Argeo AS

OSE:ARGEO

Earnings Call Transcript 2023-Q4

[Trond Crantz, executive]

Good morning, everyone, and welcome to our fourth quarter presentation. We have quite a few slides to go through, and we will, as per usual, take all questions at the end. Please observe the disclaimer.

So, the agenda for today highlights backlog and tender status, some operational update, technology and the financials.

So, highlights, let's start with the revenue. We ended up for the quarter at NOK 29 million. This was, of course, less than we had planned for, but the revenue is not lost. It's moved over to Q1 due to the upgrade activities that we have done on Argeo Searcher.

Backlog for 2024 is running strong at NOK 550 million. And as everyone probably saw, we awarded the NOK 55 million Subsea Inspection Contract with Shell SNEPCo at the Bonga field in Nigeria. We will cover that later on. And subsequently of that, we had a very successful start-up of Argeo Searcher on the Bonga field. That's been a massive performance.

We took delivery of our first Hugin Superior, and we have completed the conversion of Argeo Searcher late November. So that was delayed with -- yes, it was extended 2 to 3 weeks and hence the somewhat muted revenue figures for the quarter. We took delivery of Argeo Venture 7th of November, and we completed the private placement of NOK 250 million and secured the equipment leasing agreements for the AV assets.

Subsequent to the quarter, we received a conditional letter award for a supermajor. This is an expected duration of 9 months, so it's a very big contract for Argeo.

And we are contemplating a sale leaseback agreement for our vessel joint venture. That will be announced when everything is settled, and we have agreed delivery of our second Hugin Superior for Argeo Venture.

So, without further ado, and I think this is fairly a familiar thing, we operate in 3 major segments: oil and gas companies, offshore wind and Marine Minerals. And we do use the same assets for all of these 3 market verticals.

And the uniqueness of Argeo, that means the sensors, the software, the production capacity from the Hugin systems, gives a heightened efficiency as we have seen from the projects we've been running during the quarter.

So, a complete service solution is what we are. We have the vessels. We have the technology. We have the assets that is acquiring data for us, and we are meshing that up with unique software and sensor systems. That provides us a unique solution in terms of solving problems for our customers in all our 3 verticals. That also gives us a very robust strategy. So, that means that we use the same assets, the vehicles, and the vessels in the 3 verticals. So, there is a red line going across the verticals, even though the deliverables and scope of work changes between the verticals. These supply services within the survey, inspection, maintenance and repair and also the multi-client for special projects.

Superior capacity, we talked about this a lot during the last quarter as well. We now have Searcher fully equipped as a subsea vessel with ROV capability, subsea [ ventures ] and so forth and, of course, the Hugin Superior. And the Argeo Venture, which is now being scheduled to be completed middle of March, is ongoing according to our plan.

Expansion for growth, as you saw, we started in 2022 to prove that the new strategy was working. It has, and hence, we ordered our second vessel in November. We took Argeo Venture over. And of course, expanding further is key for us, and we do see that the market is supporting that strategy in a big way. We don't have currently a fixed plan for vessel #3, but when we do, we will announce that, of course.

So, to the figures for the quarter, revenues, NOK 29 million. So even though that is up from the same quarter in '22, it is lower, about NOK 20 million lower, than the previous quarter. Several reasons for that, but mainly the extended yard stay for Searcher. And of course, in Q3, we also had a third crew running, so that contributed to Q3. But all of that will be catched up in Q1 for '24.

EBITDA, it's down as well, ended up at minus NOK 21 million. On the upshot of course, and as everyone have seen this, that we now have a significant and very strong backlog for 2024. Currently running at NOK 550 million with significant upsides in terms of capacity and projects for Argeo Searcher in Q3 and Q4. That means that we have consumed of the previously announced submitted tenders, which was running at -- yes, we've consumed NOK 350 million, and we see that NOK 200 million of that previously announced tender is skewed to the right. So, that is something that we expect sanctioning to come in for this project in 2025.

When it comes to the submitted tenders, that means that that is not one single project. It's several projects, and so decisions will be announced when we have them or not. So, yes, this is just a retake of that.

We have a continued strong volume of submitted tenders, but we are converting these tenders at a very high rate. So, an additional NOK 350 million has been added to our secured backlog from NOK 240 million in the previous quarter, so currently running at NOK 550 million.

Distribution, mainly oil and gas, but also Marine Minerals, of course. We do see that there is an uptick in the offshore wind as well outside of Europe. So, we are responding to that, and we'll see how we go about securing more contracts in the renewable space as we go forward.

So, in terms of vessel scheduling and so on, Argeo Searcher, as you all know, has completed the Shell Bonga project, record time, and is now -- have started up on the NCPOR Marine Mineral project. That will go on until late May. And then we have 3 or 4 tenders for Q3 and Q4, which is the upside I'm talking about.

