All right, good afternoon. I'd like to introduce Mr. Mike Jardon, CEO of Expro, a position he's held since April 2016, after holding the position of COO for five years. Before joining the company, Mike was VP of Well Testing and Subsea at Schlumberger, and held senior roles in Wirel ine Completions, Well Testing, and Subsea from 1992 till 2008. Mike has a number of slides to present, after which, we'll have some time for Q&A. Mike, thanks for joining us today.
Thanks, Ed. So good afternoon, and thanks for joining me. What I'll try to do here is, 'cause I know for a number of investors, we're relatively a new and kinda unknown commodity. I'll try to step through some things, tell you a little bit about who we are, what we do, just give a bit of context, and then obviously, Ed and I are gonna do a Q&A session as well. So fundamentally, I guess what I would start with is, you know, Expro is very much a technology company. You know, we're focused on very key product lines, allows us to differentiate, allows us to bring technology to bear for our customers.
But, you know, it really takes us from all the way from exploration through appraisal, through drilling, completions, production, development, even up to including, you know, well abandonment and decommissioning. So we have a lot of touch points with our customers, a lot of engagement with them. And what that really has allowed us to do is, to have a business that's very, It's very diverse, it's very, very geographically split. As you can see here in the slides, about a third of our revenue comes from North and Latin America, another third comes from Europe and Sub-Saharan Africa, and the remaining third is really pretty evenly split between Middle East, North Africa, and Asia Pacific. We think that geographic diversity gives us a lot of flexibility.
And then across our business units, across our product lines, we also have good diversity there. Well construction is about a third of our business. Well flow management, which could be involved in really any of those phases of exploration, appraisal, drilling, completions, so about a third of, again, just over a third of our revenue comes from that. And the remaining portion of the business comes very strongly from our subsea well access business, very much focused around completions and providing connectivity during completions operations. And the remaining portion of the business is really around our well intervention integrity. Fundamentally for us, you know, we're about 80% international, 70% offshore. If you're looking for exposure to U.S. land, pressure pumping, you know, land drilling, that's not gonna be us.
That's not what we're gonna do. But as you can see here, we have a very strong balance sheet, zero net debt at this point in time. But I think the one thing I would really highlight here, probably more so than anything, is that figure down in the bottom left, that 95% service quality performance. We have, we execute exceptionally well. We have a fantastic reputation with our customers, very challenging, difficult wells. You know, those are the kind of operations we're involved in, and we go out and we execute exceedingly well. I think that's... You know, talk a little bit about the macro. You know, how are things setting up kinda going forward? How does the industry look?
I think what you see here is, and this really is kind of a subset of global final investment decisions, really around the offshore element. And you can see that here, kinda in this 2024 range, we're, you know, over, you know, right at $100 billion of FIDs that have either been approved or kinda are coming. And you start to see that the deepwater portion is really starting to grow. You know, finally, we're back at a point in time where, you know, offshore, especially deepwater FIDs, are kinda back to the same level as what we were at. If you look at the 2012-2014 period versus the 2024-2026 period, we're finally back to that same kinda level of investment.
But I think it's really important to kinda peel that onion back a little bit, because I think one thing that you don't see in this data right here really is the underrepresentation of West Africa. You know, West Africa, back in that 2012-2014 period, was, you know, $75-$80 billion of deepwater FID investments. If you look at the period now, 2024-2026, it's only about half that. And I think what's interesting about that is, it's not because the reservoir doesn't exist, it's not because the geology doesn't exist, it's really just about the operators sanctioning and moving forward those projects. So, you know, why do I highlight that?
I highlight that predominantly because as we start to see that investment happen, as we go forward, you know, you don't go to West Africa and drill two wells. You're gonna go to West Africa, and you're gonna drill 12 wells, 16 wells, 24 wells. They're gonna be longer projects and longer programs. So once we start drilling those projects, they're gonna be three to five years in duration, and frankly, if you approve an FID today, by the time you take delivery of a tree, you secure a rig, all those type things, you're probably not drilling that prospect until 2026 or beyond. So that gives me confidence that we're really gonna start to see some longevity and some kinda legs, so to speak, behind the, you know, behind the activity we see here the remainder of the decade.
I think the other thing that's worthwhile to note is, you know, we've got very healthy CapEx spends in the industry, as you can see there. But what you're really starting to see is much more of a shift into two areas. One is offshore, and the second one is international. You know, that's where, you know, a lot of the dollars that were being spent in North America in particular are now being spent internationally and in offshore in particular. Why is that important? Why do we highlight that? Well, we highlight that because, as I said earlier, 80% of our business comes from international, and 70% of our business comes from offshore.
