Expro Group Holdings N. V. (NYSE:XPRO) Second Quarter 2022 Earnings Conference Call August 4, 2022 11:00 a. m. m. ET
Participating companies
Karen David-Green – Director of Communications, Stakeholders and Sustainability
Mike Jardon – President and Chief Executive Officer
Quinn Fanning – Chief Financial Officer
Conference Call Participants
James West – Evercore ISI
David Anderson – Barclays
Operator
Hello and welcome to today’s Expro Q2 2022 earnings presentation. My call is Elliot and I will be coordinating your call today. [Operator Instructions]
Now I would like to move Karen David-Green to the ground. The land is yours. Please continue.
Karen David-Green
Welcome everyone to the convention call of the 2022 quarter of Expro’s time. With me today are Mike Jardin, EXECUTIVE DIRECTOR; and Quinn Fanning, Chief Financial Officer. First, Mike and Quinn will share their ready comments and then we’ll open it up for questions. We have an attached presentation on the effects of our current quarter that is published on the expro expro online page . com in the Investors section. In addition, the current quarterly monetary statements can be downloaded from the Expro online page in the Investors section.
I would like to remind everyone that some of today’s comments may refer to or involve looking ahead. Such emails are subject to dangers and uncertainties that may also cause actual effects to differ materially from those expressed or implied by such emails. These statements speak only as of today’s date and the company undertakes no obligation to update forward-looking statements to any long-term date. The Company has included in its SEC filings a warning that identifies critical issues that may also cause actual effects to differ materially from those set forth in the forward-looking statements. A fuller discussion of those dangers is included in the Company’s filings with the SEC, which may be viewed on the SEC’s website or on our website at expro. com. Please note that all non-GAAP monetary measures discussed on this call are explained and reconciled to the directly comparable maximum GAAP monetary measure in our second quarter 2022 earnings release, which can be viewed on our online page.
With that, I’d like to pass the mike.
mike jardin
Thank you Karine. Hello and good afternoon everyone. I am pleased to share with you that Expro provided strong operating functionality and monetary effects that exceeded the guidance we provided during the current quarter that just ended. We are seeing an increase in visitor activity levels across all segments of our business, supported by strengthening industry fundamentals.
This positive momentum will not only continue, but will also increase in 2023 and beyond. Expro is ready to capitalize on an expected build-up in visitor spending and activity. Today, Expro has a successful and financial profile required to compete and win in what will be the most productive customers for energy installations for at least a decade. Our quarterly effects and market outlook underscore the benefits of Expro’s balanced portfolio of facilities and responses with industry-leading functions and a culture focused on security, quality of service, organizational power and threat management.
In addition, we believe that our resilience throughout the cycle is a significant merit and a competitive differentiator for Expro. Our existing portfolio of facilities and responses is combined with a global operational footprint with established positions in key expansion markets and the combination provides Expro with intelligent solutions. leverage to improve the basics of the industry and especially for the rebound that is starting to occur around the world and abroad. We have never been better placed to take advantage of the cyclical recovery.
We also continue to have an innovation platform and a portfolio of state-of-the-art technologies that enable us to help our customers meet power and emissions targets, increasing our market share and capitalising on longer-term industry trends.
Finally, our strong balance sheet and merger synergies provide us with significant financial, operational and strategic flexibility that will allow us to drive expansion and create long-term for our shareholders.
In today’s call, I will address 3 main issues. First, I’ll walk you through our functionality in the current quarter. Secondly, I will take stock of our integration process. And finally, I’ll give a review of the trends we’re seeing in the industry environment as a whole. For the current quarter, we generated profits of $314 million and adjusted EBITDA of $51 million. Second-quarter earnings increased 12% sequentially and on a pro forma basis by 10% year-over-year. The buildup of earnings in the quarter was due to construction activity in the North and Latin America, Europe and Sub-Saharan Africa and Asia-Pacific regions.
Adjusted EBITDA increased to 39% sequentially and on a pro forma basis to 33% year-on-year. Adjusted EBITDA was primarily due to a more favorable business mix in the current quarter and a faster-than-expected final touch of merger-related synergies.
