Q4 2022 Expro Group Holdings NV Earnings Call
Hello, and welcome to stage extra Q4, 'twenty to 'twenty two earnings presentation My.
My name is Elliott Snobby COVID-19 your call today.
If you'd like to register a question during the presentation you may do so by pressing star one on your telephone keypad.
I would like to hand over to Karen David Green. The floor is yours. Please go ahead.
Welcome everyone to express fourth quarter 2022 conference call I'm joined today by Mike Gardner, CEO and Quinn Fanning CFO.
First Mike can plan will share their prepared remarks, and then we will open it up for questions. We have an accompanying presentation on our fourth quarter results that is posted on the extra website extra dot com under the investors section.
In addition, supplemental financial information for the fourth quarter and prior year periods as downloadable on the extra website under the investors section.
Are there for an in depth look at our business strategy and industry dynamics I would refer you to the extra a company overview presentation that we posted on our website on January 24.
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.
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 or on our website at Expo dotcom.
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 2022 earnings release, which can be found on our website.
With that I'd like to turn the call over to Mike.
Thank you Karen good morning, and good afternoon, everyone.
Fred delivered a strong fourth quarter with financial results at the top end of our expectations. We enter 2023 in a strong position for continued profitable growth with a robust order book supported by strong demand trends for our services and solutions. We recently crossed the one year Mark since completing the merger of Expo in Frank's International.
And our strong results for 2022 demonstrates the potential of our platform, we've been able to successfully leverage legacy relationships and our broad operating footprint to secure new business and capitalize on market opportunities in key growth areas, while driving efficiencies to improve profitability and expand margins.
Our broad geographical footprint, leading portfolio of services and solutions and strong operational execution, we continue to punch above our weight to win new mandates and grow our business. We are confident they will continue to build on our momentum to achieve strong relative growth throughout 2023 and beyond.
Yeah.
We remain confident that the pipeline of projects. We are see will support strong multiyear growth for the energy services sector. We believe we are well positioned to capitalize on this multi year industry up cycle, driven by an extended period of Underinvestment in global upstream production.
We continue to win business through our strong presence in key international and offshore markets and the breadth of our portfolio of innovative solutions.
With strong and gaining momentum in longer cycle projects, we expect international demand to accelerate through 2023 in order to add production capacity and thereby meet expected increases in demand as 80% of express business is based in international markets and the 70% and offshore markets Expo is poised to capture signature.
Upside from these positive industry trends.
We are confident that as we.
Our shift towards higher margin activities commercialize recently deployed technology and investments and capture merger related synergies, we will drive above market topline growth margin expansion and strong cash flow generation through this multi year industry up cycle finally, our debt free balance sheet and available liquidity.
It provides us with the flexibility to pursue smart synergies focused M&A and the adoption of a shareholder friendly capital allocation framework on today's call I plan to touch on three main topics first I'll walk you through our fourth quarter performance.
I'll give you a brief update on our integration process and third I'll provide some perspective on trends we are seeing in the broader industry environment.
For the fourth quarter, we delivered revenue of $351 million and adjusted EBITDA of 70 million.
Excluding $5 million of commissioning costs on a subsea project, which I will come back to you in a moment adjusted EBITDA in Q4 was $75 million or 21% of revenue primarily driven by increased activity across the majority of our operating segments and a more favorable activity mix.
Fourth quarter revenue increased 5% sequentially and 19% relative to the fourth quarter of 2021.
Well construction revenue was up 6% sequentially and 23% quarter on quarter relative to the fourth quarter of 2021 supported by accelerating new well activity in key growth markets. The fourth quarter soft capture strategically important contract wins and develop new business due to our technical expertise and the breadth of our portfolio.
I will go into these wins in more detail later on so I'd like to briefly touch on a few that we're particularly proud of.
We have commenced work on a long term production solutions contract for liquefied natural gas or LNG pretreatment facility in the Congo is designed to allow incremental gas production for low carbon electricity generation in Europe .
I outlined on our Q3 results. This 10 year contract is expected to generate more than $300 million of revenue for each group.
Our expertise and ability to enable operators to quickly access reserves will play a critical role in supporting Africa is significant and growing LNG industry. We are excited that Eni Congo recognized our differentiated solutions and selected Expro for this turnkey contract to lease operate and maintain this facility we are.
Our successful track record of technical expertise and expedited delivery times, well allow us to continue to win business for similar projects, particularly in West Africa.
I'm also delighted to highlight our recent contract win that exemplifies expos, environmental commitment and our ability to partner and frontier field development and support of energy security.
Total energy awarded extra a new five year, well intervention contracts in Uganda, due to our innovative environmental solution for carbon reduction and our strong commitment to employing a local workforce Expo.
<unk> solution was designed and engineered based on many years of successful delivery of similar projects globally in locations, such as Algeria, Saudi Bozeman Big in Egypt. Our work on this project will commence in May of 2023.
Supporting the sustainability of our clients is core to our business and we are pleased that these efforts have again received external recognition MSCI what are the most important organizations evaluating companies ESG programs upgraded expro sustainability ratings by two full levels from a double b to a single a rating in 2020.
