Welcome to the Paratus Energy Q1 2026 Earnings Call. There will be a question and answer session after the presentation, and you can submit your questions via the form at the bottom of the player. I will now hand you over to your host.
Thank you. Good day, everyone, and welcome to this First Quarter 2026 Results Presentation for Paratus Energy Services Limited. My name is Baton Haxhimehmedi, I'm the CFO and interim CEO of Paratus. Before we begin today's presentation, I would like to remind all participants on this call that some of the statements in this call may involve forward-looking statements. Forward-looking information involves risks and uncertainties by nature that may cause actual results to differ materially from those projected in such statements. I therefore refer you to the latest public filings of the company. The year 2026 has so far been very busy and also eventful for the company. In March, we announced a transformative transaction for Paratus, the $400 million sale of our jack-up business, Fontis Energy. This transaction marks an important milestone in the continuing evolution of Paratus, simplifying the company and sharpening our strategic focus.
Let me just recap from the last time we spoke. Following completion of the transaction, Paratus becomes a focused PLSV holding company with exposure towards long-term contracts with strong cash flow visibility in a niche market. While at the same time, we significantly improve our risk profile by exiting the Mexican jack-up segment, where we had exposure to payment irregularities and backlog risks. Second, this is a de-leveraging story where our debt reduced from $625 million to around $250 million, and net leverage coming down from 2.2x EBITDA to around 1.4x pro forma basis Q1 2026. Lastly, with current strong financial position and significantly improved cash flow visibility, we have strong confidence in a credible path to sustaining our current dividend per share over the long term.
As previously announced, the closing of the Fontis transaction is expected in the second half year 2026 and is mainly subject to competition authority approval in Mexico. Overall, the transaction arrangement is reflected by a high degree of deal certainty. In early May, we successfully completed a private placement of $250 million of 5 year senior secured bonds with a coupon of 8.125% and a borrowing framework of up to $500 million. The primary use of proceeds is to refinance the existing 2026 notes. Let me now move over to some overall quarterly results, and please note that our Fontis financial results is accounted for as discontinued operations with associated assets and liabilities held for sale. Therefore, we are not showcasing any Fontis figure in the operational update as we have done previously.
We released Q1 trading update in connection with the bond issue in May, and there are no material changes to those figures. We reported Q1 revenues of $75 million for Seagems and a combined segment EBITDA of $46 million, compared to $74 million and $50 million in the fourth quarter, respectively. The small decline in EBITDA is mainly explained by the one-time positive effect which was booked in Q4 last year from reclassifying certain withholding taxes from OPEX to income tax. We exited Q1 with a cash balance of $128 million and $254 million in net debt pro forma for the Fontis transaction. Finally, consistent with the previous quarters, the board has approved a $0.22 per share dividend for Q1, maintaining our stable distribution practice. Let's move over to the quarterly performance of our joint venture, Seagems, in Brazil.
As usual, figures referred to here are on 100% basis unless otherwise stated by me. Seagems delivered another strong quarter. I will go through the highlights. Q1 revenues of $150 million and EBITDA of $96 million, supported by strong technical utilization of 98% and significant day rates averaging close to $280,000 per day. The modest revenue increase from Q4 reflects higher day rates driven by positive FX impact, foreign exchange impact, and a Brazilian real dominated component of the day rates. Compared to Q1 last year, the strong revenue increase is mainly due to the full fleet operating under the new Petrobras contracts. As mentioned, EBITDA was lower compared to Q4, mainly due to one-off tax reclassification effect mentioned earlier. During Q1, the JV distributed $83 million, around $41.5 million to Paratus, up from $76 million in Q4. At quarter end, backlogs stood at approximately $1.3 billion.
