Item 1. Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
FRANK’S INTERNATIONAL N.V.
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(In thousands, except share data)
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Assets
|
(Unaudited)
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
191,339
|
|
|
$
|
209,575
|
|
Restricted cash
|
1,656
|
|
|
1,672
|
|
Short-term investments
|
2,252
|
|
|
2,252
|
|
Accounts receivables, net
|
116,581
|
|
|
110,607
|
|
Inventories, net
|
94,738
|
|
|
81,718
|
|
Assets held for sale
|
3,681
|
|
|
2,939
|
|
Other current assets
|
8,416
|
|
|
7,744
|
|
Total current assets
|
418,663
|
|
|
416,507
|
|
|
|
|
|
Property, plant and equipment, net
|
255,401
|
|
|
272,707
|
|
Goodwill
|
42,785
|
|
|
42,785
|
|
Intangible assets, net
|
11,062
|
|
|
7,897
|
|
Deferred tax assets, net
|
16,482
|
|
|
18,030
|
|
Operating lease right-of-use assets
|
27,972
|
|
|
28,116
|
|
Other assets
|
30,907
|
|
|
30,859
|
|
Total assets
|
$
|
803,272
|
|
|
$
|
816,901
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
107,085
|
|
|
$
|
99,986
|
|
Current portion of operating lease liabilities
|
8,066
|
|
|
7,832
|
|
Deferred revenue
|
640
|
|
|
586
|
|
Other current liabilities
|
960
|
|
|
1,674
|
|
Total current liabilities
|
116,751
|
|
|
110,078
|
|
|
|
|
|
Deferred tax liabilities
|
—
|
|
|
1,548
|
|
Non-current operating lease liabilities
|
20,766
|
|
|
21,208
|
|
Other non-current liabilities
|
25,257
|
|
|
22,818
|
|
Total liabilities
|
162,774
|
|
|
155,652
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
Common stock, €0.01 par value, 798,096,000 shares authorized, 230,761,910 and 228,806,301 shares issued and 227,712,419 and 226,324,559 shares outstanding
|
2,890
|
|
|
2,866
|
|
Additional paid-in capital
|
1,091,028
|
|
|
1,087,733
|
|
Accumulated deficit
|
(401,232)
|
|
|
(377,346)
|
|
Accumulated other comprehensive loss
|
(30,250)
|
|
|
(31,966)
|
|
Treasury stock (at cost), 3,049,491 and 2,481,742 shares
|
(21,938)
|
|
|
(20,038)
|
|
Total stockholders’ equity
|
640,498
|
|
|
661,249
|
|
Total liabilities and equity
|
$
|
803,272
|
|
|
$
|
816,901
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRANK’S INTERNATIONAL N.V.
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
(In thousands, except per share data)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Revenue:
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
$
|
81,523
|
|
|
$
|
105,083
|
|
Products
|
|
|
|
|
13,288
|
|
|
18,409
|
|
Total revenue
|
|
|
|
|
94,811
|
|
|
123,492
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of revenue, exclusive of depreciation and amortization
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
63,935
|
|
|
79,380
|
|
Products
|
|
|
|
|
10,914
|
|
|
13,988
|
|
General and administrative expenses
|
|
|
|
|
16,447
|
|
|
26,683
|
|
Depreciation and amortization
|
|
|
|
|
16,107
|
|
|
19,718
|
|
Goodwill impairment
|
|
|
|
|
—
|
|
|
57,146
|
|
Severance and other charges, net
|
|
|
|
|
7,376
|
|
|
20,725
|
|
(Gain) loss on disposal of assets
|
|
|
|
|
(182)
|
|
|
60
|
|
Operating loss
|
|
|
|
|
(19,786)
|
|
|
(94,208)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
|
|
125
|
|
|
2,026
|
|
Interest income (expense), net
|
|
|
|
|
(287)
|
|
|
533
|
|
|
|
|
|
|
|
|
|
Foreign currency loss
|
|
|
|
|
(2,868)
|
|
|
(9,892)
|
|
Total other expense
|
|
|
|
|
(3,030)
|
|
|
(7,333)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
|
(22,816)
|
|
|
(101,541)
|
|
Income tax expense (benefit)
|
|
|
|
|
1,070
|
|
|
(15,563)
|
|
Net loss
|
|
|
|
|
$
|
(23,886)
|
|
|
$
|
(85,978)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
$
|
(0.11)
|
|
|
$
|
(0.38)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
227,019
|
|
|
225,505
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRANK’S INTERNATIONAL N.V.
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
(In thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
$
|
(23,886)
|
|
|
$
|
(85,978)
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
1,716
|
|
|
424
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
|
|
1,716
|
|
|
424
|
|
Comprehensive loss
|
|
|
|
|
$
|
(22,170)
|
|
|
$
|
(85,554)
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRANK’S INTERNATIONAL N.V.
|
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
(In thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
Total
|
|
Common Stock
|
|
Paid-In
|
|
Accumulated
|
|
Comprehensive
|
|
Treasury
|
|
Stockholders’
|
|
Shares
|
|
Value
|
|
Capital
|
|
Deficit
|
|
Income (Loss)
|
|
Stock
|
|
Equity
|
Balances at December 31, 2019
|
225,511
|
|
|
$
|
2,846
|
|
|
$
|
1,075,809
|
|
|
$
|
(220,805)
|
|
|
$
|
(30,298)
|
|
|
$
|
(17,258)
|
|
|
$
|
810,294
|
|
Cumulative effect of accounting change
|
—
|
|
|
—
|
|
|
—
|
|
|
(321)
|
|
|
—
|
|
|
—
|
|
|
(321)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(85,978)
|
|
|
—
|
|
|
—
|
|
|
(85,978)
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
424
|
|
|
—
|
|
|
424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation expense
|
—
|
|
|
—
|
|
|
2,146
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,146
|
|
Common shares issued upon vesting of share-based awards
|
937
|
|
|
10
|
|
|
(10)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common shares issued for employee stock purchase plan
|
126
|
|
|
1
|
|
|
551
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
552
|
|
Treasury shares withheld
|
(293)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,056)
|
|
|
(1,056)
|
|
Share repurchase program
|
(373)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,017)
|
|
|
(1,017)
|
|
Balances at March 31, 2020
|
225,908
|
|
|
$
|
2,857
|
|
|
$
|
1,078,496
|
|
|
$
|
(307,104)
|
|
|
$
|
(29,874)
|
|
|
$
|
(19,331)
|
|
|
$
|
725,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
Total
|
|
Common Stock
|
|
Paid-In
|
|
Accumulated
|
|
Comprehensive
|
|
Treasury
|
|
Stockholders’
|
|
Shares
|
|
Value
|
|
Capital
|
|
Deficit
|
|
Income (Loss)
|
|
Stock
|
|
Equity
|
Balances at December 31, 2020
|
226,325
|
|
|
$
|
2,866
|
|
|
$
|
1,087,733
|
|
|
$
|
(377,346)
|
|
|
$
|
(31,966)
|
|
|
$
|
(20,038)
|
|
|
$
|
661,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,886)
|
|
|
—
|
|
|
—
|
|
|
(23,886)
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,716
|
|
|
—
|
|
|
1,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation expense
|
—
|
|
|
—
|
|
|
2,872
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,872
|
|
Common shares issued upon vesting of share-based awards
|
1,717
|
|
|
21
|
|
|
(21)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common shares issued for employee stock purchase plan
|
238
|
|
|
3
|
|
|
444
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
447
|
|
Treasury shares withheld
|
(568)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,900)
|
|
|
(1,900)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2021
|
227,712
|
|
|
$
|
2,890
|
|
|
$
|
1,091,028
|
|
|
$
|
(401,232)
|
|
|
$
|
(30,250)
|
|
|
$
|
(21,938)
|
|
|
$
|
640,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
|
|
|
|
|
|
|
|
|
|
|
|
FRANK’S INTERNATIONAL N.V.
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(In thousands)
|
(Unaudited)
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2021
|
|
2020
|
Cash flows from operating activities
|
|
|
|
Net loss
|
$
|
(23,886)
|
|
|
$
|
(85,978)
|
|
Adjustments to reconcile net loss to cash from operating activities
|
|
|
|
|
|
|
|
Depreciation and amortization
|
16,107
|
|
|
19,718
|
|
Equity-based compensation expense
|
2,872
|
|
|
2,146
|
|
Goodwill impairment
|
—
|
|
|
57,146
|
|
Loss on asset impairments and retirements
|
307
|
|
|
20,187
|
|
Amortization of deferred financing costs
|
97
|
|
|
97
|
|
Deferred tax provision (benefit)
|
—
|
|
|
(1,690)
|
|
Provision for bad debts
|
209
|
|
|
1,280
|
|
(Gain) loss on disposal of assets
|
(182)
|
|
|
60
|
|
Changes in fair value of investments
|
(395)
|
|
|
2,411
|
|
|
|
|
|
|
|
|
|
Other
|
—
|
|
|
(381)
|
|
Changes in operating assets and liabilities
|
|
|
|
Accounts receivable
|
(6,806)
|
|
|
(16,129)
|
|
Inventories
|
(12,463)
|
|
|
(1,855)
|
|
Other current assets
|
(675)
|
|
|
(814)
|
|
Other assets
|
267
|
|
|
139
|
|
Accounts payable and accrued liabilities
|
9,192
|
|
|
(14,860)
|
|
Deferred revenue
|
53
|
|
|
67
|
|
Other non-current liabilities
|
(178)
|
|
|
(3,796)
|
|
Net cash used in operating activities
|
(15,481)
|
|
|
(22,252)
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
Purchases of property, plant and equipment
|
(2,346)
|
|
|
(9,968)
|
|
Proceeds from sale of assets
|
2,073
|
|
|
70
|
|
|
|
|
|
|
|
|
|
Investment in intellectual property
|
(1,608)
|
|
|
—
|
|
Other
|
(75)
|
|
|
(141)
|
|
Net cash used in investing activities
|
(1,956)
|
|
|
(10,039)
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
Repayments of borrowings
|
(712)
|
|
|
—
|
|
|
|
|
|
Treasury shares withheld for taxes
|
(1,900)
|
|
|
(1,056)
|
|
Treasury share repurchase
|
—
|
|
|
(1,017)
|
|
Proceeds from the issuance of ESPP shares
|
447
|
|
|
552
|
|
|
|
|
|
Net cash used in financing activities
|
(2,165)
|
|
|
(1,521)
|
|
Effect of exchange rate changes on cash
|
1,350
|
|
|
9,327
|
|
Net decrease in cash, cash equivalents and restricted cash
|
(18,252)
|
|
|
(24,485)
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
211,247
|
|
|
196,740
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
192,995
|
|
|
$
|
172,255
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Basis of Presentation
Nature of Business
Frank’s International N.V. (“FINV”, “Frank's” or the “Company”, as the context requires), a limited liability company organized under the laws of the Netherlands, is a global provider of highly engineered tubular services, tubular fabrication and specialty well construction and well intervention solutions to the oil and gas industry. FINV provides services and products to leading exploration and production companies in both offshore and onshore environments with a focus on complex and technically demanding wells.
