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.

Thank you, Sophie. Good morning and good afternoon, ladies and gentlemen. As Sophie talked in detail about Q2 for each segment, I will focus on our first half-year performance. Let's start with the P&L on slide 20. Our H1 revenue was up 7% year-on-year at $532 million, and adjusted EBITDA was up 17% at $200 million. This increase in profitability came from our DDE business, with both geoscience and EDA showing a solid revenue growth and a strong fall through down to the bottom line. Thus, DD revenue and adjusted EBDA came out at $362 million and $199 million, up 26% and 36% respectively. This translates into about 300 basis point margin increase at 55%. Regarding our SMO business, as already mentioned by Sophie, revenues are down versus last year with Q2-23 benefiting from the first OBN deliveries of the Saudi mega cruise. Revenues and adjusted EBDAs then came out at $170 million and $16 million, down 20% and 53% respectively. The margin was then at 10% versus 16% during H1 last year. Adjusted segment operating income was at $57 million, down 37%. Although EBITDA is up 17%, the drop in OPINC is mainly explained by the fact that in Q2 last year, we did record a positive $37 million net book value adjustment following the completion of three multi-client surveys. And we did not have such one-off in this quarter. Regarding IFRS 15 adjustment, they were quite positive this semester, leading to an IFRS revenue and EBITDA of $566 million and $230 million, respectively. Group net income ended up at $32 million for the semesters, up 39% versus last year. Moving on to the group cash flow on slide 21. As you can see, we had a massive swing in net cash flow from a cash loss of $78 million in H1 last year to a cash generation of $24 million this year. There are mainly three explanations for this $100 million swing. Obviously, the higher EBITDA for about $25 million, lower working capital requirements for about $50 million with no mega crew plus the additional release of inventory engineered as part of the SMO turnaround. And finally, the ONGC litigation settlement on the more than 30 million net of tax and fees, which is recorded in the discontinued operation line. Even without this one-off, we would be at close to break-even over the first semester, which is a significant achievement given the traditional seasonality we experience in our business. Before I go through the balance sheet details on slide 22, I would like to re-emphasize the good news about the extension of our 100 million revolving credit facility by 12 months till October 26. I'm pleased to welcome two new banks, DNB and Donske Bank, who take over Barclays and part of Bank of America commitments. With Goldman Sachs, Morgan Stanley and JP Morgan, all three rolling out their commitments for another 12 months, This creates a good mix between commercial and corporate finance banks in light of our forthcoming refinancing. This RCF extension is something we had flagged in our financial roadmap earlier in March, and after the Standard & Poor's credit rating upgrade in April, this is another box we have ticked in our roadmap. Back to our balance sheet, and I will go quickly through it, as there is no significant movement over the first half. Liquidity stands at $430 million. Growth debt after IFRS 16 is at $1,281,000,000, down 20 million from December 23. This is due to the Euro-dollar variation and not from any buyback. Indeed, in Q2, our focus was to secure the FCF extension, and we have not proceeded yet to the 30 million higher bond buyback that we announced in March. But we obviously still committed to do that in 24 this year. Net debt after IFRS 16 was at $941 million, down $33 million versus December 23. I now hand the floor back to Sophie for the conclusion.

Thank you, Jérôme. As a summary, I'm pleased with our performance in the second quarter. It confirms the key trends that we've seen for some quarters, a strategic path that continues to progress, and the favorable positioning we have in our markets. So the macro environment in our core markets continue to strengthen. and we are gradually benefiting from the increases in E&P CapEx. Our technologies are highly differentiated, and adoption is broadening with the need to solve increasingly complex subsurface challenges. Our new businesses are continuing to develop nicely in all our segments, and we are delivering a financial roadmap, progressing along our path towards strong cash generation and deleveraging. Given our solid performance in the first half of the year, I improved visibility and outlook for the second half. We can reiterate our four-year target for stable revenue, EBITDA growth, and stable cash flow. The only adjustment is the EDA, Earth Data CapEx, with a $50 million increase to include the important Laconia project. And I was on slide 24, and I'm moving on to slide 25 for the financial roadmap. I'd just like to leave you with that last slide, which we showed you last quarter on our financial roadmap. and you can see that we're making good progress. I'd like to thank you for your interest, and I'd like to open for questions now.

Thank you, dear participants. As a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw a question, please press star 11 again. Please stand by. We'll compile the Q&A roster.

This will take a few moments. And now we're going to take our first question.

and it comes from the line of Kevin Roger from Cap Le Chevron. Your line is open. Please ask your question.

