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 September 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 October 31, 2022, there were 108,742,450 shares of common stock, €0.06 nominal value per share, outstanding.
Page |
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Item 1. |
Financial Statements |
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Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021 |
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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021 |
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Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021 |
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Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2022 and 2021 | ||
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 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 September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Total revenue | $ | 334,351 | $ | 197,547 | $ | 928,452 | $ | 530,093 | ||||||||
Operating costs and expenses: | ||||||||||||||||
Cost of revenue, excluding depreciation and amortization expense | (283,695 | ) | (164,004 | ) | (779,808 | ) | (448,792 | ) | ||||||||
General and administrative expense, excluding depreciation and amortization expense | (18,593 | ) | (6,100 | ) | (47,943 | ) | (18,936 | ) | ||||||||
Depreciation and amortization expense | (34,825 | ) | (25,605 | ) | (105,229 | ) | (79,754 | ) | ||||||||
Merger and integration expense | (1,629 | ) | (9,617 | ) | (8,624 | ) | (19,143 | ) | ||||||||
Severance and other expense | (3,242 | ) | (3,905 | ) | (5,414 | ) | (6,097 | ) | ||||||||
Total operating cost and expenses | (341,984 | ) | (209,231 | ) | (947,018 | ) | (572,722 | ) | ||||||||
Operating loss | (7,633 | ) | (11,684 | ) | (18,566 | ) | (42,629 | ) | ||||||||
Other income, net | 432 | 685 | 1,672 | 1,311 | ||||||||||||
Interest and finance income (expense), net | 1,502 | 678 | 3,227 | (2,553 | ) | |||||||||||
Loss before taxes and equity in income of joint ventures | (5,699 | ) | (10,321 | ) | (13,667 | ) | (43,871 | ) | ||||||||
Equity in income of joint ventures | 3,510 | 3,459 | 10,141 | 11,508 | ||||||||||||
Loss before income taxes | (2,189 | ) | (6,862 | ) | (3,526 | ) | (32,363 | ) | ||||||||
Income tax expense | (15,405 | ) | (5,051 | ) | (29,550 | ) | (8,323 | ) | ||||||||
Net loss | $ | (17,594 | ) | $ | (11,913 | ) | $ | (33,076 | ) | $ | (40,686 | ) | ||||
Loss per common share: | ||||||||||||||||
Basic and diluted | $ | (0.16 | ) | $ | (0.17 | ) | $ | (0.30 | ) | $ | (0.57 | ) | ||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic and diluted | 108,708,651 | 70,889,753 | 109,183,863 | 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 September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Net loss |
$ | (17,594 | ) | $ | (11,913 | ) | $ | (33,076 | ) | $ | (40,686 | ) | ||||
Other comprehensive loss: |
||||||||||||||||
Amortization of prior service credit |
(61 | ) | (61 | ) | (183 | ) | (183 | ) | ||||||||
Other comprehensive loss |
(61 | ) | (61 | ) | (183 | ) | (183 | ) | ||||||||
Comprehensive loss |
$ | (17,655 | ) | $ | (11,974 | ) | $ | (33,259 | ) | $ | (40,869 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 153,686 | $ | 235,390 | ||||
Restricted cash | 3,028 | 4,457 | ||||||
Accounts receivable, net | 421,405 | 319,286 | ||||||
Inventories | 135,725 | 125,116 | ||||||
Assets held for sale | - | 6,386 | ||||||
Income tax receivables | 24,264 | 20,561 | ||||||
Other current assets | 52,498 | 52,938 | ||||||
Total current assets | 790,606 | 764,134 | ||||||
Property, plant and equipment, net | 448,555 | 478,580 | ||||||
Investments in joint ventures | 64,745 | 57,604 | ||||||
Intangible assets, net | 236,363 | 253,053 | ||||||
Goodwill | 220,980 | 179,903 | ||||||
Operating lease right-of-use assets | 75,678 | 83,372 | ||||||
Non-current accounts receivable, net | 10,195 | 11,531 | ||||||
Other non-current assets | 7,164 | 26,461 | ||||||
Total assets | $ | 1,854,286 | $ | 1,854,638 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 240,280 | $ | 213,152 | ||||
Income tax liabilities | 41,170 | 22,999 | ||||||
Finance lease liabilities | 1,006 | 1,147 | ||||||
Operating lease liabilities | 18,155 | 19,695 | ||||||
Other current liabilities | 81,478 | 74,213 | ||||||
Total current liabilities | 382,089 | 331,206 | ||||||
Deferred tax liabilities, net | 28,574 | 31,744 | ||||||
Post-retirement benefits | 19,813 | 29,120 | ||||||
Non-current finance lease liabilities | 13,258 | 15,772 | ||||||
Non-current operating lease liabilities | 61,969 | 73,688 | ||||||
Other non-current liabilities | 86,449 | 75,537 | ||||||
Total liabilities | 592,152 | 557,067 | ||||||
Commitments and contingencies (Note 17) | ||||||||
Stockholders’ equity: | ||||||||
Common stock, € nominal value, shares authorized, and shares issued and and shares outstanding | 7,911 | 7,844 | ||||||
Treasury stock (at cost) and shares | (40,850 | ) | (22,785 | ) | ||||
Additional paid-in capital | 1,843,602 | 1,827,782 | ||||||
Accumulated other comprehensive income | 20,175 | 20,358 | ||||||
Accumulated deficit | (568,704 | ) | (535,628 | ) | ||||
Total stockholders’ equity | 1,262,134 | 1,297,571 | ||||||
Total liabilities and stockholders’ equity | $ | 1,854,286 | $ | 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)
Nine Months Ended September 30, |
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2022 |
2021 |
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Cash flows from operating activities: |
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Net loss |
$ | (33,076 | ) | $ | (40,686 | ) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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Depreciation and amortization expense |
105,229 | 79,754 | ||||||
Equity in income of joint ventures |
(10,141 | ) | (11,508 | ) | ||||
Stock-based compensation expense |
14,932 | - | ||||||
Change in fair value of investments |
1,199 | - | ||||||
Elimination of unrealized profit on sales to joint ventures |
- | 118 | ||||||
Deferred taxes |
(3,171 | ) | 278 | |||||
Unrealized foreign exchange |
6,544 | 1,331 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable, net |
(105,814 | ) | (38,138 | ) | ||||
Inventories |
(8,044 | ) | (498 | ) | ||||
Other assets |
(1,289 | ) | 3,260 | |||||
Accounts payable and accrued liabilities |
18,792 | 24,793 | ||||||
Other liabilities |
(2,154 | ) | (7,084 | ) | ||||
Income taxes, net |
11,884 | (3,888 | ) | |||||
Other |
(10,650 | ) | (8,202 | ) | ||||
Dividends from joint ventures |
2,985 | 924 | ||||||
Net cash (used in) provided by operating activities |
(12,774 | ) | 454 | |||||
Cash flows from investing activities: |
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Capital expenditures |
(50,606 | ) | (53,463 | ) | ||||
Acquisition of technology |
(7,967 | ) | - | |||||
Proceeds from disposal of assets |
6,579 | - | ||||||
Proceeds from sale / maturity of investments |
11,386 | - | ||||||
Net cash used in investing activities |
(40,608 | ) | (53,463 | ) | ||||
Cash flows from financing activities: |
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(Cash pledged for) release of collateral deposits |
(131 | ) | 122 | |||||
Payments of loan issuance and other transaction costs |
(132 | ) | (452 | ) | ||||
Acquisition of common stock |
(12,996 | ) | - | |||||
Payment of withholding taxes on stock-based compensation plans |
(4,145 | ) | - | |||||
Repayment of financed insurance premium |
(5,074 | ) | - | |||||
Repayments of finance leases |
(855 | ) | (871 | ) | ||||
Net cash used in financing activities |
(23,333 | ) | (1,201 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(6,418 | ) | (627 | ) | ||||
Net decrease to cash and cash equivalents and restricted cash |
(83,133 | ) | (54,837 | ) | ||||
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 |
$ | 156,714 | $ | 65,872 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(in thousands)
Nine Months Ended September 30, 2021 |
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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 | 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 | |||||||||||||||
Net loss |
- | - | - | - | - | - | (11,913 | ) | (11,913 | ) | ||||||||||||||||||||||
Other comprehensive loss |
- | - | - | - | - | (61 | ) | - | (61 | ) | ||||||||||||||||||||||
Balance at September 30, 2021 |
70,890 | $ | 585 | $ | 10,530 | $ | - | $ | 1,006,100 | $ | (1,677 | ) | $ | (444,423 | ) | $ | 571,115 |
Nine Months Ended September 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 | |||||||||||||||
Net loss |
