Expro Group Holdings N.V. Q1 FY2024 Earnings Call

Good morning, ladies and gentlemen. Welcome to the Expro Q1 2024 earnings presentation. My name is Jacquita, and I will be your moderator for today's call. I would now like to pass the conference over to your host, Chad Stephenson, Director of Investor Relations. One moment, please.

Welcome to Expro's First Quarter 2024 Conference Call. I'm joined today by Expro's CEO, Mike Jardon; and Expro's CFO, Quinn Fanning. First, Mike and Quinn have some prepared remarks. Then we will open it up for questions. We have an accompanying presentation on our first quarter results that is posted on Expro's website, expro.com, under the Investors section. In addition, supplemental financial information for the first quarter results is downloadable on the Expro website, likewise under the Investors section. I'd like to remind everyone that some of today's comments may refer to or contain forward-looking statements. Such remarks are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such statements speak only to today's date, and the company assumes no responsibility to update forward-looking statements as of any future date. The company has included in its SEC filings cautionary language identifying important factors that could cause actual results to be materially different from those set forth in any forward-looking statements. A more complete discussion of these risks is included in the company's SEC filings, which may be accessed on the SEC website, sec.gov, or on our website, again at expro.com. Please note that any non-GAAP financial measures discussed during this call are defined and reconciled to the most directly comparable GAAP financial measure in our first quarter 2024 earnings release, which can also be found on our website. With that, I'd like to turn the call over to Mike.

