Paratus Energy Svcs Ltd

Welcome to the Paratus Energy Q2 2025 earnings call. There will be a question and answer session after the presentation, and you can submit your questions by using the button on the bottom of the player. I will now hand over the call to your host.

Good day, everyone.

Welcome to the second quarter 2025 results presentation for Peritus Energy Services Limited. My name is Robert Jensen and I am the CEO of Peritus. Joining me on the call today is Baton Hajime Mehdi, 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 risks 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 second quarter of 2025 was a solid one for Paritus, supported by high technical utilization across the fleet, solid cost control, and steady joint venture cash flows. Our operating entities recorded a technical utilization of 98% for the quarter. Revenues were 107 million compared with 103 million in the first quarter, as new contracts at sea gems at higher day rates more than offset the lower contribution from Fontys due to Titania being idle. Adjusted EBITDA was 57 million versus 58 million in Q1, reflecting one-time cost at Fontys related to the demobilization of Titania. Net income for the quarter was 5.6 million, up from 3.2 million in Q1. In line with our policy of targeting stable cash distribution to shareholders, the board of directors has declared a dividend of 22 cents per share for Q2. This is consistent with every quarterly distribution since our IPO last year. During the second quarter, we completed approximately 5 million in share buybacks. The company now owns around 6.8 million of its own shares, representing approximately 4% of total share capital. As a reminder, we have approximately 75 million remaining capacity under the 100 million share repurchase authorization. With today's announced dividend, we will have returned over 200 million to our shareholders since we started our distribution a year ago, equivalent to roughly 30% of the company's current market capitalization. This underscores our commitment to a shareholder-friendly capital return policy. We ended Q2 with a cash balance of 93 million and net debt of 631 million. The quarter-on-quarter increase in net debt primarily reflects working capital buildup in Mexico. Receivables in Mexico increased to 232 million from 185 million in the prior quarter, as no payments were received during Q2. However, after quarter end, Thumptis received its first payment from the client since our monetization agreement in Q1. Importantly, in August, the Mexican government also announced a comprehensive support plan for our client, including approximately 25 billion in guaranteed funding, earmarked in part for supplier debt settlements. We view this as an important step to stabilize the client's financial position, improve payment practices, and support its production target of 1.8 million barrels per day. Now let's move over to the quarterly review for each of our two operating segments. We continue with our joint venture, SeaGems. Please note that all numbers referred to on this slide are on 100% basis, of which we own 50%. SeaGems had another strong quarter with revenues of 125 million compared to 112 million in the first quarter. The sequential increase was primarily driven by higher average day rates from the new contracts on four vessels, partly offset by some off-hire days related to acceptance testing on these vessels. EBITDA for the quarter was 81 million, up from 65 million in the first quarter, benefiting from stronger revenues, reimbursement of an insurance claim for Esmeralda, and certain favorable changes in accounting provisions. Operating expenses came in at 31 million, down from 36 million in Q1, while G&A was steady at 7 million compared to 6 million in the previous quarter. Technical utilization for the quarter was a solid 97.8% versus 98.4% in Q1. average contractual day rate increased significantly to 255 000 per day from 212 000 in the first quarter again reflecting the start of new contracts across four vessels the onyx completed its acceptance testing with petrobras earlier this month marking the final vessel to transition over to the new petrobras contracts consequently the average day rate for sea gems will continue to trend higher in the second half of the year The contractual backlog for C-GEMS stood at 1.6 billion at the end of the quarter. During the first half of 2025, C-GEMS distributed 66 million in cash to its shareholders, of which Paritus received 33 million. Consistent with what we flagged on the Q1 call, distributions are expected to be sequentially higher in the second half of the year, given the JV's cash flow profile and the timing of capital expenditures. Following quarter end, Paratus have received a total of 45 million in distributions for July and August. Finally, subsequent to the second quarter, Seagem secured 60 million in additional capex financing from local Brazilian banks. Amortization is scheduled to start in 2026 and will run over three years. Moving over to Fontys Energy. Our drilling business reported Q2 revenues of 44 million and an adjusted EBITDA of 18 million, compared to 47 million and 27 million in the first quarter. The decline was mainly driven by the Titania remaining idle during the quarter and costs related to her demobilization. Operating expenses were 26 million compared to 18 million in Q1. Again, mostly reflective of tugboat and fuel expenses associated with the Titania's move. It's also worth noting that Q1 OPEX was positively impacted by one-offs and lower than normal. GNA for the quarter was 400,000 down from 1 million in the previous quarter. Technical utilization remained strong at 99.2% compared with 99.7% in Q1. The average day rate declined to 116,000 per day from 125,000 per day in the previous quarter. as all rigs operated a full quarter at the contractual floor rates. Fontes' backlog at the end of the second quarter stood at 98 million, down from 139 million at the end of Q1. The receivable balance, as mentioned earlier, increased to 232 million at quarter end from 185 million in Q1, as no payments were received during the quarter. However, also mentioned before, subsequent to Q2, Fontys received a modest payment from its client, the first since a receivable monetization transaction in Q1. As always, we remain actively engaged with the client to expedite the collection of outstanding receivables and expect to recover the full amount, as has been the case in the past. As mentioned earlier, we are encouraged by the recent support plan by the Mexican government, and while it probably will take some time to implement, it will hopefully provide support to both payments and future demands. Looking at the fleet, with the exception of Titania, all the rigs are currently working and contracted into 2026. The Titania has been successfully reimported to Mexico and is kept readily available for new opportunities. We expect active contract discussions to take place in the second half of this year, supported by rising activity in Mexico. In our view, if the client is to achieve its stated production target of 1.8 million barrels per day, all units in the country will likely be needed. Against that backdrop, we remain confident in the demand outlook for all of our assets and will continue to evaluate opportunities for Titania both within and outside of Mexico. While pursuing new contracts remains a core focus for Fontys, we're also evaluating strategic opportunities for our Jacob assets with a focus on creating long-term value to our shareholders. And with that, I will leave the word over to Baton to walk you through the financial details.