- | - | - | - | - | - | (17,594 | ) | (17,594 | ) | ||||||||||||||||||||||
Other comprehensive loss |
- | - | - | - | - | (61 | ) | - | (61 | ) | ||||||||||||||||||||||
Stock-based compensation expense |
- | - | - | - | 4,684 | - | - | 4,684 | ||||||||||||||||||||||||
Common stock issued upon vesting of share-based awards |
132 | 8 | - | - | 545 | - | - | 553 | ||||||||||||||||||||||||
Common stock withheld |
(27 | ) | - | - | (377 | ) | - | - | - | (377 | ) | |||||||||||||||||||||
Balance at September 30, 2022 |
108,742 | $ | 7,911 | $ | - | $ | (40,850 | ) | $ | 1,843,602 | $ | 20,175 | $ | (568,704 | ) | $ | 1,262,134 |
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 which 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. The Company has repurchased a total of 1.1 million shares at an average price of $11.81 per share, for a total cost of $13.0 million as of September 30, 2022 under the Stock Repurchase 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 September 30, 2022, the results of our operations for the three and nine months ended September 30, 2022 and 2021, and our cash flows for the nine months ended September 30, 2022 and 2021. Such adjustments are of a normal recurring nature. Operating results for the three and nine months ended September 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 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):
Initial allocation of the consideration | Measurement period adjustments | Allocation of consideration as of September 30, 2022 | ||||||||||
Cash and cash equivalents | $ | 187,178 | $ | - | $ | 187,178 | ||||||
Restricted cash | 2,561 | - | 2,561 | |||||||||
Accounts receivables, net | 112,234 | (1,020 | ) | 111,214 | ||||||||
Inventories | 69,567 | (109 | ) | 69,458 | ||||||||
Assets held for sale | 10,061 | - | 10,061 | |||||||||
Income tax receivables | 2,030 | - | 2,030 | |||||||||
Other current assets | 23,908 | (862 | ) | 23,046 | ||||||||
Property, plant and equipment | 212,639 | (2,479 | ) | 210,160 | ||||||||
Goodwill | 154,399 | 41,077 | 195,476 | |||||||||
Intangible assets | 104,791 | - | 104,791 | |||||||||
Operating lease right-of-use assets | 27,406 | - | 27,406 | |||||||||
Other assets | 20,494 | (70 | ) | 20,424 | ||||||||
Total assets | 927,268 | 36,537 | 963,804 | |||||||||
Accounts payable and accrued liabilities | 81,959 | 3,876 | 85,835 | |||||||||
Operating lease liabilities | 8,344 | - | 8,344 | |||||||||
Current income tax liabilities | 8,932 | 9,862 | 18,794 | |||||||||
Other current liabilities | 19,918 | 12,108 | 32,026 | |||||||||
Deferred tax liabilities | 5,673 | - | 5,673 | |||||||||
Non-current operating lease liabilities | 19,607 | - | 19,607 | |||||||||
Other non-current liabilities | 40,553 | 10,691 | 51,244 | |||||||||
Total Liabilities | 184,986 | 36,537 | 221,523 | |||||||||
Total Merger Consideration Exchanged | $ | 742,282 | $ | (0 | ) | $ | 742,281 |
The preliminary valuation of the assets acquired and liabilities assumed, including other current liabilities, in the Merger initially resulted in goodwill of $154.4 million. During the third quarter of 2022, the Company finalized the valuation and recorded measurement period adjustments to its preliminary estimates due to additional information received primarily related to accounts payable and accrued liabilities, other current liabilities (please see Note 17 “Commitments and contingencies” for additional information), other non-current liabilities and income taxes. The measurement period adjustments resulted in an increase in goodwill of $41.1 million, for final total goodwill associated with the Merger of $195.5 million. 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 is not amortized but rather subject to an annual impairment test, absent any indicators of impairment prior to the annual testing date. 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 nine months ended September 30, 2021 assume the Merger was completed as of January 1, 2020 (in thousands):
Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||
Unaudited pro forma revenues | $ | 312,488 | $ | 847,686 | ||||
Unaudited pro forma net loss | $ | (23,455 | ) | $ | (81,692 | ) |
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 September 30, 2022 and 2021, the Company incurred $1.6 million and $9.6 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 nine months ended September 30, 2022 and 2021, the Company incurred $8.6 million and $19.1 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 | (256 | ) | (395 | ) | 34 | 401 | 1,282 | 1,066 | ||||||||||||||||
Payments made during the period | (1,564 | ) | (1,491 | ) | (441 | ) | (711 | ) | (7,207 | ) | (11,414 | ) | ||||||||||||
Balance as of September 30, 2022 | $ | 237 | $ | 616 | $ | 17 | $ | 307 | $ | 690 | $ | 1,867 |
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 September 30, 2022 and December 31, 2021, were as follows (in thousands):
September 30, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Non-current accounts receivable, net | $ | - | $ | 10,195 | $ | - | $ | 10,195 | ||||||||
Liabilities: | ||||||||||||||||
Finance lease liabilities | - | 14,264 | - | 14,264 |
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 executive deferred compensation plan as of December 31, 2021 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 executive deferred compensation plan as of December 31, 2021 is included in “Other non-current liabilities” on the condensed consolidated balance sheets. During the third quarter of 2022, the Company terminated the executive deferred compensation benefit plan. Please see Note 18 “Post-retirement benefits” for additional information. Our investments changed 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 September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
NLA | $ | 134,574 | $ | 31,769 | $ | 368,129 | $ | 92,762 | ||||||||
ESSA | 99,809 | 87,428 | 271,998 | 206,235 | ||||||||||||
MENA | 50,030 | 38,032 | 146,108 | 121,672 | ||||||||||||
APAC | 49,938 | 40,318 | 142,217 | 109,424 | ||||||||||||
Total | $ | 334,351 | $ | 197,547 | $ | 928,452 | $ | 530,093 |
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 (loss) on disposal of assets, foreign exchange gains (losses), merger and integration expense, other income (expense), net, 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 loss before income taxes (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
NLA | $ | 39,743 | $ | 5,309 | $ | 100,083 | $ | 11,092 | ||||||||
ESSA | 17,760 | 17,796 | 44,502 | 33,477 | ||||||||||||
MENA | 14,667 | 11,099 | 43,882 | 40,236 | ||||||||||||
APAC | (8,617 | ) | 7,755 | 1,177 | 21,238 | |||||||||||
Total Segment EBITDA | 63,553 | 41,959 | 189,644 | 106,043 | ||||||||||||
Corporate costs | (18,849 | ) | (14,065 | ) | (63,626 | ) | (42,167 | ) | ||||||||
Equity in income of joint ventures | 3,510 | 3,459 | 10,141 | 11,508 | ||||||||||||
Depreciation and amortization expense | (34,825 | ) | (25,605 | ) | (105,229 | ) | (79,754 | ) | ||||||||
Merger and integration expense | (1,629 | ) | (9,617 | ) | (8,624 | ) | (19,143 | ) | ||||||||
Severance and other expense | (3,242 | ) | (3,905 | ) | (5,414 | ) | (6,097 | ) | ||||||||
Stock-based compensation expense | (4,684 | ) | - | (14,932 | ) | - | ||||||||||
Foreign exchange loss | (7,957 | ) | (451 | ) | (10,385 | ) | (1,511 | ) | ||||||||
Other income, net | 432 | 685 | 1,672 | 1,311 | ||||||||||||
Interest and finance income (expense), net | 1,502 | 678 | 3,227 | (2,553 | ) | |||||||||||
Loss before income taxes | $ | (2,189 | ) | $ | (6,862 | ) | $ | (3,526 | ) | $ | (32,363 | ) |
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 September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Well construction | $ | 129,455 | $ | - | $ | 362,684 | $ | - | ||||||||
Well management | 204,896 | 197,547 | 565,768 | 530,093 | ||||||||||||
Total | $ | 334,351 | $ | 197,547 | $ | 928,452 | $ | 530,093 |
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 trade 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 September 30, 2022 and December 31, 2021 (in thousands):
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Trade receivable, net | $ | 288,002 | $ | 236,158 | ||||
Unbilled receivables (included within accounts receivable, net) | $ | 143,598 | $ | 94,659 | ||||
Deferred revenue (included within other liabilities) | $ | 21,840 | $ | 17,038 |
The Company recognized revenue during the three and nine months ended September 30, 2022 of $6.0 million and $14.9 million, respectively, and for the three and nine months ended September 30, 2021 of $10.3 million and $14.6 million, respectively, out of the deferred revenue balance as of the beginning of the applicable year.
