Expro Group Holdings N.V.

Hello and welcome to the Expro Q4 2024 earnings presentation. My name is Carla and I will be coordinating your call today. During the presentation, you will have the opportunity to ask questions by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I would now like to hand you over to Chad Stevenson, Director, Investor Relations to begin. Chad, please go ahead when you're ready.

Welcome to Expro's fourth quarter 2024 conference call. I'm joined today by EXPRO CEO Mike Jarden and EXPRO CFO Quinn Fanning. First, Mike and Quinn have some prepared remarks, then we'll open it up for questions. We have an accompanying presentation on our fourth quarter results that is posted on the EXPRO website, expro.com, under the investor section. In addition, supplemental financial information for the fourth quarter 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 a forward-looking statement. 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 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 fourth 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 fourth quarter and full year 2024 financial results as was summarized in today's earnings press release. I will then discuss what I would characterize as a dynamic macro environment. which despite our expectation of a near-term moderating of upstream investment, we believe supports a positive multi-year outlook for energy services companies with exposure to international and offshore markets. Finally, Quinn will provide some additional commentary on the just-completed quarter, the full year, and share some additional financial information. For a recap of consolidated results and quarterly results by region, I'll direct you to slides two through seven of the presentation we posted to expro.com. Turning to slide two, I am pleased to report a solid quarter for expro with Q4 2024 revenue of $437 million and adjusted EBITDA of $100 million, or 23% of revenue. Q4 adjusted cash flow from operations and free cash flow were $115 million and $75 million, respectively. Of note, Q4 2024 results reflect our best financial performance in terms of adjusted EBITDA, adjusted EBITDA margin, adjusted cash flow from operations, and pre-cash flow since we closed the Expo Franks merger in October of 2021. The sequential increase in revenue of $14 million in the fourth quarter was primarily due to increased activity in Angola within our subsidy well-access business and higher wealth flow management services in Algeria, Iraq, and Saudi Arabia. Compared to Q4 2023, revenue was up $30 million, or 7%, again, reflecting a strong quarter for the subsidy well-accessed business, as well as results of the acquired Cortrax business, partially offset by lower revenue from our Congo production solutions project. As highlighted in our press release, we recently resolved outstanding variation orders related to the Congo project, allowing us to successfully close out the construction and commissioning phase of the project. Our customer also approved an adjustment to the contract rate for the multi-year operations and maintenance or O&M phase of the project to incentivize higher throughput from the expo built onshore pretreatment plant and our provision of additional services for the facility. Our customers continue to highlight their desire to optimize production from existing wells and assets and reduce their emissions. And the Congo project is an excellent example of how we enable our customers to achieve these objectives. I congratulate our production solutions team for developing and delivering a cost-competitive, differentiated solution for this important customer and doing so within a very ambitious timeline. With over 800 team members working at site for over 22 months, we also achieved nearly 1.9 million man-hours without an HSC-related lost-time incident. This is a significant milestone, the achievement of which all my expert colleagues can take pride. For full year 2024, EXPRO delivered revenue of $1.7 billion, up 13% year-over-year, with performance led by the North and Latin America, Europe, and Sub-Saharan Africa, and Middle East, North Africa regions, with the growth in MENA, in particular, being bolstered by the CoreTrax acquisition. Full year adjusted EBITDA was $347 million, or 20% of revenue, and was up 40% year-over-year in dollar terms. Adjusted EBITDA margin was up approximately 400 basis points year over year and up approximately 800 basis points relative to combined results for Legacy Expo and Franks International over the four quarters prior to our completing the merger. In terms of commercial activity across the company, we have continued to build on our momentum, capturing roughly $314 million of new contract awards, including contract extensions, worth more than $50 million for plug and perforation solutions in Argentina, $35 million for tubular running services in Norway, and $25 million for well test and TRS services in the UK. Our backlog remains healthy at approximately 2.3 billion at the end of the fourth quarter, which is consistent with the end of the previous quarter. During the past year, our team managed the business through a dynamic macro environment, and starting in the second half of 2024, a more subdued short-term growth outlook for the sector as customers adopted a more cautious approach around mid-year due to concerns about a potentially oversupplied oil market. In fact, the oil market remained relatively balanced and prices were generally stable over the fourth quarter with continued production restraint and a focus on price stability from OPEC+, largely offsetting an apparent reduction in geopolitical risk premium and a tepid demand growth, particularly in China. The US Energy Information Administration is currently forecasting global liquids demand to average 104.1 million barrels per day in 2025, an increase of roughly 1.3 million barrels over 2024. Demand is further expected to grow by another 1.1 million barrels in 2026 to average roughly 105 million barrels per day. The EIA forecasts that global fuels production will