Expro Group Holdings N.V.

Hello and welcome to the Expro Q2 2024 earnings presentation. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during today's event, please press star followed by one on your telephone keypad. I would now like to hand over to Chad Stevenson, Director of Investor Relations. Please go ahead.

Welcome to Expro's second quarter 2024 conference call. I am joined today by Expro CEO, Mike Jarden. and ExPro CFO, Quinn Fanning. First, Mike and Quinn will have some prepared remarks, then we will open it up for questions. We have an accompanying presentation on our second quarter results that is posted on ExPro's website, expro.com, under the Investors section. In addition, supplemental financial information for the second quarter results is downloadable on the ExPro website, likewise under the Investors 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 risk 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. A 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 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 second quarter 2024 earnings release, which can also be found on our website. With that, I'd like to turn the call over to Mike.

Good morning, everyone. I'd like to start off by reviewing the second quarter financial results presented in today's earnings press release. I will then discuss the macro environment, which we believe offers a favorable multi-year outlook for energy services companies with exposure to international and offshore markets, presenting a compelling growth opportunity for ExPro. Finally, Quinn will provide some additional commentary on the just completed quarter and share some additional financial information. 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. Turning to slide three, I am pleased to report a very strong quarter for ExPro. with Q2 2024 revenue of $470 million and adjusted EBITDA of $95 million, both exceeding guidance in part due to the early closing of the core tracks acquisition. Revenues increased sequentially by $86 million, or 22%, compared to the quarter ended March 2024. Excluding the impact of core tracks, revenue was up sequentially by $65 million, or 17%. This sequential increase is to some extent consistent with historical revenue trends as we usually experience a seasonally soft first quarter. More importantly, results for the second quarter reflect momentum building in the offshore markets for which our outlook remains very strong. As reported, second quarter revenue increased 18% year over year and 13% excluding the impact of core tracks. Q2 2024 adjusted EBITDA was up 32% compared to Q2 2023. Note that Q2 2024 adjusted EBITDA included a $7 million contribution from Cortrax, and Q2 2023 included $6 million of LWI-related unrecoverable costs. The strong adjusted EBITDA performance was driven by the increased activity across all regions and product lines and solid fall-through on incremental revenue. Given our strong year-to-date momentum and the tailwinds continuing to support profitable growth in our business, we are refining our full year guidance range to reflect expectations for revenue to be between $1.7 and $1.75 billion and expectations for adjusted EBITDA to be between $350 and $375 million. I will cover our market outlook toward the end of my prepared remarks. but note that the cadence of technical inquiries and requests for budgetary pricing for projects remains high across geomarkets and product lines. Our leverage to long-cycle development, including deepwater, gives us confidence that EXPRO's currently strong business momentum will be sustained over at least the next several years. Turning to the regions, for North and Latin America, second quarter revenue was $157 million, an increase of $27 million, or 20%, quarter over quarter. reflecting increased activity across our product lines. The NLA well construction and subsidy well access teams had a particularly strong quarter with a good level of activity in the U.S., Guyana, and Trinidad. NLA segment EBITDA margin at 28% was up from 26% in Q1 2024, reflecting the increased activity and a more favorable activity mix in the region. Additionally, we have had further success in commercializing our secure technology which ensures optimal cement placement during the slurry pumping process. This prevents fluid contamination that could potentially have occurred without the CCARE solution. For Europe and Sub-Saharan Africa, second quarter revenue was $168 million, a sequential increase of $47 million, or 38%. Segment EBITDA margin at 21% was flat sequentially and down approximately four percentage points relative to Q2 2023 primarily reflecting lower margin recognized on our Congo production solutions project. Our ESA business currently has good momentum as we continue to capitalize on increased activity in the region. Subsea Well Access had a particularly strong second quarter, delivering a subsea solutions package for Azul Energy and its partners, Agogo Project. As most of you know, Azul is ENI and BP's joint venture entity in Angola. X-Pro was also recently awarded a contract to provide subsea technology for the nearby Ndungu field in Angola, further strengthening our relationship with ENI and in Angola where we expect activity to continue to increase over the next several years. We also advanced several other