Earnings Call
Expro Group Holdings N.V. (XPRO)
Earnings Call Transcript - XPRO Q1 2023
Operator, Operator
Hello, and welcome to the Expro Q1 2023 Earnings Presentation. My name is Adi, and I'll be coordinating your call today. I would now like to hand over to Quinn Fanning, CFO. The floor is yours. Please go ahead.
Quinn Fanning, CFO
Welcome to Expro's first quarter 2023 earnings conference call. I am joined today by Expro CEO, Mike Jardon. First, Mike and I will share our prepared remarks then we will open it up for questions. We have an accompanying presentation on our first quarter results that is posted on the Expro website, expro.com under the Investors section. In addition, supplemental financial information for the first quarter and prior periods 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 as of 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's website sec.gov 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 first quarter 2023 earnings release, which can also be found on our website. With that, I'd like to turn the call over to Mike.
Mike Jardon, CEO
Thank you, Quinn. Good morning and good afternoon, everyone. As noted in our press release, Q1 2023 revenue was up 21% year-over-year and consistent with prior guidance was down just modestly compared to a strong fourth quarter of 2022, recognizing that our first quarter is typically impacted by the winter season in the northern hemisphere and customer budget dynamics, I am pleased with our start to 2023 in terms of revenue performance. However, delivery challenges with several projects negatively impacted our adjusted EBITDA performance relative to expectations. More specifically, as was noted in our press release, we recognized approximately $11 million of unrecoverable mobilization start-up and commissioning costs on several projects in Asia Pacific that we did not anticipate when we provided Q1 guidance. Other positive and negative variances in the first quarter were generally small and largely offsetting. Excluding such mobilization start-up and commissioning costs, Q1 2023 adjusted EBITDA and adjusted EBITDA margin would have been $53 million and 16% respectively, which is directionally consistent with our expectations for the March quarter as of our last earnings conference call. Also excluding LWI related costs, Q1 2023 adjusted EBITDA would have been roughly 35% higher than the first quarter of 2022 in terms of adjusted EBITDA. In regards to our vessel deployed Light Well Intervention or what we call LWI system, we commenced commercial operations with one of the super majors in offshore Australia in late March. Operations have now been ongoing for about a month with two well de-suspensions completed to date. After several quarters of start-up and commissioning issues, this is an important milestone for our Light Well Intervention service. We have also secured additional work for the LWI system on a well decommissioning project in Asia Pacific. And over the next couple of quarters we'll be focused on improving execution including vendor management and service partner coordination, demonstrating our broad capabilities and vessel deployed Light Well Intervention and building the case to extract more value for the services and solutions that we provide. As Quinn will discuss later, we maintain our previous full year revenue and margin guidance. We expect Q2 results will reflect a seasonal recovery in activity in the North Sea and more broadly a continued ramp-up in activity across geographies. Based on what we know today, adjusted EBITDA margin is expected to expand sequentially by more than 300 basis points, reflecting a non-repeat of the extraordinary costs that were recognized in the first quarter, a better business mix and improved operating leverage. Our view remains that the fundamental backdrop for energy services is quite constructive with long-cycle development and capacity expansion projects supporting a growth phase that will be multiyear in duration, span all phases of oil and gas development and include all operating environments. On balance, the long-term demand outlook is favorable. Though the near-term US economic outlook is uncertain, post-lockdown increases in demand led by China, should result in an overall demand recovery in the second half of 2023. OPEC+ appears committed to supporting oil prices, non-OPEC supply growth has been constrained to date, and global inventories are below average. I'll note that building US gas inventories are the exception here with additional LNG export capacity likely the medium-term solution. Turning to the energy services sector. While the consensus view seems to be that growth for the US onshore market has reached a plateau, we see momentum continuing to build in the international and offshore markets that Expro is most active in. We entered 2023 with a healthy order book, and I'm pleased that we have continued to build on this momentum. In the first quarter, we captured more than $350 million in additional work by leveraging global relationships and the breadth of our portfolio of capabilities and by capitalizing on a strong resurgence of activity. Over the next several years, the offshore market is expected to attract investment capital and amounts not seen in over a decade largely because of the limited investment in upstream oil and gas during the last five-plus years and an expected increase in oil demand to pre-pandemic levels. With increasing urgency, operators are looking to replace produced reserves and add capacity to meet projected demand growth as large-scale developments that are planned across multiple basins progress, particularly in Latin America those projects will likely draw down available global capacity within the energy services and equipment industry. We expect that this dynamic will create pricing tailwinds as 2023 unfolds and the calendar turns to 2024. We also expect that constructive commodity prices and energy security considerations will continue to incentivize new exploration and appraisal campaigns particularly offshore West Africa and in the Eastern Mediterranean. Increased exploration and appraisal should contribute to a favorable supply/demand dynamic for value-added energy service providers such as Expro and provide our company with further scope for net pricing gains. Perhaps most importantly our surge in exploration and appraisal should extend the current offshore growth cycle. We continue to demonstrate our capabilities on Frontier field developments. For example, in West Africa our services and solutions are helping operators more fully participate in the significant and growing global market for liquefied natural gas or LNG. As previously disclosed, Eni awarded Expro a 10-year fast-track production solutions contract for an onshore pretreatment facility in the Congo that is designed to increase LNG capacity in part to address European demand for low-carbon electricity generation. We were pleased to win this important project and our team is working to deliver the cost-effective innovative solutions that our client has come to expect from Expro. Expro also has a long history of teaming up with service partners where a combination of complementary capabilities, operating footprints, and relationships can result in better outcomes for the client. In this