Reach Subsea ASA (REACHO.OL) Earnings Call Transcript & Summary

Good morning, and welcome to our second quarter 2025 webcast for Reach Subsea ASA. Our report and presentation were released this morning. I am Jostein Alendal, CEO; and I'm here with our CFO, Birgitte Wendelbo Johansen. Let me start with the key highlights and some of the achievements from the quarter. And additionally, I will show how we are positioned for both navigating in our dynamic market as well as growth. Also an update on our Reach Remote progress. Birgitte will then cover our financials more in details. Please submit questions via the webcast player. We will address them in the Q&A session after the presentation. Our second quarter results are weaker than last year and not up to our ambitions, of course, and this is mainly due to lower utilization of assets. In oil and gas in our second quarter, we have seen some idle periods for some of our vessels in a market that is more conscious. We have all experienced the ongoing geopolitical turbulence. And naturally, this also makes its way to overall industry. We are facing our conscious market in a world that continues to shift where some decisions are put on hold and activities are postponed. This is also reflected in our order backlog and tender volume, which is slightly down compared to last year. However, the long-term outlook is good. The CapEx outlook for next year and beyond remains sound. And the OpEx activities, maintaining existing offshore infrastructure will continue and also increase. Hence, be a stable and resilient part of our business for the years ahead. Also, our services offering and abilities remain highly relevant across of all offshore industries. Although the financial performance of the quarter is weaker, our half year results for '25 is all-time high. We stay focused on our strategy on building a global company with the investments for the future and at the same time, navigate in the present market with all its movements and changes. Bumps in the road should be expected, and cost of vessels and vessel commitments are our biggest cost elements. And I will highlight the flexibility we have in our fleet. Our business model is based on leasing the main vessels rather than ownership, partly ownership is reserved for a few strategic core assets. The fleet structure provides us with a good predictability through our combination of fixed agreements and profit share models. The options gives us flexibility to replace vessels or reduce the fleet if deemed appropriate, our charter agreements have also cost-effective rates compared to current market prices, which is also reflected in the options. The 2 new IMR vessels scheduled for delivery in '26 and '27 represent modern technology, especially on the fuel side. Whether these vessels will expand the carbon fleet or replace existing vessels remains to be seen and depends on the market situation. There's nothing to suggest that a fleet downsizing is necessary given today's market outlook. However, if that situation were to change unexpectedly, we are well positioned and can reduce tonnage on a short notice. Based on this, we have a strong and flexible position with the ability to adapt to market changes in the coming years. The Reach Remote 1 and 2, which has now joined our fleet are key growth enablers. I will come back to this in a bit. But further flexibility in fleet is one thing, our ability to sell services across sectors and add on to the overall flexibility. Our services are in demand, both in well-established markets like oil and gas and wind and in new growing sectors. What all these markets have in common is that the clients' assets needs to be planned, installed, operated, monitored and eventually decommissioned in the ocean space. Our services support all of these phases and can be divided into 3 main categories: IMR services, that is inspection, maintenance and repair as well as light construction work. Uptime on production is our top priority for our clients, and we provide efficient solutions to help them with that priority, which is why they keep coming back. Framework agreements and being an approved supplier are essential in this segment. Surveillance and inspection service involved collecting and processing data from the seabed and subsea installations. The client receive fully processed deliverables, such as maps, 3D models and reports that support their decision-making. These services are offered both independently and increasingly as integrated solutions. In the monitoring segment, we have built strong expertise in geological monitoring using our own unique technology which is especially well suited for detecting changes in gas and CO2 levels in reservoirs. It might not be virally known, but we want to talk about 80% of Norway's gas production today, and we are now exporting our concept to other regions with extensive gas production. The contracts with Woodside in Australia is a good example there. Another example from this quarter where we use the same methods and technologies from typical oil service in outdoor segments. Late spring this year, our team took a deep dive into investigating wreck of the second world war, a German submarine, which is rest at 116 meters of water off the coast of Norway. We provided the Norwegian Coastal Administration with updated data at a resolution, not seen before at this site. Using our remotely operated vehicle, our team conducted a high-resolution survey and data gathering of both the wreck and the surrounding area. All the collected data had more than 160,000 images were processed using our in-house developed workflow to produce the highly detailed 3D model of the wreck, you can see here. We also mapped the subsurface using our combination of standard sensors a new electromagnetic system technologies. This is to be able to give a better estimation of how deep the wreck buried below the seabed surface. These detailed 3D models give the client an accurate and in-depth know-how of their subsea assets. So either a wreck as here and oil and gas or wind installation, we produce highly efficient inspection, data collecting and processing. And then over to even more technology for the future. Finally, we can also present Reach Remote 1 and 2 in our operational fleet. The Reach Remote investment is a good example where we address both the current and the future. Following our successful pilot, Reach Remote 1 has completed commercial campaigns in the North Sea, the survey and IMR work for Equinor and TotalEnergies, further validating our position as a safe, efficient and cost-effective alternative to manned vessels. Further, she is now on a job for Shell on the Ormen Lange field for the next 4 weeks. This validation reflects not only the vessel's technical functionality, but also the strength of our teams who successfully plan and execute campaigns from onshore controlled centers. With this, we have also demonstrated an extremely short way to market with a new concept. Adoption of new technology goes hand in hand with maintaining high standard in project execution and client satisfaction. During the offshore work, we have been operating with an existing vessel, but this is expected to leave the scene as soon as the final documentation of the validation is processed by DNV and the maritime team authorities. The phase of technical development in remote operations is accelerating, with successful jobs driving further demand for expand work scopes and add functionalities. This includes both tooling specialized for unmanned operations and enhanced communication and software capabilities. Reach Horizon, our in-house developed virtual operation system is emerging as a key stand-alone product. originally designed for Reach Remote and now deployed across conventional vessel operations. While Reach Remote 1 received its share of fame, her twin sister, Reach Remote 2 has prepared for her own journey, she is also now ready for commercial operations and is now on her way to Australia for the first job for Woodside on the Scarborough field this winter. Our plans to scale up the fleet with more units and established Reach Remote in all time zones continues as the concept is no longer questioned. It's a proven solution for subsea and maritime team operations, now and into the future. So with this, I will hand over ever to Birgitte, who will take you through our financials.