As of September 30, 2022, $20.7 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 (270.3)% and (216.2)% for the three and nine months ended September 30, 2022, respectively, and were (48.9)% and (19.0)% for the three and nine months ended September 30, 2021, respectively.
Our effective tax rate was impacted primarily due to changes in the mix of taxable profits between jurisdictions, in particular increased taxable profits in Latin America and Sub-Saharan Africa, and an increase in withholding taxes in various jurisdictions.
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 September 30, 2022 and December 31, 2021 was as follows (in thousands):
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
CETS | $ | 61,127 | $ | 54,014 | ||||
PVD-Expro | 3,618 | 3,590 | ||||||
Total | $ | 64,745 | $ | 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 September 30, 2022 and December 31, 2021 (in thousands):
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Accounts receivable | $ | 444,885 | $ | 340,209 | ||||
Less: Expected credit losses | (13,285 | ) | (9,392 | ) | ||||
Total | $ | 431,600 | $ | 330,817 | ||||
Current | 421,405 | 319,286 | ||||||
Non – current | 10,195 | 11,531 | ||||||
Total | $ | 431,600 | $ | 330,817 |
10. | Inventories |
Inventories consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Finished goods | $ | 28,166 | $ | 34,899 | ||||
Raw materials, equipment spares and consumables | 98,087 | 76,025 | ||||||
Work-in-progress | 9,472 | 14,192 | ||||||
Total | $ | 135,725 | $ | 125,116 |
11. | Other assets and liabilities |
Other assets consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Cash surrender value of life insurance policies | $ | - | $ | 18,857 | ||||
Prepayments | 21,617 | 19,891 | ||||||
Value-added tax receivables | 23,670 | 22,524 | ||||||
Collateral deposits | 1,730 | 1,599 | ||||||
Deposits | 6,810 | 7,331 | ||||||
Other | 5,835 | 9,197 | ||||||
Total | $ | 59,662 | $ | 79,399 | ||||
Current | 52,498 | 52,938 | ||||||
Non – current | 7,164 | 26,461 | ||||||
Total | $ | 59,662 | $ | 79,399 |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
Other liabilities consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Deferred revenue | $ | 21,840 | $ | 17,038 | ||||
Other tax and social security | 32,051 | 27,893 | ||||||
Income tax liabilities – non-current portion | 52,280 | 45,741 | ||||||
Deferred compensation plan | - | 9,339 | ||||||
Provisions | 40,488 | 32,964 | ||||||
Other | 21,268 | 16,775 | ||||||
Total | $ | 167,927 | $ | 149,750 | ||||
Current | 81,478 | 74,213 | ||||||
Non – current | 86,449 | 75,537 | ||||||
Total | $ | 167,927 | $ | 149,750 |
Cash surrender value of life insurance policies
We had $18.9 million of cash surrender value of life insurance policies as of December 31, 2021, that were held within a trust established to settle payment of future executive deferred compensation benefit obligations. During the third quarter of 2022, the Company terminated the executive deferred compensation benefit plan. Please see Note 18 “Post-retirement benefits” for additional information. Prior to the termination of the executive deferred compensation plan, the impact of cash distributions from the trust for benefits paid pursuant to the executive deferred compensation benefit plan was included in “Proceeds from sale / maturity of investments” on the condensed consolidated statements of cash flows. Loss associated with these policies was 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 $0.3 million for the three and nine months ended September 30, 2022, respectively.
12. | Accounts payable and accrued liabilities |
Accounts payable and accrued liabilities consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Accounts payable – trade | $ | 77,212 | $ | 84,952 | ||||
Payroll, vacation and other employee benefits | 37,395 | 42,671 | ||||||
Accruals for goods received not invoiced | 31,955 | 18,666 | ||||||
Other accrued liabilities | 93,718 | 66,863 | ||||||
Total | $ | 240,280 | $ | 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 September 30, 2022 and December 31, 2021 (in thousands):
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Cost: | ||||||||
Land | $ | 22,261 | $ | 21,580 | ||||
Land improvements | 3,051 | 3,054 | ||||||
Buildings and lease hold improvements | 100,979 | 104,660 | ||||||
Plant and equipment | 749,624 | 701,400 | ||||||
875,915 | 830,694 | |||||||
Less: accumulated depreciation | (427,360 | ) | (352,114 | ) | ||||
Total | $ | 448,555 | $ | 478,580 |
During the nine months ended September 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 September 30, 2022 and December 31, 2021 and included in amounts above is as follows (in thousands):
September 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 | (8,748 | ) | (7,733 | ) | ||||
Total | $ | 11,150 | $ | 12,165 |
Depreciation expense relating to property, plant and equipment, including assets under finance leases, was $25.9 million and $77.8 million for the three and nine months ended September 30, 2022, respectively, and $19.1 million and $60.4 million for the three and nine months ended September 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 September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022 | December 31, 2021 | September 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 | $ | (113,234 | ) | $ | 108,966 | $ | 222,200 | $ | (98,271 | ) | $ | 123,929 | 5.6 | |||||||||||||
Trademarks | 57,100 | (32,040 | ) | 25,060 | 57,100 | (29,392 | ) | 27,708 | 7.7 | |||||||||||||||||||
Technology | 170,652 | (68,567 | ) | 102,085 | 159,458 | (60,979 | ) | 98,479 | 11.8 | |||||||||||||||||||
Software | 8,754 | (8,502 | ) | 252 | 8,754 | (5,817 | ) | 2,937 | 0.1 | |||||||||||||||||||
Total | $ | 458,706 | $ | (222,343 | ) | $ | 236,363 | $ | 447,512 | $ | (194,459 | ) | $ | 253,053 |
Amortization expense for intangible assets was $8.9 million and $27.4 million for the three and nine months ended September 30, 2022, respectively, and $6.5 million and $19.4 million for the three and nine months ended September 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 September 30, 2022 and December 31, 2021 is as follows (in thousands):
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
NLA | $ | 118,511 | $ | 93,608 | ||||
ESSA | 80,058 | 66,283 | ||||||
MENA | 4,218 | 3,331 | ||||||
APAC | 18,193 | 16,681 | ||||||
Total | $ | 220,980 | $ | 179,903 |
During the third quarter of 2022, goodwill associated with the Merger increased by $41.1 million as a result of measurement period adjustments to our preliminary estimates due to additional information received. Please see Note 3 “Business combinations and dispositions” for additional information. As of September 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 nine months ended September 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 was available for drawdowns as loans and $70.0 million was available for letters of credit. Subject to the terms of the New Facility, the Company had 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 to $88.0 million. Total commitments available for drawdowns as loans under the New Facility remains $130.0 million.
The Facility remained undrawn on a cash basis (i.e., no loans were outstanding), as of September 30, 2022 and December 31, 2021. We utilized $49.3 million and $33.4 million as of September 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 $52.6 million and $26.3 million as of September 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 have conducted an internal investigation of the operations of certain of Frank’s 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 internal review to the SEC and the U.S. Department of Justice (“DOJ”). The DOJ has provided a declination, subject to the Company and the SEC reaching a satisfactory settlement of civil claims. We are discussing a possible resolution with the SEC and, based on the course of these discussions to date, we believe that a final resolution of this matter is likely to include a civil penalty in the amount of approximately $8 million and, accordingly, we have recorded a loss contingency in that amount within “Other current liabilities” on our condensed consolidated balance sheet as of September 30, 2022, with the offset taken as an increase to goodwill as a measurement period adjustment associated with the Merger. While we believe the final resolution of this matter is nearing a conclusion, there can be no assurance as to the timing or the terms of any final resolution, or that a settlement will be reached at all. In the event a settlement is not reached, litigation may ensue and, accordingly, the actual loss incurred in connection with this matter could be less than or exceed the amount accrued and may have a material adverse effect on our financial position, results of operations or cash flows. At the present time, we are unable to reasonably estimate the amount of any potential loss in excess of the amount already accrued relating to this matter. Other than discussed above, we had no other material legal accruals for loss contingencies, individually or in the aggregate, as of September 30, 2022 and December 31, 2021.
