Viridien Société anonyme (VIRI) Earnings Call Transcript & Summary

Good morning and good afternoon, everyone. Thank you for joining us today for Viridien's Q2 2026 Results Presentation. I'm Alexandre Leroy of Investor Relations and Corporate Finance. We are hosting today's call from Paris, and I'm pleased to be joined with our newly appointed CEO, Henning Berg; and our Group CFO, Jerome Serve, who will walk you through our performance. Before we begin a few housekeeping items. This call is being recorded and is accessible via both phone and online platforms. An audio replay will be available shortly on our website, www.viridiengroup.com. The presentation slides are also available for download from the website. Please note that today's presentation includes forward-looking statements. Actual results may differ materially from those expressed or implied today, relevant risk factors are detailed in our 2025 Universal Registration Document filed with the French Financial Market Authority, AMF. As usual, we will conclude with a Q&A session. And finally, a quick reminder that Viridien comments primarily on segment figures, which reflects our internal management reporting. This differs from IFRS numbers also published today due to IFRS 15 impact on our Earth data business. With that, I now hand over to management, starting with Henning, who will take you through the key business highlights for the quarter. Henning, the floor is yours.

Thank you, Alexandre. Good morning and good afternoon, everyone. Before turning to the market and our first half performance, I would like to share a few personal reflections on my first 5 months at Viridien. What has impressed me most is the quality of this company. The strength of our people, our world-class technology and the depth of our customer relationships. We are the clear market leader in 2 out of 3 of our businesses and across all 3 business lines, we hold leading technology positions. This leadership has been built over decades through innovation, technical excellence and the trust of our clients. I also believe I joined Viridien at an important moment in its journey. Over the past several years, the team has successfully transformed the company, strengthening the balance sheet, improving cash generation through the cycle and significantly reduced leverage. As a result, Viridien is now more resilient and more flexible with a much stronger foundation from which to accelerate long-term value creation. One of the things stood particularly out to me is the degree of differentiation within our technology platform. In my discussions with customers, they consistently recognize Viridien's technology leadership. Our market-leading seismic imaging capabilities help clients make better informed decisions about where to drill and how to extend the productive life of their reservoirs. This can shorten time to market while reducing the cost and risk across the exploration to production value chain. Through Sercel, we also provide market-leading seismic acquisition equipment and solutions. Accel, our latest land seismic drop node system is a strong example of how our innovation can improve both operational efficiency and data quality. AI is, of course, another major topic across industries today. What I discovered at Viridien is that we are not at the beginning of this journey. For many years, we have combined data-driven approaches with AI and machine learning analysis to analyze some of the world's largest and most complex data sets. Importantly, AI is not a stand-alone capability at Viridien. This is combined with deep scientific expertise, proprietary to physics-based algorithms and highly customized high-performance computing. This combination makes our technology commercially differentiated as it enables us to process more data, operate more efficiently and generate richer insights for our clients. More broadly, the current convergence of data, computing power and AI is exceptionally well aligned with our core capabilities. It is creating new opportunities for both within our existing markets and over time in adjacent areas where we can leverage our expertise in data, high-performance computing and digital technologies. It is still early in my tenure, and I want to take the necessary time to develop the right long-term road map. Today is, therefore, not the time to present a new strategy. However, I am very excited by the opportunities ahead, and I look forward to sharing a broader strategic perspective at the Capital Markets Day in 2027. With that perspective in mind, let me now turn to the market environment and our first half performance. I am now on Slide 3. Our performance in Q2 continued to be affected by the conflict in the Middle East and broader geopolitical uncertainty, which reinforced capital discipline among E&P companies and resulted in delays to certain product awards, particularly within sensing and monitoring. Against this backdrop, Q2 segment revenue was $232 million, while segment adjusted EBITDA was $92 million. At the same time, we continue to see encouraging signs on the commercial side. GEO's backlog rebuilt to $306 million at the end of June, 19% above the level recorded at year-end 2025. We're also seeing signs of an exploration pickup in emerging and frontier basin with accelerating demand for reprocessing and emergence of new multiclient opportunities. Importantly, based on our asset-light differentiated technology strategy, the group continues to generate positive cash despite the challenging near-term environment. Net cash flow reached $32 million in the first half supported by focused investments, enabled by the flexibility of our asset-light business model. Cash flow remained positive in Q2, while we paid our half year coupon on bonds. This enabled us to make further progress on deleveraging, with net debt, excluding IFRS 16, reducing to below $700 million mark to $692 million at the end of June. Overall, while the near-term market environment remains uncertain, our commercial momentum is improving. Our balance sheet continues to strengthen and we remain fully focused on disciplined execution and cash generation. As the results and supported by continued gradual strengthening in market conditions through the second half, we maintain our full year 2026 objective of generating $100 million of net cash flow. Turning to Slide 5. We will now review the quarterly performance of each business line, starting with Geoscience. Q2 2026 total production remained broadly stable at $141 million compared to $142 million in Q2 2025. External segment revenue was $95 million. During the quarter, some project start-ups were delayed amid political uncertainty. At the same time, internal production increased to $45 million, which means GEO delivered a higher level of activity for Earth Data, including both the processing of newly acquired data and the reprocessing of legacy data set. Commercial momentum nevertheless strengthened significantly towards the end of the quarter. Several discussions that have been progressing over the last few months, converted into signed contracts and recognized order intake. As a result, GEO backlog reached $306 million at the end of June, up 19% compared to year-end 2025 and close to our historical all-time record level. This provides stronger visibility for the coming quarters. Operational efficiency also continued to improve with total production per employee increasing by 9% year-on-year to $400,000. Overall, GEO delivered stable production in the second quarter, improved backlog and continue to achieve productivity gains. Good performance in the current market environment that directionally aligned with our 2026 objectives. Turning to Slide 6. One of the questions we're often asked is how geoscience will continue to grow from an already strong market position with an estimated market share of