Paratus Energy Svcs Ltd

Welcome to the Paratus Energy Q1 2026 earnings call. There will be a question and answer session after the presentation, and you can submit your questions by the form at the bottom of the player. I will now hand you over to your host.

Thank you. Good day everyone and welcome to this first quarter 2026 results presentation of Paratus Energy Service Limited. My name is Baton Hajmemete and I'm the CFO and interim CEO of Paratus. Before we begin today's presentation, I would like to remind all participants on this call that some of the statements in 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 the latest public filings of the company. The year 2026 has so far been very busy and also eventful for the company. In March, we announced a transformative transaction for Paratus, the $400 million sale of our Jacko business, Fontys Energy. This transaction marks an important milestone in the continued evolution of Paratus, simplifying the company and sharpening our strategic focus. Let me just recap from the last time we spoke. Following completion of the transaction, Paratus becomes a focused PLSV holding company with exposure towards long-term contracts with strong cash flow visibility in a niche market. while at the same time we significantly improve our risk profile by exiting the mexican jackup segment where we had exposure to payment irregularities and backlog breaks second this is the leveraging story where our depth reduced from 625 million to around 250 million dollars and net leverage coming down from 2.2 times epita to around 1.4 pro forma basis q126 And lastly, with current strong financial position and significantly improved cash flow visibility, we have strong confidence in a credible path to sustaining our current dividend per share over the long term. As previously announced, the closing of the Fontys transaction is expected in second half year 26 and is mainly subject to competition authority approval in Mexico. Overall, the transaction arrangement is reflected by a high degree of deal certainty. In early May we successfully completed a private placement of 250 million dollars of five-year senior secured bonds with a coupon of 8.125 percent and a borrowing framework of up to 500 million dollars. The primary use of proceeds is to refinance the existing 26 notes. Let me now move over to some quarterly or overall quarterly results and please note that the That Fontys financial results is accounted for as discontinued operations with associated assets and liabilities held for sale. Therefore, we are not showcasing any Fontys figures in the operational update, as we have done previously. We released Q1 trading update in connection with a bond issue in May, and there are no material changes to those figures. We reported Q1 revenues of $75 million for seed gems and combined segment EBITDA of $46 million compared to $74 million and $50 million in the fourth quarter respectively. The small decline in EBITDA is mainly explained by the one-time positive effect which was booked in Q4 last year from reclassifying certain withholding taxes from OPEX to income tax. We exceeded Q1 with a cash balance of $128 million and $254 million in net debt performed for the Fontys transaction. Finally, consistent with the previous quarters, the board has approved a $0.22 per share dividend for Q1, maintaining our stable distribution practice. Now let's move over to the quarterly performance of our joint venture, SeaGems in Brazil. As usual, figures referred to here are on 100% basis, unless otherwise cited by me. CJEMS delivered another strong quarter. I will go through the highlights. Q1 revenues of $150 million and EBITDA of $96 million, supported by strong technical utilization of 98%, and significant day rates averaging close to 280,000 per day. The modest revenue increase from Q4 reflects higher day rates driven by positive FX impact, foreign exchange impact, and whereas in Real dominated component of the day rates. Compared to Q1 last year, the strong revenue increase is mainly due to the full fleet operating under the new Petrobras contracts. As mentioned, EBITDA was lower compared to Q4, mainly due to one-off tax reclassification effect mentioned earlier. During Q1, the JV distributed $83 million, around $41.5 million to Paratus, up from $76 million