Our board of directors and management are committed to continuously enhancing our internal controls that support improved compliance and transparency throughout our global operations, including the integration of the legacy Frank’s compliance related processes into the Expro compliance framework and program.
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 September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Amortization of prior service credit | $ | 61 | $ | 61 | $ | 183 | $ | 183 | ||||||||
Interest cost | (958 | ) | (823 | ) | (3,003 | ) | (2,500 | ) | ||||||||
Expected return on plan assets | 1,313 | 1,148 | 4,116 | 3,479 | ||||||||||||
Total | $ | 416 | $ | 386 | $ | 1,296 | $ | 1,162 |
The Company contributed $1.2 million and $3.7 million for the three and nine months ended September 30, 2022, respectively, and $1.0 million and $2.8 million for the three and nine months ended September 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 maintained 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 were 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 were invested in corporate-owned, split-dollar life insurance policies and mutual funds. During the third quarter of 2022, the Company terminated the EDC Plan and settled substantially all remaining obligations under the plan by liquidating the cash surrender value of life insurance policies that were held within the Rabbi Trust.
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, stock options and Employee Stock Purchase Program (“ESPP”) shares.
The calculation of basic and diluted loss per share attributable to Company stockholders for the three and nine months ended September 30, 2022 and 2021, respectively, are as follows (in thousands, except shares outstanding and per share amounts):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net loss | $ | (17,594 | ) | $ | (11,913 | ) | $ | (33,076 | ) | $ | (40,686 | ) | ||||
Basic and diluted weighted average number of shares outstanding | 108,708,651 | 70,889,753 | 109,183,863 | 70,889,753 | ||||||||||||
Total basic and diluted loss per share | $ | (0.16 | ) | $ | (0.17 | ) | $ | (0.30 | ) | $ | (0.57 | ) |
Approximately 0.1 million and 0.3 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 nine months ended September 30, 2022, respectively.
Additionally, since the conditions upon which shares were issuable for our outstanding warrants and stock options were not satisfied as of September 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 nine months ended September 30, 2022, we provided goods and services to related parties totaling $5.9 million and $8.2 million, respectively, and $1.1 million and $5.1 million, respectively, during the three and nine months ended September 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 $0.2 million and $0.5 million, respectively, for the three and nine months ended September 30, 2022.
As of September 30, 2022 and December 31, 2021 amounts receivable from the related parties were $1.8 million and $1.6 million, respectively, and amounts payable to related parties were $1.0 million and $2.1 million, respectively.
As of September 30, 2022, $0.8 million of our operating lease right-of-use assets and $0.8 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 $3.7 million of stock-based compensation expense attributable to the Management Incentive Plan (“MIP”) stock options during the three and nine months ended September 30, 2022, respectively. No stock-based compensation expense attributable to the MIP stock options was recognized during the three and nine months ended September 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 nine months ended September 30, 2022 was $4.1 million and $10.8 million, respectively. No stock-based compensation expense relating to LTIP RSUs and PRSUs was recognized during the three and nine months ended September 30, 2021.
During the nine months ended September 30, 2022, 856,797 RSUs were granted to employees and directors at a weighted average grant date fair value of $16.55 per RSU.
22. | Supplemental cash flow |
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for income taxes, net of refunds | $ | 20,529 | $ | 11,933 | ||||
Cash paid for interest, net | $ | 2,890 | $ | 3,016 | ||||
Change in accounts payable and accrued expenses related to capital expenditures | $ | 2,508 | $ | 5,699 |
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:
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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. |
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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 well construction, well flow management, subsea well access and well intervention and integrity services and solutions 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 third quarter of 2022 has continued to show positive signs of recovery in the market following the impact of the pandemic 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:
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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. |
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Oil demand in 2022 is forecasted 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 third quarter of 2022, with the average Brent oil price trending downwards as a result of a slowdown in demand growth and increasing supply from members of the Organization of Petroleum Exporting Countries and certain other oil producing nations (“OPEC+”) following the announced production increases in July and August coupled with the ongoing release of barrels from strategic petroleum reserves. |
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Activity related to gas production and associated asset development is accelerating in the North Sea, Sub-Saharan Africa and MENA as a result of Russian gas supply shortfalls and Europe’s drive to diversify away from its reliance on Russian pipeline gas supplies over the long term. |
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Following the multi-year underinvestment in new reserves, Expro and other energy service companies expect that operators will increase activity levels in exploration and development in 2023 and beyond, while maintaining fiscal discipline. |
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Activity levels are not expected to be uniform across geo-markets or type of activity, and international and deepwater activity is expected to continue to improve during the fourth quarter of 2022 and into 2023. We also expect that the demand for services related to brownfield and production enhancement and infield development programs will continue to increase. In addition, we anticipate an increase in demand for early production facilities, especially in support of natural gas and liquified natural gas (“LNG”) developments. |
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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 energy transition. |
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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 near term volatile oil prices, and activity in 2022 is forecasted to be higher than in 2021, with oil demand forecast to return to pre-pandemic levels in 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 101.0 million b/d in 2023 (which would surpass 2019 levels of 100.8 million b/d). The EIA expects continued OPEC+ production growth, despite the recent announcement of a 2 million b/d supply target cut, with production averaging 28.6 million b/d in 2022 (up 2.3 million b/d from 2021). The OPEC+ reduction along with further supply disruption risks from Libya and Russia are expected to outweigh strong growth in U.S. oil production in 2022 (expected to rise to 11.7 million b/d in 2022 and 12.4 million b/d in 2023, which would be the highest annual average U.S. crude oil production on record). As a result, the EIA has increased its forecast for Brent crude oil spot prices to an average of $102 per barrel in 2022 and $95 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 sustained economic activity, energy security concerns in Europe, lower inventory in storage, and continued strong demand for LNG in Europe to replace Russian pipeline gas.
The EIA expects Henry Hub spot prices to further increase to an average of $7.40 per million British thermal unit (“MMBtu”) in the fourth quarter of 2022, before falling below $6.00/MMBtu in 2023 as U.S. natural gas production rises. Rystad forecasts the European and Asian LNG spot price to trade at approximately $45/MMBtu and $38/MMBtu, respectively, in 2022 with upward pricing pressures over the next two years as a result of lost Russian volumes and limited supplies of LNG until new import terminals planned for the EU come online.
