Q4 2021 Expro Group Holdings NV Earnings Call
Okay.
Hello, and welcome to today's Expro fourth quarter earnings 2021 Conference call. My name is Elliot and I will be coordinating a cool thing if you would like to register a question. During your presentation you might you start by pressing star followed by one on your telephone keypad.
Now I'd like to hand over to our host Karen David Green. Please go ahead.
Welcome everyone to extra its fourth quarter 2021 conference call I'm joined today by Mike charges, CEO and fund Fannie CFO .
Mike its Glen will share their prepared remarks, and then we will open it up for questions.
The condensed consolidated financial statements of the company reflect our financial position results of operations and cash only legacy extra for all periods. Prior to October 1st 2021 the merger day.
Of the combined company, including activities of freight for all periods subsequent to the merger we have an accompanying presentation on our fourth quarter results. It is also posted on our website extra dot com under the investors section.
Presentation, along with the downloadable financials.
The pro forma combined company results.
I can see Xtra and legacy.
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 any forward looking statements as a 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.
Fluid in the company's SEC filings, which may be accessed on the SEC's website or on our website at extra dot 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 and our fourth quarter 2021 earnings release, which can be found on our website.
With that I'd like to turn the call over supply.
Thank you Karen good morning, and good afternoon, everyone.
Cited to be speaking with all of you today to discuss Expro strong results for the fourth quarter, which marks the first full quarter of our new company after completing our merger with Frank's International.
Berlin Frankfurt, both leaders in their own right together, we have a more resilient business model that is positioned to continue to win in the market and lead the next chapter of our industry given the following our balanced portfolio of services and solutions that span the well lifecycle, which provides through cycle resiliency and ability to better capture cyclical recovery.
Outside our diversified global footprint with operations in key growth markets are best in class innovation platform and technology portfolio that enables us to support our customers' carbon capture reduction goals and finally, our strong balance sheet and merger related synergies, which bring a significant degree of operational flexibility.
And strategic Optionality in order to accelerate growth and create long term shareholder value.
Our fourth quarter results, we announced today and our outlook for 2020 to underscore the strong business combination that we have created through the merger and the opportunities ahead for our business as we continue to capitalize on positive industry trends on today's call I plan to first walk you through our fourth quarter performance Secondly, give you an update on our integration process.
And finally provide some perspective on trends, we are seeing in the broader industry environment.
Starting with our fourth quarter performance, we delivered outstanding results that demonstrate our progress unlocking the value inherent in our scale broad portfolio of solutions global operating footprint through cycle capabilities and strong financial profile for the fourth quarter, we delivered revenue of $296 million and adjusted.
EBITDA of $51 million, our growth was broad based across our regions and product lines with particularly notable growth in the areas of production subsea well access and well intervention and integrity services.
Accordingly, we saw a significant benefit of our diversified portfolio as we enhanced our business mix and our team continues to capitalize on improving industry fundamentals and our broad suite of innovative solutions to win new business and expand our relationship with existing customers, we achieved contract wins and extensions totaling $235 million.
Which is a true testament to our team's resilience and the traction that our solutions are gaining on the market.
On a regional basis in North and Latin America, we were awarded contracts across Argentina, the Gulf of Mexico, Trinidad Guyana in Canada for case toll services Flowback services, the provision of tubular advanced reservoir testing and integrated testing services for an exploration and appraisal well during the quarter.
We also successfully completed our first operation for a distributed fiber optic system in Argentina.
The Europe and sub Sahara Africa team secured contracts in Angola, the eastern Mediterranean and the UK for subsea and well test again as a direct result of our continued focus on service delivery in the fourth quarter. We also commissioned our first automated Tong system, which uses artificial intelligence to optimize tubes.
Make ups. This groundbreaking system will facilitate a step change in drilling rig efficiency and safety, reducing manpower requirements and improving well integrity. This one touch automated system is well aligned to our customers' drive for automation and will build on our record setting rig operations performance.
In the Middle East and North Africa, we secured a significant contract in North East Africa for the provision of multi phase pumps, which allow enhanced production from a challenging production wells during the quarter. We also successfully carried out a large trace element campaign supporting the design of a future gas plant in Iraq.
$67 million contract was secured in Saudi Arabia. The first contract that we can directly attribute to the merger of the two companies for the provision of tubular running services. We also achieved a significant milestone in the region as we passed 5 million hours of data transmission. This is a testament to the breadth of our data analytics capabilities and is a win for our team.
And the region that they are able to harness the data to develop more targeted solutions for our customers.
In Asia Pacific the team secured contracts in Thailand for well intervention tubing conveyed perforating solutions in Indonesia, and subsea work for a four well abandonment campaign in Australia, all as a result of our service delivery performance. We also performed a radio cutting service for new geothermal customer in Indonesia, where we're able to successful.
Pro forma operations, which had previously proven problematic.
