Eneti Inc. Q1 2023 Earnings Call
Okay.
Hello, and welcome to the N Maddy, Inc. First quarter 2023 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.
Welcome to the <unk>, Inc. First quarter 2023 earnings conference call.
On the call with me are Emmanuel a Weil Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief Operating Officer, Hugh Baker, Chief Financial Officer, Sebastian Brook, Chief Operating Officer C Jacks.
The information discussed on this call is based on information as of today April 27th 2023, and May contain forward looking statements that involve risk and uncertainty.
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 <unk> Dot Gov called.
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. The 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 slides will also be available on the webcast. After the presentation. We will go to Q&A now I'd like to turn.
The call over and introduce our Chief Executive Officer Emmanuel anymore.
Thank you James and welcome and thank you for joining us today to all.
In the first quarter the company generated $13 8 million of revenue.
And a loss of $17 $6 million.
Our business is seasonal and we optimize the seasonality in the first quarter to perform necessary maintenance of the fleet.
What's going to be a busy remainder of the year.
Looking forward revenue is expected to increase throughout the year as our vessels begin employment on several contracts.
Our two largest stop it.
And Jonathan are contracted for the remainder of the year and the reasons availability probably should unemployment on N V 2005, hundreds which are which we're currently working.
We are now starting to actively market per se.
E N G 2500 widened we are benefiting from higher day rates on these assets.
Now we have openly said that we thought these were non core assets to our fleet.
More or less a year into the statement the market has favorably develops both on the rate and utilization side and as I. Just mentioned, we have decided to actively market the vessels for sale going forward.
The outlook for <unk> continues to strengthen and we are optimistic about the opportunities.
As well as new buildings.
Significant demand for offshore wind and constraints in the WT items to flight creates tremendous potential for increase in day rates, increasing cash flows and increase returns.
We have announced last week, our Mou with Transocean to engage in offshore wind Foundation installation services.
A potential joint venture combines the best user experience through <unk> of installing over play Baumgard Foundation components in Europe and in Asia.
Together with Transocean 300, plus three years of experience in offshore drilling.
And comparisons there is no equity requirements.
And <unk> and we are excited about working with the best in class, operator, and owner in the offshore industry.
Much of the progress, we're making has yet to be realized but we benefit the company in the coming years.
We are excited to capitalize on these opportunities on the good news ahead as well as our role in the transition to a cleaner and more sustainable future.
Thank you all for your support and I will now turn the call to Scott.
Goodbye and please.
Thank you Emanuele.
Seven please.
Just introduce myself I'm Sebastian broke the CLO and one of the founders of sea Jack.
She's been installing wind turbines for top tier clients since 2009.
And the way the operating platform of NFC.
And they are responsible for operating the contracting the praetor five <unk> vessels.
Vessels that are currently on the water and the two next generation you're done installation vessels, which are scheduled for delivery in the second half of 2024 and the top 2025, respectively.
We've been building backlog over the past two years you can see from the chart on the bottom left we've not only been success and then building backlog, but also in increasing revenue through extensions of contracts beyond the original contractual duration.
It was a very busy 2022.
So have you used any idle time in Q1 or necessary maintenance on the fleet and nightlife and reposition equipment for all contractual commitments in 2023.
During the first quarter Silicones kit from Asia to Europe , and after undergoing maintenance in preparation for our contractors I know, it's not a onetime.
As of today. She is in school prevent a bunch of Atlantic coast Western Palm.
During the first quarter zircon completed maintenance at Etsy, Marine and Singapore and finalize mobilization.
<unk> turbine installation campaign, Yunlin windfarm, Vacates Gulfport, Taiwan.
All three empty twenty-five hundreds will begin watching this quarter.
And it's currently on contract, forming hookup and commissioning services and offshore wind substation for leading developer in northwest Europe crack.
Cracking is currently on contract performing repairs and maintenance of an offshore wind farm offshore from anhydrase, facilitating decommissioning of oil and gas infrastructure in the southern North Sea.
Also our numerous conversations with clients that could lead to additional deployments in 2023.
If you recall a few years ago, there were six vessels similar to b or the <unk> 500 class operating in the North sea, but today there are any pool, which is effectively a reduction in supply by the.
Optimistic that rates and utilization for these vessels would increase and I'm pleased to report that they have.
With regards to the N. G 2500 demand we are seeing increased demand in all areas all markets as a smaller top line approach 10 years in the water and require increasing up the maintenance the number of substations requirements hook up commissioning and maintenance in the North Sea continues to increase in line with installed capacity.
And the energy crisis has prompted you tend to lease and operate operators to maintain the critical gas infrastructure in the region.
Slide eight please.