As discussed on our previous earnings call and in reports, Petrobras is in the market with a PLSV tender for start-up in 2028, offering 4 year contracts across different lots with varying technical specification. The tender deadline was originally due in February has now been pushed to mid-June 2026. Seagems is well-positioned to submit a bid with at least one vessel as a Jade vessel. PLSV is scheduled to finish its current contract in Q3 next year. Now let's go through the Q1 2026 financial results compared to both the previous quarter and the same quarter last year. As mentioned earlier, please note that Fontis is accounted for as discontinued operation with comparison figures in this table updated. Paratus reported net income from continuing operations after tax of $19 million, up from $16 million in Q4, and compared to a loss of $30 million in Q1 2025.
The key drivers were as follows: revenue increased slightly quarter-on-quarter, while year-on-year growth was driven by higher day rates from new Petrobras contracts. EBITDA was slightly lower quarter-on-quarter due to one-off positive impact in Q4. The year-on-year EBITDA increased primarily driven by higher revenues. Financial expenses were in line with the previous quarter and significantly lower compared to last year, mainly due to the upfront fee related to monetizing receivables in Mexico during Q1 2025. Income tax benefited from a lower than provided tax audit settlement in Mexico and the previously mentioned one-off withholding tax reclassification effect in Q4, broadly in line with the last year.
Finally, the strong free cash flow in the quarter compared to both Q1 and Q4 last year was driven by higher distributions from Seagems and lower interest payments compared to Q4, reflecting only the quarter payments on the 2026 notes. Overall, the Q1 financial results reflected continued strong operational performance, solid earnings, and improved cash flow generation. Now, let's take a look into the main cash flow items during the quarter. At Paratus consolidated level, we closed Q1 with a cash balance of $141 million, which represented a decrease from $178 million at year-end 2025. The $37 million decrease in cash was primarily driven by net cash used by discontinuing operation, meaning Fontis, was $36 million spent mainly due to lower collections from Fontis client in Mexico and a payment for a tax audit claim settlement in the quarter.
Cash from continued operations of $4 million was primarily reflecting transaction-related costs and other temporary cash outflows. Cash distribution from Seagems, as mentioned, was $41 million, up from $38 million in Q4. Net interest payments of $4 million, down from $28 million in Q4, reflecting the interest payments on the 2026 notes only. Finally, we returned $36 million to our shareholders, consistent with the last quarter. After these movements, we ended the quarter with $141 million in cash at Paratus level. In addition to this, our pro rata share of cash in the Seagems was $15 million, bringing the total group cash position to $156 million at end of Q1. In summary, Paratus continues to maintain a strong liquidity position supported by stable distributions from Seagems. Moving over to our capital structure, and in particular, to review it on a pro forma basis post the expected Fontis transaction.
Sale of Fontis significantly improves net debt from $625 million in Q1, as you can see here, to pro forma level of $254 million, while also removing exposure to payment irregularities in Mexico. This corresponds to a reduction in leverage from 2.4x EBITDA to around 1.4x EBITDA on a pro forma basis. As announced in April 2029 bondholders approved amendments to allow the seller's credit as part of the Fontis transaction to be treated as a permitted debt and deducted from the net debt calculation. This provides additional flexibility as the seller's credit structure incentivize early repayment with a step-up in coupon, while also giving us opportunity to either address 2029 bonds or support future growth initiatives if we chose to do so.
Subsequently to Q1, we successfully issued a new $250 million in bonds maturing in 2031, primarily to refine the 2026 notes, as you can see here in our maturity profile. To the next slide. Following the sale of Fontis and increased earnings visibility resulting from this transaction, we are now in a position to provide initial financial guidance for 2026. For the full year 2026, we expect revenues in the range of $285 million-$300 million and EBITDA in the range of $175 million-$190 million, reflecting higher revenues as all vessels are now on new Petrobras contracts at higher day rates. CapEx is expected to fall in the range of $15 million-$25 million, mainly reflecting recurring CapEx spend and some preparatory spending for dry docking activities in the next year.
The guidance represents our current best assessment for 2026, but as always, actual results will depend on operational performance, project execution, market condition, and other factors. Should our outlook change materially, we will update the market in accordance with our disclosure obligations. With that, we can open up for a Q&A session. Thank you.
