Q2 2023 Expro Group Holdings N.V Earnings Call
Hello, everyone and thank you for standing by the extra second quarter 'twenty to 'twenty three earnings presentation will be beginning in just one minutes time, we thank you for your patience.
[music].
Yeah.
Hello, everyone and a warm welcome to the extra second quarter 2023 earnings presentation. My name is M&A and I'll be coordinating Yoko today.
The presentation that will be the opportunity for any questions, which you can ask by pressing star followed by the number one on just kind of thing keep hot.
I'll now turn the call over to our highest experts Chief Financial Officer Quinn Fanning. Please go ahead Quinn.
Welcome to <unk> second quarter 2023 conference call.
I'm joined today by extra CEO , Mike Jarden.
First Mike and I will share our prepared remarks.
Then we will open it up for questions.
We have an accompanying presentation on our second quarter results that is posted on the extra website X pro dot com under the investors section.
In addition in our supplemental financial information for the second quarter and prior periods is downloadable on the extra website likewise under the investors section.
I'd like to remind everyone that some of today's comments may refer to or contain forward looking statements such.
Such remarks are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
Such statements speak only as of today's date and the company assumes no responsibility to update forward looking statements as of any future date.
The company has included in its SEC filings cautionary language identifying important factors that could cause actual results to be materially different from those set forth in any forward looking statements.
More complete discussion of these risks is included in the company's SEC filings, which may be accessed on the SEC's website, SEC Gov or on our website again at <unk> 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 in our second quarter 2023 earnings release, which can also be found on our website.
With that I'd like to turn the call over to Mike.
Good morning, and good afternoon, everyone as Glenn noted, we posted slides with Kyushu highlights to the extra website.
I will refer to several of these slides during our prepared remarks today.
As highlighted in our press release, the second quarter of 2023 revenue was $397 million, which is up by $58 million or approximately 17% relative to the first quarter of 2023 and up 27% relative to the second quarter of 2022.
Sequential and year over year revenue growth compares favorably to the guidance provided on our last earnings conference call, which in summary was that we expect about 10% revenue growth quarter over quarter at about 20% revenue growth year over year.
As highlighted on slide four our second quarter results reflect a continued ramp up in activity across geographies areas of capabilities and product lines.
Well construction revenue was up 12% sequentially and 18% year over year.
Management revenue was up 20% sequentially and up 32% year over year.
Adjusted EBITDA for Q2, 2023 was approximately $72 million, representing a sequential increase of approximately $30 million or 71% relative to the first quarter, primarily reflecting higher revenue a more favorable activity mix and lower support costs adjusted.
Adjusted EBIT margin in the second quarter of 2023 was 18% as compared to 12% in the first quarter of 2023.
At 18% reported an adjusted EBITDA margin was at the high end of our guidance range.
Lynn will provide some additional details, but I'll note that underlying profitability is trending positively.
Reported contribution margin of 34% includes approximately $6 million of <unk> related non reimbursable nonproductive time, or what we call NPT, which negatively impacted Q2 contribution margin by approximately one five percentage points.
In addition, we are taking a relatively conservative approach to the recognition of margin associated with the onshore pre treatment facility that we are constructing for Eni in Congo, which also had a dilutive impact on overall contribution margin of approximately one five percentage points.
We are successfully working through discrete operating issues, whether lwr system.
Excess costs should be transitory in nature.
Congo project has gone well to date and we expect the facility to become operational sometime in the first half of 2024.
We started 2023 with a healthy order book and I'm pleased that we have continued to build on this momentum.
In the second quarter, we delivered a strong quarter, capturing an additional $300 million and new work orders by capitalizing on a strong resurgence of activity.
Contract wins reflect an improving market the depth of our technical expertise and <unk> best in class service delivery.
The breadth of our portfolio of differentiating EXPAREL for our competitors and I remain optimistic on the outlook for 2023.
For reference we have summarized the backlog trend over the last six quarters on appendix page eight on our accompanying presentation.
I will note that backlog for services company is not the same as the manufacturer at the time of realizing revenue and backlog is less certain nonetheless, we are pleased to see a stable backlog quarter over quarter at an all time high of plus $2 billion.