around 55%, our objective is not only to defend our leadership but also to broaden the addressable market by changing the nature and scope of our relationship with clients. We are increasingly seeing E&P companies move away from purely project by project -- and towards long-term strategic processing partnerships. These partnerships can take many different forms. We have 2 examples here. With Aker BP, they wanted to secure long-term access to our high-end OBN processing capabilities for multiclient projects on the Norwegian continental shelf. With one of the major international oil companies, we further developed this trend towards long-term processing partnerships through a multiyear agreement covering the externalization of all in-house seismic processing activities worldwide. For our clients, these long-term arrangements ensure access to leading subsurface imaging capabilities and high-performance compute capacity while accelerating exploration cycle plans, reducing overall risk and enabling greater organizational flexibility. For Viridien, they provide multiyear revenue visibility, deepen our integration within clients' operating models, and creating broader opportunities for growth, including the deployment of our full technology portfolio and our high-performance computing capabilities. This is, therefore, an important growth avenue for geoscience. With these strategic partnerships, we can further expand the accessible market by bringing activities that were previously formed in-house into long-term partnerships with Viridien. This is in addition to increasing our market share in the traditional way to normal project work. In doing so, we reinforce our customers' relationships, improve commercial visibility and create additional opportunities for sustainable growth. Turning now to Earth data on Slide 7. Q2 revenue increased to $76 million, up from $66 million in Q2 2025 and from $54 million in Q1 of 2026. The sequential improvement mainly reflects the pacing and progression of our multi-client projects during the quarter. As you know, Earth data revenue recognition can vary meaningfully from one period to another, depending on project milestones, government-based activity, the timing of client commitments and of course, the level of late sales. This quarter-by-quarter volatility primarily reflects industry and project phasing rather than any change in the underlying attractiveness of the business. Along with the technical quality of our data library, which is supported by a leading top surface imaging, the commercial quality of our library remains strong. At the end of June, 66% of the library net book value related to work that was either in progress or multiclient sales that was less than 1 year old and 93% of the net book value was related to work that was either in progress or data that was less than 2 years old. This highlights the relatively young profile of our portfolio and the relevance of our recent investment activity. The library is also well diversified geographically with 39% of net book value in the key basins in Europe and Africa, 30% in North America, 24% in South America, and 7% elsewhere. Overall, Earth data delivered the planned sequential improvement in Q2, supported by strong project execution while continuing to invest in a technically superior and commercially differentiated library of new data. Diversified across the world's key petroleum basins, this high-quality portfolio, together with our asset-light model, provides a durable foundation for Q2 revenue and cash -- strong cash generation through the cycle. Staying with Earth data on Slide 8, illustrates how we are positioning the business to optimize cash generation and capture the emerging pickup in our -- exploration. The activity shown here span 3 complementary areas: strategic government agreements, reprocessing projects and selective new data acquisitions. Our multiclient agreements with government in Morocco, Senegal and Egypt gives us privileged access to basins and data and established period-in where future exploration activity is expected to develop. These agreements can generate opportunities data licensing, both through the reprocessing of data in the area as well as new acquisition program. For reprocessing, we are seeing growing demand, which is typically a capital-efficient way to unlock additional value from existing data set. Projects are currently underway in Guyana, Moleson, Côte d'Ivoire, India and Malaysia, among others. These projects allow our clients to revisit exploration opportunity using our latest imaging technology, efficiently generating additional value from already existing data. For new acquisitions, we continue to invest selectively in new projects. In Guyana, the shallow water 3D project has commenced under exclusive agreement with the government. In Uruguay, the first season of the Charrua 3D survey has been completed the second phase is scheduled to begin in the fourth quarter. In Malaysia, the Langkasuka project combined hybrid streamer and OBN acquisition with high-end processing in partnership with Malaysia's Petroleum management. Taken together, these initiatives demonstrate how our asset-light differentiated technology model allows us to combine strategic positioning in frontier basin with reprocessing activity and disciplined investments in new programs. Our approach supports resilient cash generation through the cycle and enables quick exploration as exploration markets recover. Turning now to sensing and monitoring on Slide 9. The business continued to be significantly impacted by disruption in the Middle East. Q2 segment revenue was $61 million and enable -- and stable compared with the first quarter of 2026. The impact was most pronounced in land where revenue declined to $22 million from $52 million a year earlier. This primarily reflects the delayed project sanctioning and lower equipment demand across several Middle Eastern markets. Marine proved more resilient. Although activity was also affected by slower customer decision and project timing, including delay of a large OBN project in the Middle East. Our new business growth initiatives kept performing well, increasing 34% year-on-year and accounting for 32% of SMO revenues in Q2 2026. Overall, visibility at current is improving but remains limited. In this environment, we are focused on strict cost discipline, cash preservation and maintaining our readiness to respond with product activity. Turning now to Slide 10. While the current performance remains under pressure at SMO, we are also beginning to see some early signs of improvement in the equipment market. In our core market, tendering activity is expected to increase going forward. We currently see several potential mega-crew tenders in Saudi Arabia and Mexico.while a number of more traditional projects in Qatar, Saudi Arabia, Iraq, Jordan move forward as regional cash [indiscernible]. These opportunities remain subject to customer decision and market conditions. So it's too early to confirm a broad-based recovery. However, the pipeline and client discussions are becoming more effective, and this gives us great confidence that demand will gradually improve, especially from 2027 onwards. In this market, we are creating our own growth opportunities through innovation. Accel, our latest land seismic node system is gaining encouraging commercial traction. More than 20,000 channels have already been sold in 2026, including wins with customers new to the brand and a further 150,000 channels are currently included in -- quotations submitted to more than 20 customers. Overall, while visibility remains limited, combination of a more active tender pipeline and the early commercial success of Accel provides encouraging signs for the future. With that, I'll now hand it over to Jerome, who will walk you through the financial performance review.

