HMH Holding Inc. Class A Common Stock 2026 Q2 Earnings Call

Please go ahead. Good morning, everyone, and thank you for joining us for HMH's second quarter results.

Joining me today are Eirik Bergsvik, our Chief Executive Officer, and Tommy Hei, our Chief Financial Officer. Before we begin, we would like to remind you that this conference call may include forward-looking statements. These statements, which are subject to various risks, uncertainties, and assumptions, could cause our actual results to differ materially from these statements. These risks, uncertainties, and assumptions are detailed in this morning's press release, as well as our filings with the SEC, which can be found at our website at investor.hmhw.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. Management statements may include non-GAAP financial measures. For reconciliations of these measures, please refer to our earnings release and our SEC filings.

Following our prepared remarks, we will open the call for your questions. I'll now turn the call over to Eirik.

Thank you, David, and good morning, everyone. Overall, our second quarter results reflect the continued resilience and quality of our business model. Orders for the quarter were $205 million, representing a book-to-bill ratio of 1.2 times in the quarter. Total revenue for the quarter was $171 million, and adjusted EBITDA was $34 million. Importantly, adjusted EBITDA margins grew year-over-year to 20%, driven by disciplined cost execution, favorable mix, and a continued focus on operational efficiency. Looking at revenue composition, spares revenue increased 70% year-over-year to $61 million, largely on track to our expectations, reflecting increased fulfillment activity as customers prepare for upcoming contracts. Service revenue in the quarter was $89 million, with repair activities slower than planned, offset by strong and digital technology volume. Importantly, service order intake was strong, increasing 50% year-over-year, driven by robust digital technology upgrade orders.

This is a positive sign for future service revenue and underscores healthy upgrade demand from our customers. Product revenue of $21 million reflected the timing of product order bookings, in which we saw several customers delay project approvals and purchase orders amid ongoing planning activity as in geopolitical uncertainty. Now, turning to the broader market environment. The positive momentum we discussed in the first quarter has continued through the second quarter, particularly in floater segment. Contract award activity remained healthy across several key offshore basins, with operators continuing to sanction projects, advance development programs, and secure drilling capacity for future campaigns. Importantly, we see a growing number of awards being made well ahead of required start dates, providing increased visibility into 2027 for both drilling contractors and the broader offshore supply chain. Contract durations have also continued to extend.

Compared with recent years, operators are increasingly committing to multi-well and multi-year campaigns, particularly in deepwater and harsh environment markets. At the same time, lead times between contract award and contract commencement have expanded, reflecting greater confidence in future activity levels and a desire among operators to secure high-quality assets well in advance. These are all constructive indicators for the long-term health of the offshore industry. What is particularly encouraging is that we increasingly see today's contracting activities supported by strong long-term market fundamentals rather than short-term commodity cycles. Industry project inventories have declined significantly over the past decade while global energy demand continues to grow. As a result, you would expect operators to begin rebuilding development pipelines and sanction additional offshore projects to sustain future production levels. This is already translating into increased offshore investment.

Industry forecast indicates that global deepwater capital expenditures are expected to increase materially over the coming years, with 2027 spending projected to be meaningfully higher than 2025 and 2026 levels. At the same time, offshore projects continue to compete effectively for capital, with deepwater projects economics remaining significantly below the peak break-even levels seen during the last major offshore cycle. These factors continue to support investment in offshore developments across multiple regions and customers. Looking specifically at the floater market, utilization remains at healthy levels today and is expected to strengthen further as demand growth outpaces available supply. Industry forecasts suggest marketed floater utilization could move close to 90% in 2027, with harsh environment assets remaining among the strongest performing segments globally. We continue to see supportive day rates and increasing backlog visibility for premium submersibles and drill ships. For HMH, these developments are particularly encouraging.