Well structure revenue increased 9% quarter-over-quarter and well control, which includes our subsea well access, well control and well reaction integrity activities, increased 13% quarter-over-quarter. Second quarter effects exceeded past guidance primarily due to higher well control and well structure revenues in North and Latin America.
Our team continues to capitalize on the basics of the industry and demonstrate the price of Expro’s wide diversity of innovative and cost-effective responses to win new business and expand relationships with existing customers.
During the quarter, we continued to win contracts due to our exceptional quality of service and technical service. We also continue to introduce new technologies with CoilHose and Octopoda that were temporarily followed in the market. The value environment of existing commodities emphasizes maximizing the production of the existing well. stock. There is great interest from visitors in the integrity responses of well intervention, such as CoilHose and Octopoda.
Significant underinvestment in the energy source over the past decade, along with demand development, is also reflected in IDF approvals. Most importantly for our company, only about 60% of new visitor engagements are expected to be overseas. We have secured contracts and extensions totaling approximately $300 million, demonstrating the breadth and intensity of our relationships with our consumers and the appeal our responses are gaining in the marketplace.
Regionally, in North America and Latin America, our well structure team continues to demonstrate its position as a leading supplier of coating and coating facilities with successful contract award and operations in the region. The team successfully completed a first coating in execution for an assignment in Brazil and completed 8 simultaneous completions of TRS in deep water in the Gulf of Mexico, where activity continues to recover.
We also deployed our industry-leading 22-inch BRUTE conditioners for the first time in Mexico and saw a call in development for this generation of well integrity as operators in the region look to protect their assets from typhoon season. This generation allows fast and reliable wells. suspension when operators most want it.
We need to influence the contract of a major operator in Brazil. And in Alaska, our team rewarded and conducted a well review for a strategically vital new customer, further strengthening our presence in this region.
Expro Guyana was voted Entrepreneur of the Month through a foreign operator, demonstrating Expro’s continued focus on delivering the most productive in safety, quality and visitor service.
In Europe and sub-Saharan Africa, we saw smart progress in securing new business in the current quarter, in addition to maintaining the largest well control contract on the Norwegian continental shelf, for the first 4 years, underscoring the strength and intensity of our relationship with this foreign operator.
A vital component of this contract is directly similar to optimizing and obtaining better production, as well as a demonstrable commitment to a low-carbon plan. The breadth of our portfolio, adding the cutting-edge technologies acquired during our acquisition of Quality Intervention in July. 2019, has directly helped us to make a major well intervention contract with a major foreign operator in the UK bigger.
In addition, our quality of service and portfolio of functions helped us secure an expanded contract to meet visitors’ wishes for a nine-hole crusade and abandonment of wells on the UK continental shelf, where we also added Well Test and Well Intervention to an existing large-scale well. contract for submarine installations.
As I mentioned before, CoilHose and Octopoda are gaining momentum in the market to meet the intervention and integrity needs of visitors. Octopoda is an exclusive de facto service offering that, for the first time in our industry, allows direct access to an annualized well, in which we can provide integrity and safety in production.
Octopoda was recently deployed in Congo, the first implementation of this generation in sub-Saharan Africa, and continues to interact with consumers through its unique ability to examine and cope with sustained casing pipe stress and other well ring issues.
In addition, our CoilHose Light Well Circulation formula is a cutting-edge progression that provides a more effective and less expensive option than classic spiral tube formulas. Meeting visitor requirements helped us secure a contract in the UK for well assessment and exploration facilities in a new offshore drilling campaign.
Expro’s incredible quality and service performance, as well as strong partnerships with its customers, have resulted in several contracts, which are in addition to our submarine team in Côte d’Ivoire and Turkey, where we won well intervention paints and CoilHose for a nine-well allocation in an offshore fuel garage assignment.
In the current quarter, we also brought Drill Stem Testing to Angola, further expanding our comprehensive portfolio in that country and positioning ourselves to take credit for the ongoing activity in deepwater operations in Angola. We have effectively started operations at Cabinda for a major operator, which will be our first hammering deployment as a component of an Angolan well structures package.