The outlook for the fourth quarter of 2022 and into 2023 indicates a continuing recovery in exploration and production expenditures, with 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 during the fourth quarter of 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 September 30, 2022 compared to three months ended June 30, 2022
Certain highlights of our financial results and other key developments include:
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Revenue for the three months ended September 30, 2022 increased by $20.8 million, or 6.6%, to $334.4 million, compared to $313.6 million for the three months ended June 30, 2022. The increase in revenue was driven by higher activity across all our segments, most notably in ESSA which contributed approximately $9.7 million towards the increase in revenue during the current quarter. 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 September 30, 2022 of $17.6 million, compared to a net loss of $4.4 million for the three months ended June 30, 2022. The overall increase in net loss was primarily due to higher commissioning costs on a large subsea project, as well as higher severance and other expense, higher foreign exchange losses and an increase in income tax expense by $5.8 million, partially offset by a more favorable product mix and lower corporate costs during the quarter. | |
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Adjusted EBITDA for the three months ended September 30, 2022 decreased by $2.9 million, or 5.7%, to $48.2 million from $51.1 million for the three months ended June 30, 2022. Adjusted EBITDA margin decreased to 14.4% during the three months ended September 30, 2022, as compared to 16.3% during the three months ended June 30, 2022. The decrease in Adjusted EBITDA and Adjusted EBITDA margin is primarily attributable to higher start-up and commissioning costs incurred on a large subsea project incurred during the three months ended September 30, 2022, partially offset by a combination of more favorable product mix and lower support cost as a result of merger-related synergies. Excluding $16.8 million and $4.1 million, respectively, of such start-up and commissioning costs during the three months ended September 30, 2022 and June 30, 2022, Adjusted EBITDA would have been $65.0 million and $55.2 million, respectively, and Adjusted EBITDA margin would have been 19.4% and 17.6%, respectively. | |
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Net cash used in operating activities for the three months ended September 30, 2022 was $0.7 million, compared to net cash provided by operating activities of $2.1 million for the three months ended June 30, 2022, with the change primarily driven by dividend receipts of $3.0 million in the second quarter of 2022 that did not recur during the current quarter. Adjusted Cash Flow from Operations and Cash Conversion for the three months ended September 30, 2022 were $8.3 million and 17%, respectively, compared to $9.6 million and 19%, respectively, for the three months ended June 30, 2022. |
Nine months ended September 30, 2022 compared to nine months ended September 30, 2021
Certain highlights of our financial results and other key developments include:
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Revenue for the nine months ended September 30, 2022 increased by $398.4 million, or 75.1%, to $928.5 million, compared to $530.1 million for the nine months ended September 30, 2021. Of the total increase during the nine months ended September 30, 2022 as compared to the prior period, $363.0 million is attributable to the Merger with the addition of well construction revenue. 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 nine months ended September 30, 2022 of $33.1 million, compared to a net loss of $40.7 million for the nine months ended September 30, 2021. The overall decrease in net loss was primarily driven by increased revenue and Adjusted EBITDA due to a combination of the impact of the Merger and higher activity during the nine months ended September 30, 2022, partially offset by an increase in depreciation and amortization expense by $25.4 million, an increase in stock-based compensation expense by $14.9 million, higher tax expense of $21.2 million, lower merger and integration costs of $10.5 million and start-up and commissioning costs incurred on a large subsea project in the current period. |
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Adjusted EBITDA for the nine months ended September 30, 2022 increased by $60.8 million, or 80.6%, to $136.2 million from $75.4 million for the nine months ended September 30, 2021. The overall increase in Adjusted EBITDA was due to a combination of the impact of the Merger and higher activity during the nine months ended September 30, 2022, partially offset by start-up and commissioning costs incurred on a large subsea project during the current period. Adjusted EBITDA margin increased to 14.7% during the nine months ended September 30, 2022, as compared to 14.2% during the nine months ended September 30, 2021, primarily due to a combination of more favorable product mix and lower support cost as a result of merger-related synergies, partially offset by start-up and commissioning costs incurred on a large subsea project in the current period. Excluding $22.9 million of such start-up and commissioning costs during the nine months ended September 30, 2022, Adjusted EBITDA would have been $159.1 million and Adjusted EBITDA margin would have been 17.1%. |
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Net cash used in operating activities for the nine months ended September 30, 2022 was $12.8 million, compared to net cash provided by operating activities of $0.5 million for the nine months ended September 30, 2021. The increase in net cash used in operating activities was primarily due to an increase in working capital and higher tax, merger and integration, and severance payments during the current period as compared to the same period in the previous year. Adjusted Cash Flow from Operations and Cash Conversion for the nine months ended September 30, 2022 was $16.4 million and 12%, respectively, compared to $24.2 million and 32%, respectively, for the nine months ended September 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 (used in) 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 nine months presented (in thousands):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2022 |
June 30, 2022 |
September 30, 2022 |
September 30, 2021 |
|||||||||||||
Net loss |
$ | (17,594 | ) | $ | (4,350 | ) | $ | (33,076 | ) | $ | (40,686 | ) | ||||
Income tax expense |
$ | 15,405 | $ | 9,596 | $ | 29,550 | $ | 8,323 | ||||||||
Depreciation and amortization expense |
34,825 | 35,392 | 105,229 | 79,754 | ||||||||||||
Merger and integration expense |
1,629 | 2,270 | 8,624 | 19,143 | ||||||||||||
Severance and other expense |
3,242 | 678 | 5,414 | 6,097 | ||||||||||||
Other income, net (1) |
(432 | ) | (244 | ) | (1,672 | ) | (1,311 | ) | ||||||||
Stock-based compensation expense |
4,684 | 4,230 | 14,932 | - | ||||||||||||
Foreign exchange loss |
7,957 | 5,244 | 10,385 | 1,511 | ||||||||||||
Interest and finance (income) expense, net |
(1,502 | ) | (1,712 | ) | (3,227 | ) | 2,553 | |||||||||
Adjusted EBITDA (2) |
$ | 48,214 | $ | 51,104 | $ | 136,159 | $ | 75,384 | ||||||||
Adjusted EBITDA Margin (2) |
14.4 | % | 16.3 | % | 14.7 | % | 14.2 | % |
(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. |
(2) |
Excluding $16.8 million and $4.1 million, respectively, of start-up and commissioning costs on a large subsea project during the three months ended September 30, 2022 and June 30, 2022, Adjusted EBITDA would have been $65.0 million and $55.2 million, respectively, and Adjusted EBITDA margin would have been 19.4% and 17.6%, respectively. Excluding $22.9 million of such start-up and commissioning costs during the nine months ended September 30, 2022, Adjusted EBITDA would have been $159.1 million and Adjusted EBITDA margin would have been 17.1%. |
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 nine months presented (in thousands):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2022 |
June 30, 2022 |
September 30, 2022 |
September 30, 2021 |
|||||||||||||
Net cash (used in) provided by operating activities |
$ | (667 | ) | $ | 2,055 | $ | (12,774 | ) | $ | 454 | ||||||
Cash paid for interest, net |
891 | 1,096 | 2,890 | 3,016 | ||||||||||||
Cash paid for merger and integration expense |
5,525 | 5,837 | 22,994 | 14,531 | ||||||||||||
Cash paid for severance and other expense |
2,501 | 565 | 3,273 | 6,216 | ||||||||||||
Adjusted Cash Flow from Operations |
$ | 8,250 | $ | 9,553 | $ | 16,383 | $ | 24,217 | ||||||||
Adjusted EBITDA |
$ | 48,214 | $ | 51,104 | $ | 136,159 | $ | 75,384 | ||||||||
Cash Conversion |
17 | % | 19 | % | 12 | % | 32 | % |
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 September 30, 2022 and June 30, 2022:
Three Months Ended |
Percentage |
|||||||||||||||
(in thousands) |
September 30, 2022 |
June 30, 2022 |
September 30, 2022 |
June 30, 2022 |
||||||||||||
NLA |
$ | 134,574 | $ | 129,694 | 40.2 | % | 41.4 | % | ||||||||
ESSA |
99,809 | 90,118 | 29.9 | % | 28.7 | % | ||||||||||
MENA |
50,030 | 45,363 | 15.0 | % | 14.5 | % | ||||||||||
APAC |
49,938 | 48,449 | 14.9 | % | 15.4 | % | ||||||||||
Total Revenue |
$ | 334,351 | $ | 313,624 | 100.0 | % | 100.0 | % |
The following table shows revenue by segment and revenue as a percentage of total revenue by segment for the nine months ended September 30, 2022 and September 30, 2021:
Nine Months Ended |
Percentage |
|||||||||||||||
(in thousands) |
September 30, 2022 |
September 30, 2021 |
September 30, 2022 |
September 30, 2021 |
||||||||||||
NLA |
$ | 368,129 | $ | 92,762 | 39.6 | % | 17.5 | % | ||||||||
ESSA |
271,998 | 206,235 | 29.3 | % | 38.9 | % | ||||||||||
MENA |
146,108 | 121,672 | 15.7 | % | 23.0 | % | ||||||||||
APAC |
142,217 | 109,424 | 15.3 | % | 20.6 | % | ||||||||||
Total Revenue |
$ | 928,452 | $ | 530,093 | 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 September 30, 2022 and June 30, 2022:
Three Months Ended |
Segment EBITDA Margin |
|||||||||||||||
(in thousands) |
September 30, 2022 |
June 30, 2022 |
