion, but obviously, it's a very important relationship that we're stepping into and we certainly are going to give them every benefit of the doubt to understand what their plans are and aspirations are and it's just very early to.

To draw a line on where that exactly is.

Okay perfect Hey, Thank you all for the time gentlemen.

Your next question is from the line of Turner Holm with Clarksons Plateau.

Hey, good morning, good afternoon, gentlemen, thanks for taking the questions I just wanted to follow up on Greg.

Questions about just getting a better understanding of the CJ business and I guess building out the assumptions in the model as we think about this going forward.

With regards to the larger vessels.

Aratana and scalar.

How how is the contract outlook shaping up for us.

'twenty three 'twenty four.

It looks like you still have some open exposure.

Yeah. So.

Yeah.

With regards to 'twenty three 'twenty four we have.

A lot of conversations going on about walk over that period.

All of our clients have different contracting strategy.

Again trying to work out when they're going to award contracts.

The challenging at best.

But rest assured there are lots of conversations going on about work at that time, it's just difficult if not impossible to gauge when.

Those contracts will be signed awarded.

Sure and I guess.

As a follow up for that I mean, we've seen some.

Rates picking up on a couple of public publicly available data points in the high eight hundreds and in Europe per day perspective, and could you kind of walk us through the evolution of kind of.

The day rate picture for the larger assets over the last year, or so and kind of where you think it might go in.

In the near term future.

Yeah.

I wish I could but I cant give.

Too much detail on that because it varies between the markets. So the demand supply picture in Asia Pacific is very different to the demand supply.

Okay.

So there is a kind of.

Why.

But a wide range of outcomes I would say that generally the demand for big onto a bigger best vessels pick.

Picking up we all know what that macro picture looks like.

And so.

It's a strengthening market.

We think that the prospects for capable units like center.

The newbuild.

Oh good.

David did I hear sort of directly linked to that it's been upwards.

David.

Very comprehensive answer I think the only thing I'd add.

We're very comfortable in our projection.

So the market around.

The base level of our expectations on the email.

On the water tonnage to talk about the replacement. So I think you can see.

Please reference the tightening market and the direction of travel.

And right.

Let me give me comfort in what we've presented to the market and.

<unk> ability to perform in line or above.

Expectations.

Excellent. Okay. Thanks, Thanks, David and then just thinking about the skill and it's obviously, it's one of the most capable assets in the market today.

But I guess at the same time, we've seen some of your competitors think cattle there with their own class vessels or even Fred Olsen, which has some smaller units.

<unk> is that something that you all would even consider with the spillover you think fully fitted for the future.

It depends each of the requirements in contracts different technical capabilities.

We're always looking at the possibilities of upgrading all of our vessels were looking to make tweaks kind of.

Operating tweaks to them.

There is capacity to move.

Modified booms and do some technical upgrades.

As required but at the moment, we're happy with how configuration.

For the bulk of the 14 plus megawatt turbines insights going forward.

Sure sure.

And then just one last last one from me its more on the financing I guess the dry bulk sales are completed and the transaction is completed with a C.

T Jackson as far as I can tell.

How would you all characterize.

The company's sort of financing structure, especially as you think about.

Over the next couple of years, and just kind of covering the capex.

Schedule that you have within yourself.

Yes.

Cisco plus than anyone else like to add Thats fine as it is.

The first step is to have done the.

Actual merger.

And I think we've got a structure here between.

The shareholders the existing.

Existing bank I N G.

Whereby.

We can we can we can do the merger we can there's no pressure for us at this point to raise equity or to refinance.

We have time to do that but clearly the company has.

Ambitions to really take advantage of what we see as being some pretty exceptional returns going forward, whether that's in international markets.

Or in the U S flag markets.

And so the overtime, we would expect to put in a more permanent.

Debt financing.

Position and we would also.

Seek to.

Seek to take opportunity of that growth in the markets by.

Creasing the equity capital of the company to I mean, we have <unk>.

<unk> shareholders.

We have a.

The actual.

<unk> side Hasnt gotten hasnt done this just to stay at status quo quite openly wanting to be a leader we are a leader with C. Jacks now in terms of operation capability and as Emmanuel said.

