Expro Group Holdings N.V. (XPRO) Q1 2022 Earnings Report, Transcript and Summary

Hello, everybody, and a warm welcome to today's Expro Q1 2022 Conference Call. My name is Melissa, and I'll be your operator. [Operator Instructions] I now have the pleasure of handing over to Karen David-Green, to begin. Karen, over to you.

Welcome, everyone, to Expro's First Quarter 2022 Conference Call. I'm joined today by Mike Jardon, CEO; and Quinn Fanning, CFO. First, Mike and Quinn will share their prepared remarks, and then we will open it up for questions. We have an accompanying presentation on our first quarter results that is posted on the Expro website, expro.com, under the Investors section. In addition, the first quarter financials are downloadable on the Expro website under the Investors section. The downloadable financials include historical Frank's and legacy Expro financials along with the combined company pro forma historical results. I'd like to remind everyone that some of today's comments may refer to or contain forward-looking statements. Such remarks are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such statements speak only as of today's date, and the Company assumes no responsibility to update any forward-looking statements as 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. A more complete discussion of these risks is included in the Company's SEC filings, which may be accessed on the SEC website or on our website at expro.com. Please note that any non-GAAP financial measures discussed during this call are defined and reconciled to the most directly comparable GAAP financial measure in our first quarter 2022 earnings release, which can be found on our website. With that, I'd like to turn the call over to Mike.

