Q3 2019 19 November 2019
Highlights Q3 financial results • Revenue of USD 134m and EBITDA of USD 9.2m including USD 6.9m in one-offs • significantly affected by Impairment of PPE and other intangibles of USD 14.1m and goodwill impairment of USD 81.1m, reflecting the goodwill acquired through the Fairfield acquisition impairments Maintaining full-year • Restructuring costs and non-cash adjustments affecting EBITDA, as previously guidance announced • Restructuring program Estimated annual cost reduction of ~USD 20m with full effect during H2 2020 • initiated Capex cut and postponed by approximately USD 15m • Backlog of USD 134m per end of Q3 Backlog update • Q4 contract wins increase 2020 backlog by USD 23m to USD 82m per 19 Nov 2
Full-year 2019 outlook Financial update 14 October Q3 report 19 November FY’19 revenue guidance lowered FY’19 revenue estimate maintained: USD 455-465m from USD 500m to USD 455-465m FY’19 EBITDA estimate in line with 14 October financial update Non-cash and restructuring costs affecting the FY’19 EBITDA estimate: EBITDA guidance lowered from USD 100m to USD 45-55m before + USD 5.6m restatement of PPA in 1H’19 adjustments for non-cash elements + USD 3.9m in one-off costs recognized in Q3’19 and restructuring costs + USD 4.5m in lay-offs and severance pay to be recognized in Q4’19 = USD 14.0m Additional restructuring costs may materialize 3
New Management and Board priorities • Align organization and operations to current activity level • Organizational structure Improve operational control • Ensure solid governance and strengthen the financial management • Sales and operations Optimize and secure new contracts • Operating expenses Rightsizing the organization • CAPEX Ensure capacity necessary to capture market opportunities • Funding and capital structure Ensure a balance sheet that supports strategy execution
Reducing annual costs by USD ~20 million • Integration of manufacturing philosophies to Manufacturing a common contract manufacturing integration Expected annual cost savings philosophy of approximately USD 20m with full effect expected during H2 2020 • FTEs being reduced by ~120 (18%), with cuts Reduction in FTEs roughly evenly distributed between own Restructuring costs related to employees and contracted third-parties severance-pay of around USD 4.5m to be recognized in Q4 Further restructuring costs • Cuts include but are not limited to headcount SG&A reduction may materialize reductions and co-location in Norway 5
Q3 financials
Revenue and gross margin Four different seismic acquisition projects Revenue and gross margin 2019 in the quarter of which one was completed and two new commenced USD million, (%) 160 70% • Crew utilization was 95%, an increase from 134 132 140 Q2, while number of crews were lower 60% 120 120 The BGP node sale was completed in the 50% third quarter – delivered according to plan 28 40 44 100 40% 75 Gross margin at 21%, down sequentially 80 30% on lower project margins 31% 60 20% 21% 40 20% 10% 20 92 92 90 0 0% Q1 Q2 Q3 Q4e mid-point* Revenue MASS node sales Gross margin * Q4 figures based on mid-point of FY 2019 guidance 7 Note: Restated figures for Q1 and Q2 2019
SG&A development Flat underlying cost level in Q3 SG&A 2019 One-off items of USD 6.9 million in Q3 USD million 20 • Change of management and co-location in 18 Norway, USD 3.0m 16 • Write-off of R&D/WIP projects not 6.9 1.6 14 expected to materialize, USD 3.9m 12 • Aligned accounting policies within the 10 group 8 Restructuring costs related to severance 13.1 12.9 11.4 6 pay of approximately USD 4.5 million 4 expected in Q4 2 10.8% 10.0% 8.5% Cost reduction measures have been taken - across all categories – effects to Q1 Q2* Q3 materialize from 2020 SG&A One-off items Column1 % of Revenue R&D is included in SG&A figures Focus on rightsizing organization * Q2 one-off item of USD 1.6 million reflect settlement of 2018 outstanding receivable 8 Note: Restated figures for Q1 and Q2 2019
