Electromagnetic Geoservices ASA

OSE:EMGS

Earnings Call Transcript 2021-Q4

[Bjørn Petter Lindhom, Chief Executive Officer]

Welcome to the presentation of EMGS' Fourth Quarter 2021 Results. I am as usual, joined by our CFO, Anders Eimstad. Please take note of our disclaimer.During the fourth quarter, the Atlantic Guardian completed the Utsira High Multi-Client project and subsequently entered into warm stack in mid-November. Our vessel utilization for the quarter was 44% compared with 0% in the corresponding quarter in 2020. Our revenues for the quarter came in at $5.1 million. This is up 27% from the fourth quarter in 2020 when we recognized $4 million in revenue. Prefunding revenues are recognized upon data delivery. The data from the Utsira Multi-Client project was delivered to customers in December and hence recognized in the fourth quarter. Processing of EM data is considerably faster than processing of seismic, and we typically deliver final results within 2 to 3 months of completion of acquisition. In this case, we delivered in less than 2 months. Our EBITDA was $2.7 million in the quarter, which is up 65% from the corresponding quarter in 2020. Adjusted EBITDA of $0.4 million, which is down 46% as a result of higher operational activity compared to the fourth quarter in 2020 when the vessel was warm stacked for the entire quarter. We completed a second bond buyback with a 25% discount and a nominal value of $4 million. Combined with the previous bond buyback, these 2 bond buybacks have significantly improved our balance sheet. After the quarter, we have made a proposal to extend the convertible bond loan with 2 additional years until May of 2025. Anders will provide some additional details on the proposal and on the bond buybacks. The award from the APA license round in Norway were announced in January and included several EM commitments. And EMGS expects to book uplift revenues from some of these once they have been formally accepted. We also expect that some of these awards will result in new acquisition projects. We ended the year with a healthy cash balance of $9.9 million of free cash. Moving on to our operations, market and outlook section. 2021 was our first year operating with a new flexible business model, and we are very pleased with our overall performance. We completed 3 separate acquisition projects on 3 different continents. We started in Mexico with a fully funded multi-client project in the Mexican Ridges area of the Gulf of Mexico. The revenue from these projects were around $7.2 million. Upon completion of this project, we took the vessel to Southeast Asia for a proprietary project. We are very excited about this project as it included both exploration and appraisal objectives. The revenue from this project was approximately $7.3 million. We ended our vessel campaign close to home with a multi-client project on the Utsira High in Norway. Prefunding revenues for this survey was $2.7 million. We are very pleased with our operational performance during 2021 despite the ongoing COVID-19 pandemic, we did not have any delays in vessel operations. Throughout the year, we had a safe and efficient vessel operation without any safety incidents and without technical downtime. This despite changing to a new flexible crew model. The vessel utilization for the year was reduced due to being warm stacked at both the beginning and the end of the year and by the long transits. It ended up at 32%. 2021 was a good year also from a financial point of view. We returned to profitability after a very difficult 2020. Our revenues for the year ended up at $28.9 million, which is up from $24.9 million in 2020. Our full year adjusted EBITDA came in at $11 million, up from negative $3.3 million in 2020. And we had a net income of $4.9 million, compared to a loss of $23.4 million in 2020. We have 2 separate bond buybacks during the year, reducing the convertible bond from approximately $32.5 million, down to approximately $24.5 million, resulting in a significant improvement to the balance sheet. Anders will talk more about the changes to the bond and the recent proposal to the bondholders. Our year-end free cash balance was $9.9 million. Being a company that operates vessel is very good when we have good backlog. We saw that in 2019. Being a vessel operating company with high fixed costs is very tough when the demand evaporates. We saw that in 2020. I think we have managed to weather the storm better than many for 2 main reasons. We took quick and decisive actions and implemented a flexible business model with reduced fixed cost base. Secondly, we've had our multiclient library that has sustained us throughout periods without vessel revenues. The library consists of more than 150,000 square kilometers of 3D CSEM data and a large quantity of 2D CSEM. The coverage is mainly in Norway, Mexico, Brazil and the U.S., with smaller coverages in Canada, Uruguay and Indonesia. Despite the low book value, the library continues to perform. In 2021, we had overall multi-client revenues of $15.9 million, coming from Mexico, Brazil and Norway. This is more than double of the 2020 multi-client revenues. The late sales for the year grew by 27% year-over-year to $5.8 million. And the prefunding revenues grew by 260% -- 216% year-over-year to $10.2 million. We will continue to invest in new multi-client projects both in Norway and internationally. The Atlantic Guardian is currently in warm stack, and we expect to start acquiring data early in the second quarter in Norway. We have not yet been able to secure sufficient funding, but we are optimistic that we will be able to get that sorted out in time. Outside of Norway, we're looking at several projects, in the Americas, from Canada where we're going through the permitting process, Mexico and the Caribbean and all the way down to South America. In Southern Africa or more specifically in Namibia, we hope that the recent discovery by Shell will increase the interest for our proposed Namibia multi-client program.We are, in general, optimistic for 2022 should thing -- however, things not pan out as expected, our cash balance, flexible cost structure, combined with our multi-client library allows us to weather long periods without vessel revenues if necessary. With that, I will hand it over to Anders who will go through our financial numbers in more detail.

