CGPVF - CGG (CGGYY) Q3 2023 Earnings Call Transcript
2023-11-06 17:38:10 ET
CGG (CGGYY)
Q3 2023 Earnings Conference Call
November 06, 2023 12:30 PM ET
Company Participants
Christophe Barnini - SVP, Group Communications & IR
Sophie Zurquiyah - CEO
Jerome Serve - Group CFO
Conference Call Participants
Haris Papadopoulos - Bank of America
Mick Pickup - Barclays
Baptiste Lebacq - ODDO
Jean-Luc Romain - CIC Market Solutions
Daniel Thomson - BNP Paribas
Presentation
Operator
Good day, and thank you for standing by. Welcome to the CGG Q3 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode presentation. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.
I would now like to hand the conference over to CGG. Please go ahead.
Christophe Barnini
Thank you. Good morning and good afternoon, ladies and gentlemen. Welcome to this presentation of CGG's third quarter 2023 results. The call today is hosted from Paris where Mrs. Sophie Zurquiyah, our Chief Executive Officer; and Mr. Jerome Serve, our Group CFO, will provide an overview of the quarter results as well as provide comments on our outlook.
Just let me remind you that some of the information contains forward-looking statements, subject to risks and uncertainty and that may change at any time and following the actual results may differ materially from those that were expected. Following the overview of the quarter, we will be pleased to take your questions.
And now I will turn the call over to Sophie.
Sophie Zurquiyah
Thank you, Christophe. And good morning and good afternoon, ladies and gentlemen. Thank you for participating in this Q3 2023 conference call.
We're on Slide 5 now. And before we view in the quarter and market perspective, I'd like to start by highlighting the particularly strong ESG rating of CGG. After confirming our high MSCI and Sustainalytics rating, we received a Silver sustainability rating from Ecovadis from the evaluation of a reduction of greenhouse gas emissions throughout the value chain. We prioritize ESG and are pleased to see this recognized in our performance.
Macro oil and gas trends over the quarter have been fairly stable, with increasing realization that all sources of energy will be required to optimally manage across the energy transition for decades to come.
Our clients are trying to find the right balance between meeting the increased requirements for future production and managing long-term risk. To address this, we see progressively increasing interest in exploration, yet in lower time-to-market locations. As an example, in frontier areas that already have discoveries are invasive where infrastructure is already in place. This not only lowers risk, but importantly, shortened cycle-times.
Good data and high-end imaging are fundamental to reduce exploration risk and maximizing total production. We are in a favorable cycle for CGG, where quality and precision increasingly matter and our clients, specialty annuities, turn to best-in-class organization capable of delivering integrated [Indiscernible]. I expect the continued trend of sustained higher levels of E&P CapEx, especially offshore and in the Middle East, both key markets for CGG.
Looking at our Q3, we had an excellent quarter, both in terms of operational and financial performance. Geoscience revenue was $78 million, up 13% year-on-year, driven by innovation in higher imaging. Earth Data sales were $107 million, up 74% year-on-year, with solid after sales at $52 million, up 21%. Prefunding revenue was $55 million with a 111 prefunding rate. Sensing & Monitoring sales were $122 million, up 42% year-on-year. Overall, our Q3 revenue reached $307 million, up 42% year-on-year.
Segment EBITDAs was $109 million, up 41%, including our payment this quarter of $20 million to shareholders to compensate to the non-utilization of their streamer vessel. Q3 net cash flow was positive at $63 million and we had $370 million of liquidity at the end of September, including $95 million of undrawn RCF.
Looking to Slide 7 now. DET segment revenue was $185 million in Q3, up 41% year-on-year with double-digit growth in Geoscience and strong Earth Data sales. Profitability was solid despite the $20 million impact of non-utilization compensation fees to Shearwater for their streamer vessel.
Slide 8. Geoscience external revenue was $78 million in Q3, up 13% year-on-year, with growth coming from all regions. The Geoscience business remains solid, supported by the strong demand and by our technology differentiation, particularly by valuable for OEM process.
Backlog is up 3% year-on-year, mainly due to delays in the award of large projects for [Indiscernible]. We continue to increase quality and extract more efficiencies as our work becomes more and more data-driven and less people-intensive.
Slide 9. In Geoscience, demand for our unique elastic full-waveform inversion is very high, driven by North America and expanding worldwide. To support the ramp-up of our activities, we are increasing top talents from the best calls [ph] globally and remain highly attracted because of CGG's culture, advanced technology, and focus on innovation.
Our new highly specialized UK HPC hub is coming online to support running the most complete intensive algorithms as demand for advanced technology is picking up in the Eastern Hemisphere. The picture on this slide is a very nice example of CGG's imaging added by [Indiscernible] project.
You can see the subsurface in the shallow waters of the Gulf of Mexico. Thanks to our unique high frequency TLFWI velocity imaging technology, we can show the reservoir pressure differences across the fault and identify high-pressure areas, which are not optimal for recurrent storage.
The range of our offerings in carbon sequestration is expanding with more projects targeting the monitoring phase, which is the most sensitive from a regulatory standpoint and offered longer term business opportunities.
At [Indiscernible] in Minerals & Mining covers a growth spectrum from exploration such as our recent contract of lithium mining in Mongolia, all the way to production, while we provide services to assess mine stability.
Overall, our quarterly revenue stream for these low-carbon services is showing a positive dynamic as no companies acknowledge the need for high-end Geoscience as an example to export the new mineral deposits barrier in the subsurface that are needed for energy transition also characterize reservoirs to CCUS and better understand their long-term behavior.
We'll go to Slide 10 now. The most recent implementation of our full-waveform inversion algorithm brings a highly geological fidelity to subsurface images. And this, together with our machine learning and AI techniques, is enabling a much more rapid and accurate interpretation of the data.
As such, we are becoming increasingly involved in supporting activities that were historically performed exclusively by our clients and are expanding the scope of our services.
Results are particularly striking with OBN data, and this is a key reason our clients are increasingly using OBN technologies together with the high-end imaging even though it is multiple times more costly than streamer acquisition.
Processing is more complex and with our differentiation, clients tend to use our unique and leading technology to extract the most value from the OBN acquisition investments.
The images you see on the slide are five years apart and the 2023 image is based on the most advanced acquisition and imaging technology. You can see that the details of the salt geographies are defined much more clearly, especially at the reservoir level.
Slide 11. In early October, we opened our new UK high-performance computing half in the Southeast England. The initial capacity of the center is 100 petaflops, bringing CGG's global total to just over 500 petaflops.
The highly optimized environment, together with the HUB to use of 100% renewable energy, reflects CCG's commitment to sustainably meet the market computing demand required by high-end scientific and AI applications.
I expect the trend of increasing our computing capacity to continue in the future, possibly accelerate, as we not only support our traditional imaging business, but also our new and growing businesses in digital and data transformation as well as new range forward.
We announced this morning another new client, LightOn, a pioneering artificial intelligence AI company to our emerging HPC business. Our highly optimized and sustainable AI and HPC solutions will help LightOn optimally evaluate and set large language model to support the industrial deployment of AI.
Ultimately, our outcome-driven specialized approach, combined with our proprietary technology, enables companies such as LightOn to accelerate and maximize the return on investment through evaluation, testing, scaling, and commercial production. Its unique HPC AI solution brings tremendous value to our internal and external clients.
We'll move to Slide 12 with Earth Data. Q3 Earth Data revenue was $107 million, up 74% year-on-year. Prefunding revenue was solid at $52 million, bringing the prefunding rate for the first nine months to 93%. And I am confident that we will finish the year above 90%.
Earth Data cash CapEx was $50 million this quarter, down 31% year-on-year and after sales were $55 million, up significantly up year-on-year. Overall, we see a strong improvement in prefunding and we have been more selective on projects this year to focus on shorter-term cash return.
Slide 13. In Norway, we completed the Sleipner 1,200 square kilometer OBN acquisition and the 2023 NVG East-West is now in the processing phase. We have several reprocessing projects ongoing across the globe to revitalize our library where clients are interested. This reflects the trend of renewed interest in more frontier areas where risk and time-to-market are lower. All these projects have industry prefunding.
The [Indiscernible] in Norway was closed on August 23rd with 25 companies submitting bids. Results will be announced in Q1 2024. In Brazil, the Permanent Offer bid run was launched in August, and we expect the bid run to be closed in the December.
Uncertainty remains around the timing of the Gulf of Mexico lease sales, which typically trigger after sales. However, we expect clients may still decide to buy data as part of the year-end budget.
Going to Slide 14. I'd like to highlight two new projects that started in Q4. The Selat Melaka 2D multi-client seismic program over the Langkasuka Basin offshore Malaysia. This project of 8,000 kilometers will take about 80 days to complete and is well prefunded. It is our first project in Malaysia, a country where we see increase in activity.
Second project, we kicked off a large-scale CCUS screening study in Southeast Asia, covering Indonesia, Malaysia, Thailand, and Vietnam. Interest around carbon sequestration is growing in Asia, driven by both IOCs and NOCs.
Now moving on to Slide 15. Our Q3 Sensing & Monitoring segment revenue was high at $122 million, up 42% year-on-year. Land sales, at $58 million, were driven mainly by deliveries of high numbers of vibrators. Marine sales at $45 million, more than doubled year-on-year, supported by the sales of OBNs to the Middle East.
Sales from beyond the core were also up at $13 million, mainly from the structural health monitoring project. The profitability of SMO was exceptionally low this quarter, but we expect the profitability of the SMO business come back to normal in Q4.
Slide 16 for highlights. Q3 was another quarter of very high deliveries, both in land and marine, driven by stronger activity in North Africa and the Middle East. Given the success of our shallow OBN GPR 300 that features the best sensor in the industry, we are launching the full range of products to address deeper water markets.
We are also progressing our range of sources to offer broadband and solutions that were any potential impact on the environment. Our MetaBlue products offers value-added solutions that complement our marine acquisition systems and make our clients more efficient, both in planning and acquiring their surveys.
In BTC, we are proud of our first commercial successes in Saudi Arabia for the identification and monitoring of sinkhole among [Indiscernible]. This is a multiyear contract, which covers an initial phase of analysis and subsequent monitoring. We are also active in the space of wind turbine monitoring.
Let me now give the floor to Jerome for more financial detail.
Jerome Serve
Thank you, Sophie. Good morning and good afternoon, ladies and gentlemen. Let me start with the income statement on Slide 18. As previously highlighted, Q3 was a solid quarter with our segment revenue growing 41% to $307 million, mainly driven by SMO higher equipment deliveries for land and OBN mega-crews as well as a strong prefunding for our Earth Data business.
Segment EBITDAs reached $109 million, up 41% versus last year. This translates into 35% margin including a negative impact of $20 million extra cost linked to the Shearwater agreement as well as a dilutive business mix coming from SMO.
Regarding segment operating income, Q3 was at $33 million or 11% margin. After IFRS 15 adjustment, Q3 operating income was $42 million. Net income for the quarter was positive at $8 million.
Moving on to the cash flow statement on Slide 19. Q3 2023 segment free cash flow was positive at $85 million after $31 million positive change in working capital. As mentioned during our Q2 results, the high level of SMO revenues booked in May and June, coupled with an inventory kept under tight control, did translate into a strong cash generation for SMO this quarter.
Regarding Q3 year-to-date CapEx, they stand at $190 million, $20 million lower than last year. This is mainly coming from our multi-fund CapEx decreasing from $180 million last year to $142 million year-to-date, but with a prefunding ratio increasing from 38% last year to 93% year-to-date.
This year, we have indeed been -- sorry, this year, we have indeed been more selective in the way we have invested into new multi-client surveys, scrutinizing both the prefunding and cash-on-cash ratio, as well as balancing the potential extra cost paid to Shearwater. Overall, the Q3 2023 net cash flow was positive at $63 million.
Looking at our full year guidance, we expect to reach net cash flow breakeven after change in working capital and this despite a potential unfavorable euro/dollar and euro/GBP exchange rate.
Moving on to Slide 20, the group balance sheet and capital structure. The group liquidity amounted to $370 million at end of September, including $95 million undrawn RCF.
Before IFRS 16, group gross debt was $1.197 billion, and net debt was $921 million. Net debt is actually $60 million higher than as of December 2022, mainly from the negative net cash flow over the nine-month period, $24 million of debt interest due as of end of September as well as circa $20 million of asset financing for our [Indiscernible].
After IFRS 16, gross debt was $1.283 billion and net debt was just above $1 billion at the end of September 2023. Segment leverage ratio of net debt-to-EBITDA was 2.3 multiple at the end of September.
Now, I hand the floor back to Sophie for conclusion.
Sophie Zurquiyah
Thank you, Jerome. Now, we're on Slide 22. This quarter confirms the positive market trends that we saw during the first six months of the year. a favorable cycle is clearly shaping up for our industry as clients continue to look for ways to optimize production from their producing fields and increasingly prioritize new reserves to meet demand.
The cycle, together with our technology differentiation, has already driven the Geoscience business back to pre-COVID. In Earth Data, as our clients have started to increasingly prioritize the rebuilding of their portfolio of opportunities, the cycle is still emerging and has not fully materialized. Looking forward, we do see growing interest in exploration, which is positive for Earth Data.
SMO, together with Geoscience, will benefit from OBN becoming a reference technology for optimizing the production of mature reservoirs as well as for lowering the risk of near-field exploration opportunity.
The Land business in SMO will continue to be driven by the national oil companies, especially in the Middle East, who are taking a longer term view on the cycle. It is expected that timing of the Middle East mega-crews will create for quarterly opportunities.
In this context, our core businesses are doing well and should continue to strengthen in 2024, where we already have improved visibility. Our Beyond the Core business activities continue to mature and we are gaining experience and progressively building our commercial business as we participate in more streams of the value chain and especially, around low-carbon and digital.
Our new contract for HPC applied to Gen AI strengthened our credential in this growing sector and we expect continued to success moving forward.
Finally, we're very pleased to see our Structural Health Monitoring business continuing to grow with a successful expansion into the Middle East.
In summary, we are on track to meet our 2023 objectives and continue to see a supportive outlook for our business moving forward.
Thank you very much for your interest, and we're now ready to take your questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]
And your first question comes from the line of Haris Papadopoulos from Bank of America. Please go ahead.
Haris Papadopoulos
Hello, hi, can you hear me?
Sophie Zurquiyah
Yes, hello.
Haris Papadopoulos
Hi. Yes, thanks for taking my questions. I have four actually, please. First one, could you perhaps give us an indication of working capital for the fourth quarter?
Sophie Zurquiyah
Hi Haris, sorry. Can you repeat your question? I didn't catch it.
Haris Papadopoulos
Yes. I was just wondering, could you perhaps give us an indication of working capital for the fourth quarter?
Sophie Zurquiyah
Working cap for the fourth quarter, that's a question for you Jerome.
Jerome Serve
It will be slightly negative, around $10 million.
Haris Papadopoulos
Okay. Thanks a lot. And then on the SMO business, I appreciate margins here were exceptionally low this quarter, how should we think about it for the fourth quarter?
Sophie Zurquiyah
Yes, I did -- yes, it's an interesting question. Again, that's led to some of the mix of generative AI this quarter, but what we did say is that we expect to see where we are year-to-date, we'll probably stay around that number. So, Q4 will be around the sort of average for the year year-to-date. So, will catch up and have the normal -- back to the normal profitability in Q4.
Jerome Serve
And sorry, back to my first answer. It's -- as you know, the working capital depends very much on the rates of -- so there will be a good November, December and especially our Earth Data after sales, which have tendency to be booked more in December time.
We -- I mean, what we just said is we ambition, as we already mentioned it in Q2 to have the cash flow generation breakeven, including working capital variation also the guidance we have made earlier this year was excluding working capital.
Haris Papadopoulos
Okay. Thanks a lot. And then thirdly, I appreciate your liquidity target. I remember it was $150 million. This means that you currently have a large cushion over that. Would you perhaps consider using your 10% special retention goal?
Jerome Serve
So, this has been communicated in the past that we needed $150 million to operate minimum and depending on our for 2024, that's something that we indeed may consider paying down reimbursing out of our business.
Haris Papadopoulos
Okay. Thanks a lot. And then finally, perhaps again on the capital allocation front, how should we think about M&A?
Sophie Zurquiyah
So, the question is about where we are with M&A. Is that correct?
Haris Papadopoulos
Yes.
Sophie Zurquiyah
We keep cash M&A. We don't have like a large M&A inside, but we always opportunistic like we had last year. So, we like to be bolt-on M&A in that range of $20 million that our technology adds to what we have. Right now, we are actually not working on any. But yes, -- but we feel are organically in the quarter.
Haris Papadopoulos
Okay. Thank you very much. That's all for me.
Operator
Thank you. We will now go to our next question. And your next question comes from the line of Mick Pickup from Barclays. Please go ahead.
Mick Pickup
Good day. It's Mick here. Just a couple of questions. Can I just check the NDDA that increasing cost base, that's all the Shearwater payment that we've seen in the quarter?
Sophie Zurquiyah
Yes. Thank you, Mick, and good evening and thanks for the question and for the benefit of L1 [ph], that is the reason. And we've seen the Geoscience revenue per head continue to increase, we're actually increasing productivity. So, actually, what's hiding, if you want, the increases of the original performance and profitability in those payments. And they have been significant enough that we've been flagging them for the last two quarters.
Mick Pickup
Yes. Perfect. That's clear. Next one is, can I just talk about on the multi-client business? Obviously, your investments appear to be running a bit lower than I think you were looking for after the year and you mentioned that it's much higher prefunding.
Just wondering how you balance that going forward with your clients wanting to rebuild their inventory of prospects? And clearly, that would suggest spending more going forward, but you're on the path of trying to spend a bit less at the moment. I wonder how this all balances out?
Sophie Zurquiyah
What we look at, and this is not new, we look -- we manage multi-clients from the cash out fleet, which in the -- basically, how much CapEx we -- basically prefunding ratio in rates this is the CapEx minus the prefunding revenue and we look at how much we're sort of willing to invest, and that number has been over the years like a $15 million. This year is going to be less, but we've been going all the way to $15 million. So, we look at the project project-by-project on merits of if we keep prefunding or not and that -- and when that funding might be coming.
So, this year, I would say if we have had a compelling project, we would have invested provided that we saw the prefunding and that's the reason that, in particular, with a couple of projects in Norway that we decided to delay until 2024 because we knew and the client has told us they didn't have the budget this year. So, we didn't see a point of putting more cash out and wait until next year to get the prefunding. So, we're trying as much as we can to line up the investment with the prefunding just to manage the cash basically.
So, I don't think you should read much into the level of the level of CapEx, it just depends a little bit on client interest and quality of the projects. So, I do expect and I hope we will invest, for example, in OBNs in the Gulf of Mexico. So, that might drive some of the CapEx in 2024.
Mick Pickup
Okay. And then just finally, obviously, a low margin in Sensing & Monitoring and you're seeing low-margin equipment, but 10% is a big step down from, what, 20%-odd you did last quarter. So, can you just talk me through exactly what's driving it because you suggest -- that was very low margin?
Sophie Zurquiyah
Yes, it is low, and we were very disappointed. I mean, it's very simple, it's the vibrators. So, those are the vibrations and we've sold a large number of vibrators to Saudi Arabia. And that's just -- they just typically the equipment and I've seen those vibrators or trough over the years, typically attract a lower margin, kind of lower value if you want, and it's just an unfavorable rate this quarter. But the GPR products, for example, have the typical SMO high margins.
So, that's why it was just -- again, a bit of a volatility, it all happened in that quarter. But next quarter, we're confident that it will be back.
Mick Pickup
Okay. Thank you.
Sophie Zurquiyah
Thank you.
Operator
Thank you. We will now go to our next question. And your next question comes from the line of Baptiste Lebacq from ODDO. Please go ahead.
Baptiste Lebacq
Yes, hi. Good afternoon everybody. Just a very quick question regarding the -- let's say, potential merger between Exxon and Pioneer and Chevron and S in this context. Can you benefit in 2024 of transfer fees if the mergers are done? Thank you.
Sophie Zurquiyah
Yes. Thank you, Baptiste and good evening. So, Exxon-Pioneer is truly land onshore US. And if you remember, we sold our land onshore Earth Data business last year -- at the end of last year. So, we're not going to benefit any of that.
Chevron S, there is definitely a potential for transfer fees that will be recalling in the mid-range. If you remember the Oxy-1 in a higher range over sort of -- it's going to be significant, but not as significant, and that would happen at the moment of closing.
And of course, it always depends on the appetite of the buyer to transfer for the data. So, that means we're in the process of identifying which data they don't have that likely they might want to transfer, but they could still make a decision not to transfer the data. So, I don't have the final numbers until those conversations take place.
But we should definitely have Pioneer nothing on that side and then Chevron S there should be something. Just to remind everyone on the line the US land library last year generated around $18 million of after sales and so when you compare the year-on-year after sales from 2022 to 2023, you have to take into kind of the footprint change, the year-to-date.
Jerome Serve
$6 million in Q3.
Baptiste Lebacq
Thank you. And maybe still one question, if I can, regarding M&A, let's say, two of your competitors or clients, it depends on where you stand want to merge. What is your view? Can you share with us your view? Is it for you positive? Or are you afraid by, I don't know, bigger competition because they are by far bigger now than previously? Thank you.
Sophie Zurquiyah
Yes, sure. So, in terms of the client, I think generally speaking, this client is not necessarily good. Now, it depends who is the buyer and who is the company that bought and you know how -- what's our position with them. So, there's a lot of consideration in that. But in general, we benefit when there's a larger client base for that general trend of M&A amongst our client base, we will benefit in the short-term. We're trying to feed, but in the long-term, I would rather have more clients.
Now, the good news is that there are some start-ups, private equity-backed companies that are creating some of the basins, and mature basins. And what we're seeing as well, which is also a good thing and new trend is NOCs are trying to go more international. So, that kind of opens up another -- for new client base if you want.
The second one is on our competitors. Probably you're referring to the [Indiscernible] merger, I would say it's relatively neutral in the sense where it creates a big competitor -- a larger competitor in the multi-client space, but multi-client is not really about scale, it is more positioned. And so in that sense, whether you're midsized like us or larger size, it doesn't make a huge difference.
And then on the processing side, they were both quite small. So, the combination remains small, so nothing on that side. And on the acquisition business, it's just moved from one player to another player, but the same business in the end. So, that particular consolidation is not -- it's fairly mutual for us.
Baptiste Lebacq
Thank you very much.
Sophie Zurquiyah
Thank you.
Operator
Thank you. [Operator Instructions]
We will now go to the next question. And your next question comes from the line of Jean-Luc Romain from- CIC Market Solutions. Please go ahead.
Jean-Luc Romain
Good afternoon. You had a very strong first quarter in SMO and a very strong year so far. How should we expect at the end of the year compared to the past quarter as good or even better? And how do you see from today 2024, you mentioned quite a few possibilities of mega-crews. Do you see a higher 2024 for SMO?
Sophie Zurquiyah
Thank you, Jean-Luc for the question and good evening. So, in terms of year-end, I mean, I think we're going to be on the trend of a high quarter, hard to give you the comparison on Q3 or Q1 and Q2, but every quarter has been fairly high, above the $100 million mark, and that's kind of the range that we expect and Q4 will also be a very good year. But keep in mind that the business of SMO is composed of two revenue streams. If you want a certain recurring revenue stream, which is lined to our installed base -- replacement, if you want. And then there's those mega-crews that create volatility from important basis.
So, to-date, we only have -- we have one mega-crew identified in Saudi Arabia, I would call it a superman in the sense that it's equivalent to two traditional mega-crews. So, it's fairly significant.
Now, the -- if you remember, this year the bid was being delayed, and there's been a lot of delays. So, right now, it seems like deliveries will be targeted to Q4 last year meaning that it could easily slip from Q4 to Q -- into even 2025, right, creating some volatility.
So, that's for super mega-crew in Saudi Arabia. We have in mind as well some large crews in North Africa that we will be pursuing.
And on the node side, it looks like it might be more deeper water request, but it's not like associated to specific mega-crew, but just general increasing demand for OBN.
Jean-Luc Romain
Are companies doing varying mix finally starting to replace streamers, which should be quite hard by now?
Sophie Zurquiyah
Yes, we are always looking at the age of our streamer base. So, the age of our streamer base is like somewhere around 11 years ago. So, you think that by now, they're definitely going to replacement cycle. We're seeing is more -- I told you the replacement cycle is taking a different shape than we anticipated in the sense that our clients are replacing portions of their streamer set. So, they're doing a mix and match between old streamers and newer treatments. They're trying to refurbish as well.
Now, eventually, all these streamers will have to be replaced and we're definitely seeing request for quotation, but not really a significant increase in orders. We're still have that recurring level, not of that sort of forward license level yet.
I mean I would expect that fleet replacement level sets at the high level.
Jean-Luc Romain
Thank you.
Operator
Thank you. We have one further question. And the question comes from the line of Jerome [Indiscernible] from Société Générale. Please go ahead.
Unidentified Analyst
[Foreign Language]. One question for Jerome basically. I would like to come back on the working capital dynamics to be sure to really understand the different moving parts. So, basically, a change in working capital after nine months is minus $23.5 million. If I understood correctly, and we all know that forecasting change in working capital is the highly difficult exercise. But I understand that it might be $10 million. So, let's say, minus $33 million at the end of the year.
Your guidance at the beginning of the year was neutral free cash flow, excluding changes in working capital. And now you are saying neutral free cash flow, including, so just to be really sure, is it, I would say, given the fact that you are more or less implicitly forecasting a minus $33 million. So, is it, I would say, some kind of increase in guidance, just to be sure?
Sophie Zurquiyah
Yes, let's put it that way because the guidance was excluding working capital and here we ambition to be breakeven or included. So, yes.
Unidentified Analyst
So, -- okay. No, I just wanted to be sure because -- thank you, I turn it over.
Sophie Zurquiyah
Yes. Jerome, just to add, when we -- as you know, it's difficult to plan for working cap, and that's why when we guided earlier, we want to the working cap, but now we're fairly advanced in a year and have a good visibility on that sense, so we are more confident.
But we always -- I told you last quarter that our aim was always to have it all-inclusive and that's the number we look at the net cash flow, including everything. And by the way, included in at year-end around $15 [ph] million of payments to Shearwater between the $21 million of IDC [Indiscernible] exceptional, which is going below and then the $40 some million that will be included in EBITDA.
Unidentified Analyst
Crystal clear. Merci Sophie. Have a nice evening.
Sophie Zurquiyah
[Indiscernible].
Operator
Thank you. We have another question and the question comes from the line of Daniel Thomson from BNP Paribas. Please go ahead.
Daniel Thomson
Hi, good evening. Just one question on late sales. Obviously, we had improvement this quarter -- but of course, we had $20 million sort of which was delayed from 2Q to 3Q coming in this quarter. So, underlying will probably not as robust as you want it to be.
I think you mentioned last quarter that you saw improvement in order intake trends related to this in the year-to-date figures. So, can you just talk about order intake trends in the third quarter, how its progressed now it's looking over the first nine months? Thanks.
Sophie Zurquiyah
Yes. Thank you, Daniel. So I'll comment first on Earth Data. So, in terms of order intake and you see it through the prefunding. I mean the prefunding been very sustained this year, and that's the reason also as we've invested less in CapEx.
But in terms of aftersales, I did mention that last quarter, we were looking at kind of thinking it's around that 10%-ish improvement year-on-year, but outside, keep in mind the exceptional transit we had last year and our footprint change of demand in US.
So, corrected for that, we're sort of trending a 10% up year-to-date, and we look at it on a volume basis, and that's pretty much where we're at. So, it is improving, but not as much. If you take as reference, 15% -- 15%, 17% exploration CapEx offshore improvement in 2023 over 2022.
The Earth Data is sort of a little down from that macro trend in Q1. And that's when -- where the conclusion, I said, well, produce on is fully dementalizing, but for Earth Data, we're somewhat lagging. And I think the difficulty of Earth Data, its clients are struggling with the -- projecting themselves beyond, say, 2035, 2040. And they're really looking for projects that they think can become material and have an impact on production in the shortest term possible.
But at the same time, we're seeing when more and more demand for our data that is not in the core basin than we saw -- we're launching the project in Malaysia, for example. So, we're doing and we're going basically what the prefunding is.
So, in general, correcting for those exceptional it's trending up, but not as high as the macro number in Earth Data. But then in Geoscience, we're definitely trending along those lines of the sort of the macro trends.
And being difficult to project because it has that volatility of specific deals that could be positioned in a quarter or another or even from a year to another year.
I think I mentioned as well somewhere that perhaps from backlog that you signs and the reason why it was that 3% year-on-year is because there are two large contracts for NOCs that are pending signature and that we haven't put in our backlog. So, they're fairly significant. We had them in there, we would see this kind of significant increase in backlog year-on-year. So, we're not concerned that Geoscience is definitely on that uptrend.
Daniel Thomson
Okay. Thanks Sophie.
Sophie Zurquiyah
Sure.
Operator
Thank you. There are currently no further questions. I will hand back to CGG for closing remarks.
Sophie Zurquiyah
All right. Well, thank you very much. Thank you for the lot of questions and really good questions, and thanks for your time and your interest, and we'll be in touch in the next few days or weeks. Thank you, again. Good evening.
Jerome Serve
Thank you, indeed. Good evening.
Operator
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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CGG (CGGYY) Q3 2023 Earnings Call Transcript