From our perspective, the macro backdrop remains very constructive with OPEC, plus where strength offsetting a weaker near term demand outlook.
<unk> and expected.
<unk> suggests that the offshore market from which we generate approximately 70% of our activity and revenue will attract investment capital that has not been seen in over a decade.
<unk> and long cycle development capacity expansion projects supporting a multiyear growth phase for energy services overall and for value, adding services providers such as EXPAREL in particular.
Express business, which in a nutshell is largely driven by international and offshore activity is built to ride the tailwind that we expect to persist for the next several years driven by favorable supply demand dynamics and a heightened emphasis on energy security and diversification of supply.
Our basic medium term business strategy is to maximize this growth cycle.
By rationalizing non customer facing functions and selected a consulting facilities, we have largely realized our previously announced cost synergy targets and reduced our support cost to approximately 20% of revenue. Our team is now focused on capturing new work and executing awarded business.
Improved asset utilization across our product lines, and increasing drilling and completions activity should result in a more favorable activity mix.
Continued cost and capital discipline should result in improved operating leverage margin expansion and better cash generation.
We are also pushing pricing to get more value for the services that we provide our customers and we believe that our results will reflect net pricing gains beginning in the second half of 2023.
I'll remind you that the midpoint of our most recent guidance was for full year 2023 revenue.
$1 5 billion and for full year 2023, adjusted EBITDA margins, plus or minus 20%, implying year over year adjusted EBITDA margin expansion of about 400 basis points. We believe that we will exit 2023 with quarterly run rate revenue of about $400 million or $1 6 billion annualized.
Adjusted EBITDA margins of plus 20%.
Our full year 2023 results are consistent with our current expectations, we will deliver on key financial targets that we established when we announced the <unk> merger in early 2021, despite a dynamic operating environment and startup challenges associated with deploying several new technologies.
A combination of incremental activity merger related revenue synergies. The investments we have made to date in new technologies and pricing tailwind should support mid teen top line growth through at least 2024.
Let me now move on to some regional commentary, which is covered on slide five north or Latin America, our well construction product line continues to demonstrate exceptional performance and operator in the Gulf of Mexico had to suspend a while due to a delivery delay of the completions III.
The wells lower completion was already in place therefore regulations require the operator to set and validated by pressure test two separate mechanical barriers prior to moving to another operation.
Express team provided to high tensile high pressure brute Packer systems for the suspension offering an extremely robust V. Three rated barrier system for ultimate dependability during the tough weather conditions.
Actual remaining in the well for five months whats. The completion. She was delivered both Packers were successfully retrieved and ultimately allowed the operator to finish the completion of the well. This is an important accomplishment for our Bruce well isolation system.
With regard to Europe , and sub Sahara Africa, We recently announced a new $20 million contract with Harbor energy for well abandonment campaign as part of the decommissioning project for the ball morale area in the U K Continental shelf.
Reinforcing our position as a key enabler within our plug and abandonment market. This multiyear contract will utilize X froze subsea well access technology with a combination of open water and in riser applications.
We continue to see customers look to secure subsea landing string capacity as the backlog of offshore deepwater and ultra deepwater projects continues to build in Ghana. We have also received a contract extension worth more than $50 million to provide subsea packages. We have held this contract since 2012.
<unk> and securing the extension is testament to the superior capabilities of our subsea landing strings and excellent service delivery team.
In the Middle East and North Africa at several Investor conferences, I discussed extra sustainable energy solutions, highlighting examples such as in Algeria, where we provide emissions management and flare reduction services and solutions to help our customers commercialized gas that was historically being flared.
We have further demonstrated our commitment to helping make energy safer cleaner and more efficient.
Utilizing cost effective innovative technologies, we support our customer in the Mena region to mitigate potential environmental damage extra.
<unk> production optimization solution improved operational efficiency and made a significantly positive commercial impact by decreasing the loss of oil all while minimizing the environmental impact to support our customers carbon reduction initiatives.
We have also deployed an electric powered slick line unit for a customer in Qatar as part of an initiative to move away from diesel powered units.
This is the first deployment of this unit type within X pro for the electric power pack replaces the diesel with no additional deck space required and ultimately supporting our customers on their journey to reducing their greenhouse gas emissions.
