Q1 2024 Expro Group Holdings NV Earnings Call
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But youre working good morning, ladies and gentlemen.
Jack Quita: Welcome to the X grow Q1, 'twenty 'twenty four earnings presentation. My name is Jack Quita I will be your moderator for today's call are life, what do you need a ton of presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your telephone keypad.
Jack Quita: I'd now like to pass the conference over to your host chat Stevenson Director Investor Relations.
Chat Stevenson: One moment please.
Speaker Change: Uh huh.
Jack Quita: Yeah.
Operator: Welcome to XPRO's first quarter 2024 conference call. I'm joined today by XPRO's CEO, Mike Jardon. The company includes cautionary language in its SEC filings, identifying important factors.
Jack Quita: Welcome to extra <unk> first quarter 2020 for coffee.
Chat Stevenson: Im joined today by X Pros CEO, Mike Jordan.
Quinn: <unk> CFO Quinn.
Quinn P. Fanning: Quinn Fanning.
Speaker Change: First I think wed have some prepared remarks, then we will open it up for questions.
Quinn P. Fanning: For a recap of consolidated results and quarterly results by region, I'll direct you to slides 3 through 7 of the presentation we posted to xpro.com. Turning to slide 3, I am pleased to report another strong quarter for Expro with Q1 2024 revenue of $383 million, exceeding guidance provided on our Q4 earnings call in February. Overall, the first quarter results were in line with our full year expectations for revenue of plus or minus $1.65 billion and for adjusted EBITDA of plus or minus $350 million. This seasonal dynamic is typically most prevalent in our Europe and Sub-Saharan Africa regions.
Speaker Change: We haven't an accompanying presentation on our first quarter results that is posted on <unk> website X pro dot com under the investors section.
Speaker Change: In addition, supplemental financial information for the first quarter results as downloadable on the extra website likewise under the investors section.
Speaker Change: Like to remind everyone that some of today's comments may refer to or contain forward looking statements.
Speaker Change: Such remarks are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
Speaker Change: Such statements speak only to today's date.
Speaker Change: And the company assumes no responsibility to update forward looking statements as of any future date.
Speaker Change: The company has included in its SEC filings cautionary language.
Quinn P. Fanning: NLA segment EBITDA margin of 26% was down from 30% in Q4 2023, reflecting lower activity and activity mix, but was up about 100 basis points relative to the first quarter of 2023. We have very good business momentum in the ESA region, with contract awards for upcoming campaigns in Angola and the Black Sea totaling more than $30 million. We're incredibly proud of the tireless efforts of the Congo project team to safely deliver this important project to our customer and the incremental lower carbon energy that the Congo LNG facility will produce. The regional team's deployment also featured our wireless cement heads, which increase safety and efficiency through remote operation.
Speaker Change: Important factors that could cause actual results to be materially different from those set forth in <unk>.
Speaker Change: Any forward looking statements.
Speaker Change: A more complete discussion of these risks is included in the company's SEC filings, which may be accessed on the SEC website SEC Gov.
Speaker Change: Or on our website again at <unk> Dot com.
Speaker Change: 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 first quarter 2024 earnings release, which can also be found on our website.
Speaker Change: With that I'd like to turn the call over to Mike.
Michael Jardon: Good morning, good afternoon, everyone I'd like to start off by reviewing the first quarter financial results presented in today's earnings press release, including providing an update on commercial activity and the <unk> acquisition.
Michael Jardon: Then discuss the macro environment, which we believe supports a favorable multiyear outlook for energy services companies that are leveraged to international and offshore markets and presents a compelling growth opportunity for extra.
Quinn P. Fanning: This contract marks the initial step in broadening the adoption of our hands-free cementing operations globally. Finally, in Asia-Pacific, fourth quarter revenue was $60 million, down 4% relative to the previous quarter, primarily reflecting lower activity in Malaysia, but up 24% year over year. This project furthers EXPRO's and our clients' efforts to reduce carbon emissions while advancing our sustainable energy solutions.
Michael Jardon: Following my remarks, Quinn will share our outlook for 2024.
Michael Jardon: For a recap of consolidated results and quarterly results by region I'll direct you to slides three through seven of the presentation, we posted to X pro Dot com.
Michael Jardon: Turning to slide three I'm pleased to report another strong quarter for <unk> with Q1 2020 for revenue of $383 million exceeding guidance provided on our Q4 earnings call in February.
Quinn P. Fanning: With a transaction value of less than five times our estimate for standalone 2024 EBITDA, the CORTRAX transaction should also be immediately accretive to shareholder value with synergies providing incremental upside, continued production discipline from OPEC plus, as was again highlighted by the recent extension of voluntary production cuts in February, we expect market conditions to remain favorable, supporting investment and activity levels at and above pre-COVID levels. Constructive oil market pricing is allowing operators to make long-term investment decisions, with FIDs at record levels in 2023 and a continuing robust pipeline of projects that are forecast to be sanctioned through 2024 and beyond. More specifically, we continue to see increased activity in our well construction and subsidy well access businesses, as well as in certain areas of our well flow management product line. International land activity growth continues.
Michael Jardon: Q1, 2024, adjusted EBITDA at $67 million is at the midpoint of guidance.
Michael Jardon: Overall, the first quarter results were in line with our full year expectations for revenue of plus or minus 165 billion in revenue and for adjusted EBITDA of plus or minus $350 million.
Michael Jardon: Revenues decreased sequentially by $23 million or 6% compared to the quarter ending December 2023.
Michael Jardon: This decrease is generally consistent with historic revenue trends as we usually experienced softer first quarter performance related to the winter season in the northern hemisphere, and the budget cycles of our National oil company customers.
Michael Jardon: This seasonal dynamic is typically most prevalent in our Europe and sub Saharan Africa region.
Michael Jardon: First quarter revenue increased by 13% year over year, reflecting activity growth across international and offshore markets of note Q1, 2024, adjusted EBITDA was up 61% compared to Q1, 2023, which included $11 million of <unk> related unrecoverable costs.
Michael Jardon: For North and Latin America revenue of $130 million was down $15 million quarter over quarter, primarily reflecting lower well construction revenue in the Gulf of Mexico, including tubular product sales due to project delays and in Guyana due to rig maintenance.
Quinn P. Fanning: Our customers also remain focused on maximizing their existing investments by driving cost-efficient, lower carbon-intensive incremental production. This is resulting in further demand for our production optimization-related activities within well flow management and well intervention integrity product lines, especially across the Asia-Pacific and Latin America regions. Finally, investment in lower carbon energy alternatives is also increasing across the board, with growing activity in the geothermal sector, especially within Europe and Asia-Pacific, and the carbon capture and storage sector, as operators work to reduce their upstream emissions to achieve their net zero goal.
Michael Jardon: Segment EBITDA margin at 26% was down from 30% in Q4, 2023, reflecting lower activity and activity mix, but it was up about 100 basis points relative to the first quarter of 2023.
Michael Jardon: In terms of MLA operational updates in the first quarter. Our team successfully deployed extra is rotating plugged launcher during cementing operations for one of the major operators in the U S.
Michael Jardon: The client is now in the process of standardizing these operations across its fleet of over 20 active drilling rigs.
Michael Jardon: A great example of our ability to provide cost effective innovative solutions to meet an important clients evolving needs.
Michael Jardon: For Europe, and sub Saharan Africa revenue of $122 million was down $12 million quarter over quarter and segment EBIT margin at 21% was down sequentially.
Quinn P. Fanning: We have ongoing efforts to optimize equipment utilization and increase operational efficiency, both of which will have positive impacts on overall profitability and free cash flow performance. However, year over year revenue was up by $44 million, or approximately 13% relative to the first quarter of 2023. The net loss for the first quarter of 2024 was $3 million, or two cents per diluted share.
Michael Jardon: Approximately 250 basis points relative to the first quarter of 2023.
Michael Jardon: In addition to the seasonal reduction in activity in Europe, and the resulting compressed a margin we recognized lower margin on our LNG expansion project for Eni in Congo, and also incurred higher costs in the first quarter related to subsea projects that will be starting in the second quarter of 2024, particularly in West Africa.
Michael Jardon: We have a very good business momentum in the eastern region with contract awards for upcoming campaigns, and Angola, and the black sea totaling more than $30 million. These.
Michael Jardon: These contract awards, which includes subsea Trs and cementing services and solutions are a testament to the region and product line teams delivering technology enabled fit for purpose solutions.
Quinn P. Fanning: Adjusted Net Income, which excludes merger and integration expense, severance and other expense, and stock-based compensation expense, for Q1 2024 was $10 million or 9 cents per diluted share as compared to $1 million or a penny per diluted share for Q1 2024. Adjusted EBITDA for the first quarter of 2024 was just over $67 million, as compared to Q1 guidance of $63 to $73 billion, representing a year over year increase of approximately $26 million or 61% relative to the first quarter of 2023. The adjusted EBITDA margin for the first quarter was 18%.
Michael Jardon: Highlighted on page five is our provision of Trs services in the first quarter for a pilot project for green hydrogen and chlorine production in France.
Michael Jardon: Similar to the way in which we have leveraged our experience in well construction well flow management and well intervention integrity to grow our geothermal business. This is another good example of how EXPAREL can deploy existing assets and leverage current capabilities to support the development of sustainable energy solutions.
