EXPRO GROUP HOLDINGS N.V. - Quarter Report: 2021 September (Form 10-Q)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

EXPRO GROUP HOLDINGS N.V. (formerly named Frank's International N.V.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation

Merger

On March 10, 2021, Frank’s International N.V. (“FINV” or “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 FINV (“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 the Frank’s (the “Merger”). The Merger closed on October 1, 2021, and Frank's was renamed “Expro Group Holdings N.V.”  The Merger will be accounted for using the acquisition method of accounting with Legacy Expro being identified as the accounting acquirer. As the Merger did not close until after the quarter ended September 30, 2021, the historical financial statements presented in this Quarterly Report on Form 10-Q reflect the financial position, results of operations and cash flows of Frank's, the Predecessor Registrant. 

Unless otherwise indicated, references to the terms “Frank’s” or the “Predecessor Registrant” refers to Frank’s International N.V., the predecessor reporting entity prior to the Merger, references to “Legacy Expro” refer to Expro Group Holdings International Limited, the entity acquired by the Company, and references to the “combined company,” the “Company,” “we,” “our,” and “us” refer to Expro Group Holdings N.V., the successor reporting entity following the consummation of the Merger.

Nature of Business

Prior to the Merger, Frank’s was a global provider of highly engineered tubular services, tubular fabrication and specialty well construction and well intervention solutions to the oil and gas industry. Frank’s provided services and products to leading exploration and production companies in both offshore and onshore environments with a focus on complex and technically demanding wells.

Following completion of the Merger, the business conducted by Legacy Expro became the majority of the business conducted by the Company. Working for clients across the entire well life cycle, the Company is a leading provider of energy services, offering cost-effective, innovative solutions and what the Company considers to be best-in-class safety and service quality.  The Company’s extensive portfolio of capabilities spans well construction, well flow management, subsea well access, and well integrity and intervention.  The Company provides services in many of the world’s major offshore and onshore energy basins, with over 100 locations and operations in approximately 60 countries. Expro’s broad portfolio of products and services provides solutions to enhance production and improve recovery across the well lifecycle, from exploration through abandonment.

Basis of Presentation

The condensed consolidated financial statements of FINV for the three and nine months ended September 30, 2021 and 2020 include the activities of FINV, Frank's International C.V. ("FICV"), Blackhawk Group Holdings, LLC (“Blackhawk”) and their wholly owned subsidiaries (either individually or together, as context requires, "Frank's" or "FINV") prior to the Merger. All intercompany accounts and transactions have been eliminated for purposes of preparing these condensed consolidated financial statements.

The accompanying condensed consolidated financial statements have not been audited by Frank's 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 the audited consolidated financial statements and notes thereto for the year ended December 31, 2020, which are included in Frank's 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. Additionally, operating results for the three and nine months ended September 30, 2021 reflect the results of operations of Frank’s prior to the Merger and are therefore not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2021.

Further, on September 30, 2021, Frank’s board of directors (the “Prior Board”) 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 Company Common Stock (as defined below) share numbers, nominal value, share prices and per share amounts in these condensed consolidated financial statements have been retroactively adjusted to reflect a 1-for-6 reverse stock split for all periods presented. Refer to Note 17—Subsequent Events for further information.

The condensed consolidated financial statements have been prepared on a historical cost basis using the United States dollar as the reporting currency. Frank's functional currency is primarily the United States dollar.

EXPRO GROUP HOLDINGS N.V. (formerly named Frank's International N.V.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications

Certain prior-period amounts have been reclassified to conform to the current period’s presentation. These reclassifications had no impact on Frank's 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 Frank's 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 current information as well as reasonable and supportable forecasts. Frank's adopted the guidance on January 1, 2020, and the adoption did not have a material impact on its consolidated financial statements. The new credit loss standard is expected to accelerate recognition of credit losses on accounts receivable. See Note 3—Accounts Receivable, net for additional information regarding allowance for credit losses on Frank's 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  September 30, 2021, and  December 31, 2020, were as follows (in thousands):

Restricted cash primarily consists of cash deposits that collateralize Frank's credit card program. Cash paid (received) for income taxes, net, was $6.2 million and $(5.5) million for the nine months ended September 30, 2021 and 2020, respectively.

Note 3—Accounts Receivable, net

Accounts receivable at September 30, 2021, and  December 31, 2020, were as follows (in thousands):

EXPRO GROUP HOLDINGS N.V. (formerly named Frank's International N.V.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

Note 4—Inventories, net

Inventories at September 30, 2021, and  December 31, 2020, were as follows (in thousands):

The increase in inventories was driven by higher activity levels, particularly in the Western Hemisphere.