In May, we were also identified as the safest service provider in Mozambique. Based on our recent performance, we are in discussions with the visitor regarding the expansion of our services, adding the arrival of new technologies.
In Chad, our work with the consumer is imperative to ensure that our operations are conducted in an environmentally friendly manner. Our experience and technologies are aimed at the absence of environmental effects with tests and analyses carried out to ensure the adequate purity of the regional freshwater system, which underlines our prestige as a leading supplier of on-site chemical facilities with a strong environmental focus.
In Norway, we finished our first operational crusade with our iTong structure technology, which brings a radical revamp in protection and structure operations. The operational functionality exceeded visitor expectations, delivering significant innovations in platform power and cost savings for the visitor as a whole.
In the Middle East and North Africa, our well structure team has expanded into new territory to secure its first TRS contract in Algeria, which is expected to begin later this month. This opportunity reflects one of the many earnings synergies created through our October merger. We are leveraging qualified relationships and well control to win this new TRS award.
In addition, the regional team won two [indistinguishable] contracts with drilling contractors in the Middle East, reflecting our market-leading functions and market reputation. In Egypt, our service delivery and delivery capability enabled Expro to obtain primary well testing contracts.
In the Asia-Pacific region, our well structure team in Brunei awarded a five-year main contract for TRS, our remarkable track record of reliable HSC functionality and quality of service were solid criteria for awarding the contract.
In Thailand, the team secured more TRS paints covering two hundred wells and in Malaysia and China offshore, we obtained three-year TRS contract extensions covering progression and exploration wells.
The technical capability of our submarine equipment played a key role in securing a contract with a major foreign operator in Malaysia for our new ship-deployed soft well intervention package, and the team also offered significant additional paints in Australia.
Like CoilHose and Octopoda, Expro’s LWI features are the result of the investments we’ve made over the past few years, allowing the company to deliver differentiated production optimization responses and thus build our profits faster than the overall market, while getting better profitability.
Expro has the strategic commitment to proceed to invest in the transformation of its business portfolio and the reduction of greenhouse fuel emissions. In April, we published our first environmental, social and governance review, with the stated goal of achieving 0 by 2050, with a 50% carbon reduction. intensity until 2030.
As the energy industry embraces the transition and wants to make real, visual progress towards a low-carbon world, we appreciate that the main enablers of renewal will be those who can actually differentiate themselves as solution providers.
As identified global sink experts and trusted partner, Expro is well placed to play a vital role in enabling our consumers to achieve their carbon reduction goals in aid of the energy transition. Expro remains committed to allocating approximately 50% of its studies and progress budget for carbon reduction initiatives.
In doing so, we scale up and advance responses that will play a critical role in enabling our customers to reach their own emission reduction targets, while enabling experts to achieve their targets.
Expro’s well expertise and diversity of well response, well integrity, and well flow control technologies and skills help operators cost-effectively expand oil and fuel resources, while minimizing emissions and the required operational footprint. As our industry speaks out to cope with the demanding situations of tomorrow, many of those technologies and skills are transferable.
As a smart example of the adoption of technologies to achieve more sustainable force solutions, Expro has developed geothermal well service projects since 1986. Specifically in the current quarter, we obtained our first contract for built-in facilities geothermal installations for a large-scale geothermal strength plant in Germany.
The current topic I would like to discuss is to provide an update on our integration efforts. During the quarter, we continued to make progress on incorporating combined legacy businesses to take full credit for the perspective of our combined platform. I am pleased to announce that nine months after our integration, we have seen a stock representing more than one hundred percent of the $55 million in annualized expense savings we have set with our goal within the first 12 months following the merger. This occurs a full quarter earlier than originally planned.
As stated above, we target charge and earnings synergies of between $80 million and $100 million within 24 to 36 months of the merger. We remain confident that we will achieve $70 million in projected charge synergies this period, if not as soon as possible.
The cost savings are basically due to cost rationalization, consolidation of services, and savings in the supply chain. In the current quarter, we consolidated more services, adding sites in Baku, Azerbaijan; St. John’s, Canada; Labuan, Malaysia; Mumbai, India; Corpus Christi and Midland, Texas.
