UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑ Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017
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 | ||||
1311 Broadfield Boulevard, Suite 400 | |||||
Houston, Texas | 77084 | ||||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: +31 (0)22 367 0000
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, | XPRO | New York Stock Exchange | ||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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 Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes
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”,filer,” “smaller reporting company” and "emerging“emerging growth company"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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of June 30, 2017,2021, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was approximately $473.4$613.0 million.
As of February 19, 2018,28, 2022, there were 223,390,309109,377,501 shares of common stock, €0.01 par€0.06 nominal value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement in connection with the 20182022 Annual Meeting of Stockholders, to be filed no later than 120 days after the end of the fiscal year to which this Form 10-K relates, are incorporated by reference into Part III of this Form 10-K.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, | ||||
TABLE OF CONTENTS | ||||
Page | ||||
PART I | ||||
Item 1. | ||||
Item 1A. | ||||
Item 1B. | ||||
Item 2. | ||||
Item 3. | ||||
Item 4. | ||||
PART II | ||||
Item 5. | Market for | |||
Issuer Purchases of Equity Securities | ||||
Item 6. | ||||
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
Item 7A. | ||||
Item 8. | ||||
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | |||
Item 9A. | ||||
Item 9B. | ||||
Item | ||||
PART III | ||||
Item 10. | ||||
Item 11. | ||||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and | |||
Related Stockholder Matters | ||||
Item 13. | Certain Relationships and Related Transactions, and Director Independence | |||
Item 14. | ||||
PART IV | ||||
Item 15. | ||||
Item 16. | ||||
PART I
General
Expro Group Holdings N.V. ("FINV") is a Netherlands limited liability company (
On March 10, 2021, the Company 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 the Company (“Merger Sub”), entered into an Agreement and Plan of Merger with Expro Group Holdings International Limited (“Legacy Expro”) providing for the merger of Legacy Expro with and into Merger Sub in an all-stock transaction, with Merger Sub surviving the merger as a direct, wholly owned subsidiary of the Company (the “Merger”). We were establishedThe Merger closed on October 1, 2021, and the Company, previously known as Frank’s International N.V. (“Frank’s”), was renamed Expro Group Holdings N.V. The Merger has been accounted for using the acquisition method of accounting with Legacy Expro being identified as the accounting acquirer. The historical financial statements presented in 1938this Annual Report on Form 10-K (this “Form 10-K”) reflect the financial position, results of operations and are an industry-leading global providercash flows of highly engineered tubular services, tubular fabrication and specialty well construction and well intervention solutionsonly Legacy Expro for all periods prior to the oilMerger and gas industry. We provide our services to leading exploration and production companies in both offshore and onshore environments, with a focus on complex and technically demanding wells. We believe that we are one of the largest global providerscombined company (including activities of tubular servicesFrank’s) for all periods subsequent to the oil and gas industry.
Our Operations
With roots dating to 1938, the handling and installation of multiple joints of pipe to establish a cased wellbore and the installation of smaller diameter pipe inside a cased wellbore to provide a conduit for produced oil and gas to reach the surface. The casing of a wellbore isolates the wellbore from the surrounding geologic formations and water table, provides well structure and pressure integrity, and allows well operators to target specific zones for production. Given the central role that our services play in the structural integrity, reliability and safety of a well, and the importance of efficient tubular services to managing the overall cost of a well, we believe that our roleCompany is vital to the overall process of producing oil and gas.
Description of Business Segments
Our operations are comprised of a combination of $150.4 million of cash on handfour operating segments which also represent our reporting segments and the issuance of 12.8 million shares of our common stock, for total consideration of $294.6 million (based on our closing share price on October 31, 2016 of $11.25 and including the working capital adjustments). The acquisition of this company resulted in a new segment for us and will allow us to combine Blackhawk’s cementing tool expertise and well intervention servicesare aligned with our global tubular services. We will be able to offer our customers an integrated well construction solution across land, shelf and deepwater.
• | North and Latin America (“NLA”), |
• | Europe and Sub-Saharan Africa (“ESSA”), |
• | Middle East and North Africa (“MENA”), and |
• | Asia-Pacific (“APAC”). |
The table below shows our consolidated revenue and each segment's externalsegment’s revenue and percentage of consolidated revenue for the periods indicated (revenue in thousands):
Year Ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | |||||||||||||||||
Revenue | Percent | Revenue | Percent | Revenue | Percent | ||||||||||||||
International Services | $ | 206,746 | 45.5% | $ | 237,207 | 48.7 | % | $ | 442,107 | 45.3 | % | ||||||||
U.S. Services | 118,815 | 26.1% | 152,827 | 31.3 | % | 326,437 | 33.5 | % | |||||||||||
Tubular Sales | 58,210 | 12.8% | 87,515 | 18.0 | % | 206,056 | 21.2 | % | |||||||||||
Blackhawk (1) | 71,024 | 15.6% | 9,982 | 2.0 | % | — | — | % | |||||||||||
Total | $ | 454,795 | 100.0% | $ | 487,531 | 100.0 | % | $ | 974,600 | 100.0 | % |
Year Ended December 31, | ||||||||||||||||||||||||
2021 | 2020 | 2019 | ||||||||||||||||||||||
Revenue | Percent | Revenue | Percent | Revenue | Percent | |||||||||||||||||||
NLA | $ | 193,156 | 23.4 | % | $ | 115,738 | 17.2 | % | $ | 174,058 | 21.5 | % | ||||||||||||
ESSA | 300,557 | 36.4 | % | 219,534 | 32.5 | % | 256,790 | 31.7 | % | |||||||||||||||
MENA | 171,136 | 20.7 | % | 194,033 | 28.7 | % | 237,065 | 29.3 | % | |||||||||||||||
APAC | 160,913 | 19.5 | % | 145,721 | 21.6 | % | 142,151 | 17.5 | % | |||||||||||||||
Total | $ | 825,762 | 100 | % | $ | 675,026 | 100 | % | $ | 810,064 | 100 | % |
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 capture 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. |
Corporate Strategy
The combination of Legacy Expro and Frank’s brought together two companies with decades of market leadership to create a leading energy services provider with an extensive portfolio of capabilities across the well lifecycle. As a result of the Merger, we believe that the Company is well positioned to support customers around the world, improve profitability and invest in emerging growth opportunities. Our corporate strategy is designed to leverage existing capabilities and position the Company as a solutions provider with a technologically differentiated offering. In particular, the Company’s objectives for 2022, which will drive our performance in the year ahead, include: (i) exceeding industry expectations in regard to safety and operational performance; (ii) advancing our products and services portfolio to provide customers with cost-effective, innovative solutions to produce oil and gas resources more efficiently and with a lower carbon footprint; (iii) improving financial performance by expediting the realization of Merger-related synergies, sustaining our relentless drive for efficiency and better utilizing existing assets; (iv) nurturing our culture based on core values and agreed behaviors, empowering our people to be innovative, agile and responsive, and embracing diversity; and (v) leveraging the power of data to improve our own business practices and deliver more value to our customers.
