salt-20220630_d2MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management’s discussion and analysis of financial condition and results of operations of Eneti Inc. for the six-month period ended June 30, 2022. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements, including the notes thereto, included in this report, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, and the discussion included in our Annual Report on Form 20-F for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission, or the SEC, on April 15, 2022, or our Annual Report. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, such as those set forth in the section entitled “Risk Factors” included in our Annual Report.
Unless otherwise indicated, references to “Eneti,” the “Company,” “we,” “our,” “us,” or similar terms refer to Eneti Inc. and its subsidiaries, except where the context otherwise requires.
Overview
Eneti Inc. is a leading provider of installation and maintenance vessels to the offshore wind sector and is focused on the offshore wind and marine-based renewable energy industry and has invested in the next generation of Wind Turbine Installation Vessels (“WTIVs”). The Company operates five WTIVs, which in addition to wind farm installation can perform maintenance, construction, decommissioning and other tasks within the offshore industry. The Company typically operates its five WTIVs (collectively “our fleet”) on modified time charters, which provide a fixed and stable cash flow for a known period of time, and often places risks, such as weather downtime, on the charterer’s account.
The Company’s marine energy business is managed as a single operating segment.
Seajacks Transaction
On August 12, 2021, we completed the acquisition of Atlantis Investorco Limited, the parent of Seajacks International Limited (“Seajacks”), from Marubeni Corporation, INCJ, Ltd. and Mitsui O.S.K. Lines, Ltd. (together, the “Sellers”), after which Seajacks became a wholly-owned subsidiary of Eneti.
Seajacks (www.seajacks.com) was founded in 2006 and is based in Great Yarmouth, UK. It is one of the largest owners of purpose-built self-propelled wind turbine installation vessels in the world and has a track record of installing wind turbines and foundations dating to 2009. Seajacks’ flagship vessel, NG14000X design “Seajacks Scylla”, was delivered from Samsung Heavy Industries in 2015. Seajacks also owns and operates the NG5500C design “Seajacks Zaratan” which is currently operating in the Japanese market under the Japanese flag, as well as three NG2500X specification WTIVs.
Dry Bulk Activities
From March 2013 through July 2021, we were an international shipping company that owned and operated dry bulk carriers. We completed our exit from the dry bulk industry with the sale of our last drybulk vessel in July 2021.
Non-GAAP Financial Measures
To supplement our financial information presented in accordance with U.S. GAAP, management uses certain “non-GAAP financial measures” as such term is defined in Regulation G promulgated by the SEC. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in, or excluded from, the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Management believes the presentation of these measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations, and therefore a more complete understanding of factors affecting our business than U.S. GAAP measures alone. In addition, management believes the presentation of these matters is useful to investors for period-to-period comparison of results as the items may reflect certain unique and/or non-operating items such as asset sales, write-offs, contract termination costs or items outside of management’s control.
Earnings before interest, taxes, depreciation and amortization, or EBITDA, is a non-GAAP financial measures that we believe provide investors with a means of evaluating and understanding how our management evaluates our operating performance. This non-GAAP financial measure should be viewed in addition to the results reported under U.S. GAAP, and
should not be considered in isolation from, as a substitute for, nor superior to financial measures prepared in accordance with U.S. GAAP.
Reconciliations of EBITDA as determined in accordance with U.S. GAAP for the six months ended June 30, 2022 and 2021 are provided below (dollars in thousands).
EBITDA (unaudited)
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| | | Six Months ended June 30, |
| In thousands | | | | | 2022 | | 2021 |
| Net income (loss) | | | | | | | | $ | 56,876 | | | $ | 54,876 | |
| Add Back: | | | | | | | |
| Net interest expense | | | | | | | 1,809 | | | 5,630 | |
Depreciation and amortization (1) | | | | | | | 16,305 | | | 11,206 | |
| Income tax benefit | | | | | | | | (589) | | | — | |
| EBITDA | | | | | | | | $ | 74,401 | | | $ | 71,712 | |
(1) Includes depreciation, amortization of deferred financing costs and restricted stock amortization.
Executive Summary
•For the first half of 2022, the Company’s GAAP net income was $56.9 million, or $1.46 per diluted share, including an unrealized gain of approximately $46.8 million and cash dividend income of $0.4 million, or $1.22 per diluted share, from the Company’s equity investment in Scorpio Tankers Inc.
•Total revenues for the first half of 2022 were $83.7 million compared to $97.5 million for the same period in 2021. First half 2022 revenues consisted primarily of revenues generated by the Seajacks Scylla which was continuing its transportation and installation services for an offshore wind farm project in Taiwan, the Seajacks Zaratan which commenced work on the Akita project, the performance of maintenance on offshore gas production platforms in the North Sea by all three of the NG2500Xs as well as the recognition claims made on projects which were completed in 2021, and consultancy revenue.
•For the first half of 2021, the Company’s GAAP net income was $54.9 million, or $5.03 per diluted share, including (i) a gain on vessels sold of approximately $22.0 million, or $2.01 per diluted share, which was primarily the result of an increase in the fair value of common shares of Star Bulk Carriers Corp (“Star Bulk”) and Eagle Bulk Shipping Inc. (“Eagle”) received as a portion of the consideration for the sale of certain of our vessels to Star Bulk and Eagle; (ii) the write-off of $7.0 million, or $0.64 per diluted share, of deferred financing costs on repaid credit facilities related to certain vessels that have been sold; and (iii) a gain of approximately $28.8 million and cash dividend income of $0.4 million, or $2.68 per diluted share, from the Company’s equity investment in Scorpio Tankers Inc. and the sale of the Eagle and Star Bulk shares received as a portion of the consideration for the vessel sales to these counterparties.
•EBITDA for the first half of 2022 was $74.4 million and EBITDA for the first half of 2021 was $71.7 million (see Non-GAAP Financial Measures below).
Recent and Other Developments
Share Repurchase Program
On August 31, 2022, we repurchased 2,292,310 shares of its common stock (the “Shares”) from INCJ SJ Investment Limited, for approximately $17.0 million. We issued the Shares to INCJ, Ltd. as part of the acquisition price paid by us to acquire Seajacks in August 2021. The repurchase of the Shares was made under our existing board authorized repurchase plan. The Shares will be held by us in treasury.
On September 13, 2022, the Company’s Board of Directors authorized a new share repurchase program to purchase up to an aggregate of $50.0 million of the Company’s common shares. This new share repurchase program replaced the
Company’s previous share repurchase program that was authorized in January 2019 and that was terminated in conjunction with the authorization of the new share repurchase program. The specific timing and amounts of the repurchases will be in the
sole discretion of management and may vary based on market conditions and other factors. The Company is not obligated under the terms of the program to repurchase any of its common shares. The authorization has no expiration date.
Scorpio Tankers Inc. Common Shares
On August 15, 2022, we sold our entire holding of 2,155,140 common shares in Scorpio Tankers Inc., a related party, for gross proceeds of approximately $83.3 million ($38.65 per share). As part of the transaction, Scorpio Tankers Inc. purchased approximately 1.3 million shares for approximately $50.0 million. We expect to record a gain of approximately $8.1 million in the third quarter of 2022.
Debt Overview
$175.0 Million Credit Facility
In May 2022, the Company closed the $175.0 Million Credit Facility and drew down the entire $75.0 million term loan and approximately $30.0 million under the revolving loans. The $30.0 million under the revolving loans was subsequently repaid in June 2022.
Approximately $22.5 million of performance bonds were issued under the letters of credit available under this facility as of the date of this filing.
In connection with the drawdown in May 2022, the Company repaid the amounts outstanding under the $60.0 Million ING Revolving Credit Facility and the $70.7 Million Redeemable Notes (“the Notes”).
$60.0 Million ING Revolving Credit Facility
In May 2022, the Company repaid the $25.0 million outstanding and cash collateralized the performance bonds issued under this facility and terminated this facility.
$70.7 Million Redeemable Notes
In May 2022, the Company repaid the $53.0 million outstanding and terminated the Notes.
Performance Bonds
As of the filing date of these financials, performance bonds were issued on behalf of the Company for $22.5 million, under the $175.0 Million Credit Facility, and approximately $14.5 million, which was cash collateralized.
Quarterly Cash Dividend
On August 3, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.01 per share, or $0.4 million in the aggregate paid on September 15, 2022, to all shareholders of record as of August 19, 2022.
