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spk07: Good morning and welcome to the ENETI Inc. Third Quarter 2022 Conference Call. All participants will be in 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 telephone keypad. Please note, this event is being recorded. I would now like to turn the conference over to James Doyle, Head of Corporate Development and IR. Please go ahead, sir.
spk00: Thank you for joining us today. Welcome to the Anetti Inc. Third Quarter 2022 Earnings Conference Call. On the call with me are Emanuele Oro, 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 third 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, November 8, 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 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 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 that 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 Inediinc.com on the investor relations page under reports and presentation. 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.
spk10: Emanuele Loro Thank you, James. Good morning or afternoon to all. Thank you for joining us today for Anetti's third quarter 2022 results. In the third quarter, the company generated more than $69 million of revenue and close to $28 million of net income. And this excludes a realized meaningful gain in our investment in Scorpio tankers. The demand has increased. Rates are trending higher and utilization is ticking up. And this is true for all different sizes of WTIBs. In addition, also the COVID-related challenges like long quarantines or crew movements that have been affecting a global player like Eneti, whose operating assets worldwide, have started to show signs of normalization. I'm referring more specifically to Asia, where a few of our assets are operating. that is gradually going towards a more westernized COVID approach. Recently, we have contracted one of the NG2500s for employment in 2023, and we're optimistic about further contracts at higher rates and longer duration in this class, but also in our bigger classes. We are in a fortunate position as these assets, the 2,500 more precisely, can generate positive cash flow whilst we are exploring alternative solutions including potential sale of the 2,500s. We are excited to contract our existing assets base and new buildings at higher rates in what appears to be a very undersupplied market going forward. The contractual backlog continues to increase. The pipeline of potential projects for our new buildings is becoming increasingly attractive. On the financing side, in October, we have received an underwritten proposal from Crédit Agricole and Société Générale for a $436 million term loan facility to finance approximately 65% of the purchase cost. of the company's two WTIBs new buildings under construction currently in Korea. Our balance sheet continues to improve. Strong operating cash flow from our existing fleet and the divestiture of our holding in Sting has created a strong liquidity position. A position which, given our conservative leverage, allowed us to repurchase 2.3 million shares of the company at an attractive valuation. And looking forward, we anticipate significant opportunities for the existing fleet as well as for our new buildings as offshore wind demand accelerates and expands into new markets. We are excited to capitalize on these opportunities and as well as play our role in the transition to a cleaner and more sustainable future. I'd like to thank you for your support, and I will now turn it over to Sebastian and James that will go through a few slides. Thank you. Sebastian, please.
spk06: Thank you, Emanuele. I'm Sebastian Brook. I'm the COO and the co-founder of SeaJax, which has been installing wind turbines since 2009 and is the operating platform of Anetti. responsible for operating and contracting the fleet of five vessels that are currently on the water as well as the two next generation new builds which are scheduled for delivery in the second half of 2024 and the first half of 2025 respectively. Slide seven please. As Emanuele says, we have been building backlog over the past year. You can see from the chart on the bottom left of this slide that we have made good progress. This time a year ago we had $104 million of contracted backlog but over the past 12 months, we've increased this significantly, and it now stands at approximately $283 million. The Gantt chart on the right-hand side of the slide shows that we have secured employment for our two installation vessels, Scylla and Zaratan, through the end of 2023, and there are conversations ongoing about potential follow-on work in Europe, Asia Pacific, and North America. Contracting activity for these vessels is high, and we believe that rates in the sector will continue to trend upwards. We're also busy building backlog for Kraken, Leviathan, and Hydra in 2023. These vessels installed hundreds of the four megawatt turbines in the North Sea and are typically employed in turbine maintenance, hookup and commissioning of offshore wind substations, and the maintenance and decommissioning of gas platforms in the region. Historically, these vessels have had shorter contracts, which are tended closer to the project start date. But given increased levels of contracting activity and limited supply of similar vessels in the region, Clance is starting to commit now for work in the summer of 2023. From a supply side, it's worth noting that a few years ago there were six similar vessels operating the North Sea, but today there are only four, which is effectively a reduction in supply by a third. From the demand side, we're seeing increased demand in all areas as the smaller turbines approach 10 years in the water and require increasing levels of maintenance, The number of substations requiring hookup commissioning and maintenance in the North Sea continues to increase in line with installed capacity, and the energy