Michael Jardon: Page eight of our slides also highlights that in the first quarter, our Eni Congo project team surpassed 1 million man hours without a lost time incident, which highlights our unwavering commitment to both safety as well as sustainable operations.
Michael Jardon: First production from this plant expansion is scheduled in the first half of 2020 for essentially all equipment has now arrived in country, making a crucial milestone in our journey towards operational readiness. We're incredibly proud of the tireless efforts of the Congo project team to safely deliver this important project to our customer and the <unk>.
Quinn P. Fanning: Pricing is trending positively, particularly in our deepwater well construction and subsea landing string businesses, but net pricing gains are not yet a material driver of reported results. Nonetheless, relative to 2023, we continue to expect 100 to 200 basis points of incremental adjusted EBITDA margin from net pricing for the full year 2024, as disclosed during the Q4 Earnings Conference. Regarding uncompleted customer work scopes, we are not currently able to assess the timing and potential cost of completing the projects for which the vessel-deployed LWI system was integral.
Michael Jardon: Incremental lower carbon energy at the Congo, LNG facility will produce.
Michael Jardon: The middle East and North Africa team delivered another excellent quarter with revenue at $71 million up 9% sequentially and up 40% year over year.
Michael Jardon: Largely driven by higher well flow management activity in Saudi and Algeria with good fall through on incremental revenue.
Michael Jardon: Segment EBITDA margin at 34% was up nearly two percentage points quarter over quarter and up about five percentage points year over year.
Michael Jardon: During the quarter, we secured and executed a major contract for cement accessories with an international operator in Egypt deepwater market.
Michael Jardon: Regional teams deployment also featured our wireless cement heads, which increases safety and efficiency through remote operation.
Michael Jardon: This contract marks the initial step in broadening the adoption of our hands free cementing operations globally.
Quinn P. Fanning: That said, we are continuing to pursue the insurance claim related to the abandoned subsea module, with any insurance recovery available to offset any additional out-of-pocket costs. However, based on available information, we do not expect additional unrecoverable LWI-related costs and that of insurance recoveries to be material to EXPROS financial results. We remain active in the rig deployed light well intervention space, and we are continuing to determine a path forward for our vessel deployed LWI business.
Michael Jardon: Finally in Asia Pacific first quarter revenue was $60 million down 4% relative to the previous quarter, primarily reflecting lower activity in Malaysia, but up 24% year over year.
Michael Jardon: Asia Pacific segment, EBITDA margin of 18% was up over 9% from the prior quarter, which reflects higher activity in the region and lower <unk> related costs.
Michael Jardon: During the first quarter and the Asia Pacific region extra announced a new carbon capture and storage contract with <unk> Corporation for Japan's first clean hydrogen production demonstration project.
Michael Jardon: The cash, but zaki clean hydrogen ammonia project is a key milestone in Japan's energy security journey.
Quinn P. Fanning: Support costs for Q1 2024 of $81 million total 21% of revenue. Support costs as a percentage of revenue were down approximately 130 basis points, and we expect that support costs for the full year 2024 will be at or below 20% of revenue. Moving to liquidity, Q1 adjusted cash flow from operations, cash paid for severance and other expenses, or cash Conversion or just a CFFO.
Michael Jardon: Designed to produce clean energy from domestically sourced gas this will be Japan's first project to build an integrated hydrogen and ammonia value chain from production to usage.
Michael Jardon: Extra work scope will include the delivery of tubular running services for multiple sections of casing liner and tubing over a 12 month period.
Michael Jardon: This project further ex pros and our clients' efforts to reduce carbon emissions, while advancing our sustainable energy solutions.
Michael Jardon: We have supported <unk> globally for over 10 years, gaining valuable experience in executing operations with excellent results and we continue to believe that we will be a key industry enabler to support our own as well as our clients net zero goals.
Quinn P. Fanning: Xpro had total available liquidity at the quarter ends of approximately $291 million in cash and cash equivalents, including restricted cash of approximately $164 million. Note that the closing of our pending acquisition of Quartrax will require $75 million of cash, which we expect to fund with an increase in our revolving credit. This will allow the company to maintain its currently strong liquidity. Turning to our Outlook, page nine of our accompanying slides summarizes our guidance for Q2 and for the full year 2024. Based on our strong performance in Q4 2023, continued momentum through Q1 2024, and a positive activity outlook, adjusted EBITDA margins are expected to be within a range of 20% and 22%, free cash flow margin, or free cashless percentage of revenue, is expected to be between 8% and 9%, and is Full year guidance for 2024 assumes cash taxes of between three and 4% of revenue and a cap excess percentage of revenue of between seven and 8%.
Michael Jardon: In terms of commercial activity I'm pleased we have continued to build on our strong momentum from last year, capturing roughly $230 million of new contracts.
Michael Jardon: Tract awards, including subsea contracts worth approximately $40 million in Africa, and Trs and well integrity contract extensions in the Gulf of Mexico, and Argentina, respectively, each of which was valued at more than $20 million.
Michael Jardon: At quarter end, our backlog was approximately $2 3 billion, which is consistent with the close of the fourth quarter and in line with expectations given historical seasonal patterns are contract awards at the beginning of the year.
Michael Jardon: As discussed on our Q4 call early in the first quarter <unk> entered into a definitive agreement to acquire a core tracks, a leading well integrity and production optimization company for a mix of cash and stock consideration totaling approximately $210 million.
Michael Jardon: As a reminder, the acquisition is expected to be accretive to adjusted EBITDA margin and free cash flow.
Michael Jardon: With a transaction value of less than five times, our estimate for Standalone 2020 for EBITDA. The courtyard transaction should also be immediately accretive to shareholder value with synergies providing incremental upside.
Michael Jardon: Our full year and Q2 guidance assumes that we close the transaction at the beginning of the third quarter. If we can close the transaction a month or two earlier than assumed theres a bit of core trax related upside to our guidance.
Michael Jardon: Our integration planning is well underway and we expect to hit the ground running on day, one post close.
Michael Jardon: We look forward to welcoming John Frazier and his team to <unk> as we expand the suite of technology enabled solutions, and our well construction and well intervention integrity businesses and increase our capabilities and geographies such as the Middle East North Africa, where we anticipate good multi year growth.
Quinn P. Fanning: Q2 2024 revenue is expected to be within a range of $400 and $420 million, implying year over year growth of about 5% and sequential growth of about 8%. For year-over-year comparisons, note that Q2 2023 revenue included approximately $13 million of vessel-deployed LWI revenue that will not be repeated in Q2 2024. In addition, revenue related to our LNG expansion project in Congo is expected to be 10 to $13 million lower in Q2 2024 than it was reported in Q2 2023, reflecting a shift in work scope from a fast track plant delivery phase to multi-year operations and maintenance Adjusted EBITDA is expected to be within a range of $80 and $90 million.
Michael Jardon: Regarding M&A more generally our team continues to evaluate acquisition opportunities that would allow us to advance our strategy and position <unk> to be more relevant to our clients and shareholders. We.
Michael Jardon: We take a disciplined approach to M&A and opportunities we pursue will meet our rigorous set of criteria that starts with the industrial logic.
Michael Jardon: A comprehensive review, whether it's company existing capabilities and are building out our presence in growth markets and a clear identification of cost and revenue synergies finally, concluding with a sensible financing plan that preserves our currently strong financial profile.
Michael Jardon: We continue to believe additional consolidation is good for the long term health of the energy services sector and that smart synergies focused M&A can be an effective means for extra to accelerate growth and create additional shareholder value.
Michael Jardon: Turning to our market outlook, we expect a very positive current growth trends to continue given the solid market fundamentals underpinning the energy services sector that we have seen over the past few quarters.
Quinn P. Fanning: Applying Q2 Adjusted EBITDA Margin within a range of 20% and 21%, Adjusted EBITDA margin is up 200 to 300 basis points year over year and sequentially, in both cases based on the midpoint of Q2 guidance. As a reminder, our 2024 guidance assumes that we will close the Cortrax transaction at the beginning of the third quarter. Based on that assumption, Cortrax is expected to contribute $70 to $80 million of revenue and an adjusted EBITDA margin that is accretive to stand-alone expo results.
Michael Jardon: Ongoing investment and activity levels support a favorable multi year outlook with oil demand forecasted to reach record levels of 103 million barrels per day in 2024 and over 104 million barrels per day in 2025.
Michael Jardon: These increases are driven by an expected recovery in Asian countries, improving economic data from the middle East and the United States as well as increased industrial requirements and global travel driving the consumption of jet in marine fuel.
Michael Jardon: We believe the pace of oil demand growth is stabilizing with continued production discipline from OPEC plus as it was again highlighted by the recent extension of voluntary production cuts in February we expect market conditions to remain favorable supporting investment and activity levels at and above pre COVID-19 levels.
Michael Jardon: The combined effect of supply discipline, and geopolitical turmoil, including the middle East and Ukraine, and conflicts is resulting in upward pressure on oil prices.
Quinn P. Fanning: As Mike noted, if we can close the transaction a month or two earlier, we expect a bit of upside to the current guidance. Looking beyond 2024, as Mike noted on our Q4 earnings conference call, with a constructive fundamental backdrop and strong business momentum, we see a clear path to $2 billion of revenue, mid-20s adjusted EBITDA margin, and a free cash flow margin of 10% in the medium term. Over time, we expect higher adjusted EBITDA margins from incremental drilling and completions activity and an expectation of above-market growth in our higher margin businesses, such as cementing technologies and performance drilling solutions, which together should provide a mixed benefit.