Good morning, good afternoon, everyone. I'd like to start off by reviewing the first quarter financial results presented in today's earnings press release, including providing an update on commercial activity and the Coretrax acquisition. I will then discuss the macro environment, which we believe supports a favorable multiyear outlook for energy services companies that are levered to international and offshore markets and presents a compelling growth opportunity for Expro. Following my remarks, Quinn will share our outlook for 2024. For a recap of consolidated results and quarterly results by region, I'll direct you to Slides 3 through 7 of the presentation we posted to expro.com. Turning to Slide 3, I am pleased to report another strong quarter for Expro, with Q1 2024 revenue of $383 million, exceeding guidance provided on our Q4 earnings call in February. Q1 2024 adjusted EBITDA, at $67 million, was at the midpoint of guidance. Overall, the first quarter results were in line with our full year expectations for revenue of, plus or minus, $1.65 billion in revenue and for adjusted EBITDA of, plus or minus, $350 million. Revenues decreased sequentially by $23 million, or 6%, compared to the quarter ending December 2023. This decrease is generally consistent with historic revenue trends, as we usually experience softer first quarter performance related to the winter season in the Northern Hemisphere and the budget cycles of our national oil company customers. This seasonal dynamic is typically most prevalent in our Europe and Sub-Saharan Africa region. First quarter revenue increased by 13% year-over-year, reflecting activity growth across the international and offshore markets. Of note, Q1 2024 adjusted EBITDA was up 61% compared to Q1 2023, which included $11 million of LWI-related unrecoverable costs. For North and Latin America, revenue of $130 million was down $15 million quarter-over-quarter, primarily reflecting lower well construction revenue in the Gulf of Mexico, including tubular product sales, due to project delays and, in Guyana, due to rig maintenance. NLA segment EBITDA margin, at 26%, was down from 30% in Q4 2023, reflecting lower activity and activity mix, but was up about 100 basis points relative to the first quarter of 2023. In terms of NLA operational updates, in the first quarter our team successfully deployed Expro's rotating plug launcher during cementing operations for one of the major operators in the U.S. The client is now in the process of standardizing these operations across its fleet of over 20 active drilling rigs. This was a great example of our ability to provide cost-effective, innovative solutions to meet an important client's evolving needs. For Europe and Sub-Saharan Africa, revenue of $122 million was down $12 million quarter-over-quarter, and segment EBITDA margin, at 21%, was down sequentially, but was up approximately 250 basis points relative to the first quarter of 2023. In addition to the seasonal reduction in activity in Europe and the resulting compression in margin, we recognized lower margin on our LNG expansion project for Eni in Congo and also incurred higher costs in the first quarter related to subsea projects that will be starting in the second quarter of 2024, particularly in West Africa. We have very good business momentum in the ESSA region, with contract awards for upcoming campaigns in Angola and the Black Sea totaling more than $30 million. These contract awards, which include subsea, TRS and cementing services and solutions, are a testament to the region and product line teams delivering technology-enabled, fit-for-purpose solutions. Highlighted on Page 5 is our provision of TRS services in the first quarter for a pilot project for green hydrogen and chlorine production in France. Similar to the way in which we have leveraged our experience in well construction, well flow management and well intervention integrity to grow our geothermal business, this is another good example of how Expro can deploy existing assets and leverage current capabilities to support the development of sustainable energy solutions. Page 8 of our slides also highlights that in the first quarter our Eni Congo project team surpassed 1 million man-hours without a lost time incident, which highlights our unwavering commitment to both safety as well as sustainable operations. First production from this plant expansion is scheduled in the first half of 2024. Essentially, all equipment has now arrived in country, making a crucial milestone in our journey towards operational readiness. We're incredibly proud of the tireless efforts of the Congo project team to safely deliver this important project to our customer and the incremental lower-carbon energy that the Congo LNG facility will produce. The Middle East and North Africa team delivered another excellent quarter, with revenue at $71 million, up 9% sequentially and up 40% year-over-year, largely driven by higher well flow management activity in Saudi and Algeria, with good fall-through on incremental revenue. MENA segment EBITDA margin, at 34%, was up nearly 2 percentage points quarter-over-quarter and up about 5 percentage points year-over-year. During the quarter, we secured and executed a major contract for cementing accessories with an international operator in Egypt's deepwater market. The regional team's deployment also featured our wireless cement heads, which increases safety and efficiency through remote operation. This contract marks the initial step in broadening the adoption of our hands-free cementing operations globally. Finally, in Asia Pacific, first quarter revenue was $60 million, down 4% relative to the previous quarter, primarily reflecting lower activity in Malaysia, but up 24% year-over-year. Asia Pacific segment EBITDA margin of 18% was up over 9% from the prior quarter, which reflects higher activity in the region and lower LWI-related costs. During the first quarter in the Asia Pacific region, Expro announced a new carbon capture and storage contract with INPEX Corporation for Japan's first clean hydrogen production demonstration project. The Kashiwazaki Clean Hydrogen/Ammonia Project is a key milestone in Japan's energy security journey. Designed to produce clean energy from domestically sourced gas, this will be Japan's first project to build an integrated hydrogen and ammonia value chain from production to usage. Expro's work scope will include the delivery of tubular running services for multiple sections of casing, liner and tubing over a 12-month period. This project furthers Expro's and our clients' efforts to reduce carbon emissions while advancing our sustainable energy solutions. We have supported CCUS globally for over 10 years, gaining valuable experience and executing operations with excellent results, and we continue to believe that we will be a key industry enabler to support our own as well as our clients' net zero goals. In terms of commercial activity, I'm pleased we have continued to build on our strong momentum from last year, capturing roughly $230 million of new contract awards, including subsea contracts worth approximately $40 million in Africa and TRS and well integrity contract extensions in the Gulf of Mexico and Argentina, respectively, each of which was valued at more than $20 million. At quarter-end, our backlog was approximately $2.3 billion, which is consistent with the close of the fourth quarter and in line with expectations given historical seasonal patterns of contract awards at the beginning of the year. As discussed on our Q4 call, early in the first quarter Expro entered into a definitive agreement to acquire Coretrax, a leading well integrity and production optimization company, for a mix of cash and stock consideration totaling approximately $210 million. As a reminder, the acquisition is expected to be accretive to adjusted EBITDA margin and free cash flow. With a transaction value of less than 5x our estimate for stand-alone 2024 EBITDA, the Coretrax transaction should also be immediately accretive to shareholder value, with synergies providing incremental upside. Our full year and Q2 guidance assumes that we close the transaction at the beginning of the third quarter. If we can close the transaction a month or 2 earlier than assumed, there's a bit of Coretrax-related upside to our guidance. Our integration planning is well underway, and we expect to hit the ground running on Day 1, post close. We look forward to welcoming John Fraser and his team to Expro as we expand the suite of technology-enabled solutions in our well construction and well intervention integrity businesses and increase our capabilities in geographies such as the Middle East North Africa, where we anticipate good multiyear growth. Regarding M&A more generally, our team continues to evaluate acquisition opportunities that would allow us to advance our strategy and position Expro to be more relevant to our clients and shareholders. We take a disciplined approach to M&A, and opportunities we pursue will meet a rigorous set of criteria that starts with the industrial logic; has a comprehensive review, whether it's complementing existing capabilities and/or building out our presence in growth markets, and a clear identification of cost and revenue synergies; finally, concluding with a sensible financing plan that preserves our currently strong financial profile. We continue to believe additional consolidation is good for the long-term health of the energy services sector and that smart, synergies-focused M&A can be an effective means for Expro to accelerate growth and create additional shareholder value. Turning to our market outlook, we expect the very positive current growth trends to continue, given the solid market fundamentals underpinning the energy services sector that we have seen over the past few quarters. Ongoing investment and activity levels support a favorable multiyear outlook, with oil demand forecasted to reach record levels of 103 million barrels per day in 2024 and over 104 million barrels per day in 2025. These increases are driven by an expected recovery in Asian countries, improving economic data for the Middle East and in the United States as well as increased industrial requirements and global travel driving the consumption of jet and marine fuel. We believe the pace of oil demand growth is stabilizing. With continued production discipline from OPEC+, as was again highlighted by the recent extension of voluntary production cuts in February, we expect market conditions to remain favorable, supporting investment and activity levels at and above pre-COVID levels. The combined effect of supply discipline and geopolitical turmoil, including the Middle East and Ukrainian conflicts, is resulting in upward pressure on oil prices, with the outlook for 2024 average Brent up from $82 per barrel to closer to $90 per barrel. Assuming the voluntary production cuts are fully unwound, the current outlook for 2025 average Brent is roughly $87 per barrel. Extended and stabilized pricing should support continued investments by our customers in the long-cycle development and capacity expansion projects that underpin the international and offshore markets to which Expro is most levered. The gas markets continue to experience sustained high storage volumes, with demand growth curtailed due to mild winter seasonal temperatures. Longer term, domestic demand and exports are forecasted to increase, as gas remains a structural source of lower-carbon electricity generation and a critical transition fuel in the path towards global net zero. Constructive oil market pricing is allowing operators to make long-term investment decisions, with FIDs at record levels in 2023 and a continuing robust pipeline of projects that are forecast to be sanctioned through 2024 and beyond. The continued growth of the multiyear sanctioned project pipeline through 2030 is driving demand for our services and solutions. More specifically, we continue to see increased activity in our well construction and subsea well access businesses as well as in certain areas of our well flow management product line. We are confident that demand for our services will continue to increase throughout 2024 and beyond. Upstream investment forecasts for 2024 are further strengthening and are now at the highest levels we have seen since 2015. We're seeing a significant growth of offshore and deepwater and shelf, driven by Guyana, Azerbaijan, Brazil, the U.S., Indonesia, Malaysia and Norway. And this also includes targeted exploration and appraisal activity in mature areas, especially in the Europe, Sub-Saharan Africa and South American regions. International land activity growth continues, specifically in the Middle East with the ongoing large gas and LNG developments in Saudi, Kuwait, the Emirates and Qatar. Our customers also remain focused on maximizing their existing investments by driving cost-efficient, lower-carbon-intensive incremental production. This is resulting in further demand for our production optimization-related activities within well flow management and well intervention integrity product lines, especially across the Asia Pacific and Latin America regions. Finally, investment in lower-carbon energy alternatives is also increasing across the industry, with growing activity in the geothermal sector, especially within Europe and Asia Pacific, and the carbon capture and storage sector as operators work to reduce their upstream emissions to achieve their net zero goals. As we have discussed previously, the current energy services cycle is more about margin expansion than it is about capacity additions. We have ongoing efforts to optimize equipment utilization and increase operational efficiency, both of which will have positive impacts on overall profitability and free cash flow performance. We also continue to have constructive conversations with customers about capturing more of the value we create through technology, process efficiency, safe well access and enhanced production. All combined, the outlook for Expro and the broader sector continues to be robust and positive. With that, I will hand the call over to Quinn to discuss financial results in greater detail as well as our outlook.

