Viridien S/Adr

good day and thank you for standing by welcome to the cgg q1 2024 financial results conference call at this time all participants are in the listen only mode after the speaker's presentation there'll be a question and answer session to ask a question during the session you will need to press star one and one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question please press star one and one again Please be advised that today's conference is being recorded. I would now like to hand the conference over to CGG. Please go ahead.

Thank you, Sean. Good morning and good afternoon, ladies and gentlemen. Welcome to this presentation of CDG's first quarter of 24 results. The call today is hosted from Paris, where Mrs. Sophie Zurchia, Chief Executive Officer, and from Los Angeles, where Mr. Sean Serba, our crew CFO, will provide an overview of the quarter results, as well as provide comments on our outlook. Let me remind you that some of the information contains forward-looking statements, and therefore that may change at any time. 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 this Q1 2024 conference call. I would like to start by first recognizing Christophe's numerous contributions to CGG. After 28 years in the company and holding various key finance, business, and commercial leadership positions, he will be retiring in a few weeks. All the best into your future endeavors, Christophe, and thank you for the great work. We're now moving on to slide two. We're off to a good start in 2024. Overall activity was strong in Q1 across all our three business lines and across all geographic locations. Exploration activities continue to progressively pick up globally with interest from all clients' profiles in all geographies, including in an increasing number of frontier areas. To respond to projected supply demand balance, our clients are also continuing to accelerate their field development programs where ocean bottom node technology which requires advanced imaging, is establishing itself as the reference in mature basins across the globe. The Gulf of Mexico and Norway remain very active, sustained by demand for incremental barrels, which is driving increased high-end imaging and OBN activity. The Middle East and North Africa are active, while Asia-Pacific is picking up nicely with increasing IOC presence. Looking at CGG in Q1, I am very pleased to report our best first quarter since 2018. Overall, the quarter was strong with excellent performance and $13 million in net cash flow generation, despite $20 million paid for our vessel contractual commitments, which highlights the benefits of our decision to become an asset-light company. Q1 revenue reached $273 million, up 30% year-on-year. Geoscience was up 11% year-on-year at $88 million. Global activity remained strong, supported by demand for high-end large projects and NOCs increasing activity. Earth data was up 50% year-on-year at $97 million, driven mainly by broader geographical demand. Sensing and monitoring was up 35% year-on-year at $89 million, with high deliveries of land equipment this quarter. Segment EBITDA was up 58% year-on-year at $106 million, including $16 million of penalty fees from vessel commitments, a 39% margin. Now on slide three. There were two positive post-closing events in April that I would like to highlight. First, the S&P global ratings upgraded our long-term debt, recognizing our commitment to deleverage our balance sheet. And second, the settlement of our long-lasting dispute in India for a net amount of around $13 million. These are positive events for our financial roadmap. Going on to slide four. DDE segment revenue was solid this quarter at $185 million, up 28% year-on-year, with growth in both geoscience and earth data. Profitability improved year-on-year to 56% EBITDA margin, while still being impacted by penalty fees from vessel commitments. Let's go on to the business line now. On slide five, geoscience external revenue was $88 million in Q1, up 11% year-on-year. Geoscience had very solid activity led by high-end work in all regions. The market continues to strengthen, driven mainly by increased activity in infrastructure-led exploration and field development. Backlog at $227 million is up 23% since the end of last year, thanks to catch-up in order intake. Slide six. Following 18% external revenue growth in 2023, geoscience grew 11% into one year-on-year. Increasing demand for our high-end technologies along with the increasing size of projects drove the solid start of the year for geoscience. Use of our unique elastic for waveform inversion is expanding geographically, increasingly providing value in all basins globally across all geologic settings, including those that are less complex. In definition and fidelity, we can also apply the latest artificial intelligence and machine learning techniques with our expert modifications to extract insights that accelerate the speed and accuracy of structural and stratigraphic interpretation. The picture on this slide is a very nice example of the added value of AI to detect sand injectites, and they're in green on the picture, in the Norwegian North Sea. which are expected to be oil-bearing. Combining the best geoscience technology with the best data science technology is a powerful combination and fits CDG's strengths very well. Looking at our low-carbon businesses in CCUS, we see increasing demand in reservoir screening along with monitoring design, and in minerals and mining, we used our high-end imaging technology to successfully map an oil body of interest deep below the surface in Australia to identify new extraction opportunities. Slide 7. We continue to advance the value of seismic for reservoir management. Reservoir engineers are interested in understanding small reservoir changes in time, which has historically been a challenge. Full waveform inversion is increasingly being applied successfully in this space. And this example is offshore Brazil. and it shows our advanced 4D full waveform inversion technology clearly distinguish the producing and water injection layers in the 4D response, helping reservoir engineers adjust their reservoir models and optimize production. Now going on to Earth data, slide 8. In general, we see our clients starting to expand the breadth of their focus areas. especially IOCs, international oil companies, who are regaining interest and becoming more active in frontier areas. Q1 Earthdata cash capex was $50 million, up 79% year-on-year, driven by a large portfolio of well-funded ongoing projects. Pre-funding revenue was very strong at $58 million, driving our pre-funding rate to 116%. After-sales were $39 million this quarter, up 32% year-on-year, mainly driven by active projects and interest in South America, North Sea, and Africa. Slide 9. With this strong level of pre-funding, our portfolio of ongoing multi-client projects is growing larger and geographically broader in scope. This quarter, we completed our second Gulf of Mexico node project ahead of schedule, despite initial weather delays. In Asia, we completed our 2D survey in Malaysia and started a new survey in Australia. We continue the expansion of our CCUS subsurface data packages in the Gulf of Mexico and in the UK, mainly for screening applications, and the recent CCUS Lease Round in Norway fits very well our data library. Now I'm sensing and monitoring slide 10. Ascenting and monitoring segment revenue at $89 million was stronger year-over-year this quarter, up 35%. The growth was mainly supported by land equipment sales at $39 million, while marine equipment sales remained stable year-on-year at $34 million, driven by demand for OBN equipment. Sales from our new businesses were stable at $11 million. And at this level of revenue, the EBITDA margin of the sensing and monitoring business line was 11%. Now with highlights on slide 11. During the quarter, SMO sold its first 528 land acquisition system together with a new V564 vibrator electronic system. The 528 land acquisition system includes several new features designed to improve recording capacity reliability, productivity, and data fidelity for these challenging survey requirements. We had significant deliveries of our GPR 300 node this quarter in Europe, as clients appreciate the quality of our unique sensor, which enables better imaging. In our new businesses, we deployed a commercial railway monitoring solution during the first quarter And it is worth noting that we see a progressively increasing portion of our equipment, standard equipment, going to a new group of clients for application outside the oil and gas industry. Let me now give the floor to Jérôme for more comments on our financials.

