Acuren Corporation

Hello and welcome to the Akron Corporation fourth quarter and full year 2024 earnings conference call. Currently, all participants are in a listen-only mode. The question and answer session will follow the form of presentation. If anyone should require operator assistance during the conference, you may press star then zero on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Dan Scott, Investor Relations with ICR. Thank you. You may begin.

Thank you. Good morning, everyone, and thank you for joining our fourth quarter and full year 2024 earnings conference call. Joining me on today's call are Tal Paise, Accurance President and CEO, Kristen Schultes, Accurance Chief Financial Officer, and Robbie Franklin, Accurance Co-Chairman. Before we begin, I would like to remind you that certain statements in the company's earnings press release announcement and on this call are forward-looking statements which are based on expectations, intentions, and projections regarding the company's future performance, anticipated events or trends, and other matters that are not historical facts. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. In our press release and filings with the SEC, we detailed material risks that may cause our future results to differ from our expectations. Our statements are as of today, March 27, 2025, and we undertake no obligation to update any forward-looking statements we may make except as required by law. As a reminder, we have posted a presentation detailing our fourth quarter financial performance on the investor relations page of our website. Our comments today will also include non-GAAP financial measures and other key operating metrics. A reconciliation of other information regarding these items can be found in our press release and our presentation. It is now my pleasure to turn the call over to Tal.

Thank you, Dan, and good morning, everyone. I'm excited to be here for our inaugural earnings release as a public company. I'm proud of our team for delivering another year of record revenue and adjusted EBITDA. As ACTRIN continues its journey in the public market, I want to take a moment to highlight a core tenant of our culture, one that has driven our success and positions us to continue to create value for shareholders. Since 2009, our company's tagline has been a higher level of reliability. This mindset guides us and shapes how we operate on a daily basis. Reliability is one of those attributes you can never have too much of. Unlike confidence, which can tip into arrogance, or attention to detail, which can lead to inefficiency, reliability is always a virtue. It builds trust, ensures stability, and drives consistent results. At Acurin, a higher level of reliability means we don't settle. We push to be better tomorrow than we are today, more precise, more efficient, and more dependable. Our customers depend on us to ensure the reliability of their equipment and operations. Many of the teams we work for are literally called reliability departments because their job, like ours, is to prevent failures that could lead to catastrophic events. Our inspections aren't discretionary. They're essential. They are a small fraction of our customers' budgets, yet they protect them against immense risk. That's why, in good times and bad, our services remain essential. This same principle of reliability also applies to our employees. We strive to be a company that our employees can count on, a place where paychecks are steady, careers are built, and safety is paramount. We remain grateful for the hard work of our more than 6,000 team members and their dedication to Akron. Our commitment to a higher level of reliability isn't just a slogan. It's our business model, our culture, and the reason why Akron is built to be strong and an enduring investment. Building on those themes, I'd like to take a minute to introduce Akron to those new to the story. Akron is a leading North American provider of asset integrity services, specializing in non-destructive testing, or NDT, access solutions, including rope access, and engineering services. The company employs over 6,000 people across more than 130 offices throughout North America and the UK. Our primary business involves extending and protecting our customers' assets through inspection methods that assess equipment condition without destroying it. The company has grown significantly over the past five years, increasing revenues from 700 million to over 1 billion and nearly doubling EBITDA during that same period. Looking back over our 30-year history, Akron has achieved significant organic growth supplemented by strategic and accretive acquisitions. Our team has a proven track record of identifying, executing, and seamlessly integrating acquisitions. We have successfully added 14 companies over the past five years. Our customer base is highly diversified across several end markets, including industrial facilities, energy processing, and midstream energy infrastructure, with energy transition a smaller but growing contributor to revenue. We do operate an asset-light business model, typically spending 3% to 4% of revenue on capital expenditures. We believe that Accurate's competitive advantage lies in our scale, competitive service offering, and a culture of operational excellence. Our ability to rapidly mobilize a highly skilled workforce generally allows us to meet peak customer demands while maintaining strong utilization. With expertise across advanced NDT engineering and access solutions, including the industry's largest rope access team, we provide tailored high quality services. We believe our commitment to reliability while world class and cost efficiency allows us to deliver superior value while driving profitable growth. I will now turn to our results. In 2024, our team delivered progress against several key financial objectives. First, our revenue grew by 4.5% to a record $1.1 billion for the full year, roughly half of which came through acquisitions. This growth was offset by the exiting of certain customer relationships as we focused on improved profitability as a public company. a theme that will be repeated in 25. Second, we delivered adjusted EBITDA of 187 million, up 11.5% from the prior year. And third, we expanded adjusted EBITDA margins to 17%, representing an increase of 110 basis points compared to 15.9% in 2023. Our growth was driven by deeper service line penetration with recurring customers, targeted new sales in our key markets, and pricing initiatives implemented in 2023. These results are even more notable given the transformational year we had. In January, we began preparations to sell the business, developing investor materials and telling our story to many potential buyers. After extensive diligence, we completed the transaction with Admiral in July, which set the stage for an accelerated five-month public company registration and listing process. Through it all, our operations team remained focused, ensuring seamless service delivery while we built the foundation for long-term success as a public company. Looking ahead, we are optimistic about the opportunities across our key markets. We continue to see strong potential in the industrial energy processing sectors with increased demand from the mining industry and from renewable energy. Our Canadian revenue base remains on a strong growth trajectory, benefiting from broad-based momentum. To date, uncertainty surrounding tariffs has had no material impact on our business. I suspect that is given to our limited exposure to automotive, lumber, agriculture, and consumer goods. On the energy front, our Canadian customers are benefiting from selling their products in US dollars while managing costs in Canadian dollars. With a weaker Canadian dollar, energy customers have been profitable. Note that Accurate has virtually no currency transaction exposure, just translation exposure. In the U.S., we are optimistic about the current administration's commitment to energy initiatives and to the re-industrialization of the country as these efforts promote sustainable growth, strengthen domestic manufacturing, and enhance the nation's energy independence. With that overview, I'd like to hand over the call to Kristin to discuss her financial results in more detail.

