Viridien Société anonyme (VIRI) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the CGG Q4 and Full Year 2022 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to CGG. Please go ahead.

Yes. Thank you. Good morning and good afternoon, ladies and gentlemen. Welcome to this presentation of CGG's fourth quarter 2022 results. The call today is hosted from Paris where Mrs. Sophie Zurquiyah, Chief Executive Officer, and Mr. Yuri Baidoukov from our Group CFO, will provide an overview of the quarter results as well as provide comments on our outlook. Also with us today is Jérôme Serve, our new Group CFO, succeeding Yuri, who is leaving CGG for family reasons. Let me remind you that some of the information contains forward-looking statements subject to risks and uncertainties that may change at any time, and therefore, the actual results may differ materially from those that were expected. Following the overview of the quarter, we will be pleased to take your questions. And now I will turn the call over to Sophie.

Thank you, Christophe. Good morning, and good afternoon, ladies and gentlemen, and thank you for participating in the Q4 2022 conference call. Before we start, I would like to thank Yuri for his time at CGG and for all his contributions. He provided outstanding support to CGG and to me through challenging times, and it's been a pleasure to work with him. Let me also welcome Jérôme Serve to the CFO role. Jerome has a broad and international background in finance and in the energy sector, and most recently was the CFO of one of the large divisions of Faurecia. We look forward to the experience and expertise he will bring to CGG. The overlap will take place during the month of March, and I am confident it will be a smooth transition. Let me move on now to Slide 2. I would like to start with Q4 and full year review today with a few comments on ESG to highlight our strong profile. Our company's high-end technology business, along with our low-carbon intensity footprint and our continued focus and excellence in ESG has been consistently recognized by ESG rating agencies. CGG is very well-rated, both by MSCI and by Sustainalytics due to a broad range of ESG considerations and in particular, our low carbon footprint. In 2022, we further reduced our Scope 1 and 2 emission, respectively to 2 kilotons of CO2 and 39 kilotons of CO2 for the full year. But more importantly, our business brings a significant sustainability contribution to our clients as our high-end technology and birth data in key basins around the world, supports the optimization of their drilling and reservoir development plans, which in turn can substantially reduce their CO2 footprint. Now on Slide 3. Looking at our Q4 and full year financial performance. While the macro environment remains favorable with high oil and gas prices, our clients have continued to maintain reduced E&P spending levels, prioritizing returns to shareholders. During 2022, IECs and especially European IECs, focused on the energy transition agenda, not growing E&P CapEx in line with the macro trends while [ independent and NFCs ] were the first to increase E&P activity to meet good demand and invest the type market. Energy security has risen as a key consideration, and it is becoming clearer that demand for hydrocarbon will remain high for the foreseeable future. This overall macro trends translated into increased oilfield service activity, especially those tied to development and production, such as drilling and completion. Offshore and international activities also picked up significantly. However, products and services that were exposed to longer-term return on hydrocarbon investments, such as frontier explorations, have been lagging, mainly based on the lack of clarity at the 10-year horizon from a climate change and regulatory standpoint. For CGG, this resulted in a volatile yet improving overall market in 2022. Looking now at our Q4 and full year results. Our solid Q4 financial performance provides a good illustration of the high quarterly volatility that our businesses experienced in 2022. Our Q4 revenues came in stronger than expected at $319 million due mainly to higher than anticipated EDA and SMO sales. Adjusted EBITDA was $159 million given the mix and net cash flow was $62 million, including $63 million proceeds from the sale of the U.S. Land Seismic Multi-Client Library. Thanks to our high Q4 results, we returned to a positive net income for 2022. Full year revenue of $928 million was stable year-on-year despite the significant decrease of our SMO business, which also highlights current market volatility. Our adjusted EBITDA of $395 million landed in line with our full year expectations and guidance, representing a 43% margin. Net cash flow for the year of minus $3 million was close to breakeven. Overall, our 2022 financial performance was solid as we operated in a complex environment while implementing and investing in our portfolio of beyond the core business initiatives that are focused on developing new profitable revenue stream to CGG as we move forward. Moving on to Slide 4. I would qualify 2022 as a year of transition for CGG as we adjusted the volatility of our oil and gas businesses and invested in the future. The quarterly volatility that we experienced this year was probably the highest that we have ever seen with a significant lumpiness in sales in both EDA and SMO. Variations were greater than 60% between some of the quarters. It was a Europe transition. First, in our core markets, especially during the second half of the year, we started to see early signs of the projected multi-year [ of invest ] upcycle. In this environment, we continue to focus on the advance of our