POC Revenue: $215 million in Q2 2024, down from $241 million in Q2 2023. Late Sales: $66 million, up from $63 million in the same quarter last year. Early Sales: $49 million, down from $66 million last year; early sales rate increased to 94% from 77%. Proprietary Revenue: $100 million, compared to $113 million in the same quarter last year. EBIT: $28 million, down from $39 million in Q2 2023. Contract Inflow: $368 million in new contracts signed during Q2. Total Backlog: $611 million after Q2. EBITDA: $121 million, compared to $132 million in the same quarter last year. Multi-Client Investments: $52 million with a 94% early sales rate. Net Cash Flow from Operating Activities: $89 million in Q2. Dividend: USD 0.14 per share, with an ex-date of July 25 and payment date on August 8.

Warning! GuruFocus has detected 6 Warning Signs with TGS.

Release Date: July 18, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Transportadora de Gas del Sur SA (NYSE:TGS) reported strong contract inflow with $368 million in new contracts signed during Q2, boosting the total backlog to over $600 million. The company achieved a high early sales rate of 94% in Q2, indicating strong prefunding of new projects and healthy sales of existing projects. TGS announced a significant four-year software licensing agreement with Shell for its Imaging AnyWare software, marking a new business area for the company. The acquisition of PGS was completed, and TGS is realizing substantial synergies, including moving into the same offices by October 1. TGS's acquisition business is fully utilized for Q3, indicating a strong quarter ahead with significant increase in activity compared to previous quarters.

Negative Points

TGS's POC revenues decreased to $215 million in Q2, down from $241 million in the same quarter of the previous year. The company's EBIT fell to $28 million in Q2, compared to $39 million in the same quarter last year. Proprietary revenues declined to $100 million from $113 million in the same quarter of the previous year. The company incurred $6.2 million in one-off transaction costs related to the PGS acquisition during the quarter. TGS's multi-client investments were lower in the first half of the year, indicating a back-end loaded investment strategy for 2024.

Q & A Highlights

Q: PGS vessel utilization continued to be an issue in Q2. Now that the vessels are your assets, are you taking any concrete measures to improve the vessel utilization going forward? A: Kristian Johansen, CEO: Yes, improving vessel utilization is part of the rationale for the transaction. We plan to utilize PGS vessels for our own projects and see synergies in selling OBN and streamers. We are coordinating sales teams and see a promising market for offshore wind, which will fill an important gap. We are optimistic about increasing utilization going forward.

Story Continues

Q: Anything you would like to highlight after completing the acquisition of PGS in early July? A: Kristian Johansen, CEO: We are excited about the acquisition. The cultural integration has gone well, and we see more positives than negatives. Vessel utilization concerns in Q2 seem temporary, and the tender stats for PGS look promising. We see substantial synergies and will provide more details at the Capital Markets Day.

Q: In Q2, you booked approximately $90 million in merger-related costs. Can you give an indication of how much is remaining for the coming quarters? A: Sven Larsen, CFO: We expect only a few more million dollars in charges, mostly in Q3, related to integration costs and some noncash costs. The dividend compensation part of the PGS proceeds, approximately $18 million, was paid in early July.

Q: Is it still your plan to switch from dividends to buybacks following the PGS acquisition? A: Sven Larsen, CFO: We will likely maintain a base level of dividends while potentially increasing the use of buybacks. We will provide more details at the Capital Markets Day.

Q: Following the PGS transaction, is there an intention to have a net cash balance sheet at the earliest possible time? A: Sven Larsen, CFO: We do not aim for an all net cash balance sheet but will prioritize reducing net debt from initial levels. We believe it is appropriate for a company with our structure to carry some debt, but less than we currently have.

Q: Can you provide an update on PGS backlog by the end of Q2? A: Kristian Johansen, CEO: We will provide the combined backlog figure at the Capital Markets Day. We have only been together for about 18 days, and the Capital Markets Day will offer more details on the PGS situation.

Q: Lots of good news on acquisition here in the presentation, but a little on multi-client projects. Can you give us an indication or some comments on this area, please? A: Kristian Johansen, CEO: We expect investments to be significantly higher in the second half of the year. The increase in order inflow and backlog was not driven by multi-client, but we are in the process of signing up some big multi-client projects that will start in the second half of the year.

Q: You had CapEx, excluding multi-client investments, of approximately $20 million per quarter in the first half. What is driving that? A: Sven Larsen, CFO: The main driver is investments in the OBN side, specifically a new streamer set costing around $25 million in total. This is for use in the North Sea as part of a long-term contract.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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