Expro Group Holdings N.V.

Hello and welcome to the Expro Q3 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 third quarter 2024 conference call. I'm 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 third quarter results that is posted on Expro's website, expro.com, under the Investors section. In addition, supplemental financial information for the third 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 responsibilities to update forward-looking statements as of any future date. The company has included in its SEC filing 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 the call are defined and reconciled in the most directly comparable GAAP financial measure in our third quarter 2024 earnings release, which can also be found on our website. With that, I'd like to turn the call over to Mike.

Thank you, Chad. Good morning, good afternoon, everyone. I'd like to start off by reviewing the third quarter financial results summarized in today's earnings press release. I will then discuss their macro environment, which notwithstanding near-term headwinds, we believe supports a solid multi-year outlook for energy services companies with exposure to international and offshore markets, presenting a compelling 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 on EXPRO.com. Turning to slide three, I am pleased to report a solid quarter for EXPRO, with Q3 2024 revenue of $423 million and adjusted EBITDA of $85 million, both within our quarterly guidance ranges. Q3 revenue was essentially at the midpoint of our guidance, and adjusted EBITDA was at the low end of guidance, largely reflecting the recognition of $7 million negative impact on our Congo production solutions project, pending resolution of several variation orders. Excluding such losses, we would have been above the midpoint of adjusted EBITDA guidance for the September quarter. As anticipated, the sequential revenue decline of $47 million, or 10%, largely reflected the wrap-up of a construction and delivery phase of the Congo project, as well as strong Q2 results for our subsea well-access business, which was driven by PRT activity in NLA and legacy expo activity in ESA. Our press release, also highlighted sequentially lower well construction and well test activity in NLA. Compared to Q3 2023, revenue was up $53 million, or 14%, largely reflecting the results of PRT offshore and core tracks partially offset by lower revenue from the Congo Production Solutions Project. Q3 2024 adjusted EBITDA decreased $10 million, or 10%. sequentially and increased 35 million or 69% compared to Q3 2023. In addition to losses recognized on the Congo project in Q2 and Q3 of 2024, note that Q3 2023 adjusted EBITDA included $15 million of LWI-related unrecoverable costs, which were not repeated in Q3 2024. The business continues to generally move in the right direction, and we remain confident that we are in the early innings of a multi-year up cycle for international and offshore levered energy services companies that will continue to create growth opportunities for EXPRO. Having said that, over the past few months, commodity prices have been under pressure and customers are being more cautious with discretionary spending, increasing their focus on service costs, and selectively delaying the startup of new projects. As a result, we are seeing moderated growth in certain regions, including North and Latin America. As a result, we are refining our full year guidance range to reflect expectations for revenue of between 1.72 and 1.75 billion and expectations for adjusted EBITDA of between 335 and 350 million. It is important to note we have an active dialogue with our customers related to project timing and scope across all markets. If customers' 2025 budgets, as expected, reflect a more cautious approach, the greatest impact will likely be on short cycle activity and within the North America onshore market, with long cycle activity and the international and offshore markets likely remaining the most resilient. We believe that select projects may be delayed a quarter or two, resulting in a slow start to 2025, but our leverage to long cycle development, including deep water, gives us confidence that EXPRO's business momentum will be sustained moving forward. Assuming OPEC Plus navigates near-term supply challenges, Commodity prices should recover with demand, and activity should gain momentum as we progress through 2025. The energy services industry has essentially no spare capacity, and continued capital discipline should support pricing for the technology-enabled services and solutions that Expro provides. While I am confident that net pricing gains will provide scope for margin expansion as sentiment improves, we have recently kicked off several initiatives to further rationalize our support costs to improve operating leverage with expected growth. I don't plan to announce cost targets today, but we will incorporate such targets into our 2025 guidance, which will be provided when we report Q4 results in February. Before turning to the regions, I want to highlight that EXPRO has been recognized in two industry awards. Our Centrify Consolidated Control Solution has been selected by Hart E&P's panel of independent judges as winner of the 2024 Special Meritorious Awards for Engineering Innovation in the Digital Oil Field category. This month, EXPRO was also recognized as finalists across three categories in the Gulf Energy Excellence Awards. These recognitions reflect our commitment to innovation and leadership within the industry's ongoing sustainability journey. Now, moving on to the regions. For northern Latin America, third quarter revenue was $139 million, a decrease of $18 million, or 11%, quarter