Argeo AS

OSE:ARGEO

Earnings Call Transcript 2022-Q3

[Unknown Executive]

Welcome to this presentation of Argeo. I'm the company's Investor Relations [ Ulai Clamph ] from [indiscernible]. The presentation will be held by the company's CEO, Trond Crantz; and CFO Odd Erik Rudshaug.

Regarding the Q&A sessions afterwards, you can send questions during the presentation using the questions chat function. The presentation will also be recorded and published on the company's web page later today. That's all from me for now, Trond, the floor is all yours.

[Trond Crantz, executive]

Thank you, everyone, and welcome to today's quarterly presentation from Argeo. Quite a lot of content to cover today. So we'll try to spend less time on all of the slides that we presented before and more on the new ones. And as [ Ulai ] said, we will take questions afterwards. Please observe the disclaimer.

So we will go through the highlights of operations, commercial and market update, technology, financial and some look into the future. So highlights for the quarter, the SeaRaptor Bravo, we completed a plus 5,000-meter dive campaign in the summertime for Bravo. Our important project, of course, starting for the full water column configuration for future projects. Hugin 6000 started in September after some early delays, but a project that is running smoothly now.

In later events, we completed the contract for bareboat charter for Argeo Searcher, where we also have an option to buy a bit more on that later on. We also completed the first contract for our Argeo Argus, the USV, with excellent performance. And we just announced yesterday the first contract for the Searcher and both of the SeaRaptors for a deep sea mineral and deep diving qualification campaign outside of the mid-Atlantic ridge.

And good news on the technology side as well. We received the first patents on our unique EM sensors. And finally, also SCOPE has now been launched into a product line. So business development is going as per announced in the previous quarter, we have established now in all of the geomarkets.

The company is now well positioned and can tender for larger contracts. Obviously, we hope to be able to announce larger contracts for this quarter, but giving circumstances, terms and conditions, things that takes longer time to close. We had to postpone some of that, but we see a bright future and South America, especially where we have about NOK 300 million, which we been close to award and consequently signing.

In our other geomarkets, our pipeline is smaller. That is mostly related to focus but it's steadily increasing. On the finance side, we expect to be EBITDA positive in the second quarter of 2023. And we are targeting an EBITDA for next year at NOK 50 million or higher. So larger contracts are expected to be awarded. And of course, our financial targets is driven by the fact that we are able to sign these contracts, but it looks very positive at the moment.

For the next quarter, we expect only a slight improvement contributed by Hugin 6000 project. Mostly related to this and the fact that we are mobilizing a lot of equipment on board researcher for larger campaigns there on.

So a quick recap. Argeo markets, North and South America, Middle East, Europe and a start on Southeast Asia. 6 assets, 3 crews, all rolling in an expected pace. Our mission has not changed. We still have a mission to transform using robotic solutions combined with sensor technology and of course, our unique digital platform.

The biggest drivers in the market for us now and the foreseeable future is oil and gas and renewables or offshore energy, a commonly used now term. But we also see very positive dynamics in the marine minerals markets, and we'll come back to that later on.

We still opportunistically go for offshore installations where they are, but it's not something that we follow tentatively.

So operational update. As we saw with the new vessel and new assets, we are now able to expand a scope of work capability. So from survey and inspection also to include maintenance and repair and additionally, Multi Client/Data as Service still with us. And we see several good opportunities for that going forward.

Recap of our assets. The only thing that has changed is now the Hugin 6000 and the Searcher. We are looking at potential partners or how we will bring in ROV systems to be announced at a later stage. And through the quarter, in fact, starting already in June, we saw that the need for a stable effective larger vessel platform was necessary for our operations. Challenges in terms of securing timely vessels, combined with really, really high prices in the deepwater geomarkets required us to make a deal for a vessel, and we've made a very good one. This is a platform with long endurance over 200 days, modern diesel electric system, fully class-renewed, can operate over the next 5 years without any major obstacles. And of course, fully DP. So it's a fully subsea vessel for our requirements.

That means that we can now, using that platform and the other assets, expand our scope of work capability for 2023 onwards where we can do more from this platform for our customers in the market.

How we will do this, we will come back to most likely in the next quarter, but discussions is already underway.

So Argus, our USV platform. It was delivered to us late in the previous quarter and beginning of this quarter, and we spent a lot of time tuning up the system for perfect performance. This has taken a longer time than we expected. However, as the result shows, that was time invested soundly to give our customers fantastic performance and data results from this multi-purpose platform.

We knew we had the project leaning onwards after completion of all of that engineering work. So that started just after this quarter finished or not just after -- in late October.

Hugin, so that system slightly delay in deliverables started up first of September and is now running. As previously announced, contributed an EBITDA over the full 12 months project, including the option of USD 4.5 million.

So just to show some dimensions, it would be nice to see the size relative to other things that we know the size of. This is the Argus USV on the back of a truck, mobilized onto the project. So it's a very versatile platform that can go onboard other vessels. It can be easily transported on road, do not need to steam it, but you can do as we will show later on in our Argeo Remote slide.