Another Great example of extra working together with our customers to develop and deploy the right solutions to help contribute to a lower carbon world.
Lastly, moving to the Asia Pacific region, our Indonesia team completed its first semi submersible exploration and appraisal project with a 100% performance score as part of a successful job extra delivered services across three wells for three at subsea direct hydraulic drill stem testing downhole sampling.
And well testing operations.
Turning to slide six which highlights several operational achievements in technology Awards I will.
Now I'll call attention to a few noteworthy achievements from the quarter to provide you with a further sense of express current business momentum.
First I'm pleased to share positive operational results from our subsea well access product line, which has completed a five well day suspension campaign offshore Australia for one of the Supermajors.
Extra has more than 35 years of experience, providing a wide range of fit for purpose subsea well access solutions and extensive portfolio of standard and bespoke subsea tester assemblies.
Our test tree assemblies, which are also known as landing strings in our subsea team have supported more than 3000 customer operations to date with a proven track record and a great team, we should be a primary beneficiary of the expected increase in deepwater drilling and completions activity over the next several years with the recent contract awards and the Europe .
Sub Sahara Africa, and Asia Pacific regions, highlighting momentum and our traditional subsea business.
Our recent investment in riser less well intervention and allowed us to significantly expand our subsea toolbox, providing the company with both rig and vessel deployed light well intervention capabilities and the ability to cost effectively support our customers' requirements throughout the life of their subsea wells from completion through production and production optimization.
All the way through to ultimate abandonment.
As I noted at the top of my remarks, I'll Wi related NPT negatively impacted quarterly results, but achieving operational status on our vessel deployed system late in the first quarter was an important milestone for our subsea team, we expect that the profitability of our subsea well access business will continue to improve in the second half of 2023.
And beyond as we put some of the teething issues.
First LW why it works go behind Us and focus on executing additional vessel deployed LW I work that's been secured.
Within our well construction product line as our cementing technologies, which we expanded with the acquisition of cementing specialist Delta Tech global in the first quarter.
We continue to generate significant market interest in innovative technologies that extra brings to the market.
And in June Delta Tech was presented with the internationally recognized 2023 Kings Award for Enterprise, receiving the innovation Award as.
As the most prestigious award for businesses in the U K. The King's Award celebrates the outstanding success and significant contribution of businesses across the country.
In addition to this award the Alphatec team has also been recognized for its technology offering at the U K Northern Star Awards.
Great achievements and reinforced the team's excellent track record of developing and deploying cementing technologies that helped increase our clients operational efficiency deliver rig time and cost savings and also help to improve the quality of cementing operations.
Additionally, within the well construction product line. Our team has achieved another record breaking operation in which we installed a 14 inch casing string will utilize <unk> proprietary digital technology Centrify.
During this operation our Centrify intelligent command and control solution enabled the rack back of 67 stands of drill pipe offline instead of record running speed all while minimizing personnel required for the operation and eliminating the need for personnel in the Red Zone. This was one of the fastest and most efficient 14 as jobs in the north.
And Latin America region to date.
Finally, I'll note that our new energy initiatives are ever increasing our geothermal business continues to develop globally and we have recently accepted a board position on the international Geothermal Association strengthening our commitment as an integrated service provider to the growing and increasingly important geothermal sector.
I'm also pleased to share that after construction test rig up and deployment of a geothermal specific well test evaluation spread for a customer in Germany. They successfully achieved first steam this demonstrates our enhanced offering and capabilities in the geothermal sector and our commitment to a more sustainable and lower carbon future.
We are working to advance new strategic partnerships and have recently become members of the solar cluster in carbon capture and storage Association. This is important as we advance our strategy to grow our business and the carbon capture use and storage sector further strengthening our sustainable energy solutions to manage the evolving <unk>.
History needs around carbon capture and more broadly to leverage our technologies and expertise to reduce emissions and unlock new sources of cleaner lower carbon energy.
Before I turn the call over to Quinn note that slide seven recaps, our Q3 and full year guidance, which we are again reaffirming.