Human Capital
At Expro, people are at the heart of our success and we are united by our Code of Conduct (“Code of Conduct”) and our core values; People, Performance, Partnerships, and Planet. We purchased Blackhawkare committed to living our values through corporate responsibility efforts that help people across the globe live better lives and build sustainable, vibrant, stable communities where highly motivated people can engineer futures. We strive to consistently improve the ways in November 2016, which resultedwe work to keep our employees safe, minimize our impact on the environment and ensure our governance is robust and transparent.
At December 31, 2021, we had approximately 7,200 employees worldwide. We are a party to collective bargaining agreements or other similar arrangements in certain international areas in which we operate. At December 31, 2021, approximately 18% of our employees were subject to collective bargaining agreements, with 12% being under agreements that expire within one year. We consider our relations with our employees to be positive. In the United States, most employees are at-will employees and, therefore, not subject to any type of employment contract or agreement. Outside the United States, the Company enters into employment contracts and agreements in those countries in which such relationships are mandatory or customary. Based upon the geographic diversification of our employees, we believe any risk of loss from employee strikes or other collective actions would not be material to the conduct of our operations taken as a whole.
Diversity and Inclusion
At Expro, we strive to be a safe, diverse and inclusive people-focused company that positively impacts local communities and society. Most people recognize the importance of diversity at work and the benefits it can bring to the organization and its people. However, diversity is only half of the story. The other half is inclusion: building a work environment in which people feel valued for who they are, bring their whole selves to work and contribute fully. In an inclusive work environment, people with different backgrounds, religious beliefs, sexual orientations, ethnicity and other differences feel like they belong.
We strive to ensure the equal treatment of all employees, job applicants and associated personnel regardless of race, color, nationality, ethnic or nation originals, sex, disability, age, religion or belief, or any other factors prohibited by law. We aim to create a work environment free of harassment and bullying, where everyone is treated with dignity and respect.
Diversity and inclusiveness are important to our current and future success by providing varied experiences, ideas and insights to inform decisions, identify new segment for us. As such, 2016 revenues areapproaches and solve business challenges. Our goal is to put the right people forward to do the right work for the two monthsright customers, in the right places, attracting, retaining and nurturing a talented and diverse workforce to turn our growth ambitions into reality.
Employee Learning and Development
We demonstrate our commitment to our values through our employee development initiatives. We invest in our people through learning and development programs that reinforce and update existing skill sets, and which develop employees’ competencies into new and complementary areas of expertise. Employees are empowered to drive their career progression through various learning platforms to facilitate achievement and career progression. A key tenet of our development is our strong performance management culture that enables and informs management development plans and succession planning.
We also actively solicit employee feedback and constantly strive to make the Company an employer of choice. We empower employees with an ownership mindset that encourages accountability and creativity – leading to new and better solutions.
Employee Welfare and Development
We offer opportunities for a challenging career in an energetic and friendly work environment. Providing our workforce with a career path, training, fair pay, and challenging, rewarding work are key tenets of our success. Our benefit packages are tailored to the local market of operation and are designed to attract and retain the best talent in the industry.
Safety
Safety is a critical component of our People and Performance core values. Many of our customers have safety standards we must satisfy before we can perform services. We continually monitor and improve our safety performance through the evaluation of safety observations, job and customer surveys, and safety data. The primary measures for our safety performance are the tracking of the Lost Time Injury Frequency rate (“LTIF”) and the Total Recordable Case Frequency rate (“TRCF”). LTIF is a measure of the frequency of injuries that result in lost work time, normalized on the basis of per million man-hours worked. TRCF is a measure of the frequency of recordable workplace injuries, normalized on the basis of per million man-hours worked. A recordable injury includes occupational death, nonfatal occupational illness, and other occupational injuries that involve loss of consciousness, lost time injuries, restriction of work or motion cases, transfer to another job, or medical treatment cases other than first aid.
The table below presents the combined worldwide LTIF and TRCF for Legacy Expro and Frank’s for the years ended December 31, 2016.
Year Ended December 31, | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
LTIF | 0.46 | 0.34 | 0.54 | |||||||||
TRCF | 1.31 | 1.34 | 1.78 |
We have comprehensive compliance policies, programs and training that are a publicly traded company on the New York Stock Exchange ("NYSE"applied globally to our entire workforce. Employees are required to complete Coronavirus Disease 2019 (“COVID-19”). As part trainings to adhere to safe and responsible work environments. We also standardize our global training processes to ensure all jobs are executed to high standards of our initial public offering ("IPO") in August 2013, we issued 52,976,000 shares of our Series A convertible preferred stock (the “Preferred Stock”)safety and a 25.7% limited partnership interest in FICV, our subsidiary, to Mosing Holdings, LLC ("Mosing Holdings"), a Delaware limited liability company and affiliate of the Company with Mosing family entities as its shareholders. Under our Amended Articles of Association in effect at time of the IPO, upon the written election of Mosing Holdings, each Preferred Share, together with a unit in FICV, our subsidiary, was convertible into a share of our common stock on a one-for-one basis.