This is yet again another project together with Multiconsult, which we are very proud of continuing our cooperation. And some of the data results from this vehicle has been just astounding. This is another example of that. Here we can see full bathymetry. On the left-hand side, we can see a couple of [wrecks] and the data that we acquired with the USV. Stellar performance, operationally as well. So we are very happy now with this platform going forward. And there is a number of things that we are considering to further expand this platform into other activities.

We have talked about earlier, Argeo Remote, which is our remote or in-office control center. This is Jack and Chris watching over the USV operating very far away. Looking at real-time camera images, engine surveillance, data and so forth. And of course, at the same time, monitoring the QC of the complete project. This we can export, we can put it into our client office. We can put them on board a vessel. So a very versatile remote operation center.

Recap of this just to show that we are an attractive player in all of the verticals of an offshore wind development project. And at the bottom there, the most likely systems and technologies and sensors that we will use for these projects. And as we have earlier talked about by utilizing Data as Service on Multi Client for offshore wind, we believe that we can reduce time in terms of planning by 1 to 2 years. And of course, being a much more environmentally friendly platform, reducing the CO2 footprint and also the cost for our customers.

So a commercial update. Obviously, this quarter, we hope to have bigger news to convey and it is not a result of not having had contract opportunities. In fact, it has been a big in push of contracts or tenders during the quarter. But we have had to push them out in time to make sure that they meet the terms and conditions that we require to operate.

In total, that is amounting to over NOK 160 million that we have delayed. And also another contract, which we could not meet in time, which is also a good trigger for why we selected the vessel, about NOK 30 million that we could make in terms of client timing expectations. Otherwise, net, you can see that there's a longish line on Argeo Searcher, which includes the start-up after its conversion in mid to late January. This is a project could be expanded all the way to March, where we expect to transit at the latest to South America and onboard in Q2 and Q3 and Q4, we expect to be running there on several projects that we are at this moment expecting to sign.

The SeaRaptor Bravo will go on board the search as well for the first part of the campaign and then be used for other contracts later on. More opportunistically, contain our solution mobilized on to vessel of opportunities, et cetera.

Hugin 6000, is running as previously announced, and that backlog that you see down the green one is to combine the all the green backlog of nearly NOK 60 million.

The USV, we are tendering for several projects. We will see if we can add some more in the early part of Q1 next year. But at the moment, that's how the situation looks like. The Hugin 1000 is less of a priority for us now at the moment, but we are working on the concept together with Multiconsult for this going forward and will be an asset that we will keep in that shore and domestically, primarily for activities in the North Sea, for instance.

So a recap of this, sanctioning is driving the energy market, among other things. We see that this is continuing to building strong. I would say that both the North Sea market, South America, of course, is the stronger leader here. We expect West Africa to come along and with a lag of probably 3 to 6 months. And we are keenly watching the North American market where there is also a lot of activities in the renewable sector and deep sea minerals offshore.

A quick recap on this. I presented this last slide -- last time, so we're not going to spend too much time, but sanctioning and activities are going steadily as before the election, we see no changes there in Brazil, at least not for the projects that we are involved with.

So some recent news in the deep sea mineral market. And this slide is a status of Norway. The government recently announced that they are looking to open exploration areas on the Norwegian continental shelf. The total investigation area is 592,000 square kilometers. This has now been reduced with about 55% to 300,000 square kilometers, is still a lot and you can see in the middle of the purple map there, it's the area where NPD and various university already has spent a lot of time assessing the resource potential, which is the yellow wedge in the pie chart below.

On the -- in the top right-hand corner, you can see the assessment of various types of investigation of -- investigational means. And the AUVs, of course, is a major part of that. And left of that, you can see the debt scale of the resource area. So it's very deep, ranging from 2,000 to 4,000 meter water depth and of course, it requires a multitude of sensors and data.

So it's a very exciting thing. And it's difficult to predict when the factual opening will take place, but we have our hopes on 2023 and of course, licensing, starting that, there is a big scope for both multi-client and proprietary contract work there as well.

More on the technology side, NPD, as we showed on the last slide, has released all of their research material and data. We have basically taken all of that data and injected it into our new digital platform, Argeo SCOPE. That gives us an opportunity to get a head start on the analysis part to see and assess where the likelihood is the largest complexity and the licenses. So this is a very exciting moment for us, and we think this will be very interesting for the clients going forward as we are starting to onboard clients into this digital platform.

This is an example, again, data management from Argeo SCOPE. This is basically a project where we are putting the search out on the North Atlantic Ridge outside of Las Palmas. There will come more information on this later on as this project is growing, and we are able to provide more information. Very exciting, and it's fantastic to see that a software product like this that we started only a year ago now is in commercial state.

More on technology, the USV, we see several other potential uses for. On the right-hand side, you can see that we have put an ROV -- electric ROV system on board. There may be an announcement on this over the next few weeks or months. And also the complete remote operations center controlling all of that technology for that sort of typical water depth for 0 to 200 meters.

