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spk05: Good day and welcome to the Anetti Incorporated Second Quarter 2022 Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a 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 touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. James Doyle, Head of Corporate Development and Investor Relations. Please go ahead, sir.
spk04: James Doyle Thank you for joining us today. Welcome to the Anetti, Inc. Second Quarter 2022 Earnings Conference Call. On the call with me are Emanuele Loro, Chief Executive Officer, Robert Bugbee, President, Cameron Mackey, Chief Operating Officer, Hugh Baker, Chief Financial Officer, Sebastian Brooke, Chief Operating Officer of CJACS. Earlier today, we issued our second quarter earnings press release, which is available on our website, annettiinc.com. The information discussed on this call is based on information as of today, August 3, 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 discussion of these risks and uncertainties, you should review the forward-looking statement disclosure and the earnings press release issued today, as well as Annette Inc.' 's SEC filings, which are available at annetteinc.com and sec.gov. Call participants are advised that the audio of this conference call is being broadcast live on the Internet, and it 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 annettink.com on 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 Loro.
spk07: Thank you James and good morning and afternoon to everyone. Welcome to Enetti's second quarter 2022 results and the first profitable result as a wind turbine installation vessel company. Since November, we've increased our contracted backlog by almost 170 million. This is for 2022 and 2023. In the second quarter, the company generated 61 million of revenue and in excess of 24 of net income. This number excludes an additional 28 million quarterly unrealized gain in our investment in Scorpio tankers. With the fleet fully contracted in the second and third quarter, the cash flow generation from these contracts further strengthens a conservatively levered balance sheet. In addition, this excludes the value and potential sale of non-core assets, which include the NG2500 vessels. As far as our new buildings are concerned, the construction in Korea is proceeding according to plan. In addition, we have received proposals from several financial institutions about financing both new building vessels. including a fully underwritten proposal, which leads us to believe that we will secure attractive terms aligned and comparable with our existing facilities. High global energy prices illustrate the risk of consistent underinvestment in energy. Renewable energy is critical to creating energy security and reducing global emissions. We expect the offshore wind markets to expand to new markets and to accelerate, leaving us well positioned to capitalize on contracting our existing assets, which are of high specifications and they're currently being built in Korea. We are excited about the outlook for offshore wind and our role in the transition to a cleaner and more sustainable future. I will now let Sebastian and James go through a brief presentation. Sebastian?
spk09: Thank you, Emanuele. Good morning, everyone. As mentioned by Emanuele, since November, NIT has increased its revenue backlog by about $170 million for 2022 and 2023, taking into account all options. In November of last year, we did not have any contracted revenue by the MG2500s in 2022 or any contracted revenue for the Scylla and Zaratan through 2023. As previously disclosed, the company has now contracted two of its largest W2I PIVs, Scylla and Zaratan, through 2023 and is currently executing a significant pipeline of work for the MG2500s. The Sea-Jaxx 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 and that all five vessels in the fleet are currently employed in this third quarter. In February, the Sea-Jaxx Scylla arrived in Taiwan to start work on the very high-profile Greater Chang'e Project of Orsted, where she's installing eight megawatt Siemens Gamesa turbines. She's scheduled to complete the contract at Greater Changhua in Q4 of this year and is then to mobilize from APAC to Europe, where she'll commence its 2023 contract with Van Oord. Zaritan is currently working at the Akita Nishiro wind farm, where she's making good progress installing 33 4.2 megawatt turbines. After this, she'll head to Taiwan to work on the Yunnan offshore wind farm. With regards to the NG2500s. Kraken is currently mobilizing for a previously announced contract to perform maintenance work on offshore platforms in the Southern North Sea, which starts in the middle of August. Leviathan is currently performing accommodation services at an offshore wind substation and will then be mobilizing for a previously announced contract for decommissioning works in the Southern North Sea. Hydra is continuing its previously announced maintenance campaign for a major OEM in the Southern North Sea, which is expected to complete in Q3 of this year. It's worth noting that SeaJack shore-based organization crews continue to conduct themselves in an efficient and most importantly safe manner. And in spite of all of the challenges to the global supply chain over this year, Scylla and Zaratan continue to operate on their respective jobs with minimal disruption.
