Q2 2022 Eneti Inc Earnings Call

Good day and welcome to the <unk> incorporated second quarter 2022 conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one.

You touched her phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. James Doyle head of corporate development and Investor Relations. Please go ahead Sir.

Thank you for joining us today welcome to the <unk>, Inc. Second quarter 2022 earnings conference call on the call with me are I mean, you only Lauro Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief Operating Officer, Chief Baker, Chief Financial Officer.

Sure Brock Chief operating officer of seat Jacks.

Earlier today, we issued our second quarter earnings press release, which is available on our website at <unk> Dot com. The information discussed on this call is based on information as of today August <unk> 2022, and may contain forward looking statements that involve risk and uncertainty actual results and events may differ materially from those set forth.

And 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 <unk> Dot com and SEC Dot Gov call participants are advised that the audio of this conference call.

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. The presentation is available at <unk>.

Dot com on the Investor Relations page under reports and presentations.

<unk> 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.

Yeah.

Thank you James and good morning, and afternoon to everyone and welcome to <unk> second quarter 2020 to resolve in the first profitable profitable resolved.

As a wind turbine installation base of the company.

Since November we've.

We increased our contracted backlog by almost 170 million. This is for 2022 and 2023.

In the second quarter, the company generated 61 million of revenue and in excess of 24 of net income.

Number excludes an additional 28 million quarterly unrealized gain.

In our investment in Scorpio tankers.

The fleet fully contracted in the second and third quarter.

Cash flow generation from these contracts.

And then a conservatively levered balance sheets.

In addition.

This excludes the value and potential sale of non core assets.

Which includes the <unk> 2500 vessels.

As far as our new buildings are concern the construction in Korea is proceeding. According to plan. In addition, we have received proposals from several financial institutions about financing boats new building vessels.

Including a fully underwritten proposal, which leads us to believe that we will secure attractive terms aligned and comparable with our existing facilities.

Yeah.

Good.

Okay.

Uh huh.

<unk> energy prices illustrate the risk of consistent Underinvestment in energy and renewable energy is critical to creating energy security and reducing global emissions.

We expect the offshore wind.

Markets to expand to new markets and to accelerate leaving us well positioned to capitalize on conducting our existing assets.

Yeah.

Which are the high specifications and are currently being built in Korea.

We are excited about the outlook for offshore wind and our role in the transition to a cleaner and more sustainable future.

I will now, let Sebastian and James go through a brief presentation.

Jim.

Thank you Emanuele.

Good morning, everyone.

As mentioned by Manuel a since November and if he has increased its revenue backlog by about $170 million for 2022, and 2023 taking into account all options.

In November of last year, we did not have any contracted revenue, but the MG 25, hundreds in 2022 or any contracted revenue for the seller and Sarah Tan through 2023.

Previously disclosed the company is now contracted two of its largest wty Pob's centre and Barrington through 2023.

Currently executing a significant pipeline of work for the <unk> 25 hundreds.

See Jack's team has done a great job in securing employment the existing fleet and we're happy to be able to report some positive news with regards to our project pipeline on the all five vessels in the fleet are currently employed in the third quarter.

In February the C. Jive Sheila arrives in Taiwan to start work on the very high profile, great Chunghwa projected more stead, well she's installing eight megawatt Siemens can make the turbines.

Scheduled to complete the contract a great Chunghwa in Q4 this year.

Mobilize from APAC to Europe , where she will commence its 2023 contract with bundled.

Zara, Tommy Scott looking at keeping the share of windfall, what she is making good progress installing 30 342 megawatt turbines. After this shall head to Taiwan to welcome Jonathan offshore wind farm.

With regards to the <unk> 25 hundreds.

<unk> is currently mobilizing for previously announced contract to perform maintenance work on offshore platforms, and some nausea, north sea, which stopped the bogus.

Boston is currently performing accommodation substance at an offshore wind substation and will then be mobilizing for a previously announced contract the decommissioning what's in the southern North Sea.

Hydro is continuing its previously announced maintenance campaign for a major OEM in the southern North Sea.

Expected to complete in Q3 of this year.

It's worth noting that Seajack shore based organization crews continued to conduct themselves in an efficient and most importantly safe manner and in spite of all of the challenges to the global supply chain. This year children's Aratana continues to operate on their respective jobs with minimal disruption.