Michael Jardon: With the outlook for 2024 average Brent up from $82 per barrel to closer to $90 per barrel.
Michael Jardon: Assuming the voluntary production cuts are fully unwound. The current outlook for 2025 average Brent is roughly $87 per barrel.
Michael Jardon: Extended and stabilize pricing should support continued investments by our customers and the long cycle development and capacity expansion projects that underpin the international and offshore markets to which <unk> is most levered.
Michael Jardon: The gas markets continue to experience sustained high storage volumes with demand growth curtailed due to mild winter seasonal temperatures.
Michael Jardon: Longer term domestic demand and exports are forecasted to increase as gas remains a structural source of lower carbon electricity generation and a critical transition fuel and the path towards global net zero.
Quinn P. Fanning: Finally, net pricing, while less under our control, is obviously 100% fall through, and pricing seems to be trending positive, particularly in capacity-constrained asset classes such as deepwater TRS equipment and subsea testing. Improved free cash flow performance should come from maximizing utilization of existing assets.
Michael Jardon: Constructive oil market pricing is allowing operators to make long term investment decisions with <unk> at record levels of 2023, and a continuing robust pipeline of projects that are forecast to be sanctioned through 2024 and beyond.
Michael Jardon: The continued growth of the multiyear sanctioned project pipeline through 2030 is driving demand for our services and solutions more.
Michael Jardon: More specifically, we continue to see increased activity in our well construction and subsea well access businesses as well as in certain areas of our wealth management product line.
Michael Jardon: CapEx Discipline, and Growing Our Less Capital-Intensive Services and Solutions. With that, I'll turn the call back over to Mike for a few closing remarks. Thank you, Quinn. The first quarter of 2024 establishes a solid foundation for the year for Expro with strong financial performance relative to guidance.
Michael Jardon: We are confident that demand for our services will continue to increase throughout 2024 and beyond.
Michael Jardon: Upstream investment forecast for 2024 are further strengthening and are now at the highest levels we've seen since 2015.
Michael Jardon: We're seeing a significant growth of offshore and deepwater and shelf driven by Guyana, Azerbaijan, Brazil, The U S, Indonesia, Malaysia, and Norway and this also includes targeted exploration and appraisal activity in mature areas, especially in the Europe sub Sahara Africa, and South American regions.
Operator: During the quarter, we continued to build business momentum and strategically grow the business through the acquisition of Cortrex and numerous meaningful contract wins. I'd like to thank our teams around the world for their dedication to delivering value for our customers and our shareholders. We remain confident that the business is poised to benefit from the momentum in the international and offshore markets, as our customers focus on low-cost, carbon-advantaged, incremental production across essentially all international bases.
Michael Jardon: International land activity growth continues specifically in the middle East with the ongoing large gas and LNG developments in Saudi Kuwait, the Emirates and Qatar.
Michael Jardon: Our customers also remain focused on maximizing their existing investments by driving cost efficient lower carbon intensive incremental production.
Michael Jardon: This is resulting in further demand for our production optimization related activities within wealth management, and well intervention integrity product lines, especially across the Asia Pacific and Latin America regions.
Operator: We are confident we are taking the right steps to unlock the full value potential of XPRO, and we are pleased that strong market fundamentals are serving as a tailwind, helping to drive our company's continued profitable growth. As activity continues to ramp up, we are well positioned to support our customers across the full well life cycle, deliver on our strategic and financial objectives, and drive sustainable long-term value for shareholders. With that, we'll open up the call for questions.
Michael Jardon: Finally investment in lower carbon energy alternatives is also increasing across the industry with growing activity in the geothermal sector, especially within Europe, and Asia Pacific and our carbon capture and storage sector as operators work to reduce their upstream emissions to achieve their net zero goals.
Michael Jardon: As we have discussed previously the current energy services cycle is more about margin expansion and it is about capacity additions.
Michael Jardon: We have ongoing efforts to optimize equipment utilization and increase operational efficiency, both of which will have positive impacts on overall profitability and free cash flow performance.
Operator: Absolutely. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. If, for any reason, you would like to remove that question, please press star two. Again, to ask another question, press star one.
Michael Jardon: We also continue to have constructive conversations with customers about capturing more of the value we create through technology process efficiency say, well access and enhanced production.
Michael Jardon: All combined the outlook for <unk> and the broader sector continues to be robust and positive.
Michael Jardon: With that I will hand, the call over to Quinn to discuss financial results in greater detail as well as our outlook.
Operator: If you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from the line of Luke Mone with Piper Sandler.
Quinn: Thank you Mike good morning to everyone on the call.
Quinn: As Mike noted, we reported revenue of $383 million for the March quarter as compared to the guidance of $365 million to $375 million that was provided in our Q4 conference call.
Quinn: As anticipated revenue was down sequentially by $23 million or <unk>.
Luke Michael Lemoine: Your line is now open. Hey, good morning, Mike Quinn. Just want to talk about Outlook a bit more. I want to start with Outlook and maybe the guidance as well. If I just kind of take the midpoint of the 2Q guide and use that for 3Q and 4Q, you basically get the low end of the guide for the year, and that assumes no further growth past 2Q, which wouldn't include core tracks either. But if you include contracts in the second half, it starts to look like the midpoints are very reasonable. Can you just talk about your confidence in this?
Quinn: Proximately, 6% relative to the fourth quarter of 2023.
Quinn: Largely reflecting seasonality.
Michael Jardon: However year over year revenue was up by $44 million or approximately 13% relative to the first quarter of 2023.
Michael Jardon: The net loss for the first quarter of 2024 was $3 million or <unk> <unk> per diluted share.
Michael Jardon: Compared to a net loss of $6 million or 6% per diluted share in the first quarter of 2023.
Michael Jardon: Adjusted net income, which excludes merger and integration expense severance and other expense and stock based compensation expense for Q1, 2024 was $10 million or <unk> <unk> per diluted share as compared to $1 million or a penny per diluted share for Q1 2023.
Michael Jardon: Adjusted EBITDA for the first quarter of 2024 was just over $67 million as compared to Q1 guidance of $63 million to $73 million.
Quinn P. Fanning: And then also, what are some of the puts and takes to get to the high end of the annual guidance this year? And I'll start; Mike can probably add some supplemental comments. I think the first thing I would highlight is if you look at Q2 2023, we had a number of relatively chunky revenue contributions that will not be repeated in Q2 2024. So, you know, that's obviously LWI, where I think we had about $13 million of revenue in Q2 2023. In addition, as we phase the Congo OPT project, from the plant delivery to the O&M phase, we're losing another plus $10 million in revenue.
Michael Jardon: <unk> a year over year increase of approximately $26 million or 61% relative to the first quarter of 2023.
Michael Jardon: Adjusted EBITA margin for the first quarter was 18%.
Michael Jardon: Roughly 600 basis points year over year.
Quinn P. Fanning: The year over year increase in adjusted EBITDA and adjusted EBITDA margin, primarily reflects good fall through on incremental revenue due to activity mix operating leverage and a non repeat of unrecoverable lwr related costs in Q1 2023.
Michael Jardon: Pricing is trending positively, particularly in our deepwater well construction and subsea landing string driven businesses, but net pricing gains are not yet a material driver to reported results.
Michael Jardon: Nonetheless relative to 2023, we continue to expect 100 to 200 basis points of incremental adjusted EBITA margin from net pricing for the full year 2024.
Quinn P. Fanning: So at the midpoint of guidance of $410 million in revenue, and if you look at adjusted Q2 2023, you know, that's plus 10% year over year growth. So what kind of brings you to the low or high end of guidance is really two things. In my mind, notably when the Congo project starts the production phase, so the delivery of the plant, then we've got a couple of relatively significant subsea projects on the African coast that are kicking off in the second quarter of 23. So that's number one.
Michael Jardon: Regarding our <unk> business as disclosed during the Q4 earnings conference call, we determined not to participate in the recovery of the subsea module from the seabed floor, which was completed in the March quarter.
Michael Jardon: Regarding uncompleted customer work scopes, we are not currently able to assess the timing and potential cost of completing the projects, which the vessel deployed lwr system was integral.
Michael Jardon: That said, we are continuing to pursue an insurance claim related to the abandoned subsea module with any insurance recovery available to offset any additional out of pocket costs.
Michael Jardon: Based on available information, we do not expect additional unrecoverable lwr related costs net of insurance recoveries to be material to <unk> financial results.
Quinn P. Fanning: We remain active in the rig deployed light well intervention space, we are continuing to determine a path forward for our vessel deployed <unk> business and what alternative service delivery service partner options are available to the company.
Quinn P. Fanning: And then Cortrax, if we can close it a month or two earlier, as Mike and I mentioned, we think that is a possibility. We're really just waiting for one antitrust clearance at this point. But if we do get Cortrax closed, it's probably another $10 million a month in incremental revenue and another plus $3 million worth of EBITDA. So I think those would be the kind of key drivers.
Michael Jardon: Support costs for Q1, 2024 of $81 million totaled 21% of revenue.
Michael Jardon: Which was up approximately 7% year over year compared to Q1 2023 support cost as a percentage of revenue were down approximately 130 basis points and we expect to support costs for the full year 2024 will be at or below 20% of revenue.