COVID-19
Since the beginning of the calendar year 2020, the ongoing outbreak of the novel coronavirus (COVID-19) that originated in China in December 2019 and that has spread to most developed nations of the world has resulted in numerous actions taken by governments and governmental agencies in an attempt to mitigate the spread of the virus. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial and commodities markets. Although by 2021, many of these measures were relaxed, we cannot predict whether and to what degree emergency public health and other measures will be reinstituted in the event of any resurgence in the COVID-19 virus or any variants thereof. If the COVID-19 pandemic continues on a prolonged basis or becomes more severe, the adverse impact on the global economy may continue and our operations and cash flows may be negatively impacted. The COVID-19 outbreak continues to rapidly evolve, with periods of improvement followed by periods of higher infection rates, along with the development of new disease variants, such as the Delta and Omicron variants, in various geographical areas throughout the world. As a result, the extent to which COVID-19 will impact the Company’s results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.
Conflict in Ukraine
As a result of the conflict between Russia and Ukraine which commenced in February 2022, the United States, the European Union, and others have announced unprecedented levels of sanctions and other measures against Russia and certain Russian entities and nationals. The ongoing conflict has disrupted supply chains and caused instability and significant volatility in the global economy. Much uncertainty remains regarding the global impact of the conflict in Ukraine and it is possible that such instability, uncertainty and resulting volatility could significantly increase our costs and adversely affect our business. These uncertainties could also adversely affect our ability to obtain additional financing or, if we are able to obtain additional financing, to do so on terms favorable to us. We will continue to monitor the situation to assess whether the conflict could have any material impact on our operations or financial performance.
Results for the Six Months Ended June 30, 2022 Compared to the Results for the Six Months Ended June 30, 2021
We exited the dry bulk sector of the shipping industry in July 2021 and completed our acquisition of Seajacks on August 12, 2021. Since the completion of the acquisition, our operations are primarily those of Seajacks.
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| | | | Six Months Ended June 30, | | | | | | |
| | | | | | 2022 | | 2021 | | Change | | Change % | | |
| Revenue: | | | | | | | | | | | | | |
| Revenue | | | | | $ | 83,720 | | | $ | 97,480 | | | $ | (13,760) | | | (14) | % | | |
| Total vessel revenue | | | | | 83,720 | | | 97,480 | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | |
| Voyage expenses | | | | | — | | | 14,582 | | | (14,582) | | | (100) | % | | |
| Vessel operating and project costs | | | | | 36,852 | | | 23,850 | | | 13,002 | | | 55 | % | | |
| Charterhire expense | | | | | — | | | 29,346 | | | (29,346) | | | (100) | % | | |
| Vessel depreciation | | | | | 12,460 | | | — | | | 12,460 | | | 100 | % | | |
| General and administrative expenses | | | | | 21,056 | | | 12,719 | | | 8,337 | | | 66 | % | | |
| Gain on vessels sold | | | | | — | | | (21,984) | | | 21,984 | | | (100) | % | | |
| Total operating expenses | | | | | 70,368 | | | 58,513 | | | 11,855 | | | 20 | % | | |
| Operating income | | | | | 13,352 | | | 38,967 | | | (25,615) | | | (66) | % | | |
Total revenues for the six months ended June 30, 2022 were $83.7 million, compared to $97.5 million for the same period in 2021. Total revenues for the six months ended June 30, 2021 were generated by the dry bulk vessels, while the revenues generated in the six months ended June 30, 2022, were related to the marine energy industry. Revenues earned in the six months ended June 30, 2022 consisted primarily of revenues generated by the Seajacks Scylla which was continuing its transportation and installation services for an offshore wind farm project in Taiwan, the Seajacks Zaratan which commenced work on the Akita project, the performance of maintenance on offshore gas production platforms in the North Sea by all three of the NG2500X vessels as well as the recognition of claims made on projects which were completed in 2021, and consultancy revenue.
Voyage expenses relate only to our dry bulk vessels and were no longer incurred after the sale of our drybulk fleet.
For the six months ended June 30, 2022, vessel operating and project costs were driven by high fuel costs, as well as higher crew and catering costs due to high utilization rates. Vessel operating and project costs incurred in the prior year period relate to our dry bulk fleet, which we operated until July 2021.
Charterhire expense during the first six months of 2021 related to our drybulk operations as we fulfilled our obligation to perform on fixed voyages while we sold our drybulk fleet.
Vessel depreciation for the six months ended June 30, 2022 includes depreciation on the WTIVs we currently own. No depreciation expense was recognized for our drybulk vessels in the six months ended June 30, 2021 as they were classified as held for sale.
General and administrative expenses increased from the first six months of 2021 to the first six months of 2022 due to the inclusion of $7.6 million of Seajacks expenses which were not present in the first six months of 2021.
During the six months ended June 30, 2021, we recorded a gain on vessels sold of approximately $22.0 million, which is primarily the result of an increase in the fair value of common shares of Star Bulk and Eagle received as a portion of the consideration for the sale of certain of our dry bulk vessels to Star Bulk and Eagle.
Pro Forma Financial Information
In addition to Management’s Discussion and Analysis of Financial Condition and Results of Operations, above, which is based on U.S. GAAP reported results, the following supplement provides an analysis of our unaudited pro forma financial information that gives effect to our acquisition of Seajacks.
The unaudited pro forma combined statement of operations for the six months ended June 30, 2021 combines Eneti’s unaudited condensed consolidated statement of operations for the six months ended June 30, 2021 with the unaudited consolidated statement of comprehensive income of Seajacks for the six months ended March 31, 2021 and is presented as if the Acquisition occurred on January 1, 2020.
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| | | | | | Eneti
Six Months Ended June 30, 2021 | | Seajacks
Six Months Ended
March 31, 2021 (IFRS as reclassified) | | Exit from Dry Bulk Business | | Policy Alignment and Pro Forma Adjustments | | Six Months Ended June 30, 2021 Combined Pro Forma | | |
| Revenue: | | | | | | | | | | | | | | | |
| Revenue | | | | | $ | 97,480 | | | $ | 26,542 | | | $ | (97,480) | | | $ | — | | | $ | 26,542 | | | |
| Total vessel revenue | | | | | 97,480 | | | 26,542 | | | (97,480) | | | — | | | 26,542 | | | |
| Operating expenses: | | | | | | | | | | | | | | | |
| Voyage expenses | | | | | 14,582 | | | — | | | (14,582) | | | — | | | — | | | |
| Vessel operating and project costs | | | | | 23,850 | | | 21,256 | | | (23,850) | | | — | | | 21,256 | | | |
| Charterhire expense | | | | | 29,346 | | | — | | | (29,346) | | | — | | | — | | | |
| Vessel depreciation | | | | | — | | | 15,412 | | | — | | | (2,321) | | | 13,091 | | | |
| Impairment of long-lived assets | | | | | — | | | 289,125 | | | — | | | (289,125) | | | — | | | |
| Amortization of intangibles | | | | | — | | | 2,666 | | | — | | | (2,666) | | | — | | | |
| General and administrative expenses | | | | | 12,719 | | | 6,495 | | | (1,485) | | | 231 | | | 17,960 | | | |
| Gain on vessels sold | | | | | (21,984) | | | — | | | 21,984 | | | — | | | — | | | |
| Total operating expenses | | | | | 58,513 | | | 334,954 | | | (47,279) | | | (293,881) | | | 52,307 | | | |
| Operating income | | | | | 38,967 | | | (308,412) | | | (50,201) | | | 293,881 | | | (25,765) | | | |
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| | | | Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 Combined Pro Forma | | | | | | |
| | | | | | | | Change | | Change % | | |
| Revenue: | | | | | | | | | | | | | |
| Revenue | | | | | $ | 83,720 | | | $ | 26,542 | | | $ | 57,178 | | | 215 | % | | |
| Total vessel revenue | | | | | 83,720 | | | 26,542 | | | 57,178 | | | 215 | % | | |
| Operating expenses: | | | | | | | | | | | | | |
| Vessel operating and project costs | | | | | 36,852 | | | 21,256 | | | 15,596 | | | 73 | % | | |
| Vessel depreciation | | | | | 12,460 | | | 13,091 | | | (631) | | | (5) | % | | |
| General and administrative expenses | | | | | 21,056 | | | 17,960 | | | 3,096 | | | 17 | % | | |
| Total operating expenses | | | | | 70,368 | | | 52,307 | | | 18,061 | | | 35 | % | | |
| Operating income | | | | | 13,352 | | | (25,765) | | | 39,117 | | | (152) | % | | |
Total revenues for the six months ended June 30, 2022 were $83.7 million, compared to $26.5 million for the prior year period due to an increase in utilization rates. The vessels were off-hire for most of the prior year period. While revenues earned in the six months ended June 30, 2022 consisted primarily of revenues generated by the Seajacks Scylla which was continuing its transportation and installation services for an offshore wind farm project in Taiwan, the Seajacks Zaratan which commenced work on the Akita project, the performance of maintenance on offshore gas production platforms in the North Sea by all three of the NG2500Xs as well as the recognition of claims made on projects which were completed in 2021, and consultancy revenue.
