Viridien S/Adr

Good day and thank you for standing by. Welcome to the second quarter 2024 financial results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you need to press star 11 on your telephone keypad. You will then hear an automatic message advising your hand is raised. To withdraw a question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to our first speaker today, Jean-Baptiste Roussille, Head of Investor Relations. Please go ahead.

Thank you. Thank you. Good morning, everybody. Good afternoon, ladies and gentlemen. Welcome to this presentation of Viridian Q2 2024 results. So I am Jean-Baptiste Roussille in charge of investor relations. The call today is hosted from Paris, where Sophie Zurchia, our CEO, and Jérôme Serre, our Group CFO, will provide an overview of the results as well as comments on our outlook. And following the overview of the quarter, we will be pleased to take your questions. And now I leave you with Sophie.

Thank you, Jean-Baptiste. Good morning and good afternoon, ladies and gentlemen, and thank you for participating in this Q2 2024 conference call. I'm on slide four. We are now very good. an advanced technology group shaped for growth and cash generation. Our new brand links our distinguished 90-plus years of history as CGG to our forward-looking trajectory as Viridian, a technology company with a future that relies on a highly differentiated core businesses and the development of new offerings in new markets. Looking forward, as Viridian, we see three trends shaping society, where industry technology, data, and expertise will be increasingly required. One, the continued demand for energy. Second, a growing commitment to care for our planet. And third, the acceleration of digital capabilities. These trends are creating opportunities, not only for our core businesses of geoscience, earth data, and sensing and monitoring, but also for our new businesses. We're leveraging our unique and highly advanced technology and decades of expertise to develop businesses, both in the low-carbon markets, specifically carbon storage and minerals and mining, and beyond oil and gas in the high-performance computing and infrastructure monitoring markets. The strength of our core businesses in a market upcycle gives us confidence that Bearingen is well-positioned to generate significant cash flow starting 2025. Now we'll go into the business overview, slide seven. The second quarter confirms the trends that were at the beginning of the year, with a stronger geoscience and Earth data market, offset by a weaker market in sensing and monitoring. Exploration is gaining more traction across our client base, and is expanding into select frontier areas, such as Brazil, Uruguay, Suriname, Namibia, Malaysia, and Egypt. This is in addition to the step-out exploration, where efforts are continuing to intensify to bring short cycle barrels to production. Geoscience and earth data businesses are largely driven by offshore EMP capex. And with increasing activity, our clients need fresh data and the best in class technology to de-risk opportunities. As a result, we saw strong performance in geoscience and captured strong order intake and a solid pipeline of multi-client projects leading well into 2025. As expected, Sensing and monitoring remain at a similar level to Q1 without the contribution of significant equipment sales for mega crews, those very large surveys which we saw in 2023 and don't expect in 2024. In detail, Q2 revenue was $258 million with geoscience and earth data up and sensing and monitoring down. Segment adjusted EBITDA was down 10% year on year at $94 million with DBE's increase offset by SMO's decrease. At minus $6 million, net cash flow for Q2 was close to breakeven, a significant improvement over last year, which suffered from a major swing in working capital requirements. And looking forward, we see that our strong focus on cost control and working cap management is starting to pay off. On slide eight. Also, as you know, things turned favorably for us in Q2, with the settlement of an old litigation that we had with ONGC in India. This is really good news, but it's also good timing as it will support the funding of our exciting Laconia multi-client project that I will present in more detail later in this call. And finally, we continue to deliver on our financial roadmap this quarter with a credit rating upgrade to B- from Standard & Poor's and an agreement signed for a 12-month maturity extension of our revolving credit facility to October 2026. Moving on to DDE segments. The segment revenue was solid again this quarter at $177 million, up 24% year-on-year, with growth in both geoscience and Earth data. Adjusted EBITDA margin was stable year-on-year at 54%, despite $8 million extra penalty fees from vessel commitments. Moving on to slide 10. For geoscience specifically, revenue increased 31% to $105 million, making Q2 2024 the strongest quarter since Q4 2015. A constant focus on efficiency and the integration of machine learning and artificial intelligence into our workflows has resulted in the continued improvement of the production per head metrics. The growth of our computing power has slowed at current, with the initial ramp up of our new UK data center, which is now complete. However, compute capacity upgrades will continue as they are key to driving the growth and performance of our technology businesses. On slide 11, our geoscience market is gradually strengthening, driven mainly by 4D seismic monitoring, infrastructure-led exploration, and near-field development. In complex offshore environments, the use of ocean bottom node technology is expanding, requiring the most advanced technologies to extract valuable insights. In land environments, our advances in full waveform imaging are also driving the reprocessing of existing data for the identification of new reservoirs and the optimization of mature fields. Another illustration of the favorable environment is odor intake growing 55% in H1 year on year with increasing project sizes and broad adoption of our most advanced imaging technologies. In the example on the slide, you can see a much better delineation of the salt structures and a striking improvement in imaging of the reservoirs below the salt. Our new businesses are also showing positive momentum with a few larger imaging contracts for both CCUS and minerals and mining. Advanced imaging is unlocking valuable information from all the data sets for such applications. I would also like to highlight the alliance we signed this quarter with Baker Hughes to offer combined carbon capture and storage solutions across the value chain, and an agreement that we signed with Wrench Computing, a digital media player, to provide computing capacity and support to optimize the