Expro Group Holdings NV (XPRO) 2022 Q4 法說會逐字稿

Hello, and welcome to today's Expro Q4 2022 Earnings Presentation. My name is Elliot, and I will be coordinating your call today. (Operator Instructions)

I would now like to hand over to our host, Karen David-Green.

Welcome, everyone to Expro's Fourth Quarter 2022 Conference Call. I'm joined today by Mike Jardon, CEO; and Quinn Fanning, CFO. First, Mike and Quinn will share their prepared remarks, and then we will open it up for questions.

We have an accompanying presentation on our fourth 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 under the Investors section. Further for an in-depth look at our business strategy and industry dynamics, I would refer you to the Expo company overview presentation that we posted on the website on January 24.

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 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 any forward-looking statements as of 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 website or on our website 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 fourth quarter 2022 earnings release, which can be found on our website.

With that, I'd like to turn the call over to Mike.

Thank you, Karen. Good morning and good afternoon, everyone. Expro delivered a strong fourth quarter with financial results at the top end of our expectations. We enter 2023 in a stronger position for continued profitable growth with a robust order book, supported by strong demand trends for our services and solutions. We recently crossed the one year mark since completing the merger of Expro and Frank's International in our strong results for 2022, demonstrate the potential of our platform.

We've been able to successfully leverage legacy relationships and our broad operating footprint to secure new business, and capitalize on market opportunities and key growth areas, while driving efficiencies to improve profitability and expand margins. With our broad geographical footprint, leading portfolio of services and solutions, and strong operational execution, we continue to punch above our weight to win new mandates and grow our business.

We are confident that we will continue to build on our momentum to achieve strong relative growth throughout 2023 and beyond. We remain confident that the pipeline of projects we are seeing will support strong multi-year growth for the energy services sector. We believe we are well positioned to capitalize on this multi-year industry up-cycle driven by an extended period of underinvestment in global upstream production.

We continue to win business through our strong presence in key international and offshore markets. And the breadth of our portfolio is innovative solutions. With strong and gaining momentum, and longer cycle projects, we expect international demand to accelerate through 2023, in order to add production capacity and thereby meet expected increases in demand. As 80% of Expro's business is based in international markets and the 70% in offshore markets. Expro is poised to capture significant upside from these positive industry trends.

We are confident that as we continue our shift towards higher margin activities, commercialize recently deployed technologies, and investments and capture merger related synergies, we will drive above market top line growth, margin expansion, and strong cash flow generation through this multi-year industry up-cycle. Finally, our debt free balance sheet and available liquidity provides us with the flexibility to pursue smart synergies focused M&A and the adoption of a shareholder friendly capital allocation framework.

On today's call, I plan to touch on three main topics. First, I'll walk you through our fourth quarter performance. Second, I'll give you a brief update on our integration process. And third, I'll provide some perspective on trends we're seeing in the broader industry environment.

For the fourth quarter, we delivered revenue at $351 million and adjusted EBITDA of $70 million excluding $5 million of commissioning costs on a subsea project, which I will come back to in a moment. Adjusted EBITDA in Q4 was $75 million or 21% of revenue, primarily driven by increased activity across the majority of our operating segments and a more favorable activity mix.

Fourth quarter revenue increased 5% sequentially and 19% relative to the fourth quarter of 2021. While construction revenue was up 6% sequentially and 23% quarter-on-quarter, relative to the fourth quarter of 2021, supported by accelerating new well activity in key growth markets. The fourth quarter saw us capture strategically important contract wins and develop new business due to our technical expertise and the breadth of our portfolio.

I will go into these wins in more detail later on, but I'd like to briefly touch on a few that we are particularly proud of. We have commenced work on a long-term production solutions contract for a liquefied natural gas or LNG pretreatment facility in the Congo that's designed to allow incremental gas production for low-carbon electricity generation in Europe.

As I outlined in our Q3 results, this 10-year contract is expected to generate more than $300 million of revenue for Expro. Our expertise and ability to enable operators to quickly access reserves will play a critical role in supporting Africa's significant and growing LNG industry. We are excited that ENI Congo recognized our different resolutions and selected Expro for this turnkey contract to lease, operate, and maintain this facility. We are confident that our successful track record, technical expertise and expedite delivery times will allow us to continue to win business for similar projects, particularly in West Africa.

I'm also delighted to highlight our recent contract win that exemplifies Expro's environmental commitment and our ability to partner in frontier field developments in support of energy security. Total Energy awarded Expro a new 5-year Well Intervention Contract in Uganda, due to our innovative environmental solution for carbon reduction and our strong commitment to employing a local workforce. Expro's solution was designed and engineered based on many years of successful delivery of similar projects globally in locations such as Algeria, Saudi, Mozambique and Egypt. Our work on this project will commence in May of 2023.

Supporting the sustainability of our clients is core to our business, and we are pleased that these efforts have again received external recognition. MSCI, one of the most important organizations evaluating the company's ESG programs upgraded Expro sustainability rating by 2 full levels from a BB to a single A rating in 2022. We have also achieved an upgrade to a B rating from CDP, a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.

