Earnings call transcript: Vow ASA sees Q1 revenue rise, stock drops 10.78%

Vow ASA reported a 12% increase in first-quarter revenue, reaching $261 million, and a notable improvement in adjusted EBITDA. The stock fell by 10.78% following the earnings release, amid concerns over a negative net result before tax and increased operational expenses. According to InvestingPro analysis, the company’s stock is currently trading below its Fair Value, despite showing a strong 23.87% price return over the past six months.

Key Takeaways

• Q1 revenue increased by 12% year-over-year to $261 million.
• Adjusted EBITDA rose to $13 million, an increase of $8 million from last year.
• The company reported a negative net result before tax of $30 million, worse than the previous year’s $17 million loss.
• Stock price dropped 10.78% following the earnings announcement.
• Strong performance in the Maritime Solutions segment with a backlog exceeding $1.3 billion.

Company Performance

Vow ASA demonstrated strong revenue growth in the first quarter of 2025, driven by its Maritime Solutions segment. The company is delivering equipment to 18 cruise vessels this year and commissioning 12 vessels, underscoring its robust market position. However, challenges remain, particularly in the Industrial Solutions segment, where order intake has been delayed.

Financial Highlights

• Revenue: $261 million, up 12% year-over-year.
• Adjusted EBITDA: $13 million, an increase of $8 million from the previous year.
• Gross Margin: 29%, slightly lower than the previous year’s first quarter.
• Net Result Before Tax: Negative $30 million, compared to a negative $17 million last year.

Outlook & Guidance

Vow ASA is optimistic about improving margins in the cruise segment and is focusing on optimizing working capital. The company is also exploring strategies to mitigate foreign exchange risks, which have become more pronounced in recent times. Ongoing FEED studies for industrial projects and the potential expansion of the Vow Green Metals project are also on the horizon. InvestingPro subscribers can access 12 additional key insights about Vow ASA, including detailed analyst forecasts and comprehensive financial health scores, helping investors make more informed decisions about this emerging clean-tech player.

Executive Commentary

CEO Gunnar Pedersen highlighted the company’s commitment to sustainability, stating, "Our customers are chasing every opportunity to take fossil carbon out of their cycle and turning waste into value." CFO Cecilia Hecneby noted the impact of currency fluctuations, saying, "Exchange rate risk has earlier been considered as limited... but in a more insecure world, we see significant frequent currency fluctuations impact key financial indicators."

Risks and Challenges

• Delayed order intake in the Industrial Solutions segment could impact future revenue.
• Increased operational expenses and non-recurring management change costs may pressure margins.
• Exchange rate volatility poses a risk to financial stability and performance.
• Market uncertainties in the industrial segment could affect growth projections.

Vow ASA’s recent earnings call highlighted both opportunities and challenges as the company navigates a complex market environment. While the stock’s decline reflects investor concerns, the company’s strategic initiatives and strong market position in the maritime sector offer potential for future growth.

Full transcript - Vow ASA (VOW) Q1 2025:

Gunnar Pedersen, CEO, Wow: Good morning, everyone, and welcome to this first quarter presentation here at Wow. This morning I have a few people with me. So Cecilia Hecneby, our new CFO. I also for the Q and A session have with me Jani and Tina who’s been with the company for a while. My name is Gunnar Pedersen.

I’m the new CEO of Wow. I will start by sharing some highlights with you and then Cecilia will take you through the financial numbers. I will come back and talk a little bit about the market and the business and how it develops, give you an update on that. And then finally, some closing remarks before we open up for questions. So next up is the old disclaimer.

You should probably read this later on by yourself. So moving on to the highlights. Year on year, our order backlog has nearly doubled. On the performance side, we show double digit margins And the activity level is quite high, specifically in the cruise sector. I will come back to more details on this.

We are delivering equipment to 18 cruise vessels this year and we are commissioning 12. The pipeline, sales pipeline in the maritime sector is strong. We’ll take you through some details on that as well. But our industrial segment is suffering a bit from delayed order intake. The biocarbon and biochar projects are progressing and commissioning is due to start in the second half of twenty twenty five.

Also lately, we’ve had some very positive development on raw green metals and we’ll get back to that towards the end of the session. So some key financial numbers first. I want to start on the left hand side with the revenues. So revenues for Q1 versus Q1 twenty twenty four is up by 12%. That leaves us at $261,000,000 in revenue for Q1.