Thank you, Mike. Good morning to everyone on the call. As Mike noted, we reported revenue of $383 million for the March quarter, as compared to the guidance of $365 million to $375 million that was provided in our Q4 conference call. As anticipated, revenue was down sequentially by $23 million, or approximately 6%, relative to the fourth quarter of 2023, largely reflecting seasonality. However, year-over-year revenue was up by $44 million, or approximately 13%, relative to the first quarter of 2023. The net loss for the first quarter of 2024 was $3 million, or $0.02 per diluted share, compared to a net loss of $6 million, or $0.06 per diluted share, in the first quarter of 2023. Adjusted net income, which excludes merger and integration expense, severance and other expense and stock-based compensation expense, for Q1 2024 was $10 million, or $0.09 per diluted share, as compared to $1 million, or $0.01 per diluted share, for Q1 2023. Adjusted EBITDA for the first quarter of 2024 was just over $67 million, as compared to Q1 guidance of $63 million to $73 million, representing a year-over-year increase of approximately $26 million, or 61%, relative to the first quarter of 2023. Adjusted EBITDA margin for the first quarter was 18%, up roughly 600 basis points year-over-year. The year-over-year increase in adjusted EBITDA and adjusted EBITDA margin primarily reflects good fall-through on incremental revenue due to activity mix, operating leverage and a nonrepeat of unrecoverable LWI-related costs in Q1 2023. Pricing is trending positively, particularly in our deepwater well construction and subsea landing stream-driven businesses, but net pricing gains are not yet a material driver to reported results. Nonetheless, relative to 2023, we continue to expect 100 to 200 basis points of incremental adjusted EBITDA margin from net pricing for the full year 2024. Regarding our LWI business, as disclosed during the Q4 earnings conference call, we determined not to participate in the recovery of the subsea module from the seabed floor, which was completed in the March quarter. Regarding uncompleted customer work scopes, we are not currently able to assess the timing and potential cost of completing the projects for which the vessel-deployed LWI system was integral. That said, we are continuing to pursue the insurance claim related to the abandoned subsea module, with any insurance recovery available to offset any additional out-of-pocket costs. Based on available information, we do not expect additional unrecoverable LWI-related costs, net of insurance recoveries, to be material to Expro's financial results. We remain active in the rig-deployed light well intervention space. We are continuing to determine a path forward for our vessel-deployed LWI business and what alternative service delivery and service partner options are available to the company. Support costs for Q1 2024 of $81 million totaled 21% of revenue, which was up approximately 7% year-over-year. Compared to Q1 2023, support costs as a percentage of revenue were down approximately 130 basis points, and we expect the support costs for the full year 2024 will be at or below 20% of revenue. Moving to liquidity. Q1 adjusted cash flow from operations, which excludes cash paid for interest net, cash paid for severance and other expense, and cash paid for merger and integration expense, was $38 million, compared to $27 million in Q1 2023. Cash conversion, or adjusted CFFO, as a percentage of adjusted EBITDA for Q1 2024 was 57%, as compared to 65% in Q1 2023. Q1 2024 adjusted EBITDA less capital expenditures and free cash flow, or adjusted CFFO less core CapEx, was approximately $37 million and approximately $11 million, respectively. Expro had total available liquidity at quarter-end of approximately $291 million, with cash and cash equivalents, including restricted cash, of approximately $164 million. Additionally, at March 31, we had $127 million available under our revolving credit facility. Note that the closing of our pending acquisition of Coretrax will require $75 million of cash, which we expect to fund with an increase in our revolving credit facility. This will allow the company to maintain its currently strong liquidity position. Turning to our outlook, Page 9 of our accompanying slides summarizes our guidance for Q2 and for the full year 2024. Based on our strong performance in Q4 2023, continued momentum through Q1 2024 and a positive activity outlook, we are reaffirming full year 2024 guidance, with anticipated revenues between $1.6 billion and $1.7 billion and adjusted EBITDA between $325 million and $375 million. Adjusted EBITDA margin is expected to be within a range of 20% and 22%. Free cash flow margin, or free cash flow as a percentage of revenue, is expected to be between 8% and 9% and is expected to be weighted to H2 2024. Full year guidance for 2024 assumes cash taxes of between 3% and 4% of revenue and CapEx as a percentage of revenue of between 7% and 8%. Q2 2024 revenue is expected to be within a range of $400 million and $420 million, implying year-over-year growth of about 5% and sequential growth of about 8%. For year-over-year comparisons, note that Q2 2023 revenue included approximately $13 million of vessel-deployed LWI revenue that will not be repeated in Q2 2024. In addition, revenue related to our LNG expansion project in Congo is expected to be $10 million to $13 million lower in Q2 2024 than was reported in Q2 2023, reflecting a shift in work scope from a fast-track plant delivery phase to a multiyear operations and maintenance phase. Adjusted EBITDA is expected to be within a range of $80 million and $90 million, implying Q2 adjusted EBITDA margin within a range of 20% and 21%, or up 200 to 300 basis points year-over-year and sequentially; in both cases, based on the midpoint of Q2 guidance. As a reminder, our 2024 guidance assumes that we will close the Coretrax transaction at the beginning of the third quarter. Based on that assumption, Coretrax is expected to contribute $70 million to $80 million of revenue and an adjusted EBITDA margin that is accretive to stand-alone Expro results. As Mike noted, if we can close the transaction a month or 2 earlier, we expect a bit of upside to the current guidance. Looking beyond 2024, as Mike noted on our Q4 earnings conference call, with a constructive fundamental backdrop and strong business momentum, we see a clear path to $2 billion of revenue, mid-20s adjusted EBITDA margin and a free cash flow margin of 10% in the medium term. Over time, we expect higher adjusted EBITDA margin from incremental drilling and completions activity and an expectation for above-market growth in our higher-margin businesses such as cementing technologies and performance drilling solutions, which together should provide a mix benefit. Similarly, merger-related synergies have allowed us to improve operating leverage. Finally, net pricing, while less under our control, is obviously 100% fall-through, and pricing seems to be trending positively, particularly in capacity-constrained asset classes such as deepwater TRS equipment and subsea test trees. Improved free cash flow performance should come from maximizing utilization of existing assets, CapEx discipline and growing our less capital-intensive services and solutions.