important projects in the quarter. Our team in Ghana completed a 21 well development campaign using X-Pro subsea landing streams. This project has run for more than three and a half years and was completed with no injuries no service quality events, no high potential safety incidents, along with an operational uptime of 99.7%. This is an outstanding achievement from our entire team. Last quarter, we shared that we had reached a milestone in suppressing 1 million man-hours LTI-free as part of our E&I Congo project to design, construct, operate, and maintain a fast-track onshore LNG pretreatment facility. Since then, we have moved into the commissioning phase, In June, incremental gas from the Expro pre-treatment facility was first introduced to the client's floating liquefied natural gas facility. First gas was within 22 months of contract award. The Middle East and North Africa team delivered another excellent quarter with revenue at $81 million, up 14% sequentially, largely driven by the core track's acquisition with good fall through on incremental revenue. MENA segment EBITDA margin at 35%, was up one percentage point quarter over quarter and about four percentage points year over year. This quarter, EXPR has received the approval to commence operations for a five-year well test contract onshore Middle East. The contract requires the mobilization of conventional testing units and multi-phase meters, along with 150 additional personnel. Finally, in Asia Pacific, second quarter revenue was $63 million, up 5% relative to previous quarter. primarily reflecting increased activity in Malaysia and Australia. Asia Pacific segment EBITDA margin of 24% was up over six percentage points from the prior quarter, which reflects higher activity in the region and lower LWI-related costs. In Brunei, we saved 30 hours of rig time using our hydraulic hammers for the installation of a platform. This efficiency was achieved by using our proprietary jet-string elevator, which enhances safety and efficiency in part by eliminating the need for man riding during operations. EXPRA's team in Australia successfully executed well intervention services for recompletion of a CO2 injector well in the Otway Basin for Australia's leading CCUS research organization. We have supported CCUS globally for over 10 years, gaining valuable experience in these types of projects while delivering excellent results. And we continue to believe that it will be a key industry enabler to support our own as well as our clients' net zero goals. In April, we also published our third sustainability report highlighting EXPRO's achievements in 2023, the progress we have made in working towards our environmental, social, and governance objectives and our commitment to being a citizen of the world. These efforts resulted in MSCI increasing EXPRO's rating from a single A to double A, the second highest rating they have. In terms of commercial activity, I'm pleased we have continued to build on our strong momentum, capturing roughly $196 million of new contract awards, including subsea contracts worth approximately $20 million in Africa and a sonar meters contract in the Middle East for $16 million. Our backlog remains healthy at approximately $2.2 billion at the end of the second quarter. The sequential decrease of approximately 5% was due to the strong revenue performance in the quarter the transition of a Congo project to the operations and maintenance phase, and conversion of other large projects. As previously announced, we also successfully closed our acquisition of Cortrax with an effective date of May 1, which was earlier than was assumed in our guidance. Cortrax is a leading well integrity and production optimization company that will enable us to expand our portfolio of cost-effective technology-enabled well construction and well intervention integrity solutions. As a reminder, the acquisition was completed at a transaction value of less than five times our estimate for CoreTracks' standalone 2024 EBITDA, with synergies providing incremental upside. We expect the acquisition to accelerate the growth of CoreTracks' innovative, high-value-adding drilling optimization, well integrity, and production-enhancing technology solutions by leveraging Expro's global operating footprint. Integration efforts are well underway, with our teams across the world working on tenders together to realize the potential of pull-through revenue synergies. Regarding M&A more generally, we continue to believe additional consolidation is good for the long-term health of the energy services sector and that smart, synergies-focused M&A can be an effective means for experts to accelerate growth and create additional shareholder value. Our team continues to evaluate acquisition opportunities that would allow us to advance our strategy and position EXPRO to be more relevant to our customers and more relevant to our shareholders. We have a disciplined approach to M&A, and any opportunities we pursue will meet a rigorous set of criteria that starts with the industrial logic, which includes a plan to capture cost and revenue synergies and has a financing plan that preserves our currently strong financial profile. We like our leverage to what we expect to be a multi-year growth phase for drilling completions activity, but continue to look for