’12 months rolling, we are slightly above NOK 1,000,000,000 in revenue and we can see a slight growth in that. The adjusted EBITDA, the nominal number, is showing positive development. However, the legacy projects and the currency turmoil is hampering somewhat on the margins. Our order backlog, we’re on the right hand side now, is strong. You can note the shift in Q4 last year.

So with that shift, we have a very strong backlog. The new contracts that we enter into now have improved margins. And also there are mechanisms in the contracts for price adjustment to take down the risk from inflation. And by that, I think I will ask Cecilia to take us through the details of the numbers. And then I will return on the market and business update.

Cecilia?

Cecilia Hecneby, CFO, Wow: Good morning. I will take you through I will give you an update on the financial number for the first quarter, starting with operating key figures. And the reporting currency is in Norwegian kroner. In the first quarter, revenue increased by 12% to $261,000,000 up from $232,000,000 in first quarter last year. The increase in revenue is driven by growth in the Industrial Solutions segments and aftersales, while the Maritime Solutions segment was in line with first quarter last year.

Gross profit is up NOK 3,000,000. The gross margin of 29 is slightly lower than in first quarter last year and is still impacted by progress on legacy contracts and backlog in addition to adjusted cost forecasts. Employee expenses of 38,000,000 is down 8,000,000 from first quarter last year, partly related to restructuring in the French subsidiary, but employee expenses vary with project activity and hours allocated to projects. Other operational expenses of $25,000,000 in the quarter were $3,000,000 up from one year earlier. The increase is mainly related to changes of IT suppliers, recruitment costs and in house consultants.

There were non recurring items of $4,000,000 in the quarter related to changes in management. And adjusted EBITDA ended at $13,000,000 which is up $8,000,000 from the same quarter last year, showing increased operational profitability. Let’s look into the development of the segments. Wow has three main segments. The Maritime Solutions segment delivered 108,000,000 in the quarter, which is in line with first quarter last year.

Performance in this segment is driven by phasing of projects and equipment deliveries. The adjusted EBITA margin in the quarter was 12%, which is slightly lower than one year earlier, and adjusted EBITA in the quarter was 13,000,000 Profitability in the Maritime segment is still impacted by progress and delivery on legacy contracts. The backlog amounted to 1,300,000,000.0 and has more than doubled compared to the same quarter last year. After sales continue to grow with increasing number of ships in operation equipped with valve systems. Revenue of 58,000,000 in the quarter is up 22% from 48,000,000 in first quarter last year.

Measures taken to improve profitability are starting to show results. The adjusted EBITDA margin of 15% is up from 12% in first quarter last year, giving an adjusted EBITDA of $9,000,000 in the quarter, up from $6,000,000 in first quarter twenty twenty four. The Industrial Solutions segment continued to deliver on large ongoing contracts during the quarter and delivered revenue of NOK 94,000,000, up from NOK 78,000,000 with adjusted EBITDA of NOK 1,000,000. Profitability in this segment is impacted by costs related to tendering, project development and holding capacity. In anticipation of orders in new industry verticals and is something we will look into.

There is good project on field studies, but it takes time to convert into firm orders. Administration consists of expenses not allocated to the business segments. These are costs related to general administration, owner costs and costs associated with being a listed company. In the first quarter, administration costs totaled 14,000,000 and $4,000,000 of the costs are non recurring, related to changes in management and associated transitional costs. The increase of $2,000,000 in adjusted costs are mainly related to in house consultants.

Moving on to the financial performance in the quarter. The positive operational development is offset by higher depreciation and amortization costs related to increased number of completed R and D projects, share of net loss from Vav’s share in VGM and negative development of Net Finance. Result before tax ended at negative 30 compared to negative 17 in first quarter last year. As WAV reports in Norwegian kroner, key financial figures have been impacted by significant fluctuations in foreign exchange rates in the quarter, and we have a net foreign exchange loss of SEK12 million in the quarter compared to a foreign exchange gain of 4,000,000 in the same quarter last year. Interest costs of 13,000,000 are down from 14,000,000,000 in the same quarter last year.

There is a rich storm in the international currency market and the turmoil had some significant effects around the cutoff date March 31, with the development in Norwegian kroner against euro down 3% and down 7% against U. S. Dollar from the December 31. And there is a net foreign exchange loss of 12,000,000 included in the financial items in the quarter. The majority of the contracts on order backlog is in euro and in US dollar, and about 60% of the project costs are in the contract currency.