Yes, good evening. Thanks for taking the questions. I have three, if I may. The first one, Sophie, I was wondering if you can give us some color on the EBITDA margin on the geoscience business unit this quarter and notably maybe any color on the sequential increase because it seems that this is really the division that performed very well this quarter with an increase again sequentially in the top line and maybe a very nice impact on the group's EBITDA. so any color on the APDA just on the geoscience business unity if you can please the second one is on the guidance just trying to understand basically how we in a way reconcile the APDA statement that is relatively confirmed but with 50 million more capex when we look at the mid-range with the updated new one So how do you see basically the statement on the BDA versus CAPEX? And the third one is in a way related. Can you give us some color on the pre-funding level on Laconia? Because this is the one that is, this is the CapEx plan that is changing with maybe 50 million. If you can give us some color on the pre-funding level here. And if you expect to be at 75% for the group on the full year or below that with Laconia, please.

Thank you, Kevin. And nice to hear about you. So first on the EBITDA geoscience margin, as you know, we don't provide the margin directly, but we do provide a proxy, which is that revenue per head, and that you see that number sort of continuously cranking up. Of course, when we do geoscience, we need two resources. We need essentially the people, but also we need the computers. And as you know, we've invested massively into a new center last year, which we have to pay for and then falls into our cost lines. But despite that, we are still able to drive efficiency gains, and we've been winning large projects, and large projects are good. So I guess the size of the project increasing, visibility increasing, we're able to definitely gain efficiencies and increase the margins. In terms of the guidance, I'll let Jerome comment, but a couple of quick comments. As we do new projects, it comes with pre-funding, and that will be the third question. And, of course, EBITDA increases because you get the EBITDA associated with additional funding. Now, of course, the capex or the outlay does affect the cash flow generation. So there's pluses and minuses in a way.

For the EBD, as Sophie said, more capex equals more pre-funding. But I'm sure, Kevin, you know that the pre-funding is recognized as a percentage of completion. And the percentage of completion for Laconia by end of December is lower than 50%. So even if we have some good pre-commitment level from three clients today, don't do 50 million capex. by 85% in your spreadsheet. It's not the way it's working. It will give you far too much EBDA for H2. The second backdrop is versus the guidance. SMO will be slightly lower than what we anticipated earlier this year. So we should see lower EBDA for SMO, which confirm again the case for the transformation plan that we have launched. And the third element, again, if you're back to the time we made the guidance regarding shear water, We had a higher utilization rate in mine end of last year. And today, with some environmental permits which are delayed, we are likely to have more penalties than what we were thinking at the time of the guidance. So all in all, please don't shoot up your target because that's clearly not the case. And in terms of cash, that basically, if we have not upgraded the guidance despite the good news on ONGC, as I just told you, there is not a significant uplift in the BDA, and clearly the cash capex that we have to spend for Laconia, and which is not fully covered, offset the good news on ONGC.

So, yeah, and I'll make a comment on the pre-funding level. Remember the pre-funding level that we say we end up typically 80, 90, sometimes better. We always say minimum 75%. This is sort of a link to a portfolio of ongoing projects. So this is all the pre-funding we get from all these ongoing projects divided by the capex assigned to all these ongoing projects. Now, if you look at it at the project level, at one project, typically you would start a project with already 30% to 50% pre-funding secured. And then through the acquisition and processing phase, that's when you ramp up to that 70%, 80%. What we're saying here, and when we indicated by end of 2025 we would be at 100%, it's actually a better project than our average project. It's a big project, and that's why we wanted to make sure the economics would be better, and then it would be more front-loaded than the typical average project. So basically, this year, we're starting acquisitions. We're going to be in acquisition phase until sometime Q1, Q2 next year. Typically, I told you when we start a project during that early stage, it's 30% to 50%, so we're on the high range of that. and then by the end of next year. Actually, we won't be finished with the project by the end of next year. We'll still be in processing phase. That means we will be reaching that 100% before the end of the project, still within the pre-funding phase.

Okay, understood. Thanks for the time.

Overall, the guidance for the pre-funding ratio remains even with Laconia. Yes. So no change to what we provided in March. OK, thanks.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. And now we're going to take our next question. And the question comes to the line of Jean-Luc Romain from CIC Market Solutions. Your line is open. Please ask a question.

Thanks for taking my question. It relates to the contribution of CCS to your after sales. You mentioned it was a significant portion. Would you quantify what portion it represents, sales of EDA for CCS in your after sales?

