UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended June 30, 2022
OR
☐ Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ______ to ______
Commission file number: 001-36053
EXPRO GROUP HOLDINGS N.V.
(Exact name of registrant as specified in its charter)
The Netherlands | 98-1107145 | |||
(State or other jurisdiction of | (IRS Employer | |||
1311 Broadfield Boulevard, Suite 400 | ||||
Houston, Texas | 77084 | |||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (713) 463-9776
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, €0.06 nominal value | XPRO | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☑ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of August 1, 2022, there were 108,702,849 shares of common stock, €0.06 nominal value per share, outstanding.
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Item 1. |
Financial Statements |
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Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021 |
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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021 |
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Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021 |
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Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2022 and 2021 | ||
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021 |
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Notes to the Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. |
Controls and Procedures |
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PART II. OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
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Item 1A. |
Risk Factors |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 40 |
Item 6. |
Exhibits |
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Signatures |
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except share data)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Total revenue | $ | 313,624 | $ | 176,251 | $ | 594,101 | $ | 332,546 | ||||||||
Operating costs and expenses: | ||||||||||||||||
Cost of revenue, excluding depreciation and amortization expense | (256,583 | ) | (147,718 | ) | (496,113 | ) | (284,789 | ) | ||||||||
General and administrative expense, excluding depreciation and amortization expense | (17,840 | ) | (6,197 | ) | (29,350 | ) | (12,835 | ) | ||||||||
Depreciation and amortization expense | (35,392 | ) | (26,390 | ) | (70,404 | ) | (54,149 | ) | ||||||||
Merger and integration expense | (2,270 | ) | (4,703 | ) | (6,995 | ) | (9,526 | ) | ||||||||
Severance and other expense | (678 | ) | (1,637 | ) | (2,172 | ) | (2,192 | ) | ||||||||
Total operating cost and expenses | (312,763 | ) | (186,645 | ) | (605,034 | ) | (363,491 | ) | ||||||||
Operating income (loss) | 861 | (10,394 | ) | (10,933 | ) | (30,945 | ) | |||||||||
Other income, net | 244 | 387 | 1,240 | 626 | ||||||||||||
Interest and finance income (expense), net | 1,712 | (1,604 | ) | 1,725 | (3,231 | ) | ||||||||||
Income (loss) before taxes and equity in income of joint ventures | 2,817 | (11,611 | ) | (7,968 | ) | (33,550 | ) | |||||||||
Equity in income of joint ventures | 2,429 | 3,957 | 6,631 | 8,049 | ||||||||||||
Income (loss) before income taxes | 5,246 | (7,654 | ) | (1,337 | ) | (25,501 | ) | |||||||||
Income tax expense | (9,596 | ) | (727 | ) | (14,145 | ) | (3,272 | ) | ||||||||
Net loss | $ | (4,350 | ) | $ | (8,381 | ) | $ | (15,482 | ) | $ | (28,773 | ) | ||||
Loss per common share: | ||||||||||||||||
Basic and diluted | $ | (0.04 | ) | $ | (0.12 | ) | $ | (0.14 | ) | $ | (0.41 | ) | ||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic and diluted | 109,582,086 | 70,889,753 | 109,425,407 | 70,889,753 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(in thousands)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net loss | $ | (4,350 | ) | $ | (8,381 | ) | $ | (15,482 | ) | $ | (28,773 | ) | ||||
Other comprehensive loss: | ||||||||||||||||
Amortization of prior service credit | (61 | ) | (61 | ) | (122 | ) | (122 | ) | ||||||||
Other comprehensive loss | (61 | ) | (61 | ) | (122 | ) | (122 | ) | ||||||||
Comprehensive loss | $ | (4,411 | ) | $ | (8,442 | ) | $ | (15,604 | ) | $ | (28,895 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 175,112 | $ | 235,390 | ||||
Restricted cash | 4,299 | 4,457 | ||||||
Accounts receivable, net | 370,459 | 319,286 | ||||||
Inventories | 143,272 | 125,116 | ||||||
Assets held for sale | - | 6,386 | ||||||
Income tax receivables | 25,028 | 20,561 | ||||||
Other current assets | 51,636 | 52,938 | ||||||
Total current assets | 769,806 | 764,134 | ||||||
Property, plant and equipment, net | 459,277 | 478,580 | ||||||
Investments in joint ventures | 61,248 | 57,604 | ||||||
Intangible assets, net | 245,492 | 253,053 | ||||||
Goodwill | 179,903 | 179,903 | ||||||
Operating lease right-of-use assets | 80,307 | 83,372 | ||||||
Non-current accounts receivable, net | 10,705 | 11,531 | ||||||
Other non-current assets | 17,025 | 26,461 | ||||||
Total assets | $ | 1,823,763 | $ | 1,854,638 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 228,763 | $ | 213,152 | ||||
Income tax liabilities | 26,076 | 22,999 | ||||||
Finance lease liabilities | 1,032 | 1,147 | ||||||
Operating lease liabilities | 19,617 | 19,695 | ||||||
Other current liabilities | 61,890 | 74,213 | ||||||
Total current liabilities | 337,378 | 331,206 | ||||||
Deferred tax liabilities, net | 29,818 | 31,744 | ||||||
Post-retirement benefits | 23,179 | 29,120 | ||||||
Non-current finance lease liabilities | 14,401 | 15,772 | ||||||
Non-current operating lease liabilities | 66,659 | 73,688 | ||||||
Other non-current liabilities | 77,399 | 75,537 | ||||||
Total liabilities | 548,834 | 557,067 | ||||||
Commitments and contingencies (Note 17) | ||||||||
Stockholders’ equity: | ||||||||
Common stock, nominal value, shares authorized, and shares issued and and shares outstanding | 7,903 | 7,844 | ||||||
Treasury stock (at cost) and shares | (40,473 | ) | (22,785 | ) | ||||
Additional paid-in capital | 1,838,373 | 1,827,782 | ||||||
Accumulated other comprehensive income | 20,236 | 20,358 | ||||||
Accumulated deficit | (551,110 | ) | (535,628 | ) | ||||
Total stockholders’ equity | 1,274,929 | 1,297,571 | ||||||
Total liabilities and stockholders’ equity | $ | 1,823,763 | $ | 1,854,638 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (15,482 | ) | $ | (28,773 | ) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization expense | 70,404 | 54,149 | ||||||
Equity in income of joint ventures | (6,631 | ) | (8,049 | ) | ||||
Stock-based compensation expense | 10,248 | - | ||||||
Change in fair value of investments | 1,538 | - | ||||||
Elimination of unrealized profit on sales to joint ventures | - | 5 | ||||||
Deferred taxes | (1,929 | ) | (2,463 | ) | ||||
Unrealized foreign exchange | 2,647 | 1,148 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable, net | (52,971 | ) | (38,756 | ) | ||||
Inventories | (15,441 | ) | (8,656 | ) | ||||
Other assets | 1,012 | 3,442 | ||||||
Accounts payable and accrued liabilities | 11,217 | 15,146 | ||||||
Other liabilities | (12,840 | ) | 16,122 | |||||
Income taxes, net | 568 | 1,657 | ||||||
Other | (7,432 | ) | (2,577 | ) | ||||
Dividends from joint ventures | 2,985 | - | ||||||
Net cash (used in) provided by operating activities | (12,107 | ) | 2,395 | |||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (31,526 | ) | (37,644 | ) | ||||
Acquisition of technology | (7,967 | ) | - | |||||
Proceeds from disposal of assets | 6,579 | - | ||||||
Proceeds from sale / maturity of investments | 8,169 | - | ||||||
Net cash used in investing activities | (24,745 | ) | (37,644 | ) | ||||
Cash flows from financing activities: | ||||||||
(Cash pledged for) release of collateral deposits | (256 | ) | 42 | |||||
Payments of loan issuance and other transaction costs | (132 | ) | (438 | ) | ||||
Acquisition of common stock | (12,309 | ) | - | |||||
Payment of withholding taxes on stock-based compensation plans | (4,291 | ) | - | |||||
Repayment of financed insurance premium | (2,805 | ) | - | |||||
Repayments of finance leases | (409 | ) | (584 | ) | ||||
Net cash used in financing activities | (20,202 | ) | (980 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (3,382 | ) | (173 | ) | ||||
Net decrease to cash and cash equivalents and restricted cash | (60,436 | ) | (36,402 | ) | ||||
Cash and cash equivalents and restricted cash at beginning of period | 239,847 | 120,709 | ||||||
Cash and cash equivalents and restricted cash at end of period | $ | 179,411 | $ | 84,307 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(in thousands)
Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||
Additional | other | Total | ||||||||||||||||||||||||||||||
Common | Treasury | paid-in | comprehensive | Accumulated | stockholders’ | |||||||||||||||||||||||||||
stock | Warrants | Stock | capital | loss | deficit | equity | ||||||||||||||||||||||||||
Balance at January 1, 2021 | 70,890 | $ | 585 | $ | 10,530 | $ | - | $ | 1,006,100 | $ | (1,494 | ) | $ | (403,737 | ) | $ | 611,984 | |||||||||||||||
Net loss | - | - | - | - | - | - | (20,392 | ) | (20,392 | ) | ||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | (61 | ) | - | (61 | ) | ||||||||||||||||||||||
Balance at March 31, 2021 | 70,890 | $ | 585 | $ | 10,530 | $ | - | $ | 1,006,100 | $ | (1,555 | ) | $ | (424,129 | ) | $ | 591,531 | |||||||||||||||
Net loss | - | - | - | - | - | - | (8,381 | ) | (8,381 | ) | ||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | (61 | ) | - | (61 | ) | ||||||||||||||||||||||
Balance at June 30, 2021 | 70,890 | $ | 585 | $ | 10,530 | $ | - | $ | 1,006,100 | $ | (1,616 | ) | $ | (432,510 | ) | $ | 583,089 |
Six Months Ended June 30, 2022 |
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Accumulated | ||||||||||||||||||||||||||||||||
Additional |
other |
Total |
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Common |
Treasury |
paid-in |
comprehensive |
Accumulated |
stockholders’ |
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stock | Warrants | Stock | capital | income | deficit | equity | ||||||||||||||||||||||||||
Balance at January 1, 2022 |
109,143 | $ | 7,844 | $ | - | $ | (22,785 | ) | $ | 1,827,782 | $ | 20,358 | $ | (535,628 | ) | $ | 1,297,571 | |||||||||||||||
Net loss |
- | - | - | - | - | - | (11,132 | ) | (11,132 | ) | ||||||||||||||||||||||
Other comprehensive loss |
- | - | - | - | - | (61 | ) | - | (61 | ) | ||||||||||||||||||||||
Stock-based compensation expense |
- | - | - | - | 6,018 | - | - | 6,018 | ||||||||||||||||||||||||
Common stock issued upon vesting of share-based awards |
336 | 24 | - | - | 378 | - | - | 402 | ||||||||||||||||||||||||
Common stock withheld |
(100 | ) | - | - | (1,506 | ) | - | - | - | (1,506 | ) | |||||||||||||||||||||
Balance at March 31, 2022 |
109,379 | $ | 7,868 | $ | - | $ | (24,291 | ) | $ | 1,834,178 | $ | 20,297 | $ | (546,760 | ) | $ | 1,291,292 | |||||||||||||||
Net loss |
- | - | - | - | - | - | (4,350 | ) | (4,350 | ) | ||||||||||||||||||||||
Other comprehensive loss |
- | - | - | - | - | (61 | ) | - | (61 | ) | ||||||||||||||||||||||
Stock-based compensation expense |
- | - | - | - | 4,230 | - | - | 4,230 | ||||||||||||||||||||||||
Common stock issued upon vesting of share-based awards |
542 | 35 | - | - | (35 | ) | - | - | - | |||||||||||||||||||||||
Acquisition of common stock |
(1,100 | ) | - | - | (12,995 | ) | - | - | - | (12,995 | ) | |||||||||||||||||||||
Common stock withheld |
(184 | ) | - | - | (3,187 | ) | - | - | - | (3,187 | ) | |||||||||||||||||||||
Balance at June 30, 2022 |
108,637 | $ | 7,903 | $ | - | $ | (40,473 | ) | $ | 1,838,373 | $ | 20,236 | $ | (551,110 | ) | $ | 1,274,929 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
Notes to Unaudited Condensed Consolidated Financial Statements
1. | Business description |
With roots dating to 1938, Expro Group Holdings N.V. (the “Company,” “Expro,” “we,” “our” or “us”) is a global provider of energy services with operations in approximately 60 countries. The Company’s portfolio of capabilities includes products and services related to well construction, well flow management, subsea well access, and well intervention and integrity that enhance production and improve recovery across the well lifecycle, from exploration through abandonment.
On March 10, 2021, Frank’s International N.V. (“Frank’s”) and New Eagle Holdings Limited, an exempted company limited by shares incorporated under the laws of the Cayman Islands and a direct wholly owned subsidiary of Frank’s (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Expro Group Holdings International Limited (“Legacy Expro”), an exempted company limited by shares incorporated under the laws of the Cayman Islands, providing for the merger of Legacy Expro with and into Merger Sub in an all-stock transaction, with Merger Sub surviving the merger as a direct, wholly owned subsidiary of Frank’s (the “Merger”). The Merger closed on October 1, 2021 (the “Closing Date”), and Frank’s was renamed Expro Group Holdings N.V. The Merger was accounted for using the acquisition method of accounting with Legacy Expro being identified as the accounting acquirer. The condensed consolidated financial statements of the Company reflect the condensed financial position, results of operations and cash flows of only Legacy Expro for all periods prior to the Merger and of the combined company (including activities of Frank’s) for all periods subsequent to the Merger.
Pursuant to the Merger Agreement, as of the effective time of the Merger (the “Effective Time”), each outstanding ordinary share of common stock, par value $0.01 per share, of Legacy Expro was converted into the right to receive 1.2120 shares of common stock, nominal value
per share, of the Company (“Company Common Stock”). The number of shares of Company Common Stock received by the Legacy Expro shareholders was equal to 7.2720 (the “Exchange Ratio” as provided in the Merger Agreement) multiplied by the 1-for-6 reverse stock split ratio.
Further, the supervisory board of directors of Frank’s unanimously approved a 1-for-6 reverse stock split of Frank’s common stock, which was effected on October 1, 2021. All of the outstanding share numbers, nominal value, share prices and per share amounts in these condensed consolidated financial statements have been retroactively adjusted to reflect the Exchange Ratio and the 1-for-6 reverse stock split for all periods presented, as applicable.
