Expro Group Holdings N.V.

Hello, everyone, and welcome to the Expo Q4 2023 earnings presentation. My name is Emily, and I'll be coordinating your call today. After the presentation, there will be the opportunity for you to ask any questions by pressing start, followed by the number one on your telephone keypads. I'll now turn the call over to our host, Quinn Fanning, Chief Financial Officer. Please go ahead.

Welcome to Expo's fourth quarter 2023 conference call. I am joined today by Expo CEO, Mike Jarden. First, Mike and I have some prepared remarks, then we will open it up for questions. We have an accompanying presentation on our fourth quarter results just posted on the EXPRO website, expro.com, under the investor section. In addition, supplemental financial information for the fourth quarter and full year results 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, again, 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 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 afternoon, everyone. I'd like to start off by reviewing the fourth quarter financial results presented in today's earnings press release. I will then discuss the macro environment, which we believe supports a favorable multi-year outlook for energy services companies levered to international and offshore markets and presents a compelling growth opportunity for Expro. Finally, Quinn will share our outlook for 2024. For a recap of consolidated results and quarterly results by region, I'll direct you to slides three through seven of the presentation that we posted to expro.com. As you can see on slide three, expro begins 2024 in a strong position for growth having delivered a solid fourth quarter with actual results at or above the high end of the revenue and adjusted EBITDA guidance ranges that we provided on our third quarter earnings call. Fourth quarter revenue was $407 million and adjusted EBITDA was $85 million or 21% of revenue. Adjusted EBITDA for the three months ending December 31 includes $4 million of unrecoverable LWI-related costs. Excluding such costs, adjusted EBITDA would have been $89 million or 22% of revenue. Revenue for the 12 months ended December 31, 2023 was $1.5 billion, up 18% year-over-year. Adjusted EBITDA for 2023 was $249 million or 16% of revenue. Excluding unrecoverable LWI-related costs of $36 million, adjusted EBITDA for 2023 would have been $285 million, or 19% of revenue. Most significantly, fourth quarter results reflect the expected rebound in North and Latin America activity. The notable step-up in revenue and profitability in the fourth quarter followed a relatively weak third quarter. NLA revenue at $145 million was up sequentially by $40 million. primarily reflecting increased well construction activity in the U.S. Gulf of Mexico and Guyana and a rebound in well testing activity in Mexico. In addition, Q4 results include results of recently acquired PRT offshore, which generated approximately $15 million of revenue in the December quarter. NLA segment EBITDA at 30% reflects a significant step up in revenue and a good mix of higher margin activity. While the Q3 results reflected a confluence of factors, the NLA team has delivered very solid results since we completed the merger back in October of 2021, with approximately $1.1 billion of aggregate revenue over the last nine quarters. NLA segment EBITDA margin has averaged 27% since mid-2022. Operationally, noteworthy in NLA, our Tribular Running Services, or TRS, business achieved an industry first in the Gulf of Mexico, by successfully completing an operator's well using a fully non-marking completion running package. This running package provides the industry's only truly non-marking children running solution, which helps preserve well integrity and extends the lifecycle of the well. This was also the first deployment of a collar load support system in the region. The success of this completion run was a culmination of extensive planning and testing with a super major customer. This is a great example of our ability to provide solutions and positive results for the industry's most complex wells. For Europe and Sub-Saharan Africa, revenue at $134 million was generally flat quarter over quarter, with lower revenue recognized on our ongoing E&I project in Congo. ESA segment EBITDA margin at 31% has been strong over the last several quarters. Notable in the ESA region, we were awarded a corporate frame agreement to deliver well testing services for Equinor in the Norwegian continental shelf. The four-year contract, with the potential of three two-year options, builds on EXPRO's previous seven-year agreement. The scope of work includes well flow management and production optimization services to enhance Equinor's assets across completion, intervention, production, as well as abandonment operations. Building on the corporate frame agreement, the work scope will suit delivery of hydraulic intervention well services using our innovative coil hose light well circulation system that is designed to provide a more efficient and lower carbon footprint approach to operations versus traditional coal tubing. A significant portion of the contract is directly linked to the demonstrable commitment to a low carbon plan, allowing EXPRO to implement its environmental capabilities with Equinor and further enhance the