Thank you, Quinn. The first quarter of 2024 establishes a solid foundation for the year for Expro, with strong financial performance relative to guidance. During the quarter, we continued to build business momentum and strategically grow the business through the acquisition of Coretrax and numerous meaningful contract wins. The team has continued to execute the business strategy to deliver on our financial goals, while maintaining our reputation of excellence and execution through cost-effective, technology-enabled services to our customers within a safety-focused culture. I'd like to thank our teams around the world for their dedication to delivering value for our customers and our shareholders. The macro backdrop is constructive. Demand for energy, including oil, gas and geothermal, is growing. And internationally, there is a heightened focus on energy security and diversification of supply. We remain confident that the business is poised to benefit from the momentum in the international and offshore markets as our customers focus on low-cost carbon-advantaged incremental production across essentially all international basins. We have a strong presence in key markets and are positioned to provide mission-critical services and solutions to our customers. As I stated previously, at Expro we are achieving better financial results across our business, and over the medium term we expect to deliver on our targets, which include annual revenue of $2 billion and adjusted EBITDA margin of 25%. We are confident we are taking the right steps to unlock the full value potential of Expro, and we are pleased that strong market fundamentals are serving as a tailwind helping to drive our company's continued profitable growth. As activity continues to ramp up, we are well positioned to support our customers across the full well life cycle, deliver on our strategic and financial objectives and drive sustainable long-term value for shareholders. With that, we'll open up the call for questions.

