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Electromagnetic Geoservices ASA (EMGS) reported its financial results for the first quarter of 2025, showcasing a strategic shift with significant investments in subsea construction. The company reported a total revenue of $10 million and a net profit of $600,000, building on its impressive 209.55% revenue growth over the last twelve months. Despite a decrease in free cash to $6 million, EMGS is positioning itself for future growth with a recent acquisition and ongoing projects. The stock closed at $0.17, down 7.53% over the past week. According to InvestingPro analysis, the company currently shows signs of being undervalued, with 6 key investment tips available to subscribers.
Key Takeaways
- EMGS acquired a subsea construction vessel for $109 million, marking its expansion into new markets.
- Vessel utilization stood at 37% for the quarter.
- The company completed its first proprietary contract in India and is working on a second project with Cairn Oil and Gas.
- Subsea tree installations are expected to increase by 45% by 2027, indicating potential growth in the sector.
Company Performance
EMGS’s performance in Q1 2025 was marked by strategic investments and operational achievements, with the company maintaining a strong market position supported by an EBITDA of $10.62 million in the last twelve months. The acquisition of the subsea construction vessel CMD is a notable move as the company expands its presence in the subsea construction market. This aligns with industry trends predicting a rise in subsea installations, which could provide EMGS with new revenue streams. InvestingPro data reveals the company has achieved a robust return on assets of 9.8%, indicating efficient use of its assets.
Financial Highlights
- Revenue: $10 million
- EBITDA: $2.7 million
- Adjusted EBITDA: $2 million
- Net Profit: $600,000
- Operational cost base: $8 million
Outlook & Guidance
EMGS is focused on expanding its operations in West Africa, Nigeria, and Namibia. The company plans to offer its newly acquired vessel CMD in the third-party market by 2026-2027 and expects improved time charter rates. This strategic positioning aims to capitalize on a potential supply gap in oil and gas resources. With a market capitalization of $21.77 million and a P/E ratio of 8.28, detailed financial analysis is available through InvestingPro’s comprehensive research reports, which provide deep-dive analysis of 1,400+ top stocks.
Executive Commentary
CEO Biren Pedder highlighted the company’s strategic direction, stating, "The supply from currently producing fields will decline, and the supply from fields under development is not sufficient to meet the expected demand." He also emphasized the establishment of a new business platform alongside the existing EM business.
Risks and Challenges
- Maintaining vessel utilization rates amid fluctuating demand.
- Managing operational costs with new market expansion.
- Potential delays in project timelines due to regulatory or logistical challenges.
- Adapting to market changes in the oil and gas industry.
EMGS is strategically positioning itself within the subsea construction market, expecting to leverage industry growth trends. However, the company must navigate operational and market challenges to achieve its ambitious goals.
Full transcript - Electromagnetic Geoservices ASA (EMGS) Q1 2025:
Biren Pedder, CEO or Senior Executive, EMGS: Welcome to the presentation of EMGIS’ first quarter twenty twenty five results. I’m here with our CFO, Anders Einstein. Together, we will present these results. Please take note of our disclaimer. During the quarter, the vessel arrived in India and after successful inward clearance and all formalities in place, it started working on the first of the two proprietary acquisitions in the KG Basin on the East Coast Of India.
Upon completion of this project, we started the mobilization for the second project where the vessel is currently acquiring data. The revenues for the quarter came in at USD 10,000,000, the EBITDA was 2,700,000.0, and the adjusted EBITDA was 2,000,000. And finally, the net profit was 600,000.0. The free cash at the end of the quarter fell to USD 6,000,000. After the quarter, we announced the establishment of a new business platform for EMGS with the acquisition of the offshore subsea construction vessel, the CMD.
We will talk more about this later in the presentation. We have also secured an extension of our convertible bond loan until February. Moving on to our operations and markets section. As already mentioned, we completed the first proprietary contract in India during the quarter and started the mobilization for the second project, which is currently ongoing. The client for the second project is Cairn Oil and Gas.
