Siem Offshore Inc

OSE:SIOFF

Earnings Call Analysis

Sea1 Offshore Reports Strong Q3 Performance with High EBITDA Margin

In the third quarter of 2024, Sea1 Offshore generated approximately $82 million in revenue, delivering an impressive EBITDA of $45 million, reflecting a 55% margin. Despite a reduction in fleet size, the company saw a 9% revenue decrease compared to the prior year, while EBITDA rose from $41.5 million. They secured a two-year contract extension for the Siem Dorado and a multi-well project in Australia set for 2025. Financial flexibility improved with the successful refinancing of debt, positioning the company to optimize investments and potentially increase dividends. The contract backlog stands at $815 million, indicating robust future prospects.

Strong Performance Amid Fleet Reduction

In Q3 2024, Sea1 Offshore reported revenues of approximately $82 million, despite a decrease in its fleet size by nine vessels compared to the previous year. The company's EBITDA reached $45 million, resulting in an impressive EBITDA margin of 55%. This margin reflects a notable improvement from the same quarter last year when the company was operating with a larger fleet. The effective management of operating expenses, which stood at $30.8 million, aided in maintaining profitability despite the reduced fleet capacity.

Operational Efficiency and Fleet Utilization

The company achieved a fleet utilization rate of 91%, indicating strong demand for its services. An important milestone was the extension of the Siem Dorado contract for an additional 2 years and 4 months. This demonstrates the company’s ability to secure long-term contracts even in a challenging market landscape. The focus on efficient operations has positioned Sea1 Offshore favorably within the industry, allowing it to deliver positive results despite environmental pressures.

Fiscal Health and Strategic Initiatives

Sea1 Offshore's financial position remains robust, showcasing a healthy book equity ratio of 49% and a gross interest-bearing debt of $371 million. The net interest-bearing debt stands at $244 million, and the company has successfully refinanced certain debts which have removed previous restrictions. This refinancing gives Sea1 liquidity and flexibility to explore growth opportunities and potential capital investments.

Growing Revenue Backlog and Future Contracts

The company holds a firm contract backlog valued at $815 million, with additional options worth $643 million, primarily in the subsea sector. This backlog provides confidence in future revenue streams and highlights the company's ability to secure contracts with reputable clients. Upcoming projects include a multi-well contract for anchor handlers in Australia set to commence in Q2 2025, highlighting ongoing growth potential.

Dividend Distribution and Shareholder Value

In September, Sea1 Offshore distributed a dividend of NOK 5 per share, signaling a commitment to returning value to shareholders after refinancing efforts. The net profit for the quarter amounted to $27.7 million, marking a 93% increase from the same period last year, which translates to a remarkable 200% increase per share. This growth indicates strong financial health and operational performance, positioning the company well for future expansion.

Positive Market Trends and Outlook

Market conditions are favorable for Sea1 Offshore, with increased activity anticipated across all segments. The company reports a solid outlook for both its PSV and subsea fleets, expecting higher day rates as demand rises. The anchor handler segment also appears promising as Sea1 anticipates securing more long-term contracts, essential for maintaining revenue stability in the coming years.

Strategic Focus on Growth

Management expressed a readiness to consider growth initiatives post-refinancing, including investments in new builds or acquiring secondhand vessels. The approach signifies a proactive strategy to enhance the fleet and operational capabilities, positioning Sea1 Offshore to capitalize on evolving market opportunities while maintaining a commitment to shareholder returns.

Earnings Call Transcript 2024-Q3

[Bernt Omdal, executive]

Welcome to the review and presentation of our results for the third quarter. My name is Bernt Omdal, and I'm the CEO of the company. Together with me, I have our CFO, Vidar Jerstad, and we will take you through this presentation.

Sea1 Offshore's report for the third quarter 2024 was released prior to the market opening today. In this presentation, we will cover the main highlights of the report, and we will refer to the presentation issued together with the financial report. At the end of the presentation, we will open up for questions. Please type your questions below the slide window.

Looking at the highlights for the quarter, we operated 34 vessels, 17 of these are fully owned by Sea1 Offshore. And all of our fully owned vessels delivered a positive EBITDA margin. We had close to $82 million in revenue, and we delivered USD 45 million in EBITDA, which is equal to an EBITDA margin of 55%. The margins are higher than the same quarter last year, even though we have less vessels in our fleet.

