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EXPRO GROUP HOLDINGS N.V. - Quarter Report: 2022 June (Form 10-Q)

fi20220630_10q.htm
 

 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

☑ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of

1934

For the quarterly period ended June 30, 2022

 

OR

 

☐ Transition Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

For the transition period from ______ to ______

Commission file number: 001-36053

 

EXPRO GROUP HOLDINGS N.V.

 

(Exact name of registrant as specified in its charter)

 

 

The Netherlands

 

98-1107145

 
 

(State or other jurisdiction of
incorporation or organization)

 

(IRS Employer
Identification No.)

 
     
 

1311 Broadfield Boulevard, Suite 400

   
 

Houston, Texas

 

77084

 
 

(Address of principal executive offices)

 

(Zip Code)

 

 

Registrants telephone number, including area code: (713) 463-9776

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, €0.06 nominal value

XPRO

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

 

As of August 1, 2022, there were 108,702,849 shares of common stock, €0.06 nominal value per share, outstanding.

 

 

 
   

Page

PART I. FINANCIAL INFORMATION

     

Item 1.

Financial Statements

 
 

Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021

1

 

Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021

2

 

Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021

3

  Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2022 and 2021

4

 

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021

5

 

Notes to the Unaudited Condensed Consolidated Financial Statements

6

     

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

24

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

     

Item 4.

Controls and Procedures

39

     

PART II. OTHER INFORMATION

     

Item 1.

Legal Proceedings

40

     

Item 1A.

Risk Factors

40

     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 40
     

Item 6.

Exhibits

41

     

Signatures

 

42

 

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

Expro Group Holdings N.V.

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except share data)

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Total revenue

 $313,624  $176,251  $594,101  $332,546 

Operating costs and expenses:

                

Cost of revenue, excluding depreciation and amortization expense

  (256,583)  (147,718)  (496,113)  (284,789)

General and administrative expense, excluding depreciation and amortization expense

  (17,840)  (6,197)  (29,350)  (12,835)

Depreciation and amortization expense

  (35,392)  (26,390)  (70,404)  (54,149)

Merger and integration expense

  (2,270)  (4,703)  (6,995)  (9,526)

Severance and other expense

  (678)  (1,637)  (2,172)  (2,192)

Total operating cost and expenses

  (312,763)  (186,645)  (605,034)  (363,491)

Operating income (loss)

  861   (10,394)  (10,933)  (30,945)

Other income, net

  244   387   1,240   626 

Interest and finance income (expense), net

  1,712   (1,604)  1,725   (3,231)

Income (loss) before taxes and equity in income of joint ventures

  2,817   (11,611)  (7,968)  (33,550)

Equity in income of joint ventures

  2,429   3,957   6,631   8,049 

Income (loss) before income taxes

  5,246   (7,654)  (1,337)  (25,501)

Income tax expense

  (9,596)  (727)  (14,145)  (3,272)

Net loss

 $(4,350) $(8,381) $(15,482) $(28,773)
                 

Loss per common share:

                

Basic and diluted

 $(0.04) $(0.12) $(0.14) $(0.41)

Weighted average common shares outstanding:

                

Basic and diluted

  109,582,086   70,889,753   109,425,407   70,889,753 

 

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

 

 

 

 

Expro Group Holdings N.V.

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands)

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Net loss

 $(4,350) $(8,381) $(15,482) $(28,773)

Other comprehensive loss:

                

Amortization of prior service credit

  (61)  (61)  (122)  (122)

Other comprehensive loss

  (61)  (61)  (122)  (122)

Comprehensive loss

 $(4,411) $(8,442) $(15,604) $(28,895)

 

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

 

 

 

Expro Group Holdings N.V.

Condensed Consolidated Balance Sheets

(in thousands, except share data)

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 
   (Unaudited)     

Assets

        

Current assets

        

Cash and cash equivalents

 $175,112  $235,390 

Restricted cash

  4,299   4,457 

Accounts receivable, net

  370,459   319,286 

Inventories

  143,272   125,116 

Assets held for sale

  -   6,386 

Income tax receivables

  25,028   20,561 

Other current assets

  51,636   52,938 

Total current assets

  769,806   764,134 
         

Property, plant and equipment, net

  459,277   478,580 

Investments in joint ventures

  61,248   57,604 

Intangible assets, net

  245,492   253,053 

Goodwill

  179,903   179,903 

Operating lease right-of-use assets

  80,307   83,372 

Non-current accounts receivable, net

  10,705   11,531 

Other non-current assets

  17,025   26,461 

Total assets

 $1,823,763  $1,854,638 
         

Liabilities and stockholders’ equity

        

Current liabilities

        

Accounts payable and accrued liabilities

 $228,763  $213,152 

Income tax liabilities

  26,076   22,999 

Finance lease liabilities

  1,032   1,147 

Operating lease liabilities

  19,617   19,695 

Other current liabilities

  61,890   74,213 

Total current liabilities

  337,378   331,206 
         

Deferred tax liabilities, net

  29,818   31,744 

Post-retirement benefits

  23,179   29,120 

Non-current finance lease liabilities

  14,401   15,772 

Non-current operating lease liabilities

  66,659   73,688 

Other non-current liabilities

  77,399   75,537 

Total liabilities

  548,834   557,067 
         

Commitments and contingencies (Note 17)

         
         

Stockholders’ equity:

        

Common stock, €0.06 nominal value, 200,000,000 shares authorized, 110,575,691 and 109,697,040 shares issued and 108,637,201 and 109,142,925 shares outstanding

  7,903   7,844 

Treasury stock (at cost) 1,938,490 and 554,115 shares

  (40,473)  (22,785)

Additional paid-in capital

  1,838,373   1,827,782 

Accumulated other comprehensive income

  20,236   20,358 

Accumulated deficit

  (551,110)  (535,628)

Total stockholders’ equity

  1,274,929   1,297,571 

Total liabilities and stockholders’ equity

 $1,823,763  $1,854,638 

 

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

 

 

 

Expro Group Holdings N.V.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

  

Six Months Ended June 30,

 
  

2022

  

2021

 

Cash flows from operating activities:

        

Net loss

 $(15,482) $(28,773)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

        

Depreciation and amortization expense

  70,404   54,149 

Equity in income of joint ventures

  (6,631)  (8,049)

Stock-based compensation expense

  10,248   - 

Change in fair value of investments

  1,538   - 

Elimination of unrealized profit on sales to joint ventures

  -   5 

Deferred taxes

  (1,929)  (2,463)

Unrealized foreign exchange

  2,647   1,148 

Changes in assets and liabilities:

        

Accounts receivable, net

  (52,971)  (38,756)

Inventories

  (15,441)  (8,656)

Other assets

  1,012   3,442 

Accounts payable and accrued liabilities

  11,217   15,146 

Other liabilities

  (12,840)  16,122 

Income taxes, net

  568   1,657 

Other

  (7,432)  (2,577)

Dividends from joint ventures

  2,985   - 

Net cash (used in) provided by operating activities

  (12,107)  2,395 
         

Cash flows from investing activities:

        

Capital expenditures

  (31,526)  (37,644)

Acquisition of technology

  (7,967)  - 

Proceeds from disposal of assets

  6,579   - 

Proceeds from sale / maturity of investments

  8,169   - 

Net cash used in investing activities

  (24,745)  (37,644)
         

Cash flows from financing activities:

        

(Cash pledged for) release of collateral deposits

  (256)  42 

Payments of loan issuance and other transaction costs

  (132)  (438)

Acquisition of common stock

  (12,309)  - 

Payment of withholding taxes on stock-based compensation plans

  (4,291)  - 

Repayment of financed insurance premium

  (2,805)  - 

Repayments of finance leases

  (409)  (584)

Net cash used in financing activities

  (20,202)  (980)
         

Effect of exchange rate changes on cash and cash equivalents

  (3,382)  (173)

Net decrease to cash and cash equivalents and restricted cash

  (60,436)  (36,402)

Cash and cash equivalents and restricted cash at beginning of period

  239,847   120,709 

Cash and cash equivalents and restricted cash at end of period

 $179,411  $84,307 

 

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

 

 

 

 

Expro Group Holdings N.V.

Condensed Consolidated Statements of Stockholders Equity (Unaudited)

(in thousands)

 

  

Six Months Ended June 30, 2021

 
                 Accumulated       
              

Additional

  

other

     

Total

 
  

Common

     

Treasury

  

paid-in

  

comprehensive

  

Accumulated

  

stockholders’

 
  stock  Warrants  Stock  capital  loss  deficit  equity 

Balance at January 1, 2021

  70,890  $585  $10,530  $-  $1,006,100  $(1,494) $(403,737) $611,984 

Net loss

  -   -   -   -   -   -   (20,392)  (20,392)

Other comprehensive loss

  -   -   -   -   -   (61)  -   (61)

Balance at March 31, 2021

  70,890  $585  $10,530  $-  $1,006,100  $(1,555) $(424,129) $591,531 

Net loss

  -   -   -   -   -   -   (8,381)  (8,381)

Other comprehensive loss

  -   -   -   -   -   (61)  -   (61)

Balance at June 30, 2021

  70,890  $585  $10,530  $-  $1,006,100  $(1,616) $(432,510) $583,089 

 

 

   

Six Months Ended June 30, 2022

 
                                  Accumulated              
                           

Additional

   

other

         

Total

 
   

Common

         

Treasury

   

paid-in

   

comprehensive

   

Accumulated

   

stockholders’

 
    stock     Warrants     Stock     capital     income     deficit     equity  

Balance at January 1, 2022

    109,143     $ 7,844     $ -     $ (22,785 )   $ 1,827,782     $ 20,358     $ (535,628 )   $ 1,297,571  

Net loss

    -       -       -       -       -       -       (11,132 )     (11,132 )

Other comprehensive loss

    -       -       -       -       -       (61 )     -       (61 )

Stock-based compensation expense

    -       -       -       -       6,018       -       -       6,018  

Common stock issued upon vesting of share-based awards

    336       24       -       -       378       -       -       402  

Common stock withheld

    (100 )     -       -       (1,506 )     -       -       -       (1,506 )

Balance at March 31, 2022

    109,379     $ 7,868     $ -     $ (24,291 )   $ 1,834,178     $ 20,297     $ (546,760 )   $ 1,291,292  

Net loss

    -       -       -       -       -       -       (4,350 )     (4,350 )

Other comprehensive loss

    -       -       -       -       -       (61 )     -       (61 )

Stock-based compensation expense

    -       -       -       -       4,230       -       -       4,230  

Common stock issued upon vesting of share-based awards

    542       35       -       -       (35 )     -       -       -  

Acquisition of common stock

    (1,100 )     -       -       (12,995 )     -       -       -       (12,995 )

Common stock withheld

    (184 )     -       -       (3,187 )     -       -       -       (3,187 )

Balance at June 30, 2022

    108,637     $ 7,903     $ -     $ (40,473 )   $ 1,838,373     $ 20,236     $ (551,110 )   $ 1,274,929  

 

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

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1.

Business description

 

With roots dating to 1938, Expro Group Holdings N.V. (the “Company,” “Expro,” “we,” “our” or “us”) is a global provider of energy services with operations in approximately 60 countries. The Company’s portfolio of capabilities includes products and services related to well construction, well flow management, subsea well access, and well intervention and integrity that enhance production and improve recovery across the well lifecycle, from exploration through abandonment.