image rendering business. They both bear strong potential and demonstrate the progress we're making in our new businesses. On slide 12, the pictures show our work in the Sultanate of Oman, where a four-way-form imaging velocity model and four-way-form imaging image improve geological understanding of the reservoir structures and reduces subsurface uncertainties. We continue to advance and adapt the technology we initially developed from marine data, and it is now achieving excellent results on challenging land data, which is typically very noisy. Of commercial interest to Viridian is the success of this technology in the Middle East, a region which is key for our growth. Given the large amounts of data acquired over the years, this represents a significant opportunity for our geoscience business to reprocess all the data. We're moving now to EDA with slide 13. In Earth data, we also see gradual market improvement with clients increasingly looking for new opportunities. IOCs are more visible as well, as well as national oil companies that are going back into international markets like Petrobras and Petronas in Africa. Q2 revenue at $72 million was up 15% from last year. After-sales grew from $20 to $31 million, with significant sales in the North Sea and the Gulf of Mexico. It is worth noting that we sold close to $10 million in our beyond-the-court businesses, and mainly for CCF. Pre-funding revenue was stable at $41 million, with $47 million capex, leading to a high pre-funding rate of 86%. On slide 14. In the Americas, we secured funding, and mid-July, we started a significant sparse-nose program in the Gulf of Mexico called Laconia, which I will comment on separately. Two re-imaging projects were launched in Brazil and Aruba, leveraging our latest imaging technologies. Uruguay is also an area of client focus, attracting interest in our data. In Norway, we continue to expand our North Viking Rabin project to the north with good pre-fundings. And finally, we completed, as this is in Beyond the Core, completed the acquisition of gravity and magnetic data on our Arizona mining program. And we're in the process of integrating it with other geoscience data. This type of integrated project is unique in terms of magnitude and breadth of data type for the mining sector. Let me now comment on Laconia, slide 15. Laconia is a major project and it ticks a lot of boxes for us and the industry. It covers the highly prospective paleogene trend, which has attractive subsurface characteristics, but also challenging imaging problems. It will combine our latest technology to enhance our existing stack size multi-azimuth coverage in the area. Our new TPS low frequency source will allow for deeper penetration and better four-way form imaging inversion, but our latest processing technology will ensure the best possible imaging. It covers an area with an attractive mix of owned and open blocks, yielding to high pre-funding, while still offering significant after-sales opportunities down the road. From a financial standpoint, the project is very promising as well. It is supported by funding from major clients, with pre-funding expected to reach 100% rapidly. It is expected to be cash flow breakeven in around 12 months, and the timing of the ONGC settlement is fortunate as it partially offsets the upfront cost of the project. The project just started with the first shot in mid-July, and the delivery of the initial product is targeted for mid-2025. We expect the results will be well received by the industry, and it will lead to further projects in the Gulf of Mexico. Moving on to SMO now, and slide 16. As expected, at $82 million, Revenue was lower than last year due to the very high comparison base versus SMO's Q2 2023. At that time, we had major deliveries. Moving forward, we expect continued volatility in the SMO market based on the timing of these very large surveys, which is the reason we initiated a turnaround plan earlier this year focused on operational restructuring, and that is progressing very well. Sales from our new businesses were stable at $11 million. With our current outlook for 2024, this revenue construction for SMO is anticipated to last through H2. At this level of revenue, adjusted EBITDA margin dropped to 8%. Going into slide 17 with operational highlights, the land market was driven by cable system replacement with deliveries in the Middle East and Asia in Q2, and by the geothermal industry in Europe. Geothermal is picking up and requiring imaging of the subsurface, very often in urban areas, and our land node system, WING, is very well adapted to this market. The marine market continues to benefit from the uptake of ocean bottom nodes technology, and after Q1 sales in Europe, we made further OBN sales of our GPR 300 in Asia in the second quarter. In addition, our new low-frequency marine source, TPS, which we are using on our Laconia multi-client project, is proving to generate content-rich data to support advanced processing. And finally, in infrastructure monitoring, revenue came from a diverse base of projects, including railway, mine, and other infrastructure in Saudi Africa and in the US. Let me focus now on slide 18 with the operational turnaround in the sensing and monitoring business line. First, sensing and monitoring markets its product and services under the Sercel brand. It is a world leader in seismic data acquisition equipment and solutions. It has the ambitious development and growth strategy for its core and beyond the core businesses. And we believe in the prospects of our three markets, three key markets for that business line. the land system, the marine systems, and particularly ocean bottom nodes, and infrastructure monitoring. Despite the growth of new businesses that now represent around 12% of overall business, SMO depends on acquisition companies buying new equipment and solutions, and as such experiences volatility, depending on the presence and number of large contracts for mega crews and large surveys in general during the year. And this is why we're working on an operational turnaround plan, looking at all aspects of the business to make it more agile, profitable, and cash-generative through this volatility in market cycle. The target is to lower the break-even point by reducing fixed costs by $20 to $30 million, to be EBIT and cash break-even during years where revenue is below $300 million, to focus on the strongest commercial positions by streamlining the product portfolios, And finally, to extract 20 to $13 million of cash from optimizing processes and reducing inventories. A significant part of this cash extraction will be achieved in 2024 already, and we expect to see the contribution to the P&L by 2025. Let me now hand over to Jérôme with some comments on our financials.