spirit, we recently entered a strategic alliance with one of the large service companies to supply our leading subsea technologies on a global basis and to work collaboratively for new subsea completion, decommissioning, and interventional work scopes by supplying in riser, open water, and surface applications. We are delighted to have secured the first commitment under this new arrangement with the award of a $40 million contract for the sale of subsea equipment for a multi-well development in Angola. We believe this alliance provides an excellent platform for our organizations to work together and leverage the respective strengths of industry leaders for the benefit of our combined customer base. In the first quarter, we also completed the acquisition of cementing specialists DeltaTek Global and are generating significant market interest in innovative technologies that this acquisition brings to Expro. DeltaTek's experienced leadership team has an excellent track record of developing and deploying cementing technologies for the offshore market with operations across the UK and Norway. Our intent is to increase the penetration of DeltaTek's business into the Gulf of Mexico, West Africa, and Asia Pacific markets by combining Expro's global operating footprint and award-winning cement head technologies with DeltaTek's range of open water cementing solutions to increase clients' operational efficiency, delivering rig time and cost savings, and to improve the quality of cementing operations. Expro's distributed fiber optic sensing product line was shortlisted by a major client in the UK for their Global Innovation Award. This is a recognition of performance delivered on a project in the UK whereby DFOS was able to provide the first-ever production profile data in a high-rate gas oil and is being positioned to be rolled out as a standard solution for their well stock. As you may recall our DFAS enabled data acquisition and data interpretation capabilities were expanded with the 2022 acquisition of Solarsense. We highlighted several other operational achievements, technology awards, and regional highlights in our press release and in the slide presentation that was posted today at expro.com. As I have done on previous calls, I will call attention to a few noteworthy achievements in the quarter to give new participants a better sense of Expro services and all participants a sense of business momentum within the sector and at Expro. Our well construction product line continues to reinforce its position as the premium provider of tubular running services with a leading position in complex wells, good exposure to deepwater and ultra-deepwater development, and an advanced position in key growth markets. Well construction, like drilling, is more level to early cycle activities, which should better position Expro to the large offshore development projects that are starting to ramp up around the world. As the backlog of offshore deepwater and ultra-deepwater projects continues to build, clients will look to secure high-end TRS and subsea landing stream capacity going forward and we believe that Expro remains a first call. The combination of market structure, capacity constraints, and differentiated technology should provide these product lines in particular with scope for improved pricing. Moving on to some regional commentary within well construction, I want to commend our Brazilian tubular running services team and congratulate them for achieving nine years without lost time incidents. The Brazil team also retained a multimillion-dollar wireline intervention contract for a key client. This is a three-year award for provision of offshore slickline services that represents most of our Brazil wireline operations. We also secured an 18-month contract for provision of tubular running services on the field offshore Brazil. This was largely due to Expro's technical offering and our reputation for service delivery. From a technology standpoint in Brazil, we successfully deployed our award-winning Centri-fi consolidated control console for a major customer, which is a new technology deployment and an important part of our broader digital strategy. Centri-fi is a safety and automation technology that provides hands-off control for a single operator on multiple tools with a tablet interface that allows operator mobility and provides real-time visibility of equipment status to drillers and their supervisors. Also within North and Latin America region, we won a subsea well access contract extension for a further 24 months on a major client's mature assets in the Gulf of Mexico. Service quality was a key driver in securing the extension as Expro has been this client's subsea large board provider on these assets in the Gulf of Mexico since 2006. Additionally in the Gulf of Mexico, our well construction team successfully completed two long-term well suspensions for a supermajor utilizing both our 958 and 14-inch packers, which were suspended for approximately six months in the well. This is an important accomplishment for our brute well isolation system. Our fluid analysis team is also working with a customer in Colombia to carry out the first sampling in Colombia of clean hydrogen. Our participation in the hydrogen market is in its early stages but this is a market with significant potential to further develop. Moving to the Europe and Sub-Saharan Africa region. Expro's subsea well access team was recently awarded plug-and-abandonment work in the U.K. sector of the North Sea winning a 12-month scope for an upcoming nine-well project. Expro developed a bespoke equipment package for this work to meet specific requirements for this customer. Expro also completed a multi-well campaign for a customer in the Turkish sector of the Black Sea during the first quarter. This high-rate gas cleanup and measuring system with flow rates in excess of 100 million standard cubic feet of gas per day included data-to-desk services for remote monitoring and data quality control. In addition to the rig services, Expro provided the reservoir engineering analysis providing data interpretation services. This integrated service contract also included well intervention services as well as TRS well test and data gathering services. Expro services were delivered without Lost Time Incident and with zero NPT on this nine-well project. Our U.K.