While earnings synergies are harder to prove, I believe our previous estimate of an additional EBITDA of $10 million to $30 million for profit synergies through our expanded visitor relationships and operational footprint, increased time spent on the platform, and increased exposure to the full life of the estate, it will be conservative.
I would like to sincerely thank the entire team of experts for their hard work and many contributions to achieving our integration goals faster than expected. Without a doubt, we have a winning team that has proven to be able to build and deliver on our commitments.
Before I turn the floor over to Quinn, I want to give a review of the trends we are seeing in the market. Positive recovery symptoms seen in the first quarter continued, supported by a favorable supply and demand momentum. As I indicated earlier, this is largely the result of limited upstream investment in recent years and a desire for greater capacity to meet the expected expansion in demand.
With the most recent focus on energy security, source diversification and the desire to reposition at least a portion of Russia’s oil and fuel source deserve to fully magnify what was already in a position to be a multi-year macroeconomic context favorable to FSO activity. In the longer term, we believe that the facilities sector will have to play a vital role in facilitating the energy transition.
Therefore, despite persistent volatility in commodity prices, the basic context of the energy installation sector is positive. In particular, after a strong recovery in the U. S. land-based market. In the U. S. , we are seeing growing demand for our facilities and solutions, with overseas and offshore activity is expected to increase in the current part of 2022 and into 2023, as operators look to increase asset production and expand new areas.
Despite short-term fears of an economic slowdown, there seems to be a consensus that energy demand will return, if not more, to a hundred million barrels of oil equivalent a day by 2023. We expect demand for Power and Capacity Constraints to develop in key service offerings, adding high-end well structure equipment and subsea control wells, to provide space for net worth improvement from the 2022 maturity to early 2023.
According to Expro, the expected expansion will be geographically extensive, covering all stages of the oil and fuel progression and coming with all operating environments. Geographically, we see a strong outlook in North and Latin America, the Middle East, North Africa, Sub-Saharan Africa and Asia.
And while many of our clients continue with brownfield improvement systems to maximize beyond investments, we are also beginning to see an expansion in exploration and progression activities driven primarily across North and South America, with other activities planned in Norway, India and sub-Saharan Africa. . .
The brownfield concentrate will enable stable expansion in our well integrity and reaction business, as well as elements of our well flow control business, which together account for approximately 35% of our business.
Approximately the remaining 65% of our business is usually done through drilling, structuring and completion of wells, which are subjects of strong expansion in various geographies and where we sometimes get very smart additional revenue faster.
Overall, the outlook for the remainder of 2022 and 2023 remains positive, with sustained increases in e-spending.
This is expected to be a sustained expansion for Expro given our complex and differentiated portfolio functions and subsea well access facilities, complex well structure installations and production optimization. This is vital because around 70% of our profits today are generated through offshore business.
Before concluding, I am pleased to report that during the quarter, our Board of Directors approved a new percentage repurchase program under which the Company is legal to earn up to $50 million of its notable and non-unusual percentages, through the expiration of November 2023.
We see the buyback of our shares as a wise and prudent use of our capital in the interests of our shareholders. With a debt-free balance sheet, enough money available, and a forged construct of an industry recovery, acquisitions allow us to opportunistically build shareholder value, while maintaining enough money resources to fund our business needs.
In the current quarter, we repurchased $13 million of Expro shares, representing approximately 1% of our notable shares. From an operational perspective, Expro is well placed in markets where we will continue to gain advantages from strengthened industry fundamentals.
In particular, Expro has a vital lever for foreign and offshore markets where experience, experience and quality of service can be, in the case of Expro, positive issues of differentiation. Execution is a classic strength of Expro and when we plan to continue providing, whether for our consumers and shareholders.
With that, I’ll pass the call on to Quinn, to talk about our monetary results.
Fanning Quinn
Thank you, Mike. Hello, good afternoon to everyone on the call. As Noted by Mike, I will cover the effects of the 3 months ending June 30, 2022 and primarily highlight our sequential functionality for the quarter ended March 31. 2022.