So seeing those dollars start to shift and start to be kinda driven in that direction is an important factor, and you take that into account with the, you know, FIDs that are starting to be approved and starting to be sanctioned. You can really see some kind of longevity and some legs to the sector. The other thing I would highlight here is really around, probably more important to look at what's happening with the, you know, the offshore tree guys, you know, test trees and Christmas trees and those types of things and the like.
As they really start to build order backlog and start to build, you know, the kind of book to bill and activity they see going forward, that's really a strong indicator, I think, of what we're gonna start to see within the offshore space as we go forward. So really for us, you know, what does that mean? How does that kinda translate into Expro? How should you interpret the things I've tried to lay out really kind of around the macro? Fundamentally, you know, we gave updated guidance here in Q2 of that we would be kind of between $1.7 billion and $1.75 billion in revenue, and kind of in that 20%-22% EBITDA range.
We're very much on a path. You know, we've kind of laid out. We see a near-term path of $2 billion in revenue and mid-20s EBITDA percentage. So I think we're setting ourselves up to be well on our way towards that. And fundamentally, just to give some context, if you kinda look at the left-hand side of that bar chart, if you look at the two previous companies, Frank's and Expro, just kinda look at a combined 2014 , you know, in essence, $2.5 billion in revenue, 31% EBITDA margins. So to me, that kinda demonstrates the potential of what the business is.
I think it's really important to bear in mind that part of what we've done by bringing the two companies together is really create a tremendous amount of operating leverage. If you go back to that 2014 time period, if you kinda look at the pro forma, the combined company, you know, overhead support costs, and for us, for me, when we talk about support costs, we're talking about the cost all the way from myself, all the way down through to the person at the sharp end of the stick, who's actually executing operations, all the support that's involved in that, in that operation. So that was in that, back in 2014 period, was 27% of revenue. If you look at how we've operated the last six quarters, we're staying under 20%.
We're managing the business to that. We've driven a lot of efficiency into it, and we continue to focus on, you know, shared cost centers. How do we reduce personnel? How do we use technology offshore to reduce the number of personnel that are required, and those type things. So we've got a much more efficient operation. We've created a significant amount of operating leverage. So our ability to, you know, get to that mid-20s EBITDA and push through that into the upper 20s is very much within our capacity. So fundamentally, as I said a few minutes ago, you know, the near-term target is $2 billion in revenue, mid-20s EBITDA percentage, and 10% free cash flow margin.
So, you know, fundamentally, just kind of to sum up, and then Eddie and I'll go through some questions here. You know, we feel like there's a you know, very strong, you know, very strong commodity price environment. You know, with the underinvestment we've had in the industry over the course of the last 10 years, I think the FIDs you're seeing coming through, the you know, tree sanctioning, the trees are being placed. I think that's all kind of you know, culminating in the last 10 years of investment. You know, those project approvals are gonna drive customers you know, capital spending. About 70% of our activity today comes from our customers' CapEx spend.
We think it's a great time to be highly levered to the drilling and completions activity set, so we think that's a great thing. Because we have such strong technology positions in deepwater technologies, in our well construction, our subsea, and our well flow management businesses, we think that will set us up particularly well, but we've also continued to invest in technology, whether it's engineering efforts or some of the, you know, acquisitions we've done here over the course of the last couple of years. Very much been around trying to continue to have very strong product lines, very strong technology bets, and really kinda strengthen our market share positions with our customers.
And then as I stepped through on the previous slide, we see a very clear pathway to that $2 billion revenue target, you know, mid-20s EBITDA margins and 10% free cash flow margins. So with that, thank you. And Eddie, thank you again for Barclays putting us on. We appreciate it. Appreciate the time.
Our pleasure, Mike, and thanks for going through that overview. Let's just start off with challenged market conditions over the past, you know, month and a half. All offshore related stocks have come down materially over that timeframe on a combination of global macro concerns as well as some white space. Offshore drillers talked about a white space between contracts during their second quarter earnings last month, and that's been a big theme at this conference yesterday and today. I'd have to imagine this might impact your well construction group. Are you seeing any indication or hearing any indications of white space at all in your business?
You know, I always spend a lot of time with our customers and have, in particular, in the course of the last, you know, 60-90 days. Matter of fact, we were just in Asia last week, and we're not seeing this translate into our business. We're not... To be honest, most of the customers, we're talking about project A, and they wanna talk about that, but they also wanna talk about the next project that they see that's gonna come. They're very much focused around that, and I think part of it may be, you know, we probably globally, and I tried to highlight it in one of the early slides, we have a very diverse business, whether it's geographical diversity or it's product line diversity, we try to have that.
