Fjord Defence Group ASA (DFENS) Earnings Call Transcript & Summary

Good morning, and welcome to Aquila Holdings Q4 2023 Earnings Presentation. My name is Nils Haugestad. I'm the company's interim CEO and CFO. With regards to the quarter, we had multiclient revenues of $1.7 million. The Utsira reprocessing has been going very well, and we delivered the priority area to clients at the end of the year. The fair value of the multiclient library is now standing at $31.1 million. The fair value of the investment portfolio is $6.6 million. We did take a reduction in fair value of financial assets, and we'll come back a bit to that of, $1 million. Available liquid funds was $8.5 million, and cash loss for the quarter was $0.5 million, and that is after $0.5 million in nonrecurring legal expenses. The net asset value for the period was NOK 1.76 per share. Subsequent to the quarter end, we had a couple of things. We announced here on the 20th, 2 multiclient transfer fees for $1.1 million in revenues. In addition to that, in February -- on February 6, we announced that we had completed the NOK 5 million share repurchase program that we announced July 10. The company, at this point, currently holds 20.3 million shares, which represents 8.5% of the shares outstanding. With respect to the multiclient portfolio, the discounted cash flow value of the portfolio at this point is $31.1 million. We have a few events here. One is on the Utsira survey, the recent M&A transactions there, where we have -- we're acquiring Neptune Energy in Norway, and we also have PGNiG acquiring KUFPEC. So the transfer fees that were announced in quarter 1 relate to those transactions. As relates to the reprocessing project, it is progressing according to plan and also cost. We still expect the completion of the project to be around the middle of the year, around the summer of this year. As I mentioned, the priority area was delivered in Q4 of this -- of the last year. And we've also seen some additional deliverables as the work has been ongoing to the clients. On the Egypt side, Eni acquired Neptune Energy. It appears that Eni is inclined to discontinue the Gulf of Suez data license. However, that is not yet concluded. If so, the survey is likely to become available for new operators. As it stands right now, we have a remaining revenue share in the Gulf of Suez survey of $12.1 million, and the book value is $6.6 million. On the financial assets, this is the no deployment equipment that we sold to Magseis Fairfield in March of 2022, now TGS. And as you'll recall, there's an earn-out structure there with a cap of $12 million over 3 years. There's also a floor payment of $1.5 million, and it's subject to certain milestones, some additional costs that may be deducted from that. The book value of this asset was at $3 million. And this is, as I mentioned in the introduction, what we reduced by $1 million, so to $2 million currently. And that's simply a result of the remaining time on the earn-out period given that we thought it was prudent to reduce the estimates. So what was $3 million before, we've reduced to $2 million. On the investment side, here, we have some select public market, but also unlisted securities. The fair value of the portfolio is $6.6 million at the end of quarter 4. We have Capsol Technologies that was at $4.8 million at the end of the quarter. But subsequent to the quarter end, we acquired 396,825 shares at a price of NOK 12.60 per share, and this was done through a primary equity offering of NOK 88 million that was just completed by the company. We also have Dolphin Drilling, which, at the end of the year, was at $1.4 million. But subsequent to the quarter end, we divested 850,000 shares, which is approximately 50% of the shares we held at a price of NOK 8.25 per share. On the net asset value, we have the multiclient library at NOK 1.43 per share. So clearly, the largest percentage of the NAV value. Other seismic assets is NOK 0.09 per share, and that's the node equipment. And then we have the investment portfolio at NOK 0.30 per share and then a reasonably even current assets and liability side, which then adds up to NOK 1.76 per share for the NAV valuation. On the income statement, we had revenues of $1.7 million related to the Utsira reprocessing project. We had other losses of $1 million, which is the reduction in fair value of financial assets that we discussed earlier. This is then the node handling equipment that has been reduced from $3 million to $2 million. Cost of sales of $1.4 million, and that is primarily related to the Utsira reprocessing costs. SG&A of $0.9 million, which includes $0.5 million related to legal services. Amortization of multiclient of $1.6 million takes us to an operating loss of $3.1 million. We have a net financial loss of $0.2 million, which relates to interest in a -- interest expense on VAT charges. That takes us to a loss of $3.3 million. On the cash earnings or loss basis, we had a cash loss of $0.5 million, as mentioned earlier, and that includes then the $0.5 million of the nonrecurring legal expenses that we mentioned above. Going to the balance sheet. We see the multiclient library at $31.1 million; investment, $6.6 million; financial assets of $2.0 million; trade receivables of $0.9 million; other current assets of $1.3 million, and this includes a significant portion of earned revenues from the reprocessing project that has yet to be invoiced; bank deposits of $2.0 million, which gives us total assets of $43.9 million. If you look at the multiclient library, together with the financial assets, which is the node deployment equipment, that represents about 75% of total assets. So obviously, the seismic part of the balance sheet is the by far largest part. On the equity and liability side, we have equity of $38.1 million, which gives us an equity ratio of 86.9%. We have trade payables of $0.5 million and then taxes payable, $2.3 million. This is taxes related to the work done in Egypt. Other current liabilities of $2.9 million. And again, here, a significant portion of this relates to taxes under evaluation payable to Egypt based on the work that was done there. This takes us to a total equity and liability side of $43.9 million. Available liquid funds, as mentioned earlier, $8.5 million and a net asset value of NOK 1.76 per share. On the cash flow side, we had cash from operating activities of negative $0.2 million. We had no spending on the investment activity side, and we acquired our own shares to the extent of $0.2 million also in the quarter, which takes the cash down from $2.4 million to $2.0 million at the end of the quarter. In terms of the outlook, we still see solid industry fundamentals that support historically high oil prices and thereby also continued investment in the E&P sector. All the major agencies that are tracking the industry are expecting continued increase in oil demand, and that's a consistent picture. And with that, we also see strong cash flow into the E&P companies. And oil company spending as a result is expected to remain high in 2024. That being said, we believe, as always, that timing of multiclient late sales is still unpredictable, and it's largely driven by licensing rounds and internal oil company scheduling. So we should expect sales to be lumpy when they happen, and we don't think that, that speaks to the underlying value of the multiclient library. We will continue to evaluate new multiclient investment opportunities, and we will also continue to evaluate opportunities outside of the seismic sector. That's the end of the presentation today, and we appreciate you taking the time to listen in. And if you have any question or comments, please feel free to contact us. Thank you so much.