 

On March 10, 2021, Frank’s International N.V. (“Frank’s”) and New Eagle Holdings Limited, an exempted company limited by shares incorporated under the laws of the Cayman Islands and a direct wholly owned subsidiary of Frank’s (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Expro Group Holdings International Limited (“Legacy Expro”), an exempted company limited by shares incorporated under the laws of the Cayman Islands, providing for the merger of Legacy Expro with and into Merger Sub in an all-stock transaction, with Merger Sub surviving the merger as a direct, wholly owned subsidiary of Frank’s (the “Merger”). The Merger closed on October 1, 2021 (the “Closing Date”), and Frank’s was renamed Expro Group Holdings N.V. The Merger was accounted for using the acquisition method of accounting with Legacy Expro being identified as the accounting acquirer. The condensed consolidated financial statements of the Company reflect the condensed financial position, results of operations and cash flows of only Legacy Expro for all periods prior to the Merger and of the combined company (including activities of Frank’s) for all periods subsequent to the Merger.

 

Pursuant to the Merger Agreement, as of the effective time of the Merger (the “Effective Time”), each outstanding ordinary share of common stock, par value $0.01 per share, of Legacy Expro was converted into the right to receive 1.2120 shares of common stock, nominal value €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.

 

Further, the supervisory board of directors of Frank’s unanimously approved a 1-for-6 reverse stock split of Frank’s common stock, which was effected on October 1, 2021. All of the outstanding share numbers, nominal value, share prices and per share amounts in these condensed consolidated financial statements have been retroactively adjusted to reflect the Exchange Ratio and the 1-for-6 reverse stock split for all periods presented, as applicable.

 

On June 16, 2022, the Company’s Board of Directors (the “Board”) approved a new stock repurchase program, under which the Company is authorized to acquire up to $50.0 million of its outstanding common stock through November 24, 2023 (the “Stock Repurchase Program”). Under the Stock Repurchase Program, the Company may repurchase shares of the Company’s common stock in open market purchases, in privately negotiated transactions or otherwise. The Stock Repurchase Program will be utilized at management’s discretion and in accordance with federal securities laws. The timing and actual numbers of shares repurchased will depend on a variety of factors including price, corporate requirements, the constraints specified in the Stock Repurchase Program along with general business and market conditions. The Stock Repurchase Program does not obligate the Company to repurchase any particular amount of common stock, and it could be modified, suspended or discontinued at any time. During the second quarter of 2022, the Company repurchased 1.1 million shares at an average price of $11.81 per share, for a total cost of $13.0 million under this $50.0 million program.

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

2.

Basis of presentation and significant accounting policies

 

Basis of presentation

 

The unaudited condensed consolidated financial statements reflect the accounts of the Company and its subsidiaries. All intercompany balances and transactions, including unrealized profits arising from them, have been eliminated for purposes of preparing these unaudited condensed consolidated financial statements. Investments in which we do not have a controlling interest, but over which we do exercise significant influence, are accounted for under the equity method of accounting.

 

The accompanying condensed consolidated financial statements have not been audited by our independent registered public accounting firm. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim consolidated financial information. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 8, 2022.

 

In the opinion of management, these unaudited condensed consolidated financial statements, which are prepared in accordance with the rules of the SEC and U.S. GAAP for interim financial reporting, included herein contain all adjustments necessary to present fairly our financial position as of June 30, 2022, the results of our operations for the three and six months ended June 30, 2022 and 2021, and our cash flows for the six months ended June 30, 2022 and 2021. Such adjustments are of a normal recurring nature. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other period.

 

The unaudited condensed consolidated financial statements have been prepared on an historical cost basis using the United States dollar (“$” or “U.S. dollar”) as the reporting currency.

 

Significant accounting policies

 

Refer to Note 2Basis 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

 

Franks International N.V.

 

As discussed in Note 1Business description,” the Merger of Frank’s with Legacy Expro pursuant to the Merger Agreement was completed on October 1, 2021. U.S. GAAP requires the determination of the accounting acquirer, the acquisition date, the fair value of assets and liabilities of the acquired business and the resulting measurement of goodwill. The Merger is accounted for as a reverse merger and Legacy Expro has been identified as the acquirer for accounting purposes. As a result, the Company has in accordance with ASC 805, Business Combinations, applied the acquisition method of accounting to account for Frank’s assets acquired and liabilities assumed. Applying the acquisition method of accounting includes recording the identifiable assets acquired and liabilities assumed at their fair values and recording goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed.

 

The Merger consideration was based on Frank’s closing share price on the Closing Date. In a reverse merger involving only the exchange of equity, the fair value of the equity of the accounting acquiree may be used to measure consideration transferred if the value of the accounting acquiree’s equity interests are more reliably measurable than the value of the accounting acquirer’s equity interest. As Legacy Expro was a private company and Frank’s was a public company with a quoted and reliable market price, the fair value of Frank’s equity interests was deemed to be more reliable. Under the acquisition method of accounting, total consideration exchanged was as follows:

 

      

Per share

  

Amount

 
  

Shares issued

  

price

  

(in thousands)

 

Issuance of common stock attributable to Frank’s stockholders

  38,066,216  $18.90  $719,452 

Replacement of Frank’s equity awards

          7,830 

Cash payment to Mosing Holdings LLC pursuant to the amended and restated tax receivable agreement

          15,000 

Total Merger Consideration Exchanged

         $742,282 

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

The following table sets forth the preliminary allocation of the merger consideration exchanged to the fair value of identifiable tangible and intangible assets acquired and liabilities assumed as of the Closing Date, with the recording of goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed (in thousands):

 

  

Amount

 

Cash and cash equivalents

 $187,178 

Restricted cash

  2,561 

Accounts receivables, net

  112,234 

Inventories

  69,567 

Assets held for sale

  10,061 

Income tax receivables

  2,030 

Other current assets

  23,908 

Property, plant and equipment

  212,639 

Goodwill

  154,399 

Intangible assets

  104,791 

Operating lease right-of-use assets

  27,406 

Other assets

  20,494 

Total assets

  927,268 

Accounts payable and accrued liabilities

  81,959 

Operating lease liabilities

  8,344 

Current income tax liabilities

  8,932 

Other current liabilities

  19,918 

Deferred tax liabilities

  5,673 

Non-current operating lease liabilities

  19,607 

Other non-current liabilities

  40,553 

Total Liabilities

  184,986 
     

Total Merger Consideration Exchanged

 $742,282 

 

The fair values of assets acquired and liabilities assumed, including other current liabilities, are subject to change as additional information is received. We expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation table above. The fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either through the use of the relief-from-royalty method or the multi-period excess earnings method, which are discounted to approximate their current value. The estimated useful lives are based on management’s historical experience and expectations as to the duration of time that benefits from these assets are expected to be realized.

 

The intangible assets will be amortized on a straight-line basis over an estimated 10 to 15 year life. We expect annual amortization to be approximately $7.7 million associated with these intangible assets.

 

Goodwill will not be amortized but rather subject to an annual impairment test, absent any indicators of impairment. Goodwill is attributable to planned synergies expected to be achieved from the combined operations of Legacy Expro and Frank’s. Goodwill recorded in the Merger is not expected to be deductible for tax purposes.

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Unaudited Pro Forma Financial Information

 

The following unaudited pro forma consolidated results of operations for the three and six months ended June 30, 2021 assume the Merger was completed as of January 1, 2020 (in thousands):

 

  

Three Months Ended June 30, 2021

  

Six Months Ended June 30, 2021

 

Unaudited pro forma revenues

 $284,092  $535,198 

Unaudited pro forma net loss

 $(16,648) $(58,237)

 

Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the Merger been completed on the date indicated or of future operating results.

 

Merger and integration expense

 

During the three months ended June 30, 2022 and 2021, the Company incurred $2.3 million and $4.7 million, respectively, of merger and integration expense which consist primarily of legal fees, professional fees, integration, severance and other costs directly attributable to the Merger. During the six months ended June 30, 2022 and 2021, the Company incurred $7.0 million and $9.5 million, respectively, of merger and integration expense which consist primarily of legal fees, professional fees, integration, severance and other costs directly attributable to the Merger.

 

Below is a reconciliation of our liability balance associated with our severance plan initiated during 2021 related to the integration in connection with the Merger, which is included in “Other current liabilities” on the condensed consolidated balance sheets (in thousands):

 

  

NLA

  

ESSA

  

MENA

  

APAC

  

Central

  

Total

 

Balance as of December 31, 2021

 $2,057  $2,502  $424  $617  $6,615  $12,215 

Expense (reversal) during the period

  

(367

)  (427)  -   401   1,452   1,059 

Payments made during the period

  (1,311)  (1,331)  (408)  (516)  (4,636)  (8,202)

Balance as of June 30, 2022

 $379  $744  $16  $502  $3,431  $5,072 

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

4.         Fair value measurements

 

Recurring Basis

 

A summary of financial assets and liabilities that are measured at fair value on a recurring basis, as of June 30, 2022 and December 31, 2021, were as follows (in thousands):

 

  

June 30, 2022

 
  

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                

Investments:

                

Cash surrender value of life insurance policies-

                

Deferred compensation plan

 $-  $10,199  $-  $10,199 

Non-current accounts receivable, net

  -   10,705   -   10,705 

Liabilities:

                

Deferred compensation plan

  -   7,234   -   7,234 

Finance lease liabilities

  -   15,433   -   15,433 

 

  

December 31, 2021

 
  

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                

Investments:

                

Cash surrender value of life insurance policies-

                

Deferred compensation plan

 $-  $18,857  $-  $18,857 

Non-current accounts receivable, net

  -   11,531   -   11,531 

Liabilities:

                

Deferred compensation plan

  -   9,339   -   9,339 

Finance lease liabilities

  -   16,919   -   16,919 

 

Our investments associated with our deferred compensation plan as of  June 30, 2022 consist primarily of the cash surrender value of life insurance policies and is included in “Other non-current assets” on the condensed consolidated balance sheets. The liability associated with our deferred compensation plan as of  June 30, 2022 is included in “Other non-current liabilities” on the condensed consolidated balance sheets. Our investments change as a result of contributions, payments, and fluctuations in the market. Assets and liabilities, measured using significant observable inputs, are reported at fair value based on third-party broker statements, which are derived from the fair value of the funds’ underlying investments. They are reported at fair value based on the price of the stock and are included in “Other non-current assets” on the condensed consolidated balance sheets.

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

5.

Business segment reporting

 

Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the Company’s Chief Operating Decision Maker (“CODM”), which is our Chief Executive Officer, in deciding how to allocate resources and assess performance. Our CODM manages our operational segments that are aligned with our geographical regions as below:

 

 

North and Latin America (“NLA”),

 

Europe and Sub-Saharan Africa (“ESSA”),

 

Middle East and North Africa (“MENA”), and

 

Asia-Pacific (“APAC”).

 

The following table presents our revenue disaggregated by our operating segments (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 

NLA

 $129,694  $30,630  $233,555  $60,993 

ESSA

  90,118   65,177   172,189   118,807 

MENA

  45,363   42,485   96,078   83,640 

APAC

  48,449   37,959   92,279   69,106 

Total

 $313,624  $176,251  $594,101  $332,546 

 

Segment EBITDA

 

Our CODM regularly evaluates the performance of our operating segments using Segment EBITDA, which we define as income (loss) before income taxes adjusted for corporate costs, equity in income of joint ventures, depreciation and amortization expense, impairment expense, severance and other expense, gain on disposal of assets, foreign exchange losses, merger and integration expense, other income, interest and finance income (expense), net and stock-based compensation expense.