Two.
We have also achieved an upgrade to a b rating from CDP and not for profit charity that runs the global disclosure system for investors companies cities states and regions to manage their environmental impacts.
This is a reflection of the excellent cross company efforts to progress our carbon reduction capabilities into a bad our sustainability strategy into everything that we do both within our business and then the communities in which we operate.
We believe our industry is a necessary part of the solution to build towards a lower carbon future and as we advance our strategy. We will continue to focus on developing new technologies and solutions to manage our own emissions and assist our clients in reducing errors.
One such digital technology Expo is idling system has been named a finalist in emerging technologies category and the offshore achievements awards, which takes place in March in the U K.
Hi, Tom It's one of our suites Expro technologies is designed to support our collective carbon reduction ambitions.
The system advances automation on the rig floor. It is designed to enhance operations and reduced personnel, resulting in improved safety and efficiency, a smaller carbon footprint and lower operational costs.
We continue to develop partnerships and when work beyond oil and gas demonstrating that our well established technologies and depth of expertise are transferable and it can be utilized to maximum effect to support a sustainable energy solutions.
Our geothermal business continues to develop globally.
For example, our wall construction team have delivered conductor pre installation for three each year of thermal wells in the Caribbean. In addition, we continue to advance our strategy to grow our business and carbon capture usage and storage sector, including a recent contract for shouldn't pull tubing conveyed perforating work for multiple wells on a cc U S projects.
Wyoming.
Extra sustainability ethos promotes our objective to positively influence the communities in which we operate.
I'm pleased to highlight a community solar power project that we recently embarked on emulation ex broke in collaboration with the organization's sold 24 seven has a long term program to install solar panels for numerous homes in the array absolutely village. We are proud to support such a significant project, which sets the foundation for our <unk>.
Brighter future for that community.
We also continue to focus on expanding our portfolio of solutions that improve the efficiency of our customers' operations and helps them unlock new possibilities in their projects.
We're named champion integrated well services company and received the most innovative solutions award for our Okta potent and dose intervention services at the recent Oh, Wi Global Awards, which recognize the best and well intervention excellence.
In addition, our acquisition of the solar sense, well surveillance business in March of 2022 continues to deliver value extra clients through our distributed fiber optic sensing technology. When recently success involved a customer in Asia, who is experienced in gas lift performance issues affecting the entire field production express default servicing.
Selected to jointly evaluate the integrity and also to monitor the gas lift performance starting production in multiple wells the default evaluation and data allows the customer to maintain two full days of production when compared with the associated shut in times of other available surveillance technologies.
On a regional basis, we entered 2023 on solid footing in the fourth quarter, we captured approximately $650 million of new work globally.
In North and Latin America are well construction team continues to reinforce our position as the premium provider of tubular running services and products with contract wins and operational success across the globe and Brazil team won contracts valued at approximately $30 million of Trs offshore services for 48 month contract duration.
Well construction team continues to advance its technology service offering in the region Express one of the first companies to run and install a hands free anti rotational device in Brazil, which eliminates the need for personnel in the hazardous Red zone on the rig and reduces makeup time.
In the Gulf of Mexico, our well construction team achieved what we believe to be an industry first by installing the first casing string ever on each generation rig.
Also in the Gulf of Mexico, We secured additional well test work with a major international client based on past performance and superior service quality.
Moving onto Europe , and sub Saharan Africa, our team continues to win contracts due to their depth of customer relationships and our bespoke solutions and what we believe to be best in class service delivery extra.
<unk> technical capabilities to help secure our new subsea plug and abandonment contract for 'twenty, one well abandonment campaign in offshore U K and also on a semi submersible rig with an expected duration of 36 months.
In the Netherlands, we continue to demonstrate the full value of our combined offering with our well construction team winning a three year contract for tubular running services for an offshore client in Holland.
This work complements existing legacy extra contracts with this client in Holland for well testing wireline cased hole services.
Service quality helped us secure a new two year contract for provisions of operations and maintenance labor services on our customers' production facility in Nigeria.
EXPAREL has decades of experience with this customer and on this facility and we are pleased to build on this relationship.
All of these new mandates are on top of the exciting New contract award in Congo that I mentioned earlier in my remarks.
In the Middle East and North Africa, we are delighted to have secured a contract with a major international client for use of our innovative and award winning at Dakota Technology and North Africa.
The Octopodes annual intervention system makes it economically feasible to regain shut in and low production wells, allowing operators to directly access the wells annualized.
This three year contract includes provision of services to remediate sustained casing pressures across field and a significant gas development by pumping and replacing of fluids chemicals or resin either from surface or annualized intervention devices as appropriate we.
We see this as a tremendous endorsement of our capabilities and our ought to put it technology and we are proud to see it deployed in the region.
We also won a large integrated well test contract for regular sites in Saudi and our well construction team has secured contracts with two clients in the United Arab Emirates, and Oman for tubular running services in support of both onshore and offshore operations.