grow by 1.8 million barrels per day in 2025 to average 104.4 million barrels per day. Global liquid supply is then predicted to grow a further 1.5 million barrels per day in 2026 to average 105.9 million barrels per day. Production growth in 2025 is due to a combination of an expected relaxation of OPEC plus production cuts and further production growth from countries outside of OPEC including the US, Canada, Brazil, and Guyana. OPEC Plus countries are expected to contribute 0.2 million barrels per day to global supply growth in 2025, as voluntary production cuts are expected to gradually unwind, whereas countries outside of OPEC Plus are expected to collectively increase production by roughly 1.6 million barrels per day. With a relatively well-balanced outlook for demand and supply, oil prices are expected to see modest upward movement in early 2025 amid global oil inventory withdrawals before beginning a modest decline from mid-2025 through to 2026 as expected global oil production modestly outpaces what is currently expected to be a relatively weak demand growth. EIA currently forecasts that the Brent price will average $74 per barrel in 2025 and $66 per barrel in 2026. However, several uncertainties are not factored into this outlook, not the least of which is the impact of new sanctions on Iranian exports and the go-forward volume and destination of Russian exports if there is a negotiated peace deal between Russia and Ukraine. As a general matter, if customers have confidence that oil prices will remain above $65 to $70 per barrel, we believe the outlook for our business will be stable to positive largely due to what is expected to be steady to modestly increasing global liquids demand through 2030 and the break-even costs and carbon advantages of deepwater barrels. The global gas market remains fundamentally tight, likely supporting prices and significant investment through the remainder of this decade. In the near to medium term, replacing lost Russian pipeline supplies, growth in U.S. LNG export capacity, energy security and diversification of supply will remain key themes in the industry. Longer term, there is massive upstream and infrastructure investments required to support AI and data center driven demand, and we believe gas will remain the most cost competitive transition fuel towards renewables, if not a structural source of lower carbon electricity generation. Translating the commodity backdrop to what it means for our business, A high cadence of sanctioning activity is forecast to continue in 2025, maintaining levels observed in 2024. The majority of new projects are expected to be in the lower cost, lower carbon offshore segment. Offshore project approvals are expected to account for 72% of greenfield capex in 2025, growing further to 75% of all final investment decisions in 2026. Consequently, a sustained level of project sanctioning by operators should support growth in demand for the services and solutions that energy services companies provide. We believe Expro and other companies that are more levered to international and offshore markets will be better positioned on a relative basis. Customer OpEx spending is also set to continue growth in 2025, facilitating increased brownfield activity as operators remain focused on cost, effectively increasing production from existing assets and reducing their emissions. Like deepwater development, we believe cost-effective and carbon-advantaged production enhancement will be a secular theme, and adding additional exposure to OPEX-funded production optimization activity remains a strategic objective for the company. Overall, we expect upstream investments to be stable to up modestly in 2025 as compared to 2024, with several geomarkets, including the U.S. onshore, Mexico, the UK, offshore Saudi Arabia, and offshore Australia currently expected to contract. Other markets, including U.S. offshore, Guyana, and Norway should be relatively stable, and still other markets such as Brazil, Argentina, onshore Saudi, the Emirates, and onshore Australia should provide scope for growth. For ExPro, our 2025 outlook is for stable, if not modest, growth in revenue and stable to improving margins. reflecting one, the relative size of our business and the markets that are expected to decelerate and the markets that we expect to be more resilient. Secondly, our strong relationships with our blue chip global customers. And third, an ability to offer differentiated services and solutions. Fourth, our recently initiated operating efficiency campaign. And lastly, our strategic and margin accretive acquisitions. We remain focused on building a business that is relevant and resilient and one that more consistently delivers strong financial results. We continue to invest in high return projects and opportunistically pursue smart synergies focused acquisitions to broaden our portfolio of cost effective technology enabled services and solutions, enable margin expansion and capture the opportunities that should come with global economic growth, increasing demand for energy and security of supply considerations. Investments in our core businesses such as well construction, have allowed us to remain on the forefront of the industry, and we continue to offer leading-edge technologies to the market, which is demonstrated through several of the contract awards that were highlighted in our press release, including the first deployment in West Africa of our AI-enabled Itong, the industry's most advanced tubular makeup solution. Similarly, offshore Saudi Arabia, We successfully displaced conventional plug manifolds through our first deployment of the wireless dropping cement head and skyhook. This follows a successful deployment by one of our super majors of our cement head with skyhook in Trinidad. Like ITONG, our cement head system with skyhook creates operational efficiencies while improving safety by removing personnel from the red zone. Performance is a differentiator in the markets like Saudi, and while Aramco has announced the suspension of several jackups and the