Argeo ASA (ARGEO) Earnings Call Transcript & Summary

Good morning. Welcome to Argeo's Q4 2024 presentation. We're going to cover quite a few topics today, so probably a bit longer than usual and we will have a Q&A session at the end of this presentation. We'll cover the market position. We'll go into backlog and the tender status. We will give you an operational update, a couple of words on technology and the development that we've done there. Odd Erik will cover financials, and we will take the Q&A's after the outlook. So highlights. Let me first bring my apology for a weaker quarter than what we expected. Several reasons for this, as we have explained previously. We are still a small company and developing rapidly in the market, so that we have -- one of these situation can happen, mostly driven by prolonged mobilization for the geotechnical activities in Namibia and an earlier than anticipated startup for the multiclient project in Suriname. We will cover everything related to backlog in a separate slide, but in highlights, the quarter came in at $5.4 million. Now, obviously, growth from last year's Q4. But on the downside, of course, we have a much lower EBITDA and net profit/loss of minus $8.5 million, which is for the reasons I previously mentioned. Setting aside the quarter and looking at the year, for 2024, we have had a very strong growth, so nearly 450% growth compared to 2023, and that is brought by mostly the 2 vessels that we've had in operation. And keep in mind that Venture only started production in April, so it's, in fact, not 2 full operational years for our 2 vessels. And then, of course, our Q3 activity with Ocean Guardian on the offshore wind project for RWE adds to this as well. But by and large, a year-to-date growth of nearly 450% delivered close to $54 million and we will cover a bit on this later on. That gives a yearly EBITDA of $6.8 million, and a profit and loss, or loss, in fact, of minus $6.9 million. So as everyone knows, we completed a private placement of NOK 150 million. The reason for it, as we have also explained, is that, in late January, we were informed that we are in first position for a 4-year long AUV and ROV contract in South America. So that means that there is a lot of things to prepare for, and seemingly, we have time enough to prepare. A lot of the equipment that we need for this has long delivery times. So there is some fairly unstable supply chain in the market for certain components. And planning is, obviously, key to success in these projects, so that's why we needed money quickly to get on top of things. We are also moving into the geotechnical space. That's a lesson learned from the Namibia project. We will talk a bit more about this later on. And additionally, NOK 40 million for the general corporate purposes was needed. So highlights. As many saw, we signed a 5-year site investigation frame agreement with Total just before New Year. That indicates the interest that Total has in the services that are due supply. Nearly 80% of the global site investigation services consist of geotechnical as well. So that means that we start a given project as we did for Namibia with AUV services, that's the geophysical part, and then we carry on and do the geotechnical part based on the geophysical data that we already acquired. This is a logical step for Argeo to capture within our value chain to the clients, and this is a demand from the clients and also a welcomed addition to our supply chain. So that means that we can increase our revenue and subsequently also EBITDA by 15% to 20% in the general site investigation contract. High demand in this market for it, and we are perfectly positioned to take that step. As I mentioned in the beginning, we are in first place for a 4-year IMR contract in South America. This consists of both AUV and ROV, full data service delivery. We intend to use Argeo Venture for this contract, and there is an additional CapEx of $12 million in subsea equipment, including ROVs and tooling for this project. We are in close negotiation with the end client. I will be a little careful to say when we can announce, but at this point in time, it's going well. So hopefully, in late Q1 or early Q2, we can comment on this more firmly. We are, as I mentioned, completing the Total Namibia project. It's a little bit delayed due to weather. So the end estimate there is end of March. We were recently awarded this 5-year site investigation frame agreement with Total, and we are currently closing out the Suriname multiclient data acquisition. So we expect to start the sales process on the Suriname project in Q2 when all of the data is processed and ready for that sale process to start. Yes, we will cover the market later on. The Total expected backlog, we will cover later on as well, it's $190 million. So it's a huge step for Argeo, and an estimated EBITDA backlog of $57 million. Our current net debt close to $45 million. And the expectancy that we have for Q2 and Q4 '25 is what we have delivered for Q2 '24 and Q3 '24, so approximately $20 million annualized representative for 2025. So that gives us an EBITDA backlog of 65% of equity value. So familiar slide. We are obviously moving into larger things when it comes to our service delivery. We'll cover that in a later slide. The picture on the screen, Venture in West Africa and Searcher in South America and Suriname, we are obviously looking at expanding further in South America, but also looking at Southeast Asia as well. The market is still in significant rise, so that has