Archer Limited

Hello, everyone. Thank you for attending today's Azure First Quarter 2026 earnings release call. My name is Ken, and I'll be your moderator today. All nights will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the call over to Dax Gintlow, the CEO of Azure at the beginning. Please go ahead.

Thank you, Kenneth. Good morning and thank you for joining Archer's first quarter 2026 results presentation. I am Dag Skindlo, CEO of Archer, and I'm joined today by our CFO, Espen Johanger. We will start with QO highlights and key developments, then provide an update across our business areas, and finally cover our guidance and capital allocation priorities before opening the line for Q&A. With that, let's move to slide two. As a reminder, Today's discussion includes forward-looking statements and certain non-GAP and IFRS measures historically. These statements involve risks and uncertainties, and actual results may differ materially. Please refer to the presentation and our disclosures for additional information. Let's move to slide three. Before we get into the quarter, a quick reminder of who we are Archer is a global oil service company with more than 50 years of operating history. In 2025, we delivered around 1.2 billion of revenue and generated every year of approximately 167 million. Our year-end 2025 backlog of about 4 billion includes options, provides strong visibility across our core markets. We operate across four business areas, platform operation, web services, land drilling and renewable services, with roughly 3,500 people across 40 locations. With that context, let's move to slide four for the key Q1 takeaways. Q1, traditionally a slow seasonal quarter, was another solid quarter, with good underlying activity and continued margin improvement across our core operations. Reported revenue was $278 million, down 7% year-on-year, reflecting the development of our Argentina workable business. More importantly, excluding divested work operations, revenue increased by about 15% year-over-year. EBITDA of 37.2 million was in line with Q1 last year, and up around 12% year-on-year when excluding the divested workable business. EBITDA margin improvement improved to 13.4%, are from 12.5% in the same quarter last year. Adjusted WTA was 41.1 million. As with revenue, reported year-on-year change is affected by portfolio changes, but the underlying development in our core business was positive. Operationally, we strengthened backlog through new awards and extensions. including two integrated P&A contracts with Equinor and a contract extension for wireline services with ConocoPhillips. We did complete the development of the workflow business in Argentina. In Argentina, we now have focus on the growing drilling and completion activity in VacaMurca. The transaction is an important step in simplifying our portfolio and sharpening our focus on core higher margin service lines. Subsequent to the quarter, we continued to execute on our strategy and were awarded two contract extensions with Equinor, as well as an integrated geothermal drilling contract in Nevis through Ice and Drilling. Finally, we continued our shareholder return program. We have distributed $6.4 million in Q1, and we have approved a further US dollar $6.6 million for Q2 distribution, corresponding to 0.62 NOF per share. Let's move to slide 5. This slide highlights a key strength of Archer, resilient EBITDA and consistent margin expansion. We have delivered strong annual EBITDA growth of 21% since 2022 and 13% annualized since 2017, driven by both organic and M&A. Even in a somewhat challenging market environment, Archer's underlying performance has continued to improve. In Q1, our EBITDA adjusted for Argentina investments has developed very favourable compared to industry pairs, which in average declined by 10% year-over-year. The takeaway is that our exposure to essential brownfield and P&A activity supports both robustness and margin expansion. Next slide, please. Turning to slide 6 and capital returns. We have approved a cash distribution of approximately 6.6 million for Q2. equal to 0.62 per share. This marked the fifth consecutive quarter of distributions under our shareholder return program. At today's share price level, the direct yield remains attractive and is competitive relative to our pair group. Let's move to slide 7. Slide 7 shows the foundation of our outlook. A US dollar 3.4 billion backlog, implying about $515 million in everyday backlog. We have started years from, with about 470 million of firm contract value added to our backlog year-to-date. The backlog additions are characterized by multi-year duration from council parties and an increased share of integrated scope, which all improves execution control and revenue visibility. Key awards include the Equinor Sub-CPA Execution Scope, covering 30 wells on the Norwegian continental shelf, and integrated deep water P&A contracts in the Gulf of America, and the Barland and Intervention Extension with ConocoPhillips Norway, supporting platform-based wind intervention and production optimization. After quarter end, we also secured additional extensions with Equinor, including a two-year extension of our frame agreement for the provision of P&A solutions, fishing and downhole mechanical installation services, with an estimated contract value of 700 million NOK. and a separate wireline intervention service extension worth about 1.5 billion nok for auction. Through Iceland Drilling, we also secured a geothermal drilling contract on Navy for Iceland in the Caribbean. The contract value is about $45 million. Overall, this reinforces our position as a leading provider of intervention services and integrated P&A services. Next slide, please. On slide 9, we reiterate our financial guidance for 2026. We continue to expect single-digit growth in EBITDA for the year, despite the EBITDA shortfall following the tail of the low-margin worker business in southern Argentina. We expect continued margin expansion and estimated 2-4% improvement from 2025. EBITDA in the second half of 2026 is expected to be 10-20% higher than the first half due to timing of project start-ups. Timing has changed slightly from our initial guidance in February. There sprung a first half following higher activity and favorable product mix, and some delayed startups or projects impacting the second half. Capex is expected to be 60-70% of revenue in 2026, driven by growth investments to secure new contracts and awards, while maintenance Capex remains stable at only 3% of revenue, in line with historic levels. With that, we'll move into a brief business update by pregnancy. And we'll take over from here.

