Argeo AS

OSE:ARGEO

Earnings Call Transcript 2023-Q1

[Trond Crantz, executive]

Good morning, everyone, and welcome to Argeo's First Quarter presentation of 2023. A different presentation from before. We obviously have just covered the annual report, so we will say a few words. So how we got to where we are now as well in the beginning of the presentation. We will ask you to please observe the disclaimer.

We will cover the highlights, as per usual, short introduction to Argeo for those who are less familiar with the company and operational updates, commercial market update, the usual technology status update, financials and outlook at the end before we -- as per usual, cover questions at the end of the presentation.

So highlights first. Obviously, a strong quarter for us. This is a result of the work that we have done the previous year. So as I wrote in the letter to our shareholders of -- in the annual report, is that 2023 was a year in 2 halves. It was a start where we continue with our existing strategy and a second half where we adjusted the strategy based on the market changes that we saw coming.

In total, that has given us a more resilient strategy in the market going forward. And the results we are already now seeing. So we have a strong revenue growth of 258% from NOK 6.9 million to NOK 24.7 million. It was actually hampered a bit by somewhat delay in the readiness of Argeo Searcher.

So we, in fact, anticipate even stronger quarter than we had and results. Very strong order book already for the quarter of NOK 120 million. We have room for about NOK 100 million more with the current setup that we have. And we are fairly close to closing that gap in not too long time.

So for 2023, things look really well for the company. In more sort of details, we have signed the first contract for deep-sea Minerals. It was a very important first contract for us and also leading into our latter contract with NPD. We've teamed up with one of the largest multi-client players in the world for the world's first deep-sea mineral multi-client project. And we also signed our first project in renewable energy sources for Orsted and Stromar.

We have a very strong sales pipeline now pushing NOK 1.4 billion. So we are hopeful that some of these leads will converge, not only for 2023 but also well into 2024 as well. In the latter part of last year and beginning of this year, we completed the conversion of Argeo Searcher. We integrated on board there, all of the SeaRaptor systems, data management system, making this a fully integrated offshore platform.

This took maybe a month more than we had expected. So hence, the somewhat lower results for the quarter. But the end result of that work is now paying dividends for the company going forward.

And finally, we closed a subsequent offering of NOK 5.2 million beginning of the year and signed, as I mentioned, the MPD contract for Knipovich Ridge, starting up in June most likely for NOK 37 million, where there is also an option to extend. We also announced that the option for the extension of the Hugin contract was called just recently. So that will be on contract until March next year.

In business development, we are working hard to convert our pipeline into actual contracts. With the strong market that you are seeing now, we are quite particular about the project that we select. We have, in fact, said no to some projects to make sure that we have the margin and availability that we require. So it's looking very, very good for us.

The order book is still our primary focus, and we are working hard on that, and we are seeing that we are shifting more and more into 2024 for the project we are developing at the moment.

We're also looking at establishing a second crew in the Americas. This is a very interesting and strong market for us, very important. So when that will fall into place, we'll see. But certainly, it's something that we are working actively on. So with the current strong order book, we are already in place and continue to stand by our earlier statements, so positive cash flow from operations in Q3 and an EBITDA target of NOK 50 million for 2023. And just a cautionary statement there that delays in contracts and acquisitions and execution can obviously put that target at risk.

So last year, we saw that the market was changing. It was changing rapidly. We took action to meet the new global demand and we secured our first vessel, the Argeo Searcher. We can clearly see by the curve here, the effect that, that decision has made.

Already in the first quarter, we are up nearly 260% in revenue. In addition to that, we see that the clients' expectations are now being met and that we have a lot of interest in all the markets that we are focusing at the moment in terms of what we are delivering our services and value proposition to our customers.

So this is basically proving our strategic adjustments and going forward, we are looking into how can we accelerate growth for the companies already in 2023, but also over the years to come.

So strong revenue growth. For the quarter, we saw NOK 24.7 million, and that was more or less a month of work for Argeo Searcher and the Hugin system, somewhat delayed, as I said, due to the conversion work that we've been doing and the integration of the SeaRaptors. And some of the vessel expenses from that is what is basically lowering the EBITDA for the same quarter.

