Archer Limited

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Archer Limited first quarter 2023 earnings release call. Throughout today's presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-on telephone. Press the star key followed by zero for operator assistance. I would now like to turn the conference over to Doug Skindle, CEO of Archer Limited. Please go ahead, sir.

Thank you and good morning ladies and gentlemen and thank you for joining this conference call for the first quarter 2023. Archer's chief financial officer Espen Johanger is joining me on today's call. In today's call I will touch upon the key highlights and summarize Archer's operation for the first quarter. Espen will thereafter walk us through the financial section and the outlook. Towards the end of the call we will open the line for questions. Moving to slide two, I would like to note that the information provided in today's call include forward-looking statements as well as non-GAAP financial measures. Forward-looking statements do not guarantee future performance and involve risk and uncertainties. Actual results may differ materially from projections. Further information about these risks and uncertainties are set forth in the most recent annual report for the year ending December 31st, 2022. Next slide, please. I am pleased that we are growing and delivering strong financial results in the first quarter of the year. The growth is driven by solid operational performance and improved market conditions. Revenue in the quarter of $266.6 million represents an increase of 22% year over year, despite unfavorable movements in the foreign exchange rates. Every day for the quarter came in at $25.2 million, representing a 55% increase compared to last year. First quarter is typically a soft quarter for our operations due to seasonality and less operating days. However, as mentioned, we are pleased to report strong EBITDA generation in accordance with our financial guidance. As I will come back to later on the call, we had a busy quarter and managed to reduce our net interest bearing debt considerably. The reduction in NIVD was of course explained by a large extent by the received equity issuance in March. but also our operational performance, efforts and focus on cash management contributed to improved liquidity and reduction in NIBs. The performance was $18 million ahead of projections provided during our equity race. On the back of the solid quarter, a positive view on the market and our contract backlog, we are on track to reach our financial guidance for 2023. We integrated Romara Brado in the quarter and strengthened our wealth services division capabilities and product offering through this acquisition. We also joined forces with Baker Hughes, UK coil tubing business at the end of the quarter. And both of these transactions are accretive to Usher and improves our service offering. Slide four, please. In the first month of 2023, we have successfully refinanced 576 million of our debt. We have worked with existing and new stakeholders to protect value for all parties involved and at the same time provide a solid platform for future growth. The new financing structure includes a new 250 million first-in-bank facility provided by DNB, SEB and Essabank, where Essabank is a new bank in the syndicate. A new 200 second-in-bond. We converted the CB of $15.9 million to equity. And lastly, an equity raise of about $100 million, of which our shareholders contributed with more than 50% of new capital, and our two largest shareholders remain Paratus Energy and Hemant. Performer net debt after the refinancing completed is estimated at $395 million. Equally, an opening leverage of 3.5 based on midpoint guidance for 2023 EBTL. The new financing has maturity in 2027, offers competitive cash interest costs estimated at 7.5% over the period. This estimate is based on our financial projections and the SOFA forward curve. Including the payment in kind element of our bond coupon, we estimate that our total borrowing costs adds up to about 10% over the four-year period. We regard this as competitive pricing when we look at other players in the market. The new financing package will allow us to take advantage of the next oil service upcycle. We will continue to focus on our possible growth and deleveraging, and at the same time execute on accretive bolt-ons within the wealth service segment.

Slide 5, please.

