SciDev Limited (SDV) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to SciDev Limited 2026 Half Year Results Presentation. [Operator Instructions] I would now like to hand the call over to Mr. Sean Halpin, Managing Director and Chief Executive Officer; and Mr. Todd Scott, Chief Financial Officer. Please go ahead.

Firstly, I'd like to thank everyone for taking the time to join us for our half year results presentation. It's very clear that our results for the half have not met our collective expectations, and it's true that we faced some challenges and headwinds throughout the period. This morning, Todd and I will talk you through the results, the challenges that we faced and the actions that we've taken to address these challenges, but we're also keen to talk to the path forward and the conviction that we have that the business will return to a state of growth in the second half and into FY '27. So as mentioned, the consolidated results fell well below expectations, both on revenue and earnings, and I want to directly address the reasons why. Firstly, the largest impact came from Energy Services, where a single key customer had a continued disruption of their frac schedule, removing most of our xSlik revenue for the period. This was expected to improve as the half progressed, but the impact continued through December, and this alone reduced EBITDA by $3.6 million versus the prior year. Secondly, we saw further earnings impact from our International Water Technologies business, where sluggish market development saw our investment phase cost base outpaced revenue as we establish presence in these markets and which saw an EBITDA loss of $1.5 million for the period. We've taken clear and decisive action in addressing these issues. In Energy, we've added additional business development resources and targeted key shale formations to broaden our customer base and reduce reliance on any single account. This action has delivered early results and is seeing the number of customers adopting our proprietary CatChek products grow 75% year-on-year. In International Water Technologies, we've strategically moved from a direct investment to a channel partner model, removing up to $3 million in annualized fixed costs from the second half onwards. This channel partner model has already proven successful for us in Sweden with Swedish Hydro and will provide us with a significant reduction in our cost base while building on our progress to-date and expanding market access in the U.S. and Europe. Beyond those headline impacts, the rest of the business has performed well. Process Chemistry delivered record revenue for the half, while APAC Water Technologies returned to profitability. And I can also report that we streamlined our corporate functions, reducing corporate costs by 19% year-on-year. Importantly, we've built out our recurring revenue base with more than half of our revenue now coming from long-term chemistry contracts, O&M agreements and CatChek sales improving both earnings quality and visibility. And our success on these fronts have come from our continued ability to couple our high-value proprietary technologies with high-touch end-to-end technical support to solve complex water challenges across the energy, mining and construction sectors. Thank you, Todd.

