Viridien Société anonyme (VIRI) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Viridien Full Year 2024 Financial Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to the Viridien team. Please go ahead.

Yes, thank you. Good morning and good afternoon, ladies and gentlemen. Welcome to this presentation of Viridien's full year 2024 results. I'm Jean Baptiste Housile, In-Charge of Corporate Finance and Investor Relations. I'm here today in Paris with Sophie Zurquiyah, our CEO; and Jerome Serve, our Group CFO. They will provide you an overview of the results as well as some comments on our outlook. And following this presentation, we'll be pleased to take your questions. And now I leave you with Sophie.

Thank you, Jean Baptiste, and welcome everyone and thank you for joining this presentation. Market environment remained stable in 2024, characterized by a backdrop of continued discipline investment. Despite some volatility in the macro environment during the second half of the year, with oil prices fluctuating due to geopolitical tensions and moderate over supply, our clients maintained stable spending patterns within our sector, driven by increased confidence in long-term and longer cycle offshore investments. We are seeing a gradual pickup in the early phases of exploration efforts, particularly among European IOCs with the continued focus on efficiency, scalability, low carbon and cost discipline. Let me start with the highlights of 2024, a year marked by successes, where we met or exceeded our key targets. Our revenue remained stable with notable outperformance on profitability and net cash flow generation. It is worth highlighting our commercial successes at Geoscience and Earth Data as well as the ongoing restructuring at SMO, which is enhancing profitability and flexibility. Overall, we successfully delivered on the key milestones from the financial road map that we presented a year ago. Let me move on to Slide 6. In this presentation, we will mainly highlight full year performance as it more accurately represents market trends and the company's overall performance. There are several positive signs for our sector. Clients are increasingly prioritizing quality. They are willing to commit to longer time frames, indicating increased visibility, and the size of projects is growing. Notably, order intake remained solid throughout the year, particularly during the fourth quarter. Over the year, Geoscience confirmed its strength and ability to drive the group's performance with 20% revenue growth for the second consecutive year. Earth Data revenue increased by 14%, driven by strong investments. As anticipated, Sensing and Monitoring experienced a decline in revenue due to a high comparison base with the delivery of mega-crew in 2023. Overall, our full year revenue was nearly flat at $1.117 billion, aligning with our revenue guidance at the beginning of the year. Our full year adjusted segment EBITDA increased by 14% year-over-year to $455 million driven by DDE's growth, partially offset by SMO's decline. Net cashflow improved significantly to $56 million from last year, reflecting our focus on cost control and working cap management. Our performance underscores our focus on cash generation, which is particularly satisfying considering the $75 million in contractual fees related to vessel commitments in 2024 that impacted our cashflow. This contract ended on January 8, marking a significant turning point for our financial trajectory and the final step towards achieving our asset-light business model ambition. Our financial road map remains clear: disciplined capital allocation, robust cashflow generation and continued balance sheet deleveraging. Moving on to Slide 7. DDE segment revenue grew by 17% to $787 million with adjusted EBITDA at 25%, $458 million, with both Geoscience and Earth Data contributing positively. On Slide 8 with Geoscience. Geoscience's external revenue reached a record high of $404 million, up 20%, surpassing pre-COVID levels. Order intake increased by 90% year-over-year, driven by best-in-class imaging technology, which the industry requires to solve increasingly complex subsurface challenges, increased activity in the Middle East with large volumes of land and OBN data acquired and the renewal of multiple long-term contracts for dedicated HPC processing centers. A constant focus on efficiency combined with the use of the latest technologies has continued to yield further improvements in productivity. This performance demonstrates our unique ability to deliver the highest quality imaging results and design, build and operate the most efficient HPC operations for high workload scientific operations. Going on to Slide 9. Our commercial successes are driven by sustained client interest in our technology. Clients consistently tell us that our images are the best