On June 16, 2022, the Company’s Board of Directors (the “Board”) approved a new stock repurchase program, under which the Company is authorized to acquire up to $50.0 million of its outstanding common stock through November 24, 2023 (the “Stock Repurchase Program”). Under the Stock Repurchase Program, the Company may repurchase shares of the Company’s common stock in open market purchases, in privately negotiated transactions or otherwise. The Stock Repurchase Program will be utilized at management’s discretion and in accordance with federal securities laws. The timing and actual numbers of shares repurchased will depend on a variety of factors including price, corporate requirements, the constraints specified in the Stock Repurchase Program along with general business and market conditions. The Stock Repurchase Program does not obligate the Company to repurchase any particular amount of common stock, and it could be modified, suspended or discontinued at any time. During the second quarter of 2022, the Company repurchased 1.1 million shares at an average price of $11.81 per share, for a total cost of $13.0 million under this $50.0 million program.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
2. | Basis of presentation and significant accounting policies |
Basis of presentation
The unaudited condensed consolidated financial statements reflect the accounts of the Company and its subsidiaries. All intercompany balances and transactions, including unrealized profits arising from them, have been eliminated for purposes of preparing these unaudited condensed consolidated financial statements. Investments in which we do not have a controlling interest, but over which we do exercise significant influence, are accounted for under the equity method of accounting.
The accompanying condensed consolidated financial statements have not been audited by our independent registered public accounting firm. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim consolidated financial information. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 8, 2022.
In the opinion of management, these unaudited condensed consolidated financial statements, which are prepared in accordance with the rules of the SEC and U.S. GAAP for interim financial reporting, included herein contain all adjustments necessary to present fairly our financial position as of June 30, 2022, the results of our operations for the three and six months ended June 30, 2022 and 2021, and our cash flows for the six months ended June 30, 2022 and 2021. Such adjustments are of a normal recurring nature. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other period.
The unaudited condensed consolidated financial statements have been prepared on an historical cost basis using the United States dollar (“$” or “U.S. dollar”) as the reporting currency.
Significant accounting policies
Refer to Note 2 “Basis of presentation and significant accounting policies” of our consolidated financial statements as of and for the year ended December 31, 2021, which are included in our most recent Annual Report on Form 10-K filed with the SEC on March 8, 2022, for a discussion of our significant accounting policies. There have been no material changes in our significant accounting policies as compared to the significant accounting policies described in our consolidated financial statements as of and for the year ended December 31, 2021.
Recent accounting pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) generally in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification.
We consider the applicability and impact of all accounting pronouncements. Recently issued ASUs were assessed and were either determined to be not applicable or are expected to have immaterial impact on our consolidated financial position, results of operations and cash flows.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
3. | Business combinations and dispositions |
Frank’s International N.V.
As discussed in Note 1 “Business description,” the Merger of Frank’s with Legacy Expro pursuant to the Merger Agreement was completed on October 1, 2021. U.S. GAAP requires the determination of the accounting acquirer, the acquisition date, the fair value of assets and liabilities of the acquired business and the resulting measurement of goodwill. The Merger is accounted for as a reverse merger and Legacy Expro has been identified as the acquirer for accounting purposes. As a result, the Company has in accordance with ASC 805, Business Combinations, applied the acquisition method of accounting to account for Frank’s assets acquired and liabilities assumed. Applying the acquisition method of accounting includes recording the identifiable assets acquired and liabilities assumed at their fair values and recording goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed.
The Merger consideration was based on Frank’s closing share price on the Closing Date. In a reverse merger involving only the exchange of equity, the fair value of the equity of the accounting acquiree may be used to measure consideration transferred if the value of the accounting acquiree’s equity interests are more reliably measurable than the value of the accounting acquirer’s equity interest. As Legacy Expro was a private company and Frank’s was a public company with a quoted and reliable market price, the fair value of Frank’s equity interests was deemed to be more reliable. Under the acquisition method of accounting, total consideration exchanged was as follows:
Per share | Amount | |||||||||||
Shares issued | price | (in thousands) | ||||||||||
Issuance of common stock attributable to Frank’s stockholders | 38,066,216 | $ | 18.90 | $ | 719,452 | |||||||
Replacement of Frank’s equity awards | 7,830 | |||||||||||
Cash payment to Mosing Holdings LLC pursuant to the amended and restated tax receivable agreement | 15,000 | |||||||||||
Total Merger Consideration Exchanged | $ | 742,282 |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table sets forth the preliminary allocation of the merger consideration exchanged to the fair value of identifiable tangible and intangible assets acquired and liabilities assumed as of the Closing Date, with the recording of goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed (in thousands):
Amount | ||||
Cash and cash equivalents | $ | 187,178 | ||
Restricted cash | 2,561 | |||
Accounts receivables, net | 112,234 | |||
Inventories | 69,567 | |||
Assets held for sale | 10,061 | |||
Income tax receivables | 2,030 | |||
Other current assets | 23,908 | |||
Property, plant and equipment | 212,639 | |||
Goodwill | 154,399 | |||
Intangible assets | 104,791 | |||
Operating lease right-of-use assets | 27,406 | |||
Other assets | 20,494 | |||
Total assets | 927,268 | |||
Accounts payable and accrued liabilities | 81,959 | |||
Operating lease liabilities | 8,344 | |||
Current income tax liabilities | 8,932 | |||
Other current liabilities | 19,918 | |||
Deferred tax liabilities | 5,673 | |||
Non-current operating lease liabilities | 19,607 | |||
Other non-current liabilities | 40,553 | |||
Total Liabilities | 184,986 | |||
Total Merger Consideration Exchanged | $ | 742,282 |
The fair values of assets acquired and liabilities assumed, including other current liabilities, are subject to change as additional information is received. We expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation table above. The fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either through the use of the relief-from-royalty method or the multi-period excess earnings method, which are discounted to approximate their current value. The estimated useful lives are based on management’s historical experience and expectations as to the duration of time that benefits from these assets are expected to be realized.
The intangible assets will be amortized on a straight-line basis over an estimated 10 to 15 year life. We expect annual amortization to be approximately $7.7 million associated with these intangible assets.
Goodwill will not be amortized but rather subject to an annual impairment test, absent any indicators of impairment. Goodwill is attributable to planned synergies expected to be achieved from the combined operations of Legacy Expro and Frank’s. Goodwill recorded in the Merger is not expected to be deductible for tax purposes.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
Unaudited Pro Forma Financial Information
The following unaudited pro forma consolidated results of operations for the three and six months ended June 30, 2021 assume the Merger was completed as of January 1, 2020 (in thousands):
Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | |||||||
Unaudited pro forma revenues | $ | 284,092 | $ | 535,198 | ||||
Unaudited pro forma net loss | $ | (16,648 | ) | $ | (58,237 | ) |
Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the Merger been completed on the date indicated or of future operating results.
Merger and integration expense
During the three months ended June 30, 2022 and 2021, the Company incurred $2.3 million and $4.7 million, respectively, of merger and integration expense which consist primarily of legal fees, professional fees, integration, severance and other costs directly attributable to the Merger. During the six months ended June 30, 2022 and 2021, the Company incurred $7.0 million and $9.5 million, respectively, of merger and integration expense which consist primarily of legal fees, professional fees, integration, severance and other costs directly attributable to the Merger.
Below is a reconciliation of our liability balance associated with our severance plan initiated during 2021 related to the integration in connection with the Merger, which is included in “Other current liabilities” on the condensed consolidated balance sheets (in thousands):
NLA | ESSA | MENA | APAC | Central | Total | |||||||||||||||||||
Balance as of December 31, 2021 | $ | 2,057 | $ | 2,502 | $ | 424 | $ | 617 | $ | 6,615 | $ | 12,215 | ||||||||||||
Expense (reversal) during the period | (367 | ) | (427 | ) | - | 401 | 1,452 | 1,059 | ||||||||||||||||
Payments made during the period | (1,311 | ) | (1,331 | ) | (408 | ) | (516 | ) | (4,636 | ) | (8,202 | ) | ||||||||||||
Balance as of June 30, 2022 | $ | 379 | $ | 744 | $ | 16 | $ | 502 | $ | 3,431 | $ | 5,072 |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
4. Fair value measurements
Recurring Basis
A summary of financial assets and liabilities that are measured at fair value on a recurring basis, as of June 30, 2022 and December 31, 2021, were as follows (in thousands):
June 30, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Cash surrender value of life insurance policies- | ||||||||||||||||
Deferred compensation plan | $ | - | $ | 10,199 | $ | - | $ | 10,199 | ||||||||
Non-current accounts receivable, net | - | 10,705 | - | 10,705 | ||||||||||||
Liabilities: | ||||||||||||||||
Deferred compensation plan | - | 7,234 | - | 7,234 | ||||||||||||
Finance lease liabilities | - | 15,433 | - | 15,433 |
December 31, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments: | ||||||||||||||||
Cash surrender value of life insurance policies- | ||||||||||||||||
Deferred compensation plan | $ | - | $ | 18,857 | $ | - | $ | 18,857 | ||||||||
Non-current accounts receivable, net | - | 11,531 | - | 11,531 | ||||||||||||
Liabilities: | ||||||||||||||||
Deferred compensation plan | - | 9,339 | - | 9,339 | ||||||||||||
Finance lease liabilities | - | 16,919 | - | 16,919 |
Our investments associated with our deferred compensation plan as of June 30, 2022 consist primarily of the cash surrender value of life insurance policies and is included in “Other non-current assets” on the condensed consolidated balance sheets. The liability associated with our deferred compensation plan as of June 30, 2022 is included in “Other non-current liabilities” on the condensed consolidated balance sheets. Our investments change as a result of contributions, payments, and fluctuations in the market. Assets and liabilities, measured using significant observable inputs, are reported at fair value based on third-party broker statements, which are derived from the fair value of the funds’ underlying investments. They are reported at fair value based on the price of the stock and are included in “Other non-current assets” on the condensed consolidated balance sheets.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
5. | Business segment reporting |
Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the Company’s Chief Operating Decision Maker (“CODM”), which is our Chief Executive Officer, in deciding how to allocate resources and assess performance. Our CODM manages our operational segments that are aligned with our geographical regions as below:
● | North and Latin America (“NLA”), |
● | Europe and Sub-Saharan Africa (“ESSA”), |
● | Middle East and North Africa (“MENA”), and |
● | Asia-Pacific (“APAC”). |
The following table presents our revenue disaggregated by our operating segments (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
NLA | $ | 129,694 | $ | 30,630 | $ | 233,555 | $ | 60,993 | ||||||||
ESSA | 90,118 | 65,177 | 172,189 | 118,807 | ||||||||||||
MENA | 45,363 | 42,485 | 96,078 | 83,640 | ||||||||||||
APAC | 48,449 | 37,959 | 92,279 | 69,106 | ||||||||||||
Total | $ | 313,624 | $ | 176,251 | $ | 594,101 | $ | 332,546 |
Segment EBITDA
Our CODM regularly evaluates the performance of our operating segments using Segment EBITDA, which we define as income (loss) before income taxes adjusted for corporate costs, equity in income of joint ventures, depreciation and amortization expense, impairment expense, severance and other expense, gain on disposal of assets, foreign exchange losses, merger and integration expense, other income, interest and finance income (expense), net and stock-based compensation expense.
The following table presents our Segment EBITDA disaggregated by our operating segments and a reconciliation to income (loss) before income taxes (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
NLA | $ | 38,513 | $ | 3,355 | $ | 60,340 | $ | 5,783 | ||||||||
ESSA | 14,868 | 10,315 | 26,742 | 15,681 | ||||||||||||
MENA | 13,750 | 14,079 | 29,215 | 29,137 | ||||||||||||
APAC | 4,356 | 8,317 | 9,794 | 13,483 | ||||||||||||
Total Segment EBITDA | 71,487 | 36,066 | 126,091 | 64,084 | ||||||||||||
Corporate costs | (22,812 | ) | (13,419 | ) | (44,777 | ) | (28,102 | ) | ||||||||
Equity in income of joint ventures | 2,429 | 3,957 | 6,631 | 8,049 | ||||||||||||
Depreciation and amortization expense | (35,392 | ) | (26,390 | ) | (70,404 | ) | (54,149 | ) | ||||||||
Merger and integration expense | (2,270 | ) | (4,703 | ) | (6,995 | ) | (9,526 | ) | ||||||||
Severance and other expense | (678 | ) | (1,637 | ) | (2,172 | ) | (2,192 | ) | ||||||||
Stock-based compensation expense | (4,230 | ) | - | (10,248 | ) | - | ||||||||||
Foreign exchange loss | (5,244 | ) | (311 | ) | (2,428 | ) | (1,060 | ) | ||||||||
Other income, net | 244 | 387 | 1,240 | 626 | ||||||||||||
Interest and finance income (expense), net | 1,712 | (1,604 | ) | 1,725 | (3,231 | ) | ||||||||||
Income (loss) before income taxes | $ | 5,246 | $ | (7,654 | ) | $ | (1,337 | ) | $ | (25,501 | ) |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
Corporate costs include the costs of running our corporate head office and other central functions that support the operating segments, including research, engineering and development, logistics, sales and marketing and health and safety and are not attributable to a particular operating segment.
6. | Revenue |
Disaggregation of revenue
We disaggregate our revenue from contracts with customers by geography, as disclosed in Note 5 “Business segment reporting,” as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Additionally, we disaggregate our revenue into main areas of capabilities.
The following table sets forth the total amount of revenue by main area of capabilities as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Well construction | $ | 121,794 | $ | - | $ | 233,229 | $ | - | ||||||||
Well management | 191,830 | 176,251 | 360,872 | 332,546 | ||||||||||||
Total | $ | 313,624 | $ | 176,251 | $ | 594,101 | $ | 332,546 |
Contract balances
We perform our obligations under contracts with our customers by transferring services and products in exchange for consideration. The timing of our performance often differs from the timing of our customer’s payment, which results in the recognition of unbilled receivables and deferred revenue.
Unbilled receivables are initially recognized for revenue earned on completion of the performance obligation which are not yet invoiced to the customer. The amounts recognized as unbilled receivables are reclassified to accounts receivable upon billing. Deferred revenue represents the Company’s obligations to transfer goods or services to customers for which the Company has received consideration, in full or part, from the customer.
Contract balances consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Accounts receivable, net | $ | 244,150 | $ | 236,158 | ||||
Unbilled receivables | $ | 137,014 | $ | 94,659 | ||||
Deferred revenue | $ | 13,001 | $ | 17,038 |
The Company recognized revenue during the three and six months ended June 30, 2022 of $1.0 million and $8.9 million, respectively, and for the three and six months ended June 30, 2021 of $3.2 million and $4.3 million, respectively, out of the deferred revenue balance as of the beginning of the applicable year.
As of June 30, 2022, $12.6 million of our deferred revenue was classified as current and is included in “Other current liabilities” on the condensed consolidated balance sheets, with the remainder classified as non-current and included in “Other non-current liabilities” on the condensed consolidated balance sheets.