Thanks, Sean. Moving into the financial results for the first half of 2026. While the headline numbers reflected a challenging period, the second quarter showed a positive shift in momentum as revenue started to build and our cost reduction initiatives began to take hold. Revenue for the half of $47.9 million was down 4% on the prior year, primarily due to the completion of a D&C contract in our Water business and the frac schedule disruption in our Energy business. Underlying EBITDA came in at $1.1 million. As Sean mentioned, this was heavily impacted by a $3.6 million hit from reduced xSlik sales and higher costs in our overseas Water business, which grew by a further $700,000 over the prior year. Looking at the results by quarter, we saw a strong sequential recovery in the second quarter with revenues up 9% and underlying EBITDA reaching $1.1 million after a breakeven first quarter. Our cost reduction program across the Group has started to yield results. with $700,000 in underlying cost savings achieved this half and expectations of $1.3 million in lower annualized fixed costs by year-end. The earnings bridge illustrates the performance of our core business units. Outside of the specific xSlik and International water headwinds, which together represented a $4.3 million drag, all other divisions and our corporate cost center showed year-on-year improvement. Process Chemistry and APAC Water Technologies both contributed positively, supported by record sales in Process Chemistry and a shift towards higher-margin services in Water. Looking at the divisional breakdown, Process Chemistry was a standout, with revenue up 16% to $14.5 million and EBITDA growing 58%. Water Technologies in APAC successfully returned to profitability, delivering $200,000 in EBITDA and $800,000 turnaround from the loss in the first half in the prior year. We also made structural improvements at the corporate level, reducing costs by 90% through leaner headcount, administrative savings and reduction in external professional services. In Energy Services, while the $3.3 million result was lower due to xSlik sales, as previously mentioned, a key positive in the half was our expanding CatChek client base, which grew 75% over the prior year. This growth is critical as it diversifies our revenue and reduces reliance on any single customer. On the operational front, we also deployed 25 new branded ISO tanks to optimize our on-site delivery and lower distribution costs. Process Chemistry continues to be a reliable growth engine. The record revenue results in the first period were delivered by multiyear tunneling and infrastructure contracts here in Australia. We also re-signed our largest mining customer at slightly improved margins, providing improved visibility for the year ahead. In APAC, for Water Technologies, the revenue decline reflected a roll-off of a legacy design and construct contract. However, we are now ramping up the $19.5 million Rum Jungle project, which contributed its first $1 million this half and is expected to deliver the majority of the remainder in the second half. Internationally, we pivoted our Water operations to a low-cost channel partner model. This shift allows us to maintain and expand market access in the U.S. and Europe while stripping out $3 million in annual fixed costs. Looking at our balance sheet, our $4.4 million in net cash and $6 million in unutilized debt facilities as of December 31, leaves us in a robust financial position with sufficient capacity to fund our operations and organic growth opportunities. Reported operating cash flow of negative $700,000 included one-off items like restructuring costs and ISO repairs. However, our underlying operating cash flow remained a positive $800,000. We expect the positive cash flow trends seen in the second quarter to continue through to the second half. Finally, a key highlight of our strategy is recurring revenue, which now represents 54% of our total revenues. By growing our book of O&M contracts and long-term chemical supply agreements, we are significantly improving the quality and predictability of SciDev's earnings. I will now hand the call back to Sean for closing remarks on our strategy and outlook.

Thank you, Todd. So looking forward, our strategic focus is to continue innovation, deepen penetration in existing markets and continue to grow recurring revenues. This will come from targeted R&D to the development of the next generation of advanced Specialty Chemistries and Water Technologies and -- we'll continue to prioritize key markets such as the Permian & Haynesville and Energy, while cross-selling our Water Technologies into existing mining clients, and we'll continue to drive recurring revenue, expanding O&M and BOO to become a greater share of Group revenue and target long-term MSAs across our Chemistry business. These initiatives will allow us to build scale and durability while lowering customer concentration risk and improving earnings quality across the business. Now regrettably, due to a number of recent developments that will impact the second half of the year, we had to revise our FY '26 revenue guidance to $100 million to $110 million for the year. This reflects the return of the xSlik sales opportunity being pushed into FY '27, coupled with delays in trial conversion and Process Chemistry as well as a $3 million negative FX impact on forecast USD revenue. This revenue guidance also reflects our view on current downside risk and accounts for potential revenue phasing in our Rum Jungle project and delays in onboarding new energy services customers that are currently scheduled for Q4. I will note that despite the downgrade, we expect second half EBITDA to be higher than half 2 in FY '25, and this is supported by stronger revenues, higher margins and recent Group-wide cost reductions. So we expect revenue to build quarter-on-quarter through the second half with a strong Q4 exit rate setting us up well for FY '27. This is underpinned by our Energy Services business adding business development capacity, which is expected to convert first revenues in the first half of FY '27, and we'll have a full year benefit from our 6 new customers that we're onboarding or aim to onboard in Q4 FY '26. In Process Chemistry, we see the conversion of current field trials into long-term supply agreements and then adding that to a healthy domestic and international pipeline of work. In Water Technologies, we have high confidence in replenishing our design and construct order book, which includes the Rum Jungle project. This is based on sole-source design engagements with a number of major mining clients that added together would cleanly replace our Rum Jungle revenue. Also, we expect to see recurring O&M revenue growing throughout FY '27, and we'll continue to provide specific guidance as contracted pipeline matures. So I'd like to close on a note of conviction. We faced a difficult first half driven by those 2 discrete addressable issues, but we've acted decisively, lowering our fixed cost base, broadening our customer base and improving recurring revenues across the business. We know we have quarter-on-quarter momentum, a high-quality pipeline and clear line of sight to growth in the second half and into FY '27. Importantly, the Board and management are fully aligned and confident in the strategy and tactics that we've outlined today. We know we have the technology, the market presence and the execution discipline to return the business to growth and to deliver sustainable shareholder value going forward. Thank you very much, and we'll now open for questions.