Michael Jardon: You know, as is always the case, projects can slip to the right or get pulled forward, but, you know, the range that we provided, excluding an early close of core track, is the best available information we have. Yeah, Luke, I guess one thing I would add is the way our subsea projects, in particular, timing wise, look like those are going to get kicked off, it's really, it's at the back end of Q2. So, you know, whether it moves to the left by a couple of days or to the right by a couple of days is going to make a difference in the quarter.
Quinn P. Fanning: Moving to liquidity Q1, adjusted cash flow from operations, which excludes cash paid for interest net cash.
Michael Jardon: Cash paid for severance and other expense and cash paid for merger and integration expense was $38 million compared to $27 million in Q1 2023.
Michael Jardon: Cash conversion or adjusted <unk> as a percentage of adjusted EBITDA for Q1, 2024 was 57% as.
Michael Jardon: As compared to 65% in Q1 2023.
Michael Jardon: Q1, 2024, adjusted EBITDA less capital expenditures and free cash flow or adjusted CFO less core capex was approximately $37 million and approximately $11 million respectively.
Michael Jardon: <unk> had total available liquidity at quarter end of approximately $291 million with cash and cash equivalents, including restricted cash of approximately $164 million.
Quinn P. Fanning: But I think fundamentally, just the activity set, the customer engagements, the customer dynamics, I think, continue to be really strong and, you know, Q4 is always, we've got better visibility, and we've got better confidence in Q2 and a little bit less in Q3, a little bit less in Q4. But I can tell you from, you know, traveling and spending time with customers and those type things, I just think we're going to continue to have, you know, strong activity sets in the back half of the year.
Quinn P. Fanning: Additionally, at March 31, we had $127 million available under our revolving credit facility.
Michael Jardon: Note that the closing of our pending acquisition of <unk> will require $75 million of cash, which we expect to fund with an increase in our revolving credit facility.
Quinn P. Fanning: This will allow the company to maintain its currently strong liquidity position.
Michael Jardon: Turning to our outlook page nine of our accompanying slides summarizes our guidance for Q2 and for the full year 2024.
Quinn P. Fanning: Based on our strong performance in Q4, 2023 continued momentum through Q1, 2024, and a positive activity outlook. We are reaffirming full year 2024 guidance with anticipated revenues between one six and $1 7 billion.
Quinn P. Fanning: That, you know, should continue to give us confidence in being able to, you know, deliver on, you know, that guidance range. Okay, and then you talked about net pricing gains, not a material driver yet, but you're starting to see that in subsea test trees, deepwater TRS.
Michael Jardon: And adjusted EBITDA between 325 and $375 million.
Michael Jardon: Adjusted EBITDA margin is expected to be within a range of 20% and 22%.
Michael Jardon: Free cash flow margin or free cash flow as a percentage of revenue is it.
Quinn P. Fanning: Expected to be between 8% and 9% and is expected to be weighted to age to 2024.
Michael Jardon: Um, you know, what could be next outside of subsea test trees and deepwater? You know, I think we'll have some opportunities, you know, just as you see more of the expiration appraisal activity start to, you know, start to firm up some of the more drilling and completions-related well test activity, whether it's, you know, flowbacks, cleanups, those type things, I think we could get some pricing on. You know, 70% of our activity is more tied to drilling and completions. So all of that, you know, we'll have pricing opportunities. It's just kind of the timing of those things.
Quinn P. Fanning: Full year guidance for 2024 assumes cash taxes of between three and 4% of revenue in Capex as a percentage of revenue of between 7% to 8%.
Michael Jardon: Q2, 2024 revenue is expected to be within a range of 400 $420 million, implying year over year growth of about 5% and sequential growth of about 8%.
Michael Jardon: For year over year comparisons note that Q2 2023 revenue included approximately $13 million of vessels deployed <unk> revenue that will not be repeated in Q2 2024.
Michael Jardon: In addition revenue related to our LNG expansion project in Congo is expected to be $10 million to $13 million lower than Q2, 2024, and it was reported in Q2 2023.
Michael Jardon: Reflecting a shift in work scope from a fast track plant delivery phase to a multi year operations and maintenance phase.
Luke Michael Lemoine: Some are going to be more, you know, later in, you know, kind of the recovery cycle. We're always going to have that roughly a third of our activity is more OPEX-related. And those, you know, we're not going to get. We're going to continue to try to make sure we get, you know, inflationary cost adjustments and those kind of things, but very minimal net pricing increases. Okay, thanks a lot.
Luke Michael Lemoine: Adjusted EBITDA is expected to be within a range of $80 million to $90 million.
Michael Jardon: Implying Q2, adjusted EBITDA margin within a range of 20% and 21% or up two to 300 basis points year over year and sequentially in both cases based on the midpoint of Q2 guidance.
Luke Michael Lemoine: As a reminder, our 2024 guidance assumes that we will close the <unk> transaction at the beginning of the third quarter.
Luke Michael Lemoine: Based on that assumption core tracks is expected to contribute $70 million to $80 million of revenue and an adjusted EBITDA margin that is accretive to standalone extra results.
Atidrip Modak: Great. Thanks, Mike. Thank you. The next question comes from the line of Atidrip Modak with Goldman Sachs. Your line is now open.
Atidrip Modak: As Mike noted if we can close the transaction a month or two earlier, we expect a bit of upside to the current guidance.
Michael Jardon: Hey, good morning, guys. Just curious about your capital allocation strategy here. So you've previously noted one third of free cash flow for returns and have historically leaned into buybacks. So how should we think about your latest thought process around the potential for a dividend in that mix? Is there a free cash flow margin target where that becomes more of a discussion? Yeah, I think it's an ongoing discussion that we have with our board of directors. You know, we're really fortunate.
Atidrip Modak: Looking beyond 2024, as Mike noted on our Q4 earnings conference call with a constructive fundamental backdrop and strong business momentum, we see a clear path to $2 billion of revenue mid Twenty's, adjusted EBITDA margin and a free cash flow margin of 10% in the medium term.
Michael Jardon: Overtime, we expect higher adjusted EBITDA margin from incremental drilling and completions activity and an expectation for above market growth in our higher margin businesses, such as cementing technologies and performance drilling solutions, which together should provide a mixed benefit.
Michael Jardon: Similarly merger related synergies have allowed us to improve operating leverage.
Michael Jardon: We have some really strong, you know, financially astute board directors. So we have really good dialogue and discussion about those things. I think for any company, what's tremendously important is the longevity of a dividend.
Michael Jardon: Finally, net pricing while less under our control is obviously, 100% fall through and pricing seems to be trending positively, particularly in capacity constrained asset classes, such as deepwater Trs equipment and subsea test trees.
Michael Jardon: And once you commit to it, and something you've got to have that kind of staying power, so to speak, you know, we're still going to stick within that kind of, you know, third of our free cash flow. And, you know, at this point in time, I think we're probably going to continue, at least in the short term, to be more predisposed to buybacks as opposed to dividends.
Michael Jardon: Improved free cash flow performance should come from maximizing utilization of existing assets capex discipline and growing our less capital intensive services and solutions.
Michael Jardon: With that I will turn the call back over to Mike for a few closing comments.
Speaker Change: Thank you Glenn the first quarter of 2024 establishes a solid foundation for the year for <unk> with strong financial performance relative to guidance.
Michael Jardon: During the quarter, we continued to build business momentum and strategically grow the business through acquisition of core tracts and numerous meaningful contract wins.
Michael Jardon: But we're, we're getting to that threshold, you know, we're going to be more second half cash generative, just with the nature of our activity. But you know, we're going to get to that threshold, kind of run rate, so to speak, back into this year going to next year where I think, you know, more solid discussions around dividends will start to be had. That's awesome.
Michael Jardon: Team has continued to execute the business strategy to deliver on our financial goals, while maintaining our reputation of excellence and execution through cost effective technology enabled services to our customers within our safety focus culture.
Michael Jardon: To thank our teams around the world for their dedication to delivering value for our customers and our shareholders.
Michael Jardon: The macro backdrop is constructive demand for energy, including oil gas NGL thermal is growing and internationally. There is a heightened focus on energy security and diversification of supply.
Atidrip Modak: Thank you for that. And then beyond the CapEx plans that you've announced, how should we think about the M&A component as a use of cash for the remainder of the year versus leaning into buyback? Seems like there's some industry-wide acceleration and consolidation. So curious how you see it for Expo this year. It's tough to predict.
Atidrip Modak: We remain confident that the business is poised to benefit from the momentum in the international and offshore markets as our customers focus on low cost carbon advantaged incremental production across essentially all international basins. We.
Atidrip Modak: We have a strong presence in key markets and are positioned to provide mission critical services and solutions to our customers.
Quinn P. Fanning: M&A obviously takes two to tango. We continue to look at lots of different opportunities. I think we've now gotten to either cross the finish line or close to the finish line with PRT and Cortrax.
Quinn P. Fanning: As I stated previously at Expro, we're achieving better financial results across our business and over the medium term, we expect to deliver on our targets, which include annual revenue of $2 billion and adjusted EBITDA margin of 25% we.
Michael Jardon: I'll just note that, you know, in both cases, we were in dialogue with those counterparties for, you know, well over a year in one case and for a couple years in another. We looked at 30 plus opportunities over the previous 12 or 14 months and got to the finish line. So, very tough to predict M&A; we're interested in M&A, we think we're good at integration, and, as Mike highlighted, it all starts with industrial logic and where we actually believe we can add value.