Thank you, Karen. Good morning and good afternoon, everyone. The first quarter was a solid start to 2022 as we saw improving fundamentals across our business and the industry. Prior to the merger, which was completed last October, Expro and Frank's were market leaders, each with strong reputations for safety, service quality and innovation. The combined company now has the scale, scope and financial profile required to compete and win in what is probably the most attractive and most dynamic energy services market that I have observed in the thirty years that I've been in the business. Our results in the first quarter and our outlook for 2022 and beyond underscore the benefit of Expro's balanced portfolio of services and solutions that spans the entire well life cycle. As we have previously shared, we believe through-cycle resilience is a significant advantage and competitive differentiator for Expro. We have also never been better positioned to capture cyclical recovery upside, and that recovery is beginning to happen now. In addition to our current portfolio of services and solutions, Expro has a global operating footprint with established positions in key growth markets. As a result, we are poised to capitalize on increased spending and activity. We also continue to have a best-in-class innovation platform and technology portfolio that enable us to support our customers' efficiency and emissions-related goals, capture market share, capitalize on industry trends and lead the next chapter of our industry. Finally, our strong balance sheet and merger-related synergies also provide us with a significant financial, operational and strategic flexibility that will allow us to accelerate growth and create long-term stakeholder value. On today's call, I'm going to touch on three main topics. I'll walk you through our first quarter performance. I'll give you an update on our integration process. And finally, I'll provide some perspective on the trends that we are seeing in the broader industry environment. For the first quarter, we delivered revenue of $280 million and adjusted EBITDA of $37 million. On a combined company pro forma basis, first quarter revenue and adjusted EBITDA were up year-over-year by 12% and 54%, respectively. Sequentially, revenue and adjusted EBITDA were down approximately 5% and 27%, respectively. Sequential financial results were driven by lower activity across our Europe and Sub-Saharan Africa and Asia Pacific regions, offset by higher activities in North and Latin America and Middle East, North Africa regions. Well construction was relatively flat quarter-over-quarter and well management, which includes our well flow management, subsea well access and well intervention and integrity businesses was down approximately 8% quarter-over-quarter. First quarter results were generally consistent with our expectations for the quarter. We made good progress on integration initiatives during the quarter and the fundamental backdrop for energy and energy services continues to trend in a strongly positive direction. Capacity constraints and residual effects of COVID, however, resulted in several projects slipping to the right and what we expect will be transitory pressure on margins. Importantly, we saw the significant benefit of our diversified portfolio as we enhanced our business mix and our team continued to capitalize on improving industry fundamentals and our broad suite of innovative solutions to win new business and expand relationships with existing customers. We achieved contract wins and extensions totaling $364 million, which demonstrates the breadth and depth of our customer relationships and attraction that our solutions are gaining in the market. On a regional basis, in North and Latin America, we were awarded contracts across Brazil and the U.S. for slickline operations and the provision of tubulars, hammer services, double joining services and tubular running services. During the quarter, we also continued to expand CENTRI-FI implementation with our first operation for an operator in the Gulf of Mexico. We received great customer feedback on the safety and efficiency of the CENTRI-FI system while we are racking back stands of tubulars. Our CENTRI-FI system represents another step forward to reducing the risk of injuries on the rig floor while optimizing operations by enabling the consolidated control of tubular running equipment and reducing the number of personnel required. In the Europe and Sub-Saharan Africa region, our team secured contracts across our four product line groups in Norway, Azerbaijan, Mozambique, Ivory Coast and in the U.K., all as a result of our continued focus on service delivery and mobilization efficiency. Work included exploration and appraisal and decommissioning rated activity. In the first quarter, we conducted a well integrity surveillance program in Norway using our Octopoda system to deploy a unique set of survey technologies, including a powerful suite of annular monitoring services together with a downhole camera. The survey results enabled the customer to define its late-life production strategy. This is truly a unique service offering for the first time in our industry, and it enables operators to proactively monitor and manage wellbore annular integrity. In the Middle East and North Africa region, we secured a significant contract to provide production packages, including early production facilities, mercury removal and gas compression packages. We have deep relationships and a proven track record of excellent service quality in the region, which allowed us to also secure our first tubular running services contract in a market in which legacy Expro had a strong presence, but in which legacy Frank's was not historically active. In the Asia Pacific region, the team secured contracts in Malaysia, Thailand and Indonesia for the provision of subsea landing strings and well test bleed off packages for a deepwater campaign, wireline intervention and [blow return] handling and desalinization services. Across the Asia Pacific region, the average job performance score for the first quarter was 94%, which is a testament to our continued high standard of service