Thank you, Tal, and good morning, everyone. Let me start with our full year 2024 results. As Tal mentioned, our combined revenue grew by approximately $47 million, or 4.5% to $1.1 billion compared to 2023. This growth was driven primarily by increased demand from our recurring customers effective pricing strategies, and contributions from recent acquisitions, offset by the impact of exiting certain low-margin customer relationships. For the full year, combined adjusted gross profit margin was 28.5% compared to 28.0% in 2023, a 50 basis point increase year over year. This improvement was primarily driven by favorable mix and pricing improvements. Combined adjusted EBITDA for the full year was 186.7 million, up 11.5% from 167.4 million in 2023, with adjusted EBITDA margin expanding to 17% from 15.9% in the prior year. This strong performance demonstrates our continued focus on cost management and operational efficiency and scale, as well as higher margin revenue. I wanted to provide some color around the 8K we filed this morning just prior to our press release. The restatement pertains to the predecessor period ending July 29th, 2024 before the transaction and involves a valuation allowance on disallowed interest within our deferred tax asset. Following the transaction the next day on July 30th, the allowance was no longer needed and we expect to utilize the interest deduction. This adjustment has no impact on cash, adjusted EBITDA, or our tax position after July 29th. From a segment perspective, our U.S. business represented 57% of our revenue in 2024, with Canada making up the remaining 43%. Now turning to our fourth quarter results. Revenue for the three months ended December 31, 2024 was $262 million, compared to 270.1 million in the prior year period. This decrease of approximately 3% was largely in line with our expectations, as strong demand in Canada was more than offset by the FX impact of a declining Canadian dollar, as well as lower revenue in the U.S. Adjusted gross profit, which excludes depreciation in cost of revenue, was 68.3 million, compared to 72.4 million in the prior year period. The resulting 70 basis point reduction was primarily due to discrete higher margin work in the fourth quarter of 2023 within our engineering and lab businesses in both the US and the UK. Adjusted EBITDA for the fourth quarter was $40.7 million, essentially flat compared to the prior year period, with adjusted EBITDA margin improving from 15.1% to 15.5% in the fourth quarter compared to the prior year quarter. This improvement was driven primarily by reduced SG&A costs during the quarter. Turning to our capital resources, we ended the year with $214 million of total liquidity, including $139 million in cash, as well as $75 million of availability on our undrawn revolver. We believe this puts us in a strong position to fund strategic initiatives. At the end of December, our bank agreement-based net leverage ratio remains at 3.4 times. In January, we successfully repriced our $773 million term loan to SOFR plus 2.75%, an improvement of 75 basis points, which is expected to reduce our interest expense by approximately $5.8 million annually. We plan to continue to focus on disciplined capital allocation in the coming year. Cash flow from operations was $23.1 million for the full year compared to $95.8 million in 2023, driven primarily by the significant one-time cash expenses associated with the transaction and our public company formation and transfer of listing to the U.S. Although we are not providing free cash flow guidance, I can share a few of the key components for modeling purposes. First, our interest expense is anticipated to be approximately $52 million using our lower rate following the repricing in January. Our cash tax rate is approximately 24% for the year, and lastly, we expect capital expenditures to be around 3.5% of revenue for the year, totaling roughly $40 million. Our CapEx relates to specialized inspection equipment as well as vehicles, which is consistent with our asset light business model. This relatively low capital intensity contributes to our history of strong free cash flow generation, which we can deploy for value enhancing initiatives, including targeted acquisitions. Looking ahead to 2025, we expect to continue building on our strong foundation. For the full year, we expect to grow revenue in the low to mid single digit percentage range, mainly driven by organic growth through price improvements, growing wallet share with our existing customers as well as new sites, offset by the targeted initiatives around customer and site selection. We expect adjusted EBTA to be relatively flat year over year. The incremental benefit of our higher revenue will be roughly offset by additional $10 to $15 million in costs to support our public company infrastructure, which we expect to be swiftly absorbed as we continue to scale beyond 2025. Our business is resilient and predictable with a strong base of recurring revenue. We do experience seasonality within the year, which is primarily a function of weather and customer outage schedules. Therefore, the second and third quarters are typically our strongest revenue and adjusted EBTA periods. Given we are nearing the end of March, we are providing additional guidance pertaining to our expectations for the first quarter. We expect first quarter revenue to be in a range of flat to slightly up due to what Tal discussed in his comments including our plan to focus on improved profitability by exiting certain customer relationships. Year over year, this represents revenue of between $222 million and $227 million based on current exchange rates. In closing, I'd like to take a moment to sincerely thank and congratulate our finance and cross-functional teams for their hard work and dedication in reaching this milestone, our first 10-day filing. You have all been instrumental in getting us to this point, and I truly appreciate what you've done. With that, I'll turn the call over to Robbie Franklin, our co-chairman, for additional comments.