in Q4. At quarter end, backlog stood at approximately $1.3 billion. As discussed on our previous earnings call and in reports, Petrobras is in the market with a PLSV tender for startup in 28, offering four-year contracts across different lots with varying technical specifications. The tender deadline was originally due in February, but has now been pushed to mid-June 26. And CGM is well positioned to submit a bid with at least one vessel as a Jade vessel. PLSV is scheduled to finish its current contract in Q3 next year. Now let's go through the Q126 financial results compared to both the previous quarter and the same quarter last year. As mentioned earlier, please note that Fontys has accounted for a discontinuing operation with comparison figures in this table updated. Peralta's reported net income from continuing operations after tax of $19 million, up from $60 million in Q4, and compared to a loss of $30 million in Q1-25. The key drivers were as follows. Revenue increased slightly quarter-in-quarter, while year-on-year growth was driven by higher day rates from new Petrobras contracts. EBITDA was slightly lower quarter-in-quarter due to one-off positive impact in Q4. The year-on-year EBITDA increased primarily driven by higher revenues. Financial expenses were in line with the previous quarter and significantly lower compared to last year, mainly due to the upfront fee related to monetizing receivables in Mexico during Q1-25. Income tax benefited from a lower than provided tax. Auditor settlement in Mexico and the previous mentioned one of withholding tasks, reclassification effect in Q4, broadly in line with the last year. Finally, the strong free cash flow in the quarter compared to both Q1 and Q4 last year was driven by higher distributions from CGMs and lower interest payments compared to Q4, reflecting only the quarter payments on the 26th notes. So overall, the Q1 financial results reflected continuous strong operation performance, solid earnings and improved cash flow generation. Now let's take a look into the main cash flow items during the quarter. At Paratus consolidated level, we closed Q1 with a cash balance of $141 million, which represented a decrease from $178 million at year-end 25. The $37 million decrease in cash was primarily driven by net cash used by discontinuing operations, meaning Fontys, was $36 million spent, mainly due to lower collections from Fontes' client in Mexico and a payment for a tax audit claim settlement in a quarter. Cash from continued operations of $4 million was primarily reflecting transaction-related costs and other temporary cash outflows. Capital distribution from C-GEMS as mentioned was $41 million up from $38 million in Q4. Net interest payments of $4 million down from $28 million in Q4 reflecting the interest payments on the 26 nodes only. And finally, we returned $36 million to our shareholders consistent with the last quarter. After these movements, we ended the quarter with $141 million in cash at Paratus level. In addition to this, our pro-rata share of cash in the C-GEMS was $15 million, bringing the total group cash position to $156 million at the end of Q1. In summary, Paratus continues to maintain a strong liquidity position supported by stable distributions from C-GEMS. Moving over to our capital structure and in particular to review it on a pro forma basis post the expected Fontys transaction. Sale of Fontys significantly improves net debt from 625 million in Q1, as you can see here, to a pro forma level of 254 million dollars, while also removing exposure to payment irregularities in Mexico. This corresponds to a reduction in leverage from 2.4 times EBITDA to around 1.4 times EBITDA on a performer basis. As announced in April, 29 bondholders approved amendments to allow the seller's credit as part of the Founties transaction to be treated as a permitted debt and deducted from the net debt calculation. This provides additional flexibility as the seller's credit structure incentivizes early repayment with a step-up in coupon. while also giving us opportunity to either address 29 bonds or support future growth initiatives if you chose to do so. Subsequently to Q1, we successfully issued a new 250 million in bonds, maturing 2031, primarily to refine the 26 nodes, as you can see here in our maturity profile.