Ladies and gentlemen, we will now take your questions. Just as a reminder, you can submit your questions by using the form at the bottom of the player. We'll now give you some time to register your questions.
I will read some of the questions. For Fontis, please elaborate on the $36 million outflow related to lower collections. As it is here, last quarter in Q4, we+ received over $140 million in collections from our clients, which compares to much less in Q1. That explains the cash burn in Fontis. In addition, we also settled the 2018 tax audit claims, which actually came better than what we have provided for in the accounting.
There's a question on the guidance. Why is guidance lower than what you show in the investor presentation as potential EBITDA? How will you fund dividends for this shortfall?
I can just explain first that the EBITDA figure that we presented before in early announcements was clearly identified as illustrative and not intended as guidance, just to make it clear and to illustrate the cash flow potential under certain assumptions as we have pointed out. This guidance incorporates our latest work activity and plan and budgets. It also reflects what we basically believe is the most realistic outcome based on the information available today. Of course, there are upsides and we're also looking at the downsides if we need to incorporate. Yeah, that's the answer to it.
There's a question about the process or status of the closing of the Fontis transaction. As I've just mentioned in the call, in the presentation and before, the transaction is subject to customary closing conditions. One of them that we ticked off in April, which was the consent for the seller's credit from our 2029 bondholders. That was given in mid-April. The main that is outstanding is the competition clearance in Mexico, which is progressing as planned. With that, necessary filings has been submitted and expected timeline for the closing is unchanged. We expect closing during second half of this year or Q3 as a likely case.
There's a question about the tender. There's some question about the tenders. I can take some of them now. Jade's contract expires in 2027, and the tender now specifies 2028 startup. Is Seagems pursuing an arrangement to avoid gap? Yeah. Petrobras has moved the expected start date for the potential contract or award from July 2027 to January 2028.
Our vessel or one of the six vessels goes off contract in late July or early August 2027. Of course, I cannot go into much detail around the tender process. We are very comfortable with the underlying demand picture and the need for our vessel. Petrobras continues to require these vessels, and based on what we know today, we believe there's good possibility that the period between the current contract, and it is natural that the period between current contract and then a future contract startup will be covered through extensions.
More on the Petrobras tender. Can you give an update on the tender? Why is Petrobras postponing the bid? Anything we should think about around it? Yes, as I mentioned, it has been postponed, and we are working on a bid, and we will bid at least one vessel as the JV is scheduled to finish its current contract in Q3 next year. Of course, I don't want to go into bid details. With regards to postponement, nothing unusual. Postponements usually occur either as a request from competitors or a standing clarification, meaning that Petrobras needs some time to get back to those.
There's a question about OPEX per day and seasonality. There shouldn't be any seasonality on that. It was lower last quarter, as I mentioned in the presentation, because there was some reclassification of items that we made in Q4 that affect that cost per day KPI. That's why the picture is a little bit screwed in a way. Good to go.
There's a question about M&A or prospects, the usual suspect. How should we think about acquiring the remaining 50% of Seagems from your partner? All I can say is that we hold a right of first refusal for any potential sale of the remaining 50% of Seagems. The JVs, as we have said before, they're performing very well, and we're pleased with the partnership that we have today with the other shareholder. Of course, should any opportunity present itself and the valuation or price be right, we would, of course, consider it, but it needs to be accretive to us. Just to avoid any speculation, there is no concrete process that we are engaged in as a buyer or as a seller.
Please talk about the strategic objectives now that Fontis has been sold. Reviews in early stages, I would say focus is on the right structure for a focused pure-play PLSV business. We also have focus on completing the transaction. Even though it has been signed and agreed, there is still a completion period that needs to be handled and concluded. Post-close, yeah, as mentioned, Paratus is a focused company now, a fully contracted company, owning 50% Seagems, plus the seller's credit that remains outstanding until it's paid, but at attractive interest. As I said, with exposure to payment irregularities and backlog risk mixed, which has now changed to strong cash flow visibility through long-term contracts with Petrobras, an excellent client that pays on time. Flexible capital structure and strong balance sheet. I would say we're well-positioned to explore attractive options in the industry.
