Expro Group Holdings N.V.

hello and welcome to today's expo q2 2022 earnings presentation my name is elliott and i'll be coordinating your call today if you would like to register a question during a presentation you may do so by pressing star followed by one on your telephone keypad i would now like to hand over to karen david green the floor is yours please go ahead welcome everyone to expo's second quarter 2022 conference call i'm joined today by mike jardin ceo

and Quinn Fanning, CFO. First, Mike and Quinn will share their prepared remarks, and then we will open it up for questions. We have an accompanying presentation on our second quarter results that is posted on the EXPRO website, expro.com, under the investor section. In addition, the second quarter financials are downloadable on the EXPRO website under the investor section. 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 to today's date and the company assumes no responsibility to update any forward-looking statements 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 can be accessed on the SEC website or on our website at excro.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 second quarter 2022 earnings release, which can be found on our website. With that, I'd like to turn the call over to Mike.

Thank you, Karen. Good morning and good afternoon, everyone. I'm pleased to share with you that Expro delivered robust operational performance and financial results that exceeded the guidance we provided for the just completed second quarter. We are experiencing increased customer activity levels across all segments of our business, bolstered by a backdrop of strengthening industry fundamentals. We believe this positive momentum will not only continue, but will also accelerate going into 2023 and beyond. Expro is poised to capitalize on an expected increase in customer spending and activity. Today, EXPRO has the scope and financial profile required to compete and win in what we believe is the best outlook for energy services in at least a decade. Our results in the second quarter and our market outlook underscore the benefits of EXPRO's balanced portfolio of services and solutions with leading capabilities and a culture built around safety, service quality, organizational efficiency, and risk management. In addition, we believe our through-cycle resilience is a significant advantage and competitive differentiator for Expro. Our current portfolio of services and solutions is paired with a global operating footprint with established positions in key growth markets, and the combination provides Expro with good leverage to improving industry fundamentals, and in particular, to the rebound that is beginning to take place in the international and offshore markets. We have never been in a better position to capture cyclical recovery upside. We also continue to have a best-in-class innovation platform and technology portfolio that enables us to support our customers' efficiency and emissions-related goals, grow market share, and capitalize on longer-term industry trends. Finally, our strong balance sheet and merger-related synergies provide us with significant financial, operational, and strategic flexibility that will allow us to accelerate growth and create long-term stakeholder value. On today's call, I'll touch on three main topics. First, I'll walk you through our second quarter performance. Second, I'll give an update on our integration process. And finally, I'll provide some perspective on trends we are seeing in the broader industry environment. For the second quarter, we delivered revenue of $314 million and an adjusted EBITDA of $51 million. Second quarter revenue increased 12% sequentially and on a pro forma basis, 10% year over year. Higher revenue during the quarter was driven by increased activity across the North and Latin America, Europe and Sub-Saharan Africa, and Asia-Pacific regions. Adjusted EBITDA increased 39% sequentially, and on a pro forma basis, 33% year-over-year. Adjusted EBITDA was primarily driven by a more favorable activity mix during the second quarter and faster than anticipated realization of merger-related synergies. Well construction revenue was up 9% quarter-over-quarter, and well management, which includes our well flow management, subsea well access, and well intervention integrity businesses, was up 13% quarter over quarter. Second quarter results exceeded prior guidance, primarily as a result of increased wealth management and wealth construction revenue within North and Latin America. Our team continues to both capitalize on improving industry fundamentals and demonstrate the value of EXPRO's broad suite of cost-effective, innovative solutions to win new business and expand relationships with existing customers. During the quarter, we continue to secure contracts because of our exceptional service quality and technical delivery. We also continued the introduction of new technologies with both Coil Hose and Octopoda achieving market adoption at pace. The current commodity price environment puts a premium on maximizing production from existing well stock, so there is a strong customer interest in well intervention integrity solutions such as Coil Hose and Octopoda. The significant underinvestment in energy supply over the last decade, coupled with growing demand, is also resulting in FID approvals. Importantly for our company, nearly 60% of the new customer commitments are expected to be offshore. We achieved contract wins and extensions totaling approximately $300 million, which demonstrates the breadth and depth of our customer relationships and attraction that our solutions are gaining in the market. On a regional basis, in North and Latin America, our well construction team continues to demonstrate their position as the premier provider of casing and tubular running services with the award of contracts and successful operations delivered across the region. The team successfully completed a first casing running tool project in Brazil and carried out eight simultaneous TRS deepwater completions in the Gulf of Mexico, where activity continues to pick up. We also deployed our industry-leading 22-inch Brute Packers in Mexico for the first time and have seen growing demand for this well integrity technology as operators across the region seek to protect their assets during storm season. This technology allows for quick and reliable well suspension when operators need it most. We won a fluid contract for a major operator in Brazil and in Alaska, our team was awarded and performed a well test for a strategically important new customer, further growing our presence in this region. Expro Guyana achieved contractor of the month from an international operator, demonstrating Expro's continued focus on delivering best-in-class safety, quality, and customer service. In