In November we announced four significant subsea well access contracts in southeast Asia, and Australia worth in excess of $50 million. This award includes the delivery of an integrated subsea solution, including our industry, leading intervention riser system to access the wells at undertake plug and abandonment work.
During the quarter. We also continued to advance our innovation platform to develop the next generation of solutions that will.
Serve as Differentiators for Expro, we believe will help bring onboard new customers a key highlight from this work is our successful integration test of a legacy expro electro hydraulic subsea umbilical with a legacy Frank's tubular running services Shameless Cobra control alignment. If you later or this combination of technologies provides.
And that efficiency, while improving the safety of operations. This test generate significant customer interest and we already have one large customer committed to using this offering and a key operation in the eastern Mediterranean and the first quarter of 2022. Additionally, in the quarter, we announced the launch of delay us the world's first fully autonomous well intervention system.
This designed to maximize production or reducing intervention cost HFC risks and overall environmental impact the system build on our commitment to developing new technologies that help our customers achieve their carbon reduction goals and create a more sustainable future.
While our technology is a key differentiator and one of the main reasons. We are seeing customers continue to choose <unk> over our competition is our consistently excellent service I want to specifically highlight the work of our Europe and sub Saharan Africa team, whose flexibility and commitment to our customers led to growth in new business in December with a record score for our job perform.
Across all of our operating areas, our customers feedback averaged 97%, meaning the majority of our customers ranked our service in all categories is excellent. This is a testament to the strong project execution by our team combined with express cost effective technology, driven solutions offering our service quality based on our customer.
Our job performance rated historically very strong and we ended 2021 with an average of 94, 6% across all the regions. We're in North and Latin America, Europe Sub Sahara Africa, and Asia Pacific were all in excess of 94% in the Middle East North Africa with over 95% we.
We expect to continue to enhance our service delivery as we continue implementing our integration plans to enhance the coordination and collaboration of our legacy <unk> and extra teams to work as one seamless organization. We have already made significant progress executing on the comprehensive plans. We developed prior to close as we have worked through this process, we have begun to see the truth.
Power of our new team our strong financial profile provides us the flexibility to continue to invest in our portfolio through market cycles to develop the next generation of solutions that address our customers' needs and support their carbon reduction goals as part of the energy transition. This past year, we allocated 40% of our research and develop.
<unk> spending to carbon reduction initiatives and efforts and we expect that percentage to approach, 50% in 2022 and doing so we are developing and advancing solutions that will play a critical role in enabling our customers to achieve their own emission reduction goals extra is committed to playing a leading role in the low carbon energy transition through transforming our.
Portfolio and achieving net zero emissions by 2050.
We continue to pursue work across the value chain with suppliers and customers to not only reduce our own environmental impact but to support the sustainability initiatives of our customers extra has established operations in technologies with a geothermal and flare reduction in gas recovery segments and has continued to develop our offerings within the energy transition space.
In particular, we are seeing increasing growth in carbon capture and storage or Ccs since our involvement in a successful northern light Ccs project in Norway.
Before I turn the call over to Quinn I want to provide some perspective on trends we are seeing in the market and what we expect on a year ahead, we continue to see strengthening signals of a multiyear recovery, we expect demand for our services and solutions to increase throughout 2022 as operators look both to increase production from existing assets and to develop new fields.
We anticipate better business conditions and activity levels throughout 2022, and beyond and are confident that the pipeline of projects. We are seeing will support multiyear growth for the energy services sector was particularly strong potential for a number of the Geo markets within Northern Latin America, the Middle East Africa and Asia.
Natural gas demand has remained strong in the U S or internationally due to increased economic activity, which is forecast to drive new infrastructure developments and further increased activity levels. Other expro has traditionally had minimal revenue in Russia, and the Ukraine less than 1%, we're disheartened to see the ongoing conflict in Ukraine, and hope that a peaceful resolution.
<unk> will soon be achieved there is also a trend for the IOC is to increase the natural gas share of their overall production and thereby better balanced their gas liquids portfolio's comparable to this national oil companies are focused on accelerating field development efforts in order to stimulate their country's economic recovery internationally. The supermajors are increase.
Singly focused on lower risk phase developments. In addition efforts to reduce emissions and more broadly to position themselves for the energy transition continued to gather momentum that would be a priority for our IOC customers. We believe international exploration activity will become more near field and infrastructure led in the near term.
The outlook for the first and second quarter of 2022 indicates a continuing modest recovery in E&P expenditures, albeit at different rates in individual countries in the medium term with a final investment decision approvals anticipated to continue growing nearly 60% of those commitments are expected to be offshore. We also believe oil and gas.
Demand will soon recover to 2019 levels, resulting in operators that will need to again focus on reserves replacement following a multiyear period of underinvestment and lower volumes of discoveries.
