Reach Subsea ASA

OSE:REACH

Q1-2025 Earnings Call

[Jostein Alendal, executive]

Good morning, and welcome to our first quarter 2025 webcast for Reach Subsea ASA. Our report and presentation were released this morning, and I am Jostein Alendal, CEO; and I'm here with our CFO, Birgitte Wendelbo Johansen. I will start with the key highlights and achievements from the quarter. And additionally, I will provide an update on the current status of the Reach Remote ongoing pilot program. Birgitte will then cover our financials in details. Please submit questions via the webcast player, and we will address them in the Q&A session after the presentation.

We are continuing our steady progress and are very pleased to report another record quarter in terms of activity and operating results, all driven by strong market conditions and our established geographical footprint. The financial performance of the quarter documents our solid project execution and continued growth with a revenue increase of 22% and an EBIT increase of 130% compared to the same quarter last year. We have a solid outlook with a backlog of NOK 1.3 billion, mostly for 2025. And on top of that, a strong prospect list onwards.

We want our team to reach for performance always, but most importantly, to reach home, safe and healthy. And we are pleased to report continued 0 lost time incidents also this quarter. A big thank you again to our dedicated offshore and onshore teams for their excellent work.

Let's take a closer look at the key factors behind our recent results and what's ahead. The overall utilization of our current 8 vessel spread delivered a strong 92% this first quarter. Our order backlog, as mentioned, and tender volume are to the same levels compared to same cutoff last year. We operate a competitive and strategically aligned fleet that supports our long-term growth ambitions. This fleet and our commitments, however, also represent flexibility, as we are navigating the continued global shifts.

The Viking Vigor and Newbuild 76, scheduled for delivery in 2026 and '27, will serve as growth enablers and transitional assets to a greener future with dual fuel capacity. As we still expect to see market growth, we continuously evaluate opportunities to expand our chartered fleet, considering both project-based and long-term charters. The Reach Remotes now joining our fleet are also key growth enablers, introducing new methods for performing a range of subsea tasks. They also represent transitional assets into a more efficient robotic future. More on that in a bit.

Now let's take a look at our fleet activities over the past quarter. We have kept the fleet busy through the quarter and strong utilization across all vessels. Viking Reach has spent the first quarter in the Black Sea and is now performing UXO inspection campaigns in cooperation with [indiscernible] in the Baltic, a campaign which also Olympic Taurus joined. You can read about this campaign in the report.

Havila Subsea continued operations in the Gulf of Mexico before returning to the North Sea, supporting ocean bottom node activities for PX Geo. Deep Cygnus finished the Nexans cable installation project at Revolution Wind in the U.S., delivering ROV and survey services before returning to IMR operations in the North Sea. And she is now back with Nexans for cable repair and trenching.

Go Electra completed IMR and survey scopes in Trinidad and is now on transit back to Europe. Olympic Triton provided IMR and light construction support in the Ivory Coast throughout the quarter. Northern Maria was idle throughout the quarter, however, without commitment to Reach Subsea for the majority of that period. As mentioned, Olympic Taurus joined Viking Reach in Germany for the UXO campaign last part of the quarter. Before that, she completed IMR operations in the North Sea. And finally, Offshore Surveyor performed hydrographic mapping for an offshore wind farm in Australia.

So let's move to Reach Remote. Finally, the latest and greatest on the Reach Remote program, where we have reduced the technical risk significantly through the last month pilot project. The learning curve has been steep, but we have proven, with great success, operational robustness and capabilities. Reach Remote integrates marine robotics with subsea robotics. And in January, we took official delivery of the first Reach Remote vessel. Following the delivery, we had installation and testing of ROV and other sensor packages and tools throughout the quarter.

In parallel to the Reach Remote project, our technology department have developed our in-house Reach Horizon System. Reach Horizon is our platform serving as the central hub for managing and overseeing operations remotely. It provides operators, surveyors, experts, management and clients with 24/7 access to the field projects from any location, whether in office or at home. During the first quarter, the platform continued to improve and prepared for the 100% uncrewed operations that was about to start with Reach Remote 1. Learnings are now continuously being transferred to the second vessel, which will join the fleet for commercial operations in July this year. Reach Remote 1 has delivered impressive results during the pilot. Let's hear from the operation.