And that is basically the conversion and dry dock expenses. So the order book in itself currently for the quarter is NOK 120 million. As I said, we have room for NOK 100 million more, and we are working actively to close that gap with several very strong leads to make that happen.

We see a positive cash flow from operations expected in Q3 and as I said, maintaining our target for our EBITDA for the year.

So a brief recap, Argeo. We are an offshore service company. We work in 3 major geomarkets: Americas, of course; South and North America; West Africa and Europe. We are still holding on with Asia Pacific to cover these markets that we have a good control over. We deliver services in terms of data acquisition, surveying and inspection, somewhat maintenance and of course, multi-client and data services.

Our primary markets are oil and gas, the renewables and the offshore mineral markets. So just to recap, subsea activities, we do a survey. We have a new business model, which is now being quite popular with clients, data service. And of course, as we come back to at the end of the presentation, Argeo robotics and all the tools and systems that you are developing there and the status of them.

We have high capability valued assets, which all have complementary abilities. We now have the SeaRaptors on board the Searcher. So combining deep-sea going, long endurance, cost-efficient vessel with high capability and advanced sensor system in the SeaRaptors, including our own.

We have the Hugin system, which is a containerized system working elsewhere in the world. And we are working on something quite unique for the Argeo's USV for the renewable market, which we see as the main value driver for this type of technology.

Quick operational update. We started late in the quarter with the deep-sea mineral contracts for PGI, deep-water, plus 4,000 meters, exceptional data as a return. We have been working there from beginning of March and we are soon, within a month's time, we have completed both that project and the multi-client project that we are working on in the same market area.

Before we are transit into the North Sea area and very northwest of Svalbard where we are carrying out the NPD contract in early summer. Then back to the North Sea, where we are picking up more projects in the North Sea area before we are eventually putting us a course towards warmer waters for the winter season.

The survey contract also announced for Orsted and Stromar project with the USV and more autonomous systems, more information on that later. Just a couple of notes that together with our multi-client partner, we are the first company in the world to launch a multi-client survey campaign for deep-sea mineral market.

So a very exciting new aspect. It's a growing market. We see that this market is already active in the Asia Pacific. We see that the Norwegian continental shelf, this will be an active market ongoing for over the next years. So getting that sort of competence, proving the business model, the systems and the technology that we use to make value for our clients is important to us.

The result of that, we will enable early access to cost-effective data for prospective clients, and this is what we are building up our business model around now. Then we announced that we secured a contract for the Norwegian Petroleum Directorate, NPD, for NOK 37 million at Knipovich Ridge.

It's an 8-week duration contract, including transit, where we are acquiring data over a very interesting area where we believe that there will be a good potential for marine resources. We will deliver data through our Argeo SCOPE, and we will use some of our patented sensors now installed and operational on the SeaRaptors for the client to further provide investigative positive results for the project.

Our pipeline is growing, and we are seeing that we are now converting in a much rapid rate than before. That is, of course, because we are more flexible, we have control of the whole value chain that we deliver, which the clients obviously appreciate.

We see that we have NOK 1.4 billion value of the sales pipeline. And of course, some of these projects are closer or further away from converting into projects.

It is, as we have explained before, that the opportunities per segment is a lot carried by oil and gas. But you also see that renewable energy sources are coming strongly and it will evolve and expand over the years. And per geomarket, we see that Europe, Middle East and Africa is the second strongest compared to NSA.

So project backlog. This is where we are now. We spent January and most of February to convert and ready the vessel and the systems for the upcoming projects for 2023. We started the PGI mineral project early March, and are now working with -- on that and the deep mineral multi-client project before we move upwards north to the NPD contracts, and later into a renewable contract at the end of the summer.

And then we are working on some strong leads in the oil and gas sectors which in, by and large, may close out our order book entirely which looks very good at this moment. So we see that we can end up with a very, very good result for the year.

We got 6000 out until March and the Argus is being prepared with the new capability for the renewable sector and later also for oil and gas towards the end of the year. So for Q1, Argeo Searcher had 50% utilization, really hampered by conversion and getting everything ready and Hugin 6000, 100% utilization during the quarter.