opportunities that allow us to increase our exposure to production optimization solutions and thereby better balance business between CapEx and OpEx funded revenues. While we will be patient for the right opportunities, improving experts through cycle resilience continues to be a strategic objective. Turning to our market outlook, We anticipate the growth observed over the past few quarters will continue, driven by favorable underlying market fundamentals in the energy services sector. Strong investment and activity growth support a positive multiyear outlook for our services and solutions, with oil demand forecasted to reach record levels of 103 million barrels per day in 2024 and nearly 105 million barrels per day in 2025. Expected consumption growth will be primarily fueled by a sustained global economic recovery with significant contribution from non-OECD countries in Asia, as well as the Middle East and the United States. We believe that a robust rebound in demand, coupled with the recent extension of production cuts by OPEC Plus, will lead to a market deficit in 2024. A tighter liquids market may result in upward pressure on prices. At a minimum, it will underpin a positive fundamental backdrop and support continued growth in investment and activity. Grant prices rose from $80 per barrel in January and were above $87 per barrel earlier this month, bolstered by continued OPEC Plus supply discipline and geopolitical uncertainties, most notably in the Middle East and in Europe due to the ongoing conflict in Ukraine. The market is anticipated to tighten further over the remainder of 2024 as demand increases over the northern hemisphere summer months is expected to support prices in the mid-80s. Inventories are expected to return to moderate builds in 2025 following the unwinding of OPEC Plus cuts, and forecast supply growth from non-OPEC Plus countries is likely to offset increase in global oil demand, possibly leading to a modest weakening of prices over 2025. Most importantly, Relatively stable prices above $70 per barrel should support long cycle investment decisions by our oil company customers and provide tailwinds for the international and offshore markets to which Expro is most levered. Outside of the U.S., gas markets remain fundamentally tight with LNG demand, particularly in China and India, expected to recover. Longer term, domestic demand and exports are forecasted to increase with gas continuing to play a crucial role and lower carbon electricity generation and as a critical transition fuel towards global net zero targets. Robust commodity prices continue to drive long-term investment decisions by energy companies with record levels of final investment decisions in 2023 and sustained high levels of sanction expected in 2024 and beyond. This multiyear pipeline of projects drives demand for our services and solutions especially in the offshore segment, which is expected to comprise more than 75% of total greenfield investments in 2024. This trend supports increasing activity in our well construction and subsidy well access businesses, as well as elements of our well flow management business, which we expect to grow further throughout 2024 and beyond. Forecasts for upstream investments in 2024 indicate the highest levels of spending since 2015. Significant growth is expected, particularly in the offshore deepwater and shelf segments. This growth will be supported by large projects in the Middle East, driven by Saudi and the UAE, as well as in China, Norway, and Guyana, and in Brazil in Latin America. Targeted exploration and appraisal activity in mature areas, especially in Europe, Sub-Saharan Africa, and South America, are also driving growth. International land activity growth continues, especially in the Middle East, with the ongoing large gas and LNG developments in Abu Dhabi, Kuwait, Oman, and Saudi. Operators are increasingly focusing on maximizing sustainable returns from their existing assets, striving for cost efficient, lower carbon intensive production. This drives demand for our production optimization capabilities within the management and well intervention integrity product lines, particularly in the Asia Pacific and Latin America regions. Finally, investments in lower carbon energies are also increasing, with notable activity growth in geothermal, particularly in Asia Pacific and Europe, and in carbon capture and storage in North and Latin America and Europe, as our customers aim to reduce their upstream emissions to achieve net zero targets. As we have discussed previously, we expect the current energy services upcycle to be characterized by margin expansion more so than capacity additions, highlighting the importance of both cost and capital discipline. We are committed to continuing to rationally support costs, and we are committed to optimizing equipment utilization and increasing operational efficiency, both of which will positively impact overall profitability. We also continue to engage in constructive conversations with customers about ExPro capturing more of the value we provide through technology, process efficiency, safe well access, and enhanced production. Overall, the outlook for ExPro and the wider energy services sector remains very positive. With that, I'll hand the call over to Quinn to further discuss our financial results.