Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Expro Group Holdings NV (XPRO, Financial) reported a strong Q2 2024 with revenue of $470 million and adjusted EBITDA of $95 million, both exceeding guidance.
- The company saw a sequential revenue increase of 22% and a year-over-year increase of 18%, driven by increased activity across all regions and product lines.
- Expro Group Holdings NV (XPRO) successfully closed the acquisition of CoreTrax earlier than expected, contributing positively to revenue and EBITDA.
- The company has a healthy backlog of approximately $2.2 billion, indicating strong future revenue potential.
- Expro Group Holdings NV (XPRO) raised its full-year 2024 guidance, expecting revenue between $1.7 billion and $1.75 billion and adjusted EBITDA between $350 million and $375 million.
Negative Points
- The ESSA segment's EBITDA margin was flat sequentially and down approximately 4 percentage points year-over-year due to lower margins on the Congo Production Solutions project.
- Q3 2024 revenue is expected to decline sequentially by approximately 10%, reflecting the transition of the Congo project to the operations and maintenance phase and the timing of subsea well access projects.
- Net income for Q2 2024 was $15 million, which, although an improvement, still indicates room for growth in profitability.
- Adjusted cash flow from operations was only $6 million in Q2 2024, significantly lower than the $36 million in Q2 2023, primarily due to an increase in net working capital.
- The company faces challenges in maintaining high EBITDA margins in the Asia Pacific region, which has historically underperformed compared to other regions.
Q & A Highlights
Q: You raised your '24 EBITDA guide. Can you elaborate on the shift between Q3 and Q4 with project timing and startups?
A: A lot of the strong Q2 performance was due to subsea projects that shifted from Q3 into Q2 by a few days. We expect to return to a more normal rhythm in Q3 and see a step-up in Q4, particularly related to subsea well access projects. (Michael Jardon, CEO; Quinn Fanning, CFO)
Q: Can you frame the potential revenue synergies from the CoreTrax acquisition on a multiyear basis?
A: CoreTrax currently operates in six or seven countries, and we plan to expand this to more markets, focusing initially on the Middle East and Australia. Integration is progressing well, and we are leveraging both CoreTrax and Expro's sales teams to drive synergies. (Michael Jardon, CEO)
Q: How do you view the Africa geography on a multiyear basis, especially West Africa?
A: We see a ramp-up in activity in Africa, particularly West Africa, driven by increased project sanctioning. We expect to win more than our fair share of projects as activity grows. (Michael Jardon, CEO)
Q: How is the CoreTrax integration progressing, and do you have capacity for more M&A?
A: The integration is going well, thanks to our developed integration playbook. We continue to look for similar acquisitions and have the bandwidth to integrate additional opportunities. (Michael Jardon, CEO)
Q: Can you provide more color on the incremental EBITDA margin following your updated 2024 guidance?
A: The Congo project had higher-than-expected commissioning costs, resulting in no margin for Q2. However, as we move into the operations and maintenance phase, margins will improve. (Quinn Fanning, CFO)
Q: What has changed in customer conversations over the past year, given stable oil prices?
A: Customers have more confidence in a stable commodity price environment, leading to more project sanctioning. This is reflected in increased technical inquiries and budgetary pricing discussions. (Michael Jardon, CEO)
Q: Can you expand on the improvement in EBITDA margins in APAC?
A: The improvement is due to higher activity and lower LWI-related costs. We expect margins to continue at this level, with potential for further improvement with increased subsea activity. (Quinn Fanning, CFO)
Q: Can Q4 margins be used as a run rate for future quarters?
A: Yes, Q4 is historically strong for us and should serve as a good setup for 2025, despite the usual seasonal step-down in Q1. (Quinn Fanning, CFO)
Q: Will ESSA margins return to high levels seen in late 2023 as Congo project revenue decreases but margins improve?
A: Yes, we expect ESSA margins to return to high levels, similar to late 2023, as we move into the operations and maintenance phase of the Congo project. (Quinn Fanning, CFO)
Q: Will the bulk of your free cash flow be realized in Q4?
A: It's tough to predict precisely, but we expect a much better cash flow profile in the second half of the year, driven by a reversal in net working capital build. (Quinn Fanning, CFO)
Q: Can you provide more details on the SeaCure technology and its impact on cost savings for customers?
A: SeaCure helps improve cement quality and saves operators 12-24 hours per job, which is significant given high rig rates. The technology is being internationalized and is becoming a standard in the Gulf of Mexico. (Michael Jardon, CEO)
Q: What other disruptive technologies might we hear about in the next 12 months?
A: Technologies like iTONG and VERSAFLO, which improve operational efficiency and reduce personnel on the rig floor, are key areas of focus. These technologies help drive drilling and completions efficiency, improving breakeven economics for customers. (Michael Jardon, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