Thank you, Lars. Starting with platform operation, revenue in the quarter was $107.1 million, up 1% year-on-year. EBITDA was $14.2 million, and the EBITDA margin was about 13%. Operationally, we suffered from downmanning by about 200 employees in Brazil as we seized the Peregrino drilling and maintenance contract. We've had this contract since 2010, and we want to thank our teams and crews for outstanding performance over the period. At the same time, we see high activity across Norway operations, and in UK, we initiated mobilization and recruitment to support upcoming activity growth for second half of the year. Overall, platform operation remains a core contributor with resilient earnings supported by long-term contracts and disciplined execution. Next slide, please. Moving to value services, this was a strong and seasonally favorable quarter. Revenue was $83 million, up 22% compared to Q1 2025. EBITDA was $16.2 million, up 11% year-on-year, with an EBITDA margin of 19.5%. The quarter benefited from higher activity in Norway related to T&A projects and high product sales in the U.S. From an order intake perspective, we continued to firm up backlog. We were awarded contract extensions across contract extensions across wireline intervention services with ConocoPhillips and Equinor, secured an extension with Equinor for P&A solutions, phishing and isolation services, and awarded a BMI contract with Equinor in Brazil. The key message is continued strong activity and improved visibility in intervention and P&A operations. Next slide, please. Turning to land drilling in Argentina, reported revenue was $48.4 million, down 24% from the previous quarter, driven by sale of the workholder business in the south. Adjusted for the divestment, underlying revenue was up modestly and EBITDA improved significantly year on year. Margin in the quarter was strong at 18.2%. Operationally, drilling activity increased by one additional rig in Vakamarta and we completed the sale of the work over business during the quarter. An important step in simplifying the portfolio and focusing on the higher return operations in Vakamarta. The market backdrop in Vakamarta remains favorable with continued demand for additional drilling capacity in the basin. As previously announced, we will mobilize the two rigs leased from Patterson for YCS made in Q2. At the same time as clients are asking for more additional drilling rigs, the supply side remains tight. Increased activity in the U.S. land market combined with additional demand linked to Venezuela is limiting the number of rigs available internationally. Overall, these dynamics continue to support a constructive outlook for utilization and market fundamentals in Vakamerta. Next slide, please. Finally, renewable services. Revenue in the quarter was $39.8 million, modestly higher than previous quarter with EBITDA of $0.9 million. Iceland drilling performed in line with expectation, a soft quarter as two rigs was in transit from the Philippines. However, we secured an important geothermal drilling contract in Nevis for about $45 million. The rig is expected to start operation in Q3 this year. Within vertical wind and offshore services, we experienced seasonal lower activity in Q1, but with stronger demand firming up for Q2 and Q3. The floating offshore wind substructure project has experienced delays and higher than planned costs, and we continue to work closely with the client to achieve safe and efficient completion of the project, with current expectations for fabrication finalization during this summer. Next slide, please. Let me take you through the condensed profit and loss for the quarter. Revenue in Q1 came in at $278 million, down around $21 million year on year. However, this decline is fully explained by the divestment of the land drilling work of a business in Argentina. Adjusting for this, the underlying business increased by approximately $35 million, mainly driven by higher activity in wealth services. EBITDA before exceptional items was $41 million, corresponding to a margin of 14.8%. This is slightly below last year, reflecting mixed product sales and the mentioned divestment of work over