Q1 2022 Eneti Inc Earnings Call
Okay.
Hello, and welcome to the Netgear incorporated first quarter 2022 conference call I would now like to turn the call over to James Doyle head of corporate development and Investor Relations. Please go ahead Sir.
Thank you for joining us today welcome to the <unk>, Inc. First quarter 2022 earnings conference call on the call with me are Emmanuel a Lauro Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief operating Officer, He Baker, Chief Financial Officer Sebastian Brook.
Chief operating officer of <unk>.
Earlier today, we issued our first quarter earnings press release, which is available on our website.
Tom.
The information discussed on this call is based on the information as of today May 12, 2022 and may contain forward looking statements that involve risk and uncertainty.
Actual results and events 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 issued today as well as <unk> SEC filings, which are available at a 98 dot com and SEC Gov called.
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 made available on the Investor Relations page of our website for approximately 14 days, we will be giving a short presentation. Today presentation is available at <unk>.
Dot com under the Investor Relations page under reports and presentations.
Slides will also be available on the webcast. After the presentation. We will go to Q&A now I'd like to introduce our Chief Executive Officer Emmanuel Eduardo.
Okay.
Thank you James Good morning, and afternoon to everyone and thanks for your time today.
The contract backlog on our existing fleet continues to grow since we last spoke we've added nearly $80 million of additional revenue backlog for 2022 and 2023, including options.
From November 2021, we have increased our contracted backlog by almost $170 million for 2022 and 2023.
These include a contract for our second largest wtb desire.
For employment with Siemens Gamesa renewable energy in Taiwan.
In 2023.
These projects will generate between 32 and $36 million.
So now the Zara and C R.
Power, both contracted for 2023, giving the company the necessary visibility.
In addition, we have announced several contracts for our energy 2500 significantly increasing the utilization of our smaller class vessels.
On the cost front, we're working diligently to reduce our operating expenses, which have increased as a result of COVID-19, the reactivation of the number of smaller class vessels and positioning of some of our ships in preparation for contracts.
We do expect that these costs will decline as efficiency improves and Covid eases.
Colby has specifically impacted negatively our operating costs due to the restrictions and constraints imposed by Asian governments, where both our biggest assets are currently working.
As just mentioned, we do expect that the cost will decline as efficiency improves and Kobe pieces.
Our G&A costs declined from last quarter, and we feel that this quarter is a realistic run rate for the reminder of the year.
On another note one of our shareholders Intj has indicated to the company.
It is looking to sell between one one and $1 2 million common shares.
Notably fashion over the next several months.
In conjunction with the sale Mr. Peter Nicolai aboard Designee of I N T. J has resigned from the board effective today.
T J will cease to be a priority to the shareholders' agreement dated August 12 2021.
Today.
I personally would like to thank Peter for his contribution to the company's board.
And I do look forward to interacting more with him in his capacity as a valued shareholder in the months to come.
On the financing front, we expect to draw on our new 175 million Green multi currency term loan and revolving credit facility at the end of this week.
This will reduce our interest cost from 7% run rate too.
A LIBOR plus 315 basis points and complete the repositioning of the CJ banks balance sheets.
On the operational front, we will hear from Sebastian broken a minute during the slides that the company has installed so far 12 third volumes year to date and is on pace to install 144 turbines by the end of this year.
Generating over 1000 megawatts per year of renewable energy.
So we do are we.
We do remain excited about the outlook for offshore wind and our role in the transition to a cleaner and more sustainable future.
I would like to turn the call now to Sebastien Brooks and James Doyle, which are going to walk through some of the slides. Thank you.
James are you on mute.
I am here Sebastian Youre going to be starting the presentation.
If we could please go to slide seven and Sebastian I'll start.
Yes.
Thank you James.
As Manuel said.
February entities increased its revenue backlog by $80 million for 2022, and 2023, taking into account all the options. This.
This increase has been driven by several new contracts on our vessels.
We have signed an amendment to the Xyrem attend she was originally contracted from April through June 2022 at the Akita and this year offshore wind farm in Japan, and expected to generate $36 6 million in revenue.
She is now contracted from April through November 2022, and is expected to generate an additional $18 5 million in revenue or total of $55 1 million from April through November <unk>.
We have signed a contract with Siemens to meet that utilizes anytime in 2023, which was installed turbines at the Union offshore wind farm in Taiwan.