in the industry and they can trust our results to make critical investment decisions. Our elastic full-waveform imaging technology now becoming mainstream across all regions offers significant differentiation. It provides a step change in image quality, enhancing the resolution of fine geological details and reducing investment risks for our clients. In our new businesses, Geoscience is showing positive momentum, especially in carbon sequestration. We are working on several exciting projects in Norway, the U.S. Gulf and Asia Pacific, indicating broad regional interest. Additionally, minerals and mining is making progress with new programs awarded in Australia and Oman. Going on to Slide 10. This is a really good example of the differentiation that we bring in geoscience. Viridien has been imaging the largest OBN survey in the North Sea. Compared to streamer data, OBN data is much richer, offering better low frequencies and longer offsets between sources and receivers. This combined with the exponential increase in data makes the imaging work significantly more complex, which is where our expertise truly shines. Our advanced full-waveform imaging algorithms are most effective in extracting the maximum information from the data. And in this case, the subsurface rock velocities inferred from the data exhibit unprecedented resolution and geological relevance with an exceptionally accurate match. The final models and images are critical for our clients, enabling them to explore faster and more accurately. Now moving on to Earth Data with Slide 11. Earth Data segment revenue grew by 14% to $383 million compared to last year. Prefunding revenue grew 6% to $205 million with a prefunding rate of 81% of CapEx in line with our long-term target. After sales grew to $178 million, up 25% in a flat market, reflecting client interest in our data quality despite limited bid rounds during the year and our clients' disciplined approach. On Slide 12, our CapEx was allocated to the Laconia survey in the U.S. Gulf, the North Viking Graben streamer survey in Norway and numerous reprocessing projects globally. We also initiated projects in prospective regions, including Australia, Malaysia, Ivory Coast and Uruguay. In our new businesses, Earth Data completed a mining project in Arizona and delivered several carbon sequestration projects in the North Sea, U.S. Gulf and Asia. We believe our Laconia project will provide the industry with a step change in imaging quality. Despite being at a very early stage, the first images reveal polygenic structures that were previously unseen in legacy data. Prefunders have been very impressed by the new information we have been able to provide, which will attract additional clients. Looking at Slide 13, you can see on this map the position of our project portfolio in 2024, reflecting our strategy to invest in our core basins of the U.S. Gulf, Brazil and Norway, but also position in the future active basins. I'm particularly pleased with our projects in Uruguay, Cote d'Ivoire and Malaysia that are attracting significant client interest. Moving to Sensing and Monitoring on Slide 14. Our full year SMO segment revenue was $330 million, reflecting a 27% decline from the previous year, which benefited from the delivery of mega-crew systems. The full year adjusted EBITDA was $35 million, a margin of 11%, slightly down from last year. However, I was particularly pleased with the Q4 performance, which achieved an 18% margin. This indicates that our restructuring plan is on track to deliver the expected cost reduction. On Slide 15 now, we can qualify 2024 as a transition year. In the absence of Middle East mega-crew projects, we achieved a solid level of revenue sustained by our large installed base and initiated a restructuring plan aimed at reducing SMO's breakeven point while increasing operational flexibility. We have already successfully cut our fixed costs by reducing the industrial footprint in Asia and in the U.S. We believe we will reach our $20 million to $30 million cost reduction run rate target by end of 2025 as we complete the implementation of the restructuring plan in France. In 2024, we also had notable operational and commercial successes, including the launch of the next generation of land acquisition systems and vibrator electronics as well as strong deliveries of land nodes in Europe, Asia and the America. In SMO, our new businesses grew by 17% year-over-year, now accounting for 17% of SMO revenue, up from 10% in 2023, with infrastructure monitoring being the largest contributor. We're also benefiting from wireless node cells to service companies involved in geothermal activities. Looking ahead, SMO should be well-positioned for both growth and improved profitability through the cycles. Let me now hand the floor over to Jerome for comments on our financials.

