Eneti Inc (NETI) 2020 Q4 法說會逐字稿

Hello, and welcome to the Scorpio Bulkers Inc. Fourth Quarter 2020 Conference Call. I would now like to turn the call over to Hugh Baker, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Thank you all for joining us today. Welcome to the Scorpio Bulkers Fourth Quarter 2020 Earnings Conference Call. On the call with me are Emanuele Lauro, Chairman and Chief Executive Officer; Robert Bugbee, our President; Cameron Mackey, Chief Operating Officer; James Doyle, Senior Financial Analyst; and David Morant, Managing Director.

This morning, we issued our fourth quarter 2020 earnings press release, which is available on our website. The information discussed on this call is based on information as of today, Tuesday, February 2, 2021, and may contain forward-looking statements that involve risk and uncertainty. Actual results 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 that we issued today as well as Scorpio Bulkers' SEC filings, which are available at www.scorpiobulkers.com and www.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. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.

To support today's call, we have posted a presentation on our website. If you have any specific financial modeling questions, you can contact me later, and we can discuss these offline. Now I'd like to introduce you to Emanuele Lauro.

Thank you, Hugh. Good morning or afternoon to everybody. Thank you for being with us today. I continue to be pleased with the commitment and the energy of the organization, despite the challenging times the world is facing due to this pandemic. We have made, as a company, significant progress in exiting dry bulk. We have found a constructive sale and purchase market, which has allowed us to dispose off most of our fleet since we started our sale process about 120 days ago.

Deliveries are accelerating in February and March as you can see from the slides we have provided today. The balance sheet is becoming more and more simple to read. With cash being the biggest asset on the balance sheet and equities, which are allowing us some flexibility in timing our full dry cargo exposure exit. Allow me a small clarification to our $101 million cash balance as reported today. This figure excludes $64 million of net proceeds from the sale of 4 vessels, where the debt has already been repaid or partially repaid, but the sale proceeds have not been received. We are nearing the end of the sale process, as mentioned. We expect to be able to announce further sales shortly, and the end of February remains a realistic target as the time in which all of the vessels will be either sold or committed for sale.

In terms of the focus on wind energy, as I have stated before, the justification for our pivot has only become stronger as time passes, even accelerating during this period of significant economic uncertainty really. As a group, we have done an incredible amount of work on the wind side on all fronts.

On the organizational front, we've been identifying and sourcing key personnel. On the technical front, we've been fine-tuning the specification of the vessel, exploring different geographical restrictions and specific requirements to optimize the design, which will lead to an improved performance. And finally, on the commercial front, we've been actively participating in tender processes.

We have learned a lot. We continue to learn a lot, and combining this with the readily available expertise, we feel we can play a significant role in this industry going forward. Tomorrow we'll be -- we will be holding an extraordinary general meeting, where the shareholders of the company will vote for the name change and the ticker change. We will resurface next week under our new name, NSE, Inc., and our new ticker, NETI, N-E-T-I.

I'd like to thank the shareholders who have voted so far, which represent a strong majority of the outstanding shares and encourage, whoever has not voted yet to do so if they find the time before tomorrow's EGM.

With this, I will turn the call to Robert. Thank you.

Thank you very much, Emanuele. So by the time we speak to you next, dry bulk will be in the rearview mirror. Our name will have changed, our ticker symbol would have changed, and hopefully, our new operation will be underway. Our move into wind is carefully considered, and as we move to the execution phase, we are moving with purpose, but also with patience. We have not lost any of our optionality by moving with patience, rather we have gained tremendously from it. We have gained knowledge. We have gained time to build operations and gain and see experience and try things that we know in not life, but in theory, on what can work and what can't work.

And we've, most importantly, watch the market continue to develop in a more favorable fashion. We've seen significant government changes, government support significant projects moving forward, and certainly, that space is continuing to improve. We have done this in a relatively low-risk format. We've had the benefit through our relationships of not losing anything related to delaying the formalization of a new building contract. We haven't had to commit to it whilst we've been doing the sales. If we go back to November, early before the election, things were uncertain. Things came more uncertain after the U.S. election. And now, however, 2 or 3 things have happened to our long-term favor where, almost through the transition, we can't be caught halfway in a position, having laid out capital for the new project without fully divesting from the second. We've seen the government changes, and we've seen the vaccinations that are ultimately going to bring back economic stability and growth to the industry.

