Q4 2022 Eneti Inc Earnings Call
Speaker 2: statements that involve risk and uncertainty.
Speaker 3: Actual results and events may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release issued today, as well as Eneti Inc.'s SEC filings, which are available at EnetiInc.com and SEC.gov.
Speaker 4: 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.
Speaker 5: 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 nendienk.com on the Investor Relations page under Reports and Presentation. The slides will also be available on the webcast.
Speaker 6: After the presentation, we will go to Q&A. Now, I'd like to introduce our Chief Executive Officer, Emmanuel Anguaro.
Speaker 7: Thank you, James.
Speaker 8: And welcome everybody to our fourth quarter and full year 2022 results. In the fourth quarter, the company generated around $46.5 million of revenue and around $12 million of net income, which is a significant year of linear improvement.
Speaker 9: 2022 was a profitable year for an ATEE. We generated around $200 million of revenue and more than 100 million in Natinco.
Speaker 10: This includes a realized game on the divestiture of the STNG investments. It was also a productive year with confirmed our thesis, a significant demand for offshore wind and constraints in the WTAB supply.
Speaker 11: create tremendous potential for increasing day rates, cash flows and returns in this space.
Speaker 12: In December , we've announced the initial employment contract on our first new building vessel, a leading day rate in our industry, and one, we feel reflects the tightening markets for our assets that we are experiencing.
Speaker 13: We are in discussion to secure the initial employment contract for our second new building, which will deliver in 2025. And at the same time, we continue to build our backlog, even on our smaller assets with the three NG2500s, which are experiencing an increase in both utilization as well as we start operating on the full building the next few years.
Speaker 14: day rates. Our balance sheet is in a much stronger position than it was at the beginning of a year ago. In 2022 we completed the restructuring of the CJEX balance sheet with a new loan facility which reduced the company's overall leverage as well as its borrowing costs.
Speaker 15: Through strong cash flow from our existing asset base and the sale of our investment in STMG, we have maintained a healthy liquidity position and today with $130 million in cash and a conservative leverage, we feel well positioned to capture the opportunities that 2023 will present to us.
Speaker 16: We are now focusing on closing our previously announced under written proposal for a 436 million loan facility to finance up to 65% of the purchase cost of our new building assets at Daigu. At the same time, as mentioned a minute ago,
Speaker 17: We're looking at securing initial employment on our second building. And once these two milestones will be achieved, I expect the company to start looking at the next opportunities and focus on further development.
Speaker 18: Much of the progress we are making today has yet to be realized, but it will greatly benefit the company in the coming years.
Speaker 19: We remain and are excited to capitalize on these opportunities. The good news ahead and our role in the transition to a cleaner and more sustainable future. Thanks for your time. My opening remarks are over and I will now turn the call to Sebastian and James, which we will walk us through.
Speaker 20: Guys said, the manual
Speaker 21: Indicated I'm Sebastian Brooke. I'm the COO of SeaJax, which has been installing wind turbines since 2009. SeaJax is the operating platform of Ineti and is responsible for operating and contracting the fleet of five vessels that are currently on the water. And the next two generation new build installation vessels.
Speaker 22: which are scheduled to deliver in the second half of 2024 and the first half of 2025 respectively.
Speaker 23: We've been busy building backlog over the past two years and you can see from the chart on the bottom left that we've not only increased revenues through new contracts but also through extensions of contracts beyond their original contractual periods.
Speaker 24: In Q4 we negotiated extensions for one NG2500 class vessel which has resulted in additional revenue generation of 2.9 million euros over the fourth quarter of 2022 and first quarter of 2023. In addition we extended the contract on the Silla which resulted in additional revenue generation of 2.6 million euros.
Speaker 25: in the first quarter of 2023. The Gantt chart on the right hand of this slide shows that employment has already been secured for our two installation vessels, Silla and Zaratan, through the end of 2023 and we have numerous conversations going on about potential follow-on work in Europe , APAC and North America for 2024.
Speaker 26: The outlook for the smaller vessels remains very positive, and while the NG-2500s and no longer installing turbines, the demand for turbine maintenance, hook up and commissioning of offshore wind substations and the maintenance and decommissioning of gas platforms continues to increase.
Speaker 27: Case in point, during Q4 we signed two new contracts for one of the NG 2500 vessels so between 75 and 102 days of employment which will generate between approximate and these $5.7 million and $7.1 million of revenue in 2023.