Vessel operating and project costs increased in the six months ended June 30, 2022 compared to the prior year pro forma period due to higher fuel costs (resulting from higher utilization rates and price increases) and higher maintenance costs, as well as higher crewing and catering costs due to high utilization rates.
Vessel depreciation for the six months ended June 30, 2022 decreased from the prior year pro forma period due to the scrapping of assets and a change in estimated residual value of the vessels, which resulted in lower depreciation expense.
General and administrative expenses increased from the first six months of 2021 to the first six months of 2022 due to higher incentive based compensation, audit fees and other professional fees.
Liquidity and Capital Resources
Our primary source of funds for our short-term and long-term liquidity needs will be the cash flows generated from our vessels, which primarily operate on time charters which give us a fixed and stable cash flow for a known period of time, and often places risks, such as weather downtime, on the charterer’s account, as well as the available credit on our undrawn credit facilities.
At June 30, 2022, cash and cash equivalents totaled $26.0 million and restricted cash was $15.0 million. We believe that our current cash and cash equivalents balance and operating cash flows, the funds generated by selling our investment in Scorpio Tankers in August 2022, and the available credit under our undrawn credit facilities, as well as our access to credit markets will be sufficient to meet our short-term and long-term liquidity needs for the next 12 months from the date of this report, which are primarily comprised of debt repayment obligations and installments on our newbuildings.
Cash Flow
Operating Activities
The table below summarizes the effect of the major components of our operating cash flow.
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| Six Months Ended June 30, |
| 2022 | | 2021 |
| Net income | 56,876 | | | 54,876 | |
| Non-cash items included in net income | (30,501) | | | (37,609) | |
| Related party balances | 1,016 | | | 10,796 | |
| Effect of changes in other working capital and operating assets and liabilities | (32,093) | | | (8,178) | |
| Net cash (used in) provided by operating activities | (4,702) | | | 19,885 | |
The cash flow used in operating activities for the six months ended June 30, 2022 reflects the higher utilization and rates earned during the period and an increase in accounts receivable. Our non-cash items include unrealized gains on investments, depreciation and amortization of restricted stock.
Investing Activities
Net cash used in investing activities of $35.4 million primarily reflects installment payments made on the newbuildings.
Financing Activities
Net cash used in financing activities of $72.8 million primarily reflects the repayments of long term debt acquired as part of the Seajacks acquisition.
Dividend
As of the date of this filing, our Board of Directors declared and we paid cash dividends totaling $0.03 per share or $1.2 million in the aggregate.
Secured Credit Facilities
As of June 30, 2022, we had $71.9 million of outstanding borrowings under the credit agreements as shown in the following table (dollars in thousands):
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| | | |
| June 30, 2022 | | December 31, 2021 |
| | | |
| | | |
| $175.0 Million Credit Facility | 71,875 | | | — | |
| $60.0 Million ING Revolving Credit Facility | — | | | — | |
| $87.7 Million Subordinated Debt | — | | | 87,650 | |
| $70.7 Million Redeemable Notes | — | | | 53,015 | |
| Total debt outstanding | $ | 71,875 | | | $ | 140,665 | |
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$175.0 Million Credit Facility
In March 2022, the Company entered into an agreement with DNB Capital LLC, Societe Generale, Citibank N.A., Credit Agricole Corporate and Investment Bank and Credit Industriel et Commercial for a five-year credit facility of $175 million (the “Credit Facility”).
The Credit Facility consists of three tranches: (i) a $75 million Green Term Loan (the “Term Loan”), (ii) up to $75 million Revolving Loans (the “Revolving Loans”), and (iii) up to $25 million revolving tranche for the issuance of letters of credit, performance bonds and other guarantees (the “Letters of Credit”). The Credit Facility has a final maturity date of five years from the signing date, up to 100% of the amounts available under the Revolving Loans may be drawn in Euros and up to 50% of the amounts available under the Letters of Credit may be issued in Euros. The Term Loan tranche (qualified as a green loan) bears interest at Term SOFR (along with a credit adjustment spread depending on duration of interest period) plus a margin of 3.05% per annum, the Revolving Loans tranche bears interest at Term SOFR (along with a credit adjustment spread
depending on duration of interest period) plus a margin of 3.15% per annum, and any letters of credit, performance bonds or other guarantees issued under the Letters of Credit tranche bears fees of 3.15% per annum. The amount available for drawing under the Revolving Loans is based upon 50% of contracted cash flows on a forward looking 30 months basis. The terms and conditions of the Credit Facility are similar to those set forth in the similar credit facilities of this type. The green loan accreditation process is supported by second party opinion from The Governance Group AS of Norway.
In May 2022, we drew down the entire $75.0 million term loan and approximately $30.0 million under the revolving loans. The $30.0 million under the revolving loans was subsequently repaid in June 2022. Approximately $22.5 million of performance bonds were issued under the letters of credit available under this facility as of the date of this filing.
$87.7 Million Subordinated Debt
As part of the Seajacks transaction, we assumed $87.7 million of subordinated, non-amortizing debt due in September 2022 and owed to financial institutions with guarantees provided by the Sellers, which bore interest at 1.0% until November 30, 2021, 5.5% from December 1, 2021 and 8.0% from January 1, 2022. In December 2021, we repaid $17.7 million of the notes and in February 2022, we repaid the remaining outstanding balance of $53.0 million.
$70.7 Million Redeemable Note
As part of the Seajacks transaction, we issued subordinated redeemable notes totaling $70.7 million, with a final maturity of March 31, 2023 and which bore interest at 5.5% until December 31, 2021 and 8.0% afterwards. In May 2022, we repaid the entire outstanding balance of $53.0 million.
$60.0 Million ING Revolving Credit Facility
As part of the Seajacks transaction, we entered into a $60.0 million senior secured non-amortizing revolving credit facility from ING Bank N.V. The credit facility, which includes sub-limits for performance bonds, and was subject to other conditions for full availability, has a final maturity of August 2022 and bears interest at LIBOR plus a margin of 2.45% per annum. The $60.0 Million ING Loan Facility was secured by, among other things: a first priority mortgage over the relevant collateralized vessels; a first priority assignment of earnings, and insurances from the mortgaged vessels for the facility; a pledge of the earnings account of the mortgaged vessels for the facility; and a pledge of the equity interests of each vessel owning subsidiary under the facility.
In March 2022, we drew down $25.0 million of the available facility and repaid it in May 2022.
Financial Covenants
Our credit facility discussed above, has, and our future credit facilities and other financing arrangements may have, among other things, the following financial covenants, as amended or waived, the most stringent of which require us to maintain:
•Minimum liquidity of not less than $30.0 million, of which at least $15.0 million must be cash.
•The ratio of net debt to adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) calculated on a trailing four quarter basis of no greater than 2.75 to 1.00.
•The ratio of adjusted EBITDA to net interest expense calculated on a trailing four quarter basis of at least 5.00 to 1.00.
•Solvency shall not be equal to or less than 50%.
•Minimum fair value of the collateral, such that the aggregate fair value of the vessels collateralizing the credit facility be at least 175% of the aggregate of (i) outstanding amount under such credit facility and (ii) negative value of any hedging exposure under such credit facility (if any), or, if we do not meet these thresholds, to prepay a portion of the loan and cancel such available commitments or provide additional security to eliminate the shortfall.
Our credit facility discussed above has, and our future credit facilities and other financing arrangements may have, among other things, the following restrictive covenants which may restrict our ability to, among other things:
•incur additional indebtedness;
•sell the collateral vessel, if applicable;
•make additional investments or acquisitions;
•pay dividends; or
•effect a change of control of the Company.