For now operator, seeing most focused on maximizing the investments that they've made previously consistent with past recoveries incremental opex spending and brownfield enhancement programs are expected to be at initial area of customer focus and in select markets. We are seeing some signs of recovery in intervention, well integrity projects execution of which to the traditional <unk>.
<unk> growth.
More broadly we believe offshore deepwater activity in shale or tight oil projects will be the largest growth areas, which should support sustained growth for expro, given our capabilities in subsea well access services complex well construction services and production optimization.
Bolstered by constructive commodity pricing, we are experiencing increased activity, which we expect to gain momentum as we progress through 2022 and beyond.
<unk> is uniquely positioned to serve our clients in the current market environment, we anticipate increased demand for our existing services and more opportunities to provide new solutions from our enhanced portfolio. We are differentiating ourselves in the market as well experts across the full well lifecycle with a focus on integrity in all its forms whether that means ensuring connection.
Tegra <unk> integrity, and our services to our customers our ability to enhance management integrity. We're also leading the industry and technology supporting energy transition, which will become increasingly important as customers around the world look to accelerate their carbon reduction strategies.
Combined with technology and Knowhow prioritizing QA QC allows the company to get absolute focus on advancing the company and delivering maximum value to our customers shareholders and other stakeholders with that I will hand, the call over to Quinn to discuss our financial results.
Thank you Mike Good morning, and good afternoon to everyone on the call.
As Mike noted I will cover the results for the quarter and year ended December 31 2021.
We will highlight the sequential and year over year performance on both an as reported basis, which is consistent with the presentation of financial results in our press release and <unk>.
SEC filings Nana.
On a pro forma basis, which is consistent with the presentation of financial results and the slides that Karen referenced at the top of the call and that are available through the investors section of our website extra dot com.
To recap, we reported revenue of approximately $296 million for the December quarter, which was up $98 million or approximately 50% relative to the September quarter.
The increase was driven by the merger between legacy Frank's International and legacy Expro, which contributed $112 million of additional revenue.
Partially offset by $21 million in production equipment sales that occurred during Q3 2021, but did not reoccur in Q4.
On a pro forma basis.
Revenue was down $17 million or approximately five 5% quarter over quarter.
Excluding the just referenced Q3 production equipment sales and consistent with the guidance provided on our third quarter earnings conference call revenue was essentially flat quarter over quarter, and largely reflected our expectations for seasonally weaker fourth quarter.
As reported adjusted EBITDA for Q4, 2021 was approximately $51 million representing.
The sequential improvement of approximately $20 million or 61% quarter over quarter.
In percentage terms adjusted EBITDA was up approximately 120 basis points quarter over quarter to 17% of consolidated revenue.
The merger contributed $17 million of the quarters adjusted EBITDA increase.
The balance of the adjusted EBITDA increase reflects a modestly more favorable activity mix, but limited pricing traction to date at least in international markets.
On a pro forma basis, adjusted EBITDA was up $6 million or approximately 12% quarter over quarter.
In percentage terms pro forma adjusted EBITDA was up approximately 270 basis points quarter over quarter to 17%.
Relative to 2020 reported revenue was up $151 million or 22% year over year.
$112 million of which was due to the merger.
The remaining increase was driven by higher activity across north and Latin America or MLA.
Europe , and sub Saharan Africa or DSA.
In Asia Pacific or APAC.
Partially offset by a reduction activity in the middle East and North Africa or Mena segment.
On a pro forma basis consolidated revenue was up $78 million or approximately 7% year over year.
As reported adjusted EBITDA for 2021 increased by $26 million or 26% to $126 million.
Adjusted EBITDA margin was approximately 15% for both 2021 and 2020.
On a pro forma basis, adjusted EBITDA increased by $49 million for approximately 45% year over year to $158 million.
In percentage terms pro forma adjusted EBITDA was up approximately 360 basis points year over year to approximately 14%.
As highlighted in our press release, the adjusted net loss for the fourth quarter of 2021 was $4 million or three sales per common share.
Third to adjusted net income for the third quarter of $1 million or <unk> <unk> per common share.
With the sequential trend largely reflecting incremental per share depreciation amortization and tax expense as a result of the merger.
The adjusted net loss for 2021 was $19 million or 24 per common share.
Compared to an adjusted net loss for 2020 of $29 million or <unk> 41 per common share with a year over year trend largely reflecting incremental per share adjusted EBITDA.
Total liquidity at quarter end was approximately $370 million.
Cash and cash equivalents, including restricted cash was $240 million as of December 31.
Total liquidity also includes $130 million that is available to the company for drawdowns as loans under our $200 million revolving credit facility.
The balance of the facility is available for bonds and guarantees.
Xtra had no interest bearing debt at the end of Q4 2021, and the company has no interest bearing debt today.
During the quarter ended December 31, 2021 cash provided by operating activities net was $16 million as compared to cash used in operating activities of $2 million in Q3 2021.
