Argeo AS

OSE:ARGEO

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Trond Crantz, executive]

Good morning, everyone, and welcome to Argeo's second quarter presentation. Today, myself, Trond Crantz, CEO; and Odd Erik, CFO, will be presenting our second quarter results.

Please observe the traditional disclaimer. We have the following highlights, introduction, backlog and tender status, a retake on operational updates, technology and financials and in the end outlook. So as per usual, we will do a Q&A at the end of the presentation. So any questions you may have, send it in, and we will answer that as best as we can at the end of the presentation.

So let's go straight into the financial highlights. It's a very strong quarter by Argeo. We are up over 1,000% for revenue, which is, of course, driven by the activities that we have of our most important assets, Argeo Searcher and Argeo Venture. We also started the RWE project within the quarter with Ocean Guardian, but that was a mobilization fee. And hence, all of the revenues from the RWE project will end up in 3Q going forward.

EBITDA very good as well. We had a small delay with Argeo Searcher on the NCPOR project. which was basically triggered by timing and the next project, which we'll talk a bit about later on.

EBIT, $1.6 million and lower net loss of close to $1 million. Backlog -- firm remaining backlog at the end of the quarter is $45 million. And totally, for the year, and so far, we have converted $71 million in backlog from won tenders. We'll talk a bit more about backlog and contracts going forward later on.

Main events, this should be no surprise. We have secured Woodside. We have secured RWE also to TotalEnergies. We have been awarded quite a few patents in the quarter as well. I have a couple of new wordings that I'll talk a bit about later on, but not the word substantial.

So given the fact that we have clients that do not want us to disclose the contract values, we are trying to make a matrix for the market to be self-guided on the contract sizes going forward.

So Argeo in brief, I think the most important thing with this slide, it's a slide we have presented many times before. We are running operations currently over 2 continents in 3 geomarkets with Argeo Venture in Namibia, Argeo Searcher in Trinidad and Tobago for Woodside, and of course, Ocean Guardian with our Hugin 6000 containerized system for RWE in North California. I will talk a bit about that project later on as well.

Retake on this. We are a complete service solution provider. We offer turnkey products to our customers. We do that by using the vessels we have, the assets we deploy from these vessels, which can be of varying nature from USVs to AUVs and ROVs and so forth. And of course, that is additionally uplifted with specialized sensor technologies that we use for our customers for certain projects.

Completing all of this, we have a digital platform, Argeo Scope, which is a conduit of data from the ocean to the office, which is -- really has expanded its use and is becoming a very important tool for us and our operations. In short, we work for oil companies. Preliminary, it's related to inspection surveys, repair, that type of activities, everything from greenfield to mature service, all the way to decom. So it's a fairly long value chain. We always also do other things in the oil inspection industry.

Offshore wind, we do work for new companies, especially in the deeper water scenarios like the RWE project, floating wind where the deepwater is a big hurdle to acquire high-quality data from the areas. We are a global leader in the marine mineral exploration space where also the sensor systems that we develop and use are our key contributors to identifying and estimating resource potentials for Marine Minerals.

Robust strategy, with now showing growth in three major markets. Obviously, Oil & Gas is leading that race for us with 67%. The backlog distribution in Marine Minerals is getting close to 20% and the late bloomer is the renewables market, where especially the offshore wind is an important contributor. But we also do see that CCS and similar type renewables activities will be a major part of the renewables vertical for Argeo going forward.

Superior capacity, you will see that there is a change here. We have strategically settled on a Hugin-based AUV platform. As we have informed, we have now sold the SeaRaptor. There will be more on this later on. This has mostly to do with having a uniform platform that fits the new way of operating that we deliver. So that means that going forward, you will see if we order more AUVs, that will be based on the superior platform. And that also relates to the integration of the sensor systems that we have. What that also means is that we free up quite a lot of cash. So more information on that to come shortly.

Expansion for growth. We are still working on the plan to bring out more vessels. This was presented earlier, and we are working on the first vessel to come out in 2024. It's currently a plan. No decision has been taken. And we are obviously balancing this with the business climate and the market.

So a few words on backlog and tenders. The tender activity has not been reduced over time. We do see that for ourselves and our positioning within the market and then the global activities, we take a bit more time to position, especially the Searcher for directions in South America and North America. So that is why it's taking a bit longer. That does not mean that there's nothing going on and we have very strong leads that we are working on. And we expect that we can come with some announcements towards the end of Q3.