strength and depth of this partnership. The Middle East and North Africa team also delivered an excellent quarter, with revenue up 13% sequentially to $65 million and good fall through on incremental revenue. MENA segment EBITDA margin at 33% was up about 3.5 percentage points quarter over quarter. Noteworthy in MENA, Expro's automated bucking and catwalk system delivered improved safety at record efficiency on one of our clients' challenging wells. We were contracted to provide a high-quality, low-risk, tubular running service to our clients onshore fleet of drilling rigs. Making an operational first for the triple catwalk in the Emirates on the initial deployment of our TRS system, we set a record for instantaneous tripping speed and the second best performance overall tripping speed while running 18 and 5H tubulars. Their overall rate was more than twice that of the average run in the same field previously. Finally, in Asia Pacific, Fourth quarter revenue was $62 million, down 13% relative to the September quarter, primarily reflecting lower subsidy well-access revenue following our suspension of vessel-deployed lightwell intervention operations in September. At 9%, Asia Pacific segment EBITDA margin reflects demobilization and other unrecoverable LWI-related costs. Excluding unrecoverable LWI-related costs, Asia Pacific segment EBITDA margin would have been 16%. Quinn will provide an update on our light-wheel intervention business in his prepared remarks. During the fourth quarter, EXPRO completed in the Asia-Pacific region the deepest deployment of our Mark VI coil hose, coupled with a successful nitrogen lifting application in a remote location offshore New Zealand. This marked the first ever Mark VI coil hose deployment in Asia-Pacific, reaching an impressive depth of 8,650 feet, surpassing depths achieved globally by approximately 25%. The coil hose solution provided a swift rig up time compared to traditional cold tubing, minimized planning and operational duration. This streamlined approach not only reduces safety risks, but also lessens the environmental impact during well intervention operations. In terms of commercial activity, we built a healthy order book through the first three quarters of 2023, and I'm pleased that we have continued to build on this momentum. During the fourth quarter, we captured roughly $186 million of new contract awards, including a production manpower contract worth roughly $50 million in Thailand. Other notable contract awards during the quarter included several subsea contracts across both West Africa, where we were awarded a contract to provide subsea services for a multiyear plug and abandonment campaign, and also in Australia. The NLA team was also awarded a multiyear well test contract in Latin America, which highlighted the importance of service quality in a very competitive market. At quarter end, our backlog was approximately 2.3 billion, which is down modestly from September 30th, and is generally consistent with historical seasonal patterns of contracts awards in the year-end period. I will also note that EXPRO is increasingly working with larger interview services providers where we have complementary capabilities and operating footprints to deliver integrated services and solutions for our common customers. Our reputation for safety, service delivery, and cost-effective innovative solutions enables us to collaborate effectively with other service partners. In addition to a number of technology awards that are highlighted in our press release, we had several operational and commercial successes during the fourth quarter, which are summarized on slide eight of our earnings presentation. The fourth quarter of 2023 marked 40 years since the launch of our first subsea testery system. Since then, EXPRA has remained at the forefront of subsea landing string technology. We have undertaken more than 3,000 subsea deployments and exploration and appraisal, completion and intervention applications, and remain a global leader in large bore subsea testery assembly solutions. The evolution of this market and these assemblies has allowed us to expand into the open water well intervention business through the introduction of both riser-based and riserless well intervention solutions. I'm also pleased to share that EXPRO was named Energy Transition Pioneer of the Year at the 2023 Global OWI Awards in recognition to our commitment of sustainable energy solutions. This recognition reflects EXPRO's critical role in creating a cleaner and more sustainable future. We have a number of initiatives underway across our business that build on our work to both reduce our own emissions as well as to support our clients in achieving their sustainability targets. We're innovating with a purpose by adapting and investing in technologies that are focused on carbon capture, use and storage, the geothermal sector, and emissions monitoring, management, and mitigation solutions. Just a few days ago, we announced that Expro had entered into a definitive agreement to acquire a leading oil and gas well integrity and production optimization company, Cortrax. Total consideration is roughly $210 million, and we expect to close this transaction sometime in the second quarter. The acquisition is expected to be accretive to adjusted EBITDA margin and free