We see Jack says.

Being first into many markets.

And we think we've got that structure with a U S listing et cetera, with the shareholders we have.

To really take advantage of an industry that's going to.

Have great growth and most importantly have.

Good.

Cash flows and good returns on equity and total capital.

Right. Okay. Thank you Robert I'll turn it back.

Your next question is from the line of Randy <unk> with Jefferies.

Hi, This is Chris Robertson on for Randy Thanks for taking our call.

Thanks Lucas.

I just wanted to ask about following the <unk> acquisition does this change the way you guys are thinking about exercising the option for the additional WT.

WT IV.

Okay.

Well, it's got very quickly for us than anyone else gun shy.

Chime in I mean set.

Suddenly.

Certainly.

With the way as we said the market is developing.

Secondly, increased our options and our.

Ability, we think to win contracts going forward.

Because we were working quite hard on contracts without all the bullshit.

Without the presence of C jacks and I'm socially Jack's we're also being.

How have the customers and that customer profile.

Yeah, they could look forward to and now we not only the CTX people not only have a new product that they can put in front of customers.

But that too nitty itself has zero questions as to its operating capability.

Sebastien, Glenn Kevin David if you'd like to add please go ahead.

Yeah.

Yeah, that's pretty well what the answer is no.

Okay.

I wouldn't say himself view other than make us more comfort in being able to take the opportunities are there in the world.

And Robert maybe I can maybe I could just add a little.

I'm actually just a little bit of a general comment about the actual takeover.

Takeover.

Nacho of the two companies.

It's very exciting for <unk>, so we've been through a period for the last.

It's fair to say the last four or five years, where we haven't seen the appetite for growth.

From our current shareholders.

And now we have the Nike guys on board.

And indeed, our company is growing straight away with a first class.

Vessel coming out of Korea.

Exciting times for US here are very exciting times for all of our staff, both onshore and offshore there.

Reinvigorate it and looking forward to a bright future with Nike.

Okay, yeah, thanks for that.

Just following up I know that you guys had talked about maybe some of the regional differentials here in terms of.

The earnings potential, but could you generally maybe describe the earnings' differences between the 2500 X vessels and then some and then the larger asset classes.

Trying to understand in terms of scale.

Sebastien.

Sorry, it's arguably.

Alright.

I totally understood. The question could you could you run through that again.

So earlier you got.

Had mentioned some of the regional differences between the Asian market in European markets, but I'm trying to understand the earnings potential differences between some of the smaller vessels. The 2500 X vessels, the cracking Leviathan hydro versus the larger vessels.

It's really just that work scope. So you have disparities between the markets because.

The tonnage in Asia, it's not that easy to get the tonnage to move out of Europe and into Asia, So demand and supply characteristics differ between those markets.

With regards to the 2500.25, hundreds up primarily in the maintenance market and in the accommodation and commissioning markets for the Substations and the North sea and that has its own kind.

Of rate and utilization.

Dynamics.

As you can.

Well my totally unrelated and in a way too.

The market the Zara time, which is which is a very tight market in Japan, which has some.

Some turbine installation Geo tech work.

Have you and then the.

Far end of that you have a seller, who who is operating again in a totally kind of unique market.

Depending on demand and supply of similar vessels in the region. So they all have their different.

Drivers for rate utilization, but they are.

We'll benefit from the continuing kind of uptick in the industry and the increase in installed capacity.

Cross all of the regions.

Okay. Yeah. Thanks for the additional color on that I will turn it back over.

Yeah.

Your next question is from the line of Ben Nolan with Stifel.

Yeah.

Yeah, Hi.

This is Frank galanti on for Ben.

I wanted to ask about.

The.

All our vessels so thanks for walking through those.

Different segments.

The operate in.

But can you.

I give kind of some color on the supply and demand.

Dynamic for those smaller vessels and then I guess.

Hmm.

If there is kind of growing expectations around the plug in abatement market for those.

Over the next couple of years.

Uh huh.

I'll try I'll try to answer that.

The supply and demand for the analogous vessels the <unk> 25 hundreds.