Code of Business Segments
We pledge to be forthright in international offshore marketsall our business interactions and in several onshore international regions in approximately
We require every employee worldwide to complete an online Code of Conduct training course every year, which addresses conflicts of interest, confidentiality, fair dealing with others, proper use of company assets, compliance with laws, insider trading, maintenance of books and national oilrecords, zero tolerance for discrimination and gas companies, and other oilfield services companies.
Suppliers and Raw Materials
We acquire component parts, products and raw materials from suppliers, including foundries, forge shops, and original equipment manufacturers. The prices we pay for our raw materials may be affected by, among other things, energy, steel and other commodity prices, tariffs and duties on imported materials and foreign currency exchange rates. Certain ofequipment utilized within our product lines (primarily pipe) are only available from a limited number of suppliers (primarily in the Tubular and Blackhawk segments).suppliers.
Our ability to source low cost raw materials and components, such as steel castings and forgings, is critical to our ability to manufacture our casing products competitively and, in turn, our ability to provide onshore and offshore casing services.competitively. In order to purchase raw materials and components in a cost effective manner, we have developedsought to develop a broad international sourcing capability and we maintain quality assurance and testing programs to analyze and test these raw materials and components.
Intellectual Property
We own and control a variety of intellectual property, including patents, proprietary information, trade secrets and software tools and applications. We currently hold multiple U.S. and international patents and have a number of pending patent applications. Although in the aggregate our patents and licenses are important to us, we do not regard any single patent or license as critical or essential to our business as a whole.
Seasonality
Seasonal changes in weather and significant weather events can temporarily affect the delivery of our business isproducts and services and otherwise impact our business. For example, the winter months in the North Sea and the monsoon season in South and Southeast Asia can produce severe weather conditions that can temporarily reduce levels of activity. In addition, hurricanes and typhoons can disrupt coastal and offshore operations. Furthermore, customer spending patterns may result in higher or lower activity in the fourth quarter of the year based on year-to-date spending relative to their approved annual budgets and higher or lower activity in the first quarter of the year based on whether or not significantly impacted by changing seasons. the new year’s budget has been approved.
Customers
We can be impacted by hurricanes, ocean currents, winter stormsderive our revenue from services and other disruptions.
Competition
The markets in which we operate are competitive. We compete with a number of companies, some of which have financial and other resources greater than ours. TheWe believe the principal competitive factors in ourthe markets arein which we participate include the technologies and solutions offered, the quality, price and availability of products and services, safety and a company’sservice quality, operating footprint and responsiveness to customer needs and its reputation for safety. In general, we face a larger number of smaller, more regionally-specific customers in the U.S. onshore market as compared to offshore markets, where larger competitors dominate.
We believe several factors give us asupport our strong competitive position. In particular, we believe ourOur portfolio of technology-enabled products and services in each segment fulfill our customer’s requirements for international capability, availability of tools,a wide range of services provided, intellectual property, technological sophistication, quality assurance systems and availability of equipment, along with reputation and safety record.our customers’ requirements. We also seek to differentiate ourselves from our competitors by providing a rapid response to the needs of our customers, a high level of customer service, by providing innovative products and innovative product development initiatives. Although we have
Governmental Regulations
We are subject to numerous environmental and well intervention servicesother governmental and products on an aggregate, global basis.
Environmental and connectors inventory, which is included in the financial statement line item severance and other charges on our consolidated statements of operations. The factors that led to this impairment included new technology (external and internal), oil and gas prices below levels necessary for our customers to sanction a significant amount of new offshore projects in the near-term and a change in customers' preferences for newer technologies, all of which significantly impacted the net realizable value of our connectors inventory.
Our operations are subject to numerous stringent and complex laws and regulations governing the emission and discharge of materials into the environment, occupational health and safety aspects of our operations, or otherwise relating to environmental protection. Failure to comply with these laws or regulations or to obtain or comply with permits may result in the assessment of sanctions, including administrative, civil and criminal penalties, imposition of investigatory, remedial or corrective action requirements,actions, the required incurrence of capital expenditures, the occurrence of restrictions, delays or cancellations in the permitting, development or expansion of projects, and the imposition of orders or injunctions to prohibit or restrict certain activities or force future compliance.
Certain environmental laws may impose joint and several strict liability, without regard to fault or the legality of the original conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. The trend in environmental regulation has beenis to impose increasinglytypically place more stringent restrictions and limitations on activities that may impact the environment, and thus, any changes in environmental laws and regulations or in enforcement policies that result in more stringent and costly waste handling, storage, transport, disposal, or remediation requirements could have a material adverse effect on our operations and financial position. Moreover, accidental releases or spills of regulated substances may occur in the course of our operations, and we cannot assure that we will not incur significant costs and liabilities as a result of such releases or spills, including any third-party claims for damage to property, natural resources or persons.
The following is a summary of the more significant existing environmental and occupational health and safety laws and regulations to which our business operations are subject and for which compliance could have a material adverse impact on our capital expenditures, results of operations or financial position.
Climate Change
Climate change continues to manage the transportation, storage and disposal of hazardous and non-hazardous wastes in compliance with RCRA. Certain petroleum exploration and production wastes are excluded from RCRA’s hazardous waste regulations. However, it is possible that these wastes willattract considerable attention in the future be designated as hazardous wastesUnited States and therefore be subject to more rigorousother countries. Numerous proposals have been made and costly disposal requirements. For example, in December 2016, the EPA and environmental groups entered into a consent decree to address EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations exempting certain exploration and production related oil and gas wastes from regulation as hazardous wastes. The consent decree requires EPA to propose a rulemaking no later than March 15, 2019 for any revisions relating to oil and gas wastes or to sign a determination that revision of the regulations is not necessary. Any such changes in the laws and regulations could have a material adverse effect on our operating expenses or the operating expenses of our customers, which could result in decreased demand for our services.
Separately, various governments have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of emissions. At the international level, there is a non-binding agreement, the United Nations-sponsored “Paris Agreement,” for nations to limit their GHG emissions but some of our facilities could be subject to state “minor source” air permitting requirements and other state regulatory requirements applicable to air emissions, such as source registration and recordkeeping requirements.
