Electromagnetic Geoservices ASA

OSE:EMGS

Earnings Call Transcript 2022-Q2

[Bjørn Lindhom, executive]

Welcome to the presentation of EMGS' second quarter 2022 results. I'm here with our CFO, Anders Eimstad, and together, we will present these results. Please take note of our disclaimer.

Now let's look at the highlights from the second quarter. The Atlantic Guardian started the quarter in warm-stack. At the end of April, we mobilized the vessel and successfully completed 2 fully funded multiclient surveys in the North Sea. After that, the vessel was idle from beginning of June until the end of July. We have agreed with the vessel owner to extend the vessel charter with one additional year. That means that we have the vessel firm charter until October 2023, and then we have extension options beyond that. The charter agreement allows EMGS to warm-stack the vessel at a reduced rate. The demand for CSEM acquisition is still variable, and we expect it to remain so for the next year. So having the flexibility to be able to reduce the operational cost by warm-stacking the vessel is important for us.

Our revenue for the quarter came in at $6.9 million. The EBITDA was $5.3 million, and the adjusted EBITDA was $2.8 million. Our free cash at the end of the quarter was $11.6 million, which is up from $9.9 million at the end of 2021 and up from $8.2 million at the end of the first quarter 2022. And we are very pleased that our equity has now turned positive with $1 million.

A few subsequent events worth mentioning. We were awarded an acquisition contract in the Caribbean worth up to approximately $11 million. We expect the start of that acquisition in early October and that it will last approximately 2 months. We also received $3.8 million in uplifts from our existing multiclient library in Norway, and this revenue will be recognized in the third quarter.

We have further secured $2 million worth of prefunding for a small multiclient acquisition in the Orphan Basin offshore Canada, which we intend to acquire in September on the way to the Caribbean. And finally, we have started the acquisition of a proof-of-concept survey in the Mid-Atlantic related to marine mineral exploration. More on this in the coming slides.

Moving on to the operations, market and outlook section. We would like to give an update on our multiclient business as we have done in some of the preceding quarter presentations.

As of the 17th of August, our announced year-to-date multiclient revenues are approximately $16.1 million compared to $16 million for the entire 2021. That consists of the $4.9 million recognized in the first quarter, the $5.4 million recognized in this quarter and the announced $3.8 million in uplift to be recognized in the third quarter as well as the $2 million in prefunding in Canada that will be recognized upon data delivery, which is expected in the fourth quarter of this year. Our multiclient library continues to perform, and we expect it to remain an important revenue-generating asset for years to come.

Our financial position is strong, and we are quite proud of the improvements since we adopted our new flexible business model in 2020. The second quarter is the fifth consecutive profitable quarter for EMGS. We had a profitable year in 2021, and we are on track to be profitable this year. As a result of our financial performance, our equity has now turned positive and stands at $1 million.

Our free cash at the end of the second quarter was $11.6 million, and our convertible bond loan stands at $24.5 million after 2 partial bond backs were completed during 2021 and bringing the bonds down from the original $32.5 million.

We have a vessel charter with flexibility to warm-stack the vessel with significantly reduced rates. And our backlog for the second half of 2022 is fairly strong at approximately $30 million -- $13 million, consisting of the survey in the Caribbean and the prefunding in Canada.

We are very excited to have been chosen as the acquisition provider for the Atlab consortium at the NTNU. We are currently acquiring data at the Mid-Atlantic Ridge, North [indiscernible] at the Loki's Castle and Mohn's Treasure marine mineral deposits. We will acquire a suite of geophysical measurements all from our vessel, the Atlantic Guardian. We're acquiring conventional node-based CSEM and marine magnetotelluric, and we will acquire CSEM data with our newly developed high-frequency, deep-towed EM streamer.

In addition, PGS is acquiring 2D streamer seismic from our vessel. We have equipped some of our EM nodes with seismic ocean bottom nodes from inApril. This is one of the first deepwater free-fall joint EM and seismic node configurations ever. We're acquiring EM and seismic from the same node, and the node is deployed and recovered without the use of an ROV or a cable. This is all done in approximately 3,000 meters of water. We have also a series of environmental sensors supplied by NORCE that will be recording data during our deep-towed EM operations, and we have a deep-towed multi-beam echosounder that will be acquiring high-resolution bathymetry data. This setup will form the basis for our future multi-physics offering towards marine mineral exploration and potentially offshore wind surveys.

And now Anders will present our financial numbers in some more detail.

[Anders Eimstad, executive]

Thank you, Bjørn Petter. The total revenue from the second quarter was $6.9 million. The graph on the upper right shows the quarterly revenue development. From this graph, you can see that the revenue has slightly increased over the previous 2 quarters. Now of the $6.9 million in revenue in the second quarter, $5.4 million were related to multiclient sales, $247,000 were contract sales and $1.3 million for other revenue. All of the $1.3 million in other revenue is related to revenue recognition of DeepBlue partner contributions, which have no cash effect.

We had one vessel on charter in the second quarter. The Atlantic Guardian spent the first month of the quarter in warm stack but was mobilized for the multiclient surveys in the North Sea. The Atlantic Guardian remained on hire for the remainder of the quarter.

We recorded an EBITDA of $5.3 million this quarter. EBITDA excludes the capitalized multiclient expenses as well as the vessel and office lease expenses. If we add these expenses to the EBITDA, we get an adjusted EBITDA. The quarterly development of the adjusted EBITDA is shown in the graph at the bottom right of the slide. EBITDA has decreased as compared to the previous quarter and is the fifth consecutive quarter with a positive adjusted EBITDA. The adjusted EBITDA in the second quarter was $2.8 million.

The next slide details the movement in the operational cost base. In the graph to the left, you can see the quarterly development and the components of EMGS' operational cost base. The components are charter hire, fuel and crew expenses, employee expenses and other operational expenses. In addition, the capitalized multiclient expenses and vessel and office lease expenses are added to the cost base.

The operational cost base for the second quarter was $4.1 million, which is $1.6 million higher than in the first quarter of 2022. The operational cost base was higher in the second quarter as compared to the first quarter as a result of the Atlantic Guardian leaving warm-stack to acquire the fully prefunded multiclient surveys in the North Sea. The costs associated with the multiclient surveys were capitalized and amortized in the same quarter. Employee expenses and other operational expenses remained consistent with the previous quarter.

The next slide details the movement of free cash in the quarter. Free cash increased in the second quarter by $3.4 million. This is illustrated in the graph to the left. The light blue bar to the left shows a free cash position at the end of the first quarter of $8.2 million. The components increasing the cash position during the second quarter are shown in dark blue, whilst the components reducing the cash position are colored red.

Free cash at the end of the second quarter was $11.6 million. The EBITDA of $5.3 million increased the cash this quarter, while vessel and office leases decreased cash by $1.7 million. The decrease in trade receivables from $4.5 million to $3.5 million increased cash this quarter by $1 million, while the increase in trade payables from the previous quarter in the amount of $0.8 million increased the free cash.

Interest paid in the quarter on the convertible bond and other interest expenses amounted to $0.5 million in the second quarter.

Now Bjørn Petter will give a brief summary of the presentation.

[Bjørn Lindhom, executive]

Thank you, Anders. Thank you for listening. Please submit your questions to [e-mail]. Thank you.