over quarter, reflecting decreased activity in well construction, well flow management, and subsea well access activity in the lower 48, the Gulf of Mexico, and in Mexico. In South America, the well flow management team had a strong quarter in Argentina, and the well construction team continued strong performance in Guyana. NLA segment EBITDA margined at 24%, was down from 28% in Q2 2024, reflecting decreased activity and a less favorable activity mix in the region, including what we expect will be a short-term DST hiatus by our primary customer in Mexico. Additionally, we continue to expand Expro's remote boxing device in Deepwater, Brazil, following our successful trial that demonstrates the safety and reliability of our solution. The solution's consistent performance delivers value on every connection, with the cumulative potential to reduce over 28 hours of red zone exposure per well. For Europe and Sub-Saharan Africa, third quarter revenue was $131 million, a sequential decrease of $37 million, or 22%, driven by the delivery of a large subsea project in Q2 and lower revenue recognized on the Congo Production Solutions Project. Segment EBITDA margin at 24% was up three percentage points sequentially, and down 4% as points relative to Q3 2023. Again, reflecting Q2 and Q3 2024 losses on our Congo project pending resolution of variation orders. To expand on our Congo project, the site is 99% complete with only equipment retrofits for items found during commissioning remaining. As mentioned last quarter, the first gas export to the client's floating liquefied natural gas facility was within 22 months of the contract. The plant has successfully operated at 10% over capacity to demonstrate the plant's design flexibility. And while our percentage of completion accounting for higher than expected costs during phase one of the project have negatively impacted group results, I'm comfortable that we will reach an acceptable resolution of pending variation orders in the coming months. More broadly, Our ESA business has good momentum as we continue to capitalize on the increased activity in the region. The subsea well access business had a strong second and third quarter, respectively, delivering projects in Angola and the Ivory Coast. The subsea team has another large project in Angola that is scheduled for delivery in Q4. Similarly, in Q3, the well flow management team was awarded a well cleanup package to bring eight new wells into production in Norway, which is valued at over $10 million. While not a lot of new development is happening in the UK due to an unfavorable tax regime, we expect the P&A market to gain momentum in the new year, and we offer several differentiated services that should lead to incremental opportunities in that market. Finally, in Kazakhstan, we progressed an important project where we delivered three well test packages, allowing the client to achieve early production from their field, where we are processing significant gas and condensate volumes. The Middle East and North Africa team delivered another excellent quarter with revenue at $87 million, up 7%, driven by a full three months of revenue from core tracks. MENA segment EBITDA margin at 35% was flat quarter over quarter and up about six percentage points year over year. Within the region this quarter, we surpassed one million hours of data transmission from our data-to-desk or D2D solution and established capability used for transmitting and presenting data from the well site in real time. Users access their data from the well site to any web-enabled device in any location across the globe, and it ensures decisions on well performance are based on the latest available data. Finally, in Asia Pacific, third quarter revenue was $65 million, up 4% relative to the June quarter, primarily reflecting increased activity in Thailand, Australia, and an increase in Cortrax revenue. Asia Pacific segment EBITDA margin at 25% was up one percentage point from the prior quarter, which reflects the impact of the CoreTrax acquisition. In Brunei, the well intervention and integrity team successfully executed the client's first distributed fiber optic sensing, or DFOS, job in two wells, delivering unique insights that traditional methods couldn't match. DFOS data helped pinpoint the ideal injection pressure and rates, prevented fracture extension, and minimized integrity risks. It also enabled the client to isolate unproductive zones, optimize the injection profile, and refine future well completions, literally transforming their approach to well performance monitoring. In terms of commercial activity, we have continued to build on our momentum, capturing roughly $354 million of new contract awards, including well construction contracts, worth approximately $80 million and $31 million in the Gulf of Mexico and Angola, respectively. Our backlog remains healthy at approximately $2.3 billion at the end of the quarter, including roughly $100 million of core tracts and PRT backlog, which on an apples-to-apples basis is consistent with the end of the previous quarter. To provide an update on core tracts, integration efforts are well underway. We are streamlining functional support where it makes sense and the expert on core tracks teams are collaborating on tenders across the world to realize the potential of pull through revenue synergies. For example, we successfully performed five expandable jobs for a new client in Kuwait. Their operations team recognized our casing patch products as the preferred solution for addressing casing corrosion and to provide perforation seals. In Brunei, we had one of our first cross-product line initiatives between Expro and Cortrax, where a well construction