The impact of the Coronavirus Disease 2019 (“COVID-19”) pandemic and related economic, business and market disruptions is evolving rapidly, and its future effects are uncertain. The actual impact of these recent developments on our 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. As additional information becomes available, events or circumstances change and strategic 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.
Pending Merger with Expro Group Holdings International Limited
On March 10, 2021, FINV 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 FINV (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Expro Group Holdings International Limited, an exempted company limited by shares incorporated under the laws of the Cayman Islands (“Expro”), pursuant to which Expro will merge with and into Merger Sub, with Merger Sub surviving the merger as a direct, wholly owned subsidiary of FINV (the “Merger”). If the Merger is completed, each ordinary share of Expro common stock, par value $0.01 per share (“Expro Ordinary Shares”), issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”), will be converted into the right to receive a number of shares of Frank’s common stock equal to 7.2720 (subject to certain adjustments under the Merger Agreement, the “Exchange Ratio”). Upon consummation of the transactions contemplated by the Merger Agreement and the Plan of Merger (as defined in the Merger Agreement) (collectively, the “Transactions”), FINV expects that its current shareholders will own approximately 35% of the Company after completion of the Merger and related transactions (such entity, the “Combined Company”), and current Expro shareholders will own approximately 65% of the Combined Company. Following the Merger, the name of FINV will be changed to “Expro Group Holdings N.V.” The closing of the Transactions, which is expected to occur during the third quarter of 2021, is subject to the satisfaction or waiver of closing conditions, including, among others, the requisite approval of the shareholders of each of FINV and Expro pursuant to the terms of the Merger Agreement.
The Merger Agreement contains termination rights for each of FINV and Expro, including, among others, a termination right for each party if the consummation of the Merger does not occur on or before 5:00 p.m. Houston, Texas time on October 31, 2021 (the “End Date”), subject to certain exceptions; provided, that if as of the End Date, all of the conditions precedent to closing of the Transactions under the Merger Agreement, other than certain specified conditions, have been satisfied, the End Date will automatically be extended to January 31, 2022. Upon termination of the Merger Agreement under specified circumstances, including, generally, the termination by Expro in the event of FINV's entry into an agreement with respect to an alternative acquisition proposal, or a change of recommendation by the FINV board of supervisory directors and the board of managing directors of FINV (collectively, the “Board”) in each case, prior to the time the FINV shareholder approval is obtained, FINV would be required to pay Expro a termination fee of $37.5 million. Upon termination of the Merger Agreement under specified circumstances, including, generally, the termination by FINV in the event of Expro’s entry into an agreement with respect to an alternative acquisition proposal, or a change of recommendation by Expro’s board of directors (the “Expro Board”), in each case, prior to the time the Expro shareholder approval is obtained, Expro would be required to pay FINV a termination fee of $71.5 million.
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Merger Agreement, FINV, Frank’s International C.V. (“FICV”) and Mosing Holdings, LLC (“Mosing Holdings”) entered into an Amended and Restated Tax Receivable Agreement (the “A&R TRA”). Pursuant to the A&R TRA, FINV, FICV and Mosing Holdings have agreed, among other things to settle the early termination payment obligation that would otherwise be owed to Mosing Holdings under the TRA as a result of the Merger by the payment by FINV to Mosing Holdings of (i) $15 million cash at the closing of the Transactions and (ii) certain other contingent payments in the future in the event the Combined Company realizes cash tax savings from tax attributes covered under the TRA during the ten year period following the Closing Date in excess of $18,057,000, as more fully described in the A&R TRA. The terms of the A&R TRA are conditioned upon and subject to the closing of the Transactions and the payment to Mosing Holdings of the $15 million cash payment at the closing of the Transactions. If such conditions do not occur, the A&R TRA will be terminated and will be null and void and the TRA will remain in effect in accordance with its terms.
Basis of Presentation
The condensed consolidated financial statements of FINV for the three months ended March 31, 2021 and 2020 include the activities of FINV, FICV, Blackhawk Group Holdings, LLC (“Blackhawk”) and their wholly owned subsidiaries (either individually or together, as context requires, the “Company,” “we,” “us” or “our”). All intercompany accounts and transactions have been eliminated for purposes of preparing these condensed consolidated financial statements.
Our accompanying condensed consolidated financial statements have not been audited by our independent registered public accounting firm. The consolidated balance sheet at December 31, 2020 is derived from audited financial statements. However, certain information and footnote disclosures required by generally accepted accounting principles in the United States of America (“GAAP”) for complete annual financial statements have been omitted and, therefore, these interim financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2020, which are included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 1, 2021 (“Annual Report”). In the opinion of management, these condensed consolidated financial statements, which have been prepared pursuant to the rules of the SEC and GAAP for interim financial reporting, reflect all adjustments, which consisted only of normal recurring adjustments that were necessary for a fair statement of the interim periods presented. The results of operations for interim periods are not necessarily indicative of those for a full year.
The condensed consolidated financial statements have been prepared on a historical cost basis using the United States dollar as the reporting currency. Our functional currency is primarily the United States dollar.
Reclassifications
Certain prior-period amounts have been reclassified to conform to the current period’s presentation. These reclassifications had no impact on our operating income (loss), net income (loss), working capital, cash flows or total equity previously reported.
Recent Accounting Pronouncements
Changes to 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. ASUs not listed below 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.
In June 2016, the FASB issued new accounting guidance for credit losses on financial instruments. The guidance includes the replacement of the “incurred loss” approach for recognizing credit losses on financial assets, including trade receivables, with a methodology that reflects expected credit losses, which considers historical and
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
current information as well as reasonable and supportable forecasts. We adopted the guidance on January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements. The new credit loss standard is expected to accelerate recognition of credit losses on our accounts receivable. See Note 3—Accounts Receivable, net for additional information regarding allowance for credit losses on our accounts receivable.
Note 2—Cash, Cash Equivalents and Restricted Cash
Amounts reported in the condensed consolidated balance sheets and condensed consolidated statements of cash flows as cash, cash equivalents and restricted cash at March 31, 2021 and December 31, 2020 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Cash and cash equivalents
|
$
|
191,339
|
|
|
$
|
209,575
|
|
Restricted cash
|
1,656
|
|
|
1,672
|
|
Total cash, cash equivalents and restricted cash shown in the statements of cash flows
|
$
|
192,995
|
|
|
$
|
211,247
|
|
Restricted cash primarily consists of cash deposits that collateralize our credit card program. Cash paid (received) for income taxes, net, was $2.5 million and $1.1 million for the three months ended March 31, 2021 and 2020, respectively.
Note 3—Accounts Receivable, net
Accounts receivable at March 31, 2021 and December 31, 2020 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Trade accounts receivable, net of allowance for credit losses of $4,112 and $3,857, respectively
|
$
|
67,171
|
|
|
$
|
65,684
|
|
Unbilled receivables
|
29,923
|
|
|
26,215
|
|
Taxes receivable
|
15,392
|
|
|
14,292
|
|
Affiliated (1)
|
549
|
|
|
549
|
|
Other receivables
|
3,546
|
|
|
3,867
|
|
Total accounts receivable, net
|
$
|
116,581
|
|
|
$
|
110,607
|
|
(1)Amounts represent expenditures on behalf of non-consolidated affiliates.
