Expro Group Holdings N.V.

Hello and welcome to the EXPRO Q1 2023 earnings presentation. My name is Elliott and I'll be coordinating your call today. If you would like to register a question during the presentation, please press star followed by one on your telephone keypad. I would now like to hand over to Quinn Fanning, CFO. The floor is yours. Please go ahead.

Welcome to EXPRO's first quarter 2023 earnings conference call. I am joined today by EXPRO CEO Mike Jarden. First, Mike and I will share our prepared remarks Then we will open it up for questions. We have an accompanying presentation on our first quarter results that is posted on the EXPRO website, expro.com, under the investor section. In addition, supplemental financial information for the first quarter and prior periods is downloadable on the EXPRO website, likewise, 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 of today's date, and the company assumes no responsibility to update 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 statements. More complete discussion of these risks is included in the company's SEC filings, which may be accessed on the SEC's website, sec.gov, or on our website at expro.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 first quarter 2023 earnings release, which can also be found on our website.

With that, I'd like to turn the call over to Mike. Thank you, Quinn. Good morning and good afternoon, everyone. As noted in our press release, Q1 2023 revenue was up 21% year over year and consistent with prior guidance was down just modestly compared to a strong fourth quarter of 2022. Recognizing that our first quarter is typically impacted by the winter season in the northern hemisphere and customer budget dynamics, I am pleased with our start to 2023 in terms of revenue performance. However, Delivery challenges with several projects negatively impacted our adjusted EBITDA performance relative to expectations. More specifically, as was noted in our press release, we recognized approximately $11 million of unrecoverable mobilization, startup, and commissioning costs on several projects in Asia Pacific that we did not anticipate when we provided Q1 guidance. Other positive and negative variances in the first quarter were generally small and largely offsetting. Excluding such mobilization, startup, and commissioning costs, Q1 2023 adjusted EBITDA and adjusted EBITDA margin would have been $53 million and 16% respectively, which is directionally consistent with our expectations for the March quarter as of our last earnings conference call. Also, excluding LWI-related costs, Q1 2023 adjusted EBITDA would have been roughly 35% higher than the first quarter of 2022 in terms of adjusted EBITDA. In regards to our vessel deployed light well intervention or what we call LWI system, we commenced commercial operations with one of the super majors in offshore Australia in late March. Operations have now been ongoing for about a month with two well desuspensions completed to date. After several quarters of startup and commissioning issues, this is an important milestone for our light well intervention service. We have also secured additional work for the LWI system on a well-decommissioning project in Asia Pacific, and over the next couple of quarters, we'll be focused on improving execution, including vendor management and service partner coordination, demonstrating our broad capabilities in vessel-deployed lightwell intervention and building the case to extract more value for the services and solutions that we provide. As Quinn will discuss later, we maintain our previous full-year revenue and margin guidance. We expect Q2 results will reflect a seasonal recovery in activity in the North Sea, and more broadly, a continued ramp-up in activity across geographies. Based on what we know today, adjusted EBITDA margin is expected to expand sequentially by more than 300 basements points, reflecting a non-repeat of the extraordinary costs that were recognized in the first quarter, a better business mix, and improved operating leverage. Our view remains that the fundamental backdrop for energy services is quite constructive, with long cycle development and capacity expansion projects supporting a growth phase that will be multi-year in duration, span all phases of oil and gas development, and include all operating environments. On balance, the long-term demand outlook is favorable. Though the near-term US economic outlook is uncertain, post-lockdown increases in demand led by China should result in an overall demand recovery in the second half of 2023. OPEC Plus appears committed to supporting oil prices Non-OPEC supply growth has been constrained to date, and global inventories are below average. I'll note that building U.S. gas inventories are the exception here, with additional LNG export capacity likely the medium-term solution. Turning to the energy services sector, while the consensus view seems to be that growth for the U.S. onshore market has reached a plateau, we see momentum continuing to build in the international and offshore markets that Expo is most active in. We entered 2023 with a healthy order book, and I'm pleased that we have continued to build on its momentum. In the first quarter, we captured more than $350 million in additional work by leveraging global relationships and the breadth of our portfolio of capabilities and by capitalizing on a strong resurgence of activity. Over the next