This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: 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.
spk04: 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.
spk08: 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.
spk05: Thank you, Mike. Good morning, everyone. As Mike noted, we reported revenue of $470 million for the quarter ended June, which represents a new high watermark for quarterly revenue since we completed the Expo Franks merger in the fourth quarter of 2021. For reference, our guidance for Q2 revenue that was provided in our Q1 earnings conference call was for a range of revenue of $400 to $420 million. Guidance assumed no contribution from core tracts, which accounted for approximately $21 million of EXPROS 50 to $70 million outperformance relative to guidance. Revenue was up $86 million sequentially, or approximately 22%, due to higher revenue in NLA, which was largely driven by well construction and subsea well access, and in ESA, which was largely driven by subsea well access. Year over year, revenue was up by $73 million or approximately 18% relative to the second quarter of 2023. Within NLA well construction, offshore tubular running services revenue and tubular product sales were both up solidly quarter over quarter, and the PRT offshore business, which we acquired in Q4 of 2023, had a particularly strong second quarter. With ANISA, as Mike mentioned, we are in the late stages of the commissioning of the onshore pretreatment or OPT facility in Congo. Q2 revenue related to the Congo project was approximately $30 million, but contribution margin during the construction phase has been dilutive to overall profitability. In addition, as Mike noted, we successfully delivered a large subsea project for Azul Energy in Angola. TRS and tubular products should sustain their current momentum into Q3. Revenue from the Congo project, however, is expected to decrease in Q3 as we move into the operations and maintenance phase of the project, with contribution margin becoming accretive rather than dilutive during the O&M phase. In addition, the expected timing of H2 subsidy well access projects, including those within the acquired PRT offshore business, will also result in a step down in revenue in Q3, followed by an expected rebound in Q4. Net income for the second quarter of 2024 was $15 million or 13 cents per diluted share compared to net income of $9 million or 8 cents per diluted share in the second quarter of 2023. Adjusted net income, which excludes merger and integration expense, severance and other expense, and stock-based compensation expense for Q2 2024 was $31 million or 27 cents per diluted share as compared to $19 million or 17 cents per diluted share for Q2 2023. Adjusted EBITDA for the second quarter of 2024 was $95 million, as compared to Q2 guidance, of $80 to $90 million, representing a year-over-year increase of approximately $23 million, or 32%, relative to the second quarter of 2023. Adjusted EBITDA margin for the second quarter was 20%, up roughly 200 basis points year-over-year. The year-over-year increase in adjusted EBITDA and adjusted EBITDA margin primarily reflects good fall through on incremental revenue due to activity mix, operating leverage, and a non-repeat of unrecoverable LWI-related costs in Q2 2023. As noted on prior calls, the key drivers for our financial targets will be an increase in activity, a shift towards a more favorable business mix that is increasingly weighted to customer CapEx-related spending, operational leverage, And lastly, net pricing gains. Related to the business mix, deepwater well construction, which is our largest early cycle business, continues to exhibit good momentum. Based on current backlog, we expect that momentum to be sustained at least over the medium term. The landing string driven subsea well access business, which is levered to subsea completions activity, also seems to be trending in a positive direction. Both product lines, which provide mission critical technology-enabled, high-value-adding services generate attractive contribution margins for ExPro, so faster relative growth should result in improvement in overall profitability. In addition, both product lines are capacity-constrained industry-wide and, as a result, should provide scope for pricing gains based on our current outlook for activity. Support costs for Q2 2024 of $86 million represented 18% of revenue and were up approximately 5% sequentially, largely reflecting core tracks related overheads from the effective date of the transaction. We continue to expect that support costs for the full year 2024 will be at or below 20% of revenue. Beyond 2024, we expect that support costs will grow in line with inflation and that operating leverage, like activity mix, will provide scope for adjusted EBITDA margin expansion. pricing is also