Thank you, Kristen, and good morning, everyone. I want to take a moment to reflect on the significant progress Acuryn has made over the past year. We completed a major business combination, re-domiciled from London to the U.S., and are currently trading on the NYSE American as we look forward to our NYSE Big Board Exchange debut in May. Our record results for the year are a testament to the entire Accuryn team against the backdrop of growing uncertainty and while completing these major corporate milestones. The transformation of Accuryn represents a tremendous opportunity for the business. We have built a strong foundation with our differentiated service offerings, established client relationships, and significant market presence across North America. Our strong balance sheet with nearly $140 million of cash on hand gives us the flexibility to pursue our strategic objectives while maintaining financial discipline. This includes potential bolt-on acquisitions that can enhance our service offering and geographic presence, further strengthening our competitive position. The long-term outlook for our industry remains favorable. We believe that the aging infrastructure across North America Increased regulatory requirements and the critical nature of asset integrity testing all contribute to sustained demand for our services. Additionally, our focus on recurring maintenance work provides a stable foundation even in fluctuating economic conditions. As we look to the future, we believe Accuryn is well positioned to capitalize on these opportunities and deliver significant value to our shareholders. I would now like to turn the call back to Tal for closing remarks.

Thank you, Robbie. In summary, I am proud of what our team has accomplished in 24.

It was a transformational year marked by the successful sale of the business, the establishment of a new board, our public listing, and the addition of several talented leaders to our executive team. As we close, I want to leave you with three key takeaways. First, Our business is essential and resilient. The work we do is critical to our customers' operations. We focus the business on recurring revenue streams, and we hold a market-leading position. Our tagline, a higher level of reliability, is what the investors should expect from this team. Second, we see compelling growth opportunities. We see clear paths to expand wallet share with existing customers, win new sites, and benefit from long-term tailwinds such as aging infrastructure and increasing regulatory scrutiny. And lastly, ACRN is a proven platform for M&A. With a disciplined approach and a strong balance sheet, we are well positioned to drive continued expansion into higher margin segments of the testing, inspection, certification, and compliance market. Before we open the call for questions, I want to say thank you to our 6,000 plus global team members. Their dedication and expertise are the foundation of our success. I'd also like to express appreciation to our customers for their continued trust and accuracy to safeguard their critical assets. With that, I would now like to open the call for questions.

Operator?

We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please, while we poll for your questions. Our first questions come from the line of Catherine Thompson with Thompson Research Group.

Please proceed with your questions.