technology, leadership position in our core businesses, and we increased investments in our new beyond the core businesses, which in 2022 now represents more than 8% of our revenue. As part of our BTC strategy, we acquired Geocomp to establish a stronger infrastructure monitoring market position in North America and acquired the Iron Software Business to strengthen both the depreciation of our core SMO business by accelerating our value-added cloud-based services and to further event our [ BTC ] initiatives by extending our expertise and given that the position in the software as a services market as an example, port management. We also updated our Geoscience organization to our most mature BTC initiatives into the geographies to focus on commercial expansion and creating new HPC and Cloud solutions organization to strengthen our strategy in a digital area. [ Considering your ] investment, looking ahead of the cycle, as we're preparing for improving market conditions in oil and gas and accelerating our BTC businesses, we invested in technology with the construction of the new HPC center in the U.K., which will be operational later this year and significantly increase our compute capacity. We invested in significant multiclient projects in key bases where we are well positioned for the future. And we continue to advance our market position and technology leadership in our Geoscience and SMO core businesses while developing a robust portfolio of beyond the core growth opportunities. Now on Slide 5. Our BTC business initiatives are focused around 3 main markets: digital, energy transition and infrastructure monitoring. We laid concrete progress in 2022 in all areas. In digital, the creation of our HPC and Cloud Solutions business line was a major step in strengthening our processes and organization as we invested and prepared for growth in the specialized area. In our Data Hub business, which focuses on data transformation, delivery and visualization, we successfully completed several pilot projects and secured and at current reserve with a full-scale project for BP. In Energy Transition, we increased our participation in CCUS and Minerals & Mining, and generated around $20 million of VA sales, mainly focused on CCUS in Australia, Norway and the U.S. We successfully demonstrated our structural health monitoring solutions in various settings within this rapidly growing market resulted in our first sales in the U.S. where we are leveraging our position with Geocomp. The new technology profile of CGG is developing in line with our expectations of our BTC businesses reaching the target of 20% of company revenue by 2025. Now on Slide 6. A year ago, we were anticipating 18% revenue growth in our DDE segment. We delivered 21% revenue growth in 2022, consistent with offshore E&P spending increases. Our activity particularly strengthened in North America, but we also saw improvements in the North Sea, while Asia remained relatively flat. Overall, the profitability of the DDE segment significantly improved in 2022, with adjusted EBITDA increasing by 23% to $406 million, a high 62% margin. This was driven by efficiency gains, better utilization of resources, a strengthening pricing environment and a much higher level of multi-client aftersales. Now going into each of the business lines on Slide 7, Geoscience. While the market was solid in North America in 2022, it was still slow in the rest of the world, though we see now signs of a weak activity in Q4. Geoscience revenue was sequentially stable this quarter due to delayed start of key projects, which in general continues to be driven by strong demand for our high-end technology. The revenue reduction compared to 2021 was in relation to a large [ wireless ] software sales that we realized in Q4 of 2021. 2022 ended with a moderate 1% growth pro-forma in the Geoscience production, which includes external and internal revenues and a 6% pro-forma growth in external revenue as we utilize less of our services for multi-client. With a 16% backlog increase year-on-year, we ended 2022 in a better position to start the new year. Profitability of the Geoscience business continued to improve year-on-year as we did our production per head ratio. Now for operational highlights on Slide 8. At the end of 2022, Geoscience's commercial activity was increasing worldwide, and we saw a high level of risk admissions, up 18% year-on-year, driven by a 68% increase in OBN processing debt. This business continues to be driven by strong demand for high-end technology, and Geoscience should continue to benefit from the accelerated uses of advanced acquisition technology such as ocean bottom mills or hybrid surveys that require more advanced imaging algorithms. At the end of 2022, order intake in Geoscience was up 26% year-on-year. And as mentioned earlier, we started 2023 with a backlog of $231 million, up 16% year-on-year. In 2022, our decreasing power was further extended by more than 20% as we added 61 petaflop. We continue to make significant upgrades to our data center infrastructure to support our increasingly advanced algorithms and further expand our differentiation and support the development of our new HPC and Cloud solutions business. [ Bill ] margins, we increased our beyond-core revenue in 2022 in Geoscience by almost 50%, and we expect continued strong growth in general and in digital, specifically as industries are looking to gain efficiency and extract more impacts from the data. Now on Slide 9. The success of CGG is built on technology differentiation. Our unique elastic full-waveform inversion, which was developed by our scientists or contract geology and challenging renewal development is the most recent example of this