[Knut Anders Eimstad, Chief Financial Officer]

Thank you, Bjørn Petter. The total revenue for the fourth quarter was $5.1 million. The graph on the upper right shows the quarterly revenue development. From this graph, you can see that while the revenue has decreased from the previous 2 quarters, it's still higher than the corresponding quarter in 2020, even though the vessel was warm stacked for nearly half of the quarter. Of the $5.1 million in revenue in the fourth quarter, $3.8 million were related to multi-client sales, of which $3 million were prefunding, $41,000 were contract sales and $1.3 million were other revenue. All of the $1.3 million in other revenue is related to revenue recognition of DeepBlue partner contribution, which has no cash effect. We had 1 vessel on charter in the fourth quarter. The Atlantic Guardian started the quarter acquiring data on a fully prefunded survey in the North Sea until upon completion in mid-November when the vessel was placed in warm stack. The Atlantic Guardian will stay in warm stack with reduced charter hire rates until sufficient backlog is secured to warrant mobilization. We recorded an EBITDA of $2.7 million this quarter. EBITDA excludes the capitalized multi-client 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. While the EBITDA has decreased from the previous 2 quarters, it's important to note that it has remained positive for the third consecutive quarter. The 3 consecutive quarters of positive adjusted EBITDA are the result of not only improved revenues, but also the more flexible business model that EMGS has implemented. The adjusted EBITDA in the fourth quarter was $0.4 million. The next slide provides an overview of the proposal sent to bondholders to extend to EMGS' unsecured convertible bond. EMGS has proposed a 2-year extension from the original maturity date of May 2023 to May 2025. In exchange for extending the maturity date, EMG has proposed to increase the interest margin by 100 basis points from 5.5% to 6.5%, starting February 9. While the proposal has not been formally accepted by the bondholders, bondholders representing a sufficient majority have indicated that they intend to vote in favor of the proposal as detailed. The graph on the right side of the slide shows the timing and impact of the bond buyback program. In 2021, EMGS has repurchased bonds twice, once in the third quarter and once in the fourth quarter, both with a 25% discount and both with a nominal value of $4 million. In total, EMGS has repurchased a combined total of approximately 80,000 bonds with an aggregate nominal value of $8 million. The current outstanding amount under the convertible bond is approximately $24.5 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 multi-client expenses and vessel and office lease expenses are added to the cost base. The operational cost base for the fourth quarter was $4.7 million. The operational cost base in the fourth quarter was $0.4 million lower than in the third quarter of 2021 and $0.2 million lower than in the second quarter of 2021. The operational cost base was lower in the fourth quarter as a result of warm stacking the vessel in mid-November. Employee expenses and other operational expenses remain consistent throughout the year. Management will continue to focus on cost controls. The next slide details the movement of free cash in the fourth quarter. Free cash decreased in the fourth quarter by $4.8 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 third quarter of $14.7 million. The components increasing the cash position during the fourth quarter are shown in dark blue, whilst the components reducing the cash position are colored red. Free cash at the end of the fourth quarter was $9.9 million. The adjusted EBITDA of $0.4 million increased the cash this quarter, while vessel and office leases were $1.5 million. The increase in trade receivables from $1 million to $1.3 million decreased the cash this quarter by $0.3 million. The increase in trade payables from the previous quarter in the amount of $0.5 million increased cash position. Interest paid in the quarter on the convertible bond and other interest expenses amounted to $0.4 million in the fourth quarter. Free cash flow was further reduced by $3 million as a result of the second bond buyback performed this year at a 25% discount. Now back to Bjørn Petter.

[Bjørn Petter Lindhom, Chief Executive Officer]

Thank you, Anders. That concludes our presentation. Please e-mail questions to [e-mail]. Thank you again and until next time.