trending positively, at least within our deepwater well construction and subsea landing string driven business. But net pricing gains are not yet a material driver to reported results. Nonetheless, relative to 2023, we continue to expect that we will get a modest benefit to adjusted EBITDA margin from net pricing for the full year 2024. Moving to liquidity, Q2 adjusted cash flow from operations, which excludes cash paid for interest net Cash paid for severance and other expense and cash paid for merger and integration expense was $6 million compared to $36 million in Q2 2023, which was largely driven by an increase in that working capital of approximately $72 million in the just completed quarter, primarily reflecting the step up in revenue in the quarter and a pending milestone payment related to the Congo project. Consistent with historical patterns, the building that working capital should reverse in the second half of the year. In conjunction with the close of the CoreTracks acquisition, ExPro increased its bank credit facility from $250 million to $340 million and subsequently drew down approximately $76 million to finance the cash portion of the acquisition. At quarter end, we had $121 million drawn on the credit facility. ExPro had total available liquidity at quarter end of approximately $271 million with cash and cash equivalents including restricted cash of approximately $135 million and approximately $136 million available for borrowings on our credit facility. Turning to our outlook, page nine of our accompanying slides summarizes our guidance for Q3 and the full year 2024. Based on our strong performance in the first half of 2024 and a positive activity outlook, as Mike noted, we are refining full year 2024 guidance with anticipated revenues between 1.7 AND $1.75 BILLION, AND ADJUSTED EBITDA OF BETWEEN $350 MILLION AND $375 MILLION. ADJUSTED EBITDA MARGIN IS EXPECTED TO BE PLUS OR MINUS 21%, AND FREE CASH FLOW MARGIN, OR FREE CASH FLOW AS A PERCENTAGE OF REVENUE, IS STILL EXPECTED TO BE IN THE HIGH SINGLE DIGITS, BUT AGAIN, IS EXPECTED TO BE WEIGHTED TO THE SECOND HALF OF 2024. FOR YOUR GUIDANCE FOR 2024 ASSUMES CASH TAXES OF BETWEEN 3% AND 4% OF REVENUE, AND CAPEX HAS A PERCENTAGE OF REVENUE OF BETWEEN 7% AND 8%. MOVING TO THE Q3 2024 GUIDANCE, REVENUE IS EXPECTED TO BE WITHIN A RANGE OF $410 AND $430 MILLION, IMPLYING YEAR-ON-YEAR GROWTH OF APPROXIMATELY 14% AND A SEQUENTIAL DECLINE OF APPROXIMATELY 10%. FOR SEQUENTIAL COMPARISONS, NOTE THAT Q2 2024 REVENUE INCLUDED TWO MONTHS OF CORTRAX'S Q3 will include three months of core traction results. As I noted at the top of my remarks, also note that second quarter revenue included a total of approximately $60 million of revenue related to our LNG expansion project in the Congo and revenue related to subsea projects that were delivered in Q2 that will not be repeated in the third quarter. Regarding the LNG expansion project, Q3 revenue guidance reflects a shift in work scope from the fast-track plant delivery phase to a multi-year operations and maintenance phase. As Mike noted, lower revenue expectations for the subsea well access business in Q3 largely reflects the strong second quarter results in the Gulf of Mexico and offshore Angola and the expected startup and completion of other projects. Adjusted EBITDA is expected to be within a range of $85 and $95 million, implying Q3 adjusted EBITDA margin within a range of 21 and 22%, or up approximately 100 to 200 basis points sequentially. Our current 2024 guidance assumes core tracks will contribute approximately $100 million of revenue to expo reported results at an adjusted EBITDA margin that is accretive to standalone expo results. Looking ahead, we have previously stated and continue to believe that the current fundamental backdrop and underlying business momentum provide a clear path to $2 billion of revenue a mid-20s adjusted EBITDA margin, and a free cash flow margin of 10% over the medium term. With customer spending priorities focused on offshore development, the deepwater TRS and subsidy landing stream driven business, which again are our product lines most levered to drilling and completions activity, tend to come with high fall through margin and incremental revenue and have the greatest potential for improved pricing and are expected to remain the key drivers of XPRO's overall results over the near to medium term. The cementing technologies and performance drilling solutions businesses, which we have grown through organic investment in M&A, should also provide margin accretion over the medium term. As Mike mentioned, we are in the early stages of the integration efforts for core tracks, with cost and revenue synergies providing some incremental margin upside, most likely beginning in 2025. With that, I'll turn the call back over to Mike for a few closing comments.
