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

Good morning, and welcome to our Third Quarter 2025 Webcast for Reach Subsea ASA. Our report and presentation were released this morning. And I'm Jostein Alendal, CEO, and I'm here with our new CFO, Arne Joa. I will give Arne the opportunity to introduce himself in a bit, and he will also cover our financials more in details. First, I will start with the key highlights for the quarter behind us and our view on the way forward. And not at least, I will further explain the major step in Reach Remote development we now have achieved. By being the first ever unmanned vessel operating in Norwegian oil and gas fields, the concept has taken the big step beyond proof and ready for the next steps. More about that later. Please submit questions via the webcast player, and we will address them in the Q&A session after the presentation. Our third quarter results are below expectations and targets. This is mainly due to 2 things: lower vessel utilization and extraordinary costs associated with the implementation and certification of Reach Remote. I will address the first here and come back to the second later. We knew the market was going to be both cautious and turbulent this year, but having a vessel alongside through a third quarter is quite unusual and for sure, not something we will be continuing with. However, I would like to highlight that we are delivering strong project results also this quarter, a point that Arne will return to. Global uncertainty continues to affect the project timing with some decisions postponed, also somewhat impacting our firm backlog. That said, the firm backlog has, over the years, been approximately 1/3 of our annual capacity. Despite this, we believe long-term outlook for the global subsea industry remains good, supported by stable OpEx activities and sound CapEx plans for the coming years. Our service offering continues to be highly relevant across all offshore industries. And our tender volumes are increasing. Interesting to notice here is the latest increase in pure USV tenders, highlighting a growing market interest as soon as our license to operate was in place. Around 40% of current tenders include campaigns where Reach Remote can be deployed. So let's look at how we can respond to a potential market slowdown at the same time, maintain potential for growth also in the coming years. The largest component of our cost base are the vessels and our business model is based on leasing the manned vessels rather than ownership. Partly ownership is reserved for a few strategic core assets, like the Viking Reach and the Newbuild 76. The fleet's structure provides us with a good core fleet through a combination of fixed agreements and profit share models. Our charter agreements and options still have cost-effective rates compared to current market prices. The options gives us flexibility to replace vessels or reduce the fleet if deemed necessary to adjust to market in the coming years. Some movements for 2026 though have taken place lately. We have exercised the first 1-year option for the subsea vessel Olympic Triton, extending the charter through February 2027. We have also been informed that the delivery of the newbuild vessel Viking Vigor has been postponed from the first to the third quarter of '26. The delay of Viking Vigor does not affect our operational schedule as such as our order book and other commitments are not tied to any specific vessel. Remaining decisions on the fleet size is the first option for Olympic Taurus for 2026. And the Reach Remote fleet will play a key role going forward. Now let's look into our services and deliverables. Our services remain relevant across well-established markets, such as oil and gas and offshore wind as well as in emerging sectors. What all these markets share is our need to plan, install and operate and monitor and eventually decommissioning assets in the ocean space. And we support every phase of that life cycle. Uptime on production remains a top priority for our clients, and we provide efficient, reliable solutions to help them achieve that goal. Framework agreements and approved supplier status are essential in these segments. We collect and process data from the seabed and the subsea installations, delivering fully processed output such as maps, 3D models and reports that enable informed decision-making. These services are offered both as a stand-alone solution as a part of integrated package. We have built a strong expertise in geological monitoring using proprietary technology, ideally suited for detecting changes in gas and CO2 levels in reservoirs. Common for all these markets is a constant focus on cost efficiency, safety and value. And our ability to now deliver services also remotely is a key differentiator, enabling clients to reduce cost without compromising quality or reliability. So let's take a closer look at the Reach Remote concept, its current value proposition and how we envision the evolution going forward. The Reach Remote concept is more than vessels and subsea robotics. Together with the capabilities of our in-house developed software, the Reach Horizon, the total delivery makes a compelling value proposition for any customer in the ocean space. We bring the entire offshore operation to the clients' locations, onshore, reducing complexity and cost. We have connected the marine robotics with the subsea robotics and with the important milestone we just achieved, the license to operate the Reach Remote 1 vessel totally unmanned in Norwegian waters and Reach Remote 2 ready for work in Australian waters. We have opened the door for accelerated development. The extensive verification program, the extra time and the extra cost we have spent over the last 6 months is relatively small compared to the huge breakthrough this represents. We have worked closely with the leading energy companies throughout the development and testing phases of Reach Remote, ensuring that the concept meets real-world operational needs. These companies like Equinor, Total, Shell and Woodside are now early adopters of our remote solutions, a critical step that validates the technology and sets the stage for a broader industry acceptance. This collaboration not only strengthened our position in the energy market, but also build confidence for future applications for the rest of the ocean-based industries. Their adoption is a key catalyst for other sectors to follow. For these emerging sectors, the threshold for buying offshore operations are lowered, both in cost and complexity as we bring the whole operation to the client. With Reach Remote 1 and 2 and the full remote setup in different time zones and with the ordering of Reach Remote 3 and 4, we have started the scale up. We are also exploring opportunities to further accelerate that scale up. And the business case and economics is very sound even on a single unit basis, and further expansion of fleet will improve this drastically. The benefit of operation in several time zones adds on to this. There is always daytime somewhere. Reach Horizon is also the starting point for leveraging data to continuously improve processing and accelerate the journey towards autonomy in data processing. Today, Reach Horizon is not just a Reach Remote management platform, it is becoming a stand-alone product, enabling smarter and more efficient operations across both remote and conventional vessels. There are no limits to the types of robotics we can integrate, making this platform the foundation for future innovation and transition to both remote and autonomous operations across the offshore value chain. Reach Remote is not only about vessels. It is a comprehensive solution, enabling existing and emerging industries to access ocean space in an entirely new way. With this, I will hand the word over to Arne, who will take you through our financials.