differentiation and the commercial success it drives. CGG's full-waveform inversion technology and expertise provides the most advanced solution in the market today to assisting our clients in reducing geologic [ inconsistency ] and accelerating interpretation of the subsurface as we continuously extract more and more information and insights with our seismic science and data science technology. In this example, you can see clearly how our FWI technology provides an enhanced understanding of the [ compact materialization ] and remediation of the reservoir. Moving on to Earth Data on Slide 10. In 2022, EDA revenues were up 36%, sustained by a significant increase of after-sales, which were up 90% year-on-year on the back of strong [indiscernible] and strong sales in Q4. Prefunding caught out in Q4 demand at 66% for the year. 2022 was still driven mainly by demand for new field exploration. Exploration is active, but focused on new oil investment that is low cost, low risk and low carbon. So defied infrastructure-led exploration is a natural choice, which towards the end of the year, we have seen clients gaining interest in more frontier basins. In 2022, aligned with our strategy, CGG multiplant projects remain in our core regions in basins where government policies are stable and [ petroleum ] systems are proven. Beyond the core, the CGG U.S. industry is in its early stages, and we have seen growing commercial interest for our EDA data, mainly to support both the finding and assessing of the appropriate subsurface container storing carbon. We continue to gain experience by participating in various projects and have seen good opportunities to repurpose publishing partner data in shallow water and land, together with our geologic data [indiscernible]. With this, our current focus remains on building our expertise, licensing our existing data, packaging new data sets for screening and getting closer to our clients and potential clients in this rapidly growing business. On Slide 11 now. In November of 2022, we completed the entire acquisition offshore. Processing of this data is ongoing. In Q4 2022, we also commenced preparation for a new multi-client program in the [ Foz de Amazonas ], including transferring the vessel in mid-December. The acquisition is expected to take around 200 days and processing should be increased in Q3 2024. In Q4, we divested our noncore U.S. Land multi-client data library for a total amount of $63 million. Looking forward, 2 new sales have been confirmed in 2020 in the Gulf of Mexico on at the end of March and another in September, both should drive increasing activity. On Slide 12. I mentioned during our Q2 conference call that we continue to expand our data offering to address energy transition, especially for CCUS and Mining. This Arizona project is the first multiclient project in the company for the mining industry, and we already have 1 client commitment. The project has started as we compile information and airborne acquisition is planned for the March, April time frame. A position is expected to take approximately 12 months. The purple outline shows the full project area, which will be covered by multidisciplinary data, including multi-physics, satellite imagery, multispectral, well and geological data. The blue outline highlights where we will acquire airborne physics data. This is a new business model for the minimum of the mining industry, and it will allow operators to access larger integrated data sets to better identify and characterize deposits. Now on Slide 13, with Sensing & Monitoring. In 2022, our sensing and monitoring segment saw a significant reduction in sales down 24% year-on-year. This was linked to commercial restrictions in Russia and to the lumpiness of this business, multiple large projects in the Middle East, in particular, were delayed from '22 to 2023. At $269 million of sales for the year, the SMO segment generated $16 million EBITDA or 6% margin. In 2022, the SMO business acquired Geocomp and ION software business. The top line contribution of these 2 businesses was around $18 million. We are very pleased with these acquisitions. They're already accretive to SMO and the level of business synergy is more than we anticipated. Now on Slide 14. Q4 SMO sales came in at $104 million, up 10% and above expectations with sales materializing in the last days of December. Land equipment sales represented 60% of total sales. Overall activity has been picking up this quarter, mainly in North Africa and with our wing land node of technology [indiscernible]. The ring equipment sales represented 22% of total Q4 sales. OBM market for shallow water application remains active, especially in the Middle East. Marine market for streamers is still mostly limited to equipment upgrades and spread stream session delivery. Sales from beyond the core businesses were $14 million in Q4, significantly up year-on-year, supporting rating by an active defense sector. Our new infrastructure monitoring business is progressing well. We continue to pilot ethylene technology and solution on several bridges, including a bridge in the New York area, and we secured an order to perform baseline analyses on 2 bridges in Georgia. [ We won a debt and able ] measurement job in [indiscernible], and we performed several demonstrations of our earthworks monitoring solution scan in both Massachusetts and New York and one short-term monitoring job in Paris suburbs. Overall, the BTC area were focused around SMO benefited in 2022 from increased interest from the defense sector and the addition of Geocomp structural health monitoring business, especially in the second half of the year. I will now move the floor to Yuri for more financial highlights.