Q4, adjusted operating cash flow, reflecting cash used in operations before cash paid for interest severance and other expenses and merger and integration expenses was $41 million compared to $11 million in Q3 2021.
Investing and financing activities collectively generated $160 million of cash in Q4 2021.
Primarily reflecting $190 million of cash and cash equivalents and restricted cash that was acquired as a result of the merger.
<unk> offset by capital expenditures in the quarter of $28 million $20 million of which was capex related to core operations <unk>.
Including $5 million related to the well construction business of legacy Franks and $8 million of which was related to new technology investments such as lightweight intervention coil hose and annual or integrity, all of which we expect to generate material revenue and good margins in 2022.
Capex as a percentage of revenue continues to trend downwards with management focused on maximizing utilization of existing assets and where practical limiting new capital expenditures.
The company continues to plan for 2022 capital expenditures in the range of $90 million to $100 million or 7% to 8% of expected revenue.
Now moving into the details by reporting segment.
North and Latin America are MLA revenue for the fourth quarter of 2021 was $100 million, an increase of $68 million quarter over quarter.
Approximately $67 million for nearly all of the sequential increase in revenue related to the merger.
Pro forma MLA revenue was essentially flat quarter over quarter.
In particular, the sequential increase in revenue in South America, which was primarily driven by well intervention integrity activity in Argentina, and subsea well access activity in Brazil.
And in the Caribbean, which was driven by interventional integrity activity was offset by a sequential revenue decrease in our north American onshore business largely driven by a relatively large tubular sale by legacy Frank's in Q3, which was not repeated in Q4 and in Mexico, which reflected lower rig activity.
And therefore, lower wealth management activity.
U S land revenue was essentially flat quarter over quarter as our focus in this market remains on margin.
For market share.
On a pro forma basis Q4 revenue, an MLA was up 16% year over year.
As reported MLA revenues the full year of 2021 was $193 million, an increase of $77 million for approximately 67% of which $67 million relates to the merger.
On a pro forma basis full year, MLA revenue was $393 million and was up 6% year over year.
As reported in La segment EBITDA for the just completed December quarter was $21 million or approximately 21% of segment revenue.
Was up by $16 million quarter over quarter.
For Q3, 2021, MLA segment EBITDA was 17% of segment revenue.
On a pro forma basis MLA segment, EBITDA was essentially flat quarter over quarter, both in dollar and percentage terms.
As reported full year 2021 segment EBITDA for MLA was $32 million or approximately 17% of segment revenue as.
As compared to essentially breakeven results for legacy Expro for the full year 2020.
On a pro forma basis MLA segment, EBITDA for 2021 was <unk> $75 million or 19% of segment revenue.
Pro forma segment, EBITDA was up $36 million or approximately eight five percentage points year over year.
Legacy Frank's had a particularly strong position an MLA.
And we expect that NOI financial results for the combined company will continue to benefit from the incremental scale and complementary operating footprints and customer relationships that were made possible by the merger.
For the East segment, which is Europe and sub Saharan Africa revenue in Q4 was $94 million, which was up $7 million for approximately 8% quarter over quarter.
The sequential improvement was primarily due to the merger, which contributed incremental revenue of $29 million.
This was partially offset by production equipment sales in sub Saharan Africa totaling approximately $21 million that occurred during Q3, but did not recur in Q4.
On a pro forma basis, Q4 revenue and Isa was down 18% quarter over quarter again, reflecting Q3 equipment sales, which were not repeated in Q4.
Excluding the production equipment sales <unk> revenue was essentially flat quarter over quarter and reflected the offsetting effects of a sequential revenue increase in the U K, which was primarily driven by well intervention and integrity to the subsea well access activity.
In the sequential and largely seasonal revenue decrease in Norway, which most significantly impacted our wealth management activity.
On a pro forma basis, Q4 revenue and Isa was up approximately 40% year over year.
As reported <unk> revenue for the full year of 2021 was $301 million, an increase of $81 million for approximately 37% year over year.
Approximately $28 million was due to the merger.
On a pro forma basis full year <unk> revenue was $373 million was up approximately 25% year over year.
Excluding the previously referenced production equipment sales pro forma Isa revenue was up approximately 18%, reflecting the easing of COVID-19 restrictions incremental customer spending and brownfield enhancement programs.
As reported DSO segment EBITDA for the December quarter was $20 million or 21% of segment revenue.
DSO segment, EBITDA increased $2 million quarter over quarter.
With segment EBITDA as a percentage of revenue improving approximately one percentage point quarter over quarter the.
The increase in segment EBITDA was primarily due to the merger, which contributed incremental Isa segment EBITDA of $9 million for the fourth quarter results.
This was partially offset by a reduction in segment EBITDA due to the nonrecurring production equipment sales and a modestly less favorable activity mix.
On a pro forma basis visa segment, EBITDA was down approximately $5 million quarter over quarter in.