This project is expected to start in the second quarter of 2023 and to generate 32 to $36 3 million.
Thirdly, we signed three contracts from our MG 25, hundred's, including a contract with Siemens Gamesa, <unk>, Hydra, which will keep it occupied for a minimum of three months in each of 2023 2024 and 2025.
In November of last year, we did not have any contracted revenue for the <unk> 25, hundreds in 2022 or any contracted revenue for the stellar and <unk> 10 in 2023. The company is now contract two of its largest <unk> through 2023 and has a significant pipeline pipeline of what the <unk> 2500 this year.
The <unk> team has done a great job in securing employment at the existing fleet and they happen to be able to report positive news with regards to our project pipeline.
We're also happy to report that actual based organization and crews continued to conduct themselves in an efficient and most importantly safe manner and that in spite of all of the challenges to the global supply chain Center on Xyrem kind of managed to continue to mobilize and operate on their respective jobs without disruption.
In February the <unk> and our rights in Taiwan to stop work and also it's great to Chunghwa offshore wind farm. When she has completed installation of 12 eight megawatts Siemens can make the turbines. She will complete the contract great Chunghwa in Q4 of this year and is then scheduled to mobilize from APAC to Europe , where she will commence its 2000 22023.
<unk> contract in Europe with Daniel.
Zara times currently mobilizing for installation of turbines that you're keeping the share of wind farm, where she is scheduled to install 20 242 megawatt turbines. After this you will have to Taiwan to walk on the Union offshore wind farm.
Next slide please.
One of the most interesting parts of the industry as the macro outlook as offshore wind is expected to grow at a compounded annual growth rate of 14% through 2027.
This growth is reflected in the high tendering activity that we continue to see across multiple regions involved in offshore wind, particularly APAC Europe and the U S and supports the view that demand for offshore wind services will continue to increase through the end of the decade and beyond.
While the demand for offshore wind continues to increase additional supply has remained relatively subdued which implies that the future is bright and that the market will continue to tighten in the coming years.
While we believe that the best years are still ahead, we really are very pleased with the contract coverage. We've recently added for 'twenty, two and 'twenty three notes that we've been able to do so with increasingly attractive rates.
We remain optimistic about the future, especially with regards to activity and how pricing will dependent in light of the increasing demand and the fact that we have taken delivery of about two new boats, which are among the most capable planned or under construction.
Q4, 2024, and early 2025, which will set them up well for the full cost of growth of 12 plus megawatt turbines.
Yeah.
Thanks, Jay I think Sebastian.
Slide 10 please.
First quarter revenue was $22 4 million, an increase of $5 8 million from the fourth quarter.
Contracted revenue for 2022, now stands at $152 million and $167 million, including option.
<unk> to last quarter, we have increased our 2022 annual EBITDA by $25 million to $30 million.
With the amendment to the <unk> contract and additional contracts in the <unk> 2500.
Daily vessel operating expenses decreased in the fill ins there, Ken but still remain elevated due to higher crewing and travel costs as a result of COVID-19.
Operating expenses increase in the <unk> 2500, and this was largely due to getting the vessels ready for upcoming employment contracts. In addition to the <unk> 2500 vessels for Idaho last year and incurred additional costs ahead of their contracts.
We expect these costs to decline as Covid eases, but we recommend using the daily Opex of $50000. A day for this are tenants a lot and 21000 per day to the <unk> 2500 for the second quarter.
Similar to last quarter, we've updated the estimated revenue and project costs by quarter and feel this is the best way to simplify and improve.
The transparency of earnings and costs.
I think I speak for all of us, but we are certainly looking forward to the material as Asian contracts in the upcoming quarters Slide 11. Please.
Our new our new $175 million loan facility completes the restructuring of the balance sheet inherited by <unk>, we expect to draw on this facility. This week after which we will repay the remaining $78 million in outstanding debt and it will be the company's only credit facility.
The new loan facility are increasing contractual backlog, an unrealized gain in Scorpio tankers will continue to strengthen the balance sheet to the bottom right. You can see the expected capex payments interchanging building vessels by year.
As well as the expected debt drawdown on the vessels upon delivery, we expect the new builds to be financed at 60% of their contract value.
Slide 13 investment highlights.