There are also increasing risks of legislationlitigation related to climate change effects. Governments and third-parties have brought suit against some fossil fuel companies alleging, among other things, that such companies created public nuisances by marketing fuels that contributed to global warming effects, such as rising sea levels, and therefore are responsible for roadway and infrastructure damages as a result, or regulatory programsalleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts. Similar or more demanding cases are occurring in other jurisdictions where we operate. For example, in December 2019, the High Council of the Netherlands ruled that the government of the Netherlands has a legal obligation to decrease the country’s GHG emissions, and in May 2021, the Hague District Court ordered Royal Dutch Shell plc to reduce its worldwide emissions by 45% by 2030 compared to 2019 levels. Such litigation has the potential to adversely affect the production of fossil fuels, which in turn could result in reduced demand for our services.
Financial risks also exist for fossil fuel producers (and companies that provide products and services to fossil fuel producers) as shareholders who are currently invested in such fossil fuel companies but are concerned about the potential effects of climate change may elect in the U.S.future to shift some or abroad designedall of their investments into other sectors. Banks and institutional lenders that provide financing to reduce emissionsfossil fuel companies (and their suppliers and service providers) also have become more attentive to sustainable lending practices and some of greenhouse gasesthem may elect not to provide funding for fossil fuel companies. Additionally, in recent years, the practices of institutional lenders have been the subject of intensive lobbying efforts not to provide funding for such companies. Oftentimes this pressure has been public in nature, by environmental activists, proponents of the international Paris Agreement, and foreign citizenry concerned about climate change. Limitation of investments in and financings for fossil fuel companies could require usresult in the restriction, delay or our customers to incur increased operating costs, such as costs to purchase and operate emissions control systems, to acquire emissions allowances, pay carbon taxes, or comply with new regulatory or reporting requirements. For example, the EPA had previously finalized standards in June 2016 designed to reduce methane emissions from certaincancellation of production of crude oil and natural gas, facilities. However,which could in June 2017, the EPA published a proposed ruleturn decrease demand for our services. Our own operations could also face limitations on access to stay certain portions of these 2016 standards for two years and reconsider the entirety of the 2016 standards. Ascapital as a result of these actions, the 2016 methane standards are currently in effect but futuretrends, which could adversely affect our business and results of operation.
The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from the standards is uncertain atoil and natural gas sector or otherwise restrict the areas in which this time. The federal Bureau of Land Management (“BLM”) finalized similar rules in November 2016 but, following the change in U.S. Presidential Administrations, finalized a rule in December 2017 delaying implementation of the BLM methane rules for one year. Environmental groupssector may produce oil and some states have announced their intent to challenge the actions of both the EPA and BLM, and future implementation of methane rules at the federal level is uncertain at this time. These rules, to the extent implemented have the potential to impose significant costs on our customers. Also, new legislationnatural gas or regulatory programs related to the control of greenhouse gasgenerate GHG emissions could encourage the useresult in increased costs of alternative fuelscompliance or otherwise increase the costcosts of consuming, and thereby reduce demand for, the oil and natural gas, produced bywhich could reduce demand for our customers. Consequently, legislationservices and regulatory programsproducts. Additionally, political, litigation and financial risks may result in our oil and natural gas customers restricting or canceling production activities, incurring liability for infrastructure damages as a result of climatic changes, or impairing their ability to continue to operate in an economic manner, which also could reduce emissionsdemand for our services and products. Moreover, the increased competitiveness of greenhouse gasesalternative energy sources (such as wind, solar geothermal, tidal and biofuels) could reduce demand for hydrocarbons, and therefore for our products and services, which would lead to a reduction in our revenues. Over time, one or more of these developments could have ana material adverse effect on our business, financial condition and results of operations. Finally, it should be noted that some scientists have concluded that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other extreme weather events. Offshore operations are particularly susceptible to damage from extreme weather events. If any of the potential effects of climate change were to occur, they could have an adverse effect on our business, financial condition and results of operations.
Hydraulic Fracturing
Hydraulic fracturing is an important and common practice in the oil and gas industry. The process involves the injection of water, sand and chemicals under pressure into a formation to fracture the surrounding rock and stimulate production of hydrocarbons. While we may provide supporting products through Blackhawk,our cementing product offering, we do not perform hydraulic fracturing, but many of our onshore customers utilize this technique. Certain environmental advocacy groups and regulatory agencies have suggested that additional federal, state and local laws and regulations may be needed to more closely regulate the hydraulic fracturing process, and have made claims that hydraulic fracturing techniques are harmful to surface water and drinking water resources and may cause earthquakes. Various governmental entities (within and outside the United States) are in the process of studying, restricting, regulating or preparing to regulate hydraulic fracturing, directly or indirectly. For example, the EPA has already begunAdditionally, states and local governments may also seek to regulate certainlimit hydraulic fracturing activities through time, place, and manner restrictions on operations involving diesel underor ban the Underground Injection Control program of the federal Safe Drinking Water Act. In December 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources, which concluded "water cycle" activities associated with hydraulic fracturing may impact drinking water sources "under some circumstances," noting that the following hydraulic fracturing water cycle activities and local - or regional - scale factors are more likely than others to result in more frequent or more severe impacts: water withdrawals for fracturing in times or areas of low water availability; surface spills during the management of fracturing fluids, chemicals or produced water; injection of fracturing fluids into wells with inadequate
Offshore Regulatory and Marine Safety
Spurred on by environmental and safety concerns, governing bodies from time to time have pursued moratoria and legislation or regulatory initiatives that would materially limit or prohibit offshore drilling in certain areas, including areas where we or our oil and gas exploration and production customers conduct operations such as on the federal Outer Continental Shelf waters in the United States Gulf of Mexico.
Employee Health and Safety
We are subject to a number of federal and state laws and regulations, including the Occupational Safety and Health Act ("OSHA") and comparable state statutes, establishing requirements to protect the health and safety of workers. In addition, the OSHAU.S. Occupational Safety and Health Administration hazard communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state statutes require that information be maintained concerning hazardous materials used or produced in our operations and that this information be provided to employees, state and local government authorities and the public. Substantial fines and penalties can be imposed and orders or injunctions limiting or prohibiting certain operations may be issued in connection with any failure to comply with laws and regulations relating to worker health and safety.
