Welcome to the Paratus Energy Q2 2025 earnings call. There will be a question and answer session after the presentation, and you can submit your questions by using the button on the bottom of the player. I will now hand over the call to your host.
Good day everyone. Welcome to the second quarter 2025 results presentation for Paratus Energy Services Ltd. My name is Robert Jensen, and I am the CEO of Paratus. Joining me on the call today is Baton Haxhimehmedi, our CFO. Before we begin today's presentation, I would like to remind all participants that some of the statements on this call may involve forward-looking statements. Forward-looking information involves risks and uncertainties by nature that may cause actual results to differ materially from those projected in such statements. I therefore refer you to our latest public filings. The second quarter of 2025 was a solid one for Paratus, supported by high technical utilization across the fleet, solid cost control, and steady joint venture cash flows. Our operating entities recorded a technical utilization of 98% for the quarter.
Revenues were $107 million, compared with $103 million in the first quarter, as new contracts at SeaGems at higher day rates more than offset the lower contribution from Fontis Energy due to Titania being idle. Adjusted EBITDA was $57 million versus $58 million in Q1, reflecting one-time costs at Fontis Energy related to the demobilization of Titania. Net income for the quarter was $5.6 million, up from $3.2 million in Q1. In line with our policy of targeting stable cash distribution to shareholders, the Board of Directors has declared a dividend of $0.22 per share for Q2. This is consistent with every quarterly distribution since our IPO last year. During the second quarter, we completed approximately $5 million in share buybacks. The company now owns around $6.8 million of it's own shares, representing approximately 4% of total share capital.
As a reminder, we have approximately $75 million remaining capacity under the $100 million share repurchase authorization. With today's announced dividend, we will have returned over $200 million to our shareholders since we started our distribution a year ago, equivalent to roughly 30% of the company's current market capitalization. This underscores our commitment to a shareholder-friendly capital return policy. We ended Q2 with a cash balance of $93 million and net debt of $631 million. The quarter-on-quarter increase in net debt primarily reflects working capital buildup in Mexico. Receivables in Mexico increased to $232 million from $185 million in the prior quarter, as no payments were received during Q2. However, after quarter end, Fontis received it's first payment from the client since our monetization agreement in Q1.
Importantly, in August, the Mexican government also announced a comprehensive support plan for our client, including approximately $25 billion in guaranteed funding, earmarked in part for supplier debt settlements. We view this as an important step to stabilize the client's financial position, improve payment practices, and support its production target of 1.8 million barrels per day. Now, let's move over to the quarterly review for each of our two operating segments. We continue with our joint venture, SeaGems. Please note that all numbers referred to on this slide are on a 100% basis, of which we own 50%. SeaGems had another strong quarter with revenues of $125 million, compared to $112 million in the first quarter. The sequential increase was primarily driven by higher average day rates from the new contracts on four vessels, partly offset by some off-hire days related to acceptance testing on these vessels.
EBITDA for the quarter was $81 million, up from $65 million in the first quarter, benefiting from stronger revenues, reimbursement of an insurance claim for Esmeralda, and certain favorable charges in accounting provisions. Operating expenses came in at $31 million, down from $36 million in Q1, while G&A was steady at $7 million, compared to $6 million in the previous quarter. Technical utilization for the quarter was a solid 97.8% versus 98.4% in Q1. The average contractual day rate increased significantly to $255,000 per day, from $212,000 in the first quarter, again reflecting the start of new contracts across four vessels. The Onyx completed its acceptance testing with Petrobras earlier this month, marking the final vessel to transition over to the new Petrobras contracts. Consequently, the average day rate for SeaGems will continue to trend higher in the second half of the year.
The contractual backlog for SeaGems stood at $1.6 billion at the end of the quarter. During the first half of 2025, SeaGems distributed $66 million in cash to its shareholders, of which Paratus received $33 million. Consistent with what we flagged on the Q1 call, distributions are expected to be sequentially higher in the second half of the year, given the JV's cash flow profile and the timing of capital expenditures. Following quarter end, Paratus has received a total of $45 million in distributions for July and August. Finally, subsequent to the second quarter, SeaGems secured $60 million in additional CapEx financing from local Brazilian banks. Amortization is scheduled to start in 2026 and will run over three years. Moving over to Fontis Energy.
Our drilling business reported Q2 revenues of $44 million and an adjusted EBITDA of $18 million, compared to $47 million and $27 million in the first quarter. The decline was mainly driven by the Titania remaining idle during the quarter and costs related to her demobilization. Operating expenses were $26 million, compared to $18 million in Q1, again mostly reflective of tugboat and fuel expenses associated with the Titania's move. It's also worth noting that Q1 OpEx was positively impacted by one-offs and lower than normal. G&A for the quarter was $400,000, down from $1 million in the previous quarter. Technical utilization remained strong at 99.2%, compared with 99.7% in Q1. The average day rate declined to $116,000 per day, from $125,000 per day in the previous quarter, as all rigs operated a full quarter at the contractual floor rates.