Several key rigs within our installed base secured contracts award during the quarter, including a number of units equipped with significant HMH packages. We continue to see backlog growth across key rigs with our installed base, especially within the harsh environment semi-submersible fleet. This trend has steadily improved since the fourth quarter of last year and continues to strengthen throughout the second quarter, further improving long-term visibility for our aftermarket equipment and digital upgrades and automation opportunities. Importantly, many of the recent awards involving HMH equipment rigs are long-term in nature and have been secured further ahead of commencement than we have seen in recent years. This not only increases revenue visibility for drilling contractors, but also creates a favorable environment for customers to invest in equipment upgrades, automation solutions, and digital technology throughout the life of the contract.

We believe this positions HMH exceptionally well to benefit from the next stage of the offshore upcycle. In terms of timing for HMH, these investments are one of the larger contributors to our year. While certain customer factors may influence the pace and timing of investment decisions from our customers, we believe these factors are temporary and do not alter the long-term demand outlook for the critical equipment and services we provide. Regionally, Brazil remains one of the strongest offshore markets globally. Petrobras continues advancing major development programs while additional exploration and appraisal activity across South America supports continued demand for high-specification drilling assets. In the North Sea and broader harsh environment market, operators continue advancing field developments and sanctioning new projects. Recent contract awards, development approvals, and tender activity point towards sustained demand for harsh environments semi-submersible well into the latter part of the decade.

Given HMH's strong installed position across this fleet segment, we view these developments as particularly positive for our long-term outlook. Looking further ahead, activity continues to build across West Africa, Canada, and select Asia Pacific markets. New discoveries, project approvals, and upcoming development programs are supporting incremental drilling demand and reinforce our confidence that offshore investment levels will remain constructive for years to come. Turning briefly to our land business, market conditions remain relatively stable while activity in North America continues to reflect operator capital discipline. International markets remain supported by energy security initiatives and ongoing production investments. We continue to see healthy demand for aftermarket services, equipment upgrades, and reliability solution across our installed base. In mining, customer focus remains centered on productivity, safety, and sustainability. Long-term demand fundamentals for critical minerals remain attractive, driven by electrification, grid expansion, and broader infrastructure investment trends.

We continue to see opportunities to leverage HMH's engineering expertise and technology capabilities to support customers seeking improved operational performance and equipment reliability. Overall, we continue to view the market environment as increasingly constructive. Longer duration awards, growing offshore investments, improving utilization, increasing lead times, and rising backlog across our installed base support our confidence in continued market strength throughout 2027 and beyond. With our leading technology portfolio and broad installed base, we believe HMH is well-positioned to capitalize on these trends. To provide more detail on our financial results and outlook, I will now turn the call over to Tom.

Thank you, Erik. I'll begin with the total company results and then discuss our outlook for the year. Orders for the quarter were $205 million, up 19% year-over-year, driven by continued strength in our digital technology offerings in our service product line, partially offset by lower product bookings. Sequentially, orders were down 6%, reflecting the timing of product awards and repair activity. Despite the quarter-to-quarter variability, orders exceeded revenue, resulting in a 1.2 times book-to-bill ratio. While we expected a degree of volatility in first half order intake, customer decision-making was somewhat slower than anticipated. The softness was concentrated in product orders and repairs, where several customers delayed project approvals and purchase orders amid ongoing planning activities and geopolitical uncertainty.

While these delays in contract spending ahead of reactivations impact orders and corresponding revenue in the short term, we believe the underlying demand environment remains intact, customer discussions continue to progress, and we believe many of these opportunities represent timing shifts rather than changes in customer spending intentions. As a result, we remain optimistic about order activity improving as the year progresses. Revenue for the quarter was $171 million, substantially flat quarter-over-quarter as the increase in service volumes were offset by lower spares and equipment revenue. Adjusted EBITDA in the quarter was $34 million, an increase of 3% year-over-year with higher spares activity offsetting lower product volume. Quarter-over-quarter, EBITDA increased 13%, driven by service volumes. In the quarter, we had non-recurring impacts of IPO expenses of $22.8 million and $5 million of restructuring.