Good morning. Thanks for listening into our webcast. Remember that you can write questions in the chat while we speak. If we start by looking at second quarter isolated, our utilization was somewhat lower than previous second quarters. revenue was NOK 684 million with a 13% EBIT margin compared to NOK 623 million revenue in 2Q '24 with a 19% EBIT margin. Year-to-date results are strong due to an exceptional strong first quarter, and we have all-time high revenue of NOK 1.4 billion compared to NOK 1.2 billion in the first half of '24. Pretax profit for the second quarter was NOK 88 million compared to NOK 111 million in the second quarter last year. In June, we took delivery from the yard of the Reach Remote number 2 after a successful pilot and start-up of commercial operations for the first USV. And the first half 2025 cash flow is heavily impacted by investments, which includes mobilization related to these assets. Cash for quarter end was NOK 170 million, and our net interest-bearing debt, excluding the IFRS 16 lease equipment was NOK 122 million. Our increased debt for quarter end is related to the investments in Reach Remote, which are financed with bank loans. After quarter end, the second of July, we closed a bank loan of NOK 500 million, the first in Reach history. We're very pleased to recognize that the market showed great interest in participating in the bond, as this was an important milestone for us to diversify our capital funding sources. This graphs illustrates Reach's financial development the last 8 years on a rolling 12-month basis. We've had a substantial revenue growth, a result of increased activity with new technology and assets and expansions to new business segments and regions. Our M&A activity has contributed strongly to our performance and ability to offer integrated projects to our clients. And by increasing the capabilities of the vessels, we have grown both our revenue and profit steadily over time. Going forward, we have good flexibility of growing our fleet with Reach Remote 1 and 2 and the Agalas vessels, not on tonnage with many opportunities on the tendering side. We have focused on a sustainable and profitable growth, and our operating results and pretax profit has a large extent, improved in line with the revenue growth, as you can see on the graph. Let's look at the revenue mix split between segments, sectors and regions in the quarter. Our second quarter turnover from renewables and other sector was 41%, while projects in the oil and gas sector represented 58%. We also split our revenue on our 2 major market segments, data and solutions. The split here is not 100% academic as we experienced that quite a few projects include both segments. Solutions refers to a service projects where we do installments, maintenance, repair, decommissioning and et cetera. Data is where we deliver a data package to the client, typically a survey of a pipeline, seabed, cable route positioning, inspection and so on. The last year, we've had substantial investments in technology development within the monitoring survey and data, which we expect to see the results of in our financials in the coming years. In 2Q, about 77% of the turnover came from solutions due to a few larger service contracts, including a high number of vessel days, while 23% came from data. We also present our geographical distribution of turnover to illustrate our strategic expansion to new areas as well as meeting new and existing client needs. In the second quarter, activity in Europe, including Norway, represented about 65% of our revenue compared to 78% last year. Over to our balance sheet. We continue our sustainable growth also into 2025, balancing cash and working capital and debt with a robust equity level. We have a cash and working capital position of just about NOK 450 million. As mentioned, taking delivery of the Reach Remote and other investments has increased our debt to financial institutions. Our commitment related to active charter parties, hence, our IFRS 16 leasing liabilities has been reduced in accordance with remaining time on charter parties. The equity share is almost 40% of the total balance sheet as per quarter end. Reach is well positioned for the remaining investment in Reach Remote and vessel and equipment mobilization for our fleet in order for us to have all vessels ready for integrated subsea and survey projects as well as the planned scale-up for the Reach Remote units. We use sustainability and ESG focus as a foundation for profitable growth in line with our strategic goals and KPIs, on the environment and safety side, we have had a good start of the year with no major spills or major accidents. Unfortunately, we had 2 LTIs this quarter, but we are very glad that our colleagues are fully recovered and back at work. We are investing heavily in remote operations and a modern environmentally friendly fleet. As part of working more remote, we rely more and more on digital security. And therefore, we have put cybersecurity high on the agenda, together with the ISO27001 certification. We work continuously with improvements, focusing on compliance but also nature-related risk impacts and opportunities and are establishing our own Reach Academy for internal development of our colleagues. Thanks for listening. Jostein, I give the word back to you for a summary before we continue with the Q&A session.