And in a recent article in Upstream, Cairn explains what they’re trying to accomplish with EM in their block. Quote, the survey will help characterize and prioritize the extensive offshore exploration prospect portfolio within the block by integrating the gathered CCM data with recently reprocessed three d seismic data to enhance subsurface model accuracy and reduce exploration risks. Through our partnership with EMGS, we will fast track development of the deepwater block in line with our vision to contribute 50% of India’s oil and gas production. The survey data will support the definition of locations for exploration, appraisal and subsequent development, ensuring drilling decisions are based on the most accurate and comprehensive subsurface data, end quote. Upon the completion of the Cairn job, the vessel will depart India and head west.
We are discussing several projects in West Africa, but it remains to be seen if we are able to secure this in time and also get all the required permits in place for when the vessel sails by. We have received questions and comments from some of you about why we are not providing more information on upcoming work in general and specifically about West Africa, including Nigeria and Namibia. You might have seen that we have concluded an environmental impact assessment for Namibia and that there is information about an upcoming campaign in Nigeria. We would like to use this opportunity to clarify that we are we are at any given time working on projects in many countries and places around the world. We do not like to comment on specific projects that have not been secured and we only issue releases for letter awards or signed contracts.
That said, we are pursuing projects in those two countries as well as many others and we will inform the market if and when we sign contracts for projects in any location. Now over to the recent announcement of EMGS entering into the subsea construction business. This probably came as a surprise to many, so we will spend some time outlining the rationale and the details of the deal. We are establishing a new business platform alongside the EM business. We are doing this through the acquisition of the offshore subsea construction vessel, the CMD, for USD 109,000,000.
The CMD was built in 2013 at the Vaude Bratwag, which is a DP2 vessel with deadweight tonnage of 5,000 tonnes. It is about 121 meter long and 22 meters wide, and most importantly equipped with a two fifty ton crane. She also has a comparably low fuel consumption. The vessel is financed through a five year bareboat charter to minimize the upfront cost to EMGS’ shareholder. The vessel is currently on contract with a strong counterparty at market rates until the end of twenty twenty five.
We intend to offer the vessel in the third market on a project by project basis, on a time charter basis in 2026 and 2027, as we expect these rates to be significantly better than the long term time charter rates currently available. We are not planning to use the CMD for EM or for OBN operations. The transaction is subject to approval at the upcoming Annual General Meeting on the June 19. Our newly formed long term strategy is to pursue growth in the subsea market through the additions of additional vessels. Looking at the overall market backdrop, it is clear that oil and gas will be part of the energy mix for many years to come.
The supply from currently producing fields will decline, and the supply from fields under development is not sufficient to meet the expected demand, even in the most optimistic energy transition scenarios. Arctic Securities has helped us compile forecasts on the liquid supply demand balance, and the demand for liquids are expected to either slightly increase or slightly decrease in most scenarios, or in the most aggressive energy transition scenarios is the demand expected to fall significantly. For instance, in the DNV energy transition outlook from 2024, the liquids demand in 02/1935 is expected to be 87,000,000 barrels per day, and even in this scenario, there is an expected supply gap of at least 15,000,000 barrels per day in 02/1935 that needs to come from either discovered or undiscovered resources. This is positive both for our existing EM business and for our new subsea business segment. If we now focus specifically on the subsea construction market, subsea Christmas tree installations are one of the main drivers for the activity level in this market.
The demand for subsea three installations are expected to increase significantly and up to 45% in 2027 compared to 2024. If we also look at the supply side and specifically at the vessels with cranes capable of two fifty tons or more, the current fleet of 74 vessels is expected to increase to 89 vessels in 2027 due to new builds entering the market towards the end of twenty twenty six. But despite this increase in fleet size, the demand increase is expected to absorb this, and we think this is a good market to be And now we would like to provide some additional details on the C and deal. We are acquiring the C and D Offshore Subsea Construction Vessel, or OSEV, for short for $108,900,000 90 percent of the vessel acquisition is financed by five year bareboat charter from CEM Day two AS, which is to be owned 80% by the CEM Group and 20% by Perestroika, our two biggest shareholders. The bareboat charter rate will be $42,000 per day in 2025 and increasing to $45,000 thereafter.
