Q3 2022 Eneti Inc Earnings Call
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Good morning, and welcome to the <unk>, Inc. Third quarter 2022 conference call.
Participants will be in listen only mode should you need assistance. Please signal 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 on your telephone keypad. Please.
Please note this event is being recorded.
I would now like to turn the conference over to James Doyle head of corporate development and I are please go ahead Sir.
Thank you for joining us today welcome to the <unk>, Inc. Third quarter 2022 earnings conference call on the call with me are Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief Operating Officer, Chief Baker, Chief Financial Officer, Sebastian Brock Chief operating.
Search see Jack's.
Earlier today, we issued our third 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 November eight 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 statements disclosure in the earnings press release issued today as well as steady inks SEC filings, which are available at <unk> dot com and SEC 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 archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.
We'll be giving a short presentation today. The presentation is available at <unk> Dot com on 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 as well.
Thank you James good morning, or afternoon tool. Thank you for joining us today for Nic's third quarter 2022 results.
In the third quarter the company generated.
More than $69 million of revenue and close to $28 million of net income and this excludes a realized meaningful gain in our investment in Scorpio tankers.
The demand has increased.
<unk> are trending higher and utilization is ticking up and this is.
True for all different sizes of W. <unk>.
In addition, also the COVID-19 related challenges like long quarantines, our crew movements that have been affecting a global player like canetti, whose operating assets worldwide has started to show signs of normalization.
I'm, referring more specifically to Asia, where a few of our assets are operating that is gradually going towards a more westernised Colby approach.
But recently, we have contracted one of the <unk> 2005, hundreds for employment in 2023, and we are optimistic about further contracts at higher rates and longer duration in this class.
Wholesale in our bigger classes.
We are in a fortunate position as these assets the 2500.
More precisely can generate positive cash flow, whilst we are exploring alternative solutions, including potential sale of the 2005 hundreds.
We are excited to contact our existing asset base and new buildings at higher rates than what appears to be a very under supplied market going forward.
The contractual backlog continues to increase the pipeline of potential projects for our new buildings is becoming increasingly attractive.
On the financing side in October we have received an underwritten proposal from <unk> Agricole and Societe Generale.
436 million term loan facility to finance approximately 65% of the purchase cost of the company's two <unk> new buildings under construction currently in Korea.
Our balance sheet continues to improve strong operating cash flow from our existing fleet and the divesture of our holding in staying has created a strong liquidity position.
A position, which given our conservative leverage allowed us to repurchase two 3 million shares of the company at an attractive valuation and looking forward, we anticipate significant opportunities for the existing fleet.
As well as for our new buildings.
As offshore wind demand accelerates and expands into new markets.
We are excited to capitalize on these opportunities and as well as play our role in the transition to a cleaner and more sustainable future.
I'd like to thank you for your support and I will now turn it over to Sebastien and James that will go through a few slides. Thank you Sebastian please.
Thank you Manuel.
Im Sebastian Brook.
COO and co founder of <unk> Jack.
Which has been installing wind turbines since 2009 operating platform of a Nazi.
Responsible for operating and contracting the fleet to five vessels that are currently on the water as well as the two next generation <unk>, which is scheduled for delivery in the second half of 2024 and the first half of 2000 22025, respectively.
Slide seven please.
As of Manuela. He says we have been building backlog over the past year you can see from the chart on the bottom left of this slide we've made good progress.
This time, a year ago, we had $104 million of contracted backlog, but over the past 12 months, we've increased significantly and now stands at approximately $283 million.
Again the chart on the right hand side of the slide shows that we have secured employment for two installation vessels semi zara time through the end of 2023 and there are conversations ongoing about potential follow on work in Europe Asia Pacific and North America.
Contracting activity for these vessels is high and we believe that rates in this sector will continue to trend upwards.
We were also busy building backlog for cracking Leviathan and hydrate in 2023.
These vessels installed hundreds of the full megawatt turbines in the north sea and the typically employed in turbine maintenance.
Hookup and commissioning of offshore wind substations, and the maintenance and decommissioning of gas platforms in the region.
Historically these vessels have a shorter contracts, which attended closer to the project start date, but given the increased levels of contracting activity and limited supply of similar vessels in the region clients are starting to commit now to work in the summer of 2023.
From a supply side, it's worth noting that a few years ago. There were six similar vessels operating in the North sea, but today there are only four which is effectively a reduction in supply by a third.
From the demand side, we're seeing increased demand in all areas as the smaller turbines approach 10 years in the water and require increasing levels of maintenance the number of substations, requiring hook up commissioning and maintenance in the North Sea continues to increase in line with installed capacity.
On the energy crisis has prompted the utilities and oil and gas companies to maintain the critical gas infrastructure in this region slide.