Thank you, Sophie. Good morning and good afternoon, ladies and gentlemen. As Sophie already mentioned, 2024 was a very solid year for Viridien in terms of financial performance by achieving $1.1 billion of revenues, $455 million of EBITDA and more than $50 million of net cash flow. Let's start with the P&L on Slide 17. Our 2024 revenues were stable versus last year at slightly above $1.1 billion, but with a different mix. Geoscience has continued to grow strongly, plus 20% year-on-year, reaching above $400 million of revenues. EDA revenues were at around $380 million, plus $45 million versus last year thanks to full year after-sales and good prefunding on the back of February. As expected, after 2023 year marked by the delivery of mega-crews in February, SMO revenues were lower in 2024 at $330 million. This business mix was clearly positive for segment EBITDA and Opinc, which were respectively at $455 million and $173 million in 2024 on an adjusted basis. Note that those adjustments do not relate to penalty fees from our vessel commitments. To be clear, the $455 million EBITDA still includes $54 million of penalties in 2024. Actually, most of those nonrecurring items are related to SMO transformation plan such as the restructuring provision associated to the social planning funds approved in December '24 or non-cash impairment linked to the rationalization of the sale product line. Finally, regarding group net income, reporting a strong result in 2024 with $51 million versus $50 million in 2023. Moving on to the group cash flow on Slide 18. Our net cash flow for year reached $56 million, which was above our 2024 initial guidance. This is a result of a strong focus on operational efficiency, both on cost and working capital. Compared to 2023, we benefited in 2024 from the settlement of the legal action in India with a net positive impact of circa $35 million, but we use this one-off gain to seize the opportunity of the Laconia OBN project in the U.S. Gulf and significantly increase our year CapEx budget. Looking at 2025, our Q1 cash will still be impacted by the CapEx required for Laconia acquisition as well as a Q4 earlier plan correction mentioned in our January trading statement. However, we remain confident in reaching our net cash flow target of $100 million for the year 2025. Regarding our balance sheet now on Slide 18. At the end of December 24, IFRS net debt stood at $921 million, down from $974 million last year, mainly coming from our cash flow generation in the year and some positive ForEx impact. This led to a ratio net debt over EBITDA of 2x compared to 2.4x in December '23, demonstrating that our deleveraging trajectory has really started. Indeed back to the 2024-2025 final road map we listed out last year and that we actually applied in'19, a lot of progress has been made already in 2024. First we got a creditor's grade from S&P, exiting the [indiscernible] D zone. We reduced our gross debt buying back $60 million of our bonds versus an initial indication of $30 million. Doubling this buyback envelope was another continual of our deleveraging ambitions, plus we benefited from an appreciable discount on the value of this debt, which is always nice to get. We also worked on the structure of our liquidity by reducing the minimum operating cash flow to $100 million and by extending the maturity of our FCF (sic) [ RCF ]. And since the beginning of the year, we are actively preparing the actual refinancing of our bonds and get ready to grab the best mark available. I'm now handing back the floor to Sophie for the conclusion of this presentation.

Thank you, Jerome. In summary, we delivered a strong performance in 2024 within a stable market environment. I'm particularly impressed by the momentum in our Geoscience business, which continues to expand thanks to our people, service quality and differentiated imaging and HPC technology. Our data delivered a growth in a flat market and continued to develop positions that will drive future after sales. Sensing and Monitoring has repositioned itself for increased profitability and cash generation. Looking ahead to 2025, within current market conditions, we expect a strong yet stable E&P CapEx environment. Geoscience should deliver moderate growth on the back of its robust backlog. We believe the performance of Earth Data is better measured by EBITDA minus CapEx, which serves as a proxy for cash generation as we continue to focus on project quality. This KPI will improve based on the end of vessel commitments earlier this year. Sensing and Monitoring should benefit from restructuring and equipment renewals driven by the aging of the installed base and improve its profitability. Also, 2025 is an important year for the group. The end of our vessel capacity agreement is a significant turning point for our financial trajectory and the final step towards achieving an asset-light business model. Our financial road map is clear: disciplined capital allocation, robust cash flow generation and continued deleveraging. Based on the clearly identified sources of improvement, including the solid performance of our 3 business lines, the conclusion of the vessel utilization contract and the positive impact of the SMO restructuring, we anticipate generating approximately $100 million in net cash flow in 2025. Finally, as Jerome mentioned, we anticipate completing our bond refinancing in 2025. Thank you for your attention and we look forward to your questions.