We also operate in non-U.S. jurisdictions, which may impose similar legal requirements. We do not believe that complianceHistorically, our environmental and worker safety costs to comply with existing environmental laws and regulations will have not had a material adverse impact on us. However, we also believe that it is reasonably likely that the trend in environmental legislation and regulation will continue toward stricter standards and, thus, we cannot give any assurance that wesuch costs will not bematerially adversely affectedaffect us in the future.
Operating Risk and Insurance
We maintain insurance coverage of types and amounts that we believe to be customary and reasonable for companies of our size and with similar operations. In accordance with industry practice, however, we do not maintain insurance coverage against all of the operating risks to which our business is exposed. Therefore, there is a risk our insurance program may not be sufficient to cover any particular loss or all losses.
Currently, our insurance program includes, among other things, general liability, umbrella liability, sudden and accidental pollution, personal property, vehicle, workers’ compensation, and employer’s liability coverage. Our insurance includes various limits and deductibles or retentions, which must be met prior to or in conjunction with recovery.
Available Information
Our principal executive offices are located at Mastenmakersweg 1, 1786 PB Den Helder, the Netherlands,1311 Broadfield Boulevard, Suite 400, Houston, Texas 77084, and our telephone number at that address is +31 (0)22 367 0000. Our primary U.S. offices are located at 10260 Westheimer Rd., Houston, Texas 77042, and our telephone number at that address is (281) 966-7300. (713) 463-9776. Our website address is
Information about Our common stock is traded onExecutive Officers and Other Key Employees
The following table sets forth, as of February 28, 2022, the NYSE undernames, ages and experience of our executive officers and other key employees, including all offices and positions held by each for the symbol ("FI").
Name | Age | Current Position and Five-Year Business Experience |
Michael Jardon | 52 | President and Chief Executive Officer and Director, since October 2021; Chief Executive Officer, Legacy Expro, from April 2016 to October 2021; various technical and executive roles, Legacy Expro, Vallourec and Schlumberger Limited, from 1992 to 2016. |
Quinn Fanning | 58 | Chief Financial Officer, since October 2021; Chief Financial Officer, Legacy Expro, from October 2019 to October 2021; Executive Vice President, Tidewater Inc., from July 2008 to March 2019, Chief Financial Officer, Tidewater Inc., from July 2008 to November 2018; investment banker with Citigroup Global Markets, Inc., from 1996 to 2008. |
Alistair Geddes | 59 | Chief Operating Officer, since October 2021; Chief Operating Officer, Legacy Expro, from 2019 to October 2021; Executive Vice President, Product Lines, Technology and Business Development, Legacy Expro, from 2014 to 2019; various technical and executive roles, Expro, ExxonMobil, BG Group and Weatherford International plc from 1984 to 2014. |
Steven Russell | 54 | Chief Technology Officer, since October 2021; Senior Vice President, Operations, Frank’s, from November 2019 to October 2021; President, Tubular Running Services, Frank’s, from June 2018 to November 2019; Senior Vice President, Human Resources, Frank’s, May 2017 to June 2018; Vice President, Human Resources, Archer Ltd., from January 2011 to May 2017; various technical and executive roles, Schlumberger Limited, from 1990 to 2011. |
John McAlister | 55 | General Counsel and Secretary, since October 2021; Group General Counsel, Legacy Expro, from June 2006 to October 2021; solicitor, Clifford Chance, and various executive roles, BG Group, Lattice Group plc and National Grid plc, from 1991 to 2006. |
Michael Bentham | 59 | Principal Accounting Officer, since October 2021; Principal Accounting Officer and Vice President, Legacy Expro, from October 2019 to October 2021; Chief Financial Officer, Legacy Expro, from July 2017 to October 2019; IDS Product Line Controller, Schlumberger Limited, from July 2016 to July 2017; Vice President Finance MI Swaco, Schlumberger Limited, from August 2012 to June 2016. |
Nigel Lakey | 63 | Senior Vice President, Portfolio Advancement, since October 2021; Senior Vice President, Technology, Frank’s, from November 2019 to October 2021; and President, Tubular and Drilling Technologies, Frank’s, from June 2018 to October 2019. |
Keith Palmer | 62 | Primary Integration Lead, since October 2021; Primary Integration Lead, Legacy Expro, from September 2021 to October 2021; Executive Vice President – Product Lines, Legacy Expro, from May 2019 to September 2021; Vice President Asia Pacific, Legacy Expro, from May 2016 to May 2019; President Expro PTI, Legacy Expro, from January 2015 to May 2016. |
Natalie Questell | 48 | Senior Vice President, Human Resources, since October 2021; Vice President of Human Resources, Frank’s, from June 2018 to October 2021; Director of Global Total Rewards and HRIS, Frank’s, from 2015 to June 2018. |
Karen David-Green | 53 | Chief Communications, Stakeholder, and Sustainability Officer, since October 2021; Chief Communications, Stakeholder, and Sustainability Officer, Legacy Expro, from June 2021 to October 2021; previously Senior Vice President, Stakeholder Engagement & Chief Marketing Officer, Weatherford International plc. |
SUMMARY RISK FACTORS
Our business is subject to varying degrees of risk and uncertainty. Investors should consider the SEC at 1-800-SEC-0330. The SEC also maintains an internet website at www.sec.govthat contains reports, proxyrisks and information statements,uncertainties summarized below, as well as the risks and other information regarding our companyuncertainties discussed in Part I, Item 1A. Risk Factors of this Annual Report on Form 10-K. Additional risks not presently known to us or that we file electronically withcurrently deem immaterial may also affect us. If any of these risks occur, our business, financial condition and results of operations could be materially and adversely affected.
Our business is subject to the SEC.