To the next slide.

Following the sale of the Fontys transaction, Sorry, following the sale of Fontys and increased earnings visibility resulting from this transaction, we are now in a position to provide initial financial guidance for 26. For the full year 26, we expect revenues in the range of 285 million to 300 million. and EBITDA in the range of $175 to $190 million, reflecting higher revenues as all wells are now on new Petrobras contracts at higher dairies. CAPEX is expected to fall in the range of $15 to $25 million, mainly reflecting recurring COPEX spend and some preparatory spending for dry docking activities the next year. The guidance represents our current best assessment for 26, but as always actual results will depend on operational performance, project execution, market condition and other factors. Should our outlook change materially, we will update the market in accordance with our disclosure obligations. And with that, we can open up for a Q&A session. Thank you.

Ladies and gentlemen, we will now take your questions. Just as a reminder, you can submit your questions by using the form at the bottom of the page. We'll now give you some time to register your questions.

I will read some of the questions.

For Fontys, please elaborate on the 36 million outflow related to Laurel collections. As it is here, last quarter in Q4, we received over $140 million in collections. from our clients, which compares to much less in Q1. So that explains the cash burn in Fontys. In addition, we also settled the 2018 tax audit claims, which actually came better than what we have provided for in the accounting. There's a question on the cash flow, sorry, on the guidance. Why is guidance lower than what you show in the investor presentation as potential EBITDA? How will you fund dividends for this shortfall? I can just explain first that the EBITDA figure that we presented before in earlier announcements was clearly identified as a As illustrative and not intended as guidance, just to make it clear and to illustrate the cash flow potential on a certain assumptions as we have pointed out. Whereas this guidance incorporates our latest work activity plan and budgets. And it also reflects what we basically believe is the most realistic outcome based on information available today. Of course, there are upsides and also we're also looking at the downsides that we need to incorporate.

But yeah, that's the answer to it.

There's a question about the process or status of the closing of the Fontys transaction. As I just mentioned in the call, in the presentation, and before, the transaction is subject to customary closing conditions. One of them that we ticked off in April, which was the consent for the seller's credit from our 29 bondholders, that was given in mid-April. uh the one that is well the main that is outstanding is the competition clearance in mexico which is progressing as planned uh with that i mean necessary filings has been submitted and expect the timeline for the closing is unchanged we expect closing during second half of this year or q3 as a likely likely case So there's a question about the tender. I mean, there's some question about the tenders. I can take some of them now. Jay's contract expires in 27 and the tender now specifies 28 startup season pursuing an arrangement to avoid gap. Yeah, I mean, yeah, Petrobras has moved the expected start date for the potential contract or award from July 27 to January 28. And our vessel or one of the six vessels goes of contract in late July or early August 27. Of course, I mean, I cannot go into much detail around the tender process. We are very comfortable with the underlying demand picture and the need for a vessel. Petrobras continues to require these vessels and based on what we know today, we believe there's good possibility that the period between the current contract, it is natural that the period between current contract and the future contract startup will be covered through extensions.

More on the Petrobras tender.

Can you give an update on the tender? Why is Petrobras postponing the bid? Anything we should think about around it? Yes, as I mentioned, it has been postponed and we are working on a bid and we will bid at least one vessel as a jade is scheduled to finish its current contract in q3 next year um of course i don't want to go into a bit details but with regards to postponement nothing unusual and postponements usually occur with either as a request from competitors or any pending or outstanding clarification that meaning that petrobras needs some time to to to get back to to those There's a question about OPEX per day and season availability. There shouldn't be any season availability on that, but it's probably lower. It was lower last quarter, as I mentioned in the presentation, because there was some reclassification of items. uh that we made in q4 um that that affected that cost per day uh kpi so that's why the picture is a little bit screwed in a way so good Yeah, there's a question about M&A or prospects, the normal suspect, the user suspect. How should we think about the remaining or acquiring the remaining 50% of C gems? from your partner. All I can say is that we hold the right of first refusal for any potential sale of the remaining 50% of Sea Gems. The JVs, as we have said before, perform very well and we're pleased with the partnership that we have today with the other shareholder. of course should the any opportunity present itself and the evaluation or price be right we would of course i mean consider it but it needs to be accretive to us uh just in to avoid any speculation we're not in um there's no concrete or process that we're engaged in as a buyer as a seller so um please talk about the strategic objectives now that fontis has been sold i mean yeah i mean reviews in early stages uh i would say uh focuses on the right structure um for for focused i mean pure play plz business and We also have focused on completing the transaction, even though it has been signed and agreed. There is still a completion period that needs to be handled and concluded. At post-close, as mentioned, Paratus is a focused company now, a fully contracted company, owning 50% CGMs plus the seller's credit that Remains outstanding until it's paid, but at attractive interest. So, and as I said, I mean, with exposure to payment irregularities and backlog risk maximum now, which has now changed to strong cash flow visibility through long-term contracts with Petrobras and actually a client that pays on time. Flexible capital structure and strong balance sheet. I would say we're well positioned to explore attractive options.

in the industry.