-based well construction team was also awarded multiple contracts during the March quarter including TRS support for multiple mobile offshore drilling units or what are called MODUs and platforms in the North Sea and West of Shetland. The contract includes drilling completions and abandonment work scopes and importantly we'll be delivering equipment to eliminate personnel in the red zone and to improve drilling efficiency. Well construction also captured a new three-year TRS contract for work in offshore Denmark from a long-term incumbent. Finally, we are pleased to have extended a multi-services contract with a key client in the U.K., demonstrating the breadth of our portfolio and the value of Expro technologies. This is a three-year extension to an existing wireline services contract with well test and TRS services now formally added to the contract and Expro is now a preferred supplier for these services. Value-added technologies such as DFOS our CoilHose light well circulation system, and our Octopoda annulus intervention system are also included. Moving to Sub-Saharan Africa. Expro is providing hydrate remediation services for a major international client in Mauritania utilizing our CoilHose technology. As compared to coiled tubing, our CoilHose solution delivered cost savings with a reduced equipment footprint while retaining a fast response capability and delivering operational safety benefits. Also in Mauritania, we have secured a contract for the provision of well test and TRS services for a five-well rig-based subsea plug and abandonment project. It's also noteworthy that our team in Takoradi, Ghana celebrated 14 years with zero recordable safety incidents. This base is currently servicing a long-standing client's value maximization plan, which is a multiyear multi-well campaign led by our well intervention and integrity product line. This major client also recently commended Expro for our strong commitment to rig safety culture and our One Team approach. We congratulate the entire team for their dedication to delivering the highest levels of safety and quality. In Namibia, we delivered a wireless reservoir monitoring solution to a major client. This technology will enable the customer to efficiently gather the reservoir information that's required to optimize development plans for this exciting new frontier project. We were also awarded a new contract for subsea large-bore electrohydraulic services for two upcoming wells in offshore Congo. This work is scheduled to commence in the summer of 2023. As a final highlight of activity in the Eastern region in Tanzania, we successfully completed our first slickline operations in Sub-Saharan Africa. This four-well perforated campaign will utilize Expro's proprietary trigger system that combines the efficiency of slickline and the control provided by real-time monitoring. Historically, Expro has maintained a very strong position in the West Africa markets and we are encouraged by the resurgence in activity and the uptick in exploration and appraisal activity. With vast resources and good access to demand markets, security of supply concerns are serving as a new catalyst for operator investment in Africa. In the Middle East and North Africa, we secured a 20-month TRS contract with a key client in the United Arab Emirates. This multimillion-dollar contract is a great example of sales professionals working in collaboration with the client to meet their needs and develop valuable business, and we're delighted to further enhance our relationship with this important customer. Additional TRS activity in the UAE has also provided us with an opportunity to introduce NIC technologies, including our new triple catwalk. This facilitates the manipulation of triple stands of drill pipe and doubles of casing from the pipe rack to the rig floor, thereby delivering improved drilling efficiencies. In Saudi, we are pleased to have been awarded a long-term contract covering well test activity for drilling and workover rigs. In Iraq, we have secured a five-year contract for clamp-on meters for a major client covering single and multiphase clamp-on coder meters for fluid surveillance. And in Egypt, we were awarded two-year contract extensions for well testing, drill stem testing, and TRS services. Capacity expansion projects in the Middle East will attract significant investment over the next decade and we remain focused on building upon Expro's currently strong position in markets such as Saudi, the UAE, Egypt, and Algeria. In addition to providing traditional services such as TRS, well test, and wireline, we are well positioned in the Middle East to provide early production, production optimization, and emissions management solutions in support of ongoing capacity expansions and carbon reduction initiatives. Finally, in the Asia Pacific region, in addition to the subsea projects that I mentioned earlier, also in Australia, we were awarded a contract to provide our rig deployed Intervention Riser System, utilizing Expro direct hydraulic controls for the de-suspension of an initial 10 development wells followed by a further planned 18 wells. The contract duration is 22 months. For the same client in Australia, we have also secured an award to provide well testing services for a two-well exploration campaign. In Brunei, we were awarded a two-year extension for well test, subsea DST TCP, and fluid services. And in Malaysia, we were awarded a new contract to provide subsea landing strings and a well test package for a deepwater exploration well. This is a great example of coordination across product lines to deliver value to the client and win new business. Our Malaysian client recently presented Expro with its Triple Star Safety Performance Award, highlighting the performance of our TRS team and their commitment to safety and service quality. While Expro was initially not part of an integrated services award, our business development team worked with the client to determine a discrete services proposal. Like the subsea services lines that I referenced earlier, this is an excellent example of professionalism, collaboration, and coordination with other service partners to deliver value to our clients. Additionally, in Malaysia, our TRS team was successful in winning a contract for the provision of TRS services for a three-year TRS and conductor insulation contract. And finally, in Indonesia, we secured a well test contract for an additional well after a successful earlier campaign. Turning to sustainability. We are proud to have published Expro's 2022 sustainability review at the end of March. This comprehensive publication showcases the progress we continue to make in our journey to embed our environmental, social, and governance strategies into everything that we do, both within our business and in the communities in which we operate. This is our second annual ESG report and we believe it is an excellent reflection of the cross-company efforts to progress our own carbon reduction capabilities and support our customers in achieving their goals as well. You can review the full report at expro.com. Our geothermal business continues to develop globally. We're working to advance new strategic partnerships as we target, for example, the European geothermal heating market. As noted in our press release, we recently completed the integration of Expro's facilities in Den Helder providing operational efficiencies across product lines. This world-class facility will not only support our Netherlands operations but also our expansion into the geothermal business across Europe. We also continue to advance our strategy to grow our business in the carbon capture usage and storage sector, further strengthening our portfolio advancement organization to manage the evolving industry needs around carbon capture and more broadly to support decarbonization initiatives within the energy industry. Before I turn the call over to Clint, I'd like to provide some perspective on trends we are observing in the marketplace. The market outlook for 2023 continues to improve, building on liquids consumption growth in 2022 with demand likely to surpass pre-pandemic levels in the second half of the year, driven by steady recovery in the Middle East, China, and India, and growth in