not changed. Maybe what I would like to add is that we have seen a half year past now with a bit of turbulence. That has nothing to do with the market in itself, but more restructuring from many large end clients, some pulling back from renewables, some expanding to new geographical areas and so forth, which has had some negative effects on decision-making for certain projects. Now we saw that for Searcher, and that's why we started the multiclient a little earlier. But all-in-all, the deep-water market is in tremendous growth and will continue as it is for this decade. So we are very positive, and our focus is obviously on oil and gas. Still today, oil and gas is 70% of what we do, probably even more in the coming years, with large project under sanctioning from 2025 and ongoing. So what is basically leading the deep-water activities? So it's subsea, subsea equipment, subsea services and so forth, where we are a challenger in that market. The clients that we have really appreciate and like what we do, which gives us perhaps the most perfect marketing tool in this business, and that is to leave a good reputation in the project that we have delivered. So we are positive to the market and the selection that we have done, and we believe this will be a positive trend over the years to come. So let's pause a bit on this slide. I thought it would be a good time to recap a bit of what we have done for Argeo. We started basically from zero. And we started with an idea and a strategy in '21 to '22, which was based on vessel of opportunity, containerized systems, more autonomy than what we are doing today, and believe that this would be a welcomed service in the industry. We learned throughout '22 that this wasn't quite fitting what the clients wanted. Now we have been working with autonomous solutions since '22. We think it's especially on the surface side, on the USVs. And I believe that what we have taken from this is that we have become the leading service provider utilizing AUVs to more efficiently map and inspect subsea equipment. And of course, part of that is also that we are the leading company in exploring for marine minerals as well. That, combined with the technology that we have developed, puts us in a very good position. But we saw that this strategy did not work well, so we made a step change. We did that in -- going from '22 to '23 and we brought in the Searcher as a fixed vessel for our activities. And point out the client acquisition that we've had over those years, the size of the projects, both in terms of length and in terms of value. So that has given us a significant step up. Now we took the Venture, as you all know, in the fall of '23, and we configured that vessel in about 5 months, and went straight into operation in April for Total. So it's a significant step in all the sensors that we deliver our services to. So we expanded our value chain as well to our verticals from oil and gas to offshore wind to be included and expanded marine mineral activities as well. In the last 3 or 4 months of '24, we started with geotechnical as well. So that means that we are taking that next step already. We invested in Venture while in Namibia to bring that vessel -- to become a perfect Swiss Army knife, we can call it, in terms of delivering integrated projects going forward. It's important also to remember that Venture, let's say, we end up in March. So that's a 10-month project. On those 10 months, we have delivered a project of close to $40 million, which is significant. And even though we have learned quite a lot on route, which we have sorted out now, this leaves a very good footprint on the client base and in terms of the services that we have delivered. So now we are taking a step forward to the right and what we are going to do now in '25 and '26. So our current number of employees still running at about 110 people. And we are now going into the IMR space, which I've talked about quite a few times before, both on quarterly and all other public presentations. But it's important for us, as a company, to every time we take a step, like we have explained here, that we leave what we've done in the past with a very good performance. And that we have done. And now we move to the right and we start with full IMR integration. We expand the oil and gas vertical quite massively actually. And that means that we are now in play for long-term contracts, which has been the goal all the time to get to a place where you can balance the backlog with shorter-term, high-yielding contracts with long-term contracts, which secures both revenues, EBITDA, and further growth in the company. So what is it that strategic road map means? So obviously, we are too low on the vessel side. So we have been planning for a while more vessels. We have quite a few good options. And what that private placement also made us ready for is a financing plan consisting of bonds and direct lending. So we are now in a position where we can finance future growth more on the normal financing track that larger company has. So that means that we are -- when business demands it, we can launch both one and 2 additional vessels. We have already started the in-sourcing of geotechnical capability. And we are offering that already now in 2025 for any future projects on any vessel basically. So a very smart solution we have found, much more efficient and gives us the full value chain of site investigations projects in all 3 verticals. And that's important to remember. The geophysical and the geotechnical part is important