Expro Group Holdings N.V.

Hello and welcome to today's Expro Q4 2022 earnings presentation. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during the presentation, you may do so by pressing star 1 on your telephone to do that. I would now like to hand over to Karen David-Green. The floor is yours. Please go ahead.

Welcome, everyone, to Expro's fourth quarter 2022 conference call. I'm joined today by Mike Jarden, 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 fourth quarter results that is posted on the EXPRO website, expro.com, under the investor section. In addition, supplemental financial information for the fourth quarter and prior periods is downloadable on the EXPRO website under the investor section. Further, for an in-depth look at our business, strategy, and industry dynamics, I would refer you to the expert company overview presentation that we posted on the website on January 24th. 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 statements as of 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's website or on our website at expo.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 fourth 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. Expro delivered a strong fourth quarter with financial results at the top end of our expectations. We entered 2023 in a strong position for continued profitable growth with a robust order book supported by strong demand trends for our services and solutions. We recently crossed the one-year mark since completing the merger of Expro and Franks International, and our strong results for 2022 demonstrate the potential of our platform. We've been able to successfully leverage legacy relationships and our broad operating footprint to secure new business and capitalize on market opportunities in key growth areas while driving efficiencies to improve profitability and expand margins. With our broad geographical footprint, leading portfolio of services and solutions, and strong operational execution, we continue to punch above our weight to win new mandates and grow our business. We are confident that we will continue to build on our momentum to achieve strong relative growth throughout 2023 and beyond. We remain confident that the pipeline of projects we are seeing will support strong multi-year growth for the energy services sector. We believe we are well positioned to capitalize on this multi-year industry upcycle driven by an extended period of underinvestment in global upstream production. We continue to win business through our strong presence in key international and offshore markets and the breadth of our portfolio of innovative solutions. With strong and gaining momentum in longer cycle projects, we expect international demand to accelerate through 2023 in order to add production capacity and thereby meet expected increases in demand. As 80% of Expro's business is based in international markets and 70% in offshore markets, Expro is poised to capture significant upside from these positive industry trends. We are confident that As we continue our shift towards higher margin activities, commercialize recently deployed technologies and investments, and capture merger-related synergies, we will drive above-market top-line growth, margin expansion, and strong cash flow generation through this multi-year industry upcycle. Finally, our debt-free balance sheet and available liquidity provides us with the flexibility to pursue smart, synergies-focused M&A and the adoption of a shareholder-friendly capital allocation framework. On today's call, I plan to touch on three main topics. First, I'll walk you through our fourth quarter performance. Second, I'll give you a brief update on our integration process. And third, I'll provide some perspective on trends we are seeing in the broader industry environment. For the fourth quarter, we delivered revenue of $351 million and adjusted EBITDA of $70 million, excluding $5 million of commissioning costs on a subsea project, which I will come back to in a moment, Adjusted EBITDA in Q4 was $75 million, or 21% of revenue, primarily driven by increased activity across the majority of our operating segments and a more favorable activity mix. Fourth quarter revenue increased 5% sequentially and 19% relative to the fourth quarter of 2021. Well construction revenue was up 6% sequentially and 23% quarter on quarter relative to the fourth quarter of 2021. supported by accelerating new well activity in key growth markets. The fourth quarter saw us capture strategically important contract wins and develop new business due to our technical expertise and the breadth of our portfolio. I will go into these wins in more detail later on, but I'd like to briefly touch on a few that we are particularly proud of. We have commenced work on a long-term production solutions contract for a liquefied natural gas or LNG pretreatment facility in the Congo that's designed to allow incremental gas production for low-carbon electricity generation in Europe. As I outlined in our Q3 results, this 10-year contract is expected to generate more than $300 million of revenue for ExPro. Our expertise and ability to enable operators to quickly access reserves will play a critical role in supporting Africa's significant and growing LNG industry. We are excited that E&I Congo recognized our difference in solutions and selected EXPRO for this turnkey contract to lease, operate, and maintain this facility. We are confident that our successful track record, technical expertise, and expedited delivery times will allow us to continue to win business for similar projects, particularly in West Africa. I am also delighted to highlight a recent contract win that exemplifies EXPRO's environmental commitment and our ability to partner in frontier field developments in support of energy security. TotalEnergies awarded EXPRO a new five-year well intervention contract in Uganda due to our innovative environmental solution for carbon reduction and our strong commitment to employing a local workforce. EXPRO's solution was designed and engineered based on many years of successful delivery of similar projects globally in locations such as Algeria, Saudi, Mozambique, and Egypt. Our work on this project will commence in May of 2023. Supporting the sustainability of our clients is core to our business, and we are pleased that these efforts have again received external recognition. MSCI, one of the most important organizations evaluating companies' ESG programs, upgraded EXPRO's sustainability rating by two full levels from a double B to a single A rating in 2022. We have also achieved an