Expro Group Holdings N.V.

Hello, and welcome to the Expro Third Quarterly Earnings Conference Call. My name is Elliot, and I will be coordinating your call today. If you would like to register a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I'll now hand over to our host, Karen David-Green. Karen, please go ahead when you're ready.

Welcome, everyone, to the Expro Group Third Quarter 2021 Conference Call. I'm joined today by Mike Jardin, CEO, and Quinn Banning, CFO. First, Mike and Quinn will share their prepared remarks, and then we will open it up for questions. I'd like to remind everyone that some of today's comments may refer to or contain forward-looking statements. Such remarks are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such statements speak only as of today's date and the company assumes no responsibility to update any forward-looking statement as of any future date. The company has included in its SEC filings cautionary language identifying important factors that could cause actual results to be materially different from those set forth in any forward-looking statement. A more complete discussion of these risks is included in the company's SEC filings which may be accessed on the SEC website or on our website at expros.com. Please note that any non-GAAP financial measures discussed during this call are defined and reconciled to the most directly comparable GAAP financial measure in our third quarter 2021 earnings release, which can be found on our website. We have an accompanying presentation to our third quarter results that is also posted on the EXPRO website under the investor section. In addition, the pro forma combined company third quarter financials are downloadable on the EXPRO website under the investor section. The downloadable financials include historical franks and legacy EXPRO financials, along with the combined company pro forma historical financials. With that, I'd like to turn the call over to Mike.

Thank you, Karen. Good morning and good afternoon, everyone. I want to cover three things with you today. First, I'll start by discussing our combined portfolio and how we continue to strengthen it. Next, I'll turn to the market and our outlook for the remainder of the year and into 2022. Finally, I'll close with the steps we're taking to enhance margins and maximize cash flow to drive sustainable growth and value creation. I'm pleased that on October 1st, we completed the strategic combination with Franks International to create a leading full cycle energy services company. Expro began trading on the New York Stock Exchange on October 4th under the ticker symbol XPRO. I would like to thank everyone at Expro and Franks for their great work in completing the transaction. We have hit the ground running and are positioning the combined company for long-term success. We believe that we have created a truly exciting platform and a strong financial profile that will allow the combined company to accelerate growth, improve profitability, and enhance value for shareholders, employees, customers, and partners. We have a resilient business model with greater scale and a broader set of product offerings across the well lifecycle that position us well to perform through market cycles. We have an expansive geographic footprint that diversifies our exposure and cash flows and improves us with platforms for continued growth in key markets. Notably, for example, on a pro forma basis in 2020, 35% of our revenue is generated in North and Latin America, 28% came from Europe and Sub-Saharan Africa, 21% from Middle East, North Africa, and 16% from Asia Pacific. Our diversified customer base of international and national oil companies gives us opportunities to expand our relationships as we introduce new solutions. With our combined portfolio of services and products, we now offer our clients a broader range of early well lifecycle solutions. Together, we have enhanced early visibility into customer projects, which enables us to better anticipate their future needs and expand our market penetration. We have a balanced business with leading capabilities across four product lines, well construction, well flow management, subsea well access, and well intervention and integrity. Our top priority across each business is ensuring safety, integrity, and efficiency. I would like to spend a few minutes introducing you to each of our product lines and talk to you about the drivers of our business. First, well construction. This product line accounted for 37% of our 2020 pro forma revenue. Frank's has been a leader in well construction for over 80 years. We have a comprehensive well construction portfolio, including being a trusted provider of casing and tubular running services, completion, cementing, and drilling technologies, downhole service tools, and large diameter tubular products. Today, in the areas in which we participate, we have one of the most expansive well construction portfolios in the industry. We specialize in complex and technically demanding wells. with solutions that transform how these wells are constructed to enhance efficiency and production. Well construction represents a great growth area for us, with a rebounding global rig count, a leading market share position, and over 4,000 wells constructed each year. The leverage in this business is significant, with incremental margins above 50% in the offshore domain. I've been exceptionally impressed with the level of technology and the level of engineering that Franks brings to the table. Differentiating and proprietary technology such as ICAM, ITONG, Centrify, focus on