several years, the offshore market is expected to attract investment capital in amounts not seen in over a decade, largely because of the limited investment in upstream oil and gas during the last five-plus years and an expected increase in oil demand to pre-pandemic levels. With increasing urgency, operators are looking to replace produced reserves and add capacity to meet projected demand growth. As large-scale developments that are planned across multiple basins progress, particularly in Latin America, those projects will likely draw down available global capacity within the energy services and equipment industry. We expect that this dynamic will create pricing tailwinds as 2023 unfolds and the calendar turns to 2024. We also expect that constructive commodity prices and energy security considerations will continue to incentivize new exploration and appraisal campaigns, particularly offshore West Africa and in the Eastern Mediterranean. Increased E&A should contribute to a favorable supply-demand dynamic for value-added energy service providers, such as Expro, and provide our company with further scope for net pricing gains. Perhaps most importantly, a resurgence in E&A should extend the current offshore growth cycle. We continue to demonstrate our capabilities on frontier field developments. For example, in West Africa, our services and solutions are helping operators more fully participate in the significant and growing global market for liquefied natural gas, or LNG. As previously disclosed, E&I awarded Expro a 10-year fast-track production solutions contract for an onshore pretreatment facility in the Congo that is designed to increase LNG capacity, in part to address European demand for low-carbon electricity generation. We were pleased to win this important project, and our team is working to deliver the cost-effective, innovative solutions that our client has come to expect from EXPRO. EXPRO also has a long history of teaming up with service partners with a combination of complementary capabilities operating footprints and relationships can result in better outcomes for the client. In this spirit, we recently entered a strategic alliance with one of the large service companies to supply our leading subsea technologies on a global basis and to work collaboratively for new subsea completion, decommissioning, and intervention work scopes by supplying in riser, open water, and surface applications. We are delighted to have secured the first commitment under this new arrangement with the award of a $40 million contract for the sale of subsea equipment for a multi-well development in Angola. We believe this alliance provides an excellent platform for our organizations to work together and leverage the respective strengths of industry leaders for the benefit of our combined customer base. In the first quarter, we also completed the acquisition of cementing specialists Delta Tech Global and generate significant market interest in innovative technologies that this acquisition brings to Expro. Delta Tech's experienced leadership team has an excellent track record of developing and deploying cementing technologies for the offshore market with operations across the UK and Norway. Our intent is to increase the penetration of Delta Tech's business into the Gulf of Mexico, West Africa, and Asia Pacific markets, by combining EXPRO's global operating footprint and award-winning cement head technologies with Delta Tech's range of open water cementing solutions to increase clients' operational efficiency, delivering rig time and cost savings, and to improve the quality of cementing operations. EXPRO's distributed fiber optic sensing product line was shortlisted by a major client in the UK for their Global Innovation Award. This is a recognition of performance delivered on a Coltian project in the UK whereby DFOS was able to provide the first-ever production profile data in a high-rate gas well and is being positioned to be rolled out as a standard solution for their well stock. As you may recall, our DFOS-enabled data acquisition and data interpretation capabilities were expanded with the 2022 acquisition of SolarSense. We highlighted several other operational achievements, technology awards, and regional highlights in our press release and in the slide presentation that was posted today at expro.com. As I have done on previous calls, I will call to attention to a few noteworthy achievements in the quarter to give new participants a better sense of EXPRO services and all participants a sense of business momentum within the sector and at EXPRO. Our well construction product line continues to reinforce its position as the premium provider of two-year running services with a leading position in complex wells, good exposure to deep water and ultra deep water development, and an advanced position in key growth markets. Well construction, like drilling, is more level to early cycle activities, which should better position EXPRO for the large offshore development projects that are starting to ramp up around the world. As the backlog of offshore deepwater and Ulta deepwater projects continues to build, clients will look to secure high-end TRS and subsea landing stream capacity going forward, and we believe that EXPRO remains a first call. The combination of market structure, capacity constraints, and differentiated technology should provide these product lines in particular with scope for improved pricing. Moving