Thank you, Sophie. Good afternoon and good evening, ladies and gentlemen. I will comment on the Q4 2022 financial results. Slide 15, Q4 2022 P&L. Let me comment on the overall Q4 activity. Q4 segment revenue was $319 million, up 6% and up 7% pro-forma year-on-year. The respective contributions from the group's businesses were 22% from Geoscience, 46% from Earth Data with 67% for the DDE segment and 33% from Sensing & Monitoring. Segment EBITDA was $193 million, up 25% year-on-year, a 60% margin, and adjusted segment EBITDA, excluding $34 million gain on the sale of the U.S. Land multi-client library was 159 million, a high 50% margin. DDE segment EBITDA was $180 million, an 84% margin, and adjusted segment EBITDA was $147 million, a high 68% margin. SMO segment EBITDA was $20 million and 19% margin and adjusted segment EBITDA was also $20 million, a 20% margin. Segment operating income was $94 million, a 29% margin and adjusted segment operating income was $66 million at 21% margin. IFRS 15 adjustment at operating income level was negative $10 million, and IFRS operating income after IFRS 15 adjustment was $84 million. Cost of financial debt was $24 million. The total amount of interest paid during the quarter was $45 million. Taxes were plus $9 million and net income from continuing operations was $49 million. Group net income this quarter was $47 million, significantly up from a net loss of $28 million in Q4 2021. After minority interests, Q4 2022 group net income attributable to CGG shareholders was $46 million and EUR 46 million. Overall, in 2022, CGG has significantly improved its financial performance. CGG segment revenue of $928 million was down 1% and up 3% pro-forma compared to 2021. Adjusted segment EBITDA was $395 million, up 17% year-on-year with 43% margin. In 2022, CGG returned to profitability with group net income of $43 million, which was a significant improvement from a net loss of $180 million in 2021. Moving to Slide 16 and looking at the simplified cash flow. Q4 2022 segment operating cash flow was $103 million, including $61 million negative change in working capital provisions mainly related to the SMO business. Total CapEx was $50 million, including industrial CapEx of $18 million, research and development capitalized costs at $6 million and ornate cash CapEx at $25 million. Segment free cash flow was $115 million, including $63 million per seeds from the sale of the U.S. Land seismic library. After $2 million net let repayments, $45 million cash cost of debt, $3 million of CGG 2021 planned cash costs and $2 million free cash flow from discontinued operations, Q4 net cash flow was positive $62 million. Overall, in 2022, CG Group net cash flow was negative $3 million. Moving to Slide 19 and looking at group balance sheet and capital structure. Group liquidity amounted to $398 million at the end of December 2022 and included cash liquidity of $298 million and $100 million of [ NGRC ]. Gross debt before IFRS 16 was $1.6 billion, and net debt was $859 million. And group net debt after IFRS 16 was $1.25 billion and net debt was $951 million. Our debt structure included $1.12 billion of iron bonds due in 2027, $93 million lease liabilities, $20 million accrued interest and $12 million bank loans. Segment leverage ratio of net debt to adjusted segment EBITDA was 2.4x at the end of December 2022 down from 2.9x at the end of 2021. Capital employed was $2 billion, slightly up from the end of December 2021. Net working capital after IFRS 15 was at $225 million, stable year-on-year. Goodwill was also stable at $1.1 billion corresponding to 54% of total capital employed. Multi-client library net book value after IFRS 15 was up at $419 million. Noncurrent assets were $340 million with $167 million of property, plant and equipment, down from year-end 2021, mainly due to the Galileo sale and leaseback transaction and $84 million of capitalized development costs. Non-GAAP liabilities were $31 million, slightly down from year-end 2021. Shareholders' equity was up at $1.06 billion, including $39 million of minority interest mainly related to transit. Before I hand the floor back to Sophie for conclusion, I would like to thank her for the kind assessment of my work at CGG. It was the privilege to contribute to CGG's transformation and work with CG's team and all of you, our analysts, shareholders, investors and all the stakeholders over the last 4.5 years. Thank you all for your support.