In summary, the market outlook for 2023 remains positive with oil demand returning to pre pandemic levels. During the first quarter of 2023 and continuing growth demand throughout the remainder of the year and into 2024 as the U S and European economies stabilize and demand continues to recover in developing markets, including China.
Liquids balances have tightened since Q1 supporting high and generally stable oil prices with $70 per barrel of oil currently feeling more like a relatively stable floor. This.
This is consistent with the EIA average Brent forecast of roughly $79 per barrel for 2023 rising to $84 per barrel in 2024.
AIA is longer term outlook indicates that oil prices will remain at attractive levels for operators.
Similarly, we continue to see generally robust gas prices, which have somewhat stabilized from the volatile and unstable high seen at the beginning of the Russia, Ukraine War and.
In our view gas will remain a structural source of lower carbon electricity generation and a critical transition fuel on the path towards global net zero.
Upstream investments are expected to continue to grow and should soon exceed pre pandemic levels as countries are challenged with the energy trilemma to secure reliable affordable and sustainable energy and as operators seek to increase production balanced with continued capital investment discipline, particularly amongst the ioc's.
While some macroeconomic uncertainty remains particularly around the timing of a Chinese demand recovery. The outlook continues to be positive for the energy services sector, and we believe demand for our services and solutions will continue to grow throughout 2023 and into 2024.
International and offshore activity is continuing to increase, especially in Latin America and across our Europe Sub Saharan Africa, Middle East North Africa, and Asia Pacific regions as operators look to progress new developments, such as we've observed in Brazil, Guyana, Norway, Qatar and Egypt and increase in exploration in both mature.
Basins and frontier areas such as Namibia.
In general activity in sub Saharan Africa, which is historically a strong market for expro seem to be experiencing a bit of a renaissance.
Deepwater and ultra deepwater activities should favor, our well construction and subsea well access businesses and elements of our wealth management business as well.
Additionally, the number of offshore projects expected to be sanctioned continues to climb with approvals in 2023 forecast to exceed 2019 levels and a continuing pipeline of projects poised to be sanction between now and 2030.
We are also seeing an increase in exploration and appraisal activity, both unconventional oil and gas and for future carbon capture use and storage projects, which further indicates for increased future offshore activity again supporting the positive longer term activity outlook.
With high and relatively stable commodity prices operators are also looking to maximize production from the existing well stock all the while striving to reduce the amount of methane emissions for their overall fossil fuel operations. This.
This is driving further demand for our production related activities within our wealth management, and the well intervention and integrity product lines, especially across the Asia Pacific and Latin America regions.
In addition, as the number of mature assets, reaching the end of their economic life is increasing there is a growing requirement for cost effective plugging abandonment solutions underpinning the decommissioning market and increased activity, particularly in Europe .
With increasing operator upstream investments and the resultant activity extra in the broader energy services sector continued to experience increased utilization of people and assets and a tightening of supply supporting our ongoing initiatives to raise prices and extract more value for our services and solutions.
All combined the outlook for the sector at Expo is quite positive with that I'll hand, the call over to Glenn to discuss the financial results.
Thank you Mike.
For those that have a copy of our accompanying slides note that the appendix to the slide deck as a number of charts and tables covering consolidated results as well as results by reporting segment area of capability and product line.
As I noted at the beginning of the call downloadable financials, including historical combined results of extra and Frank's are also available on our website.
Now to recap second quarter revenue was $397 million, which was up by $58 million or approximately 17% relative to the first quarter of 2023.
Approximately $83 million or 27% relative to the second quarter of 2022.
Net income for the second quarter was $9 million or eight cents per diluted share compared to a net loss in the first quarter of $6 million or six cents per diluted share.
Year to date net income was $3 million or <unk> <unk> per diluted share compared to a net loss of $15 million or 14 cents per diluted share for the first six months of 2022.
Adjusted net income for the second quarter of 2023 was $19 million or <unk> 17 per diluted share compared to the first quarter adjusted net income of $1 million or <unk> <unk> per diluted share, primarily reflecting higher adjusted EBITDA.
Second quarter contribution margin, which again is essentially cash basis gross profit was 34% or flat relative to the first quarter of 2023.
As Mike noted lwr related NPT, and our Eni Congo project were collectively a drag on margins of about three percentage points.
