Hello and welcome to the Expro Q2 2024 Earnings Presentation. My name is Elliot and I’ll be coordinating your call today. [Operator Instructions] I would now like to hand over to Chad Stephenson, Director of Investor Relations. Please go ahead.

Welcome to Expro’s second quarter 2024 conference call. I am joined today by Expro’s CEO, Mike Jardon and Expro’s CFO, Quinn Fanning. First, Mike and Quinn will have some prepared remarks, then we will open it up for questions. We have an accompanying presentation on our second quarter results that is posted on Expros’s website, expro.com, under the Investors section. In addition, supplemental financial information for the second quarter results is downloadable on the Expro website, likewise under the Investors section. I’d like to remind everyone that some of today’s comments may refer to or contain forward-looking statements. Such remarks are subject to risk 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 maybe 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 second quarter 2024 earnings release, which can also be found on our website. With that, I’d like to turn the call over to Mike.

Good morning, everyone. I’d like to start off by reviewing the second quarter financial results presented in today’s earnings press release. I will then discuss the macro environment, which we believe offers a favorable multiyear outlook for energy services companies with exposure to international and offshore markets, presenting a compelling growth opportunity for Expro. Finally, Quinn will provide some additional commentary on the just completed quarter and share some additional financial information. For a recap of consolidated results and quarterly results by region, I’ll direct you to Slides 3 through 7 of the presentation that we posted to expro.com. Turning to Slide 3, I am pleased to report a very strong quarter for Expro with Q2 2024 revenue of $470 million and adjusted EBITDA of $95 million, both exceeding guidance in part due to the early closing of the Coretrax acquisition. Revenues increased sequentially by $86 million or 22% compared to the quarter ended March 2024. Excluding the impact of Coretrax, revenue was up sequentially by $65 million or 17%. This sequential increase is, to some extent, consistent with historical revenue trends as we usually experience a seasonally soft first quarter. More importantly, results for the second quarter reflect momentum building in the offshore markets for which our outlook remains very strong. As reported, second quarter revenue increased 18% year-over-year and 13% excluding the impact of Coretrax. Q2 2024 adjusted EBITDA was up 32% compared to Q2 2023. Note that Q2 2024 adjusted EBITDA includes a $7 million contribution from Coretrax and Q2 2023 included $6 million of LWI-related unrecoverable costs. The strong adjusted EBITDA performance was driven by the increased activity across all regions and product lines and solid fall-through on incremental revenue. Given our strong year-to-date momentum and the tailwinds continuing to support profitable growth in our business,…

Thank you, Mike. Good morning, everyone. As Mike noted, we reported revenue of $470 million for the quarter ended June, which represents a new high watermark for quarterly revenue since we completed the Expro/Frank’s merger in the fourth quarter of 2021. For reference, our guidance for Q2 revenue that was provided in our Q1 earnings conference call was for a range of revenue of $400 million to $420 million. Guidance assumes no contribution from Coretrax, which accounted for approximately $21 million of Expro’s $50 million to $70 million outperformance relative to guidance. Revenue was up $86 million sequentially or approximately 22% due to higher revenue in NLA, which was largely driven by well construction and subsea well access and in ESSA, which was largely driven by subsea well access. Year-over-year, revenue was up by $73 million or approximately 18% relative to the second quarter of 2023. Within NLA well construction, offshore tubular running services revenue and tubular product sales were both up solidly quarter-over-quarter in the PRT offshore business, which we acquired in Q4 of 2023 at a particularly strong second quarter. Within ESSA, as Mike mentioned, we are in the late stages of the commissioning of the onshore pretreatment or OPT facility in Congo. Q2 revenue related to the Congo project was approximately $30 million, the contribution margin during the construction phase has been dilutive to overall profitability. In addition, as Mike noted, we successfully delivered a large subsea project for Azule Energy in Angola. TRS and tubular products should sustain their current momentum into Q3. Revenue from the Congo project, however, is expected to decrease in Q3 as we move into the operations and maintenance phase of the project, with contribution margin becoming accretive rather than dilutive during the O&M phase. In addition, the expected timing of H2…

Thank you, Quinn. 2024 year-to-date has been an exciting year for Expro with solid financial performance and the successful acquisition of Coretrax, which enhances our depth of talent and the capabilities we offer and we feel the business is strategically positioned to continue to become more meaningful to customers and shareholders. As Quinn stated, the fundamental macro backdrop is set for Expro to deliver value to our customers through our cost-effective technology-enabled services and solutions while delivering enhanced returns to our shareholders. This will require the team to execute on our strategic initiatives and continue to both champion safety and deliver best-in-class service. Closing where I began, we believe that the international and offshore markets are in the early stages of a multiyear growth phase that based upon project sanctioning levels and customer dialogue, we believe could be sustained through the end of the decade. With that, we can now open the call for questions.