Slide eight please.

One of the most interesting part the industry is the macro outlook as offshore wind is expected to grow at a compounded annual growth rate of 14% through to 2027.

This growth is reflected in the high tendering activity that we continue to see across multiple regions and golf in offshore wind, particularly APAC Europe and U S regions and.

And supports the view that demand for offshore wind substance, we will continue to increase through the end of the decade.

Beyond <unk>.

Slide nine please.

While the demand for offshore wind continues to increase additional supply has remained relatively subdued which apply to 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 are very pleased with the contract coverage, we have secured the 'twenty two and 'twenty three.

To do so at increasingly attractive rates, we remain optimistic about the future, especially with regards to activity and how pricing will develop in light of the increasing demand and the fact that we have taken delivery of two newbuild, which are among the most capable planned or under construction in Q4, 2024, and 2025, which will set them up well for the full cost of <unk>.

Right.

12, plus megawatt turbines.

With that I'll hand back to James.

Thank you Sebastian Slide 11 please.

First quarter revenue was $61 2 million, an increase of $43 1 million from the first quarter. In addition, the company generated its first profitable quarter with $24 2 million and net income excluding unrealized gains revenue came in ahead of expectations as part of the <unk> contract extension with <unk>.

<unk> in the second quarter. In addition to payments related to previous claims from projects completed in 2021 additional option optional days declared on the MQ25, hundreds and higher reimbursable costs, such as fuel customers.

The contracted revenue for the second half of the year now stands at $84 8 million and $94 $9 million, including options.

Daily vessel operating expenses decreased on the <unk> 10, and <unk> 25, hundreds, but increased on the scylla due to higher COVID-19 related crewing and travel costs as well as fuel costs, we recommend using daily Opex of $50000 a day for desert Tan.

Silver and 22000 per day for the Engie 25, hundreds in the third quarter.

At this time last year, we announced our acquisition of <unk> and are pleased with the professionalism commitment and expertise to see Jack's team has brought to <unk>.

Next week, we expect to file an S. III related to shares issued to the sellers of <unk> as required by the acquisition documentation.

We do not have any information related to the future plans of the sellers regarding their remaining shares an entity.

12 please.

Our new $175 million loan facility completed the restructuring of the <unk> balance sheet during the quarter, we drew on our new credit facility and repaid the <unk> facility and companies for new Damnable notes through the new loan facility increased cash flow.

Growing contractual backlog.

Balance sheet continues to strengthen.

As Emmanuel I mentioned, we have received a fully underwritten proposal from financial institutions related to our Newbuild and feel confident that we will secure attractive terms similar to our current credit facility to.

The bottom right you can see the expected capex payments on our two new building vessels by year as well as the expected drawdown on the vessels upon delivery, we expect the new builds to be financed at 60% of their contracted value with that I would like to turn it over to Robert Bugbee.

Hi.

Good morning, good afternoon, everybody. Thanks, very much for your interest I, just like to point out a couple of things here is that obviously, we could look at this and we could look at the cash flows et cetera, and we can look at the opportunity with the actual market growing in terms of demand and the expected.

Contracts that we're ultimately going to get to them they could to diluting your buildings.

Another way would be to look at this is not necessarily true he'd be Dol rule.

Our cash flow, but a balance sheet that is no.

Got a lot of liquidity in it and it has a lot of.

So no there's not.

Much leveraging the balance sheets tool.

And the company itself and the management itself is prepared to sell things. When we have situations. We have now where you could have an enormous discrepancy between the actual steel value of the.

And the actual share price.

And you know I think on the <unk>.

It's the way that we've seen red net asset values.

Tend to have a range anywhere between 13 and 17 $18. So I'd just like to point that out.

And with that just like to open up for questions. Please.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

Our first question will come from Greg Lewis with B T. I G. Please go ahead.

Hi, yes, thank you and good afternoon, and good morning, everyone.

You know I I guess like I did want to touch on a little bit about the announcement around the <unk> vessels.

You know if you could provide us some color around how youre thinking about that Robert you mentioned the comment.

But also I guess I'm kind of curious how that market's develop just given.

Realize that they don't directly.

Arent viewed directly as well.

Oil and gas assets, but derivative perspective that that absolutely impact.

Just kind of talk about the decision to.

Kind of classify those as non core and I guess looked at monetize them any color around that would be helpful.