Slide eight please.
And that is core market is wind turbine installation and based on industry fundamentals. The outlook here is bright why is that.
Firstly, we are operating in a growth industry.
Analysts may have different views on exactly what that growth rate is theyre. All agreed that growth is robust and the revisions to forecast up robin flat or down this will lead to increasing demand for our installation vessels.
Secondly, there are significant barriers to entry so the increases in supply a relatively muted and typically limited to companies with an existing footprint and the offshore wind industry.
Thirdly.
The capex associated with <unk> installation vessels is relatively low at around 2% of the total capex of an offshore wind farm. So increases in day rates I'm not going to jeopardize the financial viability of any specific windfall.
And that is well positioned to benefit from these positive market fundamentals not only with <unk>, but also the two new buildings that are scheduled for delivery in 2024 and 2025.
Slide nine please.
And as these two new buildings are scheduled for delivery in the second half of 2425, respectively. When delivered there'll be amongst the most capable vessels on the water and with the 2600 ton cranes are able to install the next generation of wind turbines.
As the trend is for clients to install larger turbines and that you will be well positioned to benefit from the tightness that is forecast at the high end of the installation market.
And Thats new builds also provide our clients with flexibility as they are not only able to install the largest hub bonds, but also foundations in the most challenging locations around the world.
We believe that our clients.
Value added capability and the flexibility that these vessels provide and this will ultimately be reflected in day rates and utilization.
Contracting activity is high for the new buildings and we continue to see serious interest book in Asia Pacific Europe , and the U S from delivery and through to the end of the decade as clients look to secure capacity early in a market that is predicted to have a shortage of vessels as we move into the second half of this decade.
We are focused on finding the right contracts for these highly capable vessels as this should enable us to generate chip to generate the most attractive returns for our shareholders.
<unk> discussions with a number of clients and looking forward to announcing them to the market once they are finalized.
I'll hand over to James Doyle.
Thank you Sebastian Slide 11 please.
Third quarter revenue was $69 2 million, an increase of $8 million from the second quarter, the highest quarterly revenues for <unk>.
And inflation.
We recently contracted in <unk> 'twenty 500 for a minimum of 130 days for next year.
Or in the process of tendering for an additional contract in 2020.
<unk> continued to demonstrate their ability.
The contracts the whole thing.
We are optimistic about the pipeline of contracts find new boats and the outlook for the industry at the hall.
Vessel operating expenses decreased on the sell off.
The slight increase from <unk> 2500, plus all milestones will employ during the period.
Recommend users daily Opex of $60000 a day from the seller.
So based on this area.
$4000 involved through the MQ2500 from the fourth quarter slide.
Slide 12.
Our balance sheet continues to improve.
Several of leverage strong operating cash flow.
For the physician.
The financing of our Newbuild vessels is underway and we have received a proposal from credit I will call. It in fact, John .
Logan.
Term loan facility or 65% of the focused far facility.
Bottom right you can see the capex payment schedule and expect the final set of 50% financing.
With that I'll turn it over to Q&A.
Okay.
Uh huh.
I'm sorry, Mr. Dror, Ben for the question and answer session.
Yes, great.
Thank you we will begin the Q&A session. At this time to ask a question you May Press Star then one on your telephone keypad.
Speakerphone, please pick up your handset before pressing the keys.
Draw. Your question. Please press Star then two.
And at this time, we'll just pause momentarily to assemble our roster.
And the first question will be from.
Greg Lewis with <unk>. Please go ahead.
Hi, Thank you and good morning, and good afternoon, and thank you for taking my question.
The first question I did want to ask is around the <unk>.
Contract opportunities for the new builds and really around.
Realizing there's still plenty of time, but as we think about.
Contracting cycles.
As people start positioning for.
24, and 25, just given the tightness in the market.
Is there a sort of a seasonal cadence to win.
<unk> have these.
These long lead time items fixed I E.
Yeah, that's kind of what I'm wondering.
Hey, Bob do you want to take this.
Sure.
No I mean ensure there is no real seasonal cadence to the announcement of contracts all of our clients have different kind of procurement regimes and strategies and so it makes it quite difficult to predict the exact timing of the conclusion of negotiations but no.
Yes.
It's a steady.
It's a steady trickle throughout throughout the year.
Okay. Okay, Great and then just another question I had around you.
You alluded in the prepared remarks about potential opportunities for monetizing the point the engie 25 hundreds.
And how how should we is there any kind of.
Benchmarks or like how should we be thinking about that and realizing that it's my understanding that some of those vessels are working in the more conventional energy markets in those conventional energy markets are tight.
Being said, we're in the North Sea, where typically we see some seasonal softness.
Any kind of color you can give around the potential around those assets.