domestic aviation and global transportation fuel demand. Global liquids production is anticipated to increase slightly in 2023 with supply increases from non-OPEC countries expected to be offset by continued OPEC+ restraint that is consistent with the output cuts that were announced in October of 2022 and reaffirmed again here in April 2023. As noted earlier, our sense is that OPEC leadership in the Middle East is committed to managing supply and supporting oil prices until global economic activity reaches a post-pandemic equilibrium sometime in the second half of 2023. Our customer dialogue indicates no retreat from the ambitious capacity additions and spending plans that have been announced. As a result, liquid supply and demand should remain in relative balance over the medium term, supporting high and generally stable oil prices consistent with EIA's average Brent forecast of roughly $85 per barrel for 2023 and a longer-term outlook that has oil prices remaining at a profitable level for operators. Roughly 80% of new offshore projects to be sanctioned have a breakeven price below $40 per barrel according to a recent analysis that was conducted by Rystad. As deepwater barrels are also considered to be carbon advantaged relative to other energy alternatives, we believe there are fundamental drivers that underpin a strong multi-year offshore market outlook. Natural gas prices appear to be stabilizing, down substantially from demand-destructive levels seen at the beginning of Russia's ongoing war with Ukraine. Following the invasion, energy post in the US and Europe began to pivot in 2022. Consequently, momentum has shifted from phasing out natural gas to reducing emissions from natural gas, while potentially cleaner alternatives are developed and deployed. We share the view that has been expressed by several Wall Street analysts that a pragmatic path toward global net-zero will likely rely on gas as a transition fuel and potentially as a structural source of low-carbon electricity generation. While we expect IOC capital investment to remain disciplined, overall upstream investment is forecasted to exceed pre-COVID levels this year, as operators look to increase production, in part, to replace Russian barrels and government's focus on energy security and renewed economic development. With macroeconomic pressures beginning to ease in the second half of the year, the outlook remains positive for the energy services sector and we believe demand for our services and solutions will continue to grow throughout 2023 and into 2024. Activity has continued to rise, as operators are striving to increase production from existing assets and develop new fields offshore and in deepwater especially. Motivated by sustainable development considerations, operators are also prioritizing gas and LNG projects. As a result, offshore rig activity has continued to increase, especially in Latin America and across our Europe, Sub-Saharan Africa, Middle East, and Asia Pacific regions, as operators look to progress new developments in places such as Guyana, Norway, Angola, and increased exploration in Namibia. Expected increases in deepwater and ultra-deepwater activity should favor our well construction and subsea well access businesses and elements of our well flow management business, which combined, represent about 65% of Expro's business. The Energy Trilemma: energy security, energy transition, and supply diversification is increasingly underpinning policy and investments. As I noted earlier, this is driving increased activity in gas and LNG production across North and Sub-Saharan Africa, North America, and the Middle East. We continue to see further demand for our production-related technologies in these areas, which is traditionally a core strength of Expro, building upon recent high-value contract awards. Operators are looking to make the most out of their existing oil and gas fields and prior investments, capitalizing on the sustained strong commodity pricing to reduce well productivity decline, extend asset life, and reduce the amount of methane emissions from their overall fossil fuel operations. Consequently, we are seeing increasing demand for our well intervention and integrity, and elements of our well flow management product lines in support of these brownfield enhancement programs, especially across the Asia Pacific and Latin American regions. These services collectively represent about 35% of our business. With increased activity and demand, our company and the broader energy services sector are experiencing increased utilization of people and assets and a tightening of supply, which is supporting ongoing initiatives to raise prices and extract more value for our services and solutions. Coupled with sustained increases in operators' upstream expenditures and a resulting increase in activity, the outlook for the sector and Expro is resoundingly positive. With that, I'll hand the call over to Quinn to discuss our financial results.
Quinn Fanning, CFO
Thank you, Mike. To recap, first quarter revenue was $339 million, which was up by $59 million or 21% year-over-year. The increase in revenue was driven by higher activity, primarily in NLA and ESA. Sequentially, revenue was down by $12 million or approximately 3% relative to the fourth quarter of 2022, largely reflecting historic seasonal patterns. First quarter contribution margin, which is essentially cash basis, gross profit was 34%, with start-up delays on our riser light well intervention system resulting in unrecoverable and unanticipated costs. As Mike noted, the vessel deployed LWI system became operational late in the first quarter of 2023 and we expect that LWI related headwinds experienced in the first quarter will be non-recurring or at least not material to go forward consolidated results. Excluding mobilization, start-up and commissioning costs, contribution margin for the first quarter of 2023, fourth quarter of 2022, and first quarter of 2022 was 37%, 40%, and 37% respectively, with a sequential trend, as adjusted, primarily reflecting activity mix. First quarter support costs at $76 million totaled 22% of group revenue. Support costs were up approximately $5 million, both sequentially and relative to the first quarter of 2022, primarily reflecting higher labor costs. Support costs as a percentage of revenue were up approximately 2 percentage points relative to the fourth quarter of 2022 and were down approximately 3 percentage points relative to the first quarter of 2022. At 22% of revenue, support costs are down approximately 9 percentage points relative to the combined support costs of Expro and Frank's in Q4 2020, which was the last full quarter prior to the announcement of the merger. Adjusted EBITDA for Q1 2023 was approximately $42 million, representing a $5 million or 14% increase year-over-year and a sequential decrease of approximately $28 million or 40% relative to the December quarter. Adjusted EBITDA margin in Q1 2023 was 12% as compared to 13% in Q1 2022 and 20% in Q4 2022. Like contribution margin, the sequential decrease in adjusted EBITDA is primarily attributable to $11 million of LWI-related mobilization start-up and commissioning costs in APAC. The remaining sequential decrease in adjusted EBITDA and adjusted EBITDA margin primarily reflects lower revenue and