Okay.
Offshore wind is a great industry and while it may have different views on exactly what the growth rate is they all will agree that growth is robust and any revisions to forecast tend to be up loved and thoughtful about.
This will lead to increasing demand for our installation vessels and create a favorable rate environment for our services.
While the turbine installation work is a critical part of the offshore wind supply chain. It represents a relatively small portion of the overall cost for developers around 2% for potato spend so we do not believe the increases in vessel rates will jeopardize the overall viability of windfall.
Slide nine please.
As you can see from the graph the W. T. I D market is forecasted to be under supplied through the end of the decade. These fundamentals will provide opportunities now there needs to be and that can be built Mexican siren, but also fill out and paragon.
And that these new building siren and messy scheduled to deliver in the second half of 2020 for Sars Cov.
2025, respectively.
We have previously announced initial employment contract, which is expected to be between 226, 276 days and generate approximately 60 to 73 million of net revenue after full cost the project cost.
This would equate to a day rate 260000 euros per day off the project cost.
<unk> capability and flexibility.
The next generation new buyback that provide our customers.
We've not yet announced contract with iron, but continue to work towards securing a maiden contract.
These new buildings, we continue to focus on finding the right contracts. These highly capable vessels that will enable us to generate attractive returns for our shareholders.
Contracting activity is high and we continue to see high levels of interest across our fleet works across all geographies with inquiries running from 2024 to the end of the decade as clients look to fill capacity early in a mall that is predicted to have a shortage of vessels as we move into the second half of this decade.
In advanced discussions with clients about future what kind of looking forward to announcing these to the market once finalized.
I'm going to hand over to James Doyle.
Thank you Sebastian.
Final one in place.
Third quarter revenue was $13 8 million a decrease from the fourth quarter as the fleet optimized off hire time to perform necessary maintenance after a busy 2022 campaign.
Quarter over quarter daily vessel operating expenses declined for seller and Sarah Tan and were slightly higher for the Engie 25 hundreds.
The safety of our seafarers reliable operations and delivering high quality service to our clients remain our top priorities. While we are always working to manage costs as efficiently as possible.
And we expect a further decline in operating costs in the second quarter and would recommend using $45000 per day for the seller and their 10 and 25000 per day for the LNG 25 countries.
Last quarter, we anticipated $16 1 million in project costs for the full year 2023, and as of today expect $13 6 million for the year. The difference is primarily due to the fuel savings from lower bunker prices, specifically on select repositioning voyage from Asia to Europe .
Specifically to Q1, we benefited from the timing of certain project costs, which were expected to occur in the first quarter and have moved to subsequent quarters.
12 place.
To date.
We have paid almost $100 million of installment payments on earning bill.
And as previously announced we have received an underwritten proposal for $436 million to finance certain adults, which we are focusing on finalizing.
Net of New building finance the company has $120 3 million in remaining Capex for team building programs to the right you can see our capex schedule for our two new building vessels.
<unk> please.
As Sebastian mentioned the initial contract on our first Newbuild Nasty is at 260000 euros per day or $280000 per day.
And as you can see from the sensitivity chart, assuming 85% utilization this would translate to $70 4 million in EBITDA or 21% cash on cash return.
Day rate confirms our thesis increased demand for offshore wind and constraints in the supply chain, which has the potential for a higher rate environment and with that I'd like to turn it over to Q&A.
Okay.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speaker phone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster. Thank you.
Our first question comes from Ben Nolan from Stifel. Please.
Please go ahead.
Thank you.
So I was going to I have a couple hopefully that's okay. They are the first relates it I was hoping that maybe you.
If you could give a little bit more color as it relates to the Transocean JV I know that you'd mentioned there was no equity requirement.
Is it is this as you envision or is this just sort of a services provided sort of thing or or.
In the end of the day I mean will you have some well.
Some capital invested and that's just curious if you can kind of flesh out what how how you envision that playing out and to the extent that it moves into a formal agreement.
Hey, Ben and Manuel here I'll stop there and then my colleagues can.
Hum.
Not that we wanted to be cagey is just that we had.
Start with these corporation, which we've been discussing for a number of months with Transocean at this stage, it's difficult for us to dita.
Detail.
More than what we say, it's because we are working on putting together a joint venture.
And this is why we stopped it from the Mou.
As I said not not not wanting to take things away, but I wouldn't know what to what to say more than what we've said already so it is yes. It is services potentially.
And then see what the opportunity will win rate for the time being that's what we have I'm not sure.
Boston or anybody else has anything to add to this.
Now one thing I think that said that that Manuela summed it up it's it's a it's a very good combination of like matter, what I said before kind of first in class floating foundation basketball breakthrough, placing basketball bracer and also with all previous transport and installation activities.