For this call, however, we'd like to really -- we're not really in a position to answer much on our wind plans. We'd like to keep that answer into the modeling. Anything you want to related to what we're seeing in the remaining dry cargo, et cetera, there. And shortly, we would like to be able to answer any of your wind installation questions after the company's renaming in the near future. So thank you very much. And with that, we'd like to open up for questions.

(Operator Instructions) Our first question will come from Omar Nokta with Clarksons.

Sure. Robert, I'll try to head your comment regarding keeping it more towards dry bulk, at least. Clearly, the past few months has been very busy for you guys, and if I count correctly, you've sold 37 ships since your announcement back in August of the transition. I just wanted to make sure I heard you correctly and Emanuele on the call earlier. Did you say that you expect to conclude all agreements to sell the remaining fleet by the end of this month? And -- so that's the first question.

And the second one, just to follow-up. Maybe could you give us a flavor or discuss how the reception has been in the sale and purchase market since you first started selling ships in September and how it is today?

Sure. Omar, thanks for the question. On the first question, you are correct. Your understanding is right. We expect to have sold or committed for sale the remaining 12 vessels by the end of this month. This is, as I commented before, our realistic expectations, and we expect to get that done in the next 26, 27 days.

And as far as a general comment on the S&P market, I think that in a way, the fact that the dry cargo market has been constructive and we are in the first quarter seasonal -- usually seasonally weak dry cargo market, and instead, the industry was surprised on how strong this and constructive this Q1 has been, has helped us in actually executing our sales in what we defined as a constructive market, right?

So it was quite -- not -- I wouldn't say easy, but it was possible to actually dispose off so many vessels in what has been a rising market. And you've seen that the prices at which we've been selling ships reason accordingly throughout.

On top of that, we've announced a couple of transactions with existing players where we have taken their stocking as consideration, and we are actually pleased with that. We're happy with the positions we have, which we think will allow us a little bit of flexibility on when exactly we want to push the exit button. And that's really if I've answer question number two, Omar.

Yes. No, you did. And maybe just a follow-up on that last point on the equity you've taken. Is there a restriction period on the ownership of the shares? And have you thought of -- is there a way to maybe hedge the position? Is that something you desire? Or you feel comfortable just owning the equity outright?

Well, I think that we feel that we consider that Star Bulk is, it's always trying to work out who is the leader, the #1, but it certainly doesn't have -- is the top of the tree as far as the dry bulk public companies are concerned in terms of size, market cap, quality earnings to any given market, cost. I mean, there is so many reasons why we're very happy to take their stock. We also believe that -- and we said from the beginning, right from the beginning, this isn't a -- we're not -- we weren't getting out of dry bulk because we felt that dry bulk was going to crash and fall apart.

We felt that it was going to improve and improve into an economic rally post-COVID or the expectation of post-COVID. That is fortunately been panning out all the time. As you've seen, we've been selling into a steadily rising sale and purchase curve. That's improved our -- not only the ability for us to sell the assets, it's also improved our ability to get a greater net asset value or cash shell as it were to move forward in the transition to wind.

And the dynamics that are -- that we're seeing in the market, there is no reason to think that that's not going to prove a very good investments. So there is certainly no need for us to -- or no desire for us to go ahead right now and hedge that investment. The private group itself is also as a shareholder and #1 shareholder and other shareholders we know in the group throw their position. Company clearly doesn't need the cash at the moment. The plans that if we were to take down the new building, again, the company's balance sheet is more than strong enough where it doesn't have to sell the stock straight away.

So we can take our time, and I would say, be a constructive seller overtime, which means we feel that the stock is moving in an upward trend. But clearly, it is not a long -- a very long-term investment, but it certainly doesn't got to be dealt within -- there is nothing that we clearly have over a year in which to deal with that.