In a currency market with less flotation, there has been a natural hedge, but in the volatile currency market we have seen lately, it impacts our key financial metrics more. The backlog and other balance sheet items are translated to NOK under currency rate at quarter end, giving an unrealized currency loss, while profit and loss items are translated to NOK based on average monthly currency rate. We watch the development closely and are considering alternatives to mitigate the currency risk. Now let’s move over to the balance sheet. There are two main developments I would like to highlight.

That is the development in debt and working capital. Interest bearing debt amounted to NOK $480,000,000 at quarter end, up from NOK $395,000,000 at December. That is an increase of million. And as you can see on the bottom on the right hand side of this slide, we made a significant down payment on loan in 2024. And the increase in net interest bearing debt in this quarter is related to the drawn amount on our working capital facilities to offset working capital movements, as net working capital has increased compared to year end 2024, mainly due to phasing of milestone payments from customers and supplier payments.

Other assets has decreased due to reduction of prepayment to suppliers. Working capital will fluctuate and it is an important area for us to watch closely. And we have a close and positive dialogue with the bank, and subsequent to the quarter, amended covenants were secured with improved headroom and extension of our loan facility until third quarter twenty twenty seven. Let’s turn to the cash flow. Looking at the cash flow development, we started the quarter with 47,000,000 in cash.

The negative operating cash flow in the first quarter is mainly related to working capital movement due to significant milestone payments from customers and supplier payments. Investments are reduced compared with historical levels as several R and D projects are completed. The drawn amount on working capital debt facilities in addition to leasing and interest payment lead to a temporary net increase in debt during that quarter. And we are going out of the quarter with a relatively comfortable cash situation with $41,000,000 in cash and $136,000,000 in available liquidity. Milestone payments from significant projects impact the cash flow, and it is important for me and my team to monitor and manage liquidity, working capital and debt closely.

Before I leave the floor to Gunnar, a few words about my current priorities. My colleagues have already started several initiatives for financial improvement, but it is a priority for me to look into how we manage working capital to optimize cash flow from operation and enhance our financial position. This is especially important for Wow with long production timelines and project milestone invoicing with long receivable cycles. Exchange rate risk has earlier been considered as limited in WAU, with a large part of our cost in the same currency as in the contracts. But in a more insecure world, we see that significant frequent currency fluctuations impact key financial indicators.

A second focus area for me will therefore be to consider alternatives for how we can manage foreign exchange risk related to supplies and contract management. Wow made significant down payments on its loan during 2024, but financing of debt and overseeing the capital structure will be a third focus area. And finally, the fourth focus area is operational performance. Several initiatives have already been started to enhance efficiency, reduce cost and increase performance, and I look forward to contributing in these processes. Now, Ginar, you will take us through market and business update.

Gunnar Pedersen, CEO, Wow: Thank you, Cecilia. So now for a market and business update, and I’m going to start with the maritime segment. As I said, Cruise has has had another busy quarter in terms of project deliveries. The margins are expected to improve in this area as we complete the legacy contracts with lower margins and start delivering on newer contracts with significantly improved margins. We’ve just started that and it’s developing over time.

Our backlog in this segment has more than doubled year on year, and it stands at 1,300,000,000.0. We recently signed a new contract for advanced wastewater purification system to be delivered on a cruise vessel at €3,500,000. That’s after closing of first quarter. And later on, you will understand why I mentioned this. So let’s take a closer look then at pipeline, sales pipeline and the backlog that we have.

So we have a strong backlog with contracts to delivery systems to 35 vessels. And also there are options for two more. If you if you remember from earlier, there were options on old contracts, and we felt that they had unhealthy margins. These options have now elapsed. So when we are tendering now, we are tendering with new and improved margins.

And we are tendering now for a number of new contracts. Total is 44 new bps that we are tendering for now. If you look at the graph on your right hand side, what it shows is is the year when the vessels are going into operation. And where it’s not updated is in the delivery of ’26, the one grade. That’s the contract that we signed.

So we’re now ordering equipment to be delivered for that. So currently now, it’s it’s nine for 26 that are going into operation. So that’s the comment on the new contract. And so why why is this important? Well, this shows a good predictability in this market segment.

It’s the contracts that we have as firm contracts that you can see quite some years going ahead, and also what cruise vessels are to be built and that we are tendering for so that the pipeline is also very visible. It gives us a good visibility going forward. So what we order today is equipment which is going to be onboard vessels that are to be put into operations or delivered in ’27 and ’28 mainly with the exception of the one in ’26. And that turns into revenue in 2025. So looking more at the equipment deliveries.