To summarize, we reported revenue of $314 million for the June quarter, an increase of $34 million or approximately 12% sequentially from the first quarter of 2022. Saharan Africa. The Africa and Asia-Pacific segments were partially offset by a business decline in the Middle East and North Africa segment.
Adjusted EBITDA for the second quarter of 2022 approximately $51 million, representing a sequential build-up of approximately $14 million or 39% over the first quarter of 2022. Adjusted EBITDA margin in the second quarter 16%, compared to 13% in the first quarter.
Sequential earnings accumulation and adjusted EBITDA was driven by strong effects of control and well structure in North america and Latin America. compared to adjusted net profit for the first quarter of 2022 of $0. 01 consistent with diluted holding.
As stated in our press release, second quarter adjusted net earnings come with foreign exchange losses of $0. 05 consistent with the diluted consistent percentage, compared to the $0. 03 foreign exchange earnings consistent with the diluted consistent percentage in the first quarter. The 38% contribution margin in the second quarter increased through approximately one consistent percentage point sequentially compared to the first quarter of 2022, reflecting a greater impact on earnings expansion through a more favorable business mix.
Second quarter pricing of $70 million totaled 22% of the organization’s revenue and decreased by approximately $1 million sequentially or approximately 3 percentage issues from the first quarter of 2022 and decreased by $8 million or approximately nine percentage issues compared to expro and Frank’s combined prices in the fourth quarter of 2020, which was the last full quarter before the merger was announced.
This represents approximately $30 million in annualized savings in aid prices realized during the current quarter of 2022. In the short term, we expect to continue to manage overall aid pricing at 22% of the organization’s revenue. Load synergies, we can manage the overall aid prices at around 20% of revenue.
Total liquidity at the end of the quarter is approximately $309 million. Cash and cash equivalents, adding up the allocated money, amounted to $179 million as of June 30. loans under our $200 million revolving credit facility. The balance of the line will go towards bonds and guarantees.
Expro had no interest-bearing debt at the end of the quarter, Q2 2022 and the company has no interest-bearing debt today. During the quarter ended June 30, money from operating activities was $2 million, compared to money used in operating activities of $14 million in the first quarter.
Adjusted operating money for the current quarter, which reflects money used in operations prior to money paid for interest and other merger integration expenses and expenses, was positive through $10 million, compared to negative $1 million in the first quarter.
Capital expenditures totaled $21 million in the current quarter to $11 million in the first quarter. For the current part of 2022, the company expects capital expenditures in diversity of approximately $60 million to $70 million, implying a total investment by 2022 of $90 million to $100 million, or approximately 8% of expected revenue.
We also continue to expect to generate loose money by 2022, however, as noted in our last earnings convention call, we expect tight operating money and loose money to have a great weighting in the current part of the year.
In line with feedback from several of our public peers, Expro’s investment in operating capital accumulation increased particularly in the first part of 2022, with the accumulation of accounts receivable reflecting superior business grades and higher inventories, reflecting an expectation of continued momentum in the business and the acquisition of items in long lead times, adding critical spare parts.
According to old patterns, we expect a reversal of operating capital needs in the first part of the year and a significant improvement in money generation in the current part of 2022. As Mike previously explained, as part of our recently announced percentage buyback program, the current quarter opportunistically repurchased 1. 1 million percentages or approximately 1% of our notable percentages for a total charge of $13 million.
This program reflects the long-term confidence we have in our business, which is not reflected in the valuation of the existing market. In due course, we will more officially articulate Expro’s capital allocation priorities. For now, we expect the small buyback to be finalized in the current quarter and, in fact, any additional buybacks will be funded through the loose cash flow.
Now let’s move on to the main points of the report segment. North America and Latin America or NLA earnings for the current quarter of 2022 $130 million, a sequential accumulation of $26 million quarter over quarter.
The buildup is primarily due to higher revenue across all of our product lines in the current quarter, with significant accumulation in well control revenue in Mexico and higher well structure revenue in the U. S. just finished the quarter. .
