The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes to Unaudited Condensed Consolidated Financial Statements
With roots dating to 1938, Expro Group Holdings N.V. (the “Company,” “Expro,” “we,” “our” or “us”) is a global provider of energy services with operations in approximately 60 countries. The Company’s portfolio of capabilities includes products and services related to well construction, well flow management, subsea well access, and well intervention and integrity. The Company’s portfolio of products and services enhance production and improve recovery across the well lifecycle, from exploration through abandonment.
On March 10, 2021, Frank’s International N.V. (“Frank’s”) and New Eagle Holdings Limited, an exempted company limited by shares incorporated under the laws of the Cayman Islands and a direct wholly owned subsidiary of Frank’s (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Expro Group Holdings International Limited (“Legacy Expro”), an exempted company limited by shares incorporated under the laws of the Cayman Islands, providing for the merger of Legacy Expro with and into Merger Sub in an all-stock transaction, with Merger Sub surviving the merger as a direct, wholly owned subsidiary of Frank’s (the “Merger”). The Merger closed on October 1, 2021 (the “Closing Date”), and Frank's was renamed Expro Group Holdings N.V. The Merger was accounted for using the acquisition method of accounting with Legacy Expro being identified as the accounting acquirer. The condensed consolidated financial statements of the Company reflect the condensed financial position, results of operations and cash flows of only Legacy Expro for all periods prior to the Merger and of the combined company (including activities of Frank’s) for all periods subsequent to the Merger.
Further, the supervisory board of directors of Frank’s unanimously approved a 1-for-6 reverse stock split of Frank’s common stock, which was effected on October 1, 2021. All of the outstanding share numbers, nominal value, share prices and per share amounts in these condensed consolidated financial statements have been retroactively adjusted to reflect the Exchange Ratio (as defined below) and the 1-for-6 reverse stock split for all periods presented, as applicable.
Pursuant to the Merger Agreement, as of the effective time of the Merger (the “Effective Time”), each outstanding ordinary share of common stock, par value $0.01 per share, of Legacy Expro was converted into the right to receive 1.2120 shares of common stock, nominal value €0.06 per share, of the Company (“Company Common Stock”). The number of shares of Company Common Stock received by the Legacy Expro shareholders was equal to 7.2720 (the “Exchange Ratio” as provided in the Merger Agreement) multiplied by the 1-for-6 reverse stock split ratio.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
2. | Basis of preparation and significant accounting policies |
Basis of preparation
The unaudited condensed consolidated financial statements reflect the accounts of the Company and its subsidiaries. All intercompany balances and transactions, including unrealized profits arising from them, have been eliminated for purposes of preparing these unaudited condensed consolidated financial statements. Investments in which we do not have a controlling interest, but over which we do exercise significant influence, are accounted for under the equity method of accounting.
The accompanying condensed consolidated financial statements have not been audited by our independent registered public accounting firm. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim consolidated financial information. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 8, 2022.
In the opinion of management, these unaudited condensed consolidated financial statements, which are prepared in accordance with the rules of the SEC and U.S. GAAP for interim financial reporting, included herein contain all adjustments necessary to present fairly our financial position as of March 31, 2022 and the results of our operations and cash flows for the three months ended March 31, 2022 and 2021. Such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other period.
The unaudited condensed consolidated financial statements have been prepared on an historical cost basis using the United States dollar (“$” or “U.S. dollar”) as the reporting currency.
Significant accounting policies
Refer to Note 2 “Basis of presentation and significant accounting policies” of our consolidated financial statements as of and for the year ended December 31, 2021, which are included in our most recent Annual Report on Form 10-K filed with the SEC on March 8, 2022, for a discussion of our significant accounting policies. There have been no material changes in our significant accounting policies as compared to the significant accounting policies described in our consolidated financial statements as of and for the year ended December 31, 2021.
Recent accounting pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) generally in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification.
We consider the applicability and impact of all accounting pronouncements. Recently issued ASUs were assessed and were either determined to be not applicable or are expected to have immaterial impact on our consolidated financial position, results of operations and cash flows.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
3. | Business combinations and dispositions |
Frank’s International N.V.
As discussed in Note 1 “Business description”, the Merger of Frank’s with Legacy Expro pursuant to the Merger Agreement was completed on October 1, 2021. U.S. GAAP requires the determination of the accounting acquirer, the acquisition date, the fair value of assets and liabilities of the acquired business and the resulting measurement of goodwill. The Merger is accounted for as a reverse merger and Legacy Expro has been identified as the acquirer for accounting purposes. As a result, the Company has in accordance with ASC 805, Business Combinations, applied the acquisition method of accounting to account for Frank’s assets acquired and liabilities assumed. Applying the acquisition method of accounting includes recording the identifiable assets acquired and liabilities assumed at their fair values and recording goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed.
