Hello everyone and welcome to the Expro Third Quarter 2023 Earnings Presentation. My name is Emily, and I will be coordinating your call today. [Operator Instructions] I will now turn the call over to Quinn Fanning, Chief Financial Officer. Please go ahead.

Welcome to Expro's third quarter 2023 conference call. I am joined today by Expro's, CEO, Mike Jardon. First Mike and I have some prepared remarks then we will open it up for questions. We have an accompanying presentation on our third quarter results that is posted on the Expro website, expro.com under the Investors section. In addition, supplemental financial information for the third quarter and prior periods is downloadable on the Expro website, likewise under the Investors section. I would 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 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's website sec.gov, or on our website again 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 third quarter 2023 earnings release, which can also be found on our website. With that, I would like to turn the call over to Mike.

Good afternoon everyone. As Quinn noted, we posted slides with Q3 highlights to the Expro website. We will refer to several of these slides during our prepared remarks today. In my remarks this afternoon, I will begin by reviewing the third quarter financial results presented in today's earnings release. I will also discuss the overall macro environment, which we believe supports a favorable multiyear outlook for energy services and the international and offshore markets to which Expro is most levered. Quinn will then share our revised outlook for the fourth quarter full year 2023. As highlighted in our press release, third quarter revenue was $370 million and adjusted EBITDA was $50 million or 14% of revenue. Adjusted EBITDA for the three months ended September 30 includes $15 million of LWI related demobilization and other unrecoverable operating costs. Excluding such costs, the adjusted EBITDA would have been $66 million or 18% of revenue. Our net loss for the third quarter was $14 million or $0.13 per diluted share compared to a net income in the second quarter of $9 million or $0.08 per diluted share. Adjusted net income for the third quarter of 2023 was $6 million or $0.06 per diluted share compared to the second quarter adjusted net income of $19 million or $0.17 per diluted share, primarily reflecting lower adjusted EBITDA. Our third quarter was a challenging quarter with headline results and several discrete issues masking what we believe to be a favorable, long-term outlook and good business momentum for Expro. We acknowledge headwinds in certain geographies and several Expro specific challenges as well, all of which we are addressing with appropriate urgency. We also want investors to understand underlying business trends and what we are doing to capitalize on these trends. As a recap, on September 27th, we…

Thank you, Mike. First, as was noted in our September 27th press release, there is an ongoing investigation regarding the crane wire failure on the vessel that was deploying the subsea module for a vessel-deployed LWI system. As Mike noted, we have not yet recovered our equipment, but expect to do so in Q4 or early in Q1 of 2024. Third quarter results reflect unrecoverable operating costs, totaling $15 million, including an estimate for demobilization costs. As noted in our earnings press release, third quarter results do not include an estimate for recovery and repair costs. However, based on the information that is currently available to us, we do not think that such recovery and repair costs, net of insurance will be material to Expro's financial results. After we have recovered our equipment, we will also be able to determine when our LWI system will return to operational status. But alternative service delivery options and service partner options are available to the Company, and the timing and cost of completing LWI related customer work scopes. At this time, we are not able to assess the timing and potential costs of completing customer work scopes and whether such costs could be material to Expro's financial results. Once we had moved beyond the start-up and commissioning phase, i.e., in 2024 and beyond, we expected annual revenue from our vessel-deployed LWI business of $50 million to $75 million. Until we returned to operational status, this expected revenue will obviously not be a part of our financial results. Contribution margin from vessel-deployed LWI services has been negative to date. However, our further expectation was that, we would have achieved 20% to 25% contribution margin in 2024. This is generally lower than contribution margin generated by our other product lines and reflects high pass-through costs,…

Thanks Quinn. I'd like to leave all of you with three key takeaways before we open up the call to questions and answers. First, Expro continues to outpace market growth, delivering and expecting double-digit revenue growth by capturing market share and by introducing new technologies in our established markets. This results of us being able to leverage our global operating footprint, excellent track record and world-class service delivery. Second, while LWI related startup and commissioning costs, the recent incident involving our vessel partners, Crane Wild Ferrier and the softness in NLA, particularly in Q3, have resulted in downward adjustments to our 2023 outlook. Expro remains well positioned to deliver strong top-line growth and benefit from improved operating leverage. As we drive more activity and revenue across a more efficient support structure, we should be able to expand EBITDA margins and improve free cash flow generation. Finally, we were in business because of the quality of our execution. We were successful in achieving and exceeding our merger related synergy targets because we have worked very hard to develop strong and detailed plans, and then we set about by implementing them. As the inevitable challenges arise in a dynamic operating environment, we'll address them in a straightaway manner. We will also continue to be transparent with investors regarding any course corrections to our business plan. What we will not change is our commitment to deliver and derive value by providing cost effective technology enabled services and solutions. With that, I'll turn the call back to the operator for the Q&A session.