So I can give you a few numbers. We mapped our data library in general, overall, and we mapped it to the lease rounds that are available for CCS. And we have about 15% of our library that is sort of exposed to CCS licenses. And every quarter, there will be a huge variation because, as you know, the multi-client sales are always lumpy. So one quarter we may have none and the next quarter we may have a bigger one. But say on average for the first half of the year, it would be, I would call it a 10, 15 each percent, 10 plus percent over each one of the after sales, something like that. But it's hard to, I mean, you have to look at it over a long period of time because it is lumpy by essence. But that 15% is not a bad number.

Yeah, it's more or less what we achieved in H1 and what we foresee for the future. 15% is a good proxy.

Thank you very much.

Thank you. Now we're going to take our next question. And the question comes to the line of from OdoBHF. Your line is open. Please ask your question.

Yes, good afternoon. Two questions from my side. The first one is regarding the $8 million of extra penalties fees that we have seen this quarter. Can we see such amount in coming quarters or not? And the second question is dedicated to your transformation plan. Can we see some extra charges of provision due to this, let's put it like that, restructuring or not? Thank you.

Yeah, thank you, Baptiste, for the question. So I think there's a lot of balls in the air with the Shearwater contract. And so we have actually a pretty healthy pipeline of streamer projects. Part of the issue is that the environmental permit is delayed in many parts of the world. So that is the bit that has been delaying our ability to use vessels. in H1 and then possibly in H2. So it's a bit early to say because we have a number of opportunities that we're pursuing, including what we would call hybrid projects, so those very highly pre-funded projects, which is almost like a proprietary project that we're looking at. So it's a bit early, but it could be as high as last year, perhaps even higher than last year. I'll let Jérôme comment on the maybe non-recurring cost of the transformation plan. I mean, it will come with headcount reduction.

Yeah, so today in H1, that creates the gap between adjusted EBDA and the EBDA. So you have only 4 million that relates mainly for the downsizing of our Houston facility and the closure of the Singapore facility. We've just announced to our union in France a social plan for close to 150 positions in France. This one will have to be factored. It's more like a P&L impact for the cash. It's part of the guidance for this year. although I suspect a good chunk of the cash will be next year. But again, for me, it's part of the 100 million we committed for next year.

Thank you very much. Thank you.

Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad.

Just a moment. We've got another question coming through.

And the question comes from Daniel Thompson from BNP Bariba, Exxon. Your line is open. Please ask a question.

Hi. Good evening. Just two quick questions. Firstly, I was wondering in the Earth data division, obviously next year we have the rolling off of the shear water take or pay. does that drop through directly through his earnings next year? Or should we... If I think about your cost base in that business, is there anything related to the on-the-call business that falls in there that I should be thinking about that would impact your cost base in that business next year? And then on a related tack, the... Can you put any numbers around the potential impact of being able to renegotiate vessel day rates that you were previously locked into with share water? Any positive impact you might see there with being able to renegotiate competitively? Thank you.

Thank you, Daniel, and good evening. So I would say essentially when we talk about the penalty fees and the contractual costs associated with that contract, we won't have, we just cost that will disappear coming into next year. It's just the stake or pay and we weren't able, when we're not able to utilize vessels, we just have to pay something. And then the contract ends on the 8th of January of 2025 and basically we have no commitment. Now, of course, we are looking at, okay, what does the world look like when we are sort of free to utilize capacity on the market? And so we're actually in the process of looking at what the options are. Do we go back into, so it wouldn't be a capacity agreement for sure, but some kind of a partnership with a vendor or do we go back to the market? So this is not like we haven't landed yet on that. The vessel day rates, we don't see them necessarily go much higher from where we are today. There isn't a lack of capacity at this point in time. And part of the reason is the lack of these, the difficulty to land those environmental permits. So the demand seems to be there. for utilizing vessels, but then there's been a bit of a backlog, and you might have heard like in Ibama strike in Brazil, for example, they've been on not official strike, but really slowing down their processes for a number of months now, and so really permits aren't coming out. So I would say we don't anticipate rate increases or any significant rate increases, or we would think that if we so that we would be able to sort of pass it commercially. But today, there isn't undercapacity in the market. There's actually probably, if anything, a bit too many vessels still.

Okay. Thanks for the call, Sophie.

Thank you.

Dear speakers, I don't have further questions. I would now like to hand the conference over to our management team for any closing remarks.

Yes, no, thank you very much. Thank you for the great questions. Thank you for attending. I wish you good evening and we'll be here if you have any further questions, you know where to find us. Thank you very much.

Thank you indeed.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.