Thank you, Yuri. Now we're on Slide 18. We are entering 2023 with improved visibility, thanks to steadily increasing client activities and our high backlog. Geoscience will continue to be driven by advanced technology and by large projects in North America, mainly in the Gulf of Mexico, increasing activity in the North Sea and more generally, the broader utilization of marine melts for imaging. The pressure on our clients increases to net global demand for energy, address the high oil price environment, lower their carbon footprint and effectively transition to renewable energy, all in the shortest time frame possible, the use of our advanced imaging technologies has become a key [indiscernible] and has never been more important to support their decision. Today's CGG's technologies, including our [ 4-way form version ] are unique to us, and this drives a large portion of the high-end activity to CGG. In Earth Data confirmed by a solid Q4, we anticipate an increasing appetite towards exploration and OBN acquisition, which is now being used in a larger number of basins globally including for exploration purposes. Earth Data and later operation CapEx, ILX and Frontier as well as global [ e-tran ] activity, all of which are expected to increase in 2023. The FMO market is also expected to grow significantly in 2023 from the low in 2022. The key driver will be large land traffic crews in the Middle East and North Africa that prime land and OBN equipment. The development of our BTC businesses will remain a 2023 priority for digital science, CCUS, defense and infrastructure monitoring being the most immediate opportunity. Beyond the core businesses will benefit from continued drive towards digitalization, including resin the infrastructure monitoring sector, along with an increasing focus on energy transition and security. We expect another year of significant growth in our BTC activities. Now on Slide 19. After years of underinvestment, exploration focus is expected to increase in 2023, particularly offshore, but also in the Middle East. The macro environment continues to strengthen, but is expected to remain volatile for us as our EDA and SMO businesses rely on large contracts that can move quarter-to-quarter. Technology pays out for CGG, and we will continue to invest in investing our leadership. Digital, energy transition, infrastructure monitoring and defense BTC market will continue to mature and should see steady increase in demand moving forward. In this context, CGG has the following outlook and financial objectives for 2023. 2023 segment revenue is expected to increase in the range of 15% to 20%, with mostly coming from SMO. I want to point out that we expect to see a continued high level of quarterly volatility in revenue, driven mainly by the timing of SMO equipment delivery and the usual EDA seasonality. Q1 should be similar to last year, and we expect to see a much higher revenue in Q2, especially for SMO. 2023 adjusted EBITDA, segment EBITDA margin is expected to be in the range of 39% to 41%, given the business mix. 2023 EBA cash CapEx is expected to be around $200 million, with prefunding about 75%. Our backlog coming into 2022 is healthy and stronger compared to the last 2 years. 2023 industrial and R&D CapEx is expected to be up at around $70 million, primarily driven by our client increase in high performance retreating capacity. And finally, we're anticipating a positive net cash flow before change in working capital in 2023. Going forward, our focus is to build on the growth that this upside will bring for CGG while further advancing our BGC businesses. We expect to see improvements across our businesses in all of our business in 2023 and beyond, and we'll continue to focus on cash management and cash innovation to pursue a path to deleveraging. Thank you for your interest, and we are now ready to take your questions.

