10-Q: Expro Group Holdings Reports Q1 2024 Results: Revenue Declines Amidst Market Volatility

Expro Group Holdings experienced a decrease in revenue and a net loss in the first quarter of 2024, impacted by seasonal factors and activity mix, while also progressing with strategic acquisitions.

Summary

• Expro Group Holdings N.V. reported a total revenue of $383.5 million for the first quarter of 2024, a decrease of 5.7% compared to the previous quarter.
• The company experienced a net loss of $2.7 million for the quarter, an improvement from the $12.4 million loss in the previous quarter.
• Adjusted EBITDA decreased by 20.7% to $67.5 million, with a margin of 17.6%, primarily due to lower revenue and activity mix.
• Net cash provided by operating activities was $29.9 million, a decrease from $32.8 million in the previous quarter.
• The company's total available liquidity was $291.2 million, including cash and cash equivalents of $164.5 million and $126.7 million available under its credit facility.
• Expro plans to use at least $75 million in cash during the second quarter of 2024 for the acquisition of Coretrax.
• The company's capital expenditures for the first quarter were $30.7 million, with an estimated range of $100 million to $110 million for the remaining nine months of 2024.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company shows some improvements in net loss and strategic acquisitions, the revenue decline, decreased EBITDA, and operational delays temper the positive aspects. The market outlook is positive, but the company's performance in Q1 was mixed.

Positives

• The net loss improved significantly compared to the previous quarter, decreasing from $12.4 million to $2.7 million.
• The company maintains a strong liquidity position with $291.2 million available.
• The company is progressing with strategic acquisitions, such as Coretrax, which is expected to close in the second quarter of 2024.
• The company's MENA segment saw a significant increase in revenue and EBITDA, driven by higher activity on higher-margin projects.
• The APAC segment also showed improved EBITDA due to higher activity and the absence of unrecoverable LWI-related costs from the previous year.

Negatives

• Total revenue decreased by 5.7% compared to the previous quarter, primarily due to lower activity in the NLA and ESSA segments.
• Adjusted EBITDA decreased by 20.7% compared to the previous quarter, with a margin of 17.6%.
• Net cash provided by operating activities decreased compared to the previous quarter.
• The company suspended vessel-deployed light well intervention operations due to a wire failure, impacting revenue and incurring costs.
• The company experienced a foreign exchange loss of $2.7 million, compared to a gain in the same period last year.

Risks

• The company's performance is subject to fluctuations in oil and gas prices, which can impact customer spending.
• Ongoing geopolitical tensions and conflicts could introduce volatility and uncertainty in the energy market.
• The suspension of vessel-deployed light well intervention operations poses a risk to future revenue and may incur additional costs.
• The company faces risks related to international operations, including political, economic, and regulatory uncertainties.
• The company's ability to develop new technologies and protect intellectual property rights is crucial for future success.

Future Outlook

The company expects demand for its services and solutions to continue trending positively throughout 2024, driven by strong oil prices and increased investment in deepwater and offshore projects. The company also anticipates growth in gas and LNG production, particularly in the ESSA and MENA regions. The company expects to spend at least $75 million in cash for the acquisition of Coretrax in Q2 2024 and estimates total capital expenditures to range between $100 million and $110 million for the remaining nine months of 2024.

Management Comments

• Management believes Adjusted EBITDA is a useful financial performance measure as it excludes non-cash charges and other transactions not related to our core operating activities.
• Management considers the company to be a leading provider of energy services, offering cost-effective, innovative solutions and best-in-class safety and service quality.
• Management is dedicated to safely and sustainably delivering maximum value to customers.

Industry Context

The report indicates a positive market outlook for 2024, with strong oil prices driving growth in exploration and production expenditures. The company is also seeing increased demand for services related to brownfield and production enhancement programs, as well as production optimization technologies, especially in support of gas and LNG developments. The clean energy transition is also noted, with the company actively involved in carbon capture and storage, geothermal, and flare reduction segments.

Comparison to Industry Standards

• Expro's performance in Q1 2024 reflects a mixed picture compared to industry standards, with revenue declines offset by improved profitability in some segments.
• Compared to competitors like Schlumberger and Halliburton, Expro's revenue decline is notable, as these larger companies have shown more resilience in the current market.
• However, Expro's focus on specific niches like deepwater tubular running services and subsea well access provides a competitive advantage in those areas.
• The company's strategic acquisitions, such as DeltaTek and PRT Offshore, are aimed at expanding its portfolio and market reach, similar to strategies employed by other service providers.
• Expro's Adjusted EBITDA margin of 17.6% is within the range of other oilfield service companies, but the decrease from the previous quarter is a concern.
• The company's liquidity position is strong, which is a positive sign compared to some smaller players in the industry that may face financial constraints.

Management Changes

Legal Proceedings

• The company is subject to lawsuits and claims arising in the ordinary course of business from time to time.
• The company conducted an internal investigation of the operations of certain of the company's foreign subsidiaries in West Africa including possible violations of the U.S. Foreign Corrupt Practices Act.
• The DOJ has provided a declination, subject to the Company and the SEC reaching a satisfactory settlement of civil claims.
• The company paid $8.0 million to the SEC in respect of disgorgement, prejudgment interest and civil penalty during the second quarter of 2023.

Related Party Transactions

• The company provided goods and services to related parties totaling $4.3 million and received goods and services from related parties totaling $0.1 million during the three months ended March 31, 2024.
• The company entered into various operating lease agreements to lease facilities with affiliated companies.
• The company has a tax receivable agreement with Mosing Holdings, LLC.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and Adjusted EBITDA, but encouraged by the improved net loss and strategic acquisitions.
• Employees may be affected by restructuring costs and changes in operations.
• Customers may experience delays due to the suspension of vessel-deployed light well intervention operations.
• Suppliers and creditors may be impacted by the company's financial performance and strategic decisions.

Next Steps

• The company plans to complete the acquisition of Coretrax in the second quarter of 2024.
• The company will continue to assess the path forward for its vessel-deployed light well intervention operations.
• The company will continue to focus on preserving and protecting its strong balance sheet and optimizing utilization of its existing assets.
• The company will continue to monitor market conditions and adjust its strategies accordingly.

Key Dates

Keywords

oilfield services, energy services, well construction, well management, subsea well access, well intervention, EBITDA, revenue, acquisitions, liquidity