Transaction price allocated to remaining performance obligations
Remaining performance obligations represent firm contracts for which work has not been performed or has been partially performed and future revenue recognition is expected. We have elected the practical expedient permitting the exclusion of disclosing remaining performance obligations for contracts that have an original expected duration of one year or less and for our long-term contracts we have a right to consideration from customers in an amount that corresponds directly with the value to the customer of the performance completed to date.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
7. | Income taxes |
For interim financial reporting, we estimate the annual tax rate based on projected pre-tax income (loss) before equity in income of joint ventures for the full year and record a quarterly income tax expense (benefit) in accordance with accounting guidance for income taxes. As the year progresses, we refine the estimate of the year’s pre-tax income (loss) before equity in income of joint ventures as new information becomes available. The continual estimation process often results in a change to the expected effective tax rate for the year. When this occurs, we adjust the income tax expense (benefit) during the quarter in which the change in estimate occurs so that the year-to-date expense reflects the most current expected annual tax rate.
Our effective tax rates were 341% and (
)% for the three and six months ended June 30, 2022, respectively, and were ( )% and ( )% for the three and six months ended June 30, 2021, respectively.
Our effective tax rate was impacted primarily by changes in the mix of taxable profits between jurisdictions, in particular increased taxable profits in Latin America, deferred tax credits recognized during the three months ended March 31, 2022, in particular in APAC, that did not recur during the three months ended June 30, 2022, and deferred tax charges recognized during the three months ended June 30, 2022, primarily in MENA.
8. | Investment in joint ventures |
We have investments in two joint venture companies, which together provide us access to certain Asian markets that otherwise would be challenging for us to penetrate or develop effectively on our own. COSL-Expro Testing Services (Tianjin) Co. Ltd (“CETS”), in which we have a 50% equity interest, has extensive offshore well testing and completions capabilities and a reputation for providing technology-driven solutions in China. Similarly, PV Drilling Expro International Co. Ltd. (“PVD-Expro”) in which we have a 49% equity interest, offers the full suite of Expro products and services, including well testing and completions, in Vietnam. Both of these are strategic to our activities and offer the full capabilities and technology of Expro, but each company is independently managed.
The carrying value of our investment in joint ventures as of June 30, 2022 and December 31, 2021 was as follows (in thousands):
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
CETS | $ | 57,721 | $ | 54,014 | ||||
PVD-Expro | 3,527 | 3,590 | ||||||
Total | $ | 61,248 | $ | 57,604 |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
9. | Accounts receivable, net |
Accounts receivable, net consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Accounts receivable | $ | 392,270 | $ | 340,209 | ||||
Less: Expected credit losses | ) | ) | ||||||
Total | $ | 381,164 | $ | 330,817 | ||||
Current | 370,459 | 319,286 | ||||||
Non – current | 10,705 | 11,531 | ||||||
Total | $ | 381,164 | $ | 330,817 |
10. | Inventories |
Inventories consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Finished goods | $ | 34,306 | $ | 34,899 | ||||
Raw materials, equipment spares and consumables | 88,658 | 76,025 | ||||||
Work-in-progress | 20,308 | 14,192 | ||||||
Total | $ | 143,272 | $ | 125,116 |
11. | Other assets and liabilities |
Other assets consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Cash surrender value of life insurance policies | $ | 10,199 | $ | 18,857 | ||||
Prepayments | 22,457 | 19,891 | ||||||
Value-added tax receivables | 22,523 | 22,524 | ||||||
Collateral deposits | 1,855 | 1,599 | ||||||
Deposits | 6,825 | 7,331 | ||||||
Other | 4,802 | 9,197 | ||||||
Total | $ | 68,661 | $ | 79,399 | ||||
Current | 51,636 | 52,938 | ||||||
Non – current | 17,025 | 26,461 | ||||||
Total | $ | 68,661 | $ | 79,399 |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
Other liabilities consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Deferred revenue | $ | 13,001 | $ | 17,038 | ||||
Other tax and social security | 27,067 | 27,893 | ||||||
Income tax liabilities – non-current portion | 47,697 | 45,741 | ||||||
Deferred compensation plan | 7,234 | 9,339 | ||||||
Other | 44,290 | 49,739 | ||||||
Total | $ | 139,289 | $ | 149,750 | ||||
Current | 61,890 | 74,213 | ||||||
Non – current | 77,399 | 75,537 | ||||||
Total | $ | 139,289 | $ | 149,750 |
Cash Surrender Value of Life Insurance Policies
We had $10.2 million and $18.9 million of cash surrender value of life insurance policies as of June 30, 2022 and December 31, 2021, respectively, that are held within a trust established to settle payment of future executive deferred compensation benefit obligations. The decrease in the cash surrender value of life insurance policies as of June 30, 2022 as compared to December 31, 2021 was primarily due to a cash distribution from the trust to reimburse the Company for benefits paid pursuant to the executive deferred compensation benefit plan, the impact of which is included in “Proceeds from sale / maturity of investments” on the condensed consolidated statements of cash flows. Loss associated with these policies is included in “Other income, net” on our condensed consolidated statements of operations. Loss on changes in the cash surrender value of life insurance policies was $0.1 million and $0.2 million for the three and six months ended June 30, 2022, respectively.
12. | Accounts payable and accrued liabilities |
Accounts payable and accrued liabilities consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Accounts payable – trade | $ | 92,594 | $ | 84,952 | ||||
Payroll, vacation and other employee benefits | 33,752 | 42,671 | ||||||
Accruals for goods received not invoiced | 20,681 | 18,666 | ||||||
Other accrued liabilities | 81,736 | 66,863 | ||||||
Total | $ | 228,763 | $ | 213,152 |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
13. | Property, plant and equipment, net |
Property, plant and equipment, net consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Cost: | ||||||||
Land | $ | 21,580 | $ | 21,580 | ||||
Land improvements | 3,051 | 3,054 | ||||||
Buildings and lease hold improvements | 103,505 | 104,660 | ||||||
Plant and equipment | 734,160 | 701,400 | ||||||
862,296 | 830,694 | |||||||
Less: accumulated depreciation | (403,019 | ) | (352,114 | ) | ||||
Total | $ | 459,277 | $ | 478,580 |
During the six months ended June 30, 2022, assets held for sale were sold for net proceeds of $6.3 million.
The carrying amount of our property, plant and equipment recognized in respect of assets held under finance leases as of June 30, 2022 and December 31, 2021 and included in amounts above is as follows (in thousands):
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Cost: | ||||||||
Buildings | $ | 18,623 | $ | 18,623 | ||||
Plant and equipment | 1,275 | 1,275 | ||||||
Total | 19,898 | 19,898 | ||||||
Less: accumulated amortization | ) | ) | ||||||
Total | $ | 11,487 | $ | 12,165 |
Depreciation expense relating to property, plant and equipment, including assets under finance leases, was $25.6 million and $51.6 million for the three and six months ended June 30, 2022, respectively, and $19.9 million and $41.3 million for the three and six months ended June 30, 2021, respectively.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
14. | Intangible assets, net |
The following table summarizes our intangible assets comprising of Customer Relationships & Contracts (“CR&C”), Trademarks, Technology and Software as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, 2022 | December 31, 2021 | June 30, 2022 | ||||||||||||||||||||||||||
Gross carrying amount | Accumulated impairment and amortization | Net book value | Gross carrying amount | Accumulated impairment and amortization | Net book value | Weighted average remaining life (years) | ||||||||||||||||||||||
CR&C | $ | 222,200 | $ | (108,246 | ) | $ | 113,954 | $ | 222,200 | $ | (98,271 | ) | $ | 123,929 | 5.8 | |||||||||||||
Trademarks | 57,100 | (31,157 | ) | 25,943 | 57,100 | (29,392 | ) | 27,708 | 8.0 | |||||||||||||||||||
Technology | 170,652 | (65,901 | ) | 104,751 | 159,458 | (60,979 | ) | 98,479 | 12.1 | |||||||||||||||||||
Software | 8,754 | (7,910 | ) | 844 | 8,754 | (5,817 | ) | 2,937 | 0.4 | |||||||||||||||||||
Total | $ | 458,706 | $ | (213,214 | ) | $ | 245,492 | $ | 447,512 | $ | (194,459 | ) | $ | 253,053 |
Amortization expense for intangible assets was $9.8 million and $18.8 million for the three and six months ended June 30, 2022, respectively, and $6.4 million and $12.9 million for the three and six months ended June 30, 2021, respectively.
During the first quarter of 2022, we acquired technology to bolster our well intervention and integrity product offering, resulting in an increase in intangible assets of $11.2 million which will be amortized over a
-year life. The impact of this asset acquisition is included in “Acquisition of technology” on the condensed consolidated statements of cash flows.
15. | Goodwill |
Our reporting units are either our operating segments or components of our operating segments depending on the level at which segment management oversees the business. Prior to the Merger, Legacy Expro’s reporting units included Europe and the Commonwealth of Independent States, Sub-Saharan Africa, MENA, Asia, North America and Latin America. During 2021, due to the Merger we changed our internal organization and reporting structure and as a result, our operating segments, NLA, ESSA, MENA and APAC, are also our reporting units.
The allocation of goodwill by operating segment as of June 30, 2022 and December 31, 2021 is as follows (in thousands):
NLA | $ | 93,608 | ||
ESSA | 66,283 | |||
MENA | 3,331 | |||
APAC | 16,681 | |||
Total | $ | 179,903 |
As of June 30, 2022, we did not identify any triggering events that would represent an indicator of impairment of our goodwill. Accordingly, no impairment charges related to goodwill have been recorded during the three and six months ended June 30, 2022.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
16. | Interest bearing loans |
On October 1, 2021, in connection with the closing of the Merger, we entered into a new revolving credit facility (the “New Facility”) with DNB Bank ASA, London Branch, as agent (the “Agent”), with total commitments of $200.0 million, of which $130.0 million is available for drawdowns as loans and $70.0 million is available for letters of credit. Subject to the terms of the New Facility, the Company has the ability to increase the commitments to $250.0 million. Proceeds of the New Facility may be used for general corporate and working capital purposes.
All obligations under the New Facility are guaranteed jointly and severally by the Company and certain of the Company’s subsidiaries incorporated in the U.S., the U.K., the Netherlands, Norway, Hungary, Australia, Cyprus, the Cayman Islands and Guernsey. Going forward, the guarantors must comprise at least 80% of the EBITDA (as defined in the New Facility) and 70% of the consolidated assets of the Company and its subsidiaries, as well as subsidiaries individually representing 5% or more of the EBITDA or assets of the group, subject to customary exceptions and exclusions. In addition, the obligations under the New Facility are secured by first priority liens on certain assets of the borrowers and guarantors, including pledges of equity interests in certain of the Company’s subsidiaries, including all of the borrowers and subsidiary guarantors, material operating bank accounts, intercompany loans receivable and, in jurisdictions where customary, including the U.S., the U.K., Australia and the Cayman Islands, substantially all of the assets and property of the borrowers and guarantors incorporated in such jurisdictions, in each case subject to customary exceptions and exclusions.
Borrowings under the New Facility bear interest at a rate per annum of LIBOR, subject to a 0.00% floor, plus an applicable margin of 3.75% for cash borrowings or 3.00% for letters of credit. A 0.75% per annum fronting fee applies to letters of credit, and an additional 0.25% or 0.50% per annum utilization fee is payable on drawdowns as loans to the extent one-third or two-thirds, respectively, or more of commitments are drawn. The unused portion of the New Facility is subject to a commitment fee of 30% per annum of the applicable margin. Interest on loans is payable at the end of the selected interest period, but no less frequently than semiannually.
The New Facility contains various undertakings and affirmative and negative covenants which limit, subject to certain customary exceptions and thresholds, the Company and its subsidiaries’ ability to, among other things, (1) enter into asset sales; (2) incur additional indebtedness; (3) make investments, acquisitions, or loans and create or incur liens; (4) pay certain dividends or make other distributions; and (5) engage in transactions with affiliates. The New Facility also requires the Company to maintain (i) a minimum cash flow cover ratio of 1.5 to 1.0 based on the ratio of cash flow to debt service; (ii) a minimum interest cover ratio of 4.0 to 1.0 based on the ratio of EBITDA to net finance charges; and (iii) a maximum senior leverage ratio of 2.25 to 1.0 based on the ratio of total net debt to EBITDA, in each case tested quarterly on a last-twelve-months basis, subject to certain exceptions. In addition, the aggregate capital expenditure of the Company and its subsidiaries cannot exceed 110% of the forecasted amount in the relevant annual budget, subject to certain exceptions. If the Company fails to perform its obligations under the agreement that results in an event of default, the commitments under the New Facility could be terminated and any outstanding borrowings under the New Facility may be declared immediately due and payable. The New Facility also contains cross-default provisions that apply to the Company and its subsidiaries’ other indebtedness.
On March 31, 2022, the Agent, on behalf of the consenting lenders, countersigned a Consent Request Letter dated March 10, 2022 to the New Facility (the “Consent”). Pursuant to the Consent, the lenders consented to, among other things, an amendment to the New Facility permitting dividends or distributions by the Company, or the repurchase or redemption of the Company’s shares in an aggregate amount of $50.0 million over the life of the New Facility, subject to pro forma compliance with the 2.25 to 1.0 maximum senior leverage ratio financial covenant.
On July 28, 2022, the Company and the lenders increased the total commitments available for letters of credit under the New Facility by $18.0 million.
The Facility remained undrawn on a cash basis (i.e., no loans were outstanding), as of June 30, 2022 and December 31, 2021. We utilized $31.8 million and $33.4 million as of June 30, 2022 and December 31, 2021, respectively, for bonds and guarantees.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
17. | Commitments and Contingencies |
Commercial Commitments
During the normal course of business, we enter into commercial commitments in the form of letters of credit and bank guarantees to provide financial and performance assurance to third parties.
We entered into contractual commitments for the acquisition of property, plant and equipment totaling $45.9 million and $26.3 million as of June 30, 2022 and December 31, 2021, respectively.
Contingencies
Certain conditions may exist as of the date our unaudited condensed consolidated financial statements are issued that may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. Our management, with input from legal counsel, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings pending against us or unasserted claims that may result in proceedings, our management, with input from legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates it is probable a material loss has been incurred and the amount of liability can be reasonably estimated, then the estimated liability would be accrued in our unaudited condensed consolidated financial statements. If the assessment indicates a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
We are the subject of lawsuits and claims arising in the ordinary course of business from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. We had no material accruals for loss contingencies, individually or in the aggregate, as of June 30, 2022 and December 31, 2021. We believe the probability is remote that the ultimate outcome of these matters would have a material adverse effect on our financial position, results of operations or cash flows.