In the Asia Pacific region, we secured a well test contract for provision of well test nitrogen packages across 14 wells for a key client Malaysia, while our well construction team one work for the provision of Trs across 21 wells six shallow water development wells, a deepwater development wells and seven shallow water exploration.
Wells with an estimated contract duration of 36 months.
In India, we extended a drill stem testing tubing conveyed perforating contract for offshore operations or Expro has been the 10 months of 2016.
Finally, I'm happy to report that we have successfully completed the west test on our vessel deployed wire through water light well intervention or what we call <unk> solution.
Our <unk> system is now operationally ready and we are finalizing the work plan with the vessel owner and client importantly, we expect the project to commence and our <unk> system to be revenue generating during the first quarter.
Our differentiated subsea well access solution is designed to reduce the cost of subsea intervention by eliminating the need for a drilling rig. This is important given the increasing number and age of the global subsea well inventory.
As an order of magnitude, we expect our new L. Wi system to generate more than $50 million of annual revenue with additional pull through revenue opportunities.
Turning to a brief update on our integration efforts.
Franks business combination closed in the fourth quarter of 2021.
As we mark the one year anniversary I'm very pleased with the considerable progress that our team has made to come together as one global organization and to capture significant efficiencies across our business. Since closing we've achieved annualized cost savings of approximately $66 million. Our combined support cost have declined from 31% of <unk>.
Revenue in Q4 2020 prior to announcing a transaction just 20% in the fourth quarter of 2022.
As outlined previously we are targeting cost and revenue synergies between $80 million to $100 million within 24 to 36 months post merger.
I am confident that we will achieve the full $70 million of projected cost synergies during this time frame.
In the fourth quarter, we consolidated the additional facilities, including locations in Asia Pacific as well as in the Europe Sub Saharan Africa region with the migration to a single ERP in the third quarter of 2022 and planned technical upgrades to our it platform in the first half of 2023, we continue to streamline a number of key.
Processes across our organization, which will help us drive additional efficiencies.
As I have said before revenue synergies are more difficult to quantify we expect that our previous estimate of an incremental 10 million to $30 million EBITDA from revenue synergies through our expanded customer relationships and operating footprint increased time on rig and greater exposure to the full lifecycle of the field will likely prove to be very conservative.
Before I turn the call over to Glenn to provide some perspective on trends we are observing in the market.
The market outlook for 2023 remains positive as the post pandemic recovery continues operators are increasing production from existing assets and developing new fields in deepwater and offshore.
Activity favors our complex well construction services subsea well access services and elements of our wealth management business, which combined represent about 65% of our business currently driven by activity in South America Asia and sub Sahara Africa.
Activity related to gas and LNG production and associated asset development is also increasing particularly in north in sub Saharan Africa.
We are experiencing further demand for production related technologies in these areas traditionally a core strength of etch froze building upon recent high value contract awards.
In addition, there was a desire amongst operators to maximize return on their prior investments and to minimize their well productivity declined in order to stay in their existing assets.
This is leading to many of our customers expanding their upstream opex budgets investing in their brownfield enhancement programs. This is important for us as extra as well intervention and integrity services and elements of our wealth management product lines utilized in these operations collectively represent about 35% of our business.
Further operators are increasingly focused on environmental stewardship, and expanding their investment in low carbon energy and initiatives to reduce the carbon footprint of their operations. We are seeing more partners across our supply chain from operators and service companies commit to net zero emissions to support our collective journey towards a lower carbon future.
But heightened focus on sustainability is not a trend. This is a factor that we believe will become part of the fabric of our industry, we see our customers focus on their carbon footprint as a growing opportunity across our global business as we provide solutions for increased efficiency automation and emissions reduction as demonstrated by our recent projects.
Ongoing customer engagements. We also continued to bring our long established technologies skills and services sectors, such as geothermal while we are committed to building on our track record as well as broadening our operations in a carbon capture projects.
We're confident that our business model broad geographic footprint and leading portfolio of services and solutions will allow us to continue to capture considerable growth opportunities from these trends and deliver increasingly compelling returns for our shareholders.
Approximately 70% of our business mix is tied to drilling and completions activities and roughly 70% is tied to offshore markets. Both of our areas of customer spending that are in the early stages of a cyclical recovery.
Similarly, with roughly 80% of our revenue generated in international markets, we are well positioned to capitalize on the acceleration of activity in key growth markets and support our customers in the jurisdictions, where they need us most.
Last month, we also completed a secondary stock offering on behalf of Oak Hill advisors, our largest shareholder.
<unk> did not sell any shares and will not receive any proceeds from this offer we believe that this is an important step to increase float and trading liquidity in our shares and hopefully close the valuation discount relative to our largest U S peers with that in hand, I'll hand over to Clinton to discuss our financial results.
Thank you, Mike and good morning, good afternoon to everyone on the call. This.
As Mike noted I will cover the results for the quarter and year ended December 31 2022.
As I review, our fourth quarter performance.
Primarily highlight the sequential performance relative to the quarter ended September 32022.