We almost kind of manage it as a portfolio. How are we not too overexposed to one particular aspect? But I think fundamentally, you know, we're probably on somewhere between three hundred and fifty and four hundred rigs worldwide. So if one or two rigs
Both onshore and offshore.
Both onshore and offshore, and keep in mind, you know, a hundred and thirty-ish rigs, you know, floating assets today, and we're on probably, oh, 75 of those rigs in some various capacity. Losing one rig doesn't. You know, we're not necessarily gonna see it, and we're just not, from our customer engagements, we obviously hear the messages from, and hear what the drilling guys are having to say. We pay attention to that. That kind of means we've. That's part of the reason why I said, I spent a lot of time with customers over the last 90 days.
Mm-hmm.
Kind of to double down to really... It's different when you talk to a customer one-on-one, and when you're in, you know, Thailand, and you talk to PTTEP, you get a different sense than just, you know, than just a phone call or those kind of things. But more frankly, we're just not seeing it translating into our business today, certainly not in the short term or in the medium term right now.
Okay. Okay, that's good to hear. The Africa opportunity in your slide, you mentioned West Africa. Is this the region where you expect kind of the most incremental demand from here over the next 12-18 months? What gives you confidence in the ramp-up in activity here? And then, what part of your businesses is this gonna impact the most?
No, it's a good question. So, you know, I think it's probably gonna be more on the-- 'cause let's face it, if they sanction a project in Angola today, that project is not gonna start drilling for probably 18-24 months.
Mm-hmm.
By the time they find a rig, by the time they, you know, place a tree order, all those kind of things, a lot of things have to line up. I know the tree guys have done some things to compress the cycle times, but as they get busier, those lead times will be a challenge. But yes, I do think that we're gonna see a continued ramp of that activity in West Africa, and much is really based upon customer engagements, customer discussions. You know, it's technical inquiries we're involved in. It's tender, it's pre-tender clarifications that are going on. It's budgetary pricing requests we're getting, it's those type things. So I do think we're gonna see West Africa activity start to ramp up down the road.
Mm-hmm.
For us, in particular, because it's, most of that is gonna be deepwater and even some ultra-deepwater, it's really gonna be, it's gonna be our well construction business, TRS in particular. It's gonna be subsea landing strings. It's gonna be those type of activities that will lead in West Africa. And, you know, those are typically longer duration contracts. They're large number of wells. So when you can introduce new technology like our Cure technologies, that allow you to reduce, you know, 18 hours of rig time waiting on cement, those kind of things start to be meaningful when rig rates and spread rates are getting to the levels that they're at today.
Right. Just your medium-term outlook, you highlighted $2 billion in revenue, 25% EBITDA margins. Can you elaborate on the market conditions we're gonna need to achieve this target? And then in terms of timing, I know you previously mentioned that you might be able to get there on an annualized basis by end of next year. Is that still the expectation?
Yeah. You know, there's really three things that have to start to happen for us to continue to drive towards our medium term, you know, mid-20s EBITDA percent. The first one really is mix, and as we see mix shift more towards deep water, ultra deep water, more of our high technology services, as we continue to ramp up introduction of some of our new technologies, like the Cure technologies or some of the things we've been able to bring into the market now with our acquisition of Coret rax, that's where the first one. The second one is the operating leverage. You know, I talked earlier about the operating leverage we've taken out of the business, and it's something we're focused on.
We continue, even now, today, we've got initiatives ongoing to look at how do we continue to lean out the organization? And when I say lean out the organization, it doesn't mean we're just gonna reduce headcount. What it really means is, how are we gonna learn how to do less with less? You know, we're gonna have to start doing some things. How do we become more fit for purpose on, you know, using technology to, you know, automate processes that we have internally that we're using, you know, personnel today? It's really kind of how do we do that. That's the second thing is the operating leverage, and the third one, of course, is pricing.
Right.
And, you know, we, you know, we like, I think all of our, you know, all the other service companies, we are trying to push price every day of the week with our customers. There's only... You know, because there's a market dynamic, and there is a competitive landscape, although, be it for us in a number of situations, it's just a two-horse race. But, you know, we're gonna push price as much as we can, but we're not gonna be reliant upon that. What we're gonna be reliant upon is really the thing we have at most in our control, is how do we create more efficiency, more operating leverage within the business? That's really kind of the three things for us to get there.