EBITDA development • Reported EBITDA of USD 9.2m in Q3 EBITDA 2019 split • One-off items of USD 6.9m USD million 25.5 • Node sale contract completed in Q3 – 30 no impact on Q4 EBITDA 25 10.4 20 9.2 • Restructuring costs related to severance 16.0 pay of approximately USD 4.5m 15 9.3 expected in Q4 11.0 10 11.0 • Further restructuring costs may 5 -9.1 6.8 5.0 materialize in Q4 0 -1.6 -4.6 -5.6 -6.9 -5 -4.5 -10 -15 Q1 Q2 Q3 Q4e mid-point* EBITDA excl. node sales and one .offs Node sales One-off costs * Q4 figures based on mid-point of FY 2019 guidance 9 Note: Restated figures for Q1 and Q2 2019
Significant impairments affecting reported results • Reported results are significantly affected Assets by impairments in accordance with IFRS (IAS 36) USD million 582 • PPE and other intangibles impairments of 555 527 USD 14.1m 248 415 217 • Goodwill impairment of USD 81.1m 205 • Goodwill acquired through the Fairfield 177 74 76 acquisition 80 67 • Impairment reflects financial development 184 178 149 and an assessments of the uncertainty of the amounts and timing of new projects 171 94 81 81 31 Dec 18 31 Mar 19 30 Jun 19 30 Sep 19 Goodwill PPE Other intangibles Total current assets 10 Note: Restated figures for Q1 and Q2 2019
Key figures EBITDA bridge Q3 Q2 Q1 YTD FY USD million 2019 2019 2019 2019 2018 USD million Profit and loss 134.2 131.5 119.5 385.2 136.5 Revenues (106.7) (91.3) (96.2) (294.2) (86.8) Cost of sales 27.5 40.2 23.3 91.0 49.7 Gross Profit (18.3) (14.7) (12.9) (45.9) (26.7) SG&A and R&D 9.2 25.5 10.4 45.1 23.0 EBITDA (6.9) (1.6) (5.6) (14.1) - Of which: one-off items affecting EBITDA (15.2) (13.9) (15.4) (44.5) (19.1) Depreciation (2.3) (2.4) (2.4) (7.1) (0.8) Amortization (95.2) - - (95.2) - Impairments (103.6) 9.2 (7.4) (101.7) 3.1 EBIT (0.8) 1.5 (2.1) (1.4) (2.4) Net financial items (104.3) 10.7 (9.5) (103.2) 0.6 Net profit/(loss) before tax (104.1) 9.7 (11.2) (105.6) (2.8) Net profit/(loss) Other key figures 50.2 43.9 9.9 105.8 13.7 Net cash from operating activities (49.4) (25.9) (16.6) (93.7) (196.8) Net cash used in investing activities (5.9) (13.7) (11.4) (31.1) 221.4 Net cash from financing activities Total assets 415 555 582 415 527 Equity ratio 55 % 60 % 55 % 55 % 63 % Cash and cash equivalents 49.1 54.2 50.0 49.1 68.1 8.5 8.8 (2.5) 8.5 4.6 Net interest-bearing cash/(debt) 11 Note: Restated figures for Q1 and Q2 2019
Cash flow development • Cash flow from operating activities Cash flow Q3 was impacted by cash effect from USD million sale of used nodes and positive NWC development in the quarter • Investments reflects building of nodes and handling systems and settlement of seller’s credit and earn-out • Financing activities reflect lease payments • Total reduction of cash and cash equivalents of USD 5.2m in the quarter 12
Covenant update In compliance with all covenants Q1’19 Q2’19 Q3’19 Condition Covenant amendments granted for 2020 Debt covenants Leverage X ● ● ● < 1.0x • Minimum equity ratio reduced to 50% from 60% Liquidity USDm ● ● ● > 15.0 • Leverage to include net debt instead of total debt Equity Ratio % ● ● ● > 50% Company expects to meet all covenants Leverage: Net debt / EBITDA LTM throughout 2019 Liquidity: Cash and cash equiv. excl. restricted cash Equity Ratio: Total Equity / Total Assets 13 Note: Restated figures for Q1 and Q2 2019
Restatement effects
Restatement of P&L for H1’19 Q1 2019 and Q2 2019 restated to reflect changes in Restated Reported Profit and loss Δ purchase price allocation (PPA) and reclassification H1 2019 H1 2019 of cost items Total revenue and other income 251.0 251.0 - • USD 5.6m negative effect on EBITDA, reflecting higher Cost of sales (CoS) 187.5 175.5 12.0 cost of sales due to change in PPA (12.0) Gross profit 63.6 75.6 • USD 1.2m increase in depreciation SG&A and R&D (27.6) (34.0) 6.4 of for H1’19, also reflecting change in PPA EBITDA 36.0 41.6 (5.6) • Total negative effect of USD 6.8m on EBIT and net income (loss) for H1’19 Depreciation (29.4) (28.1) (1.2) All effects are non-cash Amortization (4.8) (4.8) - EBIT 1.8 8.6 (6.8) Net profit (loss) before tax 1.2 8.0 (6.8) (6.8) Net income (loss) (1.4) 5.4 15 Note: Restated figures for H1 2019, please see appendix and note 14 in the report for details
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