Some operational highlights. We continued to deliver safe and efficient operations in all regions. This is a result of high focus on safety at all levels in the company. The utilization of the fleet in the third quarter was 91%. in the quarter, we managed to extend the contract for Siem Dorado with another 2 years and 4 months.

Other highlights worth mentioning. The sale of the 9 vessels announced back in April was completed on the 5th of July and the repurchased shares were canceled. Certain part of our debt was refinanced and restrictions and undertakings removed. We signed a management agreement for 6 anchor handlers owned by Viking Supply Ships. And furthermore, a dividend payment of NOK 5 per share took place in September. We also received the final settlement of USD 25 million for the sale of Siem Marlin.

Moving on to subsequent events. We recently secured a multi-well contract for 3 anchor handlers in Australia with commencement in second quarter 2025. The duration is between 380 and 670 days per vessel. Sea1 Offshore will as a minimum support the project with 1 vessel from our own fleet. Our research vessel has been put in layup pending potential contract opportunities. And the management contract for the Siem-owned vessels has been terminated with effect from 1st of April 2025.

Vidar Jerstad will now give some more details regarding the results for the third quarter.

[Vidar Jerstad, executive]

Let's take a look at the income statement, which confirms a continuation of the positive market trend. However, when comparing the 2024 figures to 2023 figures, please remember that the number of vessels owned by Sea1 has decreased by 9 vessels. The company had $81.6 million in revenue in the quarter compared to $85.6 million same quarter last year. Operating expenses were $30.8 million. Administrative expenses were $5.7 million. EBITDA for the quarter ended at $45.1 million, up from $41.5 million.

Depreciation of vessels was $14.4 million. Operating profit ended at $30.2 million. Net financial items ended negative by only $2.2 million. Financial items were positively affected by a reversal of former impairment by $2.8 million. Interest rate expenses were $6.9 million. Profit before taxes ended at $28 million. Net profit after taxes ended at $27.7 million.

After adjusting for minority shareholder in our anchor handling subsidiary, we end up at $25.9 million. This is an increase by 93% from same quarter last year or equal to an increase of around 200% per share compared to same quarter last year.

This slide shows operating margin distributed on our 3 main segments. The figures are before G&A expenses and include only vessels owned by Sea1 today. There is a positive development and market trend in all 3 segments. On the left-hand side, we see operating margin in the third quarter this year compared to same quarter last year. On the right-hand side, we see the development in the first 3 quarters of 2024 compared to same period last year. Both bar charts confirm that markets are still improving.

Please pay attention to the anchor handling vessels in the third quarter, in particular, margin is higher by $14.3 million or more than 300%. On this slide, we see the financial position of Sea1 Offshore at the end of the quarter. The company has a very solid financial position with book equity of 49%. Gross interest-bearing debt was $371 million. Net interest-bearing debt was $244 million. The refinancing in third quarter and thereby the removal of restrictions imposed on the company in the 2021 restructuring, this enhances the company's flexibility with regards to financing, investments and distributions going forward.

[Bernt Omdal, executive]

Sea1 Offshore has a firm contract backlog of USD 815 million. In addition, there is USD 643 million of option. The largest part of our backlog is related to the subsea fleet.

[Vidar Jerstad, executive]

We have a good coverage for our fleet for the remaining part of this year. For 2025 and 2026, we have 100% coverage for the PSV fleet. For the subsea fleet, we have good coverage as well. We are in a position to secure more work for some of our subsea vessels, and we expect that the rate levels will be higher than what we see today. For the anchor handler segment, we believe we will see more term opportunities in the near future. And hopefully, we will be in a position to conclude term contracts for those as well.

[Bernt Omdal, executive]

Our fleet consists of 17 owned vessels as listed on this slide. In addition, we have 17 vessels under our management. Sea1 Offshore own 6 large anchor handlers. We have 2 offshore construction vessels. We have 2 well intervention vessels. We have 2 PSVs, and we have 4 oil spill recovery vessels and fast crew vessels. And in addition, we have a scientific core drilling vessel.