I will also briefly review the year over year performance relative to the fourth quarter of 2021 on an as reported basis, which is consistent with the presentation of financial results in our press release and SEC filings.
Because the extra Frank's merger closed on October one 2021, the full year performance comparison for 2022 relative to 2021 will be on a combined company 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 in the investors section of our website.
Extra dot com.
To recap, we reported revenue of $351 million for December quarter, which was up sequentially $17 million or approximately 5% relative to the third quarter of 2022.
The sequential increase in revenue was primarily driven by increased activity in Europe and sub Saharan Africa are aesop.
In the Middle East and North Africa, or Mena regions.
Revenue was up $55 million or approximately 19% relative to the fourth quarter of 2021.
The increase in revenue was primarily driven by increased activity in north and Latin America or in L. A and Isa.
Looking at the full year on a combined company basis consolidated revenue was up $136 million or approximately 12% year over year.
The increase in revenue was primarily driven by higher well construction revenue and L. A.
Reflecting increased drilling and completions activity across the region.
And from higher wealth management revenue and Isa from increased activities, particularly within our sub Saharan Africa production solutions business.
Adjusted EBITDA for the fourth quarter of 2022, with approximately $70 million, representing a sequential increase of approximately $22 million or 46% relative to the third quarter of 2022.
Adjusted EBITDA margin for the fourth quarter was 20% it was up six percentage points compared to 14% in the third quarter.
Excluding the $5 million impact, but the commissioning costs and the previously referenced subsea project adjusted EBITDA would have been $75 million adjust.
Adjusted EBITDA margin would've been approximately 21%.
Reflecting a more favorable business mix.
Lower support costs as a result of merger related synergies, resulting in higher fall through on incremental revenue.
Making comparable adjustments to Q3 results third quarter, adjusted EBITA, adjusted EBITA margin would've been $65 million and 19% respectively.
Relative to the fourth quarter of 2021, adjusted EBITA was up $19 million or 38%.
In percentage terms adjusted EBITA margin was up three percentage points.
The increase in adjusted EBITDA was primarily driven by higher activity levels and more favorable activity mix and merger related synergy savings.
<unk> 5 million or impact of the commissioning costs. The subsea project in the fourth quarter 2022.
Adjusted EBITDA would've been up $24 million or 47%.
Again, excluding the impact of the commissioning cost referenced earlier.
The EBITDA margin would have been approximately 21% or up four percentage points year over year.
Adjusted EBITDA on a combined company basis for the full year was up $48 million or 31% year over year to $206 million, primarily due to a combination of more favorable business mix and lower support costs as a result of merger related synergies and.
In percentage terms pro forma adjusted EBITDA margin was up approximately two percentage points year over year to approximately 16%.
Excluding the $28 million impact of the commissioning costs on the subsea project in 2022, adjusted EBITDA would've been up $76 million or 48% year over year to $234 million in.
In percentage terms, excluding the impact of the commissioning costs referenced earlier adjusted EBITDA margin would have been up approximately four percentage points year over year to approximately 18%.
Fourth quarter contribution margin of 39% was up approximately six percentage points sequentially, primarily reflecting more favorable activity mix and the impact of lower commissioning costs associated with the previously referenced subsea projects in the current quarter.
Excluding such commissioning costs contribution margin would've been approximately 40%.
Quarter over quarter contribution margin relative to the fourth quarter of 2021 was flat.
Excluding the $5 million impact till the commissioning costs on the subsea project in the fourth quarter of 2022.
For the full year on a combined company basis contribution margin decreased one percentage point year over year to approximately 37%.
Excluding the $28 million impact of the commission costs on our subsea projects in 2020 to contribution margin was up one percentage point year over year to approximately 39%.
Adjusted net income for the fourth quarter of 2022 was 22 per diluted share compared to the adjusted net loss for the third quarter of 2022 or seven cents per diluted share.
Note that results for the fourth quarter of 2022 in the third quarter of 2022 included foreign exchange gains of <unk> <unk> per diluted share and a foreign exchange loss of seven cents per diluted share respectively.
Fourth quarter support costs of $71 million totaled 20% of group revenue, which as a percentage of revenue was flat relative to the third quarter of 2022 and was down $7 million or approximately 11 percentage points relative to the combined company support costs. That's proven Franks in Q4, 2020, which was the last full.
Quarter prior to the announcement of the merger.
Total liquidity at quarter end was approximately $348 million cash and cash equivalents, including restricted cash was approximately $218 million as of December 31st.
Total liquidity also includes $130 million that is available to accompany for dropdowns as loans under our revolving credit facility.
The approximate $93 million balance on the facility is available for bombs and guarantees approximately half of which is currently being utilized.
Expo had no interest bearing debt at quarter end and the company has no interest bearing debt as of today.
During the quarter ended December 31, 2022 cash provided by operating activities was $93 million as compared to cash used in operating activities of $1 million in the third quarter.
Primarily due to the beginning of a reversal in Q4 of the buildup in working capital that we experienced during the first three quarters of 2022.