Thank you, Birgitte. In summary, Reach Subsea is well positioned to capture market opportunities ahead with a strong presence across the world, we bring a recognized subsea expertise to our global market. The long-term outlook remains promising, even driven by investments in energy and infrastructure across oil and gas, offshore wind, subsea cables and emerging sectors like carbon storage and environmental monitoring. Strategic growth initiatives are well underway, supported by long-term and flexible vessel capacity, a growing footprint and remote capabilities through Reach Remote. We are constantly delivering excellent services that are solid operational track record, efficient project execution and optimized asset utilization. Technology innovation is at the core of our strategy, our leadership in marine robotization and remote operations continues to drive efficiency, scalability and sustainability. Financial strength and sustainability remain a priority. Our performance enables smart investments, disciplined expansion and a shareholder-focused growth path, backed by a highly skilled team and commitment to continuous improvements. We are set to deliver exceptional services, strong results and accelerate the shift towards next-generation subsea operations. And with that, let me conclude the presentation with our saying everything within Reach and please continue to submit your questions in the webcast player, and we will return shortly to answer them.

Yes, I see we have received quite a few questions already. You can continue writing questions in the chat while we speak. We'll try to answer everything as good as we can. The first question is for you, Jostein. Can you say something about the duration and the scope on the Reach Remote 2 contract in Australia?