Michael Jardon: We are confident we are taking the right steps to unlock the full value potential of Expro and were pleased that strong market fundamentals are serving as a tailwind helping to drive our company's continued profitable growth.
Michael Jardon: As activity continues to ramp up we are well positioned to support our customers across the full well lifecycle deliver on our strategic and financial objectives and drive sustainable long term value for shareholders.
Speaker Change: With that we'll open up the call for questions.
Speaker Change: Absolutely we will now begin the question and answer session if you'd like to ask a question. Please press star one on your telephone keypad. If for any reason you would like to remove that question. Please press star two again to ask a question press Star one if you are using a speaker.
Michael Jardon: So M&A for us is not just big for its own sake, but it's big because we think it allows us to deliver something that is more differentiated to customers and become more relevant to investors. I think we can do both.
Michael Jardon: Please remember to pick up your handset before asking your question, we will pause briefly ask questions already.
Michael Jardon: Our first question comes from the line of Luke <unk> with Piper Sandler Your line is now open.
Quinn P. Fanning: You know, we, you know, today sit on a negative net debt position, you know, so the balance sheet is strong, and our cash flow outlook is strong. So I think we can continue to allocate a third of free cash flow to a return on capital plan, with plenty of free cash to embellish capacities to pursue M&A if it makes. Yeah, I guess the only thing I would add is, you know, as Quinn highlighted, this is all going to be driven by industrial logic. But fundamentally, we're also going to make sure we're not going to become a rolled up story.
Speaker Change: Hey, good morning, Mike Quinn.
Speaker Change: Just wanted to talk about the outlook a bit more hey, good morning, I want to start with your outlook and maybe the guidance as well.
Quinn P. Fanning: So I'm just kind of take the midpoint of the Q2 guide and use that for <unk> you guys can use the low end of the guidance of the year.
Quinn P. Fanning: And that assumes no further <unk> would include core tracks either.
Quinn P. Fanning: But if you include core trucks in the second half.
Quinn P. Fanning: Like the midpoint superior reasonable.
Quinn P. Fanning: Can you just talk about your confidence around this and then also what are some of the puts and takes to get to the high end of the annual guidance this year.
Quinn P. Fanning: Yes.
Quinn P. Fanning: Start Mike can probably.
Speaker Change: Had some supplemental comments I think the first thing I would highlight is if you look at Q2 2023, we had a number of <unk>.
Michael Jardon: You know, we're not going to try to go out and do 200 plus M&A transactions in a short period of time because we're actually going to integrate them, we're going to drive efficiencies, we're going to make sure we eliminate the silos and bring those things together. So we're going to be purposeful about the ones that come into the portfolio. We want to make sure we add value to our customers and, ultimately, to our shareholders.
Michael Jardon: Hopefully chunky revenue contributions will not be repeated in Q2 24.
Michael Jardon: That's obviously L Wi.
Michael Jardon: I think we had about $13 million of revenue in Q2 2023 and in addition, as we phase the Congo Opt's project from the plant delivery to the O&M phase we're losing.
Michael Jardon: Another plus $10 million sort of revenue so at the midpoint of guidance of $410 million revenue.
Michael Jardon: You look at adjusted Q2 2023.
Michael Jardon: Plus 10% year over year growth.
Michael Jardon: But there are opportunities out there, and we'll continue to pursue those. And we're going to be patient; we're not going to, you know, as Quinn said, both of those had kind of a long interaction engagement; sometimes you have to be patient to get those things done.
Michael Jardon: So what kind of brings you to the low or high end of guidance is really two things.
Michael Jardon: My mind.
Michael Jardon: Most notably when the Congo project starts.
Michael Jardon: Kind of production phase so the delivery of the plan and we've got a couple of relatively significant subsea projects on the African coasts that are kicking off in the second quarter of 'twenty three so.
Michael Jardon: And we'll continue to be, you know, focused on opportunities such as how do we strengthen the brand? How do we have a great platform, and we can do more for our customers. And what I really like is, with both of those transactions, when I go to customers right now and I try to say, Hey, let me explain to you about PRT, let me explain to you about contracts, they put their hand up as a stop sign and say, No, no, we get it, we understand, you don't have to explain why it makes sense. That's how compelling industrial logic is.
Michael Jardon: So that's number one and then <unk> if we can close it a month or two earlier as Mike and I mentioned, we think is a possibility. We're really just waiting for one antitrust clearance at this point.
Michael Jardon: But if if.
Michael Jardon: If we do get core trash closed is probably another 10 plus million dollars a month in incremental revenue in another plus $3 million worth of EBITDA.
Michael Jardon: So I think those would be the kind of key drivers.
Michael Jardon: As is always the case projects can slip to the right or get pulled forward but.
Michael Jardon: The range that we provided excluding an early close of core taxes.
Michael Jardon: As the best available information we have today.
Speaker Change: Yeah look I guess, the one thing I would add is it's it's.
Michael Jardon: I mean, the way our subsea projects in particular timing wise it looks like those are going to get kicked off its really.
Atidrip Modak: And to me, that's, that's, tremendously positive for us. Because if our customers understand the industrial logic without a lot of discussion, I know we can explain the industrial logic to investors or analysts alike. Yeah, that makes sense.
Atidrip Modak: It's at the back end of Q2, so whether it.
Atidrip Modak: Move to the last couple of days to the right. A couple of days is going to make.
Atidrip Modak: Is going to make a difference in the quarter, but I think fundamentally just the activity set the customer engagements the customer dynamics I think continue to be really strong.
Atidrip Modak: And.
Operator: Thanks. Thanks. That's a great color.
Atidrip Modak: Q4 is always.
Operator: I appreciate it. Thanks for this participation. We enjoy it.
Operator: <unk> got better visibility, we've got better confidence in Q2, and a little bit less in Q3, a little bit less in Q4, but I can tell you from your travels and spending time with customers and those type things I. Just I think we're going to continue to have strong activity sets in the back half of the year.
Arun Jayaram: Thank you. The next question comes from the line of Arun Jardon with J.P. Morgan. Your line is now open. Good morning, gentlemen.
Arun Jayaram: That should should continue to give us confidence in being able to deliver on that guidance range.
Michael Jardon: I want to get your thoughts, maybe on two, you know, the kind of markets that you participate in, you know, TRS and cementing. And maybe give us a sense of, you know, internationally offshore, kind of the dynamics that you see playing out in TRS between, you know, year over year volume gains, pricing, and maybe a similar thought on cementing where I think you're at called 100 million run rate, and I think you've talked about growing that business to 200 to 250 million in revenue over time. Yeah, you know, it's, I think, especially in, you know, with cementation today, and even some of the technologies we're rolling out in TRS, particularly applicable in deep water.
Michael Jardon: Okay, and then you talked about net pricing gains not a material driver yet.
Michael Jardon: Going to see that subsidy test trees deepwater Trs.
Michael Jardon: What could be next outside of subsea trees in deepwater Trs.
Michael Jardon: I think we will have some opportunities.
Michael Jardon: Just as you see more of the exploration and appraisal activity start to you'll start to firm up some of the more.
Michael Jardon: Drilling and completions related well test activity.
Michael Jardon: Whether it's flow backs cleanups those type things I think we could get some pricing on.
Michael Jardon: 70% of our activity is more tied to drilling and completions. So all of that.
Michael Jardon: We will have pricing opportunities, it's just kind of the timing of those some are going to be more later.
Michael Jardon: In the recovery cycle, we're always going to have that roughly a third of our activity is more opex related and those those we're not going to get.
Michael Jardon: A lot of this is around efficiency gains. A lot of this is around improving operations. You know, our cementing technologies, we have the ability, and we have a project in the Gulf of Mexico where we've helped reduce the waiting time for cement by 17-18 hours. And in an increasing rig rate environment, that starts to become more meaningful for our customers. And it's the same thing with some of our TRS technology that we've rolled out, you know, our ITONG, our Centrify. Not only are we reducing the number of personnel on the rig floor, but we're also improving efficiency, you know, the makeup times, the running speeds, those kind of things. We're improving efficiencies, and we're taking people out of the red zone. So we're reducing the opportunities to have HSE events.
Michael Jardon: We're going to continue to try to make sure we get.
Michael Jardon: Inflationary cost adjustments and those kind of things, but very minimal net pricing increases.
Michael Jardon: Yeah.
Speaker Change: Okay. Thanks much.
Michael Jardon: Yeah.
Speaker Change: Great. Thanks Luc.
Speaker Change: Thank you.
Michael Jardon: Our next question comes from the line of Arnie <unk> with Goldman Sachs. Your line is now open.
Speaker Change: Hey, good morning, guys.
Speaker Change: Just curious on your capital allocation strategy. You previously noted one part of free cash flow for the darn and.
Speaker Change: I know historically lean into buybacks. So how should we think about your latest thought process around the potential for a dividend and that mix is that a free cash flow margin target where that becomes more of a discussion.
Michael Jardon: Yes, I think it's an ongoing discussion that we have with with our board of directors. We're really fortunate we have some really strong.
Michael Jardon: Financially astute board directors. So we have really good dialogue and discussion about those things.
Michael Jardon: I think for any company whats tremendously important is.
Michael Jardon: It really is the longevity of the dividend and once you commit to it.
Michael Jardon: Something you've got to have that kind of staying power so to speak.
Michael Jardon: And when you can bring both of those things together, efficiencies and, you know, repeatable operations are tremendously valuable to customers. And as that rig rate goes up, the value proposition or the, you know, the savings opportunity for them really starts to be strong. So I think our focus on technology and our focus on efficiency, and some of the things we've done around M&A and transactions are going to help us with that.