As I said, quite high activity in 2025, where we deliver one to two years before handover. And this year, we deliver to these these 18 vessels plus another retrofit. And what you see on this on this map here is actually our home market. Cruise ships are generally, and I know it’s not very precise when I say generally, but they are generally built in in Europe. And as you can see, all the major yards that are building cruise vessels and all the all the major cruise lines are our customers.

Once the equipment is delivered and you’re getting close to handover of the vessel, it’s the commissioning activities. Commissioning is when you start up the equipment, see that it operates and functions well, always things to be fixed and so on. That goes for any supplier on board a vessel. And you perform tests to verify that everything is good. And that commissioning is is in the very last period before the vessel enter into operation.

To date, we have commissioned four vessels. And for the rest of 2025, there’s another eight that we are going to commission. So this means that we are putting 12 more vessels into operation this year. And as they enter operation, they go into our after sales market. And what we do then is really we turn it into recurring revenue.

So looking a bit closer on the after sales. Onboard these vessels, it is important that all the systems on board are well functioning. And to be able to deliver well functioning systems and to keep them well functioning, we think that’s a differentiator in the market. So what we deliver is various consumables, chemicals, so on to keep the processes going with spare parts and services. And we have also set up as a service provider with logistic hubs and so on to be able to handle this to the cruise fleet.

An increased number of vessels in operation also means increasing numbers, number of systems, but also after sales. And as I said, 12 more vessels entering operations this year. So that’s good. On the margin side, in the after sales, we’ve seen improvements now. And we will continue the good effort to continue the improvement also on the margin side on the aftersales.

Now for the industrial solutions segment. Heat treatment remains relevant to our industry customers, both to adapt to energy cost, but also to reduce emissions. And about onethree of our backlog is related to what we can call our standard product portfolio. We are working on FEED studies for new and big projects to help our customers mature them towards final investment decision. The Rhode Island project and Wau Green Metals make up the remaining two thirds of the backlog.

And what we see is, of course, that these big industrial projects are challenging. The backlog is a concern to us, and this is obviously an area that we are going to look closely into going forward. I will touch on some of them, and these would be known projects to you, I believe. So the customers on these projects are progressing. We are supporting them in FEED studies to mature these projects, find the good solutions, how they can work and what investments level they need so they can mature their investment cases, business cases towards the final investment decision.

They represent a considerable potential to us, But this is a far less predictable market than what we saw on the cruise side where you you know when these vessels are going into operation, you know when the yards have to place the contracts. So typically what we see is that they need a lot more time to mature these projects towards the investment decision. A lot more time than we have expected and also a lot more time than I think the customers themselves have expected. On a high note, I mean, the last few weeks and what’s going on around Vowel Green Metals, we are quite enthusiastic about that, actually. So with High-tech Vision, which is a a professional investor entering this this business where technology from Vow is is so instrumental.

We think that is a very good sign. The board of Vow Green Metals have recommended the shareholders to accept the offer from High-tech Vision. Vow has accepted the offer, and we certainly hope that others will do that too. We think it is good for Walgreens Metals to have a strong financial and a strategic owner come into into play. And also closing this transaction is important, we think, to Wolverine Metals, obviously, but also to us as this will serve as a good reference for our technology.

On the status of the project itself, so the installation of equipment is in its final stages, and commissioning is about to start just after the summer. And I know that all our engineers, they are really looking forward to see this system start up. It is important to us. Some final remarks. So Cecilia and myself, we have joined the company over the last two weeks.

This is my day eight with the company. And on a personal note, I think it is a it is a very interesting company. I met a lot of competent and hardworking people. It’s it’s a it’s a company with a solid market position in cruise. There are interesting opportunities, however challenging they may be.

And it’s also a company with a purpose. Our customers, they are chasing every opportunity to take fossil carbon out of their cycle and also turning waste into value. You can see that very clearly in the cruise industry. Also, I must say that given my background, delivering projects with a high technology content to yards and vessel owners feels a lot like home. What we’re doing now is working hard to get our around arms around the company.

We’re talking to a lot of the people in the company, looking into the projects, understanding the business, meeting some of the customers and so on. Trying to figure out what are the next steps we’re going to take in addition to what is already started. What are the next steps we are going to take in developing this company? And we certainly look forward to sharing some of that with you in the next quarters. Before I end the session and open up for questions, I would like to say thank you to Tina, who has been CEO with the company for quite some time, for her all of her efforts.