Risks Related to Our Business and Operations
• | Our business depends on the level of activity in the oil and gas industry. |
• | Physical dangers are inherent in our operations and may expose us to significant potential losses. Personnel and property may be harmed during the process of drilling for and producing oil and gas. |
• | We are particularly vulnerable to risks associated with our offshore operations. |
• | Our operations and revenue expose us to political, economic and other uncertainties inherent in doing business in each of the countries in which we operate. |
• | To compete in our industry, we must continue to develop new technologies and products to support our operations, secure and maintain patents related to our current and new technologies and products and protect and enforce our intellectual property rights. |
• | Our services and products are provided in connection with operations that are subject to potential hazards inherent in the oil and gas industry, and, as a result, we are exposed to potential liabilities that may affect our financial condition and reputation. |
• | We may not be fully indemnified against financial losses in all circumstances. |
• | The industry in which we operate has undergone and may continue to undergo consolidation. |
• | We are subject to the risk of supplier concentration. |
• | Seasonal and weather conditions, as well as natural disasters, could adversely affect demand for our services and products and could result in severe property damage or materially and adversely disrupt our operations. |
• | Investor and public perception related to the Company’s environment, social, and governance (“ESG”) performance as well as current and future ESG reporting requirements, may affect our business and our operating results. |
• | Events outside of our control, including the ongoing COVID-19 pandemic, have and may further materially adversely affect our business. |
• | Our business could be negatively affected by cybersecurity threats and other disruptions. |
• | Our executive officers and certain key personnel are critical to our business, and these officers and key personnel may not remain with us in the future. |
• | If we are unable to adapt our business to the effects of the energy transition in a timely and effective manner, our financial condition and results of operations could be negatively impacted. |
Risks Related to the Merger
• | The failure to integrate successfully the businesses of Frank’s and Legacy Expro could adversely affect the Company’s future results. |
• | The combined company’s ability to utilize the historic U.S. net operating loss carryforwards of Frank’s and of Legacy Expro may be limited. |
• | Certain of the shareholders of the Company have the ability to exercise significant influence over certain corporate actions. |
Risks Related to Accounting and Financial Matters
• | Customer credit risks could result in losses. |
• | If our assets are impaired, we may be required to record significant non-cash charges to our earnings. |
• | Restrictions in the agreement governing our Revolving Credit Facility (“RCF”) could adversely affect our business, financial condition, results of operations and stock price. |
Risks Related to Legal and Regulatory Requirements
• | Our operations and our customers’ operations are subject to a variety of governmental laws and regulations that may increase our costs, limit the demand for our services and products or restrict our operations. |
• | Our operations are subject to environmental and operational safety laws and regulations that may expose us to significant costs and liabilities. |
• | Our operations may be adversely affected by various laws and regulations in countries in which we operate relating to the equipment and operation of drilling units, oil and gas exploration and development, as well as import and export activities. |
• | The imposition of restrictions or prohibitions on drilling by any governing body may have a material adverse effect on our business. |
• | There are various risks associated with greenhouse gases and climate change legislation or regulations that could result in increased operating costs and reduced demand for our services. |
• | We are required to comply with a number of complex laws pertaining to business conduct, including the U.S. Foreign Corrupt Practices Act and similar legislation enacted by Governments outside the U.S. |
• | Data protection and regulations related to privacy, data protection and information security could increase our costs. |
Risks Related to Our Common Stock
• | Our declaration of dividends is within the discretion of our Board, and subject to certain limitations under Dutch law and our financing agreements, and there can be no assurance that we will pay dividends. |
• | As a Dutch company with limited liability, the rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions. |
• | Our articles of association and Dutch corporate law contain provisions that may discourage a takeover attempt. |
• | It may be difficult for you to obtain or enforce judgments against us or some of our executive officers and directors in the United States or the Netherlands. |
Risks Related to Tax Matters
• | Changes in tax laws, treaties or regulations or adverse outcomes resulting from examination of our tax returns could adversely affect our financial results. |
• | We are a Netherlands limited liability company classified as a corporation for U.S. federal income tax purposes, and our U.S. holders may be subject to certain anti-deferral rules under U.S. tax law. |
• | U.S. “anti-inversion” tax laws could adversely affect our results, result in a reduced amount of foreign tax credit for U.S. holders, or limit future acquisitions of U.S. businesses. |
You should carefully consider the risks described below together with the other information contained in this Form 10-K. Realization of any of the following risks could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Risks Related to Our Business and Operations
Our business depends on the level of activity in the oil and gas industry, which is significantly affected by oil and gas prices and other factors.
Our business depends on the level of activity in oil and gas exploration, development and production in market sectors worldwide. Oil and gas prices and market expectations of potential changes in these prices significantly affect this level of activity. However, higher commodity prices do not necessarily translate into increased drilling or well construction and completion activity, since customers’ expectations of future commodity prices typically drive demand for our services.services and products. The availability of quality drilling prospects, exploration success, relative production costs, the stage of reservoir development and political and regulatory environments also affect the demand for our services.services and products. Worldwide military, political and economic events have in the past contributed to oil and gas price volatility and are likelycontinue to do so at present. In addition, the effects of epidemics and concerns, such as the COVID-19 pandemic, has materially impacted the demand for crude oil and natural gas, which has contributed to further price volatility. Average daily prices for Brent crude oil ranged from a low of approximately $50 per barrel in January 2021 to a high of approximately $86 per barrel in October 2021. Even during periods of high prices for oil and natural gas, companies exploring for oil and gas may cancel or curtail programs, seek to renegotiate contract terms, including the future. price of our products and services, or reduce their levels of capital expenditures for exploration and production for a variety of reasons. These risks are greater during periods of low or declining commodity prices. As a result of declining commodity prices, certain of our customers may be unable to pay their vendors and service providers, including us. In addition, the transition of the global energy sector from primarily a fossil fuel-based system to renewable energy sources could affect our customers’ levels of expenditures. Reduced activity in our areas of operation as a result of decreased capital spending could have a negative long-term impact on our business, even in an environment of stronger oil and natural gas prices.