I think Gregg. Thanks for the question I think we've been clear that we are evaluating alternatives on the assets, including the potential sales.
So disposing of them in the meantime, we are enjoying what.
He is a positive momentum market both in the offshore wind as well as the more traditional energy markets, having said that as we know.
<unk> 2005, hundreds which were built as installation vessels as we approach the new.
More modern turbines. It is apparent that they will not be capable to install those turbines and some that are already actually existing.
When we.
<unk>.
Merged with <unk>, we've described.
One of the potential uses of these vessels in the maintenance field and we came to the conclusion that we're happy to do alternative jobs until we find the right home for them and.
And if the right told me selling them, we are prepared to do that too. So we don't have it's not that we want to hide from plans, we've been upfront and open.
But we just did not find the ultimate solution.
But we have a pretty relaxed because whilst we are looking for the ultimate solutions. We are generating positive cash flows on the assets, yes, Okay. Great and then just one for me around the buyback realizing hey, we saw the sale of the Scorpio tankers during the quarter.
You have the cash position I mean, it looks like the financing.
Sure.
I guess it looks like it looks like the potential.
Amount it was greater than we were thinking is there any kind of way you think about.
On the buyback versus.
How should we think about the buyback going forward here, knowing that you do have some capital commitments coming up over the next couple of years that being said you are it looks like we've lined up some financing thats probably going to.
Be available as we look at those next two years.
Maybe I can take that one so hi, this is Robert.
Great. Thanks.
Hum.
I think you said away then.
Thank you correct. This company is kind of a.
A couple of stages here.
The company took a great opportunity.
<unk>.
Combined the block.
Very good opportunity nice price.
And are.
The priority right now in the company is to get the first.
New building.
Employed.
You're building gets employed then we get a lot more flexibility a lot more flexibility.
<unk> is a lot more.
So I think it's bad.
We are not looking to buy back stock at the moment.
<unk>.
Obviously as we can.
Hey.
There.
He has been doing so.
This buyback.
Sure.
Right.
Things can change once we got the first.
<unk> announced on the new building.
Okay, great to hear thank you very much for taking my questions have a great day.
Okay.
Yes.
And our next question will be from the line of Turner Holm from Clarksons. Please go ahead.
Hey, good morning, Good afternoon, gentlemen, I just wanted to ask Greg's question on the contracting maybe in a slightly different way.
Given that most of these offshore wind projects are contracted.
Several years ahead of time.
Whats the window for getting a sort of matching up the delivery of the vessels with with the appropriate contracts I mean do we have.
Whats that timeline look like.
I think I got that.
I mean, we're not I think as a policy, we're not really going to.
Following some of the peer group, we've done which is.
So the anticipated contract and give some sort of timeline and then run risk of delays with the policy, we are going to not give any timelines in the telecom side.
<unk> has been in now.
Got it.
Im sorry, Im sorry, just come with a press announcement.
I would follow up.
Yes.
Market is busy.
The old space is improving.
And we are negotiating.
With.
Various customers, but it's important that we have the best asset out there we've got the balance sheet.
Two two.
Wait.
Little bit of patience.
We need to be a good thing at the moment in the negotiated and parts of it.
And I would just leave it at that.
I understand and then.
Obviously, you all are.
Doing a lot to narrow the discount.
To NAV and the stock.
Stock has come up but I think most analysts have NAV.
<unk>, which are quite a bit higher than what it is but again you all have been.
I think taking a lot of actions that would suggest that that gap should narrow youre selling things shares talked.
<unk> talked about the potential to monetize the smaller assets.
Bought back some stock.
Okay.
At what point.
What point do you say.
Do you start considering.
The broader strategic alternatives.
To narrow that gap now.
Manuel I hear I think we are.
We're just doing what we said we would do.
And we had some positions to clear like the sting's stock like the two new buildings.
Our financing which is coming along.
We are now focusing on delivering.
Rather than thinking about anything else. So thats the focus our hedges there we're happy with that.
Last couple of quarters the way they have gone focusing to make sure that we continue.
In this direction and that's.
Thats, where we are.
In the meantime, we were able to take advantage of the fact that the stock was.
Trading massively at a discount to NAV.
Not only the company has purchased by <unk>.
<unk> done some buybacks, but also.
Some of our affiliates have taken advantage in both.
A significant or meaningful amount of shares so.
From a managerial standpoint, we're focusing on delivering from an opportunistic standpoint as a shareholder we're looking at capitalizing on what is a clear dislocation in the stock price at present.
I appreciate that.
Okay.
I will hand, it back with that thank you.
Thank you Tanner.
And our next question will be from Ben Nolan from Stifel. Please go ahead.
Yes. Thanks.
So my first one actually it's probably a series of questions that are related to <unk>.