Note 4—Inventories, net
Inventories at March 31, 2021 and December 31, 2020 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Pipe and connectors, net of allowance of $16,561 and $16,819, respectively
|
$
|
32,690
|
|
|
$
|
22,642
|
|
Finished goods, net of allowance of $84 and $84, respectively
|
20,999
|
|
|
22,715
|
|
Work in progress
|
1,954
|
|
|
1,730
|
|
Raw materials, components and supplies
|
39,095
|
|
|
34,631
|
|
Total inventories, net
|
$
|
94,738
|
|
|
$
|
81,718
|
|
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5—Property, Plant and Equipment
The following is a summary of property, plant and equipment at March 31, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Useful Lives
in Years
|
|
March 31,
2021
|
|
December 31,
2020
|
Land
|
—
|
|
$
|
31,080
|
|
|
$
|
30,869
|
|
Land improvements
|
8-15
|
|
7,688
|
|
|
7,620
|
|
Buildings and improvements
|
13-39
|
|
118,592
|
|
|
121,105
|
|
Rental machinery and equipment
|
2-7
|
|
906,117
|
|
|
897,398
|
|
Machinery and equipment - other
|
7
|
|
54,869
|
|
|
54,842
|
|
Furniture, fixtures and computers
|
3-5
|
|
19,756
|
|
|
16,928
|
|
Automobiles and other vehicles
|
5
|
|
25,894
|
|
|
25,948
|
|
Leasehold improvements
|
7-15, or lease term if shorter
|
|
12,754
|
|
|
12,773
|
|
Construction in progress - machinery and equipment
|
—
|
|
12,412
|
|
|
24,381
|
|
|
|
|
1,189,162
|
|
|
1,191,864
|
|
Less: Accumulated depreciation
|
|
|
(933,761)
|
|
|
(919,157)
|
|
Total property, plant and equipment, net
|
|
|
$
|
255,401
|
|
|
$
|
272,707
|
|
During the three months ended March 31, 2020, we recorded fixed asset impairment charges of $15.5 million primarily associated with construction in progress in our Cementing Equipment segment, which is included in severance and other charges, net on our condensed consolidated statements of operations. During the first quarter of 2020, the results of the Company's test for impairment of goodwill in the Cementing Equipment segment as a result of negative market indicators was a triggering event that indicated that our long-lived tangible assets in this segment were impaired. Impairment testing performed in the first quarter of 2020 resulted in the determination that certain long-lived assets were not recoverable and that the estimated fair value was below the carrying value. Please see Note 15—Severance and Other Charges, net for additional details. No impairments associated with held for use assets were recognized during the three months ended March 31, 2021.
During the first quarter of 2021, a building with a net book value of $1.9 million was sold, resulting in a gain of $0.2 million. In addition, a building with a net book value of $2.6 million met the criteria to be classified as held for sale and was reclassified from property, plant and equipment to assets held for sale on our condensed consolidated balance sheet.
The following table presents the depreciation and amortization expense associated with each line item for the three months ended March 31, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Services
|
|
|
|
|
|
$
|
14,472
|
|
|
$
|
17,263
|
|
Products
|
|
|
|
|
|
138
|
|
|
239
|
|
General and administrative expenses
|
|
|
|
|
|
1,497
|
|
|
2,216
|
|
Total
|
|
|
|
|
|
$
|
16,107
|
|
|
$
|
19,718
|
|
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6—Goodwill and Intangible Assets
Goodwill
Goodwill is not subject to amortization and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. A qualitative assessment is allowed to determine if goodwill is potentially impaired. We have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. The qualitative assessment determines whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then a quantitative impairment test is performed. The quantitative goodwill impairment test is used to identify both the existence of impairment and the amount of impairment loss. The test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded based on that difference. We complete our assessment of goodwill impairment as of October 31 each year.
As a result of the decline in oil prices due to the ongoing COVID-19 pandemic and the Organization of Petroleum Exporting Countries (“OPEC”) and Russia price war in early 2020, we identified that it was more likely than not that the fair value of goodwill within our Cementing Equipment reporting unit was less than its carrying value. Based on the result of our goodwill impairment test as of March 31, 2020, we recorded a $57.1 million impairment charge to goodwill, which is included in goodwill impairment on the condensed consolidated statements of operations.
We used the income approach to estimate the fair value of the Cementing Equipment reporting unit, but also considered the market approach to validate the results. The income approach estimates the fair value by discounting the reporting unit’s estimated future cash flows using an estimated discount rate, or expected return, that a marketplace participant would have required as of the valuation date. The market approach includes the use of comparative multiples to corroborate the discounted cash flow results and involves significant judgment in the selection of the appropriate peer group companies and valuation multiples. The inputs used in the determination of fair value are generally level 3 inputs.
Some of the more significant assumptions inherent in the income approach include the estimated future net annual cash flows for the reporting unit and the discount rate. We selected the assumptions used in the discounted cash flow projections using historical data supplemented by current and anticipated market conditions and estimated growth rates. Our estimates are based upon assumptions believed to be reasonable. However, given the inherent uncertainty in determining the assumptions underlying a discounted cash flow analysis, actual results may differ from those used in our valuation which could result in additional impairment charges in the future. Assuming all other assumptions and inputs used in the discounted cash flow analysis were held constant, a 50 basis point increase in the discount rate assumption would have increased the goodwill impairment charge by approximately $4.3 million.
No goodwill impairment was recorded during the three months ended March 31, 2021. At March 31, 2021, goodwill is allocated to our reportable segments as follows: Cementing Equipment - approximately $24.1 million; Tubular Running Services - approximately $18.7 million.
Intangible Assets
Identifiable intangible assets are amortized using the straight-line method over the estimated useful lives of the assets. We evaluate impairment of our intangible assets on an asset group basis whenever circumstances indicate that the carrying value may not be recoverable. Intangible assets deemed to be impaired are written down to their fair value using a discounted cash flow model and, if available, comparable market values.
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information related to our intangible assets as of March 31, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Total
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Total
|
Customer Relationships
|
|
$
|
28,300
|
|
|
$
|
(26,917)
|
|
|
$
|
1,383
|
|
|
$
|
28,300
|
|
|
$
|
(26,324)
|
|
|
$
|
1,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual Property
|
|
18,136
|
|
|
(8,457)
|
|
|
9,679
|
|
|
13,860
|
|
|
(7,939)
|
|
|
5,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
46,436
|
|
|
$
|
(35,374)
|
|
|
$
|
11,062
|
|
|
$
|
42,160
|
|
|
$
|
(34,263)
|
|
|
$
|
7,897
|
|
Our intangible assets are primarily associated with our Cementing Equipment and Tubular Running Services segments. Amortization expense for intangible assets was $1.1 million and $1.7 million for the three months ended March 31, 2021 and 2020, respectively. During the first quarter of 2020, the results of the Company's test for impairment of goodwill in the Cementing Equipment segment as a result of the negative market indicators described above was a triggering event that indicated that our intangible assets in this segment were impaired. Impairment testing performed in the first quarter resulted in the determination that certain intangible assets were not recoverable and that the estimated fair value was below the carrying value. As a result, during the three months ended March 31, 2020, impairment charges of $4.7 million were recorded associated with certain customer relationships and intellectual property intangible assets in our Cementing Equipment segment, which are included in severance and other charges, net on the condensed consolidated statements of operations. No intangible asset impairment was recorded during the three months ended March 31, 2021. Please see Note 15—Severance and Other Charges, net for additional details.
Note 7—Other Assets
Other assets at March 31, 2021 and December 31, 2020 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Cash surrender value of life insurance policies (1)
|
$
|
26,586
|
|
|
$
|
26,167
|
|
Deposits
|
2,023
|
|
|
2,182
|
|
Other
|
2,298
|
|
|
2,510
|
|
Total other assets
|
$
|
30,907
|
|
|
$
|
30,859
|
|
(1)See Note 10—Fair Value Measurements for additional information.
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8—Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at March 31, 2021 and December 31, 2020 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Accounts payable
|
$
|
30,999
|
|
|
$
|
22,277
|
|
Accrued compensation
|
22,884
|
|
|
23,212
|
|
Accrued property and other taxes
|
13,294
|
|
|
14,420
|
|
Accrued severance and other charges
|
97
|
|
|
2,666
|
|
Income taxes
|
14,364
|
|
|
16,029
|
|
Affiliated (1)
|
2,238
|
|
|
2,513
|
|
Accrued purchase orders and other
|
23,209
|
|
|
18,869
|
|
Total accounts payable and accrued liabilities
|
$
|
107,085
|
|
|
$
|
99,986
|
|
(1)Represents amounts owed to non-consolidated affiliates.
Note 9—Debt
Credit Facility
Asset Based Revolving Credit Facility
On November 5, 2018, FICV, Frank’s International, LLC and Blackhawk, as borrowers, and FINV, certain of FINV’s subsidiaries, including FICV, Frank’s International, LLC, Blackhawk, Frank’s International GP, LLC, Frank’s International, LP, Frank’s International LP B.V., Frank’s International Partners B.V., Frank’s International Management B.V., Blackhawk Intermediate Holdings, LLC, Blackhawk Specialty Tools, LLC, and Trinity Tool Rentals, L.L.C., as guarantors, entered into a 5-year senior secured revolving credit facility (the “ABL Credit Facility”) with JPMorgan Chase Bank, N.A., as administrative agent (the “ABL Agent”), and other financial institutions as lenders with total commitments of $100.0 million including up to $15.0 million available for letters of credit. Subject to the terms of the ABL Credit Facility, we have the ability to increase the commitments to $200.0 million. The maximum amount that the Company may borrow under the ABL Credit Facility is subject to a borrowing base, which is based on a percentage of certain eligible accounts receivable and eligible inventory, subject to customary reserves and other adjustments.