The Merger consideration was based on Frank’s closing share price on the Closing Date. In a reverse merger involving only the exchange of equity, the fair value of the equity of the accounting acquiree may be used to measure consideration transferred if the value of the accounting acquiree’s equity interests are more reliably measurable than the value of the accounting acquirer’s equity interest. As Legacy Expro was a private company and Frank’s was a public company with a quoted and reliable market price, the fair value of Frank’s equity interests was deemed to be more reliable. Under the acquisition method of accounting, total consideration exchanged was as follows:
| | | | | | Per share | | | Amount | |
| | Shares issued | | | price | | | (in thousands) | |
Issuance of common stock attributable to Frank’s stockholders | | | 38,066,216 | | | $ | 18.90 | | | $ | 719,452 | |
Replacement of Frank’s equity awards | | | | | | | | | | | 7,830 | |
Cash payment to Mosing Holdings LLC pursuant to the amended and restated tax receivable agreement | | | | | | | | | | | 15,000 | |
Total Merger Consideration Exchanged | | | | | | | | | | $ | 742,282 | |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table sets forth the preliminary allocation of the merger consideration exchanged to the fair value of identifiable tangible and intangible assets acquired and liabilities assumed as of the Closing Date, with the recording of goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed (in thousands):
| | Amount | |
| | | | |
Cash and cash equivalents | | $ | 187,178 | |
Restricted cash | | | 2,561 | |
Accounts receivables, net | | | 112,234 | |
Inventories | | | 69,567 | |
Assets held for sale | | | 10,061 | |
Income tax receivables | | | 2,030 | |
Other current assets | | | 23,908 | |
Property, plant and equipment | | | 212,639 | |
Goodwill | | | 154,399 | |
Intangible assets | | | 104,791 | |
Operating lease right-of-use assets | | | 27,406 | |
Other assets | | | 20,494 | |
Total assets | | | 927,268 | |
Accounts payable and accrued liabilities | | | 81,959 | |
Operating lease liabilities | | | 8,344 | |
Current income tax liabilities | | | 8,932 | |
Other current liabilities | | | 19,918 | |
Deferred tax liabilities | | | 5,673 | |
Non-current operating lease liabilities | | | 19,607 | |
Other non-current liabilities | | | 40,553 | |
Total Liabilities | | | 184,986 | |
| | | | |
Total Merger Consideration Exchanged | | $ | 742,282 | |
Due to the recency and complexity of the Merger, these amounts are preliminary and subject to change as our fair value assessments are finalized. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation table above. The fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either through the use of the relief-from-royalty method or the multi-period excess earnings method, which are discounted to approximate their current value. The estimated useful lives are based on management’s historical experience and expectations as to the duration of time that benefits from these assets are expected to be realized.
The intangible assets will be amortized on a straight-line basis over an estimated 10 to 15 year life. We expect annual amortization to be approximately $7.7 million associated with these intangible assets.
Goodwill will not be amortized but rather subject to an annual impairment test, absent any indicators of impairment. Goodwill is attributable to planned synergies expected to be achieved from the combined operations of Legacy Expro and Frank’s. Goodwill recorded in the Merger is not expected to be deductible for tax purposes.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
Unaudited Pro Forma Financial Information
The following unaudited pro forma consolidated results of operations for the three months ended March 31, 2021 assume the Merger was completed as of January 1, 2020 (in thousands):
| | Three Months Ended March 31, | |
| | 2021 | |
Unaudited pro forma revenues | | $ | 251,106 | |
Unaudited pro forma net loss | | $ | 41,589 | |
Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the Merger been completed on the date indicated or of future operating results.
Merger and integration expense
During the three months ended March 31, 2022 and 2021, the Company incurred $4.7 million and $4.8 million, respectively, of merger and integration expense which consist primarily of legal fees, professional fees, integration, severance and other costs directly attributable to the Merger.