And that is leading on our wind turbine installation vessels and the only U S listed company at this time, we have an experienced management team and they develop global platform with operations in Europe , The United States and Asia. Since November the company has increased its contractual backlog on our existing asset base by almost 170 million.
Including options. In addition, we have contracted our two largest W. Chinese Michelle in Zurich yet.
For 2022 and 2023.
Our two highest specification newbuild offer attractive returns and allowed the company to install next generation wind turbine.
Outlook for offshore wind is significant demand for offshore wind as increase while supply has remained relatively subdued.
Excited about the future of the company and our role in the transition to a cleaner and more sustainable future with that I would now like to turn it over to Q&A.
Thank you James and as a reminder to ask a question you will need to press Star and then the number one on your telephone keypad and do we do all your question just press the pound key.
In a moment to compile the Q&A Rusty.
Your first question comes from the line of Greg Lewis with <unk>. Your line is open.
Okay.
Yes, hi, Thank you Ed and good morning, good afternoon, everyone.
Yeah.
Realizing that the new builds are still.
A couple of years out.
Maybe if you could provide some color around.
How that market is evolving in terms of the contracting and the appetite from customers.
Those assets and maybe how we should be thinking about the timing of potentially.
Whether it's an LOI or maybe even a more firm contract as we kind of move forward here.
Okay.
Yeah sure I can answer that.
I think it's safe to say that the tendering activity has increased considerably year on year, and we continue to see demand growth for these very capable assets.
With regards to timing.
It's difficult to.
To give.
Particular guidance on that because what we're really looking for is just to find the right job for those assets. The right project that allows us to optimize the economics.
That being said our clients are definitely feeling that there is limited supply of these vessels as we as we get into into the 'twenty five 'twenty six.
And as a result of that are actively looking to secure vessels to even if.
Reservation agreements in place.
Have you so I cant give you more specific guidance than that.
There is definitely a feeling from the client side or we understand from the client side. The sooner. They can secure capacity the better they've just got to still run these projects through their procurement teams.
Okay, great. Thank you for that and then and then I did want to touch on the.
The multiyear contract in the North Sea.
It was interesting to see that.
The customer was willing to take.
Contracted.
For 'twenty, three 'twenty, four and 'twenty 2025.
Is that kind of just.
Yeah.
Do we think that's a potential function of the strengthening environment for all.
All maritime assets in the North sea on the back of a more constructive oil price and an increasing activity.
Really what I'm trying to understand is there becoming more scarcity.
In the North Sea after really a couple of years, where.
It seemed like that that vessel market.
Having challenges on multiple fronts it seems like.
Most of the company.
Yes.
Yes.
There are a number of people.
But yes, I would tell you the trajectory changed I think that that's reflected in day rates that's reflected in utilization.
And Thats reflected in the fact that there is.
Just increased activity across the board might be rightly say their maintenance requirements. There are people wanting to upgrade their infrastructure. So that they can continue to produce gas.
There are people as the installed capacity goes into offshore wind and all of these some of these turbines are getting older and they need maintenance and also on the oil and gas side, There's obviously increased demand there.
The way I would just from a very basic kind of level look at it as rates added up.
Across most asset classes included Oz utilization is improving.
Sure and people are beginning to get the.
Max.
The baseline of work to be able to commit for a number of months.
Four years in advance.
Okay, Great and then I did want to touch on one other question.
I'm not sure if you use on the line or not but.
Congratulations on that amendment that $18 $5 million amendment on the al.
<unk> Tom.
As we realize that in 2022.
How should we think about that on our revenue recognition is that a lump sum payment or is that something that gets delivered was accounted just amortize over the life of the contract in any kind of color around that.
Well.
Greg I mean, we amortize.
We recognize revenue when its invoiced.
So we are obviously expecting to be.
Be invoicing during this quarter so.
You would expect to see that coming into the results in future quarters.
Okay, but thats more of a lump sum I mean does that begin.
Lumped stomach we on my part.
We realize that.
Over the course over the life of the contract.
Yes.
Okay perfect. Thank you.
Thank you and our next question comes from the line of Turner Holm with Clarksons. Your line is open.
Hey, gentlemen, good morning, and good afternoon, I just wanted to follow up on the on the Amazon.
Congratulations on the new contract there in 2023.
But wanted to see if you could provide any more color is there.
Is there a lot of project cost and in that and that new contract or is that a clean rate and kind of how does that rate look like.
