Expro Group Holdings N.V. Q2 FY2025 earnings call

Financial Results: Reported very strong quarterly results with increased revenue to $423 million, EBITDA growth to $94 million, and an expanded EBITDA margin of 22% of revenue. Generated robust $36 million in free cash flow on an adjusted basis. Marked the third consecutive quarter of financial results above expectations.

Market Environment: Underinvestment in traditional hydrocarbons in international and offshore markets supports a positive multiyear outlook for energy services companies like Expro. Current market has commodity price fluctuations, but OPEC+ phaseout of production cuts provides more clarity for longer-term market stability.

Operational Highlights: Deployed 3 new industry-first technologies, including the BRUTE Armor Packer, Remote Clamp Installation System (RCIS), and the world's first fully remote five-plug cementing operation. Secured various contracts across regions such as Guyana, North Africa, Angola, U.K., North Africa, Indonesia, and Australia. Achieved strong job performance ratings in Angola and secured contract extensions in multiple regions.

In the second quarter, North and Latin America (NLA) had revenue of $143 million, up $8 million quarter-over-quarter. Europe and Sub-Saharan Africa (ESSA) saw revenue increase $20 million to $132 million sequentially. Middle East and North Africa (MENA) had revenue of $91 million. Asia Pacific (APAC) had revenue of $57 million, an increase of $6 million relative to the first quarter. Overall, consolidated revenue for the second quarter was $423 million. EBITDA was $94 million, with an EBITDA margin of 22% of revenue. Free cash flow on an adjusted basis was $36 million.

Annual Guidance: Reaffirmed annual financial guidance with revenues of circa $1.7 billion and EBITDA of at least $350 million. General expectation is third quarter will be flattish relative to the second quarter with expected revenue growth in the fourth quarter. Expect free cash flow as adjusted to be plus or minus $110 million for the full year. Anticipate moderate increase in activity across NLA and APAC in the second half, while MENA and ESSA regions are relatively stable. Continue to optimize costs and streamline processes through the Drive25 operating efficiency campaign, expecting to capture at least 50% of the $30 million run rate cost savings target during the year.

Risks: Market volatility, including commodity price fluctuations and geopolitical conflicts, could impact business. Customers' caution regarding short-cycle activity, such as some intervention and OpEx-related activities, may affect certain segments. Uncertainties in the market environment can lead to downside risks to guidance while also presenting upside opportunities.

Q: Congratulations on a very strong quarter. I wanted to ask if that was mostly timing, just large multiyear projects coincidentally booking in the quarter? Or good commercial discussions suggest 2025 orders that could be up 20% or more versus '24?

A: Yes. It's really kind of all of the above. A number of those were contract awards we had in places like Guyana or in North Africa, that were more contract renewals, contract extensions, those type of things. It really was just kind of the timing of it. We continue to see a robust level of bidding and tendering activity. And that just kind of translated into a strong quarter of order intakes.

Q: I guess, Sergio and Mike, on the quarterly EBITDA margin cadence, is there anything that you can provide us in terms of how to think about the segments for the remainder of the year?

A: Yes. We always kind of start off Q1 of the year is always -- that's always going to be our lightest quarter. We're particularly affected by the Northern Hemisphere kind of winter season. That's always -- especially in the North Sea. That's always going to be a little bit of -- is going to provide a little bit of softness. And historically, our NOC customers tend to be kind of slower out of the gate. So Q1 is always kind of like that. We did have a -- we had a solid revenue quarter here in the second quarter, and we're able to translate that through to a really good fall through. Fundamentally, we still anticipate, and I'd be very disappointed if we don't expand margins in 2025 versus 2024. And we don't see anything right now that would give us a particular pause for that. So Q2 is just a solid execution quarter. It wasn't like we had some particular one-offs or those kind of things that help prop up margins. It was just a really solid execution quarter and based on a tremendous amount of customer dialogue that we've had here, we still see the second half of the year playing out as we've anticipated. That's why we try to give a roughly $1.7 billion outlook for the second half for the total year. That's really based on that customer feedback. So right now, I wouldn't anticipate anything changing from a margin standpoint beyond that.

Q: I apologize in advance, but I have to ask the offshore rig white space question. It's been a theme, as you well know, for over a year now. But the reason I ask is more recently, we started to hear more mentions of it from the larger service companies, and actually another offshore company recently lowered their ROV utilization expectations for the full year. So it seems like we're starting to see some expected impact of this in the second half of the year from companies that are not offshore drillers. So all that to ask, is there any part of your business where you expect to see some impact from offshore rig white space in the second half?

A: No. Eddie, it's a good question. I can say it's something we continue to -- and as I alluded to when I was responding to an earlier question, we've had a tremendous amount of customer engagement to really look at how the rest of the year is going to shape up, and literally down to the point where we're sitting down with customers, we're looking at what are their drilling programs? What their completion programs? And we're going to drill well X, and then when are we going to complete it kind of translate that into next activity set for us. So yes, there's some puts and takes of rigs going on maintenance or those type of things. We've really tried to layer that into what our forecast looks like in the second half of the year. And that's why we've been able to stand up and say with the best information we have today is we still think we're going to be in that $1.7 billion ZIP code, and $350 million plus EBITDA range. The area that I'm seeing more, it's a bit of an interesting phenomenon that we're seeing right now, is really around the more of the short cycle activity, more of the intervention activity, more of the OpEx-related activity. That's one that in my 30-plus years, that normally is the one that gets flexed up. And right now, we're seeing customers be, I think, particularly cautious around that. So that's one that we're kind of continuing to monitor that and trying to better understand kind of what the customer plans are there. But fundamentally, Eddie, our forecasting and our outlook for it has really been based upon a very detailed customer engagement, almost a bottoms up rig by rig, completion by completion type of analysis.