NLA segment EBITDA for the 3 months ended June 30, 2022 $39 million, or approximately 30% of segment revenue. It increased sequentially to $17 million quarter over quarter.
For the first quarter of 2022, NLA segment EBITDA represents 21% of segment revenue. The accumulation attributable to increased activity and a more favorable product are combined in the 3 months to June 30.
For the Europe and Sub-Saharan Africa or ESA segment, profit in the current quarter is $90 million, an increase of $8 million or approximately 10% quarter-over-quarter. The sequential accumulation is mainly due to wealth Flow Management’s higher profit in Angola and Congo and Well Construction’s higher profit in the UK due to the accumulation of consumer activity. The accumulation of profits was partially offset by decreased profits from well integrity intervention in Norway and Western Europe.
ESA segment EBITDA for the current quarter $15 million, or approximately 16% of segment revenue, a sequential quarterly accrual of $3 million. The build-up is basically due to higher degrees of activity and a more favorable mix of activities in the June quarter.
For the Middle East and North Africa or MENA segment, second quarter sales were $45 million, a decrease of $6 million or about 11% quarter-over-quarter. United Arab Emirates, offset by the intensification of wall control activities in Algeria.
MENA segment EBITDA for the June quarter $14 million, a sequential low of $1 million quarter after quarter. The segment’s EBITDA margin in line with the previous quarter at 30%. The relief in the segment’s EBITDA is basically due to a decrease in activity.
For Asia Pacific or APAC, second-quarter profit was $48 million, a cumulative of $4 million or about 11% sequentially. The accumulation of profits is basically due to higher profits from access to subsea wells in Australia and Brunei and higher well structure gains in Japan. The accumulation of profits was partially offset by declining gains from wealth control in Thailand and India.
APAC segment EBITDA for the June quarter was $4 million, or about 9% of segment earnings, a low of $1 million or about 3 percentage issues quarter over quarter. The relief in EBITDA in the APAC segment despite the accumulation in profit is basically due to higher mobilization and start-up prices in a giant subsea allocation incurred in the quarter, as well as the minimization of activity in higher margin contracts.
Additional commissioning prices on subsea assignments totaling approximately $3 million and delays in initiating relevant assignments are in a COVID-like component and are expected to be non-recurring. As a result, we expect APAC segment earnings and EBITDA margin to expand. definitely in the current component of 2022 and until 2023.
As Mike mentioned, our integration plans are progressing well and we are already starting to achieve the significant synergy we expected when we first announced our business mix in March 2021.
As Mike mentioned, through the current quarter of 2022, we’ve seen one share in about one hundred percent of our synergy capture plan, either in terms of number of employees and annualized dollar price. We have also completed the consolidation of several foreign services and made smart progress in our ongoing migration to a unique ERP platform, which allows us to optimize a number of key business processes and begin to create more cost synergies.
In terms of our near-term outlook, we expect third quarter 2022 earnings to increase sequentially by about 8%, reflecting continued business momentum at NLA, continued seasonal rebound at ESA, and the commencement of new contracts at MENA. APAC. La adjusted EBITDA margin in the third quarter is expected to be at diversity of 15% to 17% of consolidated earnings.
Over the next two quarters, we continue to expect our earnings execution rate to propel the 2019 pre-pandemic earnings of Legacy Expro and Legacy Frank combined. Therefore, we reaffirm our guidance that fourth quarter earnings are expected to be in the range of $325 million to $350 million. With the advantages of having an effect on higher earnings and synergies, we expect adjusted EBITDA margins to be around 20% of earnings at the end of the year.
Provided that our current capital accumulation in the first part of 2022 is reversed to the current part of 2022, as recently planned, in the absence of new mergers and acquisitions and/or percentage buybacks, we expect our monetary position at the end of the year to be equivalent to or greater than the one we started the year with the money generated through operating activities, the financing of integration costs, CapEx, the acquisition of SolaSense in the first quarter and the repurchase percentage that ended in the current quarter.