There's a question about 29, sorry, will you repay the 29 with the CAF proceeds received at Fontys closing? At closing, we expect about $163 million of proceeds in CAF for the Fontys sale from the buyer. We can also confirm that we have also met the thresholds for getting the $15 million, which was categorized as deferred cash. The answer to that is that in the bond indenture, the sale qualifies as a material asset sale, where we either repay at the prevalent call price or need to reinvest within 12 months so given that this payment is coming during a short period of time before expected closing and the and of course in the in the absence of any attractive reinvestment opportunities at that time repayment is the likely i would say repayment is a likely base case but of course important to note that we have that reinvestment right

There's a question about the valuation.

I mean, on putouts, but also you said you need the acquisition of 50% to be accretive. Would you be willing to pay the price of putouts for the 50% take? That is, of course, not something that I should talk about in this call. It remains to be seen. As I said, it needs to be accreting into... meet our thresholds or before we can say anything so uh question about the the bond race that we just discussed how much better terms do you think you could have achieved if you had offered some amortization um that's a fair question of course uh how does the company i'll just compare with terms you see from lending banks now would it be better to reduce leverage over time as well. I mean, we are very happy with the results of the Bonn missions in May. In terms of leverage, we haven't really stated or operated with a fixed target leverage ratio but rather adjusted necessary in three cycles as you mentioned also yeah also considering the aging of the vessels um just just to think about the recap this company used to have over three times a bit there and in the last couple of years over two times a bit now after fontis After, or assuming the font is transaction, it completes as expected now at 1.4 times pro forma times EBITDA, which is now well within norms for a dividend paying company in our sector. Another one on debt, will you have 1.4 times leverage given you raise more debt than needed for the refinancing? I mean, yes, I mean, we should $250 million of debt, primarily to refinance 26, but at the same time also strengthening our liquidity with the remaining balance. also for practical reasons i mean do all in one go we um so we consider this a comfortable and reasonable size and we haven't really if you look at it we haven't really increased today's leverage as the as at the same time cesium is also paying we're also paying down death decisions level over the over the next two two and a half years uh practically with the same almost the same amount

There's a question about dividend capacity.

Can the board confirm the currently quarterly dividend is sustainable and remain Company policy, does Fontys Proceeds create any capacity for additional distribution to shareholders? Maybe take the loss first. Fontys Proceeds, they are, as I said, categorized as mandatory asset sale and they need to either be used, applied to repay the 29 bonds or reinvest it over the next 12 months. So it cannot, it will not increase the, or we cannot use it for dividend distribution. terms of the dividends capacity and how long we'll be able to maintain it i mean so as we mentioned the calls before we have not committed to any fixed dividend amounts our focus is or has always always been to provide stable and sustainable feral returns and each quarter the board based on also management recommendations assesses dividends based on liquidity cash flow visibility specifically backlog of course it goes without saying market outlook and balance sheet strength and of course within the framework limitation of the debt agreements but today we believe the company is well positioned supported by strong cash generation and we also have a very strong

a calf balance sheet and low, low leverage. A question about our recent organizational changes.

CEO left and the chairperson was not re-elected. There's not much actually to say on this. You can read all about it in our press release. There's nothing more behind it, basically. The CEO resigned and the chairperson was not elected at the AGM.

There's no disagreements as the question is there.

I think we have answered all or most of our questions. I mean, before we close, I mean, there are some detailed questions also about around the Petrobras standard, which are good, but given the commercial sensitivity of the process, not able to to go into our bidding strategy here i think with that i think we'll wrap up for today's call thank you all for joining thank you for the questions and thank you for your continued interest imperators we look forward to speaking with you again in the next quarter in q2 thank you

Ladies and gentlemen, you may now disconnect.