Below is a reconciliation of our liability balance associated with our severance plan initiated during 2021 related to the integration in connection with the Merger, which is included in “Other current liabilities” on the condensed consolidated balance sheets (in thousands):
| | NLA | | | ESSA | | | MENA | | | APAC | | | Central | | | Total | |
Balance as of December 31, 2021 | | $ | 2,057 | | | $ | 2,502 | | | $ | 424 | | | $ | 617 | | | $ | 6,615 | | | $ | 12,215 | |
Costs expensed during the period | | | 114 | | | | - | | | | 91 | | | | 213 | | | | - | | | | 418 | |
Payments made during the period | | | (286 | ) | | | (1,054 | ) | | | (153 | ) | | | (307 | ) | | | (3,033 | ) | | | (4,833 | ) |
Balance as of March 31, 2022 | | $ | 1,885 | | | $ | 1,448 | | | $ | 362 | | | $ | 523 | | | $ | 3,582 | | | $ | 7,800 | |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
4. Fair value measurements
Recurring Basis
A summary of financial assets and liabilities that are measured at fair value on a recurring basis, as of March 31, 2022 and December 31, 2021, were as follows (in thousands):
| | March 31, 2022 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets: | | | | | | | | | | | | | | | | |
Investments: | | | | | | | | | | | | | | | | |
Cash surrender value of life insurance policies- | | | | | | | | | | | | | | | | |
Deferred compensation plan | | $ | - | | | $ | 11,210 | | | $ | - | | | $ | 11,210 | |
Non-current accounts receivable, net | | | - | | | | 11,211 | | | | - | | | | 11,211 | |
Liabilities: | | | | | | | | | | | | | | | | |
Deferred compensation plan | | | - | | | | 8,457 | | | | - | | | | 8,457 | |
Finance lease liabilities | | | - | | | | 16,553 | | | | - | | | | 16,553 | |
| | December 31, 2021 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets: | | | | | | | | | | | | | | | | |
Investments: | | | | | | | | | | | | | | | | |
Cash surrender value of life insurance policies- | | | | | | | | | | | | | | | | |
Deferred compensation plan | | $ | - | | | $ | 18,857 | | | $ | - | | | $ | 18,857 | |
Non-current accounts receivable, net | | | - | | | | 11,531 | | | | - | | | | 11,531 | |
Liabilities: | | | | | | | | | | | | | | | | |
Deferred compensation plan | | | - | | | | 9,339 | | | | - | | | | 9,339 | |
Finance lease liabilities | | | - | | | | 16,919 | | | | - | | | | 16,919 | |
Our investments associated with our deferred compensation plan as of March 31, 2022 consist primarily of the cash surrender value of life insurance policies and is included in other assets on the condensed consolidated balance sheets. The liability associated with our deferred compensation plan as of March 31, 2022 is included in other liabilities on the condensed consolidated balance sheets. Our investments change as a result of contributions, payments, and fluctuations in the market. Assets and liabilities, measured using significant observable inputs, are reported at fair value based on third-party broker statements, which are derived from the fair value of the funds’ underlying investments. They are reported at fair value based on the price of the stock and are included in other assets on the condensed consolidated balance sheets.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
5. | Business segment reporting |
Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the Company’s Chief Operating Decision Maker (“CODM”), which is our Chief Executive Officer, in deciding how to allocate resources and assess performance. Our CODM manages our operational segments that are aligned with our geographical regions as below:
| ● | North and Latin America (“NLA”), |
| ● | Europe and Sub-Saharan Africa (“ESSA”), |
| ● | Middle East and North Africa (“MENA”), and |
The following table presents our revenue disaggregated by our operating segments (in thousands):
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
NLA | | $ | 103,861 | | | $ | 30,363 | |
ESSA | | | 82,071 | | | | 53,630 | |
MENA | | | 50,715 | | | | 41,155 | |
APAC | | | 43,830 | | | | 31,147 | |
Total | | $ | 280,477 | | | $ | 156,295 | |
Segment EBITDA
Our CODM regularly evaluates the performance of our operating segments using Segment EBITDA, which we define as loss before income taxes adjusted for corporate costs, equity in income of joint ventures, depreciation and amortization expense, impairment expense, severance and other expense, gain on disposal of assets, foreign exchange losses, merger and integration expense, other income, interest and finance expense, net and stock-based compensation expense.
The following table presents our Segment EBITDA disaggregated by our operating segments and a reconciliation to loss before income taxes (in thousands):
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
NLA | | $ | 21,827 | | | $ | 2,428 | |
ESSA | | | 11,874 | | | | 5,366 | |
MENA | | | 15,465 | | | | 15,058 | |
APAC | | | 5,438 | | | | 5,166 | |
Total Segment EBITDA | | | 54,604 | | | | 28,018 | |
Corporate costs | | | (21,965 | ) | | | (14,684 | ) |
Equity in income of joint ventures | | | 4,202 | | | | 4,092 | |
Depreciation and amortization expense | | | (35,012 | ) | | | (27,759 | ) |
Merger and integration expense | | | (4,725 | ) | | | (4,823 | ) |
Severance and other expense | | | (1,494 | ) | | | (555 | ) |
Stock-based compensation expense | | | (6,018 | ) | | | - | |
Foreign exchange gain (loss) | | | 2,816 | | | | (748 | ) |
Other income, net | | | 996 | | | | 239 | |
Interest and finance income (expense), net | | | 13 | | | | (1,627 | ) |
Loss before income taxes | | $ | (6,583 | ) | | $ | (17,847 | ) |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
Corporate costs include the costs of running our corporate head office and other central functions that support the operating segments, including research, engineering and development, logistics, sales and marketing and health and safety and are not attributable to a particular operating segment.
Disaggregation of revenue
We disaggregate our revenue from contracts with customers by geography, as disclosed in Note 5 above, as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Additionally, we disaggregate our revenue into main areas of capabilities.
The following table sets forth the total amount of revenue by main area of capabilities as follows (in thousands):
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
Well construction | | $ | 111,435 | | | $ | - | |
Well management | | | 169,042 | | | | 156,295 | |
Total | | $ | 280,477 | | | $ | 156,295 | |
Contract balances
We perform our obligations under contracts with our customers by transferring services and products in exchange for consideration. The timing of our performance often differs from the timing of our customer’s payment, which results in the recognition of unbilled receivables and deferred revenue.