Got it. That's a good segue to my next question on pricing. Last quarter, you talked about pricing trending positively, especially within your deepwater well construction and subsea landing string-driven businesses. You said net pricing gains are gonna contribute, you know, 100-200 basis points of margin improvement this year. What kind of pushback are you getting from customers, if any, as you're implementing these?
You know, I wish I could say that, you know, customers embrace us with open arms when we try to push price, but the reality is, that's not the case.
Mm-hmm.
You have to be consistent about it. I think that it's, you know, I think that all of the major service companies that we participate with or compete against. Everybody's trying to move the pricing up and to the right. You know, because the nature of how we bid our work, you know, we have central oversight of pricing levels and those kind of things, so we really understand when you bid a project in Brazil, and then next week, you bid a project in Malaysia. We understand what the competitive nature was in those contracts, and I think that helps us make sure. You know, you always want to win or lose a contract by, you know, very, very small margins.
And customers, you know, especially around the last, you know, several years, we've had more, more of an opportunity to push pricing on personnel rates and those kind of things, 'cause they understand the competitive nature and the requirement for really good people. And I highlighted in one of my slides how well operationally our team executes. So our customers are generally pretty open to addressing pricing from that. And then the second element, the last element really is around technology.
When you can go out, as I alluded to earlier, if you can introduce Cure technologies, and you can reduce sixteen, eighteen, twenty-four hours of rig time, that's when you really have an opportunity to get some premium pricing, because it has such an effect on not only the rig rate, but the total spread rate, and also improves the quality of the cement operations.
Right. We've seen a resurgence in capital spending for long cycle development projects. 70% of your business is offshore focused, as you highlighted. Could you talk about how your company is positioned through the life cycle of a well? I know when people think about Expro, it's usually well construction and TRS, but your business is much more than that. How are you positioning the company through and beyond just the drilling cycle?
No, it's a great question. You know, when we put the two companies together back in. We started having this conversation in 2020, during the pandemic. One of the reasons why, you know, the Expro management team felt like this made sense was it wasn't a question of if. It was a question of when we were gonna go through a drilling completions recovery. You know, obviously, the well construction business is, you know, 85% tied to CapEx spend. We felt like coming into a time in which drilling completions was gonna have a recovery for a number of years, being highly levered to drilling and completion operations. That was good timing.
You know, longer term, you know, we need to get to the point, you know, where about 70% of our revenue today comes from our customers' CapEx spend. We need to get to a 55-45. We need to have a better balance of CapEx to OpEx, because if I've learned nothing else in my 32+ years in the industry, it's that it's a cyclical business, and you better figure out how you're gonna weather those storms, 'cause we're gonna have a cycle. I think we've got, you know, four to six years of really strong activity right now. But we are, I am focused on making sure that we start to position ourselves to be more OpEx related-
Mm-hmm.
and be able to provide more services and more support to our customers in that kind of realm, because it gives you that through-cycle balance. It kind of goes back to my comment earlier about being a portfolio. We wanna have, you know, you don't wanna have all your eggs in one basket, and this allows us to kind of start to balance that out.
Got it. Let's bring to the next question on M&A. You completed DeltaTek that acquisition early last year, then PRT Offshore, and most recently, Coret rax here a couple months ago in May. What are the gaps in your portfolio are you seeing from either a product line or regional perspective? What are you targeting going forward?
You know, for us, we very much focus on the industrial logic. You know, it's been interesting to me with, you know, whether it was the original bringing Frank's into the fold, or DeltaTek or PRT or Coret rax. You know, I'd want to go see customers, and I'd be all excited to go and talk to them about Coret rax, and you know, I'm excited. I'm gonna tell them what we're doing and why we're doing it and how it fits in, and this is the response I got most of the time. I got a hand up, "No, stop. You don't have to explain it to us. It makes sense. We know that, we know that business. We know your business.
Bringing them together makes absolute sense." So when the industrial logic is really easy and compelling to explain to our customers, I know we're gonna be able to explain it to investors why we're doing it. So those are the kind of things we look at, and, you know, we've made investments in things that were more wireline intervention, integrity, levered, more subsea levered, more well construction levered. We're gonna look at things that just fit in, that we think that the industrial logic makes sense, and also, we feel like we can internationalize it. Coret rax is a great example of; it's a business that operates today in a handful of countries, probably 10 or 12 countries today.
There's no reason why we won't have the ability to expand that footprint to the, you know, 60+ countries that we operate broader Expro in. The one thing I would add is, I think fundamentally for us, what we have to continue to be mindful of is how do we increase our through-cycle resiliency?
Mm-hmm.
So how do we expand our, you know, our production optimization, our production enhancement, our intervention, you know, those type of things. How do we continue to grow that proportion? Because, that provides a really good foundational, part of the business that has that through-cycle resiliency, which I think is something that, you know, I'm very focused on.