Thank you, Jostein, and good morning. This is my first time presenting quarterly results as CFO in Reach. My name is Arne Joa, and I have 20-plus years experience from banking, finance and industry. I'm very happy to be a part of this exciting company, and I'm looking forward to the journey we have ahead of us. So if we start by looking at the third quarter isolated, our utilization was somewhat lower than in the second quarter. Revenue was NOK 688 million with a 7.3% EBIT margin compared to NOK 834 million revenue in 3Q 2024 with a 16% EBIT margin. Project results are in line with the same quarter previous year when adjusting for costs associated with idle time. Start-up costs on the Reach Remote vessels, including having the Northern Maria as a support vessel, is also contributing on the negative side in Q3 2025. Year-to-date revenues at NOK 2.07 billion are slightly higher than the same 9-month period last year. The EBIT margin in the first 9 months in 2025 are 10% compared to 14% in the same 9 months period last year. The reduction in margin is mainly due to the reasons specific to the third quarter in 2025. Profit for the third quarter was NOK 34.8 million compared to NOK 92 million in the third quarter last year. The cash flow in the third quarter this year was strong. Operational cash flow was NOK 340.6 million compared to NOK 307 million in the same quarter last year. This was mainly due to working capital movements. Additionally, cash flow from financing was positively impacted by the bond issue in July and the net change in cash and cash equivalents amounted to a solid NOK 446.4 million. The EBIT bridge is showing the key drivers behind the sequential reduction of EBIT from the second quarter to the third quarter in 2025. As previously said, the project results are satisfactory and contributing positively. However, the utilization effects from some idle time in the quarter and extraordinary start-up costs associated with the Reach Remote ramp-up is contributing significantly to the EBIT reduction of NOK 40 million from NOK 91 million in the second quarter to NOK 51 million in the third quarter 2025. The same story can be told to explain the reduction in EBIT from NOK 134 million same quarter last year to NOK 51 million in the last quarter. Project execution is good, but utilization effects from idle time and Reach Remote ramp-up are the main reasons behind the EBIT reduction. Now let's look at the revenue mix split between segments, sectors and regions in the quarter. Our third quarter turnover from renewables continued to grow and accounted for 44% of our total revenues in the quarter, while projects in the oil and gas sector represented 56%. We also split our revenue on our 2 major market segments, data and solutions. In 3Q, about 75% of the turnover came from solutions, while 25% 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 third quarter, activity in Europe, including Norway, represented about 55% of our revenue compared to 82% last year. The lower activity in Norway is partly offset by increasing activity in other regions. Now over to our balance sheet. Reach has taken active steps to strengthen its balance sheet over the last year. The equity ratio stood at 35% by the end of the third quarter in 2025. This is an improvement of 5 percentage points from the same quarter last year. We have a cash and working capital position of just about NOK 850 million. This is a substantial increase from the same quarter last year and is, of course, impacted by the NOK 500 million bond issue in the beginning of this quarter. Our financial debt has increased proportionally, but it is good to have a sound balance sheet with an improved equity ratio and strong cash position. With a strong cash position and financing in place from reputable banks in addition to the European Union funding, Reach Subsea is now very well positioned for the remaining investments in Reach Remote 3 and 4 and further scale up of the Reach Remote concept. We are very pleased with the new bank loan where also DNB came in as a lender alongside SpareBank 1 Sør-Norge and Eksfin. It's NOK 735 million facility, which also includes an RCF facility and a contract tranche for the remote vessels. Like you know, the term sheet was signed in September, and we have now progressed well with the loan agreement, was signed last week, and we now expect closing well before year-end. We use sustainability and ESG focus as a foundation for profitable growth in line with our strategic goals and KPIs. We are investing heavily in remote operations and a modern environmentally friendly fleet. Reach Remote is a key enabler for Reach to reduce our environmental footprint. Jostein, I give the word back to you for a summary before we continue with the Q&A session.