[Operator Instructions] And your first question comes from the line of Kevin Roger from Kepler Cheuvreux.

I will have 3, if I may. The first one, can you comment a bit on your expected vessel cost because basically you do not have any more the partnership with Shearwater that should massively support your EBITDA and cash? So what have you seen recently on your side for securing the vessel, the tier rate? And what is basically the strategy that you're implementing right now? That will be the first one, please. The second one is on multi-client CapEx. If you can comment a bit here how do you consider yourself on '25 for investment? And the last one just on the accounting. Can you come back please on the difference between the adjusted EBIT and the reported one, please?

So I'll address the first 2 questions and then Jerome will take the third one. We looked at the market starting a year ago and tried to assess what life would look like after we exit or after that contract that we had ended. And our view is that the vessel market is still oversupplied. And the proof of it is that the utilization of the vessel remains below 70%. And so far, we consider it will be relatively easy to get access to vessels and we don't see movement in the pricing either. So pretty much we expect to have similar conditions as we've enjoyed in the last few years moving forward. Of course, we constantly monitor the situation and if we felt we needed to go into some kind of a preferred partnership, we would. But at this point in time, we feel comfortable to just go in the market on an as-needed basis. The second question on the EDA CapEx. As you've noticed, we've avoided the guiding on that and we like better the EBITDA minus CapEx. And the reason for that is that we look at the quality of the projects. So if we spend more CapEx, we look at the prefunding that goes with it. But generally speaking, with the perspective that we have as of today, there's a certain level of uncertainty in the permitting side. We have actually a number of projects in the pipe that we would like to be working on, but it depends a little bit on the permitting side. But I would say with the view we have today, it would be lower -- much lower than last year. So probably back to the more normal level, that $180 million to $200 million. But it could change if opportunities arise again. And there's good prefunding, we might go for it. Jerome, you want to take the third question?

Yes. Regarding the adjustment at the EBIT level, kind of similar to the one I mentioned earlier in the presentation. So you already have the provision for the social plan within total France with 220 FTE that we did the payroll in the course of H1. And on top we have, as I said, the rationalization of our product line, which has cleared some write-off of assets, intangible, but also stocks in our balance sheet. So that explains the -- it's about $60 million, as you can see, adjustments that we consider them definitely as nonrecurring.

Your next question comes from the line of Jean-Luc Romain from CIC Market Solutions.

BP announced a step up in investments in exploration yesterday at the Capital Markets Day. Did it-- it always show up in your order intake or is it still something to come? And what do you see among other super majors in terms of exploration effort going forward?

So I guess we all looked at -- we all saw the announcement from BP, who went from projecting a decrease in production to actually projecting an increase in production. And as you know, to increase the production requires quite a lot of work because you have to fight the decline, the natural decline, plus add extra production. So that will certainly require extra exploration beyond the step out exploration that has been very much the focus for the IOCs in the last number of years. I think I mentioned through 2024, the increased appetite from the IOCs towards more frontier area. They're not going to the -- let's call it, the very frontier area, but certainly a larger interest. You've got Equatorial Margin, interest in places like in Brazil, the north and the south of Brazil. You've got Uruguay Surinam. Angola is actually picking up, Nigeria, East Med, Malaysia. So there's a larger number of countries that are attracting interest. And BP particularly are interested in the Gulf of Mexico, which they consider their core basin. And they have existing production. So there definitely has been a focus on step out. But there are areas in the Gulf of Mexico that are still considered frontier. And I do expect not just BP, but a larger client base will be looking at that.

Your next question comes on the line of Guillaume Delaby from Bernstein.

Maybe a question on your backlog. So the Geoscience backlog was $245 million at the end of Q3. It is now $351 million at the end of Q4. So my first question is, what has happened in Q4 to get such an increase in backlog? First question. Second question, how is Geoscience backlog trending in January and February 2025? And third question, Sophie, you mentioned modest growth in Geoscience for 2025. How do you reconcile modest revenue growth in Geoscience in 2025 with such high backlog?