field supervisor was mobilized offshore together with a Cortrax technician to assist in the running of a CX-2 bridge plug. As just one example of potential revenue and cost synergies, coordination of the Cortrax product line and our regional business development team supported incremental CX-2 activity, and we avoided the need to mobilize additional personnel from outside the country. Turning to our market outlook, despite near-term pressure on commodity prices driven by weakened demand in China and uncertainty around future OPEC Plus production levels, we remain optimistic about the long-term outlook for international and offshore services, and we anticipate the demand for our services and solutions will continue to grow in 2025 and beyond as current commodity prices remain supportive of investment and long-cycle development. Oil demand is projected to outpace supply through 2024, resulting in inventory draws. If OPEC Plus continues to delay production increases until late 2024 or early 2025 and successfully navigates near-term supply challenges, commodity prices should recover with demand and activity should gain momentum as we progress through 2025. Brent crude prices have declined from $80 per barrel in January of 2024 to an average of $74 per barrel in September, the lowest since December 2023, despite lower-than-average global inventories and the market being prospectively undersupplied. Since the end of the third quarter, the ebbs and flows of tensions in the Middle East have pushed Brent spot prices above $80 per barrel and then back to the mid-'70s, and the potential for further escalation creates significant uncertainty and volatility within the oil markets. EIA's assessment indicates ample crude production capacity remains available, maintaining their price estimates at $76 per barrel the remainder of 2024. Looking ahead to 2025, production is expected to gradually surpass global demand growth as OPEC Plus unwinds voluntary cuts and additional supply comes online from the United States, Guyana, Brazil, and Canada. This shift is expected to drive inventory builds, potentially resulting in downward pressure on oil prices, absent a better than expected demand recovery. Despite an anticipated modest decline in prices over the course of 2025, EIA currently expects Brent to average $78 per barrel next year. Importantly, expected prices should still support continued upstream investment and continued investment in deep water in particular due to the cost and carbon advantages of deep water barrels. In contrast, global gas markets are demonstrating more stability and storage levels in the U.S. are expected to keep U.S. prices below $3 per MMBTU throughout 2024. However, there is room for upward price movement by potentially stronger winter demand, continued global growth in LNG demand, and the impending end of the Russia-Ukraine transit agreement in December of 2024. Overall, the gas market remains generally balanced with reasonable medium-term support for prices and continued investment in LNG to meet growing demand. Natural gas plays a critical role in reducing carbon emissions and electricity generation and is a key transition fuel towards achieving global net zero targets. Despite the negative tone in the equity market, Operators remain focused on replacing produced reserves as evidenced by record levels of FIDs in 2023 and expected sanctioning activity in 2024 and 2025, particularly in the lower cost, lower carbon offshore conventional sector. It is anticipated that in 2024, offshore will represent the majority share of greenfield projects with 82% expected to fall within this segment and 75% in 2025. This trend should support a multi-year demand for Expo services and solutions, particularly in our well construction and subsea well access product lines. Globally, constructive commodity prices should drive continued expenditures on exploration and production with near 2015 levels of upstream investment expected. Investment growth is largely driven by the offshore deepwater and shelf segments particularly notable projects in Guyana, Brazil, the US, Mexico, Saudi Arabia, the Emirates, Norway, and China. In parallel, operators continue to focus on fiscal discipline, aiming to maximize production from existing assets while simultaneously reducing emissions to meet ESG targets. This focus will continue to drive demand for XPRO's production-related activities, well intervention and integrity technologies, and well flow management solutions. As mature assets approach the end of their economic life, the need for cost-effective plug-in abandonment solutions is increasing, which is supporting the decommissioning market and driving incremental activity in Europe and the U.S. Gulf of Mexico. Investments in new energy solutions, such as geothermal energy, particularly in Asia Pacific and the Europe-Sub-Saharan Africa region, and carbon capture and storage, primarily in North and Latin America and Europe, are being driven by emissions reduction and net zero targets. These decarbonization efforts present additional opportunities for Expro's services and technologies. In summary, the underlying market fundamentals are set to drive a multi-year expansion for the energy services industry, positioning Expro and similar companies to assist operators in meeting growing demand for energy. Despite near-term uncertainty, commodity prices continue to support upstream investment in activities aimed at extracting resources from existing assets and developing new ones. As such, our company continues to see demand for our people, services, and solutions in support of our customers' activities. With that, I'll hand it over to Quinn to discuss our financial results.