Unbilled receivables are initially recognized for revenue earned on completion of the performance obligation which are not yet invoiced to the customer. The amounts recognized as unbilled receivables are reclassified to accounts receivable upon billing. Deferred revenue represents the Company’s obligations to transfer goods or services to customers for which the Company has received consideration, in full or part, from the customer.
Contract balances consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
| | March 31, | | | December 31, | |
| | 2022 | | | 2021 | |
Accounts receivable, net | | $ | 223,041 | | | $ | 236,158 | |
Unbilled receivables | | $ | 106,670 | | | $ | 94,659 | |
Deferred revenue | | $ | 11,330 | | | $ | 17,038 | |
The Company recognized revenue of $7.9 million and $1.1 million for the three months ended March 31, 2022 and 2021, respectively, out of the deferred revenue balance as of the beginning of the applicable year.
As of March 31, 2022, $10.1 million of our deferred revenue was classified as current and is included in “Other current liabilities” on the condensed consolidated balance sheets, with the remainder classified as non-current and included in “Other non-current liabilities” on the condensed consolidated balance sheets.
Transaction price allocated to remaining performance obligations
Remaining performance obligations represent firm contracts for which work has not been performed or has been partially performed and future revenue recognition is expected. We have elected the practical expedient permitting the exclusion of disclosing remaining performance obligations for contracts that have an original expected duration of one year or less and for our long-term contracts we have a right to consideration from customers in an amount that corresponds directly with the value to the customer of the performance completed to date.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
For interim financial reporting, we estimate the annual tax rate based on projected pre-tax income (loss) before equity in income of joint ventures for the full year and record a quarterly income tax expense (benefit) in accordance with accounting guidance for income taxes. As the year progresses, we refine the estimate of the year’s pre-tax income (loss) before equity in income of joint ventures as new information becomes available. The continual estimation process often results in a change to the expected effective tax rate for the year. When this occurs, we adjust the income tax expense (benefit) during the quarter in which the change in estimate occurs so that the year-to-date expense reflects the most current expected annual tax rate.
Our effective tax rates were (42.2)% and (11.6)% for the three months ended March 31, 2022 and 2021, respectively.
Our effective tax rate was impacted primarily by changes in the mix of taxable profits between jurisdictions.
8. | Investment in joint ventures |
We have investments in two joint venture companies, which together provide us access to certain Asian markets that otherwise would be challenging for us to penetrate or develop effectively on our own. COSL-Expro Testing Services (Tianjin) Co. Ltd (“CETS”), in which we have a 50% equity interest, has extensive offshore well testing and completions capabilities and a reputation for providing technology-driven solutions in China. Similarly, PV Drilling Expro International Co. Ltd. (“PVD-Expro”) in which we have a 49% equity interest, offers the full suite of Expro products and services, including well testing and completions, in Vietnam. Both of these are strategic to our activities and offer the full capabilities and technology of Expro, but each company is independently managed.
The carrying value of our investment in joint ventures as of March 31, 2022 and December 31, 2021 was as follows (in thousands):
| | March 31, | | | December 31, | |
| | 2022 | | | 2021 | |
CETS | | $ | 58,258 | | | $ | 54,014 | |
PVD-Expro | | | 3,548 | | | | 3,590 | |
Total | | $ | 61,806 | | | $ | 57,604 | |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
9. | Accounts receivable, net |
Accounts receivable, net consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
| | March 31, | | | December 31, | |
| | 2022 | | | 2021 | |
Accounts receivable | | $ | 339,323 | | | $ | 340,209 | |
Less: Expected credit losses | | | (9,612 | ) | | | (9,392 | ) |
Total | | $ | 329,711 | | | $ | 330,817 | |
| | | | | | | | |
Current | | | 318,500 | | | | 319,286 | |
Non – current | | | 11,211 | | | | 11,531 | |
Total | | $ | 329,711 | | | $ | 330,817 | |
Inventories consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
| | March 31, | | | December 31, | |
| | 2022 | | | 2021 | |
Finished goods | | $ | 33,122 | | | $ | 34,899 | |
Raw materials, equipment spares and consumables | | | 84,268 | | | | 76,025 | |
Work-in-progress | | | 16,267 | | | | 14,192 | |
Total | | $ | 133,657 | | | $ | 125,116 | |
11. | Other assets and liabilities |
Other assets consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
| | March 31, | | | December 31, | |
| | 2022 | | | 2021 | |
Cash surrender value of life insurance policies | | $ | 11,210 | | | $ | 18,857 | |
Prepayments | | | 24,000 | | | | 19,891 | |
Value-added tax receivables | | | 21,916 | | | | 22,524 | |
Collateral deposits | | | 1,660 | | | | 1,599 | |
Deposits | | | 6,763 | | | | 7,331 | |
Other | | | 8,576 | | | | 9,197 | |
Total | | $ | 74,125 | | | $ | 79,399 | |
| | | | | | | | |
Current | | | 55,871 | | | | 52,938 | |