Speaker 28: We continue to benefit from the reduction of supply of NG-2500s in similar units in the North Sea in recent years. You may recall that just a couple of years ago there were six similar vessels operating in the region, but this number has cut out reduced to four.
Speaker 29: Improvements on the demand side stem from the fact that many of the smaller turbines are in the water and require increasing levels of maintenance. The number of substations requiring hookup commissioning and maintenance in the North Sea continues to increase in line with installed capacity and that at least an energy crisis has prompted utilities and operators to maintain the critical gas infrastructure in the region.
Speaker 30: Slide 8, please.
Speaker 31: And it is cool market.
Speaker 32: is wind turbine installation and based on industry fundamentals the outlook here is bright.
and based on industry fundamentals, the outlook here is bright. Why is that?
Firstly, we are operating in a growth industry.
While analysts may have differing views on exactly what the growth rate is, they are all agreed that growth is robust and the revisions to forecasts are up rather than flat or down.
This will lead to an increasing demand for installation vessels.
Secondly, there are significant barriers to entry. So the increases in supply are relatively muted and typically limited to companies with an existing footprint in the offshore wind industry.
Thirdly, CAPEX associated with WTIB installation is relatively low, around 2% of the total spend of an offshore wind farm. So increases in day rate are not going to jeopardise the financial viability of the wind chips amongst the environment.
And that he is well positioned to benefit from these positive market fundamentals, not any with Cillar and Zyretan, but also the two new buildings for the schedule for delivery in 24 and 25.
For.
Slide 9, please.
As you mentioned, the NETIS-2 new buildings are scheduled to deliver in the second half of 2024 and the first half of 2025 respectively.
As a manual mentioned, we signed the initial employment contract for a new build which will start early in 2025. The contract will be performed by the company's first new build vessel, Nessie, which will be delivered in the fourth quarter of 2024. The engagement is expected to be between 226 and 276 days and generate approximately 60.
to 73 million euros of net revenue after a forecasted project cost.
This equates to an effective day rate of 260,000 euros per day after project cost. This contract confirms a value, capability and flexibility that these new build assets provide to our customers.
We're obviously in contractual discussions for our second new building and believe that Market Fundamentals will enable us to deploy SIREN on attractive terms.
As for the longer term, contracting activity remains high for the new buildings and we continue to see serious interest for work in Asia Pacific, Europe and the US through to the end of the decade. Giants continue to 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 remain focused on finding the right contracts for these highly capable vessels, and we believe that this strategy will enable us to generate the most attractive returns for our shareholders.
And with that, I'm going to hand over to James Doyle.
Thank you, Sebastian. Slide 11, please.
Fourth quarter revenue was $46.6 million, which was higher than expected and the result of optional days being exercised, as well as extensions of contracts that were set to finish during the fourth quarter.
Given the additional operating days and the extensions, 5 million of project costs that were expected to occur in Q4 will occur in Q1 this year as these vessels continued to work at the end of the year. We expect 9.7 million in project costs in the first quarter.
Q1 is the solar part of the year and we expect $9.4 million in revenue during the first quarter, which includes optional days that have already been exercised by the customer.
For the first quarter, we expect higher op-X and would recommend using daily op-X of 65,000 on Missilla, $52,000 a day on the Zeratan and $30,000 a day on the NG-2500.
The increase in op-ex is due to maintenance, which was postponed as a result of extensive work history on the vessels throughout 2022.
As Emmanuel mentioned, 2022 is a profitable year. Buy 12 please.
The company generated almost $200 million in revenue and $63.3 million in operating cash flow. Excluding the realized gain on the SDNG shares, the company generated $85 million in adjusted EBITDA, a 42% EBITDA margin.
and 49 million in that income. It was also a productive year, 513, please.
From September 2021, the company refinanced all the legacy debt inherited from our acquisition of C-Jex. We reduced the leverage from $198 million to $66 million today, lowering our borrowing costs and simplifying the balance sheet with one loan facility. Our balance sheet continues to improve.
and we are pleased with the conservative leverage in a healthy recruiting position. 514 please.
To date, we have paid almost $100 million of installment payments on our new builds. On the financing side, we have received an underwritten proposal from Credit Agri-Colon Sockgen for a $436 million term loan facility, or 65% purchase cost of the new builds.
which we are focusing on finalizing. Now to building finance, the company has 120.3 million in remaining CAPEX for its new building program. To the right, you can see our CAPEX schedule.
