General Oceans ASA (GENO) Earnings Call Transcript & Summary

Welcome, everybody, to the presentation from General Oceans for the Second Quarter of 2026. My name is Atle Lohrmann. We're going to give the presentation today. I'm the President and originally founder of the company. And along with me today, we have Anton Van Heerden, who is our CFO, and who is going to give our financial overview a little later. We're going to divide this in 2 sections. I'm going to be speaking a little bit first, and then Anton is going to take care of the numbers as we get to that point. So the big story this second quarter really is that we've had a good quarter. I think that's -- I mean, there are a lot of details to talk about, and we're going to address many of them. But I think the core story is that we are pleased with the first -- with the second quarter. And I think to some extent, you can argue that we balanced a little bit the first quarter, and we can now start looking also at the numbers for the first 6 months of the year. So revenue in the second quarter was NOK 385 million. That is 22% increase from the second quarter of 2025. And that is in spite of what we consider to be a negative effects of FX because especially since we're reporting in NOK and a lot of our sales is in U.S. dollars through the different operating companies. There's obviously an effect when the relative rate between U.S. dollars and NOK changes. So this year, it has gone in a negative direction, and it's typically been around 7%, 8%. We can discuss sort of exactly how it goes into the P&L. But definitely, there is an effect there. So when we're looking at 22% growth year-over-year, you would really have to add in the FX effect if you're looking at the underlying numbers. Adjusted EBITA has been NOK 85 million. That's an increase of about 18% compared to the second quarter of 2025. And the margin has been 22%, and which is slightly down from the second quarter of '25 at 23%. The underlying effects of the different operating companies is variable, meaning that the sensor companies or the Sensors segment in general has slightly lower margin this quarter, whereas the Robotics segment has higher quarters. So there's a little bit of balancing going on between the different companies to arrive at the 22% overall margin. One of the biggest events of the second quarter in terms of the activity that we've had is we've fully integrated MRV, and we're going to get back to some of the details around that. But it was consolidated into our accounting from the 9th of April, '26, and it added effectively NOK 28 million to our second quarter revenue numbers. Order backlog is about NOK 548 million after the first half year, and that added a little bit. So we're going to get back a little bit to the backlog numbers as well and talk about sort of how that is reflected in the different types of company because we have operating companies that are not all the same in terms of how we deal with backlog and what the expectations are in terms of how many months of visibility we have. Overall, the Subsea segment in the defense area is growing quite rapidly right now, and you'll see that when we get back to the numbers for our 3 different activity areas. So the companies that are in the group have a very variable fraction of their sales into the defense. So it will affect each company slightly differently. But overall, it's very, very clear that there's a shift going on in the subsea sector right now where the defense is becoming quite dominant. The thing there is that there's -- yes, we'll get back to it again, but there's a mixture of money coming into that. And obviously, we all kind of associate ourselves with the macro trends. But within the macro trends, there are a lot of details and the different companies are being affected differently by this growth that we're seeing. So overall, a good second quarter. We're on track to meet our annual budget, which was NOK 1.5 billion in revenue. So we're looking at that as a very positive evolution for this quarter. And in terms of cash flow and how money does in the bank in the balance segment, we are working hard to keep our working capital within our targets as well as the CapEx, which is actually a little bit below the initial target for the year. So that is an overview, and then we'll get into some of the details. In terms of the numbers, it's pretty straightforward. And so on the revenue side, we're looking at an increase from NOK 316 million to NOK 385 million for the quarter. For the first half year, which we've included here, you'll see an increase from NOK 661 million to NOK 712 million, which is an 8% increase in the revenue for the first half. Again, both first quarter and second quarter had this FX effect. So it looks -- it means that the underlying growth has roughly been 15% or so. So if you add those 2 numbers together, if you're really looking at what's going on internally. Now there are so many effects in different directions of these companies. So we do, in many ways, as a matter of principle, prefer to keep our eyes on the actual numbers, because otherwise, digging into all the variability that's underlying it can be a little tricky. On the adjusted EBITA, again, from NOK 72 million to NOK 85 million, an 18% increase. And then on the first half, we have a 4% increase from NOK 139 million to NOK 144 million. And then if you go down to the adjusted EBITA margins, you'll see that it tracks very well with the revenue numbers. So there's not a huge variability. Second quarter has been good with 23%, 22%. And then for the first