spk08: Thank you, Quinn. 2024, year-to-date, has been an exciting year for Expro with solid financial performance and the successful acquisition of CoreTracks, which enhances our depth of talent and the capabilities we offer, and we feel the business is strategically positioned to continue to become more meaningful to customers and shareholders. As Quinn stated, the fundamental macro backdrop is set for Expro to deliver value to our customers through our cost-effective technology-enabled services and solutions, while delivering enhanced returns to our shareholders. This will require the team to execute on our strategic initiatives and continue to both champion safety and deliver best-in-class service. Closing where I began, we believe that the international and offshore markets are in the early stages of a multiyear growth phase that, based upon project sanctioning levels and customer dialogue, we believe could be sustained through the end of the decade. With that, we can now open the call for questions.
spk00: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Luke Lemoine with Piper Sandler. Your line is open. Please go ahead. Hey, good morning. Mike Quinn.
spk06: Good morning, Luke. How are you doing? I'm doing great. You raised your 24 EBITDA guide, and it sounds like your confidence in the long-term outlook is increasing. But maybe there's a little shift between 3Q and 4Q with just some project timing and startups. Could you elaborate on this a little more and then maybe talk about some of the puts and takes between the high end and the low end of the guidance range this year?
spk08: Sure, and Luke, a lot of it was really a strong Q2. You know, we had some of the, in particular, a couple of subsea projects that literally were within days of were they going to fall in Q2 or were they going to fall in Q3. So, you know, part of the really strong Q2 was some of that revenue that shifted by a couple of days from Q3 into Q2. We'll kind of be back in that more normal rhythm of things as we, you know, exit Q3 going into Q4.
spk05: TAB, Mark McIntyre, When you want to go yeah and they do for step up is likewise generally related to subsea well access projects. TAB, Mark McIntyre, PR T, as I mentioned in my remarks at a very strong second quarter their expectations, based on project timing is a step down and Q3 and then recovery and Q4. TAB, Mark McIntyre, very similar story for the Africa coasts within the subsea well access business. Mike mentioned the AGOGO-related deliveries in Q2, a little more quiet in Q3 within subsea, you know, legacy expo, and likewise recovery in the fourth quarter. I guess as you look into kind of the larger movements, I would have highlighted the subsea projects as well as the project phasing on the Congo project, and then we'll continue to get, you know, an incremental contribution from the core tracts as we, you know, pick up the extra month.
spk06: okay and then mike you talked about core tracks on and the revenue synergy possibilities but is there any way to maybe frame this potential kind of on a multi-year basis and then could you also talk about how the integration is progressing with core tracks sure you know it's so fundamentally for us with uh with core tracks it's it's a business today that is you know we probably have strong activity in six or seven countries
spk08: You know, and in broader expo, we operate in somewhere between 60 and 70, kind of depending upon the day of the week. So really, it's that internationalization of our ability to go ahead and deploy that into additional markets. You know, we're going to focus on those. We're not going to try to roll out to 60-plus countries on day one. We're really kind of looking at a phased implementation process. And, you know, we'll focus in the, you know, places like the Middle East, continue to expand the portfolio there. Australia for some of the expandable technology. We think we're really going to see some good traction there. So that's actually going really well. I was pleased that we could close it earlier than anticipated because what we've really been able to do more than anything is really start to leverage both the legacy CoreTracks sales team as well as the broader X-Pro sales team, and now they can really start having those kind of conversations. Until we got it closed, we're We're not allowed to do that. We've got to kind of keep that wall in between them. So we're really just leaning hard into that now here over the course of the last, you know, six weeks or so. And I just see a great opportunity, and especially from a customer standpoint, you know, they really want to see the deployment. They want to see the added benefits of, you know, some of the technologies that we have from Cortrex. It's one that we continue to be really excited about.
