Eneti Inc. (NYSE:NETI) Q2 2023 Earnings Call Transcript

Eneti Inc. (NYSE:NETI) Q2 2023 Earnings Call Transcript August 8, 2023

Eneti Inc. misses on earnings expectations. Reported EPS is $-1.36 EPS, expectations were $0.06.

Operator: Hello, and welcome to the Eneti Inc., Second Quarter 2023 Conference Call. I would now like to turn the call over to James Doyle, Head of Corporate Development and IR. Please go ahead, sir.

James Doyle: Thank you for joining us today. Welcome to the Eneti Inc.’s Second Quarter 2023 Earnings Conference Call. On the call with me are Emanuele Lauro, Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer; Hugh Baker, Chief Financial Officer; Sebastian Brooke, CEO of Seajacks. Earlier today, we issued our second quarter earnings press release, which is available on our website, enetiInc.com. The information discussed on this call is based on information as of today, August 8, 2023, 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 Eneti Inc.’s SEC fillings, which are available at enetiinc.com and sec.gov.

Call participants are advised that the audio of this conference call is being broadcast live on the Internet and 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. While we will not be going through slides, there is an earnings presentation on our website under the Investor Relations page and reports and presentation. After opening remarks, we will go to Q&A. Now I’d like to introduce our Chief Executive Officer, Emanuele Lauro.

Emanuele Lauro: Thank you, James, and welcome, and thank you, everybody, for joining us today. In the second quarter, the Company generated close to $39 million of revenue and adjusted net income of $8 million. This represents a strong improvement from the first quarter. During this quarter, all five vessels were on employment contracts. Today, we announced the sale of the NG2500 for a price of $70 million. These are assets which we had previously identified as noncore and discussed the fact that we were marketing them for sale. The sale itself reinforces our commitment to pushing on wind turbine and nation installation. In addition, it creates liquidity, and we have cash proceeds of $57 million after debt repayments. In June, more importantly, we’ve entered into a business combination agreement with Cadeler, as we’ve previously announced, while the combination remains subject to regulatory approval.

The transaction remains on schedule, and we expect it to close during the fourth quarter of this year. We believe the combination is right for all stakeholders, for our shareholders, for our customers and as we previously discussed also for our employees. As a combined entity, the scale and our respective capabilities will create significant value at a time when offshore wind needs reliable partners and reliable solutions, which we think we will be able to offer. The track record of Seajacks has been built on tireless efforts of our offshore and [indiscernible] professionals, and we’re delighted that Cadeler shares the same values. The combination is a testament to our shared vision for the future of Offshore Wind and our unwavering commitment to creating value.

Senior management of Eneti will remain as one of the largest shareholders in the combined entity, and I will be nominated to serve as Vice Chairman. We are confident that this combined entity will continue to drive positive outcomes for our shareholders, customers and employees, and we’re excited about the future together. Thanks very much for your continued support and look forward to updating you on the progress — on further progress in the upcoming quarters. I’d like now to turn the call to James, please?

James Doyle: Thank you, Emanuele. We will now go to Q&A.

Q&A Session

Operator: [Operator Instructions] The first question is from Sherif Elmaghrabi of BTIG.

Sherif Elmaghrabi: So I think maybe just pretty broadly. Pretty much every other WTIV operator has a smaller fleet than that your Cadeler. And many of them are not WTIV focused anyway. So could this combination spark further consolidation in the industry? And is that something that you guys are thinking about at this time?

Emanuele Lauro: I’ll take — it’s Emanuele. Thanks for the question. I’ll take the second question first. At this time, I don’t think that anybody in cavalry is thinking about further consolidation. We’re focused on the process which we are facing. And looking closing this transaction. The day after the transaction is closed, all doors will be open and we see what which other opportunity this market may put in front of Cadeler. Having said that, I think it is premature for us to think about at this stage. We are a couple of months away from closing a meaningful transaction, and this is what we’re focusing on. And please remind me actually what the first part of the question was because I missed it.

Sherif Elmaghrabi: The same, but for the industry more broadly just because everybody else has a smaller fleet than Eneti or Cadeler.

Emanuele Lauro: I’m not sure Sebastian, do you have any views on this.

Sebastian Brooke: I don’t have any specific views other than, obviously, it’s a big growing industry and I think having scale is very important. So at some point, that may prompt activity, again, either from the Cadeler side or from the competitors.

Sherif Elmaghrabi: Okay. And I’m interested in how the foundation installation vessels — I’m sorry, go ahead.