[Presentation]

[Jostein Alendal, executive]

The past month with the Reach Remote pilot has been remarkable. Watching her perform exactly as intended through our Reach Horizon program has been more captivating than any Netflix series. But again, as our high-risk venture has now seen a significant reduction in both technical and operational risk, it works. And it's not just about Reach Remote 1, we are proving how the entire subsea industry can evolve through robotization. We have previously shared that commercial projects were lined up awaiting the outcome of the pilot. And with the pilot nearing completion, we are now kicking off the first project on [indiscernible].

She will be mobilized for it shortly, and there is more to come. The success of this pilot also reinforced the business case for scaling up the Reach Remote fleet. This is just the beginning. And with the Reach Remote fleet, Reach Subsea is increasing both flexibility and capacity. It's about striking the right balance between human expertise and advanced technology to drive value now and into the future.

And with that, I will hand over to Birgitte for the financial update.

[Birgitte Johansen, executive]

Good morning. First, let me remind you to send the questions in the chat on the live webcast. A new year, first quarter of 2025 has just been released. It's been a strong start with high activity. And in general, the results are very good, all-time high for a first quarter, both on revenue and EBIT.

Revenue was almost NOK 700 million compared to NOK 575 million in the first quarter last year. The increase in revenue is linked to high project activity as well as increased reimbursable sales in projects. EBIT was NOK 68 million in the first quarter, more than double from 1Q last year and our best operating result ever in the winter season.

Pretax profit for the first quarter was NOK 67 million compared to minus NOK 9 million last year. Our financial results include an unrealized currency gain of about NOK 17 million related to our IFRS 16 charter party commitment. And for comparison, we had an unrealized currency loss last year.

In January, we took delivery from the yard of our USV, the Reach Remote 1. She had mobilization and further investments from our side after delivery during the first quarter. We still have another USV, the Reach Remote 2, that will be delivered later this year, together with other investments. And therefore, our cash and liquidity position is very important to monitor. Cash for quarter end was NOK 327 million, and our net interest-bearing debt, excluding the IFRS 16 leasing commitments is still cash positive.

These graphs illustrate Reach's financial development the last 7 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 expansion 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. By increasing the capabilities on the vessels, we have grown both our revenue and profits steadily over time. Our annual revenue has increased by more than 130% over the last 2 years. We are focused on a sustainable and profitable growth, and our operating result and pretax profit has, to 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 first quarter turnover from Renewables and Other sector is quite steady on about 37%, while projects in the Oil & Gas sector represented 63%. We also split our revenue in our 2 major market segments, Data and Solutions. And the split here is not 100% academic as we experienced that quite a few projects include both segments. Solutions refers to a service project where we do installments, maintenance, repair, decommissioning, et cetera. And 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.

In the last year, we've had the 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 Q1, about 85% of the turnover came from Solutions due to a few larger service contracts, including a high number of vessel days, while 15% 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 first quarter, activity in Europe, including Norway, represented about 30% of our revenue compared to 64% 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. Our Board has proposed to the general meeting to pay dividend according to our policy for the financial year of 2024. We have a cash and working capital position of just above NOK 550 million and taking delivery of Reach Remote and other investments will increase our debt to financial institutions.

Our commitment related to active charter parties, hence, our IFRS 16 leasing liabilities, has been reduced in accordance with reduced remaining time on the charter parties. Our equity share is well above 30% of the total balance sheet. Reach is well positioned for the remaining investments 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 remote units.

We use sustainability and ESG focus as a foundation for a profitable growth in line with our strategic goals and KPIs. In 2024, we started preparing for CSRD and ESRS reporting by doing the double materiality analysis and identifying risks and opportunities from inside out and outside-in perspectives. Based on the outcome of our analysis, we have updated our ESG KPIs, as you can read all about in the report.

On environment and safety side, we have had a good start of the year with no major spills and no accidents or LTIs. We are investing heavily in remote operations and a modern environmentally friendly fleet. And as part of working more and more remote, we rely on digital security. And therefore, we have put cybersecurity higher on the agenda together with the ISO 27001 certification. We work continuously with improvements focusing on compliance, but also nature-related risks, impacts and opportunities and are establishing our own Reach Academy for internal development for our colleagues.