Thank you, Arne. In summary, current market is a bit turbulent at the moment, and we will navigate through that. At the same time, we are over a huge barrier when it comes to introducing new technologies. These milestones we have achieved are not just about technology. They represent a major step towards fulfilling our vision, sustainable access to oceans based. Please continue to submit your questions in the webcast player, and we will return shortly to answer them.

Yes. The Q&A, Arne. If you take the questions. You can throw the questions to me when you feel that it's for me. So...

Yes. We have a few questions coming in. We have a couple of questions on the market. So they go to you, Jostein. So first one is why extending vessels like Olympic Triton when the market is cautious and clients scaling back?

It is a total view of our fleet in '26 that is -- yes, we need the core fleet also in '26. So I'm not that worried about the next year as such. And as I mentioned, we have more outstanding options. So we can regulate the total fleet for '26 still. So...

Thank you. I think that also answered a couple of other questions on the market.

That said, it is a good option. So we are still in -- the price we are paying for the vessels next year are still very competitive even in a cautious market.

Thank you. Also have a couple of questions regarding Reach Remote 2 that has been moved to Australia. So first one, can Reach Remote 2 operate without a support vessel in Australia? If not, what is the progress in that regard?

The operation in Australia is without a supporting vessel. We have established the bridge, operate the ROC center and also supporting ROC center in our office in Perth. So when we operated in Norway with a supporting vessel, we had ROC onboard the supporting vessel. In Australia, we don't need that. So the project itself in Australia needs a guard vessel up in Scarborough that's due to the geographical distances and so on and the nature of the operations on the field. But that's something different. It's not the -- as we did here with the certification in the Norwegian waters, we have the bridge on board the supporting vessel, and that was for certification purposes only. So we are through that.

Thank you. Also more questions on Reach Remote. Can you say something more on the potential for upscaling the Reach Remote program?

Yes. The upscaling is quite interesting because it speeds to reach the scale of economics and so on. It's quite interesting. And we have started to scale up with the ordering #3 and 4. And we are looking into -- how is it possible to actually speed up the scale up because we see that as soon as we are through this barrier of certification in one country, it's moving along in other nations. So that's just a matter of speed.

Okay. There is one question for me here, if we can provide a breakdown of the CapEx in Q3. Not here now a detailed CapEx, but we activated Reach Remote 1 ROV and also did some activation on Reach Remote 2. Additionally, we paid the first installments to the yard on Reach Remote 3 and 4 in Q4. So that's the majority of the CapEx in Q3. There's also a question on the CapEx commitments going forward. I think that's explained a little bit in the report, but it's mainly, of course, Reach Remote 3 and 4, where we now have a good financing package in place from banks and EU grant in addition. So there's not a huge amount of CapEx on top of that. There's also another question on the Reach Remote. What bottlenecks are there regarding production capacity for Reach Remote? Jostein?

Bottlenecks. Well, the limitations of a small vessel is obvious, and it only has one ROV. I don't know any bottlenecks as such when comparing to manned vessels with cranes and so on, there are some obvious bottlenecks in one can do. But it's purposely built for exactly inspection and maintenance work where you only need 1 ROV with the world-class capacity. So it's -- I don't see any bottlenecks for what it's built for.