on to some regional commentary within well construction, I want to commend our Brazilian two-bit running services team and congratulate them for achieving nine years without lost time incident. The Brazil team also retained a multimillion-dollar wireline intervention contract for a key client. This is a three-year award for provision of offshore slickline services that represents most of our Brazil wireline operations. We also secured an 18-month contract for provision of tubular running services on the Bacalu field offshore Brazil. This was largely due to EXPROS technical offering and our reputation for service delivery. From a technology standpoint in Brazil, we successfully deployed our award-winning Centrify consolidated control console for a major customer. which is a new technology deployment and an important part of our broader digital strategy. Centrify is a safety and automation technology that provides hands-off control for a single operator on multiple tools with a tablet interface that allows operator mobility and provides real-time visibility of equipment status to drillers and their supervisors. Also within North and Latin America region, we want a subsea well access contract extension for a further 24 months on a major client's mature assets in the Gulf of Mexico. Service quality was a key driver in securing the extension, as EXPRO has been this client's subsea large bore provider on these assets in the Gulf of Mexico since 2006. Additionally, in the Gulf of Mexico, our well construction team successfully completed two long-term well suspensions for a supermajor utilizing both our 9-5-8s and 14-inch brute packers, which were suspended for approximately six months in the well. This is an important accomplishment for our brute well isolation system. Our fluid analysis team is also working with a customer in Columbia to carry out the first sampling in Columbia of clean hydrogen. Our participation in the hydrogen market is in its early stages, but this is a market with significant potential to further develop. Moving to the Europe and Sub-Saharan Africa region, EXPRO's subsea well access team was recently awarded plug-in abandonment work in the UK sector of the North Sea. winning a 12-month scope for an upcoming nine-well project. EXPRO developed a bespoke equipment package for this work to meet specific requirements for this customer. EXPRO also completed a multi-well campaign for a customer in the Turkish sector of the Black Sea during the first quarter. This high-rate gas cleanup and measuring system with flow rates in excess of 100 million standard cubic feet of gas per day included day-to-day services for remote monitoring and data quality control. In addition to the rig services, EXPRO provided the reservoir engineering analysis, providing data interpretation services. This integrated service contract also included well intervention services, as well as TRS, well test, and data gathering services. EXPRO services were delivered without lost time incident and with zero NPT on this nine well project. Our UK-based well construction team was also awarded multiple contracts during the March quarter. including TRS support for multiple mobile offshore drilling units, or what are called MODUs, and platforms in the North Sea and west of Shetland. The contract includes drilling, completions, and abandonment work scopes, and importantly, will be delivering equipment to eliminate personnel in the red zone and to improve drilling efficiency. Well Construction also captured a new three-year TRS contract for work in offshore Denmark from a long-term incumbent. Finally, we are pleased to have extended a multi-services contract with a key client in the UK, demonstrating the breadth of our portfolio and the value of XPRO's technologies. This is a three-year extension to an existing wireline services contract with Welltest and TRS services now formally added to the contract. And XPRO is now preferred supplier for these services. Value-adding technologies such as DFOS, our coil hose light well circulation system, and our Octopoda annual intervention system are also included. Moving to Sub-Saharan Africa, EXPRO is providing hydrate mediation services for a major international client in Mauritania utilizing our coil hose technology. As compared to coil tubing, our coil hose solution delivered cost savings with a reduced equipment footprint while retaining a fast response capability and delivering operational safety benefits. Also in Mauritania, we have secured a contract for the provision of well test and TRS services for a five-well rig-based subsea plug and abandonment project. It's also noteworthy that our team in Takaradi, Ghana celebrated 14 years with zero recordable safety incidents. This base is currently servicing a long-standing client's Ghana value maximization plan, which is a multi-year, multi-well campaign led by our well intervention and integrity product line. This major client also recently commended Expro for our strong commitment to rig safety culture and our one team approach. And we congratulate the entire team for their dedication to delivering the highest levels of safety and quality. In Namibia, we delivered a wireless reservoir monitoring solution to a major client. This technology will enable the customer to efficiently gather the reservoir information that's required to optimize development plans for this exciting new frontier project. We were also awarded a