Profitability on our <unk> related activities and Eni Congo project is expected to improve over the next couple of quarters and should contribute to an overall improvement in contribution margin in the second half of 2023.
For reference excluding excess lwr related costs in Q1, and Q2 contribution margin was down about one percentage point quarter over quarter to approximately 36% largely reflecting the dilutive impact on contribution margin of Eni Congo Opt's project.
Second quarter support costs of $68 million totaled 17% of group revenue.
Support costs were down approximately $8 million sequentially.
Year to date support costs are just below 20% of revenue and are down more than 10 percentage points compared to the combined overheads of extra <unk> pre merger.
Adjusted EBITDA for Q2, 2023 was approximately $72 million.
Representing a sequential increase of approximately $30 million or 71% relative to the first quarter, primarily reflecting higher revenue and a more favorable activity mix.
Adjusted EBITDA margin in Q2, 2023 was 18% as compared to 12% in Q1, 2023 and 16% in Q2 2022.
For reference excluding lwr related excess costs adjusted EBITDA margin was approximately 20% in Q2 are up approximately 400 basis points sequentially and up approximately 200 basis points year over year.
As highlighted on the first appendix page of our slide for Q2 2023 quarterly revenue was up approximately 65% and adjusted EBITDA is up approximately 275% since Q4 2020.
Which was the last full quarter prior to announcing the extra <unk> merger.
The following slide recaps adjusted operating cash flow for Q2, and prior periods, reflecting cash provided by operations before cash paid for interest.
In France, and other expenses and merger and integration expenses.
For the second quarter 2023, adjusted operating cash flow was $36 million or up 30% relative to Q1 2023.
The sequential trend in adjusted cash flow from operations, largely reflects higher revenue and higher adjusted EBITDA offset by an approximate $15 million build in that working capital and cash taxes, which were higher by about $10 million quarter over quarter.
Capital expenditures for the second quarter of 2023 totaled $29 million, which was flat compared to Q1 2023.
Capex for the full year 2023 should fall within a range of $120 million to $130 million, which is consistent with prior to 2023 capex guidance of 7% 8% of expected revenue.
Total liquidity at quarter end was approximately $311 million cash and cash equivalents, including restricted cash was $181 million as of June 30.
Total liquidity also includes $130 million that is available to the company for Dropdowns as loans under our revolving credit facility.
Approximately $93 million balances facility is available for bonds and guarantees approximately half of which is currently being utilized.
Note that Q2 cash provided by operating activities and cash at June 30 reflects the Companys 8 million payment to the Securities and Exchange Commission during the quarter in order to settle the legacy Franks F CPA related and internal investigation.
Finally extra has no interest bearing debt at quarter end and the company has no interest bearing debt today.
Our full year expectation for support cost as a percentage of revenue and cash taxes as a percentage of revenue is 19% to 20% and plus or minus 3% respectively.
The positive trend in support costs. This recap for you on slide seven.
As discussed on previous calls anticipated growth in annual incentives typically result in a seasonal build in working capital and each one with cash flow tending to improve in the second half of the year.
We expect activity and revenue will continue to trend higher and working capital as a percentage of revenue will moderate as 2023 progresses.
As a result, we continue to expect to be cash generative for the full year.
Our internal target for 2023 free cash flow margin or free cash flow as a percentage of revenue remains in the mid to high single digits.
As Mike noted, we maintain our prior full year 2023 guidance range for revenue of between $1 45 billion and $1 $55 billion.
For adjusted EBITDA of between $275 million and $325 million and for adjusted EBITDA margin of between 19% and 21% of revenue.
I will now turn the call back over to Mike for a few closing comments.
Thanks Glenn.
I'd like to leave all of you with three key takeaways before we open up the call to Q&A.
Extra continues to outpace market growth, delivering and expecting double digit revenue growth by capturing market share and by introducing new technologies in our established markets.
This is a result of us being able to leverage our global operating footprint excellent track record and World Class service quality.
Strong top line growth improved operating leverage and our driving more activity and revenue across a more efficient support structure allow us to expand EBITDA margins and improve free cash flow generation.