a less favorable activity mix, which was most pronounced in the ESA and MENA regions. Seasonally lower activity, revenue, and contribution margin also resulted in reduced operating leverage as highlighted by the sequential increase in support costs as a percentage of revenue. In addition, our Q1 equity and earnings of unconsolidated affiliates reflect sequentially lower JV earnings. In Europe, higher margin services activity such as well test was down sequentially, which again is consistent with historic seasonal patterns. To a large extent, the Q1 reduction in European activity was replaced with Production Solutions revenue that was generated in Sub-Saharan Africa albeit at a lower average margin. MENA results primarily reflect equipment moving between contracts, particularly in Algeria and associated loss revenue and mobilization costs. We also had equipment sales in ESA and MENA in Q4 2022 that were not repeated in Q1 2023. Excluding $11 million of LWI-related mobilization start-up and commissioning costs, Q1 adjusted EBITDA for the group would have been $53 million and adjusted EBITDA margin would have been 16%. Without LWI related costs adjusted EBITDA and adjusted EBITDA margin in Q4 2022 and Q1 2022, would have been $75 million and $39 million respectively and 21% and 14% respectively. Also adjusted for LWI-related costs, Q1 adjusted EBITDA was up about 35% year-over-year. Adjusted net income for the first quarter of 2023 was flat compared to the first quarter of 2022 and was down compared to the fourth quarter adjusted net income of $0.22 per diluted share, primarily reflecting lower adjusted EBITDA. Results for the first quarter of 2023, the fourth quarter of 2022, and the first quarter of 2022 include foreign exchange gains of $0.01, $0.02, and $0.03 per diluted share respectively. Q1 adjusted operating cash flow, reflecting cash provided by operations before cash paid for interest, severance and other expenses, and merger integration expenses was $27 million compared to $1 million in Q1 2022 and $99 million in Q4 2022. The sequential trend in adjusted cash flow from operations largely reflects lower revenue and adjusted EBITDA and the non-repeat of a reduction in working capital in Q4. Capital expenditures for the first quarter of 2023 totaled $29 million compared to $11 million in Q1 2022 and $31 million in Q4 2022. CapEx for the full year 2023 should fall within a range of $120 million to $130 million. Regarding the DeltaTek acquisition, total consideration was estimated at approximately $17.5 million, $8 million of which was paid at close net of cash acquired of approximately $1 million. The balance of consideration represents the net present value of our estimate for future consideration that is tied to performance. Most of the fair value of net assets acquired will be allocated to acquired intangible assets and to goodwill. The March 31 balance sheet also includes a couple of million dollars in DeltaTek related deferred tax liability. In addition, in the first quarter, we acquired $10 million in extra shares at an average price per share of $17.99. Total liquidity at quarter end was approximately $316 million. Cash and cash equivalents, including restricted cash, was $186 million as of March 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 of the facility is available for bonds and guarantees, with 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 today. As Mike noted, we maintain our prior full year 2023 guidance range for revenue of between $1.45 billion and $1.55 billion, for adjusted EBITDA of between $275 million and $325 million, and for adjusted EBITDA margin of between 19% and 21% of revenue. In fact, our current internal forecast for full year 2023 is modestly more bullish than the forecast that we had in hand when we provided our initial guidance for the year on our Q4 2022 earnings conference call in late February. Our full year expectation for support costs as a percentage of revenue and cash taxes as a percentage of revenue is plus or minus 20% and plus or minus 3% respectively. As discussed on previous calls, anticipated growth in annual incentives typically result in a seasonal build in working capital in Q1 with cash flow tending to improve in the second half of the year. In fact, the working capital build in Q1 2023 was relatively modest which contributed to positive free cash flow in Q1. We expect that activity and revenue will trend higher and working capital will moderate as 2023 progresses. As a result, we continue to expect to be cash generative for the full year. Our internal target for 2023 free cash flow margin or free cash flow as a percentage of revenue is mid- to high single digits. I will now turn the call back over to Mike for a few closing comments.
Mike Jardon, CEO
Thanks Quinn. I would like to reinforce a few points from this call and leave you with three key points: number one, Expro continues to deliver double-digit revenue growth by capturing market share and entering new markets. This is a result of us being able to leverage our global operating footprint and breadth of capabilities. Number two, we continue to deliver world-class service and introduce new technologies. These technologies are the result of organic and inorganic investments which we believe will positively impact our results in 2023. Third, at the start-up and commissioning challenges associated with launching a new business, Expro continues to deliver exceptional performance. We also continue to add attractive businesses to our order book, with a favorable outlook for offshore and international activity, increased scale, and improving business mix we should be well positioned to expand margins, increase free cash flow, and deliver value to all stakeholders. With that, I will transfer back to the operator for our Q&A session.
Operator, Operator
Thank you. The first question today comes from Eddie Kim with Barclays. Your line is open.
Eddie Kim, Analyst
Hi. Good morning. Just wanted to touch on kind of the $11 million in unanticipated costs this quarter, was there something unique about this LWI project that resulted in the cost here? Just trying to understand how much of a risk this could be on similar type of projects that you might currently have in the pipeline?
Mike Jardon, CEO
Sure. Eddie, thanks for participating, thanks for the question. Fundamentally, what it really amounts to is we had anticipated that we would go operational much earlier in the quarter. We really didn't go operational with the system until about the last week of March. The real positive thing is we've been fully operational since the last week of March. And we actually, as of now, just a few minutes ago, have completed the third de-suspension well. So, the real challenge for us is it took longer on some of our third-party suppliers and some of our partners to be able to go out and go operational. We had some weather delays in the first quarter. It's cyclone season in that part of the world at times so that really was what it amounted to is we didn't go operational as soon as we had anticipated, but I think that the real key takeaway is we are now fully operational. We've completed a third well, and we still have additional wells that we'll continue to move on to. So that's how I would look at that. Quinn, anything I missed?
