Paratus Energy Svcs Ltd

to the Paratus Energy Q1 2025 earnings call. There will be a Q&A section after the presentation, and you can submit your questions by using the button on the bottom right corner of the player. I will now hand over to your host.

Good day, everyone. Welcome to this first quarter 2025 results presentation for Paratus Energy Services Limited. My name is Robert Jensen and I am the CEO of Paritus. Joining me on the call today is Baton Hajimemedi, our CFO. Before we begin today's presentation, I would like to remind all participants that some of the statements on this call may involve forward-looking statements. Forward-looking information involves risk and uncertainties by nature that may cause actual results to differ materially from those projected in such statements. I therefore refer you to our latest public filings. The first quarter was a relative quiet quarter for the company compared to our recent history, with results largely as expected given the high contract coverage across our assets. Both of our operating entities continued their strong operational performance, and we recorded a technical utilization of 99% for the quarter. We reported Q1 revenues of 103 million and an adjusted EBITDA of 58 million compared to 109 million and 63 million in the fourth quarter. The decline was mainly attributable to lower average day rates and fewer operating days in Mexico, as well as an unusual low cost in Brazil in the fourth quarter due to one-time items. The net income for the quarter was 3.2 million compared to 2.5 in the fourth quarter of 2024. In line with our policy of targeting stable long-term distributions to our shareholders, the board of directors have resolved to declare a cash distribution to shareholders of 22 cents per share for the first quarter of 2025. This level is consistent with the distribution paid for each quarter since our IPO last year. During the first quarter, we also completed a share buyback of approximately $20 million by way of a reverse book building process. In early April, we initiated a further buyback for an amount of up to 5 million through open market transactions. As of yesterday, we had completed approximately 95% of this buyback. The company now owns a total of approximately 6.8 million of its own shares or approximately 4% of the share capital. As a reminder, upon completion of the ongoing buyback, we will have approximately 75 million remaining capacity under the 100 million share repurchase authorization. Including the distribution announced this morning, we will shortly have returned more than 170 million to shareholders in less than nine months. This corresponds to approximately 30% of the current market capitalization of the company. And we believe this is a testament to the shareholder friendly policy of the company. We exited the first quarter with a cash balance of $176 million following the previously announced $209 million monetization agreement in Mexico. And as a result, our net debt stood at $551 million at the end of the quarter. At the end of Q1, our receivable balance in Mexico stood at $185 million. Outside of the monetization transaction, we note that payments and invoicing have been slow in recent months, but we are optimistic about some normalization going forward. Our contract backlog stood at 1 billion at the end of the quarter. Subsequent to quarter end and in line with what has been previously announced, Archer initiated quarterly cash distribution to its shareholders. And as part of this, we expect to shortly receive our first dividend distribution of approximately $1.3 million. Finally, during the quarter, we also announced some changes to our contract coverage in Mexico, which we will get back to shortly. Now let's move on to the quarterly review for each of our two operating entities. We begin with our Brazilian joint venture, Seagems. And please note that all numbers referred to on this slide are on 100% basis, of which we own 50%. Seagems reported revenues of 112 million for the first quarter and an EBITDA of 65 million, compared to 109 million and 80 million for the fourth quarter. The sequential increase in revenue was mainly driven by higher average day rates and few off-hire days during the quarter. OPEX for the quarter was 36 million compared to 18 million in the previous quarter. As previous mentioned, the fourth quarter OPEX for Sea Gems was positively impacted due to reclassification of certain expenditures from OPEX to CAPEX, as well as reimbursement of an insurance claim. Adjusted for this, the EBITDA was up 1 million quarter over quarter. G&A remained steady at 3 million and technical utilization in Q1 was 98.4%, up from 97.7% in the fourth quarter. The average contractual day rate was 212,000 for the first quarter compared to 205,000 per day in the fourth quarter. We expect sequential increase to the average day rate during the year as a result of five vessels commencing new contracts at higher day rates this year. The Diamante commenced her new three-year contract with Petrobras in late March. During the second quarter, this has been followed by start of new contracts on the Topacio, Esmeralda and Ruby. Finally, we expect that the Onyx will transition over to her new contract during July. This is slightly ahead of our earlier expectation of an August startup. Consequently, the average day rate for the C-GEMS fleet will be at a significantly higher level at the end of the year relative to where we started the year. We therefore anticipate both 2025 revenue and EBITDA to increase well above both 2024 and 2023 levels. For 2025, we also expect dividends from C-GEMS to be sequentially higher in the second half compared to the first half due to timing of capex and other payments. The contractual backlog for SeaGems stood at 1.7 billion at the end of the quarter. Moving over to Fontys Energy, our drilling business reported Q1 revenues of 47 million and an EBITDA of 27 million, which compares to 54 million and 28 million in the fourth quarter. The decline in revenue was largely due to lower average day rates, as well as a reduced number of operating days on the Titania. In early 2024, we signed a one year extension for the Titania. However, due to delays in renewing the marine permit for the rig, the start of this one year contract was delayed from mid February to early May 2024. The rig completed its project with the client in late February this year, and we are currently in discussion with the client over the contractual end date. We believe that we have a contractual right for revenues up for a period until early May. but the client's current view is that the contract ended upon completion of the project. We have therefore concluded not to book any revenues for the period currently being discussed with the client. For the first quarter, this amounts to approximately $5 million. During Q1 2025, Fontys achieved an average day rate of 125,000, down from 134,000 per day in the fourth quarter. And as of February this year, all of our rigs are now operating at their contractual floor rates. This is due to the market indexation mechanism and as a result of softening day rates in the global jacket market. Operating expenses were 18 million in the quarter, down from 26 million in the previous quarter. And please bear in mind that Q4 was impacted by special items, including year-end bonus accruals, as well as accounting provisions related to the expected de-manning of Titania during 2025. G&A remained unchanged at 1 million. Technical utilization in Q1 was 99.7, in line with 99.8 in the fourth quarter. And at quarter end, our contract backlog stood at 139 million. As announced earlier this year, we signed a 78-day contract extension on the Oberon, making the current contract firm until January 2026. In March, we also announced that Fontys' client elected to exercise contractual options for early termination of the drilling contracts for the Courageous and Intrepid, which reduced the backlog by approximately 39 million, or 3% of the overall Pareto's backlog at the time. The early termination was attributed to unfavorable contract terms, specifically limited suspension rights and the day rate indexation structure, as well as broader economic considerations. The client's notice does not indicate that the decision was driven by a reduced operational need for the rigs in 2026. Rather, it appears the action was intended to enable a broader harmonization of contractual terms across the client's service provider base. Fontys' current contracts provide certain protections which have allowed us to keep all rigs working without any material downtime in recent quarters. This is in contrast to the reduced activity reported by other contractors in the region. Following this early termination notice, the client no longer has any contractual flexibility to further shorten the duration of Fontys' remaining contracts. The Titania is now idle following demobilization from her previous location, and we are currently pursuing new opportunities for the rig. The rig has been offered to potential clients for operations both inside and outside of Mexico. This is the only asset in the wider apparatus fleet that is not contracted into next year or beyond. And we do not believe it is in the best interest of the company to change, to chase any contract at any rate, just to keep the work, the rig working. So while we are seeing an increased number of international jacket requirements for 2026, we're also seeing a positive development on activity in Mexico where previously suspended rigs are being brought back into service. We believe the commitment to increase production to 1.8 million barrels in Mexico will drive activity in the second half of this year and beyond. Given the current lack of rig contracts in place for 2026 for any contractor, we expect to see opportunities to secure new work. While the exact timing remains uncertain at this stage, we believe there will be more clarity on this later this year. As we have stated previously, we remain confident in the long-term demand for all of our assets in Mexico. As such, any opportunities for contracts outside of the country will be assessed against the expected financial returns from continued deployment of our assets within Mexico. With that, I will leave the word over to Baton to provide a bit more on the financial results.