[Operator Instructions] Our first question comes from the line of Luke Lemoine with Piper Sandler. Luke, please go ahead. Your line is now open.

Mike, Quinn, I hope you all talk about the issues and impacts in NLA in 3Q as far as Well Flow Management, U.S. Land TRS, Well Construction, Gulf of Mexico and Caribbean. Just kind of want to understand this piece is a little bit better, but maybe if we could start with U.S. Land. And Mike, you touched on a little bit, but what are you doing here? How is the business restructured? Do you need the divest pieces? You talked about mobilizing equipment in different basins, and just kind of how you see this, U.S. Land TRS business evolving kind of in the next 6 to 12 months? And then I'll have a few follow-ups as well kind of the rest of NLA.

Sure. No problem, Luke. And thanks for the questions. So fundamentally, what we're really experiencing within TRS in U.S. Land is, it's a very competitive landscape and as I said in the prepared remarks, what we're really seeing is, and these are much smaller competitors, these aren't the bigger, broader, in normal competitors you'd think of, they're smaller, privately held, one and two man shop kind of operations. And it really appears right now that they're really just trying to stay afloat and they're chasing market share, they're not chasing pricing. So, we've been continuing to press price in U.S. Land. And frankly, what we're not seeing is the type of discipline that you see from the drillers or you see from the pressure pumpers in U.S. Land where they've all kind of consciously made a decision that they lay equipment down before they start giving up pricing. So really, what we've been doing is, we've been closing a few facilities. We're starting to concentrate our assets and to some of the basins that we can, that we think we can achieve some better pricing with. We do have still have some technology elements in U.S. Land, special run cementation that we think is valuable to our customers, allows us to have some pricing traction. But we're going to contract that business back to a level that we can maintain some better margins. We won't necessarily divest assets. We frankly will move those same assets internationally. We've got land markets in Latin America or in the Middle East or even in Asia that we can utilize those TRS assets. So, that's, I think we've all been trying to understand when does bottom occurs in U.S. Land and what happens with rig rates and just rig count and those type of things, and it's just been softer than I think what anybody anticipated. For us, we're starting to accelerate moving equipment outside the U.S. and to a fewer number of basins within the U.S. That makes sense, Luke.

And then on the well testing NLA, is this just you had the jobs on the calendar, you mobilized and then there were dry holes, so there were no revenues where the job didn't occur. Can you just kind of absorb some costs along with that?

Absolutely, that's a really good read of what we were trying to talk about. We had dry wells, we had dry holes in Mexico, in particular, and we had a series of dry wells. Normally, we test about 50% to 60% of our wells that are kind of on the calendar and the way things lined up for the quarter, we didn't test wells that we, at the same rate we normally would. And overall, what we really had was, and I think you've seen it from some of the comments from some of our other peers that there was a reduction in the Gulf of Mexico, in particular, on drilling related activity within the quarter. It just kind of happened to be there was more completions activity. Large number of completion operations being run in the quarter and not quite as balanced of drilling completions as what you normally have. So, it really was a timing of operations. It was rigs in Guyana being in a maintenance mode, it was just kind of how things stacked up from an operational standpoint as the operations kind of layer in over the quarter.

And then just one final one -- sorry to wrap it altogether for NLA, you provided the bridge for the annual EBITDA guidance change, but how do you think NLA performs in 4Q? And when do you think you can kind of get back to more normalized 2Q performance levels, maybe or acts a smaller U.S. Land TRS business?