 

The following table presents our Segment EBITDA disaggregated by our operating segments and a reconciliation to income (loss) before income taxes (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 

NLA

 $38,513  $3,355  $60,340  $5,783 

ESSA

  14,868   10,315   26,742   15,681 

MENA

  13,750   14,079   29,215   29,137 

APAC

  4,356   8,317   9,794   13,483 

Total Segment EBITDA

  71,487   36,066   126,091   64,084 

Corporate costs

  (22,812)  (13,419)  (44,777)  (28,102)

Equity in income of joint ventures

  2,429   3,957   6,631   8,049 

Depreciation and amortization expense

  (35,392)  (26,390)  (70,404)  (54,149)

Merger and integration expense

  (2,270)  (4,703)  (6,995)  (9,526)

Severance and other expense

  (678)  (1,637)  (2,172)  (2,192)

Stock-based compensation expense

  (4,230)  -   (10,248)  - 

Foreign exchange loss

  (5,244)  (311)  (2,428)  (1,060)

Other income, net

  244   387   1,240   626 

Interest and finance income (expense), net

  1,712   (1,604)  1,725   (3,231)

Income (loss) before income taxes

 $5,246  $(7,654) $(1,337) $(25,501)

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Corporate costs include the costs of running our corporate head office and other central functions that support the operating segments, including research, engineering and development, logistics, sales and marketing and health and safety and are not attributable to a particular operating segment.

 

 

6.

Revenue

 

Disaggregation of revenue

 

We disaggregate our revenue from contracts with customers by geography, as disclosed in Note 5 “Business segment reporting,” as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Additionally, we disaggregate our revenue into main areas of capabilities.

 

The following table sets forth the total amount of revenue by main area of capabilities as follows (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Well construction

 $121,794  $-  $233,229  $- 

Well management

  191,830   176,251   360,872   332,546 

Total

 $313,624  $176,251  $594,101  $332,546 

 

Contract balances

 

We perform our obligations under contracts with our customers by transferring services and products in exchange for consideration. The timing of our performance often differs from the timing of our customer’s payment, which results in the recognition of unbilled receivables and deferred revenue.

 

Unbilled receivables are initially recognized for revenue earned on completion of the performance obligation which are not yet invoiced to the customer. The amounts recognized as unbilled receivables are reclassified to accounts receivable upon billing. Deferred revenue represents the Company’s obligations to transfer goods or services to customers for which the Company has received consideration, in full or part, from the customer.

 

Contract balances consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Accounts receivable, net

 $244,150  $236,158 

Unbilled receivables

 $137,014  $94,659 

Deferred revenue

 $13,001  $17,038 

 

The Company recognized revenue during the three and six months ended June 30, 2022 of $1.0 million and $8.9 million, respectively, and for the three and six months ended June 30, 2021 of $3.2 million and $4.3 million, respectively, out of the deferred revenue balance as of the beginning of the applicable year.

 

As of June 30, 2022, $12.6 million of our deferred revenue was classified as current and is included in “Other current liabilities” on the condensed consolidated balance sheets, with the remainder classified as non-current and included in “Other non-current liabilities” on the condensed consolidated balance sheets.

 

Transaction price allocated to remaining performance obligations

 

Remaining performance obligations represent firm contracts for which work has not been performed or has been partially performed and future revenue recognition is expected. We have elected the practical expedient permitting the exclusion of disclosing remaining performance obligations for contracts that have an original expected duration of one year or less and for our long-term contracts we have a right to consideration from customers in an amount that corresponds directly with the value to the customer of the performance completed to date.

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

7.

Income taxes

 

For interim financial reporting, we estimate the annual tax rate based on projected pre-tax income (loss) before equity in income of joint ventures for the full year and record a quarterly income tax expense (benefit) in accordance with accounting guidance for income taxes. As the year progresses, we refine the estimate of the year’s pre-tax income (loss) before equity in income of joint ventures as new information becomes available. The continual estimation process often results in a change to the expected effective tax rate for the year. When this occurs, we adjust the income tax expense (benefit) during the quarter in which the change in estimate occurs so that the year-to-date expense reflects the most current expected annual tax rate.

 

Our effective tax rates were 341% and (178)% for the three and six months ended June 30, 2022, respectively, and were (6.3)% and (9.8)% for the three and six months ended June 30, 2021, respectively.

 

Our effective tax rate was impacted primarily by changes in the mix of taxable profits between jurisdictions, in particular increased taxable profits in Latin America, deferred tax credits recognized during the three months ended March 31, 2022, in particular in APAC, that did not recur during the three months ended June 30, 2022, and deferred tax charges recognized during the three months ended June 30, 2022, primarily in MENA.

 

 

8.

Investment in joint ventures

 

We have investments in two joint venture companies, which together provide us access to certain Asian markets that otherwise would be challenging for us to penetrate or develop effectively on our own. COSL-Expro Testing Services (Tianjin) Co. Ltd (“CETS”), in which we have a 50% equity interest, has extensive offshore well testing and completions capabilities and a reputation for providing technology-driven solutions in China. Similarly, PV Drilling Expro International Co. Ltd. (“PVD-Expro”) in which we have a 49% equity interest, offers the full suite of Expro products and services, including well testing and completions, in Vietnam. Both of these are strategic to our activities and offer the full capabilities and technology of Expro, but each company is independently managed.

 

The carrying value of our investment in joint ventures as of June 30, 2022 and December 31, 2021 was as follows (in thousands):

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

CETS

 $57,721  $54,014 

PVD-Expro

  3,527   3,590 

Total

 $61,248  $57,604 

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

9.

Accounts receivable, net

 

Accounts receivable, net consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Accounts receivable

 $392,270  $340,209 

Less: Expected credit losses

  (11,106)  (9,392)

Total

 $381,164  $330,817 
         

Current

  370,459   319,286 

Non – current

  10,705   11,531 

Total

 $381,164  $330,817 

 

 

10.

Inventories

 

Inventories consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Finished goods

 $34,306  $34,899 

Raw materials, equipment spares and consumables

  88,658   76,025 

Work-in-progress

  20,308   14,192 

Total

 $143,272  $125,116 

 

 

11.

Other assets and liabilities

 

Other assets consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Cash surrender value of life insurance policies

 $10,199  $18,857 

Prepayments

  22,457   19,891 

Value-added tax receivables

  22,523   22,524 

Collateral deposits

  1,855   1,599 

Deposits

  6,825   7,331 

Other

  4,802   9,197 

Total

 $68,661  $79,399 
         

Current

  51,636   52,938 

Non – current

  17,025   26,461 

Total

 $68,661  $79,399 

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Other liabilities consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Deferred revenue

 $13,001  $17,038 

Other tax and social security

  27,067   27,893 

Income tax liabilities – non-current portion

  47,697   45,741 

Deferred compensation plan

  7,234   9,339 

Other

  44,290   49,739 

Total

 $139,289  $149,750 
         

Current

  61,890   74,213 

Non – current

  77,399   75,537 

Total

 $139,289  $149,750 

 

Cash Surrender Value of Life Insurance Policies

 

We had $10.2 million and $18.9 million of cash surrender value of life insurance policies as of June 30, 2022 and December 31, 2021, respectively, that are held within a trust established to settle payment of future executive deferred compensation benefit obligations. The decrease in the cash surrender value of life insurance policies as of  June 30, 2022 as compared to December 31, 2021 was primarily due to a cash distribution from the trust to reimburse the Company for benefits paid pursuant to the executive deferred compensation benefit plan, the impact of which is included in “Proceeds from sale / maturity of investments” on the condensed consolidated statements of cash flows. Loss associated with these policies is included in “Other income, net” on our condensed consolidated statements of operations. Loss on changes in the cash surrender value of life insurance policies was $0.1 million and $0.2 million for the three and six months ended June 30, 2022, respectively.

 

 

12.

Accounts payable and accrued liabilities

 

Accounts payable and accrued liabilities consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Accounts payable – trade

 $92,594  $84,952 

Payroll, vacation and other employee benefits

  33,752   42,671 

Accruals for goods received not invoiced

  20,681   18,666 

Other accrued liabilities

  81,736   66,863 

Total

 $228,763  $213,152 

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

13.

Property, plant and equipment, net

 

Property, plant and equipment, net consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Cost:

        

Land

 $21,580  $21,580 

Land improvements

  3,051   3,054 

Buildings and lease hold improvements

  103,505   104,660 

Plant and equipment

  734,160   701,400 
   862,296   830,694 

Less: accumulated depreciation

  (403,019)  (352,114)

Total

 $459,277  $478,580 

 

During the six months ended June 30, 2022, assets held for sale were sold for net proceeds of $6.3 million.

 

The carrying amount of our property, plant and equipment recognized in respect of assets held under finance leases as of June 30, 2022 and December 31, 2021 and included in amounts above is as follows (in thousands):

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Cost:

        

Buildings

 $18,623  $18,623 

Plant and equipment

  1,275   1,275 

Total

  19,898   19,898 

Less: accumulated amortization

  (8,411)  (7,733)

Total

 $11,487  $12,165 

 

Depreciation expense relating to property, plant and equipment, including assets under finance leases, was $25.6 million and $51.6 million for the three and six months ended June 30, 2022, respectively, and $19.9 million and $41.3 million for the three and six months ended June 30, 2021, respectively.

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

14.

Intangible assets, net

 

The following table summarizes our intangible assets comprising of Customer Relationships & Contracts (“CR&C”), Trademarks, Technology and Software as of June 30, 2022 and December 31, 2021 (in thousands):

 

  

June 30, 2022

  

December 31, 2021

  

June 30, 2022

 
  

Gross carrying amount

  

Accumulated impairment and amortization

  

Net book value

  

Gross carrying amount

  

Accumulated impairment and amortization

  

Net book value

  

Weighted average remaining life (years)

 

CR&C

 $222,200  $(108,246) $113,954  $222,200  $(98,271) $123,929   5.8 

Trademarks

  57,100   (31,157)  25,943   57,100   (29,392)  27,708   8.0 

Technology

  170,652   (65,901)  104,751   159,458   (60,979)  98,479   12.1 

Software

  8,754   (7,910)  844   8,754   (5,817)  2,937   0.4 

Total

 $458,706  $(213,214) $245,492  $447,512  $(194,459) $253,053     

 

Amortization expense for intangible assets was $9.8 million and $18.8 million for the three and six months ended June 30, 2022, respectively, and $6.4 million and $12.9 million for the three and six months ended June 30, 2021, respectively.

 

During the first quarter of 2022, we acquired technology to bolster our well intervention and integrity product offering, resulting in an increase in intangible assets of $11.2 million which will be amortized over a five-year life. The impact of this asset acquisition is included in “Acquisition of technology” on the condensed consolidated statements of cash flows.

 

 

15.

Goodwill

 

Our reporting units are either our operating segments or components of our operating segments depending on the level at which segment management oversees the business. Prior to the Merger, Legacy Expro’s reporting units included Europe and the Commonwealth of Independent States, Sub-Saharan Africa, MENA, Asia, North America and Latin America. During 2021, due to the Merger we changed our internal organization and reporting structure and as a result, our operating segments, NLA, ESSA, MENA and APAC, are also our reporting units.

 

The allocation of goodwill by operating segment as of June 30, 2022 and December 31, 2021 is as follows (in thousands):

 

NLA

 $93,608 

ESSA

  66,283 

MENA

  3,331 

APAC

  16,681 

Total

 $179,903 

 

As of June 30, 2022, we did not identify any triggering events that would represent an indicator of impairment of our goodwill. Accordingly, no impairment charges related to goodwill have been recorded during the three and six months ended June 30, 2022.

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

16.