Thank you, Sophie. Good morning and good afternoon, ladies and gentlemen. I will comment the Q124 financial results, starting with the P&L on slide 13. Our segment revenue was up 30% year-on-year at $273 million, which was our best first quarter since our decision to become an asset-light company in 2018. As mentioned by Sophie, all group businesses were up this quarter, with geoscience growing in line with the ENP capex, EDA driven by both higher pre-funding and after-sales, and SMO benefiting from strong land system deliveries. The respective contributions from the group businesses were 32% from GEO, 35% from EDA, and 33% from the SMO segment. Adjusted segment EBDA was $106 million, despite 16 million fees related to vessel underutilization. Segment EBDA was up 59% year-on-year, at a margin of 39%. Segment EBDA was at $103 million, or 56% margin, and our SMO segment EBDA was at $10 million, or 11% margin. Adjusted segment operating income was $29 million, or 11% margin. And with an IFRS 15 adjustment of negative $8 million, this leads to an IFRS operating income of $20 million for the quarter. Net income was close to breakeven at minus $3 million. Moving on to slide 14, Q1 24 segment operating cash flow, which is a big year minus tax, but before change in working capital, was at $102 million. This quarter, we had no change in working capital, with the negative impact of our revenue growth offset by the tight management of the CERCEL inventory, showing the first benefits of the transformation plan that we initiated in CERCEL at the end of last year. Q124 CAPEX was 58 million, up 11% year-on-year. Industrial CAPEX was 4 million down, back to a more normal level, while 2023 included 18 million related to the construction of the new HPC data center in UK. Research and development capex was 4 million, quasi-stable, and our multi-client cash capex was 50 million, up 22 million versus last year, driven by our first node project in the Gulf of Mexico. The funding ratio remained very high at 116% this quarter. After 2 million of other financial items, 12 million lease repayments, 3 million discounted operations, the net cash flow ended up for the quarter at $30 million. As a reminder, this 30 million net cash flow does not include the circa 30 million settlements from ONGC, the Indian litigation that Sophie referred to initially, that we received early May. Moving on to slide 15 on the group balance sheet, the group liquidity at the end of March amounted to $350 million, excluding $90 million of undrawn LCS. Before IFRS 16, growth debt was close to $1.2 billion, and group net debt was at $858 million. After IFRS 16, group growth debt was close to 1.3 billion, and net debt was $966 million. Segment leverage ratio of net debt to segment EBDA improved to 2.2 multiples at the end of March 24. I now hand the floor back to Sophie for the conclusion.