Non – current | | | 18,254 | | | | 26,461 | |
Total | | $ | 74,125 | | | $ | 79,399 | |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
Other liabilities consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
| | March 31, | | | December 31, | |
| | 2022 | | | 2021 | |
Deferred revenue | | $ | 11,330 | | | $ | 17,038 | |
Other tax and social security | | | 25,638 | | | | 27,893 | |
Income tax liabilities - non-current portion | | | 47,493 | | | | 45,741 | |
Deferred compensation plan | | | 8,457 | | | | 9,339 | |
Other | | | 49,604 | | | | 49,739 | |
Total | | $ | 142,522 | | | $ | 149,750 | |
| | | | | | | | |
Current | | | 63,358 | | | | 74,213 | |
Non – current | | | 79,164 | | | | 75,537 | |
Total | | $ | 142,522 | | | $ | 149,750 | |
Cash Surrender Value of Life Insurance Policies
We had $11.2 million and $18.9 million of cash surrender value of life insurance policies as of March 31, 2022 and December 31, 2021, respectively, that are held within a trust established to settle payment of future executive deferred compensation benefit obligations. The decrease in the cash surrender value of life insurance policies as of March 31, 2022 as compared to December 31, 2021 was primarily due to a cash distribution from the trust to reimburse the Company for benefits paid pursuant to the executive deferred compensation benefit plan, the impact of which is included in “Proceeds from sale of investments” on the condensed consolidated statements of cash flows. Loss associated with these policies is included in “Other income, net” on our condensed consolidated statements of operations. Loss on changes in the cash surrender value of life insurance policies was $0.5 million for three months ended March 31, 2022.
12. | Accounts payable and accrued liabilities |
Accounts payable and accrued liabilities consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
| | March 31, | | | December 31, | |
| | 2022 | | | 2021 | |
Accounts payable – trade | | $ | 90,760 | | | $ | 84,952 | |
Payroll, vacation and other employee benefits | | | 30,629 | | | | 42,671 | |
Accruals for goods received not invoiced | | | 14,940 | | | | 18,666 | |
Other accrued liabilities | | | 65,695 | | | | 66,863 | |
Total | | $ | 202,024 | | | $ | 213,152 | |
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
13. | Property, plant and equipment, net |
Property, plant and equipment, net consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
| | March 31, | | | December 31, | |
| | 2022 | | | 2021 | |
Cost: | | | | | | | | |
Land | | $ | 21,860 | | | $ | 21,580 | |
Land improvements | | | 3,056 | | | | 3,054 | |
Buildings and lease hold improvements | | | 102,980 | | | | 104,660 | |
Plant and equipment | | | 714,072 | | | | 701,400 | |
| | | 841,968 | | | | 830,694 | |
Less: accumulated depreciation | | | (377,486 | ) | | | (352,114 | ) |
Total | | $ | 464,482 | | | $ | 478,580 | |
During the three months ended March 31, 2022, a building classified as assets held for sale was sold for net proceeds of $6.1 million.
The carrying amount of our property, plant and equipment recognized in respect of assets held under finance leases as of March 31, 2022 and December 31, 2021 and included in amounts above is as follows (in thousands):
| | March 31, | | | December 31, | |
| | 2022 | | | 2021 | |
Cost: | | | | | | | | |
Buildings | | $ | 18,623 | | | $ | 18,623 | |
Plant and equipment | | | 1,275 | | | | 1,275 | |
Total | | | 19,898 | | | | 19,898 | |
Less: accumulated amortization | | | (8,074 | ) | | | (7,733 | ) |
Total | | $ | 11,824 | | | $ | 12,165 | |
Depreciation expense relating to property, plant and equipment, including assets under finance leases, was $26.0 million and $21.4 million for the three months ended March 31, 2022 and 2021, respectively.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
14. | Intangible assets, net |
The following table summarizes our intangible assets comprising of Customer Relationships & Contracts (“CR&C”), Trademarks, Technology and Software as of March 31, 2022 and December 31, 2021 (in thousands):
| | March 31, 2022 | | | December 31, 2021 | | | March 31, 2022 | |
| | Gross carrying amount | | | Accumulated impairment and amortization | | | Net book value | | | Gross carrying amount | | | Accumulated impairment and amortization | | | Net book value | | | Weighted average remaining life (years) | |
CR&C | | $ | 222,200 | | | $ | (103,259 | ) | | $ | 118,941 | | | $ | 222,200 | | | $ | (98,271 | ) | | $ | 123,929 | | | | 6.1 | |
Trademarks | | | 57,100 | | | | (30,275 | ) | | | 26,825 | | | | 57,100 | | | | (29,392 | ) | | | 27,708 | | | | 8.2 | |
Technology | | | 170,652 | | | | (63,162 | ) | | | 107,490 | | | | 159,458 | | | | (60,979 | ) | | | 98,479 | | | | 12.3 | |
Software | | | 8,754 | | | | (6,986 | ) | | | 1,768 | | | | 8,754 | | | | (5,817 | ) | | | 2,937 | | | | 0.5 | |
Total | | $ | 458,706 | | | $ | (203,682 | ) | | $ | 255,024 | | | $ | 447,512 | | | $ | (194,459 | ) | | $ | 253,053 | | | | | |
Amortization expense for intangible assets was $9.0 million and $6.4 million for the three months ended March 31, 2022 and 2021, respectively. During the first quarter of 2022, we acquired technology to bolster our well intervention and integrity product offering, resulting in an increase in intangible assets of $11.2 million which will be amortized over a five-year life. The impact of this asset acquisition is included in “Acquisition of technology” on the condensed consolidated statements of cash flows.
