Argeo AS

OSE:ARGEO

Earnings Call Transcript 2024-Q1

[Trond Crantz, executive]

Good morning, and welcome to Argeo's first quarter presentation 2024. So let's start with some highlights. We have quite a few new slides to go through. As you know, a fully operating company, quite a lot of changes as well that we will cover throughout the presentation. We'll, as per usual, go through the highlights, our financial figures, some operational slides, talking a bit about ongoing projects, upcoming projects and not least cover the changes that we have gone through since last quarter. We will cover our change to IFRS accounting. Odd Erik will deal with that under financials. And of course, at the end, we will set aside time for a Q&A session with myself and the CFO.

So without further ado, a strong start to the year for Argeo. No question about that. We are up across the board. Revenues are up by 288%, which means that we have taken a significant step from where we were last year. The EBITDA figure is up by 415%, up from minus $920,000 to $2.9 million in this quarter. EBIT as well, 164% up from $1.7 million to $1.1 million. And of course, net profit came in at 1 point -- or $2 million, up 238% since Q1 last year.

Our current backlog is running at USD 54 million. And that is basically the figure of what is remaining to be completed at the end of the quarter. So the quarter itself started with $64 million in backlog. Of that, we have consumed $10 million in revenue, as you can see here. And basically, what is left to produce to the remaining 3 quarters is $54 million. Of course, additional to that, we are adding projects as they come by, and we will inform the market as per usual. Please note that all the figures are in NOK 1,000 -- $1,000, and that these figures are accordance with IFRS accounting principles.

Main events. Argeo Searcher completed the Shell Bonga project before going over to the Indian Ocean for NCPOR. We signed the NCPOR contract of $14 million. We have been awarded the TotalEnergies contract in Namibia for the Venus field of $39 million.

Argeo Venture completed the reactivation in this quarter, so it was not active in terms of utilization. It started the project April 8, when sailing down from Norway to Namibia.

And last, but not least, we secured another Hugin Superior for Venture, which is on project for Total. And finally, the -- just subsequent to the quarter, we signed the Woodside Calypso contract for Argeo Searcher. We'll talk a bit more about that later on.

So recap of Argeo, what we are, what we do and how we are set up. And I think this really is the proof of the pudding. So we do have the vessels, which are really good performers. We have the subsea equipment, so the AUVs, USVs and so forth. And finally, we have the sensor systems that we use to bring value to our customers. And this is really now what we are seeing is working for the customer. It's giving the customers a big value proposition with some really excellent projects completed in the quarter.

We work in the oil and gas segment. We work for offshore wind companies. And we are an industry leader in the exploration for marine minerals. We'll talk a bit about that and how the spread of revenues per segment, per market and per product is at the later stage in the presentation.

So what we offer is some more cost-effective survey and inspection services to our clients, and of course, with our new digital platform, easy access to actionable data that gives them the decision power in their projects, whether that being in oil and gas or in marine minerals for exploration or in the offshore wind market.

All of this gives us a very robust strategy. So we see that the price margins and the prices in general is quite similar in oil and gas and the Marine Minerals business. The renewables part is lagging slightly, but we see a significant uptick in especially the floating wind activities, where we are a significant player going forward.

Superior capacity, it's an old slide we talked about before. Argeo Searcher, our project in the quarter, very good performance, 100% utilization. Venture completed its renewal and upgrade activities in the quarter. And of course, then we have our vehicle asset fleet down below, which now counts two Superiors plus an option to acquire another Superior this year.

Expansion for growth, another thing we have talked about a bit, whereby we add more spreads that is vessels and subsea equipment to the fleet to bring higher revenues and, of course, higher profits. This is something we are working on. And when we have something to present in that trend, we will, of course, let the market know. But we are looking to -- for many good opportunities for the company that doesn't require new share capital to be issued. So everything from lending to charter, always in the mix in that sense.

And why do we do that? So this slide really explains that. And we can see that this is working now from our Q1 presentation, 80% utilization that will bring an EBITDA per spread per year of NOK 100 million, so approximately $10 million. And this is basically our growth case. And we see that this is working, and we are delivering on this.