A violation of any of the financial covenants contained in our credit facilities and other financing arrangements may constitute an event of default under all of our debt agreements, which, unless cured within the grace period set forth under the debt agreement, if applicable, or waived or modified by our lenders, provides our lenders with the right to, among other things, require us to post additional collateral, enhance our equity and liquidity, increase our interest payments, pay down our indebtedness to a level where we are in compliance with our financial covenants, sell vessels in our fleet, reclassify our indebtedness as current liabilities, accelerate our indebtedness, and foreclose their liens on our vessels and the other assets securing the debt agreement, which would impair our ability to continue to conduct our business.
In addition, our credit facility contains, and our future credit facilities and other financing arrangements may contain, subjective acceleration clauses under which the debt could become due and payable in the event of a material adverse change in our business.
Furthermore, our credit facilities may contain a cross-default provision that may be triggered by a default under one of our other credit facilities or other financing arrangements. A cross-default provision means that a default on one loan would result in a default on certain of our other loans. Because of the presence of cross-default provisions in certain of our credit facilities, the refusal of any one lender under our credit facilities to grant or extend a waiver could result in certain of our indebtedness being accelerated, even if our other lenders under our credit facilities have waived covenant defaults under the respective credit facilities. If our secured indebtedness is accelerated in full or in part, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels and other assets securing our credit facilities if our lenders foreclose their liens, which would adversely affect our ability to conduct our business.
Moreover, in connection with any waivers of or amendments to our credit facilities and other financing arrangements that we have obtained, or may obtain in the future, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing financing arrangements. These restrictions may further restrict our ability to, among other things, pay dividends, make capital expenditures or incur additional indebtedness, including through the issuance of guarantees. In addition, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the interest rates they charge us on our outstanding indebtedness.
As of the date of this filing, we were in compliance with all of the financial covenants contained in our credit facilities that we had entered into as of the date of this filing.
Please see Note 8, Debt, to our condensed consolidated financial statements for additional information about these credit facilities.
Critical Accounting Estimates
There have been no material changes to our significant accounting estimates since December 31, 2021 other than those reflected in our unaudited interim condensed consolidated financial statements for the six-month period ended June 30, 2022 included elsewhere herein. For a description of our critical accounting estimates and all of our significant accounting policies, see Note 1 to our audited financial statements and "Item 5 - Operating and Financial Review and Prospects," included in our Annual Report.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
As of June 30, 2022, our contractual obligations and commitments consisted principally of debt repayments, future minimum payments under non-cancelable time chartered-in agreements and future minimum purchases under non-cancelable purchase agreements. As of June 30, 2022, there have been no significant changes to such arrangements and obligations since December 31, 2021.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Eneti Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2022 | | 2021 |
| (unaudited) | | |
| Assets | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 26,038 | | | $ | 153,977 | |
| Restricted cash | 15,008 | | | — | |
| Accounts receivable from third parties | 50,974 | | | 19,478 | |
| Inventories | 5,093 | | | 5,846 | |
| Due from related parties | 1,209 | | | 2,125 | |
| Prepaid expenses and other current assets | 5,798 | | | 4,769 | |
| Contract fulfillment costs | 8,505 | | | 3,835 | |
| Total current assets | 112,625 | | | 190,030 | |
| Non-current assets | | | |
| Vessels, net | 532,316 | | | 544,515 | |
| Vessels under construction | 70,859 | | | 36,054 | |
| Vessels under construction-related party | 770 | | | — | |
| Equity investments-related party | 74,374 | | | 27,607 | |
| | | |
| Deferred financing costs, net | 1,478 | | | — | |
| Intangible assets | 4,518 | | | 4,518 | |
| Other assets | 3,145 | | | 4,549 | |
| | | |
| Total non-current assets | 687,460 | | | 617,243 | |
| Total assets | $ | 800,085 | | | $ | 807,273 | |
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| Liabilities and shareholders’ equity | | | |
| Current liabilities | | | |
| Bank loans, net | $ | 11,975 | | | $ | 87,650 | |
| | | |
| Contract liabilities | 23,079 | | | 12,275 | |
| Corporate income tax payable | 1,300 | | | 4,058 | |
| Accounts payable and accrued expenses | 21,266 | | | 27,073 | |
| Due to related parties | 207 | | | 107 | |
| Total current liabilities | 57,827 | | | 131,163 | |
| Non-current liabilities | | | |
| Bank loans, net | 58,275 | | | — | |
| | | |
| Other liabilities | 3,849 | | | 2,751 | |
| Redeemable Notes, related party | — | | | 53,015 | |
| Total non-current liabilities | 62,124 | | | 55,766 | |
| Total liabilities | 119,951 | | | 186,929 | |
| Commitment and contingencies (Note 7) | | | |
| Shareholders’ equity | | | |
Preferred shares, $0.01 par value per share; 50,000,000 shares authorized; no shares issued or outstanding | — | | | — | |
Common shares, $0.01 par value per share; authorized 81,875,000 shares as of June 30, 2022 and December 31, 2021; outstanding 40,738,704 shares as of June 30, 2022 and 39,741,204 as of December 31, 2021 | 1,134 | | | 1,124 | |
| Paid-in capital | 2,060,862 | | | 2,057,958 | |
Eneti Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
| | | | | | | | | | | |
Common shares held in treasury, at cost; 35,869 shares at June 30, 2022 and December 31, 2021 | (717) | | | (717) | |
| Accumulated deficit | (1,381,145) | | | (1,438,021) | |
| Total shareholders’ equity | 680,134 | | | 620,344 | |
| Total liabilities and shareholders’ equity | $ | 800,085 | | | $ | 807,273 | |
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See notes to the unaudited condensed consolidated financial statements.
Eneti Inc. and Subsidiaries
Condensed Consolidated Statement of Operations (unaudited)
(Amounts in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | |
| | | | Six Months Ended June 30, | | |
| | | | | | 2022 | | 2021 | | |
| Revenue: | | | | | | | | | |
| Revenue | | | | | $ | 83,613 | | | $ | 82,585 | | | |
| Revenue-related party pools | | | | | 107 | | | 14,895 | | | |
| Total vessel revenue | | | | | 83,720 | | | 97,480 | | | |
| Operating expenses: | | | | | | | | | |
| Voyage expenses | | | | | — | | | 9,782 | | | |
| Voyage expenses-related party | | | | | — | | | 4,800 | | | |
| Vessel operating and project costs | | | | | 36,847 | | | 20,825 | | | |
| Vessel operating and project costs-related party | | | | | 5 | | | 3,025 | | | |
| Charterhire expense | | | | | — | | | 29,346 | | | |
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| Vessel depreciation | | | | | 12,460 | | | — | | | |
| General and administrative expenses | | | | | 20,398 | | | 10,403 | | | |
| General and administrative expenses-related party | | | | | 658 | | | 2,316 | | | |
| Gain on vessels sold | | | | | — | | | (23,438) | | | |
| Loss / write-down on assets held for sale-related party | | | | | — | | | 1,454 | | | |
| Total operating expenses | | | | | 70,368 | | | 58,513 | | | |
| Operating income | | | | | 13,352 | | | 38,967 | | | |
| Other income (expense): | | | | | | | | | |
| Interest income | | | | | 11 | | | 39 | | | |
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| Gain on sale of equity investment | | | | | — | | | 5,381 | | | |
| Income from equity investment - related party | | | | | 47,197 | | | 23,836 | | | |
| Foreign exchange (loss) gain | | | | | (2,321) | | | 3 | | | |
| Financial expense, net | | | | | (397) | | | (13,350) | | | |
| Financial expense - related party | | | | | (1,555) | | | — | | | |
| Total other income | | | | | 42,935 | | | 15,909 | | | |
| Income before taxes | | | | | $ | 56,287 | | | $ | 54,876 | | | |
| Income tax benefit | | | | | (589) | | | $ | — | | | |
| Net income after taxes | | | | | $ | 56,876 | | | $ | 54,876 | | | |
| Weighted-average shares outstanding: | | | | | | | | | |
| Basic | | | | | 38,811 | | | 10,628 | | | |
| Diluted | | | | | 38,827 | | | 10,907 | | | |
| Income per common share: | | | | | | | | | |
| Basic | | | | | $ | 1.47 | | | $ | 5.16 | | | |
| Diluted | | | | | $ | 1.46 | | | $ | 5.03 | | | |
See notes to the unaudited condensed consolidated financial statements.