Thank you, Henning, and good morning, and good afternoon, everyone. Let's move to Slide 12, covering total segment revenue. H1 segment revenue was $446 million, down 22% year-on-year. Data, digital and energy transition or so-called DDE segment, declined by 18%, mainly reflecting Earth data project phasing as well as softness in geoscience external revenues, while Sensing and Monitoring was down 32% impacted by continued geopolitical uncertainty as already discussed by Henning. Q2 segment revenue was $232 million compared with $274 million last year. Turning to Slide 13. H1 segment adjusted EBITDA was $168 million compared with $250 million last year, reflecting lower activity levels. DDE maintained a strong 59% margin, supported by improved geoscience profitability partly offset by lower Earth data revenue. Sensing and monitoring returned to breakeven in Q2 but remained negative for the first half, impacted by lower revenue and approximately $10 million of ForEx exchange headwinds versus last year. Q2 segment adjusted EBITDA were $92 million compared with $107 million last year. Turning to Slide 14, which presents our IFRS results. Our IFRS figures were significantly impacted by the completion of the Laconia project. As a reminder, under IFRS 15, Earth data prefunding revenue is recognized only when the final process data has been delivered to our clients. Revenue and margin recognition for ongoing surveys is therefore deferred under IFRS accounting. By contrast, our segment reporting continues to apply the percentage of completion method used before the adoption of IFRS 15. This provides a view that more closely reflects the underlying operational performance and cash flow profile of our business. In H1, IFRS revenue was $536 million, and IFRS EBITDA was $249 million compared with segment reporting, this represents a positive difference of $90 million in revenue and EBITDA. This adjustment is mostly driven by the completion of Laconia, which triggered approximately $150 million of revenue recognition under IFRS 15. This was partly offset by revenue not yet recognized on other ongoing Earth data survey that remain in the prefunding phase. At operating income level, Laconia revenue was also fully offset by amortization, resulting into virtually no impact on [ OP ] or net income. Finally, regarding the other financial results, I remind you that the negative $34 million recorded in H1 '25 included the nonrecurring refinancing costs associated with the early refinancing completed at the end of March '25. Turning to Slide 15. H1 net cash flow increased to $32 million from $10 million last year. This was achieved despite an $82 million reduction in segment adjusted EBITDA. This negative impact was partly offset by $67 million improvement in working capital, mainly reflecting our data project phasing, lower activity levels, and as mentioned in Q1, partial payments from PEMEX of 2024 of dues. H1 cash also benefited from a $34 million reduction in CapEx, resulting from lower Earth data investment partly offset by higher industrial CapEx linked to the expansion of our U.S. HPC data center. The cash cost of debt was mostly unchanged while other cash items contributed a further $3 million out of which $1.5 million of lower [indiscernible]. Overall, this performance demonstrates the selectivity of our investment approach and the flexibility of our asset-light business model. Finally, a few words on debt. Turning to Slide 16. We continue to make progress on deleveraging. Gross debt, excluding IFRS 16 declined to $864 million at the end of June from $908 million at year-end 2025 and $1.18 billion 1 year earlier. During the first half, supported by a cash generation positive, we redeemed $41 million of USD notes at 103% versus par. Net debt, excluding IFRS 15, is now below the $700 million mark, standing at $692 million. compared with $735 million at year-end 2025 and $856 million 1 year ago. As you know, further deleveraging remains our top capital allocation priority. With that, I will hand back to Henning for the outlook.