September 30, 2022 |
June 30, 2022 |
||||||||||||
NLA |
$ | 39,743 | $ | 38,513 | 29.5 | % | 29.7 | % | ||||||||
ESSA |
17,760 | 14,868 | 17.8 | % | 16.5 | % | ||||||||||
MENA |
14,667 | 13,750 | 29.3 | % | 30.3 | % | ||||||||||
APAC (1) |
(8,617 | ) | 4,356 | -17.3 | % | 9.0 | % | |||||||||
Total Segment EBITDA |
63,553 | 71,487 | ||||||||||||||
Corporate costs (2) |
(18,849 | ) | (22,812 | ) | ||||||||||||
Equity in income of joint ventures |
3,510 | 2,429 | ||||||||||||||
Depreciation and amortization expense |
(34,825 | ) | (35,392 | ) | ||||||||||||
Merger and integration expense |
(1,629 | ) | (2,270 | ) | ||||||||||||
Severance and other expense |
(3,242 | ) | (678 | ) | ||||||||||||
Stock-based compensation expense |
(4,684 | ) | (4,230 | ) | ||||||||||||
Foreign exchange loss |
(7,957 | ) | (5,244 | ) | ||||||||||||
Other income, net |
432 | 244 | ||||||||||||||
Interest and finance income, net |
1,502 | 1,712 | ||||||||||||||
Income (loss) before income taxes |
$ | (2,189 | ) | $ | 5,246 |
The following table shows Segment EBITDA and Segment EBITDA margin by segment and a reconciliation to loss before income taxes for the nine months ended September 30, 2022 and September 30, 2021:
Nine Months Ended |
Segment EBITDA Margin |
|||||||||||||||
(in thousands) |
September 30, 2022 |
September 30, 2021 |
September 30, 2022 |
September 30, 2021 |
||||||||||||
NLA |
$ | 100,083 | $ | 11,092 | 27.2 | % | 12.0 | % | ||||||||
ESSA |
44,502 | 33,477 | 16.4 | % | 16.2 | % | ||||||||||
MENA |
43,882 | 40,236 | 30.0 | % | 33.1 | % | ||||||||||
APAC (1) |
1,177 | 21,238 | 0.8 | % | 19.4 | % | ||||||||||
Total Segment EBITDA |
189,644 | 106,043 | ||||||||||||||
Corporate costs (2) |
(63,626 | ) | (42,167 | ) | ||||||||||||
Equity in income of joint ventures |
10,141 | 11,508 | ||||||||||||||
Depreciation and amortization expense |
(105,229 | ) | (79,754 | ) | ||||||||||||
Merger and integration expense |
(8,624 | ) | (19,143 | ) | ||||||||||||
Severance and other expense |
(5,414 | ) | (6,097 | ) | ||||||||||||
Stock-based compensation expense |
(14,932 | ) | - | |||||||||||||
Foreign exchange loss |
(10,385 | ) | (1,511 | ) | ||||||||||||
Other income, net |
1,672 | 1,311 | ||||||||||||||
Interest and finance income (expense), net |
3,227 | (2,553 | ) | |||||||||||||
Loss before income taxes |
$ | (3,526 | ) | $ | (32,363 | ) |
(1) |
Excluding $16.8 million and $4.1 million, respectively, of start-up and commissioning costs incurred on a large subsea project during the three months ended September 30, 2022 and June 30, 2022, APAC Segment EBITDA would have been $8.1 million and $8.4 million, respectively, and APAC Segment EBITDA margin would have been 16.3% and 17.4%, respectively. Excluding $22.9 million of such start-up and commissioning costs during the nine months ended September 30, 2022, APAC Segment EBITDA would have been $24.1 million and APAC Segment EBITDA margin would have been 17.0%. |
(2) |
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 September 30, 2022 compared to three months ended June 30, 2022
NLA
Revenue for the NLA segment was $134.6 million for the three months ended September 30, 2022, an increase of $4.9 million, or 3.8%, compared to $129.7 million for the three months ended June 30, 2022. The increase was primarily due to higher well construction product sales in the U.S., higher well construction services revenue in the U.S. and Mexico, and higher well flow management services revenue in Canada from increased customer activities, partially offset by lower well flow management revenue in the U.S. and lower well construction revenue in Guyana.
Segment EBITDA for the NLA segment was $39.7 million, or 29.5% of revenues, during the three months ended September 30, 2022, compared to $38.5 million or 29.7% of revenues during the three months ended June 30, 2022. The increase of $1.2 million in Segment EBITDA was attributable to higher activity during the three months ended September 30, 2022.
ESSA
Revenue for the ESSA segment was $99.8 million for the three months ended September 30, 2022, an increase of $9.7 million, or 10.8%, compared to $90.1 million for the three months ended June 30, 2022. The increase in revenues was primarily driven by higher subsea well access revenue in Azerbaijan and Angola and higher well flow management revenue in the United Kingdom and Nigeria due to increased customer activities. The increase in revenues was partially offset by lower subsea well access revenue in the United Kingdom.
Segment EBITDA for the ESSA segment was $17.8 million, or 17.8% of revenues, for the three months ended September 30, 2022, an increase of $2.9 million, or 19.5%, compared to $14.9 million, or 16.5% of revenues, for the three months ended June 30, 2022. The increase of $2.9 million was primarily attributable to higher activity levels and a more favorable activity mix during the three months ended September 30, 2022.
MENA
Revenue for the MENA segment was $50.0 million for the three months ended September 30, 2022, an increase of $4.6 million, or 10.1%, compared to $45.4 million for the three months ended June 30, 2022. The increase in revenue was driven by higher well flow management revenue in Saudi Arabia and Algeria.
Segment EBITDA for the MENA segment was $14.7 million, or 29.3% of revenues, for the three months ended September 30, 2022, an increase of $0.9 million, or 6.7%, compared to $13.8 million, or 30.3% of revenues, for the three months ended June 30, 2022. The increase in Segment EBITDA was primarily due to higher activity.
APAC
Revenue for the APAC segment was $49.9 million for the three months ended September 30, 2022, an increase of $1.5 million, or 3.1%, compared to $48.4 million for the three months ended June 30, 2022. The increase in revenue was primarily due to higher subsea well access revenue in Australia, China and Indonesia and higher well construction revenue in Japan. The increase in revenue was partially offset by lower equipment sales related to well flow management services in Malaysia.
Segment EBITDA for the APAC segment was $(8.6) million, or (17.3)% of revenues, for the three months ended September 30, 2022, a decrease of $13.0 million compared to $4.4 million, or 9.0% of revenues, for the three months ended June 30, 2022. The reduction in Segment EBITDA despite the increase in revenues was primarily due to $16.8 million in start-up and commissioning costs incurred on a large subsea project during the three months ended September 30, 2022 compared to $4.1 million for the three months ended June 30, 2022, as well as lower activity on higher margin contracts. Excluding $16.8 million and $4.1 million, respectively, of such start-up and commissioning costs during the three months ended September 30, 2022 and June 30, 2022, Segment EBITDA would have been $8.1 million and $8.4 million, respectively, and Segment EBITDA margin would have been 16.3% and 17.4%, respectively.
Merger and integration expense
Merger and integration expense for the three months ended September 30, 2022 decreased by $0.6 million, to $1.6 million as compared to $2.3 million for the three months ended June 30, 2022. The decrease was primarily attributable to lower legal and other professional fees related to the Merger incurred during the three months ended September 30, 2022 as compared to the three months ended June 30, 2022.
Income tax expense
Income tax expense for the three months ended September 30, 2022 increased by $5.8 million to $15.4 million from $9.6 million for the three months ended June 30, 2022, primarily due to changes in the mix of taxable profits between jurisdictions, in particular increased taxable profits in Latin America and Sub-Saharan Africa, and an increase in withholding taxes in various jurisdictions.
Nine months ended September 30, 2022 compared to nine months ended September 30, 2021
NLA
Revenue for the NLA segment was $368.1 million for the nine months ended September 30, 2022, an increase of $275.3 million, or 296.7%, compared to $92.8 million for the nine months ended September 30, 2021. Of the total increase of $275.3 million, $236.8 million was attributable to the Merger, reflecting well construction revenue during the nine months ended September 30, 2022. The remaining increase of $38.6 million was attributable to the higher well intervention and integrity revenue in Argentina and Brazil during the nine months ended September 30, 2022.
Segment EBITDA for the NLA segment was $100.1 million, or 27.2% of revenues, during the nine months ended September 30, 2022, compared to $11.1 million or 12.0% of revenues during the nine months ended September 30, 2021, an increase of $89.0 million. The increase was primarily attributable to a combination of the impact of the Merger and higher activities during the nine months ended September 30, 2022. Further, the Segment EBITDA margin increase was due to fall-through from incremental revenue, a more favorable activity mix and lower support costs as a result of merger-related synergies.
ESSA
Revenue for the ESSA segment was $272.0 million for the nine months ended September 30, 2022, an increase of $65.8 million, or 31.9%, compared to $206.2 million for the nine months ended September 30, 2021. The Merger contributed an increase of $82.5 million, reflecting well construction revenue during the nine months ended September 30, 2022. Additionally, well intervention and integrity services revenue was higher during the current period in the United Kingdom and Mozambique due to increased customer activities. This increase was partially offset by lower well flow management business activity in Nigeria due to a large production equipment sale that did not recur during the current period and lower well flow management services revenue in Norway from reduced customer activities.
Segment EBITDA for the ESSA segment was $44.5 million, or 16.4% of revenues, during the nine months ended September 30, 2022, compared to $33.5 million, or 16.2% of revenues, during the nine months ended September 30, 2021, an increase of $11.0 million, primarily due to the impact of the Merger. Segment EBITDA margin during the nine months ended September 30, 2022 remained relatively flat compared to the corresponding period in the previous year.