not only in oil and gas or in greenfield, all tiebacks in oil and gas, or greenfields in offshore wind projects and also new exploration areas in marine minerals. So it fits into our strategy really well. Then we need to add ROV to start to become that full integrated IMR service provider, something we have worked on for quite a bit. Now we have a very good plan, even with financing in place. Long lead times, as I mentioned earlier, the first new ROV plus tooling delivery is scheduled for Q1 '26. And then we have optional second delivery of 2 deliveries in Q2 '26, or later, if we so choose. I've also spoken many times on scale-up in Brazil. We started doing a small project back in, I believe it was '22, '23, AUV-based. And we've had a good presence there on the business side, track the business, talking to clients, getting ready for larger activities. So now we are launching a scale-up in Brazil. It will start from H2 in '25, and gives us the full-scale operational capability that we need to run one, 2, 3, or 4 vessels in Brazil, which is a very important market. It's the only market where you have long-term contracts, deep-water and massive activities. So that's important for us. And I believe that we will have more than 40% of our activities in Brazil in this decade. So all of these activities that brings Argeo to a fully integrated subsea company. We will have the vessels. We will have the equipment. We will have the people. We will have the unique sensor packages that we have developed unparalleled in the market and the final turnkey product. So that gives us a good setup to be a serious challenger in [ any Q ] market that we enter. So we are in final negotiations. We are in what we call a pole position for this 4-year contract with a large oil company. Whether or not this takes 1 week or it takes 4 weeks, we don't know. It requires additional equipment. As I mentioned, it is $12 million, whereas $4.5 million paid in '25 and funded with equity plus additional financing offers that we already have in place. Argeo is also in contention for a second 4-year contract. We will come back to that on the tender side, although lower ranked. And I believe that the -- that information will probably be available April at the earliest. All the in-house tools that we have developed will be part of this project. So puts us in a pole position for larger activities and more activities in the South American market. So we covered some of the things that we are doing in the geotechnical space. As I mentioned, site investigation consists of 2 main tracks. The first is the survey or geophysical part as we do with AUVs, which by any measure, we have become the leading provider of globally. Then we have the geotechnical sampling, which is based on the geophysical ones that we have acquired. And now we have spent the money in terms of readying Argeo Venture to deliver this whole value chain. And I can tell you that this is something our largest clients all appreciate and are very happy to see. Yes. I think more or less more of the same. Just perhaps mentioning that $6 million that we have in uses for geotech includes the vessel configuration, all the things that we did in Namibia, but also the staff that is required. And perhaps the punchline here is that it increases the value of our services with 15% to 20%. It also gives us an opportunity to have short-term vessels in seasons for given projects, like we have done for RWE and for Orsted and so forth. There's a large scope seasonally where we have now the capability and the experience to put everything on board one vessel to do projects in the uptimes or the good season times in the North Sea and elsewhere in the world. So as I mentioned, close to 70% is oil and gas, 17% is marine minerals. That's the distribution per market, and of course, a little less on the renewable side, mostly for the RWE project. But we've had a conscious thought about this. We have elected not to dive into the renewables market, but do a project-by-project basis where we can get the required revenue and EBITDA that we need to do these projects. And that has worked well so far. We had an amazingly good feedback from RWE and the project we did in California. Distribution per product. 80% survey and inspection, and the rest is exploration, which is obviously minerals and a little oil and gas. And then we are significantly larger in the Europe, Middle East, and Africa domain than we are in the North and South America currently. And Asia-Pacific is the mineral project that we did in the Indian Ocean, but we have plans to expand that geomarket as we continue. So backlog. This is the slide or the setup that we will present backlog and tender status going forward. You will see -- on the left-hand side, you will see the development quarter-over-quarter, and you will see the total backlog indicated in a separate graph, plus written out below. So what is that backlog consisting of? $14 million is basically something we produced for the most of it in Q1. We have an additional hanging part from the NCPOR project that we had to leave behind because we mobilized for Woodside in South America. We will pick that up with whatever vessel is closest available to the area. So that consists of $3 million to $4 million. And then we have $176 million in expected contracts, which includes about $23 million in West Africa and South America. So in total, our backlog is $190 million, which includes expected contracts and final negotiation. On the tender side, we have $160 million left over. So