And he's a segment EBITDA as a percentage of segment revenue was down approximately one percentage point quarter over quarter.
Again, largely reflecting the nonrecurring equipment sales in Q3, and a modestly less favorable activity mix.
As reported full year 2021 segment EBITDA for <unk> was $53 million or approximately 18% of segment revenue.
For 2020 Isa segment, EBITDA was approximately 16% of segment revenue.
On a pro forma basis DSO segment, EBITDA for 2021 was $72 million or approximately 19% of segment revenue.
Pro forma segment EBITDA was up $24 million for.
Approximately three percentage points year over year.
For the Mena segment revenue in the fourth quarter was $49 million, an increase of $11 million or approximately 30% quarter over quarter.
The merger contributed $8 million of the sequential increase in revenue in the quarter.
On a pro forma basis Q4 revenue in Mena was up approximately 8% quarter over quarter.
Largely reflecting increases in wealth management activity nail jewelry in Egypt activity in other key markets, including the KSA was relatively stable quarter over quarter.
On a pro forma basis Q4 revenue in Mena was down approximately 4% year over year.
As reported <unk> revenue for the full year of 2021 was $171 million, a decrease of $23 million or approximately 12% year over year.
Relative to 2020 lower revenues in Mena, largely reflect lower wealth management activity across the region.
Debt by approximately $8 million of Q4 Mena revenue that was as a result of the merger.
On a pro forma basis full year, <unk> revenue was $194 million and was down approximately 13% year over year.
As reported Mena segment EBITDA for the December quarter was $16 million or approximately 33% of segment revenue in.
An increase of $5 million or approximately four percentage points quarter over quarter.
An increase of $1 million was due to the merger and the remaining increase was due to a more favorable activity mix and improved activity levels, which also contributed to the improvement in segment EBITDA margin during the fourth quarter.
On a pro forma basis Mena segment, EBITDA was up approximately $5 million quarter over quarter, and Mena segment EBITDA as a percentage of segment revenue was up approximately eight percentage points quarter over quarter to 32% of segment revenue.
Largely reflecting a more favorable activity mix.
Startup cost on new projects, which were a drag on Q3 segment EBITDA margins also contributed to the sequential improvement in financial results for Mena.
As reported full year mean of segment EBITDA was lower than the prior year by approximately $21 million due to lower activity on higher margin contracts and the just referenced startup costs, partially offset by an increase in segment EBITDA related to the merger, which contributed approximately $1 million of Mena segment EBITDA.
In percentage terms EMEA segment EBITDA margin for 2021, and 2020 was 33% and 40% respectively.
As reported Asia Pacific or APAC revenue for the fourth quarter was $51 million, which was an increase of $11 million or approximately 28% sequentially.
The merger contributed $8 million of the increase in revenue in the quarter.
On a pro forma basis revenue in APAC was up approximately 5% quarter over quarter, reflecting a modest leasing of COVID-19 related restrictions as a result, higher subsea well access activity in Malaysia.
And increased well intervention integrity activity in Thailand, Indonesia and Brunei.
On a pro forma basis Q4 revenue in APAC was up approximately 17% year over year.
As reported APAC revenue for the full year of 2021 was up $15 million or approximately 10% year over year.
The merger contributed $8 million of incremental revenue and the remaining increase was driven by increased well flow management and well intervention integrity revenue.
On a pro forma basis full year APAC revenue was $184 million was up approximately 5% year over year.
As reported APAC segment EBITA for the December quarter was $12 million or approximately 24% of segment revenue, an increase of $4 million or approximately five percentage points quarter over quarter.
An increase of $1 million was due to the merger.
Remaining increase was due to a more favorable activity mix.
On a pro forma basis APAC segment, EBITDA was up approximately $3 million quarter over quarter, and APAC segment EBITA as a percentage of segment revenue was up approximately five five percentage points quarter over quarter.
As reported full year 2021 segment EBITDA for APAC was $33 million or approximately 21% of segment revenue.
For 2020 apex segment EBITDA was approximately 24% of segment revenue.
On a pro forma basis APAC segment, EBITA for 2021 was $35 million or approximately 19% of segment revenue.
Pro forma segment EBITDA was down approximately $2 5 million or approximately two five percentage points year over year, reflecting a less favorable activity mix driven by lower subsea well access activity.
And reduced activity on higher margin contracts.
As Mike mentioned, our integration plans are progressing well, we're already starting to realize the significant synergy benefits, we anticipated when we first announced our business combination.
During the fourth quarter, we identified an action cost savings representing more than 50% of our previously stated $55 million run rate cost synergies target for the first 12 months following the merger close.
It will take a quarter or two for our financial results to reflect such cost synergies, but we remain confident that we are on track if not a bit ahead of schedule in regards to the first year synergy targets.