Got it. It sounds like you, you're not done with M&A, even after these acquisitions. But how far are you gonna stretch the balance sheet? Or is there kind of a max net leverage ratio you have in mind?
Sure. You know, I wouldn't want to see us go over about, you know, a turn and a half of leverage, you know, in a short term. We've got to have the ability and a path to get that down to something that's more like a turn in a very reasonable amount of period. But we're not afraid to put leverage on the balance sheet if it makes sense, if the industrial logic makes sense, and if we think it's something that's accretive to the business, we would certainly do that. The size of transactions we've done here lately, you know, didn't require us to do that, but we're not gonna. The size of a transaction doesn't, isn't gonna be a showstopper.
It's really around the, you know, the industrial logic, and can you come to a, you know, appropriate agreement on valuation? Because these things take, I can tell you with the last two we've done with PRT and Coret rax, they were. You know, they were pushing two years from the time we started until the time we got done, and part of it was, we're gonna be patient, and we're not gonna, we're not gonna overpay. We're gonna value things fairly, and we're gonna try to get transactions done like that. Sometimes it just takes you being patient to execute those.
Bid-ask spreads can be pretty wide.
They can, yes, absolutely.
Opportunities outside traditional oil and gas. I understand this is a relatively small part of your business right now, but you have had a few nice wins in carbon capture. The past quarter, you separately just finished the construction phase of the LNG expansion project in the Congo. Are there other Congo projects out there, and which is kind of the low carbon opportunities, be it LNG, CCUS, geothermal, or anything else, do you see as the biggest potential opportunity?
Sure. No, it's I think it's you know the production opportunities like we had in in Congo with Eni is a great project. We continue to pursue those. Those tend to be much lumpier and much you know much much more sizable type projects but we continue to pursue them. We have a given set of criteria that we're gonna go in and we're gonna pursue projects on. We're not gonna go down the path of you know EPC-type projects. We're not gonna do cost plus. That's not us. Ours are gonna be fast-tracked. They're gonna be modular. There's gonna be a early monetization requirement from the customer, so to speak. But of the others, the one that I would say that I see great potential in, really is around carbon capture.
As I said, I was just in Asia last week, and you know, with PTTEP, and you know, they're looking at carbon capture projects. You know, obviously, Exxon is very active with carbon capture projects here in the U.S. That's one I think is gonna continue to you know, to be an area of strength-
Mm.
for the opportunity. And I think for us, because we're used to dealing with fluids and gases and those type things, it's not a whole lot different producing you know those elements to reinjecting them. So for us, from our personnel, our equipment, our expertise, our knowledge, you know, downhole activities, reservoir knowledge, those type things, we can really leverage that, and that's one that I think we have good expertise, and I think it's gonna be a growing requirement to you know capture carbon and reinject. So I think it's gonna be a great area for growth.
Got it. I have just one last question for you here, but we might have time to poll the audience for a few questions to end the session if we can get the mics going around. Last question, just on shareholder returns. I know you're focused on kind of both on M&A still, but you previously talked about being in a position. The board being in a position to start having discussions around shareholder returns framework, maybe toward the end of this year, maybe early next year. Is that still the right time?
Yeah, I mean, it's, you know, what we've said is, you know, our intention is to return roughly a third of our free cash flow to shareholders and some makeup of buybacks and potentially dividends. I certainly am more predisposed at this point in time in our journey for these to be buybacks as opposed to dividends. But, you know, we have a very, and I'm fortunate that I have a very sophisticated board of directors, so we have really good quality discussions and debate around these issues.
You know, this is gonna be, as you said, this is gonna be more of a second half, I won't say phenomenon, but, you know, we're gonna be more cash generative just because of the nature of some of our activities, with the acquisitions and as well as with the Congo project. We're more cash generative in the second half of the year, and, you know, we'll look at those. We've done some, what I would call, opportunistic share buybacks, in the past, and we'll continue to look at being able to do those kind of things.
Then ultimately, I think as we continue to be further down that path of, you know, the kind of midterm objective I threw out there of two billion of revenue and 10% free cash flow margin, once you start to get to that level of cash generation, then I think we kind of open the aperture up of, you know, what does the capital return policy look like? Is it balanced between buybacks and dividends, or how does that... That's, we'll have an opportunity to start to have more of those kind of robust discussions, so to speak.
Got it. Great. Are there any questions from the audience? We can take them now. All right. All right. Well, great, Mike Jardon, CEO of Expro.
Eddie, thanks. Appreciate it.