we -- for those who remember, in Q3, we had $360 million in tenders. Now we have converted quite a lot of that to our total backlog for now. And then from that, we have $160 million left. I'm not going to guess too much on when these tenders have decision times, but a good visibility could be April, May. Operational update. I think we covered this. Completion target for Searcher is end of February on the Suriname project. We have 3 or 4 tenders in South America that we are waiting to finalize. Project status a little bit delayed due to weather. The same is the fact with Venture, which has a bit of weather delay. We expect to be completed in end of March. And we expect that Venture will continue in Africa for 2025, the entire year. The containerized solution that we did this deal on in Q4 is on its way to Kongsberg for an upgrade and inclusion of Argeo's specialized sensors, and most likely target is either Mediterranean or maybe North or South America. The Argus USV, we have done some deep towing testing, paid testing in the quarter. It's now working well, and will be used as a force multiplier and shallow water autonomous solution for us going forward. Utilization-wise, performance somewhat hampered by weather, of course. Utilization for Searcher was 68%. That is due to a bit of yard stay and fixing after Woodside and then mobilizing for the multiclient project for Suriname. The Venture, same thing, 100% utilization as it had all the time, but a bit hampered, obviously, by the yard stay, but also even though that is not capitalized and included in the performance, it's mostly weather and the start-up of the geotechnical program. Argeo -- Argus USV for project-based, so keep that in mind. The utilization has been 100% and performance about 75%. And the containerized Hugin 6000 is now idle, or on its way to upgrade. So something we started in the quarter was a road map to financial discipline and operational success, as we call it. So it's a company-wide objective, mainly focusing on cost savings. We obviously have built the company very, very quickly. So that means that some of the agreements we have can be improved. We can improve planning and forecasting quite a lot now when we have the full setup of super skilled people internally. We can increase our operational efficiency. So that's a KPI for everyone in the company, which, again, will lead to improved EBITDA. Cost control focuses on reducing vessel OpEx, of course, and that gives us a more competitive commercial focus. We are able to improve our risk mitigations, continue our safe and efficient operation. And I would like to add that, that we have a very strong reputation by our client base and how well we are doing on the HSEQ side. So all of that, maximize revenue from all our assets, of course, is important. We would like to improve our cost and planning for yard stays. We saw that from Namibia. It's not always as easy as it has been for us on previous project, where we've done that in Norway and Las Palmas and so on, can be areas where that is challenging. And of course, reduce financial surprises. So all of this will result in real EBITDA uplift. So where are we on the project side? As I mentioned, obviously, the Shell and the RWE project is complete. We have about $3 million to $4 million remaining on the NCPOR project, the last phase. It's something we elect to do when we have a vessel closer to that project. It's not far from Cape Town. And then we have the TotalEnergies project in Namibia, which we expect to end of March. Woodside is done, and the Suriname project is ending the acquisition phase end of February. And then it's a bit of data processing and so forth before we start the sales process, which we have a strong faith and will be positive. These are old slides. So technology side, quite a few steps when it comes to Argeo Listen. This has become both an integrated inspection and exploration tool. So we have now -- since the last quarter, we have proven that we can detect deep sea minerals with this system on an AUV. So that's a fantastic result, probably the only sensor in the world who can do that. We have also proven it for majors for pipeline inspection. We hope to be running a webinar where we can show some of these results in not too long time. And please keep that in mind, the webinars that we run, all marketed on LinkedIn. So it's available both recorded and live going forward. We have also come quite a way forward with Argeo Whisper, which is the active version of Listen. We have tested it and proven that it has a really strong potential for everything below the seabed in terms of detectability. And we can put it on an ROV, we can put it on AUV, even towed solution as well. So we expect a lot from that going forward. And all of this can further be distinguished into a discover solution whenever the larger exploration scopes kick off in the mineral business. So in total, 7 industrial patents since we started this technology road map, which is very good news. These are obviously protected globally in all the markets, which is of interest to us. And finally, Argeo Scope, our digital solution. A lot of progress done here as well. So we are basically presenting all of the data now from Suriname in Argeo Scope. So it's become both a sales portal and a visual aid and tool for all of the data that we acquire with the systems that we use. And we have some really cool plans for Argeo Scope going forward as well. So I will now hand over to Odd Erik for the financials before we take the Q&A afterwards.

