Eneti Inc (NETI) 2022 Q1 法說會逐字稿

Hello, and welcome to the Eneti Inc. First Quarter 2022 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 to the Eneti, Inc. first quarter 2022 earnings conference Call. On the call with me are Emanuele Lauro, Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer; Hugh Baker, Chief Financial Officer; Sebastian Brooke, Chief Operating Officer of Seajacks.

Earlier today, we issued our first quarter earnings press release, which is available on our website, eneti-inc.com. The information discussed on this call is based on the information as of today, May 12, 2022. It 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 statement disclosure in the earnings press release issued today as well as the Eneti Inc's SEC filings, which are available at eneti-inc.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. 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 eneti-inc.com under the Investor Relations page under Reports and Presentations. The 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, Emanuele Lauro.

Thank you, James. Good morning and afternoon to everyone. Thanks for your time today. The contract backlog on our existing fleets continues to grow. Since we last spoke, we've added nearly $80 million of additional revenue backlog for 2022 and 2023, including options.

From November 2021, we have increased our contracted backlog by almost $170 million for 2022 and 2023. This includes a contract for our second largest WTIV, the Zaratan, for employment with Siemens Gamesa Renewable Energy in Taiwan in 2023. These projects will generate between $32 million and $36 million.

So now the Zaratan and Scylla are both contracted for 2023, giving the company the necessary visibility.

In addition, we have announced several contracts for our NG2500s, significantly increasing the utilization of our smaller class vessels.

On the cost front, we're working diligently to reduce our operating expenses, which have increased as a result of COVID-19, reactivation of a number of smaller class vessels and positioning of some of our ships in preparation for contracts.

We do expect that these costs will decline as efficiency improves and COVID eases. COVID has specifically impacted negatively our operating costs due to the restrictions and constraints imposed by Asian governments where both our biggest assets are currently working. As just mentioned, we do expect that the costs will decline as efficiency improves and COVID eases.

Our G&A costs declined from last quarter. And we feel that this quarter is a realistic run rate for the remainder of the year. On another note, one of our shareholders, INCJ has indicated to the company that it is looking to sell between 1.1 million and 1.2 million common shares in an orderly fashion over the next several months.

In conjunction with this sale, Mr. Peter Niklai, the Board Designee of INCJ has resigned from the Board effective today. INCJ will cease to be a party to the shareholders' agreement dated August 12, 2021, as of today.

I personally would like to thank Peter for his contribution to the company's Board. And I do look forward to interacting more with him in his capacity as a valued shareholder in the months to come.

On the financing front, we expect to draw on our new $175 million green multicurrency term loan and revolving credit facility at the end of this week. This will reduce our interest cost from a 7% run rate to a LIBOR plus 315 basis points and complete the repositioning of the Seajacks' balance sheet.

On the operational front, we will hear from Sebastian Brooke in a minute during the slides. But the company has installed so far 12 turbines year-to-date and is on pace to install 144 turbines by the end of this year, generating over 1,000 megawatts per year of renewable energy.

So we do our -- we do remain excited about the outlook for offshore wind and our role in the transition to a cleaner and more sustainable future.

I would like to turn the call now to Sebastian Brooke and James Doyle, which are going to walk through some of the slides.

James, are you on mute?

I'm here. Sebastian, you're going to be starting the presentation. If you could please go to Slide 7 and Sebastian will start.

Thank you, James. As Emanuele said, since February, Eneti has increased its revenue backlog by $80 million for 2022 and 2023, taking into account all of the options. This increase has been driven by several new contracts on our vessels.

Firstly, we have signed an amendment for the Zaratan. She was originally contracted from April through June 2022, at the Akita, Noshiro offshore wind farm in Japan wind farm in Japan and expected to generate $36.6 million in revenue. She is now contracted from April through November 2022 and is expected to generate an additional $18.5 million in revenue for a total of $55.1 million from April through November.