MENA
Revenue for the MENA segment was $146.1 million for the nine months ended September 30, 2022, an increase of $24.4 million, or 20.1%, compared to $121.7 million for the nine months ended September 30, 2021. Of the total increase of $24.4 million for the nine months ended September 30, 2022, $18.9 million was attributable to the Merger reflecting the well construction revenue during the period, and the remaining increase was primarily driven by well flow management equipment sales in Saudi Arabia and higher well flow management revenue in Algeria, partially offset by lower activity in the United Arab Emirates.
Segment EBITDA for the MENA segment was $43.9 million, or 30.0% of revenues, during the nine months ended September 30, 2022, compared to $40.2 million or 33.1% of revenues during the nine months ended September 30, 2021. The increase was primarily attributable to a combination of the impact of the Merger and higher activities during the nine months ended September 30, 2022. 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 $142.2 million for the nine months ended September 30, 2022, an increase of $32.8 million, or 30.0%, compared to $109.4 million for the nine months ended September 30, 2021. Of the total increase of $32.8 million for the nine months ended September 30, 2022, $24.8 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 and Malaysia, partially offset by lower well flow management revenue in Thailand.
Segment EBITDA for the APAC segment was $1.2 million, or 0.8% of revenues, during the nine months ended September 30, 2022, compared to $21.2 million, or 19.4% of revenues, during the nine months ended September 30, 2021. The reduction in Segment EBITDA and Segment EBITDA margin was primarily due to $22.9 million in start-up and commissioning costs incurred on a large subsea project during the nine months ended September 30,2022 (there were no similar costs recognized in the nine months ended September 30, 2021), lower activity on higher margin contracts and a resulting less favorable activity mix. Excluding $22.9 million of such start-up and commissioning costs during the nine months ended September 30, 2022, Segment EBITDA would have been $24.1 million and Segment EBITDA margin would have been 17.0%.
Stock-based compensation expense
Stock-based compensation expense for the nine months ended September 30, 2022 was $14.9 million. No stock-based compensation expense was recognized during the nine months ended September 30, 2021. The expense for the current period primarily relates to our Long-Term Incentive Plan which was not present during the nine months ended September 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 nine months ended September 30, 2021, as the performance conditions within the stock option agreements were deemed to be improbable.
Merger and integration expense
Merger and integration expense for the nine months ended September 30, 2022 decreased by $10.5 million to $8.6 million as compared to $19.1 million for the nine months ended September 30, 2021. The decrease was primarily attributable to lower legal and other professional fees related to the Merger incurred during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
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 September 30, 2022, total available liquidity was $286.7 million, including cash and cash equivalents and restricted cash of $156.7 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 $30 million and $40 million for the fourth quarter of 2022. Our total capital expenditures were $50.6 million for the nine months ended September 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 nine months to acquire technology to enhance our well intervention and integrity business. Total capital expenditures were $53.5 million for the nine months ended September 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 in the future, if any, 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 nine months ended September 30, 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 was available for drawdowns as loans and $70.0 million was available for letters of credit. Subject to the terms of the New Facility, we had 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 to $88.0 million. Total commitments available for drawdowns as loans under the New Facility remains $130.0 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):
Nine Months Ended |
||||||||
September 30, 2022 |
September 30, 2021 |
|||||||
Net cash (used in) provided by operating activities |
$ | (12,774 | ) | $ | 454 | |||
Net cash used in investing activities |
(40,608 | ) | (53,463 | ) | ||||
Net cash used in financing activities |
(23,333 | ) | (1,201 | ) | ||||
Effect of exchange rate changes on cash activities |
(6,418 | ) | (627 | ) | ||||
Net decrease to cash and cash equivalents and restricted cash |
$ | (83,133 | ) | $ | (54,837 | ) |
Analysis of cash flow changes between the nine months ended September 30, 2022 and September 30, 2021
Net cash (used in) provided by operating activities
Net cash used in operating activities was $12.8 million during the nine months ended September 30, 2022 as compared to net cash provided by operating activities of $0.5 million during the nine months ended September 30, 2021. The increase in net cash used in operating activities of $13.3 million for the nine months ended September 30, 2022 was primarily due to an increase in net working capital of $62.1 million, higher tax payments of $8.6 million and higher payments for merger and integration and severance expense of $5.5 million, partially offset by an increase in Adjusted EBITDA of $60.7 million and an increase in dividends from joint ventures of $2.1 million for the nine months ended September 30, 2022.
Adjusted cash flows from operations during the nine months ended September 30, 2022 was $16.4 million as compared to Adjusted cash flows from operations of $24.2 million during the nine months ended September 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 $40.6 million during the nine months ended September 30, 2022 as compared to $53.5 million during the nine months ended September 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 $11.4 million, proceeds from disposal of assets of $6.6 million and reduction in capital expenditures of $2.9 million for the nine months ended September 30, 2022, partially offset by an acquisition of technology of $8.0 million during the current period.
Net cash used in financing activities
Net cash used in financing activities was $23.3 million during the nine months ended September 30, 2022 as compared to $1.2 million during the nine months ended September 30, 2021. The increase of $22.1 million in net cash used in financing activities is primarily due to a repurchase of common stock of $13.0 million, payments of payroll withholding taxes on stock-based compensation plans of $4.1 million and financed insurance premium of $5.1 million during the nine months ended September 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 |
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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:
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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; |
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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; |
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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; |
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the impact of current and future laws, rulings, governmental regulations, accounting standards and statements, and related interpretations; |
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unique risks associated with our offshore operations; |
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political, economic and regulatory uncertainties in our international operations, including the impact of actions taken by OPEC+ with respect to production levels and the effects thereof; |
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our ability to develop new technologies and products; |
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our ability to protect our intellectual property rights; |
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our ability to attract, train and retain key employees and other qualified personnel; |
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operational safety laws and regulations; |
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international trade laws and sanctions; |
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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); |
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policy or regulatory changes; |
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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; |
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perception related to our environmental, social and governance (“ESG”) performance as well as current and future ESG reporting requirements; and |
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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 September 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.
Please see Note 17 “Commitments and contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements.
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 September 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) |
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July 1 - July 31 |
-- | $ | -- | -- | $ | 37,004,400 | ||||||||||
August 1 - August 31 |
-- | $ | -- | -- | $ | 37,004,400 | ||||||||||
September 1 - September 30 |
-- | $ | -- | -- | $ | 37,004,400 | ||||||||||
Total |
-- | $ | -- | -- |
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 September 30, 2022, subject to the limitation set in our shareholder authorization for repurchases of our common stock, which is approximately 10% of the common stock issued 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: |
November 3, 2022 |
By: |
/s/ Quinn P. Fanning |
Quinn P. Fanning |
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Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 10.2
EXPRO GROUP HOLDINGS N.V.
RESTRICTED STOCK UNIT (RSU) AGREEMENT
THIS RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”) evidences an award made as of the [____] day of [__________], 20[__] (the “Date of Grant”), between EXPRO GROUP HOLDINGS N.V., a limited liability company organized in the Netherlands (the “Company”), and [NAME] (the “Grantee”).
1. The Grant. Pursuant to the EXPRO GROUP HOLDINGS N.V. 2022 LONG-TERM INCENTIVE PLAN, as the same may be amended from time to time (the “Plan”), and subject to the conditions set forth below, the Company hereby awards to the Grantee, effective as of the Date of Grant, an award consisting of an aggregate number of [XXXX] restricted stock units (the “Restricted Stock Units” or “RSUs”), whereby each Restricted Stock Unit represents the right to receive one share of the Company’s common stock, nominal value €0.06 per share (“Common Stock”), plus the additional rights to Dividend Equivalents set forth in Section 3(d) hereof, in accordance with the terms and conditions set forth herein and in the Plan (the “Award”). To the extent any provision of this Agreement conflicts with the expressly applicable terms of the Plan, those terms of the Plan shall control, and if necessary, the applicable terms of this Agreement shall be deemed amended so as to carry out the purpose and intent of the Plan.
2. Definitions. Capitalized terms used in this Agreement that are not defined below or in the body of this Agreement shall have the meanings given to them in the Plan. In addition to the terms defined in the body of this Agreement, the following capitalized words and terms shall have the meanings indicated below for purposes of this Agreement:
(a) “Director” shall mean the Grantee’s service as a member of the Company’s Board of Directors, which shall include membership on the Board of the Company.