spk06: All right. Perfect. Thanks a bunch.
spk07: Thanks, Luke.
spk00: We now turn to Neil Mehta with Goldman Sachs. Your line is open. Please go ahead.
spk03: Yeah, good morning, team. And really strong performance in the Africa geography. I just love your perspective on how you're thinking about that on a multi-year basis. Is there more market share in projects to be won? And then tie that into any views on West Africa specifically, which seems to be heating up here.
spk08: Sure. No, Neil, thanks for the question. I think it's probably, I wouldn't say it's so much of a market share opportunity for us in West Africa. I think it's just as we start to see more of a ramp up in activity in Africa and in West Africa in particular, because let's bear in mind, I've talked about this a number of times, but let's bear in mind if we look at You know, we're finally kind of back to the same FID levels in the kind of 24 to 26 period that we had historically back in 2012 to 2014. But Africa and West Africa in particular is still kind of underrepresented in that. And as I alluded to in some of my prepared remarks, you know, just based on pricing inquiries, technical discussions, budgetary, you know, pricing discussions with customers and those kind of things, we continue to see some ramp up in what I believe is going to be additional project sanctioning in West Africa here in 24 and going into 2025. So I think that's a market that's going to continue to grow and be more robust. And keep in mind, you know, part of that is just related to our customers. You're not going to go to someplace like Ghana or Ecuador, Ghana, and drill one or two wells. You're going to go with a project of, you know, six, eight, 10, 12, 25 well, you know, type projects. So I think as they have more confidence based on our discussions from our technical inquiries, those type things, I think we're going to continue to see kind of a ramp up in project sanctioning. And we know that we will win more than our fair share of projects in West Africa. So it's really kind of a timing of when those projects get kicked off. I think it's also one of the reasons why you're seeing you know, some of the tree providers, you know, their backlogs are starting to build. They're having strong backlog numbers. They're having strong, you know, inquiries and those types of things. I think we'll see that translate into more activity for us from a service standpoint in, you know, coming quarters and coming years.
spk03: Thank you. Just love your perspective on how the core tracks integration is going so far and To the extent it's tracking at or above schedule, do you see the capacity of the organization to do incremental M&A? Are there other core tracks that are out there?
spk08: You know, so Neil, the core tracks integration is going really well. Part of one of the things we spent a lot of time on when we did the broader integration with Expro and Franks was we really developed an integration playbook. because we knew that was not going to be the only integration we were going to do. And so it's made us much more efficient to go out and know what to focus on and know how we should sequence things and how we should organize ourselves to go out and do integrations from acquisitions. The other benefit is really with both the PRT acquisition as well as core tracks, those are not big global, you know, we don't have activity in all 60 countries with core tracks. So it's more straightforward for us to integrate that because it's a smaller number of countries. And really a lot of our efforts at this point is really much more on how do we create the revenue synergies? How do we deploy into additional countries? So we continue to look for other core tracks or PRT type acquisitions. And it does not give me pause or concern on our ability to go out and be able to integrate additional opportunities like a core tracks the organization has the bandwidth to take those things on board. So that's not a limiting factor. It's more of the, how does the technology fit? How does, you know, what are the economics of transactions? Those kinds of things that we're focused on.
spk07: Thank you, sir. Great. Thanks, Neil. Good to speak.
spk00: We now turn to Arun Jayram with JP Morgan. Your line is open. Please go ahead.
spk09: Good morning, gentlemen. My first question is just on the updated 2020 for Outlook. You raised your revenue Outlook by $75 million and EBITDA by $12.5 million at the midpoint. Quinn, that would suggest kind of an incremental EBITDA margin around 17%, which is kind of below the corporate number for the quarter. So I know there's some moving pieces with Congo, but wanted to get a little bit more color on the incrementals post your updated guide.