The company has $99 million in CapEx payments this year.
Slide 15, please.
In December 2022, we announced the first employment contract on our new build, which equates to a day rate of 265,000 euros per day or $280,000 per day at today's exchange rate.
To the right is a new build sensitivity analysis. At 85% utilization for the year, a day rate of 280,000 per day would equate to 70.4 million in EBITDA or a 21% cash on cash return.
This day rate confirms our thesis. Increased demand for offshore wind and constraints in the supply chain have the potential for a higher rate environment. We are both excited and focused on securing the employment contract for our second new build. With that, I'd like to turn it over to Q&A.
We will now begin the question and answer session.
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At this time, we'll pause momentarily to assemble our roster.
The first question today comes from Greg Lewis with BTIG. Please go ahead.
Yes, thank you and good afternoon and good morning everybody.
Congratulations on the contract for the first new building, Nessie. Sebastian, I was hoping you could talk a little bit more about...
potential opportunities for the second vessel and really kind of looking for an overview of what that new building market looks like. Clearly, Nettie has a vessel. There's a couple more but not a lot. Could you kind of like give them...
talk a little bit about the broader strokes of how the offshore market is shaping up for 2025 and how you're thinking about that.
Yes, thanks for the question.
I think we're in part of a structural change, where as I said previously, we've been in this two-dimensional European market for the prior decade, and we're now seeing demand coming from numerous regions, Asia-Pacific, multiple regions in Asia-Pacific, the US, Europe .
You know, in every month we hear about another country that has kind of aspirations and optional wind.
And I think as part of that, the longer term kind of macro top-down picture is very positive. And so the level of inquiries that we see continues to increase. And again, just from a top-down approach, I think that the fundamentals are very, very strong. And that manifests itself by...
clients looking to secure capacity earlier because they may be concerned that they won't be able to meet their own timelines. And again, just strengthening fundamentals for us.
Okay, and just under that backdrop, and I think I'm a manually talked about the future opportunities. As we think about the ability to add capacity, realizing it's early 2023, could you talk a little bit about...
you know, if one were to order, you know, a new build WPIV,
you know clearly you know the prices you paid were pretty attractive. Could you talk a little bit about you know maybe where current pricing is on on on new builds today and and then where we should think about those delivery windows potentially being.
Sure Greg, Cam, do you want to have a go or should I?
Oh, I'm happy to look at that. Sorry. I'm happy to look at that.
Greg, since sort of the start of the pandemic and all the inflationary pressures around shipyards, you would have expected to see prices increase by somewhere between $2.5 billion and $2.5 billion.
I don't know, 20 to 25 percent.
and the delivery positions move out now to somewhere late in 26 or even 2027.
would be my
Okay.
Okay, perfect. Thank you for that. Um, yeah, I guess I'll turn it over. Thank you guys for the questions.
Thanks Greg. Thank you.
The next question comes from Liam Burke with B Riley. Please go ahead. Thank you. Your three smaller vessels are seeing improving utilization rates, especially looking into 2023. In terms of their strategic value as assets, is there any change on how...
doing that the market fundamentals have improved and so utilization and day rates have. So directionally the market is going up and this enhances and gives us more flexibility in the way we would like to or we will be able to look at divesting from this.
assets which we have identified as non-core. Great. And on the macro front in Europe , it seems that permitting had been a big gating factor in the development of offshore wind farms. There was some discussion that the EU is now streamlining that process and making it a little faster to get permitting.
Do you see that as pulling in or providing additional opportunity on European offshore wind?
Should I take a go at that, Emmanuel?
This is all, thank you.
I think generally from a macro perspective that the amount of activity that we see at the moment kind of underpins not our story but our industry as installation buffaloners. So there's significant demand for the foreseeable future and that for every...
decision such as the use decision on accelerating the permitting, you're just looking at kind of increased demand. So what's already in attractive markets for us in a way becomes even stronger. And I know that permitting has been an issue. So actually many countries, some people may be Asia who are trying to streamline theirs as well. But again, that's just a process, amounts of process.
on. Great. Thank you, Sebastian.
This concludes our question and answer session. I would like to join the conference back over to Emanuel A. L.A. Zaro for closing remarks.
Thank you operator. I do not have any closing remarks. I just would like to thank everybody for your time today and look forward to being in touch separately. Thanks a lot. Goodbye.
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