quality. This week at the Offshore Technology Conference, we are honored to be recognized with a Spotlight On New Technology Award for our autonomous well intervention system or Galea. This prestigious award highlights the latest and most innovative global technologies that are advancing and revolutionizing the energy industry. Galea was selected on its innovative autonomous technology and significant environmental cost and HSE impact compared to existing technologies. The system replaces larger, conventional and more labor-intensive wireline rig ups for a range of slickline operations. The system also reduces the impact of operations on the environment around the well site. A small self-contained intervention package located at the wellsite year-round eliminates the need for repetitive environmentally disruptive wireline units or chuck operations that are required for traditional approaches. During the quarter, we also continued to advance our innovation platform to develop a next-generation solutions that will serve as incremental differentiators for Expro and which we believe will help bring on board even more new customers. In addition to our robust in-house innovation pipeline, we also continue to selectively pursue external growth opportunities. More specifically, during the quarter, Expro acquired the distributed fiber expensing, DFOS company, SoleSense. Access to represented and well diagnostic data is key for making informed well performance and integrity decisions. This acquisition allows us to build on our existing well intervention and integrity portfolio, leveraging the expertise of both legacy companies to extend our customers' well lifespan while reducing time and cost. Led by a highly skilled and dedicated team with extensive industry experience, we are pleased to deepen the Expro family and look forward to building on our digital solutions. We have been partnering with Solasense for the past 18 months. During the first quarter, we successfully completed a high-temperature production profiling survey in the U.K. using our DFOS technology. Among other significant benefits, unlike conventional well logging, data acquisition can be captured at standard production rates, enabling a fuller understanding of reservoir performance. This could not have been achieved using conventional well logging technology. Additionally, in the quarter, we deployed the latest generation CoilHose from a light well intervention vessel to provide nitrogen lift services for a customer in Norway. This service further demonstrates Expro's CoilHose capabilities, enabling deployment at higher pressure and greater depth. This advanced hose design not only enables open water subsea intervention but also increases the operating envelope for conventional operations, significantly increasing the applicability of this exciting and potentially disruptive technology. Another key highlight during the first quarter was a provision of downhole fluid capture services for a customer using our recently developed nonreactive sampling system. This unique technology provides an inert environment from sample capture through to final analysis. This provides the most accurate assessment of the hydrocarbons under investigation with no absorption of trace elements. This is critical to understand and to ensure that the design of production facilities and pipelines are optimized for the produced fluids. We are successfully implementing our integration plans to enhance the coordination and collaboration of our legacy Frank's and Expro teams to work as one seamless organization. We have already made significant progress executing on the comprehensive plans we developed prior to close. And in the first quarter, we consolidated more of our facilities together, including facilities in Abu Dhabi, Baku and Cairo. As we have worked through this process, we have continued to see the true power of our new team. As outlined previously and prior to the closing of the transaction, we are targeting cost and revenue synergies between $80 million to $100 million within 24 to 36 months. Six months into the integration, we have identified and actioned approximately 80% of the expected $55 million in cost savings, and we are confident in our ability to deliver this total $55 million in annual run rate cost synergies within the first 12 months following close with the opportunity to deliver $70 million of total cost savings in 24 to 36 months. We also expect to realize revenue synergies of $10 million to $30 million in EBITDA through our expanded customer relationships and operating footprints, increased time on rig and greater exposure to the full life of field. We are on track to achieve the full target of synergies as we work to continue strengthening our operating model while lowering our cost structure and significantly expanding margins. A number of factors bolster our confidence that Expro is uniquely positioned to capture the full synergies plus deliver on incremental revenue and margin expansion. These factors would include our progress to date realizing the near-term synergies in the transaction; improving market fundamentals, indicating that a market -- that a multiyear industry and global economic recovery are already underway; and finally, significant potential upside relative to prior periods of the cycle, especially given the years of underinvestment in the sector. Also of note, we recently published our inaugural environmental, social and governance or ESG report, which provides transparency on our performance and establishes Expro's near- and long-term ESG priorities. Expro's ESG report combines both legacy Expro and Frank's efforts while outlining the significant steps we are taking to create a more sustainable business and better future for our employees, customers and communities including our work to reach net zero carbon emissions by 2050. Demonstrating our progress, Expro has been supporting geothermal well service projects since 1987 and is recognized as a safe and high-quality provider. We are seeing increased potential in geothermal and recently won two major geothermal well contracts, strengthening our position as an integrated service provider to