And finally, we are laser focused on delivering results one of the key traits of the organization is execution, we win business because of the quality of our execution not because we're the biggest service provider. Similarly, we were successful in achieving and exceeding our merger related synergies target because we've worked very hard to develop strong and detailed.
Land and then we set about implementing them.
With that I will transfer the call back to the operator for the Q&A session.
Thank you we will now begin the question and answer session.
Have a question. Please register this now by pressing star followed by the number one on your telephone keypad. If you change your mind I would like to be remains for mckean.
Phil I'd like Hey, I'm trying to ask a question. Please ensure that your device and you'll microphone on mute.
Our first question comes from the line of Eddie Kim with Barclays.
Please go ahead. Your line is now open.
Hi, good morning.
So a big dream.
Across the big three this quarter.
Ramp up of Middle East activity with all reporting pretty strong sequential growth in the second quarter. You also posted strong <unk> growth of 16% this quarter, specifically called out higher wealth management activity in Saudi.
As activity in Saudi and other parts of the middle East ramps up over the next several years.
Should we expect should we expect in wealth management to see the most growth going forward or or.
Well construction.
We expect this to kind of catch up how should we think about that.
The growth going forward in those two segments specifically.
Sure.
I appreciate the question I guess.
How I would frame it up is you know probably.
Well construction for US has really been historically its been underrepresented. So I think our ability to you know some of the first some of the first revenue synergies, we were able to identify and talk about we're really well construction contracts in places like Saudi and places like Algeria. So.
We've got good opportunities to continue to expand our footprint in well construction in the middle East.
So that that you could anticipate a more of an opportunity set and with well flow management. It's very much tied to what is the level of activity for the operators and in the middle East as well as North Africa. So so probably higher growth potential for us as we can start to convert more contracts in the well construction the difference with the middle East.
As you know you don't show up on Monday and win contracts on Tuesday, you have to have a presence there and that's where we've been able to pull through some of the relationship and some of the infrastructure. We have in place from wealth management. That's why we're starting to be able to win some new contracts in well construction.
Got it understood. Thank you.
And just my follow up is on pricing in the wealth management segment that quickly.
Could you just remind us of the duration of.
Your typical contract terms in local management or differences between NFC like aramco versus smaller customers and when should we start seeing net pricing gains in this product line.
That in the second half of this year or have you started seeing it on them.
Sure so really across all of our product lines for the most part they're typically three year type contracts.
So if you kind of look at it Simplistically, we're going to get a chance for about a third of our book to be able to reprice on an annual basis. That's part of the reason what we have highlighted is that.
The step up in a ramp up in activity. We've had here has been much more mix related we're not seeing that from a from a pricing standpoint, we will start to see some of that come into play in the back end of 2023 and really more as we go into 2024 as well in essence have been able to start to reprice.
Year two of some of those.
Three year contracts as they start to rollover.
Only thing I had mentioned for Yeti is within wealth management is our production solutions business.
Which is also where we're recognizing at least on a product line basis, the C&I Congo project.
That is part of the story as to why wealth management contribution margins have been in those 33, 34% area in the first half of the year, we would expect that to continue to improve as the year progresses and particularly in 'twenty. Four you know once we get past this delivery phase on the plan to move into more operations maintenance mode.
So I would say there is a bit of artificial drag on wealth management margins that was related to Eni Congo project, which you know couple of quarters out knock on wood that projects being delivered in and you'll start to see things more normalized in the high thirty's or better hopefully.
Okay got it great. Thanks. Thank you both for that color I'll turn it back.
Thanks, Eric.
Our next question comes from the line of Patrick <unk> with Goldman Sachs. Please.
Please go ahead.
Thank you. This is Alex on for Neil Mehta I wanted to ask you know following the strong stay high following the strong revenue you guys had this quarter or do you think it's possible we'll surpass your for your full year revenue guidance and then if not where are you expecting revenue maybe soften in the back half of the year.
But I wouldn't say, we're expecting revenue to soften in the back half of the year, we've had a pretty decent step up sequentially and we think will sustain those kind of.
Circa $400 million run rate per.
Per quarter at least in the third quarter.
Yeah.
It doesn't contemplate material pricing gains were hoping to see.