Q4, adjusted operating cash flow, reflecting cash provided by operations people are cash paid for interest severance and other expenses and merger and integration expenses was $99 million.
Compared to $8 million in the third quarter.
Capital expenditures totaled $31 million in the fourth quarter compared to $19 million in the third quarter call.
The company is planning for capital expenditures in the range of approximately $120 million to $130 million for 2023.
Consistent with prior guidance expected 2023, Capex would represent approximately 8% of expected revenue.
And L. A revenue for the fourth quarter was $132 million, a sequential decrease of $3 million.
The decrease was primarily due to lower wealth management services revenue in Mexico and in the U S, partially offset by higher well construction services revenue in the Gulf of Mexico, driven by higher customer activities.
L. A segment EBITDA was $35 million was down sequentially by $5 million.
Segment, EBITA margin was approximately 27% compared to approximately 30% for the third quarter of 2020 to.
The decrease in segment EBITDA was attributable to lower activity and the reduction in segment EBITDA margin was attributable to a less favorable product mix. During the three months ended December 31 2022.
For the East segment revenue in the fourth quarter was $117 million, which was sequentially up $17 million or about 17%.
The sequential increase was driven by higher wealth management revenue in sub Saharan Africa, primarily reflecting revenue and margin recognized on the new long term production solutions contract with Eni Congo that Mike mentioned in his remarks and in the U K from increased customer activities.
East segment EBITDA for the fourth quarter was $30 million of approximately 26% of segment revenue.
Sequential increase of $12 million.
The increase was primarily attributable to higher activity levels and a more favorable activity mix during the December quarter for.
For the Mena segment revenue for the fourth quarter was $55 million, a sequential increase of $5 million or about 10%.
The sequential increase was driven by higher wealth management revenue in Saudi Arabia in Algeria.
Segment, EBITDA was $19 million of about 35% of segment revenue.
<unk> increase of $4 million.
Increase in segment EBITDA was primarily due to higher activity and a more favorable activity mix.
For Asia Pacific or APAC revenue for the fourth quarter was $47 million, which was a decrease of $3 million or about 6% sequentially.
The decrease in revenue was primarily due to lower subsea well access revenue in Australia and Malaysia.
APAC segment, EBITA was $4 million or about 8% of segment revenue compared to negative $9 million or a negative 17% of segment revenue in the prior quarter.
As previously noted the increase in segment EBITDA. Despite the decrease in revenue.
Primarily due to lower startup and commissioning costs incurred on a large subsea projects during the fourth quarter of 2022.
As compared to the prior quarter.
Excluding $5 million and $17 million, respectively of the above mentioned startup and commissioning costs during the fourth quarter and the third quarter of 2022.
Segment, EBITDA would've been about $9 million of about $8 million, respectively and segment EBITA margin would have been 18% and 16% respectively.
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 with Franks.
Through the fourth quarter of 2022, we have realized annualized merger related cost synergies of approximately $66 million, thereby achieving the company's target for total support cost as a percentage of revenue of 20%.
We are well on our way to achieving our goal of $70 million in cost savings within 24 to 36 months of clubs.
As to our 2023 and near term outlook.
Our strong performance in 2022, and a positive activity outlook.
We currently anticipate generating revenues of between $1 45 billion and $1 $55 billion in 2023.
Adjusted EBITDA in 2023 is expected to be to be between $275 million and $325 million and adjusted EBITDA margin is expected to be between 19 and 21% of revenue.
Consistent with historical patterns revenue and profitability in the first quarter of 2023 are expected to be negatively impacted by the winter season in the northern hemisphere, and the budget cycles for a national oil company customers with revenue flat to down modestly sequentially and adjusted EBITA margin in the mid teens.
For modeling purposes, we expect support costs and tax expense as a percentage of revenue to be plus or minus 20% and plus or minus 3% respectively.
Recently, we announced the acquisition of well construction cementing specialist company Delta Tech global.
The acquisition allows expo to broaden its offering capabilities and technology portfolio within the well construction cementing sector.
Delta Tech has an experienced leadership team focused on developing and deploying cementing technologies to the offshore market.
With operations across the U K, Norway.
Gulf of Mexico, West Africa, and Asia Pacific.
This is an exciting opportunity for Expro that provides for a range of low risk open water cementing solutions, increasing efficiency rig time and cost savings.
Similar to the solar since acquisition that was completed in early 2022, the acquisition of Delta Tech is accretive to expose offering of technology enabled value added solutions.
The scope for accelerated growth due to the breadth of our operating footprint and customer relationships.
The acquisition of solar Sampson Delta Tech each required a modest amount of cash at closing with additional consideration tied to future performance, thereby creating a win win situation for Expo and the sellers.
As I previously noted Xtra has total available liquidity at year end of nearly $350 million.
We are committed to preserving and protecting our currently strong financial profile and maintaining a disciplined approach to investments such that we will have sufficient financial flexibility to fund growth and to increase returns to shareholders.