This is a reflection of the excellent cross company efforts to progress our carbon reduction capabilities and to embed our sustainability strategy into everything that we do, both within our business and in the communities in which we operate. We believe our industry is a necessary part of the solution to build towards a lower carbon future. And as we advance our strategy, we will continue to focus on developing the technologies and solutions to manage our own emissions and assist our clients in reducing theirs.

One Touch digital technology, Expro's iTong system has been named a finalist in emerging technologies category and the Offshore Achievement Awards, which takes place in March in the U.K. iTong is one of a suite Expro's technologies that's designed to support our collective carbon reduction ambitions. The system advances automation on the rig floor and is designed to enhance operations and reduce personnel, resulting in improved safety and efficiency, a smaller carbon footprint and lower operational costs. We continue to develop partnerships and win work beyond oil and gas, demonstrating that our well-established technologies and depth of expertise are transferable, and can be utilized to maximum effect in support of sustainable energy solutions.

Our geothermal business continues to develop globally. For example, our well construction team has delivered conductor pre-installation for three geothermal wells in the Caribbean. In addition, we continue to advance our strategy to grow our business in the carbon capture usage and storage sector, including a recent contract for shoot-and-pull Tubing Conveyed Perforating work for multiple wells on a CCUS project in Wyoming. Expro's sustainability ethos promotes our objective to positively influence the communities in which we operate.

Today, I'm pleased to highlight a community solar power project that we recently embarked on in Malaysia. Expro in collaboration with the organization Sols24/7, has a long-term program to install solar panels for numerous homes in the (inaudible) Village. We are proud to support such a significant project, which sets the foundation for a brighter future for that community.

We also continue to focus on expanding our portfolio with solutions that improve the efficiency of our customers' operations and helps them unlock new possibilities in their projects. We were named Champion Integrated Well Services Company and received the most innovative solutions award for our Octopoda annulus intervention services at the recent OWI Global Awards, which recognize the best in well intervention excellence.

In addition, our acquisition of the SolaSense well surveillance business in March of 2022 continues to deliver value to Expro clients through our distributed fiber optics sensing technology. One recent success involved a customer in Asia who was experiencing gas lift performance issues affecting their entire field production. Expro's DFOS service was selected to jointly evaluate the integrity and also to monitor the gas lift performance during production in multiple wells. The DFOS evaluation and data allowed the customer to maintain 2 full days of production when compared with the associated shut-in times of other available surveillance technologies.

On a regional basis, we entered 2023 on solid footing. In the fourth quarter, we captured approximately $650 million in new work globally. In North and Latin America, our well construction team continues to reinforce their position as the premium provider of tubular running services and products, with contract wins and operational success across the globe. In Brazil, the team won contracts guided at approximately $30 million of TRS offshore services for 4 to 8-month contract duration.

The well construction team continues to advance its technology service offering in the region. Expro's one of the first companies to run and install a hands-free anti-rotational device in Brazil, which eliminates the need for personnel in the hazardous red zone on the rig and reduces makeup time.

In the Gulf of Mexico, our well construction team achieved what we believe to be an industry-first by installing the first casing string ever on an eighth generation rig. Also in the Gulf of Mexico, we secured additional well test work with a major international client based on past performance and superior service quality.

Moving on to Europe and Sub-Saharan Africa. Our team continues to win contracts due to their depth of customer relationships and our bespoke solutions and what we believe to be a best-in-class service delivery. Expro's technical capabilities helped secure a new subsea Plug and Abandonment contract for a 21-well abandonment campaign in offshore U.K. and also on a semi-submersible rig with an expected duration of 36 months.

In the Netherlands, we continue to demonstrate the full value of our combined offering with our well construction team winning a 3-year contract for tubular running services for an offshore client in Holland. This work complements existing legacy Expro contracts with this client in Holland for well testing, wire line and case toll services.

Service quality helped us secure a new 2-year contract for provisions of operations and maintenance labor services on a customers' production facility in Nigeria. Expro's has decades of experience with this customer and on this facility, and we are pleased to build on this relationship. All of these new mandates are on top of the exciting new contract award in Congo that I mentioned earlier in my remarks.

In the Middle East and North Africa, we are delighted to have secured a contract with a major international client for use of our innovative and award-winning Octopoda technology in North Africa. The Octopoda Annulus intervention system makes it economically feasible to regain shut-in and low production wells, allowing operators to directly access the wells annuli.

This 3-year contract includes provision of services to remediate sustained casing pressures across fields in a significant gas development by pumping and replacing of fluids, chemicals or resin either from surface or annuli intervention devices as appropriate. We see this as a tremendous endorsement of the capabilities of our Octopoda technology, and we are proud to see it deployed in the region.

We also won a large integrated well test contract for rig-less sites in Saudi, and our well construction team has secured contracts with 2 clients in the United Arab Emirates and Oman for tubular running services in support of both onshore and offshore operations.