crisis has prompted utilities and oil and gas companies to maintain the critical gas infrastructure in this region. Slide eight, please. Enetti's core market is wind turbine installation, and based on industry fundamentals, the outlook here is bright. Why is that? Firstly, we're operating in a growth industry. While analysts may have differing views on exactly what that growth rate is, they are all agreed that growth is robust and the revisions to forecasts are up rather than flat or down. This will lead to increasing demand for our installation vessels. Secondly, there are significant barriers to entry, so the increases in supply are relatively muted and typically limited to companies with an existing footprint in the offshore wind industry. Thirdly, The capex associated with WTIV installation vessels is relatively low, around 2% of the total capex of an offshore wind farm. So increases in day rates are not going to jeopardize the financial viability of any specific wind farm. Finetti is well positioned to benefit from these positive market fundamentals, not only with Scylla and Zaratan, but also the two new buildings that are scheduled for livery in 2024 and 2025. Slide nine, please. Anetti's two new buildings are scheduled for delivery in the second half of 2024 and 2025, respectively. When delivered, they will be amongst the most capable vessels on the water, and with the 2,600-ton cranes, are able to install the next generation of wind turbines. As the trend is for clients to install larger turbines, Anetti will be well-positioned to benefit from the tightness that is forecasted at the high end of the installation market. Anetti new builds also provide our clients with flexibility as they are not only able to install the largest turbines, but also foundations in the most challenging locations around the world. We believe that our clients value the added capability and the flexibility that these vessels provide, and this will ultimately be reflected in day rates and utilization. Contracting activity is high for the new buildings, and we continue to see serious interest in work in Asia Pacific, Europe, and the U.S., from delivery and through to the end of the decade, as clients look to secure capacity early in a market that is predicted to have a shortage of vessels as we move into the second half of this decade. We are focused on finding the right contracts for these highly capable vessels, as this should enable us to generate the most attractive returns for our shareholders. We are in advanced discussions with a number of clients and are looking forward to announcing them to the market once they are finalized. With that, I'll hand over to James Doyle.
spk00: Thank you, Sebastian. Slide 11, please. Third quarter revenue was $69.2 million, an increase from $8 million from the second quarter, the highest quarterly revenue as a wind turbine inflation company. We recently contracted an NG2500 for a minimum of 103 days for next year and are in the process of tendering for an additional contract in 2023. TJAX has continued to demonstrate their ability the contract to the existing fleet, and we are optimistic about the pipeline of contracts for our new boats and outlook to the industry as a whole. Daily vessel operating expenses decreased on the SILA and experienced a slight increase on the Veritan and NG2500s as all vessels were employed during the period. We recommend using daily op-ex of $60,000 a day for the SILA, $40,000 a day for the Veritan, and $24,000 a day for the NG2500s in the fourth quarter. Slide 12, please. Our balance sheet continues to improve. We have conservative leverage, strong operating cash flow, and a healthy liquidity position. The financing of our new build vessels is underway, and we have received a proposal from Credit Agricole and SocGen for a $436 million term loan facility, or 65% of the purchase cost of the new build. The bottom right, you can see the CapEx payment schedule and expected finance at a 60% financing arrangement. With that, I will turn it over to Q&A.
spk07: I'm sorry, Mr. Dorr, are you ready for the question and answer session?
spk00: Yes, please.
spk07: Okay, thank you. We will begin the Q&A session. At this time, to ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. And at this time, we'll just pause momentarily to assemble our roster. and the first question will be from Greg Lewis with BTIG. Please go ahead.
spk11: Yeah, hi, thank you, and good morning and good afternoon, and thank you for taking my question. You know, the first question I did want to ask is around, you know, the contract opportunities for the new builds, and really around realizing there's still plenty of time, but as we think about you know, contracting cycles and, you know, as people start positioning for, you know, 24 and 25, just given the tightness in the market, is there sort of a seasonal cadence to when projects have these long lead time items fixed, i.e., yeah, that's kind of what I'm wondering.
spk06: Sebastian, do you want to take this? Sure, Emanuele. No, I mean, in short, there's no real seasonal cadence to the announcement of contracts. All of our clients have different kind of procurement regimes and strategies. And so it makes it quite difficult to predict, you know, the exact timing of the conclusion of negotiations. But no, it's a steady trickle throughout the year.
spk11: Okay. Okay, great. And then just another question I had around, you alluded in the prepared remarks about potential opportunities for monetizing the NG2500s. Is there any kind of benchmarks? How should we be thinking about that, realizing that It's my understanding that some of those vessels are working in the more conventional energy markets, and those conventional energy markets are tight. That being said, we're in the North Sea where typically we see some seasonal softness. Any kind of color you can give around the potential around those assets?