Thank you, Giro. As a summary, I'm very pleased with our first quarter performance. We continue to see gradual improvements in our core markets, abide with continued volatility quarter to quarter, especially in SMO and EDA after sales. Overall, we see a positive dynamic in our backlog and a higher level of client interactions, which increases our confidence in delivering our 2024 objectives. And in our new businesses, While they're still in the early stages of development, increasing market interest and early feedback from our new clients is building confidence in our unique value proposition and our ability to develop meaningful businesses in the low-carbon markets of CCUS and minerals and mining, as well as outside of energy in the HPC and cloud solutions and infrastructure monitoring markets. Thank you for your interest, and we're now ready to take your questions.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, if you would like to ask a question, please press star 1 and 1. We'll now go to our first question. One moment, please. And your first question comes from the line of Daniel Thompson from BNP Paribas. Please go ahead.

Hi, good evening. Thanks for taking my questions and congrats to Christoph on the retirement. Firstly, Sophie, if I could just touch on the point around the IOC demand and that sort of coming back. And I think you said previously that that's kind of been the one missing ingredient in this upcycle. for the seismic companies. So I wondered, when did you first start seeing the demand from IOCs coming back? How does it compare to previous years? And is it one or two of them or all of them? And lastly, when can we start to see the benefits flowing to CGG? And then the second question is just on the cash flow. You've left guidance unchanged, but obviously we've had a very good Q1 and then combined with the ONGC settlement. I was just sort of wondering on what your expectations are for the rest of the year in terms of cash flow and particularly working capital as you've left that guidance unchanged. Thank you.

Yes, thank you and good evening, Daniel. Thanks for the great question, as usual. So the first comment on the more macro environment, IOCs actually have never really left. They've always kept portfolios in frontier areas, but kind of some of them had put them more in the dormant mode and had made comments like they wouldn't go into new countries and things like that. So we're starting to see them this year break those paradigms and so we're seeing some IOC who said we won't go into any new countries starting to enter new countries so I'd say really this year marks a bit of a broader interest from pretty much across the board so obviously as you would know the American IOCs were always as of last year already looking more broadly and initially when you look at broadly it doesn't cost you a lot of money because it is more acquiring sometimes just 3D seismic data, all the data, looking, evaluating. So you can start doing those things a bit cheaply under the radar. And I think a lot of that happened last year, and this is becoming more visible. So I would still add a caveat to that, is that they still remain very disciplined, right? So you'll see them focusing on, say, Suriname. You'll see them focusing on Namibia, Egypt. But more and more, we're seeing, say, Malaysia emerge. We're seeing countries like Uruguay, which is sort of an equivalent to Namibia on the other side, starting to emerge. Brazil definitely saw the last bead run, good interest in the Pelotas area. So I think last year, maybe undercover, more work was happening that was visible externally, but it is becoming more visible this year. And on the cash flow side, I will let Jerome answer the question.

Thank you, Danielle. So, honestly, it's a bit early to upgrade the cash guidance at this stage. To be fully transparent, we were actually contemplating a potential but non-budgeted investment in our library. And the good news on ONGC could help partly fund this investment. So again, a bit too early, and I think we'll provide more details in July for future results.

Okay, thanks. Understood. I'll turn it back.

Thank you. Once again, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. We will now take the next question. And your next question comes from the line of Babis Libak from OdoBHF. Please go ahead.