We are conducting an internal investigation of the operations of certain of our foreign subsidiaries in West Africa including possible violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), our policies and other applicable laws. In June 2016, we voluntarily disclosed the existence of our extensive internal review to the SEC, the U.S. Department of Justice (“DOJ”) and other governmental entities. It is our intent to continue to fully cooperate with these agencies and any other applicable authorities in connection with any further investigation that may be conducted in connection with this matter. While our review has not indicated that there has been any material impact on our previously filed financial statements, we have continued to collect information and cooperate with the authorities, but at this time are unable to predict the ultimate resolution of these matters with these agencies (including any financial impact on us, which could be material).
As disclosed above, our investigation into possible violations of the FCPA remains ongoing, and we will continue to cooperate with the SEC, DOJ and other relevant governmental entities in connection therewith. Our board of directors and management are committed to continuously enhancing our internal controls that support improved compliance and transparency throughout our global operations.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
18. | Post-retirement benefits |
Amounts recognized in the unaudited condensed consolidated statements of operations in respect of the defined benefit schemes were as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Amortization of prior service credit | $ | 61 | $ | 61 | $ | 122 | $ | 122 | ||||||||
Interest cost | (991 | ) | (840 | ) | (2,045 | ) | (1,677 | ) | ||||||||
Expected return on plan assets | 1,375 | 1,150 | 2,803 | 2,331 | ||||||||||||
Total | $ | 445 | $ | 371 | $ | 880 | $ | 776 |
The Company contributed $1.2 million and $2.5 million for the three and six months ended June 30, 2022, respectively, and $0.9 million and $1.8 million for the three and six months ended June 30, 2021, respectively, to defined benefit schemes.
Amortization of prior service credit, interest cost and expected return on plan assets have been recognized in “Other income, net” in the unaudited condensed consolidated statements of operations.
Executive Deferred Compensation Plan
The Company maintains the Executive Deferred Compensation Plan (the “EDC Plan”) for certain current and former Frank’s employees. Effective during 2015, this plan was closed to new entrants. The purpose of the EDC Plan was to provide participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified cash compensation. Participant contributions were immediately vested. Company contributions vested after
years of service. Participant benefits under the EDC Plan are paid from the general funds of the Company or a grantor trust, commonly referred to as a Rabbi Trust, created for the purpose of informally funding the EDC Plan. The assets of the EDC Plan’s trust are invested in corporate-owned, split-dollar life insurance policies and mutual funds.
As of June 30, 2022, the total liability related to the EDC Plan was $7.2 million and was included in “Other non-current liabilities” on the unaudited condensed consolidated balance sheet. As of June 30, 2022, the cash surrender value of life insurance policies that are held within a Rabbi Trust for the purpose of paying future executive deferred compensation benefit obligations was $10.2 million.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
19. | Loss per share |
Basic loss per share attributable to Company stockholders is calculated by dividing net loss attributable to the Company by the weighted-average number of common shares outstanding for the period. Diluted loss per share attributable to Company stockholders is computed giving effect to all potential dilutive common stock, unless there is a net loss for the period. We apply the treasury stock method to determine the dilutive weighted average common shares represented by unvested restricted stock units and Employee Stock Purchase Program (“ESPP”) shares.
The calculation of basic and diluted loss per share attributable to Company stockholders for the three and six months ended June 30, 2022 and 2021, respectively, are as follows (in thousands, except shares outstanding and per share amounts):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net loss | $ | (4,350 | ) | $ | (8,381 | ) | $ | (15,482 | ) | $ | (28,773 | ) | ||||
Basic and diluted weighted average number of shares outstanding | 109,582,086 | 70,889,753 | 109,425,407 | 70,889,753 | ||||||||||||
Total basic and diluted loss per share | $ | (0.04 | ) | $ | (0.12 | ) | $ | (0.14 | ) | $ | (0.41 | ) |
Approximately 0.2 million and 0.4 million shares of unvested restricted stock units and stock to be issued pursuant to the ESPP have been excluded from the computation of diluted loss per share as the effect would be anti-dilutive for the three and six months ended June 30, 2022, respectively.
Additionally, since the conditions upon which shares were issuable for our outstanding warrants and stock options were not satisfied as of June 30, 2021, assuming the balance sheet date is the end of the contingency period. Accordingly, they have not been included in determining the number of anti-dilutive shares.
20. | Related party disclosures |
Our related parties consist primarily of CETS and PVD-Expro, the two companies in which we exert significant influence, and Mosing Holdings LLC, a company that is owned by various members of the Mosing family, including Erich Mosing, a member of our board of directors, and affiliates. During the three and six months ended June 30, 2022, we provided goods and services to related parties totaling $1.4 million and $2.3 million, respectively and $1.3 million and $4.0 million respectively, during the three and six months ended June 30, 2021. Additionally, we entered into various operating lease agreements to lease facilities with affiliated companies. Rent expense associated with our related party leases was $0.1 million and $0.3 million, respectively, for the three and six months ended June 30, 2022.
As of June 30, 2022 and December 31, 2021 amounts receivable from the related parties were $1.3 million and $1.6 million, respectively, and amounts payable to related parties were $2.1 million and $2.1 million as of June 30, 2022 and December 31, 2021, respectively.
As of June 30, 2022, $1.0 million of our operating lease right-of-use assets and $1.0 million of our lease liabilities were associated with related party leases. As of December 31, 2021, $1.3 million of our operating lease right-of-use assets and $1.3 million of our lease liabilities were associated with related party leases.
Tax Receivable Agreement
Mosing Holdings, LLC, a Delaware limited liability company (“Mosing Holdings”), converted all of its shares of Frank’s Series A convertible preferred stock into shares of Frank’s common stock on August 26, 2016, in connection with its delivery to Frank’s of all of its interests in Frank’s International C.V. (“FICV”) (the “Conversion”).
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
The tax receivable agreement (the “Original TRA”) that Frank’s entered into with FICV and Mosing Holdings in connection with Frank’s initial public offering (“IPO”) generally provided for the payment by Frank’s to Mosing Holdings of
of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Frank’s actually realized (or were deemed to be realized in certain circumstances) in periods after the IPO as a result of (i) tax basis increases resulting from the Conversion and (ii) imputed interest deemed to be paid by Frank’s as a result of, and additional tax basis arising from, payments under the Original TRA. Frank’s retained the benefit of the remaining of these cash savings, if any.
In connection with the Merger Agreement, Frank’s, FICV and Mosing Holdings entered into the Amended and Restated Tax Receivable Agreement, dated as of March 10, 2021 (the “A&R TRA”). Pursuant to the A&R TRA, on October 1, 2021, the Company made a payment of $15 million to settle the early termination payment obligations that would otherwise have been owed to Mosing Holdings under the Original TRA as a result of the Merger. As the payment was a condition precedent to effect the Merger, it was included in the determination of Merger consideration exchanged. Refer to Note 3 “Business combinations and dispositions” for more details. The A&R TRA also provides for other contingent payments to be made by the Company to Mosing Holdings in the future in the event the Company realizes cash tax savings from tax attributes covered under the Original TRA during the
year period following October 1, 2021 in excess of $18.1 million.
21. | Stock-based compensation |
The Company recognized $0.5 million and $3.2 million of stock-based compensation expense attributable to the Management Incentive Plan (“MIP”) stock options during the three and six months ended June 30, 2022, respectively. No stock-based compensation expense attributable to the MIP stock options was recognized during the three and six months ended June 30, 2021 as the performance conditions within the stock option agreements were deemed to be improbable. Stock-based compensation expense relating to the Long-Term Incentive Plan (“LTIP”), including restricted stock units (“RSUs”) and performance restricted stock units (“PRSUs”) for the three and six months ended June 30, 2022 was $3.6 million and $6.7 million, respectively. No stock-based compensation expense relating to LTIP RSUs and PRSUs was recognized during the three and six months ended June 30, 2021.
During the six months ended June 30, 2022, 745,893 RSUs were granted to employees at a grant date fair value of $17.17 per RSU.
22. | Supplemental cash flow |
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for income taxes, net of refunds | $ | 15,505 | $ | 4,079 | ||||
Cash paid for interest, net | $ | 1,999 | $ | 1,997 | ||||
Change in accounts payable and accrued expenses related to capital expenditures | $ | 3,924 | $ | 3,265 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Form 10-Q and the audited consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report.
This section contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in any forward-looking statement because of various factors, including those described in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” of this Form 10-Q.
Unless otherwise indicated, references to the terms “Frank’s” refers to Frank’s International N.V., the predecessor reporting entity prior to the Merger, references to “Legacy Expro” refer to Expro Group Holdings International Limited, the entity acquired by the Company in the Merger, and references to “Expro,” the “Company,” “we,” “our,” and “us” refer to Expro Group Holdings N.V., following the consummation of the Merger and unless the context otherwise required, Frank’s prior to the consummation of the Merger.
Overview of Business
Working for clients across the entire well life cycle, we are a leading provider of energy services, offering cost-effective, innovative solutions and what we consider to be best-in-class safety and service quality. The Company’s extensive portfolio of capabilities spans well construction, well flow management, subsea well access, and well intervention and integrity solutions.
With roots dating to 1938, we have approximately 7,200 employees and provide services and solutions to leading exploration and production companies in both onshore and offshore environments in approximately 60 countries.
Our broad portfolio of products and services are designed to enhance production and improve recovery across the well lifecycle from exploration through abandonment, including:
Well Construction |
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Our well construction products and services support customers’ new wellbore drilling, wellbore completion and recompletion, and wellbore plug and abandonment requirements. In particular, we offer advanced technology solutions in drilling, tubular running services, cementing and tubulars. With a focus on innovation, we are continuing to advance the way wells are constructed by optimizing process efficiency on the rig floor, developing new methods to handle and install tubulars and mitigating well integrity risks. |
Well Management |
Our well management offerings consist of well flow management, subsea well access and well intervention and integrity services:
• |
Well flow management: We gather valuable well and reservoir data, with a particular focus on well-site safety and environmental impact. We provide global, comprehensive well flow management systems for the safe production, measurement, and sampling of hydrocarbons from a well during the exploration and appraisal phase of a new field; the flowback and clean-up of a new well prior to production; and in-line testing of a well during its production life. We also provide early production facilities to accelerate production; production enhancement packages to enhance reservoir recovery rates through the realization of production that was previously locked within the reservoir; and metering and other well surveillance technologies to monitor and measure flow and other characteristics of wells. |
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Subsea well access: With over 35 years of experience providing a wide range of fit-for-purpose subsea well access solutions, our technology aims to ensure safe well access and optimized production throughout the lifecycle of the well. We provide what we believe to be the most reliable, efficient, and cost-effective subsea well access systems for exploration and appraisal, development, intervention and abandonment, including an extensive portfolio of standard and bespoke Subsea Test Tree Assemblies, a rig-deployed Intervention Riser System and a vessel-deployed, wire through water Riserless Well Intervention System. We also provide systems integration and project management services. |
• |
Well intervention and integrity: We provide well intervention solutions to acquire and interpret well data, ensure well bore integrity and improve production. In addition to our extensive fleet of mechanical and cased hole wireline units, we have recently introduced a number of cost-effective, innovative well intervention services, including CoilHose™, a lightweight, small-footprint solution for wellbore lifting, cleaning and chemical treatments; Octopoda™, for fluid treatments in wellbore annuli; and Galea™, an autonomous well intervention solution. We also possess several other distinct technical capabilities, including non-intrusive metering technologies and wireless telemetry systems for reservoir monitoring. |
We operate a global business and have a diverse and stable customer base that is comprised of national oil companies (“NOC”), international oil companies (“IOC”), independent exploration and production companies (“Independents”) and service partners. We have strong relationships with a number of the world’s largest NOCs and IOCs, some of which have been our customers for decades. We are dedicated to safely and sustainably delivering maximum value to our customers.
We organize and manage our operations on a geographical basis. Our reporting structure and the key financial information used by our management team is organized around our four operating segments: (i) North and Latin America (“NLA”), (ii) Europe and Sub-Saharan Africa (“ESSA”), (iii) Middle East and North Africa (“MENA”) and (iv) Asia-Pacific (“APAC”).
How We Generate Our Revenue
Our revenue is derived primarily from providing services in well construction, well flow management, subsea well access and well intervention and integrity services to operators globally. Our revenue includes equipment service charges, personnel charges, run charges and consumables. Some of our contracts allow us to charge for additional deliverables, such as the costs of mobilization of people and equipment and customer specific engineering costs associated with a project. We also procure products and services on behalf of our customers that are provided by third parties for which we are reimbursed with a mark-up or in connection with an integrated services contract. We also design, manufacture and sell equipment, which is typically done in connection with a related operations and maintenance arrangement with a particular customer. In addition, we also generate revenue from the sale of certain well construction products.
Market Conditions and Price of Oil and Gas
The second quarter of 2022 has continued to show positive signs of recovery in the market following the impact of COVID-19 and the Russian war in Ukraine. There are a number of market factors that have had, and may continue to have, an effect on our business, including:
• |
The market for energy services and our business are substantially dependent on the price of oil and, to a lesser extent, the regional price of gas, which are both driven by market supply and demand. Changes in oil and gas prices impact customer willingness to spend on exploration and appraisal, development, production and abandonment activities. The extent of the impact of a change in oil and gas prices on these activities varies extensively between geographic regions, types of customers, types of activities and the financial returns of individual projects. |
• |
Oil demand in 2022 is forecast to exceed 2021 as the overall economic backdrop improves with liquid demand estimated to surpass annualized 2019 levels in 2023. Brent prices remained volatile during the second quarter of 2022, with the average Brent oil price generally trending up as a result of an easing of lockdowns in China, increasing global activity and demand for travel, and continuing war-time premiums as sanctions disrupt Russian supply. In response, Organization of Petroleum Exporting Countries (“OPEC”) members announced in their June meeting a further production increase in July and August which, coupled with ongoing release of barrels from strategic petroleum reserves and the risk of an economic slowdown, is anticipated to trigger a softening in oil prices though the second half of 2022. |
• |
Despite the multi-year underinvestment in new reserves, we expect that operators will maintain their fiscal discipline in the near-term. However, customer spending plans are increasingly visible and a further increase in activity levels is expected by Expro and other energy services companies. |
• |
While increases in activity are not expected to be uniform across geo-markets or type of activity, international and deepwater activity is expected to continue to improve throughout 2022 and into 2023. We also expect that the demand for services related to brownfield and production enhancement and infield development programs will also show increased demand. |
• |
The clean energy transition continues to gain momentum. Hydrocarbons, however, will continue to play a vital role in the transition towards more sustainable energy resources, and the existing expertise and future innovation within the energy services sector, both to reduce emissions and enhance efficiency, will be critical. We are already active in the early-stage carbon capture and storage segment and have expertise and established operations within the geothermal and flare reduction segments. We continue to develop technologies to enhance the sustainability of our customers’ operations which, along with our digital transformation initiatives, are expected to enable us to continue to support our customers’ commercial and environmental initiatives. As the industry changes, we continue to evolve our approach to adapt and help our customers address the critical energy transition. |
• |
Increased expectations of host countries in regard to local content is another multi-year trend that gained additional momentum in recent years. Our commitment to developing local capabilities and in-country personnel has reduced our dependence on international staff and also allowed us to mitigate some of the operational challenges associated with travel restrictions related to COVID-19. These efforts have enabled us to continue to service our customers in their ongoing operations throughout the pandemic. |
Outlook
Demand continues to improve in the face of volatile oil prices, and activity in 2022 is forecast to be higher than in 2021, with oil demand forecast to return to pre-pandemic levels in late 2022 or 2023.