(b) “Disability” shall mean the Grantee being unable to perform the Grantee’s duties or fulfill the Grantee’s obligations as a member of the Board of Directors of the Company by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than three months as determined by the Company and certified in writing by a competent medical physician selected by the Company.
(c) “Forfeiture Restrictions” shall have the meaning specified in Section 3(a) hereof.
(d) “Involuntary Termination” shall mean a termination of the Grantee’s service as a Director that occurs either by (i) the Company’s failure to re-nominate the Grantee as a Director for any new term or (ii) by a failure to secure shareholder approval of the Grantee’s service as a Director for any new term.
3. Restricted Stock Units. By acceptance of this Restricted Stock Unit award, Grantee agrees with respect thereto as follows:
(a) Forfeiture Restrictions. The Restricted Stock Units are restricted in that they may not be sold, assigned, pledged, exchanged, hypothecated, or otherwise alienated or transferred, encumbered, or disposed of, and in the event of termination of Grantee’s service with the Company for any reason other than death, Disability, or on account of an Involuntary Termination, Grantee shall, for no consideration, forfeit to the Company all Restricted Stock Units to the extent then subject to the Forfeiture Restrictions. The prohibition against transfer and the obligation to forfeit and surrender Restricted Stock Units to the Company upon termination of services as provided in this Section 3(a) are herein referred to as the “Forfeiture Restrictions.” The Forfeiture Restrictions shall be binding upon and enforceable against any transferee of Restricted Stock Units.
(b) Lapse of Forfeiture Restrictions (Vesting). Provided that the Grantee has continuously served as a Director of the Company from the Date of Grant through the lapse date set forth in the following schedule, the Forfeiture Restrictions shall lapse, and the Restricted Stock Units will vest, with respect to a percentage of the Restricted Stock Units determined in accordance with the following schedule:
Lapse (Vesting) Date |
Percentage of Total Number of RSUs as to Which Forfeiture Restrictions Lapse |
[TBD] | [TBD] |
Notwithstanding the schedule set forth above, (i) if the Grantee’s service as a Director is terminated by reason of death or Disability or due to an Involuntary Termination, then the Forfeiture Restrictions shall lapse with respect to 100% of the Restricted Stock Units effective as of the date of such termination, and (ii) if a Change in Control occurs and the Grantee has continuously served as a Director of the Company from the Date of Grant to the date upon which such Change in Control occurs, then the Forfeiture Restrictions shall lapse with respect to 100% of the Restricted Stock Units on the date upon which such Change in Control occurs. Any Restricted Stock Units with respect to which the Forfeiture Restrictions do not lapse in accordance with the preceding provisions of this Section 3(b) (and any associated unvested Dividend Equivalents) shall be forfeited to the Company for no consideration as of the date of the termination of the Grantee’s service as a Director.
(c) Payments. Subject to Section 4 hereof, as soon as reasonably practicable after the lapse of the Forfeiture Restrictions with respect to the specified number of Restricted Stock Units as provided in Section 3(b) hereof (but in no event later than the end of the calendar year in which the Forfeiture Restrictions so lapse), the Company shall cause to be issued to the Grantee with respect to each share of Common Stock covered by each such Restricted Stock Unit one share of Common Stock registered in the Grantee’s name. The Company shall deliver the shares of Common Stock in book-entry form, with such legends or restrictions thereon as the Committee may determine to be necessary or advisable in order to comply with applicable securities laws. The Grantee shall complete and sign any documents and take any additional action that the Company may request to enable it to deliver shares of Common Stock on the Grantee’s behalf.
(d) Dividend Equivalents. In the event the Company declares and pays a dividend in respect of its outstanding shares of Common Stock and, on the record date for such dividend, the Grantee holds Restricted Stock Units granted pursuant to this Agreement that have become vested pursuant to Section 3(b) hereof and have not been settled in accordance with Section 3(c) hereof, the Grantee shall be entitled to receive a payment, subject to Section 4 hereof, in respect of the number of shares of Common Stock relating to such Restricted Stock Units, with such Dividend Equivalent payment being made in the amount and form that such payment would have been made if, as of such record date, the Grantee actually held the underlying shares of Common Stock related to the portion of the vested Restricted Stock Units that have not been settled or forfeited as of such record date. Such Dividend Equivalent payment shall be made commensurate with the date the Company pays such dividend in respect of its outstanding shares of Common Stock (however, in no event shall the Dividend Equivalents be paid later than the earlier of 30 days following, or the end of the calendar year that includes, the date on which the Company pays such dividends to its shareholders generally).
(e) Corporate Acts. The existence of the Restricted Stock Units shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization, or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities, the dissolution or liquidation of the Company or any sale, lease, exchange, or other disposition of all or any part of its assets or business, or any other corporate act or proceeding.
4. Withholding of Tax. To the extent that the receipt of the Restricted Stock Units (or any dividend equivalents related thereto) or the lapse of any Forfeiture Restrictions results in compensation income or wages to the Grantee for federal, state, or local tax purposes, the Grantee shall deliver to the Company at the time of such receipt or lapse, as the case may be, such amount of money as the Company may require to meet its minimum obligation under applicable tax laws or regulations, and if the Grantee fails to do so (or if the Grantee instructs the Company to withhold cash or stock to meet such obligation), the Company shall withhold from any cash or stock remuneration (including withholding any shares of the Common Stock distributable to the Grantee under this Agreement) then or thereafter payable to the Grantee any tax required to be withheld by reason of such resulting compensation income or wages. The Company is making no representation or warranty as to the tax consequences to the Grantee as a result of the receipt of the Restricted Stock Units, the treatment of dividend equivalents, the lapse of any Forfeiture Restrictions, or the forfeiture of any Restricted Stock Units pursuant to the Forfeiture Restrictions.
5. No Shareholder Rights. The Restricted Stock Units granted pursuant to this Agreement do not and shall not entitle Grantee to any rights of a holder of Common Stock prior to the date that shares of Common Stock are issued to Grantee in settlement of the Award. Grantee’s rights with respect to the Restricted Stock Units shall remain forfeitable at all times prior to the date on which rights become vested, and the restrictions with respect to the Restricted Stock Units lapse in accordance with Section 3(b).
6. Clawback. Notwithstanding any provisions in the Agreement to the contrary, any compensation, payments, or benefits provided hereunder (or profits realized from the sale of the Common Stock delivered hereunder), whether in the form of cash or otherwise, shall be subject to a clawback to the extent necessary to comply with the requirements of any applicable law, including but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, section 304 of the Sarbanes Oxley Act of 2002, or any regulations promulgated thereunder.
7. Service as a Director. Nothing in the adoption of the Plan, nor the award of the Restricted Stock Units thereunder pursuant to this Agreement, shall confer upon the Grantee the right to continued service as a Director or affect in any way the right of the Company to terminate such service at any time. Any question as to whether and when there has been a termination of such service, and the cause of such termination, shall be determined by the Board or its delegate, and its determination shall be final.
8. Notices. Any notices or other communications provided for in this Agreement shall be sufficient if in writing. In the case of the Grantee, such notices or communications shall be effectively delivered if sent by registered or certified mail to the Grantee at the last address the Grantee has filed with the Company. In the case of the Company, such notices or communications shall be effectively delivered if sent by registered or certified mail to the Company at its principal executive offices.
9. Entire Agreement; Amendment. This Agreement replace and merge all previous agreements and discussions relating to the same or similar subject matters between the Grantee and the Company and constitute the entire agreement between the Grantee and the Company with respect to the subject matter of this Agreement. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by any Grantee, officer, or representative of the Company or by any written agreement unless signed by an officer of the Company who is expressly authorized by the Company to execute such document.
10. Binding Effect; Survival. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under the Grantee. The provisions of Section 6 shall survive the lapse of the Forfeiture Restrictions without forfeiture.
11. Controlling Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, without regard to conflicts of law principles thereof, or, if applicable, the laws of the United States.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of the date first above written.
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EXPRO GROUP HOLDINGS N.V. |
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Name: |
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GRANTEE |
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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; |
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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; |
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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 |
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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: November 3, 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; |
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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; |
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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 |
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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 |
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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: November 3, 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 September 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. |
November 3, 2022 |
/s/ Michael Jardon |
Michael Jardon |
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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 September 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. |
November 3, 2022 |
/s/ Quinn P. Fanning |
Quinn P. Fanning |
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Chief Financial Officer |