automation, digitization, and artificial intelligence to help reduce risk and increase the safety and efficiency of operations. Next, on well flow management. This product line accounts for 38% of our 2020 pro forma revenue. We have an experienced team and the largest fleet of well flow management equipment. Our broad range of capabilities span well cleanup, exploration and appraisal services to support the full life of field for our customers. Our portfolio includes real-time data acquisition and metering, fluid sampling and analysis, efficient sand, solids, and water management capabilities, extended well test and early production facilities, and modular production enhancement solutions. Well flow management represents another area of strength for us with more than 200 global well test packages and more than 10,000 successful well test operations to date. We gather valuable well and reservoir data. We are specialists in high rate gas developments and we help customers accelerate their cash flow by both expediting production from new discoveries and by maximizing recovery from existing well stock. We are well positioned to benefit from a recovery and the business has tremendous leverage to more complex wells. Looking forward, well flow management has a critical role to play in the energy transition in terms of measuring, analyzing, optimizing emissions. We're focused on helping our customers reduce operational emissions through introduction of innovative data, engineered solutions, and applied technologies. Now let's move on to subsea well access. This product line accounted for 12% of our 2020 pro forma revenue. We are a market leader in subsea well access and provide the most reliable, efficient, and cost-effective well access systems in the industry with capabilities across the complete well lifecycle from ENA through to well abandonment with a new increased focus on optimizing production. We are the global leader in the supply of industry-leading subsea test tree assemblies with a fleet of over 75 strings and more than 3,000 operations performed to date. Subsea Well Access is a strong, stable business for us with the latest introduction of our RWIS product allowing us to now offer our customer base the complete subsea toolbox offering the correct intervention solutions through BOP, open water riser systems, and now open water wire through water type systems. This, of course, is dependent upon a type of operation being carried out by the operator. And now that brings us to well intervention integrity. This product line accounted for 13% of our 2020 pro forma revenue. Our well intervention integrity business provides deployment, insight, and enhancement solutions to advance production optimization, well surveillance, and asset integrity assurance. Our well intervention solutions span across well integrity, EOR, production monitoring, perforation and unconventional, pipe recovery, and slickline mechanical services. We are confident there is a significant opportunity for us to continue to expand our well intervention integrity business through our existing relationships with our customer base, and also to expand with new customers and new geographies. Well integrity, reduction of greenhouse gas emissions by old wells, and cost-effective decommissioning is a priority for many of our customers. We recently launched an integrated workflow using existing technologies within our portfolio to help customers cost-efficiently diagnose, solve, and assure integrity of their well stock, guarantee safe and flawless production, or detailed preparation for rapid and low-cost decommissioning. Combining with Frank's gives us an extended footprint, allowing us to expand our existing portfolio of well intervention technologies to previously inaccessible geographies such as Guyana, Ecuador, and others. One of our key strategic priorities is capitalizing on our technology platform to provide customers with more precise, efficient solutions. Our portfolio is built on innovation and technology that we believe will define the next chapter of our industry. With leading solutions across the well life cycles, we now support customers from exploration and well planning through to abandonment. Let me give you a few examples of our innovation at work during the third quarter. Our Octopoda annulus intervention system successfully reached a depth of 300 meters in a Colombian well while restoring annulus pressure integrity and returned the well to production. This depth was a world record for annulus intervention. Another example of our innovation at work was during Hurricane Ida, which rapidly intensified in the Gulf of Mexico. We were able to deploy Frank's recently launched 22-inch brute high-pressure, high-tensile service packer. This was a finalist in the World Oil Awards. in the category of well integrity, but this was used to quickly and safely isolate the customer's wealth. Moving forward, we remain committed to continuing to invest in our innovation platform with a focus on solutions that support our customers' carbon reduction goals as part of the energy transition. ESG is integral to our DNA at Expro. This includes our commitment to achieve net zero CO2 emissions by 2050 and our focus on continued innovation to create a future-facing technology platform that helps Expro and our customers participate in the energy transition. 