Thanks for listening. Jostein, I give the word back to you for a summary before we continue with the Q&A session.

[Jostein Alendal, executive]

Thank you, Birgitte. In summary, Reach Subsea is well positioned to capture market opportunities ahead. With a strong global presence, we bring a recognized subsea expertise to a dynamic and evolving market. The outlook remains promising, driven by investments in energy and infrastructure across all sectors. Strategic growth initiatives are well underway and nearly our entire fleet is mobilized on value-driven projects, supported by our growing remote capabilities. We are consistently delivering strong margins with a solid operational track record, efficient project execution and optimized asset utilization.

Technology innovation is at the core of our strategy and our leadership in marine robotization and remote operations continues to drive efficiency. Financial strength and sustainability remain our priority and our performance enables smart investments, disciplined expansions and a shareholder-focused growth path. 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". Please continue to submit your questions in the webcast player, and we will return shortly to answer them.

[Birgitte Johansen, executive]

Yes, we have received quite a few questions. You can keep on submitting questions while we speak. The first question is, well, congratulations on the strong results.

Thank you for that.

What's the status of the EU funding?

I can start with that. The EU funding, we discussed that also in the last presentation, in the last quarter, and it's related to Reach Remote 3 and 4, which we have not ordered yet. So if and when those are being ordered, there will be an EU funding, which is still active. It's no changes since the last information we've given to the market.

The next one, when will the Reach Remote ships start generating revenue?

I can take that as well, Jostein, if you want. Yes? The first one has started generating revenue already on the pilot project, as Jostein mentioned in the presentation. It's lined up for projects during the summer and Reach Remote 2 will be delivered during the summer and will start with commercial operations just after the summer vacation. So August, September, around that.

How much sales potential does the onshore service area offer? And how would you like to expand this further? Jostein, would you like to give...

[Jostein Alendal, executive]

Yes, it's hard to say. We are building a new sort of industry here with a combination of offshore robotics and onshore services. So it's hard to say how this will evolve. But definitely, we are building more efficient operations. And then the margins will be, of course, higher, because we are extremely more efficient in the long term for our clients. So we are offering something good. But it's hard to say -- to put numbers on, because we are making the path there. So that's the...

[Birgitte Johansen, executive]

Yes. Are the margins from Q1 sustainable? And will we see further improvements?

Well, we don't guide on future margins. What we said in Q4 is that some of the project margins we expected or the activity we had in Q4 slipped over to Q1. So of course, there is a lag there from Q4. So I guess we just have to wait and see for the market in Q2 and Q3 and so on.

Yes, the same one, when do you think Reach Remote 1 and 2 are on commercial contracts? Can you elaborate any further on that, Jostein?

[Jostein Alendal, executive]

Yes. I think you answered on the last question. But this summer, they are finished with the pilot, and then on to commercial work and for the -- in June and August and onwards from there. So we just have to decide where to send them. That's the thing.

[Birgitte Johansen, executive]

Yes. New question. Your order backlog is flat year-on-year. What are the implications for your 2025 revenue?

I guess that's the same there. We don't guide on the revenue, but it's correct that the backlog is quite flat.

[Jostein Alendal, executive]

Yes. I mean, it's one of our strategies. It's sort of easy to build a big order book with low margins, but that's not what we are doing. We are sort of a bit selective on the quality order book. And I think it's quite balanced with our capacity. And most of it is in '25, so, yes.

[Birgitte Johansen, executive]

What are your thoughts on additional Reach Remote orders? Are there any deadlines to be aware of?

[Jostein Alendal, executive]

Yes, I can answer that. Yes, we have this long-term plan and the scale up. So in mid-summer now, we are very comfortable. And yes, so we're going to scale up, and the next 2 ones, we plan to order in mid-summer. So that's been the plan for many -- well, a couple of years now. So a good thing with a good pilot and showing that the things are working, and that's just fantastic. And we're going to -- yes, it's encouraging to go into the scale up and building an industry that's just fantastic.