By preserving and protecting our recent strong monetary profile and maintaining a disciplined investment technique, Expro will have sufficient monetary flexibility to fund the expansion and generate returns for shareholders. As always, our purpose is to improve the long-term price for our shareholders, employees, partners and the communities in which we operate.
With that, I’ll call Mike again for some final comments.
mike jardin
Thanks Quinn. We have provided remarkable operational functionality that has resulted in significant expansion in earnings and bottom line and is beginning to demonstrate the true capability of the company. Our broad portfolio of facilities and responses continues to create opportunities in the expansion markets that will be key to Expro’s long-term success. Our state-of-the-art platform, next-generation technologies and responses, and ESG programs are differentiators that continue to enhance our reputation and exceptional track record with customers as leading well experts. We continue to win contracts and demonstrate the price of the breadth of our portfolio and the intensity of the experience we can provide to consumers throughout the life of their wells.
Looking ahead, the positive symptoms of a recovery we saw in the first quarter continued to gain momentum. We are seeing an increase in demand for our facilities and responses as the recovery that began in the U. S. land market continues to increase. The U. S. began to gain traction overseas. offshore markets. We remain confident that the portfolio of projects we are seeing will help a strong multi-year expansion and that Expro is uniquely located to capitalize on this favorable outlook.
We are incredibly excited about expro’s strength and positioning. Our effects can only be achieved thanks to the hard paints and concentration of our equipment. It is through their determination that we continue to drive growth, profitability and price building for shareholders. employees, consumers and partners.
Thanks again. Operator, let’s go ahead and open up some questions.
Q&A session
Operator
Thank you. [Operator Instructions] Our first inquiry comes from James West of Evercore ISI. Your line is open. Please continue.
James West
Hi, hello, guys.
mike jardin
Hi James.
James West
So, Mike, so curious, we seem to have noticed a slight acceleration in the call here in the last quarter, maybe two quarters, has it given the impression of a sense of urgency among your visitor base?I suppose, then first of all – did I perceive correctly?And secondly, do you see more of this urgency or increased demand for production assets or new assets or interventions compared to paints such as the structure of new wells?
mike jardin
So, James, I can tell you that one of the smart things is that we have, now that we’re a little bit out of the pandemic. I was able to spend a lot more time with clients, not only in the United States, but especially in the Middle East and Asia. And what I would say are the conversations, especially around new FIDs, new projects, new drilling activities and final touch that are much more constructive, a lot more discussion and discussion about it. I would say in – we had strong ongoing feedback and a strong game with consumers around asset production. So, I think it’s accelerating, but not at the same pace as the positivity of discussions about the new type of wells: a new well drilling activity and a new end-touch well activity.
James West
It is ok. That’s fine with me. And then, on the grief side, are you. . . at this point, we’re back to some kind of. . . or are we close to returning to the kind of pre-pandemic levels?at that time, however, it is now developing and is physically powerful. But do you get the returns on capital investments you’d like to see when you allocate capital and value new contracts?
mike jardin
So I would, and I’ve tried to allude to that in my previous comments, we’re starting to see asymmetric opportunities to increase costs and we’re increasing costs whenever we can. It’s more selective right now. I think we’re going to continue to gain momentum around our ability to keep putting costs at risk as we leave 2022 to enter 2023, but we’re starting to have: it didn’t change the quarter, so to speak like North America. In the U. S. , there is a lot of leverage and traction in costs, however, we are starting to see some specific markets and specific service lines as a positive opportunity to continue to get the costs. And I think we all need to make sure that we start implementing that as soon as possible.
Fanning Quinn
James, I think what needs to be added. . .
James West
It is ok. they gave it to me Thank you, Mike. Yes.
Fanning Quinn
. . . I can simply refer you to the comments prepared by Mike, there are capacity limitations in some responses and some product teams to structure complex wells or offer structure activity, or TRO, as well as touch-current submarines. It is clear that it is a market that is only supported by a handful of service providers, with us being one of the two largest product lines. But, obviously, everything related to the source and the demand, less than one source for those two categories of equipment.
The other thing I would point out is the resumption of drilling and finishing activities. This is not necessarily how we provide our additional information. -quarter in terms of earnings and margin forecasts on higher activity are above 50%. So that’s where you get the. . .