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 in the fourth quarter of 2020 to recapture strategically important contract wins and continue to build on our strong momentum.
Our performance reflects both the legacy strength of Expro, and Frank's businesses and the significant value that we can bring to customers as a combined organization.
Additionally, as we have come together as a single organization, we have continued to drive efficiency and identify opportunities to work seamlessly across businesses and geographies.
As you heard from Quinn, our initial guidance for 2023 reflects a positive outlook for the year ahead with our midpoint expectation for circa 15% revenue growth, implying a plus or minus $1 $5 billion in revenue in 2023, and adjusted EBITDA margin of circa 20%.
When we announced the proposed combination of extra and Frank's in early 2021, I indicated that we believe the combined company had a quote unquote clear path to $1 5 billion revenue more than 20% adjusted EBITDA margin in excess of $150 million of free cash flow generation.
Anticipating international and offshore recovery is now gaining traction and our successful integration of the two companies has allowed us to capture the vast majority of identified cost synergies within one year of closing the transaction.
Our outlook and guidance assume a continuation of the constructive fundamental backdrop with Brent remaining at or above $75 per barrel and the global economy, avoiding a major pullback.
It is also worth noting that our positive outlook is based more on the increasing activity and improving business mix more so than net pricing gains, which we expect will begin to materialize beginning in the second half of 2023 for our services.
As markets continue to recover and customers ramped up activity, we are well positioned to support them in whatever region and at whatever stage of their projects they need.
Further our focus on sustainable solutions puts us front and center of customers' minds as they continue to look for opportunities to lower their carbon footprint and work more efficiently I'm very proud of what the expert team has been able to accomplish in the first year of our combined company.
Our 2023 outlook highlights that we believe we are well positioned to start delivering on the financial and other objectives that we outlined when we announced the proposed combination of Expo in Franks in 2020 one I'm.
I am confident that we will continue to drive profitable growth prudently invest in opportunities to enhance our portfolio and reinforce our role as well experts for our customers as we do so we expect to continue to deliver compelling value to extra shareholders.
With that we'll be more than happy to open up the call for questions.
Thank you we will now open the floor to questions. If you would like to ask a question. Please press star followed by one on the telephone keypad. If you would like to withdraw your please first off on the budget.
Please ask your question. Please ensure your device.
Luckily.
Last question comes from one from Piper Sandler Your line is open.
Hey, good morning.
Hmm.
Good result, there and nice guidance for 'twenty three Mike you touched on it a little bit with just.
Pricing coming more in second half 'twenty, three and you look back in your pro forma margins improve three years right now.
It's of course, clearly indicates will expand this year, but you look back kind of pro forma margins from 10 years ago. When I believe these were kind of high 20%, 30% range and if you just kind of look out further with offshore inflicting you know getting more pricing.
What do you think kind of ultimately the margin potential is for the company.
Yeah.
I appreciate you asking that I guess, two things I'd like.
To kind of reiterate number one yes, what we said was the first half of the year. We think we're not really getting net pricing gains because pretty much any pricing traction were getting is being offset by inflationary effects, whether it's supply chain costs or it's.
Employee costs and those kind of things.
And we think will work our way through that in the second half to start to really start to see more foreign debt pricing impact.
If you go back and you look historically at the two businesses kind of independently.
You know.
Upper upper 20% lower at 30% EBITDA percentages so.
So I think that's the that's the potential capacity of the business.
I think you also have to keep in mind, but just keep in mind that that was in the 2013 2014 range. We had very very high rig rates you had good rig rates that were pushing.
Pushing a million Bucks a day got spread rates were well over a million a day. So I think a lot of things have to line up for that.
One thing we've really been focused on is margin expansion through improved efficiencies and improved cost controls.
If you kind of go back and look at the two businesses separately and kind of the pro forma youll see that the legacy extra business.
Quint always use a phrase we manage the business to a revenue reality not a revenue aspiration and thats the kind of mentality. We continue to drive the business today. That's one of the reasons why we're so focused on making sure. We actually took the synergy costs out and we took them out as as efficiently as we can so yes.
This is a combined business that if we were to go back to the same market fundamentals that we had in.
In 2013, 2014, which I think is possible I think.
You know a ways down the road in a recovery, but it is a business that's going to be and certainly in the mid to upper 20% EBITDA ranges.
Within that within a fairly near term, what's been kind of a medium term.
Timeframe that makes sense okay.
Yeah, absolutely I appreciate that and then just a follow up of course gave you revenue guidance for this year.
Wanted to see if you could kind of talk about your four product lines that you have kind of reporting lines and the outlook for each of them. This year.
Yeah, I'll start off and then all of that.
That client add and I think one of the things that you know so about 70% of our business as drilling and completion related so 70% of our revenue.
So certainly the well construction business is going to continue to gain traction.
It's always a real positive when we hear is that.
The offshore driller start talking about rig rates.
If you remember back in September they were talking about rates they started with a four.
End of the year early January they were starting to talk about numbers, where the five and now you're even starting to hear some start with a six so we think that bodes well for just had active continued activity increase our drilling and completions activity, so well construction some of our subsea.