So in the quarter, and for that matter, before the quarter as well, we've had a 100% conversion rate from submitted tenders to contract. This is a great achievement for us. All the tenders that we have been part of, we have won. So during the quarter, we converted an additional $10 million in tenders to secured backlog. Of course, as I said, we have also consumed of that backlog. Hence, the number is the same. We have a total remaining tender volume -- pipeline of USD 130 million, stretching well into 2025. So that does not mean that we are guiding on this. It's just to show that there is a big market out there where we are an attractive service provider.

So this is a new slide. We wanted to bring some insight into how the market and product revenue distribution is across our services. So the distribution per market looks like this, and this is comparing Q1 last year with Q1 this year to the right.

So the Marine Minerals business, last year in Q1, we had $2.4 million, and this year, we had $2.7 million. And that is obviously Searcher and the production for NCPOR. Oil and gas, $5.4 million that was related to the Shell Bonga project. And finally, we had $1.2 million in rental income on our Hugin 6000 system that has been a long project now for nearly 2 years.

If we look at distribution per product, we have categorized three main product types. So we have exploration data, which is basically looking for marine deposits, potential exploration opportunities and environmental data. We have oil and gas survey data. So that is what we are, for instance, mainly doing for Total in Namibia. And finally, we have oil and gas asset integrity inspection, and that is the -- one of the project parts of the Shell Bonga project.

So for oil and gas survey data, within the quarter, that was for Shell, that is $3 million. For the asset integrity part of that program, that was $2.4 million. And finally, the rental income, as I talked about before, that was the Hugin 6000, which was on project and came back to us towards the end of this quarter.

And finally, we have distribution per geo market, so that is geography and where we have activities in the world. For now, this is classified in terms of Europe and Norway, which was largely last year. Then Asia Pacific, where the Indian Ocean basically for Searcher and the NCPOR project. And then West Africa, which is a very big market for us in the quarter as well.

What is not part of the revenue from this is the rental business. So it's a small specter from sales from Argeo Robotics, and that what makes up the $8.2 million.

So our usual backlog sheet. At the start of Q1 '24, our backlog was running at $64 million. As I said, we have consumed about $10 million, and that's our revenue in the quarter. And so the remaining backlog for the remaining year is $54 million. Argeo Searcher is finishing up the NCPOR project towards the end of this month, in fact.

We have a scheduled yard stay, so that's a planned inspection. I'll talk a bit more about that on the utilization. But in principal, it's something we have to do this year, and it's the only opportunity in terms of other projects coming along. After the yard stay, beginning of July, we go to the Calypso field for Woodside. And for the remaining of the year, we have about 120 days available for sales for Argeo Searcher, and which we are tendering of course in primarily South America.

Argeo Venture completed reactivation in this quarter. It left Norway, April 8 and transited down to Namibia. So that's a paid mobilization and is now in production on project on the Venus field. It will work there for the remaining of 2024. And we are, of course, in discussions of continued project in the region for Venture.

Hugin 6000 came back to us in the quarter. So the finalization of the long-term rental contract was ended. The Hugin 6000 has, hence, been upgraded and serviced, is now mobilized for a potential project, which is offshore wind related, and we are looking at several other potential projects for that vehicle in the area it will be working at. So the Hugin 6000 will be mobilized on a charter vessel. So that's how we will operate that vehicle.

And this is also a new slide, try to bring a bit insight into the use and utilization, as we call it, for the operating units or our spreads. So it's a comparison and a statistics from the same quarter last year, so Q1 '23, which was the first quarter of Argeo Searcher entering the Argeo sphere.

So a couple of things to mention here but let me first just state that utilization for this quarter for Searcher was 100%. So it's been a very good performing vessel for us. And as everyone know, we do have a long-term chart bareboat contract on the vessel with an option to buy the vessel at the price of $8 million.

For 2023, the utilization for Searcher was 92%, and this was related to a paid mobilization -- or nonpaid mobilization in transit that we had in Q2 in 2023. And you can see that, that is highlighted there, 30 days. So the numbers on the graph side, the days on project.

So Searcher will be fully occupied in Q3 and accept a short yard stay of 14 days. And as I said, we have, all in all, from the end of Q3 and full Q4, available days for sale for that vessel. And Venture will continue working in Namibia for the rest of the year.

So in terms of utilization, Venture has not been part of the utilization figures for the company in this quarter due to the fact that it is a new build and in the yard and, hence, not available for us to produce any revenue-generating activities.