Hi, thank you for taking my questions today. First, I wanted to focus on some of the three buckets that you focused on in terms of driving top line growth, deeper surface line, targeted sales, and various sales initiatives. Could you just give more color or perhaps some more specific examples that help to demonstrate that and why this is sustainable going forward? So, in other words, is this just something that's great to happen one quarter or is this something part of a broader strategy going forward? Thank you.

Thanks, Katherine. It's Tal. I'm happy to take your question. I think there's a lot of opportunity in our company when we look at the white space of service offerings across our division. So we talked about 130 offices in the company. Not all 130 offices provide the extent of services that other offices have. So for example, in 130 offices, there might be about 10 that are providing drone services. There's several opportunities with existing customers for rope access to be deployed. So when you look at the skew of service offerings we have against a matrix of those services by different offices, there's a lot of white space. So we continue to drive some of our strongest growth historically has been going deeper with existing customers by offering more and more services. So we We continue to see opportunities for engineering in the mining sector. We continue to see rope access not deployed at a number of sites. So that's probably our single biggest growth driver. Another area for the company is to go after new sites. We think we have a compelling service offering. We can provide scale and extensive advanced NDE engineering and rope access services. So we target new accounts. And in the course of a year, we expect to have net new site gains as a core metric of the company. So those are some of our organic growth levers, and that's all on the backdrop of pretty good tailwinds given we have this aging infrastructure and customers requiring more and more inspection to maintain the integrity of their assets.

Oh, great. Thank you. And shifting to margins, you're employing a strategy that is not too dissimilar to what we have heard from API group, just in terms of improving overall customer quality. What does that look like? Is it specific customers or is it more type of job that you're changing? Just giving a little bit more color on just that improving overall basis, it's just more type or customer. Thank you.

Sure. At the EBITDA level, of course, scale over time will create some margin improvement. We certainly expect to grow our overheads at a lower rate than revenue growth, so there's some over time growth to EBITDA margin. But even at the gross margin level, we have a mix of work and each service line has a different Mark Warren, Gross margin to it, so we can put our shoulder behind higher margin services more than we do with lower margin services. Mark Warren, And we also want to make sure we don't get caught up in in price wars, where you know some competitors might drive down price because they want to get a foot in the door or is kind of as a. Mark Warren, As a way of. Mark Warren, Taking work with the idea that, over time, they might get margin back, so we need to be disciplined and. And we may not, you know, we may exit certain sites over time if we feel like the margin isn't suitable. We have a compelling product. We can certainly compete on price given our low overhead, but we need to be disciplined. So I think those things together allow us to have margin improvement over time. And lastly, the M&A efforts would be to bring in new service lines that help us to improve margins.

Okay, great. And then final question for me today, just in light of obvious Canadian exposure, but your more services business, what, if any, impact are there for current tariff actions with the U.S. administration? Does that impact you or not? Any color along that line would be helpful. Thanks very much, and good luck.

All right. Thanks, Catherine. You know, certainly margins are a topic of discussion across Canada. Many people are quite worried about it. I do believe our business is pretty resilient to tariffs. Sorry, I said margins, tariffs. And those tariffs really from, we've paid close attention to what's been said. Those tariffs really focus on automotive, agriculture, you know, sort of, Dairy, lumber, and those are end markets that we have very little work in. I think the stability of oil and gas is very strong. We know long term, the US depends on Canada for oil and I do think that there'll be some good outcomes of this long term. Canada will work to diversify its customer base just as all companies do that. But I also, even these small tariffs that could potentially be applied to energy will have pretty minimal effect given the weak Canadian dollar. Our customers in the energy space remain quite profitable as their costs are in Canadian dollars and they're selling products on a global market in US dollars.

So minimal effect.

anticipated all right thank you thank you our next questions come from the line of Chris Moore with CJS securities please proceed with your questions hey good morning guys congrats on a good start maybe I was hoping you could size or roughly size the amount of revenue that you exited with certain you know lower margin customers Just, you know, trying to get a sense for 24 and how significant that would be for 25.

Yeah, I think, you know, first of all, we have this net new sites situation or a metric, core metric for us. And over the last two years, I can tell you we won 11 new sites and lost eight. And some of those eight or a couple of those eight are in the camp of, lower margin sites, and the revenue from those sites is in the order of $10 million per year. And we had a couple sites that we attribute the loss of to M&A dis-energy from a couple years ago. Client felt too much revenue concentration with Akurin. But that's against the backdrop of wins as well. And the wrap effect of those losses largely ends at the end of the second quarter this year.