spk11: Slide eight, please.
spk09: 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 to 2027. This growth is reflected in the high tendering activity that we continue to see across multiple regions involved in offshore wind, particularly the APAC, Europe, and U.S. regions, and supports the view that demand for offshore wind services will continue to increase through the end of the decade and beyond.
spk11: Slide nine, please.
spk09: 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 are very pleased with the contract coverage we have secured for 22 and 23 and note that we've been able to do so at increasingly attractive rates. 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 two new builds, which are among the most capable planned or under construction in Q4 2024 and 2025, which will set them up well for the forecasted growth of the 12 plus megawatt turbines.
spk11: With that, I'll hand back to James. Thank you, Sebastian. Slide 11, please.
spk04: First quarter revenue was $61.2 million, an increase of $43.1 million from the first quarter. In addition, the company generated its first profitable quarter with $24.2 million in net income, excluding unrealized gains. Revenue came in ahead of expectations as part of the Zeritan contract extension was recognized in the second quarter, In addition to payments related to previous claims from projects completed in 2021, additional optional days declared on the NG2500s and higher reimbursable costs such as fuel to customers. The contracted revenue for the second half of the year now stands at $84.8 million and $94.9 million in quitting options. Daily vessel operating expenses decreased on the Zerotan and NG2500s, but increased on the Scylla due to higher COVID-related crewing and travel costs, as well as fuel costs. We recommend using daily OPEX of $50,000 a day for the Zerotan and Scylla, and $22,000 per day for the NG2500s in the third quarter. At this time last year, we announced our acquisition of CJACS and are pleased with the professionalism, commitment, and expertise the CJACS team has brought to Anetti. Next week, we expect to file an F3 related to shares issued to the sellers of CJEX as required by the acquisition documentation. We do not have any information related to the future plans of the sellers regarding their remaining shares in NETI. Slide 12, please. Our new $175 million loan facility completed the restructuring of the CJEX balance sheet. During the quarter, we drew on our new credit facility and repaid the ING facility and companies' redeemable notes. Through the new loan facility, increased cash flow, and a growing contractual backlog, the balance sheet continues to strengthen. As Emanuele mentioned, we have received a fully underwritten proposal from financial institutions related to our new builds and feel confident that we will secure attractive terms similar to our current credit facility. To the bottom right, you can see the expected capex payments on our two new building vessels by year, as well as the expected drawdown on the vessels upon delivery. we expect the new builds to be financed at 60% of their contracted value. With that, I would like to turn it over to Robert Bugbee.
spk08: Hi. Good morning, good afternoon, everybody. Thanks very much for your interest. I'd just like to point out a couple of things here. Obviously, we could look at this and we could look at the cash flows, etc., and we could look at the opportunity of the actual market growing in terms of the demand and the expected growth contracts that you know we're ultimately going to get on the the two diary new buildings another way we'd be able to look at this is not necessarily through EBITDA or or cash flow but a balance sheet that is you know got a lot of liquidity in it it has a lot of um uh you know there's not that much leverage in the balance sheet at all and you know the company itself and the management itself is prepared to sell things when we have a situation as we have now where you've got an enormous discrepancy between the actual steel value of the assets and the actual share price. And, you know, I think under the analysts that we were, that we've seen red, you know, net asset values tend to have a range anywhere between 13 and 17, $18. So I'd just like to point that out. And with that, I'd just like to open up for questions, please.
spk05: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. Our first question will come from Greg Lewis with BTIG. Please go ahead.
spk06: Hey, thank you, and good afternoon, and good morning, everyone. You know, I guess I did want to touch on a little bit about the announcement around the NGX vessels. You know, if you could provide us some color how you're thinking about that, Robert. You mentioned the NAB comments. But also, I guess I'm kind of curious how that market's developed just given, you know, I realize that they don't directly, aren't viewed directly as oil and gas assets. But, you know, from a derivative perspective, that absolutely impacts them. Just kind of talk about the decision to, you know, kind of classify those as non-core and I guess look to monetize them. Any call around that would be helpful.