Landing string type business will benefit from that.
And then even though a portion of our wealth management is tied to drilling completions type activity.
So those are going to be kind of driven by some some dry completions recovery and then I think more fundamentally our intervention business, which is much more tied to customers of opex spend youre going to pursue incremental oil or to pursue production enhancement production optimization, we're going to continue to see some some decent.
Is there because our customers are very focused on making sure they maximize revenue generation and production from existing kind of brownfield assets.
And then the last element for us that kind of fits into wealth management is really around production solutions.
And we talked about in Q3, and we gave a little more commentary on here today.
The Eni project in Congo.
Very much production related.
Very much tied to the concerns about energy security in Europe , and really around the kind of strengthening fundamentals of LNG. So so long answer to say, we're sitting we're really seeing good growth in all four of our main business lines.
But for different drivers, but we're kind of saying that all kind of move to the kind of up into the right so to speak.
All four of our business lines different drivers for each but just continues to be very positive momentum, especially when your offshore and international.
80% of our activities International we're really starting to see different customer dialogue and <unk>.
Project sanctioning and project discussions those type things offshore international we continue to see really positive momentum there.
Lake, Michigan Clinton.
I think the well construction business had a very good run in 'twenty two relative to 'twenty one.
I think the.
We expect to remain at high.
Levels of activity, but maybe not the same year over year growth the top.
Top line should be a mix improvement in the well construction business with a larger percentage of it coming from.
Deepwater and ultra deepwater projects, where the revenue opportunity.
As a multiple of the onshore activity.
But if you think about the year playing out I would expect that well construction will continue to be strong.
We began the year end of the year.
What was the second half, you'll probably start to see better traction of subsidy completions business.
Tends to lag a couple of quarters.
We're getting a decent bump in terms of production solutions business because of the Congo project that Mike mentioned.
But.
We've got some sort of a smaller business lines I'm really excited about within well construction and elsewhere.
Mensing acquisition that we did with Delta attack is a very.
Interesting technology that is essentially a.
I'd had or to what we already do with well construction business, there's not significant incremental assets are required for some significant personnel additions are required for that so it should be margin accretive.
Business is relatively small today, and we think that we can grow with some pretty significantly.
Give you a sense of our our cementing businesses.
Probably at $80 million to $90 million business today, and we'd like to double that over the next couple of years and it's high margin relatively asset light in terms of its intensity.
So it should be a very high return on capital business.
Okay got it.
At the time.
Thanks, Luke we appreciate you listening in.
We now turn to Etsy Kim from Barclays. Your line is open.
Hi, Good morning, just following.
Following on that.
Net pricing gains.
Clear about the expectation to see net pricing gains really start to impact your P&L in the second half of the year could you just help us think about which product lines do you expect to see the greatest.
Traction.
On net pricing gains as well.
Construction and well testing or whatever.
Consolidated.
Or those two segments.
The greatest ability to put it.
Absolutely.
Thank you Sir.
We're focused on the right things Eddie.
<unk>.
Businesses, where we see net pricing gains.
Sooner rather than later tend to be those that are capacity constrained so let's see.
Deep water and ultra deepwater Trs business, which as you know.
Basically anchors the well construction product line family.
And then subsea completions are landing string business.
It was essentially a relatively concentrated market.
And Schlumberger are relatively large players in that and.
The tendering activity seems to be picking up in the bidding.
Bidding rates seem to be moving in the right direction.
That is something that lags.
The drilling activity, but if I was to pick.
Two businesses, where we're going to see.
Sooner rather than later pricing traction as can be and the capacity constraint classes of well construction and the subsea completions piece of subsea well axis.
Got it got it understood just shifting to M&A.
Okay.
You did an acquisition here in the first quarter.
Delta taxes Cementing company then.
It seems it's been really nicely with Youre welcome construction portfolio.
You know $350 million of liquidity today.
To the extent that.
You'll be doing more M&A going forward should we expect bolt on acquisitions around well construction or are there also interesting opportunities.
And the other parts of your business.
No.
One.
We were very active in looking at potential.
Opportunities for us and we look at it on.
What really drives.
So it's really around the industrial logic does the industrial logic makes sense and in this case. It was something you know for well construction, we think it can enhance our offering.
There's some mentation technology is going to bring significant very significant.
Operational efficiencies for our customers so.
So we look at it through that lens is that the industrial logic.
Not so much we don't focus on well it needs to be well construction needs to be subsea or it needs to be intervention now it's around the industrial logic. So we continue to look at those.
We have we we completed one transaction in 'twenty two we got this one done here in essence and in early 'twenty three.
And it's something that we spend a lot of time on looking at these to see how we can continue to enhance the portfolio.
I guess, the one thing I would add is as you know.
Yeah.
The organization hard during 'twenty two.
To capture the synergies that we had identified such that it can be external focus.
An improving market that we're experiencing now so.
So.
I want to say, we'd put a bow on the integration of excellent fracs, but we're largely completed with the integration.