Note 5—Property, Plant and Equipment

The following is a summary of property, plant and equipment at September 30, 2021, and  December 31, 2020, (in thousands):

During the nine months ended September 30, 2020, Frank's recorded fixed asset impairment charges of $15.6 million primarily associated with construction in progress in the Cementing Equipment segment, which is included in severance and other charges, net on the condensed consolidated statements of operations. During the first quarter of 2020, the results of Frank'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 Frank's 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 and nine months ended September 30, 2021.

EXPRO GROUP HOLDINGS N.V. (formerly named Frank's International N.V.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 Frank's condensed consolidated balance sheet. During the second quarter of 2021, Frank's sold a building classified as held for sale for $1.8 million and recorded a gain of $1.3 million. During the third quarter of 2021, a building with a net book value of $5.0 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 Frank's condensed consolidated balance sheet.

During the second quarter of 2020, Frank's sold a building classified as held for sale for $5.4 million and recorded a gain of $0.6 million.

The following table presents the depreciation and amortization expense associated with each line item for the three and nine months ended September 30, 2021 and 2020 (in thousands):

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. Frank's has 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. Frank's has historically completed its assessment of goodwill impairment as of October 31 each year.

As a result of the decline in oil prices due to the ongoing Coronavirus Disease 2019 ("COVID-19") pandemic and the failure by the Organization of Petroleum Exporting Countries (“OPEC”) and Russia to reach an agreement on lowering production quotas during the first quarter of 2020, Frank's identified that it was more likely than not that the fair value of goodwill within its Cementing Equipment reporting unit was less than its carrying value. Based on the result of the goodwill impairment test as of March 31, 2020, Frank's recorded a $57.1 million impairment charge to goodwill, which is included in goodwill impairment on the condensed consolidated statements of operations.

Frank's 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.

EXPRO GROUP HOLDINGS N.V. (formerly named Frank's International N.V.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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. Management of Frank's selected the assumptions used in the discounted cash flow projections using historical data supplemented by current and anticipated market conditions and estimated growth rates. These 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 management's 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 Cementing Equipment reporting unit goodwill impairment charge described above by approximately $4.3 million.

No goodwill impairment was recorded during the three and nine months ended September 30, 2021. At September 30, 2021, goodwill is allocated to Frank's 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. Frank's has historically evaluated impairment of Frank's 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.

The following table provides information related to Frank's intangible assets as of September 30, 2021, and  December 31, 2020 (in thousands):

Frank's intangible assets are primarily associated with its Cementing Equipment and Tubular Running Services segments. Amortization expense for intangible assets was $1.2 million and $0.9 million for the three months ended September 30, 2021 and 2020, respectively and $3.4 million and $3.5 million for the nine months ended September 30, 2021 and 2020, respectively. During the first quarter of 2020, the results of Frank'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 the 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 nine months ended September 30, 2020, impairment charges of $4.7 million were recorded associated with certain customer relationships and intellectual property intangible assets in the Cementing Equipment segment, which are included in severance and other charges, net on the condensed consolidated statements of operations. No intangible asset impairments were recorded during the three or nine months ended  September 30, 2021. Please see Note 15—Severance and Other Charges, net for additional details.

Note 7—Other Assets

Other assets at September 30, 2021, and  December 31, 2020, consisted of the following (in thousands):

EXPRO GROUP HOLDINGS N.V. (formerly named 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 September 30, 2021, and  December 31, 2020, consisted of the following (in thousands):

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, and other financial institutions as lenders with total commitments of $100.0 million including up to $15.0 million available for letters of credit.

As of  September 30, 2021, FINV had no borrowings outstanding under the ABL Credit Facility.

On October 1, 2021, in connection with the Merger, the Company terminated the ABL Credit Facility and entered into a senior secured revolving credit facility by and among the Company and certain of its subsidiaries, including Exploration and Production Services (Holdings) Limited and Expro Holdings US Inc., as borrowers (the "New Credit Facility"), with DNB Bank ASA, London Branch, as agent, and other financial institutions as lenders with an aggregate commitment of $200.0 million with up to $130.0 million available for drawdowns as loans and up to $70.0 million for bonds and guarantees. Please see Note 17—Subsequent Events for further discussion.

EXPRO GROUP HOLDINGS N.V. (formerly named Frank's International N.V.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 10—Fair Value Measurements

We follow fair value measurement authoritative accounting guidance for measuring fair values of assets and liabilities in financial statements. The same valuation techniques have been used consistently for all periods presented. Please see Note 10—Fair Value Measurements in the Annual Report for further discussion.