Secondly, we have signed a contract with Siemens Gamesa to utilize Zaratan in 2023, which will install turbines at the Yunlin offshore wind farm in Taiwan. This project is expected to start in the second quarter of 2023 and to generate $32 million to $36.3 million.

Thirdly, we've signed 3 contracts on our NG2500's, including a contract with Siemens Gamesa for Seajacks Hydra, which will keep it occupied for a minimum of 3 months in each of 2023, 2024 and 2025.

In November of last year, we did not have any contracted revenue for the NG2500's in 2022 or any contracted revenue for the Scylla and Zaratan for 2023. The company has now contracted 2 of its largest WTIVs through 2023 and has a significant pipeline of work the NG2500's this year.

The Seajacks team has done a great job in securing employment of the existing fleet. And we're happy to be able to report such positive news with regards to our project pipeline. We're also happy to report that Seajacks shore based organization and crews continue to conduct themselves in an efficient and most importantly safe manner.

And that in spite of all of the challenges to the global supply chain, Scylla and Zaratan managed to continue to mobilize and operate on their respective jobs without disruption.

In February, the Seajacks Scylla arrived in Taiwan to start work on Orsted's Greater Changhua Offshore Wind Farm, where she's completed an installation of 12 8-megawatt Siemens Gamesa turbines. She will complete the contract at Greater Changhua in Q4 of this year and is then scheduled to mobilize from APAC to Europe where she will commence her 2023 contract in Europe with Van Oord.

The Zaratan is currently mobilizing the installation of turbines at the Akita Noshiro wind farm, where she's scheduled to install 22 4.2-megawatt turbines. After this, she will head Taiwan to work on the Yunlin offshore wind farm.

We go to the next slide, please. One of the most interesting parts of the industry is the macro outlook as offshore wind is expected to grow at a compounded annual growth rate of 14% through 2027.

This growth is reflected in the high tendering activity that we continue to see across multiple regions involved in offshore wind, particularly APAC, Europe and the U.S. and supports the view that demand for offshore wind services will continue to increase through the end of the decade and beyond.

While the demand for offshore wind continues to increase, additional supply has remained relatively subdued, which implies that 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 really are very pleased with the contract coverage we have recently added for '22 and '23, and note that we've been able to do so with increasingly attractive rate.

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're taking delivery of our 2 new builds, which are among the most capable planned or under construction at Q4 2024 and early 2025, which will set them up well for the forecasted growth of 12-plus megawatt turbines.

Thanks, Sebastian. Slide 10, please. First quarter revenue was $22.4 million, an increase of $5.8 million from the fourth quarter. The contracted revenue for 2022 now stands at $152 million and $167 million, including options.

Compared to last quarter, we have increased our 2022 annual EBITDA by $25 million to $30 million with the amendment to the Zaratan contract and additional contracts on the NG2500's.

Daily vessel operating expenses decreased on the Scylla and Zaratan but still remained elevated due to higher crewing and travel costs as a result of COVID.

Operating expenses increased on the NG2500's and this was largely due to getting the vessels ready for upcoming employment contracts. In addition, 2 of the NG2500 vessels were idle last year and incurred additional costs ahead of their contracts.

We expect these costs to decline as COVID eases. But we recommend using a daily OpEx of $50,000 a day for the Zaratan and Scylla and $21,000 per day for the NG2500 for the second quarter.

Similar to last quarter, we've updated the estimated revenue and project cost by quarter and feel this is the best way to simplify and improve the transparency of earnings and costs. I think I speak for all of us. But we are certainly looking forward to the materialization of contracts in the upcoming quarters.

Slide 11, please. Our new $175 million loan facility completes the restructuring of the balance sheet inherited from Seajacks. We expect to draw on this facility this week, after which we will repay the remaining $78 million in outstanding debt. And it will be the company's only credit facility. The new loan facility, our increasing contractual backlog and unrealized gain in Scorpio Tankers will continue to strengthen the balance sheet.

To the bottom right, you can see the expected CapEx payments on our 2 new building vessels by year as well as the expected debt drawdown on the vessels upon delivery. We expect the new builds to be financed at 60% of their contract value.