The first question comes from Luke Lemoine with Piper Sandler.

I wanted to talk about the outlook a bit more. I wanted to start with the outlook and maybe the guidance as well. If I just kind of take the midpoint of the 2Q guide and use that for 3Q and 4Q, you basically get to the low end of the guide for the year, and that assumes no further growth past 2Q. Wouldn't include Coretrax either. But if you include Coretrax in the second half, I mean, it starts to look like the midpoint is very reasonable. Can you just talk about your confidence around this? And then, also, what are some of the puts and takes to get to the high end of the annual guidance this year?

I'll start, and Mike can probably add some supplemental comments. I think the first thing I would highlight is if you look at Q2 2023, we had a number of relatively chunky revenue contributions that will not be repeated in Q2 '24. So that's obviously LWI, where I think we had about $13 million of revenue in Q2 2023. In addition, as we phase the Congo OPT project from the plant delivery to the O&M phase, we're losing another plus-$10 million sort of revenue. So at the midpoint of guidance of $410 million of revenue, if you look at adjusted Q2 2023, that's a plus-10% year-over-year growth. So what kind of brings you to the low or high end of guidance is really 2 things in my mind. Most notably, when the Congo project starts the kind of production phase; so the delivery of the plant. Then we've got a couple of relatively significant subsea projects on the African coast that are kicking off in the second quarter of '23. So that's number one. And then Coretrax, if we can close it 1 month or 2 earlier, as Mike and I mentioned we think is a possibility, we're really just waiting for one antitrust clearance at this point, if we do get Coretrax closed, it's probably another $10-plus million a month in incremental revenue and another plus-$3 million worth of EBITDA. So I think those would be the kind of key drivers. As is always the case, projects can slip to the right or get pulled forward. But the range that we provided, excluding an early close of Coretrax, is the best available information we have today.