[Operator Instructions] We will now take the first question. It comes from the line of Kevin Roger from Kepler Cheuvreux.

I will limit myself to 2. The first one is maybe for you, Sophie. Several companies in the sector have already reported and in the offshore, I think if there is one conclusion is that it appears that everyone is accelerating in terms of time and investment decision with a commercial pipeline that continue to increase, et cetera. On your side, do you see the same kind of acceleration for appetite for late sales because usually you are correlated to CapEx in offshore, but with the things that are accelerating strongly. Did you send a bit more optimistic basically on your late sales expectation over the past few weeks? And the second question is maybe more for Yuri. An important element for investors would be the net cash flow. So you guide for positive net cash flow before working cap for '23. But what should we expect in terms of working cap for '23 because '22 was negative. So should we expect a reversal on positive working cap in '23? Or we should assume another deterioration, please?

Kevin, thank you for your questions. So in terms of what's going on in sort of the offshore market, -- the main -- what we've seen last year, as I was mentioning, it's been more around accelerating the cost even accelerating basically decisions around getting production. There's been a lot around field development and production. And we've seen more through our DuPont business, around [ node ] acquisition, around high-end and understanding the reservoir. So a lot of the FIDs that have happened have been associated to a pretty high-end cycling acquisition, and we've done other of those purposefully. Now, the link between the increasing activity in store, -- and the later, not exactly that one. I think we might see more of that in 2023 because specifically the offshore exploration CapEx is increasing, which I don't think that most the case. Last year, what had been accelerating is the exploration and production CapEx. So the combination of the 2 mostly targeted development and production. And I think now starting to move into exploration, which should then translate in [ a more solid outcome ]. But keep in mind that in 2022, we benefited from a large transit, which was somewhat exceptional. So if you correct to that, we should see an increase this year. And maybe another data point that could be interesting for you is if I look at the mix of buying data in the after-sale in 2022 vs. 2021, the IFC portion is still low in the mix. It's probably half of what it used to be pre-2019, meaning that we haven't seen this group of clients come back in a meaningful way in the buying data.

Yes. So Kevin, to answer your second question regarding working capital, we actually don't expect any further deterioration of working capital in 2023. And of course, the main reason for that, as you see in our guidance, that we expect significant growth of open sales in '23 versus 2022, which means that the inventories that were increasing throughout last year in manufacturing the equipment for the deliveries of 3 will be coming down. Now the element which, as you all know, is always kind of variable rate, right, or a known unknown is the level of after-sales at the end of the year, right? So again, obviously, good after-sales, good news about collections in the following Q1. And also, this because of deliveries might be impacting from receivables as well. But fundamentally, again, we expect release of working capital say possible capital next year.

We will now take the next question. It comes from the line of Haris Papadopoulos from Bank of America.

I have 3, if I may. The first one is with respect to the delays we saw last year. Could you give us an update of the stage of the tenders for the mega cruise in Saudi Arabia? Like when should we expect that announcement? And then what about the stage of the multi-client project in Brazil, which was shifted from last year to 2023? I believe that's with Petrobras. So that's my first question, please.

Thank you for your question. So in terms of the tenders to the mega-crews, they have been out, the service companies have responded and they are in the award stage. So we're expecting, I would say, there's a set of tenders. There are tenders for land crews: 2 man crews and 3 OBM crews in Saudi Arabia and the land crew that thing should be awarded very soon. At least we know they're in the final stages of negotiation with the service company. Now the OBM tenders, it's a bit unclear. I think it could be delayed another 1 month or 2. It's -- I don't have as much of a decision, though. They should be coming after basically the one on the land side. It's just as with multi-client data, we're planning to see some level of catch-up of prefunding on projects that we did last year. Now I don't want to name -- I can't name clients as you see, but if we haven't built in our budget some level of catch-up for those projects.

Okay. And then my second question is with respect to M&A. Is it fair to assume that we shouldn't see any major M&A activity this year? And then what about any potential disposals? I remember the stake in the Saudi Arabia land data acquisition business was mentioned at some point. Is there any intention to seek a buy for this asset?

So in terms of M&A, we always on the lookout for what I would call a small bolt-on opportunities, definitely, the kinds that we did last year, so that million men, $20 million to $30 million rate. So right now, as it is today, there isn't one in the pipe, but it doesn't say that perhaps there would be one that appears during the year. So we want to be ready for that and then that opportunity to appear. Especially the cost us accelerate beyond the core initiatives. Now in terms of disposals, it is very clear that we're still looking for divesting that our participation in our gas. I think the environment hasn't been -- meant doing that, but we always are looking for opportunities to do so.