spk11: Cameron, would you like to take one? Sure. Thanks, Greg.
spk02: You know, obviously the market conditions for those assets, which have a fair bit of employment in oil and gas related work, has tightened significantly over the last several months. So we're seeing increased inbound inquiry, not just for employment, but for longer term employment and also sale. But I revert back to what Robert mentioned, which is there's such a discrepancy between the share price and what the vessels can earn. And that we are currently in the early stages of evaluating either selling or putting out on a longer term business to try and capture that spread. We don't expect this to happen overnight, the early stages of a process. And we would be in a position to report back as and when we have something to say.
spk06: Okay, great. Okay, so this is going to have to be a little bit of wait and see here. Thank you for that. And then, you know, clearly, you know, I think one of the drivers that people are waiting for, you know, we're always, you know, investors and analysts alike are always looking for potential catalysts. You know, I guess more recently there's been some contracts for, you know, in-out years for vessels that are, you know, under construction. Could you provide some color around how that market is developing and any kind of thoughts around when we could see whether it's NETI contracting some of their new bills or other new bills out there being contracted? Any kind of overview of that activity and market you could give us, I think, would be pretty helpful.
spk11: Thank you. Do you want me to have a question?
spk09: Yeah. I think that the fact that you are seeing a number of contracts being announced on new buildings so far out in time prior to their delivery just shows that there is a tightening in that market and there's a concern about available supply as we move through delivery of our vessels and into 25, 26 and what have you. With regards to timing of when we may be awarded a contract, that really remains down to the procurement processes of our clients on the projects that we're most focused on trying to get signed up. So I wouldn't give a timeframe on it, but I would say that activity continues to be high, which is obviously shown by the number of contracts that are being announced. And I think that our clients are expecting to announce kind of material contracts towards the end of this year and through the beginning of next year. I'm not going to say that that's when we expect to make an announcement, but it does give an indication of when we expect some of these processes to close.
spk11: Okay, perfect. Super helpful. Thank you very much.
spk05: The next question will come from Ben Nolan with Stiefel. Please go ahead.
spk12: Hey, guys. Maybe if I could follow on a little bit with respect to Greg's questions and the reclassification of the 2500. And Robert, maybe going to what you had said that you believe that there's a discrepancy between where the shares are currently being valued by the market versus where you believe that value to be. First of all, is your thinking here entirely, call it an arbitrage-related thinking, or are there other things that you would look to be able to redeploy that capital into? I don't know, ordering other vessels or something like that if you were to sell assets. And then lastly, as part of that, is it fair to think that the Sting shares are part of that same
spk08: asset base that might be available I think that the I think we'll take the last one first the Sting shares are you know obviously ultimately you know available but the Sting shares are are proving and we continue to believe will you know are just incredible investments and you know Sting reported last week and they that that market is very, very strong. It continued to move stronger since. And we think that the you know, we don't need the cash at the moment inside netty for any reason. There's no immediate opportunity of redeployment or then there's no immediate requirement to have any liquidity and the, you know, the opportunity cost of selling sting could be, could be quite high. Um, it's you, of course, mathematically you could say, well, you know, you can sell sting shares and you can buy netty, but I'm not quite sure that that, you know, netty isn't that liquid has taken us ourselves. quite a long time as insiders to, to buy the percentages that we have. So you have a situation where the stock is trading low, but the actual volume isn't that isn't that high. Um, so it's not necessarily looking at that way. The, the actual idea of the NGT 500 is that no increasingly, I think you're going to get, and we believe you're going to get investors that want to see a fully renewable, um, company. isn't necessarily going to want a company like NETI going forward to be doing things in carbons and so that would be a benefit as well and then structurally going forward after that yes you would hope for growth opportunities and I think that now we've seen the offshore we've seen The Gulf, both Gulf, the Middle East Gulf, the U.S. Gulf, other areas in offshore develop. So this market is tightening. And so it could quite possibly represent a good time to sell. I think it's as simple as that. And I think it would establish real worth in the company as well. So it's more that rather than waiting, as Sebastian has said, we're not quite sure when the opportune moment is to fix the two DaiWu ships, but rather than an investor having to wait for that as a catalyst, the sale of the NG-2500s themselves could become a catalyst before that time.