Thank you. [Operator Instructions] Our first question comes from Luke Lemoine with Piper Sandler. Your line is open. Please go ahead.

Hey, good morning, Mike, Quinn.

Good morning, Luke. How are you doing?

I am doing great. You raised your ‘24 EBITDA guide, and it sounds like your confidence in the long-term outlook is increasing, but maybe there’s a little shift between 3Q and 4Q with just some project timing start-ups. Could you elaborate on this a little more? And then maybe talk about some of the puts and takes between the high end and the low end of the guidance range this year?

Sure. And Luke, a lot of it was really a strong Q2. We had some of the, in particular, a couple of subsea projects that literally were within days of where they’re going to fall in Q2 or were going to fall in Q3. So part of the really strong Q2 was some of that revenue that shifted by a couple of days from Q3 into Q2. We’ll kind of be back in that more normal rhythm of things as we exit Q3 going into Q4. Quinn, do you want to comment?

The Q4 step-up is likewise generally related to subsea well access projects. PRT, as I mentioned in my remarks, a very strong second quarter, their expectations based on project timing as a step down in Q3 and then the recovery in Q4, very similar story for the Africa Coast within the subsea well access business. Mike mentioned the Agogo-related deliveries in Q2, little more quiet in Q3 within subsea, legacy Expro and likewise, a recovery in the fourth quarter. I guess as you look into kind of the larger movements, I would have highlighted the subsea projects as well as the project phasing on the Congo project, and then we’ll continue to get an incremental contribution from Coretrax as we pick up the extra month.

Okay. And then, Mike, you talked about Coretrax on – and the revenue synergy possibilities. But is there any way to maybe frame this potential kind of on a multiyear basis? And then could you also talk about how the integration is progressing with Coretrax?

Sure. It’s – so fundamentally, for us with Coretrax, it’s a business today that is – we probably have strong activity in six or seven countries. And in broader Expro, we operate in somewhere between 60 and 70 kind of depending upon the day of the week. So really, it’s that internationalization of our ability to go ahead and deploy that into additional markets. We’re going to focus on those – we’re not going to try to roll out to 60-plus countries on day 1. We’re really kind of looking at a phased implementation process. And we will focus in the places like the Middle East, continue to expand the portfolio there. Australia for some of the expandables technology, we think we’re really going to see some good traction there. So that’s actually going really well. I was pleased that we could close it earlier than anticipated because what we’ve really been able to do more than anything is really start to leverage both the legacy Coretrax sales team as well as the broader Expro sales team, and now they can really start having those kind of conversations. Until we got it closed, that’s – we’re not allowed to do that. We’ve got to kind of keep that wall in between them. So we’re really just leaning hard into that now here over the course of the last 6 weeks or so. And I just see a great opportunity, and especially from a customer standpoint, they really want to see the deployment. They want to see the added benefits of some of the technologies that we have from Coretrax. It’s one that we continue to be really excited about.

Great. Perfect. Thanks so much.

Thanks, Luke.

We now turn to Neil Mehta with Goldman Sachs. Your line is open.

Yes. Good morning, team. And really strong performance in the Africa geography, I just love your perspective on how you’re thinking about that on a multiyear basis. Are there – is there more market share in projects to be one? And then tie that into any views on West Africa specifically, which seems to be heating up here?

Sure. No, Neil, thanks for the question. I think it’s – it’s probably – I wouldn’t say it’s so much of a market share opportunity for us in West Africa. I think it’s just – as we start to see more of a ramp up in activity in Africa and in West Africa, in particular. Let us bear in mind, I’ve talked about this a number of times, but let’s bear in mind, if we look at we’re finally kind of back to the same FID levels in the kind of ‘24 to ‘26 period that we had historically back in 2012 to 2014. But Africa and West Africa, in particular, are still kind of underrepresented in that. And as I alluded to in some of my prepared remarks, just based on pricing inquiries, technical discussions, budgetary pricing discussions with customers and those kind of things, we continue to see some ramp-up in what I believe is going to be additional project sanctioning in West Africa here in ‘24 and going into 2025. So I think that’s a market that’s going to continue to grow and be more robust. And keep in mind, part of that is just related to our customers, you’re not going to go to some place like Ghana or Equatorial Guinea and drill one or two wells, you’re going to go with a project of 6, 8, 10, 12, 25 well type projects. So I think as they have more confidence based on our discussions from technical inquiries, those types of things, like we’re going to continue to see kind of a ramp-up in project sanctioning. And we know that we will win more than our fair share of projects in West Africa. So it’s really kind of a timing of when those projects get kicked off. I think it’s also one of the reasons why you’re seeing some of the tree providers, their backlogs are starting to build. They’re having strong backlog numbers. They’re having strong inquiries and those types of things, I think we’ll see that translate into more activity for us from a service standpoint in coming quarters and coming years.