Okay. And then my last question is your liquidity is quite strong now and especially compared to your minimum cash level of $150 million. So I was thinking perhaps like is that in patient perhaps to consider using your 10% special redemption goal for the bones given how high the components versus the cold premium? I mean, like it kind of makes sense? Is it something that you're considering right now?

Yes. So we are always considering those opportunities, as you all know, or as we discussed previously. But again, at this particular point in time, we're still waiting on kind of derisking of our business plan for SMO, the Saudi Arabia word of mega-crews and things like that. So in other words, again, once we get some greater visibility then that option is on the table.

We will now take the next question. It comes from the line of [ Vikram Lopez ] from LGIM.

Can you all hear me? Congratulations on the results. I just want to clarify something that you said earlier. So just on this issue of net cash flow for 2023. So is a positive net cash flow before change in working capital, but you expect working capital to not be adoring on cash flow? Have I understood all that correctly?

Well, we're guiding that net cash flow will be positive before change in working capital, but what I was calling is that most likely, we'll see some positive change in working capital as well. However, and again, within the working capital components, definitely inventories will be coming down because what we're expecting significant growth in SMO sales and therefore, deliveries of equipment, which was built in 2022. However, there is an element that is kind of variable and difficult to predict it what will be the level of equipment deliveries, but more so we get the data of the sales at the end of the year. So basically, as you might recall, that is a significant element that can create significant span. The more data we sell, the more we collect in Q1. So this is the usual story.

Okay. But I mean, at worst, would you be expecting to be kind of breakeven net cash flow? Would that be right or?

Yes, breakeven to slightly positive.

Okay. okay. I mean -- and this the next question. I mean, your -- so if I'm reading the numbers right, so you're talking about kind of 15% to 20% revenue growth, EBITDA margins range of 40%. So that kind of implies kind of flat EBITDA year-on-year?

No.

No.

It implies flat EBITDA margin year-on-year, but it doesn't mathematically imply flat at doors.

If you're going up by 17.5%, then you have revenue of $191 million, modify that by 40% and you have $437 million, which is pretty much what you did.

No. When we're talking about adjusted segment EBITDA in other words, which doesn't include nonrecurring ages. The adjusted segment EBITDA in 2022 was $395 million.

Sure. But from a cash perspective, you did get that cash, you were paid that amount of money. So you can say that it wasn't a recurring part of the business, but you've got a cash inflow of 430-odd million from businesses plus actually have a cash inflow of 430-odd million. You won't have had new disposals. So still kind of 430 million coming in, 270 million going on cash, okay working capital. Well, I guess and then your interest costs. I mean, okay, so the wider point is at what point do we start seeing substantial cash flow generation internally? Not just flat to slightly positive, but kind of looking at, I don't know, just like 3% to 4% cash delivery -- do we need to wait for revenue to be hitting the 1,200, 1,300 mark? How achievable is that?

Well, we -- first of all, we always kind of we're explaining that the -- for us, the net cash flow breakeven point in terms of revenue is roughly $1.1 billion, right? Now so we were growing next year -- sorry, this year. But obviously, we expect to continue growth and recovery in 2024 as well. So that -- and this is one element. Now the other element is that we'll be -- yes, it depends also on the business mix, in other words, on the revenue mix because the -- with significant increase in SMO sales, SMO EBITDA margins are lower than the EBITDA margins of Geoscience and Earth Data combined. And there is another element to keep in mind is that at the end of our agreement with a shareholder will be basically January -- at the beginning of January 2025. And with that, the scope line, which is about $22 million will disappear as well. In addition to, of course, as recovering full freedom when it comes to our EDA business, and therefore, no longer having capacity utilization agreement and commitment to use share water vessels.

Okay. I think the slight problem with the line doesn't quite follow up, but maybe we could take this offline just to go over those points on that in a little bit more detail.

Sure.

Sure, [ Vikram ].

There are no further questions at this time. I would like to hand back over to CGG for final remarks.

Well, thank you very much. Thank you for attending. Thank you for the great questions, and we'll certainly follow up offline if you have any other follow-up questions. So thank you very much. Have a great evening, and we'll be touch.

Yes. Thank you all. Have a good evening. Bye-bye.

That does conclude our conference for today. Thank you for participating. You may all disconnect.