Ashtead Technology: Relative Scale & Logistics Moat

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Yes, why does Ashtead exist, and why doesn't the ROV manufacturer produce the equipment that Ashtead rents today?

The ROV manufacturers are highly specialized companies. They essentially build the vehicle, similar to building a taxi. Their expertise lies in electronics, particularly for the command and control systems of the vehicle. They also focus on hydraulics, specifically electro-hydraulics, which involve the motor that drives a hydraulic pump providing hydraulic flow for the thrusters. This allows the vehicle to drive the motors themselves, manage buoyancy, lights, and all the cables and interconnects. On the other hand, the expertise of sensor manufacturers is more scientific. It involves high-frequency sonar systems, inertial navigation, and high-accuracy gyrocompasses. These are very specialized instruments typically produced by manufacturers like iXBlue, Teledyne, Sonardyne, and Kongsberg. They create this type of instrumentation for various purposes, including military, fishing activities, survey activities for deep-water seabed mapping, and scientific oceanography. Manufacturers like Teledyne and Kongsberg specialize in these sophisticated instruments, and there are many of them. This is not the natural environment for ROV manufacturers, who are more focused on building the vehicle itself. These vehicles are quite sophisticated, with complex launch and recovery systems, TMSs, etc., but they don't specialize in sensors.

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Yes, why does Ashtead exist, and why doesn't the ROV manufacturer produce the equipment that Ashtead rents today?

Operators of ROV systems, like ROVOP for example, don't typically buy the sensors themselves. The variety of sensors required for each project differs, and companies like Fugro, ROVOP, and Oceaneering will purchase some instruments if they have a long project and need them. However, managing a fleet of sensors is challenging due to the need for calibration, firmware upgrades, repairs, and logistics. Often, the equipment is not in the right place when needed, or it doesn't have the required depth rating. Additionally, from a financial perspective, these instruments are expensive, and operators prefer to keep them off their balance sheets. Owning these small instruments is not core to their business, and they require maintenance, servicing, and tracking. Ashtead Technology provides a solution by offering the ability to rent the necessary tools for a particular job when and where they are needed.

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Got it. You mentioned that the availability and positioning of the equipment is important depending on where the job is going to be done. This introduces a variable, which is the logistical outreach of the rental company. How much of the equipment rented from Ashtead is planned years and months in advance? And how much of the rental activity is ad-hoc, where it becomes critical for Ashtead to have a large breadth of equipment available in many different places all the time?

For large construction projects, say in the Gulf of Mexico or West Africa, you typically know a year or six months in advance. The date might change, the exact field layout might change, and the number of components might change slightly, but you have better visibility. However, the rental company might not be decided at that point. They may come to the rental company quite late and say, "You've won this contract, you need to supply all this equipment." So, for bigger jobs, you have better visibility. But for the majority of the work, the equipment provided by Ashtead is on an-ad hoc basis where there isn't much visibility. Typically, if you're going to value a business like Ashtead or any other rental company, the first thing you'd do is ask about the backlog. In fact, the backlog is pretty much zero because even if they've been awarded a job, a client's vessel change may mean they don't need the equipment anymore. There's no guarantee that it's locked in. Another component is the season. In the northern hemisphere, there's a lot of activity in the summer. Companies like Sulmara and others try to plan ahead for their seasonal campaigns because they have a vessel working on a particular contract for 100 days. They try to plan that as best they can, but it typically doesn't work that way. So, there is a lot of last-minute movement of equipment, flexibility, push and pull, if you like.

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