Yes, good afternoon. Thanks for taking my question. A special word for Christophe when I started. He was already there. And I wish for him, let's say, a good new life. A question, let's say, from my side regarding, you already answered part of this question, but regarding, let's say, the cash coming from the ONGC settlement, if I understand quite well your answer, this cash will be used as, let's say, a capex and not to reimburse part of your debt. Please correct me if I'm wrong. And second question regarding your target in terms of a petaflop. What is the target that you have in mind for the end of the year and for the next three or four years? Because we clearly see that there is an acceleration of appetite from IA and so on. What do you have in mind in terms of target of petaflop from your side? Thank you.

So maybe I'll still thank you and good evening, Baptiste. I might actually make a comment still on the cash side. I think really what you need to take away from our response is that it's a little early to really define exactly where we'll land. So we have a few moving parts and we just want to be cautious at this point in time and not change the guidance. And Jérôme can add later on. On the petaflops, this year we're not going to do a huge increase. Last year, if you remember, we increased our petaflops by 50%, 5-0 from 350 to 500. And the reason we did that is as we invested into a new center, we decided to upgrade and change a lot of the material that was and the computing that was in the old center into the new center. So that was a big step up. So therefore, this year, we don't expect that number of petaflops to increase significantly, still around the same number, maybe 5% increase to 530, somewhere along these lines. But I think as of next year, we'll continue the ramp up, and we have defined sort of a five-year roadmap, and you should see us definitely going into the 600 and 700 petaflops in the next few years. And it's a bit of a, there's always a balance investing by what do we need for our computing. We're looking of course at our capex and our profitability. So we're putting all these elements into the equation and keep in mind as well, we work on our efficiency gains. So we constantly work at optimizing our workflows so that we could do more with the same amount of petaflops. So all these things are happening in parallel and every year we reevaluate what we need for the following year. We did a big step up in 2023, and therefore, this year, we don't need to do such a big step. So, Jerome, did you want to add anything on the cash?

Thank you, Baptiste. No, not much further than what I said. I mean, obviously, if this investment does not materialize, the additional cash will be used for for paying down more debt either through debt buybacks or at the time of the refinancing as per the financial roadmap that we outlined in May. So both options are on the table at the moment and there's a bit of moving pieces so that's why we don't want to commit at this stage.

Thank you, Jérôme.

Thank you. We'll now go to the next question. And your next question comes from the line of Kevin Roger from Kepler Chauvreau. Please go ahead.

Yes, good evening. Thanks for taking the time. And again, on my side, congrats to all the work that you have done those years at CDG. It has been always very helpful. So thanks for all the things that you have done, Christophe. If I may come back on the guidance and maybe on a more broadly side, in terms of top line, EBDA, because basically you confirm the full guidance, but you have a Q1 that is probably better than expected. You just mentioned, Sophie, that the international oil companies are in a way coming back a bit. So why don't you increase the full guidance on top line and EBDA if you have seen those changes? those moves recently on the industry. And the second question is also on the industry. Two of your direct peers, PGS and TGS, are now very close to their merger. Have you seen any change in the industry behavior, even on their side, on the client side, as we are moving close to their merger? Is there any change in the industry behavior? Thanks a lot.

Thank you, Kevin, and good evening. So why not change the guidance? I think we're in Q1. It is a little early and we, as you know, geoscience has backlog and we have decent visibility, so we're confident that geoscience will continue that sort of gradual increase through the year. We do have continued volatility both in Earth data and in SMO because in Earth data, again, Sequencing of the after sale is not linear, unfortunately. So we had a really good Q1, maybe Q2 is not as good, but we still feel we are on our trajectory. And sensing and monitoring has that element too, because it's made all the recurring business, if you want, which is the sort of the spare parts for the install base. But then you always have this sort of larger deals that could be on a quarter and not on the next quarter. So we do expect that quarterly volatility. So I wouldn't draw a straight line again, but we're increasing 30%. We're not going to increase 30% four-year, right? So yes, things all fell in place. Many good things fell in place in Q1. But it is early to draw a line for the four-year. We're still confident about the four-year. And then I guess in Q2, it will be a good time to refine that trajectory for the year. So that's the first question. On the PGS-TGS merger, we certainly see a change in behavior of TGS, which is a logical change. As they've become asset-heavy, the natural thing for them to do is to utilize the assets on their multi-client. So there's been a definite trend as of them acquiring MaxEyes. to utilizing their own OBN acquisition on their projects. And we do expect to see the same happening on when they embrace PGS, that they start wanting to use PGS vessels on their multi-client survey. So that's one change of TGS behaviors, which is totally fair and logical. The second change, we do see clients a bit concerned because it creates a larger company. And as a result of that, some clients would tend to favor perhaps a CDG, which is, again, in a setting like that where we've got two large companies merging, that clients get concerned and want to make sure there's competition out there. So you'll see, I guess you'll see the procurement organization of the clients start trying to spread the work a little differently.