Robert, I appreciate that. And maybe just one final one, and then I'll pass it on. And I'm not sure if you're able to answer this or if you prefer to wait until under the NETI umbrella next week, but any sense of timing on the official contract signing?

I think that -- I think we said what we want to say on the wind subject at the moment, and we'll wait until it's under the NETI umbrella. I think this is very much about bookending at the moment. This is about, let's say, we're about to turn the final page in the chapter of Scorpio Bulkers, and we want to spend the time on this call dealing with that. And that's what the company is focused on right this second. And as soon as that name change comes, which is going to come right on top of, as Emanuele says, let's say, the conclusion of selling out of the dry bulk sector. Then as I said, we're looking forward to discussing the wind installation market.

Very good. Robert. That's pretty clear. Good luck with the transition here these next several weeks and into the next several years.

Our next question will come from Ben Nolan with Stifel.

This is Frank Galanti on for Ben. Kind of more a question, but around the dividend, I guess, what's the thought on continuing to pay a dividend in a world where you're going to have no earning assets for 2-plus years? Is that anticipated to stay around? Or what's the thoughts around that?

I think that's a great question. There aren't much thoughts about that at the moment. The dividend itself is very minimal. The cash or ability to pay the dividend is super high. So the -- that's why we haven't necessarily seen a rush at the moment to view that. I think that, that's something that will be taken up in the, let's say, the new venture, and we'll leave that to NETI later.

Okay. Yes that makes sense. And then...

But there are no -- on an official basis, the Board has not discussed at all the stopping or cutting of the dividend.

Okay. That makes a lot of sense. And then I know this -- it seems like not much happened on the share repurchase program, but it did continue into 2021. I guess, again, sort of (inaudible) well, I think as far as it goes.

Sure. No, no, I think that -- look, the stock still is very undervalued to its net asset value. And as I think all of you, we're not going to discuss it in detail, but I think that part of what these results give and the explanations that we're giving, we'll make it very clear for any of you to -- you may have different results at the end, but you're all going to come out with calculations that are going to show a number much higher than where the stock is trading now in terms of cash that you would expect the company to have once it's delivered and sold its vessels. The company, of course, was aware of that and was buying as much stock as it could. And very simply, once the second -- the end of the second week of the year came, we were not allowed to -- we were, let's say, went into a closed window, and the company has been in that closed window since. That closed window will reopen again tomorrow morning, and that's really what I'd like to say on that.

And our next question will come from Randy Giveans with Jefferies.

On Slide 8, the SBLK vessel values, those only amount to the $102 million of debt as the footnote says there. What is the total value of those vessels? Trying to get a sense for what kind of discount was taken for that block sale? And what price you're kind of taking SBLK shares at?

I think it's probably better that way -- sorry, just if I may Hugh just quickly, and if you can do it is, for us, it's where they are at the moment, right? So because the deal itself may have been struck at different times. So Hugh carry on.

I think Robert actually captured it. It's a very straightforward transaction in the sense that Star Bulk are going to be taking over the existing debt lease obligations of the ships, which amount to around $102 million. And in return, we are obviously receiving 3 million Star Bulk shares. And if you do the math, you can see what we're receiving or the value of the transaction basis, the current Star Bulk stock price and obviously, make your own interpretation of what that can be monetized for or what that is worth.

Okay. I guess...

And I think it's fair to say that you wouldn't do that structure unless we felt that over the time through delivery and through sale, the stocks -- the stock itself would continue to trade well in high.

Sure. And I've done the math, and it's around $134 -- $134 million using current SBLK share price. So in our view, the vessels were worth probably $145 million, right? So that $10 million, $11 million variance is either due to some kind of discount when doing an in-block sale or a expected appreciation of SBLK shares and what they're true...

I would, Randy -- Emanuele here. I would actually relook at your valuations of the vessels actually.

Okay.