Luke, I want to add that our subsea projects are likely to kick off towards the end of Q2. Any slight adjustments in the timing could impact the quarter. However, overall, the activity, customer engagements, and dynamics remain strong. We have better visibility and confidence for Q2, with slightly less for Q3 and Q4. From my interactions and travels with customers, I believe we will continue to see strong activity in the second half of the year, which should reinforce our confidence in achieving the guidance range.

Okay. And then you talked about net pricing gains not a material driver yet, but you're starting to see that in subsea test trees, deepwater TRS. What could be next outside of subsea test trees and deepwater TRS, do you think?

I believe we will encounter opportunities as exploration and appraisal activities begin to strengthen. There will be potential for pricing in drilling and completions-related well test activities such as flowbacks and cleanups. Since 70% of our activity is related to drilling and completions, there will be various pricing opportunities, though the timing will vary, with some coming later in the recovery cycle. About a third of our activities are more operational expenditure-related, where we will aim to secure adjustments for inflation but expect very minimal net pricing increases.

The next question comes from the line of Ati Modak, with Goldman Sachs.

Just curious on your capital allocation strategy here. You've previously noted one-third of free cash flow for returns and have historically leaned into buybacks. So how should we think about your latest thought process around the potential for a dividend in that mix? Is there a free cash flow margin target where that becomes more of a discussion?

I think it's an ongoing discussion that we have with our board of directors. We're really fortunate we have some really strong, financially astute board directors. So we have really good dialogue and discussion about those things. I think for any company what's tremendously important really is the longevity of a dividend. And once you commit to it, it's something you've got to have that kind of staying power, so to speak. We're still going to stick within that kind of one-third of our free cash flow. And at this point in time, I think we're probably going to continue at least in the short term to be more predisposed to buybacks as opposed to a dividend. But we're getting to that threshold. We're going to be more second-half cash generative just with the nature of our activity. But we're going to get to that threshold kind of run rate, so to speak, back end of this year, going into next year, that I think more solid discussions around dividends will start to be had.

That's awesome. And then beyond the CapEx plans that you've announced, how should we think about the M&A component as a use of cash for the remainder of the year versus leaning into buybacks? It seems like there's some industry-wide acceleration in consolidation. So curious how you see it for Expro for this year.

It's tough to predict M&A. It obviously takes 2 to tango. We continue to look at lots of different opportunities. I think we've now gotten 2 either across the finish line or close to the finish line, with PRT and Coretrax. I'll just note that in both cases we were in dialogue with those counterparties for well over a year, in 1 case, and for a couple of years in another. We looked at 30-plus opportunities over the previous 12 or 14 months and got 2 to the finish line. So very tough to predict M&A. We're interested in M&A. We think we're good at integration. And as Mike highlighted, it all starts with industrial logic and where we actually believe we can add value. So M&A for us is not just big for big's sake, but it's big because we think it allows us to deliver something that is more differentiated to the customers and become more relevant to investors. I think we can do both. We today sit on a negative net debt position. So the balance sheet is strong. Our cash flow outlook is strong. So I think we can continue to allocate one-third of free cash flow to a return of capital plan, with plenty of free cash flow and balance sheet capacity to pursue M&A if it makes sense.

I would like to emphasize that, as Quinn mentioned, our approach will be guided by industrial logic. Importantly, we are not planning to engage in numerous M&A transactions in a short timeframe. Our focus is on integration, driving efficiencies, and breaking down silos to bring things together. Therefore, we will be selective about which companies we add to our portfolio, ensuring we deliver value to both our customers and shareholders. We see potential opportunities ahead and intend to pursue them while remaining patient. As Quinn noted, both previous engagements had a lengthy process; sometimes, patience is essential for completion. We are committed to exploring ways to strengthen our brand, leveraging our strong platform to better serve our customers. What I find encouraging is that when I approach customers to discuss PRT and Coretrax, they immediately recognize the value without needing much explanation, which underscores the strength of our industrial logic. This is very positive for us, as it indicates that if our customers grasp the industrial logic quickly, we can also effectively communicate it to investors and analysts.

The next question comes from the line of Arun Jayaram, with JPMorgan.

I wanted to get your thoughts maybe on 2 kind of markets that you participate in: TRS and cementing. And maybe give us a sense kind of internationally offshore kind of the dynamics that you see playing out in TRS between year-over-year volume gains, pricing. And maybe a similar thought on cementing, where I think you're at, call it, a $100 million run rate. And I think you've talked about growing that business to $200 million to $250 million of revenue over time.