the growing and increasingly important geothermal sector. As part of our environmental commitments during the first quarter, we also installed a water recycling system at our manufacturing facility in Egypt. The recycled water is being used for pressure testing to significantly reduce the amount of water used for yard operations. This overall demonstrates our dedication and efforts in environmental improvements. As we shared previously, we expect to allocate about 50% of our research and development capital in 2022 to carbon reduction initiatives. In doing so, we are developing and advancing solutions that will play a critical role in enabling our customers to achieve their own emission reduction goals by also allowing Expro to achieve its goals. Before I turn the call over to Quinn, I want to provide some perspective on trends that we're observing in the market. Despite increased market volatility as a result of the Russian war in Ukraine, where Expro has traditionally had very minimal activity, i.e., less than 1% of our revenue, commodity prices are expected to remain constructive for energy services activity due to tight supply and global demand recovery. We continue to see strengthening signals of a multiyear recovery and believe the outlook for energy services is the best that it has been in at least a decade. We expect demand for our services and solutions to increase throughout 2022 and beyond as operators look to both increase production from existing assets and to develop new fields. Already, we are experiencing some acceleration of deepwater and offshore activity. We're confident that the pipeline of projects we are seeing will support multiyear growth for the energy services sector with particularly strong potential for a number of the geo markets within North and Latin America, Middle East and North Africa, Sub-Saharan Africa and Asia. As we said last quarter, while many of our customers' near-term focus will likely remain on maximizing their investments in existing well stock, we believe the significant underinvestment in new oil supply in the recent years will result in new final investment decisions, or FIDs, and that we will see sustained growth in all of our businesses and across all geo markets. In addition, natural gas demand remains strong, both in the U.S. and internationally due to a combination of rising economic activity as the effects of the COVID pandemic start to diminish, lower inventory and storage, extreme weather events at the beginning of the quarter and concerns of supply curtailment for Russia, which are causing most European countries to renew their focus on energy security and domestic or at least non-Russian supply alternatives. This demand, coupled with supply constraint, is forecast to drive new infrastructure developments and further increases in activity levels. There is also a trend for the IOCs to increase the natural gas share of the overall production and thereby better balance their gas/liquid portfolio. In parallel, national oil companies are focused on accelerating field development efforts to stimulate their country's economic recoveries and in some countries, especially in Europe, to strengthen domestic energy security with some previously canceled projects now being reevaluated. Internationally, the IOC is increasingly -- are increasingly focused on lower risk phase development. In addition, they are increasing efforts to reduce emissions and more broadly to position themselves for the energy transition where we believe we can play a key role. We continue to believe international exploration activity will become more near-field and infrastructure-led in the near term. The outlook for the remainder of 2022 indicates a continuing recovery in E&P expenditures, albeit at different rates and individual countries. In the medium term, with the final investment decision approvals anticipated to continue growing, nearly 60% of the commitments are expected to be offshore. Despite a slight slowdown in demand growth in the first quarter, we believe oil and gas demand will recover to 2019 levels sometime next year. And as a result, operators will need to again focus on replacing produced reserves following a multiyear period of underinvestment and lower volume of discoveries. For now, operators are largely maximizing the investments they have made previously. Consistent with past recovery, incremental OpEx spending and brownfield enhancement programs are expected to be an initial area of customer focus. And in select markets, we are seeing some signs of a recovery in well intervention and integrity projects, execution of which is a traditional strength of Expro. More broadly, we believe offshore and deepwater and tight oil projects will be the largest growth areas, which should support sustained growth for Expro given our capabilities in subsea well access services, complex well construction services and production optimization. Bolstered by constructive commodity pricing, we continue to experience increased activity, which we expect to gain further momentum as we progress through 2022 and beyond. Expro is well positioned to help our customers in the current market environment. We anticipate increased demand for our existing services and more opportunities to provide new solutions from our enhanced portfolio. We are differentiating ourselves in the market as well experts across the full life cycle with a focus on integrity in all its forms, whether that means ensuring connection integrity, integrity in the provision of the services to our customers or our ability to enhance well management integrity. As I noted earlier, we remain committed to spending roughly 50% of our research and development spend on energy transition and environmental improvements, which will become increasingly important as customers around the world look to accelerate their carbon reduction strategies. Combined with technology and know-how, prioritizing safety and service quality allows the Company to give absolute focus on advancing the Company and delivering maximum value to our customers, shareholders and other stakeholders. With that, I'll hand the call over to Quinn to discuss our financial results.