new contract for subsea large bore electro-hydraulic services for two upcoming wells in offshore Congo. This work is scheduled to commence in the summer of 2023. As a final highlight of activity in the ESA region in Tanzania, we successfully completed our first slick E-line operations in Sub-Saharan Africa. This four-well perforating campaign will utilize EXPRESS proprietary trigger system that combines the efficiency of slick line and the control provided by real-time monitoring. Historically, Expo has maintained a very strong position in the West Africa markets, and we are encouraged by the resurgence in activity and the uptick in exploration and appraisal activity. With vast resources and good access to demand markets, security of supply concerns are serving as a new catalyst for operator investment in Africa. In the Middle East and North Africa, we secured a 20-month TRS contract with a key client in the United Arab Emirates. This multimillion-dollar contract is a great example of sales professionals working in collaboration with a client to meet their needs and develop valuable business, and we're delighted to further enhance our relationship with this important customer. Additional TRS activity in the UAE has also provided us with an opportunity to introduce new technologies, including our new triple catwalk. This facilitates the manipulation of triple stands of drill pipes, and doubles of casing from the pipe rack to the rig floor, thereby delivering improved drilling efficiencies. In Saudi, we are pleased to have been awarded a long-term contract covering well test activity for drilling and work over rigs. In Iraq, we have secured a five-year contract for clamp-on meters for a major client covering single and multi-phase clamp-on sonar meters for flow surveillance. And in Egypt, we were awarded two-year contract extensions for well testing, drill stem testing, and TRS services. Capacity expansion projects in the Middle East will attract significant investment over the next decade, and we remain focused on building upon EXPRO's currently strong position in markets such as Saudi, the UAE, Egypt, and Algeria. In addition to providing traditional services such as TRS, well test, and wireline, we are well positioned in the Middle East to provide early production, production optimization, and emissions management solutions in support of ongoing capacity expansions and carbon reduction initiatives. Finally, in the Asia Pacific region, in addition to the subsea projects that I mentioned earlier, also in Australia, we were awarded a contract to provide our rig-deployed intervention riser system utilizing EXPRA's direct hydraulic controls for the de-suspension of an initial 10 development wells followed by a further planned 18 wells. The contract duration is 22 months. For the same client in Australia, we have also secured an award to provide well testing services for a two-well exploration campaign. In Brunei, we were awarded a two-year extension for well test, subsea, DST, TCP, and fluid services. And in Malaysia, we were awarded a new contract to provide subsea landing strings and a well test package for a deepwater exploration well. This is a great example of coordination across product lines to deliver value to the client and win new business. Our Malaysian client recently presented EXPRO with its triple star safety performance award, highlighting the performance of our TRS team and their commitment to safety and service quality. While EXPRO was initially not part of an integrated services award, our business development team worked with the client to determine a discrete services proposal. Like the subsea services lines that I referenced earlier, this is an excellent example of professionalism, collaboration, and coordination with other service partners to deliver value to our clients. Additionally, in Malaysia, our TRS team was successful in winning a contract for provision of TRS services for a three-year TRS and conductor insulation contract. And finally, in Indonesia, we secured a well test contract for an additional well after a successful earlier campaign. Turning to sustainability, we are proud to have published EXPRESS 2022 Sustainability Review at the end of March. This comprehensive publication showcases the progress we continue to make in our journey to embed our environmental, social, and governance strategies into everything that we do, both within our business and in the communities in which we operate. This is our second annual ESG report, and we believe it is an excellent reflection of the cross-company efforts to progress our own carbon reduction capabilities and support our customers in achieving their goals as well. You can review the full report at Expro.com. Our geothermal business continues to develop globally. We're working to advance new strategic partnerships as we target, for example, the European geothermal heating market. As noted in our press release, we recently completed the integration of Expro's facilities in Den Helder, providing operational efficiencies across product lines. This world-class facility will not only support our Netherlands operations, but also our expansion into the geothermal business across Europe. We also continue to advance our strategy to grow our business in the carbon capture usage and storage sector, further strengthening our portfolio advancement organization to manage the evolving industry needs around carbon capture and more