Eneti Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Shareholders’ Equity (unaudited)
(Amounts in thousands, except per share amounts)
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| Number of
shares
outstanding | | Common
stock | | Paid-in
capital | | Treasury Shares | | Accumulated deficit | | Total |
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| Balance as of January 1, 2022 | 39,741,204 | | | $ | 1,124 | | | $ | 2,057,958 | | | $ | (717) | | | $ | (1,438,021) | | | $ | 620,344 | |
| Net income | | | | | | | | | 56,876 | | | 56,876 | |
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| Issuance of restricted stock, net of forfeitures | 997,500 | | | 10 | | | (10) | | | — | | | — | | | — | |
Cash dividends declared on stock ($0.02 per common share) | — | | | — | | | (799) | | | — | | | — | | | (799) | |
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| Restricted stock amortization | — | | | — | | | 3,713 | | | — | | | — | | | 3,713 | |
| Balance as of June 30, 2022 | 40,738,704 | | | $ | 1,134 | | | $ | 2,060,862 | | | $ | (717) | | | $ | (1,381,145) | | | $ | 680,134 | |
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| Number of
shares
outstanding | | Common
stock | | Paid-in
capital | | Treasury Shares | | Accumulated deficit | | Total |
| Balance as of January 1, 2021 | 11,310,073 | | | $ | 859 | | | $ | 1,803,431 | | | $ | (73,444) | | | $ | (1,458,248) | | | $ | 272,598 | |
| Net income | | | | | | | | | 54,876 | | | 54,876 | |
| Retirement of treasury stock | — | | | (20) | | | (74,114) | | | 74,134 | | | — | | | — | |
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Cash dividends declared on stock ($0.10 per common share) | — | | | — | | | (1,124) | | | | | — | | | (1,124) | |
| Treasury Stock | (76,469) | | | — | | | — | | | (1,407) | | | — | | | (1,407) | |
| Restricted stock amortization | — | | | — | | | 3,526 | | | — | | | — | | | 3,526 | |
| Balance as of June 30, 2021 | 11,233,604 | | | $ | 839 | | | $ | 1,731,718 | | | $ | (717) | | | $ | (1,403,372) | | | $ | 328,468 | |
See notes to the unaudited condensed consolidated financial statements.
Eneti Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
| | | | | | | | | | | | | |
| | Six Months Ended June 30, | | |
| | 2022 | | 2021 | | |
| Operating activities | | | | | |
| Net income | $ | 56,876 | | | $ | 54,876 | | | |
| Adjustment to reconcile net income to net cash provided by operating activities: | | | | | |
| Restricted stock amortization | 3,713 | | | 3,526 | | | |
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| Vessel depreciation | 12,460 | | | — | | | |
| Amortization of deferred financing costs | 132 | | | 652 | | | |
| Write-off of deferred financing costs | — | | | 7,028 | | | |
| Loss (gain) on asset disposal / vessels sold | 896 | | | (19,598) | | | |
| Net unrealized gains on investments | (46,767) | | | (28,786) | | | |
| Dividend income on equity investments | (431) | | | (431) | | | |
| Drydocking expenditures | (504) | | | (3,443) | | | |
| Changes in operating assets and liabilities: | | | | | |
| Decrease inventories | 753 | | | — | | | |
| Increase in accounts receivable | (31,496) | | | — | | | |
| (Increase) decrease in prepaid expenses and other current assets | (4,687) | | | 22,428 | | | |
| Increase (decrease) in accounts payable, accrued expenses and other liabilities | 6,095 | | | (27,163) | | | |
| Decrease in taxes payable | (2,758) | | | — | | | |
| Decrease in related party balances | 1,016 | | | 10,796 | | | |
| Net cash (used in) provided by operating activities | (4,702) | | | 19,885 | | | |
| Investing activities | | | | | |
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| Sale of equity investment | — | | | 63,377 | | | |
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| Proceeds from sale of vessels | — | | | 482,039 | | | |
| Dividend income on equity investments | 431 | | | 431 | | | |
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| Payments for vessels under construction | (35,836) | | | (9,311) | | | |
| Net cash (used in) provided by investing activities | (35,405) | | | 536,536 | | | |
| Financing activities | | | | | |
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| Proceeds from issuance of debt | 130,000 | | | — | | | |
| Repayments of long term debt | (198,790) | | | (367,105) | | | |
| Share repurchases | — | | | (1,407) | | | |
| Dividend paid | (799) | | | (1,124) | | | |
| Debt issue cost paid | (3,235) | | | — | | | |
| Net cash used in financing activities | (72,824) | | | (369,636) | | | |
| (Decrease) increase in cash, cash equivalents and restricted cash | (112,931) | | | 186,785 | | | |
| Cash, cash equivalents and restricted cash, beginning of period | 153,977 | | | 84,002 | | | |
| Cash, cash equivalents and restricted cash, end of period | $ | 41,046 | | | $ | 270,787 | | | |
| Supplemental cash flow information: | | | | | |
| Interest paid | $ | 2,218 | | | $ | 4,414 | | | |
| Taxes paid | $ | 2,165 | | | $ | — | | | |
| Non-cash investing and financing activities | | | | | |
| Right of use assets obtained in exchange for operating lease liabilities | $ | 1,035 | | | $ | — | | | |
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See notes to the unaudited condensed consolidated financial statements.
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
1.Organization and Basis of Presentation
Company
Effective February 8, 2021, the Company changed its name to Eneti Inc. from Scorpio Bulkers Inc., following receipt of the approval of its shareholders at a special meeting held on February 3, 2021.
Eneti Inc. (the “Company”) was incorporated in the Republic of the Marshall Islands on March 20, 2013. The Company announced on August 3, 2020 its intention to transition away from the business of dry bulk commodity transportation and towards marine-based renewable energy including investing in the next generation of wind turbine installation vessels. During July 2021, the Company completed its exit from the business of dry bulk commodity transportation.
The dry bulk commodity transportation business represented 100% of the activity of the Company when all dry bulk vessels qualified as held-for-sale as of December 31, 2020. Therefore, it did not meet the definition of a “component of an entity” as defined in ASC 205-20, Presentation of financial statements—Discontinued operations as its operations and cash flows could not be clearly distinguished from the rest of the entity. For that reason, it is not presented as a discontinued operation in these consolidated financial statements.
Marine Energy (acquired August 2021)
In August 2021, Eneti completed its acquisition of Atlantis Investorco Limited, the parent of Seajacks International Limited (“Seajacks”), after which Seajacks became a wholly-owned subsidiary of Eneti. The Company is focused on the offshore wind and marine-based renewable energy industry and has invested in the next generation of wind turbine installation vessels (“WTIV”). The Company operates five WTIVs, which in addition to wind farm installation can perform maintenance, construction, decommissioning and other tasks within the offshore industry. The Company typically operates its five WTIVs (collectively “the fleet”) on modified time charters, which provides a fixed and stable cash flow for a known period of time, and often places risks, such as weather downtime, on the charterer’s account. The fleet currently consists of the following vessels:
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| Vessel Name | | Vessel Design | | Year Built |
| Seajacks Scylla | | NG14000 | | 2015 |
| Seajacks Zaratan | | NG5500 | | 2012 |
| Seajacks Leviathan | | NG2500 | | 2009 |
| Seajacks Hydra | | NG2500 | | 2014 |
| Seajacks Kraken | | NG2500 | | 2009 |
The commercial and technical management of the fleet enables the Company to have very competitive operating expenses and high vessel maintenance standards. The Company conducts a significant portion of the commercial and technical management of its vessels in-house through its wholly owned subsidiaries. The Company believes that having control over the commercial and technical management allows it to more closely monitor its operations and to offer consistent higher quality performance, reliability, safety and sustainability and efficiency in arranging charters and the maintenance of the Company’s vessels. The Company also believes that these management capabilities contribute significantly in maintaining a lower level of vessel operating and maintenance costs, without sacrificing the quality of its operations.
The Company’s marine energy business is managed as a single operating segment.
Former Dry Bulk Operations (exited July 2021)
Prior to its exit from the dry bulk business, the Company was an international shipping company that owned and operated the latest generation newbuilding drybulk carriers with fuel-efficient specifications and carrying capacities of greater than 30,000 deadweight tons (or dwt) in the international shipping markets.
The Company’s vessels transport a broad range of major and minor bulk commodities, including ores, coal, grains, and fertilizers, along worldwide shipping routes, and are, or are expected to be, employed primarily in the spot market or in spot market-oriented pools of similarly sized vessels.