And there are no obligations to provide equity in any deal but.
There'll be lots of open doors in the future as and when we get a contract.
Okay I appreciate it will.
Be watching for that my second question relates to if you could maybe speak to the contracting market I mean, obviously.
We've seen even recently with some of your competitors.
Contracts, where the day rates are consistently moving higher.
And one of the things that I think it often happens in markets, where day rates are moving higher as you begin to see durations are contract durations lengthen them.
And I'm curious if you're seeing that at all or is there is there any potential for the newbuild that it's you know you might possibly be able to get something that is longer than the traditional.
Or whatever nine to 12 month.
Duration.
Great question, I think that there's no doubt that the trend is towards longer contracts. It's just difficult to guess when those will hit.
And it's driven by just the tightness of supply you know the more we speak to our clients the more that they are.
I'm concerned about availability of vessels and you know, they're all there had been discussions about longer term commitments.
Won't be securing tonnage on a project by project basis, but more more to be able to execute a pipeline of projects so without being more specific than that youre at the right fair observation the market tightens, we're going from short term contracts longer term contracts.
And I think from a contracting perspective, we're all aware of the benefits that brings.
But the overriding message for me is that you know, it's a tightening market and that is going to help improve overtime utilization rates are.
The general contracting environment.
Okay.
Alright, well I appreciate it I'll turn it over thank you.
Thank you.
Okay.
Our next question comes from Vikram <unk> from Citi.
Please go ahead.
Okay.
Vikram are you muted.
I apologize for that.
Good morning, everyone I understand the secrecy around the potential JV with Transocean, but I was wondering if you can frame the timeline for this JV how much time will it.
Is spend on looking for market potential and getting indications of interest from your customers when the JV could be could come into force and I believe about it'll take about 36 months after back to repurpose. The vessels. If you can just like.
Expand on the signposts, we should look at the upstream the timeline for this JV.
Yeah, Yeah sure Sebastian.
So just from my perspective, the Joy of the agreement is that there aren't actually any milestones. So it's you know we're currently speaking to all of the major clients and.
Based on that response, when we get a an acceptable contract from.
Any of these developers then we'll move on from there. So it is very difficult to give you a timing, but I can say that the floating foundation market is as tight or tighter than the turbine installation market. So our clients are very motivated to do engage in those discussions and progressed them as soon as possible, but again, it's very difficult to answer.
Again, using a malaise, but not trying to be cagey, but it really is a kind of a sequential process. There. So let me start with the Mou that we work out what the specific requirements off from the clients. Once they are in a position to give us what we want and we'll split the scope and then we'll see where the opposite what opportunities arise from that because again, it's just a.
Full price, that's a difficult to give a.
Yeah.
Understood and then on the existing assets can you talk about the M&A landscape and potential for M&A.
Related to your 2500 vessels is does it make sense to us.
If the market is robust to up sell those vessels and focus on the key assets. How do you see how do you see the M&A landscape today.
Yes.
Robert do you want to take it to or shall I.
Okay.
Sure.
I can say.
Thanks for the question.
You're referring specifically to the 2500 on the M&A front or in general sorry.
Five hundreds and and specific.
Okay on the 2500 get out a number of operators, mainly middle eastern players that given the tightening of the oil and gas market and the amount of.
Money invested in our in the area are actually looking at these vessels.
We haven't been focusing to tell you the truth on on potential M&A transactions on the 2005 hundred so it's a little bit difficult for me to tell you.
Whether we would consider.
Looking at our business combination.
Or using these assets for a for a potential entry into another or specifically the oil and gas I I do not think so though I think that the WTO and the reason why we would consider these assets would be noncore, he's actually because we want to keep them.
The clean.
Renewable side for NFC and <unk> and this is the reason why we will be looking at divesting from from these vessels through so on the 2500.
I'm, sorry to not be giving.
Giving you an exciting I'm, sorry, but I do not see a much M&A activity possible. There I think a straight sale is what we would pursue.
Great and then finally on housekeeping I saw the SG&A dollars went down down sequentially can you talk about what the drivers were and this if this is going to be the run rate or there were some one time items in first quarter or fourth quarter that led to the decline in our G&A dollars.
Yeah.
We would expect that G&A was remains similar to prior quarter somewhere in between this quarter and previous quarters.
Thank you that's all I have.
Thank you.
Our next question comes from Liam Burke from B Riley.
Please go ahead.
Thank you.
Sebastian you mentioned in your prepared comments that there's a lot more interest in the smaller.
Yes.
25.
Hundreds.