All obligations under the ABL Credit Facility are fully and unconditionally guaranteed jointly and severally by FINV’s subsidiaries, including FICV, Frank’s International, LLC, Blackhawk, Frank’s International GP, LLC, Frank’s International, LP, Frank’s International LP B.V., Frank’s International Partners B.V., Frank’s International Management B.V., Blackhawk Intermediate Holdings, LLC, Blackhawk Specialty Tools, LLC, and Trinity Tool Rentals, L.L.C., subject to customary exceptions and exclusions. In addition, the obligations under the ABL Credit Facility are secured by first priority liens on substantially all of the assets and property of the borrowers and guarantors, including pledges of equity interests in certain of FINV’s subsidiaries, subject to certain exceptions. Borrowings under the ABL Credit Facility bear interest at FINV’s option at either (a) the Alternate Base Rate (“ABR”) (as defined therein), calculated as the greatest of (i) the rate of interest publicly quoted by the Wall Street Journal, as the “prime rate,” subject to each increase or decrease in such prime rate effective as of the date such change occurs, (ii) the federal funds effective rate that is subject to a 0.00% interest rate floor plus 0.50%, and (iii) the one-month Adjusted LIBO Rate (as defined therein) plus 1.00%, or (b) the Adjusted LIBO Rate, plus, in each case, an applicable margin. The applicable interest rate margin ranges from 1.00% to 1.50% per annum for ABR loans and 2.00% to 2.50% per annum for Eurodollar loans and, in each case, is based on FINV’s leverage ratio. The unused portion of the ABL Credit Facility is subject to a commitment fee that varies from 0.250% to 0.375% per
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
annum, according to average daily unused commitments under the ABL Credit Facility. Interest on Eurodollar loans is payable at the end of the selected interest period, but no less frequently than quarterly. Interest on ABR loans is payable monthly in arrears.
The ABL Credit Facility contains various covenants and restrictive provisions which limit, subject to certain customary exceptions and thresholds, FINV’s 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 ABL Credit Facility also requires FINV to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 based on the ratio of (a) consolidated EBITDA (as defined therein) minus unfinanced capital expenditures to (b) Fixed Charges (as defined therein), when either (i) an event of default occurs under the ABL Credit Facility or (ii) availability under the ABL Credit Facility falls for at least two consecutive calendar days below the greater of (A) $12.5 million and (B) 15% of the lesser of the borrowing base and aggregate commitments (a “FCCR Trigger Event”). Accounts receivable received by FINV’s U.S. subsidiaries that are parties to the ABL Credit Facility will be deposited into deposit accounts subject to deposit control agreements in favor of the ABL Agent. After a FCCR Trigger Event, these deposit accounts would be subject to “springing” cash dominion. After a FCCR Trigger Event, the Company will be subject to compliance with the fixed charge coverage ratio and “springing” cash dominion until no default exists under the ABL Credit Facility and availability under the facility for the preceding thirty consecutive days has been equal to at least the greater of (x) $12.5 million and (y) 15% of the lesser of the borrowing base and the aggregate commitments. If FINV fails to perform its obligations under the agreement that results in an event of default, the commitments under the ABL Credit Facility could be terminated and any outstanding borrowings under the ABL Credit Facility may be declared immediately due and payable. The ABL Credit Facility also contains cross default provisions that apply to FINV’s other indebtedness.
As of March 31, 2021, FINV had no borrowings outstanding under the ABL Credit Facility, letters of credit outstanding of $10.3 million and availability of $23.5 million.
In connection with the closing of the Merger, Frank’s expects that the Combined Company will enter into a new revolving credit facility and terminate or otherwise replace the existing Frank’s and Expro credit facilities.
Note 10—Fair Value Measurements
We follow fair value measurement authoritative accounting guidance for measuring fair values of assets and liabilities in financial statements. We have consistently used the same valuation techniques for all periods presented. Please see Note 9—Fair Value Measurements in our Annual Report for further discussion.
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A summary of financial assets and liabilities that are measured at fair value on a recurring basis, as of March 31, 2021 and December 31, 2020, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
March 31, 2021
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
Cash surrender value of life insurance policies - deferred compensation plan
|
$
|
—
|
|
|
$
|
26,586
|
|
|
$
|
—
|
|
|
$
|
26,586
|
|
Marketable securities - other
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
—
|
|
|
20,125
|
|
|
—
|
|
|
20,125
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
Cash surrender value of life insurance policies - deferred compensation plan
|
$
|
—
|
|
|
$
|
26,167
|
|
|
$
|
—
|
|
|
$
|
26,167
|
|
Marketable securities - other
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
—
|
|
|
20,271
|
|
|
—
|
|
|
20,271
|
|
Our investments associated with our deferred compensation plan consist primarily of the cash surrender value of life insurance policies and are included in other assets on the condensed consolidated balance sheets. Our investments change as a result of contributions, payments, and fluctuations in the market. Our liabilities associated with our deferred compensation plan are included in other non-current liabilities on the condensed consolidated balance sheets. 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. We also have marketable securities in publicly traded equity securities as an indirect result of strategic investments. They are reported at fair value based on the price of the stock and are included in other assets on the condensed consolidated balance sheets.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
We apply the provisions of the fair value measurement standard to our non-recurring, non-financial measurements including business combinations and assets identified as held for sale, as well as impairment related to goodwill and other long-lived assets.
We perform our goodwill impairment assessment for each reporting unit by comparing the estimated fair value of each reporting unit to the reporting unit’s carrying value, including goodwill. We estimate the fair value for each reporting unit using a discounted cash flow analysis based on management’s short-term and long-term forecast of operating performance. This analysis includes significant assumptions regarding discount rates, revenue growth rates, expected profitability margins, forecasted capital expenditures and the timing of expected future cash flows based on market conditions. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is measured and recorded.
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
When conducting an impairment test on long-lived assets, other than goodwill, we first compare estimated future undiscounted cash flows associated with the asset to the asset’s carrying amount. If the undiscounted cash flows are less than the asset’s carrying amount, we then determine the asset’s fair value by using a discounted cash flow analysis. These analyses are based on estimates such as management’s short-term and long-term forecast of operating performance, including revenue growth rates and expected profitability margins, estimates of the remaining useful life and service potential of the asset, and a discount rate based on our weighted average cost of capital.
The impairment assessments discussed above incorporate inherent uncertainties, including projected commodity pricing, supply and demand for our services and future market conditions, which are difficult to predict in volatile economic environments and could result in impairment charges in future periods if actual results materially differ from the estimated assumptions utilized in our forecasts. If crude oil prices decline significantly and remain at low levels for a sustained period of time, we could be required to record an impairment of the carrying value of our long-lived assets in the future which could have a material adverse impact on our operating results. Given the unobservable nature of the inputs, the discounted cash flow models are deemed to use Level 3 inputs.
Other Fair Value Considerations
The carrying values on our condensed consolidated balance sheets of our cash and cash equivalents, restricted cash, short-term investments, trade accounts receivable, other current assets, accounts payable and accrued liabilities and lines of credit approximate fair values due to their short maturities.
Note 11—Related Party Transactions
We have engaged in certain transactions with other companies related to us by common ownership. We have entered into various operating leases to lease facilities from these affiliated companies. Rent expense associated with our related party leases was $0.7 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, $3.1 million of our operating lease right-of-use assets and $4.5 million of our lease liabilities were associated with related party leases.
Tax Receivable Agreement and Amended & Restated Tax Receivable Agreement
Mosing Holdings converted all of its shares of our Series A convertible preferred stock into shares of our common stock on August 26, 2016, in connection with its delivery to FINV of all of its interests in FICV (the “Conversion”). As a result of an election under Section 754 of the Internal Revenue Code made by FICV, the Conversion resulted in an adjustment to the tax basis of the tangible and intangible assets of FICV with respect to the portion of FICV transferred to FINV by Mosing Holdings. These adjustments are solely allocable to FINV. The adjustments to the tax basis of the tangible and intangible assets of FICV described above would not have been available absent the Conversion. The basis adjustments may reduce the amount of tax that FINV would otherwise be required to pay in the future. These basis adjustments may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
The tax receivable agreement (the “TRA”) that we entered into with FICV and Mosing Holdings in connection with our initial public offering (“IPO”) generally provides for the payment by FINV to Mosing Holdings of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that we actually realize (or are deemed to realize in certain circumstances) in periods after our IPO as a result of (i) tax basis increases resulting from the Conversion and (ii) imputed interest deemed to be paid by FINV as a result of, and additional tax basis arising from, payments under the TRA. We will retain the benefit of the remaining 15% of these cash savings, if any. Payments FINV makes under the TRA will be increased by any interest accrued from the due date (without extensions) of the corresponding tax return to the date of payment specified by the TRA. The payments under the TRA will not be conditioned upon a holder of rights under the TRA having a continued ownership interest in FINV.
The estimation of the amount and timing of payments under the TRA is by its nature imprecise. For purposes of the TRA, cash savings in tax generally are calculated by comparing FINV’s actual tax liability to the amount FINV would have been required to pay had it not been able to utilize any of the tax benefits subject to the TRA. The
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
amounts payable, as well as the timing of any payments, under the TRA are dependent upon significant future events and assumptions, including the amount and timing of the taxable income FINV generates in the future. As of March 31, 2021, FINV has had a cumulative loss over the prior 36-month period. Based on this history of losses, as well as uncertainty regarding the timing and amount of future taxable income, we are no longer able to conclude that there will be future cash savings that will lead to additional payouts under the TRA. Additional TRA liability may be recognized in the future based on changes in expectations regarding the timing and likelihood of future cash savings.
The payment obligations under the TRA are FINV’s obligations and are not obligations of FICV. The term of the TRA commenced upon the completion of the IPO and will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless FINV elects to exercise its right to terminate the TRA (or the TRA is terminated due to other circumstances, including our breach of a material obligation thereunder or certain mergers or other changes of control), and FINV makes the termination payment specified by the TRA, or FINV otherwise settles its obligations under the TRA. If FINV elects to terminate the TRA early, which it may do in its sole discretion (or if it terminates early as a result of our breach), it would be required to make a substantial, immediate lump-sum payment equal to the present value of the hypothetical future payments that could be required to be paid under the TRA (based upon certain assumptions and deemed events set forth in the TRA, including the assumption that it has sufficient taxable income to fully utilize such benefits), determined by applying a discount rate equal to the long-term Treasury rate in effect on the applicable date plus 300 basis points. Any early termination payment may be made significantly in advance of the actual realization, if any, of such future benefits. In addition, payments due under the TRA will be similarly accelerated following certain mergers or other changes of control. In these situations, FINV’s obligations under the TRA could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. For example, if the TRA were terminated on March 31, 2021, the estimated termination payment would be approximately $70.0 million (calculated using a discount rate of 4.15%). The foregoing number is merely an estimate and the actual payment could differ materially.