I believe that with the advancements in cementation and the technologies we are implementing in TRS, especially in deepwater operations, we are focusing on efficiency improvements and operational enhancements. For instance, in the Gulf of Mexico, we have successfully reduced waiting times for cement by 17 to 18 hours, which holds significant value for our customers, particularly in a rising rig rate environment. Similarly, our TRS technologies such as iTONG and CENTRI-FI are streamlining operations by minimizing the number of personnel required on the rig floor while also enhancing efficiency, turnaround times, and running speeds. This not only boosts productivity but also reduces the risk of health, safety, and environmental incidents. When we combine these efficiencies with consistent operational performance, it becomes extremely valuable to our clients. As rig rates increase, the potential for savings for our customers will grow even stronger. Our commitment to technology and efficiency, along with strategic mergers and acquisitions, positions us well for future opportunities. We estimate that a $100 million cementing business today could evolve into a $200 million to $250 million opportunity for us. As the market conditions improve and rig rates rise, we anticipate even greater opportunities ahead. We will introduce our cementing technologies at a measured pace to maintain our pricing strategy, thereby ensuring we continue to deliver significant value. While we may proceed cautiously in rolling out activities over the coming months, we expect to be well-positioned for pricing stability by the end of this year and into next year as rig rates remain strong.

Great. And just maybe a follow-up on some of the M&A discussion. Mike, are you still kind of targeting more bolt-on type of transactions that you've done, like DeltaTek and Coretrax? Or are you looking at perhaps some deals that may be a little bit larger in scale? And maybe just give us a sense of the pipeline as it sits today.

We will examine all possibilities. In fact, we already do. Quinn mentioned that we discussed or conducted due diligence on over 30 transactions last year, some of which were quite transformative. So we are not limited to just $100 million to $200 million acquisitions. We will consider everything. The process really begins with the industrial logic, which remains our primary focus. If that makes sense, we will explore those opportunities. It’s not limited to traditional mergers; we could also be the smaller partner. We will assess all options that align with our strategy and have ongoing discussions about various opportunities.

I also wouldn't consider DeltaTek to be a real bolt-on. We actually think about M&A in 3 different silos. DeltaTek, SolaSense, these are very modest investments of cash, frequently with a performance-driven payout structure. That's a way for us to kind of add disruptive technologies to the portfolio and continue to have something that is differentiated for the end-user customer. Now PRT or Coretrax, which are now 9-figure transactions but still within the existing balance sheet capacity, that's what I would consider to be a bolt-on. So kind of $100 million to $500 million in aggregate value. Once you get beyond the high end of that range, it's probably involving some equity funding, potentially significant equity funding. And at that point, it's a relative valuation discussion as much as anything else. And we're open to transformational M&A or large equity-funded transactions, but it's got to be something that Mike can demonstrate as compelling to customers and, just as importantly, compelling to you and the investors that you represent.

We will go to the next question from the line of Steve Ferazani, with Sidoti.

The strength in revenue this quarter seems notable, but construction was weak compared to last year. I'm trying to understand how you compensated for that. Was it mainly due to the growth in new projects in Saudi Arabia and Algeria? Could you provide more detail on the revenue strength this quarter?

As Mike mentioned, we had a very strong Q4 in terms of well construction; notably, large tubular product sales. It was a lighter quarter, not surprisingly, given the historical seasonal patterns in well construction. So we had some projects that were moving to the right, particularly in the North American offshore market, so the Gulf of Mexico. And as Mike also mentioned, Guyana. I guess a trend that we've seen across the sector is that rig maintenance or special surveys are seemingly taking much longer than was previously expected. So most of the rigs in Guyana have moved from 60- to 90-day type maintenance schedules, and that was a driver to some of the weaker NLA performance in well construction. Not something that we expect to be a continuing trend. But as the rigs come out of maintenance in Guyana and activity picks up in the Gulf of Mexico, we're expecting fourth quarter type performance in NLA. But until then, MENA and really other than the LPT project in Congo, ESSA had relatively strong quarters relative to our expectations. And I'd say MENA, in particular, seems to go from strength to strength, including revenue trajectory and margins. So very pleased with that performance.

Great. CapEx this quarter and then your guidance for the rest of the year, it sounds like you're trending towards the high end of that CapEx as a percentage of revenue range, which given the number of new projects and activity makes sense. But does that soften your view on free cash flow expectations for the year?