Thank you, Mike, and good morning and good afternoon to everyone on the call. As Mike noted, I will cover the results for the quarter ended March 31, 2022, and will primarily highlight our sequential performance compared to the quarter ended December 31, 2021. To recap, we reported revenue of $280 million for the March quarter, which was up $29 million or approximately 12% relative to the combined revenue of Expro and Frank's in Q1 2021 and was down $16 million or approximately 5% relative to the December quarter. The sequential decrease in revenues was driven by lower activity across our Europe and Sub-Saharan Africa or ESSA and Asia Pacific or APAC segments, partially offset by higher activity in North and Latin America or NLA, and Middle East and North Africa or MENA segments. Adjusted EBITDA for Q1 2022 was approximately $37 million, representing a $13 million or 54% increase year-over-year relative to the combined adjusted EBITDA of Expro and Frank's in Q1 2021 and a sequential decrease of approximately $14 million or 27% relative to the December quarter. Adjusted EBITDA margin in Q1 was 13% as compared to 17% in Q4 2021. The sequential decrease in revenue and adjusted EBITDA was driven by a combination of seasonally lower activity, particularly in Europe. And as Mike noted, some projects that we expected to begin in Q1 slipping to the right. Our activity mix was less favorable in Q1, and we also recognized a couple of million dollars in mobilization and other start-up costs on projects that are scheduled to begin in Q2. Partially offsetting these items was lower support costs. As highlighted in our press release, adjusted net income for the first quarter of 2022 was $0.01 per diluted share, compared to an adjusted net loss for the fourth quarter of 2021 of $0.03 per diluted share. I'll also note that we have reclassified approximately $10 million of quarterly support costs as direct costs in order to conform the presentation of legacy Frank's costs with that of legacy Expro. There is no impact on segment EBITDA or adjusted EBITDA. However, historical and prospective contribution, contribution margin and support costs that we include or will include in our press releases, conference call slides and the Investors section of our website have been or will be updated to reflect this reclassification. In this context, Q1 contribution margin at 37% was down approximately one percentage point year-over-year and approximately three percentage points sequentially, again reflecting negative fall-through on lower revenue and a less favorable activity mix as well as transitory costs associated with new projects. Q1 support costs at $71 million totaled 25% of group revenue and were down approximately $5 million relative to the combined support costs of Expro and Frank's in Q1 2021, and down approximately $1 million relative to the December quarter. With synergies and operating leverage associated with an expected rebound in quarterly revenue, our intent is to manage total support costs to 22% of group revenue or less. Total liquidity at quarter end was approximately $348 million. Cash and cash equivalents, including restricted cash, was $218 million as of March 31. Total liquidity also includes $130 million that is available to the Company for drawdowns as loans under a $200 million revolving credit facility. The balance of the facility is available for bonds and guarantees. Expro had no interest-bearing debt at the end of Q1 2022, and the Company has no interest-bearing debt today. During the quarter ended March 31, 2022, cash used in operating activities net was $14 million as compared to cash provided by operating activities of $16 million in Q4 2021. Q1 adjusted operating cash flow, reflecting cash used in operations before cash paid for interest, severance and other expenses and merger and integration expenses, was negative $1 million compared to positive $41 million in Q4 2021. Trade AR was relatively flat quarter-over-quarter, but DSO was up a couple of days quarter-over-quarter, reflecting lower revenue in the quarter and payment delays on undisputed amounts due from a number of our NOC customers, somewhat consistent with the comments from a number of the other public energy services companies. Accrued liabilities were also down quarter-over-quarter, largely as a result of Q1 payments of annual incentives. And inventory was up approximately $6 million quarter-over-quarter, reflecting growth in order backlog and our desire to make critical spares in order to efficiently execute on a higher anticipated activity in H2 2022 despite the currently challenging supply chain environment. Capital expenditures totaled $11 million in the first quarter compared to $28 million in the fourth quarter. In addition, we used $8 million of cash during the first quarter to acquire well intervention and integrity-related technology that Mike referenced in his prepared remarks. Core CapEx as a percentage of revenues continues to trend downwards with management focused on maximizing utilization of existing assets and, where practical, limiting new capital expenditures. The Company continues to plan for 2022 capital expenditures in the range of approximately $90 million to $100 million, or approximately 7% to 8% of expected revenue. We also continue to expect to be free cash flow generative for 2022, but expect that free cash flow will be heavily weighted in the second half of the year. Now moving into the details by operating segment. NLA revenue for the first quarter of 2022 was $104 million, an increase of $4 million quarter-over-quarter. The increase was primarily driven by well construction services in the U.S. and Mexico as a result of higher customer activity and equipment sales, partially offset by lower subsea well access and well flow management revenues in the U.S. due to both lower activity and subsea equipment sales during the December quarter that did not reoccur during the just completed March quarter. NLA segment EBITDA for the three months ended March 31, 2022, was $22 million, or approximately 21% of segment revenue and was up approximately $1 million quarter-over-quarter. For Q4 2021, NLA segment EBITDA was also 21% of segment revenue. As I mentioned on our last earnings conference call, legacy Frank's has a particularly strong position in NLA and we expect that NLA financial results. The combined company will continue to benefit from the incremental scale and complementary operating footprints and customer relationships that were made possible by the merger. For the ESSA segment, revenue in Q1 was $82 million, which was down $12 million or approximately 13% quarter-over-quarter. The sequential decrease was primarily driven by lower well flow management and well construction services revenue in the U.K., Azerbaijan and Angola due to a combination of seasonally lower customer activity levels and project delays as well as due to nonrecurring equipment sales in Norway that occurred in the December quarter. ESSA segment EBITDA for the March quarter was $12 million or approximately 14% of segment revenue, a decrease of approximately $8 million quarter-over-quarter. The decrease in segment EBITDA was primarily attributable to lower activity levels and a less favorable activity mix during the March quarter. The MENA segment revenue in the first quarter was $51 million, an increase of approximately $2 million or about 4% quarter-over-quarter. The sequential increase in revenue was driven by well flow management, equipment sales in the United Arab Emirates as well as in Saudi Arabia in the first quarter. MENA segment EBITDA in the March quarter was approximately $15 million or about 30% of segment revenue, a decrease of about $1 million or about three percentage points quarter-over-quarter. The decrease was primarily due to lower activity on higher-margin contracts and a less favorable activity mix. The MENA region is one of the regions in which legacy Expro has a strong historical position. We expect good growth in our MENA business over the next couple of years as our MENA-based customers look to expand production capacity, and we continue to expand our MENA-based relationships by both supporting our customers' anticipated increases in activity and by leveraging the broader services and solution portfolio of the combined company. For APAC, revenue in the third quarter was approximately $44 million, which was a decrease of about $8 million or approximately 15% sequentially. The decrease in revenue was primarily due to a combination of lower customer activity levels, nonrecurring equipment sales and the completion of certain projects during the previous quarter in Thailand, Malaysia and Indonesia, which was partially offset by higher subsea well access revenues in Australia. APAC segment EBITDA for the March quarter was $5 million or about 12% of segment revenue, a decrease of approximately $7 million or about 12 percentage points quarter-over-quarter. The decrease was primarily due to lower activity in higher margin contracts, a less favorable activity mix and mobilization costs and project startup delays, a portion of which was COVID-related with a new subsea project in the region. As Mike mentioned, our integration plans are progressing well, and we are already starting to realize the significant synergy benefits we anticipated when we first announced our business combination. As discussed in our last earnings conference call, during the fourth quarter, we identified an actioned cost savings representing more than 50% of our previously stated $55 million of run rate cost synergies within the first 12 months following the merger close. As Mike mentioned, through the first quarter of 2022, we have identified and actioned approximately 80% of our synergies capture plan, both in regard to headcount and annualized value in dollars. We also completed the consolidation of a number of international facilities. Also of note, we expect that we'll complete our migration to a single ERP platform by late summer, early fall, which should allow us both to streamline a number of key business processes and to enhance decision-making in the currently dynamic operating environment. It will take a quarter or two for financial results to reflect a number of our synergies initiatives, but we remain confident that we are on track, if not a bit ahead of our integration plan. As to our near-term outlook, we expect that Q2 2022 revenue be up sequentially by plus or minus 10%, and reflecting elevated commodity prices, a seasonal rebound in activity and a potential uptick in international short-cycle investments, which we expect will gain traction as we move into the second half of the year. Adjusted EBITDA margin in Q2 should again be in the area of 12% to 14% of consolidated revenue. Looking at a couple of quarters out, we continue to expect that our revenue run rate will approach that of the pre-pandemic 2019 revenues of legacy Expro and legacy Frank's on a combined basis, implying quarterly revenue of approximately $325 million to $350 million. With the benefit of fall through on incremental revenue, a more favorable activity mix and synergies, we expect that adjusted EBITDA margins will be in the area of 20% of revenue as we exit the year. As always, our objective is to enhance long-term value for our shareholders, employees partners and the communities in which we operate. With that, I will turn the call back over to Mike for a few closing comments.