In the Asia Pacific region, we secured a well test contract for provision of well test nitrogen packages across 14 wells for a key client in Malaysia, while our well construction team won work for the provision of TRS across 21 wells, 6 shallow water development wells, 8 deep water development wells and 7 shallow water exploration wells with an estimated contract duration of 36 months.

In India, we extended a Drill Stem Testing and Tubing Conveyed Perforating contract for offshore operations where Expro has been the incumbent in 2016.

Finally, I'm happy to report that we have successfully completed the well test on our vessel deployed wire through water, lightwell intervention or what we call LWI solution. Our LWI system is now operationally ready, and we are finalizing the work plan with the vessel owner and clients. Importantly, we expect the project to commence and our LWI system to be revenue generating during the first quarter.

Our differentiated subsea well access solution is designed to reduce the cost of subsea interventions by eliminating the need for a drilling rig. This is important given the increasing number and age of the global subsea well inventory. As an order of magnitude, we expect our new LWI system to generate more than $50 million of annual revenue with additional pull-through revenue opportunities.

Turning to a brief update on our integration efforts. The Expro and Frank's business combination closed in the fourth quarter of 2021. As we mark the 1-year anniversary, I'm very pleased with the considerable progress that our team has made to come together as one global organization and to capture significant efficiencies across our business.

Since closing, we have achieved annualized cost savings of approximately $66 million. Our combined support costs have declined from 31% of revenue in Q4 2020, prior to announcing the transaction of just 20% in the fourth quarter of 2022. As outlined previously, we are targeting cost and revenue synergies between $80 million to $100 million within 24 to 36 months post-merger. We remain confident that we will achieve the full $70 million in projected cost synergies during this time frame.

In the fourth quarter, we consolidated additional facilities, including locations in Asia Pacific as well as in the Europe Sub-Saharan Africa region. With the migration to a single ERP in the third quarter of 2022 and planned technical upgrades to our IT platform in the first half of 2023, we continue to streamline a number of key processes across our organization, which will help us drive additional efficiencies.

As I have said before, while revenue synergies are more difficult to quantify, we expect that our previous estimate of an incremental $10 million to $30 million of EBITDA, from revenue synergies through our expanded customer relationships and operating footprint, increased time on rig, and greater exposure to the full life cycle of the field, will likely prove to be very conservative.

Before I turn the call over to Quinn, I want to provide some perspective on trends we are observing in the market. The market outlook for 2023 remains positive as the post-pandemic recovery continues. Operators are increasing production from existing assets and developing new fields in deep water and offshore. This activity favors our complex well construction services, subsea well access services, and elements of our well sell management business, which combined represent about 65% of our business, currently driven by activity in South America, Asia and Sub-Saharan Africa.

Activity related to gas and LNG production and associated asset development is also increasing, particularly in North and Sub-Saharan Africa. We are experiencing further demand for production-related technologies in these areas, traditionally a core strength of Expro, building upon recent high-value contract awards. In addition, there is a desire amongst operators to maximize return on their prior investments and to minimize their well productivity decline in order to sustain their existing assets.

This is leading to many of our customers expanding their upstream OpEx budgets and investing in their (inaudible) brownfield enhancement programs. This is important for us as Expro's well intervention and integrity services and elements of our well flow management product lines utilized in these operations collectively represent about 35% of our business. Further, operators are increasingly focused on environmental stewardship, and expanding their investment in low carbon energies and initiatives to reduce the carbon footprint of their operations.

We are seeing more partners across our supply chain from operators to service companies commit to net zero emissions to support our collective journey towards a lower carbon future. The heightened focus on sustainability is not a trend. This is a factor that we believe will become part of the fabric of our industry. We see our customers focus on their carbon footprint as a growing opportunity across our global business, as we provide solutions for increased efficiency, automation and emissions reduction as demonstrated by our recent projects and ongoing customer engagements.

We also continue to bring our long-established technologies, skills and services to sectors such as geothermal, where we are committed to building our own track record as well as broadening our operations in the carbon capture projects. We're confident that our business model, broad geographic footprint, and leading portfolio of services and solutions will allow us to continue to capture considerable growth opportunities from these trends, and deliver increasingly compelling returns for our shareholders.

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Approximately 70% of our business mix is tied to drilling and completions activities and roughly 70% is tied to offshore markets. Both are areas of customer spending that are in the early stages of a cyclical recovery. Similarly, with roughly 80% of our revenue generated in international markets, we are well positioned to capitalize on the acceleration of activity in key growth markets and support our customers in the jurisdictions where they need us most.

Last month, we also completed a secondary stock offering on behalf of Oak Hill Advisors, our largest shareholder. While Expro did not sell any shares and will not receive any proceeds from this offer, we believe that this is an important step to increase float and trading liquidity in our shares, and hopefully close the valuation discount relative to our largest U.S. peers.

With that in hand, I'll hand over to Quinn to discuss our financial results.