Interest bearing loans

 

On October 1, 2021, in connection with the closing of the Merger, we entered into a new revolving credit facility (the “New Facility”) with DNB Bank ASA, London Branch, as agent (the “Agent”), with total commitments of $200.0 million, of which $130.0 million is available for drawdowns as loans and $70.0 million is available for letters of credit. Subject to the terms of the New Facility, the Company has the ability to increase the commitments to $250.0 million. Proceeds of the New Facility may be used for general corporate and working capital purposes.

 

All obligations under the New Facility are guaranteed jointly and severally by the Company and certain of the Company’s subsidiaries incorporated in the U.S., the U.K., the Netherlands, Norway, Hungary, Australia, Cyprus, the Cayman Islands and Guernsey. Going forward, the guarantors must comprise at least 80% of the EBITDA (as defined in the New Facility) and 70% of the consolidated assets of the Company and its subsidiaries, as well as subsidiaries individually representing 5% or more of the EBITDA or assets of the group, subject to customary exceptions and exclusions. In addition, the obligations under the New Facility are secured by first priority liens on certain assets of the borrowers and guarantors, including pledges of equity interests in certain of the Company’s subsidiaries, including all of the borrowers and subsidiary guarantors, material operating bank accounts, intercompany loans receivable and, in jurisdictions where customary, including the U.S., the U.K., Australia and the Cayman Islands, substantially all of the assets and property of the borrowers and guarantors incorporated in such jurisdictions, in each case subject to customary exceptions and exclusions.

 

Borrowings under the New Facility bear interest at a rate per annum of LIBOR, subject to a 0.00% floor, plus an applicable margin of 3.75% for cash borrowings or 3.00% for letters of credit. A 0.75% per annum fronting fee applies to letters of credit, and an additional 0.25% or 0.50% per annum utilization fee is payable on drawdowns as loans to the extent one-third or two-thirds, respectively, or more of commitments are drawn. The unused portion of the New Facility is subject to a commitment fee of 30% per annum of the applicable margin. Interest on loans is payable at the end of the selected interest period, but no less frequently than semiannually.

 

The New Facility contains various undertakings and affirmative and negative covenants which limit, subject to certain customary exceptions and thresholds, the Company and its subsidiaries’ ability to, among other things, (1) enter into asset sales; (2) incur additional indebtedness; (3) make investments, acquisitions, or loans and create or incur liens; (4) pay certain dividends or make other distributions; and (5) engage in transactions with affiliates. The New Facility also requires the Company to maintain (i) a minimum cash flow cover ratio of 1.5 to 1.0 based on the ratio of cash flow to debt service; (ii) a minimum interest cover ratio of 4.0 to 1.0 based on the ratio of EBITDA to net finance charges; and (iii) a maximum senior leverage ratio of 2.25 to 1.0 based on the ratio of total net debt to EBITDA, in each case tested quarterly on a last-twelve-months basis, subject to certain exceptions. In addition, the aggregate capital expenditure of the Company and its subsidiaries cannot exceed 110% of the forecasted amount in the relevant annual budget, subject to certain exceptions. If the Company fails to perform its obligations under the agreement that results in an event of default, the commitments under the New Facility could be terminated and any outstanding borrowings under the New Facility may be declared immediately due and payable. The New Facility also contains cross-default provisions that apply to the Company and its subsidiaries’ other indebtedness.

 

On March 31, 2022, the Agent, on behalf of the consenting lenders, countersigned a Consent Request Letter dated March 10, 2022 to the New Facility (the “Consent”). Pursuant to the Consent, the lenders consented to, among other things, an amendment to the New Facility permitting dividends or distributions by the Company, or the repurchase or redemption of the Company’s shares in an aggregate amount of $50.0 million over the life of the New Facility, subject to pro forma compliance with the 2.25 to 1.0 maximum senior leverage ratio financial covenant.

 

On July 28, 2022, the Company and the lenders increased the total commitments available for letters of credit under the New Facility by $18.0 million. 

 

The Facility remained undrawn on a cash basis (i.e., no loans were outstanding), as of June 30, 2022 and December 31, 2021. We utilized $31.8 million and $33.4 million as of June 30, 2022 and December 31, 2021, respectively, for bonds and guarantees.

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

17.

Commitments and Contingencies

 

Commercial Commitments

 

During the normal course of business, we enter into commercial commitments in the form of letters of credit and bank guarantees to provide financial and performance assurance to third parties.

 

We entered into contractual commitments for the acquisition of property, plant and equipment totaling $45.9 million and $26.3 million as of June 30, 2022 and December 31, 2021, respectively.

 

Contingencies

 

Certain conditions may exist as of the date our unaudited condensed consolidated financial statements are issued that may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. Our management, with input from legal counsel, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings pending against us or unasserted claims that may result in proceedings, our management, with input from legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates it is probable a material loss has been incurred and the amount of liability can be reasonably estimated, then the estimated liability would be accrued in our unaudited condensed consolidated financial statements. If the assessment indicates a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

 

We are the subject of lawsuits and claims arising in the ordinary course of business from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. We had no material accruals for loss contingencies, individually or in the aggregate, as of June 30, 2022 and December 31, 2021. We believe the probability is remote that the ultimate outcome of these matters would have a material adverse effect on our financial position, results of operations or cash flows.

 

We are conducting an internal investigation of the operations of certain of our foreign subsidiaries in West Africa including possible violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), our policies and other applicable laws. In June 2016, we voluntarily disclosed the existence of our extensive internal review to the SEC, the U.S. Department of Justice (“DOJ”) and other governmental entities. It is our intent to continue to fully cooperate with these agencies and any other applicable authorities in connection with any further investigation that may be conducted in connection with this matter. While our review has not indicated that there has been any material impact on our previously filed financial statements, we have continued to collect information and cooperate with the authorities, but at this time are unable to predict the ultimate resolution of these matters with these agencies (including any financial impact on us, which could be material).

 

As disclosed above, our investigation into possible violations of the FCPA remains ongoing, and we will continue to cooperate with the SEC, DOJ and other relevant governmental entities in connection therewith. Our board of directors and management are committed to continuously enhancing our internal controls that support improved compliance and transparency throughout our global operations.

 

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

18.

Post-retirement benefits

 

Amounts recognized in the unaudited condensed consolidated statements of operations in respect of the defined benefit schemes were as follows (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Amortization of prior service credit

 $61  $61  $122  $122 

Interest cost

  (991)  (840)  (2,045)  (1,677)

Expected return on plan assets

  1,375   1,150   2,803   2,331 

Total

 $445  $371  $880  $776 

 

The Company contributed $1.2 million and $2.5 million for the three and six months ended June 30, 2022, respectively, and $0.9 million and $1.8 million for the three and six months ended June 30, 2021, respectively, to defined benefit schemes.

 

Amortization of prior service credit, interest cost and expected return on plan assets have been recognized in “Other income, net” in the unaudited condensed consolidated statements of operations.

 

Executive Deferred Compensation Plan

 

The Company maintains the Executive Deferred Compensation Plan (the “EDC Plan”) for certain current and former Frank’s employees. Effective during 2015, this plan was closed to new entrants. The purpose of the EDC Plan was to provide participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified cash compensation. Participant contributions were immediately vested. Company contributions vested after 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  June 30, 2022, the total liability related to the EDC Plan was $7.2 million and was included in “Other non-current liabilities” on the unaudited condensed consolidated balance sheet. As of June 30, 2022, the cash surrender value of life insurance policies that are held within a Rabbi Trust for the purpose of paying future executive deferred compensation benefit obligations was $10.2 million.

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

19.

Loss per share

 

Basic loss per share attributable to Company stockholders is calculated by dividing net loss attributable to the Company by the weighted-average number of common shares outstanding for the period. Diluted loss per share attributable to Company stockholders is computed giving effect to all potential dilutive common stock, unless there is a net loss for the period. We apply the treasury stock method to determine the dilutive weighted average common shares represented by unvested restricted stock units and Employee Stock Purchase Program (“ESPP”) shares.

 

The calculation of basic and diluted loss per share attributable to Company stockholders for the three and six months ended June 30, 2022 and 2021, respectively, are as follows (in thousands, except shares outstanding and per share amounts):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Net loss

 $(4,350) $(8,381) $(15,482) $(28,773)

Basic and diluted weighted average number of shares outstanding

  109,582,086   70,889,753   109,425,407   70,889,753 

Total basic and diluted loss per share

 $(0.04) $(0.12) $(0.14) $(0.41)

 

Approximately 0.2 million and 0.4 million shares of unvested restricted stock units and stock to be issued pursuant to the ESPP have been excluded from the computation of diluted loss per share as the effect would be anti-dilutive for the three and six months ended June 30, 2022, respectively.

 

Additionally, since the conditions upon which shares were issuable for our outstanding warrants and stock options were not satisfied as of June 30, 2021, assuming the balance sheet date is the end of the contingency period. Accordingly, they have not been included in determining the number of anti-dilutive shares.

 

 

20.

Related party disclosures

 

Our related parties consist primarily of CETS and PVD-Expro, the two companies in which we exert significant influence, and Mosing Holdings LLC, a company that is owned by various members of the Mosing family, including Erich Mosing, a member of our board of directors, and affiliates. During the three and six months ended June 30, 2022, we provided goods and services to related parties totaling $1.4 million and $2.3 million, respectively and $1.3 million and $4.0 million respectively, during the three and six months ended June 30, 2021. Additionally, we entered into various operating lease agreements to lease facilities with affiliated companies. Rent expense associated with our related party leases was $0.1 million and $0.3 million, respectively, for the three and six months ended June 30, 2022.

 

As of June 30, 2022 and December 31, 2021 amounts receivable from the related parties were $1.3 million and $1.6 million, respectively, and amounts payable to related parties were $2.1 million and $2.1 million as of June 30, 2022 and December 31, 2021, respectively.

 

As of June 30, 2022, $1.0 million of our operating lease right-of-use assets and $1.0 million of our lease liabilities were associated with related party leases. As of December 31, 2021, $1.3 million of our operating lease right-of-use assets and $1.3 million of our lease liabilities were associated with related party leases.

 

Tax Receivable Agreement

 

Mosing Holdings, LLC, a Delaware limited liability company (“Mosing Holdings”), converted all of its shares of Frank’s Series A convertible preferred stock into shares of Frank’s common stock on August 26, 2016, in connection with its delivery to Frank’s of all of its interests in Frank’s International C.V. (“FICV”) (the “Conversion”).

 

 

Expro Group Holdings N.V.

Notes to Unaudited Condensed Consolidated Financial Statements

 

The tax receivable agreement (the “Original TRA”) that Frank’s entered into with FICV and Mosing Holdings in connection with Frank’s initial public offering (“IPO”) generally provided for the payment by Frank’s to Mosing Holdings of 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 3Business 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 $0.5 million and $3.2 million of stock-based compensation expense attributable to the Management Incentive Plan (“MIP”) stock options during the three and six months ended June 30, 2022, respectively. No stock-based compensation expense attributable to the MIP stock options was recognized during the three and six months ended June 30, 2021 as the performance conditions within the stock option agreements were deemed to be improbable. Stock-based compensation expense relating to the Long-Term Incentive Plan (“LTIP”), including restricted stock units (“RSUs”) and performance restricted stock units (“PRSUs”) for the three and six months ended June 30, 2022 was $3.6 million and $6.7 million, respectively. No stock-based compensation expense relating to LTIP RSUs and PRSUs was recognized during the three and six months ended June 30, 2021.

 

During the six months ended June 30, 2022, 745,893 RSUs were granted to employees at a grant date fair value of $17.17 per RSU.

 

 

22.

Supplemental cash flow

 

  

Six Months Ended June 30,

 
  

2022

  

2021

 

Supplemental disclosure of cash flow information:

        

Cash paid for income taxes, net of refunds

 $15,505  $4,079 

Cash paid for interest, net

 $1,999  $1,997 

Change in accounts payable and accrued expenses related to capital expenditures

 $3,924  $3,265 

 

23

 
 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Form 10-Q and the audited consolidated financial statements and notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report.

 

This section contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in any forward-looking statement because of various factors, including those described in the sections titled Cautionary Note Regarding Forward-Looking Statements and Risk Factors of this Form 10-Q. 

 

Unless otherwise indicated, references to the terms Franks refers to Franks International N.V., the predecessor reporting entity prior to the Merger, references to Legacy Expro refer to Expro Group Holdings International Limited, the entity acquired by the Company in the Merger, and references to Expro,” the Company, we, our, and us refer to Expro Group Holdings N.V., following the consummation of the Merger and unless the context otherwise required, Franks prior to the consummation of the Merger.

 

Overview of Business

 

Working for clients across the entire well life cycle, we are a leading provider of energy services, offering cost-effective, innovative solutions and what we consider to be best-in-class safety and service quality. The Company’s extensive portfolio of capabilities spans well construction, well flow management, subsea well access, and well intervention and integrity solutions.

 

With roots dating to 1938, we have approximately 7,200 employees and provide services and solutions to leading exploration and production companies in both onshore and offshore environments in approximately 60 countries.

 

Our broad portfolio of products and services are designed to enhance production and improve recovery across the well lifecycle from exploration through abandonment, including:

 

 

Well Construction

 

 

Our well construction products and services support customers’ new wellbore drilling, wellbore completion and recompletion, and wellbore plug and abandonment requirements. In particular, we offer advanced technology solutions in drilling, tubular running services, cementing and tubulars. With a focus on innovation, we are continuing to advance the way wells are constructed by optimizing process efficiency on the rig floor, developing new methods to handle and install tubulars and mitigating well integrity risks.

 

 

Well Management

 

Our well management offerings consist of well flow management, subsea well access and well intervention and integrity services:

 

 

Well flow management: We gather valuable well and reservoir data, with a particular focus on well-site safety and environmental impact. We provide global, comprehensive well flow management systems for the safe production, measurement, and sampling of hydrocarbons from a well during the exploration and appraisal phase of a new field; the flowback and clean-up of a new well prior to production; and in-line testing of a well during its production life. We also provide early production facilities to accelerate production; production enhancement packages to enhance reservoir recovery rates through the realization of production that was previously locked within the reservoir; and metering and other well surveillance technologies to monitor and measure flow and other characteristics of wells.

 

 

Subsea well access: With over 35 years of experience providing a wide range of fit-for-purpose subsea well access solutions, our technology aims to ensure safe well access and optimized production throughout the lifecycle of the well. We provide what we believe to be the most reliable, efficient, and cost-effective subsea well access systems for exploration and appraisal, development, intervention and abandonment, including an extensive portfolio of standard and bespoke Subsea Test Tree Assemblies, a rig-deployed Intervention Riser System and a vessel-deployed, wire through water Riserless Well Intervention System. We also provide systems integration and project management services.

 

 

 

Well intervention and integrity: We provide well intervention solutions to acquire and interpret well data, ensure well bore integrity and improve production. In addition to our extensive fleet of mechanical and cased hole wireline units, we have recently introduced a number of cost-effective, innovative well intervention services, including CoilHose™, a lightweight, small-footprint solution for wellbore lifting, cleaning and chemical treatments; Octopoda™, for fluid treatments in wellbore annuli; and Galea™, an autonomous well intervention solution. We also possess several other distinct technical capabilities, including non-intrusive metering technologies and wireless telemetry systems for reservoir monitoring.

 

We operate a global business and have a diverse and stable customer base that is comprised of national oil companies (“NOC”), international oil companies (“IOC”), independent exploration and production companies (“Independents”) and service partners. We have strong relationships with a number of the world’s largest NOCs and IOCs, some of which have been our customers for decades. We are dedicated to safely and sustainably delivering maximum value to our customers.

 

We organize and manage our operations on a geographical basis. Our reporting structure and the key financial information used by our management team is organized around our four operating segments: (i) North and Latin America (“NLA”), (ii) Europe and Sub-Saharan Africa (“ESSA”), (iii) Middle East and North Africa (“MENA”) and (iv) Asia-Pacific (“APAC”).

 

How We Generate Our Revenue

 

Our revenue is derived primarily from providing services in well construction, well flow management, subsea well access and well intervention and integrity services to operators globally. Our revenue includes equipment service charges, personnel charges, run charges and consumables. Some of our contracts allow us to charge for additional deliverables, such as the costs of mobilization of people and equipment and customer specific engineering costs associated with a project. We also procure products and services on behalf of our customers that are provided by third parties for which we are reimbursed with a mark-up or in connection with an integrated services contract. We also design, manufacture and sell equipment, which is typically done in connection with a related operations and maintenance arrangement with a particular customer. In addition, we also generate revenue from the sale of certain well construction products.

 

Market Conditions and Price of Oil and Gas

 

The second quarter of 2022 has continued to show positive signs of recovery in the market following the impact of COVID-19 and the Russian war in Ukraine. There are a number of market factors that have had, and may continue to have, an effect on our business, including:

 

 

The market for energy services and our business are substantially dependent on the price of oil and, to a lesser extent, the regional price of gas, which are both driven by market supply and demand. Changes in oil and gas prices impact customer willingness to spend on exploration and appraisal, development, production and abandonment activities. The extent of the impact of a change in oil and gas prices on these activities varies extensively between geographic regions, types of customers, types of activities and the financial returns of individual projects.

 

 

Oil demand in 2022 is forecast to exceed 2021 as the overall economic backdrop improves with liquid demand estimated to surpass annualized 2019 levels in 2023. Brent prices remained volatile during the second quarter of 2022, with the average Brent oil price generally trending up as a result of an easing of lockdowns in China, increasing global activity and demand for travel, and continuing war-time premiums as sanctions disrupt Russian supply. In response, Organization of Petroleum Exporting Countries (“OPEC”) members announced in their June meeting a further production increase in July and August which, coupled with ongoing release of barrels from strategic petroleum reserves and the risk of an economic slowdown, is anticipated to trigger a softening in oil prices though the second half of 2022.

 

 

Despite the multi-year underinvestment in new reserves, we expect that operators will maintain their fiscal discipline in the near-term. However, customer spending plans are increasingly visible and a further increase in activity levels is expected by Expro and other energy services companies.

 

 

 

While increases in activity are not expected to be uniform across geo-markets or type of activity, international and deepwater activity is expected to continue to improve throughout 2022 and into 2023. We also expect that the demand for services related to brownfield and production enhancement and infield development programs will also show increased demand.

 

 

The clean energy transition continues to gain momentum. Hydrocarbons, however, will continue to play a vital role in the transition towards more sustainable energy resources, and the existing expertise and future innovation within the energy services sector, both to reduce emissions and enhance efficiency, will be critical. We are already active in the early-stage carbon capture and storage segment and have expertise and established operations within the geothermal and flare reduction segments. We continue to develop technologies to enhance the sustainability of our customers’ operations which, along with our digital transformation initiatives, are expected to enable us to continue to support our customers’ commercial and environmental initiatives. As the industry changes, we continue to evolve our approach to adapt and help our customers address the critical energy transition.

 

 

Increased expectations of host countries in regard to local content is another multi-year trend that gained additional momentum in recent years. Our commitment to developing local capabilities and in-country personnel has reduced our dependence on international staff and also allowed us to mitigate some of the operational challenges associated with travel restrictions related to COVID-19. These efforts have enabled us to continue to service our customers in their ongoing operations throughout the pandemic.

 

Outlook

 

Demand continues to improve in the face of volatile oil prices, and activity in 2022 is forecast to be higher than in 2021, with oil demand forecast to return to pre-pandemic levels in late 2022 or 2023.

 

The U.S. Energy Information Administration (“EIA”) estimates that global liquid fuels consumption will grow to 99.6 million barrels per day (“b/d”) in 2022, up from 97.4 million b/d in 2021, rising to 101.6 million b/d in 2023 (which would surpass 2019 levels of 100.8 million b/d). Counterbalancing consumption growth, the EIA expects continuing production increases from OPEC to average 29.1 million b/d in the second half of 2022 (up 0.8 million b/d from the first half of 2022 and 2.8 million b/d from 2021) and an acceleration in U.S. oil production in 2022 (rising to 11.9 million b/d in 2022 and 13.0 million b/d in 2023, the highest annual average U.S. crude oil production on record). Those production increases, along with other supply increases, are expected to outpace global oil consumption growth and contribute to declining oil prices in the medium-term. The EIA forecasts Brent crude oil spot prices to average $104 per barrel in 2022 and $93.7 per barrel in 2023, compared to an average $71 per barrel in 2021. 

 

In addition to the improving oil market outlook, global natural gas demand continues to increase due to a combination of rising economic activity, energy security concerns in Europe, lower inventory in storage, and strong demand for liquified natural gas (“LNG”) in Europe to replace Russian pipeline gas.

 

The EIA expects Henry Hub spot prices to further increase to an average $5.94 per million British thermal unit (“MMBtu”) in the third quarter of 2022, $6.02/MMBtu for all of 2022 and $4.76/MMBtu in 2023 as U.S. gas production recovers. Rystad forecasts the European and Asian LNG spot price to trade at approximately $28.9/MMBtu in 2022, maintaining the higher rates achieved in 2021 with slight downward pricing pressure expected in 2023 as new supplies to Europe materialize and LNG production ramps up.

 

The outlook for the second half of 2022 indicates a continuing recovery in exploration and production expenditures, at different rates in individual countries, with strong growth maintained in shale / tight oil led by the U.S. land markets, increasing offshore activity driven by Latin America and deepwater exploration in Africa, and significant investments in incremental capacity in the Middle East, including Saudi Arabia and Qatar, in order to offset the decline in Russian gas supply.

 

As a result, we expect demand for our services and solutions to continue to trend positively throughout 2022 and into 2023.

 

 

How We Evaluate Our Operations

 

We use a number of financial and operational measures to routinely analyze and evaluate the performance of our business, including Revenue, Adjusted EBITDA, Adjusted Cash Flow from Operations and Cash Conversion.

 

Revenue: We analyze our performance by comparing actual monthly revenue by operating segments and areas of capabilities to our internal projections for each month. Our revenue is primarily derived from well construction, well flow management, subsea well access and well intervention and integrity solutions.

 

Adjusted EBITDA: We regularly evaluate our financial performance using Adjusted EBITDA. Our management believes Adjusted EBITDA is a useful financial performance measure as it excludes non-cash charges and other transactions not related to our core operating activities and allows more meaningful analysis of the trends and performance of our core operations.

 

Adjusted Cash Flow from Operations: We regularly evaluate our operating cash flow performance using Adjusted Cash Flow from Operations. Our management believes Adjusted Cash Flow from Operations is a useful tool to measure the operating cash performance of the Company as it excludes exceptional payments, interest payments and non-cash charges not related to our core operating activities and allows more meaningful analysis of the trends and performance of our core operations.

 

Cash Conversion: We regularly evaluate our efficiency of generating cash from operations using Cash Conversion which provides a useful tool to measure Adjusted Cash Flow from Operations as a percentage of Adjusted EBITDA.