half, we're in the range of 20%, which is close to our overall targets, what we're working for, which is between 18% and 20% So we're well within the numbers as we have announced previously, both during the IPO, which happened on the 26th of March and after our first quarter results. Total backlog, as I mentioned before, is actually increasing a little bit. Part of that is because MRV, which was the new acquisition that came in April, actually came in with a pretty nice backlog as they entered into the system. So it's all -- different companies go a little bit up, go a little bit down. But overall, the backlog structure is quite solid. On the revenue analysis portion of it, we do divide our market in 3 different application areas with defense; marine construction, which includes wind, oil and gas and any kind of operational activity in the ocean; and then we have the science bit. If we're starting on the right-hand side, the ocean science bit has been pretty steady. That is typically funded by government. There's been a lot of talk about science funding in the United States. I would think sort of overall that there has been -- the administration is not always happy with what the scientists are doing in the U.S. But in terms of its effect on the numbers, it gets mitigated by 2 things. First of all, there is a strong dispute between Congress and the administration about how this is going to be funded. So when -- sometimes when you hear that the administration is defunding certain projects, the Congress is actually moving in and actually changing that. So the effect, in many ways, on this look at the financial side is actually that things get pushed out in time. Some money that should have come in April is coming in October instead. And that's also what we're hearing from the market in general is that a lot of things get pushed out in time. The other part that's happening, which is interesting is that foundations, ideal organizations are basically stepping in and filling in the gaps in the science bit. So our expectations for the future on the science is that it's still going to be growing, but at a fairly slow rate, but we're not seeing any catastrophes happening based upon the U.S. administration's influence on this particular area. On the marine construction, there's no doubt that the effect of the reduction in activity and specifically the start-up phase of wind activity has affected the numbers for Q2 quite significantly and also for the full first half year. And we've seen that across the board in the companies that are engaged. We've seen numbers from the service companies specifically, basically the people who actually conduct the surveys and go out there and collect all the data and for which we supply sensors and systems that they use. That particular business area has had major layoffs, both in '25 and '26 and projects in the wind area, even in Southeast Asia are getting pushed out in time. So I think we are seeing a fairly, at least for now, persistent reduction in activity in the wind. Oil and gas is picking up some of that. And of course, there's a lot of other activity related to ports and harbors and sort of more normal operational things that are happening. So those projects are still going forward. But the specific reduction that you're looking at in the marine construction area really is mostly about the wind -- reduction in wind activity or wind construction, early phase wind construction. Now what is not going down at all is the defense application area, which is growing quite rapidly. It's being pushed, I would say, sort of predominantly by -- for our companies, a lot of it has to do with mine countermeasures, basically, the activity of trying to remove mines from the ocean or intensify them and making sure that you can go into certain areas without getting blown up. And we see that, of course, we got emphasized even more with the Strait of Hormuz and the things that are happening now in Iran and things like that. It's just sort of -- it puts a light on that particular activity, and there's a lot of engagement in it. The other part on the defense sector that is particular interest for us is the area of navigation, underwater navigation, which is also strengthening the companies that are providing sensors for underwater navigation. So it's not like a one-to-one between Robotics segments and the defense activity. The defense activity is also pulling along activities in the sensor companies. So it's a little more complex than just looking at it from the point of view of looking at the Sensors segment and the Robotics segment as a separate areas. That doesn't mean that the Robotics segment isn't becoming larger on a relative scale relative to what they've been before. So there is definitely growth in that area and the robotics companies as such are very healthy right now. They got -- they are contributing the larger margins, and they're also contributing the larger growth. So we're definitely seeing it, but there is also defense components in the sensor companies that is of significance. A few words about MRV and the integration of the company. We consider this to be quite a successful acquisition. And that's not just about the numbers as such. It really is sort of the underlying structure of the organization and the way it's been handled and integrated into the General Oceans Group has worked quite well. Again, we talked about previously that some of the funding for scientific activity and MRV is specifically associated with what's called the Argo program, which is an international program to collect data -- physical