Robert Bugbee: I was just going to — it’s Rob here. I was just going to say that, look, I think the most important part of it is what you’re pointing out is that a combined Cadeler and Eneti has tremendous advantages at sale relative to the competitors in the industry. And I think that’s going to show benefits for customers as well as in operations.

Sherif Elmaghrabi: Okay. And on the foundation installation vessels, curious how they figure into the WTIV fleet. Are they typically chartered in sort of kind of a packaged deal with WTIVs? Or does their work tend to be exclusive? And to make it a two-parter, does the combination have any bearing on your foundation installation JV with Transocean?

Emanuele Lauro: I think from the foundation standpoint, as we know the current company will have exposure to foundation because Cadeler has two assets that two new building assets that are coming in their domain, focusing on the foundation space. As far as Eneti is concerned, which is what we’re still talking about today, foundations are possible. Our new buildings are capable of installing foundations. However, they are not — that’s not the focus — or at least for the time being, is not. But of course, at this stage, with the transaction that is progressing. We are not looking at expanding from an Eneti stand-alone — stand-alone company, the foundation closure. We would be looking at putting all our energy and commitment into the combined company post closing, which, as we discussed, we expect by the end of this year.

Operator: The next question is from Liam Burke of B. Riley FBR.

Liam Burke: Looking at your larger vessels, they’re pretty much booked or done for fiscal ’23. Have there been any discussions for Charter, in particular, Zaratan for 2024?

Sebastian Brooke: Sorry, this is Sebastian. Yes, there are discussions with Zaratan and James. Can you just — I think there was a press release made around that. Can you just confirm that?

James Doyle: Yes. We’ve signed a reservation agreement for the Zaratan for next year, Liam, thanks to the larger vessels, the Scylla is…

Sebastian Brooke: Sorry, just on the Zaratan piece, so there is, as James said, reservation agreement for next year. And with regards to Scylla, we haven’t made an announcement about that, but we are in a lot of in dialogue about multiple contracts for next year. And I just highlight the fact that there is very, very limited availability of vessels. So I’d see that more of an opportunity rather than anything else. It’s a very, very tight market next year and so here’s one of the largest vessels on the water, so well placed to benefit from those dynamics.

Liam Burke: Great. And I guess, this is for James. On the macro front, there’s some rumblings at ESG, it’s losing a little shows interest in Europe. Does that — I mean, have you seen anything where you would want to focus more on Southeast Asia? Or do you see opportunities in the European market still?

James Doyle: Well, I think from an ESG perspective, what we’ve done is disposed of the noncore assets, which, as you know, we’re working in offshore wind, but also oil and gas. And so as we complete that sale, all our vessels in the fleet for Eneti will be operating in offshore wind and as Emanuele highlighted focusing on foundation and turbine installation. So we would fare very well from an ESG perspective.

Operator: The next question is from Ben Nolan of Stifel.

Ben Nolan: I guess my first question really maybe my own question is around the sale of the MG2500s. You guys have been talking about that for a while. Although have also been pretty successful in winning incremental business and those have been pretty cash flow generative — the sales price was a little bit lower than I had thought. I was curious if — what the thinking was on deciding to pull the trigger for selling those assets? Was it part of the Cadeler deal or just maybe walk me through how you were thinking about the math on that?

Emanuele Lauro: Ben, it’s a good question. Thank you. I think that part of the decision was that we widely discussed and James just referenced the fact of focusing on the renewable side of the business and sort of leaving the legacy oil and gas exposure, which these assets may have brought into the — into play, even though they were contracted to do some maintenance business on the offshore wind space. We’ve seen an uptick on demand on the oil services industry with the exploration, especially in the Arabian yard going on and the demand on the demand for employment in that space was coming mainly from there. On the — as far as the price is concerned, there were a number of buyers over the past months that have showed interest even at higher numbers than what we have been able to conclude the sale, somewhat lower number than what we have been able to go to the sale.

And it was difficult to gauge how many really interested parties there were in a volatile market in a changing environment and where in a space where we have decided not to really focus on. So we’ve taken the decision to pull the trigger with a buyer that we thought the most reliable buyer out there that could have performed and moving on away from a stand-alone business in a combined company. We thought that these were legacy assets that actually could free up also the crew in order to get the crew focus in the new buildings, which the combined company with a delivery out in 2024. So there were a combination of factors which have contributed to the fact of pulling the trigger at this time with this buyer.