Those are good questions because these are things we look at. So the Geoscience increase in backlog, it's a mix of different things. Some of it is projects like the normal projects that we get in backlog, and some of it is long-term dedicated centers. So some of these include 3 to 5 years contracts. So it's a mix of different things. Yet it is definitely an increase compared to the year before. One thing we see is that longer term projects -- so in a way -- probably you remember I used to say the backlog would cover 6 months' worth of work. Then we had smaller size of projects, so it was covering a little bit less. Now we are going back to larger project that will deliver over a longer period of time. So perhaps that explains a little bit that modest growth on the back of a very high backlog. So a combination of multi-year contracts and longer term contracts in the sense that they are larger contracts, larger data that take longer to deliver. So how does January and February look like? It looks like normal. So I would say it was a bit of an exceptionally high where a lot of things came together in December. And January, February is good. And it's a level that we need to deliver what we said, that modest growth.

So maybe I'm going to -- so when you say it's back to normal, does it mean that Geoscience backlog -- I'm sorry to push you a little bit, Sophie. But does it mean that backlog at the end of February is a little bit higher than backlog at the end of 2024? I'll just try...

I actually probably will avoid answering that question. It's not relevant, to be honest. You don't -- it used to be actually 10 years ago where the backlog or the order intake was very steady in a way that every month we would get a number that was quite similar, and it meant something to look at the monthly numbers. I want to say that since '15, '16, it's not the case anymore and it becomes a bit more lumpy. So I don't look at monthly trends. I really start looking more at quarterly trends to be able to make sense of it. So generally speaking, the trend is good. It is trending up. At this point in time, we cannot -- I mean, you cannot make a translation of the increased backlog into an increased revenue for exactly what I was saying, the size of the projects getting bigger will take longer to deliver, which is good. It gives us a longer perspective. Where, during COVID, it became a shorter perspective.

Your next question comes from the line of Baptiste Lebacq from ODDO BHF.

Two question from my side. The first one is regarding 2025. Can we expect some transfer fees? And your guidance, I imagine does not take into account transfer fees. Just a clarification. And second question is regarding let's say industrial CapEx, which were down close to 50% for 2024 at $33 million. Is it a good proxy to start the year to put it in a model?

In terms of transfer fee, it is part of the model for our data. And so there is always in the budget a certain level of our data which we would consider normal. In a way, we've considered normal, usual, whatever the number is, level of transfer fees. Actually, there's one that I could talk about because it's public. It has Chevron. But there's uncertainty around it. So whether it is this one or maybe another, we do expect that there will be some level of transfer fee. Some years are higher than others. And it depends as well whether we have data in the place where that transfer happens. You want to take the industrial CapEx, which was lower last year from the past. I think it's the data center effect probably.

Okay. So that's your -- okay, I was a bit confused around the...

It's the data center effect. So what's the basis -- yes.

In 2023, you had the end of the investment for our U.K. data center. That's why the industrial CapEx was much higher. But '24, we are back to more normal level on $30 million, $35 million, which, from a model standpoint, you can reflect for the coming years. It basically cover our maintenance in our data center, maintenance in our SMO plants and some R&D costs which -- for both EDA and Geoscience, which are capitalized. So $30 million, $35 million is the normal number.

[Operator Instructions] We will now take your next question, and the question comes from the line of Daniel Thomson from BNP Paribas.

Just 2 questions. So firstly, in multi-client, Viridien always had 3 very core positions in Brazil, the Gulf of Mexico, America and the North Sea. And like you said, there are -- with the majors coming back to exploration here, there is some frontier exploration going on. Are there any geographies you feel you need to sort of add to these 3 core areas or establish a similar kind of area of coverage and that you have plans to sort of invest more in going forward? And then secondly, just on late sales. I saw on the release we had -- it was quite a strong number relative to consensus, but the line item said late sales and other. I just wondered if there was anything besides late sales driving the beat there versus expectations.