If you are rolling it all up, Luke, it is Quinn. We were at a kind of a $130 million, trending toward a $140 million of revenue quarter in NLA. As I am sure you saw from our conference call slides in the press release, we are just a bit over a $100 million in the third quarter. So at least our expectations is that, in the fourth quarter, if not the fourth quarter, in the first quarter, you are going to be back in that $130 million to $140 million our zip code in terms of revenue, at least that's our expectation where we sit today.

Our next question comes from Atidrip Modak with Goldman Sachs. Please go ahead. Your line is open.

Hi. Thanks for taking my question. Quinn, on the LWI business, do you now expect, I mean, I know you mentioned some expectations there, but is that going to be a different approach to the business? Maybe help on impact the expectations around that compared to the approach so far? And what would that mean for cost after you resolve the current issue?

Yes, it is a good question. And really what we are -- the biggest challenges and the biggest shortcomings we have had trying to go operation with the LWI system over the course of last year really has been the vessel partner. We have had a number of vessel-related issues, most significantly around the crane, whether it was a hydraulics issue or it was this now crane wire failure. And we have had somebody that we have partnered with and we willingly partnered with them upfront. And they really have -- they have left us kind of standing at the altar, so to speak. And so really what we're looking at is, is there a -- is that the ideal vessel to be partnered with? Is there -- we are doing over the side deployments today. The original plan was to do deployments through our tower. So, it is really just looking at, who do we partner with? How do we partner with? Do we run the operations? We are the kind of front facing element of the customer engagement? Do we move to more of a traditional? We provide the LWI system and the operator secures the vessel on their own. We are really looking through all of those options here now, because it frankly in the construct we have had, as Quinn alluded to. We are taking a disproportionate amount of the risk here. Even though our equipment has not been problematic, the end user has -- the end customer has had to deal with somebody down time. So that's why we're really trying to look at and evaluate this. The one thing I can tell you is that, the operations we completed and we completed a significant number of these suspensions. They were very efficient. They were very operationally went well and there was a lot of customer interest and excitement around that technology. So how do we be able to deploy that and how do we be able to provide it to customers is really what we are trying to evaluate right now.

Got it. Thanks for that. And then you mentioned rationalization of the North American onshore footprint. Is this something that became more specific during this quarter that brought future challenges to light or was this contemplated for some time now? And maybe also talk about the competitive landscape elsewhere, what kind of structural revenue EBITDA impact does that net out to?

Sure. And so this is not -- the U.S. Land TRS kind of slipping down our operations, that's not -- that's something that's new for us. We've been working on that for several quarters. We've closed some facilities. We've been reducing some of our footprint. It was just really exacerbated in this quarter because we really kind of had the -- and I don't want to say the stars all aligned here because that sounds like an excuse. But what we really had was we just had a number of a series of things that kind of happened all concurrently, and it wouldn't normally be that way. We had some well test operations in Mexico. We had rigs in the Gulf of Mexico that were in a completions phase, not in a drilling phase. So it probably put a brighter light on the U.S. Land, impact, than what it normally would have. Fundamentally, it's a highly competitive marketplace. I can tell you an area like the Permian. There are 34 TRS providers today. And these aren't the big guys. These are small privately held companies. And as we alluded to in the call, they really appear to be chasing market share and not chasing pricing. And they're not showing the level of discipline that we see around the pressure pumpers or some of the drilling guys. So, we're continuing to try to flex our operational footprint to the right size. The other thing that we do bring to this and I alluded to it when I answered the question for Luke. We do have technology that we can deploy into this, whether it's around cementation, improving some efficiencies around those kind of things. So we're trying to get that balance of providing some higher value added services that we can get paid for and get credit for, so to speak, in U.S. Land, but not trying to be competing in a highly commoditized business. That's we're trying to balance in there, and we'll continue to move those assets, to other parts of the world, because we can redeploy them in places like the Middle East or Asia in particular.

Our next question comes from Arun Jayaram with JPMorgan. Please go ahead. Your line is open.

I wanted to follow up on the 4Q kind of earnings power of the Company, which you highlighted around an EBITDA outlook around 80 million. As we think about 2024, do you think that this represents a good baseline for the kind of given some of the challenges you cited? Is that a good baseline for thinking about 2024? And would you expect to see some growth on top of that, just given further expansion of activity, particularly in international offshore markets?