A summary of financial assets and liabilities that are measured at fair value on a recurring basis, as of September 30, 2021 and  December 31, 2020, were as follows (in thousands):

Frank's investments associated with its 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. Frank's investments change as a result of contributions, payments, and fluctuations in the market. Frank's liabilities associated with its 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. Frank's also has 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

The Company applies the provisions of the fair value measurement standard to 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.

Management of the Company performs goodwill impairment assessments for each reporting unit by comparing the estimated fair value of each reporting unit to the reporting unit’s carrying value, including goodwill. Management estimates 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.

When conducting an impairment test on long-lived assets, other than goodwill, the estimated future undiscounted cash flows associated with the asset are first compared to the asset’s carrying amount. If the undiscounted cash flows are less than the asset’s carrying amount, the asset’s fair value is then determined 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 Frank's 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 management's forecasts. If crude oil prices decline significantly and remain at low levels for a sustained period of time, the Company could be required to record an impairment of the carrying value of its long-lived assets in the future which could have a material adverse impact on its operating results. Given the unobservable nature of the inputs, the discounted cash flow models are deemed to use Level 3 inputs.

EXPRO GROUP HOLDINGS N.V. (formerly named Frank's International N.V.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other Fair Value Considerations

The carrying values on the condensed consolidated balance sheets of Frank's 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

Frank's has engaged in certain transactions with other companies related to it by common ownership. Frank's has entered into various operating leases to lease facilities from these affiliated companies. Rent expense associated with related party leases was $0.7 million and $0.9 million for the three months ended September 30, 2021 and 2020, respectively, and $2.1 million and $2.3 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, $3.8 million of Frank's operating lease right-of-use assets and $4.9 million of its lease liabilities were associated with related party leases.

Prior to the initial public offering of Frank’s in 2013, a limited number of employees of a certain Mosing affiliated company were admitted as participants in the Frank’s deferred compensation plan.  The relevant Mosing affiliated company was responsible for payment of all benefits related to its employees.  During the quarter ended September 30, 2021, all such participants received final payment of all sums owed under the deferred compensation plan, and no participants remain in the plan who were not Frank’s employees.

Tax Receivable Agreement and Amended & Restated Tax Receivable Agreement

Mosing Holdings, LLC, a Delaware limited liability company (“Mosing Holdings”), converted all of its shares of our Series A convertible preferred stock into shares of Frank's 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 “Original TRA”) that FINV entered into with FICV and Mosing Holdings in connection with FINV's initial public offering (“IPO”) generally provided 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 realize (or are deemed to realize in certain circumstances) in periods after FINV's 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 Original TRA. Frank's retained the benefit of the remaining 15% of these cash savings, if any.

In connection with the Merger Agreement, FINV, FICV and Mosing Holdings entered into that certain 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 cash to settle the early termination payment obligations that would otherwise be owed to Mosing Holdings under the Original TRA as a result of the Merger. 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 $18,057,000. Please see Note 17—Subsequent Events for additional details.

EXPRO GROUP HOLDINGS N.V. (formerly named Frank's International N.V.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 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):

Note 13—Income Taxes

For interim financial reporting, management estimates the annual tax rate based on projected pre-tax income (loss) for the full year and records a quarterly income tax provision (benefit) in accordance with accounting guidance for income taxes. As the year progresses, the estimate of the year’s pre-tax income (loss) is refined 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, the income tax provision (benefit) is adjusted 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.

Frank's effective tax rate was (35.7)% and (29.9)% for the three months ended September 30, 2021 and 2020, respectively and (29.7)% and 0.1% for nine months ended September 30, 2021 and 2020, respectively. The quarterly sequential variance in effective tax rates is due to a change in the geographical mix of income. The year over year 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. Frank's is subject to tax in many U.S. and non-U.S. jurisdictions. In many non-U.S. jurisdictions Frank's is taxed on bases such as deemed profits or withholding taxes based on revenue. Consequently, the level of correlation between pre-tax income and income tax provision varies from period to period.

As a consequence of the Merger, Frank's underwent an ownership change as defined in Internal Revenue Code Section 382, which, based on information currently available, will trigger a substantial limitation on the combined company’s ability to utilize historic net operating losses ("NOLs") and will cause some of Frank’s NOLs incurred prior to January 1, 2018 to expire before the combined company will be able to utilize them.

Frank's is under audit by certain non-U.S. jurisdictions for the years 2008 - 2019. Frank's does not expect the results of these audits to have any material effect on its financial statements.

An analysis of Frank's uncertain tax positions in the various jurisdictions in which it operates has been performed and management has concluded that the positions are adequately provided for. Frank's provision for uncertain tax positions as of September 30, 2021 and December 31, 2020 included in “Other non-current liabilities” on the condensed consolidated balance sheets was $5.0 million and $3.1 million, respectively. 