Thank you, Robert. Okay, now let's start with the more detailed review of our Q2 results compared to Q1 2025. Net income after tax came in at 5.6 million this quarter compared to 3.2 million in Q1. As shown in the top right graph on this slide, the main values were as follows. A 4 million revenue increase compared to Q1 from $103 million in Q1 to $107 million in Q2. This was mainly due to the higher day rates from our PLS visa in Brazil, partly offset by no revenue generated from Titania as described by Robert earlier. The fountain's revenue was also impacted by lower day rates as rigs operated floor rates and the planned UIL survey on Intrepid. These effects were partly offset by the absence of rig suspensions versus Q1. We had an OPEX increase of $5 million, mainly driven by costs associated with the titanium relocation, partly offset by lower costs at C-GEMS, mainly due to an insurance claim reimbursement at Esmeralda and other items. It is also worth noting that Q1 OPEX Infantes was positively impacted by a certain one of items. We recognized an allowance for expected credit losses, as you can see on the graph ECL, of $4 million, reflecting the increase in receivables in Mexico at Q2, in line with accounting methodology. This is compared to a reversal in Q1, driven by the $209 million monetization agreement. Please note that this is only an accounting treatment, as we remain confident in our ability to recover the full amount owed by the client. Net financial expenses decreased significantly from $37 million in Q1 to $21 million in Q2. This was mainly because Q1 included fees related to the Mexico Monetization Agreement and a significant net loss which was recognized based on our ownership in ARTA, which was driven by the refinancing in Q1 that triggered an accounting loss. And finally, we reported slightly higher tax expense driven by changes in the tax accruals and provisions in Mexico. So overall, compared to Q1, the Q2 report shows modest improvement in net income with strong contributions from CGEMS and lower financial expenses offsetting the impact of the net losses from Fontys. Now stepping back and looking at the first half of 2025 results compared to the same period in 2024. During the first half of this year, we reported a net income after tax of approximately $9 million compared to $44 million last year. As shown in the lower right graph here, the main drives for the decline in profits were as follows. Declining revenues of $23 million due to Fontys. Recall that last year's Fontys revenues included about $15 million of previously unrecognized revenues that the Fontys team managed to build and settle with the client. In addition, Titania contributed to no revenues in Q2, as mentioned earlier, and average areas across the fleet were lower compared to last year. This was partly offset by strong revenue growth in sea gems where revenues were up 40 million dollars or 30 percent as vessels commenced on new Petrobras contracts at higher day rates. Operating costs improved by $11 million year on year, reflecting lower personnel and other costs at Fontys. Insurance claims refunds and other favorable one-time adjustments. Also recall that the 2024 OPEX figures included transaction costs related to our IPO and refinancing of the bonds. Other operating income of $5 million, as you can see here, relates to an insurance refund claim that we recognize at Fontys. Lastly, we had 24 million higher financial expenses compared to last year and 3 million higher tax expense compared to last year as well, largely for the same reasons I mentioned in the quarter-on-quarter comparison. To summarize, while the net income This year is lower compared to last year. The decline mainly reflects one-time revenue effects at Fontys in 2024 and higher financial expenses this year, partly offset by strong CDMs performance and solid cost control in general. Moving on to page six, let me walk you through the main drivers of our CAF flow this quarter. At Paratus consolidated level, we closed the quarter with a cash balance of 70 million dollars, which was down to 156 million at the end of Q1 2025. The main factors behind this movement were as follows. Working capital build up in Mexico, as we had no collection from our client during the quarter, which explains the operating cash here. $4 million spent on Capex related to Fontys, which was broadly aligned with Q1. Cash distribution from Seagems of $60 million and a first-time dividend that we received from Archer of $1.3 million. We pay net interest of $28 million this quarter, which reflects the semi-annual coupon on our 29 bonds. And finally, shareholder distribution of $41 million in Q2 that we paid, including approximately $5 million of share buybacks. After these movements, we ended the quarter with $70 million in cash at the Parata's level. But on the top of that, our Parata share of cash in CGM's joint venture was $23 million. bringing the group cash position to 93 million at the end of q2 so despite the temporary buildup of receivables in mexico our liquidity position remains solid supported by strong operational performance and significant cash construction sorry distribution from c gems and solid cost control in general Now moving on to our capital structure and selected balance sheet items. As just mentioned, we close the quarter with a group cash balance of 93 million and a net debt of 631 million dollars, resulting in a net leverage ratio of 2.6 times EBITDA. That is slightly up from Q1, mainly reflecting the increase in receivables in Mexico. As Robert mentioned earlier, Fontys received a modest payment from his client in August, and we also note positive signals from the announced Mexican government's financial support plan for our client in early August. We remain actively engaged with the client to collect outstanding receivables, but based on past experience, we continue to plan on the basis that delays may persist in the near to medium term. With respect to the debt maturity next year, the 2026 notes, we continue to more our options. We've had constructive discussions about funding at the operating entity levels and at the same time we also note the market, the credit market improvements to pursue something at the Paratus top goal level. we believe we still have a good time to assess along the best and long-term option for the company and we will of course we will communicate the plan for this well in advance of the maturity in july next year finally following the q2 Following Q2, the CGM's joint venture secured an additional $60 million of capital expenditure financing locally at favorable terms. The facility will amortize over three years, starting in 2026, as we show here in the graph. With that, I will hand the word back to Robert. Thank you.