I don't know if you'd like to own.

Sure. Thanks, Greg.

Obviously, the market conditions for those assets, which have a fair bit of.

Employment in oil and gas related work.

Has tightened significantly over the last several months.

So we're seeing increased inbound inquiry, not just for employment, but for longer term.

Employment and also sale, but I revert back to what Robert mentioned, which is there.

There is such a discrepancy between the share price and what's the vessels can earn.

And that we are currently in the early stages of evaluating either selling more putting out on the longer term.

<unk> business.

To try and capture that spread.

We don't expect this to happen overnight the early stages of a process.

And we would be in a position to report back as and when we have something to say.

Okay, great. Okay. So this is okay. So it may take a while.

This is going to have to be a little bit of wait and see here. Thank you for that and then and then you know clearly you know I think one of the drivers that people are waiting for.

We're always.

And analysts alike are always looking for potential catalyst.

Yeah, I guess I guess more recently, there's been some contracts for.

In out years for vessels that are under construction.

Could you provide some color around how that market is developing.

And.

Any kind of thoughts around.

When we could see.

You know, whether it's a better contracting some of their new builds or other new builds out there being contracted at any kind of overview of that of that activity. Mark you gave us I think would be pretty helpful. Thank you.

Yeah.

You want me to have our Boston do you want that way Chris.

Yeah.

I think that the fact that you are seeing a number of comstock being announced on rebuilding.

So far routes in time prior to their delivery.

Just shows that there is a tightening in that market and there's a concern about available supply.

As we move through kind of delivery of all vessels and into 'twenty five 'twenty six and what have you.

With regards to timing of when we.

We may be awarded a contract.

That really remains down to the procurement processes of our clients.

Kind of.

Yeah.

The projects that we're most focused on.

I'm trying to get get signed up so I wouldn't give a timeframe on it but I would tell you that activity continues to be high.

Which has obviously shown by the number of contracts that all being announced.

And I think that our clients are expecting to announce kind of material contracts.

Towards the end of this year and the beginning through the beginning of next year.

I'm not going to tell you that that's when we expect to make the announcement, but it does give an indication of when.

We expect some of these processes to close.

Okay Super helpful. Thank you very much.

The next question will come from Ben Nolan with Stifel. Please go ahead.

Hey, guys.

Maybe if I could.

Follow on a little bit with respect to Craig's questions.

The reclassification of a 2500.

And Robert maybe going to what you had said that.

And you believe that there's a discrepancy between where the shares are.

Currently being valued by the market versus where you believe that value to be.

First of all.

Yes.

Has your thinking here entirely.

All at an arbitrage related.

Thinking or are there other.

Things that you would look to be able to redeploy that capital into it I don't know if they're ordering other vessels or something like that if you were to sell assets.

And then and then lastly, as part of that is it fair to think that the sting chairs or are part of that same.

Asset base that might be available.

I think that the.

I think it would take the last one first listing shows.

Obviously ultimately.

The existing shows Oh, proving them, we continue to believe well.

Oh, just incredible investment.

And you know Sting reported last week.

That market is very very strong.

It does.

Continuing to move stronger since.

And we think that the.

We don't need the cash at the moment inside Nikki for any reason there's no.

Immediate opportunity redeployment until then there's no immediate requirement.

Having a.

Liquidity.

And.

The <unk>.

<unk> Costa.

Selling staying could be could be quite high.

It's.

You of course mathematically you could say well you know you can self thing shows in Ukraine.

Boy Nasty, but I'm not.

Quite sure of that.

Net use of that liquidity, it's taken off so so.

Quite a long time as insiders to buy the percentages that we have so you have a situation where the stock is trading low, but yet your volume isn't bad.

Hi.

So it's not necessarily looking at it that way.

Sure I did in GTA five hundreds is that.

Increasingly I think youre going to get we believe youre going to get investors that want to see Oh, absolutely when you ago.

Company isn't necessarily going to want.

A company like Nike going forward too.

BP doing things in an problems and.

So that would be a benefit as well.

And then structurally going forward after that yes, you would hope for.

This opportunity at all.

Think that now you know once we've seen the offshore we've seen there.

The golf, we're both Gulf Coast, the Middle East Gulf U S. Gulf other areas you know for sure develop so this market is tightening.

It would.

Could quite possibly represent a good time to sell.