Thank you, Trond. So revenue in Q4 was $5.4 million compared to $1 million in the same quarter last year. EBITDA, minus $5.7 million, down from minus $2.2 million in '23. EBIT minus $7.9 million, and that is also down from the same quarter last year when it was minus $6.4 million. And we recorded a loss in the quarter of $8.5 million, which is a small improvement from the same quarter last year when it was minus $9.4 million. We move over to the balance sheet. Total right-of-use assets were $26 million in the end of December. And this includes the 2 Hugin Superior AUVs, which we have on lease, and the bareboat charter on Argeo Searcher and also a few office leases. Property, plant and equipment and other noncurrent assets was $52 million. This includes Argeo Venture, the Hugin 6000 AUV, the Argus USV, Argeo Scope, and now also this multiclient library from the project we have in Suriname. Current assets were $21 million in the end of December. If we look at equity and liabilities, lease liabilities related to the right-of-use assets were $24 million, and this includes both current and noncurrent liabilities. The same for the interest-bearing liabilities, which is also current and noncurrent, $21 million. This includes the loan we have from Innovation Norway, the loan on Argeo Venture and now also this new loan we have on the Hugin 6000 AUV. Other current liabilities, $21 million and $33 million in equity. Cash flow in Q4. We started the quarter with $5 million in the beginning of October. Cash from operation was minus $3.7 million. We had investment activities of $4 million. And this was mainly CapEx for the Argeo Venture's upgrade and preparation for this geotech work in Namibia. And $0.4 million in development expenditures, mostly related to the development of Argeo Scope. And $3.2 million of operating expenses were capitalized to the balance sheet in the quarter for the multiclient project in Suriname. And then we received $0.9 million in proceeds from the sale of these 2 SeaRaptor AUVs in Q4. Most of it came in Q3, and there is now $0.9 million remaining to be paid in Q1 this year. Financing activities also positive with $2 million. The main reason for that is the proceeds from the sale of the Hugin 6000 AUV. We sold it for $6 million, but we have also financed a $2.7 million upgrade of that unit. $1.2 million in lease payments, $3.1 million in repayment of long-term debt, and $1.6 million in interest payments in the quarter. We had some FX adjustments and all this left us with $1 million in cash at the end of December. Yes, in the second quarter and in the third quarter last year, we had a good financial performance in line with our expected run rate of $10 million per vessel per year. Q4 was much lower than this. So we have [indiscernible] with these 2 graphs, the earnings bridge from Q3 to Q4. In Q3 last year, we had $23 million in revenue. And as we have heard earlier, Argeo Venture was in dock for 60 days during the quarter, which reduced the revenue for that operation with $5 million. Searcher worked on this multiclient project in Suriname with no funding yet. So the revenue for Searcher was $6.5 million less in Q4 than it was in Q3. This containerized solution we have with the Hugin 6000 AUV worked on a project in Q3 '24, but was idle in Q4. So this resulted in $6 million in reduction of revenue for that unit. So with some other minor changes, it gave us -- all this gave us $5 million in revenue in Q4. The effect on EBITDA is approximately the same, but offset by some cost reductions for Searcher since we capitalized $3.2 million in OpEx to the balance sheet. That gave a positive effect on the EBITDA. And we also -- also we didn't have any operating cost on this containerized Hugin 6000 solution. The operating cost on that unit is lower and it is idle. It's only insurance and some maintenance and storage cost. So EBITDA in Q4 was then reduced from $5.4 million in Q3 '24 to minus $5.7 million in Q4. And so then I think we have reached the end of this presentation and open up for questions, unless you want to say a few words about the outlook.

