Expro Earnings: Long-Term Contract Wins Will Support a Multiyear Upcycle in Offshore Production

Expro XPRO posted a solid first quarter, with revenue increasing 21% year over year, while the firmwide adjusted EBITDA margin contracted less than 100 basis points to 12%. On a sequential basis, revenue and margins both contracted by 3% and 760 basis points, respectively. We maintain our no-moat rating and $22 per share fair value estimate following results.

Expro’s overall performance reflects standard seasonal impact: production activity is typically lower in Northern Hemisphere regions during the winter months, and the timing of budget cycles for national oil company clients usually weigh on first-quarter results. We remain optimistic about Expro’s performance through year-end, however, and estimate total revenue for 2023 will increase 18% year over year while the firmwide adjusted EBITDA margin expands to 19%.

Offshore activity continues to improve around the world, indicating the early stages of a multiyear upcycle. Estimates from Rystad Energy indicate global offshore capital expenditure will approach $96 billion in 2023 (a 5% year-over-year increase, driven by ultra-deepwater projects). Elevated investments support higher production activity through at least 2025—and likely beyond—as the offshore project pipeline remains robust across regions. Expro’s inbound orders for the quarter included a three-year well intervention contract in Brazil and a two-year subsea well access contract extension in the Gulf of Mexico, among countless others. We expect Expro’s profitability will continue to improve as offshore activity expands. Offshore contracts, at minimum, offer three times the revenue intensity of onshore projects (often higher). A favorable pricing environment will further augment Expro’s performance, as high capacity utilization maintains a tight subsea equipment market over the next few years. By our estimate, annual revenue growth will average 8% over the next five years, with adjusted EBITDA margins averaging 21% over the same period.