40% of our research and development spending in 2021 was targeted to help our customers achieve these carbon reduction objectives. Our customers are being driven by lower cost, lower carbon, as well as faster and more concise decisions. Through technology and innovation, we offer production optimization focused on gas, reduced physical and carbon footprint of operations, flareless and flare reduction analytics, and energy market evolution. For example, EXPRO delivered a gas compression solution in North Africa, enabling our customer to reduce greenhouse gases and minimize flare footprint. The customer reduced greenhouse gas emissions across 10 sites by roughly 10,000 tons of carbon dioxide per day. Now let me turn to the market and our outlook. As oil prices reach multi-year highs on tight supply and global demand recovery, The activity and investment environment are continuing to look positive, especially in the production and development phases of the oilfield lifecycle. While many of our customers' near-term focus will likely remain on maximizing their investments in existing well stock, we believe the significant underinvestment in new oil supply in recent years will result in new final investment decisions, or FIDs, and that we will see sustained growth in all of our businesses and across all geomarkets. Continuing recovery in 2022 and as oil and gas demand returns to pre-COVID levels, we believe operators will shift their focus to reserves replacement. Internationally, the super majors are increasingly focused on lower cost, lower risk phase developments. In addition, efforts to reduce emissions and more broadly to position themselves for the energy transition continues to gather pace as a priority for IOC customers. In parallel to this, national oil companies are poised to accelerate their field development efforts to maximize their economic recovery. International drilling activity is forecasted to improve from its low point in Q4 of 2020, with the largest increases in Central and South America, followed by the Middle East and Asia Pacific. The company's current outlook for the fourth quarter of 2021 is for flat to mid-single-digit revenue growth and an adjusted EBITDA margin consistent with the definition used by Legacy Expro of 15% to 17% of consolidated revenue driven by an improved business mix and continued cost management discipline. Our forecast assumes a continuing recovery in E&P expenditures, albeit at different rates in individual countries. Near-term, operators are expected to maximize the investments that they have made previously. Consistent with past recoveries, incremental OPEX spending and brownfield enhancement programs are expected to be an initial area of customer focus. And in select markets, we are seeing some signs of recovering in intervention and well integrity projects, execution of which is a traditional strength of EXPRO. We expect the favorable indicators of recovery that we are currently experiencing will gain momentum as 2021 closes and as we progress into 2022. For 2022 and beyond, a pipeline of projects continues to build that will support multi-year growth with a particular focus on a number of the geomarkets within the Middle East, North Africa, Latin America, Africa, and Asia. More broadly, we believe offshore exploration and development and tidal projects will attract a disproportionate share of incremental investment dollars given the relative size of the prize in terms of resource potential. This should support sustained growth for the combined expo given our capabilities in subsea well access services and complex well flow management and well construction services. We expect to provide additional color on our 2022 expectations in connection with our fourth quarter financial results early next year. As outlined previously and prior to the closing of the transaction, We are targeting cost and revenue synergies between $80 to $100 million within 24 to 36 months. We've undertaken significant work planning for the integration and our ability to achieve the targeted synergies, and we have begun to execute on our plans immediately upon closing the transaction. Throughout the third quarter, our integration planning has confirmed our expectations that we will strengthen our operating model, lower our cost structure, and significantly expand margins. We are confident in our ability to deliver 55 million in annual run rate cost synergies within the first 12 months following close, with the opportunity to deliver 70 million of total cost savings in 24 to 36 months. We expect to achieve these synergies largely through indirect cost consolidation and optimization of business processes. We also expect to realize revenue synergies of 10 to 30 million in EBITDA through our expanded customer relationships and operating footprints, increased time on rig, and greater exposure to the full life of field. In addition to realizing the near-term synergies drive the transaction, a multi-year industry and global economic recovery, of which we are seeing signs, together with improving market fundamentals, uniquely positions Expro to capture the full synergies plus deliver on incremental revenue and margin expansion opportunities. And longer term, there's a significant potential upside relative to prior periods of the cycle, especially given the years of underinvestment in the sector that I discussed a bit earlier. Before I pass over to Quinn, I'd like to reiterate how excited I am about what the future holds for our new company and look forward to working to deliver on our tremendous opportunities. We are well positioned to capture income and revenue and margin expansion opportunities that come with a market upturn. We have a strong financial profile that provides flexibility to drive growth. With that, I'll hand the call over to Quinn to discuss the financial results. Thanks, Mike.