Thank you, Quinn. We started 2022 with solid first quarter operating performance that drove significant growth on the top and bottom lines and demonstrated the potential of our resilient, flexible business model. Our broad portfolio of services and solutions continue to create opportunities in the growth markets that will be key to Expro's long-term sustained success. Our innovative platform, next-generation technology and solutions and ESG focus our differentiators that continue to rapidly advance our reputation and outstanding track record with customers as a leading well expert. We are incredibly excited about the strength and position of Expro and our ability to capitalize on the favorable outlook for our business. Our great momentum can only be achieved through the focus of our team, which has maintained through the merger and our ongoing integration process. Our talented group of global team members are supportive of each other and that translates to high levels of service and support for our customers. Their work drives our success day in and day out as we accelerate growth, improve profitability and enhance value for shareholders, employees, customers and partners. Thank you again. Operator, let's go ahead and open up for a few questions.

[Operator Instructions] We'll take our first question today from Taylor Zurcher of Tudor, Pickering, Holt & Co.

My first one is just on pricing. So you operate in a number of different sort of end markets, but a lot of them have really good industry structure that results in a more stable pricing through the cycle. But at this point, I mean you talked a little bit about capacity constraints impacting the Q1 numbers. You've also got inflationary pressures blowing pretty strong in the background. So curious if you could just give us an update on any sort of pricing indicators you're seeing across the portfolio? And if you're having any success or think you might have success pushing pricing over the back half of 2022?