Michael Jardon: We're still going to stick within that kind of a third of our free cash flow.
Michael Jardon: And at this point in time, I think we're probably going to continue at least in the short term to be more predisposed to.
Michael Jardon: To buybacks as opposed to a dividend, but we're getting to that threshold, we're going to be more second half cash generative just with the nature of our activity.
Michael Jardon: We're going to get to that threshold kind of run rate so to speak back into this year going into next year that I think no more more solid discussions around around dividends will start to be had.
Speaker Change: That's awesome.
Speaker Change: Thank you for that and then beyond the Capex plans that you've announced how should we think about the M&A component as a use of cash with the remainder of the yard versus leaning into buyback seems like there's some industry wide exploration and consolidations of curious how you feared for next for this year.
Michael Jardon: And that's also, you're absolutely right, we've said openly that, you know, $100 million of cementing activity today is a $200-$250 million opportunity for our customers. That's a big opportunity for us. And I think as the market continues to strengthen, as rig rates continue to move up, I think we're going to have more and more opportunities because we're going to introduce cementing technologies at the right rate, because we're not going to give up on pricing.
Michael Jardon: And it's tough to predict.
Michael Jardon: M&A and obviously it takes two to tango, we continue to look at lots of different opportunities.
Michael Jardon: I think that we've now gotten to.
Michael Jardon: Either across the finish line or close to the finish line with PRT and core tracks.
Michael Jardon: Note that in both cases, we were in dialogue with those.
Michael Jardon: Counterparties for.
Michael Jardon: Well over a year in one case and for a couple of years another.
Michael Jardon: We looked at 30 plus opportunities.
Michael Jardon: Previous 12, or 14 months and got to the finish line. So.
Michael Jardon: Very tough to predict M&A, we're interested in M&A, we think we're good at integration.
Michael Jardon: As Mike highlighted it all starts with industrial logic.
Michael Jardon: We create tremendous value. So we'll take a little slower activity introduction over a few quarters because by the time we get into the back part of this year and the next year, and rig rates continue to be strong, then I think we're going to be in a good position on pricing.
Michael Jardon: And where we actually believe we can add value. So M&A for us is not just big for big sake, but it's big because we think it will.
Michael Jardon: Also to deliver something that is more differentiated with the customers and become more relevant to investors but.
Michael Jardon: Yes.
Michael Jardon: I think we can do both.
Michael Jardon: Today sit on.
Michael Jardon: <unk> net debt position.
Michael Jardon: So the balance sheet strong our cash flow outlook is strong.
Michael Jardon: So I think we can continue to allocate a third of free cash flow to our return of capital plan.
Arun Jayaram: And maybe a follow-up on some of the M&A discussion. Mike, are you still targeting more bolt-on type of transactions that you've done like Delta Tech and Cortrex, or are you looking at perhaps some deals that may be a little bit larger in scale and maybe just give us a sense of, you know, the pipeline as it sits today? Yeah, you know, we, we, we will look at everything.
Michael Jardon: With plenty of free cash flow and balance sheet capacity to pursue M&A, if it makes sense yes.
Speaker Change: I guess, the only thing I would add is you know.
Arun Jayaram: As <unk> highlighted this is all going to be driven by the industrial logic.
Arun Jayaram: But fundamentally we're also going to make sure we're not going to become a roll up story, we're not going to try to go out and do 200, plus M&A transactions in a short period of time, because we're actually going to integrate them, we're going to drive efficiencies, we're going to make sure we are.
Arun Jayaram: Eliminate the silos and bring those things together, so we're going to be we're going to be purposeful about the ones that come into the portfolio, we want to make sure we add value to our customers and ultimately to our shareholders, but there are opportunities out there and we will continue to pursue those.
Michael Jardon: And frankly, we do, you know, Quinn alluded to we had, you know, 30 plus type transactions we discussed or, or were at some level of diligence on last year. And I can tell you some of those, you know, we're up to transformational type things. So it's not just the 100 to $200 million, you know, bolt-ons, you know, we're going to look at all of these, but it all really starts with, you know, I keep repeating on my soapbox about industrial logic, but that's exactly what it leads to for us. You know, that's the first, the second, and the third conversation, if that makes sense, then we'll look at those.
Michael Jardon: And we're going to be patient, we're not going to as Quinn said both of those had kind of a long interaction engagement. Sometimes you just have to be patient to get those things done.
Michael Jardon: And we will continue to be.
Michael Jardon: Focus on opportunities of how do we strengthen the brand how do we have a great platform and we can do more for our customers.
Michael Jardon: And what I really like is but both of those transactions when I go to customers right now and I tried to say Hey, let me explain to you about <unk>. Let me explain you about contracts they put their hand up as a stop sign and say no no. We get it we understand you don't have to explain why it makes sense. That's how compelling industrial logic is to me that that's tremendously positive for us because it.
Michael Jardon: If our customers get the industrial logic without a lot of discussion I know, we can explain the industrial logic to investors or analysts alike.
Speaker Change: Yes that makes sense. Thanks, Thanks, that's great color I appreciate it.
Michael Jardon: And, you know, it doesn't have to be, you know, it could be a merger of equals, you know, we could be the smaller partner, it's we're going to look at things that make sense. So across the board, you know, kind of across the pitch are the kind of things we're looking at and having conversations about. I also wouldn't consider Delta Tech to be a real bolt-on. We actually think about M&A in three different ways: Silos, Deltatech, and SolarSense. These are very modest investments of cash, frequently with a performance-driven payout structure.
Michael Jardon: Yes.
Michael Jardon: Thanks.
Michael Jardon: Participation we enjoy it.
Speaker Change: Thank you.
Michael Jardon: Your next question comes from the line of Ryan <unk> with Jpmorgan. Your line is now open.
Speaker Change: Yes, good morning, gentlemen.
Speaker Change: I wanted to get your thoughts maybe on two kind of markets that you participate in.
Michael Jardon: Trs.
Michael Jardon: And cementing and maybe give us a sense kind of internationally offshore.
Michael Jardon: The dynamics that you see playing out in Trs between year over year volume gains pricing and maybe a similar thought on cementing where I think you're at call. It $100 million run rate and I think you've talked about growing that business to two to 200 to 250 overtime.
Michael Jardon: Dollars of revenue over time.
Michael Jardon: Yes.
Michael Jardon: I think especially in.
Michael Jardon: With <unk> today, and even some of the technologies, we're rolling out in Trs, particularly applicable in deepwater a lot of this is around efficiency gains a lot of this is around improving operations.
Quinn P. Fanning: You know, that's a way for us to kind of add disruptive technologies to the portfolio and continue to have something that is differentiated for the end-user customer. Now, PRT or CoreTracks, which are now nine-figure transactions but still within the existing balance sheet capacity, that's what I would consider to be a bolt-on. So kind of one to $500 million in aggregate value. Once you get beyond, you know, the high end of that range, it's probably involving some equity funding, potentially significant equity funding.
Quinn P. Fanning: Our cementing technologies, we have the ability we have at a project in the Gulf of Mexico, where we have helped to reduce the weighting on cement time by 17, 18 hours and in a increasing rig rate environment that starts to become more meaningful for our customers and it's the same thing with some of our Trs technology that we've rolled out.
Quinn P. Fanning: Our <unk> are centrify not.
Quinn P. Fanning: Not only are we reducing the number of personnel on the rig floor, but we're also improving the efficiency. The makeup times the running speeds those kind of things, we're improving efficiencies and we're taking people out of the Red zone. So we're reducing the opportunities to have HFC events and when you can bring both of those things efficiencies and and.
Quinn P. Fanning: And at that point, it's a relative valuation discussion as much as anything else, and we're open to transformational M&A or large equity-funded transactions, but it's gotta be something that Mike can demonstrate as compelling to customers and, just as importantly, compelling to you. Great, thanks, Quinn. Thanks, Arun. Eddie, please make sure your line is unmuted.
Quinn P. Fanning: And repeatable operations is tremendously valuable to customers and as that rig rate goes up the value proposition or the the savings opportunity for them really starts to be strong. So I think our focus on technology and our focus on efficiency and some of the things we've done around M&A and transactions is going to help us with that.
Quinn P. Fanning: And Thats also youre, absolutely right, we've said openly that $100 million of cementing activity today, that's a 200 $250 million opportunity for us and I think as the market continues to strengthen as rig rates continue to move up I think we're going to have more and more opportunities because we're going to we're going to introduce cementing technologies at the right rate.
Arun Jayaram: Thank you. We will go to the next question from the line of Steve Berzanza with Sidoti. Your line is now open. Thanks. Morning, Mike. Morning, Quinn.
Arun Jayaram: Because we're not going to give up on pricing, we create tremendous value. So we will take a little slower activity introduction of or a few quarters because by the time, we get into the back part of this year into next year and rig rates continued to be strong then I think we're going to be in a good position on pricing.
Stephen Michael Ferazani: I appreciate all the detail on the call. Good morning. The strength in the top line this quarter sounds like, I mean, well, construction was soft year over year, so I'm trying to figure out where you made up for it. And was it just the expansion and new projects in Saudi Arabia and Algeria, if you could give a little bit more detail on the strength in the top line this quarter? As Mike mentioned, we had a very strong Q4 in terms of well construction, notably large tubular product sales.