spk12: Okay, that's helpful. Appreciate that, Robert. And then for my second question, just to switch gears a little bit, you talked about 60% financing on the two new builds. First, does that assume contracts or is that on an uncontracted basis? And when you are thinking about financing, does it make sense to wait until you do have something firmly in place because or would it meaningfully impact the availability of financing and the cost of that capital?
spk10: That's a very good question. I think firstly, we are running a finance process that is not reliant on a contract in place. We are obviously expecting the vessels to be employed and certainly the lenders are expecting the vessels to be employed, but the nature of that employment is not specific and it's not set in stone. I think we are, you know, the proposals that we've received have been around 65%, and we're looking at some of those proposals very seriously, and those proposals don't require a specific long-term contract. They do expect the vessels to be employed for, you know, for their lifetime, and obviously the vessels need to, to make money during the period that they're under finance. In terms of timing, our expectation is that by the time, it's going to take probably a year to get a ECA export credit agency financing of the vessels put in place. Certainly, within that time, we expect, and Sebastian has indicated that we're certainly comfortable that the vessels will have employment.
spk11: Okay, that's great. I appreciate the call. Thanks.
spk05: The next question will come from Turner Holm with Clarksons. Please go ahead.
spk03: Hey, good morning and good afternoon, gentlemen, and congratulations on the first profitable quarter. I just wanted to check in on the new builds. Maybe a question for Cameron here. Could you just give us an update and some color on construction progress and a little bit more on the delivery times? I guess the yard has had a few financial struggles, but kind of where are you all in terms of the new builds? Any color on that would be great. Thanks.
spk02: Thanks, Turner. Not much to report, actually. I'm not sure it's fair to say the yard has had financial troubles. What they have experienced, of course, are some well-publicized labor disputes with some of their subcontractors, some uncertainty about their combination with one of their chief competitors, a business combination. But obviously, like the whole asian shipbuilding complex they are awash in highly profitable orders from conventional ship types like containers and tankers so we aren't concerned about their financial stability at all we are much more focused on the on time and on budget progress of our vessels and being highly specialized offshore vessels they take on a certain first of all separation from the conventional shipbuilding docks and processes and a higher status and also we are conveniently alongside and aligned with some major clients in oil and gas bespoke projects so we feel actually quite confident in the progress so far the schedule and the ability of the yard to deliver these vessels as planned.
spk03: Okay, good. So I guess everything going to plan. And then, Sebastian, perhaps just on the contracting outlook for the new builds, I guess we've been bidding into tenders for projects a couple years out, maybe up until you know, most recent quarters, you were bidding against, let's say, potential new builds, where maybe there was still time to build chips for these contracts. But I imagine now, you know, just based on the most recent orders that we've seen, it's probably 2026 or at least late 2025-type delivery times. You know, Kai, how are the dynamics shaping up for, you know, the kind of timeframe that you're looking at around 2025? And I guess relevant to the projects that are looking to go into offshore execution in that period, how does the source supply demand balance look, given that the order book for that period seems now pretty fixed? Thanks.
spk09: Yeah, I think you're right. I think on the supply side, the times basically run out to increase supply for those earlier projects. um i think on the demand side it's materializing um in multiple regions kind of at different paces so you know we've obviously had some announcements in in europe there are some additional projects that will require uh therefore there but also you know you start looking at the projects in asia pacific um as a local regional kind of hub there's very limited supply of their Turner, you know, and we've seen that from, you know, the Zara town has benefited from that, you know, on the union side. Um, but that by extension, you know, there are obviously opportunities there for the new bills. Um, so, I think that you have to look at the markets on a region by region basis. I think that the dynamics are different in each region, and I think the dynamics are positive actually in each region. Obviously Europe more developed, Asia Pacific very limited demand. We're obviously coming out of a yard in Asia Pacific, so could be well positioned for those projects. And equally there are requirements coming out of the US as well. So the market is tightening. and we just continue to see that kind of grow through through the right through to the end of the decade and we're bidding on stuff in 28 at the moment and it's not even on the supply side that you know there doesn't even sound like there are people stacking up to build you know they don't have the operating platform and you know that really matters so so yeah supply relatively muted and I think positive dynamics in each of the major hubs, but each of them have their own dynamics and could be stronger based on just limited supply, if that makes sense.