upgrade to a B rating from CDP, a not-for-profit charity, that runs the global disclosure system for investors, companies, cities, states, and regions to manage their environmental impacts. This is a reflection of the excellent cross-company efforts to progress our carbon reduction capabilities and to embed our sustainability strategy into everything that we do, both within our business and in the communities in which we operate. We believe our industry is a necessary part of the solution to build towards a lower carbon future And as we advance our strategy, we will continue to focus on developing the technologies and solutions to manage our own emissions and assist our clients in reducing theirs. One such digital technology, Expro's ITONG system, has been named a finalist in the Emerging Technologies category and the Offshore Achievements Award, which takes place in March in the UK. ITONG is one of a suite of Expro technologies that's designed to support our collective carbon reduction ambitions. The system advances automation on the rig floor and is designed to enhance operations and reduce personnel, resulting in improved safety and efficiency, a smaller carbon footprint, and lower operational costs. We continue to develop partnerships and when work beyond oil and gas, demonstrating that our well-established technologies and depth of expertise are transferable and can be utilized to maximum effect in support of sustainable energy solutions. Our geothermal business continues to develop globally. For example, our well construction team has delivered conductor pre-installation for three geothermal wells in the Caribbean. In addition, we continue to advance our strategy to grow our business in the carbon capture usage and storage sector, including a recent contract for Schuttenpol's tubing-pervade perforating work for multiple wells on a CCUS project in Wyoming. EXPRO's sustainability ethos promotes our objective to positively influence the communities in which we operate. Today, I am pleased to highlight a community solar power project that we recently embarked on in Malaysia. EXPRO, in collaboration with the organization Soles 24-7, has a long-term program to install solar panels for numerous homes in the Orang Asli village. We are proud to support such a significant project, which sets the foundation for a brighter future for that community. We also continue to focus on expanding our portfolio with solutions that improve the efficiency of our customers' operations and helps them unlock new possibilities in their projects. We were named champion integrated well services company and received the most innovative solutions award for our Octopoda annual intervention services at the recent OWI Global Awards, which recognized the best in well intervention excellence. In addition, our acquisition of the Solisense well surveillance business in March of 2022 continues to deliver value to expert clients through our distributed fiber optic sensing technology. One recent success involved a customer in Asia who was experiencing gas lift performance issues affecting their entire field production. EXPRO's DFOS service was selected to jointly evaluate the integrity and also to monitor the gas lift performance during production in multiple wells. The DFOS evaluation and data allowed the customer to maintain two full days of production when compared with the associated shut-in times of other available surveillance technologies. On a regional basis, we entered 2023 on solid footing. In the fourth quarter, we captured approximately $650 million in new work globally. In North and Latin America, our Well Construction team continues to reinforce their position as the premium provider of tubular running services and products, with contract wins and operational success across the globe. In Brazil, Team 1 contracts valued at approximately $30 billion of TRS offshore services for a 48-month contract duration. The Well Construction team continues to advance its technology service offering in the region. Expro is one of the first companies to run and install a hands-free anti-rotational device in Brazil that eliminates the need for personnel in the hazardous red zone on the rig and reduces make-up time. In the Gulf of Mexico, our well construction team achieved what we believe to be an industry first by installing the first casing string ever on an eighth generation rig. Also in the Gulf of Mexico, We secured additional well test work with a major international client based on past performance and superior service quality. Moving on to Europe and Sub-Saharan Africa, our team continues to win contracts due to their depth of customer relationships and our bespoke solutions and what we believe to be best-in-class service delivery. Expro's technical capabilities help secure a new subsea plug-in abandonment contract for a 21 well abandonment campaign in offshore UK. and also on a semi-subversive rig with an expected duration of 36 months. In the Netherlands, we continue to demonstrate the full value of our combined offering with our well construction team winning a three-year contract for tubular running services for an offshore client in Holland. This work complements existing legacy expo contracts with this client in Holland for well testing, wireline, and case toll services. Service Quality helped us secure a new two-year contract for provisions of operations and maintenance labor services on a customer's production facility in Nigeria. XBRO has decades of experience with this customer and on this facility, and we are pleased to build on this relationship. All of these new mandates are on top of the exciting new contract to work in Congo that I mentioned earlier in my remarks. In the Middle East and North Africa, we are delighted to have secured a contract with a major international client, for use of our innovative and award-winning Octopoda technology in North Africa. The Octopoda Annuals Intervention System makes it economically feasible to regain shut-in and low-production wells, allowing operators to directly access the wells annualized. This three-year contract includes provision of services to remediate sustained casing pressures across fields in a significant gas development by pumping and replacing of fluids, chemicals, or resin, either from surface or annual eye intervention devices as appropriate. We see this as a tremendous endorsement of the capabilities of our Octopoda technology, and we are proud to see it deployed in the region. We also won a large integrated well test contract for Rigla sites in Saudi, and our well construction team has