Slide 13, investment highlights. Eneti is leading on our wind turbine installation vessels and the only U.S. listed company of its type. We have an experienced management team and a developed global platform with operations in Europe, the United States and Asia.

Since November, the company has increased its contractual backlog on our existing asset base by almost $170 million, including options. In addition, we have contracted our 2 largest WTIVs, Scylla and Zaratan for 2022 and 2023.

Our 2 high specification new builds offer attractive returns and allow the company to install next-generation wind turbines. The outlook for offshore wind is significant. Demand for offshore wind has increased while supplies remained relatively subdued.

We're excited about the future of the company and our role in the transition to a cleaner and more sustainable future.

With that, I would now like to turn it over to Q&A.

(Operator Instructions) Your first question comes from the line of Greg Lewis with BTIG.

I'm realizing that the new builds are still a couple of years out. Maybe if you could provide some color around how that market is evolving in terms of the contracting and the appetite from customers for those assets? And maybe how you should be thinking about the timing of potentially whether it's in LOI or maybe even a more firm contract as we kind of move forward here?

Yes, sure, I can answer that. I think it's safe to say that the tendering activity has increased kind of considerably year-on-year. And we continue to see demand grow for these very capable assets.

With regards to timing, it's difficult to give kind of particular guidance on that because what we're really looking for is to find the right job for those assets, the right project that allows us to optimize the economics. That being said, our clients are definitely feeling that there is limited supply of these vessels as we get into the '25, '26 years.

And as a result of that, we are actively looking to secure vessels to even put reservation agreements in place and what have you. So I can't give you more specific guidance than that other than there is definitely a feeling from the client side or we understand from the client side that the sooner they can secure capacity, the better. They've just got to still run these projects through their procurement teams.

And then I did want to touch on the multiyear contract in the North sea, it was interesting to see that the customer was willing to take contracted for '23-'24 and 2025. Is that kind of just -- do we think that's a potential function of the strengthening environment for all maritime assets in the North Sea on the back of a more constructive oil price and increasing activity?

Really, what I'm trying to understand is there becoming more scarcity in the North Sea after really a couple of years where it seemed like that that vessel market was having challenges on multiple fronts. It seems like the reverse kind of…

Yes. It was more than couple of years. There were number of (inaudible) there. But yes, I'd say the trajectory has changed. I think that that's reflected in day rates. That's reflected in neutralization. And that's reflected in the fact that there's just increased activity across the board, like you rightly say, there are maintenance requirements.

There are people wanting to upgrade their infrastructure so that they can continue to produce gas. There are people as the installed capacity goes into offshore wind, a lot of these -- some of these turbines are getting older and they need maintenance. So -- and also on the oil and gas side, there's obviously increased demand there.

So the way I would just from a very basic kind of level, look at it is rates are headed up across most asset classes included ours. Utilization is improving, for sure. And people are beginning to get the kind of mass and the baseline of work to be able to commit for a number of months, multiple years in advance.

And then I did want to touch on one other question. I'm not sure if you're on the line or not. But as we -- congratulations on that amendment, that $18.5 million amendment on the Zaratan as we realized them in 2022.

How should we think about that on a revenue recognition? Is that a lump sum payment? Or is that something that gets delivered? Is it kind of just amortized over the life of the contract? And any kind of color around that?

Well, Greg, I mean, we amortize -- sorry, we recognize revenue when it's invoiced. And we're obviously expecting to be invoicing during this quarter. So you'll expect to see that coming into the results in future quarters.

Okay. But that's more of a lump sum -- I mean that they're going to be a lump sum that we -- or that we realize that over the life of the contract?

Yes.

And our next question comes from the line of Turner Holm with Clarksons.

I just wanted to follow up on the Zaratan. Congratulations on the new contract there in 2023. But I wanted to see if you could provide any more color. Is there -- is there a lot of project cost in that new contract? Or is that a clean rate? And kind of how does that rate look like relative to what you're working on in 2022?