Some of the contract awards that we've already got in hand stone roll onto the new rates and that will certainly benefit top line and margin performance, but I don't think we're in a position now to revise guidance, but we're certainly comfortable with the $1 billion 15 billion and $5 50 area and as Mike mentioned, we expect to exit the year at least at 1 billion six run rate.
Okay. That's helpful. Thank you just a follow up on margins what are some of the variables you're seeing in terms of the low and high end of guidance and how should we think about the trajectory in the back half of the year.
Yeah. So you know.
The variability obviously is the timing of pricing showing up in the results.
<unk> you know as Mike mentioned, we've also.
And holding back on contingencies on those CNI Congo project until we get further along in the delivery schedule.
So there is certainly upside in terms of the Eni Congo project.
Not necessarily going to be a material change in consolidated results.
I would say those are key drivers.
We're operating under the assumption that we've put the better part of the teething issues on the El Wi initial work scope behind us and obviously the absence of a negative and LW why it will be a positive for consolidated results. So those are the primary drivers that make us comfortable that we will finish the year in the 20% to 22% EBITDA.
Range, which we included in our slide deck as you know.
Second half guidance.
And Alexia the only thing I would add is you know part of it too is as we've said the whole time, we anticipate getting some.
No more net pricing impact in the second half of 2023, that's part of what really helps very this is when does some of those contracts actually go operational when do they start.
Drilling wells are completing wells do you end up with one month that a quarter or do you end up with two months of the quarter. That's part of why we are.
There's there's some range in there.
Thank you I appreciate that I'll turn it over.
Great. Thanks, Alex.
Excellent.
Our next question comes from Steve Horizonte with Sidoti <unk> Company.
Steve. Please go ahead. Your line is now open.
Good afternoon, Mike Quinn.
So in terms of the strengthening.
<unk> EBIT margin guidance for the second half of this year, how does that and obviously, we're way way early on 'twenty, four but I'm guessing your assumption would be.
Your pricing conversations become more constructive as the year plays out, particularly if we start seeing.
The expectations play out on higher day rates for for offshore rigs how does that start making you think about 2024 its earlier point.
I guess I'd make two points first Steve is number one.
We already having constructive pricing conversations really what's.
Kind of the dynamic as the contract rollover timing.
A third of our revenue re prices per annum.
So we are getting higher pricing on new contract awards.
So really it's just a matter of.
The lagged until it shows up in financial results, we are pre budget for 2024.
Back to as we.
I have a third quarter earnings conference call at least be able to provide a.
A peek under the tent in terms of our expectations for 2024.
I'll just point out the pattern over the last couple of years post pandemic has been our exit EBITDA margins.
As you know essentially been around where we center our.
Next year budget.
We exited the 2022 with 20% EBITDA margins our guidance for the year was plus or minus 20% EBITDA margins and again, we expect to exit 23, and the 20% to 22% area.
And I suspect that will be the starting point for our 2020 for budgeting cycle.
Perfect. Thanks, a response.
In terms of.
What's that.
Does that answer your question.
Sure It does.
It does thanks, Thanks, Mike.
In terms of how youre thinking about cash flow.
As you take on more projects, what's the potential of Capex becomes a higher percentage of revenue.
Some of the new technology you have added.
Also just just update us on how you're thinking about uses of cash flow.
Yes.
Steve I guess, the first thing I would start off with is we have we've tried to lay out there for everybody that we believe we can run the business and a 7% to 8%.
Revenue Capex World that allows us to continue to invest in the business.
And even even throughout the pandemic and those type things.
Of course of the last number of years, we continue to invest in the business.
So we'll continue to kind of work at that and I don't want to call. It a capex diet, but I think it's just us maintaining.
Capital discipline.
And we focus on projects and we make sure. The good thing for US is we have a globally redeployed fleet.
So assets that we can use in Brazil.
Brazil.
For Petrobras, we can use those same assets. They can be moved for a project that's going to happen in.
In Malaysia, so that gives us some latitude and flexibility with that but we'll continue to operate within that kind of 7% to 8% Capex diet.
And then any updated thoughts on no buyback this quarter any updated thoughts on uses of cash, particularly as you noted second half tends to be the better cash flow half.
Yes.