And also to Johnny, who has been stepping up as CEO in the interim period. So thank you for that. And by that, I think we open up for questions. And to help answer questions in all the details we haven’t had time to dive into, of course, we will use Tina and Johnny as well. Thank you.

Moderator: Okay. We’ll then open for questions. And we’ll start with questions here from the audience while we’re waiting for the audience online to post their questions. So are there any questions from the room? No?

Well, it seems okay. There’s one. Please state your name. You the the cruise contracts have been sort of problematic with margins in in the past, and you’re saying you’re you’re working with that. But is there anything you can do with the cash flow profile of the customer contracts seeing that working capital is an issue with the the company.

So you can always work on trade creditors and such, but is it anything you can do with the contracts themselves to better match the the cash profiles?

Unidentified Executive, Wow: Yeah. I think, yeah, I can answer that. We we it’s something we’re monitoring very closely. And if you see also by the announcement with them and the the loan agreement now, we are increasing our guarantee facility, and that’s an important tool for us to improve this working capital situation. And that’s some of the measures we’re doing in, in parallel with monitoring it closely.

Moderator: Any other questions from the room? Okay. We have a couple of questions from the online audience. First, do the legacy cruise contracts also cover after sales agreements? In other words, will vessels commissioned under these older contracts result in lower margins for the after sales segment as well?

Unidentified Executive, Wow: Yes and no. As we are progressing and delivering vessels based on our method of supporting the cruise operators, we see a tendency that they come back to us for assistance both in terms of service and spare parts and consumables. I believe we have over 90% of our own fleet covered with our after sales service. In terms of after sales agreements at the point of entering contracts, as we are contracting with the shipyard and not the ship owner. That is the part that comes later on.

And we have fleet wide after sales agreements with many of the largest operators in the world.

Moderator: Thank you. There’s now a question concerning the onshore US activities. Can you say more about the negotiations ongoing on potential contracts there?

Unidentified Executive, Wow: I’m afraid it’s difficult to go into details on specific contracts. So I’m afraid that we cannot guide anything on that. Other than that, what we have seen in the presentation, we remain optimistic. We are carrying out the FEED studies. We see some of the business cases for the clients are are really good.

So we’re still optimistic. And, however, at the same time, being vigilant about the situation when anything changes, we we need to change as well.

Moderator: Thank you. A question about order intake. There has not been many new contracts announced recently. Can you please remind us what is rule of thumb in terms of contract amounts in announcements?

Unidentified Executive, Wow: That varies, of course. We see a tendency in signing contracts from second quarter and out. We recently signed the contract for the latest newbuild in a European shipyard. And as you saw from the presentation, there are 44 ships in tendering activities right now. And we know that these vessels have already been contracted with the shipyards.

So they are up for grabs. There is financing in place. So it’s it’s it’s a matter of the competition that we find ourselves in to to go get these contracts.

Moderator: There’s a follow-up on VGM where we’ve seen very good news from VGM. The question goes, and then what signals are you getting from them with respect to phase two at Follum? Is phase two included in your order backlog as of now?

Unidentified Executive, Wow: As of backlog, no, phase two is not included in the order backlog. We find it reasonable to believe that this is something that new owners also will execute on as the offtakes agreement that they have with the market on their side reflects the amount of bicarbonate to be supplied. But, of course, it’s a it’s a question for VGM to ask and how they will foresee their their expansion of the plant.

Moderator: Thank you. Then there’s one more question, and that’s the last one for now. Can you please us please, in a few words, tell us what is your views on the prospects pipeline and market in general?

Unidentified Executive, Wow: I think I think we we saw from the presentation that all these gray columns that are distributed throughout the years, these are our prospects. These are our pipeline for the cruise segment. As for the industrial segment, the FEED studies represent the same type even though they have a higher insecurity concerning final investment decision. I guess that’s what I can say about that.

Gunnar Pedersen, CEO, Wow: For the cruise segment, we know a lot about, and so we’re we’re good with that. On the industrial side, more of a concern and unpredictability in that market. But again, quite a lot of work going on now on various prospects.

Moderator: Okay. That seems to conclude the questions from the audience, both online and here in in Oslo. So back to you to round off, if you like.

Gunnar Pedersen, CEO, Wow: Thank you. Thank you to everyone who’s been involved in doing all the presentations. It helped us a lot. And thank you to everyone being here and also to the audience online. So thank you.

Have a good one.

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