So just to recap, this results are a lot with what we are seeing in the market ourselves, both in the oil and gas and renewable sector. There is a lot of sanctioning projects going on, a big push in the Americas and West Africa and Europe which is why we are focusing in that area. And the clients like our new offering, which basically proves our new and adjusted strategy.

So the offshore market in more details, and the differences between the various services is listed here. I don't need to spend too much time on it but it confirms basically the same story that we have talked about earlier.

So in the quarter, we commercialized another of our patented systems, the Argeo WHISPER, is now installed on 1 of our SeaRaptors together with, LISTEN System. So we now have 2 of our main sensor system in active use in our operations, which is really good news and a fantastic performance delivered by the Argeo robotics team.

In addition to that, we were close to commercializing Argeo SCOPE last year. And now we are onboarding our first pilot customers in Argeo SCOPE and that is now becoming our main conduit to deliver our data to our clients for our projects.

And this just shows a perfect example of that, where we used Argeo SCOPE for an inspection project, together with all the sensors that we have developed and great hope for this product going forward.

So I will now leave the words to Odd Erik for the financials.

[Odd Rudshaug, executive]

Yes. Thank you, Trond. So as we have heard earlier, operating revenue in Q1 was NOK 24.7 million. And this came from the Deepwater survey with the Searcher equipped with the 2 SeaRaptors in the North Atlantic and from this a long-term project we have on Hugin 6000.

Operating cost increased to NOK 15.9 million or NOK 16 million in the quarter, which is due to Argeo Searcher coming on [indiscernible] on the 20th of January in the quarter. Employee expenses, NOK 18.9 million, which is up from NOK 13.8 million in the same quarter last year, but it is approximately the same as we had in Q4 last year. No, yes.

EBITDA, minus NOK 9.8 million, so an improvement from the same quarter last year when we had NOK 12.3 million and we had the NOK 12 million in Q4 last year. Net financial items was minus NOK 6.7 million, and this includes NOK 6.1 million unrealized currency exchange loss on the seller's credit we have in U.S. dollars. So net loss for the quarter was $22.8 million.

We move over to the balance sheet. Total noncurrent assets was NOK 256 million in the end of March. This includes NOK 28.5 million in intangible assets or capitalized development cost. And NOK 4 million in multi-client library, NOK 218 million in property, plant and equipment.

And you will also see that we have reduced the deferred tax asset from earlier. And the reason for this reduction is that we do not record the full amount of tax losses, which we have. So the recognition of these tax losses will happen later when we become profitable.

Cash was NOK 14.1 million in the end of Q1 and this cash does not include anything from this loan. We were granted from Innovation Norway in December last year. That loan was drawn in the second quarter this year.

Equity NOK 170 million in the end of Q1, long-term debt NOK 88.5 million, and this long-term debt is mainly the seller's credit we have on the 3 AUV's and we have no interest cost on this seller's credit.

A few words about the cash flow statement. Net cash from operations was NOK 29.5 million. This includes a positive effect from the unpaid share capital, which we had in Q4, which was NOK 35.9 million. So that cash was received in Q1 this year.

We invested NOK 11.5 million in property, plant and equipment in the quarter. And this is mainly for rigging cost for Argeo Searcher. Net proceeds from the subsequent offering was NOK 3.8 million. And net repayment on debt was NOK 24.1 million in the quarter.

So then I think I'll leave it back to you, Trond, for some closing remarks.

[Trond Crantz, executive]

Yes. I think we can basically go to any questions we may have.

[Operator]

When you enlisted on Euronext Growth in 2021, you had a forecast of approximately NOK 1 billion in revenue by 2025. What is needed to reach a revenue of that NOK 1 billion? And when do you see it being achievable?

[Trond Crantz, executive]

Yes. So obviously, when we started and how we did it has been adjusted. Now it's a lot simpler. You see that I give a vessel with the equipment that we have is between NOK 220 million to NOK 250 million per year in revenue. So for these vessels over a period of 2 to 3 years, it's NOK 1 billion in revenue and approximately an EBITDA of NOK 300 million.

So basically, that is how we get to that target now. And how we trigger that and how we -- and quickly we do it is something that the management and the Board decide. But of course, you see a very supportive and strong market for exactly those IDs going forward.

[Operator]

And that was really from the questions today.

[Trond Crantz, executive]

Okay. Thank you then.