Henceforth, the total remaining tender volume is unchanged from last quarter, about $130 million. And we are trying to mix up a bit more long-term contract volume with short-term, as we have talked about before. And within this space, we need to spend a bit more time to make the best possible decisions for the company.

Market and product revenue distribution. So this is a new slide. It relates to how the revenues is distributed across the peer market and the distribution per product and distribution per geomarket. So we are about 30% of the Marine Minerals market, 60% in Oil & Gas. We are 30% in exploration when it comes to product and 70% in survey-related activities.

For the geomarkets, nearly 70% in West Africa, which is a big coming market. So that's why we are strategically positioned with Argeo Venture, and also Asia Pacific, which is mostly marine Minerals at this point, but we do see that the Asia Pacific market in all our verticals is building, and this is what we have been waiting for.

Backlog, mostly unchanged. We have completed the Woodside project much faster than we had anticipated. We are working on something for September that will have to be conveyed at a later date. Now we have routes to go South America or North America, and we are looking at both of these potentials with a good pipeline for both directions.

Argeo Venture, going according to plan. We may complete this project a little earlier than anticipated. That is basically only related to good performance. So the end of the NCPOR project, which is about 20% remaining, will be picked up by Argeo Venture either at the end of Q4 or at the beginning of Q1. And thereafter, we have several good leads in West Africa for Venture.

When it comes to the Hugin 6000 system, we run this as a containerized system. This is the one that has been doing the work for RWE in California, mobilized onboard the Ocean Guardian. So this is a project that's going really, really well. And we expect more to come in that segment with this containerized systems, which we are now positioning a bit more strategically for future projects. Remaining firm backlog for the rest of the year is $45 million.

Operational efficiency of the current fleet and we classify Ocean Guardian as current fleet due to its short-term lease. Argeo Searcher is running close to 90% utilization, so very good numbers. We are running close to 100% utilization on Argeo Venture, which is, yes, very, very good, of course, but also quite natural given the fact that we have a long contract that the vessel is working on.

When it comes to Argeo Searcher and Venture, we have a performance, which is a bit over 73% on Searcher and close to 94% on Venture. These are mostly weather-driven or mobilization-driven. Ocean Guardian's performance has been 100%. So it's been a very, very good project for us and 70% -- nearly 70% utilization. So good numbers; operational efficiency, really, really good; project execution, fantastic. So the internal operational activities within the company has gone really well.

A few words on vessel and asset allocation and its backlog coverage. You will see that we have now included all the activities going back to Q1 2023. So it was the early start for Searcher plus the long-term campaign that we had on the Hugin 6000 system, going all the way forward to last quarter in Q1, where we had available 17 days, which was related to the Hugin 6000.

And then as you can see that the activity potential is increasing. So that means that we have added now with the sterling performance that you had on Ocean Guardian and Hugin 6000, we have added now potential. So the capacity within the company to increase production and hence, also, of course, revenue so forth has increased as well.

We have still 92 days available on Argeo Searcher in Q4, which is what we are working on. So we will hopefully be able to share more [ info ] on that in the weeks to come.

All in all, very good performance. And this is basically what we will be continuing reporting as the quarters move along throughout the next years.

Yes. There's not much to say about that. Searcher, working on Woodside, Venture working on Total and Ocean Guardian for RWE. In Q3, we have already completed the RWE project, the Argeo Venture project for Total is on schedule. And the Woodside is way beyond schedule, actually. So it's been a very fast project for us.

This is a new slide. This is to present the project performance basically and its status. You can see Shell Nigeria is obviously completed. RWE is mostly completed. It's a few things on data deliverables and reporting, which is remaining. NCPOR, we have completed 80% of that project, 20% is remaining, which we intend to pick up with Argeo Venture after the Total project is completed. Woodside in the quarter had nearly 70% completed, but it's -- as we speak now, it's done. And TotalEnergies is slightly above 50% completed.

Now going forward, for contracts, we will use the following reporting schedule on labels on the pricing and the contract values, considerable, substantial, large and major. So in that respect, the Total project is a major project. NCPOR is a large project and RWE, Shell, Woodside is a substantial project. So between $5 million and $10 million, $10 million and $30 million and over $30 million.