data primarily from the ocean and delivering that to meteorological services across the globe. And that's one of the areas where we see sort of how foundations have stepped up. In addition, MRV has gotten their first contract for defense applications. So defense is now going to be playing a larger role in their evolution, and we're looking at that company very positively going forward. We're organizing, reorganizing, working with them, integrating them in. On the sales side, they're getting integrated with Nortek's worldwide distribution system. We're also looking at integrating them with SRS, which is our San Diego company, and we're actually now opening a second facility next door to SRS in San Diego, which is going to be a collaborative facility between MRV and SRS. So we're trying to find the synergies and sort of how we can work together very actively as we are embracing MRV as part of the group. Management is now part of the reporting structure. And supply chain is something that we're working on because this was an extremely American-focused company. So this is one of the areas where we're benefiting from the larger group structure by being able to introduce them into the worldwide scheme of General Oceans on distribution and sales. On the segments, I talked about a little bit about the downturn in offshore wind. We talked a little bit about the FX effects that obviously had an effect on both Q1 and Q2. The other element that is very important for the long-term success of the Sensors segment is our new products. And they've been lagging a little bit, but -- so we should see the effect of the newer products. We're going to see that primarily in 2027. And all of the companies in that segment actually have new products lined up for introduction later this year and then more commercially introduction in 2027. On the Robotics side, again, all of those companies are at least partially serving the defense market, some of them 100%, some of them 60%, 70%. We are now refocusing our resources, especially on the sales side from segment Sensors into the Robotics because that's where we see the larger growth. So in terms of the evolution of the business that we're in, there is a clear need right now to reorganize a little bit with the refocusing things in the areas where we see the largest growth, which is then on the Robotics and the segment side and the defense application areas on the application area. So we're really working very actively to sort of make sure we're taking advantage of the evolution that's happening. We're also then trying to establish relationship. We have decided on an organizational focus. And sort of as a philosophy, we are going to be providing sensors and systems and subsystems for the primes, which means the larger defense organizations. Those are sort of the neo-primes, which are all the cool things that are privately funded right now and to make sort of large autonomous submarines and those kinds of things that we're working with. There's a whole change going on in terms of subsea warfare. And I think we're looking a little bit at the kind of things that happened on the drone side in Ukraine. We're now seeing a parallel activity going on in the subsea space and for navies around the world. And our job now is to make sure that we are set up to serve that change that's actually going down. Okay. So on the outlook side, target of the year, still NOK 1.5 billion in revenue. We have not changed our outlook for that. Everything sort of fits with what we've seen from the first half. So we're as confident as we can be or at least sort of this is what we're working at. We are on the M&A side, which obviously is of interest. There's a lot of activity right now. There's been some very, very big acquisitions, the multibillion-dollar acquisitions going on. So that part -- the space that we do not play in, but the fact that there is a lot of activity means that the larger companies are really looking at how the space is changing and are making sure that they can adapt to the new changes by acquiring the smaller companies that are out there. There's also PE funds that have been messing around in this area and looking to sort of see what they can acquire. And so there's competition is really the big story. We have had an attitude about it where we tried to be disciplined. We're trying to make sure that we're not buying things that are not going to give us long-term value creation in general. But we are active. So we are talking to companies. We will, at some point, see new companies getting integrated. But we are careful about not overpaying and making sure that these companies that are coming into the group are relevant for our strategic targets. As I mentioned, we're shifting resources and then we're improving the relationships we have with the defense industry in general because we were not originally a defense company. So we're kind of doing a pivot here. And then on the AI side, which everybody is talking about these days, we're really looking at the major benefit of AI into the areas of product development. So we're running multiple prototype projects right now where we're looking at how we can use AI to actually facilitate and improve the speed at which we can develop new products. This is the area where we're spending a lot of resources, a lot of money is going into R&D. And if we can be more effective in that area, we think that can contribute to the long-term success of General Oceans. And with that, I'm going to leave the word to my colleague, Anton Van Heerden, who is going to talk about the numbers.