In terms of backlog coverage, the Searcher, going into the quarter, had a 67% backlog coverage of the contracts announced. As I said, we have 120 days available for that vessel, which we are working good leads, shall we say. Venture, on the other hand, as it came out of the yard, beginning of April, it's 100% coverage on contracts from backlog. We have some definitions of how we break up these things in terms of backlog, utilization, nonactive days and so forth. It's a readability activity. So the information is available.

Okay. Operational update. Searcher, full on, going well. Argeo Venture, completed yard stay and upgrades and sail down to Namibia. It's on project in production. And the Superior's outperforming really, really well. Everyone with included Argeo sensor systems, which is proving of high value to our customers.

So TotalEnergies, Namibia, Venus project, outside, about 1.5 days sales from the coast of Namibia. It's a very large oilfield with a fantastic hit rate in the whole region. So it's a very interesting area where we see all of the big players are moving in. Galp, for instance, in addition to Total, did a discovery of nearly 10 billion barrels of oil. Shell, Chevron, Woodside, all is in the ballpark with activities in the region. So we are perfectly placed and positioned for more activities in this area after we complete the work for Total.

Woodside, a new project for Argeo Searcher, starting up beginning of July with a paid mobilization and transit over to Trinidad and Tobago. It's a project quite similar to the Total project. It's a development field. Water depths down to 2,400 meters, geophysical survey activities. It will take, including mobilization and the work itself, 60 days. And we will cover about 2,300 line kilometers for Woodside, which is a very exciting company to work for. It's an innovative company with global reach, many projects worldwide, and we are very excited about starting this project for them.

A couple of words on technology. We received another patent confirmation during the quarter, which is very good news for us. It basically underlines the importance of what we're doing and how we're doing it. This is actually a slide from when we went to market back then. And the strategy of doing that has really proven its value.

We are using our sensor technologies in all the market fields. So we are using it for Marine Minerals, where we are now -- it has become a deposit detection and estimation sensor system. So it's extremely good news because that allows us to say something about the area that we are exploring. Likewise, in oil and gas, the Shell Bonga project has shown fantastic data, and we've probably done that 10x faster than traditional ways of inspecting our pipeline.

And of course, we are bringing everyone competitive advantage products into the mix. We now have our new data model. It's live, being used on all vessels and gives our clients access to actionable data. And we, of course, built in more features such as AI driven object detection and so forth into the software system. So it's a very good story and how technology can drive excellence in the service provision that we are providing to our customers.

Yes. Just a quick recap, Argeo Listen, in use today. Argeo Whisper is in testing as we speak. It is proving a very promising system. And we are then bringing out new products for Argeo Listen, which we call Argeo Discover. So for instance, for Marine Minerals, especially. Argeo SCOPE, our digital solution being used by all the clients on all the vessels and for all the projects. So a good story there as well. And the most importantly, and why we started this was that we acquired so much data from these vehicles, and this platform allows us to throw everything in one space, which has proven very beneficial for us.

So I will leave the floor to Odd Erik to go through the financials.

[Odd Rudshaug, executive]

Yes. Thank you. So we will start with IFRS. We have now implemented IFRS in our financial statements, and we have also restated all our historical numbers to IFRS. This has caused some changes to our accounts and so future lease payments. I know the net present value of future lease payments are now included in our balance sheet as assets and liabilities. We also have some changes related to timing of revenue and cost mobilized for projects. Earlier, we have included the mobilization revenue and the cost when they occur. Going forward, these revenues and cost will be recognized over the acquisition period on the project.

We expensed some costs related to the share option programs we have. We have also a change related to the seller credits we have on AUVs. These credits are for your interest. But according to IFRS, we need to calculate an interest element for these, and this affects the value of the seller credits, both on the asset side and liability side in the balance sheet. And then we also have some currency effect due to this change to IFRS. As a part of this process, we have also changed reporting currency from Norwegian kroner to U.S. dollars.

Trond has been through these key numbers earlier. We can go a bit more into the details. $9.5 million in revenues during Q1. So this is mainly for Argeo Searcher from the programs in Nigeria and in the Indian Ocean. We also had some revenue for this Hugin 6000 containerized solution, which has been on a long-term contract since September 2022 and came back to us now in April. EBITDA, $2.9 million, also a significant increase from Q1 '23, of course, due to the increase in revenue during the period, but also offset by higher operating cost. We had Argeo Searcher on a full quarter now in Q1 while it only operated for half the period in Q1 '23. EBIT, $1.1 million in Q1. Net profit, $2 million. This profit includes $2 million in unrealized currency exchange gain. And the backlog, $54 million, as we heard earlier.