Because FINV is a holding company with no operations of its own, its ability to make payments under the TRA is dependent on the ability of our operating subsidiaries to make distributions to it in an amount sufficient to cover FINV’s obligations under such agreement. The ability of certain of our operating subsidiaries to make such distributions will be subject to, among other things, the applicable provisions of Dutch law that may limit the amount of funds available for distribution and restrictions in our debt instruments. To the extent that FINV is unable to make payments under the TRA for any reason (except in the case of an acceleration of payments thereunder occurring in connection with an early termination of the TRA or certain mergers or change of control) such payments will be deferred and will accrue interest until paid, and FINV will be prohibited from paying dividends on its common stock.
In connection with the Merger Agreement, FINV, FICV and Mosing Holdings entered into the A&R TRA, pursuant to which FINV, FICV and Mosing Holdings have agreed, among other things, to settle the early termination payment obligation that would otherwise be owed to Mosing Holdings under the TRA as a result of the Merger by the payment by FINV to Mosing Holdings of (i) $15 million cash at the closing of the Transactions and (ii) certain other contingent payments in the future in the event the Combined Company realizes cash tax savings from tax attributes covered under the TRA during the ten year period following the Closing Date (as defined in the Merger Agreement) in excess of $18,057,000, as more fully described in the A&R TRA. The terms of the A&R TRA are conditioned upon and subject to the closing of the Transactions and the payment to Mosing Holdings of the $15 million cash payment at the closing of the Transactions. If such conditions do not occur, the A&R TRA will be terminated and will be null and void, and the TRA will remain in effect in accordance with its terms. Please see Note 1—Basis of Presentation in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional details regarding the Merger, the Merger Agreement and the Transactions.
Note 12—Loss Per Common Share
Basic loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is determined by dividing net loss by the weighted average number of common shares outstanding, assuming all potentially dilutive shares were issued. We apply the
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
treasury stock method to determine the dilutive weighted average common shares represented by unvested restricted stock units and employee stock purchase plan (“ESPP”) shares.
The following table summarizes the basic and diluted loss per share calculations (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Numerator
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
$
|
(23,886)
|
|
|
$
|
(85,978)
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares (1)
|
|
|
|
|
227,019
|
|
|
225,505
|
|
Loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
$
|
(0.11)
|
|
|
$
|
(0.38)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Approximate number of unvested restricted stock units and stock to be issued pursuant to the ESPP that have been excluded from the computation of diluted loss per share as the effect would be anti-dilutive when results from operations are at a net loss position.
|
|
|
|
|
2,252
|
|
|
2,015
|
|
Note 13—Income Taxes
For interim financial reporting, we estimate the annual tax rate based on projected pre-tax income (loss) for the full year and record a quarterly income tax provision (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) 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 provision (benefit) during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the most current expected annual tax rate.
Our effective tax rate was (4.7)% and 15.3% for the three months ended March 31, 2021 and 2020, respectively. The quarterly variance in effective tax rates is primarily due to the beneficial impact in the prior year period from the five-year net operating loss carryback provision included in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), as well as a change in the geographical mix of income. We are subject to tax in many U.S. and non-U.S. jurisdictions. In many non-U.S. jurisdictions we are taxed on bases such as deemed profits or withholding taxes based on revenue. Consequently, the level of correlation between our pre-tax income and our income tax provision varies from period to period.
We are under audit by certain non-U.S. jurisdictions for the years 2008 - 2019. We do not expect the results of these audits to have any material effect on our financial statements.
As of March 31, 2021, there were no significant changes to our uncertain tax positions as reported in our audited financial statements for the year ended December 31, 2020.
Note 14—Commitments and Contingencies
We are the subject of lawsuits and claims arising in the ordinary course of business from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. We had no material accruals for loss contingencies, individually or in the aggregate, as of March 31, 2021 and December 31, 2020. We believe the probability is remote that the ultimate outcome of these matters would have a material adverse effect on our financial position, results of operations or cash flows.
We are conducting an internal investigation of the operations of certain of our foreign subsidiaries in West Africa including possible violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), our policies and other
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
applicable laws. In June 2016, we voluntarily disclosed the existence of our extensive internal review to the SEC, the U.S. Department of Justice (“DOJ”) and other governmental entities. It is our intent to continue to fully cooperate with these agencies and any other applicable authorities in connection with any further investigation that may be conducted in connection with this matter. While our review has not indicated that there has been any material impact on our previously filed financial statements, we have continued to collect information and cooperate with the authorities, but at this time are unable to predict the ultimate resolution of these matters with these agencies.
As disclosed above, our investigation into possible violations of the FCPA remains ongoing, and we will continue to cooperate with the SEC, DOJ and other relevant governmental entities in connection therewith. At this time, we are unable to predict the ultimate resolution of these matters with these agencies, including any financial impact to us. Our Board and management are committed to continuously enhancing our internal controls that support improved compliance and transparency throughout our global operations.
Note 15—Severance and Other Charges, net
We recognize severance and other charges for costs associated with workforce reductions, facility closures, exiting or reducing our footprint in certain countries, asset impairments and the retirement of excess machinery and equipment based on economic utility. As a result of the downturn in the industry and its impact on our business outlook, we continue to take actions to adjust our operations and cost structure to reflect current and expected activity levels. Depending on future market conditions, further actions may be necessary to adjust our operations, which may result in additional charges.
Our severance and other charges, net are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2021
|
|
2020
|
Severance and other costs
|
|
|
|
|
|
$
|
265
|
|
|
$
|
538
|
|
Mergers and acquisition expense
|
|
|
|
|
|
6,804
|
|
|
—
|
|
Fixed asset impairments and retirements
|
|
|
|
|
|
171
|
|
|
15,479
|
|
Inventory write-offs
|
|
|
|
|
|
136
|
|
|
—
|
|
Intangible asset impairments
|
|
|
|
|
|
—
|
|
|
4,708
|
|
|
|
|
|
|
|
$
|
7,376
|
|
|
$
|
20,725
|
|
Severance and other costs: We incurred costs due to a continued effort to adjust our cost base, including reducing our workforce to meet the depressed demand in the industry.
Mergers and acquisition expense: During the three months ended March 31, 2021, we incurred $6.8 million of costs, primarily related to legal and consulting services, associated with the pending merger with Expro.
Fixed asset impairments and retirements: During the three months ended March 31, 2020, we recognized $15.5 million primarily associated with construction in progress in our Cementing Equipment segment. During the three months ended March 31, 2021, we recognized a $0.2 million impairment associated our with construction in progress in our Tubular Running Services segment. Please see Note 5—Property, Plant and Equipment for additional details.
Inventory write-offs: During the three months ended March 31, 2021, certain inventories in our Tubular Running Services segment were determined to have costs that exceeded their net realizable values, resulting in a charge of $0.1 million.
Intangible asset impairments: During the three months ended March 31, 2020, we identified certain intangible assets where the carrying value exceeded the fair value in the Cementing Equipment segment, resulting in an
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
impairment charge of $4.7 million. No impairment was recorded during the three months ended March 31, 2021. Please see Note 6—Goodwill and Intangible Assets for additional details.
Note 16—Segment Information
Reporting Segments
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") in deciding how to allocate resources and assess performance. We are comprised of three reportable segments: Tubular Running Services (“TRS”) segment, Tubulars segment and Cementing Equipment (“CE”) segment.
The TRS segment provides tubular running services globally. Internationally, the TRS segment operates in the majority of the offshore oil and gas markets and also in several onshore regions with operations in approximately 40 countries on six continents. In the U.S., the TRS segment provides services in the active onshore oil and gas drilling regions, including the Permian Basin, Eagle Ford Shale, Haynesville Shale, Marcellus Shale and Utica Shale, and in the U.S. Gulf of Mexico. Our customers are primarily large exploration and production companies, including international oil and gas companies, national oil and gas companies, major independents and other oilfield service companies.
The Tubulars segment designs, manufactures and distributes connectors and casing attachments for large outside diameter (“OD”) heavy wall pipe. Additionally, the Tubulars segment sells large OD pipe originally manufactured by various pipe mills, as plain end or fully fabricated with proprietary welded or thread-direct connector solutions and provides specialized fabrication and welding services in support of offshore deepwater projects, including drilling and production risers, flowlines and pipeline end terminations, as well as long-length tubular assemblies up to 400 feet in length. The Tubulars segment also specializes in the development, manufacture and supply of proprietary drilling tool solutions that focus on improving drilling productivity through eliminating or mitigating traditional drilling operational risks.
The CE segment provides specialty equipment to enhance the safety and efficiency of rig operations. It provides specialized equipment, services and products utilized in the construction of the wellbore in both onshore and offshore environments. The product portfolio includes casing accessories that serve to improve the installation of casing, centralization and wellbore zonal isolation, as well as enhance cementing operations through advance wiper plug and float equipment technology. The CE segment also provides services and products utilized in the construction, completion or abandonment of the wellbore. These solutions are primarily used to isolate portions of the wellbore through the setting of barriers downhole to allow for rig evacuation in case of inclement weather, maintenance work on other rig equipment, squeeze cementing, pressure testing within the wellbore and temporary and permanent abandonments. These offerings improve operational efficiencies and limit non-productive time if unscheduled events are encountered at the wellsite.