Quinn Fanning, CFO
No, I mean obviously we've had a couple of different quarters in a row now that we've had costs associated with the system. But the important thing that we accomplished in the first quarter is we're now on ticket with the customer and we're executing the work that we were contracted to do. There were obviously incremental costs realized before being revenue generative, and we're not going to fetch with other projects all of which ultimately tie back to what Mike was talking about, which was the delay in the start-up.
Mike Jardon, CEO
I think it's worth noting that this was not just a new technology development for Expro. We leveraged some of our subsea expertise. The challenges we faced were not specifically related to technology or engineering advancements; they were primarily about the availability of the vessel, the timing of the vessel becoming fully operational, and the weather conditions for supply vessels. It was crucial to have all these factors aligned to conduct operations, but we did not encounter an engineering or technology gap.
Eddie Kim, Analyst
Okay. Got it. Thank you for that color. My follow-up is on the DeltaTek acquisition. That company currently operates in the UK and Norway. You highlighted plans to globalize that business to other regions like the Gulf of Mexico and West Africa. Can you just talk about the expansion opportunity here? Is the plan to offer an integrated offering, where you'll also be doing the cementing work on all the wells that you'll be doing the TRS on or is DeltaTek more of a specialty cementing service that's applicable only in specific circumstances?
Mike Jardon, CEO
That's a great question. This is particularly relevant for deepwater and ultra-deepwater operations. We expect it to be an additional service for us. Our team will already be on the rig managing TRS and performing some cementing operations. This will add to our existing cementation services. We believe there is significant potential to extend this beyond Canada and Norway. Recently, I was in Guyana, South America, where we received a lot of interest from customers in adopting this technology. It is a novel approach that is especially crucial for operators, especially as rig rates approach $500,000 to $600,000 per day. This technology enhances the efficiency of cementation operations, allowing for a time savings of 12 to 24 hours of rig time, whether by not waiting for cement to set or by eliminating the need to drill out a longer casing cement shoe. This is a major advantage for us, and as rig rates rise, operator interest in this technology increases, as it helps to reduce rig time.
Eddie Kim, Analyst
Okay. Understood. Thank you. And just last one if I could squeeze one in here. Just on the 20-month TRS contract you secured in the UAE. Just curious if you can provide some more color on this one. Is this for offshore work or is it onshore work on the artificial islands there? We know the country's ambitious oil capacity expansion plans through 2027. Could this be just the first step in additional extensions to this contract?
Mike Jardon, CEO
It really is the first step in additional extensions to the contract that allows us to operate both offshore and on land. What I want everyone to take away from this is that we achieved $350 million in contract awards during the quarter. It's important to note that this is reflected across all our geographies and product lines, demonstrating a significant level of commitment. While there is some concern about volatility in individual markets, the $350 million figure is substantial. It encompasses our entire range of services, customers, and geographic locations. This is truly a positive aspect for Expro, as we maintain a strong global presence in offshore operations and offer a wide array of services.
Eddie Kim, Analyst
Great. Thank you for all that color. I’ll turn it back.
Mike Jardon, CEO
Great. Thanks, Eddie.
Operator, Operator
Our next question comes from Luke Lemoine from Piper Sandler. Your line is open.
Luke Lemoine, Analyst
Hey, Good morning, Mike, good morning, Quinn.
Mike Jardon, CEO
Good morning, sir.
Luke Lemoine, Analyst
Your 2023 EBITDA guide is unchanged. Hey, morning. 2023 guidance unchanged for EBITDA and I guess with 1Q and 2Q guide some pleasant even healthier second half than the Street is expecting and Quinn you alluded to your internal forecast being more bullish than when you provided the EBITDA guide on the 4Q call for 2023. Can you talk about the visibility that you have for second half? What's improving more than you expected? And then maybe what it takes to get to the midpoint or above the annual EBITDA guide and kind of your confidence and visibility surrounding this?
Quinn Fanning, CFO
I would like to start by noting that as the year progresses, we expect regional performance to return to historical averages. We encountered some seasonal challenges, especially in ESA. However, ESA's performance improved compared to previous years, excluding the pandemic impact, due to higher margin service activities in the UK and Norway being offset by lower margin activities in Africa. We anticipate ESA and MENA will return to historical margin levels in the second and third quarters, especially with the North Sea activity increasing as the weather warms. Asia is mainly affected by the removal of unusual costs we've discussed in recent quarters. NLA experienced a seasonally weaker quarter, but not significantly. In the second half of the year, and to a lesser extent in the second quarter, we expect NLA margins to recover to levels seen in the second half of last year. We expect revenue growth in the second quarter to match the 20% year-over-year increase seen in the first quarter, indicating a sequential rise of 10%. We're guiding an EBITDA margin of 16% to 18% for the second quarter. To reach the midpoint of our revenue guidance in the coming quarters, we foresee revenue exceeding $380 million per quarter, with projected revenue over $390 million per quarter for the second half of the year. The margin improvement, as mentioned by Mike, results from the absence of losses related to LWI, a better business mix, and enhanced operating leverage with increased revenue. Several factors are aligning positively, suggesting we should achieve an EBITDA margin comfortably above 22% in the second half of the year, which is our expectation.