Moves to balance sheet. We have -- or had at the end of March, $29 million in capitalized right-of-use assets, meaning capitalized -- or this is a net present value of all the future lease payments we have for these three assets listed there. So that includes two Hugin Superior AUVs, the bareboat charter for Argeo Searcher and also -- $51 million in property, plant and equipment. And this is mainly our new vessel, Argeo Venture. It is one Hugin 6000 AUV, the two SeaRaptor AUVs, Argus USV and also some intangibles, including Argeo SCOPE. Lease liabilities also $27 million in the end of March and -- which is related to the right-of-use assets that we see on the left-hand side there.

Interest-bearing liabilities, $17 million at the end of March. This includes the three loans from Innovation Norway, three seller credits on AUVs and a new loan on Argeo Venture. And we had $39 million equity in the end of the quarter.

Cash flow. Cash from operation was minus $3.2 million in Q1. And this was negatively affected by an increase in receivables during the quarter of $6 million. On the financing side, net proceeds from the share issue we did in March was $4.5 million, and $10 million came from this new loan on Argeo Venture. And we invested $11.3 million in Q1, and this was mainly for the upgrade and for the reactivation of Argeo Venture. $1 million in cash in the end of the quarter, but this improved significantly in April. We received $2.9 million from the repair issue in April. And we also achieved the $4 million from the second drawdown we had on Argeo Venture.

So with that, we will open up for Q&A.

[Unknown Attendee]

Yes. We will start with a question from [ Stian Andre Førland ]. When will the company be uplisted?

[Trond Crantz, executive]

Yes, good question. So I can take the highlights here, but it's really my pal here on the left-hand side that's been doing all the work. So one of the reasons why we've done all the IFRS changeover is to prepare ourselves for the uplisting. The plan activity for that is October, November, this year with a lot of activities that needs to be passed on along the way.

[Odd Rudshaug, executive]

Yes.

[Trond Crantz, executive]

You want to...

[Odd Rudshaug, executive]

No, that is correct. I think we are aiming for October as the first listing later.

[Unknown Attendee]

And we have a few questions from [ Perle Bilbo ]. You briefly mentioned exploring alternative funding options for growth that might require limited equity. Could you provide more details on what you believe is achievable in terms of funding growth? Additionally, what are your thoughts on the possibility of using debt instead of equity finance new spreads?

[Trond Crantz, executive]

So to start at the end, we think there is a very good potential to use debt instead of equity to finance growth. We see that there is a very positive market in terms of financing activities in [ field ] basically new vessels and so forth. But we have other buttons to push as well. We have charter options available to us. But I think the track that we are following now is that set up for the spreads with perhaps partners in it. So -- but we will come back to that part when we have something to communicate.

[Unknown Attendee]

And the next question from Perle Bilbo is regarding the Argeo Searcher in South America. Can you give some more color on what type of work you expect for this vessel beyond its contract with Woodside? Given the high activity within oil and gas in the region, can we expect the vessel to remain in South America?

[Trond Crantz, executive]

Yes. Again, starting at the bottom of the question, yes, we can expect the vessel to remain in South America. It's a very good market. And obviously, we are working on some interesting leads, not only within the Trinidad and Tobago geographical location, but also further south, down to Brazil and so forth. So that is the strategic move that we are following at the moment.

[Unknown Attendee]

And also from Perle Bilbo, what is your view on opportunities in APAC? We are observing an increased activity across both oil and gas and renewables in that region? What could -- could we expect additional spreads to be deployed towards this region?

[Trond Crantz, executive]

Yes. At the same time, we have now the two spreads we have positioned in West Africa and South America. And obviously, we are looking at other opportunities. Asia Pacific, or APAC, as Perle mentioned, is an obvious selection for that. And obviously, we are working in the Indian Ocean now not far away from activities. So we do know the area, and it's something we are looking at is what I can say at the moment.

[Unknown Attendee]

And that was the questions.

[Trond Crantz, executive]

Okay. Thank you.

[Odd Rudshaug, executive]

Yes, thank you.