So on this slide, we have listed all the vessels operated by us. The company has a good global footprint, which is important for the utilization of the fleet. We will continue to move vessels around the world where we can perform safe operation based on sustainable conditions. For the anchor handler segment, there are mainly shorter contracts and campaigns. In Australia and Asia, we currently have the anchor handlers, Siem Sapphire, Siem Aqua Marine and Siem Ametust. Avalon Sea is operating in Canada. Both Siem Emerald and Siem Ruby are on term contracts in Brazil and Argentina.

Moving on to the construction vessels. We have Siem Spearfish on a firm contract until the end of February 2025, and she is currently operating in the Gulf of Mexico. Siem Dorado is on a firm contract currently operating in Brazil and the well intervention vessels, Siem Helix 1 and Siem Helix 2 are both on long-term contracts working offshore Brazil. We have 2 PSVs in our fleet, that is the Siem Atlas and Siem Giant, both on term contracts in Brazil. For our smaller Brazilian fleet, we have the oil spill recovery vessel, Siem Maragogi and Siem Marataizes, both on term contracts with Petrobras in Brazil. And we have the 2 fast crew vessels, Siem Pendotiba and Siem Piata, they are both on long-term bareboat agreements.

Our core drilling vessel is now in layup in Norway. And as shown on the previous slide, we have a really good contract covered for this year. At the same time, it is important to have vessels available in an improving market to increase the potential of earnings.

Some comments to the market. The second quarter showed granular strength for the offshore support vessel segment with several contracts and transactions. The North Sea market was volatile and slightly below expectations as there was less drilling activity than predicted, which penalized the spot market for both anchor handlers and PSVs.

For the anchor handler segment in general, it is Australia and South America that contributes with long-term contracts as these areas do not have the opportunity to take vessels from functioning -- well-functioning spot market.

The offshore construction vessels were sold out and the competition between renewable projects and traditional oil and gas campaigns is impacting utilization and day rates within the Subsea segment. The expected increase in activity for all segments indicates good market prospects for our high-end fleet.

So, to summarize, we delivered a strong quarter with high activity. We now have normalized the bank covenants and enhanced flexibility following refinancing. We deliver first-class operation with excellent HSEQ performance. We have a solid financial position. We have a strong backlog with quality clients, and we have a positive long-term market outlook for all segments. That was the end of our presentation. We will now open up for questions.

[Bernt Omdal, executive]

So we have received some questions in this chat function. First one is, do you expect 2025 options within the Subsea and PSV segment to be declared? Yes, we expect that the Siem Giant will be extended and the same goes for Siem Spearfish.

Another question asked is, can you just remind us when the Avalon Sea will complete the current contract? We reckon that she will head back to the North Sea from Canada end of November.

Another question here. How do you see the opportunity to bring Siem Amethyst back in operation after several months idle in Singapore? She will soon enter into a short job in Malaysia.

Another question here. Any plans to grow the company? Well, after the refinancing, we are again in a position to make new investments to grow the company. That could be either through new buildings or secondhand tonnage. And we are again in a position to optimize our capital structure.

And then, there is a question regarding the backlog for the anchor handlers. When do you expect clarity for which vessels is going on the contract in Australia? There is some notice mechanisms in the contract. So that is not yet decided which vessels it will be.

And then there is a question regarding the Joides resolution that recently entered into layup. We are marketing, of course, the vessel for further work. And hopefully, we will be able to conclude some additional work for her in the near future. It's a very specialized vessels. So it's not a huge market out there for that vessel.

And then there is a question regarding if you have any plans to buy the Viking vessels. There is no such plans.

Let me see. Yes, the backlog -- the anchor handler backlog, that is only including one vessel down in -- on a term contract in Australia. That was another question.

And there is another question regarding the Joides, whether we market her for sale. We haven't done so yet. We hope to get the contract in place.

And there is another question here regarding investments and dividend and how is the balance between that. The important thing is that after the refinancing and after the removal of the restrictions, C1 is again in position to optimize. We can optimize the capital structure. We can do investments and we can do new builds, and we can also pay dividend. And all this is up to the Board, of course, to decide. But yes, that's it.

All right. If there is no further questions, then we will end this session, and we thank you all for attending. Thank you.