 

Adjusted EBITDA, Adjusted Cash Flow from Operations and Cash Conversion are non-GAAP financial measures. Please refer to the section titled “Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable financial performance measure calculated and presented in accordance with GAAP and a reconciliation of Adjusted Cash Flow from Operations to net cash provided by operating activities, the most directly comparable liquidity measure calculated and presented in accordance with GAAP.

 

 

Executive Overview

 

Three months ended June 30, 2022 compared to three months ended March 31, 2022

 

Certain highlights of our financial results and other key developments include:

 

 

 

Revenue for the three months ended June 30, 2022 increased by $33.1 million, or 11.8%, to $313.6 million, compared to $280.5 million for the three months ended March 31, 2022. The increase in revenue was driven by higher activity across NLA, ESSA and APAC, partially offset by a decrease in activity in MENA. Revenue for our segments is discussed separately below under the heading “Operating Segment Results.”
   

 

 

We reported a net loss for the three months ended June 30, 2022 of $4.4 million, compared to a net loss of $11.1 million for the three months ended March 31, 2022. The overall decrease in net loss was primarily due to a combination of sequentially higher revenue, a more favorable product mix and lower merger and integration expense, partially offset by higher income tax expense of $5.1 million.
   

 

 

Adjusted EBITDA for the three months ended June 30, 2022 increased by $14.3 million, or 38.7%, to $51.1 million from $36.8 million for the three months ended March 31, 2022. The increase is primarily attributable to higher activity during the three months ended June 30, 2022. Adjusted EBITDA margin increased to 16.3% during the three months ended June 30, 2022, as compared to 13.1% during the three months ended March 31, 2022, due to a more favorable product mix and lower support cost as a result of merger related synergies.
   

 

 

Net cash provided by operating activities for the three months ended June 30, 2022 was $2.1 million, compared to net cash used in operating activities of $14.2 million for the three months ended March 31, 2022, primarily reflecting improvement in operating results and lower integration costs, partially offset by an increase in working capital. Adjusted Cash Flow from Operations and Cash Conversion for the three months ended June 30, 2022 was $9.6 million and 19%, respectively, compared to $(1.4) million and (4)%, respectively, for the three months ended March 31, 2022. The buildup in working capital in the first half of 2022 is consistent with historical patterns and is expected to reverse in the second half of the year. Consequently, Adjusted Cash Flow from Operations is expected to improve in the second half of 2022.

 

Six months ended June 30, 2022 compared to six months ended June 30, 2021

 

Certain highlights of our financial results and other key developments include:

 

 

 

Revenue for the six months ended June 30, 2022 increased by $261.6 million, or 78.7%, to $594.1 million, compared to $332.5 million for the six months ended June 30, 2021. Of the total increase, $233.2 million is attributable to the Merger with the addition of well construction revenue during the six months ended June 30, 2022. The remaining increase in revenue was driven by higher well management revenue. We have observed higher activity across all our geography-based operating segments. Revenue for our segments is discussed separately below under the heading “Operating Segment Results.”
   

 

 

We reported a net loss for the six months ended June 30, 2022 of $15.5 million, compared to a net loss of $28.8 million for the six months ended June 30, 2021. The overall decrease in net loss was primarily driven by increased revenue due to a combination of the impact of the Merger and higher activity during the six months ended June 30, 2022, partially offset by an increase in depreciation of $16.3 million, an increase in stock-based compensation expense of $10.2 million and higher tax expense of $10.9 million.
   

 

 

Adjusted EBITDA for the six months ended June 30, 2022 increased by $43.9 million, or 99.7%, to $87.9 million from $44.0 million for the six months ended June 30, 2021. The overall increase in Adjusted EBITDA was due to a combination of the impact of the Merger and higher activity during the six months ended June 30, 2022. Adjusted EBITDA margin increased to 14.8% during the six months ended June 30, 2022, as compared to 13.2% during the six months ended June 30, 2021, due to favorable product mix and lower support cost as a result of merger related synergies. 
   

 

 

Net cash used in operating activities for the six months ended June 30, 2022 was $12.1 million, compared to net cash provided by operating activities of $2.4 million for the six months ended June 30, 2021. The increase in net cash used in operating activities was primarily due to an increase in working capital and higher tax, merger, integration and severance payments during the current period as compared to the prior year period. Adjusted Cash Flow from Operations and Cash Conversion for the six months ended June 30, 2022 was $8.1 million and 9%, respectively, compared to $12.8 million and 29%, respectively, for the six months ended June 30, 2021.

 

 

Non-GAAP Financial Measures

 

We include in this Form 10-Q the non-GAAP financial measures Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Cash Flow from Operations and Cash Conversion. We provide reconciliations of net loss, the most directly comparable financial performance measure calculated and presented in accordance with GAAP, to Adjusted EBITDA. We also provide a reconciliation of Adjusted Cash Flow from Operations to net cash provided by operating activities, the most directly comparable liquidity measure calculated and presented in accordance with GAAP.

 

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Cash Flow from Operations and Cash Conversion are used as supplemental financial measures by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others. These non-GAAP financial measures allow our management and others to assess our financial and operating performance as compared to those of other companies in our industry, without regard to the effects of our capital structure, asset base, items outside the control of management and other charges outside the normal course of business.

 

We define Adjusted EBITDA as net loss adjusted for (a) income tax expense (benefit), (b) depreciation and amortization expense, (c) impairment expense, (d) severance and other expense, net, (e) stock-based compensation expense, (f) merger and integration expense, (g) gain on disposal of assets, (h) other income, net, (i) interest and finance (income) expense, net and (j) foreign exchange (gain) loss. Adjusted EBITDA margin reflects our Adjusted EBITDA as a percentage of revenues.

 

We define Adjusted Cash Flow from Operations as net cash provided by operating activities adjusted for cash paid during the period for interest, net, severance and other expense and merger and integration expense. We define Cash Conversion as Adjusted Cash Flow from Operations divided by Adjusted EBITDA.

 

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Cash Flow from Operations and Cash Conversion have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. As Adjusted EBITDA, Adjusted Cash Flow from Operations and Cash Conversion may be defined differently by other companies in our industry, our presentation of Adjusted EBITDA, Adjusted Cash Flow from Operations and Cash Conversion may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

 

 

The following table presents a reconciliation of net loss to Adjusted EBITDA for each of the three and six months presented (in thousands): 

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30, 2022

   

March 31, 2022

   

June 30, 2022

   

June 30, 2021

 

Net loss

  $ (4,350 )   $ (11,132 )   $ (15,482 )   $ (28,773 )
                                 

Income tax expense

  $ 9,596     $ 4,549     $ 14,145     $ 3,272  

Depreciation and amortization expense

    35,392       35,012       70,404       54,149  

Merger and integration expense

    2,270       4,725       6,995       9,526  

Severance and other expense

    678       1,494       2,172       2,192  

Other income, net (1)

    (244 )     (996 )     (1,240 )     (626 )

Stock-based compensation expense

    4,230       6,018       10,248       -  

Foreign exchange loss (gain)

    5,244       (2,816 )     2,428       1,060  

Interest and finance (income) expense, net

    (1,712 )     (13 )     (1,725 )     3,231  

Adjusted EBITDA

  $ 51,104     $ 36,841     $ 87,945     $ 44,031  
                                 

Adjusted EBITDA Margin

    16.3 %     13.1 %     14.8 %     13.2 %

 


(1)

Other income, net, is comprised of immaterial, unusual or infrequently occurring transactions which, in management’s view, do not provide useful measures of the underlying operating performance of the business.

 

The following table provides a reconciliation of net cash (used in) provided by operating activities to Adjusted Cash Flow from Operations for each of the three and six months presented (in thousands):

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30, 2022

   

March 31, 2022

   

June 30, 2022

   

June 30, 2021

 

Net cash (used in) provided by operating activities

  $ 2,055     $ (14,162 )   $ (12,107 )   $ 2,395  

Cash paid for interest, net

    1,096       903       1,999       1,997  

Cash paid for merger and integration expense

    5,837       11,632       17,469       6,178  

Cash paid for severance and other expense

    565       207       772       2,194  

Adjusted Cash Flow from Operations

  $ 9,553     $ (1,420 )   $ 8,133     $ 12,764  
                                 

Adjusted EBITDA

  $ 51,104     $ 36,841     $ 87,945     $ 44,031  
                                 

Cash Conversion

    19 %     (4 )%     9 %     29 %

 

 

 

Results of Operations

 

Operating Segment Results

 

The following table shows revenue by segment and revenue as a percentage of total revenue by segment for the three months ended June 30, 2022 and March 31, 2022:

 

   

Three Months Ended

   

Percentage

 

(in thousands)

 

June 30, 2022

   

March 31, 2022

   

June 30, 2022

   

March 31, 2022

 

NLA

  $ 129,694     $ 103,861       41.4 %     37.0 %

ESSA

    90,118       82,071       28.7 %     29.3 %

MENA

    45,363       50,715       14.5 %     18.1 %

APAC

    48,449       43,830       15.4 %     15.6 %

Total Revenue

  $ 313,624     $ 280,477       100.0 %     100.0 %

 

The following table shows revenue by segment and revenue as a percentage of total revenue by segment for the six months ended June 30, 2022 and June 30, 2021:

 

   

Six Months Ended

   

Percentage

 

(in thousands)

 

June 30, 2022

   

June 30, 2021

   

June 30, 2022

   

June 30, 2021

 

NLA

  $ 233,555     $ 60,993       39.3 %     18.3 %

ESSA

    172,189       118,807       29.0 %     35.7 %

MENA

    96,078       83,640       16.2 %     25.2 %

APAC

    92,279       69,106       15.5 %     20.8 %

Total Revenue

  $ 594,101     $ 332,546       100.0 %     100.0 %

 

 

 

The following table shows Segment EBITDA and Segment EBITDA margin by segment and a reconciliation to income (loss) before income taxes for the three months ended June 30, 2022 and March 31, 2022:

 

   

Three Months Ended

   

Segment EBITDA Margin

 

(in thousands)

 

June 30, 2022

   

March 31, 2022

   

June 30, 2022

   

March 31, 2022

 

NLA

  $ 38,513     $ 21,827       29.7 %     21.0 %

ESSA

    14,868       11,874       16.5 %     14.5 %

MENA

    13,750       15,465       30.3 %     30.5 %

APAC

    4,356       5,438       9.0 %     12.4 %

Total Segment EBITDA

    71,487       54,604                  

Corporate costs (1)

    (22,812 )     (21,965 )                

Equity in income of joint ventures

    2,429       4,202                  

Depreciation and amortization expense

    (35,392 )     (35,012 )                

Merger and integration expense

    (2,270 )     (4,725 )                

Severance and other expense

    (678 )     (1,494 )                

Stock-based compensation expense

    (4,230 )     (6,018 )                

Foreign exchange (loss) gain

    (5,244 )     2,816                  

Other income, net

    244       996                  

Interest and finance income, net

    1,712       13                  

Income (loss) before income taxes

  $ 5,246     $ (6,583 )                

 

The following table shows Segment EBITDA and Segment EBITDA margin by segment and a reconciliation to loss before income taxes for the six months ended June 30, 2022 and June 30, 2021:

 

   

Six Months Ended

   

Segment EBITDA Margin

 

(in thousands)

 

June 30, 2022

   

June 30, 2021

   

June 30, 2022

   

June 30, 2021

 

NLA

  $ 60,340     $ 5,783       25.8 %     9.5 %

ESSA

    26,742       15,681       15.5 %     13.2 %

MENA

    29,215       29,137       30.4 %     34.8 %

APAC

    9,794       13,483       10.6 %     19.5 %

Total Segment EBITDA

    126,091       64,084                  

Corporate costs (1)

    (44,777 )     (28,102 )                

Equity in income of joint ventures

    6,631       8,049                  

Depreciation and amortization expense

    (70,404 )     (54,149 )                

Merger and integration expense

    (6,995 )     (9,526 )                

Severance and other expense

    (2,172 )     (2,192 )                

Stock-based compensation expense

    (10,248 )     -                  

Foreign exchange loss

    (2,428 )     (1,060 )                

Other income, net

    1,240       626                  

Interest and finance income (expense), net

    1,725       (3,231 )                

Loss before income taxes

  $ (1,337 )   $ (25,501 )                

 

(1)

Corporate costs include the costs of running our corporate head office and other central functions that support the operating segments, including research, engineering and development, logistics, sales and marketing and health and safety and are not attributable to a particular operating segment.