Thank you, Mike. Good morning, good afternoon to everyone on the call. As Mike noted, I will cover the results for the quarter and year ended December 31, 2022.

As I review our fourth quarter performance, I will primarily highlight the sequential performance relative to the quarter ended September 30, 2022. I will also briefly review the year-over-year performance relative to the fourth quarter of 2021 on and as reported basis, which is consistent with the presentation of financial results in our press release and SEC filings.

Because the Expro-Frank's merger closed on October 1, 2021, the full year performance comparison for 2022 relative to 2021 will be on a combined company basis, which is consistent with the presentation of financial results in the slides that Karen referenced at the top of the call, and that are available in the Investors section of our website, expro.com.

To recap, we reported revenue of $351 million for the December quarter, which was up sequentially $17 million or approximately 5% relative to the third quarter of 2022. The sequential increase in revenue was primarily driven by increased activity in Europe and Sub-Saharan Africa or ESA in the Middle East and North Africa or MENA regions.

Revenue was up $55 million or approximately 19% relative to the fourth quarter of 2021. The increase in revenue was primarily driven by increased activity in North and Latin America or NLA and ESA. Looking at the full year, on a combined company basis, consolidated revenue was up $136 million or approximately 12% year-over-year. The increase in revenue was primarily driven by higher well construction revenue in NLA, reflecting increased drilling completions activity across the region, and from higher full flow management revenue in ESA from increased activities, particularly within our Sub-Saharan Africa Production Solutions business.

Adjusted EBITDA for the fourth quarter of 2022 was approximately $70 million, representing a sequential increase of approximately $22 million or 46% relative to the third quarter of 2022. Adjusted EBITDA margin for the fourth quarter was 20% and was up 6 percentage points compared to 14% in the third quarter. Excluding the $5 million impact of the commissioning costs and the previously referenced subsea project, adjusted EBITDA would have been $75 million, adjusted EBITDA margin would have been approximately 21%, reflecting a more favorable business mix and lower support costs as a result of merger-related synergies, resulting in higher fall-through on incremental revenue.

Making comparable adjustments to Q3 results, third quarter adjusted EBITDA and adjusted EBITDA margin would have been $65 million and 19%, respectively. Relative to the fourth quarter of 2021, adjusted EBITDA was up $19 million or 38%. In percentage terms, adjusted EBITDA margin was up 3 percentage points. The increase in adjusted EBITDA was primarily driven by higher activity levels, a more favorable activity mix and merger-related synergy savings. Excluding the $5 million impact of the commissioning costs and the subsea project in the fourth quarter of 2022, adjusted EBITDA would have been up $24 million or 47%. Again, excluding the impact of the commissioning costs referenced earlier, adjusted EBITDA margin would have been approximately 21% or up 4 percentage points year-over-year.

Adjusted EBITDA on a combined company basis for the full year was up $48 million or 31% year-over-year to $206 million, primarily due to a combination of more favorable business mix and lower support costs as a result of merger-related synergies. In percentage terms, pro forma adjusted EBITDA margin was up approximately 2 percentage points year-over-year to approximately 16%. Excluding the $28 million impact of the commissioning costs on the subsea project in 2022, adjusted EBITDA would have been up $76 million or 48% year-over-year to $234 million. In percentage terms, excluding the impact of the commissioning costs referenced earlier, adjusted EBITDA margin would have been up approximately 4 percentage points year-over-year to approximately 18%.

Fourth quarter contribution margin of 39% was up approximately 6 percentage points sequentially, primarily reflecting a more favorable activity mix and the impact of lower commissioning costs associated with the previously referenced subsea project in the current quarter. Excluding such commissioning costs, contribution margin would have been approximately 40%.

Quarter-over-quarter contribution margin relative to the fourth quarter of 2021 was flat, excluding the $5 million impact of the commissioning costs on the subsea project in the fourth quarter of 2022.

For the full year, on a combined company basis, contribution margin decreased 1 percentage point year-over-year to approximately 37%, excluding the $28 million impact of the commissioning costs on the subsea project in 2022, contribution margin was up 1 percentage point year-over-year to approximately 39%.

Adjusted net income for the fourth quarter of 2022 was $0.22 per diluted share compared to the adjusted net loss for the third quarter of 2022 of $0.07 per diluted share. Note that results for the fourth quarter of 2022 and the third quarter of 2022 include foreign exchange gains of $0.02 per diluted share and a foreign exchange loss of $0.07 per diluted share, respectively.

Fourth quarter support costs of $71 million, totaled 20% of group revenue, which as a percentage of revenue was flat relative to the third quarter of 2022 and was down $7 million or approximately 11 percentage points relative to the combined company support costs, Expro and Frank's in Q4 2020, which was the last full quarter prior to the announcement of the merger.