Thank you. And just love your perspective on how the Coretrax integration is going so far. And to the extent it’s tracking at or above schedule. Do you see the capacity of the organization to do incremental M&A? Are there other Coretrax that’s out there?

So Neil, the Coretrax integration is going really well. Part of one of the things we spent a lot of time on when we did the broader integration with Expro and Frank’s was we really developed an integration playbook because we knew that was not going to be the only integration we were going to do. And so it’s made us much more efficient to go out and know what to focus on and know how we should sequence things and how we should organize ourselves to go out and do integration from acquisitions. The other benefit is really with both the PRT acquisition as well as Coretrax, those are not big global – we don’t have activity in all 60 countries with Coretrax. So it’s more straightforward for us to integrate that because that’s a smaller number of countries. And really, a lot of our efforts at this point is really much more on how do we create the revenue synergies, how do we deploy into additional countries. So we continue to look for other Coretrax or PRT type acquisitions, and it does not give me pause or concern on our ability to go out and be able to integrate additional opportunities like a Coretrax. The organization has the bandwidth to take those things on board. So that’s not a limiting factor. It’s more of the how does the technology fit, how does – what are the economics of transactions, those kind of things that we are focused on.

Thank you, sir.

Great. Thanks, Neil. Good to speak.

We will now turn to Arun Jayaram with JPMorgan. Your line is open. Please go ahead.

Yes. Good morning gentlemen. My first question is just on the updated 2024 outlook. You raised your revenue outlook by $75 million in EBITDA by $12.5 million at the midpoint. Quinn, that would suggest kind of an incremental EBITDA margin around 17%, which is kind of below the corporate number for the quarter. So, I know there are some moving pieces with Congo, but I wanted to get a little bit more color on the incrementals post your updated guide?

Yes. I think the Congo is the one you are certainly right to focus on it. I mean we had $30 million in revenue in the quarter. We have had higher than expected commissioning costs, kind of in the late rounds of Phase 1. So, really the $30 million in revenue in the second quarter came with no margin because it’s a percentage of completion. So, as we have adjusted the project, economic expectations, all of that got booked in Q2. So, we are essentially beyond the commissioning phase at this point. Revenue will drop from that, but margin on a percentage basis will go up. So, ESSA, which is where we recognize the Congo project is expected to be a good quarter, a low revenue, but higher segment EBITDA margins. So, I think that you are focused on the right thing. I am not sure I would say that fall through for the broader businesses more negatively. It’s really just the elimination of high mark [ph] lower-margin projects and the results.

Makes sense. The follow-up question is you guys have highlighted a medium-term target of $2 billion in revenue, 25% kind of EBITDA margins. And maybe just give us a sense of – I believe that outlook does assume some kind of contribution from M&A., and just maybe your thoughts on how the business should evolve into next year. Street is generally modeling around 7%, revenue growth relative to your updated guide and about 200 basis points of margin expansion next year.

Yes. I think that again, the most significant thing is will be the phasing of the OPT project. But other than that, I think the broader business is trending positively, both from a growth perspective. I think the industry-wide expectations are high-single digit, low-double digit growth in less, puts and takes, probably the most significant headwind will be the non-repeat of the Congo type revenue, but again, it will be at better margins. So – but we haven’t really kicked off in earnest our budget cycle for 2025, but I would expect we will be at or above industry-wide growth just because of investments in technology and relatively optimistic expectations for, again, the cementing and performance drilling business, performance drilling being most significantly impacted by the Coretrax deal. Shorter version of saying, as I would expect, as we pull together our budget for next year, 7% growth year-over-year would probably be at the low end of my expectations rest of today.

Great. Thanks Quinn.

Thanks Arun.