Speaker Change: Great and just maybe a follow up on some of the M&A discussion.
Stephen Michael Ferazani: Mike are you still.
Stephen Michael Ferazani: Kind of targeting more bolt on.
Stephen Michael Ferazani: Type of transaction that you've done like Delta tech in the cortex or.
Stephen Michael Ferazani: Or are you looking at perhaps some deals that that.
Stephen Michael Ferazani: That may be a little bit larger in scale and maybe just give us a sense of the pipeline as it sits today.
Stephen Michael Ferazani: Yes.
Stephen Michael Ferazani: We will look at we will look at everything and frankly, we do Quinn alluded to we have 30 plus type transactions, we discuss store.
Stephen Michael Ferazani: Some level of diligence and last year and I can tell you. Some of those were up two transformational type things. So it's not just the $100 million to $200 million bolt ons, we're going to look at all of these but it all really starts with I know it sounds I keep I keep repeating on my soap box about the industrial logic.
Stephen Michael Ferazani: You know, it was a lighter quarter, not surprisingly, given the historical seasonal patterns and well construction. So we had some projects that were moving to the right, particularly in the North American, excuse me, North American offshore market. So the Gulf of Mexico. And, as Mike also mentioned, Guyana.
Stephen Michael Ferazani: But that's exactly what it leads for US that's the first the second and the third conversation if that makes sense. Then we'll look at those and it doesn't have to be.
Stephen Michael Ferazani: It can be a merger of equals we could be the smaller partner. It's we're going to look at things that make sense. So across the board kind of across the pitch or the kind of things, we're looking at and having conversations around I also when considered delta tech to be a real bolt on we actually think about M&A in three different.
Quinn P. Fanning: I guess the trend that we've seen across the sector is that rig maintenance or special surveys are seemingly taking much longer than was previously expected. So most of the rigs in Guyana move from 60 to 90 day-type maintenance schedules. And that was a driver for some of the weaker NLA performance and well construction.
Quinn P. Fanning: Silos Delta Tech solar.
Quinn P. Fanning: These are very modest investments of cash frequently with performance driven payout structure, that's a way for us to kind of add disruptive technologies to the portfolio and continue to have something that is differentiated for the end user customer now PRT or core tracts, which are now nine figure transact.
Quinn P. Fanning: Not something that we expect to be, you know, a continuing trend, but as rigs come out of maintenance in Guyana and activity picks up in the Gulf of Mexico, we're expecting a fourth quarter type performance in NLA. But until then, MENA, and really, other than the OPT project in Congo, ESA had, you know, relatively strong quarters relative to our expectations, and I'd say MENA in particular seems to go from strength to strength, including revenue trajectory and margins. I am so very pleased with that.
Quinn P. Fanning: <unk>, but still within the existing balance sheet capacity, that's what I would consider to be a bolt ons, so kind of 1% to $500 million.
Quinn P. Fanning: In aggregate value once you get beyond the high end of that range, its probably involving some equity funding potentially significant equity funding and at that point, that's a relative valuation discussion as much as anything else and we're open to transform transformational M&A or large equity funded transactions, but it's got to be something that.
Quinn P. Fanning: Mike can demonstrate is compelling to customers and just as importantly, compelling to you and the investors that you represent.
Stephen Michael Ferazani: Great. Cap access quarter and then your guidance for the rest of the year. It sounds like you're trending towards the high end of that cap access percentage of revenue range, which given the number of new projects and activity makes sense. But does that soften your view on free cash flow expectations for the year?
Speaker Change: Great. Thanks, Glenn.
Speaker Change: Thanks, Ron.
Stephen Michael Ferazani: Yes.
Stephen Michael Ferazani: Okay.
Stephen Michael Ferazani: Yeah.
Stephen Michael Ferazani: Okay.
Speaker Change: Eddie Please make sure your line is muted.
Stephen Michael Ferazani: Thank you we will go to the next question from line of Steve Xanthan with Sidoti. Your line is now open.
Speaker Change: Hey, Thanks morning, Mike Mcclellan appreciate all the detail on the call.
Speaker Change: Good morning.
Stephen Michael Ferazani: Strength in top line this quarter.
Stephen Michael Ferazani: It sounds like I mean, well construction was soft year over year, So I'm trying to figure out where you made up for it and was it just.
Quinn P. Fanning: Most of our CapEx tends to be project driven. So if our CapEx is going to be higher, it's going to be because the backlog is growing. But no, I wouldn't say it, you know; that, in and of itself, would change our view in terms of the expectations for free casual performance.
Quinn P. Fanning: The expansion in new projects.
Quinn P. Fanning: Saudi and Algeria, if you can give a little bit more detail on the strength on top line this quarter.
Quinn P. Fanning: As Mike mentioned, we had a very strong Q4 in terms of well construction, notably large tubular product sales.
Quinn P. Fanning: You're correct that if you take the $30 million in CapEx and Q1, and the kind of range we provided in the press release, you know, we would be closer to the 8% area, but I'm pretty confident that, uh... CapEx continues at these elevated levels. It's going to be still within the percentage ranges because the denominator will grow at the same rate, and over time, actually, capex should shrink as a percentage of revenue, you know, with pricing. Yep. Great On the integration process, PRT, is well underway. You've got Cortrex coming up.
Quinn P. Fanning: <unk>.
Quinn P. Fanning: It was a lighter quarter not surprisingly given the historic seasonal patterns in well construction.
Quinn P. Fanning: So we have some projects were moved to the right, particularly in the North American on excuse me North American offshore market, So the Gulf of Mexico.
Quinn P. Fanning: And as Mike also mentioned Guiana.
Quinn P. Fanning: And I guess.
Quinn P. Fanning: Trend that we've seen across the sector and this is the rig maintenance or special surveys or seemingly taking much longer than was previously expected. So most of the rigs in Guyana have moved from 60 to 90 day type maintenance schedules and that was a driver to some of the weaker <unk> performance while construction.
Quinn P. Fanning: That's something that we expect to be.
Michael Jardon: You did the smaller one, Delta Tech, a year ago. Can you tell me what your learning curve has been on integration? Is it getting easier, or is it going to be different for each one?
Quinn P. Fanning: Continuing trend, but as the rigs come out of maintenance in Guiana and activity picks up in the Gulf of Mexico, We're expecting.
Michael Jardon: Fourth quarter type performance an MLA.
Speaker Change: But until then Mena.
Michael Jardon: And really other than the LPT project in Congo Isa.
Michael Jardon: And obviously, CoreTrax is larger. But does it matter more what you're buying in terms of the complexity of the integration considering the number of opportunities that may or may not be out there down the road? Sure. No, Steve, it's a great question. I can tell you one of the things we did, you know, when we did the Franks transaction or Franks merger. I really made sure that we looked at that through a long-term lens.
Michael Jardon: <unk>.
Michael Jardon: Relatively strong quarters relative to our expectations and I'd say mean in particular seems to go from strength to strength.
Michael Jardon: Including revenue trajectory and margins, so very pleased with that performance.
Michael Jardon: Great.
Michael Jardon: Capex this quarter and then your guidance for the rest of the year it sounds like youre trending towards the high end of that.
Michael Jardon: Capex as a percentage of revenue range, which given the number of new projects and activity makes sense, but does that software in your view on free cash flow expectations for the year.
Michael Jardon: We spent a lot of time and effort developing an integration playbook because I had every intention of us doing more of those types of transactions going forward. So we really laid out the methodology, the kind of know-how. You know, we dedicated one of the executives to be the integration lead on that project, so a lot of time and effort was spent on how to develop a playbook and how to make it sustainable and repeatable down the road.
Michael Jardon: Most of our Capex tends to be project, driven so if our capex is going to be higher as can be because the backlog is growing.
Michael Jardon: But no I wouldn't say, it's that in and of itself would change our view in terms of the expectations.
Michael Jardon: Expectations for free cash flow performance Youre correct that if you take the 30 plus million dollars of Capex in Q1.
Michael Jardon: The kind of range, we provided in the press release, we would be closer to the 8% area, but I'm pretty confident that if.
Michael Jardon: Capex continues at these elevated levels is going to be.
Michael Jardon: So we've really been able to – Now, the other transactions have been smaller, so it's not been to the same extent, but it's the same methodology, the same approach. That particular executive has also played a, you know, an advisory role for us because he retired, I guess it was at the end of 2022, but he's continued to play an advisory role for that.
Michael Jardon:
Michael Jardon: Still within the percentage ranges because the denominator will grow at the same cadence.
Michael Jardon: Okay.
Michael Jardon: Actually capex should shrink as a percentage of revenue.
Michael Jardon: With pricing.
Speaker Change: Yes, great.
Michael Jardon: Great.
Michael Jardon: On the integration process PRT, well underway, you've got core trucks coming up you did the smaller ones I want to talk a year ago.
Michael Jardon: Can you tell me what Youre learning curve has been on integration is just getting easier or is it going to be different for each one and obviously core tracks as larger or does it matter more what you're buying in terms of the complexity of the integration considering the number of opportunities that may or may not be out there down the road.
Stephen Michael Ferazani: So I think we're getting better at integration. A lot of lessons learned, a lot of, you know, we should double down on this, we should not focus on that, a lot of those kind of discussions. So I think it's going to continue to help us be more efficient. But we learned a lot when we did the original Frank's transaction integration, and we're kind of able to use that as a good stepping stone as we lean into these other ones.