Yes, that's estimated to be a couple of months. So 60, 70 days on the field.

Yes. Thanks. The next one is regarding the cash position, which was reduced, in the second quarter. And there's a question on what the cash position will be in Q3? I guess I can answer to that. But as you know, we raised the bond loan of NOK 500 million in July -- early July, of course, that will positively affect the cash position. So this development in the cash position was according to our plan. We had a very strong cash position, but that was to be prepared for taking the investments in Reach Remote and the other mobilization that we've done. So it was a surprise for us. The next one is for you, Jostein. Reach Remote has been active in this quarter, mostly accompanied by a larger vessel. When will it be feasible for Reach Remote to operate independently?

I guess that's just around the corner. As I said, that a huge number of documents to be processed and so on. So we have said the next couple of weeks, a couple of times, but we are still there. So it's just -- remember, this is the first in the world of this size unmanned vessel. So there's quite sort of absorb the amount of documentation needed to say, yes, this is without. But in the next -- I say again in the next couple of weeks.

Yes. Thanks. The next one is also for you, Jostein. How can the market shift so quick, what kind of work is shifting to the right?

I think, well, the turbulence in the winter time and some strange precedents, some tariff trade wars and everything is inflicting us as well. So not such a surprise. But I think when you shift work or postpone work, it's just going to end up in the fourth quarter. We have seen that before many times over the years. And so the -- well, it's just normal turbulence when big things are happening.

Thanks. The next one is also on Reach Remote. Yes, it say, it’s a question of duration, but there's another one. How is the outlook for additional work in Australia for Reach Remote?

Quite good actually. I forgot to mention that because sort of the outlook is 100% annual utilization when you first start, and so we have several clients, well, we try to line them up, so to speak. But there is a lot of work in the pipeline in that region. So it has been a long-term strategy for us to establish in all time zones. So this is the first step in that long-term strategy, so.

In the Q1 report, you mentioned that the order of Reach Remote 3 and 4 will be placed by mid-summer '25. Has this been done?

No, no, not yet. It's in the plan. So -- but not yet.

Yes. And I guess the next question is a little bit related. Does the company have any plan to place the loan of NOK 500 million until you need it? I guess I can confirm that, yes, there is a plan. We cannot disclose all the details there yet, but there's definitely a plan for placing the money until we need, yes. Do you have any details regarding the scale-up speed for remote vessels going forward?

On the scale of the speed of the numbers is also dependent on clients. We are talking with a lot of clients for the number 3 and 4. And it's always a good thing to have some firm and fixed work in the order and when it comes to ordering new vessels. But the speed will accelerate and we have seen that just the past 3, 4 months, when we have been doing work in the North Sea and proved that yes, the concept is working. The vessel is solid, and it's safe, and it's working, and it's doing the job. So yes, I don't know the speed of scaling up is a bit dependent on the speed in the coming months, I would say, but in the long term, yes, our plan is to have Reach Remote vessels, unmanned vessels in all time zones and markets and the numbers, I don't know, we will end up with 10 or 20, time will show.

Yes, exciting plans. It looks like a lot of subsea vessels from the traditional vessel owners have become available in the late part of the summer and into the fall. How do you see the pricing being impacted by more competition?

There is a slight impact on the pricing. But amazingly, the pricing of vessels remains high. But it is just the vessels coming from the offshore wind. Offshore wind activity is quite down at the moment. But this will sort of change. So the dynamics of the market is the same. So -- but the pricing is holding a level, that's...

Can you talk about the long-term economics of the Remote, what does full utilization look like in terms for revenue? will the OpEx reduction mostly benefit the client? Or will it also increase Reach's margins? When will the investment decision for 3 and 4 be made?

I think we answered. We're not guiding literally, but no, we are not going to give all way -- all the benefits away to the clients, of course. There is a situation there. And I think I comment on the speed on scaling up. So it's nearby.