Total liquidity at quarter end was approximately $348 million. Cash and cash equivalents, including restricted cash, was approximately $218 million as of December 31. Total liquidity also includes $130 million that is available to the company for drawdowns as loans under our revolving credit facility. The approximate $93 million balance credit facility is available for bonds and guarantees, approximately half of which is currently being utilized. Expro had no interest-bearing debt at quarter end, and the company has no interest-bearing debt as of today.

During the quarter ended December 31, 2022, cash provided by operating activities was $93 million as compared to cash used in operating activities of $1 million in the third quarter, primarily due to the beginning of a reversal in Q4 of the buildup in working capital that we experienced during the first 3 quarters of 2022.

Q4 adjusted operating cash flow, reflecting cash provided by operations before cash paid for interest, severance and other expenses, and merger and integration expenses, was $99 million compared to $8 million in the third quarter.

Capital expenditures totaled $31 million in the fourth quarter compared to $19 million in the third quarter. The company is planning for capital expenditures in the range of approximately $120 million to $130 million for 2023.

Consistent with prior guidance, expected 2023 CapEx would represent approximately 8% of expected revenue. NLA revenue for the fourth quarter was $132 million, a sequential decrease of $3 million. The decrease was primarily due to lower well management services revenue in Mexico and in the U.S., partially offset by higher well construction services, revenue in the Gulf of Mexico, driven by higher customer activities.

NLA segment EBITDA was $35 million, was down sequentially by $5 million. Segment EBITDA margin was approximately 27% compared to approximately 30% for the third quarter of 2022. The decrease in segment EBITDA was attributable to lower activity, and the reduction in segment EBITDA margin was attributable to a less favorable product mix during the 3 months ended December 31, 2022.

For the ESA segment, revenue in the fourth quarter was $117 million, which was sequentially up $17 million or about 17%. The sequential increase was driven by higher well flow management revenue in Sub-Saharan Africa, primarily reflecting revenue margin recognized on the new long-term production solutions contract with ENI Congo that Mike mentioned in his remarks, and in the U.K. from increased customer activities. ESA segment EBITDA for the fourth quarter was $30 million or approximately 26% of segment revenue, a sequential increase of $12 million. The increase was primarily attributable to higher activity levels and a more favorable activity mix during the December quarter.

For the MENA segment, revenue for the fourth quarter was $55 million, a sequential increase of $5 million or about 10%. The sequential increase was driven by higher well management revenue in Saudi Arabia and Algeria. MENA segment EBITDA was $19 million or about 35% of segment revenue, a sequential increase of $4 million. The increase in segment EBITDA was primarily due to higher activity and a more favorable activity mix.

For Asia Pacific, or APAC, revenue for the fourth quarter was $47 million, which was a decrease of $3 million or about 6% sequentially. The decrease in revenue was primarily due to lower subsea well access revenue in Australia and Malaysia. APAC segment EBITDA was $4 million or about 8% of segment revenue compared to negative $9 million or a negative 17% of segment revenue in the prior quarter.

As previously noted, the increase in segment EBITDA, despite the decrease in revenue was primarily due to lower start-up and commissioning costs incurred on a large subsea project during the fourth quarter of 2022, as compared to the prior quarter. Excluding $5 million and $17 million, respectively, of the above-mentioned start-up and commissioning costs during the fourth quarter and the third quarter of 2022, segment EBITDA would have been about $9 million, about $8 million, respectively, and segment EBITDA margin would have been 18% and 16%, respectively.

As Mike mentioned, our integration plans are progressing well. We are already starting to realize the significant synergy benefits we anticipated when we first announced our business combination with Frank's. Through the fourth quarter of 2022, we have realized the annualized merchant-related cost synergies of approximately $66 million, thereby achieving the company's target for total support costs as a percentage of revenue of 20%. We are well on our way to achieving our goal of $70 million in cost savings within 24 to 36 months of close.

As to our 2023 and near-term outlook, based on our strong performance in 2022 and a positive activity outlook, we currently anticipate generating revenues of between $1.45 billion and $1.55 billion in 2023. Adjusted EBITDA in 2023 is expected to be between $275 million and $325 million. And adjusted EBITDA margin is expected to be between 19% and 21% of revenue.

Consistent with historical patterns, revenue and profitability in the first quarter of 2023 are expected to be negatively impacted by the winter season in the Northern Hemisphere and the budget cycles for our national oil company customers, with revenue flat-to-down modestly sequentially and adjusted EBITDA margin in the mid-teens. For modeling purposes, we expect support costs and tax expense as a percentage of revenue to be plus or minus 20% and plus or minus 3%, respectively.

Recently, we announced the acquisition of a well construction cementing specialist company, DeltaTek Global. The acquisition allows Expro to broaden its offering, capabilities and technology portfolio within the well construction cementing sector. DeltaTek has an experienced leadership team focused on developing and deploying cementing technologies to the offshore market, with operations across the U.K., Norway, the Gulf of Mexico, West Africa and Asia Pacific. This is an exciting opportunity for Expro that provides for a range of low risk open water cementing solutions, increasing efficiency, rig time and cost savings.