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

Yes. Hi. Good morning. Just a bigger picture question for you, Mike, but if I look back a year ago, oil prices were almost in the exact same place as they are today with Brent in the low-80s. And yet it seems like offshore activity and sentiment have gotten much better since then. What would you say is the biggest change in your conversations with customers today versus a year ago? And is that part of what led to the full year revenue and EBITDA guidance raised today?

No, it’s a great question. And you are spot on. There is not a difference in commodity prices significantly between a year ago versus today. I think it’s – I think fundamentally for our customers, it’s really been, they have got more confidence in kind of a stable commodity price environment that it’s not – we are not going to see a – I think if we have numbers that are mid-60s and above, I think a lot of offshore deepwater projects will continue to be sanctioned. And largely because they have become much more efficient, the batch drilling concepts and those type things have really driven breakeven numbers down to – in the 40s. So, I think that’s what’s driven that today. And just the number of technical inquiries, those type discussions we have just continued to be really strong and really robust. And there is just more – I guess I would characterize it, there is just more confidence from our customers in sanctioning projects and moving forward. And as I said earlier, I think that’s one of the reasons why you are seeing the Tree providers start to build backlogs and those type of things because the Tree is probably the biggest limiting factor for some of those projects. So, that’s why immediately after they approve an FID, the first thing they are doing is securing Tree. And the second thing they are doing is trying to make sure they get on a rig schedule. So, I think there is just all kind of lining up for that kind of confidence with our customers.

Got it. That’s great to hear. And then just my follow-up is on the EBITDA margins in APAC, which were really impressive this quarter, a 24%. Can you just expand a bit on the improvement there? I know you mentioned higher activity and lower-LWI related costs. But just looking back historically, I mean this region hasn’t been above 20% EBITDA margin since late 2021. So, is there any reason why APAC EBITDA margin shouldn’t continue at this kind of 20%-plus level going forward, or should we expect some moderation maybe back to the teens over the coming quarters?

I would actually expect the current quarter to be more reflective of expectations going forward. LWI was a drag for not a quarter or two quarters, but for couple of years here. So, I would say Asia-Pac returning to kind of low-20s, not as high as some of the other regions because of activity mix. Unless, of course, there is a recovery in subsea, which we haven’t seen a significant amount of activity. Project sanctioning has been slow, particularly offshore Australia. Hopefully, we will see that pickup in ‘25 as well. So, again, I would say what you are seeing in Asia-Pac is what our expectations are going forward. And hopefully, we can move up from here with some incremental subsea activities.

Got it. Great. Thanks Quinn.

Thanks Eddie.

And I guess the one thing I would add there, too, is I think it’s also – Asia Pacific is also an area for – focus for us on technology deployment with cementation with some of the Coretrax services with expandables, those type of things because it does give us some competitive opportunities, some competitive advantages, some technology benefits, and we will use that to help us kind of reestablish our margin footprint in Asia-Pacific because it has been behind what our expectations are. So, we will use that to kind of try to accelerate that and try to get back to where we think that particular region should be operating.

Our next question comes from Steve Ferazani with Sidoti. Your line is open. Please go ahead.

Good morning Mike. Good morning Quinn. If we back into your EBITDA and revenue for the year and you take out your guidance for 3Q, it indicates 4Q margin will be by far the highest margin quarter for the year. I think you pointed out a couple of PRT and subsea if it’s coming in 4Q. But can we use that to some degree as a run rate? Would you not – obviously, now in Q1 is always seasonally lower. But is that getting to a level that you think is more reasonable, if you can hit the midpoint of guidance for this year?

Yes. So, I mean if you look at kind of Q2 and Q3 at the midpoint of guidance, $185 million of EBITDA and a little less than $900 million of revenue. Q4 historically is a strong one for us and certainly is the starting point for where we would like to see the next full year results play out. Again, we always have a step down in Q1. But if we finish in the 22-ish or better zip code for Q4, I think that’s a good setup for ‘25.

Great. And I don’t want to harp on this too much because you covered it pretty extensively. But on the ESSA margin, we understand why it was lower in Q2. But as you roll into the lower revenue, but accretive margin phase of Congo, do those margins get back to those really high margins you are getting in that region, the back half of last year or not quite because the revenue in Congo is lower?

If you are talking about margin in percentage terms, yes, I think if you look at late ‘23, that’s what we would like to see, it’s back to – MENA has consistently been above 30%. NLA and ESSA have kind of bounced recently. And if you look over a couple of quarter run rate in the high-20s, let’s see all three of those regions above 30%. And as Mike mentioned, Asia-Pac will be a work in process, and that’s going to take a little bit more time, largely driven by the type of activity.