 

Three months ended June 30, 2022 compared to three months ended March 31, 2022

 

NLA

 

Revenue for the NLA segment was $129.7 million for the three months ended June 30, 2022, an increase of $25.8 million, or 24.9%, compared to $103.9 million for the three months ended March 31, 2022. The increase was primarily due to higher revenues across all our product lines during the current quarter, with a significant increase in well flow management revenue in Mexico and higher well construction revenue in the U.S. and Guyana driven by higher customer activities during the current quarter.

 

 

Segment EBITDA for the NLA segment was $38.5 million, or 29.7% of revenues, during the three months ended June 30, 2022, compared to $21.8 million or 21.0% of revenues during the three months ended March 31, 2022. The increase of $16.7 million in Segment EBITDA and improvement in Segment EBITDA margin was attributable to higher activity and a more favorable activity mix during the three months ended June 30, 2022.

 

ESSA

 

Revenue for the ESSA segment was $90.1 million for the three months ended June 30, 2022, an increase of $8.0 million, or 9.8%, compared to $82.1 million for the three months ended March 31, 2022. The increase in revenues was primarily driven by higher well flow management revenue in Angola and Congo and higher well construction revenue in the United Kingdom due to increased customer activities. The increase in revenues was partially offset by lower well intervention and integrity revenue in Norway and Western Europe.

 

Segment EBITDA for the ESSA segment was $14.9 million, or 16.5% of revenues, for the three months ended June 30, 2022, an increase of $3.0 million, or 25.2%, compared to $11.9 million, or 14.5% of revenues, for the three months ended March 31, 2022. The increase of $3.0 million was primarily attributable to higher activity levels and a more favorable activity mix during the three months ended June 30, 2022.

 

MENA

 

Revenue for the MENA segment was $45.4 million for the three months ended June 30, 2022, a decrease of $5.3 million, or 10.6%, compared to $50.7 million for the three months ended March 31, 2022. The decrease in revenue was driven by lower equipment sales related to well flow management in Saudi Arabia and the United Arab Emirates, partially offset by increased well flow management activities in Algeria.

 

Segment EBITDA for the MENA segment was $13.8 million, or 30.3% of revenues, for the three months ended June 30, 2022, a reduction of $1.7 million, or 11.1 %, compared to $15.5 million, or 30.5% of revenues, for the three months ended March 31, 2022. The reduction in Segment EBITDA was primarily due to lower activity.

 

APAC

 

Revenue for the APAC segment was $48.4 million for the three months ended June 30, 2022, an increase of $4.6 million, or 10.5%, compared to $43.8 million for the three months ended March 31, 2022. The increase in revenue was primarily due to higher subsea well access revenue in Australia and Brunei and higher well construction revenue in Japan. The increase in revenue was partially offset by lower well flow management revenue in Thailand and India.

 

Segment EBITDA for the APAC segment was $4.4 million, or 9.0% of revenues, for the three months ended June 30, 2022, a decrease of $1.0 million, or 19.9%, compared to $5.4 million, or 12.4% of revenues, for the three months ended March 31, 2022. The reduction in Segment EBITDA despite the increase in revenues was primarily due to additional mobilization and commissioning costs incurred during the quarter as well as lower activity on higher margin contracts.

 

 

Merger and integration expense

 

Merger and integration expense for the three months ended June 30, 2022 decreased by $2.4 million, to $2.3 million as compared to $4.7 million for the three months ended March 31, 2022. The decrease was primarily attributable to lower legal and other professional fees related to the Merger incurred during the three months ended June 30, 2022 as compared to the three months ended March 31, 2022.

 

Stock-based compensation expense

 

Stock-based compensation expense for the three months ended June 30, 2022 decreased by $1.8 million, to $4.2 million as compared to $6.0 million for the three months ended March 31, 2022. The decrease was primarily driven by lower costs associated with the Legacy Expro stock options as a majority of the awards fully vested during the first quarter.

 

Income tax expense

 

Income tax expense for the three months ended June 30, 2022 increased by $5.1 million to $9.6 million from $4.5 million for the three months ended March 31, 2022, primarily due to changes in the mix of taxable profits between jurisdictions, in particular increased taxable profits in Latin America, deferred tax credits recognized during the three months ended March 31, 2022, particularly in APAC, that did not recur during the three months ended June 30, 2022, and deferred tax charges recognized during the three months ended June 30, 2022, primarily in MENA.

 

Six months ended June 30, 2022 compared to six months ended June 30, 2021

 

NLA

 

Revenue for the NLA segment was $233.6 million for the six months ended June 30, 2022, an increase of $172.6 million, or 282.9%, compared to $61.0 million for the six months ended June 30, 2021. Of the total increase of $172.6 million, $152.8 million was attributable to the Merger, reflecting well construction revenue during the six months ended June 30, 2022. The remaining increase of $19.8 million was attributable to the higher well intervention and integrity revenue in Argentina and Brazil and higher well flow management revenue in the U.S. and Brazil during the six months ended June 30, 2022.

 

Segment EBITDA for the NLA segment was $60.3 million, or 25.8% of revenues, during the six months ended June 30, 2022, compared to $5.8 million or 9.5% of revenues during the six months ended June 30, 2021, an increase of $54.5 million. The increase was primarily attributable to a combination of the impact of the Merger and higher activities during the six months ended June 30, 2022. Further, the Segment EBITDA margin increase was due to higher fall-through from increased activity, more favorable activity mix and lower support costs as a result of merger related synergies.

 

ESSA

 

Revenue for the ESSA segment was $172.2 million for the six months ended June 30, 2022, an increase of $53.4 million, or 44.9%, compared to $118.8 million for the six months ended June 30, 2021. The increase was primarily attributable to the Merger, which contributed to an increase of $52.5 million, reflecting well construction revenue during the six months ended June 30, 2022.

 

Segment EBITDA for the ESSA segment was $26.7 million, or 15.5% of revenues, during the six months ended June 30, 2022, compared to $15.7 million or 13.2% of revenues during the six months ended June 30, 2021, an increase of $11.0 million due to a combination of the impact of the Merger and higher activities during the six months ended June 30, 2022. The increase in Segment EBITDA margin was primarily due to a more favorable activity mix.

 

 

MENA

 

Revenue for the MENA segment was $96.1 million for the six months ended June 30, 2022, an increase of $12.5 million, or 14.9%, compared to $83.6 million for the six months ended June 30, 2021. Of the total increase of $12.5 million for the six months ended June 30, 2022, $12.0 million was attributable to the Merger with the addition of well construction revenue during the period, and the remaining increase was primarily driven by equipment sales related to well flow management in the United Arab Emirates and Saudi Arabia.

 

Segment EBITDA for the MENA segment was $29.2 million, or 30.4% of revenues, during the six months ended June 30, 2022, compared to $29.1 million or 34.8% of revenues during the six months ended June 30, 2021. The reduction in Segment EBITDA margin was primarily due to lower activity on higher margin contracts and a less favorable activity mix.

 

APAC

 

Revenue for the APAC segment was $92.3 million for the six months ended June 30, 2022, an increase of $23.2 million, or 33.5%, compared to $69.1 million for the six months ended June 30, 2021. Of the total increase of $23.2 million for the six months ended June 30, 2022, $16.0 million was attributable to the Merger with the addition of well construction revenue during the period, and the remaining increase was primarily attributable to higher subsea well access and well flow management revenue in Australia, Brunei and Malaysia.

 

Segment EBITDA for the APAC segment was $9.8 million, or 10.6% of revenues, during the six months ended June 30, 2022, compared to $13.5 million or 19.5% of revenues during the six months ended June 30, 2021. The reduction in Segment EBITDA and Segment EBITDA margin was primarily due to lower activity on higher margin contracts and a less favorable activity mix.

 

Stock-based compensation expense

 

Stock-based compensation expense for the six months ended June 30, 2022 was $10.2 million. No stock-based compensation expense was recognized during the six months ended June 30, 2021. The expense for the current period primarily relates to our Long-Term Incentive Plan which was not present during the six months ended June 30, 2021. Additionally, the current period also includes expense related to stock options under the Legacy Expro’s Management Incentive Plan (“MIP”). No expense was recognized under the MIP during the six months ended June 30, 2021, as the performance conditions within the stock option agreements were deemed to be improbable.

 

 

 

 

Liquidity and Capital Resources

 

Liquidity

 

Our financial objectives include the maintenance of sufficient liquidity, adequate financial resources and financial flexibility to fund our business. As of June 30, 2022, total available liquidity was $309.4 million, including cash and cash equivalents and restricted cash of $179.4 million and $130.0 million available for borrowings under our New Facility. Our primary sources of liquidity have been cash flows from operations. Our primary uses of capital have been for capital expenditures and acquisitions. We monitor potential capital sources, including equity and debt financing, in order to meet our investment and liquidity requirements.

 

Our total capital expenditures are estimated to range between $60 million and $70 million for the remainder of 2022. Our total capital expenditures were $31.5 million for the six months ended June 30, 2022, of which approximately 90% were used for the purchase and manufacture of equipment to directly support customer-related activities and approximately 10% for other property, plant and equipment, inclusive of software costs. In addition, we used $8.0 million of cash during the first six months to acquire technology to enhance our well intervention and integrity business. Total capital expenditures were $37.6 million for the six months ended June 30, 2021, which were generally used for equipment required to provide services in connection with awarded contracts. We continue to focus on preserving and protecting our strong balance sheet, optimizing utilization of our existing assets and, where practical, limiting new capital expenditures.

 

On June 16, 2022, our Board of Directors (the “Board”) approved a new stock repurchase program, under which we are authorized to acquire up to $50.0 million of our outstanding common stock through November 24, 2023 (the “Stock Repurchase Program”). Under the Stock Repurchase Program, we may repurchase shares of our common stock in open market purchases, in privately negotiated transactions or otherwise. The Stock Repurchase Program will be utilized at management’s discretion and in accordance with U.S. federal securities laws. The timing and actual numbers of shares repurchased will depend on a variety of factors including price, corporate requirements, the constraints specified in the Stock Repurchase Program along with general business and market conditions. The Stock Repurchase Program does not obligate us to repurchase any particular amount of common stock, and it could be modified, suspended or discontinued at any time. During the second quarter of 2022, we repurchased 1.1 million shares at an average price of $11.81 per share, for a total cost of $13.0 million under this $50.0 million program.

 

Credit Facility

 

Revolving Credit Facility

 

On October 1, 2021, in connection with the closing of the Merger, we entered into a new revolving credit facility (the “New Facility”) with DNB Bank ASA, London Branch, as agent (the “Agent”), with total commitments of $200.0 million, of which $130.0 million is available for drawdowns as loans and $70.0 million is available for letters of credit. Subject to the terms of the New Facility, we have the ability to increase the commitments to $250.0 million. Proceeds of the New Facility may be used for general corporate and working capital purposes. 