So yes, as you point out, we make the larger bulk of the investment in those 3 core basins of the U.S. Gulf, Brazil and Norway. I did mention a number of hotspots or places that are of interest. We don't quite know yet which ones will be the future -- are future core basins or the future mature basins, but we are investing a moderate amount of our cash into testing those places. So one of them was Surinam, which there is a development ongoing, which I think will drive probably more investment. And that one was a tripartite investment. And so that allowed us to play in Surinam at a minimum investment. In other places like in Uruguay, for example, we've invested in reprocessing. We do a lot of reprocessing as well in Brazil. So Brazil is a hot place in the north side on the -- for Amazonas and on the Pelotas basin in the south. So I suspect we'll be investing there. Now, yes, we have permits in the north and south. I think we'll try to do these in partnerships. So probably there will be some acquisition to leverage our existing footprint to go into those more frontier areas in Brazil. Malaysia is another place that we're looking at. We invested there in 2D. So it was again a modest investment. If we see interest building up, then we might consider, depending on the prefunding and the quality of the project going into maybe 3D and more. Norway isn't really a frontier area. It's more of a mature basin. But it continues to be very active and going up in technology level. So I guess it's -- to your question, we are more cautious when it comes to investing into frontier areas because one place could be very hot, if you look at the case of Namibia, and then it could be disappointing. So we just are a bit more cautious, partnering more, trying to do reprocessing instead of doing full-blown acquisition. Then if we get our confidence level up, then we might consider an acquisition. And then you had another question on the after sales.

So you are right. The number that we published, $178 million, combined both late sales and another type of sales. This other type of sales basically is using our Shearwater vessels for proprietary acquisition that do not qualify either as prefunding and late sales. So we have combined it with the later. But it's pretty small and it's near around of $10 million.

Your next question is a follow up from Kevin Roger from Kepler Cheuvreux.

Yes, maybe one follow up on my side. I maybe missed something. Sorry for that if it's my fault. But when you published the pre-results, you were expecting EBITDA to be quite below what you announced at the end for the full year. So can you come back please on the driver for whether -- the EBITDA compared to what you announced in January, please?

Yes, we were maybe a bit conservative when we published the trading statements, which I think was at $430 million. And here we ended up on an adjusted basis of $455 million. I don't know about you, but I much prefer to be in this position to beat my guidance than the other way. So maybe a bit of conservatism. I'm not sure of exactly which wording we used. We said above $430 million, if I'm correct. So yes, we are above -- I mean, you have the breakdown -- you have the breakdown by division. There was a -- conservatism also on some of the adjustment that I mentioned, which I was not 100% sure if they will be all classified and recorded [indiscernible]. So that's why [indiscernible].

Okay. So it's more the fact that you were presenting the guidance rather than something exceptional that happened at the very end of the year?

No.

No.

Your next question comes from the line of [ Braze Ryan Corrigan ] from Clarkson Securities.

I was wondering if you can provide some color on the plans for the Laconia Phase 3 project. It's my understanding that you have received a letter of award or a green light from U.S. authorities to do the project.

So I guess you're monitoring the permitting. It's one thing to submit a permitting and it's another thing to approve a project. So we're in the early stages. And by the way, our competitors do the same. So there's a lot of permits being submitted. And so it's about positioning and giving ourself the option. It doesn't mean that there is a project that is being approved. So it's, yes, we are looking at the subsequent phases of Laconia, and we're in this process of really engaging with our various clients to see if we can land a good project. So very early on, nothing is committed or decided as being discussed with clients. But it is a good thing we have the permit because then if things accelerate, we have the options to go, assuming we have acquisition, right? Because you have to land everything together, the clients, the acquisition before you can move forward. But the permit is becoming more and more of an important element to secure.

There are currently no further questions. I will hand the call back to the Viridien team.

Well, thank you very much for taking the time. I know there's a lot of competing calls. So I appreciate that we had more than 30 people on the call, your presence. And we look forward to interacting with you in the coming days and weeks. Thank you very much again for your attention.

Thank you. Have a good night.

Thank you.

Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect.