Good morning, welcome to the Q1 2023 earnings release from TGS. My name is Kristian Johansen, I'm the CEO of TGS, and with me today we have our CFO, Sven Børre Larsen, who's gonna go through the financial section of the presentation. I'll start by referring to our forward-looking statements that you can read after the presentation. Then hit the financial highlights right away. We had total POC revenues of $229 million in the quarter. That compares to about $114 million in Q1 2022, so an increase of about 100%. We had late sales of $46 million in Q1. That's down relative to $76 million in the same quarter last year. This is partly due to the transfer fees that we collected in Q1 2022.
We had early sales of $98 million compared to $34 million, almost a 300% increase from Q1 of 2022. We're also really pleased to see that our acquisition business unit, the former Magseis Fairfield, had net revenues of $79 million, gross revenues of $97 million in the quarter. That's an 18% growth in net revenues, the corresponding growth in gross revenues is about 26% year-on-year. We had an EBITDA of about $119 million in Q1. That compares to about $83 million in the same quarter of last year. We had a very strong free cash flow in Q1, $106 million, that compares to $26 million in Q1 of last year.
Finally, last but not least, we see a continued momentum in contract inflow. We had $248 million in new contracts signed in Q1 2023. We clearly see a continued recovery in sales and contract inflow, and I think this slide does a good job in terms of highlighting that. Number one is that you see a 30% year-over-year increase in POC multiclient revenues, on the right-hand side, you see a 113% increase in pro forma contract inflow for TGS. Although late sales came in slightly lower than most of you expected, and lower than I expected as well for Q1, I think these slides really highlight the fact that the industry is still growing, and it's growing at high multiples as we speak. I think this slide also shows you that.
This slide is showing the activity level for Q1, and it's a combination of multiclient activity, acquisition activity for our OBN crews, and DES, so Digital Energy Solutions activity in the quarter. If we start on the left-hand side and start at the top there, we see a onshore project called MC, or an MC project called Beyond Far East. That's a Permian project. It's one of the first onshore acquisition projects we've done in a long time, so we're starting recording there sometime this summer or fall. We have a LiDAR buoy project in the New York Bight, where we have 4 of these LiDAR buoys already placed in a very active area now for offshore wind.
We had 2 OBN multiclient projects in the U.S. Gulf of Mexico, Amendment Two and Engagement Three. You will continue to see new OBN projects in the U.S. Gulf of Mexico in line with our strategy of really covering our underlying VAST data now with OBN data. We had a crew, an OBN crew in Guyana in the quarter. That's part of a long-term contract, which means that we're gonna stay in Guyana for quite some time. Finally, we had 2 multiclient surveys in Brazil. We had 1 in the Foz do Amazonas. We had 1 in Santos Sul further south in Brazil. I'm glad to see more activity in Norway as well. We had an OBN crew in Norway during the quarter. We also had reservoir monitoring activity in Norway.
Finally in Denmark, we were part of the Greensand CCS project that we completed during Q1. If you move further east, starting with Bangladesh, it's one of these areas that are still considered very frontier, and TGS is out there together with SLB acquiring 2D data in Bangladesh. It's a very promising area. We have OBN activity, or had OBN activity in Malaysia during the quarter. We had a multiclient survey that we completed on the west coast of Australia, which is called Capreolus. In summary, it's probably the highest activity level that we've ever seen, and you see that from our investments in the quarter too. It's been record high activity level and this is obviously what's gonna produce late sales going forward.
Very optimistic in terms of the activity level in Q1, and as you've seen from our annual guidance, that's just gonna continue throughout the year with high investments and lots of interesting projects and lot of OBN as part of that mix, and obviously the part of the rationale for the acquisition of Magseis. Talking about Magseis Fairfield, the acquisition business unit, which is now called so, used to be the former Magseis Fairfield. We call it Acquisition now. It's a separate business unit within TGS. They're off to a very good start, and we're very pleased to see that. We had a strong revenue growth of 18% in the quarter, and as I said, if you adjust for the eliminations of internal revenues, we had a growth of 26% year-on-year with our acquisition business unit.
We had a positive EBIT margin and a positive free cash flow in Q1. That's particularly impressive given the history of the company and the history of losses. It has strengthened our belief that we can turn this into a profitable business already in 2023. That's really good to see. Get a great backlog, acquisition backlog of about $283 million as we speak. That number continues to go up because we have a strong pipeline of new opportunities as well. The synergy realization is ahead of plan. Right now we have realized about $7.5 million of synergies from the transaction. Obviously, it comes at a cost too. We'll go through some of the one-off costs that we're charging relative to the synergy takeouts.
It's really good to see that we're ahead of the plan, and we think we're gonna take out synergies in total of somewhere between $10 million and $15 million, probably in the higher end of that range. Again, we're on track or just slightly ahead of our plans in terms of synergy realization from Magseis Fairfield. We get a new organizational structure, Carel Huijskens, the former CEO of Magseis Fairfield, is heading our acquisition business unit, and he's got a new team consisting of former TGS operational people and former Magseis Fairfield people, and we think we get a winning combination there. Again, we're very optimistic to the future of that business, and we feel the timing of that acquisition was as good as it gets.
Last but not least, and this is obviously important in an acquisition business unit, continued safe operations, where we track pretty much in the upper 10% or 15% of the industry in terms of our safety results. Then the DES or Digital Energy Solutions, which consists of a lot of our renewable activities. You see strong growth. We have revenue growth of 63% year on year from Q1 and if you adjust for acquisitions that perform, our corresponding number is about 40%, but it's still a very impressive growth rate in our DES business. I talked about the LiDAR buoy campaigns that are progressing well. We now have four LiDAR buoys in the New York Bight. There's gonna be more LiDAR buoys added.
We've just gone through a strategy in that regard. We're ready to place out new LiDAR buoys in line with our strategy of what we've done in seismic over the years. We apply exactly the same business model where the LiDAR buoy would be basically the same as a seismic vessel. It's out there and collecting data for about 12 months. We're licensing this data to multiple clients. We get good pre-funding on the projects. We expect strong late sales as well as long as you have all these awards that you see, particularly in the New York Bight. You will see this growing all over the world in the future. 4C Offshore, our intelligence company that we acquired back in 2021, continues to show profitable growth. Very happy about the acquisition of 4C.
We see CCUS opportunities materializing in North America, particularly based on the Inflation Reduction Act that Biden announced more than half a year ago now. That's really put the entire industry on steroids in terms of activity levels, so quite optimistic about the future of that as well. Very strong customer engagement. We just got back from a wind conference in Copenhagen, and it was far better attended than most of the oil and gas conferences that we visit. Really, really good to see that this industry is growing fast and a high acceptance of our products that we bring to the market. The team has done an excellent job in really putting TGS on the map, also in the offshore wind industry.
You see the revenues on the right-hand side, but you see the growth, but you also see that this starts to become quite a material part of the overall revenues. If you apply the industry growth to this number, you will see that over time, this is gonna be quite a sizable business for TGS. It's also good to see that we continue to perform well on the ESG area. This just shows that we're a great place to work. We just was a winner of something called the ALLY GRIT Awards in Houston, we are a member of the Bloomberg Gender-Equality Index, meaning that we satisfy the criteria of a balanced workforce, which is obviously critical for an international company like TGS.
With that, I want to hand it over to Sven Børre, who's gonna go through the financials, and then I'll come back and talk about the outlook. Thank you very much.
Thank you for that, Kristian Johansen, and good morning to you all. As we indicated during our Capital Markets Day in March, we are going to, in the analysis part of the financial presentation, we're going to focus on percentage of completion revenues where early sales are recognized or measured in accordance with percentage of completion of the different projects that we are doing at each and every point in time. Whereas the P&L account, the balance sheet, and cash flow will still be in accordance, obviously, with the IFRS standards. On this page here, we have listed our POC revenues by type or by kind of the commercial nature of the revenue streams.
Starting with early sales on the top left-hand corner, we had high early sales, strong increase sequentially and also year-over-year in early sales. That obviously has to do with the strong order inflow that we experienced during the second half of last year and also in Q1 of this year, which has resulted in a steep increase in our multiclient investments. That, of course, gives us a correspondingly steep increase in POC early sales, so $98 million recognized in Q1 2023. Late sales, as Kristian already alluded to, were a bit weak in the quarter and also weaker than we anticipated ourselves at the beginning of the quarter, and it was also obviously weaker than the analysts in the market expected.
You can only speculate on the reasons for that, but of course, the financial turmoil related to banks in the US and Europe wasn't positive, to put it that way, towards the end of the quarter, but it's obviously difficult to quantify the effect. Also when you compare to with the numbers for the same quarter of last year, you need to bear in mind that we had substantial transfer fees booked in Q1 of 2022. All in all, a fairly weak late sales number in Q1. Proprietary sales: $86 million.
This includes, obviously, the acquisition business unit that makes up the majority of that, but it's also some revenues related to proprietary imaging projects included, and also some proprietary revenues from our Digital Energy Solutions business included in this number. We obviously see a steep increase here since Magseis was not included in the comparables for Q1 of 2022. $86 million in this quarter in proprietary sale. This gave us total revenues, total POC revenues of $229 million in the quarter, that is essentially a doubling from what we had in the same quarter of last year.
If you look at it on a pro forma basis and include the net revenues of Magseis in Q1 2022, the underlying growth was about 27%. We look at the POC revenues by business unit. In the first chart on the top left-hand side, we have lumped multi-client and imaging together. They have $138 million combined in POC revenues, compared to $107 million in the same quarter of last year. You see Digital Energy Solutions. We're really happy to see a strong growth there. Parts of it, roughly 20 percentage point of the 63% year-on-year growth, is related to the acquisition of Prediktor that we closed in July.
which means that organic growth accounts for roughly 40% of. We had roughly 40% of year-over-year growth in organically in the Digital Energy Solutions business. Looking at the acquisition business unit, which essentially consists of Magseis, we had $79 million of net revenues. We had $18 million of work that the acquisition business unit conducted on behalf of our own multiclient business. That was obviously related to the Amendment Two project that we conducted in or that we did in Gulf of Mexico during the quarter. We are also going to do a little bit of internal work in Q2, so it should be $6 million-$7 million of eliminations in Q2.
Apart from that, we haven't really booked any internal work for the remainder of the year. The elimination part of this chart should be much smaller going forward. Again, total revenue, $229 million, as I already alluded to on the previous page. Looking at operating costs. Cost of goods sold were $58 million in the quarter, and this is obviously tightly linked to the proprietary revenues. If you look at cost of goods sold, it accounted for 67% of proprietary revenues this quarter. That's probably a little bit higher than we expect going forward, this percentage number should probably be in the low 60s going forward. Personnel cost was $31 million in the quarter.
You should note that we had roughly $2.4 million of non-recurring restructuring charges, severance packages and things like that related to the Magseis integration process. The underlying personnel cost was somewhat below $30 million. As we said on the Capital Markets Day in March, we expect this to be ±$30 million as a quarterly run rate going forward. Other operating costs were $21 in this quarter, this includes $5.5 million of non-recurring restructuring charges, mostly onerous lease provisions related to office contracts that we no longer need in the combined business.
So, here we expect this, the quarterly run rate to be a little bit below $20 million per quarter going forward. This gave us a POC EBITDA of $119 million, and this is to be compared with $83 million in the same quarter of last year. As we also discussed on the Capital Markets Day, we have introduced a POC amortization number, and we show that on the chart on the top left-hand side. You see at the lower part of the bars, they represent the straight line amortization, which is the same in POC and in the IFRS world. As you can see, this is a fairly stable number going forward.
It doesn't move much from quarter to quarter. It can move obviously depending on the new projects that are completed and other projects that are becoming fully written down during a certain quarter. It should be reasonably stable from quarter to quarter. We have the POC accelerated amortization chart. This number is calculated by measuring the accelerated IFRS amortization in accordance with POC on the individual projects. This will jump around a little bit dependent on where early sales are in each and every quarter. It can, in certain circumstances, also be affected by extraordinarily high late sales on certain projects, but that's not going to happen every quarter. We'll discuss this that as it happens.
If I was an analyst and wanted to estimate this going forward, I would link it to early sales as a percentage of early sales. This quarter, it was 37%. I would think that it's going to be 40 something percent on a normalized basis going forward. Although be prepared that it may jump around a little bit from quarter to quarter. This quarter in total had $76 million of POC amortization, and this is to be compared with $58 million in the same quarter of last year. Depreciation on the top right-hand chart, it's obviously going significantly up due to the inclusion of Magseis Fairfield. We booked $19 million in this quarter.
That obviously also should be fairly representative for the run rate going forward. This gave us a POC operating result of $25 million this quarter compared to $21 million in the same quarter of last year. The multi-client investments, as I said initially, were quite high in the quarter, $133 million, and we had an early sales rate of 73%. We stick to our guidance. As you may remember, we updated the guidance on the 7th of March in connection with our Capital Markets Day, where we said that we expect it to be above $350 million, and we stick to that guidance, and we expect early sales rates to be minimum 70% for the year as a whole.
It will be a front-end loaded investment profile where it should decline gradually in the coming quarters. We have provided here a bridge between POC revenues and IFRS revenues. As we already discussed, POC revenues were $229 million in the quarter. We recognized $42 million of revenues related to projects that were completed during the quarter or performance obligations that we met on WIP or work in progress projects during the quarter. We had $98 million of revenues recognized on a POC basis in the quarter, which resulted in IFRS revenues of $173 million in the quarter. You can find the $173 million here in the P&L on the total revenues line there.
That's, that's the bridge between POC and IFRS. The cost elements are the same in the POC world and IFRS world. This gave us an IFRS EBITDA of $63.5 million. You can see that the straight-line amortization is at $39.6 million, which is the same as we looked at on the POC charts. Whereas accelerated amortization is different. It was $12.2 million in IFRS in the quarter. We had depreciation of $18.5 million, which is the same, which gave us an operating result of -$6.8 million in the quarter. As you can see, we had $6.1 million negative in net financial items.
tially due to some one-off effects, partially due to currency movements, and we expect it to be somewhat lower than this, or a somewhat lower negative figure going forward. Also, as we have now completed the refinancing of the old Magseis facility and with the TGS credit rating, we obviously get a lower interest rate from basically from 1st of May and going forward. Subtracting tax or adding tax cost of or a positive tax contribution of $4.2 million, we ended up with a net income of minus $8.7 million in our IFRS accounts, which corresponds to negative $0.07 per share in EPS in the quarter.
Looking at the balance sheet, it's not much to say here other than concluding that the balance sheet remains strong. The $45 million of interest, net interest-bearing debt is included in current liabilities in the balance sheet as of 31st of March because we triggered the change of control clause in Magseis' loan agreement when we acquired them. As I said, we concluded the refinancing at the end of April, it's now considered to be non-current liabilities going forward. Looking at the cash flow statement, we had strong cash flow from operations in the quarter, that is obviously mainly related to the strong late sales that we had in Q4.
As you know, we collect a lot of the late sales that we have in any given quarter in the quarter afterwards, since a lot of the late sales is happening in the last month of the quarter. Also, you should note that the investments in Multi-Client Library, the cash investments in Multi-Client Library, were only $67 million in the quarter. As you, as we saw earlier, the capitalized investments in the Multi-Client Library were $133 million in the quarter. Which means that it's been a payable buildup during the quarter, which means that although we had very strong cash flow in Q1, we expect to see a much lower negative cash flow in Q2. You should see that the net cash flow is significantly negative in Q2.
We expect it to be fairly neutral in Q3 and then quite positive again in Q4. Net cash flow from investing activities were -$72 million in Q1, and then we had -$85 million of net cash flow related to financing activities. This includes $11.6 million of lease payments related to vessel contracts that Magseis or our acquisition business unit have. Also the acquisition of the remaining Magseis shares of $54.4 million is booked as a financing activity. It's basically buying out the minority interest that we had at the thirty-first of December.
This gave us a fairly strong net cash flow in the quarter, despite the investments in Magseis shares and despite the dividend payment. We had net cash flow of $20.6 million in the quarter, which gave us a cash balance of $208 million at the end of the quarter. Obviously the strong cash flow and the solid balance sheet allows us to continue to pay a dividend despite increasing our investments quite significantly. The board has once again resolved to pay $0.14 per share as dividend in Q2. The ex-date, due to public holidays and so on in Norway next week, will be on 22nd of May, and the payment date will be the 5th of June.
With that, I hand the word back to you, Kristian.
Thank you, Sven Børre. I'm just gonna talk about the outlook for the reminder of the year and obviously the years to come after that. I think in general, you know, after the quarter ended and we were a bit disappointed about the late sales, and I actually met with 6 or 7 of our largest clients, and I asked them, you know, "What, what happened in late Q1? We typically see a big pickup in late sales." It's interesting to hear their reaction because their reaction is that we spent a lot of money with TGS in Q1. Why are you complaining? The fact is that they don't distinguish between late sales and pre-funding or new commitments to new surveys. They just look at what kind of commitments they're making to us.
They felt like in Q1, they made larger commitments to TGS than they've done in a very, very long time. They told me that there's been no changes whatsoever in terms of their spending plans for the future. I think that leads me to the first slide here, which shows that the year-on-year change in E&P CapEx is, was 32% in Q1 of 2023. It's up from 21% in Q4. It's a very strong increase in terms of E&P CapEx. If you look at the multi-client spending and you look at the year-on-year increase in multi-client spending, you see that it was lagging the overall E&P spending, which is not unusual because we're more exposed to the exploration area.
In general, you now see that it's really picking up, and we see a stronger year-on-year growth in multi-client spending than we see in overall E&P CapEx, which is a very strong sign. Again, our clients have not changed their view on the market. They're committed to invest. They're committed to invest in TGS data, and they were surprised about my question about why don't you buy more. I think that's a really important distinction for you guys to be aware of, is that our clients don't look at whether they spend money on old data or new data or new commitments for the future. They look at what they're committing overall, and that number was really good in Q1. That's also highlighted by the license round activity that we see in 2023 and onwards.
There is a record high number of licensing rounds. If you start in North America, you see Canada, you see US Gulf of Mexico. That's gonna be the last lease sale of the current five-year plan. There is a new five-year plan in the making right now. That may take a bit of time to finish that plan, we think that if there's not gonna be a lease sale in 2024, we surely think it's gonna happen in 2025.
Keep in mind that the surveys that we are acquiring in the US Gulf of Mexico now are not really impacted by lease sales because these surveys are mainly over held acreage, and we have very strong pre-funding on the surveys, and I expect the late sales will continue to tick in, and we haven't seen any reduction in that in the recent months. In Latin America, we have the permanent offer round in Brazil. We have rounds in Suriname, Guyana, Barbados, Trinidad, Uruguay, and Argentina. The good news is that TGS is present in all these countries. We have a lot of data in Latin America, and we're probably stronger positioned for this than any one of our peers. Europe, we have the upper round in Norway.
If you move to Africa, which is also really interesting, you see a sharp pickup in activity. You see countries like Angola, Egypt, Gabon, Ghana, Lebanon, et cetera, et cetera. I'm not gonna go through all of them. I'm gonna talk a little bit about Liberia, where you saw Exxon picked up some blocks in Liberia, and they made an agreement with the government in Liberia. You know what happens when some of these Americans enter into a new country where there has been limited exploration activity for a while, the other guys tend to follow. I think that's a really good news for Liberia. We see high activity in Nigeria, where TGS has data. We see Senegal, Sierra Leone, and Somalia, where a combination of TGS and Spectrum had a lot of data already.
We're very well positioned for the uptick that we see now in Africa. If you move further east and you look at Asia-Pacific, countries like India, Indonesia, Malaysia, and Bangladesh have this perfect combination of a very high population, a fast-growing population, and a huge need for energy. The push now to do more exploration in some of these countries is just enormous as we speak. Again, these are countries where TGS already has a strong database. These are countries where TGS is doing a lot of reprocessing of that data to make sure that we're well prepared for the uptick that you see in the activity level. This is a very interesting slide to look at, and it makes us really optimistic about the future, whether it's 2023 or the years following 2023.
I wanna turn back to our acquisition business. This is the activity plan for the remainder of 2023 for the former Magseis Fairfield and now the Acquisition Business Units. As you see, it's pretty much filled up for the remainder of the year. The Z Explorer 1 is fully booked for the remainder of the year. It's gonna work in Guyana. You see Z Explorer 2, there is a gap in Q4, obviously that's, we're part of a number of tendering rounds as we speak. Obviously we have multiclient projects that are competing with some of these tenders to get the capacity.
Just what we thought and just what we planned for when we acquired Magseis is that we should have this combination of a strong proprietary market, but we also have these multi-client projects that are being lined up now for more acquisition activity, particularly in the US Gulf of Mexico. Z700 had a relatively open Q1, but then you see activity is filling up, so we're filled up until the end of Q3, and we think that's gonna. We're part of tender rounds as we speak on that one as well, which means that we're probably gonna fill that over the next few months. The MASS crew has been busy in Africa, Middle East, Asia Pacific. It's moving to Europe, and then it's moving to the US Gulf of Mexico to do a proprietary contract that we awarded quite recently.
We have full utilization, long-term contracts on our reservoir monitoring crews. It's also great to see that we see a pickup in activity related to renewables, where we basically filled up our capacity in Q1 of 2023. Very much according to our plan and probably slightly ahead of the plan that we announced after we acquired Magseis Fairfield. That leads me to the contract backflow and inflow. We have a backlog of in the acquisition backlog of $283 million. I'm now at the lower left corner of the slide. $283 in acquisition. In addition to that, we have $183 million in multi-client backlog. The total of that is about $470 million.
We have an additional $175 million of IFRS backlog, so projects that have not been recognized revenues from in the IFRS accounts. The contract inflow was particularly strong in the quarter. Sven touched on that, the $250 million. You see 3 quarters in a row with very strong contract inflow, which of course means that we are very confident in terms of our overall guidance on investments for 2023. Not gonna spend too much time on the ex-timing of the expected recognition of the multiclient backlog, but you can see the pie chart to the right here and obviously make up your own numbers in terms of what you expect from pre-funding in the next couple of quarters. We certainly believe we have a compelling investment case.
It's a combination of a sharp expected recovery in E&P spending, which I think you've seen on some of our slides today. We are ready to capitalize on the M&As and investments that we've done during the down cycle. TGS has been known to, you know, take some risk and make counter-cyclical investments in the down cycles. We did that this time too. We're extremely pleased about our position as we enter into a better market. The OBN margin improvement and free cash flow. Again, we reported in Q1 a positive margin and a positive free cash flow from our Magseis business or the acquisition business unit. Very pleased on that.
We're capitalizing on the energy evolution with a 63% growth within our DES business, which is a promising growth rate and which I'm feeling very certain that we're gonna continue to see growth in our new energy business, which is great to see. Everything backed by a very strong financial strength and obviously a balance sheet. That leads me to the summary of today's presentation. We had total POC revenues, $229. It's up by about 100% compared to last year. We had late sales. We've discussed that. Yes, it was slightly weaker than we expected and weaker than you expected. We had early sales of $98 million, which is about 3 times of what we had last year.
We had the acquisition business unit that is showing profitability and strong growth. EBITDA of $119 million, very strong cash flow, $106 million, and continued momentum in terms of contract inflow and about $250 million of new contracts signed in the quarter. With that, I wanna leave it to questions and open up for questions here and also from the people who are watching us on the webcast. Sven will come up and go through those questions. Any questions from the room here? If we start with Christopher.
Christopher from SEB. Just two questions. First, could you indicate the EBITA contribution from the acquisition business in Q1? Secondly, I know late sales are back and loaded, but could you give some flavor on how you've experienced second quarter so far?
Why don't you take the first one?
Yeah
... I'll take the second.
The EBITA contribution from the acquisition business unit was probably around the roughly $14 million-$15 million, I would say. I haven't done the exact calculation, so but that should be around that level.
On late sales, let's go back because I'm not gonna answer your question specifically, as you know, but I think what I can do is to give you some indications. In Q1, again, it was slightly disappointing compared to our expectations. Part of the reason for that was that Q4 in 2022 was way better than we expected. If you look at the two quarters overall, we're actually quite pleased with the late sales. I think what happened in Q4 is that we had really, really good and big sales to our super major clients and IOCs, so really strong in that regard.
That also means that we should expect to get a lower contribution from those guys in Q1 because they're working the data, and they have less capacity than they did in the past to work all this data. They acquired massive amounts of data in Q4. We were actually more dependent on NOCs in Q1. As you know, with NOCs, some of these processes takes much longer than with IOCs. We had a little bit of that that was delayed, and it was pushed into Q2. Some of that has already been closed in Q2. We think most of it will eventually be closed in Q2, but we're not in, you know, full control of the timing of such deals. That's partly the answer to your question.
Thank you.
Next question, John and Kim both have their hands up.
Thank you. It's John from ABG. Kristian, we are all looking closely at the late sales and particularly in the near-term, maybe too much, but anyway, like near-term is a important indication for the medium term as well.
Mm.
You said that Q1, the oil companies told you that in Q1, they spend a lot of money with you guys, but you're investing so much, so they spend it on multi-client prefunding instead of late sales.
Yeah.
I just wonder for in Q2, your multi-client investments level is gonna be high in Q2 as well. Is that an indication that late sales also will be suffering, like losing market shares, so to speak, in Q2?
We don't have any reason to believe that. I think, you know, if you look at some of our competitors in Q1, they also posted relatively weak late sales. I think, you know, if you look at our percentage of the overall market, it was actually pretty good. Our market share of late sales was actually really good in Q1. We were far better than our peers.
Mm.
I think going into Q2, we don't expect to see, I mean, there is no reason to believe that it's gonna be lower than what we thought at the beginning of the year.
Mm.
We have no data points that indicate that.
Mm.
Let me just add also, I mean, on that topic that when you look at Q2 late sales, you have to also remember that the comparables for Q2 last year contained quite significant transfer fees.
Yeah.
That's really important to bear in mind.
Yeah.
So any-
I think if you look at the overall industry and I'm not gonna touch on TGS, the transfer fees, but I think the overall industry, we're talking about a few hundred million dollars, right?
Yeah.
We were probably number three or four of those players in terms of collecting that transfer fee. It's a very unusual Q2 of 2022.
Yeah.
You know that.
For sure. Do you have any transfer fees in your backlog now?
We always have, you know, two or three potential transfer fees that we are discussing. As you know, and you probably saw that from one of our peers who reported quite recently, I mean, clients are not easy. They're not easy to deal with, even if it's contractually obligated to transfer the data. I mean, there's still tough discussions to be had. I think, what we've been very clear on at TGS is that we're not gonna give away anything because if it is a contractual commitment, we're really gonna push that hard, and that's may sometimes have an impact on the timing of collecting that. We never recognize the transfer fee until it is collected, by the way.
I think in general, I think there's perhaps one or two that could happen in either Q2 or Q3. It's lower visibility right now than we had at the same time last year, because last year we had some of those big transactions taking place, one in Norway and one mainly part in the US Gulf of Mexico.
The ones you're mentioning is that like could happen? Is that like you potentially could book the revenues or is it like an oil M&A that could take years?
No, it's more of a, you know, transactions that have happened, and then we have discussions-
Yeah
with the clients, whether they either gonna turn back the data or they're gonna take it all and they're gonna pay us-
Yeah
... or they're gonna, you know-
Yeah
... negotiate some kind of deal between
Is it material? Potentially material?
We're talking about 5 to 10.
If I may, a couple of questions on the OBN business. First, when it comes to short term here as well, the, is the integral of the backlog slide a good indication of revenues for Q2?
Sorry.
The backlog slide that you showed on the outlook.
The pie chart.
for the OBN.
Yeah.
Is the integral, call it like integral of the flat columns an indication of the revenues in Q2 versus Q1?
Yeah, for the OBN business or the acquisition business.
Yeah
You should look at the chart.
Yeah
the activity chart that we provided. You, yeah, you see the backlog number-
Mm.
You kind of can figure out an approximate distribution of that backlog by looking at the contract chart that we provided.
Mm.
That's probably the best way of looking at it.
May I ask in the Guyana job in particular, I know that's a big job and a potential multi-year extension as well, and at what seems like to be very fairly high rates. Is it the first time that you've been doing Magseis has been doing OBN in Guyana? May I ask how is the project developing? I know you had from time to time in the past you have had Magseis has had problem when entering in new areas.
Mm.
They didn't realize they have currents and wind and difficult yard players.
Sure.
when they needed help.
Yeah. I mean, the answer is it's a first contract in Guyana, and I think we all know what client is behind.
Mm.
The commitment. So far it's been a good survey. It has been, you know, the operational track record has been good so far, and we're making a profit on that contract.
no operational hiccups or issues so far?
No.
Then very quickly sorry again, my final question.
In fact, the history shows that where Magseis has a tendency to lose money would be when TGS is a client on the other side, and obviously that's a good problem to have and that was actually the case in Q1 as well, so.
Yeah. May I just ask just a housekeeping question on the EBITA that you mentioned, the Svenborg, $14 million-$15 million ballpark? I presume when Magseis is working for you guys, the revenues equals the cost, so there's no EBITA contribution. Is that correct interpretation?
Yeah.
Okay. Thank you. That's all for me, thank you, for now at least.
Kim from SEB. I guess, it's the same question. Let me try to ask it, slightly different. If we play around with, multi-client sales, you had a slide there showing that the industry is up some 30%-35% on multi-client sales. You are probably looking to double your early sales this year compared to last with increased investments. Industry may be slightly behind, but in that magnitude. Does that mean that early shapes, sales are absorbing a bigger part of the multi-client budgets in 2023 versus 2022?
We haven't done that calculation, but I think, you know, as far as I understand, when you look at some of the guidance from our peers, I mean, it's significantly lower in terms of investment than what we do. I think in that regard we're going to increase our market share significantly on both new investments, but also on the, on the pre-funding side of the revenue. I think there is still plenty to be spent on late sales as well, and I'm not too concerned about that. As I responded to John's question, I mean, we haven't seen any indication that it's going to go that way. Yes, Q1 was weaker than we expected, but again, Q4 was way better than both you and I expected, right?
I think we need to see this in a longer-term perspective, and I think we have a tendency to forget very easily, and I hope we can forget Q1 very easily as well in terms of the late sales. Probably came in $20 million, $25 million, $30 million higher than what you expected and I expected, right? If you add that to Q1, it was pretty decent quarter. We haven't seen any kind of long-term trend in that regard. I understand your question.
Okay. A follow-up maybe on the, on the acquisition side. Looks to be increasingly busy on the fleet. Can you share some guidance on CapEx node replacements as activity is picking up?
We have a node inventory of roughly 30,000 nodes and they have an at least an economic life of around 10 years, right? Which means that theoretically speaking, we would have to replace a few thousand nodes every year, and they cost a few thousand dollars each. That's kind of keeping the node inventory more or less as is. You can do the calculation yourself. Of course it depends on growth on top of that, if we wanna grow the node inventory. We're probably not going to share our plans in that respect here. Time will show.