[Operator Instructions] There are no questions at this time. I would like to hand the call back over to Mr. Halpin for closing remarks.

Thank you very much, Sherry. I will just address one question that I've received directly via text message from someone that was unable to dial in, and that is around the opportunity in data centers domestically. I suppose my messaging here would be, let's certainly not take that as too much of a distraction as it will not be a material mover of revenue or earnings for the remainder of FY '26 or into FY '27. However, it does present a material opportunity for us over the long-term, specifically a high-growth domestic market requiring complex water solutions and ever-increasing demand for those solutions on our doorsteps. So it fits incredibly well within our existing business model. These challenges are something that we can address with our existing team, and it is a market that will continue to develop. Right now, we are engaging with some blue-chip names in that space. We're early on in the design process, which is the right place for us to enter ourselves and engage with these customers so that we can convert them over the long term. But we, again, would urge that this won't be a big driver of improved results in the half year or in FY -- or likely in FY '27, but certainly want to watch, and we will keep the market updated on our progress in this space. Other than that, I would like to thank everyone for -- again, for taking the time to join us this morning. I look forward to engaging with each of you personally over the coming weeks and months. And we will certainly keep you updated on the progress of the business on a quarter-to-quarter basis as we focus on growth, return to profitability and carrying forward momentum into FY '27. Thank you.

We actually did just have a question come in, if that's okay with you. It's from [ Brendan Angus with Cowen & Co. ]

Hi Sean. I was just wondering if you could give an update on kind of the pipeline of opportunities within CatChek?

Absolutely. So I think this has been one of the real successes of the half. And I suppose over a sustained focus on growing our customer footprint and increasing the number of customers that have been adopting CatChek. This has been largely targeted towards 2 key basins, one in the Permian and one in the Haynesville, both strong -- well, gas plays, also the Permian being the largest base in terms of oil production and gas production in the U.S. So big markets for us that we know will build and continue to develop over time, particularly as demand for LNG increases globally. And we've been very successful on that front. As we've noted, we've increased the number of CatChek customers by 75% during the half. And I can note that all of these are Permian customers. So pipeline is as strong as it has been. And with CatChek, it is a production enhancement technology. And as we build on our data set and the performance data that we have our technical and commercial case becomes even more compelling. And we're seeing a much greater awareness of the product in the market and good sort of word-of-mouth referrals bringing new leads into us. So we don't have specific pipeline data that we will release or talk to, but it's fair to say that, that the pipeline is as healthy as it's ever been, and that's evident in the increase in customers that we've delivered in the half.

And just secondly, just on the Water Technologies business. Obviously, Rum Jungle is a significant contract for you guys. Is there anything else in the pipeline that could be similar in size to that contract, like potentially other remediation type work in that region?

So with the Northern Territory, in particular, there are 11 additional opportunities or 11 additional mine rehabilitation products that NTG will be focused on over the next decade. Now do each one of these present a material opportunity for SciDev? That remains to be seen. And that will be driven by the -- whether there are complex water challenges that form part of that broader rehabilitation scope. But -- so mine rehabilitation is a big and growing market for us. and certainly one that we expect to see growth from off the back of this Rum Jungle project. But I will call out, and we have called it out in both the release and the deck is we've got a high conviction in our ability to replace that Rum Jungle revenue with other design and construct opportunities within the mining industry outside of that rehabilitation space or the Northern Territory specifically. So we're already engaged for revenue-generating design works that are at the initial stages toward the final construction and O&M contracts that we're really looking to secure. And we've -- as a result of already being engaged on a sole-source basis, we've got a high level of confidence that we can convert those opportunities and replace that Rum Jungle revenue in FY '27. Thank you, Sherry. Over to you.

Thank you. This will conclude our conference. You may disconnect at this time, and thank you for your participation.