Externally focused.
I would characterize us as aggressive window shoppers in terms of M&A today.
The two deals we've done have been relatively small, but interesting technologies out of significant cash commitment upfront but.
But if we could do something larger we'd like to do something larger and certainly the organization is ready to take on more.
I think it's a great point I guess, so I think the other thing I would add to that is yes. The industrial logic is.
What drives us.
Because we're not looking to get bigger or do react do acquisitions, just to do acquisitions, we're looking to be able to enhance the portfolio.
Whether it is.
Really really benefit from a strong drilling completions set of activities, we're going to have over the next several years or it's potentially too.
Drive us more towards some of the opex related activity that really becomes a kind of counter cyclical to a drilling recovery. Those are the kind of things. We look at we're mindful of those and.
And evaluate all of those on an individual basis, but we will continue to look at it.
Especially now that we have we've gotten the vast majority of the integration efforts done.
This allows us to feel comfortable that hey, we can integrate.
Small ones are much easier to integrate when you look at our big one like we've done here with the merger with with Franks.
By and large I would say that it's been very very successful from our internal.
[noise] standpoint, so that means that our our willingness to take on something bigger or to look at bigger things now we've got it's easier when you're doing something a second time versus the first time. So we would continue to be mindful about those and again really driven by the industrial logic.
Great I appreciate all that color.
I'll turn it back.
Thanks, guys I appreciate it.
Our next question comes from Samantha Hoh from Evercore ISI. Your line is open.
Hey, guys.
That's one of the great corner.
Thank you Matt.
Just maybe dig a little bit into the revenue guidance.
Could you maybe break out whereas.
In terms of which regions do you think it's going to lead them.
With revenue growth and margin expansion this year.
But where we're seeing increased activity across the pitch different product lines in different regions seem to drive it.
Okay, well construction business has got a very strong position in a light today.
So.
Early wins in terms of introducing the legacy Franks services portfolio to some of the legacy Expro.
Geographic areas of.
Import.
But I guess that L. A you know, particularly the Latin American market should continue to improve.
It has historically at least a.
Business is dominated by our well construction business.
The legacy <unk> business.
Subsidy on Africa, I think has probably got the greatest potential to surprise the upside in the back half of the year and into 2024.
We'll see good growth.
Uh huh.
Including sub Saharan Africa in our production solutions business.
Driven by this cargo project that's been discussed.
But he said.
She's got subsea activity as well you know more so in the back half of the year based on tendering in awarding activity recently.
Yeah.
Africa is probably the toughest one to put.
A final point on timing of projects that certainly seems to be a lot of tendering activity and I think we're getting our share and maybe then some in terms of awards.
But longer term can maybe.
Many of our peers comments regarding offshore Mena are probably of the markets that have the.
Yeah, you know best profile in terms of I don't know if it's three five or seven years of improved activity.
Certainly you know the comments of our public peers.
I agree with.
Those are markets that tend to.
And b battleships or enterprise.
Aircraft carriers like it turns slowly, but when they get going and new directionally. They tend to go strong.
Right Okay.
Okay.
I also wanted to talk a little bit more about Norway.
You know obviously.
Okay.
The market right now, but theres been record cents.
Projects.
I was just wondering if you know what what are your views in terms of like when you might.
Might start to pick up for some of those puzzles.
I'd like to mention that.
So there could be 190 wells.
Over the next several years and then I think we've seen some equipment such as site.
Theyre already you know when does that translate in here.
Both for you guys.
No. It's a great question, so typically up.
And the normal.
And the normal cadence of a cycle of a cyclical recovery we're about.
You know, we're about nine to 12 months kind of behind behind the drillers and.
Three guys when they start to see awards.
Yes.
But because we have such a close linkage now too.
Drilling completions and really around well construction around the Trs business line, we will see some more of that.
So so.
One of the beauties of kind of how we have and what we've created here with the merger of the two companies we've got some earlier cycle recovery.
But fundamentally I don't think we're really going to start to see a lot of that activity for its going to start with the drillers.
You can start to see that activity ramp up in the back half of 'twenty, three really kind of more into 'twenty four when do you start to see that from.
Full activity full drilling completions, and then as they start to move more into.
Actual production those type things. So I think it's more of a 'twenty four and beyond pharma phenomenon to answer your question more specifically Samantha.
Excellent puzzle.
I'm sorry.
Holden late right.
You were going to complete the program in the second half did that happen or like how are you thinking about the buyback program now.
No. So Samantha what we announced in what was approved by the board back in June of 2022 was we had authorization up to $50 million of of a buyback.
We completed and are in the quarter.
Circa 1% of total shares outstanding.
So now we have I don't know we have we have the ability to go out and continue to pick up some additional.
Some additional outstanding shares we did not make a commitment on timing or on those type things so very much TBD so to speak.
That does it for me thank you.
Great. Thanks, Samantha I appreciate you listening and the questions.
Thank you, ladies and gentlemen that concludes your conference.
We appreciate your participation you may now disconnect.
Yeah.
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Yeah.
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