Revenue
We disaggregate our revenue from contracts with customers by geography for each of our segments, as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Intersegment revenue is immaterial.
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following tables presents our revenue disaggregated by geography, based on the location where our services were provided and products sold (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
Tubular Running Services
|
|
Tubulars
|
|
Cementing Equipment
|
|
Consolidated
|
United States
|
$
|
18,367
|
|
|
$
|
7,993
|
|
|
$
|
9,345
|
|
|
$
|
35,705
|
|
International
|
47,918
|
|
|
3,676
|
|
|
7,512
|
|
|
59,106
|
|
Total Revenue
|
$
|
66,285
|
|
|
$
|
11,669
|
|
|
$
|
16,857
|
|
|
$
|
94,811
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Tubular Running Services
|
|
Tubulars
|
|
Cementing Equipment
|
|
Consolidated
|
United States
|
$
|
30,169
|
|
|
$
|
9,797
|
|
|
$
|
13,531
|
|
|
$
|
53,497
|
|
International
|
59,328
|
|
|
2,745
|
|
|
7,922
|
|
|
69,995
|
|
Total Revenue
|
$
|
89,497
|
|
|
$
|
12,542
|
|
|
$
|
21,453
|
|
|
$
|
123,492
|
|
Revenue by geographic area were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
United States
|
|
|
|
|
$
|
35,705
|
|
|
$
|
53,497
|
|
Europe/Middle East/Africa
|
|
|
|
|
28,254
|
|
|
35,434
|
|
Latin America
|
|
|
|
|
21,934
|
|
|
20,925
|
|
Asia Pacific
|
|
|
|
|
7,653
|
|
|
9,569
|
|
Other countries
|
|
|
|
|
1,265
|
|
|
4,067
|
|
Total Revenue
|
|
|
|
|
$
|
94,811
|
|
|
$
|
123,492
|
|
Adjusted EBITDA
We define Adjusted EBITDA as net income (loss) before interest income, net, depreciation and amortization, income tax benefit or expense, asset impairments, gain or loss on disposal of assets, foreign currency gain or loss, equity-based compensation, unrealized and realized gain or loss, net severance and other charges, other non-cash adjustments and other charges. We review Adjusted EBITDA on both a consolidated basis and on a segment basis. We use Adjusted EBITDA to assess our financial performance because it allows us to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization), income tax, foreign currency exchange rates and other charges and credits. Adjusted EBITDA has limitations as an analytical tool and should not be considered as an alternative to net income (loss), operating income (loss), cash flow from operating activities or any other measure of financial performance presented in accordance with GAAP.
Our CODM uses Adjusted EBITDA as the primary measure of segment reporting performance.
FRANK’S INTERNATIONAL N.V.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a reconciliation of Segment Adjusted EBITDA to net loss (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Segment Adjusted EBITDA:
|
|
|
|
|
|
|
|
Tubular Running Services
|
|
|
|
|
$
|
8,128
|
|
|
$
|
13,305
|
|
Tubulars
|
|
|
|
|
639
|
|
|
1,396
|
|
Cementing Equipment
|
|
|
|
|
4,795
|
|
|
2,544
|
|
Corporate (1)
|
|
|
|
|
(6,909)
|
|
|
(10,186)
|
|
|
|
|
|
|
6,653
|
|
|
7,059
|
|
Goodwill impairment
|
|
|
|
|
—
|
|
|
(57,146)
|
|
Severance and other charges, net
|
|
|
|
|
(7,376)
|
|
|
(20,725)
|
|
Interest income (expense), net
|
|
|
|
|
(287)
|
|
|
533
|
|
Depreciation and amortization
|
|
|
|
|
(16,107)
|
|
|
(19,718)
|
|
Income tax (expense) benefit
|
|
|
|
|
(1,070)
|
|
|
15,563
|
|
Gain (loss) on disposal of assets
|
|
|
|
|
182
|
|
|
(60)
|
|
Foreign currency loss
|
|
|
|
|
(2,868)
|
|
|
(9,892)
|
|
|
|
|
|
|
|
|
|
Charges and credits (2)
|
|
|
|
|
(3,013)
|
|
|
(1,592)
|
|
Net loss
|
|
|
|
|
$
|
(23,886)
|
|
|
$
|
(85,978)
|
|
(1) Includes certain expenses not attributable to a particular segment, such as costs related to support functions and corporate executives.
(2) Comprised of Equity-based compensation expense (for the three months ended March 31, 2021 and 2020: $2,872 and $2,146, respectively), Unrealized and realized gains (losses) (for the three months ended March 31, 2021 and 2020: $(99) and $1,704, respectively) and Investigation-related matters (for the three months ended March 31, 2021 and 2020: $42 and $1,150, respectively).
The following tables set forth certain financial information with respect to our reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tubular Running Services
|
|
Tubulars
|
|
Cementing Equipment
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
$
|
66,285
|
|
|
$
|
11,669
|
|
|
$
|
16,857
|
|
|
$
|
—
|
|
|
$
|
94,811
|
|
Operating income (loss)
|
(5,452)
|
|
|
(875)
|
|
|
1,993
|
|
|
(15,452)
|
|
|
(19,786)
|
|
Adjusted EBITDA
|
8,128
|
|
|
639
|
|
|
4,795
|
|
|
(6,909)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
$
|
89,497
|
|
|
$
|
12,542
|
|
|
$
|
21,453
|
|
|
$
|
—
|
|
|
$
|
123,492
|
|
Operating income (loss)
|
(1,315)
|
|
|
651
|
|
|
(77,498)
|
|
|
(16,046)
|
|
|
(94,208)
|
|
Adjusted EBITDA
|
13,305
|
|
|
1,396
|
|
|
2,544
|
|
|
(10,186)
|
|
|
*
|
* Non-GAAP financial measure not disclosed.
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;
•The merger with Expro Group Holdings International Limited (“Expro”), (the “Merger”);
•our cash flows and liquidity;
•our financial strategy, budget, projections and operating results;
•the amount, nature and timing of capital expenditures;
•the availability and terms of capital;
•competition and government regulations; and
•general economic conditions.
Our forward-looking statements are generally accompanied by words such as “anticipate,” “believe,” “estimate,” “expect,” “goal,” “plan,” “potential,” “predict,” “project,” 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:
•continuing uncertainty relating to global crude oil demand and crude oil prices that correspondingly may lead to further significant reductions in domestic oil and gas activity, which in turn could result in further significant declines in demand for our products and services;
•uncertainty regarding the extent and duration of the remaining restrictions in the United States and globally on various commercial and economic activities due to the COVID-19 virus, including uncertainty regarding the re-imposition of restrictions due to resurgences in infection rates; such restrictions are designed to protect public health but also have the effect of significantly reducing demand for oil and gas, which may correspondingly decrease demand for our products and services;
•uncertainty regarding the timing, pace and extent of an economic recovery in the United States and elsewhere, which in turn will likely affect demand for crude oil and therefore the demand for the products and services we provide and the commercial opportunities available to us;
•the impact of current and future laws, rulings, governmental regulations, accounting standards and statements, and related interpretations;
•unique risks associated with our offshore operations;
•political, economic and regulatory uncertainties in our international operations;
•our ability to develop new technologies and products;
•our ability to protect our intellectual property rights;
•our ability to employ and retain skilled and qualified workers;
•the level of competition in our industry;
•operational safety laws and regulations;
•international trade laws and sanctions;
•weather conditions and natural disasters;
•global or national health concerns, including health epidemics, including COVID-19;
•policy or regulatory changes domestically in the United States;
•risks and conditions that apply to Expro, which may be different from risks that apply to us;
•unforeseen consequences of the Merger;
•failure to complete the Merger or changes in the expected timing of the completion of the Merger;
•completion of the Merger following unforeseen changes in circumstance;
•uncertainty with respect to integration and realization of expected cost synergies following completion of the Merger; and
•litigation risk associated with the Merger.
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, 2020, filed with the SEC on March 1, 2021 (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.
Consolidated Results of Operations
The following table presents our consolidated results for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
(Unaudited)
|
Revenue:
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
$
|
81,523
|
|
|
$
|
105,083
|
|
Products
|
|
|
|
|
13,288
|
|
|
18,409
|
|
Total revenue
|
|
|
|
|
94,811
|
|
|
123,492
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of revenue, exclusive of depreciation and amortization
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
63,935
|
|
|
79,380
|
|
Products
|
|
|
|
|
10,914
|
|
|
13,988
|
|
General and administrative expenses
|
|
|
|
|
16,447
|
|
|
26,683
|
|
Depreciation and amortization
|
|
|
|
|
16,107
|
|
|
19,718
|
|
Goodwill impairment
|
|
|
|
|
—
|
|
|
57,146
|
|
Severance and other charges, net
|
|
|
|
|
7,376
|
|
|
20,725
|
|
(Gain) loss on disposal of assets
|
|
|
|
|
(182)
|
|
|
60
|
|
Operating loss
|
|
|
|
|
(19,786)
|
|
|
(94,208)
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
|
|
125
|
|
|
2,026
|
|
Interest income (expense), net
|
|
|
|
|
(287)
|
|
|
533
|
|
|
|
|
|
|
|
|
|
Foreign currency loss
|
|
|
|
|
(2,868)
|
|
|
(9,892)
|
|
Total other expense
|
|
|
|
|
(3,030)
|
|
|
(7,333)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
|
(22,816)
|
|
|
(101,541)
|
|
Income tax expense (benefit)
|
|
|
|
|
1,070
|
|
|
(15,563)
|
|
Net loss
|
|
|
|
|
$
|
(23,886)
|
|
|
$
|
(85,978)
|
|
Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
Revenue. Revenue from external customers, excluding intersegment sales, for the three months ended March 31, 2021 decreased by $28.7 million, or 23.2%, to $94.8 million from $123.5 million for the three months ended March 31, 2020. Revenue decreased across all segments due to the COVID-19 pandemic and the sharp decline in oil prices. Revenue for our segments is discussed separately below under the heading “Operating Segment Results.”