As noted in our press release and as Mike highlighted in his remarks. We are also now pursuing growth opportunities afforded by our broader portfolio and geographic footprint with early wins such as the recent Trs Award in the Kingdom of Saudi Arabia, increasing our conviction that revenue synergies will allow us to realize.
Incremental adjusted EBITDA growth as we continue to benefit from our strong customer relationships global scale and the tailwind from the multi year industry recovery in global economic recovery that are beginning to play out.
As we further improve our cost structure and capitalize on the global recovery, we expect to generate strong free cash flow.
To reiterate our near term outlook, we expect our Q1 2022 revenue will be generally flat relative to the circa $300 million of revenue reported for Q4 2021, and then we will also experience some sequential margin compression driven primarily by a less favorable mix of activity.
In particular, we expect that adjusted EBITDA margin in the first quarter of 2022 will be 12% to 14% of consolidated revenue.
As we move into the northern Hemisphere summer season in the second quarter of 2022 and onwards, we expect that our age to 2022 revenue run rate will approach that of the pandemic 2019 revenues of legacy Expro and legacy Franks on a combined basis.
Implying quarterly revenue in the back half of 2022 of approximately $325 million to $350 million.
With the benefit of fall through on incremental revenue and synergies we expected adjusted EBITDA margins in the second half of 2020 to be in the area of 20% of revenue.
As always our objective is to enhance long term value for our shareholders employees partners and the communities in which we operate.
With that I will turn the call back over to Mike for a few closing comments.
Thank you Glenn we ended 2021 on a strong note with excellent fourth quarter operating performance that demonstrates the potential of our resilient and flexible business model. As we look ahead to 2022, we are well positioned to build on our momentum given our strong business fundamentals and a tailwind from broader industry trends, we are gaining more track.
And the market to win new business and expand our mandate with existing customers as our team capitalizes on broader portfolio best in class service quality and our reputation as an industry, leading well expert with a focus on well integrity levered.
Leveraging our strong innovation platform, we continue to advance our technology to develop the next generation of solutions to address our customers' needs and support their carbon reduction objectives. We are capitalizing on the industry recovery as drilling activity continues to ramp up, particularly offshore and in key growth markets, where we are fortunate to have <unk>.
Already strong presence as customers increase activity. We are also seeing more demand for carbon reduction solutions across the boards suffice to say we are firing on all cylinders and we are well positioned to continue delivering excellent service to our customers, while implementing our thoughtful plans to unleash the full power of extra I am particularly.
Proud to see how our combined team is coming together to support each other and deliver exceptional service to our clients.
Their work is inspiring and will continue to be the bedrock of our success.
We're excited about entering 2022 as a new company and look forward to what the future holds for us as we focus on accelerating growth improving profitability and enhancing value for shareholders employees customers and partners.
Again, operator, let's go ahead and open it up for questions.
Thank you we will now proceed with the Q&A. If you would like to ask a question. Please press star one on your telephone keypad.
Wish to withdraw your questions you May press star two please.
Please ensure you're on mute locally when asking your question.
Today, we will first begin our Q&A session with a few questions that we've received from our pre registered callers. The first question.
You provide more detail on how you believe <unk> differentiated in the market. What do you believe you are providing other signals.
Greg I think it's a good question.
Always like to think about Expro really and in terms of upscale solutions and overall service.
With the new combined company, we have a significant global footprint. This includes operations in all the key growth markets.
We serve our customers wherever they operate and our scale and our geographic footprint is going to allow us to expand our relationships with those customers and ultimately provide them with the same services they rely on.
<unk>.
Current regions and different operations.
In particular, we're really well positioned across many of the key markets, where we see strong growth activity potential in particular in North America.
The North sea and the middle East in terms of.
In addition, a really a broad footprint, we now with the new combined company. We offer an expanded suite of solutions that allows us to serve our customers in all stages of the well life cycle. So when our customers are beginning new activity exploration activity.
Or if they're managing current well slower completing new wells, we ultimately as a new company have best in class solutions that can support that full lifecycle activity.
Breath of solutions not allows us to serve the customers today, but I think it positions us well to give us earlier visibility on the future projects and really ultimately help us anticipate what we can do to support them better in the future.
Good example is in the middle East, we want to well construction contract, which was our first noteworthy revenue synergies from the merger. We're also very focused on leveraging our strong innovation and technology platforms that allow us to continue to advance solutions that ultimately help support our customers in the industry.
Finally, lastly, I think while customers oftentimes come to Expro for our solutions. The reason our customers stay with us is because of our excellent service quality.
Both Frank and Expro have always been known for our service quality and really since completing the merger we are already starting to see the tremendous potential of the benefits of.
This combination from our customers' perspective.
Our outstanding service quality was highlighted by the work that I mentioned earlier.
The call.
From the performance of our <unk> team in the quarter.
I can't stress how important it is and how.