Fontis' backlog at the end of the second quarter stood at $98 million, down from $139 million at the end of Q1. The receivable balance, as mentioned earlier, increased to $232 million at quarter end, from $185 million in Q1, as no payments were received during the quarter. However, as also mentioned before, subsequent to Q2, Fontis received a modest payment from its client, the first since our receivable monetization transaction in Q1. As always, we remain actively engaged with the client to expedite the collection of outstanding receivables and expect to recover the full amount, as has been the case in the past. As mentioned earlier, we are encouraged by the recent support plan by the Mexican government, and while it probably will take some time to implement, it will hopefully provide support to both payments and future demand.
Looking at the fleet, with the exception of Titania, all the rigs are currently working and contracted into 2026. The Titania has been successfully re-imported to Mexico and is kept readily available for new opportunities. We expect active contract discussions to take place in the second half of this year, supported by rising activity in Mexico. In our view, if the client is to achieve its stated production target of 1.8 million barrels per day, all units in the country will likely be needed. Against that backdrop, we remain confident in the demand outlook for all of our assets and will continue to evaluate opportunities for Titania, both within and outside of Mexico. While pursuing new contracts remains a core focus for Fontis, we're also evaluating strategic opportunities for our jack-up assets, with a focus on creating long-term value to our shareholders.
With that, I will leave the word over to Baton to walk you through the financial details.
Thank you, Robert. Okay, now let's start with the more detailed review of our Q2 results compared to Q1 2025. Net income after tax came in at $5.6 million this quarter, compared to $3.2 million in Q1. As shown in the top right graphs on this slide, the main drivers were as follows: a $4 million revenue increase compared to Q1, from $103 million in Q1 to $107 million in Q2. This was mainly due to the higher day rates from our PLSVs in Brazil, partly offset by no revenue generated from Titania, as described by Robert earlier. The Fontis revenue was also impacted by lower day rates as rigs operated at floor rates and the planned UY survey on Intrepid.
These effects were partly offset by the absence of rig suspensions versus Q1. We had an OpEx increase of $5 million, mainly driven by costs associated with the Titania relocation, partly offset by lower costs at SeaGems, mainly due to insurance claim reimbursement at Esmeralda and other items. It is also worth noting that Q1 OpEx in Fontis was positively impacted by certain one-off items. We recognized an allowance for expected credit losses, as you can see on the graph ECL, of $4 million, reflecting the increase in receivables in Mexico at the quarter end at Q2, in line with accounting methodology. This is compared to a reversal in Q1 driven by the $209 million monetization agreement. Please note that this is only an accounting treatment, as we remain confident in our ability to recover the full amount owed by the client.
Net financial expenses decreased significantly from $37 million in Q1 to $21 million in Q2. This was mainly because Q1 included fees related to the Mexico monetization agreement and a significant net loss, which was recognized based on our ownership in Archer Ltd., which was driven by the refinancing in Q1 that triggered an accounting loss. Finally, we reported slightly higher tax expense driven by changes in the tax accruals and provisions in Mexico. Overall, compared to Q1, the Q2 report shows a modest improvement in net income with strong contributions from SeaGems and lower financial expenses offsetting the impact of the net losses from Fontis. Now stepping back and looking at the first half of 2025 results compared to the same period in 2024. During the first half of this year, we reported a net income after tax of approximately $9 million compared to $44 million last year.
As shown in the lower right graph here, the main drivers for the decline in profits were as follows: a decline in revenues of $23 million due to Fontis. Recall that last year's Fontis revenues included about $15 million of previously unrecognized revenues that the Fontis team managed to build and settle with the client. In addition, Titania contributed to no revenues in Q2, as mentioned earlier, and average day rates across the fleet were lower compared to last year. This was partly offset by strong revenue growth in SeaGems, where revenues were up $40 million or 30% as vessels commenced on new Petrobras contracts at higher day rates. Operating costs improved by $11 million year on year, reflecting lower personnel and other costs at Fontis, insurance claims, refunds, and other favorable one-time adjustments.
Also, recall that the 2024 OpEx figures included transaction costs related to our IPO and refinancing of the bonds. Other operating income of $5 million, as you can see here, relates to an insurance refund claim that we recognized at Fontis. Lastly, we had $24 million higher financial expenses compared to last year and $3 million higher tax expense compared to last year as well, largely for the same reasons I mentioned in the quarter-on-quarter comparison. To summarize, while the net income this year is lower compared to last year, the decline mainly reflects one-time revenue effects at Fontis in 2024 and higher financial expenses this year, partly offset by strong SeaGems performance and solid cost control in general. Moving on to page six, let me walk you through the main drivers of our cash flow this quarter.