spk05: Yeah, I think the Congo is the one you're certainly right to focus on it. I mean, we have $30 million in revenue in the quarter. We've had higher than expected commissioning costs kind of in the late rounds of phase one. So really the $30 million in revenue in the second quarter came with no margin. because it's percentage of completion. So as we've adjusted the project, economic expectations, all of that got booked in Q2. So we're essentially beyond the commissioning phase at this point. Revenue will drop from that, but margin on a percentage basis will go up. So ESO, which is where we recognize the Congo project, is expected to be a good quarter, a lower revenue, but higher segment EBITDA margins. So I think that you're focused on the right thing. I'm not sure I'd say that you know, fall through, um, for the broader businesses, you know, you know, viewed more negatively. It's really just the elimination of high market or lower margin projects, you know, the results.
spk09: Makes sense. Makes sense. Um, the, the, the followup question, um, is you guys have, have highlighted a medium term target of 2 billion in revenue, 25% kind of EBITDA margins. Um, And maybe just give us a sense of, I believe that outlook does assume some kind of contribution from M&A. And just maybe your thoughts on how the business should evolve into next year. You know, streets generally modeling around 7% revenue growth relative to your updated guide and about 200 basis points of margin expansion next year.
spk05: TAB, Mark McIntyre, yeah I think that, again, the most significant thing is will be the you know phasing of the opt project, but other than that, I think. TAB, Mark McIntyre, The broader businesses trending positively both from a growth perspective, I think the industry wide expectations are for high single digit low double digit growth and live. TAB, Mark McIntyre, You know puts and takes probably the most significant Edwin will be the non repeat of the Congo type revenue and it will be at a better margin, so we haven't. really kicked off in earnest our budget cycle for 2025, but I would expect we'll be at or above industry-wide growth just because of investments in technology and, you know, relatively optimistic expectations for, again, the cementing and performance drilling business, performance drilling being most significantly impacted by the core tracts deal. Got it. Short way of, or shorter version of saying, as I would expect, is we pull together our budget for next year, you know, 7% growth year-over-year would probably be at the low end of my expectations where I sit today.
spk10: Great. Thanks.
spk05: Thanks, Ron.
spk00: Our next question comes from Eddie Kim with Barclays. Your line is open. Please go ahead. Hi, good morning.
spk10: Just a bigger picture question for you here, Mike. But if I look back a year ago, oil prices were almost in the exact same place as they are today with Brent in the low 80s. And yet it seems like offshore activity and sentiment have gotten much better since then. What would you say is the biggest change in your conversations with customers today versus a year ago? And is that part of what led to the four-year revenue and EBITDA guidance raised today?
spk08: No, Eddie, it's a great question, and, you know, you're spot on. There's not a difference in commodity prices significantly between a year ago versus today. I think it's – I think fundamentally for our customers, it's really been they've got more confidence in kind of a stable commodity price environment that it's not – we're not going to see a – you know, I think if we have numbers that are, you know, TAB, Mark McIntyre, mid 60s and above, and I think a lot of offshore deepwater projects will continue to be to be sanctioned. TAB, Mark McIntyre, And largely because they become much more efficient, you know the the batch drilling concepts and those type things have really driven break even numbers down to you know, in the 40s, so I think that's what's driven that today and just the. know the number of the number of technical inquiries those type discussions we have just continues to be really strong and really robust and there's just more i i guess i would characterize it there's just more confidence from our customers in in sanctioning projects and moving forward and as i said earlier i think that's one of the reasons why you're seeing the you know the tree providers start to you know build backlogs and those type things because you know the tree is probably the biggest limiting factor for some of those projects so that's why immediately after they approve an FID, the first thing they're doing is securing trees, and the second thing they're doing is trying to make sure they get on a rig schedule. So I think there's just all kind of lining up for, you know, that kind of confidence with our customers.