Total. We have talked about this quite a lot. So I don't think I need to say so much more about it. It's going really well. It's a very, very attractive area. A lot of movements within the licenses and activities in general going forward. So it's going to be a real hot pot over the next few years.

Woodside, Calypso really gone well much quicker than we anticipated, so a very good performance. And maybe a couple of extra words on the RWE, Canopy Floating wind project. So this is basically a pioneering project in the sense of floating wind installation. So super deepwater, nearly 1,000 meter at the deepest. We covered the whole area with the AUV with amazing performance and as most of you have seen already with a good feedback from RWE, this is an important collaboration that we have set up with this type of customers in this segment.

So we're very proud of this and has had a very good both performance and contract value, which is basically what we are looking for to reflect the earnings that we are aiming for. Yes. So I think we can skip this. We have talked about this many times that we developed sensor technology within the company. We developed autonomous technology and, of course, data and imaging modeling. So within that, on the left-hand side, we have Argeo Whisper and Argeo Listen.

We have been awarded some new patents, 6 in total. So that protects our internal know-how and IP in the service delivery that we provide our clients. Argeo Listen, fully commercialized qualified as a system for major clients. Argeo Whisper finalizing last parts of testing. And we haven't started fully on the Argeo's discovery system, but it's something which is coming after Argeo Whisper has been completed and qualified as well.

Argeo SCOPE, a very good solution that we now use onboard our vessels. We use it for delivering data. So it's basically [ spotified ] for ocean data. The basic transfer data from the vessels to the office and to our clients seamlessly, which carries also the ability to handle all of the data types, basically all the data types [ imagined ] within the ocean space. So it's becoming a more and more use of an interesting platform, and we are closing -- getting closer and closer to more commercial sales of this system going forward.

So now I will hand over to Odd Erik to cover the financials.

[Odd Rudshaug, executive]

Thank you, Trond. So as we have heard, Q2 was a good quarter for us. We had the $15.7 million in revenue, this came from the contract we had with NCPOR in the Indian Ocean and from the contract with Total in Namibia, a significant increase from the same quarter last year where we had $1.4 million and also an increase from the first quarter this year, when we had $9.4 million.

EBITDA was $4.2 million in Q2 from minus $1.6 million last year. EBIT, $1.6 million, up from minus $2.7 million in the same quarter last year. We had minus $0.9 million in loss in Q2. This includes $0.7 million in unrealized exchange losses. The result in the same quarter last year was minus $2.7 million.

We move over to the balance sheet. The right-of-use assets were $28 million in the end of June. This includes 2 Hugin Superior leases, the bare-boat charter we have on Argeo Searcher and also office leases.

Property, plant and equipment and intangible assets were $54 million (sic) [ $49.2 million ]. This includes Argeo Venture, one Hugin 6000 AUV, the two SeaRaptor AUVs, which we had earlier, we have just signed an agreement to [ sell ]. It also includes the Argus USV and Argeo SCOPE.

We had $24 million in current assets in the end of June. $27 million in lease liabilities related to the right-of-use assets or the leases we have. And this includes both short-term and long-term liabilities. Interest-bearing liabilities was $19 million at the end of June. That includes three loans from Innovation Norway and seller's credits we have on 3 AUVs and the sale leaseback we have on Argeo Venture, which is handled as a loan in our accounts. Other current liabilities were also $19 million in the end of June, and we had $42 million in equity.

Cash flow from operation first half. We started on $5 million in the end of the year. Cash from operation was $0.1 million. We had a significant increase in trade receivables, but also in trade liabilities during first half due to the increase in activity.

The net effect of this was negative with $5.8 million, which is included in this cash flow from operation number. We received a net $13 million from financing activities, $7.1 million in new equity. The sale leaseback for Argeo Venture was $14 million in proceeds to us. We paid $5.1 million in leasing liabilities payments, which also includes the interest element on these leases and $1.8 million in long-term debt and $1 million in interest related to this long-term debt.

We invested $15.9 million in total in the first half. And this was mainly for the upgrade and for the reactivation of Argeo Venture. And that left us with $3 million in cash in the end of June.

So I think we open up for questions.