The U.S. Energy Information Administration (“EIA”) estimates that global liquid fuels consumption will grow to 99.6 million barrels per day (“b/d”) in 2022, up from 97.4 million b/d in 2021, rising to 101.6 million b/d in 2023 (which would surpass 2019 levels of 100.8 million b/d). Counterbalancing consumption growth, the EIA expects continuing production increases from OPEC to average 29.1 million b/d in the second half of 2022 (up 0.8 million b/d from the first half of 2022 and 2.8 million b/d from 2021) and an acceleration in U.S. oil production in 2022 (rising to 11.9 million b/d in 2022 and 13.0 million b/d in 2023, the highest annual average U.S. crude oil production on record). Those production increases, along with other supply increases, are expected to outpace global oil consumption growth and contribute to declining oil prices in the medium-term. The EIA forecasts Brent crude oil spot prices to average $104 per barrel in 2022 and $93.7 per barrel in 2023, compared to an average $71 per barrel in 2021.
In addition to the improving oil market outlook, global natural gas demand continues to increase due to a combination of rising economic activity, energy security concerns in Europe, lower inventory in storage, and strong demand for liquified natural gas (“LNG”) in Europe to replace Russian pipeline gas.
The EIA expects Henry Hub spot prices to further increase to an average $5.94 per million British thermal unit (“MMBtu”) in the third quarter of 2022, $6.02/MMBtu for all of 2022 and $4.76/MMBtu in 2023 as U.S. gas production recovers. Rystad forecasts the European and Asian LNG spot price to trade at approximately $28.9/MMBtu in 2022, maintaining the higher rates achieved in 2021 with slight downward pricing pressure expected in 2023 as new supplies to Europe materialize and LNG production ramps up.
The outlook for the second half of 2022 indicates a continuing recovery in exploration and production expenditures, at different rates in individual countries, with strong growth maintained in shale / tight oil led by the U.S. land markets, increasing offshore activity driven by Latin America and deepwater exploration in Africa, and significant investments in incremental capacity in the Middle East, including Saudi Arabia and Qatar, in order to offset the decline in Russian gas supply.
As a result, we expect demand for our services and solutions to continue to trend positively throughout 2022 and into 2023.
How We Evaluate Our Operations
We use a number of financial and operational measures to routinely analyze and evaluate the performance of our business, including Revenue, Adjusted EBITDA, Adjusted Cash Flow from Operations and Cash Conversion.
Revenue: We analyze our performance by comparing actual monthly revenue by operating segments and areas of capabilities to our internal projections for each month. Our revenue is primarily derived from well construction, well flow management, subsea well access and well intervention and integrity solutions.
Adjusted EBITDA: We regularly evaluate our financial performance using Adjusted EBITDA. Our 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 and allows more meaningful analysis of the trends and performance of our core operations.
Adjusted Cash Flow from Operations: We regularly evaluate our operating cash flow performance using Adjusted Cash Flow from Operations. Our management believes Adjusted Cash Flow from Operations is a useful tool to measure the operating cash performance of the Company as it excludes exceptional payments, interest payments and non-cash charges not related to our core operating activities and allows more meaningful analysis of the trends and performance of our core operations.
Cash Conversion: We regularly evaluate our efficiency of generating cash from operations using Cash Conversion which provides a useful tool to measure Adjusted Cash Flow from Operations as a percentage of Adjusted EBITDA.
Adjusted EBITDA, Adjusted Cash Flow from Operations and Cash Conversion are non-GAAP financial measures. Please refer to the section titled “Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable financial performance measure calculated and presented in accordance with GAAP and a reconciliation of Adjusted Cash Flow from Operations to net cash provided by operating activities, the most directly comparable liquidity measure calculated and presented in accordance with GAAP.
Executive Overview
Three months ended June 30, 2022 compared to three months ended March 31, 2022
Certain highlights of our financial results and other key developments include:
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• |
Revenue for the three months ended June 30, 2022 increased by $33.1 million, or 11.8%, to $313.6 million, compared to $280.5 million for the three months ended March 31, 2022. The increase in revenue was driven by higher activity across NLA, ESSA and APAC, partially offset by a decrease in activity in MENA. Revenue for our segments is discussed separately below under the heading “Operating Segment Results.” | |
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We reported a net loss for the three months ended June 30, 2022 of $4.4 million, compared to a net loss of $11.1 million for the three months ended March 31, 2022. The overall decrease in net loss was primarily due to a combination of sequentially higher revenue, a more favorable product mix and lower merger and integration expense, partially offset by higher income tax expense of $5.1 million. | |
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• |
Adjusted EBITDA for the three months ended June 30, 2022 increased by $14.3 million, or 38.7%, to $51.1 million from $36.8 million for the three months ended March 31, 2022. The increase is primarily attributable to higher activity during the three months ended June 30, 2022. Adjusted EBITDA margin increased to 16.3% during the three months ended June 30, 2022, as compared to 13.1% during the three months ended March 31, 2022, due to a more favorable product mix and lower support cost as a result of merger related synergies. | |
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• |
Net cash provided by operating activities for the three months ended June 30, 2022 was $2.1 million, compared to net cash used in operating activities of $14.2 million for the three months ended March 31, 2022, primarily reflecting improvement in operating results and lower integration costs, partially offset by an increase in working capital. Adjusted Cash Flow from Operations and Cash Conversion for the three months ended June 30, 2022 was $9.6 million and 19%, respectively, compared to $(1.4) million and (4)%, respectively, for the three months ended March 31, 2022. The buildup in working capital in the first half of 2022 is consistent with historical patterns and is expected to reverse in the second half of the year. Consequently, Adjusted Cash Flow from Operations is expected to improve in the second half of 2022. |
Six months ended June 30, 2022 compared to six months ended June 30, 2021
Certain highlights of our financial results and other key developments include:
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Revenue for the six months ended June 30, 2022 increased by $261.6 million, or 78.7%, to $594.1 million, compared to $332.5 million for the six months ended June 30, 2021. Of the total increase, $233.2 million is attributable to the Merger with the addition of well construction revenue during the six months ended June 30, 2022. The remaining increase in revenue was driven by higher well management revenue. We have observed higher activity across all our geography-based operating segments. Revenue for our segments is discussed separately below under the heading “Operating Segment Results.” | |
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We reported a net loss for the six months ended June 30, 2022 of $15.5 million, compared to a net loss of $28.8 million for the six months ended June 30, 2021. The overall decrease in net loss was primarily driven by increased revenue due to a combination of the impact of the Merger and higher activity during the six months ended June 30, 2022, partially offset by an increase in depreciation of $16.3 million, an increase in stock-based compensation expense of $10.2 million and higher tax expense of $10.9 million. | |
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Adjusted EBITDA for the six months ended June 30, 2022 increased by $43.9 million, or 99.7%, to $87.9 million from $44.0 million for the six months ended June 30, 2021. The overall increase in Adjusted EBITDA was due to a combination of the impact of the Merger and higher activity during the six months ended June 30, 2022. Adjusted EBITDA margin increased to 14.8% during the six months ended June 30, 2022, as compared to 13.2% during the six months ended June 30, 2021, due to favorable product mix and lower support cost as a result of merger related synergies. | |
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Net cash used in operating activities for the six months ended June 30, 2022 was $12.1 million, compared to net cash provided by operating activities of $2.4 million for the six months ended June 30, 2021. The increase in net cash used in operating activities was primarily due to an increase in working capital and higher tax, merger, integration and severance payments during the current period as compared to the prior year period. Adjusted Cash Flow from Operations and Cash Conversion for the six months ended June 30, 2022 was $8.1 million and 9%, respectively, compared to $12.8 million and 29%, respectively, for the six months ended June 30, 2021. |
Non-GAAP Financial Measures
We include in this Form 10-Q the non-GAAP financial measures Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Cash Flow from Operations and Cash Conversion. We provide reconciliations of net loss, the most directly comparable financial performance measure calculated and presented in accordance with GAAP, to Adjusted EBITDA. We also provide a reconciliation of Adjusted Cash Flow from Operations to net cash provided by operating activities, the most directly comparable liquidity measure calculated and presented in accordance with GAAP.
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Cash Flow from Operations and Cash Conversion are used as supplemental financial measures by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others. These non-GAAP financial measures allow our management and others to assess our financial and operating performance as compared to those of other companies in our industry, without regard to the effects of our capital structure, asset base, items outside the control of management and other charges outside the normal course of business.
We define Adjusted EBITDA as net loss adjusted for (a) income tax expense (benefit), (b) depreciation and amortization expense, (c) impairment expense, (d) severance and other expense, net, (e) stock-based compensation expense, (f) merger and integration expense, (g) gain on disposal of assets, (h) other income, net, (i) interest and finance (income) expense, net and (j) foreign exchange (gain) loss. Adjusted EBITDA margin reflects our Adjusted EBITDA as a percentage of revenues.
We define Adjusted Cash Flow from Operations as net cash provided by operating activities adjusted for cash paid during the period for interest, net, severance and other expense and merger and integration expense. We define Cash Conversion as Adjusted Cash Flow from Operations divided by Adjusted EBITDA.
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Cash Flow from Operations and Cash Conversion have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. As Adjusted EBITDA, Adjusted Cash Flow from Operations and Cash Conversion may be defined differently by other companies in our industry, our presentation of Adjusted EBITDA, Adjusted Cash Flow from Operations and Cash Conversion may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
The following table presents a reconciliation of net loss to Adjusted EBITDA for each of the three and six months presented (in thousands):
Three Months Ended |
Six Months Ended |
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June 30, 2022 |
March 31, 2022 |
June 30, 2022 |
June 30, 2021 |
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Net loss |
$ | (4,350 | ) | $ | (11,132 | ) | $ | (15,482 | ) | $ | (28,773 | ) | ||||
Income tax expense |
$ | 9,596 | $ | 4,549 | $ | 14,145 | $ | 3,272 | ||||||||
Depreciation and amortization expense |
35,392 | 35,012 | 70,404 | 54,149 | ||||||||||||
Merger and integration expense |
2,270 | 4,725 | 6,995 | 9,526 | ||||||||||||
Severance and other expense |
678 | 1,494 | 2,172 | 2,192 | ||||||||||||
Other income, net (1) |
(244 | ) | (996 | ) | (1,240 | ) | (626 | ) | ||||||||
Stock-based compensation expense |
4,230 | 6,018 | 10,248 | - | ||||||||||||
Foreign exchange loss (gain) |
5,244 | (2,816 | ) | 2,428 | 1,060 | |||||||||||
Interest and finance (income) expense, net |
(1,712 | ) | (13 | ) | (1,725 | ) | 3,231 | |||||||||
Adjusted EBITDA |
$ | 51,104 | $ | 36,841 | $ | 87,945 | $ | 44,031 | ||||||||
Adjusted EBITDA Margin |
16.3 | % | 13.1 | % | 14.8 | % | 13.2 | % |
(1) |
Other income, net, is comprised of immaterial, unusual or infrequently occurring transactions which, in management’s view, do not provide useful measures of the underlying operating performance of the business. |
The following table provides a reconciliation of net cash (used in) provided by operating activities to Adjusted Cash Flow from Operations for each of the three and six months presented (in thousands):
Three Months Ended |
Six Months Ended |
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June 30, 2022 |
March 31, 2022 |
June 30, 2022 |
June 30, 2021 |
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Net cash (used in) provided by operating activities |
$ | 2,055 | $ | (14,162 | ) | $ | (12,107 | ) | $ | 2,395 | ||||||
Cash paid for interest, net |
1,096 | 903 | 1,999 | 1,997 | ||||||||||||
Cash paid for merger and integration expense |
5,837 | 11,632 | 17,469 | 6,178 | ||||||||||||
Cash paid for severance and other expense |
565 | 207 | 772 | 2,194 | ||||||||||||
Adjusted Cash Flow from Operations |
$ | 9,553 | $ | (1,420 | ) | $ | 8,133 | $ | 12,764 | |||||||
Adjusted EBITDA |
$ | 51,104 | $ | 36,841 | $ | 87,945 | $ | 44,031 | ||||||||
Cash Conversion |
19 | % | (4 | )% | 9 | % | 29 | % |
Results of Operations
Operating Segment Results
The following table shows revenue by segment and revenue as a percentage of total revenue by segment for the three months ended June 30, 2022 and March 31, 2022:
Three Months Ended |
Percentage |
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(in thousands) |
June 30, 2022 |
March 31, 2022 |
June 30, 2022 |
March 31, 2022 |
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NLA |
$ | 129,694 | $ | 103,861 | 41.4 | % | 37.0 | % | ||||||||
ESSA |
90,118 | 82,071 | 28.7 | % | 29.3 | % | ||||||||||
MENA |
45,363 | 50,715 | 14.5 | % | 18.1 | % | ||||||||||
APAC |
48,449 | 43,830 | 15.4 | % | 15.6 | % | ||||||||||
Total Revenue |
$ | 313,624 | $ | 280,477 | 100.0 | % | 100.0 | % |
The following table shows revenue by segment and revenue as a percentage of total revenue by segment for the six months ended June 30, 2022 and June 30, 2021:
Six Months Ended |
Percentage |
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(in thousands) |
June 30, 2022 |
June 30, 2021 |
June 30, 2022 |
June 30, 2021 |
||||||||||||
NLA |
$ | 233,555 | $ | 60,993 | 39.3 | % | 18.3 | % | ||||||||
ESSA |
172,189 | 118,807 | 29.0 | % | 35.7 | % | ||||||||||
MENA |
96,078 | 83,640 | 16.2 | % | 25.2 | % | ||||||||||
APAC |
92,279 | 69,106 | 15.5 | % | 20.8 | % | ||||||||||
Total Revenue |
$ | 594,101 | $ | 332,546 | 100.0 | % | 100.0 | % |
The following table shows Segment EBITDA and Segment EBITDA margin by segment and a reconciliation to income (loss) before income taxes for the three months ended June 30, 2022 and March 31, 2022:
Three Months Ended |
Segment EBITDA Margin |
|||||||||||||||
(in thousands) |
June 30, 2022 |
March 31, 2022 |
June 30, 2022 |
March 31, 2022 |
||||||||||||
NLA |
$ | 38,513 | $ | 21,827 | 29.7 | % | 21.0 | % | ||||||||
ESSA |
14,868 | 11,874 | 16.5 | % | 14.5 | % | ||||||||||
MENA |
13,750 | 15,465 | 30.3 | % | 30.5 | % | ||||||||||
APAC |
4,356 | 5,438 | 9.0 | % | 12.4 | % | ||||||||||
Total Segment EBITDA |
71,487 | 54,604 | ||||||||||||||
Corporate costs (1) |
(22,812 | ) | (21,965 | ) | ||||||||||||
Equity in income of joint ventures |
2,429 | 4,202 | ||||||||||||||
Depreciation and amortization expense |
(35,392 | ) | (35,012 | ) | ||||||||||||
Merger and integration expense |
(2,270 | ) | (4,725 | ) | ||||||||||||
Severance and other expense |
(678 | ) | (1,494 | ) | ||||||||||||
Stock-based compensation expense |
(4,230 | ) | (6,018 | ) | ||||||||||||
Foreign exchange (loss) gain |
(5,244 | ) | 2,816 | |||||||||||||
Other income, net |
244 | 996 | ||||||||||||||
Interest and finance income, net |
1,712 | 13 | ||||||||||||||
Income (loss) before income taxes |
$ | 5,246 | $ | (6,583 | ) |
The following table shows Segment EBITDA and Segment EBITDA margin by segment and a reconciliation to loss before income taxes for the six months ended June 30, 2022 and June 30, 2021:
Six Months Ended |
Segment EBITDA Margin |
|||||||||||||||
(in thousands) |
June 30, 2022 |
June 30, 2021 |
June 30, 2022 |
June 30, 2021 |
||||||||||||
NLA |
$ | 60,340 | $ | 5,783 | 25.8 | % | 9.5 | % | ||||||||
ESSA |
26,742 | 15,681 | 15.5 | % | 13.2 | % | ||||||||||
MENA |
29,215 | 29,137 | 30.4 | % | 34.8 | % | ||||||||||
APAC |
9,794 | 13,483 | 10.6 | % | 19.5 | % | ||||||||||
Total Segment EBITDA |
126,091 | 64,084 | ||||||||||||||
Corporate costs (1) |
(44,777 | ) | (28,102 | ) | ||||||||||||
Equity in income of joint ventures |
6,631 | 8,049 | ||||||||||||||
Depreciation and amortization expense |
(70,404 | ) | (54,149 | ) | ||||||||||||
Merger and integration expense |
(6,995 | ) | (9,526 | ) | ||||||||||||
Severance and other expense |
(2,172 | ) | (2,192 | ) | ||||||||||||
Stock-based compensation expense |
(10,248 | ) | - | |||||||||||||
Foreign exchange loss |
(2,428 | ) | (1,060 | ) | ||||||||||||
Other income, net |
1,240 | 626 | ||||||||||||||
Interest and finance income (expense), net |
1,725 | (3,231 | ) | |||||||||||||
Loss before income taxes |
$ | (1,337 | ) | $ | (25,501 | ) |
(1) |
Corporate costs include the costs of running our corporate head office and other central functions that support the operating segments, including research, engineering and development, logistics, sales and marketing and health and safety and are not attributable to a particular operating segment. |
Three months ended June 30, 2022 compared to three months ended March 31, 2022
NLA
Revenue for the NLA segment was $129.7 million for the three months ended June 30, 2022, an increase of $25.8 million, or 24.9%, compared to $103.9 million for the three months ended March 31, 2022. The increase was primarily due to higher revenues across all our product lines during the current quarter, with a significant increase in well flow management revenue in Mexico and higher well construction revenue in the U.S. and Guyana driven by higher customer activities during the current quarter.