Simple as that.

And I think you would establish real work in the company as well.

So it's more that rather than waiting as Sebastian said, we're not quite sure when the opportune moment to fix the two directorships, but rather.

Best of having to wait for that as a catalyst.

The sale of the engine two five hundreds themselves.

It could become a.

It could become a cup a catalyst.

At that time.

Okay. That's helpful. I appreciate that color Robert and then.

For my second question just to switch gears, a little bit you talked about.

60% financing I'll, let you new builds.

Yeah.

First is that assume contracts or is that on a contracted basis.

And when you are thinking about financing because it makes sense to wait until you do have something firmly in place.

Because or would it mean.

Meaningfully impact the availability of debt financing at a cost of that capital.

And that's a very good very good question.

I think firstly.

We are running our finance process, but that is not reliant on a contract in place.

We are obviously expecting the vessels to be employed and suddenly they the lenders are expecting the vessels to be employed but the nature of that employment is not is not specific and its not set in stone I think.

We all the.

The proposals that we've received have been.

Around 65% and we're looking at at some of those proposals very seriously.

And on those proposals.

Don't require a specific long term contracts. They do they do expect the vessels to be to be employed for.

For their lifetime, and obviously the vessels need to.

Money.

During during the period that they are on.

To finance.

In terms of timing I think in terms of timing.

Our expectation is that you know the.

Got it.

It's going to take probably a year to get our ECA export credit agency financing.

All of the vessels put in place.

Certainly within that time, we expect and Sebastian has indicated that we were certainly comfortable that the vessels will have employment.

Okay, well, that's great I appreciate the color. Thanks.

The next question will come from Turner Holm with Clarksons. Please go ahead.

Hey, good morning, and good afternoon, gentlemen, and congratulations on the first profitable quarter.

I just wanted to.

Turning to check in on the new builds.

For Cameron here could.

Could you just give us update and some color on construction progress.

Is it more on the delivery times I guess.

The yard has had a few.

Financial struggles, but kind of where are you all in terms of the new builds any color on that would be great. Thanks.

Thanks, Turner not much to report actually that.

I'm not sure it's fair to say the yard has had financial troubles, what they have experienced of course are some well.

Well publicized labor disputes with some of their subcontractors.

Some uncertainty about there.

Combination.

With one of their chief competitor as a business combination.

Hmm.

But obviously like the whole Asian Shipbuilding complex they are awash in.

Our highly profitable orders from conventional ship types like containers.

And tankers.

So we arent concerned about their financial stability at all we are much more focused on the on time and on budget progress of our vessels and being highly specialized offshore vessels they take on a certain.

First of all separation.

From the conventional shipbuilding docks and processes.

Higher status.

And also we are conveniently alongside an aligned with.

Some major clients in oil and gas bespoke projects. So we feel.

Actually quite.

Confident.

In the progress so far the schedule.

And the ability of the yard to deliver these vessels is as planned.

Okay. Good so I guess everything going to plan.

And then Sebastian.

Just on the contracting outlook for for the new builds.

I guess as.

You know you've been bidding into tenders for projects a couple of years out.

Now maybe up until.

The most recent quarters you were bidding against let's say potential Newbuild, where maybe there was still time to build chips for these contracts, but I imagine now.

You know just based on the most recent orders that we've seen it's probably 2026 or at least 'twenty late 'twenty 25 type delivery times.

Okay. How are the dynamics are shaping up for you know the kind of timeframe that you were looking at around 2025.

And you.

You know I.

I guess relevant to.

The projects that are looking to go into off shrinks you can't execution in that period, you know like how does this sort of supply demand balance look given that the order book for that period seems now pretty fixed.

Yeah, I think you're right I think on the supply side.

The times basically run out.

To increase supply to those earlier projects.

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

In multiple regions kind of a different paces. So we've obviously had some announcements.

In Europe , there are some additional projects that will require.

Vessels that but also you start looking at the projects in Asia Pacific.

At the local regional hub, there's very limited supply of that time that we have.

C Mountain.

The Zara time has benefited from that on the human side.

By extension.

There are obviously opportunities that the new builds.

So I think that you have to look at the markets on a region by region basis, I think that the dynamics are different in each region and I think the dynamics are positive action each region, obviously, you're more dependent Asia Pacific very limited demand growth coming out of a yard in Asia Pacific.