Cost of revenue, exclusive of depreciation and amortization. Cost of revenue for the three months ended March 31, 2021 decreased by $18.6 million, or 19.9%, to $74.8 million from $93.4 million for the three months ended March 31, 2020. The decrease was driven by lower activity levels and mix of work in the TRS, Tubulars and CE segments.
General and administrative expenses. General and administrative expenses for the three months ended March 31, 2021 decreased by $10.3 million, or 38.6%, to $16.4 million from $26.7 million for the three months ended March 31, 2020 due to the restructuring and cost cutting measures we implemented during 2020.
Depreciation and amortization. Depreciation and amortization for the three months ended March 31, 2021 decreased by $3.6 million, or 18.3%, to $16.1 million from $19.7 million for the three months ended March 31, 2020, as a result of a lower depreciable base and less intangible asset amortization.
Goodwill impairment. There was no goodwill impairment charge during the three months ended March 31, 2021. We recognized a goodwill impairment of $57.1 million during the three months ended March 31, 2020. See Note 6—Goodwill and Intangible Assets in the Notes to Unaudited Condensed Consolidated Financial Statements for additional information.
Severance and other charges, net. Severance and other charges, net for the three months ended March 31, 2021 decreased by $13.3 million to $7.4 million from $20.7 million for the three months ended March 31, 2020. Severance and other charges, net for the three months ended March 31, 2020 was unfavorably impacted by fixed asset impairment charges of $15.5 million and intangible asset impairments of $4.7 million, primarily driven by COVID-19-related activity disruptions and customer spending cuts in response to falling oil prices. Severance and other charges, net for the three months ended March 31, 2021 includes $6.8 million of mergers and acquisition costs associated with the pending merger with Expro. See Note 15—Severance and Other Charges, net in the Notes to Unaudited Condensed Consolidated Financial Statements for additional information.
Foreign currency loss. Foreign currency loss for the three months ended March 31, 2021 decreased by $7.0 million, to $2.9 million compared to $9.9 million for the three months ended March 31, 2020. The change in foreign currency results year-over-year was primarily driven by reduced strengthening of the U.S. dollar in the current period as compared to the prior year period.
Income tax expense (benefit). Income tax expense for the three months ended March 31, 2021 changed by $16.7 million to an expense of $1.1 million from a benefit of $15.6 million for the three months ended March 31, 2020. The variance in effective tax rates compared to the same period last year is due to the beneficial impact in the prior year period from the 5-year net operating loss carryback provision included in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) as well as a change in the geographical mix of income.
Operating Segment Results
The following table presents revenue and Adjusted EBITDA by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Revenue:
|
|
|
|
|
|
|
|
Tubular Running Services
|
|
|
|
|
$
|
66,285
|
|
|
$
|
89,497
|
|
Tubulars
|
|
|
|
|
11,669
|
|
|
12,542
|
|
Cementing Equipment
|
|
|
|
|
16,857
|
|
|
21,453
|
|
Total
|
|
|
|
|
$
|
94,811
|
|
|
$
|
123,492
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA (1):
|
|
|
|
|
|
|
|
Tubular Running Services
|
|
|
|
|
$
|
8,128
|
|
|
$
|
13,305
|
|
Tubulars
|
|
|
|
|
639
|
|
|
1,396
|
|
Cementing Equipment
|
|
|
|
|
4,795
|
|
|
2,544
|
|
Corporate (2)
|
|
|
|
|
(6,909)
|
|
|
(10,186)
|
|
|
|
|
|
|
$
|
6,653
|
|
|
$
|
7,059
|
|
(1)Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. (For a reconciliation of our Adjusted EBITDA, see “Adjusted EBITDA and Adjusted EBITDA Margin”).
(2)Includes certain expenses not attributable to a particular segment, such as costs related to support functions and corporate executives.
Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
Tubular Running Services
Revenue for the TRS segment was $66.3 million for the three months ended March 31, 2021, a decrease of $23.2 million, or 25.9%, compared to $89.5 million for the same period in 2020. The decrease was driven by customer spending cuts in most offshore markets and the U.S. land market.
Adjusted EBITDA for the TRS segment was $8.1 million for the three months ended March 31, 2021, a decrease of $5.2 million, or 39.1%, compared to $13.3 million for the same period in 2020. Segment results were negatively impacted by activity declines across most offshore markets and the U.S. land market.
Tubulars
Revenue for the Tubulars segment was $11.7 million for the three months ended March 31, 2021, a decrease of $0.8 million, or 6.4%, compared to $12.5 million for the same period in 2020, primarily as a result of lower drilling tools activity and lower tubular sales during the current period.
Adjusted EBITDA for the Tubulars segment was $0.6 million for the three months ended March 31, 2021, a decrease of $0.8 million, or 57.1%, compared to $1.4 million for the same period in 2020. A decrease in high margin drilling tools activity and lower tubular sales impacted the current period.
Cementing Equipment
Revenue for the CE segment was $16.9 million for the three months ended March 31, 2021, a decrease of $4.6 million, or 21.4%, compared to $21.5 million for the same period in 2020, driven by lower drilling activity and product sales in the U.S.
Adjusted EBITDA for the CE segment was $4.8 million for the three months ended March 31, 2021, an increase of $2.3 million, or 92.0%, compared to $2.5 million for the same period in 2020, primarily due to cost cutting measures that more than offset lower revenue.
Corporate
Adjusted EBITDA for Corporate was a loss of $6.9 million for the three months ended March 31, 2021, an improvement of $3.3 million, or 32.4%, compared to a loss of $10.2 million for the same period in 2020, primarily due to lower costs as a result of restructuring and cost cutting measures.
Liquidity and Capital Resources
Liquidity
At March 31, 2021, we had cash and cash equivalents and and short-term investments of $193.6 million and no debt. Our primary sources of liquidity to date have been cash flows from operations. Our primary uses of capital have been for organic growth capital expenditures. We continually monitor potential capital sources, including equity and debt financing, in order to meet our investment and target liquidity requirements. The COVID-19 pandemic has significantly reduced economic activity levels across the globe, which has resulted in lower demand for oil and natural gas, as well as for our services and products. The reduced demand for our services and products has had, and may continue to have, a material adverse impact on our business, results of operations and financial condition. In consideration of these risks, we are undertaking additional measures to protect liquidity. These
measures include increased focus on collection of receivables, enhanced customer credit review, special measures to reduce risks of high-cost inventory items, and enhanced cash reporting requirements.
Our Board has authorized a program to repurchase our common stock from time to time. Approximately $38,502,322 remained authorized for repurchases as of March 31, 2021; subject to the limitation set in our shareholder authorization for repurchases of our common stock, which is currently 10% of the common stock outstanding as of April 30, 2020. From the inception of this program in February 2020 to date, we repurchased 570,044 shares of our common stock for a total cost of approximately $1.5 million. This program was suspended during the second quarter of 2020 due to the impacts of COVID-19 and commodity price declines and will be revisited when market conditions stabilize sufficiently to provide greater clarity to anticipated business results. We expect that following the Merger, the board of directors of the Combined Company will reevaluate this program.
Our total capital expenditures are estimated to be approximately $25.0 million in 2021, of which we expect approximately 90% will be used for the purchase and manufacture of equipment and 10% for other property, plant and equipment. The actual amount of capital expenditures for the manufacture of equipment may fluctuate based on market conditions and timing of deliveries. During the three months ended March 31, 2021 and 2020, cash expenditures related to property, plant and equipment were $2.3 million and $10.0 million, respectively, all of which were funded from internally generated funds. We believe our cash on hand should be sufficient to fund our capital expenditure and liquidity requirements for the remainder of 2021. We expect that following the Merger, the board of directors of the Combined Company will reevaluate our capital expenditures plan.
Credit Facility
Asset Based Revolving Credit Facility
On November 5, 2018, FICV, Frank’s International, LLC and Blackhawk, as borrowers, and FINV, certain of FINV’s subsidiaries, including FICV, Frank’s International, LLC, Blackhawk, Frank’s International GP, LLC, Frank’s International, LP, Frank’s International LP B.V., Frank’s International Partners B.V., Frank’s International Management B.V., Blackhawk Intermediate Holdings, LLC, Blackhawk Specialty Tools, LLC, and Trinity Tool Rentals, L.L.C., as guarantors, entered into a five-year senior secured revolving credit facility (the “ABL Credit Facility”) with JPMorgan Chase Bank, N.A., as administrative agent (the “ABL Agent”), and other financial institutions as lenders with total commitments of $100.0 million including up to $15.0 million available for letters of credit. Subject to the terms of the ABL Credit Facility, we have the ability to increase the commitments to $200.0 million. The maximum amount that the Company may borrow under the ABL Credit Facility is subject to a borrowing base, which is based on a percentage of certain eligible accounts receivable and eligible inventory, subject to customary reserves and other adjustments.