Segment EBITDA for the NLA segment was $38.5 million, or 29.7% of revenues, during the three months ended June 30, 2022, compared to $21.8 million or 21.0% of revenues during the three months ended March 31, 2022. The increase of $16.7 million in Segment EBITDA and improvement in Segment EBITDA margin was attributable to higher activity and a more favorable activity mix during the three months ended June 30, 2022.
ESSA
Revenue for the ESSA segment was $90.1 million for the three months ended June 30, 2022, an increase of $8.0 million, or 9.8%, compared to $82.1 million for the three months ended March 31, 2022. The increase in revenues was primarily driven by higher well flow management revenue in Angola and Congo and higher well construction revenue in the United Kingdom due to increased customer activities. The increase in revenues was partially offset by lower well intervention and integrity revenue in Norway and Western Europe.
Segment EBITDA for the ESSA segment was $14.9 million, or 16.5% of revenues, for the three months ended June 30, 2022, an increase of $3.0 million, or 25.2%, compared to $11.9 million, or 14.5% of revenues, for the three months ended March 31, 2022. The increase of $3.0 million was primarily attributable to higher activity levels and a more favorable activity mix during the three months ended June 30, 2022.
MENA
Revenue for the MENA segment was $45.4 million for the three months ended June 30, 2022, a decrease of $5.3 million, or 10.6%, compared to $50.7 million for the three months ended March 31, 2022. The decrease in revenue was driven by lower equipment sales related to well flow management in Saudi Arabia and the United Arab Emirates, partially offset by increased well flow management activities in Algeria.
Segment EBITDA for the MENA segment was $13.8 million, or 30.3% of revenues, for the three months ended June 30, 2022, a reduction of $1.7 million, or 11.1 %, compared to $15.5 million, or 30.5% of revenues, for the three months ended March 31, 2022. The reduction in Segment EBITDA was primarily due to lower activity.
APAC
Revenue for the APAC segment was $48.4 million for the three months ended June 30, 2022, an increase of $4.6 million, or 10.5%, compared to $43.8 million for the three months ended March 31, 2022. The increase in revenue was primarily due to higher subsea well access revenue in Australia and Brunei and higher well construction revenue in Japan. The increase in revenue was partially offset by lower well flow management revenue in Thailand and India.
Segment EBITDA for the APAC segment was $4.4 million, or 9.0% of revenues, for the three months ended June 30, 2022, a decrease of $1.0 million, or 19.9%, compared to $5.4 million, or 12.4% of revenues, for the three months ended March 31, 2022. The reduction in Segment EBITDA despite the increase in revenues was primarily due to additional mobilization and commissioning costs incurred during the quarter as well as lower activity on higher margin contracts.
Merger and integration expense
Merger and integration expense for the three months ended June 30, 2022 decreased by $2.4 million, to $2.3 million as compared to $4.7 million for the three months ended March 31, 2022. The decrease was primarily attributable to lower legal and other professional fees related to the Merger incurred during the three months ended June 30, 2022 as compared to the three months ended March 31, 2022.
Stock-based compensation expense
Stock-based compensation expense for the three months ended June 30, 2022 decreased by $1.8 million, to $4.2 million as compared to $6.0 million for the three months ended March 31, 2022. The decrease was primarily driven by lower costs associated with the Legacy Expro stock options as a majority of the awards fully vested during the first quarter.
Income tax expense
Income tax expense for the three months ended June 30, 2022 increased by $5.1 million to $9.6 million from $4.5 million for the three months ended March 31, 2022, primarily due to changes in the mix of taxable profits between jurisdictions, in particular increased taxable profits in Latin America, deferred tax credits recognized during the three months ended March 31, 2022, particularly in APAC, that did not recur during the three months ended June 30, 2022, and deferred tax charges recognized during the three months ended June 30, 2022, primarily in MENA.
Six months ended June 30, 2022 compared to six months ended June 30, 2021
NLA
Revenue for the NLA segment was $233.6 million for the six months ended June 30, 2022, an increase of $172.6 million, or 282.9%, compared to $61.0 million for the six months ended June 30, 2021. Of the total increase of $172.6 million, $152.8 million was attributable to the Merger, reflecting well construction revenue during the six months ended June 30, 2022. The remaining increase of $19.8 million was attributable to the higher well intervention and integrity revenue in Argentina and Brazil and higher well flow management revenue in the U.S. and Brazil during the six months ended June 30, 2022.
Segment EBITDA for the NLA segment was $60.3 million, or 25.8% of revenues, during the six months ended June 30, 2022, compared to $5.8 million or 9.5% of revenues during the six months ended June 30, 2021, an increase of $54.5 million. The increase was primarily attributable to a combination of the impact of the Merger and higher activities during the six months ended June 30, 2022. Further, the Segment EBITDA margin increase was due to higher fall-through from increased activity, more favorable activity mix and lower support costs as a result of merger related synergies.
ESSA
Revenue for the ESSA segment was $172.2 million for the six months ended June 30, 2022, an increase of $53.4 million, or 44.9%, compared to $118.8 million for the six months ended June 30, 2021. The increase was primarily attributable to the Merger, which contributed to an increase of $52.5 million, reflecting well construction revenue during the six months ended June 30, 2022.
Segment EBITDA for the ESSA segment was $26.7 million, or 15.5% of revenues, during the six months ended June 30, 2022, compared to $15.7 million or 13.2% of revenues during the six months ended June 30, 2021, an increase of $11.0 million due to a combination of the impact of the Merger and higher activities during the six months ended June 30, 2022. The increase in Segment EBITDA margin was primarily due to a more favorable activity mix.
MENA
Revenue for the MENA segment was $96.1 million for the six months ended June 30, 2022, an increase of $12.5 million, or 14.9%, compared to $83.6 million for the six months ended June 30, 2021. Of the total increase of $12.5 million for the six months ended June 30, 2022, $12.0 million was attributable to the Merger with the addition of well construction revenue during the period, and the remaining increase was primarily driven by equipment sales related to well flow management in the United Arab Emirates and Saudi Arabia.
Segment EBITDA for the MENA segment was $29.2 million, or 30.4% of revenues, during the six months ended June 30, 2022, compared to $29.1 million or 34.8% of revenues during the six months ended June 30, 2021. The reduction in Segment EBITDA margin was primarily due to lower activity on higher margin contracts and a less favorable activity mix.
APAC
Revenue for the APAC segment was $92.3 million for the six months ended June 30, 2022, an increase of $23.2 million, or 33.5%, compared to $69.1 million for the six months ended June 30, 2021. Of the total increase of $23.2 million for the six months ended June 30, 2022, $16.0 million was attributable to the Merger with the addition of well construction revenue during the period, and the remaining increase was primarily attributable to higher subsea well access and well flow management revenue in Australia, Brunei and Malaysia.
Segment EBITDA for the APAC segment was $9.8 million, or 10.6% of revenues, during the six months ended June 30, 2022, compared to $13.5 million or 19.5% of revenues during the six months ended June 30, 2021. The reduction in Segment EBITDA and Segment EBITDA margin was primarily due to lower activity on higher margin contracts and a less favorable activity mix.
Stock-based compensation expense
Stock-based compensation expense for the six months ended June 30, 2022 was $10.2 million. No stock-based compensation expense was recognized during the six months ended June 30, 2021. The expense for the current period primarily relates to our Long-Term Incentive Plan which was not present during the six months ended June 30, 2021. Additionally, the current period also includes expense related to stock options under the Legacy Expro’s Management Incentive Plan (“MIP”). No expense was recognized under the MIP during the six months ended June 30, 2021, as the performance conditions within the stock option agreements were deemed to be improbable.
Liquidity and Capital Resources
Liquidity
Our financial objectives include the maintenance of sufficient liquidity, adequate financial resources and financial flexibility to fund our business. As of June 30, 2022, total available liquidity was $309.4 million, including cash and cash equivalents and restricted cash of $179.4 million and $130.0 million available for borrowings under our New Facility. Our primary sources of liquidity have been cash flows from operations. Our primary uses of capital have been for capital expenditures and acquisitions. We monitor potential capital sources, including equity and debt financing, in order to meet our investment and liquidity requirements.
Our total capital expenditures are estimated to range between $60 million and $70 million for the remainder of 2022. Our total capital expenditures were $31.5 million for the six months ended June 30, 2022, of which approximately 90% were used for the purchase and manufacture of equipment to directly support customer-related activities and approximately 10% for other property, plant and equipment, inclusive of software costs. In addition, we used $8.0 million of cash during the first six months to acquire technology to enhance our well intervention and integrity business. Total capital expenditures were $37.6 million for the six months ended June 30, 2021, which were generally used for equipment required to provide services in connection with awarded contracts. We continue to focus on preserving and protecting our strong balance sheet, optimizing utilization of our existing assets and, where practical, limiting new capital expenditures.
On June 16, 2022, our Board of Directors (the “Board”) approved a new stock repurchase program, under which we are authorized to acquire up to $50.0 million of our outstanding common stock through November 24, 2023 (the “Stock Repurchase Program”). Under the Stock Repurchase Program, we may repurchase shares of our common stock in open market purchases, in privately negotiated transactions or otherwise. The Stock Repurchase Program will be utilized at management’s discretion and in accordance with U.S. federal securities laws. The timing and actual numbers of shares repurchased will depend on a variety of factors including price, corporate requirements, the constraints specified in the Stock Repurchase Program along with general business and market conditions. The Stock Repurchase Program does not obligate us to repurchase any particular amount of common stock, and it could be modified, suspended or discontinued at any time. During the second quarter of 2022, we repurchased 1.1 million shares at an average price of $11.81 per share, for a total cost of $13.0 million under this $50.0 million program.
Credit Facility
Revolving Credit Facility
On October 1, 2021, in connection with the closing of the Merger, we entered into a new revolving credit facility (the “New Facility”) with DNB Bank ASA, London Branch, as agent (the “Agent”), with total commitments of $200.0 million, of which $130.0 million is available for drawdowns as loans and $70.0 million is available for letters of credit. Subject to the terms of the New Facility, we have the ability to increase the commitments to $250.0 million. Proceeds of the New Facility may be used for general corporate and working capital purposes.
On March 31, 2022, the Agent, on behalf of the consenting lenders, countersigned a Consent Request Letter dated March 10, 2022 to the New Facility (the “Consent”). Pursuant to the Consent, the lenders consented to, among other things, an amendment to the New Facility permitting dividends or distributions by the Company, or the repurchase or redemption of the Company’s shares in an aggregate amount of $50.0 million over the life of the New Facility, subject to pro forma compliance with the 2.25 to 1.0 maximum senior leverage ratio financial covenant.
On July 28, 2022, the Company and the lenders increased the total commitments available for letters of credit under the New Facility by $18.0 million.
Please see Note 16 “Interest bearing loans” in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.