James?

Yes. Sure. Turner, the rate does not include project costs. We've broken those out separately by quarter for the upcoming quarters. And we haven't publicly disclosed what those are yet, but we can at a later date.

Okay. I mean directionally, is it similar to what you have in 2022 or higher or lower?

Directionally, it looks lower than the project at Akita Noshiro.

But there's a nuance to that. Sorry, Turner, just to interrupt. There's a nuance to that. We're talking about the T&I contract where there are kind of multiple layers of contingency and what have you in the cost buildups of the Akita Noshiro, whereas this is a fairly straightforward kind of time charter contract.

I got it. thanks Sebastian And then just to follow up a little bit on the discussions for potential new build contracts going forward. In the U.K., there's the CFD Round 4, which is expected to conclude sometime over the next couple of months, I think early July is what's being discussed.

Is there any beneficial sort of aspects of Seajacks being U.K.-based for those contracts? And when could that type of work be awarded?

Yes. There's definitely an increased focus on local content and the kind of rules around that are actually getting tighter with time compared to where they were 2 or 3 years ago. So there's increased focus on that. And obviously, we, as -- we are the only U.K.-based installation contractor who would benefit from that.

Each of those projects is still running procurement at different speeds. They will have their procurement systems. It will enable certain projects to make larger commitments so go beyond the reservation fee and probably start having termination fees.

But I really can't be more specific than that. I'm afraid, Turner.

Okay. But it sounds like maybe a potential later this year is for some of those contracts, but a little bit different project by project, is that fair?

Yes.

Okay. And then just one quick last one for me is that, I think new build prices for basically every type of ship has been going up. And I just wonder if you all had any thoughts about -- if you were going to repeat the 2 orders you had today, what would that look like? And what would that cost? Just trying to get an indication of the replacement value for those ships and how that might have changed, I guess in recent months?

Turner, it's Cameron. Anecdotally, we're looking at 10% to 15% up on the price at which we ordered those vessels.

(Operator Instructions) And our next question comes from the line of Liam Burke with B. Riley.

On the Zaratan, you've got a gap, I guess, in the beginning of 2023, roughly the end of '22. Is it possible to fit in another contract or the logistics of moving from one project to another make it difficult to do that?

It's a good question. The logistics are moving from one contract to the other are complicated, for sure. I think that how I look at it is rather like Zaratan on the Akita project.

So we've secured a kind of anchor-based line of work. It may be possible to bring that forward a bit. And equally, there may be options on the back end. But it's not going to be -- we won't be bringing it forward 2 or 3 months, because we are going from one project to the other and we have to demobilize and mobilize. So there is an option to extend it on the frontend, but not multiple months.

And on the NG2500's, the Leviathan looks like it will get -- it looks like it's off to a good start in 2023. Understanding these are shorter-term contracts, and it's tough to gauge. But is the 2023 market looking similar to what you've been doing in '22 with the Kraken and Hydra?

Yes. I mean there's a lot of activity. And like I said, there's activity across the board. So if you look at the individual markets, you've got -- the maintenance markets are increasing with the installed capacity, and we're definitely seeing that on the activity side. Those that are involved in trying to enhance production of their offshore oil and gas platforms.

They're obviously very interested in finding ways to kind of secure additional supply. And equally, those that are maintaining the infrastructure are very focused on keeping that up and running. So yes, I'd say across the board, there is increased activity on the 2500s.

Just going back to the Zaratan question, there are also -- there's also -- if you look at how that contract is built up, there is an operating period, but there's also a transit period that were paid for and there was mobilization period that we're paid for. So it already does extend a bit on the frontend and it just could extend a bit more.

And this does concludes our question-and-answer session. I would now like to turn the call back to Emanuele for any remarks.

We do not have any closing remarks, apart from thanking everybody for your time and look forward to speaking to you soon. Have a good day.

Thank you. And this concludes today's conference call. Thank you for participating. You may now disconnect.