At Paratus' consolidated level, we closed the quarter with a cash balance of $70 million, which was down to $156 million at the end of Q1 2025. The main factors behind this movement were as follows: a working capital buildup in Mexico, as we had no collection from our client during the quarter, which explains the operating cash flow here. A $4 million spent on CapEx related to Fontis, which was broadly in line with Q1. Cash distribution from SeaGems of $60 million and a first-time dividend that we received from Archer Ltd. of $1.3 million. We paid net interest of $28 million this quarter, which reflects a semi-annual coupon on our 2029 bonds. Finally, shareholder distribution of $41 million in Q2 that we paid, including approximately $5 million of share buybacks. After these movements, we ended the quarter with $70 million in cash at the Paratus level.
On top of that, our pro rata share of cash in SeaGems' joint venture was $23 million, bringing the group cash position to $93 million at the end of Q2. Despite the temporary buildup of receivables in Mexico, our liquidity position remains solid, supported by strong operational performance and significant cash distribution from SeaGems and solid cost control in general. Now moving on to our capital structure and selected balance sheet items. As just mentioned, we closed the quarter with a group cash balance of $93 million and a net debt of $631 million, resulting in a net leverage ratio of 2.6 times EBITDA. That is slightly up from Q1, mainly reflected in an increase in receivables in Mexico.
As Robert mentioned earlier, Fontis received a modest payment from its client in August, and we also note positive signals from the announced Mexican government's financial support plan for our client in early August. We remain actively engaged with the client to collect outstanding receivables, but based on past experience, we continue to plan on the basis that delays may persist in the near to medium term. With respect to the debt maturity next year, the 2026 notes, we continue to move our options. We've had constructive discussions about funding at the operating entity levels, and at the same time, we also note the credit market improvements to pursue something at the Paratus topco level.
We believe we still have a good time to assess along the best and long-term option for the company, and we will, of course, communicate a plan for this well in advance of the maturity in July next year. Following Q2, the SeaGems joint venture secured an additional $60 million of capital expenditure financing locally at favorable terms. The facility will amortize over three years, starting in 2026, as we show here in the graph. With that, I will hand the word back to Robert. Thank you.
Thank you, Baton. Before we hand over to Q&A, we wanted to reiterate the overall financial guidance issued earlier this year. However, based on the results delivered in the first half, we are happy to report that we now expect 2025 adjusted EBITDA to come in at or near the top end of the guided range. As we head into the third quarter, 10 of our 11 assets are contracted into next year and beyond, giving us approximately $1 billion of contractual backlog to Paratus. With strong visibility, a solid balance sheet, and results tracking toward the top end of our guided range, we believe we are well positioned to continue to deliver sustainable value creation for our shareholders. With that, I think we can open up for Q&A.
Ladies and gentlemen, we will now take your questions. Just as a reminder, you can submit your questions by using the button on the bottom of the player.
There's a question about the share repurchase. Do you plan to cancel the share repurchase? If not, why?
I think we haven't concluded on those discussions yet. Ultimately, it's up to the board to decide whether we cancel or hold these shares as treasury shares. As you know, we still have more capacity under the share repurchase authorization, and also under Bermuda law, we are not obligated to cancel the shares. I think it's a discussion that the board will certainly have in due course, so we'll probably revert back with more information on that at a later stage.
How large was the modest payment received in August?
Look, I don't think we're going to set a precedent of disclosing all payments from the client in Mexico. We've indicated that it was a modest payment, so I think we'll leave it at that. Ultimately, we think it's positive to see that we are getting payments, and certainly we hope to see larger and more regular collections going forward. If it had been material, it would have been announced under a materiality clause.
There's a question on how we plan to address the 2026 debt maturities.
Yeah, look, Baton also touched upon this and is prepared to mark. We continue to monitor all our options. Clearly, the credit market is showing improvements relative to where it was at the start of the year. At the same time, I think we need to make sure that if we push the button, we don't sacrifice our flexibility to pursue other corporate actions or developments. We believe we have plenty of time to assess the best long-term options. We've had encouraging discussions about funding at operating level, but at the same time, given the credit market, it seems to be good demand if we were to pursue something at the top goal.
I think you should also remember that we do have a substantial AR balance, which we expect to unwind over time, together with potential asset disposals that could pave way for the 2026s to be redeemed rather than refinanced. Ultimately, I think we will decide what is the best course of action for the company, and we do think we have a good toolbox with dealing with this maturity. As I said, there is probably still some time left, and we'll make sure to communicate our plans well in advance.
There are several questions regarding the Mexico contracting status, also with regards to Titania as well.