spk10: Got it. That's great to hear. And just my follow-up is on EBITDA margins and APAC, which we're really impressed with this quarter at 24%. Can you just expand a bit on the improvement there? I know you mentioned higher activity and lower LWI-related costs, but just looking back historically, I mean, this region hasn't been above 20% EBITDA margin since late 2021. So is there any reason why APAC EBITDA margins shouldn't continue at this kind of 20% plus level going forward, or should we expect some moderation maybe back to the teens over the coming quarters?
spk05: I would actually expect the current quarter to be more reflective of expectations going forward. LWI was a drag for not a quarter or two, but for a couple of years here. So I would say Asia-Pac returning to kind of low 20s, not as high as some of the other regions because of activity mix. unless, of course, there's a recovery in subsea, which we haven't seen a significant amount of activity. Project sanctioning has been slow, particularly offshore Australia. Hopefully we'll see that pick up in 2025 as well. Again, I would say what you're seeing in Asia-Pac is what our expectations are going forward, and hopefully we can move up from here with some incremental subsea activity.
spk10: Great. Thanks, Quinn.
spk07: Thanks, Eddie.
spk08: And, Eddie, I guess one thing I would add there, too, is I think it's also Asia Pacific is also an area for focus for us on technology deployment with cementation, with some of the core tracks, services with expandables, those type things, because it does give us some competitive opportunities, some competitive advantages, some technology benefits. And we will, you know, use that to help us, you know, kind of reestablish our, you know, margin footprint in Asia Pacific because it has been behind what our expectations are. So we'll use that to kind of, you know, try to accelerate that and try to get back to where we think that that particular region should be operating.
spk00: Our next question comes from Steve Ferrazani with Sedoti. Your line is open. Please go ahead.
spk02: Morning, Mike. Morning, Quinn. You know, if we back into your EBITDA and revenue for the year and you take out your guidance for 3Q, it indicates 4Q margin will be by far the highest margin quarter for the year. I think you pointed out a couple of PRT and sub-C that's coming in 4Q. But can we use that to some degree as a run rate or would you not? And obviously knowing Q1 is always seasonally lower. But is that getting to a level that you think is more reasonable if you can hit the midpoint of guidance this year?
spk05: Yes, I mean, if you look at kind of Q2 and Q3, you know, at the midpoint of guidance, you know, $185 million will be down a little less than $900 million of revenue. Q4 historically is a strong one for us and certainly is the starting point for, you know, where we'd like to see the next full year results play out.
spk02: can we always have a step down in q1 but if we finish in the you know 22-ish or better zip code for q4 i think that's a good setup for 25. right and i don't want to harp on this too much because you covered it pretty extensively but on the esa margin we understand why it was lower in q2 but as you roll into the lower revenue but a creative margin phase of congo Do those margins get back to those really high margins you were getting in that region, the back half of last year, or not quite because the revenue in Congo is lower?
spk05: Well, if you're talking about margin and percentage terms, you know, yeah, I think if you look at, you know, late 23, you know, that's where we'd like to see ISA back to, you know, MENA has consistently been above 30%. NLA and ESA have kind of bounced recently, and if you look over a couple quarter run rate in the high 20s, you'll like to see all three of those regions above 30%. As Mike mentioned, AsiaPAC will be a working process, and that's going to take a little bit more time, largely driven by the type of activity.
spk02: Great. And if I could get one in on cash flow, last year the working capital reversal really was entirely 4Q. and you're guiding for a really strong 4Q, is it reasonable to assume the bulk of your cash flow, this free cash flow this year, is 4Q?
spk05: It's tough to put too fine a point on it, Steve. You're right. Working capital is the big driver. I think with $70-plus million built in working capital in the quarter, 20-plus of that is milestone payment related on the Congo project. customers are trying to improve their cash flow profile on the back of the services industry to some extent. So you've got a combination of revenue growth, customers extending out payment terms, whether it's Q3 or Q4. I'm not sure I predict that at this point, but we should see a much better cash flow profile for H2.