Strong of a confirmation is when you exceed 97% on customer feedback.
A major really clicking on all cylinders and I think that's a real testament to how well the team is performing and in Isa. So ultimately with a broader footprint, our new suite of solutions and really really solid service quality and allows us to really be a tremendous force and allows us to be more of a partner for our customers in the industry.
Second question can you provide more perspective on the industries energy transition and <unk> role in supporting it.
Interesting question I can tell you that the energy transition is really it's on the top of top of everyone's mind in the industry.
Almost every conversation I have with our customers. Our partners. This is usually if not the very first topic. It certainly has served as one of the first topics we talked about ultimately around how do we as an industry and reduce our carbon footprint.
As I commented earlier, we've really seen from the international Supermajors and increasing their focus on reducing emissions and ultimately positioning their businesses for lower carbon.
Lower carbon world in the coming years, I think we're going to expect that the first question customers will always ask for new projects will be around sustainability and I think that business will be won or lost on whether they can.
As a service company, whether we can help reduce the project's carbon footprint.
More so than the competition. They are one of the things that Xtra is really built around is ultimately we're leveraging ourselves towards a lower carbon world. We believe that our commitment to sustainability and our strong portfolio of carbon reduction solutions is going to be one of our key differentiators.
I alluded to earlier in the call that in 2021, and 40% of our R&D efforts and spending was really focused around around solutions to help our customers reduce their carbon footprint and have a more sustainable future ultimately will allocate almost 50% of our R&D efforts in this in 2022, because I think it is.
We can continue to leverage and ultimately by newness thinking we think that we'll be able to develop an advanced solutions that will help play a critical role for our customers as they try to achieve their own emission reduction goal.
<unk> as well as us reducing ours as a company.
But the other thing to keep in mind is as our customers prepare for a lower carbon future as ultimately are.
<unk> focus on sustainability and what are we going to do within our own operations. We as a company are targeting a 50% reduction in our carbon emissions by 2030 and also with the ultimate goal of achieving net zero carbon emissions by 2050, and we think that in doing this.
We're really demonstrating to our customers that we truly practice, what we preach and were focus on sustainability not in not only in how we help them reduce their carbon emissions, but also how we reduce ours as a company as well.
Our next question comes from Taylor Zurcher from Tudor Pickering Holt. Your line is now open.
Hey, Mike Quinn. Thanks for taking my question My first one on the Mena region, a really strong Q4 results in that geographic segment for Q4.
And I'm just curious in 2022.
Constructive commodity price environment I was.
Just hoping you could shed some light on the mindset of some of your own a few customers in that region today, and what that might mean for growth in EMEA region for you guys over the course of 2022.
Yes, I'd Taylor good good question I think what we're really seeing is continued investment from our NOC customers in.
In the middle East they tend to be more of a volatile a little bit more careful on there.
Investment decisions and ramping up activity in those kind of things, but I can tell you and speaking with a number of them will continue to see that the strong commodity price right now will help with that and I think that as we saw the example, we highlighted earlier, we were able to to leverage.
Trs contract in Saudi I think because we have a good presence with some of the historic.
The legacy Expro business, I think we're going be able to leverage some of those relationships and really expand our footprint throughout the middle East. So I think we're well positioned as a company I also think that.
And that we'll see overall the industry be strong in the middle East here as we as we continue into 2022.
Yes, good two year follow up on free cash flow so.
I imagine here.
This question last quarter, as well, but I imagine the more cash outlays for merger and integration type expenses here in the near term, but as we think about the full year of 2022 is it reasonable to assume that the cash balance on the balance sheet. It is likely to build from from current levels exiting 2022 relative to today.
That's certainly our expectation Taylor.
Free cash flow, obviously is defined differently by <unk>.
<unk> people.
The guidance, we've given today in regards to adjusted EBITDA margins.
12% to 14% in Q1, and ultimately getting to plus or minus 20% in the back half of the year you can certainly interpret late to get to.
Our guests for Q2.
If you can average that out youre going to be in.
17, 17, 5% area.
For the year for adjusted EBITDA margins.
Management remains focused on constraining capex.
As a percentage of revenue. So if you assume 78% non capex. If you can at least use EBITDA less capex as a free cash flow proxy that puts you in the high single digit area as a percentage of revenue.
That is our target is high single digit free cash flow margin.
But we do expect that we will build cash this year notwithstanding.
It looks like that we do have a version of integration related expenses, including some capex associated with facilities consolidation.
Your basic assumption is consistent with our views.
Awesome, Thanks for the answers.
Thanks, Tim.
Our next question comes from James West of Evercore ISI James. Please go ahead.
Hey, good morning, Mike Glenn.
<unk>.
Yeah, Thanks for the guidance.
Guidance for the full year that was extremely helpful.
Think about the integrated business.
Curious, though.
Mike.
Decisions with.