Thank you, Baton. Before we hand over to Q&A, we wanted to reiterate the overall financial guidance issued earlier this year. However, based on the results delivered in the first half, we are happy to report that we now expect 2025 EBITDA to come in at or near the top end of the guided range. So as we head into the third Porter, 10 of our 11 assets are contracted into next year and beyond, giving us approximately $1 billion of backlogged apparatus with strong visibility, a solid balance sheet and results tracking toward the top end of our guided range. We believe we are well positioned to continue to deliver sustainable value creation for our shareholders. With that, I think we can open up for a Q&A.

Ladies and gentlemen, we will now take your questions. Just as a reminder, you can submit your questions by using the button on the bottom of the player.

So there's a question about the fairy protest. Do you plan to cancel the fairy protest? If not, why?

So I think we haven't concluded on those discussion yet. Ultimately, it's up to the board to decide whether we cancel or hold these shares as treasury shares. As you know, we still have more capacity under the share repurchase authorization. And also under Bermuda law, we are not obligated to cancel the shares. But I think it's a discussion that the board will certainly have in due course.

So we'll probably revert back with more information on that at a later stage.

How large was the modest payment received in August? That question.

Look, I don't think we're going to set a precedence of disclosing all payments from the client in Mexico. We've indicated that it was a modest payment, so I think we'll leave it at that. Ultimately, we think it's positive to see that we are getting payments and certainly we hope to see larger and more regular collections going forward. If it had been material, it would have been announced under a materiality clause.

There's a question how we plan to address the 2026 death and maternity.

Yeah, look, and Barton also touched upon this and is prepared to mark. We continue to monitor all our options. Clearly, the credit market is showing improvements relative to where it was at the start of the year. At the same time, I think we need to make sure that if we push the button, we don't sacrifice our flexibility to pursue other corporate actions or developments. We believe we have plenty of time to assess the best long-term options. We've had encouraging discussions about funding at operating level, but at the same time, given the credit market, it seems to be good demand if we were to pursue something at the top goal. I think we should also remember that we do have a substantial AR balance, which we expect to unwind over time together with potential asset disposals. that could wave pave way for for the 26s to be redeemed rather than than refinance but ultimately i think we we will decide what is the best course of action for the company uh and we do think we have a good toolbox with dealing with this maturity and uh i said that there's uh probably still still some time left and we'll make sure to communicate our plans well in advance

There are several questions regarding the Mexico contracting status, also with regards to titanium as well.