Got it. Very helpful. In general, you know, I mean, recognizing that you're providing essential services, what are customers saying about OPEC spend in 2025? I know early COVID things slowed down, but it was more, you know, kind of deferred than lost. Is there much commentary on kind of OPEX budgets for the balance of 25?

We see it relatively flat. I think some of the differences might be in sustaining capital type spends that companies have. So it's hard to predict. I think in this last year, we saw the U.S. a little bit more muted on the sustaining capital projects, perhaps uncertainty related to the election. It's hard to be sure, but on the OPEC spend, I think that really needs to be very stable as these companies maintain their assets. They know full well that if you defer things very long, that that could lead to operational problems, which are far more costly.

Got it. I appreciate that. Good morning, Chris.

This is Kristen.

Yes.

I would just add to that that, you know, typically our customers operating, they're spending about 1% of their operating budget on our services. So our services are essential and we may see slight deferrals like Tal mentioned, but beyond that, we're very optimistic about the rest of 2025. Got it.

And I appreciate that. And maybe just the last one, just From the guide for this year, low to mid-single-digit growth, just trying to get a better sense in terms of how price fits in there and how generally. Do you typically think about a couple of percentage points increase in price? I know everything's kind of wrapped up into one, but just trying to figure out how to look at price a little bit better.

Yeah, thanks, Chris. I can take that one. Just as an overall comment, I would say we feel like our revenue guidance for the full year is realistic and achievable. If you look back over the past, our pricing is a few percentage points of that. The labor wages change in Canada around May, and in the U.S., it's a little more staggered throughout the year. And as a matter of practice, we stay ahead of pricing. Our wage increases with our pricing. So, yeah, I think a few percentage points.

Perfect. All right. I'll leave it there. Thanks, guys.

Thank you. Our next question has come from the line of Josh Chan with UBS. Please proceed with your questions.

Hi. Good morning. Thanks for taking my questions. On the customer and site exit comment, I guess based on the idea that the wraparound effect ends in Q2, is it fair to think of those exits as kind of historical events that you made last year and that you're not continuing to exit sites on an ongoing basis kind of going forward, at least in the same concerted manner?

Yeah, thanks for the question.

I would say there's churn every year with wins and losses, but it's very small in the context of the number of MSAs we have. We have in the order of 150 large sites that we provide service to every day. in the course of a year, these three to five year contracts, you know, a number of those will obviously come due and the sticky relationships with those clients is strong. So we renew the vast majority of those contracts each year. And we expect, you know, on average that we might win five new sites and lose three. So there is sort of this constant churn. And as a team, we strive to maintain the best margin ones and price accordingly. So I think we will always exit relationships if we feel the profitability is not appropriate for the work and we'll continue to go after higher margin work and work where we know Accuryn has a competitive advantage. Yeah, I don't think there's never an end to some churn, but this industry has long-term sticky relationships because our customers rely on their inspection vendors to maintain the integrity of their assets. And when you're only spending 1% of your budget on inspection, you certainly, you know, you don't want to be the guy who made a bad choice.

Yeah, that makes perfect sense to me. Thank you for the color. There was also some comments on the press release about the outage work timing.

So every year, first of all, outages only represent about 10% of our revenues. So any kind of outage timing is not a dramatic swing for us. We tend to have the first quarter is the lightest outage period for us. and the fourth quarter would be the second lightest. The bulk of the outage work occurs in the second and third quarters. And when we talk about outage timing, it's that little bit of movement between quarters. As companies plan their outage, they might realize that a neighboring facility has the same time and so they end up pushing it three weeks and it bumps into a new quarter. It's not a dramatic mover for Accuron. As I said, the vast majority of work is very sustainable and predictable month to month. And these little bit of movements between quarters on outages creates some flux.

Great. Well, thank you for that. And last one for me. What are you seeing in terms of labor, wage, inflation? And how do you feel like your pricing and costs are lining up for 2025? Thank you.

I feel like we're in a pretty normal period. The last sort of hyperinflation period we saw was in 2022, and we had some catch-up on that in Canada. The union contracts spanned that inflationary period, so the catch-up occurred last year, and now we seem to be in a fairly normal environment.

Excellent. Thank you for the color, and good luck in slide five. All right. Thank you. Thank you.

Thank you. We have reached the end of our question and answer session. I would now like to turn the call back over to Tal Pazzi for any closing remarks.

All right. Well, thank you, everyone, for joining us today. We certainly appreciate your support and look forward to updating you on our progress next quarter.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.