Okay. Well, thanks, Taylor. It's a good question. I guess what I would say is that, ultimately, the conditions are really becoming favorable for us to get pricing traction, both across product lines as well as geographies. And yes, we are starting to see some net pricing improvements. Geographically, overall net pricing momentum is most prevalent today in the U.S. That's where we're really starting to see that. And our expectation is that we'll continue to see those net pricing gains, they'll kind of move eastward. They'll move internationally over the next couple of quarters. And ultimately, for us, we're much better positioned internationally. So I do think we'll start to see some pricing levers, some pricing traction in the back half of the year. But ultimately, for us, we are seeing some pricing improvements today. We are seeking price increases, in particular, around personnel rates. And then also, for some of our assets that we're really loading up, we're getting good utilization of, things like subsea well access, particularly with some of our higher-end landing strings, but also around well construction especially in deep water and some of the complex activities, we're starting to see the ability to get some pricing traction there. So good signs, good indicators that we're going to see more of this as we move forward. And I think we'll really start to see the most amount of leverage and pricing traction in the second half of this year, which fundamentally, I think, really sets us up well for continued activity growth, but also better pricing as we go into 2023.

Yes. Good to hear. Follow-up just on kind of the demand outlook. Mike, I think you said in the prepared remarks that you're seeing some acceleration in deepwater and offshore activity. Those are pretty similar comments to what a lot of your offshore-oriented peers have talked about in prior weeks, and it feels like Latin America is a strong market. West Africa, increasingly a strong market into the back half of the year. And I guess I'm just curious if you could flesh out those comments a little bit more. Where are you seeing the most improved demand? And is it a function of this Russia-Ukraine situation forcing operators to think long and hard about accelerating investments or just a mix of everything?

Sure. No, I think it's a really good question. I guess what I would say is, ultimately, internationally, the short cycle OpEx-type investments, that's what we're really starting to see strength, and I think that will be very much be the case in the second half of the year. So production optimization, production enhancement, intervention, those type of activities, I think we'll continue to see that. And that really allows that kind of short-cycle OpEx-type activity. That's the international operators' version of going out and completing more wells in U.S. land. But I think ultimately, offshore activity, I think it's well positioned to grow both in shallow and deepwater, I think particularly as operators starting to increase their infill drilling as well as their tieback type activity. So I think that's going to be strong. You touched on those areas. Latin America, I think, is going to be quite a strong area. Brazil in particular. And we're starting to see more technical inquiries and more discussions around some of the deepwater plays in West Africa. And I think as operators continue to kind of firm up their plans. And yes, I think the ongoing challenges in the Ukraine are starting to drive some of those decisions. So fundamentally, I said to begin with, that this is probably the most constructive environment we've seen in my 30 years in the industry. And everything we see, and I think it's why you hear some comment, consistent comments from all of the service providers, our peers as well as ourselves. Everybody is kind of seeing the same indicators from customer momentum and customer inquiries and order backlog building and those type of things.

[Operator Instructions] We don't have any further questions registered at this time. So I'd now like to thank you all for joining. You may now disconnect. Have a lovely rest of your day. Thank you.

Thank you, Melissa.

Thank you, Melissa.