The Company was organized by vessel type into two operating segments (see Note 14, Segments, to the condensed consolidated financial statements):
•Ultramax - includes vessels ranging from approximately 60,200 dwt to 64,000 dwt
•Kamsarmax - includes vessels ranging from approximately 82,000 dwt to 84,000 dwt
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
The Company’s vessels were commercially managed by Scorpio Commercial Management S.A.M., or SCM, an entity controlled by the Lolli-Ghetti family of which Emanuele Lauro, the Company’s co-founder, Chairman and Chief Executive Officer, and Filippo Lauro, the Company’s Vice President, are members. SCM’s services have included securing employment for the Company’s vessels in pools, in the spot market and on time charters.
The Company’s vessels were technically managed by Scorpio Ship Management S.A.M., or SSM, an entity controlled by the Lolli-Ghetti family. SSM facilitates vessel support such as crew, provisions, deck and engine stores, insurance, maintenance and repairs, and other services as necessary to operate the vessels such as drydocks and vetting/inspection under a technical management agreement.
The Company had also entered into an administrative services agreement, as amended from time to time, or the Amended Administrative Services Agreement, with Scorpio Services Holding Limited, or SSH, an entity controlled by the Lolli-Ghetti family. The administrative services provided under this agreement primarily include provision of administrative staff, office space and accounting, legal compliance, financial and information technology services, in addition to arranging vessel sales and purchases for the Company.
Basis of accounting
The unaudited condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. All material intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of financial position as of June 30, 2022 and the Company’s result of operations for the six months ended June 30, 2022 and 2021, and cash flows for the six months ended June 30, 2022 and 2021. The unaudited condensed consolidated balance sheet as of June 30, 2022 was derived from audited financial statements but does not contain all the footnote disclosures from the annual financial statements.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reporting amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets, liabilities, revenues and expenses. Actual results could differ from those estimates.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with Securities and Exchange Commission, or the SEC, rules and regulations; however, management believes that the disclosures herein are adequate to make the information presented not misleading. This report should be read in conjunction with the audited financial statements and the notes included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2021.
Going concern
These condensed consolidated financial statements have been prepared on a going concern basis.
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
2.Earnings Per Common Share
The following is a reconciliation of the basic and diluted earnings per share computations (amounts in thousands, except per share amounts):
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| | June 30, | | |
| Six Months Ended | | 2022 | | 2021 | | |
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| Net income for basic and diluted earnings per share | | $ | 56,876 | | | $ | 54,876 | | | |
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| Common shares outstanding and common stock equivalents: | | | | | | |
| Weighted average shares basic | | 38,811 | | | 10,628 | | | |
| Effect of dilutive securities | | 16 | | | 279 | | | |
| Weighted average common shares - diluted | | 38,827 | | | 10,907 | | | |
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| Income per share: | | | | | | |
| Basic | | $ | 1.47 | | | $ | 5.16 | | | |
| Diluted | | $ | 1.46 | | | $ | 5.03 | | | |
The following is a summary of anti-dilutive equity awards not included in detailed earnings per share computations for the six months ended June 30, 2022 and 2021 (in thousands).
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| | June 30, | | |
| | 2022 | | 2021 | | |
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| Anti-dilutive equity awards | | 844 | | | 105 | | | |
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3.Vessels, net
At June 30, 2022 the Company owned five WTIVs vessel. A rollfoward of activity within vessels is as follows (in thousands):
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| Balance at December 31, 2021 | | $ | 544,515 | | |
| Additions | | 261 | | |
| Depreciation | | (12,460) | | |
| Balance at June 30, 2022 | | $ | 532,316 | | |
Vessels Owned
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| Seajacks Scylla | | 2015 | |
| Seajacks Zaratan | | 2012 | |
| Seajacks Leviathan | | 2009 | |
| Seajacks Hydra | | 2014 | |
| Seajacks Kraken | | 2009 | |
4.Vessels under Construction
Vessels under construction was $71.6 million and $36.1 million as of June 30, 2022 and December 31, 2021, respectively, consisting primarily of installments paid to shipyards on the Company’s newbuilding contracts with Daewoo Shipbuilding and Marine Engineering for the construction of two next-generation offshore WTIVs. The aggregate contract price is approximately $654.7 million. The vessels are expected to be delivered in the third quarter of 2024 and second quarter of 2025, respectively.
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
5.Commitments and Contingencies
Legal Matters
The Company is periodically involved in litigation and various legal matters that arise in the normal course of business. Such matters are subject to many uncertainties and outcomes which are not predictable. At the current time, the Company does not believe that any legal matters could have a material adverse effect on its financial position or future results of operations and therefore has not recorded any reserves in relation thereto as of June 30, 2022.
Capital Commitments
The Company is currently under contract with Daewoo Shipbuilding and Marine Engineering for the construction of two next-generation offshore WTIVs. The aggregate contract price is approximately $654.7 million of which $65.4 million has been paid. The vessels are expected to be delivered in the third quarter of 2024 and the second quarter of 2025, respectively. At June 30, 2022, the estimated future payment dates and amounts are as follows (dollars in thousands):
| | | | | | | | | | | |
| DSME1 | | DSME2 |
| 2022 | $ | 33,036 | | | $ | — | |
| 2023 | 66,072 | | | 32,441 | |
| 2024 | 198,217 | | | 64,882 | |
| 2025 | — | | | 194,644 | |
| $ | 297,325 | | | $ | 291,967 | |
Performance Bonds
Under certain circumstances, the Company issues either advance payment or performance bonds upon signing a wind turbine installation contract. An advance payment bond protects the money being advanced to the Company by the client at the start of the project. The bond will protect the client for the full advanced amount should Seajacks default on the agreement. A performance bond can be issued to the client as a guarantee against the Company meeting the obligations specified in the contract. At June 30, 2022, there was approximately $31.2 million of bonds issued. At December 31, 2021, there was approximately $31.6 million of bonds issued, of which $7.1 million was guaranteed by the Company and $24.5 million was guaranteed by the former owners of Seajacks, a related party.
At June 30, 2022, the Company had a restricted cash balance of $15.0 million, which served as cash collateral on certain of the performance bonds issued.
Other
As of June 30, 2022, the Company’s contractual obligations and commitments consisted principally of debt repayments and future minimum purchases under non-cancelable purchase agreements. As of June 30, 2022, there have been no significant changes to such arrangements and obligations since December 31, 2021 other than as noted below (see Note 8, Debt, to the condensed consolidated financial statements).
.
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
6.Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in thousands):
| | | | | | | | | | | |
| As of |
| June 30, 2022 | | December 31, 2021 |
| Accounts payable | $ | 8,151 | | | $ | 6,566 | |
| Accrued operating | 7,713 | | | 11,448 | |
| Accrued administrative | 5,402 | | | 9,059 | |
| Accounts payable and accrued expenses | $ | 21,266 | | | $ | 27,073 | |
Accounts payable primarily consists of obligations to suppliers arising in the normal course of business. Accrued operating includes obligations arising from operation of the Company’s owned, finance leased and chartered-in vessels (see Note 12, “Leases” for additional information), such as operating costs. Accrued administrative relates to obligations that are corporate or financing in nature, such as payroll, professional fees, interest and commitment fees.
7.Common Shares
Dividend
During the six months ended June 30, 2022, the Company’s Board of Directors declared and the Company has paid cash dividends totaling $0.02 per share or $0.8 million in aggregate.
During the six months ended June 30, 2021, the Company’s Board of Directors declared and the Company has paid cash dividends totaling $0.10 per share or approximately $1.1 million in aggregate.