broadly to support decarbonization initiatives within the energy industry. Before I turn the call over to Quinn, I'd like to provide some perspective on trends we are observing in the marketplace. The market outlook for 2023 continues to improve, building on liquids consumption growth in 2022, with demand likely to surpass pre-pandemic levels in the second half of the year, driven by steady recovery in the Middle East, China, and India, and growth in domestic aviation and global transportation fuel demand. Global liquids production is anticipated to increase slightly in 2023 with supply increases from non-OPEC countries expected to be offset by continued OPEC Plus restraint that is consistent with the output cuts that were announced in October of 2022 and reaffirmed again here in April of 2023. As noted earlier, our sense is that OPEC leadership in the Middle East is committed to managing supply and supporting oil prices until global economic activity reaches a post-pandemic equilibrium sometime in the second half of 2023. Our customer dialogue indicates no retreat from the ambitious capacity additions and spending plans that have been announced. As a result, liquid supply and demand should remain in relative balance over the medium term, supporting high and generally stable oil prices consistent with EIA's average Brent forecast of roughly $85 per barrel for 2023 and a longer-term outlook that has oil prices remaining at a profitable level for operators. Roughly 80% of new offshore projects to be sanctioned have a break-even price below $40 per barrel, according to a recent analysis that was conducted by Rystad. As deepwater barrels are also considered to be carbon-advantaged relative to other energy alternatives, we believe there are fundamental drivers that underpin a strong multi-year offshore market outlook. Natural gas prices appear to be stabilizing down substantially from demand-destructive levels seen at the beginning of Russia's ongoing war with Ukraine. Following the invasion, energy policy in the U.S. and Europe began to pivot in 2022, and consequently momentum has shifted from phasing out natural gas to reducing emissions from natural gas while potentially cleaner alternatives are developed and deployed. We share the view that has been expressed by several Wall Street analysts that a pragmatic path toward global net zero will likely rely on gas as a transition fuel and potentially as a structural source of low-carbon electricity generation. While we expect IOC capital investment to remain disciplined, overall upstream investment is forecasted to exceed pre-COVID levels this year as operators look to increase production, in part to replace Russian barrels and governments' focus on energy security and renewed economic development. With macroeconomic pressures beginning to ease in the second half of the year, the outlook remains positive for the energy services sector, and we believe demand for our services and solutions will continue to grow throughout 2023 and into 2024. Activity is continuing to rise as operators are striving to increase production from existing assets and develop new fields offshore and in deepwater especially. Motivated by sustainable development considerations, Operators are also prioritizing gas and LNG projects. As a result, offshore rig activity is continuing to increase, especially in Latin America and across our Europe, Sub-Saharan Africa, Middle East, and Asia Pacific regions, as operators look to progress new developments in places such as Guyana, Norway, Angola, and Egypt, and increase exploration in places like Namibia. Expected increases in deepwater and ultradeepwater activity should favor our well construction and subsidy well access businesses and elements of our well flow management business, which combined represent about 65% of EXPRO's business. The energy trilemma, energy security, energy transition, and supply diversification is increasingly underpinning policy and investments. As I noted earlier, this is driving increased activity in gas and LNG production across North and Sub-Saharan Africa, North America, and the Middle East. we continue to see further demand for our production-related technologies in these areas, traditionally a core strength of EXPRO's building upon recent high-value contract awards. Operators are looking to make the most out of their existing oil and gas fields and prior investments, capitalizing on the sustained strong commodity pricing to reduce wealth productivity decline, extend asset life, and reduce the amount of methane emissions from their overall fossil fuel operations. Consequently, We are seeing increasing demand for our well intervention and integrity and elements of our well flow management product lines in support of these brownfield enhancement programs, especially across the Asia Pacific and Latin American regions. These services collectively represent about 35% of our business. With increased activity and demand, our company and the broader energy services sector are experiencing increased utilization of people and assets and a tightening of supply. which is supporting ongoing initiatives to raise prices and extract more value for our services and solutions. Coupled with sustained increases in operators' upstream expenditures and a resulting increase in activity, the outlook for the sector and expo is resoundingly positive. With that, I'll hand the call over to Quinn to discuss our financial results.