For Argeo Venture, we will complete the upgrade middle of March and vessel will continue directly to projects immediately after. And we will be on that project for the remainder of 2024.

Hugin 6000 is coming back from a long-term rental contract. And after our service setup, it will probably travel to other projects which we are currently tendering for. That Hugin 6000 project will include, in that case, a vessel opportunity. But that will be announced at a later stage when we get to that point. We expect early Q2, perhaps.

Okay. So, Argeo Searcher, we initially planned to be at location early December, but that was delayed approximately 2 to 3 weeks. And the reason for it is that we see very little opportunity to return back to Norway for additional work. So, we had to complete everything that needed to be completed to set up and have the vessel ready for the projects which are coming. So, the vessel now is fully equipped as a full subsea vessel with ROV facilities, the AVs, of course, and deep-water systems, both in offshore crane and so forth. So, all of that took longer, but the revenue is not gone. It's moved to Q1.

Argeo Venture, we took the vessel on 7th of November and has been moved to [ Harstad ] for reactivation and upgrade. The initial plan for Venture was, of course, that we would just reactivate it and take it on a project immediately. But given the foresight that we saw coming in terms of larger projects, we decided to move the vessel into an upgrade phase as well. And this is to take on the big projects that we have announced earlier on. So, the vessel will be fully reactivated and upgraded. And that job will be completed in mid-March, whereas, afterwards, we go directly to the project equipped with the Hugin Superior #2 and also have an active heat compensated subsea crane with possibility to work at a depth of 4,000 meters or more.

Hugin Superior, I don't think that needs a lot more explanation. It has been working exceptionally well, very high performance, hardly any technical downtime, and has provided our clients with fantastic data. So, the customer feedback on what we've done has been extraordinary.

That brings us to the Shell Bonga project, which is -- it's a fairly complex project and includes all the elements of what it is Argeo does. So, you have geophysical projects, which is part of that. We have a lot of pipeline flow line inspection and so forth. And a big driver in succeeding with this project was the Argeo LISTEN sensor system that we used for the pipeline cathodic protection inspection.

The project, in terms of acquisition, was completed in 20 days. We have inspected a total of 500 line kilometers and, additionally, a lot of geophysical work at the same time. So, a fantastic performance in all the sense of it, so a big thing for us, of course. A major client with a big success is an important step forward for Argeo.

Argeo Searcher is currently working on the NCPOR project. I myself was in India, meeting with the Earth Ministry. And they have very ambitious nations. They have a lot of work in the area. The NCPOR project is a keystone project for the Indian nation. And with a multi-sensor, high-resolution exploration story like this, we are hitting the groundworks of that exploration phase. Project water depths from 1,900 to 5,600 meters, so a big challenge in itself. Total areas covered, 750 square kilometers. And as the lower right-hand picture shows, this is a substantial budget for India's deep ocean missions going forward. We are very proud to be awarded this and look forward to a lot of more collaboration with India and their exploration projects going forward.

So, a couple of slides when it comes to technology. As I mentioned, Argeo vessel fully proven for major suppliers. So, it's a great achievement for everyone involved. And there is a number of things that we use this sensor system for, fully integrated in the Hugin Superior. The data is phenomenal. And the efficiency rates is, I would say, around 8x faster than the traditional ROV inspections. So, that's a big confirmation for Argeo. And of course, this is now being rolled in to many large customers. So, we are very happy with that.

Argeo WHISPER, which is the active version of Argeo LISTEN, is on track. We are -- within 2024, we are doing a lot of testing, primarily, in fact, on the offshore wind market, but of course can be used for tracking varied pipelines and so forth.

The third sensor system is Argeo DISCOVER, which is a marine mineral exploration technology, is further down the pipeline, so probably 2025.

Finally, a couple of words, Argeo SCOPE, our digital software solution, it is working really well, and we are onboarding important clients in this. So, we have great expectations for these systems going forward.

Now I will leave the word to Odd Erik to present the financials.

[Odd Rudshaug, executive]

Yes. Thank you, Trond. So as Trond mentioned earlier, revenue in Q4 last year was NOK 29 million. This came from the contract we had with Shell in Algeria and from the long-term contract we have on Hugin 6000, which has been on its contract since September 2022. Operating cost, NOK 40 million in the quarter, down from NOK 54 million in Q3. And this reduction is due to the additional cost we had in Q3 for the vessel we entered in for the Stromar survey.

We capitalized NOK 15.8 million in the operating cost to the balance sheet in Q4. This was a development cost for the development projects in robotics and also operating costs we had on Searcher during the yard stay in the quarter.

EBITDA, minus NOK 21 million, approximately the same as we had in Q3, and also compared to minus NOK 12 million in Q4 '22.