It could be well positioned for those projects and equally there are.

Never comments coming out of the U S as well so the market is tightening.

And <unk>.

We just continue to see that kind of growth through.

Through that.

Right through to the end of the decade, and when we're bidding on stop in 2008 at the moment.

And it's not even on the supply side.

It doesn't even sound like there are people stocking up to build the operating platform.

And.

That really matters so.

So, yes supply relatively muted I think positives.

Dynamics in each of the major hubs.

But each of them have their own their own dynamics it could be stronger.

Stronger based on limited supply.

That makes sense.

Sure. These question and then if I just circle back real quick.

Due to the potential sale process or are they ongoing sale process for <unk> 25 hundreds.

Just looking at the balance sheet, you all have about a little over $500 million and.

Vessels, so P. P nameless vessels, so excluding the new mill.

Can you give us some sense of scale.

Hum.

C G I.

Then G 25, hundreds or are in terms of that little over $500 million of asset value you have on the balance sheet.

Sean.

Alright, we don't break down the road.

So the book values.

Of the individual assets, so I'm afraid I'm not able to do that.

Yeah, I'm not sure I'm not.

First of all that we would oh.

So don't think it would be good for.

Us too.

You've got a.

Market.

Changing that.

Prices are amazing.

Moving around and I don't think we would want to start to let's say.

Well put a price out there the bid against ourselves.

Of course, maybe I'd just ask it in a simpler way.

Okay, I'm fairly sure that clock since themselves would be able to provide a range.

Sure.

Maybe just.

[laughter] part I mean, just very simply I mean, I guess relative to the market cap today is it fair to say that any potential sale is significant.

Any of the assets that we are going to stick.

The three N GT five hundreds are the hello.

This is I would say in the United States.

It's stuck in Scorpio tankers is significant.

That's what.

I got no in simple terms, what I was trying to explain earlier that you've got a huge dislocation and though I know the industry conventionally renewals are based off.

The multiple was related to EBITDAR or future earnings etcetera, etcetera, and that will come but it was partly explaining why is inside as we've continued to buy the stock on a very very regular basis as we're sitting there saying to ourselves well, we're fairly comfortable with what Sebastian and saying that no.

And he was saying that the market is improving that they did they actually.

<unk> demand.

So the assets is strong over time, so those ratios will come but in the meantime, what's let's say underpinning our own investments as it is a very very.

Unusually wide spread too.

With a company that you normally would see if a company has financial issues not the company that has such a lot of liquidity.

Alright, Thanks, Robert I appreciate it.

Okay.

The next question will come from Liam Burke with B Riley FBR. Please go ahead.

Yes. Thank you you had some claims in the quarter from work on the <unk>.

On the Engie 25, hundred's from 2021.

Is this normal or is there some anomaly.

Or is that something we can expect in the future where you Bill realized revenue and then you get an additional past or additional clients.

I think I can answer that as a sort of a strike borders economy. It is it is pretty normal and you know what we're saying is that we obviously enjoy contractual revenue and we win business when we win contracts and those contracts evolve overtime and.

They they they have they have longer durations, and there's different rebelling et cetera. So.

They.

The the various items that we have.

We've reported in this quarter al.

Certainly, they're not individually not repeatable, but there is a trend.

It is repeatable and are not unusual.

Great and.

On the longer term outlook for demand on the offshore wind turbines.

A lot has happened, especially in Europe with a supply disruption of natural gas.

Increased use of call.

Since you began.

The move to offshore.

Wind turbine installation do you think Europe's commitment to offshore wind has increased or decreased.

Do you look at that change.

Can I just take a stab at that I would just say that it's one of the very few industries, where.

The kind of macro revisions go up.

Each time that we published.

So I would say over time.

Market strengthening theres, a real commitment to offshore wind in Europe .

And actually on a fairly regular basis, you read about established countries.

Announcing that in the next five or six years, they want an additional X gigawatts of capacity.

So I think the trend was positive anyway, and then with the recent disruptions.

I think it's I think it's strengthened further.

Great. Thank you.

This concludes our question and answer session I would like to turn the conference back over to Mr. Emmanuel E. Laurel for any closing remarks. Please go ahead.

Okay.

Thank you very much operator, we do not have any closing remarks at this stage. So thanks for.

Taking the time to be with us today and look forward to speaking to you all soon.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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