The supply has actually decreased but those exact unit over the last I think.

Two years 18 months from six to four.

<unk>.

Two of them have been taken out of the southern North sea market to the middle East.

By Gms was that as the middle East based operator, so supply has gone down.

I think on the demand side, it's been.

Strange couple of years, but for everyone, obviously and that has impacted that.

The demand and the ability of crews to get around the north sea, both on the renewable side and on the plug and abandonment side.

Box.

So that demand is 10 top and so we would see that.

As things normalize and stabilize around the world.

We would expect to see a pickup in demand over the next.

But for the foreseeable future.

As a general rule in the southern North Sea, the plug and abandonment work.

The trend is upwards in that.

Demand for plug and abandon is generally accepted to be increasing with time, there's a lot of very old installations in the north sea that needs to be plugged and abandoned as part of the energy transition.

And we have participated in that.

In a major way and we would hope to continue to be able to do so in the future.

Okay, Great that's really helpful.

I think that's all I had I appreciate the time thank you.

Okay. Your final question is from the line of Liam Burke with B Riley.

Thank you good morning.

As you mentioned earlier the assets are pretty much committed to each geography once they're deployed as you add new assets.

Where in the World do you think is the best long term opportunity to get the highest return from these investments.

It's.

It's it's again difficult to answer that because the.

The demand and supply dynamic is also it's not just a function of the kind of long term.

Opportunities that come up.

Yeah, well two years ahead of execution, but it's also where the acceleration capacity is required so.

In.

And then a tight market say in Asia Pacific.

If a project has been delayed for what type of reasons, maybe the foundation fabrication has been delayed or foundation installation has been delayed.

If you will the only vessel in that region actually.

Taking that acceleration capacity or taken as acceleration requirements might be.

Commercially.

On a more positive.

Situation than trying to book the tonnage.

But these contracts are a way out in the future. So.

So it's.

There isn't a clear answer that I wish I could give you a turnaround.

But it.

It's.

So that would be not not that easy I mean, I think that.

Asia Pacific has its own nuances and Theres a lot of work going on over there and there is limited supply of high end vessels.

But equally you might find that there are long ago.

Contract opportunities in Europe. So.

Sadly not not a clear answer but I.

I apologize for that.

That's very fair I was just thinking in terms of the context of the Newbuild. It's the slate down the road road and then.

Potentially the second Newbuild slated.

I think were just keeping all we will keep our options open and bid into big into global markets until until we find the right fit.

Great. Thank you very much.

I think Lee.

I think that the.

When I first talked to him about this subject my all time exactly the same question I think is later if you'd like to tell me the answer your guidance it was really short and sweet.

I think.

I think that you need to cover all the bases.

A simple thought.

We we look at every opportunity that comes up it doesn't malware in the world.

Much to up with your availability of your vessels.

We are fortunate enough fortunate enough at some point in time to have all your vessels contracted then that tells you that.

The market conditions are right to order new vessels and that's what we'll continue to do.

We have done that.

And I think that's a very simple way.

<unk> seen the commercial.

The advantage that we feel we have received guys because they have got this proven wide experience in many different markets and you know have not being afraid of many times to do that.

First into those markets. So at the end of the day that that really allows us to.

That's everything on a commercial basis and the net is able to be spread pretty wide too.

Great. Thank you Robert Thank you Brian.

Okay. Your final question is a follow up from the line of Turner Holm.

Hey, guys. Thanks for sneaking me back in I, just had a couple of small follow ups. I mean, one is just on the on the Dominion asset.

I'd hesitate to try and pronounce the name crude this or.

But how can you maybe explain how that relationship is working in and how that might give you a sort of special foothold in the U S market.

Again, what I was going to work et cetera that youre doing for Dominion yeah.

Well.

We're obviously you know we've been we've been first thing with Dominion was back in December 2018. So it's a relationship that's been enforced over quite a period of time.

We we brought them.

It will come out this coal as you know they have a.

A large two six gigawatt field that I need to install for themselves.

They are also keen to bring tonnage to the U S market.

As U S residents and citizens and create jobs there.

We provide for them.

The vessel design as such the specification.