I think we, you know, we have a lot of interesting discussions as we speak in terms of our future strategy in that regard. You know, finally we're in a situation in the node market where there is a huge, or demand for nodes is higher than supply. In any normal market, you would see prices increase as a result of that. We wanna see that because this has been an industry where no one has made money over many, many years. We don't wanna destroy that industry when it's finally ready to make some money. You shouldn't go out and just build more nodes, right?
So far I think that's our strategy, that we wanna stay very disciplined in that regard, and we hope our peers also understand that that's a way to make money over time, is to make sure that you balance supply and demand. Yes, Anders.
What prices do you expect on the new nodes, with the cost increase?
Yeah, I'm not gonna tell you that because that's. First of all, because you probably know the answer to that. Secondly.
It can vary a lot.
Yeah, yeah. No, it varies a lot, but I think that's kind of.
Yeah.
That's a competitive secret, I guess. Yes.
Yes. Erik Fosser from Carnegie. I was just want to touch upon the different levels been kind of stable now the last few quarters. Now with the Magseis acquisition behind you and integration going well, even though you're increasing multi-client investment quite a lot, I think the cash flows are still going to be quite strong and should probably support.
High dividend levels going forward, what kind of milestones or what should we look at or what do you look at to decide if you're keeping it stable or if you're gonna increase it or? Yeah.
I mean, it's very much related to our investment plans and our CapEx plans, of course. As Sven alluded to, you know, we had a very strong free cash flow in Q1. It is gonna be weaker in Q2 because of the working capital. You can easily see that from the numbers. I think overall our plan is not to sit with $200 million of cash. I mean, if that was kind of the plan going forward, it would be extremely conservative. I think our hope is that we can increase our dividend for sure. If we can, we will. Right now, I mean, we still have a, you know, a big pickup of investments in 2023. It's really a year where we're gonna take market share.
We see some of our peers are pulling back a little bit, doing more proprietary. We feel like this is a chance to really dominate the multi-client markets. I think that is always our priority number one, is that we're gonna grow our library, we're gonna grow our data offerings. Again, I think over time we can do both. We can increase our dividend, but we can also increase our investments.
maybe if you see it stabilizing or coming a bit down.
Yeah, I don't think it's gonna increase over the next couple of quarters.
Yeah.
I think, you know, our plan is always to increase over time, and 2024 would probably be the first chance to do that.
Yeah. Perfect. Thank you.
Yes, it's Stefan from DNB Markets. Two questions. First, on the acquisition business, EBITDA $14 million-$15 million-
Can you speak up a little bit?
Yeah. EBITDA $14 million-$15 million, roughly margins south of 20%. With higher activity levels and cost synergies also increasing, should we then see margins now in the high 20s going forward? My second question is, given where your share is trading, how do you consider share buybacks versus dividends?
With respect to the margin in. I'm not going to provide you with a guidance on that. As I said, the cost of goods sold, which was 67% of sales in Q1, will probably be a bit lower going forward, so low sixties. The personnel costs and other operating costs as part of the acquisition business unit should be fairly stable going forward. Perhaps going a little bit down as we realize more synergies, but fairly stable. That's probably how you should look at it. We see an improvement potential even in the short term.
Then obviously in the longer term as we roll over on new contracts and so on, we expect even further improvement. With respect to share buybacks, the way we think about buybacks versus dividends is that the dividend will remain our main tool for returning cash to shareholders. But we wanna keep it fairly stable and hopefully growing over time, then we will cover some of the more short-term volatility with buybacks. As of now, we don't have any launched any programs or have any concrete plans for buybacks, but we'll measure that as we go. It's not ruled out of course.
Thank you.
There is a question online from Jørgen Lande. Can you comment on the Q1 OpEx level seems a bit higher run rate than initially guided for? I don't think that. I think we guided for or indicated that it personnel cost would be ±$30 million. It was $31 in the quarter. Other operating costs would be around $20 million, and it was $21 in the quarter. I guess that is more or less in line with what we indicated. That includes in total $7.9 million of restructuring charges that's not going to repeat itself. On an underlying basis, we're actually better than what we indicated. There shouldn't be much restructure. Maybe a little bit in Q2, but shouldn't be much.
Probably another two and a half or something like that.
Yeah.
Yeah.
There is a question about cost of goods sold, and I think we already answered that. Yeah.
All right. Any final question from the audience or? If not, I wanna thank you very much for the attention and welcome you back to our Q2 presentation later this summer. Thank you very much.