Relative to what Youre working on in 2022.
James.
Thanks.
Yes sure Turner.
The rate does not include project costs, we broken those out separately by quarter for the upcoming quarters and we haven't publicly disclosed what those are yet, but we can at a later date.
Okay. Yeah, I mean directionally is it similar to what you have in 'twenty, 'twenty, two or higher or lower.
Directionally it looks slower than the project that are keeping the share.
Okay.
The nuance to that alright, sorry tonnage.
He wants to add.
I'm just talking about the C&I C&I contracts, where there are multiple as contingency EMR happy.
And the cost buildup of your key to Miss here, whereas this is fairly straightforward kind of time time charter contract.
Okay.
Okay. Okay. Thanks Sebastian.
And then just to follow up a little bit on the on the discussions for potential newbuild contracts.
Going forward.
In the U K.
Theres the Cfd round, four which is expected to conclude.
Some time over the next couple of months I think early July is whats being discussed.
Is there any beneficial sort of aspects of C jacks being being UK base for for those contracts and when you know could could that type of work to be awarded.
Yes, there is definitely an increased focus on local content and the kind of rules around that are actually getting tighter with time compared to where they were two or three years ago. So so that increased focus on that and obviously, we as really there in the UK based installation contract would benefit from.
Matt.
Each of those projects is still running procurement at different speeds. They will have that procurement systems. It would it will enable certain projects to make.
Larger commitments. So go beyond the reservation fee and probably start having termination fees, but I really can't be more specific than that I'm afraid.
Okay. Okay.
Okay, but it sounds like maybe a potential later this year for some of those contracts but.
A little bit different project by project that's fair yes.
Okay and then just one quick last one for me is that you know I think newbuild prices for basically every type of shut the thing going up and I just wonder if you haul.
Had any thoughts about if you were going to repeat the two orders you have today.
You know what would that look like and then what would that cost.
Just trying to get an indication of.
The replacement value for those ships in.
And how that might have changed I guess.
In recent months.
Turner Kamran.
Anecdotally, we're looking at 10% to 15% up on the price at which we ordered those vessels.
Yeah.
I suspect it says okay alright, thanks, so much I appreciate it very much.
Thank you and once again, if you have a question at this time just press Star and then the number one on your telephone keypad and our next question comes from the line of Liam Burke with B Riley. Your line is open. Thank you.
On the Zurich.
Got a gap.
I guess at the beginning of 2023, roughly the end of 'twenty two.
Is it possible to fit in another contract or the logistics of moving from one project to another make it difficult to do that.
Okay.
Good question, the logistics of moving from from one contract to the others.
Our complicated for sure.
I think that's how I look at it is rather like Zara Tan on the Akita projects. So we've secured a kind of anchor baseline of work it may be possible to bring that forward a bit and equally that maybe maybe options on the backend, but it's not going to be we won't be bringing it forward.
Two to three months.
Because we are going from one project to the other and we have to demobilize and mobilized.
So there is.
To extend on the front end.
But not multiple months.
Great. Thank you and on the Angi 25 hundreds.
And it looks like it will get.
Looks like it's off to a good start in 2023.
Standing these sort of shorter term contracts and it's tough to gauge but.
As the 'twenty two 'twenty three market looking similar to what you've been doing in 'twenty, two with the cracking and hydro.
Yeah I mean.
There is a lot of activity.
Like I said, there's activity across the board. So if you look at the individual markets you've got the maintenance markets are increasing with the installed capacity and we're definitely seeing that on the activity side those that are involved.
In trying to enhance production of their offshore.
Oil and gas platforms, they're obviously very interested in finding ways to secure additional supply and equally that you're sort of maintaining the infrastructure are very focused on on keeping that up and running so yes, I'd say across the board.
There is there is increased activity on the 2500 and just going back to <unk> question. There also.
There is also if you look at it.
How that contract is built up there as an operating.
The operating period, but there's also a transit periods that were painful and mobilization period that were paid for so it already does extend a bit on the front end.
And then just could extend extended a bit more.
Great. Thank you very much.
Okay.
Thank you and this concludes our question and answer session I would now like to turn the call back to Emmanuel for any remarks.
We do not have any closing remarks apart from thanking everybody for your time and look forward to speaking to you soon have a good day.
Thank you and this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Sure.
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