spk10: I think, Craig, thanks for the question. I think we've been clear that we are evaluating alternatives on the assets, including the potential sales, so disposing of them. In the meantime, we are enjoying what is a positive momentum market, both in the offshore wind as well as the more traditional energy markets. Having said that, as we know, DNG 2500s, which were built as installation vessels, as we approach the new, more modern turbines, it is apparent that they will not be capable to install those turbines and some that are already actually existing. When we merged with CJEX, we described the one of the potential uses of these vessels in the maintenance field. And we came to the conclusion that we're happy to do alternative jobs until we find the right home for them. And if the right home is selling them, we are prepared to do that too. So it's not that we want to hide from plans. We've been upfront and open. Uh, but we, we just did not find the ultimate solution. Um, but we are pretty relaxed because whilst we are looking for the ultimate solutions, we are generating positive cash flows on the assets.
spk11: Yeah. Okay, great. And then just one for me around the buyback realizing, Hey, you know, we saw the sale of the Scorpio tankers during the quarter. Um, you know, you have the cash position. I mean, it looks like the financing, um, I guess it looks like the potential amount was greater than we were thinking. Is there any kind of way you think about the buyback versus – how should we think about the buyback going forward here, knowing that you do have some capital commitments coming up over the next couple years? That being said, it looks like we've lined up some financing that's probably going to be available as we look at those next two years.
spk05: Maybe I can take that one. Hi, this is Robert.
spk11: Please.
spk05: Great. Thanks for the question. I think you should always... I think you're correct. This company is... There's sort of a couple of stages here. The company took a great opportunity in buying the block that it did. Very good opportunity, nice price. And... The priority right now in the company is to get the first new building employed. Once that new building gets employed, then we get a lot more flexibility, a lot more flexibility over financing, a lot more certainty. So I think it's fair to say that we're not looking to buy back the stock at the moment in a NETI. Obviously, you know, Edson Sage as an affiliate has been doing so since NETI's buyback. But, you know, things can change once we get the first employment announced on the new building.
spk11: Okay. Great to hear. Thank you very much for taking my questions. Have a great day.
spk07: And our next question will be from the line of Turner Holm from Clarkson's. Please go ahead.
spk04: Hey, good morning. Good afternoon, gentlemen. I just wanted to ask Greg's question on the contracting maybe in a slightly different way. I mean, given that most of these offshore wind projects are contracted several years ahead of time, you know, what's the window for getting a sort of matching up the delivery of the vessels with the appropriate contract? I mean, do we have, you know, what's that timeline look like?
spk05: I think I'd answer that too. I mean, we're not, I think as a policy, we're not really going to follow what some of the peer group has done, which is sort of anticipate a contract and give some sort of timeline and then run risk of delays. The policy we're going to not give any timelines until a contract has been announced. And until the contract has been signed, sorry, and it has come with a press announcement. I think that I would follow what Sebastian has said, that the market is busy, that the whole space is improving, and we are negotiating with various customers, but it's important that we You know, we have the best asset out there. We've got the balance sheet that we can afford to wait. And a little bit of patience is proving to be a good thing at the moment in the negotiating process. And I would just leave it at that.
spk04: I understand. And then, you know, obviously you all are, you know, doing a lot to narrow the discount to NAV and the stock You know, stock has come up, but I think most analysts have NAV numbers, which are quite a bit higher than what it is. But, you know, again, you all have been, I think, taking a lot of actions that would suggest that that gap should narrow. You know, you're selling the Sting shares. You talked about the potential to monetize the smaller assets. You bought back some stock. At what point do you say... You know, do you start considering, let's say, broader strategic alternatives to narrow that gap to not?
spk10: Turner, Emanuele here. I think we are just doing what we said we would do. And we had some positions to clear, like the Sting stock, like the two new buildings, you know, financing, which is coming along. we are now focusing on delivering rather than thinking about anything else. So that's the focus. Our heads is there. We're happy with the last couple of quarters, the way they have gone, focusing to make sure that we continue in this direction. And that's where we are. In the meantime, we were able to take advantage of the fact that the stock was trading massively at a discount to NAV and not only the company has done some buyback, but also some of our affiliates have taken advantage and bought a significant or a meaningful amount of shares. you know, from a managerial standpoint, we're focusing on delivering from an opportunistic standpoint as a shareholder. We're looking at capitalizing on what is a clear dislocation in the stock price at present.
spk04: I appreciate that. Okay. I think I'll hand it back with that. Thank you. Thank you, Turner.
spk07: And our next question will be from Ben Nolan from Stiefel. Please go ahead.