EXPRO GROUP HOLDINGS N.V. (formerly named Frank's International N.V.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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. Frank's had no material accruals for loss contingencies, individually or in the aggregate, as of September 30, 2021 or  December 31, 2020. Company management believes the probability is remote that the ultimate outcome of these matters would have a material adverse effect on our financial position, results of operations or cash flows.

Frank's has been conducting, and the combined company will continue to conduct, an internal investigation of the operations of certain of its foreign subsidiaries in West Africa including possible violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), its policies and other applicable laws. In June 2016, Frank's voluntarily disclosed the existence of its extensive internal review to the SEC, the U.S. Department of Justice (“DOJ”) and other governmental entities. It is the Company's intent to continue to fully cooperate with these agencies and any other applicable authorities in connection with any further investigation that may be conducted in connection with this matter. While the review has not indicated that there has been any material impact on Frank's previously filed financial statements, Frank's has continued to collect information and cooperate with the authorities.

As disclosed above, the investigation into possible violations of the FCPA remains ongoing, and the Company will continue to cooperate with the SEC, DOJ and other relevant governmental entities in connection therewith. At this time, we are unable to predict the ultimate resolution of these matters with these agencies, including any financial impact to the Company. The Company's Board of Directors (the "Board") and management are committed to continuously enhancing the Company's internal controls that support improved compliance and transparency throughout the Company's global operations.

Note 15—Severance and Other Charges, net

Frank's recognizes severance and other charges for costs associated with workforce reductions, facility closures, exiting or reducing its 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 Frank's business outlook, management continued to take actions to adjust Frank's operations and cost structure to reflect current and expected activity levels.

Severance and other charges, net are summarized below (in thousands):

Severance and other costs: Frank's incurred costs due to a continued effort to adjust its cost base, including reducing its workforce to meet the depressed demand in the industry.

Mergers and acquisition expense: During the three and nine months ended September 30, 2021, Frank's incurred $2.8 million and $12.1 million of costs, respectively, primarily related to legal and consulting services associated with the Merger.

Fixed asset impairments and retirements: During the nine months ended September 30, 2020, Frank's recognized $15.6 million primarily associated with construction in progress in the Cementing Equipment segment. During the nine months ended September 30, 2021, Frank's recognized a $0.2 million impairment associated with construction in progress in the Tubular Running Services segment. Please see Note 5—Property, Plant and Equipment for additional details.

Inventory write-offs: During the nine months ended September 30, 2020, certain inventories in the Cementing Equipment segment were determined to have costs that exceeded their net realizable values, resulting in a charge of $0.4 million. During the nine months ended September 30, 2021, certain inventories in the 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 nine months ended September 30, 2020, certain intangible assets were identified where the carrying value exceeded the fair value in the Cementing Equipment segment, resulting in an impairment charge of $4.7 million. No impairment was recorded during the three and nine months ended September 30, 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"), which is our Chief Executive Officer, in deciding how to allocate resources and assess performance. Frank's is comprised of three reportable segments: Tubular Running Services (“TRS”) segment, Tubulars segment and Cementing Equipment (“CE”) segment. Post-Merger, the combined company is comprised of four regional-based segments.

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. As the Merger did not close until after the quarter ended September 30, 2021, the historical financial statements presented in this Quarterly Report on Form 10-Q reflect the reporting segments of Frank's, the Predecessor Registrant. The Company's 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.

EXPRO GROUP HOLDINGS N.V. (formerly named Frank's International N.V.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Revenue from contracts with customers is disaggregated by geography for each of Frank's segments, as management believes this best depicts how the nature, amount, timing and uncertainty of Frank's revenue and cash flows are affected by economic factors. Intersegment revenue is immaterial.

The following tables presents Frank's revenue disaggregated by geography, based on the location where services were provided and products sold (in thousands):

EXPRO GROUP HOLDINGS N.V. (formerly named Frank's International N.V.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenue by geographic area were as follows (in thousands):

Adjusted EBITDA

Frank's defines 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. Company management reviews Adjusted EBITDA on both a consolidated basis and on a segment basis. Management uses Adjusted EBITDA to assess Frank's financial performance because it allows management to compare Frank's operating performance on a consistent basis across periods by removing the effects of Frank's 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.

Frank's CODM uses Adjusted EBITDA as the primary measure of segment reporting performance.

EXPRO GROUP HOLDINGS N.V. (formerly named 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):

EXPRO GROUP HOLDINGS N.V. (formerly named Frank's International N.V.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth certain financial information with respect to Frank's reportable segments (in thousands):