Good morning. Thank you, Atle. I'm just going to touch on the financial highlights in our report. This slide, just to reiterate, it's just to give a flavor of the movement by quarter over time. As you can see, quarter 2 2026 at NOK 385 million versus NOK 316 million in 2025 is quite significant. And also, it appears to be the highest quarter. But if you take out MRV, it's actually the second highest quarter we've had. Margins are still good at 22%, 23%. We are on track. We are still looking into improving our margins in all entities, but we are happy with our performance up to date. Moving on. Cash flow and working capital. We started the year with NOK 341 million. We generated on an EBITDA basis, NOK 155 million. And then we spent money in our working capital, CapEx and income taxes. A big spend was purchasing MRV at NOK 176 million on a net cash basis. This column over here at NOK 420 million is the net effect of the IPO, where we generated NOK 500 million on new shares. We issued some treasury shares and we repaid back our treasury share debt. And we had about NOK 30 million in transaction costs, ending at a net cash inflow of NOK 420 million. Ending currently at NOK 546 million, which still gives us a good cash reserve for our future M&A activities. We also have NOK 325 million in undrawn facilities on top of this, which gives us quite a nice pool for M&A activity. On this side of the slide, it is our working capital, net working capital graphs. As you can see, we're trending around 15%. Our target is actually 15% to 20%. So quite pleased that we're actually beating that target up to date. This slide is our backlog. You can see our backlog is at NOK 548 million. The order intake is fairly steady over the last couple of quarters. These spikes you see in is when we get the large contracts in, like defense contracts. The order intake in 2026 is Sensors and Robotics is 32% Robotics and 68% for Sensors on the current year. And our backlog profile as of June is about 50-50 between Sensors and Robotics. Here is our P&L profile. Atle already talked about it, so I'll just touch on the main highlights for us on the P&L. Half year, we are NOK 712 million versus NOK 661 million in 2025. Our gross margin is trending at 70% range, 70% versus 69% and both -- trending in both in the quarter and half year on that. And adjusted EBITDA, Q2 was quite good at 22% versus 23%. But on the year, it's averaging at 20%, 21%. Breaking it up into our segments. This is our Sensors segment. As you can see, just to highlight, the -- if you look over here, our gross margin is 65%, 67% and on the half year it's 65%, 64% so very stable. It is lower than the group as a whole because Robotics has lifted us up on the gross margin. But you can see at the bottom, again, when you get to an EBITDA range, we are now 20%, 22%. Robotics, you can look at our changes. You can see there was quite a significant increase half year to half year on a revenue basis. It's really not really compatible. We've increased our Robotics segment significantly this year compared to the same period last year. But if you look at a comparable on a percentage basis, you can see the gross margin is 80%. That's to do with product mix, very favorable for us at this stage versus 55% in the first half of 2025. And the EBITDA contribution is 41% from the Robotics side, which has helped us achieve 22% for the half year and the quarter. On balance sheet, we had some movements in the balance sheet. Of interest is the increase in the fixed asset component, which is NOK 188 million, which is driven by goodwill and the intangibles with the acquisition of MRV. Our CapEx spend is at NOK 17 million, which equates to 2% of our year-to-date revenue. And that is our target range between 3% and 4%. So we're well within our target range on our CapEx spend. We are not behind on CapEx spend. This is according to budget. So we are not -- we are spending where we need to spend on our CapEx. And our investments increased to NOK 20 million. It's another NOK 10 million increase in Q2, where we invested another $1 million into the ReynKo investment we have. And then the net working capital, as mentioned before in the previous slide, it ended at NOK 194 million, which was 14% of our LTM revenue. So overall, our capital management is quite still within our parameters we're aiming for. This was a slide we presented on IPO. It hasn't changed. Our target is still NOK 1.5 billion for revenue. As Atle mentioned, our EBITDA target is 18% to 20%. And then our CapEx target of 4% of revenues, we're still -- 2% to 4% as we are still within that. Other than that, we are tracking to our trends and quite pleased with our financial performance to date.