Cash flow from operating, investing and financing activities
Cash flows provided by (used in) our operations, investing and financing activities are summarized below (in thousands):
Six Months Ended |
||||||||
June 30, 2022 |
June 30, 2021 |
|||||||
Net cash (used in) provided by operating activities |
$ | (12,107 | ) | $ | 2,395 | |||
Net cash used in investing activities |
(24,745 | ) | (37,644 | ) | ||||
Net cash used in financing activities |
(20,202 | ) | (980 | ) | ||||
Effect of exchange rate changes on cash activities |
(3,382 | ) | (173 | ) | ||||
Net decrease to cash and cash equivalents and restricted cash |
$ | (60,436 | ) | $ | (36,402 | ) |
Analysis of cash flow changes between the six months ended June 30, 2022 and June 30, 2021
Net cash (used in) provided by operating activities
Net cash used in operating activities was $12.1 million during the six months ended June 30, 2022 as compared to net cash provided by operating activities of $2.4 million during the six months ended June 30, 2021. The increase in net cash used in operating activities of $14.5 million for the six months ended June 30, 2022 was primarily due to an increase in net working capital of $42.1 million, higher tax payments of $11.4 million and higher payments for merger and integration and severance expenses of $9.9 million, partially offset by an increase in Adjusted EBITDA of $43.9 million for the six months ended June 30, 2022.
Adjusted cash flows from operation during the six months ended June 30, 2022 was $8.1 million as compared to adjusted cash flows from operation of $12.8 million during the six months ended June 30, 2021. Our primary uses of cash from operating activities were capital expenditures and funding obligations related to our financing arrangements.
Net cash used in investing activities
Net cash used in investing activities was $24.7 million during the six months ended June 30, 2022 as compared to $37.6 million during the six months ended June 30, 2021, a decrease of $12.9 million. Our principal recurring investing activity is our capital expenditures. The decrease in net cash used in investing activities was primarily due to proceeds from sale / maturity of investments of $8.2 million, proceeds from disposal of assets of $6.6 million and reduction in capital expenditures of $6.1 million for the six months ended June 30, 2022, partially offset by an acquisition of technology for $8.0 million.
Net cash used in financing activities
Net cash used in financing activities was $20.2 million during the six months ended June 30, 2022 as compared to $1.0 million during the six months ended June 30, 2021. The increase of $19.2 million in cash used in financing activities is primarily due to repurchase of common stock of $12.3 million, payments of payroll withholding taxes on stock-based compensation plans of $4.3 million and financed insurance premium of $2.8 million during the six months ended June 30, 2022.
New accounting pronouncements
See Note 2 “Basis of presentation and significant accounting policies” in our unaudited condensed consolidated financial statements under the heading “Recent accounting pronouncements.”
Critical accounting policies and estimates
There were no changes to our critical accounting policies and estimates from those disclosed in our Annual Report.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q”) includes certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include those that express a belief, expectation or intention, as well as those that are not statements of historical fact. Forward-looking statements include information regarding our future plans and goals and our current expectations with respect to, among other things:
● |
our business strategy and prospects for growth; |
● |
post-Merger integration; |
● |
our cash flows and liquidity; |
● |
our financial strategy, budget, projections and operating results; |
● |
the amount and timing of any future share repurchases; |
● |
the amount, nature and timing of capital expenditures; |
● |
the availability and terms of capital; |
● |
the exploration, development and production activities of our customers; |
● |
the market for our existing and future products and services; |
● |
competition and government regulations; and |
● |
general economic and political conditions, including political tensions, conflicts and war (such as the ongoing conflict in Ukraine). |
These forward-looking statements are generally accompanied by words such as “anticipate,” “believe,” “estimate,” “expect,” “goal,” “plan,” “intend,” “potential,” “predict,” “project,” “may,” “outlook,” or other terms that convey the uncertainty of future events or outcomes, although not all forward-looking statements contain such identifying words. The forward-looking statements in this Form 10-Q speak only as of the date of this report; we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. Forward-looking statements are not assurances of future performance and involve risks and uncertainties. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties include, but are not limited to, the following:
● |
uncertainty relating to global crude oil demand and crude oil prices that correspondingly may lead to significant reductions in oil and gas activity, which in turn could result in significant declines in demand for our products and services; |
● |
uncertainty regarding the extent and duration of the remaining restrictions in the United States and globally on various commercial and economic activities due to COVID-19, including uncertainty regarding the re-imposition of restrictions due to resurgences in infection rates; |
● |
uncertainty regarding the timing, pace and extent of an economic recovery in the United States and elsewhere, which in turn will likely affect demand for crude oil and therefore the demand for the products and services we provide and the commercial opportunities available to us; |
● |
the impact of current and future laws, rulings, governmental regulations, accounting standards and statements, and related interpretations; |
● |
unique risks associated with our offshore operations; |
● |
political, economic and regulatory uncertainties in our international operations, including the impact of actions taken by OPEC and certain non-OPEC nations with respect to production levels and the effects thereof; |
● |
our ability to develop new technologies and products; |
● |
our ability to protect our intellectual property rights; |
● |
our ability to attract, train and retain key employees and other qualified personnel; |
● |
operational safety laws and regulations; |
● |
international trade laws and sanctions; |
● |
severe weather conditions and natural disasters, and other operating interruptions (including explosions, fires, weather-related incidents, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, spills and releases and other environmental risks); |
● |
policy or regulatory changes; |
● |
the overall timing and level of transition of the global energy sector from fossil-based systems of energy production and consumption to more renewable energy sources; |
● |
perception related to our environmental, social and governance (“ESG”) performance as well as current and future ESG reporting requirements; and |
● |
uncertainty with respect to integration and realization of expected synergies following completion of the Merger. |
The impact of the COVID-19 pandemic and related economic, business and market disruptions continue to evolve, and its future effects are uncertain. The continued impact of COVID-19 on the Company’s business will depend on many factors, many of which are beyond management’s control and knowledge. It is therefore difficult for management to assess or predict with accuracy the broad future effects of this health crisis on the global economy, the energy industry or the Company’s business. As additional information becomes available, events or circumstances change and strategic and/or operational decisions are made by management, further adjustments may be required which could have a material adverse impact on the Company’s consolidated financial position, results of operations and cash flows.
These and other important factors that could affect our operating results and performance are described in (1) “Risk Factors” in Part II, Item 1A of this Form 10-Q, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Form 10-Q, and elsewhere within this Form 10-Q, (2) our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 8, 2022 (our “Annual Report”), (3) our other reports and filings we make with the SEC from time to time and (4) other announcements we make from time to time. Should one or more of the risks or uncertainties described in the documents above or in this Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results, performance, achievements or plans could differ materially from those expressed or implied in any forward-looking statements. All such forward-looking statements in this Form 10-Q are expressly qualified in their entirety by the cautionary statements in this section.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the Annual Report. Our exposure to market risk has not changed materially since December 31, 2021.
Item 4. Controls and Procedures
a) |
Evaluation of Disclosure Controls and Procedures |
As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the three months covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure, and such information is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon our evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of June 30, 2022 at the reasonable assurance level.
b) |
Change in Internal Control Over Financial Reporting |
Except as described below, the Company’s management, has determined that there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, these internal controls over financial reporting during the three months covered by this quarterly report.
As described in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2021, the Merger was completed on October 1, 2021, and represented a change in internal control over financial reporting. Management continues to consolidate and integrate the Company’s system of controls. The processes and controls for significant areas including business combinations, intangibles and goodwill valuations, income taxes, treasury, consolidations and the preparation of financial statements and related disclosures, and entity level controls have been substantially impacted by the ongoing integration activities. The primary changes in these areas are related to the consolidation of process owner leadership and control owners, and where required, the modification of inputs, processes and associated systems. For all areas of change noted, management believes the control design and implementation thereof are being appropriately modified to address underlying risks. The above ongoing integration activities to the Company’s internal control over financial reporting are reasonably likely to materially affect its internal control over financial reporting in 2022.
We are subject of lawsuits and claims arising in the ordinary course of business from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. We had no material accruals for loss contingencies, individually or in the aggregate, as of June 30, 2022 or December 31, 2021. Company management believes the probability is remote that the ultimate outcome of these matters would have a material adverse effect on our financial position, results of operations or cash flows.
We have been conducting, and the combined company will continue to conduct, an internal investigation of the operations of certain of our foreign subsidiaries in West Africa including possible violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), our policies and other applicable laws. In June 2016, we voluntarily disclosed the existence of our extensive internal review to the SEC, the U.S. Department of Justice (“DOJ”) and other governmental entities. It is our intent to continue to fully cooperate with these agencies and any other applicable authorities in connection with any further investigation that may be conducted in connection with this matter. While the review has not indicated that there has been any material impact on our previously filed financial statements, we have continued to collect information and cooperate with the authorities.
As disclosed above, the investigation into possible violations of the FCPA remains ongoing, and we will continue to cooperate with the SEC, DOJ and other relevant governmental entities in connection therewith. At this time, we are unable to predict the ultimate resolution of these matters with these agencies, including any financial impact to the Company. Our Board and management are committed to continuously enhancing our internal controls that support improved compliance and transparency throughout our global operations.
In addition to the other information set forth in this report, you should carefully consider the risks discussed under the heading “Risk Factors” in our Annual Report, which risks could materially affect our business, financial condition or future results. These risks are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Following is a summary of repurchases of Company Common Stock during the three months ended June 30, 2022.
Period |
Total Number of Shares Purchased (1) |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Program (2) |
||||||||||||
April 1 - April 30 |
-- | $ | -- | -- | $ | 50,000,000 | ||||||||||
May 1 - May 31 |
-- | $ | -- | -- | $ | 50,000,000 | ||||||||||
June 1 - June 30 |
1,100,000 | $ | 11.81 | 1,100,000 | $ | 37,004,400 | ||||||||||
Total |
1,100,000 | $ | 11.81 | 1,100,000 |
1) This table excludes shares withheld from employees to satisfy tax withholding requirements on equity-based transactions. We administer cashless settlements and do not repurchase stock in connection with cashless settlements.
2) Our Board authorized a program to repurchase our common stock from time to time. Approximately $37.0 million remained authorized for repurchases as of June 30, 2022, subject to the limitation set in our shareholder authorization for repurchases of our common stock, which is currently 10% of the common stock outstanding as of March 21, 2022.
The exhibits required to be filed by Item 6 are set forth in the Exhibit Index included below.
EXHIBIT INDEX
* Filed herewith.
** Furnished herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EXPRO GROUP HOLDINGS N.V. |
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Date: |
August 4, 2022 |
By: |
/s/ Quinn P. Fanning |
Quinn P. Fanning |
|||
Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 10.1
Execution Version
CONFIDENTIALITY AGREEMENT
THIS CONFIDENTIALITY AGREEMENT (this “Agreement”) is entered into as of the 1st day of October, 2021, by and between Expro Group Holdings N.V., a public limited liability company organized and existing under the laws of The Netherlands (the “Company”), and [NAME], an individual (the “Director”), and is effective upon the date of the Director’s election to serve on the Board of Directors of the Company (the “Board”).
WHEREAS, the Board is charged with managing the Company’s affairs, which includes setting the Company's policies and strategy; the Company’s executive directors are charged primarily with the Company’s day-to-day business and operations and the implementation of the Company’s strategy; the Company’s non-executive directors are charged primarily with the supervision of the performance of the duties of the Board; and each director is charged with all tasks and duties of the Board that are not delegated to one or more other specific directors by virtue of Dutch law, the Articles of Association of the Company (as amended, the “Articles”) or an arrangement catered for in the Articles;
WHEREAS, in the performance of its duties the Board shall be guided by the best interests of the Company and the enterprise connected therewith;
WHEREAS, in connection with the Director’s appointment, the Director will be attending meetings and reviewing materials containing certain non-public confidential and proprietary information about the Company; and
WHEREAS, this Agreement contains certain stipulations as to the use and disclosure of such non-public confidential and proprietary information about the Company, it being understood that this Agreement shall not prejudice any duties and obligations of the Director under applicable law.
NOW THEREFORE, the parties hereto, intending to be legally bound, agree as follows:
1. For purposes of this Agreement, “Confidential Information” shall mean all non-public and proprietary information that has been or will be disclosed by the Company or one of its Affiliates to the Director, whether set forth in writing, orally, electronically, or by visual inspection, which may relate to among other things, the Company’s business interests, marketing plans and ideas, manufacturing information, financial information, strategic considerations or business operations, ideas, concepts, development plans for new or improved products or processes, data, formulae, techniques, designs, sketches, know-how, photographs, plans, drawings, specifications, samples, test specimens, reports, customer lists, price lists, findings, studies, computer programs and technical documentation, trade secrets, diagrams, or inventions, and all other relevant information pertaining thereto which is marked as “Proprietary” or “Confidential.” Company Confidential Information may also include non-public and proprietary information of its Affiliates.
For purposes of this Agreement, the term “Affiliate” means any entity, including, without limitation, any individual, corporation, partnership, limited liability company or group, that controls, is controlled by, or is under common control, directly or indirectly through one or more intermediaries, with the Company.
2. The parties hereby agree that the following shall not be considered Confidential Information subject to this Agreement:
(a) information that, prior to the time of disclosure, is in the public domain;
(b) information that, after disclosure, becomes part of the public domain by publication or otherwise; provided that such publication is not in violation of this Agreement or, to the Director’s knowledge, any other confidentiality agreement to which the Director is party;
(c) information that the Director can establish in writing was already known to the Director or was in the Director’s possession prior to the time of disclosure and was not acquired, directly or indirectly, from the Company;
(d) information that the Director lawfully received from a third party; provided however, that such third party was not obligated to hold such information in confidence; and
(e) information that was independently developed by the Director without reference to any Confidential Information as established by appropriate documentation.
3. The Director shall not use Confidential Information of the Company for any purpose other than for the purpose of the Director’s service as a director of the Company. The Director will not disclose any such Confidential Information to any person except to the extent the Director is compelled to disclose as required by applicable law or by any securities exchange regulations, or supervisory or regulatory or governmental body pursuant to rules to which the Director is subject by a court or other tribunal of competent jurisdiction; provided, however, that in such case the Director shall immediately give as much advance notice as feasible to the Company so that the Company may seek a protective order or other remedy from said court or tribunal and the Director will provide reasonable assistance to the Company to obtain such order to the extent not prohibited by law. In any event, the Director shall disclose only that portion of the Confidential Information that, in the opinion of its legal counsel, is legally required to be disclosed and will exercise reasonable efforts to ensure that any such information so disclosed will be accorded confidential treatment by said court or tribunal. Furthermore, the restrictions contained in this Agreement shall not apply so as to prevent the Director from making a disclosure to any professional adviser for the purpose of obtaining advice in context of the performance of the duties of the Board; provided that the provisions of this Agreement shall apply to and the Director shall procure that they apply to, and are observed in relation to, the use or disclosure by such professional adviser of the information provided to such professional adviser.