Similar to the SolaSense acquisition that was completed in early 2022, the acquisition of DeltaTek is accretive to Expro's offering of technology-enabled value-added solutions, with scope for accelerated growth due to the breadth of our operating footprint and customer relationships. The acquisition of SolaSense and DeltaTek each required a modest amount of cash at closing with additional consideration tied to future performance, thereby creating a win-win situation for Expro and the sellers.

As I previously noted, Expro has total available liquidity at year-end of nearly $350 million. We are committed to preserving and protecting our currently strong financial profile and maintaining a disciplined approach to investment, such that we will have sufficient financial flexibility to fund growth and to increase returns to shareholders. As always, our objective is to enhance long-term value for our shareholders, employees, partners, and the communities in which we operate.

With that, I will turn the call back over to Mike for a few closing comments.

Thank you, Quinn. In the fourth quarter of 2022, we captured strategically important contract wins and continue to build on our strong momentum. Our performance reflects both the legacy strength of Expro and Frank's businesses and the significant value that we can bring to customers as a combined organization. Additionally, as we have come together as a single organization, we have continued to drive efficiency and identify opportunities to work seamlessly across businesses and geographies.

As you heard from Quinn, our initial guidance for 2023 reflects a positive outlook for the year ahead, with a midpoint expectation for circa 15% revenue growth, implying a plus or minus $1.5 billion in revenue in 2023 and adjusted EBITDA margin of circa 20%.

When we announced the proposed combination of Expro and Frank's in early 2021, I indicated that we believe the combined company had a "clear path" to $1.5 billion revenue, more than 20% adjusted EBITDA margin and in excess of $150 million of free cash flow generation. The anticipated international and offshore recovery is now gaining traction. And our successful integration of the 2 companies has allowed us to capture the vast majority of identified cost synergies within 1 year of closing the transaction.

Our outlook and guidance assume a continuation of the constructive fundamental backdrop with brute remaining at or above $75 per barrel and the global economy avoiding a major pullback. It is also worth noting that our positive outlook is based more on the increasing activity and improving business mix, more so than net pricing gains, which we expect will begin to materialize beginning in the second half of 2023 for our services.

As markets continue to recover and customers ramp up activity, we are well positioned to support them in whatever region and at whatever stage of their projects they need. Further, our focus on sustainable solutions puts us front and center of customers' minds as they continue to look for opportunities to lower their carbon footprint and work more efficiently.

I'm very proud of what the expert team has been able to accomplish in the first year of our combined company. Our 2023 outlook highlights that we believe we are well positioned to start delivering on the financial and other objectives that we outlined when we announced the proposed combination of Expro and Frank's in 2021. I'm confident that we will continue to drive profitable growth, prudently invest in opportunities to enhance our portfolio and reinforce our role as well experts for our customers. As we do so, we expect to continue to deliver competitive value to Expro shareholders.

With that, we'll be more than happy to open up the call for questions.

(Operator Instructions) First question comes from Luke Lemoine from Piper Sandler.

Good result there and nice guide as well for '23. Mike, you touched on it a little bit with just pricing coming more in second half '23. And you look back in your pro forma margins have improved 3 years in a row now. And your guidance, of course, clearly indicates it will expand this year. But you look back kind of pro forma margins sort of 10 years ago, and I believe these are kind of high 20% to 30% range. And if you just kind of look out further with offshore inflecting, getting more pricing, what do you think kind of ultimately the margin potential is for the company?

Yes. Luke, I appreciate you asking that. I guess 2 things I'd like to kind of reiterate. Number one, yes, what we said was the first half of the year, we think we're not really getting net pricing gains because pretty much any pricing traction we're getting is being offset by inflationary effects, whether it's supply chain costs or its employee costs and those kind of things. And we think we'll work our way through that in the second half will start to -- really start to see more net pricing impact.

If you go back and you look historically at the 2 businesses kind of independently, upper 20%, lower 30% EBITDA percentages. So I think that's the potential capacity of the business. I think you also have to keep in mind -- but just keep in mind, that was in the 2013, 2014 range. We had very, very high rig rates. You had rig rates that were pushing $1 million a day, you get spread rates that were well over $1 million a day. So I think a lot of things have to line up for that.

The one thing we've really, really been focused on is margin expansion through improved efficiencies and improved cost controls. We -- if you kind of go back and look at the 2 businesses separately and kind of the pro forma, you'll see that the legacy Expro business was -- Quinn always uses a phrase, 'We manage the business to a revenue reality, not a revenue aspiration'. And that's the kind of mentality we continue to drive through with the business today. That's one of the reasons why we're so focused on making sure we actually took the synergy costs out, and we took them out as efficiently as we can.

So this is a combined business that if we were to go back to the same market fundamentals that we had in 2013, 2014, which I think is possible. I think we're a way down the road in the recovery, but it's a business that's going to be in -- certainly in the mid-to-upper 20% EBITDA ranges within a fairly near term -- we think kind of a medium-term time frame. Does that make sense?