We've now reached the Q&A session. I can see we have some Q&As. I'll read them out. Sorry, I'm just moving back to visibility. Okay. I'll read them out so everyone can hear them. The first question that we received is what are the key growth drivers in the defense sector?

The key growth driver is the increase in production of underwater remote operated vehicles, what we call ROVs, and autonomous underwater vehicles, which is usually referred to as AUVs or some people call them UAVs. But it's the vehicle -- the increase in the volume of vehicles that is driving the growth for our companies.

Thank you. The next question is on -- I'll read that. On 21 July, you flagged that Fidelity Investments, one of the largest financial services and asset management groups in the world had become a major shareholder through 7 of their investment funds. They are now our third largest shareholder. Have you been in dialogue with them? And do you expect them to increase their shareholding further?

I'm not going to speculate about what they buy and sell. I think that's beyond my competency level. But we have been speaking to them. We've had the meetings with them as we have with many different investors. It was a very interesting dialogue. They're clearly digging into what we do in a very organized and professional way. And we obviously appreciate their entry into our cap table and are looking at that as a very positive development in terms of our overall cap structure.

Thank you. Next question. What are determining factors for SRS and Klein being able to grow from high base in 2026? It jumped again. Can you give any flavor of potential upcoming tenders that you are planning to participate in?

Well, the activity in those 2 companies is a complex question and it's a complex answer, and I'm going to make it simple. But basically, the Klein area is driven by MCM activity around the world. So it really is about how the different countries and navies are trying to find and eliminate mine. And Klein is typically engaged in the process of finding mines, whereas SRS is involved in the process of eliminating mines. So as long as the focus continues on those 2 -- on that activity, there will be growth in those 2 companies. Now underlying that, there's a lot of geography, what geographies we're involved in and how that thing is on a larger scale behaving. Both of those companies were originally a little bit of a turnaround companies. And SRS specifically is no longer in that category and has obviously contributed very positively to our numbers in 2026. And we expect them through our reallocation of resources, both on the technology side, on the sales side for that to continue going forward. On the Klein, we have different type of strategies. They are more oriented towards the sensing side of it and have different programs to evolve new types of sensors or better sensors. And so their success long term is going to be dependent on their ability to deliver on their product road map.

Next question is similar. I think you just answered that one. How are negotiations and contracting discussions progressing for SRS and Klein for 2027 deliveries? And when should we expect these opportunities to start converting into order backlog?

I think in terms of 2027, the typical delays on the -- on those types of products is actually -- there's not like a single answer to that question, but the typical time lines may be 6 to 12 months on delivery. So I would say that if there's no backlog in any one of those companies by the end of the year, we would get a little nervous. However, there are different programs going on right now. People are bidding on contracts, and there's also a lot of upgrade programs going on. So at this point, I'm pretty calm about the situation and the reduction in backlog we've seen because they've been working on very large contracts. But we're not at the stage yet where their situation is particularly precarious in any way. So I expect that we will see something both now in Q3 and Q4.

Thank you. Next question. You mentioned that the development of drones is increasingly moving into the subsea domain. Could you elaborate on the trends you are seeing, particularly across smaller versus larger AUVs and highlight some of the most interesting platforms your technologies are already deployed on today?