Our reporting units are either our operating segments or components of our operating segments depending on the level at which segment management oversees the business. Prior to the Merger, Legacy Expro's reporting units included Europe and the Commonwealth of Independent States, Sub-Saharan Africa, MENA, Asia, North America and Latin America. During 2021, due to the Merger we changed our internal organization and reporting structure and as a result, our operating segments, NLA, ESSA, MENA and APAC, are also our reporting units.
The allocation of goodwill by operating segment as of March 31, 2022 and December 31, 2021 is as follows (in thousands):
NLA | | $ | 93,608 | |
ESSA | | | 66,283 | |
MENA | | | 3,331 | |
APAC | | | 16,681 | |
Total | | $ | 179,903 | |
As of March 31, 2022, we did not identify any triggering events that would represent an indicator of impairment of our goodwill. Accordingly, no impairment charges related to goodwill have been recorded during the three months ended March 31, 2022.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
16. | Interest bearing loans |
On October 1, 2021, in connection with the closing of the Merger, we entered into a new revolving credit facility (the “New Facility”) with DNB Bank ASA, London Branch, as agent (the “Agent”), with total commitments of $200.0 million, of which $130.0 million is available for drawdowns as loans and $70.0 million is available for letters of credit. Subject to the terms of the New Facility, the Company has the ability to increase the commitments to $250.0 million. Proceeds of the New Facility may be used for general corporate and working capital purposes.
All obligations under the New Facility are guaranteed jointly and severally by the Company and certain of the Company’s subsidiaries incorporated in the U.S., the U.K., the Netherlands, Norway, Hungary, Australia, Cyprus, the Cayman Islands and Guernsey. Going forward, the guarantors must comprise at least 80% of the EBITDA, as defined, and 70% of the consolidated assets of the Company and its subsidiaries, as well as subsidiaries individually representing 5% or more of the EBITDA or assets of the group, subject to customary exceptions and exclusions. In addition, the obligations under the New Facility are secured by first priority liens on certain assets of the borrowers and guarantors, including pledges of equity interests in certain of the Company’s subsidiaries, including all of the borrowers and subsidiary guarantors, material operating bank accounts, intercompany loans receivable and, in jurisdictions where customary, including the U.S., the U.K., Australia and the Cayman Islands, substantially all of the assets and property of the borrowers and guarantors incorporated in such jurisdictions, in each case subject to customary exceptions and exclusions.
Borrowings under the New Facility bear interest at a rate per annum of LIBOR, subject to a 0.00% floor, plus an applicable margin of 3.75% for cash borrowings or 3.00% for letters of credit. A 0.75% per annum fronting fee applies to letters of credit, and an additional 0.25% or 0.50% per annum utilization fee is payable on drawdowns as loans to the extent one-third or two-thirds, respectively, or more of commitments are drawn. The unused portion of the New Facility is subject to a commitment fee of 30% per annum of the applicable margin. Interest on loans is payable at the end of the selected interest period, but no less frequently than semiannually.
The New Facility contains various undertakings and affirmative and negative covenants which limit, subject to certain customary exceptions and thresholds, the Company and its subsidiaries’ ability to, among other things, (1) enter into asset sales; (2) incur additional indebtedness; (3) make investments, acquisitions, or loans and create or incur liens; (4) pay certain dividends or make other distributions; and (5) engage in transactions with affiliates. The New Facility also requires the Company to maintain (i) a minimum cash flow cover ratio of 1.5 to 1.0 based on the ratio of cash flow to debt service; (ii) a minimum interest cover ratio of 4.0 to 1.0 based on the ratio of EBITDA to net finance charges; and (iii) a maximum senior leverage ratio of 2.25 to 1.0 based on the ratio of total net debt to EBITDA, in each case tested quarterly on a last-twelve-months basis, subject to certain exceptions. In addition, the aggregate capital expenditure of the Company and its subsidiaries cannot exceed 110% of the forecasted amount in the relevant annual budget, subject to certain exceptions. If the Company fails to perform its obligations under the agreement that results in an event of default, the commitments under the New Facility could be terminated and any outstanding borrowings under the New Facility may be declared immediately due and payable. The New Facility also contains cross-default provisions that apply to the Company and its subsidiaries’ other indebtedness.