I don't know where you find the $145 million, but if you go on vessel value or anything else or if you take our -- just take the Scorpio sales prices, we have created enough benchmarking ourselves, right? So if you look at that and you divide the 7 vessels by the $134 million or $135 million you said it's today, you see that -- you're well -- your constructive -- those are constructive valuations. I really don't know where you get your $145 million, but we can discuss offline if you wish to go into more details. But the $145 million seems extremely [iteming].

But you're also -- you're partly there. This lies somewhere in between other things. Emanuele is talking specifically on the ships themselves, but if you're looking at the share part, I think you're looking at a deal construction that was based much more on somewhere between NAV and the ships, et cetera. I don't think you'd have to sell -- there wouldn't be a block discount in a market for selling vessels.

I mean, it would be the opposite because the market is moving strongly, and as you've seen, vessel values are going up and up. But I think that it wouldn't surprise me at all, in my expectation, let's say, is that Star Bulk is trading under an NAV, too. So if you're coming out with a total valuation, and then you're just putting those vessels into the rest of your model, then you are then going to come back and say, well those vessels in my model will have a value higher than $134 million, and that would be the case because the whole of Star Bulk itself is trading under NAV in our calculations. And Emanuele is right related to individual modeling at the particular time that the contract was actually struck.

Got it. Yes. No, that's fair. And we also view SBLK as undervalued here, trading below NAV. So that's fair.

I think that's part of the beauty of the deal between the 2 companies. I mean it's a -- they didn't muck around. I mean, they wanted to grow and take the opportunity to great assets, and we're able to use that currency. We felt that the assets were good, and we wanted a situation at the time of the deal where we were able to continue to participate in the rising values at the time. And whilst at the same time have certainty over these leased vessels in terms of disposal. So I think it's a great win-win for both.

Perfect. Okay. And then just making sure I heard you right earlier...

And any time you can have Hamish Norton working for you, it's just a wonderful feeling, too. We can [reel] him up if you don't beat them up.

That is true. And just making sure I heard you right on the timing, right? So the -- there won't be any WTIV construction contract until you completely unwind your dry bulk vessels? Is that...

No, we just don't want to comment -- we want to not comment on that until we've -- as we said shortly, we hope to be able to -- shortly, we want to be able to discuss wind, et cetera, but that will happen once the company has become NETI with its new ticker symbol.

Got it. I thought I'd ask there. And then I guess, lastly, since we're focusing on dry bulk on this call. What are your quarter-to-date rates for those remaining vessels that you are owning? Or are you operating those to maximize cash flow? Are you operating those for best positioning for upcoming sales?

Yes. It's a combination of everything because what you're trying to do is maximize your cash upon exit.

Sure. And it's a combination of getting that cash in the door now versus getting closer to selling it. Sure.

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Yes. And you have to have a blend of that. So we're far more interested in exactly that and how much cash will we have to invest in the new business. Securing that cash so that we make time our friend, which is what we've been able to do with the markets developing. It's a long-term business, multiyear business that we've really gained at the moment, I think, from not having to -- we've learned so much that we wouldn't have otherwise learned if we rushed (inaudible) into it.

Our next question will come from Liam Burke with B. Riley.

You did set a timeline from when you expected the sale of the final 12 vessels. Would you anticipate them all to be cash? Or would you consider a stock offer like you did with a Star Bulk and Eagle?

I'm not sure we can comment on that at this stage because negotiations are ongoing, Liam. But you've seen what we've done so far. The majority have been sold for cash. We were happy to take a smaller portion of stock from Eagle and a larger portion of stock, given the liquidity, the size, from Star Bulk. We cannot comment further because negotiations are ongoing.

Okay. So I mean -- but you would consider taking stock in the final transaction of the final 12 vessel sales?

As I said, we cannot comment. I cannot even say whether who actually is we are negotiating with, is it a public company or not. So we are -- please take the no comment at this stage because, as I said, negotiations are ongoing.

I would just refer back quickly what I can to a question earlier with regard to buying stock. And it's not -- I mean, I think we bought nearly 10% of the company back in the last quarter during the window that we're allowed to buy. So that, I think, was good. Anyway, next question.

And speakers, I'm showing no further questions in the queue at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect, and have a wonderful day.