Europe and Sub-Saharan Africa, We saw good progress in securing new business in the second quarter, including the retention of the largest wealth flow management contract in the Norwegian continental shelf for an initial four-year term, highlighting the strength and depth of our relationship with this international operator. A significant portion of this contract is directly linked to production optimization and enhancement, as well as a demonstrable commitment to low-carbon plan. The breadth of our portfolio, including market-leading technologies acquired in our July 2019 acquisition of Quality Intervention, directly assisted us in expanding a core well intervention contract with a major international operator in the UK. In addition, our service quality and portfolio of capabilities helped us secure an expanded contract to meet client needs for a nine-well plug-in abandonment campaign in the UK continental shelf, where we also added well tests and well intervention to an existing large-bore subsidy services contract. As I noted earlier, Coil Hose and Octopoda are gaining traction in the market in support of clients' intervention and integrity needs, Octopoda is a truly unique service offering, which for the first time in our industry allows direct access to well annuli, in which we can ensure well integrity and production assurance. Octopoda was recently deployed in the Congo, the first deployment of this technology in Sub-Saharan Africa, and it continues to generate customer interest with its unique ability to investigate or mediate sustained casing pressure and other well annulus problems. Additionally, our coil-hosed Light well circulation system is an innovative development, providing a lower cost, more efficient alternative to traditional cold tubing systems. This broadening of our portfolio and our depth of experience, combined with the ability to quickly mobilize assets and personnel to meet client requirements, helped us secure a UK contract for well testing and exploration and appraisal services in support of a new offshore drilling campaign. Extra superior quality and service performance and strong client partnerships led to the securing of multiple contract wins, including for our subsea team in the Ivory Coast and in Turkey, where we won well testing and coil hose intervention work for a nine-well project on offshore gas storage project. In the second quarter, we also introduced drill stem testing into Angola, further broadening our comprehensive portfolio in this country and positioning us to take advantage of the increasing activity in deepwater operations in Angola. We have successfully started operations in Cabinda for a major operator, which will be our first deployment of hammer services as part of an Angolan well construction service package. In May, we were also recognized as the safest service provider in Mozambique. Based on our recent performance, we are in discussions with the client regarding further expansion of our services, including the introduction of new technologies. In Chad, our work with a client is core to ensuring their operations are conducted in an environmentally responsible way. Our expertise and technologies are focused on having no environmental impact with testing and analysis carried out to ensure the appropriate purity of the regional freshwater system, underlining our status as a leading provider of onsite chemistry services with a strong environmental focus. In Norway, we completed our first operational campaign with our ITONG well construction technology, which provides a step change in safety and well construction operations. Operational performance exceeded client expectations, delivering significant rig efficiency improvements and cost savings to the customer overall. In the Middle East and North Africa, our well construction team has expanded into new territory to secure their first TRS contract in Algeria, which is planned to commence later this month. This opportunity reflects one of the many revenue synergies created by our October merger. We leveraged expert relationships and well flow management to secure this new TRS award. In addition, the regional team was awarded two burger boom contracts with Middle East drilling contractors, reflecting our market-leading capabilities and reputation in the market. In Egypt, our service offering and ability to deliver contributed to Expro being awarded significant well test contracts. In the Asia Pacific region, our well construction team in Brunei secured a major five-year contract for TRS. Our outstanding track record of reliable performance in HSC and service quality were strong criteria for the contract award. In Thailand, The team secured additional TRS work covering 200 wells, and in Malaysia and in offshore China, we were awarded three-year TRS contract extensions spanning development and exploration wells. Our subsea team's technical capability played a key part in securing a contract with a major international operator in Malaysia for the provision of our new vessel-deployed light well intervention package, with the team also securing significant additional work in Australia. Like Coilhose and Octopoda, EXPRO's LWI capabilities are the result of investments we have made over the last several years, which should allow the company to offer differentiated production optimization solutions and thereby grow our top line faster than the overall market while also improving profitability. EXPRO is strategically committed to continuing to invest in transforming our business portfolio and reducing greenhouse gas emissions. In April, we published our inaugural Environmental, Social, and Governance Review. with a stated aim of achieving net zero by 2050 with a 50% reduction in carbon intensity by 2030. As the energy industry embraces transition and a need to make real and visible headway towards a lower carbon world, we appreciate the key enablers to change will be those who can truly differentiate themselves as solutions providers. As recognized global well experts and a trusted partner, we believe EXPRO is well positioned to play an important role in enabling our clients to achieve their carbon reduction goals in support of the energy transition. EXPRA remains committed to allocating roughly 50% of our research and development budget to carbon reduction initiatives. In doing so, we are developing and advancing solutions that will play a critical role in enabling our customers to achieve their own emission reduction goals while also allowing EXPRA to achieve its goals. EXPRO's well expertise and range of well intervention, well integrity, and well flow measurement technologies and skills help operators cost effectively develop oil and gas resources while minimizing both emissions and the required operating footprint. As our industry seeks to address tomorrow's