 

On March 31, 2022, the Agent, on behalf of the consenting lenders, countersigned a Consent Request Letter dated March 10, 2022 to the New Facility (the “Consent”). Pursuant to the Consent, the lenders consented to, among other things, an amendment to the New Facility permitting dividends or distributions by the Company, or the repurchase or redemption of the Company’s shares in an aggregate amount of $50.0 million over the life of the New Facility, subject to pro forma compliance with the 2.25 to 1.0 maximum senior leverage ratio financial covenant.

 

On July 28, 2022, the Company and the lenders increased the total commitments available for letters of credit under the New Facility by $18.0 million.

 

Please see Note 16 “Interest bearing loans” in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

 

 

Cash flow from operating, investing and financing activities

 

Cash flows provided by (used in) our operations, investing and financing activities are summarized below (in thousands):

 

   

Six Months Ended

 
   

June 30, 2022

   

June 30, 2021

 

Net cash (used in) provided by operating activities

  $ (12,107 )   $ 2,395  

Net cash used in investing activities

    (24,745 )     (37,644 )

Net cash used in financing activities

    (20,202 )     (980 )

Effect of exchange rate changes on cash activities

    (3,382 )     (173 )

Net decrease to cash and cash equivalents and restricted cash

  $ (60,436 )   $ (36,402 )

 

Analysis of cash flow changes between the six months ended June 30, 2022 and June 30, 2021

 

Net cash (used in) provided by operating activities

 

Net cash used in operating activities was $12.1 million during the six months ended June 30, 2022 as compared to net cash provided by operating activities of $2.4 million during the six months ended June 30, 2021. The increase in net cash used in operating activities of $14.5 million for the six months ended June 30, 2022 was primarily due to an increase in net working capital of $42.1 million, higher tax payments of $11.4 million and higher payments for merger and integration and severance expenses of $9.9 million, partially offset by an increase in Adjusted EBITDA of $43.9 million for the six months ended June 30, 2022.

 

Adjusted cash flows from operation during the six months ended June 30, 2022 was $8.1 million as compared to adjusted cash flows from operation of $12.8 million during the six months ended June 30, 2021. Our primary uses of cash from operating activities were capital expenditures and funding obligations related to our financing arrangements.

 

Net cash used in investing activities

 

Net cash used in investing activities was $24.7 million during the six months ended June 30, 2022 as compared to $37.6 million during the six months ended June 30, 2021, a decrease of $12.9 million. Our principal recurring investing activity is our capital expenditures. The decrease in net cash used in investing activities was primarily due to proceeds from sale / maturity of investments of $8.2 million, proceeds from disposal of assets of $6.6 million and reduction in capital expenditures of $6.1 million for the six months ended June 30, 2022, partially offset by an acquisition of technology for $8.0 million. 

 

Net cash used in financing activities

 

Net cash used in financing activities was $20.2 million during the six months ended June 30, 2022 as compared to $1.0 million during the six months ended June 30, 2021. The increase of $19.2 million in cash used in financing activities is primarily due to repurchase of common stock of $12.3 million, payments of payroll withholding taxes on stock-based compensation plans of $4.3 million and financed insurance premium of $2.8 million during the six months ended June 30, 2022.

 

New accounting pronouncements

 

See Note 2 “Basis of presentation and significant accounting policies” in our unaudited condensed consolidated financial statements under the heading “Recent accounting pronouncements.”

 

Critical accounting policies and estimates

 

There were no changes to our critical accounting policies and estimates from those disclosed in our Annual Report.

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Form 10-Q”) includes certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include those that express a belief, expectation or intention, as well as those that are not statements of historical fact. Forward-looking statements include information regarding our future plans and goals and our current expectations with respect to, among other things:

 

 

our business strategy and prospects for growth;

 

post-Merger integration;

 

our cash flows and liquidity;

 

our financial strategy, budget, projections and operating results;

 

the amount and timing of any future share repurchases;

 

the amount, nature and timing of capital expenditures;

 

the availability and terms of capital;

 

the exploration, development and production activities of our customers;

 

the market for our existing and future products and services;

 

competition and government regulations; and

 

general economic and political conditions, including political tensions, conflicts and war (such as the ongoing conflict in Ukraine).

 

These forward-looking statements are generally accompanied by words such as “anticipate,” “believe,” “estimate,” “expect,” “goal,” “plan,” “intend,” “potential,” “predict,” “project,” “may,” “outlook,” or other terms that convey the uncertainty of future events or outcomes, although not all forward-looking statements contain such identifying words. The forward-looking statements in this Form 10-Q speak only as of the date of this report; we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. Forward-looking statements are not assurances of future performance and involve risks and uncertainties. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties include, but are not limited to, the following:

 

 

uncertainty relating to global crude oil demand and crude oil prices that correspondingly may lead to significant reductions in oil and gas activity, which in turn could result in significant declines in demand for our products and services;

 

uncertainty regarding the extent and duration of the remaining restrictions in the United States and globally on various commercial and economic activities due to COVID-19, including uncertainty regarding the re-imposition of restrictions due to resurgences in infection rates;

 

uncertainty regarding the timing, pace and extent of an economic recovery in the United States and elsewhere, which in turn will likely affect demand for crude oil and therefore the demand for the products and services we provide and the commercial opportunities available to us;

 

the impact of current and future laws, rulings, governmental regulations, accounting standards and statements, and related interpretations;

 

unique risks associated with our offshore operations;

 

political, economic and regulatory uncertainties in our international operations, including the impact of actions taken by OPEC and certain non-OPEC nations with respect to production levels and the effects thereof;

 

our ability to develop new technologies and products;

 

our ability to protect our intellectual property rights;

 

our ability to attract, train and retain key employees and other qualified personnel;

 

operational safety laws and regulations;

 

international trade laws and sanctions;

 

severe weather conditions and natural disasters, and other operating interruptions (including explosions, fires, weather-related incidents, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, spills and releases and other environmental risks);

 

policy or regulatory changes;

 

the overall timing and level of transition of the global energy sector from fossil-based systems of energy production and consumption to more renewable energy sources;

 

perception related to our environmental, social and governance (“ESG”) performance as well as current and future ESG reporting requirements; and

 

uncertainty with respect to integration and realization of expected synergies following completion of the Merger.

 

 

The impact of the COVID-19 pandemic and related economic, business and market disruptions continue to evolve, and its future effects are uncertain. The continued impact of COVID-19 on the Company’s business will depend on many factors, many of which are beyond management’s control and knowledge. It is therefore difficult for management to assess or predict with accuracy the broad future effects of this health crisis on the global economy, the energy industry or the Company’s business. As additional information becomes available, events or circumstances change and strategic and/or operational decisions are made by management, further adjustments may be required which could have a material adverse impact on the Company’s consolidated financial position, results of operations and cash flows.

 

These and other important factors that could affect our operating results and performance are described in (1) “Risk Factors” in Part II, Item 1A of this Form 10-Q, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Form 10-Q, and elsewhere within this Form 10-Q, (2) our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 8, 2022 (our “Annual Report”), (3) our other reports and filings we make with the SEC from time to time and (4) other announcements we make from time to time. Should one or more of the risks or uncertainties described in the documents above or in this Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results, performance, achievements or plans could differ materially from those expressed or implied in any forward-looking statements. All such forward-looking statements in this Form 10-Q are expressly qualified in their entirety by the cautionary statements in this section.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the Annual Report. Our exposure to market risk has not changed materially since December 31, 2021.

 

Item 4. Controls and Procedures

 

a)

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the three months covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure, and such information is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon our evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of June 30, 2022 at the reasonable assurance level.

 

b)

Change in Internal Control Over Financial Reporting

 

Except as described below, the Company’s management, has determined that there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, these internal controls over financial reporting during the three months covered by this quarterly report.

 

As described in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2021, the Merger was completed on October 1, 2021, and represented a change in internal control over financial reporting. Management continues to consolidate and integrate the Company’s system of controls. The processes and controls for significant areas including business combinations, intangibles and goodwill valuations, income taxes, treasury, consolidations and the preparation of financial statements and related disclosures, and entity level controls have been substantially impacted by the ongoing integration activities. The primary changes in these areas are related to the consolidation of process owner leadership and control owners, and where required, the modification of inputs, processes and associated systems. For all areas of change noted, management believes the control design and implementation thereof are being appropriately modified to address underlying risks. The above ongoing integration activities to the Company’s internal control over financial reporting are reasonably likely to materially affect its internal control over financial reporting in 2022.

 

 

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

 

We are subject of lawsuits and claims arising in the ordinary course of business from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. We had no material accruals for loss contingencies, individually or in the aggregate, as of June 30, 2022 or December 31, 2021. Company management believes the probability is remote that the ultimate outcome of these matters would have a material adverse effect on our financial position, results of operations or cash flows.

 

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

 

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

 

Item 1A.     Risk Factors

 

In addition to the other information set forth in this report, you should carefully consider the risks discussed under the heading “Risk Factors” in our Annual Report, which risks could materially affect our business, financial condition or future results. These risks are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.

 

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

 

Following is a summary of repurchases of Company Common Stock during the three months ended June 30, 2022.

 

 

Period

 

Total Number

of Shares Purchased (1)

   

Average

Price Paid per Share

   

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs (2)

   

Maximum Number (or Approximate Dollar Value)

of Shares that may yet

be Purchased Under the

Program (2)

 

April 1 - April 30

    --     $ --       --     $ 50,000,000  

May 1 - May 31

    --     $ --       --     $ 50,000,000  

June 1 - June 30

    1,100,000     $ 11.81       1,100,000     $ 37,004,400  

Total

    1,100,000     $ 11.81       1,100,000          

 


1) This table excludes shares withheld from employees to satisfy tax withholding requirements on equity-based transactions. We administer cashless settlements and do not repurchase stock in connection with cashless settlements.

2) Our Board authorized a program to repurchase our common stock from time to time. Approximately $37.0 million remained authorized for repurchases as of June 30, 2022, subject to the limitation set in our shareholder authorization for repurchases of our common stock, which is currently 10% of the common stock outstanding as of March 21, 2022.

 

 

Item 6.       Exhibits

 

The exhibits required to be filed by Item 6 are set forth in the Exhibit Index included below.

 

EXHIBIT INDEX

 

Exhibit

Number

Description

3.1 Deed of Amendment to Articles of Association of Expro Group Holdings N.V., dated October 1, 2021 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-36053), filed on October 1, 2021).
*10.1 Form of Director Confidentiality Agreement.
*10.2 Incremental Facility Notice, dated July 21, 2022, to the Revolving Facility Agreement by and among, inter alios, Expro Group Holdings N.V., as parent, the borrowers and guarantor party thereto, and DNB Bank ASA, London Branch as agent.

*31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14 (a) under the Securities Exchange Act of 1934.

*31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

**32.1

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

**32.2

Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

*101.1

The following materials from Expro Group Holdings N.V.’s Quarterly Report on Form 10-Q for the period ended June 30, 2022 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Loss; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Cash Flows; (v) Condensed Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.

*104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

*      Filed herewith.

**    Furnished herewith.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

     

EXPRO GROUP HOLDINGS N.V.

       

Date:

August 4, 2022

By:

/s/ Quinn P. Fanning

     

Quinn P. Fanning

     

Chief Financial Officer

     

(Principal Financial Officer)

 

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