Stephen Michael Ferazani: Steve It's a great question and I can tell you one of the things we did when we did the Frank's transaction of France merger.
Stephen Michael Ferazani: I really made sure that we looked took looked at that through a long term lens. We spent a lot of time and effort to develop an integration playbook because that I had.
Stephen Michael Ferazani: Had every intention of us doing more of those type transactions going forward. So we really laid out the methodology the kind of the know how.
Stephen Michael Ferazani: We dedicated one of them one of them one of the executives to be the integration lead on that project. So a lot of time and effort was spent on how do you. How do you develop a playbook and how do you make it sustainable and repeatable down the road. So we've really been able to now the other transactions have been smaller so has not been to the same extent, but it's the same methodology the same approach.
Stephen Michael Ferazani: The difference with PRT or with Cortrax is that those are not fully, you know, full-fledged global integrations; those are generally more regional integrations, which means that we should be able to execute on those more quickly than we did on the bigger ones.
Stephen Michael Ferazani: <unk> that particular executive has also played a an advisory role for us because he retired.
Michael Jardon: Thanks, Mike. Thanks. Thanks Steve. Thanks Steve.
Speaker Change: Yes. It was at the end of 2022.
Operator: Thank you. The next question comes from the line of Josh Jane with Daniel Energy Partners. Your line is now open.
Michael Jardon: And but he has continued to play an advisory role for that so I think we're getting better and integration a lot of lessons learned a lot of.
Josh Jane: Thanks. Just to sort of build on the line of questioning around Franks, there was a presentation highlighting adjusted EBITDA margins for the combination back when it was done, but they were between seven and 14% in the five years prior to the deal closing, which also represented sort of a depressed offshore spending market. You were in the upper 20s, low 30s in 2014 and 2015, obviously, you know, low 20s guided for this year.
Josh Jane: Should we should we should double down on this we should not focus on that a lot of those kind of discussions. So I think it's going to continue to help us be more efficient, but we learned a lot and.
Josh Jane: When we did the original Frank's transaction integration and we're kind of able to use that as a.
Josh Jane: As a good stepping stone, how we lean into these other ones the difference with with PRT or with <unk>. Those are not fully full fledged global integration those are generally more regional integrations.
Josh Jane: Which means that we should be able to execute on those more quickly than what we did on the bigger one.
Speaker Change: Okay, great. Thanks, Mike Thanks, Glenn.
Michael Jardon: As you sit today and look at the business, what can be done outside of price to get back to those margin levels? And how do you see those evolving over the next couple of years? Sure, Josh. It's a good question.
Speaker Change: Okay, great. Thanks, Steve.
Speaker Change: Thank you.
Michael Jardon: The next question comes from the line of Josh Jayne with Daniel and our partners.
Speaker Change: Line is now open.
Michael Jardon: Okay.
Speaker Change: Thanks, just to sort of build on the line of questioning around France. There was a presentation highlighting adjusted EBITDA margins for the combination back when it was done but there are between 7% and 14% in the five years prior to the deal closing.
Michael Jardon: We appreciate it. A lot of it for us is really around the costs in the organization. If you look at the last full quarter before we began the integration of the two companies, we were at 31% total support costs. And for us, just to be clear, the way we look at support costs is support all the way down to the field level, to the guy who's going to go out and execute the job.
Michael Jardon: What's the cost of represented sort of a depressed offshore spending market.
Michael Jardon: You were in the upper <unk> low <unk> in 2014, and 2015, obviously low Twenty's got it for this year as you sit today and look at the business what can be done outside of price to get back to those margin levels and how do you see those evolving over the next couple of years.
Speaker Change: Sure Josh.
Michael Jardon: It's a good question. We appreciate it it's a lot of it for US is really around the cost in the organization.
Michael Jardon: If you look at the.
Michael Jardon: Kind of the last full quarter before we began the integration of the two companies we were at 31%.
Michael Jardon: So we don't try to be cute and just talk about, you know, SG&A is, corporate SG&A is, you know, three, three and a half percent, because I think that's kind of hiding the bacon. I want to look at the total support that it takes for us to go out and do a job. But we were at 31% then, and we finished 2023 at 19.4%, I believe.
Michael Jardon: Total support costs and for US just to be clear the way we look at support costs is the support all the way down to the field level to the Guy who is going to go out and execute the job. So we don't try to be cute and just talk about <unk>.
Michael Jardon: SG&A as a corporate SG&A is 335% because I think that's kind of a heightened the bacon I'm going to look at the total support it takes for us to go out and execute a job, but we were at 31% then.
Michael Jardon: And we finished 2023 at 19, 4% I believe so we've taken a lot of support costs out of it out of the organization. So I look at is having.
Josh Jane: So we've taken a lot of support costs out of it, out of the organization. So I look at it as having, you know, a number of, you know, I've got six or seven points of margin in my back pocket, so to speak. And as we continue to grow and we continue to add revenue, our support costs will grow at more of an inflationary rate, not at the same rate that our top line will grow.
Josh Jane: A number of.
Josh Jane: Six or seven points of margin in my back pocket so to speak.
Josh Jane: And as we continue to grow and we continue to add top line our support cross will grow at more of an inflationary rate not at the same rate that our topline will grow.
Josh Jane: So, you know, for us to get back to a – it's the reason why we've talked about a pathway to $2 billion of revenue and mid-20s percent EBITDA margins. That's something that's eminently doable for us. And for me, it's not a question of if, it's a question of when that we can get back to those kind of EBITDA margins and, I think, even be able to push through the mid-20s into the upper 20s.
Josh Jane: So for us to get back to a reason why we've talked about.
Josh Jane: <unk> way to $2 billion of revenue and mid Twenty's percent EBIT margins Thats, something thats eminently doable for us and for me. It's not a question of if it's a question of when that we can get back to those kind of EBIT margins and I think even be able to push through the the mid <unk> into the upper twenty's.
Josh Jane: That's great, thanks. And just one follow up. One of the things you mentioned, you talked about carbon capture. For a moment, you highlighted in the press release Japan's first clean hydrogen production demonstration. As it relates to Expro, could you just talk about the addressable market for the company over the next few years and give us a sense of the other inquiries you're having or seeing there? Yeah, you know, it's a massive addressable market.
Speaker Change: That's great thanks and.
Josh Jane: Just one follow up on one of the things you mentioned talked about carbon capture.
Josh Jane: For a moment you highlighted in the press release, Japan's first clean hydrogen production production demonstration as it relates to ex broke could you just talk about the addressable market for the company over the next few years and give us a sense of the other inquiries youre, having we're seeing there.
Josh Jane: Yes.
Josh Jane: As a.
Josh Jane: It's a massive addressable market I think as we start to see.
Josh Jane: I think as we start to see, you know, the Exxons and, you know, the Gulf of Mexico and other operators globally, I think it's really going to be at the pace at which they, you know, continue to accept to address their carbon capture needs and requirements. You know, for us, it's really, you know, we can multipurpose our personnel and a lot of our equipment, you know, especially when you start talking about clean projects, whether it's clean hydrogen or ammonia ammonia type projects, you know, we're going to go through, you know, well testing, you know, wellbore cleanup, you know, cleaning of fluid separation of fluids, those type things.
Josh Jane: The Exxon and in the Gulf of Mexico, and other operators globally, I think it's really going to be at the pace at which they continue.
Josh Jane: Continued success to address their carbon capture needs and requirements.
Josh Jane: For us it's really.
Josh Jane: We can multi purpose are our personnel and a lot of our equipment.
Josh Jane: Especially when you start talking about clean projects, where those clean hydrogen or mode ammonia type projects.
Josh Jane: We're going to go through.
Josh Jane: Well testing.
Josh Jane: More cleanup.
Josh Jane: Leaning a fluid separation of fluids those type things so it's it's.
Josh Jane: So it's, it's, it gives us a lot of flexibility in utilizing the same assets and the same people and having the technique and having the kind of reservoir knowledge and understanding to apply that. So it's a, it's a very significant opportunity. It's really going to be driven by the pace at which, you know, those operators and those customers focus on carbon capture.
Josh Jane: It gives us a lot of flexibility on utilizing the same assets and the same people and having the technique and having the kind of reservoir knowledge and understanding to apply that so it's a it's a very significant opportunity, it's really going to be driven by what's the pace at which.
Josh Jane: Those operators those customers focus on carbon capture.
Michael Jardon: Great, thank you very much. Thank you. Thank you. There are no additional questions waiting at this time, so I would now like to pass the conference back to management for any additional or closing remarks. Great, so we'll go ahead and close for now. I appreciate everybody listening in on the first quarter. I think, as we said, we continue to see some momentum in the space in the sector, particularly offshore international, and we look forward to speaking to all of you on the next quarterly call. Thank you. That concludes today's conference call. Thank you for your participation. You may now disconnect your line.
Michael Jardon: Great. Thank you very much.
Speaker Change: Great. Thank you.
Michael Jardon: Thank you there are no additional questions waiting at this time, so I would now like to pass the conference back to management for any additional or closing remarks.
Michael Jardon: Great. So we'll go out and close for now I appreciate everybody listening in on our first quarter I think as we said we continue to see some some gaining momentum in this space in the sector, particularly offshore international and we look forward to speaking to all of you in the next quarterly call. Thank you.
Michael Jardon: That concludes today's conference call. Thank you for your participation you may now disconnect your lines.