I guess in terms of what the business has currently constituted can do and in terms of adjusted EBITDA if you back out the LWI related issues, $75 million, $80 million in the second and third quarter. Fourth quarter is typically, a good quarter for us. First quarter tends to be the weakest of the year. So, the $75 million to $80 million, I would say, is kind of normalized performance where we sit today. And we're in the budget season today. We represent our budget to the Board in mid-December, so I would expect we'll give guidance sometime between first of the year and, I guess, at the latest when we report fourth quarter results. So that's when we can speak specifically to 2024. But we'll have, obviously, a bit of a revenue headwind if we have LWI out of the mix at least for a couple of quarters potentially. As I mentioned, that was a $50 million to $75 million revenue contributor on paper before we had this incident. But the business is trending in a positive direction. I think as we've talked about in previous calls, we have a relatively significant revenue contribution from Eni Congo project, which will continue for delivery in the first half of 2024, at least on that project, we'd expect a revenue step down as we move into an O&M phase. So the margin should be better during that. But even with LWI out of the mix and the Eni Congo change in phases, we think we'll see good growth in 2024 tough to put a finer point on it before we finalize our budget.

Yes. And I guess, Arun, all I would add to that is we continue to see positive customer engagements, technical inquiries, bidding, tendering activity, those type of things. And the softness that we've had here in Q3, when you look at the numbers, LWI notwithstanding, it was an NLA related issue and it was just kind of the timing of a number of those projects. We still continue to see good solid activity everywhere, and customer engagement and customer sentiment, I think, continues to be positive overall. So I don't see any difference in. I still believe in the fundamentals of offshore international, and that's where we're really well positioned for.

Understood. And just my follow-up, as we think about pricing for well construction in 2024, you highlighted how you saw some reduced activity in the Gulf of Mexico, the U.S. and Mexican side and the Caribbean, does that potentially impact any thoughts on potential for pricing gains as we think about 2024?

No, because it really, it was not -- normally, you would have 65% of our activity would be drilling related and 35% would be completions related in a quarter, and it was flip flopped this time. It really just happened to be how the rigs were. So, it wasn't like rigs were stacked or those kind of things. It just happened to be where they in a drilling mode or a completions mode. And for us, we have a greater service intensity when we're in a, when the customer is in a drilling mode as opposed to completions. So it wasn't a fundamental change in the market. It just happened to be how things kind of stacked up. To be honest, as I've looked through the history of well construction over the last 8 or 10 years, we've never seen that phenomenon. It just happened to kind of line up within this quarter. So, I don't think that that's going to, that's not going to have a pricing effect. You take the activity in the Caribbean. We have very strong market share there. We didn't lose share. There wasn't a change in share. It just happened to be -- there were several rigs that were on maintenance in the quarter, and that's not a typical event. So, it's just more kind of how the activity sets lined up.

Some rates have been done and see, I guess, the point is that contracted rig hasn't changed. It's just what they were doing was different during the quarter.

Our next question comes from Eddie Kim with Barclays. Eddie, please go ahead. Your line is open.

I just wanted to follow-up on the softness NLA this past quarter. You mentioned one of the factors here was maintenance activity on certain drilling rigs. Just curious, if this was unexpected or unanticipated maintenance activity? I know the offshore drillers have five year special periodic surveys, which I understood were scheduled or planned for the most part. So just curious, if you could start to see higher maintenance activity on rigs and other regions besides NLA, and just generally, if you could speak to your visibility on offshore rig maintenance going forward?

Sure. It is a great question, and thanks for asking it. Fundamentally, it was not unanticipated activity. It just happened to be that, there was maintenance activity. At the same time, we had dry holes in Mexico. At the same time, we had a greater proportion of our activity being tied to completions related activity and drilling. It really was just kind of how things kind of feathered in and layered in within the quarter. We would anticipate the slowness because of the maintenance activity. But quite frankly, we did not anticipate completely un-forecasted that we were going to have dry wells in Mexico that would relate to no wells being tested throughout the quarter. So, I don't think this is just -- this is kind of a unique situation to NLA. It wasn't that maintenance took longer or they did maintenance, it wasn't planned. So, I don't see where it will have an effect on operations elsewhere in the world.

Okay, understood. And just a clarification here, Quinn, you mentioned that your 4Q guide does not include additional LWI charges. Is that because you don't expect additional LW charges in 4Q, or was that comment made more to indicate that, there could potentially be a risk to your $75 million to $85 million EBITDA guide, if additional charges are incurred?