There's a question about, will you repay the $29 with the cash proceeds received at Fontis closing? Closing, we expect about $163 million of proceeds in cash for the Fontis sale from the buyer. We can also confirm that we have also met the threshold for getting the $15 million, which was categorized as deferred cash. The answer to that is that in the bond indenture, the sale qualifies as a material asset sale where we either repay at the prevalent call price or need to reinvest within 12 months. Given that this payment is coming during a short period of time before expected closing, and of course, in the absence of any attractive reinvestment opportunities at that time, I would say repayment is the likely base case. Of course, important to note that we have that reinvestment right.
There's a question about the valuation. On Paratus, you said you need the acquisition of 50% to be accretive. Would you be willing to pay the price of Paratus for the 50% stake? That is, of course, not something that I should talk about in this call. It remains to be seen. As I said, it needs to be accreting and meet our thresholds before we can say anything.
A question about the bond raise that we just discussed. "How much better terms do you think you could have achieved if you had offered some amortization?" That's a fair question, of course. "How does this compare with terms you see from lending banks now? Would it be better to reduce leverage over time as vessels get old?" We are very happy with the results of the bond issuance in May. In terms of leverage, we haven't really stated or operated with a fixed target leverage ratio, but rather adjusted necessary in three cycles. As you mentioned also, yeah. Also considering the aging of the vessels.
Just to think about the recap, this company used to have over 3x EBITDA in the last couple of years, over 2x EBITDA now after Fontis. Assuming the Fontis transaction completes as expected now at 1.4x pro forma times EBITDA, which is now well within norms for a dividend-paying company in our sector.
Another one on debt. "Will you have 1.4x leverage given you raised more debt than needed for the refinancing?" Yes. We issued $250 million of debt, primarily to refinance 2026, but at the same time, also strengthening our liquidity with the remaining balance. Also, for practical reasons, do all in one go. We consider this a comfortable and reasonable size. If you look at it, we haven't really increased today's leverage as at the same time, we're also paying down debt at Seagems level over the next 2.5 years, practically with almost the same amount.
There's a question about dividend capacity. "Can the board confirm the currently quarter dividend is sustainable and remain company policy? Does Fontis proceeds create any capacity for additional distribution to shareholders?" Maybe take the last first. Fontis proceeds, they are, as I said, categorized as material asset sale, and they need to either be applied to repay the 2029 bonds or reinvest it over the next 12 months. We cannot use it for dividend distribution. In terms of the dividends capacity and how long we'll be able to maintain it, as we mentioned in the calls before, we have not committed to any fixed dividend amount.
Our focus is or has always been to provide stable and sustainable shareholder returns. Each quarter, the board, based on also management recommendation, assesses dividends based on liquidity, cash flow visibility specifically, backlog, of course, it goes without saying, market outlook, and balance sheet strength. Of course, within the framework limitation of the debt agreements. Today, we believe the company is well-positioned, supported by strong cash generation, and we also have a very strong cash benefit and low leverage.
A question about our recent organizational changes. CEO left and the chairperson was not reelected. It's not much actually to say on this. You can read all about it in our press release. There's nothing more behind it. Basically, the CEO resigned, and the chairperson was not elected at the AGM. There are no disagreements as the question is there.
I think we have answered all or most of our questions. Before we close, there are some detailed questions also around the Petrobras tender, which are good, but given the commercial sensitivity of the process, we are not able to go into our bidding strategy here. I think with that, I think we'll wrap up for today's call. Thank you all for joining. Thank you for the questions, and thank you for your continued interest in Paratus. We look forward to speaking with you again in the next quarter in Q2. Thank you.