All obligations under the ABL Credit Facility are fully and unconditionally guaranteed jointly and severally by FINV’s subsidiaries, including FICV, Frank’s International, LLC, Blackhawk, Frank’s International GP, LLC, Frank’s International, LP, Frank’s International LP B.V., Frank’s International Partners B.V., Frank’s International Management B.V., Blackhawk Intermediate Holdings, LLC, Blackhawk Specialty Tools, LLC, and Trinity Tool Rentals, L.L.C., subject to customary exceptions and exclusions. In addition, the obligations under the ABL Credit Facility are secured by first priority liens on substantially all of the assets and property of the borrowers and guarantors, including pledges of equity interests in certain of FINV’s subsidiaries, subject to certain exceptions. Borrowings under the ABL Credit Facility bear interest at FINV’s option at either (a) the Alternate Base Rate (“ABR”) (as defined therein), calculated as the greatest of (i) the rate of interest publicly quoted by the Wall Street Journal, as the “prime rate,” subject to each increase or decrease in such prime rate effective as of the date such change occurs, (ii) the federal funds effective rate that is subject to a 0.00% interest rate floor plus 0.50%, and (iii) the one-month Adjusted LIBO Rate (as defined therein) plus 1.00%, or (b) the Adjusted LIBO Rate, plus, in each case, an applicable margin. The applicable interest rate margin ranges from 1.00% to 1.50% per annum for ABR loans and 2.00% to 2.50% per annum for Eurodollar loans and, in each case, is based on FINV’s leverage ratio. The unused portion of the ABL Credit Facility is subject to a commitment fee that varies from 0.250% to 0.375% per
annum, according to average daily unused commitments under the ABL Credit Facility. Interest on Eurodollar loans is payable at the end of the selected interest period, but no less frequently than quarterly. Interest on ABR loans is payable monthly in arrears.
The ABL Credit Facility contains various covenants and restrictive provisions which limit, subject to certain customary exceptions and thresholds, FINV’s 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 ABL Credit Facility also requires FINV to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 based on the ratio of (a) consolidated EBITDA (as defined therein) minus unfinanced capital expenditures to (b) Fixed Charges (as defined therein), when either (i) an event of default occurs under the ABL Credit Facility or (ii) availability under the ABL Credit Facility falls for at least two consecutive calendar days below the greater of (A) $12.5 million and (B) 15% of the lesser of the borrowing base and aggregate commitments (a “FCCR Trigger Event”). Accounts receivable received by FINV’s U.S. subsidiaries that are parties to the ABL Credit Facility will be deposited into deposit accounts subject to deposit control agreements in favor of the ABL Agent. After a FCCR Trigger Event, these deposit accounts would be subject to “springing” cash dominion. After a FCCR Trigger Event, the Company will be subject to compliance with the fixed charge coverage ratio and “springing” cash dominion until no default exists under the ABL Credit Facility and availability under the facility for the preceding thirty consecutive days has been equal to at least the greater of (x) $12.5 million and (y) 15% of the lesser of the borrowing base and the aggregate commitments. If FINV fails to perform its obligations under the agreement that results in an event of default, the commitments under the ABL Credit Facility could be terminated and any outstanding borrowings under the ABL Credit Facility may be declared immediately due and payable. The ABL Credit Facility also contains cross default provisions that apply to FINV’s other indebtedness.
As of March 31, 2021, FINV had no borrowings outstanding under the ABL Credit Facility, letters of credit outstanding of $10.3 million and availability of $23.5 million. At this time, due to our expected ability to fund our capital expenditure and liquidity requirements from cash on hand, we do not anticipate a need to borrow under the ABL Credit Facility during the remainder of 2021. Further, we do not believe that an FCCR Trigger Event will occur in the remainder of 2021.
In connection with the closing of the Merger, Frank’s expects that the Combined Company will enter into a new revolving credit facility and terminate or otherwise replace the existing Frank’s and Expro credit facilities.
Tax Receivable Agreement and Amended & Restated Tax Receivable Agreement
We entered into the TRA with FICV and Mosing Holdings in connection with our IPO. The TRA generally provides for the payment by FINV to Mosing Holdings of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that FINV actually realizes (or is deemed to realize in certain circumstances) in periods after our IPO as a result of (i) tax basis increases resulting from the Conversion and (ii) imputed interest deemed to be paid by FINV as a result of, and additional tax basis arising from, payments under the TRA. We will retain the benefit of the remaining 15% of these cash savings, if any. Payments FINV makes under the TRA will be increased by any interest accrued from the due date (without extensions) of the corresponding tax return to the date of payment specified by the TRA. The payments under the TRA will not be conditioned upon a holder of rights under the TRA having a continued ownership interest in FINV. As of April 29, 2021, based on the best information available to us, the Mosing family collectively owns approximately 47% of our common shares.
The payment obligations under the TRA are FINV’s obligations and are not obligations of FICV. The term of the TRA commenced upon the completion of the IPO and will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless FINV elects to exercise its right to terminate the TRA (or the TRA is terminated due to other circumstances, including our breach of a material obligation thereunder or certain mergers or other changes of control), and FINV makes the termination payment specified by the TRA or FINV otherwise settles its obligations under the TRA.
If FINV elects to terminate the TRA early, which it may do in its sole discretion (or if it terminates early as a result of our breach), it would be required to make a substantial, immediate lump-sum payment equal to the present value of the hypothetical future payments that could be required to be paid under the TRA (based upon certain assumptions and deemed events set forth in the TRA, including the assumption that it has sufficient taxable income to fully utilize such benefits), determined by applying a discount rate equal to the long-term Treasury rate in effect on the applicable date plus 300 basis points. Any early termination payment may be made significantly in advance of the actual realization, if any, of such future benefits. In addition, payments due under the TRA will be similarly accelerated following certain mergers or other changes of control.
In certain circumstances, FINV may be required to make payments under the TRA that it has entered into with Mosing Holdings. In most circumstances, these payments will be associated with the actual cash savings that FINV recognizes from tax benefits resulting from the Conversion, which would reduce the actual tax benefit to FINV. If FINV was to elect to exercise its sole right to terminate the TRA early or enter into certain change of control transactions, FINV may incur payment obligations prior to the time it actually incurs any tax benefit. In those circumstances, FINV would need to pay the amounts out of cash on hand, finance the payments or refrain from incurring the obligation (including by not entering into a change of control transaction). Though we do not have any present intention of incurring an advance payment under the TRA (other than as described below with respect to the
A&R TRA), based on our current liquidity and our expected ability to access debt and equity financing, we believe FINV would be able to make such a payment if necessary. Any such payment could reduce our cash on hand and our borrowing availability, however, which would also reduce the amount of cash available to operate our business, to fund capital expenditures and to be paid as dividends to our stockholders, among other things.
In connection with the Merger Agreement, FINV, FICV and Mosing Holdings have entered into the A&R TRA. Pursuant to the A&R TRA, FINV, FICV and Mosing Holdings have agreed, among other things to settle the early termination payment obligation that would otherwise be owed to Mosing Holdings under the TRA as a result of the Merger by the payment by FINV to Mosing Holdings of (i) $15 million cash at the closing of the Transactions and (ii) certain other contingent payments in the future in the event the Combined Company realizes cash tax savings from tax attributes covered under the TRA during the ten year period following the Closing Date in excess of $18,057,000, as more fully described in the A&R TRA. The terms of the A&R TRA are conditioned upon and subject to the closing of the Transactions and the payment to Mosing Holdings of the $15 million cash payment at the closing of the Transactions. If such conditions do not occur, the A&R TRA will be terminated and will be null and void, and the TRA will remain in effect in accordance with its terms. Please see Note 11—Related Party Transactions in the Notes to Unaudited Condensed Consolidated Financial Statements.
Cash Flows from Operating, Investing and Financing Activities
Cash flows from our operations, investing and financing activities are summarized below (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
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|
March 31,
|
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2021
|
|
2020
|
Operating activities
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$
|
(15,481)
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|
|
$
|
(22,252)
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|
Investing activities
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(1,956)
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|
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(10,039)
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|
Financing activities
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(2,165)
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|
|
(1,521)
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|
|
(19,602)
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|
|
(33,812)
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|
Effect of exchange rate changes on cash
|
1,350
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|
|
9,327
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|
Net decrease in cash, cash equivalents and restricted cash
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$
|
(18,252)
|
|
|
$
|
(24,485)
|
|
Statements of cash flows for entities with international operations that use the local currency as the functional currency exclude the effects of the changes in foreign currency exchange rates that occur during any given year, as these are noncash changes. As a result, changes reflected in certain accounts on the condensed consolidated
statements of cash flows may not reflect the changes in corresponding accounts on the condensed consolidated balance sheets.
Operating Activities
Cash flow used in operating activities was $15.5 million for the three months ended March 31, 2021 compared to $22.3 million for the same period in 2020. The change in cash flow from operating activities of $6.8 million was primarily a result of favorable changes in accounts receivable of $9.3 million and accounts payable and accrued liabilities of $24.1 million, partially offset by unfavorable changes in inventories of $10.6 million.
Investing Activities
Cash flow used in investing activities was $2.0 million for the three months ended March 31, 2021 compared to $10.0 million in the same period in 2020, a year-over-year decrease of $8.0 million, primarily due to a $7.6 million decrease in the purchases of property, plant, equipment.
Financing Activities
Cash flow used in financing activities was $2.2 million for the three months ended March 31, 2021 compared to $1.5 million in the same period in 2020. The increase in cash flow used in financing activities of $0.7 million was due to increased treasury shares withheld for employee taxes of $0.8 million and increased repayment of borrowings of $0.7 million, partially offset by repurchases under our publicly announced share repurchase program of $1.0 million during the three months ended March 31, 2020 that did not reoccur during 2021.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements with the exception of purchase obligations.
Critical Accounting Policies
There were no changes to our significant accounting policies from those disclosed in our Annual Report.
Impact of Recent Accounting Pronouncements
Refer to Note 1—Basis of Presentation in the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of accounting standards we recently adopted or will be required to adopt.