[Birgitte Johansen, executive]

Yes. How will Reach Remote be priced in your offering? Is it day rate or lump sum?

[Jostein Alendal, executive]

That is a combination, of course, day rates, lump sum. We're going to use the Reach Remote as a tool in our daily work. And it's a combination of day rates and lump sum projects and so on. So same mix that the offshore industry is quite used to.

[Birgitte Johansen, executive]

Quite a few subsea vessels from the traditional vessel owners are now sitting idle. Do you see opportunities with the current uncertainty to secure more capacity at attractive rates?

[Jostein Alendal, executive]

Yes. In the short term, there is some turbulence due to some politicians and geopolitics and so on. But yes, there are always opportunities in the offshore market, and we are part of the whole industry. So yes, opportunities are there. And turbulent times, it's quite good sometimes.

[Birgitte Johansen, executive]

Should we expect Reach Remote vessels to work through the North Sea winter season? Or will they be stacked or relocated to more benign waters?

[Jostein Alendal, executive]

Yes, with challenging winter, of course, and in North Sea, the winters are tough, some reallocation during winter time. We have to test that. This will be the first winter that we have the first ones in operation. And also, sort of in our long-term planning is the global footprint. So we might move one of the vessels to, for example, Australia. So we just have to make the scale-up plan now. And yes, we are waiting for these milestones. And the great milestone now is, yes, the pilot is just fantastic, and then we can make new plans. So exciting times in the next months, Birgitte, and also the rest of the team, if they are looking at this. But it's going to be quite interesting. And the winters and weather on different positions and places on the planet, we have coped with that for a long time. So it's going to be interesting to really test it. So looking forward to the winter...

[Birgitte Johansen, executive]

Do you see any initiatives from the oil companies to cut costs due to oil price uncertainty?

[Jostein Alendal, executive]

Yes, we see the same turbulence and capital discipline and so on due to a lot of geopolitical and trade wars and so on. And cutting cost is always on the agenda. That's nothing new. And that's why we, as a company, are always driving to do our service more cost efficient and especially fuel efficient. That's a part of the whole cost picture. So yes, cost focus is always on the agenda.

[Birgitte Johansen, executive]

How are you planning to make the increasing remote operations and its onshore working conditions interesting and sought after versus offshore operations for all employees involved, that is both offshore and onshore employees?

[Jostein Alendal, executive]

Yes. That's a good question. It's nice to be on the sea, and there are a lot of workplaces there. But they will not disappear in the near future or the next decades. So we have to find the interesting onshore work, and technology is the driving thing here. And I think the next generations, they are more on to this, and we are. But it's going to be interesting workplaces in many locations. And we see the young ones today, they are really into this. But a combination of offshore and onshore has always been there. Yes, it's good workplaces offshore on vessels and rigs and so on. But there is a future there with robotics and so on. But the offshore work will not disappear. But also like the sea, there is still a future there.

[Birgitte Johansen, executive]

Yes. How much CapEx will it be on Reach Remote 3 and 4, if followed?

[Jostein Alendal, executive]

It's around the same CapEx amount as the first 2 ones. I think we have NOK 0.5 billion in CapEx on the first 2 ones. Yes.

[Birgitte Johansen, executive]

Do you have any exposure towards the offshore wind projects in the U.S.? And eventually, how is the financial impact?

[Jostein Alendal, executive]

Yes. I don't think we are exposed directly. We have a vessel going over there this summer. But yes, the offshore wind in the U.S. is a story to be seen, I guess. No implications for us as I can see. Well, it's interesting to observe how things are shifting with the politics.

[Birgitte Johansen, executive]

And finally, may Reach Remote be used in the defense market?

[Jostein Alendal, executive]

Yes, it is a good tool for oil -- traditional market. And the defense market also, yes it's a tool. When you're talking about defense, we are not going into any armed stuff. So maritime robotics and subsea robotics is a good tool for surveillance and unarmed defense, of course.

[Birgitte Johansen, executive]

Yes. Good. That was all. Thank you very much for watching, everyone. See you in 3 months.

[Jostein Alendal, executive]

Yes. Exciting months. Yes. See you then.