So I think everyone's seen the positive developments in Mexico over the last several months, both financially with respect to the client, but also more of the rigs returning to work. I think there is no quick fix with respect to sort of sorting everything out. So we do need to allow it some time. But we're certainly seeing Delta positive news coming from Mexico. As we said, if the client is to reach 1.8 million barrels of production, we do think there is a need for all the rigs. We expect to have more concrete news on this later in the year. There's obviously always an ongoing discussion with the client about potential future work. We are encouraged to have these discussions with the client, but we're not at the stage right now where we can share much more than the fact that we hope to have something more concrete towards the end of this year. regarding titania robert are there ongoing conversations with other clients besides pemex as an alternative in mexico taking the jack up outside of mexico is that a possibility um so i think on the last conference call we we alluded to this we said we have been to titania outside of mexico and we continue to have discussion with potential clients about work for the rig at the same time it's quite clear that in the last several months we've seen a downward pressure on on day rates globally and we're obviously also seeing that so when bidding the the rig we need to bear in mind that the rig is located in mexico transporting her to a different jurisdiction will come at a cost so when we look at the rig we have a certain return in mind when we look at what she should be earning and what she potentially could be returning in terms of cash if she remains in Mexico. So I think all opportunities are on the table, but we're certainly going to evaluate sending a rig to a different jurisdiction against what we think we are able to get on the rig where she is presently. Not ruling out any outside work, but I think we're certainly confident in the ability for that rig to remain in the country where she is right now.

There's a question about the market in the jacket market broadly speaking Can you talk about how folks see how we see the trend of day race into 2026 for the industry?

Well, just a second ago and said that there were some had been some downward trajectory on rates So I think that's been quite clear to everyone. We're obviously working at our floor rates in Mexico right now There are some i would say some some positive um developments i mean day rates have seen downward trajectory trajectory sure but utilization for modern rigs remain steady around 90 percent more than half of the suspended rigs in saudi have found new work we're seeing some incremental demand coming from the middle east and west africa and southeast asia continue to be fairly active or holding up from a demand perspective. So I think day rates, we're not going to speculate on where they're headed. I think we've seen them come down, but I think we're comfortable with with the market and our ability to compete for work, and particularly in Mexico. As I mentioned, there's probably a disadvantage for the Titania moving into a different region. That is an advantage for us in Mexico, which is a fairly insulated market. And at least over time, Mexico have proven to be a fairly resilient market where day rates may not have seen the peaks and the troughs that you tend to see elsewhere. So I think we're comfortable with

demand and particularly given the strong support that we've seen from the mexican state in in recent time ladies and gentlemen just as a reminder you can submit your questions to the button at the bottom of the player

A question about the PLSVs.

Possible delays in Petrobras' new FPSOs expected could translate into at least a temporary PLSV idleness in the Brazilian market. That was a question. Do you see this as a possibility, giving Petrobras obstacles with the new FPSOs?

Well, I think when you look at the schedule of FBSOs coming in and you look at that compared to the number of PLSVs, I think at least based on what we see, Petrobras, I mean, the PLSV market is sold out. They were not able to get as many vessels in as they expected during the most recent tender. seeing a strong demand for our vessels and and i don't see any slip up in in fbso deliveries at least not over the near term to to impact us and ultimately our vessels are on contract until 27 28 so um there's no linking sort of our um employment to FBSO. So I think we're very well covered with the backlog that we have in Brazil right now. I think ultimately, at least from our point of view, we see a long-term market that is very tight on the PLSV market. And I would not be surprised if you start to see talks about new contracts potentially being awarded from late next year or into 27. I mean, just looking at the rollover schedule for not just our vessels but the the industry in general um and history at least you typically tend to see some activity around re-contracting um some nine six to nine months ahead of that so um yeah i don't think we experience any uh or see any softness in that market

There's a question if we can provide some more color on the Jacob strategic initiatives in Mexico.

Well, I think we've been saying this from the time of going public that we would like to develop Fontys as the structure today is probably subscale and we're very concentrated in one jurisdiction. And while we're very comfortable in that jurisdiction and been there for more than a decade and sort of with evidence can show that we've been able to extract all the cash that we're entitled to, I think we remain positive to more consolidation in the industry. I believe there is room for more transactions similar to what we've seen already this summer. I think for our part, we would like to remain involved in the space, but we don't necessarily need to have full control of the company for it to be part of Pareto. Ultimately, we're an industrial holding company, so we will always look at ways to create value to our stakeholders. That could include both M&A and or selling assets. But let's see how the next quarters develop. I think we're certainly open for some ways of using our Fontys ownership into something more strategic.

There's a question to confirm how much of the outstanding accounts receivable in Q2 is related to Pemex. We have only one client in Mexico, so the total balance is related to that client.

There seems to be no further questions, so I think we'll take the opportunity to thank all the participants and looking forward to speaking to you in a quarter. Thank you. Thank you.