The implied interest cost to EMGS is 10.4%. The bareboat agreement includes a series of covenants, including a cash sweep mechanism related to revenues above a certain level from the chartering of the CMD as well as a free cash covenant of USD $3,000,000 The bareboat agreement also includes a net purchase obligation after the five year period for USD59.1 million less any cash sweep proceeds. The remaining 10% in the form of an initial payment of USD10.9 million will be financed by an increase of the existing convertible bond loan. At the same time the convertible bond loan is amended and extended, including a new maturity date of 11/09/2030, the removal of the existing cash covenant requiring EMGIS to have a minimum free cash balance of USD 2,500,000.0 at all times. The vessel will be managed and operated by Aurora Offshore Management, and we are estimating the operational expenses to be approximately $22,000 per day.
We find this to be an attractive solution as EMGs currently have limited experience in operating subsea vessels, And by subcontracting the day today operations to Aurora, e m EMG’s management can continue to focus on running the existing EM business.
Anders Einstein, CFO, EMGS: Thank you, Biren Pedder. The total revenue for the first quarter was $10,000,000. The graph in the upper right shows the quarterly revenue development. From this graph, you can see that revenue has increased from the previous quarter. While most of the revenue in the fourth quarter was related to multi client projects, all but $150,000 were related to proprietary surveys in the first quarter of this year.
We had one vessel on charter in the first quarter. During the quarter, the Atlantic Guardian completed the mobilization to India and completed one of two Indian proprietary survey acquisitions. The vessel utilization in the quarter was 37%. We recorded an EBITDA of $2,700,000 in the first quarter. EBITDA excludes the capitalized multi client expenses as well as the vessel and office lease expenses.
If we add these expenses to the EBITDA, we get an adjusted EBITDA. The quarterly development of the adjusted EBITDA is shown on the graph at the bottom right of the slide. The adjusted EBITDA in the first quarter was $2,000,000. The next slide details the movement in the operational cost base. In the graph to the left, you can see the quarterly development and the components of EMGIS’ operational cost base.
The components are charter hire fuel and crew expenses, employee expenses, and other operational expenses. In addition, the capitalized multi client expenses, investment office lease expenses are added to the cost base. The operational cost base for the first quarter was $8,000,000 compared to an operational cost base of $4,700,000 in the previous quarter. In the first quarter, ’1 point ’5 million related to transit costs to India, which were capitalized in the fourth quarter, were expensed. Adjusted for the capitalized transit cost, the operational cost base over the last four quarters has been relatively consistent given the activity level.
The next slide details the movement of free cash in the first quarter. Free cash decreased in the first quarter by $3,100,000 This is illustrated in the graph to the left. The light blue bar to the left shows a free cash position at the end of the fourth quarter of $9,100,000 The components increasing the cash position during the first quarter are shown in dark blue, whilst the components reducing the cash position are colored red. Free cash at the end of the first quarter was $6,000,000 The EBITDA of $2,700,000 increased the cash this quarter. Vessel and office leases decreased cash by $700,000 The increase in trade receivables from $900,000 to $9,000,000 decreased the cash this quarter by $8,100,000 The increase in trade payables from the previous quarter in the amount of $400,000 increased free cash in the quarter.
Changes in other working capital also increased cash by $3,100,000 Interest paid in the quarter on the convertible bond and other interest expenses amounted to $600,000 in the first quarter. Now back to Buren Petter.
Biren Pedder, CEO or Senior Executive, EMGS: That concludes our presentation for today. As always, please submit your questions to emjsemjs dot com. Thank you so much.
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