Yes, yes, absolutely. I appreciate that. And then just a follow-up. Of course, you gave your revenue guidance for this year. But I just wanted to see if you could kind of talk about your 4 product lines that you have or kind of reportable lines and the outlook for each of those this year?

Yes. I'll start off, and then I'll let Quinn add in. I think one of the things that is about 70% of our business is drilling and completion related, so 70% of our revenue. So certainly, the well construction business is going to continue to gain traction. It's always a real positive when we hear the offshore drillers start talking about rig rates that if we remember back in September, they were talking about rates they started with a 4, end of the year, early January, they were certainly talking about numbers with a 5, and now you're even starting to hear some of them starts with a 6.

So we think that bodes well for just a continued activity increase. So our drilling and completions activity, so well construction, some of our subsea landing string type business will benefit from that. And then even a portion of our well flow management is tied to drilling completion type activity. So those are going to be kind of driven by some drilling completions recovery.

And then I think more fundamentally, our intervention business, which is much more tied to customers' OpEx spend. They're going to pursue incremental oil. We're going to pursue production enhancement, production optimization. We're going to continue to see some decent growth there because our customers are very focused on making sure they maximize revenue generation and production from existing kind of brownfield assets.

And then the last element for us that kind of fits into well flow management is really around production solutions. The project that we talked about in Q3, and we gave a little more commentary on here today, the ENI project in Congo, very much production related, very much tied to the concerns around energy security in Europe and really around the kind of strengthening fundamentals of LNG.

So long answer to say we're really seeing good growth in all 4 of the main business lines, but for different drivers. But we're kind of seeing that all kind of move to the up and to the right, so to speak, in all 4 of the business lines, different drivers for each. But just continues to be very positive momentum, especially when you're offshore and international, we're -- 80% of our activity is international. We're really starting to see just from customer dialogue and project sanctioning and project discussions, those type of things. Offshore international, we continue to see really positive momentum there. Did I miss anything, Quinn?

I think the well construction business had a very good run in '22 relative to '21. I think the business is expected to remain at high levels of activity, but maybe not the same year-over-year growth the top line. There should be a mix improvement in the well construction business, with a larger percentage of it coming from deepwater and ultra-deepwater projects, where the revenue opportunity is a multiple of the onshore activity. But if you think about the year playing out, I would expect that well construction will continue to be strong.

As we begin the year and as the year moves into the second half, you'll probably start to see better traction in the subsea completions business, which tends to lag a couple of quarters. We are getting a decent bump in terms of Production Solutions business because of the Congo project that Mike mentioned. But we've got some other smaller business lines that we're really excited about within well construction and elsewhere.

The cementing acquisition that we did with DeltaTek is a very interesting technology that is essentially an adder to what we already do with the well construction business. There's not significant incremental assets that required. There's not significant personnel additions that are required for that. So it should be margin accretive. So the business is relatively small today, and we think that we can grow it to pretty significantly.

To give you a sense of our cementing business, it's probably an $80 million to $90 million business today, and we'd like to double that over the next couple of years. It's high margin, relatively asset-light in terms of its intensity. So it should be a very high return on capital business that we're growing.

We now turn to Eddie Kim from Barclays.

Just following on that kind of net pricing gains. You were clear about the expectation to see net pricing gains really start to impact your P&L in the second half of the year. Could you just help us think about which product lines you expect to see the greatest kind of traction on net pricing gains? Both well construction and well testing are fairly consolidated. So I would think that those two segments, you see the greatest ability to push pricing, but if you could just help us to (inaudible)?

I think you're focused on the right things, Eddie. The businesses where we see net pricing gains sooner rather than later tend to be those that are capacity constrained, So it's the deepwater and ultra-deepwater TRS business, which basically anchors the well construction product line family. And then Subsea completions our landing string business is essentially a relatively concentrated market.

We and Schlumberger are relatively large players in that, and the tendering activity seems to be picking up and the bidding rates seem to be moving in the right direction. That is something that lags in the drilling activity. But if I was to pick 2 businesses where we're going to see sooner rather than later, pricing traction is going to be in the capacity-constrained classes of well construction and the subsea completions piece of subsea well access.

Just shifting to M&A. You did an acquisition in the first quarter on DeltaTek, a cementing company that -- so it fit really nicely with your well construction portfolio. So you have $350 million of liquidity today. I mean, to the extent that you'll be doing more M&A going forward, should we expect bolt-on acquisitions or interesting opportunities in the other parts of your business?

No. So I mean, Eddie, it's one that we have -- we are very active in looking at potential opportunities for us, and we look at it on -- what really drives us is really around the industrial logic. Does the industrial logic makes sense? And in this case, it was something for well construction. We think it can enhance our offering. The cementation technology is going to bring significant -- very significant operational efficiencies for our customers.