Thank you, Jerome. Turning to Slide 18. Let me conclude with some perspectives and outlook. The geopolitical situation remains uncertain, and we continue to monitoring developments closely. Against this backdrop, we see encouraging signs of recovery in exploration activity. As already in the first half of 2026, we have seen a significant pickup in tender activity, over 50% year-over-year for our GEO business, especially around reprocessing. This was particularly visible towards the end of Q2. Our strong new booking momentum is expected to continue. At the same time, governments are reopening and promoting prospective basin while E&P companies are positioning to secure more acreage and expanding exploration activity. This is promising for our EDA business. Beyond the near-term uncertainty, the underlying fundamentals supporting demand for high-end price may continue to strengthen. E&P companies remain under pressure to replace reserves. Global energy demand continues to grow, and energy security remains a strategic priority. At the same time, increasing interest in deepwater exploration is driving activity in more complex geological environment. These trends reinforce the need for advanced subsurface imaging technologies that reduced exploration risk, improved decision-making and shorten the time from prospect diversification to discovery and first oil. This is a perfect match for Viridien. Overall, we expect the market conditions to strengthen progressively through the second half of the year with further acceleration into 2027. At the same time, we remain focused on disciplined execution, cash generation and strengthening our balance sheet. As a result, we will maintain our full year 2026 objective or generating $100 million net cash flow. As a reminder, this objective includes the planned Phase 1 expansion of our U.S. high-performance computing infrastructure and assumes normalized working capital, including the collection of outstanding receivables from PEMEX. With that, we are now happy to take your questions.

[Operator Instructions]. And the question comes from the line of Jean-Luc Romain from CIC CIB.

The question relates actually to PEMEX. I didn't get the figure you mentioned in the contribution of PEMEX in the change in working capital. How much is still due by PEMEX compared to what they were going before the payment?