deferral of several offshore development projects in 2024, our operations success with cementing and other technologies has resulted in additional opportunities and revenue growth. Within our well intervention and integrity business, over the last several years, we have selectively invested in deployment solutions to facilitate the introduction of case-to-all services and data acquisition and data interpretation capabilities. Compared to our traditional mechanical slickline business, this has resulted in a higher quality OpEx funded business with improved margins and better returns on invested capital. For example, revenue generated from our well intervention and integrity business in Brunei is about 50% larger than it was three years ago, and margins have improved by about 10 percentage points over the same timeframe. More value added intervention capabilities have also led to recent contract awards, such as in Algeria, where we achieved the first commercial deployment of our distributed fiber optic sensing capability, as well as a new multi-year wireline and case toll services contracts. Overall, our well intervention integrity business is expected to be over $300 million in 2025, with contribution margins in the low 30s, which lags our drilling completions levered businesses but as a stable production levered business. Margins continue to move in the right direction as a result of the investments in technology and overall cost discipline. Within well flow management, EXPRA recently partnered with Pesterbras to develop a new flow meter technology, which will provide flow rates and identify flow patterns, generating online and real-time data availability for remote monitoring and control to increase efficiency and optimize the production of wells. The key requirement in its technology development is the non-intrusive aspect of the clamp-on design, as well as the absence of any radioactive sources. Our global operating footprint and service delivery franchise also provide a platform to deploy value-adding services and solutions added through technology and business acquisitions. You can see our global platform at work to the commercial success of Cortrax and markets that are new to the Cortrax business following our acquisition in May of 2024. A great example of this is offshore Qatar, where a client recently deployed Cortrax's Hyper Hole Saver hydraulic pipe recovery system. In this case, the bottom hole assembly was severed efficiently, allowing for a timely cementing operation and the deployment of the next drilling assembly within a single day. This milestone underscores the technology's ability to support rapid decision-making and minimize operational downtime in challenging drilling environments. Similarly, in December, the CoreTrax team utilized the Reline M&S expandable casing integrity solution for the first well of an intended 15-well campaign onshore Australia, successfully addressing corrosion issues and bringing production back online, with the remaining wells scheduled for completion in early 2025. Reline M&S is a new technical solution for the market, positioning Expro as the only service company capable of delivering a full suite of remediation solutions, including short, medium, and long expandable patches. With recent contract awards and ongoing pilot programs in several markets, including the onshore U.S., onshore basins in eastern Australia, and in Brazil, we are excited about the growth potential for CoreTrax's expandable solutions. Markets with high well counts and systematic casing integrity or corrosion issues, such as Argentina and Colombia, also have untapped potential. Importantly, our expandable solutions are conveyance agnostic, meaning that we can deploy via cool tubing, wireline, or drill pipe. Regarding our operating efficiency campaign, what we are calling Drive 25, we have identified a 7% to 8% reduction and run rate support costs that we plan to realize over the next 12 to 18 months, about half of which should be captured in 2025. As was highlighted in our press release, the Drive25 campaign is focused on standardizing practices across geomarkets, product lines, and job functions in order to improve operating leverage and facilitate margin expansion. Consistent with my comments on our third quarter earnings call, my view remains that 2025 will start slow again primarily driven by near-term concerns related to oversupplied oil market, and then build momentum as the year progresses. We believe our business and revenue, which are largely levered to long-cycle development, will be stable or grow modestly over the next year, resulting in full-year revenues that are stable to up modestly relative to 2024. Thus, our initial guidance is that full-year revenue will be within the range of $1.7 to $1.75 billion. While 2025 seems to be setting up to be a transition year for the energy services industry, the outlook for oil and gas investment and expo remains quite compelling for the rest of the decade. So we are cautious about near term and more bullish over the medium to long term. That said, our intent is to size our support structure and calibrate CapEx and other investments based on revenue realities rather than revenue aspirations. So cost and capital discipline will be key themes at EXPRO until we have better clarity around the direction of international and offshore markets and the timing of deepwater projects that we expect will be sanctioned beginning in the second half of 2025. As highlighted in our press release, driven by an improved activity mix, which includes business and backlog and a full year contribution and pull through revenue opportunities from the acquired core tracks business, efficiency gains, We expect 2025 adjusted EBITDA margin will be up more than 100 basis points, implying 2025 adjusted EBITDA within a range of $350 to $370 million. Please note that guidance assumes the conversion of backlog at contracted rates, but does not embed material gains in net pricing. With that, I'll hand the call over to Quinn to further discuss our financial results.