So we look at it through that lens of the industrial logic. So not so much -- we don't focus on well, it needs to be well construction, it needs to be subsea or it needs to be intervention, no. It's around the industrial logic, so we continue to look at those. We have -- we completed one transaction in '22. We got this one done here in essence in early '23. And it's something that we spent a lot of time on looking at this to see how we can continue to enhance the portfolio.

I guess the one thing I would add is we pushed the organization hard during '22, to capture the synergies that we had identified such that we could be externally focus in an improving market that we're experiencing now. So I would say we've put a bow on the integration of Expro and Frank's, but we're largely completed with the integration. We're externally focused.

And I guess I'd characterize this as aggressive window shoppers, in terms of M&A today. The 2 deals we've done have been relatively small, but interesting technologies, not a significant cash commitment upfront. But if we could do something larger, we'd like to do something larger. And certainly, the organization is ready to take on more.

And I think it's a great point. I guess the other thing I would add to that is, yes, the industrial logic is what drives us because we're not looking to get bigger or do acquisitions -- just to do acquisitions. We're looking to be able to enhance the portfolio, but whether it is really benefit from a strong drilling completions set of activity, we're going to have over the next several years. Or it's potentially to drive us more towards some of the OpEx related activity that really becomes a kind of countercyclical to a drilling recovery.

Those are the kind of things we look at. We're mindful of those and evaluate all of those on an individual basis. But we'll continue to look at it. I think especially now that we have -- we've gotten the vast majority of the integration efforts done. This allows us to feel comfortable that, hey, we can integrate, small ones are much easier to integrate.

When you look at a big one like we've done here with the merger with Frank's, by and large, I would say, that's been very, very successful from our internal standpoint. So that means that our willingness to take on something bigger or to look at bigger things now, we've got -- it's easier when you're doing something a second time versus the first time. So we just continue to be mindful about those and again, really driven by the industrial logic.

Our next question comes from Samantha Hoh from Evercore ISI.

Congrats on the great quarter. I wanted to just maybe dig a little bit into the revenue guidance. Could you maybe break out for us in terms of like which regions do you think is going to lead both revenue growth and margin expansion this year?

Well, we're seeing increased activity across the pitch, different product lines and different regions seem to drive it. The well construction business has got a very strong position in NLA today. We've had some early wins in terms of introducing the legacy Frank's services portfolio to some of the legacy Expro geographic areas of import.

But I guess, NLA, particularly the Latin American market should continue to improve. That is historically at least a business that's dominated by our well construction business, which is the legacy Frank's business. Sub-Saharan Africa, I think has probably got the greatest potential to surprise the upside in the back half of the year and into 2024.

We will see good growth in ESA, including Sub-Saharan Africa in our Production Solutions business, largely driven by this Congo project that's been discussed. But ESA, should see good subsea activity as well, more so in the back half of the year based on tendering and awarding activity recently. Africa is probably the toughest one to put a fine point on timing of projects. There certainly seems to be a lot of tendering activity. And I think we're getting our share and maybe then some in terms of awards.

But longer term, --

Just maybe a little bit on that --

-- peer's comments regarding offshore MENA are probably the markets that have the best profile in terms of, I don't know if it's 3, 5 or 7 years of improved activity, but that's certainly comments of our public peers, which we would agree with. And those are markets that tend to be battleships or enterprise or aircraft carriers, and they turn slowly, but when they get going into new direction, they tend to go strong.

I kind of also want to talk a little bit more about Norway. Obviously, it's not a very busy market right now, but there's been record sanctioning of projects. I was just wondering what are your views in terms of like when activity might start to pick up for some of those projects, I think someone already mentioned that there could be a 119 wells over the next several years, and I think we've seen some equipment on the subsea side being ordered already. When does that translate into growth for you guys?

No, it's a great question. So typically, in the normal cadence of a cycle of a cyclical recovery, we're about 9 to 12 months kind of behind the drillers and tree guys when they start to see awards. Because we have such a close linkage now to drilling completions and really around well construction around the TRS business line, we'll see some more of that. So that's one of the beauties of how we have -- what we've created here with the merger of the 2 companies, we've got some earlier cycle recovery.

But fundamentally, I don't think we're really going to start to see a lot of that activity for -- it's going to start with the drillers. I think you're going to start to see that activity ramp up in the back half of '23, really kind of more into '24 when you start to see that from full activity, full drilling, full completions and then as they start to move more into actual production, those type of things. So I think it's more of a '24 and beyond phenomenon to answer your question more specifically, Samantha.

And then maybe just an update on the buyback. I'm sorry, I called in late, but I thought you were going to complete the program in the second half. Does that happen? Or like how are you thinking about the buyback program now?

No. I mean so Samantha, what we announced and what was approved by the Board back in June of 2022 was we had authorization up to $50 million of buyback. We completed in the quarter circa 1% of total shares outstanding. And so no, we have -- other than we have the ability to go out and continue to pick up some additional outstanding shares. We did not make a commitment on timing or on those type things. So, very much TBD, so to speak.

Thank you, ladies and gentlemen. That concludes your conference call today. We appreciate your participation. You may now disconnect.