spk01: Yeah, thanks. So my first one, actually, it's probably a series of questions that are related to the 2500s. It's encouraging to, and maybe not surprising to hear that there's positive momentum there. I wanted to maybe see if you could frame out how you're thinking about those in a few ways. First of all, how you would maybe suggest that we think about utilization for those over the course of the year, appreciating that you haven't yet won contracts, but just how you would think that would play out. And specifically also, if you think there's any chance of anything in the first quarter, because I don't believe that currently there's anything there for those. And then is it possible to frame in, you talked about rates being better Is it possible to sort of even approximately say, okay, well, here's where we were maybe a year ago at this time versus now?
spk10: Sebastian, do you want to take this or shall I?
spk06: I mean, I'm happy to give kind of color on the activity levels. I mean, for us, we sit down and historically – uh or not historically in recent years you know it's become a seasonal seasonal business um but in the good years it wasn't you know we had 100 utilization on our vessels um this is going back quite a few years now and what we're seeing is rather like on the installation side for the 2500s people are concerned about being able to secure the availability of next year this means that people are actually inquiring about work in the shoulder seasons, again, just to secure availability. And that'll drive utilization, and with that comes rates. So a lot of the work that is being tended at the moment is, without being too specific about it, is significantly above what I've seen in the last, you know, in quite a few years. So without being more prescriptive than that, that's the general trend.
spk01: Okay, and so does that mean that there's a possibility of first quarter revenue from those? Is that the point there?
spk06: Yeah, we're bidding on contracts that have a start outside of what has recently become the kind of seasonal window of the spring and summer.
spk01: Okay, that's helpful. And my second question relates to the financing on the new buildings that's Good to see that you're making progress there. I'm curious, though, are you finding or it would seem to me, I guess, a way to phrase it is it would seem to me that The terms and everything, pricing everything around that financing would be substantially better or easier if there were contracts on the assets. And, you know, Robert, you talked about how you think about the contract, which I totally understand. Does it matter? I guess, am I wrong? Does it matter whether or not the assets are financed as it relates to the ability and pricing of financing?
spk10: I think it's more of a psychological aspect than anything else because, as you know, these are assets that have a lifespan of a couple of decades at least. and the contractual employment that one could announce is probably for a 12-month period instead. So I think that what the lenders are coming to conclusion is that if you are building the right assets of the future for the future in quality yards operated by quality management teams or operators, then they are happy to back this. Whether they are going to put a price differentiation between a vessel that is employed or not, we haven't experienced that. This is not what we've been proposed. And we are actually very satisfied with the terms and conditions that were offered to us on a fully underwritten deal that we are looking forward to finalize in the next couple of months.
spk01: Okay, so it's not a gating issue for them, I guess.
spk10: No, it has not been. I think that the general mood on the renewable space and more specifically the offshore wind space has been improving in the last couple of years from capital providers both on the equity side as well as the the lending side so it's a general trend but maybe it was a gating item two years ago it is not today or at least it is not for an etty okay and and just to make sure that i'm thinking about it right
spk01: This is post-delivery financing, and prior to that you have shipyard financing for, I suppose at this point, much of the balance of the remaining capex. Is that right?
spk10: There is a number of aspects to be considered. Hugh, please.
spk09: Yeah, to answer that question, at delivery we receive the financing from the financial institutions and up to delivery,
spk08: We pay the installments with available cash, which we have on hand, and we're going to generate in the next two years.
spk01: Okay. All right. I appreciate it. Thanks, Ben.
spk07: Thank you. And our next question is from Ethan Waddell with B. Riley. Please go ahead.
spk02: Hi. This is Ethan Waddell calling in for Liam Burke. Thanks for taking my question. So given the strong outlook from 2025 onward, should we expect to start seeing longer contracts from customers and have you been seeing that yet?
spk06: I'll take that. So we have, so historically it's been a project by project industry as you're aware. Each of our clients has a different profile and a different kind of risk profile and ability to break out of this kind of project by project approach to the industry but in short the answer is yes there are clients that understand there's going to be a shortage of vessels there are discussions about potentially longer term contracts it's just that each of our clients goes at different speeds so tough to work out when they'll materialize Helpful, thanks.
spk02: And then do you anticipate being able to deploy the Zaraton again before it starts its next large project in mid-May 23?
spk06: No, I think Zaraton is going to be demobilizing and transiting and remobilizing during that period. Okay, thank you.
spk07: Thank you. Thank you, ladies and gentlemen. This concludes our question and answer session. I would like to turn the conference back over to Iman Ueli-Laro for any closing remarks.
spk10: Thank you, operator. No closing remarks. I would just like to thank everybody for your time today and look forward to speaking to you individually in the next weeks and months. Thanks a lot. The call finishes here.
spk07: Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. Iman Ueli-Laro.
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