James West
It’s bien. me Quinn gave it is great. Yes, definitely. Thanks Quinn. This is very helpful.
Fanning Quinn
Thank you, James.
Operator
The next one is from David Anderson of Barclays. Su line is open. Continue.
David Anderson
Hi, hello, Mike. I was curious to know which of their product lines showed the biggest margin improvement this quarter. And I think he probably just talked about that right now here. much improvement in well construction, especially as a rental company in TRS with strong offshore exposure. I’m just curious to know how we think about margin expansion in this specific activity and how it gives an overall contribution.
mike jardin
Of course. We alluded to that in the previous comments. What kind of additional comment, David would upload, is that we have noticed a higher combination, a larger combination of activities in northern Latin America in particular. So yes, especially around TRS. construction, we may just start to see a margin expansion there.
And then I think overall, what you’re really seeing is starting to gain traction with load synergies, we’re cutting off the organization as a whole. We are essentially a quarter ahead of that. And I think one of the real positive aspects of our ability to enforce synergies is that if we’re absolutely fair every time you do a consolidation, you do a merger, if there’s too much internal attention, it continues. This is a mandatory component of valuation as a merger, because we can have more of ourselves and we will do it for the maximum component, because we are a quarter ahead, which means leaving 2022 and entering 2023, we are actually going to be much more outside.
And that’s one of the reasons I challenged the organization: it’s so hard to make sure we do those things as soon as possible.
But overall, we’re seeing margin expansion in the well structure and even in some well control and subsea access spaces, we’re getting some traction in all 3 spaces right now.
David Anderson
So if I stick to the aspect of the structure of the well, we hear a lot about the resumption of operations on the platforms, whether in the forklift aspect and in the deep water aspect. Do you get inquiries about this? I’m a little curious that obviously there are only a few players in the TRS sector. So I’m curious about whether you’re starting to deploy more hardware for a while. Can you give us a concept of what that looks like in terms of: I guess your kind of capacity apparatus and how it has increased.
mike jardin
Sí. No, absolutely. We’re seeing the same phenomenon that drillers are seeing today with increased use of that kind of thing, because let’s not forget that a drilling rig and a TRS-type apparatus go hand in hand. So, yes, we can start getting something out of this apparatus works again. I referred to a CRT case execution tool opportunity that we are running in Brazil. It’s simply about taking assets and resources that in the past were underutilized and putting them to work.
So, on the other hand, yes, we see intelligent traction with all constructions. The other thing we see even more than I expected is that it becomes an early caution radar formula for us, so to speak, because regularly with visitors, they First, choose the platform almost together with who is really behind, this is the choice of the TRS provider. And then it starts moving on to well completions and well testing and that kind of activity. This way we obtain the previous participation of the visitors. And I think we’re going to continue to see that it allows us to generate more profit opportunities for that kind of thing.
David Anderson
That’s interesting. So if I come, in this well flow management, it went up 14% sequentially this quarter, I’m pretty sure it was strong enough for corporations that I think we would later have a more production-oriented cycle. So I guess the query was that I think you said in your comments that the MENA region was a little weaker than expected. So where were the results? Was it more similar to this quarter’s combined?Was there anything else, in a way, taking and compensating for what you were saying?I mean, because I had an idea that the MENA region would have been an engine of this growth. And it turns out it wasn’t.
mike jardin
Of course. For us, the MENA region was literally: we had a kind of product sales quarter after quarter that didn’t occur in the current quarter. So that’s what gave us a little bit of sweetness there. Our strong activity in the Middle East, specifically in Algeria, greater quarter by quarter.
What is vital to recognize with well control is specifically that we can use those assets in a well-touch cleaning load or you can use those assets in a production optimization mode. And that kind of allows us to adapt that device to implement it in one or the other. And some of the expansion that we saw was starting to see more activity through new well touches, new well returns, that kind of thing during the quarter.
David Anderson
It is ok. Thank you so much.
mike jardin
Absolutely. Thanks for the questions.
Operator
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