Great. And then if I could get one in on cash flow. Last year, the working capital reversal really was entirely 4Q and you are guiding for a really strong 4Q. Is it reasonable to assume the bulk of your cash flow, this free cash flow this year is 4Q?

It’s tough to put too fine a point on it, Steve. The – you are right, working capital is the big driver. I think with $70-plus million build in working capital in the quarter, $20 plus million of that is milestone payment related on the Congo project. Customers are trying to improve their cash flow profile on the back of the services industry to some extent. So, you have got a combination of revenue growth, customers extending out payment terms of whether it’s Q3 or Q4, I am not sure I predict that at this point, but we should see a much better cash flow profile for H2.

Thanks Mike. Thanks Quinn.

Thanks Steve.

[Operator Instructions] We will now turn to Colby Sasso with Daniel Energy Partners. Your line is open. Please go ahead.

Hi Mike and Quinn. You put out a press release in May highlighting your 100th Global SeaCure jobs, and you also highlighted this technology in an event you held in Houston and back in May. I am curious if you could provide some color around the timeframe. It took 50, 100 jobs, what the run rate looks like going forward? And what’s some of the economics around the cost savings look like for your customers who use this technology?

No, it’s a great question, and thanks for asking that one. It’s – so keep in mind, DeltaTek was an acquisition that we closed in February of 2023, so relatively short timeline for us to get that number of operations completed. And this really – what the DeltaTek technology really helps with is really in rise or lift [ph] deepwater cementation jobs. And so for each deepwater well, you are going to have one to two job opportunities for this type of technology because it’s really filling on the first couple of strings. And what it really does is it helps improve the overall cement quality, which is extremely important because kind of the foundational casing strings that are run in those first couple of casing liners. And fundamentally, what that really allows us to do, it helps us save the operators typically somewhere between 12 hours and 24 hours per job. And nothing pleases me more than to hear rig rates keep going up. We saw some rig rates for Equinor that are going up, that are starting to approach almost $600,000 a day. I think that’s really healthy. And for us, when we can save 12 hours to 24 hours of rig time when it’s $500,000 plus day rates, that becomes much more of an economic incentive for customers to invest in this type technology. And we have really been able to continue to – prior to the acquisition of DeltaTek, that technology really was predominantly being deployed in the UK North Sea, and we have been able to start to internationalize that – the Gulf of Mexico in particular. It’s kind of starting to become – for a number of our customers is kind of becoming the standard. They run on those first two to three casing strings across the board. So, we will continue to see that accelerate. But it’s just – it’s a great technology, really drives efficiency, really drives cementation quality improvement, and both of those are paramount to operators today.

That sounds amazing. What other technologies do you view as potentially disruptive in the current environment that we may hear more about over the next 12 months?

Yes. I think that – I will kind of stick with the theme around well construction in particular because as operators are really trying to drive drilling completion efficiency, those type things as batch drilling has become more common in deepwater projects. The number of drilling complete days is down dramatically. That’s part of the reason why. As I spoke earlier about the breakeven economics for customers, so really some of our technology around our – like our iTONG, which is – which provides automation for makeup of casing running operations, remove personnel from the red zone, improves efficiency, makes it much more repeatable. It’s very much done through machine learning and automation, those type of things. I think that’s a great example of driving efficiency and also our VERSAFLO technology, which really helps around tripping operations. And fundamentally, our next-generation design will be deployed – it was deployed early this year, and we have got really strong demand for that in the Gulf of Mexico as well as in Guyana and really just improves operational efficiency, reduces personnel on the rig floor, those type of things. So, we see that as an area, we continue to invest in technology. We did even throughout the downturn over the last 10 years or 12 years. And even during the pandemic, we have invested in our own engineering development of technologies, and we have supplemented that with some of the M&As that we have made as well because we think it helps, really reduces rig time, reduces the number of personnel onboard, improves operational efficiency. Those are kind of some key areas that we see for our customers as they go forward, and allows them to fundamentally sanction more projects because they have got better breakeven economics as they have more drilling – more efficient drilling completions operations. So, good, very good questions. Thank you.

Thanks. I will turn it back.

Appreciate it.

Ladies and gentlemen, we have no further questions. So, this concludes our Q&A and today’s Expro Q2 2024 earnings presentation. We would like to thank you for your participation. You may now disconnect your lines.