With customers, particularly the offshore environment, I think I understand kind of the cadence of activity because quint gave us some numbers.
For this year, but as we look into kind of 'twenty three 'twenty four do you start to see releases.
<unk> building Brewers at least a decent offshore cycle.
I do.
And one of them one of the benefits of US completing the merger is it really has given me a great opportunity to to speak with and talk with and meet with an awful lot more customers than than even what I normally would.
I think today there continues to be some some cautious optimism.
I think offshore circa 60% of the <unk> that are going to be approved are going to be offshore type fid's I think we're going to see that momentum start to build in the second half of the year as part of the reasons why we've given some guidance around where we see revenue and where we see margins.
I don't think we're going to see.
At the same number of massive number of well <unk> approved in the short term that we historically what <unk>.
<unk> continued to see operators that are going to improve Q3, four well projects and then they'll rollout into another two three or four wells, but yes, there's a lot more positive sentiment and I certainly have much more confidence today and what our activity set looks like for the end of this year that even what I did when we were going through our budgeting process.
At the end of last calendar year.
Okay magnetic geo is the only thing I would tack on to that so if you look at kind of our customer inquiry activity.
And as Mike points out what May have been an eight well campaign that we would've had 12 to 18 months worth of visibility.
In terms of project planning.
The customers at least the <unk> approving them.
Smaller more discrete elements. So if you had an eight well program historically it may end up being two separate four well approvals I think one of the interesting knock on effects of that as the customer turnaround requests. As example for subsea completions work seems to be shortening.
Okay <unk> okay.
Okay. Thanks for that and then on the carbon reduction solutions that you provide or those scoped into contracts at this point, where they are specifically asking for those or is it more of a conversation topic.
Right now it's more of a conversation topic I mean, we're starting to see some.
<unk> request and some requirements from.
Especially from some of the more of a European centric operators.
Not compulsory but there certainly is starting to be some scope and some definition.
I kind of view this kind of like in some way to kind of like HSE performance was 15.
<unk> 15 years ago, initially started out as <unk> got to provide your data and then it become a prerequisite and I think we are in the scope right now of providing data for some of them and I think that will become more of an industry norm.
Right, Okay got it alright, thanks, guys.
Thanks, James Thanks, James.
Our next question comes from Ian Macpherson from Piper Sandler Your line is now open.
Hi, Good morning. This is John stepping in for Ian My first question is that given that you currently have over $2 per share of cash on the balance sheet and have solid visibility for free cash flow generation could you. Please provide a reminder, on your capital allocation priorities.
Yes.
In regards to free cash flow of our number one priority is generating.
We have.
We're now one quarter into this combined company.
We will certainly have a robust dialogue with our board in regards to capital allocation as we.
<unk>.
Better visibility.
Timing and trajectory of particularly.
The recovery in offshore.
But we understand what investor expectations are in I'm sure the full suite of alternatives beyond the table other routes.
Incremental organic investments.
Bolt on M&A or.
Some repatriation strategy, but I think that's going to be something that plays out over 22.
But again, our initial focus is on generating cash flow more so than it is on what we do once we haven't.
Okay, great. Thanks for the color there and then the follow up.
Obviously early in the integration period.
And there is naturally some noise.
Noise and EBITDA adjustments, specifically with stock based stock based comp and merger and integration expenses could.
Could you help us think about.
Maybe how these items settle over the next few quarters.
Sure.
Well I guess, one thing I'll mention is our expectations, we'll file our.
Quote unquote inaugural 10-K early next week and I think a lot of the.
Details in regards to stock based compensation that will be embedded in that will help you understand.
Go forward.
Mutation.
I will point out that the vast majority of the stock based compensation expense was recognized in <unk> was essentially a valuation of.
Legacy extra options based on I think on the <unk> stock price as of the merger closing date.
Obviously, we are south of that and certainly south of the <unk>.
Average exercise price there, but there is.
<unk> 40 plus million dollar.
Expense was recognized related to the legacy extra options program.
And again those details will be available soon.
In the K in regards to merger integration expenses.
We will continue at least for a couple of quarters to recognize severance associated with our support cost rationalization.
And both some operating expense and likely a bit of capex associated with the consolidation of facilities.
We were within a couple of weeks of closing consolidated into a single headquarters in Houston.
Recognize some lease abandonment costs fourth quarter related to that and we'll continue to have some of those expenses, but I think.
And once we get through 2022, the numbers will settle dominated and youll.
Youll see much fewer adjustments Budd.
Hopefully the schedules that we provide to them.
A press release at least help you cut through the noise and see at least what we consider to be kind of.
Traditional or core operational performance.
Great. Thanks for taking my questions I'll turn it back.
Yesterday.
Thank you ladies and gentlemen that concludes your conference for today, we appreciate your participation.
May now disconnect.
Okay.
Okay.
Yeah.
Okay.
Okay.
Sure.
Okay.
Sure.