<unk> to 'twenty five hundreds that's encouraging too.
Oh my.
Maybe not surprising to hear that there is positive momentum there.
I wanted to maybe see if you could frame out how you're thinking about those in a few ways first of all.
How how you would maybe suggest that we think about utilization for those over the course of the year appreciating that you haven't yet won contracts, but just how you would think that would play out.
And specifically also if you think there's any chance of.
Anything in the first quarter, because I don't believe it currently theres anything there for those and then is it possible to frame and.
Talking about rates being better.
Is it possible to sort of even approximately say, okay. Well here is where we were maybe a year ago at this time versus now.
Sebastian do you want to think do you want to take this or shall.
July .
I'm happy to give a kind of color on the activity levels I mean for us we sit down and historically.
Historically in recent years.
Our seasonal seasonal business.
But in the good years, it wasn't 100% utilization on our vessels.
Going back quite a few years now and what we're seeing is.
Rather like on the installation side for the 25 hundreds of people are concerned about being able to secure the availability of next year. It means that people are actually enquiring about work in the shoulder seasons.
Again, just to secure availability and that will drive utilization and with that comes right. So a lot of.
The work that is being tendered at the moment is without being too specific about it.
Significantly above.
I've seen in the last.
Yes.
Quite a few years.
So.
Without being more prescriptive in that.
But the general trend.
Okay, and so does that mean, there is a possibility of first quarter revenue from those is it.
Point there.
Yes, we are bidding on we're bidding on getting on contracts.
But of a start outside of what is.
Me become the kind of seasonal window in the spring and summer.
Okay.
That's helpful.
And my second question relates to the financing on our new buildings, it's good to see that Youre, making progress there I'm curious though.
Are you finding or or.
It would seem to me I guess a way to phrase it is it would seem to me that the.
The terms and.
Everything pricing everything around that financing would be substantially better or easier.
If there were contracts on the assets.
Robert you talked about how you think about the contract and which I totally understand that.
Yeah.
If.
Does it matter I guess am I wrong does it matter, whether or not the assets or are financed as it relates to the ability and pricing of financing.
I assume that's more of a psychological aspect Ben.
Anything else because as you know these are assets that have a lifespan.
A couple of decades at least.
The contractual.
Employment that one could announce is probably for.
12 months period, instead, so I think that the what the lenders are coming to conclusion is that if you are.
Building the right assets of the future for the future in quality yards operated by.
Our quality management teams or operators, then they're happy to back this whether theyre going to put a.
Price differentiation between.
That said that is employed or not we haven't experienced that they were not this is not what.
We have been proposed.
And we are actually very satisfied with the terms and conditions that were offered to us on a fully underwritten deal that we are looking forward to finalize in the next couple of months.
Okay. So.
They don't.
It's not a gating issue for them I guess no no. It has not been it has not been I think that the general mood on.
On the renewable space and more more specifically the offshore wind space has been improving in the last couple of years from capital providers, both on the equity side as well as the the lending side. So it's a general trend.
But maybe it was a gating item two years ago. It is not today or at least it is not fortinet.
Okay, and just to make sure that I'm thinking about it right. This is a post delivery financing and prior to that you have shipped shipyard financing for I suppose at this point much of the balance of the remaining capex is that right.
We've got all of Opex to be consider queue. Please.
Yes, China to answer that question.
We at delivery, we receive for financing.
From the financial institutions and up to delivery, we pay the installments with available cash.
Which is which we have on hand.
We're going to generate in the next two years.
Okay.
Alright I appreciate it.
Thanks Ben.
Thank you and our next question is from Ethan with Dell with B Riley. Please go ahead.
Hi, This is Ethan Waddell, calling in for Liam Burke. Thanks for taking my question. So given the strong outlook for.
2025 onwards should we expect to start seeing longer contracts from customers.
You've been saying that yet.
I'll take that.
We have.
So historically, it's been a project by project industry as you are aware.
Each of our clients has a different profile the different risk profile and ability to break out of.
This kind of project by project approach to the industry.
Sure. The answer is yes, there are clients understand this can be a shortage of vessels.
There are discussions about potentially.
Longer term contracts.
It's just that each of our clients because of different speeds, so tough to work out when that materializes.
Yeah.
Helpful. Thanks.
Hi.
When do you anticipate being able to deploy.
<unk> again before.
Before it starts to snatch large project in mid May 23.
No I think that our Tam is going to be demobilizing, and transiting and re mobilizing during that period.
Okay. Thank you.
Right.
Thank you ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Willie Laura for any closing remarks.
Thank you operator, no closing remarks.
Just like to thank everybody for your time today and look forward to speaking to you individually in the next.
Weeks and months. Thanks, a lot the call is finishes here.
Thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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