It's Jerome. It's normal that you did not hear the figure because I dId not give. But I mean, I basically, what I can say and [indiscernible] new investors. You remember last year, we already collected some other news from PEMEX, which we used to repay our loan, which we took at the construction -- the time of the construction of our -- our U.K. data center. That's basically the order of magnitude that I can give you. So $30 million, $35 million. And you have assumed in the $100 million net cash flow guidance, more or less EBITDA amount which in time will be used to cover the expansion of our U.S. data center. And out of this $30 million, $35 million which is in the [ $1 million ] cash flow guidance. We already collected some of this -- half of it. So we are left with the numbers, which you can figure out, but we are doing some good progress with PEMEX on the discussion of these values. So some good confidence that we will collect the full outstanding before year-end. And on that note also, and I will let expand on this one, we actually decided to start working with PEMEX.

Yes. I mean, that's correct. We have a confidence in collecting the receivables has meant that we have restarted the work with PEMEX.

And a question comes from of Mick Pickup from Barclays.

A couple of questions, if I may. Can we just talk about geoscience and the external revenues down year-on-year? I know you're doing more internal production, but what's driving external demand. And secondly, for a while now, we've been talking about an exploration cycle, that's going to start activity move in, but we're still seem to be in the starting blocks. So what signs are you looking for to give us confidence that it's actually happening?

Yes. Thank you, Mick. So I can take the GEO question first. So yes, our external revenue [indiscernible] in Q2. This is obviously reflecting our a little bit lower bookings over the last few quarters, but it's also reflecting a little bit wait-and-see approach from some clients at the start of the year. Both in relation to the uncertainties in the Middle East. And also, I guess, they've set their budgets at the time when oil price was a little bit lower. It's also the result of clients reshaping their organizations for exploration and gearing up more work. We do see that, that has now changing. So as I said in my prepared remarks, we see commercial momentum improving greatly towards the end of the quarter. We had a great booking quarter and reaching the backlog rate $306 million, which is 19% up year-over-year and close to our all-time high. We do see that our tender activity is up as well, more than 50% compared to the same period last year on processing or GEO. So we definitely see that the early signs of exploration pickup is there. And we expect that to continue as well. We have seen into our third quarter now as well [indiscernible].

Another signal on the -- for exploration being back. When we say exploration being back, we usually focus on frontier exploration, which we know have been subdued for some years. And through our geoscience division and especially the amount of work we do on reprocessing on frontier projects. We see that our clients are looking more into those frontier/emerging areas. And as you know, they usually start with reprocessing because that's the cheapest way to get a further better understanding of an area before committing into a new survey either through multiclient model or [indiscernible]. Do you want to say anything on the MOU as well? Because I think it's also a good sign of exploration.

Yes. So we do see that a lot of our customers are signing MOUs with governments in basins. This means for us, I think that there will be a lot of reprocessing of data coming. When we talk to -- when I talk to the customers, they definitely expect that and telling us to sort of be ready for that. So we are starting to see all the time of that as well as through our increased bookings. So the MOU activity will probably first create opportunities for reprocessing of data and then later, new acquisitional data is needed.

And can I just put there in Africa. So you talked about more reprocessing, but obviously, the first question was segment revenue is down, and your backlog is up 19%, but it's flat year-on-year. So what's missing if this reprocessing is coming through?

Yes. So I think the change in or the increase in reprocessing or the change in backlog, we have seen over the last part of the second quarter, right? That's why we're expecting revenues to be going up going forward. What we reported as revenues in Q2 is obviously the backlog that we had going into the quarter, which was a lower number.

But you should expect Q3 and even more so in Q4 GEO sales for the new back to what you saw towards the end of '25. So -- above onward and clearly closer to [indiscernible]. The machine is not broken in contrary.

Yes. And at the same time, just to add to that, we have -- our activity in GEO has been fairly stable. So we have been doing a lot of multiclient processing, which obviously is getting ready for that part of the business as well.

And the question comes from of Guillaume Delaby from Bernstein.

Yes. Because it is such a critical question, I'm going to reask the question which has already been asked by maybe in a different way. So globally, geoscience backlog at the end of June 2026 is more or less the same as June 2025. Logically, as Jerome just said, we should have geoscience revenue in Q3 and Q4, which are back to 2025. Now if I understand correctly, the big difference today versus 1 year ago is that we have more reprocessing of frontier projects. that some clients are signing MOUs with governance. And I think and I didn't understand. You mentioned 15, 1-5 or 50, 5-0, so please, increasing tendering, Am I correct? And maybe did I miss last argument?

Yes. So you are correct. It's 5-0, 50% more tender activity we see in our...

So it's 5-0, it's 5-0?