Okay, thanks a lot for that.

Sure. Thank you. There are currently no further questions. I will hand the call back to CDT. Thank you very much.

Thank you for attending. Daniel has one more question. One more question. Thank you.

We will now go to the next question. One moment, sorry. Daniel, your line is open.

Hi, sorry, thanks for letting me jump back in. I did have two further questions, if I could. Yeah, Sophie, I just wanted to give you the opportunity to maybe talk a bit about the two very recent announcements Firstly, the CCS alliance with Baker Hughes, you know, any more color on what you're targeting there and sort of timelines and the firmness of that agreement. And then, of course, the launch of the AI cloud solution. Yeah, just how that sort of feeds into the beyond the core growth story. And then secondly, just on the SMO optimization plan that was outlined the last quarter, has there sort of been a bit of progress there in delineating the sort of cost savings that we can expect, and would any of that sort of hit in 2024, or is that more a 2025-plus story for the margins and SMO. Thank you.

Thank you, Daniel. So on the first question pertaining to our new businesses, so the Baker Youth CGD announcement is very exciting. It actually has been driven by both companies seeing the value of one plus one being more than two. So we each have our strength and the idea was to be able to provide a larger part of the workflow. So Baker Hughes, of course, as you know, is all in the subsurface. They actually have quite a number of elements around the surface transportation of CCUS, compressors, and things like that. And we're, of course, sort of best in class when it comes to reservoir characterization. And so we believe the alliance of the two is very powerful. So just to remind you what CDG is focusing on right now, we're focusing on that imaging characterization of the reservoirs, and we're focusing as well on the monitoring, so the modeling of the margin. What will you need to put in place to monitor that reservoir in the long term? And so there's a lot of modeling associated to that. And then possibly installing the sensors and CDG sensors to be able to do that in the long run, which complements really nicely with Baker. So our plan is to start targeting clients where we're very recognized and strong, the two of us, and see if we can get take up for those combined offers. So this early days, we're very excited by what this entails. And our game plan is to be very targeted with the number of clients where we feel we can make a difference. The launch of the AI cloud is just a step forward into our strategy to be able to provide outcome as a service in terms of cloud services. So we're trying to target a sort of a niche market where we think it's a combination of need of super intense high performance computing is required. but also where we can add value by helping the client optimize their workflow, optimize their algorithms. It's a bit of a combination of helping them optimize the outcome. And we've chosen a number of verticals, and one of them is the AI, not AI broadly, but the inference. And the inference is once you have a trained model that you actually run instances of that trained model. So we believe that requires computing. and that we can make a difference there. So that's just that step forward. We have a few clients in the actually biosense life science space and then in the AI space that we're pursuing. So that's for beyond the core. Now going on to the sensing and monitoring optimization plan, as you would imagine, we're looking at pretty much everything and some are going to be quick wins and others are going to take longer. So some of the quick wins is around inventory management. So just take one thing which is safety stocks. Perhaps we were too cautious on the level of safety stocks we were keeping or the level of inventory we were keeping. So we visited that so there will be immediate benefits that Jerome commented already on Q1. But also there are things that are a bit longer like some of the you know, some of the costs that are in the structure that we're carefully identifying. And then perhaps those will take a little bit longer to realize, but certainly expect a chunk. And this has been sized. And I think we did commented on that last quarter. And we think part of it, say, call it half or part of it will be this year and the other half will be next year. Jerome, you want to comment on which number we gave last quarter?

I think we... Yeah, so we said between 20 and 30 million benefit to the P&R, to the EBDA. And we could add another 20 million on the cash by a tight management of our working capital and then maybe a bit of capex as well that we can play with. So it's the full benefit, I would say, in 25 of 50 million that we can achieve for the cell-cell transformation.

Perfect. Thanks for the call and good evening.

Thank you. Thank you. There are currently no further questions. I will hand the call back.

Yes, thank you very much. Thank you for the great questions and thank you for attending and I look forward to future interactions in the coming weeks. Good evening, everyone.

Good evening, everybody.

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