Luke Lemoine, Analyst
Yeah. Okay. Thanks for the walkthrough there. I guess, on your comment just being more bullish than you where in your 4Q call, any kind of geographies or product lines that we look to stick out there?
Quinn Fanning, CFO
I mean, I guess, I'd start with the TRS and subsea, traditional subsea or subsea completions business. We are seeing a step-up in bidding activity. We've had awards that had more attractive pricing than what we've executed work at over the last number of quarters. That's going to take some time to work its way into the financial statements, but it is good to see that we're getting awards at higher pricing. And it's really just a question of when the work starts up to see it flow through the financial statements. But well construction has been on a very strong run. We expect strength to strength in that business line and L.A. probably most significantly impacted by that. In subsea as the year progresses, you should start to see incremental activity and margin improvement particularly with the LWI issues hopefully behind us at this point.
Mike Jardon, CEO
Yeah. I guess, the one thing I would add is we highlighted several of the E&A type projects. We continue to see a pickup in resurgence in E&A type projects from our customers. And why is that important? A, it's important because historically in legacy Expro almost 20% of our revenue was derived from E&A type activity. Today, we're down in the single digits 6%, 7%. And that's not because we lost market share. That's fundamentally because customers were not moving forward with exploration activity. Now we're starting to see a pickup in that. That gives me more of a sense of what the next steps are for operators, because you need to have those projects that you've been able to explore on to be able to move them into more of a development phase. And then secondarily it's really the positivity we continue to see around West Africa. Just from a customer engagement, technical inquiries, market pricing checks, those kind of things we continue to see some more and more interest in West Africa. And I think that bodes well for us for this to be more of a longer-term recovery in West Africa in particular.
Luke Lemoine, Analyst
Okay, great. And then just one more real quick. Mike, you've both highlighted the $350 million in awards bookings this quarter. Can you talk about how significant that is? I think this is the first quarter you guys have given a number like that. Just wondering how this roughly compares to historical standards or how significant this is for you?
Mike Jardon, CEO
I would say that the legacy Frank's and legacy Expro organizations had somewhat different approaches to budgeting. Now, the entire organization is using the same budgeting process. When we look at order backlog for the combined company, we're currently at the highest levels we've seen, which indicates a positive book-to-build dynamic where we are taking on more work than we are completing in the quarter. While we haven't previously shared order backlog details, it is showing a positive trend.
Quinn Fanning, CFO
Great. Thanks Luke.
Luke Lemoine, Analyst
Great. Appreciate it.
Operator, Operator
Our next question comes from Abhi Mehta with Goldman Sachs. Your line is open.
Unidentified Analyst, Analyst
Hi, good morning. On the LWI cost for the quarter, our mobilization costs typically not recoverable or possible to the customer? And can you remind us on the duration of this particular engagement? How should we think about that piece going forward?
Mike Jardon, CEO
This contract involves completing a specific number of wells and de-suspensions, so the timeline depends on how long that takes. It will last beyond the next quarter, likely up to two quarters. There's also a possibility to add extra services related to ROV activities and well diagnostics. Typically, once we start operating with the LWI system, the costs can be recovered. We were in the pre-commissioning phase, which is why the system wasn't operational yet. Achieving operational status by the end of March is crucial for us to get the system up and running.
Unidentified Analyst, Analyst
Got it. And so the readthrough basically is that if you do have mobilization from one region to another now from here on you should be able to recover that mobilization cost?
Mike Jardon, CEO
Correct. We would be in a mode demo-type costing scenario. Absolutely.
Quinn Fanning, CFO
Which could be billed to some or a day rate.
Unidentified Analyst, Analyst
Got it. Understood. That's helpful. And then how should we think about the levers for free cash flow the range you provided between mid to high digit margins I think for the full year? Any thoughts you can provide around that and capital allocation priorities?
Quinn Fanning, CFO
Yes, I think the short version of it is we expect working capital which we had a relatively significant build throughout 2022. It started to reverse in the fourth quarter. We're essentially a push on working capital in the first quarter of 2023. So, it's really higher revenue fall-through and as a result EBITDA is where you start and basically going from EBITDA to free cash flow you've got three things; working capital, cash taxes, and CapEx and I think we have relatively good visibility on CapEx and taxes, working capital at times is a bit of an unknown. But at least where we sit today our expectation is that working capital will moderate and a decent percentage of EBITDA will fall through to free cash flow of course dependent upon cost and capital discipline. And I think we've got a reasonable track record there.
Unidentified Analyst, Analyst
Got it. And anything on the capital allocation. I think you said about 8% of revenue would be CapEx. Just remind us of what that process is. And you did a buyback this year this quarter. What's the cadence that we should expect?
Quinn Fanning, CFO
Yes, we have a $50 million authorization on the buyback. We've utilized now about half of it. So, we'll continue to dialogue with our Board regarding the return of capital plan and what form it takes. But we've previously put targets out there that about a third of our free cash flow we expect to return to shareholders in the form of dividends, buybacks, or some combination thereof. That's our current expectation. Obviously, it's easier to think about returning capital when you can demonstrate cash generation. And our hope and expectation is that you'll see cash generation in the second half of the year in particular. And I think that's when you'd more likely see us moving forward with return of capital plans. But it's always going to be a combination of organic and inorganic investments.
Unidentified Analyst, Analyst
Great. Thanks.
Operator, Operator
Our next question comes from Steve Ferazani from Sidoti. Your line is open.
Quinn Fanning, CFO
Hi Steve.