4. Upon the request of the Company, the Director shall return promptly to the Company (or, at the Director’s option, destroy) all Confidential Information furnished to the Director, including any copies thereof and notes, extracts, or derivative materials based thereon (provided that if the Director so opts to destroy, the Director shall confirm and certify such destruction in writing to the Company); and until this Agreement is terminated or until the expiration of the confidentiality obligations set forth in this Agreement, shall keep confidential and not use in any way any analyses, compilations, studies or other documents which reflect any of the Confidential Information. Notwithstanding the foregoing provision, the Director shall not be required to delete the Confidential Information from back-up archival storage and may retain one (1) copy of Confidential Information in the Director’s confidential files solely for record keeping and compliance purposes provided that such retained Confidential Information is not used or disclosed except in accordance with the terms included herein.
5. Title to, and all rights emanating from the ownership of, all Confidential Information disclosed under this Agreement shall remain vested in the Company or any of its Affiliates. Nothing herein shall be construed as granting any license or option, in favor of the Director, in such Confidential Information under any patent, copyright and/or any other rights now or hereafter held by the Company or any Affiliate of the Company in or as a result of such Confidential Information other than as specifically agreed upon by the Company.
6. The Director acknowledges that, by virtue of the examination of the Confidential Information in accordance with the terms of this Agreement, the Director may have access to material, non-public information, and the Director is aware that applicable securities laws, including United States federal and state securities laws, generally prohibit any person who has material, non-public information concerning a publicly-traded company from purchasing or selling any securities of such company or from communicating such information to any other person or entity under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. The Director agrees that the Director will not use or permit any third party to use any Confidential Information in contravention of the United States federal and state securities laws, including the Securities Exchange Act of 1934, as amended, including the rules and regulations promulgated thereunder.
7. The execution and performance of this Agreement does not obligate the parties, or any of the parties’ Affiliates, to enter into any other agreement or to perform any obligations other than as specified herein or as specified in a separate agreement between the parties.
8. The Director agrees that the disclosure of Confidential Information to any third party without the express written consent of the Company may cause irreparable harm to the Company or its Affiliates and agrees that money damages may be an inadequate remedy for breach of this Agreement, and that any breach or threatened breach of this Agreement by the Director will entitle the Company or any of its Affiliates to seek specific performance of this agreement and injunctive relief, in addition to any other legal remedies available to it, in any court of competent jurisdiction. In the event of litigation relating to this Agreement, the prevailing party shall be entitled to reimbursement of reasonable fees, costs and expenses, including reasonable legal expenses, from the non-prevailing party.
9. No failure or delay by the Company or any of its Affiliates in exercising any right, power, or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or future exercise thereof or the exercise of any other right, power or privilege hereunder.
10. The parties hereby agree that this Agreement represents the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and/or contemporaneous agreements and understandings between the parties with respect to the handling of Confidential Information, whether written, oral, visual, audio or in any other medium whatsoever. This Agreement shall be governed and construed in accordance with by the laws of the State of Texas without reference to its conflict of laws rules. Parties hereto submit to the exclusive jurisdiction of competent courts located in the State of Texas. This Agreement may not be amended or in any manner modified except by a written instrument signed by authorized representatives of both parties. If any provision of this Agreement is found to be unenforceable, the remainder shall be enforced as fully as possible and the unenforceable provision shall be deemed modified to the limited extent required to permit its enforcement in a manner most closely representing the intention of the parties as expressed herein.
11. This Agreement shall terminate and all obligations and rights hereunder shall expire upon the second anniversary of the first date on which the Director no longer serves on the Board of the Company.
12. This Agreement shall be binding on each party’s successors and assigns.
13. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute the same agreement. Signatures to this Agreement transmitted by facsimile, by electronic mail in “portable document format” (“.pdf”), or by any other electronic means which preserves the original graphic and pictorial appearance of the Agreement, shall have the same effect as physical delivery of the paper document bearing the original signature.
[Signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
EXPRO GROUP HOLDINGS N.V. | ||
By: | ||
Name: | ||
Title: |
[Signature Page to Confidentiality Agreement]
Director | |
Signature | |
Name: |
[Signature Page to Confidentiality Agreement]
Exhibit 10.2
Incremental Facility Notice
To: |
DNB Bank ASA, London Branch as Agent and as Security Agent |
From: |
Expro Group Holdings N.V. as the Parent and the entity listed in the Schedule 1 as Incremental Facility Lender (the “Incremental Facility Lender”) |
Dated: |
21 July 2022 |
Expro Group Holdings N.V. - Revolving Facility Agreement dated 1 October 2021, as amended (the “Revolving Facility Agreement”)
1. |
We refer to the Revolving Facility Agreement and to the Intercreditor Agreement (as defined in the Revolving Facility Agreement). This is an Incremental Facility Notice. This Incremental Facility Notice shall take effect as an Incremental Facility Notice for the purposes of the Revolving Facility Agreement and as a Creditor Accession Undertaking for the purposes of the Intercreditor Agreement (and as defined in the Intercreditor Agreement). Terms used but not otherwise defined in this notice (the “Incremental Facility Notice”) shall have the meanings given to them in the Revolving Facility Agreement. |
2. |
We refer to Clause 9 (Establishment of Incremental Facilities) of the Revolving Facility Agreement. |
3. |
We request the establishment of an Incremental Facility with the following Incremental Facility Terms: |
(a) |
Currency: |
|
The Base Currency. |
(b) |
Total Incremental Facility Commitments: |
|
$20,500,000. |
(c) |
Fronting Fees, Letter of Credit Fees, Issuance Fees and Amendment Fees: |
|
No fronting fees pursuant to clause Clause 17.5(a) (Fees Payable in respect of Facility B Letters of Credit) of the Revolving Facility Agreement shall be applicable. Otherwise, the Letter of Credit Fees, issuance fees and amendment fees shall be the same as are applicable in respect of Facility B Letters of Credit pursuant to Clause 17.5 (Fees Payable in respect of Facility B Letters of Credit) of the Revolving Facility Agreement, mutatis mutandis. |
(d) |
Level of arrangement fee payable pursuant to Clause 17.2 (Arrangement Fee) of the Revolving Facility Agreement in respect of the Incremental Facility: |
|
$150,000. |
(e) |
Borrowers to which the Incremental Facility is to be made available: |
|
Same as with respect to Facility B, being: |
(i) |
Exploration and Production Services (Holdings) Limited; |
(ii) |
Expro Holdings US Inc.; and |
(iii) |
Frank’s International LP B.V. |
(f) |
Purpose(s) for which all amounts borrowed under the Incremental Facility shall be applied pursuant to Clause 3.1 (Purpose) of the Revolving Facility Agreement: |
|
Same as with respect to Facility B pursuant to paragraph (b) of Clause 3.1 (Purpose) of the Revolving Facility Agreement, mutatis mutandis. |
(g) |
The Incremental Facility shall be only available for utilisation for the issuance of Incremental Facility Letters of Credit. |
(h) |
The Incremental Facility shall be secured by the same Transaction Security as, and on a pari passu basis with, Facility A and Facility B. |
(i) |
Availability Period: |
|
From the Establishment Date to and including the date falling one Month prior to the Termination Date of the Incremental Facility as set forth below. |
(j) |
The repayment terms for the Incremental Facility for the purposes of Clause 10.1 (Repayment of Loans) and Clause 6.5 (Term of Letters of Credit) of the Revolving Facility Agreement: |
|
As set forth in Clause 10.1 (Repayment of Loans) and Clause 6.5 (Term of Letters of Credit) of the Revolving Facility Agreement with respect to Incremental Facilities. |
(k) |
Conditions subsequent: |
|
Within 30 days of the Establishment Date, each Obligor which has granted Transaction Security pursuant to the existing Transaction Security Documents shall, at its own expense, execute and deliver to the Security Agent such additional Transaction Security Documents (and/or confirmations, amendments or extensions of existing Transaction Security Documents, as applicable) in relation to the assets the subject of such existing Transaction Security Documents as are reasonably necessary in the applicable jurisdiction to secure amounts in respect of the Incremental Facility, if any are so required (together with such supporting documentation and such further actions as the Agent shall require (acting reasonably)). |
(l) |
Termination Date: |
|
Same as with respect to Facility B. |
4. |
The proposed Establishment Date is 5 Business Days after receipt by the Agent of an irrevocable Notice of Cancellation of the USD 2.5 million 2021 Incremental Facility (as defined below). |
5. |
The Parent confirms that: |
(a) |
each of: |
(i) |
the Incremental Facility Terms set out above; |
(ii) |
the Aggregate Yield applicable to the Incremental Facility; and (iii)the fees payable to any arranger of the Incremental Facility, |
|
comply with Clause 9.4 (Restrictions on Incremental Facility Terms and Fees) of the Revolving Facility Agreement; |
(b) |
the Incremental Facility Lender set out in this Incremental Facility Notice complies with Clause 9.1 (Incremental Facility Lenders); and |
(c) |
each condition specified in paragraph (a)(i) of Clause 9.5 (Conditions to Establishment) of the Revolving Facility Agreement is satisfied on the date of this Incremental Facility Notice. |
6. |
The Obligor’s Agent pursuant to Clause 2.5 (Obligors’ Agent) of the Revolving Facility Agreement, for and on behalf of itself and each other Obligor, (i) hereby confirms and reaffirms its respective guarantees under the Revolving Facility Agreement and its respective Transaction Security and other obligations, as applicable, under and subject to the terms of each of the Transaction Security Documents (collectively, the “Reaffirmed Documents”) to which it is party, (ii) agrees that, notwithstanding the effectiveness of this Incremental Facility Notice or any of the transactions contemplated thereby, such guarantees, Transaction Security and other obligations, and the terms of each of the Reaffirmed Documents to which it is a party and the security interests created thereby, are not impaired or adversely affected in any manner whatsoever and shall continue to be in full force and effect and shall continue to secure all the Secured Obligations (as defined in the Intercreditor Agreement), as amended, increased and/or extended pursuant to this Incremental Facility Notice (including, for the avoidance of doubt, the Total Incremental Facility Commitments); and (iii) agrees this Incremental Facility Notice shall not evidence or result in a novation of such Secured Obligations or the Reaffirmed Documents. |
7. |
The Incremental Facility Lender agrees to assume and will assume all of the obligations corresponding to the Incremental Facility Commitment set opposite its name in the Schedule 1 as if it had been an Original Lender under the Revolving Facility Agreement in respect of that Incremental Facility Commitment. |
8. |
The Fronting Bank in respect of the Incremental Facility shall be the Incremental Facility Lender. |
9. |
On the Establishment Date the Incremental Facility Lender becomes (to the extent not already a party in such capacity): |
(a) |
party to the relevant Finance Documents (other than the Intercreditor Agreement) as a Lender; and |
(b) |
party to the Intercreditor Agreement as a Senior Lender (as defined in the Intercreditor Agreement). |
10. |
Schedule 2 contains a schedule of Letters of Credit issued by the Incremental Facility Lender pursuant to an Incremental Facility established by an Incremental Facility Notice dated 1 October 2021 (“2021 Incremental Facility”)(“Schedule 2 Letters of Credit”). From and after the Establishment Date: |
(a) |
each Schedule 2 Letter of Credit, to the extent outstanding on the Establishment Date and without further action from the Borrowers, shall be: |
(i) |
continued as a Letter of Credit under this Incremental Facility; |
(ii) |
deemed to be a Letter of Credit for all purposes under this Incremental Facility and the Revolving Facility Agreement; and |
(iii) |
subject to and be governed by the terms and conditions of this Incremental Facility Notice and the Revolving Facility Agreement; and |
(b) |
all liabilities of the Borrowers with respect to all such Schedule 2 Letters of Credit shall continue to constitute Letters of Credit under this Incremental Facility and the Revolving Facility Agreement. |
11. |
Any Letter of Credit Fee accrued but unpaid under the 2021 Incremental Facility shall be payable, together with any Letter of Credit Fee accrued pursuant to this Incremental Facility, on the following Fee Payment Date. |
12. |
The Incremental Facility Lender expressly acknowledges the limitations on the Lenders’ obligations referred to in Clause 9.11 (Limitation of Responsibility) of the Revolving Facility Agreement. |
13. |
This Incremental Facility Notice is irrevocable. |
14. |
This Incremental Facility Notice may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Incremental Facility Notice. |
15. |
This Incremental Facility Notice and any non-contractual obligations arising out of or in connection with it are governed by English law. |
16. |
This Incremental Facility Notice has been entered into on the date stated at the beginning of this Incremental Facility Notice. |
[Remainder of page intentionally left blank.]
The Parent
Expro Group Holdings N.V.
By: /s/ John McAlister
21 July, 2022
The Obligors’ Agent
Expro Holdings UK 2 Limited
By: /s/ John McAlister
21 July, 2022
The Incremental Facility Lender
HSBC UK Bank plc
By: /s/ Brian Large
Brian Large
21 July, 2022
This document is accepted as an Incremental Facility Notice for the purposes of the Revolving Facility Agreement by the Agent and the Establishment Date is confirmed as 28 July 2022.
The Agent
DNB Bank ASA, London Branch
By: /s/ Kay Newman
Kay Newman
Authorised Signatory
By: /s/ Craig Ramsay
Craig Ramsay
Authorised Signatory
[Signature Page to Incremental Facility Notice]
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Michael Jardon, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q (this “report”) of Expro Group Holdings N.V. (the “registrant”); |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the three months covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the three months presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the three months for which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the three months covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 4, 2022
/s/ Michael Jardon
Michael Jardon
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Quinn P. Fanning, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q (this “report”) of Expro Group Holdings N.V. (the “registrant”); |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the three months covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the three months presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the three months for which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the three months covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 4, 2022
/s/ Quinn P. Fanning
Quinn P. Fanning
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER UNDER SECTION 906 OF THE
SARBANES OXLEY ACT OF 2002, 18 U.S.C. § 1350
In connection with the Quarterly Report of Expro Group Holdings N.V. (the “Company”) on Form 10-Q for the three months ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Jardon, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that, to my knowledge:
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
August 4, 2022 |
/s/ Michael Jardon |
Michael Jardon |
|
President and Chief Executive Officer |
EXHIBIT 32.2
CERTIFICATION OF
CHIEF FINANCIAL OFFICER UNDER SECTION 906 OF THE
SARBANES OXLEY ACT OF 2002, 18 U.S.C. § 1350
In connection with the Quarterly Report of Expro Group Holdings N.V. (the “Company”) on Form 10-Q for the three months ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Quinn P. Fanning, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that, to my knowledge:
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
August 4, 2022 |
/s/ Quinn P. Fanning |
Quinn P. Fanning |
|
Chief Financial Officer |