cash flow. With an enterprise value of less than five times our estimate for standalone 2024 EBITDA, the Cortrax transaction should also be immediately accretive to shareholder value with cost and revenue synergies providing incremental upside. Headquartered in Aberdeen, Cortrax has operations globally with over 50 technologies, an impressive intellectual property portfolio of more than 250 patents. We're excited to welcome John Frazier and his teammates to Expro and to incorporate the CoreTrack suite of technology-enabled solutions into our well construction and well intervention and integrity businesses. As many of you may know, Expro is a market leader in deepwater tubular running services with a range of technology-differentiated solutions. TRS and tubular products represents about 80% of our 2023 well construction revenue of $534 million. Our overall strategy is to develop in-house as well as acquire complementary services and solutions that allow us to leverage our global operating footprint, become more relevant to our customers around the world, expand margins, and improve free cash flow performance. Consistent with this strategy, within well construction, we are focused on growing our cementing technologies and performance drilling tools business. In addition to adding breadth to businesses in which EXPRO has expertise and experience, the cementing technologies and performance drilling solutions that we are focused on tend to complement rather than compete with the downhole drilling, surveying, and logging offerings of the larger service companies. While our preference in most cases is to contract directly with operators, our market-leading deepwater TRS business and a suite of innovative cementing technologies and performance drilling solutions allows us to be a preferred services partner with both the larger service companies as well as the drilling contractors. Expro's submitting technology business was bolstered with a small technology acquisition, Delta Tech, that was completed in early 2023. Submitting technologies is approaching $100 million of revenue annually. With good margins and low capital intensity, we see the potential to grow that business to $200 to $250 million of annual revenue within the next couple of years. Similarly, combining CoreTrax's field-proven technologies and performance drilling and wellbore cleanup with ExPro's existing drilling optimization portfolio provides a comprehensive solutions toolbox. CoreTrax adds meaningful scale to an attractive business at what we believe to be a compelling valuation. With combined revenue of more than $100 million, the combined ExPro and CoreTrax drilling technologies business will have critical mass and scope for good growth and high incremental margins. addition to performance drilling tools and world war cleanup solutions core tracks best in class expandables business provides us with additional capabilities within our well invention and integrity product line expandables are used in both drilling applications and to extend the life of existing well stock either as a permanent solution to a repair zone of damage or to isolate existing perforations prior to refracking core tracks is expandable business is more levered to production optimization and drilling activity, providing EXPRO with additional breadth to our well intervention and integrity offering and to expand our OpEx levered revenue. From a regional perspective, Cortrax strengthens our presence in the ESA and MENA regions where both companies have strong established relationships and adds new revenue opportunities and areas for growth in North and Latin America, Asia Pacific. About half of Cortrax's 2023 revenue originated in MENA and additional breadth of core tracks as to our portfolio of services and solutions will allow us to more fully participate in MENA projects, which are expected to substantially increase over the coming decade. The business of Expro and core tracks in Saudi is less levered to new offshore oil developments than it is to gas and unconventionals, so we continue to expect good growth in the kingdom. Based on recent comments from a Saudi Aramco official that they expect to be very, very busy rather than very, very, very busy over the next several years, we also agree with several of the sell-side market analysts' comments that the market reaction to Aramco's capacity growth curtailment announcement was a little bit overblown. More broadly, regarding M&A, our team looks at a lot of acquisition opportunities. We analyze many of these in detail and, for a variety of reasons, take a pass on most of them. We do believe, however, that additional consolidation is good for the long-term health of the energy services sector and that we can utilize smart, synergies-focused M&A to accelerate growth and create shareholder value for Expro. The proposed core tracks acquisition, like the PRT offshore acquisition that we completed in the fourth quarter of 2023, will provide breadth to an existing product line, increase differentiated technology, and add incremental scale in select geomarkets. For both core tracks and PRT offshore, we think the valuation was attractive with potential cost and revenue synergies providing additional upside. In both cases, the consideration that mix reflects our intent to maintain a low leverage