Thank you, Robert. Okay, now let's begin with a review of our Q1 2025 results compared to Q4 last year. Paratus reported net income after tax of $3.2 million, which was slightly up from $2.5 million in Q4. As shown in the top right graph on this slide, the key drivers were as follows. Fontage revenues came lower, reflecting lower day rates, and reduced revenues from Titania, as Robert mentioned earlier, partly offset by a stronger performance at CGEMS. There was an increase in other operating income from an insurance reimbursement of approximately $3 million and a $3 million in reversal of the accounting provision for expected credit losses relating to our receivables in Mexico. There was an increase in net financial expenses mainly related to a fee paid in connection with the monetization agreement in Mexico as described earlier. And finally, there was a lower tax expense in Q1, reflecting the true tax calculation recorded at year-end 2024. And now let's have a look at the Q1 2025 results compared to Q1 2024 last year. That is a graph at the bottom right. Last year, we reported net income after tax of $10 million compared to $3 million this year. The year-on-year decline in net income was mainly driven by lower revenues at Fontys due to Titania and RIG suspensions in Q1 this year, and an increase in net financial expenses as commented here earlier. This was partly offset by a stronger performance at CGEMS and lower OPEX at Fontys, which was mainly due to reduced staff and G&A costs, and the income recognized from insurance claim refund as mentioned. now let's have a look at the main cash flow items during the quarter at paratus consolidated level we closed q1 with a cash balance of 156 million dollars which represented a significant increase from 86 million dollars at year end 2024. the approximately 70 million dollars increase in cash was primarily driven by strong cash flow from operations of 150 million dollars mainly due to the 209 million collect cash collection from our client also by reduced accounts payable from payments we had cash distributions from c gems that we received of 17.5 million dollars which is expected to increase in second half of the year in line with the jv's cash flow profile and timing of complex We paid net interest payments of $4 million compared to $29 million in Q4, which included the semi-annual interest payments on the $500 million 2029 bonds. And finally, we returned $56 million to our shareholders, which included the $20 million in share buybacks. After these movements, we ended the quarter with $156 million in cash at Prorata's level. And in addition to this, our Prorata share of the cash in the CGM JV was $20 million, bringing the total group cash position to $176 million at the end of Q1. Moving over to our capital structure and review of selected balance sheet items. We close the quarter with a group cash balance of $176 million and net debt of $551 million, resulting in a net leverage ratio of 2.2 times EBITDA, which is an improvement from Q4 driven by the cash collection in Mexico of $209 million. As one can see in the graph here, that same collection also led to a notable reduction of receivables in Mexico, contributing to a stronger balance sheet position in overall. We continue to evaluate various options related to the 250 million dollars notes, which is due in July next year. And as highlighted before, we believe we have several options to address this maturity, including raising debt at one of the operating entities or at the top call level. Given the relatively low visibility we have on some of our assets, combined with the ongoing market volatility, we believe we will have more attractive opportunities in the coming quarters to deal with this maturity. And with that, I will hand over the word back to Robert.