8.Debt
The Company’s long-term debt consists of the bank loans summarized as follows (in thousands):
| | | | | | | | | | | |
| | | |
| June 30, 2022 | | December 31, 2021 |
| | | |
| | | |
| | | |
| | | |
| Credit Facilities: | | | |
$175.0 Million Credit Facility | $ | 71,875 | | | $ | — | |
$60.0 Million ING Revolving Credit Facility | — | | | — | |
$87.7 Million Subordinated Debt | — | | | 87,650 | |
$70.7 Million Redeemable Note | — | | | 53,015 | |
| | | |
| Total bank loans outstanding | 71,875 | | | 140,665 | |
| Less: Current portion | (12,500) | | | (87,650) | |
| $ | 59,375 | | | $ | 53,015 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(amounts in thousands) | June 30, 2022 | | December 31, 2021 |
| Current | | Non-current | | Total | | Current | | Non-current | | Total |
| Total debt, gross | $ | 12,500 | | | $ | 59,375 | | | $ | 71,875 | | | $ | 87,650 | | | $ | 53,015 | | | $ | 140,665 | |
| Unamortized deferred financing costs | (525) | | | (1,100) | | | (1,625) | | | — | | | — | | | — | |
| Total debt, net | $ | 11,975 | | | $ | 58,275 | | | $ | 70,250 | | | $ | 87,650 | | | $ | 53,015 | | | $ | 140,665 | |
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
$175.0 Million Credit Facility
In March 2022, the Company entered into an agreement with DNB Capital LLC, Societe Generale, Citibank N.A., Credit Agricole Corporate and Investment Bank and Credit Industriel et Commercial for a five-year credit facility of $175 million (the “Credit Facility”).
The Credit Facility consists of three tranches: (i) a $75 million Green Term Loan (the “Term Loan”), (ii) up to $75 million Revolving Loans (the “Revolving Loans”), and (iii) up to $25 million revolving tranche for the issuance of letters of credit, performance bonds and other guarantees (the “Letters of Credit”). The Credit Facility has a final maturity date of five years from the signing date, up to 100% of the amounts available under the Revolving Loans may be drawn in Euros and up to 50% of the amounts available under the Letters of Credit may be issued in Euros. The Term Loan tranche (qualified as a green loan) bears interest at Term SOFR (along with a credit adjustment spread depending on duration of interest period) plus a margin of 3.05% per annum, the Revolving Loans tranche bears interest at Term SOFR (along with a credit adjustment spread depending on duration of interest period) plus a margin of 3.15% per annum, and any letters of credit, performance bonds or other guarantees issued under the Letters of Credit tranche bears fees of 3.15% per annum. The amount available for drawing under the Revolving Loans is based upon 50% of contracted cash flows on a forward looking 30 months basis. The terms and conditions of the Credit Facility are similar to those set forth in the similar credit facilities of this type. The green loan accreditation process is supported by second party opinion from The Governance Group AS of Norway.
$87.7 Million Subordinated Debt
In February 2022, the Company repaid $87.7 million of 8% subordinated debt due September 2022 and terminated this facility.
$70.7 Million Redeemable Note
In May 2022, the Company repaid the $53.0 million outstanding balance and terminated this facility.
$60.0 Million ING Revolving Credit Facility
In March 2022, the Company drew down $25.0 million of the available facility. In May 2022, the Company repaid the outstanding balance and terminated this facility.
Financial Covenants
The Company’s credit facilities, as amended through June 30, 2022, have financial covenants with which the Company must comply:
•Minimum liquidity of not less than $30.0 million, of which at least $15.0 million must be cash.
•The ratio of net debt to adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) calculated on a trailing four quarter basis of no greater than 2.75 to 1.00.
•The ratio of adjusted EBITDA to net interest expense calculated on a trailing four quarter basis of at least 5.00 to 1.00.
•Solvency shall not be equal to or less than 50%.
•Minimum fair value of the collateral, such that the aggregate fair value of the vessels collateralizing the credit facility be at least 175% of the aggregate of (i) outstanding amount under such credit facility and (ii) negative value of any hedging exposure under such credit facility (if any), or, if the Company does not meet these thresholds, to prepay a portion of the loan and cancel such available commitments or provide additional security to eliminate the shortfall.
The Company’s credit facilities set out above have, among other things, the following restrictive covenants which may restrict its ability to:
•incur additional indebtedness;
•sell the collateral vessel, if applicable;
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
•make additional investments or acquisitions;
•pay dividends; or
•effect a change of control of the Company.
In addition, the Company’s credit facility contains subjective acceleration clauses under which the debt could become due and payable in the event of a material adverse change in the Company’s business.
As of June 30, 2022, the Company was in compliance with the financial covenants of its credit facility. The Company expects to remain in compliance with the financial covenants of its credit facility for the next twelve months.
Interest rates on all of the Company’s credit facilities for the six months ended June 30, 2022 ranged from 1.1% to 8.0% per annum. The Company records its interest expense as a component of Financial expense, net on its Condensed Consolidated Statement of Operations. For the six months ended June 30, 2022 and 2021, Financial expense, net consists of:
| | | | | | | | | | | | | |
| Six Months Ended June 30, | | |
| (amounts in thousands) | 2022 | | 2021 | | |
| Interest expense | $ | 2,363 | | | $ | 5,518 | | | |
| Interest expense - related party | 1,555 | | | — | | | |
| Amortization of deferred financing costs | 132 | | | 652 | | | |
| Write-off of deferred financing costs | — | | | 7,028 | | | |
| Capitalized interest | (2,216) | | | — | | | |
| Other | 118 | | | 152 | | | |
| Financial expense, net | $ | 1,952 | | | $ | 13,350 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
9.Fair Value Measurements
The carrying amount and fair value of financial instruments at June 30, 2022 and December 31, 2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2022 | | December 31, 2021 |
| Level | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Financial assets: | | | | | | | | | |
| Cash, cash equivalents and restricted cash | 1 | | $ | 41,046 | | | $ | 41,046 | | | $ | 153,977 | | | $ | 153,977 | |
| | | | | | | | | |
| Equity investment - Common stock of Scorpio Tankers Inc. | 1 | | 74,374 | | | 74,374 | | | 27,607 | | | 27,607 | |
| | | | | | | | | |
| | | | | | | | | |
| Financial liabilities: | | | | | | | | | |
| Bank loans, net | 2 | | 70,250 | | | 70,250 | | | 87,650 | | | 87,650 | |
| Redeemable Notes | 2 | | — | | | — | | | 53,015 | | | 53,015 | |
| | | | | | | | | |
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, various methods are used including market, income and cost approaches. Based on these approaches, certain assumptions that market participants would use in pricing the asset or liability are used, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable firm inputs. Valuation techniques that are used maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, fair value measured financial instruments are categorized according to the fair value hierarchy prescribed by ASC 820, Fair Value Measurements and Disclosures. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
•Level 1: Fair value measurements using unadjusted quoted market prices in active markets for identical, unrestricted assets or liabilities.
•Level 2: Fair value measurements using correlation with (directly or indirectly) observable market-based inputs, unobservable inputs that are corroborated by market data, or quoted prices in markets that are not active.
•Level 3: Fair value measurements using inputs that are significant and not readily observable in the market.
Cash, cash equivalents and restricted cash comprise cash on hand and demand deposits, and other short-term highly-liquid investments with original maturities of three months or less, and that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments.
As of June 30, 2022, the Company held an equity investment consisting of approximately 2.16 million shares of common stock of Scorpio Tankers at a fair value of $74.4 million based on its quoted market price in active securities markets.
The carrying value of the Company’s secured bank loans are measured at amortized cost using the effective interest method. The Company considers that the carrying value approximates fair value because (i) the interest rates on these instruments change with, or approximate, market interest rates and (ii) the credit risk of the Company has remained stable.
These amounts are shown net of $1.6 million of unamortized deferred financing costs on the Company’s condensed consolidated balance sheet as of June 30, 2022. There were no such unamortized deferred financing fees at December 31, 2021.
Certain of the Company’s assets and liabilities are carried at contracted amounts that approximate fair value due to their short maturity. Assets and liabilities that are recorded at contracted amounts approximating fair value consist primarily of balances with related parties, prepaid expenses and other current assets, accounts payable and accrued expenses.
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
10.Related Party Transactions
The Company’s co-founder, Chairman and Chief Executive Officer, Mr. Emanuele Lauro, and the Company’s Vice President, Mr. Filippo Lauro, are members of the Lolli-Ghetti family, which owns and controls the Scorpio group of companies, or Scorpio. Scorpio includes SSM, which has provided the Company with vessel technical management services, SCM, which has provided the Company with vessel commercial management services, SSH, which provides the Company and other related entities with administrative services and services related to the acquisition of vessels, and Scorpio UK Limited, or SUK, which has provided the Company with vessel chartering services. SSH also has a majority equity interest in a port agent that has provided supply and logistical services for the Company’s vessels operating in its regions. In 2009, Mr. Emanuele Lauro also co-founded Scorpio Tankers (NYSE: STNG), a large international shipping company engaged in seaborne transportation of refined petroleum products, of which he is currently the Chairman and Chief Executive Officer. Mr. Emanuele Lauro also has a senior management position at Scorpio. The Company’s co-founder, President and Director, Mr. Robert Bugbee, is also the President and a Director of Scorpio Tankers and has a senior management position at Scorpio. The Company’s Vice President, Mr. Filippo Lauro and the Company’s Chief Operating Officer, Mr. Cameron Mackey, also hold the office of Vice President and Chief Operating Officer at Scorpio Tankers, respectively, and have senior management positions at Scorpio. From December 2018 to June 2021, Messrs. Emanuele Lauro, Robert Bugbee, Filippo Lauro and Cameron Mackey have served in similar capacities for Hermitage Offshore Services Ltd., formerly Nordic American Offshore Ltd.