On March 31, 2022, the Agent, on behalf of the consenting lenders, countersigned a Consent Request Letter dated March 10, 2022 to the New Facility (the “Consent”). Pursuant to the Consent, the lenders consented to, among other things, an amendment to the New Facility permitting dividends or distributions by the Company, or the repurchase or redemption of the Company’s shares in an aggregate amount of $50.0 million over the life of the New Facility, subject to pro forma compliance with the 2.25 to 1.0 maximum senior leverage ratio financial covenant.
The Facility remained undrawn on a cash basis (i.e. no loans were outstanding), as of March 31, 2022 and December 31, 2021. We utilized $40.2 million and $33.4 million as of March 31, 2022 and December 31, 2021, respectively, for bonds and guarantees.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
17. | Commitments and Contingencies |
Commercial Commitments
During the normal course of business, we enter into commercial commitments in the form of letters of credit and bank guarantees to provide financial and performance assurance to third parties.
We entered into contractual commitments for the acquisition of property, plant and equipment totaling $41.4 million and $26.3 million as of March 31, 2022 and December 31, 2021, respectively.
Contingencies
Certain conditions may exist as of the date our unaudited condensed consolidated financial statements are issued that may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. Our management, with input from legal counsel, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings pending against us or unasserted claims that may result in proceedings, our management, with input from legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates it is probable a material loss has been incurred and the amount of liability can be reasonably estimated, then the estimated liability would be accrued in our unaudited condensed consolidated financial statements. If the assessment indicates a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
We are the subject of lawsuits and claims arising in the ordinary course of business from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. We had no material accruals for loss contingencies, individually or in the aggregate, as of March 31, 2022 and December 31, 2021. We believe the probability is remote that the ultimate outcome of these matters would have a material adverse effect on our financial position, results of operations or cash flows.
We are conducting an internal investigation of the operations of certain of our foreign subsidiaries in West Africa including possible violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), our policies and other applicable laws. In June 2016, we voluntarily disclosed the existence of our extensive internal review to the SEC, the U.S. Department of Justice (“DOJ”) and other governmental entities. It is our intent to continue to fully cooperate with these agencies and any other applicable authorities in connection with any further investigation that may be conducted in connection with this matter. While our review has not indicated that there has been any material impact on our previously filed financial statements, we have continued to collect information and cooperate with the authorities, but at this time are unable to predict the ultimate resolution of these matters with these agencies (including any financial impact on us, which could be material).
As disclosed above, our investigation into possible violations of the FCPA remains ongoing, and we will continue to cooperate with the SEC, DOJ and other relevant governmental entities in connection therewith. Our board of directors and management are committed to continuously enhancing our internal controls that support improved compliance and transparency throughout our global operations.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
18. | Post-retirement benefits |
Amounts recognized in the unaudited condensed consolidated statements of operations in respect of the defined benefit schemes were as follows (in thousands):
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
| | | | | | | | |
Amortization of prior service credit | | $ | 61 | | | $ | 61 | |
Interest cost | | | (1,054 | ) | | | (837 | ) |
Expected return on plan assets | | | 1,428 | | | | 1,181 | |
Total | | $ | 435 | | | $ | 405 | |
The Company contributed $1.3 million and $0.9 million for the three months ended March 31, 2022 and 2021, respectively, to defined benefit schemes.
Amortization of prior service credit, interest cost and expected return on plan assets have been recognized in “Other income, net” in the unaudited condensed consolidated statements of operations.
Executive Deferred Compensation Plan
The Company maintains the Executive Deferred Compensation Plan (the “EDC Plan”) for certain current and former Frank’s employees. Effective during 2015, this plan was closed to new entrants. The purpose of the EDC Plan was to provide participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified cash compensation. Participant contributions were immediately vested. Company contributions vested after five years of service. Participant benefits under the EDC Plan are paid from the general funds of the Company or a grantor trust, commonly referred to as a Rabbi Trust, created for the purpose of informally funding the EDC Plan. The assets of the EDC Plan’s trust are invested in corporate-owned, split-dollar life insurance policies and mutual funds.
As of March 31, 2022, the total liability related to the EDC Plan was $8.5 million and was included in “Other non-current liabilities” on the unaudited condensed consolidated balance sheet. As of March 31, 2022, the cash surrender value of life insurance policies that are held within a Rabbi Trust for the purpose of paying future executive deferred compensation benefit obligations was $11.2 million.
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
Basic loss per share attributable to Company stockholders is calculated by dividing net loss attributable to the Company by the weighted-average number of common shares outstanding for the period. Diluted loss per share attributable to Company stockholders is computed giving effect to all potential dilutive common stock, unless there is a net loss for the period. We apply the treasury stock method to determine the dilutive weighted average common shares represented by unvested restricted stock units and Employee Stock Purchase Program (“ESPP”) shares.