secured contracts with two clients in the United Arab Emirates and Oman for TULER running services in support of both onshore and offshore operations. In the Asia-Pacific region, we secured a well test contract for provision of well test nitrogen packages across 14 wells for a key client in Malaysia, while our well construction team, one worked for the provision of TRS across 21 wells, six shallow water development wells, eight deep water development wells, and seven shallow water exploration wells, with an estimated contract duration of 36 months. In India, we extended a drill stem testing to be conveyed perforating contract for offshore operations where Expro has been the incumbent since 2016. Finally, I'm happy to report that we have successfully completed the wet test on our vessel deployed, wired through water, light well intervention, or what we call LWI solution. Our LWI system is now operationally ready, and we are finalizing the work plan with the vessel owner and client. Importantly, we expect the project to commence and our LWI system to be revenue generating during the first quarter. Our differentiated subsea well access solution is designed to reduce the cost of subsea interventions by eliminating the need for a drilling rig. This is important given the increasing number and age of the global subsea well inventory. As an order of magnitude, we expect our new LWI system to generate more than $50 million of annual revenue with additional pull-through revenue opportunities. Turning to a brief update on our integration efforts, the Expro and Frank's business combination closed in the fourth quarter of 2021. As we mark the one-year anniversary, I'm very pleased with the considerable progress that our team has made to come together as one global organization and to capture significant efficiencies across our business. Since closing, we have achieved annualized cost savings of approximately $66 million. Our combined support costs have declined from 31% of revenue in Q4 2020 to prior to announcing the transaction at just 20% in the fourth quarter of 2022. 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 the full $70 million in projected cost synergies during this time frame. In the fourth quarter, we consolidated additional facilities, including locations in Asia Pacific, as well as in the Europe Sub-Saharan Africa region. With the migration to a single ERP in the third quarter of 2022 and planned technical upgrades to our IT platform in the first half of 2023, we continue to streamline a number of key processes across our organization, which will help us drive additional efficiencies. As I have said before, while revenue synergies are more difficult to quantify, we expect that our previous estimate of an incremental $10 million to $30 million in EBITDA from revenue synergies to our expanded customer relationships and operating footprint increased time on rig, and greater exposure to the full life cycle of the field will likely prove to be very conservative. Before I turn the call over to Quinn, I want to provide some perspective on trends we are observing in the market. The market outlook for 2023 remains positive as the post-pandemic recovery continues. Operators are increasing production from existing assets and developing new fields in deep water and offshore. This activity favors our complex well construction services subsea well access services, and elements of our well flow management business, which combined represent about 65% of our business, currently driven by activity in South America, Asia, and sub-Saharan Africa. Activity related to gas and LNG production and associated asset development is also increasing, particularly in North and sub-Saharan Africa. We are experiencing further demand for production-related technologies in these areas, traditionally a core strength of EXPROS, building upon recent high-value contract awards. In addition, there is a desire amongst operators to maximize return on their prior investments and to minimize their well productivity decline in order to sustain their existing assets. This is leading to many of our customers expanding their upstream OPEX budgets and investing in their brownfield enhancement programs. This is important for us as EXPRO's well intervention and integrity services and elements of our well flow management product lines utilized in these operations collectively represent about 35% of our business. Further, operators are increasingly focused on environmental stewardship and expanding their investment in low carbon energies and initiatives to reduce the carbon footprint of their operations. We are seeing more partners across our supply chain from operators to service companies commit to net zero emissions to support our collective journey towards a lower carbon future. The heightened focus on sustainability is not a trend. This is a factor that we believe will become part of the fabric of our industry. We see our customers focus on their carbon footprint as a growing opportunity across our global business, as we provide solutions for increased efficiency, automation, and emissions production, as demonstrated by our recent projects and ongoing customer engagements. We also continue to bring our long-established technologies, skills, and services to sectors such as geothermal, where we are committed to building our track record of as well as broadening our operations in the carbon capture projects. We're confident that our business model, broad geographic footprint, and leading portfolio of services and solutions will allow us to continue to capture considerable growth opportunities from these trends and deliver increasingly compelling returns for our shareholders. Approximately 70% of our business mix is tied to drilling completions activities, and roughly 70% is tied to offshore markets. both are areas of customer spending that are in the early stages of a cyclical recovery. Similarly, with roughly 80% of our revenue generated in international markets, we are well positioned to capitalize on the acceleration of activity in key growth markets and support our customers in the jurisdictions where they need us most. Last month, we also completed a secondary stock offering on behalf of Oak Hill Advisors, our largest shareholder. While Expro did not sell any shares and will not receive any proceeds from this offer, We believe that this is an important step to increase float and trading liquidity in our shares and hopefully close the valuation discount relative to our largest U.S. peers. With that in hand, I'll hand over to Quinn to discuss our financial results.