Administrative Services Agreement
The Company entered into the Administrative Services Agreement with SSH for the provision of administrative staff, office space and accounting, legal compliance, financial and information technology services, as well as arranging drybulk vessel sales and drybulk purchases for the Company, including drybulk newbuildings.
Effective September 21, 2021, the Company entered into the Amendment No. 1 to Administrative Services Agreement with SSH, a related party, for the provision of administrative staff, office space and accounting, legal compliance, financial and information technology services for which the Company reimburses SSH for the direct and indirect expenses incurred while providing such services. The services provided to the Company by SSH may be sub-contracted to other entities.
In addition, SSH has agreed with the Company not to own any vessels engaged in seabed preparation, transportation, installation, operation and maintenance activities related to offshore wind turbines so long as the Amended Administrative Services Agreement is in full force and effect. The agreement may be terminated by either party providing three months’ notice.
Master Agreement
The Company’s former dry bulk vessels were commercially managed by SCM and technically managed by SSM pursuant to the Master Agreement. SCM’s commercial management services included securing employment for the Company’s dry bulk vessels in the spot market and on time charters. SCM has also managed the Scorpio Pools (spot market-oriented vessel pools) including the Scorpio Ultramax Pool, the Scorpio Kamsarmax Pool in which most of the Company’s owned, finance leased and time chartered-in dry bulk vessels were employed and from which a significant portion of its revenue was generated. The Company typically has had balances due from the Scorpio Pools, consisting primarily of working capital, undistributed earnings and reimbursable costs. These receivables are either classified as current or non-current assets within the Condensed Consolidated Balance Sheet. The Company has also been allocated general and administrative expenses from SCM. The Scorpio Kamsarmax Pool and the Scorpio Ultramax Pool were no longer customers for the six months ended June 30, 2022, due to the Company’s exit from the dry bulk business in 2021. For the six months ended June 30, 2021, the Scorpio Kamsarmax Pool and the Scorpio Ultramax Pool accounted for 33% and 53% of the Company’s total vessel revenue, respectively.
On October 20, 2021, the Company entered into a support agreement with SSM pursuant to which SSM provides technical advice and services to the Company in connection with the construction of the newbuilding WTIV at Daewoo. In consideration for these services, the Company paid SSM a fee of $671,200, and thereafter, will pay a monthly fee in the amount of $41,667. These payments are being capitalized as a cost to build the vessel and are included in Vessels under construction, on the Consolidated Balance Sheet.
The fees of certain consultants and the salaries of certain SUK employees are allocated to the Company for services performed for the Company.
The Company has paid a related party port agent for supply and logistical services, which are charged as vessel operating costs.
The Company pays a related party travel service provider for travel services, which are charged as general and administrative expenses.
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
In October 2018, the Company invested $100.0 million in Scorpio Tankers for approximately 54.1 million (which was subsequently adjusted to 5.4 million shares after a one-for-ten reverse stock split effected by Scorpio Tankers on January 18, 2019), or 10.9% (as of October 12, 2018), of Scorpio Tankers issued and outstanding common shares. The investment was part of a larger $337.0 million equity raise by Scorpio Tankers through a public offering of its common shares. Scorpio Tankers is a large international shipping company incorporated in the Republic of the Marshall Islands engaged in seaborne transportation of refined petroleum products. The Company and Scorpio Tankers have a number of common shareholders. They also share a number of directors and officers, including Mr. Emanuele Lauro who serves as the Chairman and Chief Executive Officer of both companies, Mr. Robert Bugbee, who serves as President and a Director of both companies, Mr. Cameron Mackey, who serves as Chief Operating Officer of both companies, and Mr. Filippo Lauro, who serves as Vice President of both companies. In May 2020, the Company sold 2.25 million shares of Scorpio Tankers for aggregate net proceeds of approximately $42.7 million. As of June 30, 2022, the Company continued to own approximately 2.16 million common shares of Scorpio Tankers. There are no other significant transactions between the Company and Scorpio Tankers. As discussed in Note 1, Organization and Basis of Presentation, this investment is accounted for under the equity method utilizing the fair value option.
As part of the Seajacks transaction, the Company issued subordinated redeemable notes totaling $70.7 million, with a final maturity of March 31, 2023 and which bear interest at 5.5% until December 31, 2021 and 8.0% afterwards, to the former owners of Seajacks, who, in the aggregate, held approximately 6.8 million common shares of the Company at June 30, 2022. The redeemable notes were repaid in May 2022.
The Company also assumed $87.7 million of subordinated, non-amortizing debt due in September 2022 and owed to financial institutions with guarantees provided by the former owners of Seajacks to whom the Company paid a fee of 0.3% of the outstanding balance through November 2021 and 5.0% afterwards. This debt was repaid in February 2022.
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
For the six months ended June 30, 2022 and 2021, the Company had the following transactions with related parties, which have been included in the Condensed Consolidated Statements of Operations, and the following balances with related parties at June 30, 2022 and December 31, 2021, which have been included in the Condensed Consolidated Balance Sheet (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| | | For the Six Months Ended June 30, |
| | | | | 2022 | | 2021 |
| Vessel revenue | | | | | | | |
| Scorpio Kamsarmax Pool | | | | | $ | 22 | | | $ | 10,327 | |
| Scorpio Ultramax Pool | | | | | 85 | | | 4,568 | |
| | | | | | | |
| | | | | | | |
| Total vessel revenue | | | | | $ | 107 | | | $ | 14,895 | |
| Voyage expense: | | | | | | | |
| SCM | | | | | $ | — | | | $ | 2,310 | |
| Bunker supplier | | | | | — | | | 2,490 | |
| Total voyage expense | | | | | $ | — | | | $ | 4,800 | |
| Vessel operating cost: | | | | | | | |
| SSM | | | | | $ | — | | | $ | 2,787 | |
| Port agent | | | | | 5 | | | 238 | |
| | | | | | | |
| Total vessel operating cost | | | | | $ | 5 | | | $ | 3,025 | |
| General and administrative expense: | | | | | | | |
| SCM | | | | | $ | 24 | | | $ | 64 | |
| SSM | | | | | — | | | 3 | |
| SSH | | | | | 313 | | | 1,532 | |
| SUK | | | | | 321 | | | 717 | |
| | | | | | | |
| Total general and administrative expense | | | | | $ | 658 | | | $ | 2,316 | |
| Income from equity investments: | | | | | | | |
| Scorpio Tankers Inc. | | | | | $ | 47,197 | | | $ | 23,836 | |
| Write-down on assets held for sale | | | | | | | |
SCM | | | | | $ | — | | | $ | 4,563 | |
| SSM | | | | | — | | | (1,344) | |
| SSH | | | | | — | | | (1,765) | |
| Total write-down on assets held for sale | | | | | $ | — | | | $ | 1,454 | |
| Financial expense, net | | | | | | | |
| Marubeni Corporation | | | | | $ | 804 | | | $ | — | |
| INCJ. Ltd | | | | | 700 | | | — | |
| Mitsui O.S.K, Lines Ltd. | | | | | 51 | | | — | |
| Total financial expense, net | | | | | $ | 1,555 | | | $ | — | |
ENETI INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
| | | | | | | | | | | |
| As of |
| June 30, 2022 | | December 31, 2021 |
| Assets | | | |
| Due from related parties-current: | | | |
| Scorpio Kamsarmax Pool | $ | 228 | | | $ | 559 | |
| Scorpio Ultramax Pool | 981 | | | 1,566 | |
| | | |
| | | |
| | | |
| SMM | — | | | — | |
| | | |
| Total due from related parties-current | $ | 1,209 | | | $ | 2,1 |