Is that more interest on the oil and gas side or are you seeing a heavier interest in the offshore turbine maintenance.
To be honest, it's kind of across the board.
I it's.
The number like I said in that in that piece I mean, if you look at what they're doing at the moment, you've got one which is the hookup and commissioning of an offshore.
Substation, you've got one which is doing some maintenance work on transition pieces in France, and then you've got one vessel.
That's focused on the decommissioning of an oil and gas market in oil and gas field in the southern North Sea.
I think that that actually the trend will be towards just increased maintenance as the installed capacity gets older and there's also a big backlog of Substations going in between now and the end of the decade, which are planned them and well go ahead. So so there's a split that difficult a difficult to guess.
And the.
And we just yeah, and I expect that that that makes to carry on for the foreseeable future.
Great. Thank you and on the.
On the new builds we have announced a one contract.
For the first new bills.
Can you get any sense as to the degree of interest for additional contracts on the first or any interest on the second.
Yeah, I mean, I I've got to say, but it is from our contracts with point of view, it's it's a great market to be in you know we have a number of years you know start look three to five six years ago, which what I said before but you know it's a very European centric market. It was very competitive and now just all of the fundamentals have changed so.
There is very high interest in both vessels were talking to people about contracts throughout the end of the decade.
We're talking about multiyear potentially multi year maintenance contracts going forward everything is geared towards growth and you know kind of exciting years ahead. So we have a lot of that we have a lot of interest both on the nasty and siren.
And as we said before we're really focused on finding the right contracts for these vessels the contracts that we think give our clients the capabilities they require.
Mike Chang while contract in Taiwan, and the reason, we're doing that is because it's easy for them to justify them.
Our rate.
It's being used to it.
Great.
It's easier for them to justify rates that gives us an attractive return to our shareholders. So we haven't changed a lot.
<unk> seem to be the law taxi cab on the lung, which is really focused on finding the right contracts, but those vessels. The activity is very high very very high.
Great. Thank you Sebastian.
Our next question comes from Ross.
Harvin from.
From Clarksons Securities.
Please go ahead.
Hi, Thanks for taking my questions.
So first I want to touch a bit upon the drillship conversions.
Looking back at history conversions of older vessels could entail some risk cost in time overruns and I know, it's still very early but can you elaborate a bit on how you're working with transocean and potential yards and be at the early stages to mitigate these risks.
Sure.
It's early days in the Mou. So so we're trying to it before before we get into that.
We need to work out what the specific opportunity is what the timing is that has I'll, let transocean speak themselves, but they have they've done a lot of investigation into shipyards and pricing what have you and the joy of having them as a partner to be really on it.
Is that they have built so many highly complex some data generation seventh generation Drillships and.
I don't see the shipyard portion as creating as much of an issue for them or even any issue given their experience compared to no people are doing a one off or aren't familiar with that market or what have you. So I totally take the point that historically, if you were taking a very old hull and converting it primary.
People do that into build ships Robert from drilling into construction, so I'd far rather be doing it from letting foundation and getting to construction of the guy from construction to drilling if you see what I mean, so the right way round right partner.
And I think that that that risk is mitigated by that by those measures.
Yeah.
Oh, no I'm not.
Again, I guess, it's early but on the operational efficiency also converted drillship compared to a specialist newbuild how are you thinking around that.
Well I'm thinking is it can be one of the most capable vessels in the market. So I think I think I think it will speak for itself.
Yeah.
Okay. Thank you that's it for me.
Yeah.
We have a question from Adam foresight from lung Spark capital Adam. Please go ahead.
Good morning, the general one for me and just obviously the infection reduction act, it's bringing a lot of interest and demand in the U S. I, just wonder where you where your thinking is around that particularly given that given your previous relationship with Dominion and I think I'm right in saying you. Your decision not to go ahead with a Jones Act vessel.
About a year ago.
Has your thinking changed in any way and just how you see how do you see that going forward. Thanks.
I think I think that way you know, we keep a close eye on the American market I think that we've already got a toehold in that as you referenced it's only been a toehold we'd been looking at it seven years seven or eight years, we've called our relationship through Dominion.
We are very close to the dynamics in the U S market and that allows us to keep assessing it for opportunities as and when the right opportunity comes up.
Well look at developing it but it's.
We're in it we're close enough to it to understand it and like I said I think that's important so that you can assess the opportunities as and when they come along.
Yes.
Thanks very much.
And this concludes our question and answer session.
I'd like to turn the conference back over to them anyway Ali.
For any closing remarks.
Thank you we do not have any closing remarks, I appreciate everybody's time and look forward to speaking.
With you all in the next few days or weeks. Thank you very much.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Sure.
Yeah.