Net financial items, NOK 6.4 million. This includes NOK 12.4 million in an unrealized exchange gain related to debt we have in U.S. dollars. And we had a net loss in the quarter of NOK 25 million.

I will move over to the balance sheet. Property, plant and equipment has increased to NOK 542 million in the end of '23. So in addition to two SeaRaptors, the Hugin 6000 and the Argeo USV, it also now includes the Argeo Venture vessel we bought in the quarter and the new Hugin Superior, which we bought in November.

Cash was NOK 54 million at the end of the year and equity was NOK 430 million. We also had an increase in long-term debt and leases of NOK 282 million. So, in addition to the loans from Innovation Norway and the sellers' credits of AUVs, this number now also includes the lease liability for the Hugin Superior, which was delivered in November.

Cash flow. Cash from operation was minus NOK 12 million in Q4. Cash investments in property, plant and equipment was NOK 145 million. So, this is mainly Argeo Venture, which we bought in November and cost for the activation and upgrade of this vessel.

We did our share issue in October last year with net proceeds of NOK 236 million. The repayment of debt and leases was NOK 23 million during the quarter. This is mainly a lease payment or a down payment at delivery, which we did on the lease liability for this new [indiscernible] [ USV ].

So then we will open up for questions.

[Unknown Executive]

Yes. We've had some questions from the net. So, the first question is, can you provide information about the size of the 9-month contract that was reported as a letter of intent earlier this year? Is it included in the backlog?

[Trond Crantz, executive]

So, first of all, it's not a letter of intent. It's a letter of award. It has conditions, and that gives us time to get to the contract signing. We expect this to be completing in a few weeks. And I think, if you compare what we did have and what we have, we will get back to you with the actual contract size and customer and location and all of that as soon as we have finished that work.

[Unknown Executive]

Are you planning on more subsea operations in addition to surveys, for example, sampling from seabed minerals or IMR work, or work on ROVs?

[Trond Crantz, executive]

Yes. So, I mean, I think that is obvious from what we've done in terms of upgrading the Searcher, which is now set up to take on -- we have a full ROV LARS system installed. So, we can take on board ROVs for IMR work. We also have a lot of ultra-deepwater winching and crane systems on board. So, that gives the Searcher a fully multipurpose role.

Now, the same will be the case for Argeo Venture, which has a big subsea crane and facilities for ROVs and the AUVs and so forth. So, it's full multi-purpose vessels capable of doing all of that.

[Unknown Executive]

Okay. Can you provide information on when you hope to achieve EBITDA positivity?

[Trond Crantz, executive]

I think, if you look at the backlog and what I have said before in terms of EBITDA margin, it should be a fairly easy calculation.

[Unknown Executive]

And are you working on more patents currently that you plan to get approved in the near future?

[Trond Crantz, executive]

Yes. So, technology development in Argeo Robotics is going full steam ahead. Now, as we -- I think we now, if I remember correctly, we have 5 patents awarded. Now we are securing that in all Argeo markets in all the countries of operations. And of course, as we work on that, new patents would emerge. And as soon as they do, we will obviously announce it.

[Unknown Executive]

And can you give some suggestions on the historical win rate and expected win rate in tenders?

[Trond Crantz, executive]

Not on the top of my head. But looking at what we have reported in the previous quarter in terms of tender and what has been converted to backlog, I think that rate is pretty good now. And more importantly is that, with the market and where it's going, the strategy is now undoubtedly proven and will provide a lot of income for the company going forward.

[Unknown Executive]

Could you give some indicators on expected day rates for the various vessels and the OpEx level for the vessels? What kind of utilization can one expect for the current fleet in 2024?

[Trond Crantz, executive]

Well, I mean, utilization, the Searcher has been going on except [ for ] the yard stay, and we expect a higher utilization for that vessel. But we can't comment on any of the other things because that is obviously of strategic value and something we would like to keep to ourselves. But again, well, the margins that we have talked about should be an indication.

[Unknown Executive]

And has Argeo taken ownership of Argeo Searcher or is it still a hire?

[Trond Crantz, executive]

Well, it is a bareboat agreement that we have, and we are very happy with that. We have a very close relationship with the owners. We've had for many years. And we have a very good maritime technical operator as well. So, we have no intention of changing that for the foreseeable future.

[Unknown Executive]

Okay. And how many more millions in orders for 2024 do you have capacity for?

[Trond Crantz, executive]

I would say, with the performance we're seeing, between 100 and 200.

[Unknown Executive]

And I think that's about the questions we've got time for today.

[Trond Crantz, executive]

Okay.

[Unknown Executive]

Thank you.

[Trond Crantz, executive]

Okay. Thank you. Yes.