The demand for our services and products and services may also be generally affected by numerous factors, including:
• | the supply and demand for energy and the resulting level of worldwide oil and gas exploration and production; |
• | the cost of exploring for, producing and delivering oil and gas; |
• | the ability of Organization of Petroleum Exporting Countries (“OPEC”) and OPEC+ to set and maintain production levels for oil; |
• | the level of production by non-OPEC countries; |
• | global or national health concerns, including health epidemics such as the outbreak of COVID-19; |
• | the location of oil and gas drilling and production activity, including the relative amounts of activity onshore and offshore; |
• | the technical specifications of wells including depth of wells and complexity of well design; |
• | U.S. and global political and economic uncertainty or inactivity, socio-political unrest and instability or hostilities; |
• | demand for, availability of and technological viability of, alternative sources of energy; and |
• | technological advances affecting energy exploration, production, transportation and consumption. |
Demand for our offshore services and products substantially depends on the level of activity in offshore oil and gas exploration, development and production. The level of offshore activity is historically cyclical and characterized by large fluctuations in response to relatively minor changes in a variety of factors, including oil and gas prices, which could have had a material adverse effect on our business, financial condition and results of operations.
Physical dangers are inherent in our operations and may expose us to significant potential losses. Personnel and property may be harmed during the process of drilling for and producing oil and gas.
Drilling for and producing oil and gas, and the associated services that we provide, include inherent dangers that may lead to property damage, personal injury, death or the discharge of hazardous materials into the environment. Many of these events are outside our control. Typically, we provide services at a well site where our personnel and equipment are located together with personnel and equipment of our customers and third parties, such asincluding other service providers. At many sites, we depend on other companies and personnel to conduct drilling operations in accordance with applicable environmental laws and regulations and appropriate safety standards. From time to time, personnel are injured or equipment or property is damaged or destroyed as a result of accidents, failed equipment, faulty products or services, failure of safety measures, uncontained formation pressures, or other dangers inherent in drilling for oil and gas. With increasing frequency,Often, our services are deployed on more challenging prospects, particularly deepwater offshore drilling sites, where the occurrence of the types of events mentioned above can have an even more catastrophic impact on people, equipment and the environment. Such events may expose us to significant potential losses, which could adversely affect our business, financial condition and results of operations.
We are particularly vulnerable to risks associated with our offshore operations that could negatively impact our business, financial condition and results of operations.
We conduct offshore operations in the U.S. Gulf of Mexico and almost every significant international offshore market, including Africa, Middle East, Latin America, Europe, the Asia Pacific region and several other producing regions.market. Our operations and financial results could be significantly impacted by conditions in some of these areas because we are vulnerable to certain unique risks associated with operating offshore, including those relating to:
• | hurricanes, ocean currents and other adverse weather conditions; |
• | terrorist attacks and piracy; |
• | failure of offshore equipment and facilities; |
• | local and international political and economic conditions and policies and regulations related to offshore drilling; |
• | territorial disputes involving sovereignty over offshore oil and gas fields; |
• | unavailability of offshore drilling rigs in the markets that we operate; |
• | the cost of offshore exploration for, and production and transportation of, oil and gas; |
• | successful exploration for, and production and transportation of, oil and gas from onshore sources; |
• | the availability and rate of discovery of new oil and gas reserves in offshore areas; |
• | the availability of infrastructure to support oil and gas operations; and |
• | the ability of oil and gas companies to generate or otherwise obtain funds for exploration and production. |
While the impact of these factors is difficult to predict, any one or more of these factors could adversely affect our business, financial condition and results of operations.
Our international operations and revenue expose us to political, economic and other uncertainties inherent to international business.
We have substantial international operations, and we intendare exposed to grow those operations further. For the years ended December 31, 2017, 2016 and 2015, international operations accounted for approximately 46%, 49% and 45%, respectively, of our revenue. Our international operations are subject to a number of risks inherent in anydoing business operating in foreigneach of the countries in which we operate, including, but not limited to, the following:
• | political, social and economic instability; |
• | potential expropriation, seizure or nationalization of assets, and trapped assets; |
• | deprivation of contract rights; |
• | increased operating costs; |
• | inability to collect revenue due to shortages of convertible currency; |
• | unwillingness of foreign governments to make new onshore and offshore areas available for drilling; |
• | civil unrest and protests, strikes, acts of terrorism, war or other armed conflict; |
• | import/export quotas; |
• | confiscatory taxation or other adverse tax policies; |
• | continued application of foreign tax treaties; |
• | currency exchange controls; |
• | currency exchange rate fluctuations and devaluations; |
• | inflation; |
• | restrictions on the repatriation of funds; and |
• | other forms of government regulation which are beyond our control. |
Instability and disruptions in the political, regulatory, economic and social conditions of the foreign countries in which we conduct business, including economically and politically volatile areas such as Eastern Europe, Africa and the Middle East, Latin America and the Asia Pacific region, could cause or contribute to factors that could have an adverse effect on the demand for the products and services we provide. Worldwide political, economic, and military events have contributed to oil and gas price volatility and are likely to continue to do so in the future. Depending on the market prices of oil and gas, oil and gas exploration and development companies may cancel or curtail their drilling or other programs, thereby reducing demand for our services.
In addition, in some countries our local managers may be personally liable for the acts of the Company, and may be subject to prosecution, detention, and the assessment of monetary levies, fines or penalties, or other actions by local governments in their individual capacity. Any such actions taken against our local managers could cause disruption of our business and operations, and could cause us to incur significant costs.
While the impact of these factors is difficult to predict, any one or more of these factors could adversely affect our business, financial condition and results of operations.
To compete in our industry, we must continue to develop new technologies and products to support our tubular and other well construction services,operations, secure and maintain patents related to our current and new technologies and products and protect and enforce our intellectual property rights.
The markets for our tubularservices and other well construction servicesproducts are characterized by continual technological developments. While we believe that the proprietary productsequipment we have developed provideprovides us with technological advancesadvantages in providing services to our customers, substantial improvements in the scope and quality of the productsequipment in the market we operate may occur over a short period of time. In addition, alternative products and services may be developed which may compete with or displace our products and services. If we are not able to develop commercially competitive products in a timely manner in response, our ability to service our customers’ demands may be adversely affected. Our future ability
We may encounter resource constraints, technical barriers, or other difficulties that would delay introduction of new services and related products in the future. Our competitors may introduce new products or obtain patents before we do and achieve a competitive advantage. Additionally, the time and expense invested in product development may not result in commercial applications.