spk02: Thanks, Mike. Thanks, Quinn.
spk07: Thanks, Dave. Appreciate it.
spk00: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad now. We now turn to Colby Sasso with Daniel Energy Partners. Your line is open. Please go ahead.
spk01: Hi, Mike and Quinn. You put out a press release in May highlighting your 100th global secure job, and you also highlighted this technology in an event you held in Houston back in May. I'm curious if you could provide some color around the time frame it took to get these 100 jobs, what the runway looks like going forward, and what some of the economics around the cost savings look like for your customers who use this technology.
spk08: That's a great question, and thanks for asking that one. Keep in mind, Delta Tech was an acquisition that we closed in February of 2023, so relatively short timeline for us to get that number of operations completed. Um, you know, this, and if this really what, what, what the Delta tech technology really helps with is really in, in riser list, deep water cementation jobs. Um, and you know, so for, for each, um, you know, deep water, well, you're going to have one to two job opportunities for this type of technology. Cause it's really, it's only on the first couple of strings. Um, and what it really does is it, it helps improve the overall cement quality. which is extremely important because it's kind of the foundational casing strings that are run in those first couple of casing liners. And fundamentally what that really allows us to do, it helps us save the operators typically somewhere between 12 and 24 hours per job. And nothing pleases me more than to hear rig rates keep going up. You know, we saw some rig rates for Econor that are going up that are – you know, starting to approach, you know, almost $600,000 a day. I think that's really healthy. And for us, when we can save, you know, 12 to 24 hours of rig time when it's $500,000 plus day rates, that becomes much more of an economic incentive for customers to invest in this type of technology. And, you know, we've really been able to continue to, you know, prior to the acquisition of Delta Tech, that technology really was, predominantly being deployed in the UK North Sea, and we've been able to start to internationalize that. The Gulf of Mexico in particular, it's kind of starting to become, for a number of our customers, it's kind of becoming the standard. They've run it on those first two to three casing strings across the board. So we'll continue to see that accelerate, but it's just a great technology, really drives efficiency, really drives... you know, cementation quality improvement, and both of those are paramount to operators today.
spk01: That sounds amazing. What other technologies do you view as potentially disruptive in the current environment that we may hear more about over the next 12 months?
spk08: Yeah, you know, I think that, you know, I'll kind of stick with the theme around well construction in particular because, As operators are really trying to drive, you know, drilling completion efficiency, those type things, you know, as batch drilling has become more common in deepwater projects, you know, the number of drilling complete days is down dramatically. That's part of the reason why, as I spoke earlier about, you know, the break-even economics for customers. So really some of our technology around our ITONG, which provides automation for makeup of casing running operations, removes personnel from the red zone, improves efficiency, makes it much more repeatable. It's very much done through machine learning and automation, those type things. I think that's a great example of driving efficiency. And also our, our, our Versaflow technology, which really helps around, um, around tripping operations. Um, and, and fundamentally our next generation design will be deployed. Um, it was deployed early this year and we've got really strong demand for that in, uh, in the Gulf of Mexico, as well as in Guyana. Um, and, and really just improves operational efficiency, reduces personnel on the rig floor, those types of things. So we, we see it as an area we continue to invest in technology. You know, we did, you know, even throughout the downturn over the last 10 or 12 years, and even during the pandemic, we've invested in our own engineering development of technologies, and we've supplemented that with some of the M&As that we've made as well, because we think it helps, really reduces rig time, reduces the number of personnel on board, improves operational efficiency. Those are kind of some key areas that we see for our customers as they go forward. and allows them to fundamentally sanction more projects because they've got better break-even economics as they have more drilling, more efficient drilling completions operations. So good, very good questions. Thank you.
spk01: Thanks. I'll turn it back.
spk07: Appreciate it.
spk00: Ladies and gentlemen, we have no further questions. So this concludes our Q&A and today's Expo Q2 2024 earnings presentation. We'd like to thank you for your participation. You may now disconnect your lines.
Disclaimer