That's correct and that was the comment we made on the last call and reiterated today I guess a couple of data points I just gave you.
Depending upon which cash flow definition to use probably worth highlighting LTM EBITDA.
$232 million.
After $33 million of startup and commissioning.
And.
Other lwr related costs, so kind of prior to these costs as Mike had mentioned, we believe to be transfer we were $2 50, plus an LTM EBITDA and Capex was $108 million for that same period of time. So we're kind of in the $150 million ZIP code in terms of EBITDA minus Capex was a castle proxy quite frankly are.
Challenge as the industry has been challenged over the last four.
Four to six quarters has been relatively large working capital build.
And that's really kind of the difference maker over the next couple of quarters as can we shrink the balance sheet even in.
An increasing activity environment and our expectation is that working capital as a percentage of revenue will start to moderate.
But the fact of matter is at this point in the cycle given some of the cash flow pressures on the customer base.
The balance sheet is a bit bloated.
That's what we need to see reverse.
But with cash in hand, I E. A reversal of working capital I would suspect that we would more seriously looking at buybacks, we were out of the market in the current quarter.
In part because of those kind of pattern of cash flow realization and we also have done a secondary in the.
First quarter, which obviously, we didn't want to work at cross purposes with that so it's one of the primary goals was to improve trading liquidity.
Yes.
Okay.
Okay.
Thanks, Mike Thanks Quinn.
Thank you.
So we take our next question as a reminder, if you have any questions. Today. Please press star followed by one on your telephone keypad now.
Our next question comes from.
<unk> with Piper Sandler.
Please go ahead.
Good morning, Mike Quinn.
When you look you talked about mid teens top line growth for at least.
Morning.
Talked about at least mid teens top line growth or at least 24, which is on the streets of 11, 5% growth.
For next year can you talk about what's underpinning this growth.
And since they're worse, so crush margins in the first half of 'twenty, three and Youre being conservative.
<unk> project, its a fair to assume incrementals could be above normal levels and 24.
Yes, really good question look I, what I can tell you is.
Having travel an awful lot.
Last several months spending time with customers I was I was all throughout Asia last week.
And as.
As I kind of go through in quite a bit earlier.
Very much pre budget phase, but in the conversations and discussions I've had with our customers. There just continues to be a strengthening level of activity.
They're really asking lots of questions around.
How are you guys positioned for people you know what's happening with your training programs, what's happening with with recruiting and hiring and those type things.
I just get a sense that.
As we kind of look at project by project region by region. We just continue to see some strengthening activity there.
And as we kind of translate that into pre budget numbers. That's why we've said we think it's probably a mid teens growth for next year.
Particularly as we're very tied in Levered to.
Well construction do wells.
Being drilled new wells being completed there's going be a strong level of activity with that.
Okay.
Then you talked about your conservative approach to the icon.
<unk> project, which I believe you said impacted margins by 150 bps in <unk>.
And if you become operational in the first half 'twenty four can you talk about this continues to go well how the contingency releases can impact margins.
And then it's just more of a second half 'twenty three 'twenty four.
I mean, as we get closer to the planned delivery.
So the need for contingency will diminish and we'll start to release it.
But really the intention all along was that we would recognize margin on essentially the first half of the contract value, which was about $150 million at a level that is consistent with large equipment sales with the remainder of the contract being kind of an O&M phase which is more service.
Deliberate in.
Obviously.
Things need to go according to plan, but we would expect that that O&M phase would be at substantially higher margins. So.
Really the point I was making is that so with POC accounting.
We have two.
Credit carefully if you will in terms of margin recognition until we're closer to delivery date.
But we're sub 20% margins on.
What we've recognized to date and it will start to look to release that as we get closer.
And most of that look it's going to be.
It's going to be a 2024 phenomenon.
Plant scheduled to be delivered in the first half of 'twenty four.
Okay perfect. Thanks, Mike Thanks, Glenn.
Thank you Sir.
Those are all the questions we have for today, so Tom going back to the management team for any closing comments.
That's great. We appreciate everybody's time and effort today and look forward to catching up again on our next quarterly call I believe we can go and disconnect. Thank you.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
Yeah.
[music].
Yeah.
Yes.
Okay.