The growth in revenue and EBITDA can be further split between our three reporting segments, platform operations, wealth services, and land drilling, as per the graph on slide 5. The growth compared to previous years is evident in all segments. Focusing on Ebitda for now, we noticed that the 38% increase in Ebitda for our platform operation segment is the lowest year-over-year growth. Wealth services had a growth of 59%, while land rearing grew by 120% compared to last year. The most growth in revenue in Ebitda in the platform operation is muted by unfavorable foreign exchange movements in NOC and Pound. In the first quarter, revenue within the wealth service segment continued to increase and ended at $68.7 million, a 5% increase over the previous quarter. Romare Bravo is included in the quarter, while the U.K. culture and business acquired from Baker Hughes will only impact financials from April onwards. Call-through from the increased revenue combined with margin expansion led to a 16% increase in EBITDA over the quarter, ending at $7.9 million. Adjusting for the integration expenses for Humara and Abrado, classified as exceptional items, that adjusted EBITDA came in at $8.3 million. The increase in revenue is a result of decreased demand for our products and services, and we recorded our first wildland operation in Brazil. In addition, We expanded our presence in Guyana by establishing a workshop facility to better serve our customers there. Before moving onward with the slides, I wanted to brief a touch base upon the acquisition of Romar Brado and Baker UK coil tubing business. The coil tubing pumping business fits well with our brownfield and P&A strategy and allows us to broaden our integrated P&A services in the UK. While Romar Brado expands our capabilities within work over operation and well abandonment Both acquisitions are highly accretive to our financial metrics. These acquisitions, combined with in-house product development and innovation, have resulted in the broadest and the most advanced innate tool offering within the industry. Here we are taking the opportunity to buy at very accretive EBITDA multiples. For example, Baker needed to divest and could not and would not sell to any other provider of coil tubing in the UK. There are similar opportunities like Romara, Brado and Baker use coil tubing business out there. There are not many buyers, but there are several owners looking to exit. Archer has a clear strategy of participating in the consolidation of end services. Next slide, please. Revenue from platform drilling, engineering, and our modern rigs were fairly stable, around $120 million. When looking at the operational revenue, which excludes low margin reimbursement revenue, the increase over the quarter was 3%. Compared to Q1 2022, the operational revenue report in U.S. dollars was fairly stable. Platform operation segment is most impacted by movement in NOC and pound for its movements. Compared to first quarter previous year, the pound has weakened by 9% and the NOC has weakened by 13%. As such, the revenue report in U.S. does not reflect underlying increase in activity within reported segments. EBITDA in the quarter came in at 12.7 million, a reduction of 15% compared to the previous quarter. This is to a large extent explained by a warm-up effect from rate escalations, including our Q4 EBITDA for platform operations. The increased underlying activity is partly a result of one additional drill rig commencing drilling operation in Norway. Our two model rigs that are critical for multi-RP&A projects, Emerald has been in New Zealand and will, during this year, return to the UK. Topaz started the three-year P&A program in the UK late Q1, and we will see the full impact of this operation in Q2. We believe these two weeks have significant potential within the P&A programs over the next decade. Next slide, please. Our revenue for land-growing was stable at $80 million compared to the previous quarter. Also, EBITDA was fairly flat at $7 million compared to the previous quarter. We incurred $1.8 million in severance payments in the quarter related to dome manning and retirement, mainly related to reduced work over activity, which will be offset by an additional drilling rig. Operation in Argentina is solid, with increased bonuses and less non-productive costs. We have upgraded another drilling rig to high spec in the quarter, and the rental of one of our rigs in Bolivia commenced. Inflation in Argentina remains high. we are in general accustomed to ensure inflation is compensated for in our customer contracts. However, Argentina continues to experience political and financial instability. And with the election coming up, we are expecting to see more volatility going forward. With that, I hand the words over to Espen.

Thank you, Dag. Looking at slide nine, total revenue for the first quarter amounted to $264.3 million. We experienced increased activity across our business segments in the first quarter, leading to 22% increase in overall revenues, despite the mentioned impact from unfavorable foreign exchange movements in the quarter. EBITDA before exceptional items for the first quarter grew by 30% compared to same period last year, ending at $27.2 million. Exceptional items in the quarter of $2.2 million mainly relate to severance payments related to downmanning and retirements in Argentina, including $0.3 million related to integration costs for Romar Abrado. Sprung reported a DCA of $25.2 million based on increased performance and higher activity. All the financial items of negative $15.7 million relate to foreign exchange losses of $9.1 million and negative market-to-market adjustment for the shares in KLX Energy Services of $6.4 million. A significant portion of the foreign exchange loss relates to internal funding in NOC between Bermuda and Norway and has no cash effect. Net income for the first quarter ended at negative $17.9 million compared to a positive result of $13.9 million last year. The net result was negatively impacted by the mentioned unfavorable foreign exchange rates and the market-to-market adjustments for KLXE. Next slide, please. The balance sheet as per March 31st does not reflect the completed refinancing, which was not finalized until end of April. The increase in cash over the quarter reflects the equity issuance from March of $100 million. This proceeds was used to repay our multi-currency loan facility in combination with the proceeds from the new loan facility and the bond issue. both which was closed in April and hence not reflected end of March. Net interest in debt came in at $387 million, a reduction from 506 from the end of fourth quarter 2022. The reduction in need includes the impact from the equity issuance, but neglects certain fees and costs which we incurred after March 31st. So, we estimate that if all aspects of the refinancing would be reflected, the pro forma need would be a bit higher, around $395 million. The book value of our equity was $160 million end of first quarter, which does not include the conversion of the subordinated loan, nor the perceived of the repair offering, which was completed in April. The loan facility, which we refinanced in April, is recorded at long-term debt in the first quarter, aligned with US GAAP. Slide 11, please. We are reiterating our financial guidance for 2023, and we confirm we are on track to reaching these targets. We have a solid backlog and we see a considerable improvement in our value services segment and are expecting to see a 65 to 75% growth in EBITDA for 2023 in this business segment. We predict that this segment will account for more than 40% of our total EBITDA this year. We expect a moderate growth in our platform operation segment in 2023 over 2022. The expectation for our land drilling segment is to grow a BTA by 25 to 40% in 2023. We have a better backlog and contract coverage for our rigs compared to 2022. and remains optimistic that Argentina's oil and gas infrastructure projects will increase rig demand going forward. Archer expects continued solid improvement in financial performance in 2023 on the back of the strong backlog and market position. Revenues for 2023 is expected to increase by 10 to 20% compared to 2022. EBITDA for 2023 expected to increase 25% to 35% more over 2022. Growth primarily in second half of 2023. COPEX between 3% to 4% of revenue in line with previous years. With that, I will hand the call over to the operator for any questions.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time.

One moment for the first question, please.

So it seems like we don't have any questions at this time. And I would like to turn back the conference to Doug Skinlow for closing comments.

Thank you. We appreciate everyone joining us for this quarter's call. We look forward to speaking to you next quarter.

Thank you and have a good day.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.