The calculation of basic and diluted loss per share attributable to Company stockholders for the three months ended March 31, 2022 and 2021, respectively, are as follows (in thousands, except shares outstanding and per share amounts):
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
Net loss | | $ | (11,132 | ) | | $ | (20,392 | ) |
Basic and diluted weighted average number of shares outstanding | | | 109,266,988 | | | | 70,889,753 | |
Total basic and diluted loss per share | | $ | (0.10 | ) | | $ | (0.29 | ) |
Approximately 673,809 shares of unvested restricted stock units and stock to be issued pursuant to the ESPP have been excluded from the computation of diluted loss per share as the effect would be anti-dilutive for the three months ended March 31, 2022.
Additionally, since the conditions upon which shares were issuable for our outstanding warrants and stock options were not satisfied as of March 31, 2021, assuming the balance sheet date is the end of the contingency period. Accordingly, they have not been included in determining the number of anti-dilutive shares.
20. | Related party disclosures |
Our related parties consist primarily of CETS and PVD-Expro, the two companies in which we exert significant influence, and Mosing Holdings LLC, a company that is owned by D. Keith Mosing, a member of our board of directors, and affiliates. During the three months ended March 31, 2022 and 2021, we provided goods and services to CETS and PVD-Expro totaling $0.9 million and $2.7 million, respectively. Additionally, we entered into various operating lease agreements to lease facilities with affiliated companies. Rent expense associated with our related party leases was $0.2 million for the three months ended March 31, 2022.
As of March 31, 2022 and December 31, 2021 amounts receivable from the related parties were $1.1 million and $1.6 million, respectively, and amounts payable to related parties were $1.9 million and $2.1 million as of March 31, 2022 and December 31, 2021, respectively.
As of March 31, 2022, $1.2 million of our operating lease right-of-use assets and $1.2 million of our lease liabilities were associated with related party leases. As of December 31, 2021, $1.3 million of our operating lease right-of-use assets and $1.3 million of our lease liabilities were associated with related party leases.
Tax Receivable Agreement
Mosing Holdings, LLC, a Delaware limited liability company (“Mosing Holdings”), converted all of its shares of Frank’s Series A convertible preferred stock into shares of Frank’s common stock on August 26, 2016, in connection with its delivery to Frank’s of all of its interests in Frank’s International C.V. (“FICV”) (the “Conversion”).
Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
The tax receivable agreement (the “Original TRA”) that Frank’s entered into with FICV and Mosing Holdings in connection with Frank’s initial public offering (“IPO”) generally provided for the payment by Frank’s to Mosing Holdings of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Frank’s actually realized (or were deemed to be realized in certain circumstances) in periods after the IPO as a result of (i) tax basis increases resulting from the Conversion and (ii) imputed interest deemed to be paid by Frank’s as a result of, and additional tax basis arising from, payments under the Original TRA. Frank’s retained the benefit of the remaining 15% of these cash savings, if any.
In connection with the Merger Agreement, Frank’s, FICV and Mosing Holdings entered into the Amended and Restated Tax Receivable Agreement, dated as of March 10, 2021 (the “A&R TRA”). Pursuant to the A&R TRA, on October 1, 2021, the Company made a payment of $15 million to settle the early termination payment obligations that would otherwise have been owed to Mosing Holdings under the Original TRA as a result of the Merger. As the payment was a condition precedent to effect the Merger, it was included in the determination of Merger consideration exchanged. Refer to Note 3 “Business combinations and dispositions” for more details. The A&R TRA also provides for other contingent payments to be made by the Company to Mosing Holdings in the future in the event the Company realizes cash tax savings from tax attributes covered under the Original TRA during the ten year period following October 1, 2021 in excess of $18.1 million.
21. | Stock-based compensation |
The Company recognized $2.7 million of stock-based compensation expense attributable to the Management Incentive Plan ("MIP") stock options during the three months ended March 31, 2022. No stock-based compensation expense attributable to the MIP stock options was recognized during the three months ended March 31, 2021 as the performance conditions within the stock option agreements were deemed to be improbable. Stock-based compensation expense relating to the Long-Term Incentive Plan ("LTIP"), including restricted stock units ("RSUs") and performance restricted stock units ("PRSUs") for the three months ended March 31, 2022 was $3.1 million. No stock-based compensation expense relating to LTIP RSUs and PRSUs was recognized during the three months ended March 31, 2021.
During the first quarter of 2022, 743,665 RSUs were granted to employees at a grant date fair value of $17.17.
22. | Supplemental cash flow |
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
Supplemental disclosure of cash flow information: | | | | | | | | |
Cash paid for income taxes, net of refunds | | $ | 7,716 | | | $ | 1,408 | |
Cash paid for interest, net | | $ | 903 | | | $ | 981 | |
Change in accounts payable and accrued expenses related to capital expenditures | | $ | 5,583 | | | $ | 1,650 | |