The expertise and knowledge of what it takes to build a wind farm in what the vessel needs to look like.

Hi, two operators. So we will assist them to build and operate an organization, which is Jones Act compliant.

At the yard in Texas, we have a.

A team of people, there and managing the construction supervision.

To ensure that we deliver their vessel.

Ready to go to work.

One time and on budget. So it's a it's a kind of consultancy type arrangement, but it's.

Got quite a significant scope of work involved.

Post delivery, we will advise them on on operating the vessel as well.

Sure I mean do you think that if you do decide to pursue further growth in the U S that it'll give you.

The head start on everyone else.

I'd like to think so.

Sure sure.

I've been working on the personally I've been working on the U S stuff since 2014 so.

<unk> happen overnight and I hate to think of the seven years of work and passionately.

Doesn't give me some kind of headstart.

Yeah.

Yeah.

So, yes, and then on the Japanese asset, yes, no got it.

David If you were going to China.

Sorry, I was just going to add to and it really relates to the question that Chris I'll. Just tell you on this call around the the option and the growth opportunities I think there's a really healthy competition for capital within the organization.

As I think you're referencing with the U S.

Chris mentioned with the option that we have a D. SME some significant growth opportunities for all capital in this business and I think that's the primary thing to takeaway is that we have a platform here with the expertise that bladder and Sebastian have and also the newbuild expertise.

<unk> pads to really build that business very quickly and take advantage of what we think is the being in the right place at the right time in terms of the growth opportunity for the industry, providing us whether that's the Jones act, whether that's exercising the options whether it's additional knee belt I think we very firmly believe.

That we have a.

Very valuable incumbent position right now along with the ability to attract institutional capital intensive.

Equity and very very strong shareholders and that puts this business very quickly into a growth trajectory at a very important moment in the evolution of the industry and that's really the basis I think in which we'd like to see but the U S opportunity, which we're excited about but I will say the option price fall at the Newbuild yards that we think I suggested.

Well said well said.

I would almost.

Hesitate to not end on there's good words, David but I had one question on the on the Japanese asset I guess it.

The downtime it is a bit smaller than the scalar.

But it has this Japanese flag can you kind of tell us how that works I mean do you expect this asset to basically remain in Japan for the foreseeable future.

So probably take that one.

Yes.

Is that our time is smaller than the latest generation of assets, but.

We look at the Japanese market based on its demand and supply basically so.

It's a very closed market because you can only operate that if fuel Japanese flagged.

There is a limited supply of vessels, that's able to assist with.

Almost any type of offshore wind farm related work so that includes.

Geotechnical works if every wind farm that every wind turbine that has to go in you have to take a core at each location.

On the site. So there's quite a lot of kind of preparatory work that.

That would suit Zara town and she and there's also such a limited number of vessels.

Operation over there and the demand is anticipated to grow so much that you need.

Need to each of these wind farms isn't installed by just one vessel you can have ancillary vessels that they may install TPS or may.

Help with commissioning work or whatever it is so really we look at the.

The Japanese or Zara, Tommy Japan, as being a capable asset in a very closed market, which has a number of.

Different work streams that it can.

But it can perform.

Even if it is not with the largest installation of the largest turbines and foundations that makes sense.

So it's comparable to the Jones Act situation.

Yes, it's a very you know for the foreseeable future yeah, Yeah. It's a it's a closed market you know we have Japanese cruise Japanese flag.

And while there are a couple of larger new buildings under construction by some of the big Japanese Epi construct.

Contractors.

It's not enough to be able to in our opinion.

By the amount of work that's coming down the pipeline.

So it is our <unk>, which will create against you in Houston Barrington.

Yeah.

Thank you gentlemen.

Same thing.

Thank you.

Fortunately, we have David what's recorded so they won't be lost Turner. Thank you ever so much.

Are there any other questions.

I am showing no further questions at this time.

Great and Daniel would you like some closing remarks or should we wrap it up there.

No I think we can wrap it up thank you.

Thank everybody for their time and are looking forward to being in touch as things develop.

And we will we will be in touch thanks, a lot for being with us today.

Yeah.

Okay, Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.

Thank you.

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