I think we've covered most of it. We continue to see a very strong demand in the oil and gas deep-water business, which is our prime area. Yes. And I think we covered all the things that is here. So we can start with the Q&A.

Before we start, I would like to mention that there are certain questions that will be answered, either because they've been covered by the presentation or because we are restricted by the stock exchange regulations. So -- but we'll start with the first one. We have time for a few. What about additional work for Argeo Venture in West Africa after it's completed its current contract with Total Namibia? Can you elaborate?

I think I covered it very well. We will continue in Africa. And there are discussions on some additional work outside of Africa, but that will be reported when we get to that point. But I think it's important just to listen to what we say, right? And what we say is that our expected backlog is for Searcher and Venture, and a bit back and forth. It's the -- what we have reported now in this presentation, a total backlog of $190 million. And currently, we are looking at -- if we cover also the Mediterranean, West Africa and South America, we're probably close to $300 million for 2025, which is in one way or form in tender and negotiations.

Now can you say anything about how much of the payment from the Namibia contract with Total you have received?

I'll leave that to our financial genius here.

I think -- we have been on a fixed payment schedule with Total. So -- and we have $14 million left in backlog in '25, and I think the cash receipts are approximately the same.

I think you might have covered some of this in the presentation, but people -- a few questions have arrived regarding the multiclient work and how the revenues work, how that whole process works. So can you say something about whether they are prefunded or when can -- how does the revenue flow?

I think Odd Erik and myself covered that. We have no prefunding on this, mostly because we didn't have time, right? And we had this opportunity in this space to start this project, or else we would not have time to do it, right? So that means that we have a decision and that is to go in and capitalize on that opportunity and start acquiring the data, which is what we did. And then the sales process will start in Q2, which is when we have processed all of the data and can visually show the clients some of the results. So I would say further to that, that Suriname is a very, very interesting market. There's a lot of activity there. We are early in this market where a lot of the larger clients have barely started the drilling campaigns, but with good results as for now. And I think also it's important to mention that, typically, if you compare multiclient with contract work, we see everything from 2x to 2.5x multiple on the sales return on multiclient versus contract. So it's a good business plan behind it. And we have a life cycle of the data, which is close to 30 years. So they cover the whole life cycle of the development of the field for many activities going forward. So that was the decision and the way we went about it. And yes, when we start to acquire the client for data, we will let you know. But keep in mind, this is a -- we are leasing out the data, we own them ourselves.

And last question for today is charter hire for Venture during yard stay is not capitalized during Q4. Will this be capitalized during Q1? If you can comment on it.

Charter hire for Venture?

Yes. It says charter hire for Venture during yard stay is not capitalized during Q4. Will it be capitalized during Q1?

No. I mean, we did not capitalize in Q4 when it was in the yard. So I'm not sure I understand the question correct. But we will not capitalize now in Q1 because we stayed in yard in Q4. And now we are in operation, so there is nothing to capitalize for Q1 actually. So yes.

Thank you. And that's it for today.

Thank you.

Thank you.