[Unknown Attendee]

Yes, we've had quite a few questions coming in from the website. And starting up is a question for you, Trond. Do you have any news on the planned uplisting?

[Trond Crantz, executive]

Yes. We do. We are in line with our previous announcements made in October. So yes, I don't know if you want to say something more, Odd Erik, but they are going according to plan.

[Odd Rudshaug, executive]

Yes. No, I think that's [indiscernible].

[Unknown Attendee]

And can you provide any news on new contracts for your vessel Argeo Searcher?

[Trond Crantz, executive]

Hopefully soon. It does -- as I said, it takes a bit of time. We -- it's more about positioning and being strategic than anything else. So hopefully towards the end of Q3, we will have some news on this. We are doing something with Searcher that we cannot talk about just at the moment. But more on this in our Q3 presentation coming.

[Unknown Attendee]

Can you give us an update on execution of your current projects?

[Trond Crantz, executive]

Well, I think the slide that I presented just earlier does tell a good story. We are either on schedule or beyond schedule in terms of performance. So I think the way that we now deliver our turnkey products, which all of our clients really enjoy. We have carved a certain niche in the market that I think is quite hard to compete with.

So I think performance execution and the operational excellence that we're now delivering is basically shown in the results that we presented today.

[Unknown Attendee]

And you might have mentioned it already, but what can you say about the company's performance in the third quarter?

[Trond Crantz, executive]

Yes. So yes, I could say a lot. We obviously know quite a lot of the answers. What we can say, though, is that it's going to be significantly stronger. So -- and this has to do more with timing issues in terms of when we report and are allowed to report and so forth. But obviously, we have [ threefold spreads ] full activity in 3Q, so I think that speaks for itself.

[Unknown Attendee]

And we have a few questions from [ Jonas Fleming ] [indiscernible] Markets. Will remaining of the NCPOR project in Q4 '24 or Q1 '25 suggest any additional costs than previously expected, for instance, related to mobilization?

[Trond Crantz, executive]

No. Marginally. In fact, that small piece we have left wouldn't take more than 2 or 3 weeks to do. And of course, we've cut the costs from doing the same thing with Searcher. And because of Venture being so very close to that area, it's a small activity for us to pick that up. But of course, there is a potential for increasing that project from our clients' perspective. So that is obviously something we are discussing. So we'll see.

[Unknown Attendee]

[indiscernible] Based on the current backlog, could you go through your expectations for the EBITDA margin in Q3 and Q4, assuming 0 new contracts for 2024?

[Trond Crantz, executive]

Well, I think what we...

[Odd Rudshaug, executive]

We are not giving guidance, so I think we should be a little bit careful going into those details.

[Trond Crantz, executive]

But I think it's fair to remember what we have said before is that we overall have a 30% EBITDA margin that can fluctuate a little bit between the quarters as we see now. But otherwise, the projects that we secure have a very high EBITDA project margin. So I think we are looking good.

[Unknown Attendee]

And a question regarding the 2 AUVs, how much do you expect to sell the 2 AUVs that are for sale?

[Trond Crantz, executive]

Yes. So I can't comment on this just now. There will be a press release on this. This is more about a strategic pool displacement that we are -- have been working on for some time. And so -- but what I can say that it frees up a significant amount of cash in 2024 and especially Q3.

[Unknown Attendee]

We're still on [ Jonas' ] list. So how much do you expect to pay in lease payments and interest on lease in the cash flow statement for 2024?

[Odd Rudshaug, executive]

I think what we have paid in Q2 is also representative for what will happen in Q3 and Q4 this year.

[Unknown Attendee]

And can you walk through investing cash flow expectations going forward?

[Odd Rudshaug, executive]

We have no -- we have not decided on any new investments yet. So the only CapEx and investments going forward will be smaller maintenance CapEx related to the current operations. So that is not significant.

[Unknown Attendee]

And lastly, do you have any news -- no, sorry. That was the first question. Do you need to raise more capital in the near future?

[Trond Crantz, executive]

Absolutely not. So we are uplisting without any placements being done, and we're quite happy with the cash positions that we are having going forward.

[Unknown Attendee]

That's all the questions we have. Thank you.

[Trond Crantz, executive]

All right. Thank you.

[Odd Rudshaug, executive]

Thank you.