No. I think most of our CapEx tends to be project-driven. So if our CapEx is going to be higher, it's going to be because the backlog is growing. But no, I wouldn't say that in and of itself would change our view in terms of the expectations for free cash flow performance. You're correct that if you take the $30-plus million of CapEx in Q1 and the kind of range we provided in the press release, we would be closer to the 8% area. But I'm pretty confident that if CapEx continues at these elevated levels, it's going to be still within the percentage ranges because the denominator will grow at the same cadence. Over time, actually, CapEx should shrink as a percentage of revenue, particularly with pricing up.

Great. On the integration process, PRT is well underway. You've got Coretrax coming up. You did the smaller one, DeltaTek, a year ago. Can you tell me what your learning curve has been on integration? Is it getting easier? Or is it going to be different for each one? And obviously, Coretrax is larger. Or does it matter more what you're buying in terms of the complexity of the integration, considering the number of opportunities that may or may not be out there down the road?

Steve, that's an excellent question. When we approached the Frank's merger, we focused on the long-term perspective. We invested significant time and effort into developing an integration playbook because I envisioned us pursuing more transactions like that in the future. We established a clear methodology and brought on an executive to lead the integration for that project. A considerable amount of effort went into creating a sustainable and repeatable playbook. While the subsequent transactions have been smaller and not executed to the same extent, we maintained the same methodology and approach. That executive has since retired, but he remains in an advisory capacity for us. We are improving our integration skills based on valuable lessons learned from the original Frank's transaction, which will further enhance our efficiency. We have gathered insights that will guide our future endeavors. The integrations with PRT and Coretrax differ as they are mainly regional, allowing us to execute them more swiftly than the larger integration we undertook.

The next question comes from the line of Josh Jayne, with Daniel Energy Partners.

Just to sort of build on the line of questioning around Frank's, there was a presentation highlighting adjusted EBITDA margins for the combination back when it was done, and they were between 7% and 14% in the 5 years prior to the deal closing, which also represented sort of a depressed offshore spending market. You were in the upper 20s, low 30s in 2014 and 2015. Obviously, low 20s guided for this year. As you sit today and look at the business, what can be done outside of price to get back to those margin levels? And how do you see those evolving over the next couple of years?

Josh, that's a great question. We really appreciate it. A significant part of our focus is on the costs within the organization. If you examine the last complete quarter before we began integrating the two companies, we had 31% total support costs. To clarify, we define support costs as encompassing everything down to the field level, to the personnel responsible for executing the job. We prefer not to just focus on corporate SG&A, which is around 3% to 3.5%, because that tends to obscure the real picture. I consider the total support necessary for us to perform a job. We started at 31%, and we wrapped up 2023 at approximately 19.4%. We've successfully reduced a lot of these support costs within the organization. I view this as having several margin points available for us. As we grow and increase our revenue, our support costs will rise at a more gradual rate, primarily due to inflation, not at the same pace as our revenue growth. This approach is why we have discussed a path to achieving $2 billion in revenue and mid-20s percent EBITDA margins, which is very achievable for us. For me, it's not about if we can reach those EBITDA margins, but rather about when we can, and I believe we can even exceed mid-20s percentages and reach upper 20s levels.

That's great. And just one follow-up. One of the things you mentioned, you talked about carbon capture for a moment. You highlighted in the press release Japan's first clean hydrogen production. As it relates to Expro, could you just talk about the addressable market for the company over the next few years and give us a sense of the other inquiries you're having or seeing there?

It's a massive addressable market. As we begin to observe companies like Exxon in the Gulf of Mexico and other global operators, the speed at which they address their carbon capture needs will be crucial. For us, we can utilize our personnel and equipment in various ways, particularly in clean projects such as clean hydrogen or ammonia initiatives. We'll be engaged in processes like well testing, wellbore cleanup, fluid cleaning, and fluid separation. This approach gives us significant flexibility by using the same assets and personnel while leveraging our knowledge and expertise. Therefore, it represents a substantial opportunity, largely influenced by how quickly these operators and customers prioritize carbon capture.

Thank you. There are no additional questions waiting at this time. So I would now like to pass the conference back to management for any additional or closing remarks.

Great. So we'll go ahead and close for now. I appreciate everybody listening in on in the first quarter. I think, as we said, we continue to see some gaining momentum in the space, in the sector, particularly offshore international. And we look forward to speaking to all of you in the next quarterly call. Thank you.

That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.