challenges, we believe many of these technologies and skills are transferable. As a good example of adopting technologies to achieve more sustainable energy solutions, EXPRO has supported geothermal well service projects since 1986. Most notably, in the second quarter, we were awarded our first integrated services geothermal contract to support a high profile geothermal plant in Germany. The second topic I'd like to cover is to provide an update on our integration efforts. During the quarter, we continue to make progress in bringing the legacy businesses together to capture the full potential of our combined platform. I am pleased to report that nine months into our integration, we have identified in action more than 100% of the $55 million in annualized cost savings that we established as our target within the first 12 months following the closing of the merger. This comes a full quarter earlier than we had initially anticipated. As outlined previously, we are targeting cost and revenue synergies between $80 to $100 million within 24 to 36 months post-merger. we remain confident that we will achieve 70 million in projected cost synergies during this timeframe, if not earlier. Cost savings are primarily driven by the rationalization of support costs, consolidation of facilities, and supply chain savings. In the second quarter, we consolidated additional facilities, including locations in Baku, Azerbaijan, St. John's, Canada, Labuan, Malaysia, Mumbai, India, Corpus Christi, and Midland, Texas. While revenue synergies are more difficult to demonstrate, my sense is that our previous estimate of an incremental $10 to $30 million in EBITDA for revenue synergies through our expanded customer relationships and operating footprint, increased time on rig, and greater exposure to the full life of the field will likely prove to be conservative. I'd like to sincerely thank the entire expert team for their hard work and numerous contributions towards helping us realize our integration goals ahead of schedule. Without a doubt, we have a winning team that has proven its ability to deliver on our commitments. Before I turn the call over to Quinn, I want to provide some perspective on trends we are observing in the market. The positive signs of a recovery we saw in Q1 continue to build, underpinned by a favorable supply-demand dynamic. As I noted earlier, this is largely a result of limited upstream investment in recent years and a need for additional capacity to meet projected demand growth. With the more recent heightened focus on energy security, diversification of supply, and the need to replace at least a portion of Russian oil and gas supply is expected to only magnify what was already set up to be a favorable multi-year macro backdrop for OFS activity. Longer term, we believe the service sector will need to play an important role in facilitating the energy transition. So despite ongoing volatility in commodity prices, the fundamental backdrop for the energy services sector is quite constructive. In particular, after a strong recovery in the U.S. onshore market, we are seeing increasing demand for our services and solutions with international and offshore activity expected to accelerate through the second half of 2022 and into 2023 as operators look to increase production from existing assets and develop new fields. Notwithstanding near-term concerns of an economic slowdown, there seems to be a consensus that energy demand will trend back toward, if not through, 100 million barrels of oil equipment per day in 2023. We expect that increasing demand for energy services and capacity constraints and key service offerings, including high end well construction equipment and subsea test trees, should provide scope for improvements in net pricing beginning in late 2022 into early 2023. In EXPRA's view, expected growth will be broad based geographically, span all phases of oil and gas development, and include all operating environments. Geographically, we see strong potential in North and Latin America, the Middle East, North Africa, Sub-Saharan Africa, as well as Asia. And while many of our customers continue to focus on brownfield enhancement programs to maximize previous investments, we are also starting to see growth in exploration and development activity driven primarily by North and South America, with further activity expected in Norway, India, and Sub-Saharan Africa. The brownfield focus will support steady growth in our well intervention and integrity business, as well as elements of our well flow management business, collectively, which represent about 35% of our business. The remaining circa 65% of our business is generally levered to drilling, well construction, and well completions activity, which we believe is points for strong growth across several geographies, and within which we generally capture very good falls throughout incremental revenue. Overall, the outlook for the remainder of 2022 and into 2023 remains positive, with sustained increases in E&P expenditures. After a rather dramatic recovery in the North America onshore market, customer dialogue and tendering activity indicates to us that the outlook for offshore activity is strengthening. This should support sustained growth for EXPRO, given our leading and differentiated portfolio capabilities in subsea well access services, COMSLAC's well construction services, and production optimization. This is particularly important as approximately 70% of our revenue today is generated from offshore activity. Before I close, I'm pleased to share that during the quarter, our board approved a new stock repurchase program under which the company is authorized to acquire up to $50 million of its outstanding common stock up to the November 2023 timeframe. We view the repurchase of our shares as an attractive and prudent use of our capital that it is in the best interest of our shareholders. With a debt-free balance sheet, ample available liquidity, and strong signals of an industry recovery, buybacks allow us to opportunistically increase shareholder value while maintaining sufficient cash for sources to fund our business needs. In the second quarter, we repurchased $13 million in Expro stock, representing approximately 1% of our shares outstanding. From an operational standpoint, Expro is well positioned in the markets that we expect will continue to benefit from strengthening industry fundamentals. In particular, Expro has significant leverage to strengthen international offshore markets where experience, expertise, and service quality can be, in an Expro's case, are positive points of differentiation. Execution is a traditional strength of Expro's and one we plan to continue to deliver on both for our customers and our shareholders. With that, I will hand the call over to Quinn to discuss our financial results.