capital structure. Turning to our market outlook, we expect current growth trends to continue in 2024 and beyond with the best available information indicating that oil demand will surpass 2023 in pre-pandemic levels at approximately 103 million barrels per day. This momentum will be driven by a continued recovery in Asia, improving macroeconomic data for the U.S. and Europe, and an increase in global travel with subsequent increase in jet fuel demand. We believe the pace of growth is stabilizing, which along with production restraint by OPEC, provides market tailwinds supporting sustained investment in activity growth in the high single to low double digits. The EI forecasts Average Brent prices remain flat overall year on year, with average 2024 prices of about $82 per barrel. I will caution that geopolitical turmoil, including ongoing conflicts in the Middle East, could result in upward pricing pressure as we progress throughout the year. Constructive pricing levels should allow our oil company customers to make final investment decisions on new projects, including FIDs, on the long cycle development projects, that characterize the international and offshore markets and to which EXPRO is most levered. In the gas markets, we observe high inventories and storage due to a warmer than normal winter in the northern hemisphere and a persistent lack of sustained cold weather in the first part of the U.S. winter. These trends have loosened market conditions, resulting in slightly lower forward gas price forecasts. In our view, gas will remain a structural source of lower carbon electricity generation and a critical transition fuel on the path towards global net zero. As a result, the case for continued investment in LNG to meet the ongoing requirements of Europe and Asia remains very strong. Operators continue to focus on shareholder returns and maintaining fiscal discipline. Upstream investments are expected to continue to grow following the positive post-pandemic trends in spending that we observed through 2023. Development activities provide relatively good visibility for strong and sustained offshore spending over the medium term with global offshore FIDs in each of 2024 and 2025 likely to be in the $100 billion area. And projects in Norway, Brazil, Guyana, and Angola collectively will attract the largest share of offshore development budgets. Additionally, strong activity growth in international land is forecast in the Middle East in countries such as Saudi, the Emirates, and Qatar in support of the ongoing large gas and LNG developments. The industry experienced a record level of project FIDs in 2023. This growth in capital commitments and the multi-year sanctioned projects pipeline through 2030 is driving demand for our services and solutions. Specifically, we're experiencing increased activity in our well construction and subsea well access businesses, as well as elements of our well flow management business, which apart from moving into an operation and maintenance phase on our Congo project, we envision will grow further through 2024. Similarly, energy security, diversification of supply, operators' desire to maximize investments from existing assets, and a drive for cost efficient lower carbon production continues to drive further demand for our production optimization related activities within low well flow management and well intervention integrity product lines, especially across the Asia Pacific and Latin America regions. Despite robust commodity pricing and production optimization efforts, the number of mature assets reaching the end of their economic and environmentally sustainable life continues to increase, particularly in Europe and in the US. This underpins the increased activity in the decommissioning market and the growing requirement for cost effective plug and abandonment solutions, which will also be bolstered by the proposed core tracks acquisition. Finally, investment in lower carbon energy alternatives is also increasing with growing activity in the geothermal sector, especially within Europe and Asia Pacific, and the carbon capture and storage space as governments, operators, and even financial institutions look to be catalysts for reduced emissions. As we've discussed in the past, the current energy services cycle is more about margin expansion than it is about capacity additions. We have ongoing efforts to optimize equipment utilization and increase operational efficiency, both of which will have positive impacts on overall profitability. We also continue to have generally constructive conversations with customers about capturing more of the value we create through technology, process efficiency, safe well access, and enhanced production. As noted in the slide we prepared for today's call, net pricing did not have a material positive impact on margins in 2023. However, market conditions and our backlog seem to support a 1% to 2% positive impact on adjusted EBITDA margins in 2024 with capacity-constrained asset classes such as deepwater TRS, subsea testeries, and elements of the well test business having the greatest pricing momentum within express product lines. All combined, the outlook for Expro and the broader energy services sector remains positive. With that, I'll hand the call over to Quinn to further discuss our financial results.