Expro Earnings: Robust Long-Run Offshore Market Should Outweigh Impact of Near-Term Challenges

Expro Group XPRO underwhelmed in the third quarter due to a handful of operational challenges that led to a 7% sequential drop in revenue. Firmwide adjusted EBITDA margin fared even worse, contracting over 500 basis points quarter over quarter to 13% (following a nearly 600-basis-point sequential increase last quarter). A late-September operating incident in Australia has left the firm’s recently introduced vessel-deployed lightwell intervention, or LWI, equipment on the bottom of the ocean, resulting in a suspension of all LWI operations until further notice.

We’ll incorporate the full impact of this quarter’s results shortly, but after this first look, we maintain our no-moat rating and $22 fair value estimate. Shares have dropped more than 30% over the last month and currently trade at a roughly 20% discount to our fair value. Although this quarter’s events are far from ideal, we view their impact as transitory. Despite the setback, we expect global offshore activity will remain very strong over the next five years, which should maintain a healthy demand for Expro’s offshore expertise.