spk03: Okay. Sure. Thanks, Sebastian. And then if I just circle back real quick to the potential sale process or the ongoing sale process for the NG2500s. Just looking at the balance sheet, you all have about a little over $500 million in vessels, so PP&E and those vessels excluding the new builds. Can you give us some sense of scale of what these NGI, the NG2500s are in terms of that little over $500 million of asset value you have in the balance sheet?
spk10: I'm afraid we don't break down the book values of the individual assets. I'm afraid I'm not able to do that.
spk08: I'm not sure that we would. I also don't think it would be good for us to... You've got a market that's changing, that prices are moving around. And I don't think that we would want to start to, let's say, put a price out there a bit against ourselves.
spk03: Of course. Maybe I just ask it in a simpler way.
spk08: And I'm fairly sure that Clarkson themselves would be able to provide a range. Sure.
spk03: But I guess it's maybe just... I can't think of our position. I mean, no, just very simply, I mean, I guess relative to the market cap today, is it fair to say that any potential sale is significant?
spk08: Any of the assets that we group as significant, the three NGT500s are, you know, the Ceraritan, the stock in Scorpio Tankers is significant. That's in simple terms what I was trying to explain earlier, that you've got a huge dislocation. I know that in the industry, conventionally, renewals are based off multiples related to EBITDA or future earnings, etc., etc., and that will come. But it's partly explaining why, as insiders, we've continued to buy the stock. on a very, very regular basis is we're sitting there saying to ourselves, well, we're fairly confident with what Sebastian is saying that the manual saying that the market is improving, that the, that the actually supply and demand for, for the assets is strong over time. So those ratios will come. But in the meantime, what's let's say underpinning our own investments is, is a very, very, unusually widespread to NAV with a company that you normally might would see if a company has financial issues, not a company that has such a lot of liquidity. All right. Thanks, Robert. Appreciate it. Thanks.
spk05: The next question will come from Liam Burke with B Reilly FBR. Please go ahead.
spk01: Yes, thank you. You had some claims in the quarter from work on the NG2500s from 2021. Is this normal, or is there some anomaly, or is there something we can expect in the future where you bill, realize revenue, and then you get an additional claim?
spk10: Liam, I think I can answer that as straightforward as I can. It is pretty normal and what we're seeing is that we obviously enjoy contractual revenue and we win business and we win contracts and those contracts evolve over time and they have longer durations and there's different rebilling, etc. So the You know, the various items that we've reported in this quarter are, you know, certainly they're not individually not repeatable, but as a trend, you know, it is repeatable and not unusual.
spk01: Great. And on the longer-term outlook for demand on the offshore wind turbines, A lot has happened, especially in Europe, with the supply disruption of natural gas and the increased use of coal. Since you began the move to offshore wind turbine installation, do you think Europe's commitment to offshore wind has increased or decreased, or how do you look at that change?
spk09: Can I just take a stab at that? I'd just say that it's one of the very few industries where the kind of macro revisions go up each time they're republished. So I would say over time, the market strengthening, there's a real commitment to offshore wind in Europe. And actually, on a fairly regular basis, you read about established countries announcing that, you know, in the next five or six years, they want an additional X gigawatts of capacity. So I think the trend was positive anyway. And then with the recent disruptions, I think it strengthens further.
spk11: Great. Thank you.
spk05: This concludes our question and answer session. I would like to turn the conference back over to Mr. Emanuele Loro for any closing remarks. Please go ahead.
spk07: Thank you very much, operator. We do not have any closing remarks at this stage, so thanks for taking the time to be with us today and look forward to speaking to you all soon.
spk05: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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