I think everyone's seen the positive developments in Mexico over the last several months, both financially with respect to the client, but also more of the rigs returning to work. I think there's no quick fix with respect to sort of sorting everything out, so we do need to allow it some time, but we're certainly seeing delta positive news coming from Mexico. As we said, if the client is to reach 1.8 million barrels of production, we do think there is a need for all the rigs. We expect to have more concrete news on this later in the year. There's obviously always an ongoing discussion with the client about potential future work.
We are encouraged to have these discussions with the client, but we're not at the stage right now where we can share much more than the fact that we hope to have something more concrete towards the end of this year.
Regarding Titania, Robert, are there ongoing conversations with other clients besides Pemex as an alternative in Mexico, taking the jack-up outside of Mexico? Is that a possibility?
I think on the last conference call, we alluded to this. We said we have bid Titania outside of Mexico, and we continue to have discussions with potential clients about work for the rig. At the same time, it's quite clear that in the last several months, we've seen downward pressure on day rates globally. We're obviously also seeing that. When bidding the rig, we need to bear in mind that the rig is located in Mexico. Transporting her to a different jurisdiction will come at a cost. When we look at the rig, we have a certain return in mind when we look at what she should be earning and what she potentially could be returning in terms of cash if she remains in Mexico.
I think all opportunities are on the table, but we're certainly going to evaluate sending a rig to a different jurisdiction against what we think we are able to get on the rig where she is presently. Not ruling out any outside work, but I think we're certainly confident in the ability for that rig to remain in the country where she is right now.
There's a question about the market in the jack-up market. Broadly speaking, can you talk about how we see the trend of day rates into 2026 for the industry?
Just a second ago, we said that there had been some downward trajectory on rates. I think that's been quite clear to everyone. We're obviously working at our floor rates in Mexico right now. There are some, I would say, some positive developments. I mean, day rates have seen downward trajectory, sure, but utilization for modern rigs remains steady around 90%. More than half of the suspended rigs in Saudi have found new work. We're seeing some incremental demand coming from the Middle East, and West Africa and Southeast Asia continue to be fairly active. We're holding up from a demand perspective. I think day rates, we're not going to speculate on where they're headed. I think we've seen them come down, but I think we're comfortable with the market and our ability to compete for work, and particularly in Mexico.
As I mentioned, there's probably a disadvantage for the Titania moving into a different region. That is an advantage for us in Mexico, which is a fairly insulated market. At least over time, Mexico has proven to be a fairly resilient market where day rates may not have seen the peaks and the troughs that you tend to see elsewhere. I think we're comfortable with the demand, and particularly given the strong support that we've seen from the Mexican state in recent time.
Ladies and gentlemen, just as a reminder, you can submit your questions through the button at the bottom of the player.
A question about the multi-purpose pipe-laying support vessels. Possible delays in Petrobras' new FPSOs expected could translate into at least a temporary multi-purpose pipe-laying support vessel idleness in the Brazilian market. That was a question. Do you see this as a possibility, given Petrobras' obstacles with the new FPSOs?
I think when you look at the schedule of FPSOs coming in and you look at that compared to the number of PLSVs, I think at least based on what we see, Petrobras, the PLSV market is sold out. They were not able to get as many vessels in as they expected during the most recent tender. We're seeing a strong demand for our vessels, and I don't see any slip-up in FPSO deliveries, at least not over the near term, to impact us. Ultimately, our vessels are on contract until 2027, 2028, so there's no blinking sort of our employment to FPSO. I think we're very well covered with the backlog that we have in Brazil right now.
I think ultimately, at least from our point of view, we see a long-term market that is very tight on the PLSV market, and I would not be surprised if you start to see the talks about new contracts potentially being awarded from late next year or into 2027. Just looking at the rollover schedule for not just our vessels, but the industry in general, and history at least, you typically tend to see some activity around recontracting some six to nine months ahead of that. I don't think we experience any or see any softness in that market.
There's a question if we can provide some more color on the jack-up strategic initiatives in Mexico.
I think we've been saying this from the time of going public that we would like to develop Fontis as the structure today is probably subscale, and we're very concentrated in one jurisdiction. While we're very comfortable in that jurisdiction and been there for more than a decade, and with evidence can show that we've been able to extract all the cash that we're entitled to, I think we remain positive to more consolidation in the industry and believe there is room for more transactions similar to what we've seen already this summer. I think for our part, we would like to remain involved in the space, but we don't necessarily need to have full control of the company for it to be part of Paratus. Ultimately, we're an industrial holding company, so we will always look at ways to create value to our stakeholders.
That could include both M&A and/or selling assets, but let's see how the next quarters develop. I think we're certainly open for some ways of using our Fontis ownership into something more strategic.
There's a question to confirm how much of the outstanding accounts receivable in Q2 is related to Pemex. We have only one client in Mexico, so the total balance is related to that client.
There seems to be no further questions. I think we'll take the opportunity to thank all the participants and looking forward to speaking to you in a quarter. Thank you.
Thank you.