Ben Nolan: Okay. That’s helpful. And since I’m thinking about it, just going back to what you talked about for the foundation vessels and the arrangement with Transocean. Is the thinking that, that would continue even post combination that the combined company would still probably be working in some way with Transocean.

Emanuele Lauro: We are going to have meetings regarding this in September with Transocean and discuss how Eneti’s a continued cooperation is what parties will want going forward. So it is premature for me to answer this question at this stage because we haven’t had in detailed discussion with all parties, sitting at the same table yet.

Operator: The next question is from [indiscernible] of Clarkson Securities.

Unidentified Analyst: Just first to circle back to Ben’s question on the NG2500. So can you give any more details on sort of the sales process there? Were there any — was the sale a result of bilateral discussions or bidding around — any color on that would be helpful.

Emanuele Lauro: As I said, there were a number of buyers interested in acquiring the assets. We only entertain discussions with outright buyers, not buyers, which were subject to raising funds, both equity and debt in order to perform the acquisitions. And all those buyers that were outright, we’ve chosen the specific one, which has expressed the desire to remain private. So we haven’t disclosed to the buyer. However, I can tell you that it’s a very well-established Middle Eastern buyer that is — has decades of experience in the specific segment.

Unidentified Analyst: And then we have seen multiple offshore wind projects being delayed or canceled over the summer. So how do you see these delays and terminations potentially affecting the outlook on utilization and also potential rates over the next three to four years?

Sebastian Brooke: Yes, sure. So I think it’s a growing industry. I think that we had some of the issues in the early days in Europe. I think we’re all aware that the time line has been aggressive for a while. We’ve all been aware of that and it hasn’t been possible to — I don’t think it ever would have been possible to install the kind of desired capacity as well or the forecasted capacity to date or in the next couple of years. I think that while it will create short-term headaches for some contractors, going back to Robert’s point, I think if you’re part of the combined entity that has scale, I don’t think that, that will have meaningful impact on the Company. And again, from my point of view, I actually look at it from a macro perspective, we’re looking at a number of projects being delayed.

But every month or every couple of months, we’re talking about whole new markets being opened up in South America — various areas in Asia and what have you. So I see the overall the overall dynamics of the industry remain very robust. I think that the combined entity is going to be very well positioned to weather any small storms. And like I said, the kind of long-term prospects, I think, in healthy, so I don’t think there will be a meaningful impact on utilization and/or rates. We haven’t seen it yet.

Operator: The next question is from Adam Forsyth of Longspur Research.

Adam Forsyth: One narrow question, one rather wider question, if I may. Firstly, the narrow one, just again on the NG2500. The new contracts, the timing of those, is it likely that you will get the benefit of 100% of the income on these contracts before the sale goes ahead? Or is it possible that sale will conclude early? And if so, is there any adjustment mechanism in the sale price? And then just also going back to the earlier question on the sort of wider wind turbine installation situation with projects being canceled. I wonder what you’re seeing is any kind of competitive response from your competitors? Are decisions being delayed in terms of decision-making on further new wind turbine installation vessels for any of the competing group out there. What are you seeing in that regard?

Emanuele Lauro: Thanks for the question. Cam, do you want to take the first part? Cameron Mackey Sure. Thank you, Emanuele. The delivery of the 2500s are under discussion. And so we cannot say at the moment for sure when they will be delivered, but we expect on the outside for it to be within this calendar year. And again, adjustment mechanism, if any, has not been agreed at the moment.

Emanuele Lauro: Sebastian, maybe you want to take the second part of the question.

Sebastian Brooke: So are the competitors do we think that there’s going to be a reduced likelihood of new assets being built in the future is what I heard — is that the question?

Adam Forsyth: Yes, that’s correct. Yes.

Sebastian Brooke: I think it will. I think that we said before that the barriers to entry there have always been very high in this business for a variety of reasons. I think that as we start bringing in more queries or questions such as delays to projects. It just adds [indiscernible], which again creates a positive environment for existing player with [mass]. So again, I think the timing of the Cadeler and the combined entity is going to be actually very well positioned, leave us very well positioned. Does that answer your question?

Unidentified Analyst: Yes, it does. Yes. No, that’s helpful confirmation.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Emanuele Lauro for any closing remarks.

Emanuele Lauro: Thank you very much, operator. We do not have any closing remarks, apart from thanking everybody for your time today and look forward to speaking in the future. Thanks a lot. Goodbye.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.