business. We recorded exceptional items of $3.9 million, mainly related to the mentioned downsizing and manning reductions in Brazil. Reported EBITDA was $37 million in line with last year. On a like-for-like basis, adjusting for the divested business in Argentina, EBITDA is up around 12%, demonstrating solid underlying growth. EBIT ended at $16 million, down from $18.5 million last year, mainly reflecting higher depreciation and one-off effects in the quarter. Next instance. Interest expense was $13 million, significantly lower than last year, reflecting the refinancing completed in 2025. This resulted in a net profit of $3.6 million for the quarter, compared to a loss last year. Adjusted net income came in at $6.7 million. This adjustment excludes exceptional items and other non-recurring or non-cash items. effects providing a better reflection of underlying earnings. Overall, while reported numbers are impacted by portfolio changes and one-offs, the underlying business continues to grow with its improved activity and solid profitability. Next slide, please. Let's move to the balance sheet. Looking at the asset side, total assets ended at just over $1 billion. The development from year end is primarily driven by the reduction in assets held for sale following the divestment of the Argentine work of the business. At the end of the quarter, we have available liquidity of $61 million and net interest-sharing debt of $469 million. As a reminder, the first quarter is typically a cash-challenging quarter for us, building up working capital. This is driven by seasonal buildup of working capital and timing of our semi-annual interest payments. In this quarter specifically, cash flow was impacted by the mentioned biannual interest payment on our bond, removal of the Norwegian guarantee related to employee tax, and a temporary buildup of working capital. The working capital buildup is related to increased activity revenue in the quarter, And Archer Wind, where we have seen delays in client approving change orders and one vendor failing to deliver. On the liability side, total debt remains broadly stable with long-term debt at approximately $423 million. We do see an increase in the current portion of interest-bearing debt, which reflects drawing under our short-term overdraft facility. Equity ended at $118 million, broadly stable compared to year-end. Non-controlling interest of around $20 million mainly relates to our ownership in island drilling and vertical services. Overall, the balance sheet remains solid with stable leverage and sufficient liquidity, although temporarily impacted by normal seasonal effects, timing of cash flows in the quarter. Next slide, please. Firstly, shareholder returns will remain committed to regular and sustainable quarterly cash distributions and to increasing distributions over time in line with earning growth. Next, M&A will remain selective and disciplined, focusing on accretive bolt-on acquisitions that are synergetic and cash generative. Thirdly, CapEx. We expect investments at moderate levels, targeting total CapEx of 5% to 6% of revenue over time. We prioritize growth investment with attractive returns in the 30% to 50% range. And in Argentina, our CapEx program is designed to be self-funded. Finally, balance sheet discipline. We target a long-term best practice. long-term leverage ratio of 1.5 to 2 times, maintain solid liquidity at all times, and aim to reduce overall cost of capital in the long term. With that, we will open the line for Q&A. Operator, please open the line for questions.

Thank you. If you would like to ask a question, please press star four by one on your telephone keypad. To remove your question, please press star four by two. Again, to ask a question, please press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. Thank you. We currently do not have any questions, and I will hand also to Doug for any remarks. Thank you.

Thank you for joining us today. We appreciate your continued support and look forward to accepting you again next quarter. Have a good day.

Thank you. This concludes today's call. Thank you for your participation, and you may now disconnect your lines.