Steve Ferazani, Analyst
Morning Mike, morning Quinn. Appreciate all the detail on the call. I did want to ask I think you highlighted labor cost pressure and how it's impacting support costs. I'm just trying to think about the strong margin guidance you're providing for the second half what we can back into any concerns about labor cost pressures and labor availability given that not just you but plenty of others are seeing increased work second half and into next year?
Quinn Fanning, CFO
Yes, we've gone a few years without significant adjustments to compensation in our industry, which is becoming evident as the labor market tightens and activity increases. At the start of 2023, we implemented various compensation adjustments, particularly in the US, where social security dynamics somewhat increase labor costs upfront. More importantly, the increase in support costs from 20% to 22% of revenue reflects a seasonal decline in revenue. As we expect this trend to reverse, we believe support costs will moderate and eventually fall back within the 20% range I mentioned earlier.
Mike Jardon, CEO
Yes, I guess Steve, the other thing I would add is that's one of the advantages that technology brings to us. One of the things I highlighted was the Centri-fi rollout in Brazil. Centri-fi really allows us to have less personnel on the rig. You rely more on the technology than you do on manpower. So, it allows us to expand our operations without adding additional people, which is tremendously advantageous to us. And the other aspect is new technology rollouts like DeltaTek. We roll that out in a country like Guyana. We already have team members on the rig. We're in the process of cross-training the existing personnel to be able to go out and execute more operations with the DeltaTek type services. So, we can get more revenue throughput so to speak without incremental people.
Quinn Fanning, CFO
I think the other thing that distinguishes us and other companies in the sector. I'm sorry Steve just something else.
Steve Ferazani, Analyst
Absolutely. I also want to ask about synergies.
Quinn Fanning, CFO
I was just going to say Expro, like a couple of other companies in the sector, I won't name names, but our E&A operations are largely staffed with E&A people, same in Algeria, same in lots of other places that we operate. So we are not exposed to a single labor market which does have some mitigating influence on our labor inflation trends.
Steve Ferazani, Analyst
That makes sense. I just want to follow-up on synergies. I know you're basically at your three-year target at the end of the year. When you're thinking about that margin second half are you thinking you're going to squeeze any more synergies out?
Quinn Fanning, CFO
We didn't reach our three-year target in the first year, but we surpassed our initial expectations. Currently, we're at about 115% to 120% of the original $55 million target we set. While there's still some work left to do, I believe that capturing additional synergies, mainly through improved business processes and ongoing IT projects, will help alleviate inflation in labor and other costs. The 20% guidance for support costs takes into account our expectations for the remaining synergies.
Steve Ferazani, Analyst
Perfect. Great. Thanks, Mike. And thank you, Quinn.
Quinn Fanning, CFO
Thank you.
Mike Jardon, CEO
Thanks, Steve.
Operator, Operator
Our final question comes from Andrew Peters with T. Rowe Price. Your line is open.
Andrew Peters, Analyst
Hey, thanks for taking my question. I was curious about the performance of the LWI Technology. Are customers generally satisfied with how it’s performing? I had thought this was more of a long-term opportunity in Australia, but it seems like you are already using it for plug and abandonment work. Could you address the technology's performance?
Mike Jardon, CEO
Sure. We have several project opportunities in the Asia Pacific region. Specifically in Australia, I’ve mentioned in the past that I believe this LWI system may remain in Australia due to the strong demand and opportunities there. We also offer other intervention services with our In-Riser system, which is more rig-based, and that may have caused some confusion. I can tell you that the efficiency of the system continues to improve; we’ve completed the third well in about six days for de-suspension, while our original plan estimated seven days. This means we are gaining efficiency even on our third well. Customer feedback has been very positive regarding our operational capabilities, especially since we've been operational for over 40 days. Technologically, the system is performing exceptionally well. The initial challenges were more related to the vessel's readiness rather than the subsea or intervention kit itself. More importantly, there is a real opportunity for Light Well Intervention services to conduct operations that are not rig-based, leading to greater efficiency with fewer days required for rigging up and fewer days at the well center. This is a key reason why customers are eager to see this succeed, and the operator has displayed significant patience, recognizing the benefits of vessel-based interventions. It's been a positive experience for us to complete those first three wells, and we have several additional projects lined up right behind this one.
Andrew Peters, Analyst
Is the system expected to be EBITDA positive going forward, or did you provide the initial customer a favorable deal to demonstrate the technology? Should it be profitable in the latter half of the year?
Quinn Fanning, CFO
Well, certainly you'll see improved margin as a result of a non-repeat of extraordinary costs. But I think, it's fair to say that the initial jobs are essentially resume building in nature. And as Mike said in his prepared comments, over time we will demonstrate the breadth of capabilities of the system and our services and ultimately receive better value for what we provide. But that's going to take a couple of quarters to happen.
Mike Jardon, CEO
Andy, you asked a really insightful question. When we first started this project with the customer, rig rates were between $300,000 and $400,000. While there isn't a direct connection between rig rates and vessel rates for intervention, there is a significant correlation. As we progress with additional projects and build a solid operational track record, we've observed rig rates rise to between $300,000 and $500,000. This positions us well to adjust our vessel pricing accordingly. Establishing this track record, along with efficiently managing initial operations, enhances our ability to increase prices in the future.
Andrew Peters, Analyst
Great. Thank you so much. Appreciate it.
Mike Jardon, CEO
Thank you, Andrew.
Quinn Fanning, CFO
Thanks, Andrew.
Operator, Operator
We have no further questions. So this concludes our Q&A and today's conference call. We'd like to thank you for your participation.