It's a very exciting project where it all comes together in terms of our USV platform. And then we will see what is the next one after that. So we will spend now some time learning this and make that a profitable system going forward.

Recent announcement, not recent, yesterday, in fact, a unique in-house patented sensor technology was completed now. And we are starting to roll out Whispher and later on next year, also Discover.

So we have developed, we have tested, we have commercialized and of course, we patented all of this. Not on AUVs only, but also ROVs and other systems that we find applicable for this type of technology. And as I talked about earlier, Argeo Scope. This will be rolled out in several modules as well, in addition to other exciting things that we are planning going forward more on that later on.

Just sneak peek of what it looks like in an inspection mode, where we have a pipeline. We have all the sensor data that we have acquired, where we can overlay data and interpret statuses of asset integrity. So now I will give the word to Odd Erik for the financial inventory.

[Odd Rudshaug, executive]

Yes. Thank you. So revenue in the third quarter was NOK 6.5 million. This is from the deep water work we did with the Bravo in July and from our new Hugin 6000 in September.

Total operating costs, employee expenses and other operating expenses in Q3 was NOK 24.5 million compared to NOK 23 million (sic) [ 33 million ] the previous quarter. So this is a significant reduction, and this decrease is mainly due to having a vessel on charter in the second quarter, which we did not have now in the third quarter.

Net financial items, minus NOK 9.6 million. This includes NOK 10 million unrealized exchange loss on the sellers credit we have in U.S. dollars. EBITDA was minus NOK 15 million in the quarter and net loss, NOK 22.3 million.

We move over to the balance sheet. Total noncurrent assets, NOK 277 million in the end of September. This includes NOK 22.2 million in intangible assets, NOK 4 million in multi-client library and NOK 222 million in the property, plant and equipment. We have taken delivery of all the assets that we have ordered now. So these NOK 222 million includes now the 2 SeaRaptor's, 1 Hugin 6000 and the Argus USV.

Cash, NOK 42.5 million at the end of September and equity was NOK 171.5 million. We had NOK 122 million in the long-term debt. And this includes mainly the sellers credit we have on the 3-year AUVs.

Few words about the cash flow statement. Cash from operations was positive with NOK 65 million in Q3. And there is a positive effect in this number, NOK 57 million which is due to the pre-payments we have made in earlier quarters on equipment, which was delivered now in the third quarter.

This NOK 57 million are now included in investment in property, plant and equipment, which is NOK 162.5 million in Q3. And this is mainly the SeaRaptor Bravo, the Hugin 6000 and the Argus USV.

New debt was NOK 92.4 million in Q3, which is related to the delivery of the 2 AUVs in the quarter and we repaid NOK 16.6 million in seller's credit and other debt in Q3.

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

[Trond Crantz, executive]

Yes, closing remark. Thank you. Yes, you can join me here all as well, if you like. So yes, fleet growth goes according to our plans. We are qualified in most markets, and we see that, obviously, the offshore energy sector is very strong in the foreseeable future. We also see that offshore wind activity is steadily growing, especially in the Europe market. But other countries are coming along as well. So especially floating wind especially interest for us. And as I talked about deep sea minerals, where we think it's going to be a big business case going forward. So I think that is it. And we are ready for questions.

[Unknown Executive]

That's good. Thank you for a good presentation from both of you. Yes, we do have a few questions here. First, regarding the NOK 300 million next year. Could you be a bit more specific about that?

[Trond Crantz, executive]

Well, it's very difficult to be more specific than I have been. Obviously, these are long-term processes that we've been working on for a while that we see we are front runners as we also brought in our reports. And at least we never can guarantee before the final signature is on paper, but it looks very promising.

[Unknown Executive]

Another question here is about the bullish goal of EBITDA NOK 50 million next year. Is it comfortable?

[Trond Crantz, executive]

Yes, that's obviously driven by the previous question. So yes, it's something that we are looking in our numbers. So a good potential. Great.

[Unknown Executive]

Also, there's a question here from [indiscernible]. How did the [indiscernible] job work out? Is there a high demand for the data you collected here?

[Trond Crantz, executive]

Yes. I think there is a high demand. It's very difficult when we have not a final concession from the government. I think the whole thing hinges on that. We expect that concessions will be properly delivered next year. So we have acquired some good data and then we are talking to several typical clients in that, but also the end clients you are waiting for the final concession rounds from the government.

[Unknown Executive]

From Christian, I'm not sure what it means. What is the maturity for the seller's credit?

[Odd Rudshaug, executive]

It is NOK 14 million will be paid in the fourth quarter this year. Next year, I think it's approximately NOK 50 million a little bit less the following year. But I think this is specified in one of the notes in the quarterly report. So it should be available there.

[Trond Crantz, executive]

And it's obviously not interest-bearing debt.

[Unknown Executive]

Okay. I think that's it for now. You need to run off. You have another important meeting at 12. So thank you for listening in, and see you next time.

[Trond Crantz, executive]

Thank you.