So, what they try to do is re-bucket it and do a couple of different pieces, first of which is operating expenses, they are unrecoverable. We did recognized cost for the third quarter and it provided for the mobilization costs. And so at least we think we have that covered. The second piece, which is recovery and repair related, as I mentioned in my prepared remarks, we do not believe that, those costs would be material to results because there is insurance in that at play, whether it's Expro's or third parties. The other final piece, which we really are in a position to assess until we recover the equipment is, what is the cost and timing of completing customer work scopes. So I wasn't trying to hedge the guidance by highlighting the fact we have not provided for additional LWI related costs is that, we just don't have visibility on additional costs or have any ability to put a specificity around it. So, I am not saying that there is no chance that we would have costs recognized. There is related to LWI related in the fourth quarter. We don't have visibility on those today. And to the extent that we did, we provided trend in third quarter.

Our next question comes from Steve Ferazani with Sidoti & Company. Steve, please go ahead. Your line is open.

Thanks Mike. Quinn, we appreciate all the detail on the call. I do want to circle around a topic. I know you have already covered. But in terms of your 20% margin guidance for 4Q, there will be a pretty big jump from 3Q and you went through some of the issues. But you are at 18% even without excluding LWI, knowing that 4Q you are not going to get a lot of start-up projects late in the quarter and maybe some early winding down. Just your general visibility because you haven't been a 20% plus margin in quite some time.

In fact, we have excluding LWI related costs.

I mean, Steve, I guess, what I would try to frame it up for you. We do have good visibility about activity for the fourth quarter. It's kind of a project by project activity set, and we gave that guidance because that was a -- those were good ranges based upon the activity that we see in fourth quarter. And right now, we're a third of the way through the quarter almost right now, and we still see good alignment with that kind of guidance. So, it's based on projects that are known, activity sets that are known, and that's how we anticipate we'll be able to finish up the fourth quarter.

So is that primarily just a recovery in NLA offshore from where it was the lower level in 3Q, because if you're redeploying land assets, is that primarily where the margin bump comes from?

So I mean, we won't see much of a benefit from redeployment of U.S. Land assets in the fourth quarter. It will take us more quarters than that. But that was an ongoing process. But what you are seeing really is a, kind of a more normalized level of activity in NLA overall in the fourth quarter versus Q3. Q3 was just abnormally low because of how the activity sets were. But again, it was not a change in the market. It was not a change in market shares or those kind of things. It was just kind of how some of the operations laid out within the quarter. And that's why we've got good visibility and I have a good level of confidence that we'll be able to deliver the fourth quarter as we've given guidance to.

And if I could get one more in just on the buyback, you haven't bought back for a couple of quarters, but now you've expanded it to 100 million, any reason for the expansion now? And as I look at the stock today, obviously balance sheet is in great shape.

Sure. I'll let Quinn comment on in more detail. But part of it was, we were able to go through and we had some limitations previously because of the structure of our original revolver. We were able to build in some additional flexibility with the new revolver that was put in place. And we think that we'll continue to be, as we've done previously, I won't say opportunistic, but we'll go in and buy back stock when we think it makes good sense for us, and we have a balance sheet that gives us that kind of flexibility to be able to do. So part of it for us was the previous $50 million allowance we had on stock buyback was going to expire end of November. So, this was the right time for us to be able to go and reload that. And because we had the latitude to increase it, we felt like that was a good opportunity for us as well.

The $50 million in borrowings in the quarter that's paid down, that was just related to the acquisition. Just because it seemed odd given the amount of cash you have on the balance sheet to begin with?

Yes, it was really, pre-closing draw in regards to the PRT Offshore acquisition is largely about moving cash around the organization and wanting to make sure that we're sufficiently topped up with the parent company in advance of the PRT closing. As we've closed it, as Mike mentioned on the call, we've repaid the vast majority of what we drew down.

We have no further questions. So I'll turn the call back to the management team for any closing comments.

Emily, thank you. Everyone, appreciate you joining this afternoon for the conference call. I know we've got a number of, as usual, a number of sessions set up with individual investors. So look forward to catching up with all of you in due course. Thank you, and have a good day.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your line.