We currently hold multiple U.S. and international patents and have multiple pending patent applications for products and processes. Patent rights give the owner of a patent the right to exclude third parties from making, using, selling, and offering for sale the inventions claimed in the patents in the applicable country. Patent rights do not necessarily grant the owner of a patent the right to practice the invention claimed in a patent, but merely the right to exclude others from practicing the invention claimed in the patent. It may also be possible for a third party to design around our patents. Furthermore, patent rights have strict territorial limits. Some of our work will be conducted in international waters and would, therefore, not fall within the scope of any country’s patent jurisdiction. We may not be able to enforce our patents against infringement occurring in international waters and other “non-covered” territories. Also, we do not have patents in every jurisdiction in which we conduct business and our patent portfolio will not protect all aspects of our business and may relate to obsolete or unusual methods, which would not prevent third parties from entering the same market.
We attempt to limit access to and distribution of our technology and trade secrets by customarily entering into confidentiality agreements with our employees, customers and potential customers and suppliers. However, our rights in our confidential information, trade secrets, and confidential know-how will not prevent third parties from independently developing similar information. Publicly available information (for example, information in expired issued patents, published patent applications, and scientific literature) can also be used by third parties to independently develop technology. We cannot provide assurance that this independently developed technology will not be equivalent or superior to our proprietary technology.
In addition, we may become involved in legal proceedings from time to time to protect and enforce our intellectual property rights. Third parties from time to time may initiate litigation against us by asserting that the conduct of our business infringes, misappropriates or otherwise violates intellectual property rights. We may not prevail in any such legal proceedings related to such claims, and our products and services may be found to infringe, impair, misappropriate, dilute or otherwise violate the intellectual property rights of others. Any legal proceeding concerning intellectual property could be protracted and costly and is inherently unpredictable and could have a material adverse effect on our business, regardless of its outcome. Further, our intellectual property rights may not have the value that management believes them to have and such value may change over time as we and others develop new product designs and improvements.
Our services and technology across international borders subjects us to extensive trade laws and regulations. Our import and export activities are governed by unique customs laws and regulations in each of the countries where we operate. Moreover, many countries control the import and export of certain goods, services and technology and impose related import and export recordkeeping and reporting obligations. Governments
Our tubularservices and other well construction servicesproducts are provided in connection with potentially hazardous drilling, completion and production applications in the oil and gas industry where an accident can potentially have catastrophic consequences. This is particularly true in deepwater operations. Risks inherent to these applications, such as equipment malfunctions and failures, equipment misuse and defects, explosions, blowouts and uncontrollable flows of oil, gas or well fluids and natural disasters, on land or in deepwater or shallow water environments, can cause personal injury, loss of life, suspension of operations, damage to formations, damage to facilities, business interruption and damage to or destruction of property, surface water and drinking water resources, equipment, natural resources and the environment. If our services fail to meet specifications or are involved in accidents or failures, we could face warranty, contract, fines or other litigation claims, which could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and gas production, pollution and other environmental damages. Our insurance policies may not be adequate to cover all liabilities. Further, insurance may not be generally available in the future or, if available, insurance premiums may make such insurance commercially unjustifiable. Moreover, even if we are successful in defending a claim, it could be time-consuming and costly to defend.
We may not be fully indemnified against financial losses in all circumstances where damage to or loss of property, personal injury, death or environmental harm occur.
As is customary in our industry, our contracts typically provide that our customers indemnify us for claims arising from the injury or death of their employees, the loss or damage of their equipment, damage to the reservoir and pollution emanating from the customer’s equipment or from the reservoir (including uncontained oil flow from a reservoir). Conversely, we typically indemnify our customers for claims arising from the injury or death of our employees, the loss or damage of our equipment, or pollution emanating from our equipment. Our contracts typically provide that our customer will indemnify us for claims arising from catastrophic events, such as a well blowout, fire or explosion.
Our indemnification arrangements may not protect us in every case. For example, from time to time (i) we may enter into contracts with less favorable indemnities or perform work without a contract that protects us, (ii) our indemnity arrangements may be held unenforceable in some courts and jurisdictions or (iii) we may be subject to other claims brought by third parties or government agencies. Furthermore, the parties from which we seek indemnity may not be solvent, may become bankrupt, may lack resources or insurance to honor their indemnities, or may not otherwise be able to satisfy their indemnity obligations to us. The lack of enforceable indemnification could expose us to significant potential losses.
The industry in which we operate is undergoing continuing consolidation thathas undergone and may impact results of operations.
Certain of our product lines depend on a limited number of third party suppliers. As a result of this concentration in some of our supply chains, our business and operations could be negatively affected if our key suppliers were to experience significant disruptions affecting the price, quality, availability or timely delivery of their products. The partial or complete loss of any one of our key suppliers, or a significant adverse change in the relationship with any of these suppliers, through consolidation or otherwise, would limit our ability to manufacture or sell certain of our products.
Seasonal and weather conditions, as well as natural disasters, could adversely affect demand for our services and products and could result in severe property damage or materially and adversely disrupt our operations.
Weather can have a significant impact on demand as consumption of energy is seasonal, and any variation from normal weather patterns, such as cooler or warmer summers and winters, can have a significant impact on demand. Adverse weather conditions, such as hurricanes and ocean currents in the U.S. Gulf of Mexico or typhoons in the Asia Pacific region, may interrupt or curtail our operations or our customers’ operations, cause supply disruptions and result in a loss of revenue and damage to our equipment and facilities, which may or may not be insured. In addition, acute or chronic physical impacts of climate change, such as sea level rise, coastal storm surge, inland flooding from intense rainfall and hurricane-strength winds may damage our facilities. Extreme winter conditions in Canada, Russia, or the North Sea, or droughts in more arid regions in which we do business may interrupt or curtail our operations, or our customers’ operations, and result in a loss of revenue. If the facilities we own are damaged by severe weather or any other disaster, accident, catastrophe or event, our operations could be significantly interrupted. Similar interruptions could result from damage to production or other facilities that provide supplies or other raw materials to our plants or other stoppages arising from factors beyond our control. These interruptions might involve significant damage to property, among other things, and repairs might take from a week or less for a minor incident to many months or more for a major interruption.
In addition, a portion of our business involves the movement of people and certain parts and supplies to or from foreign locations. Any restrictions on travel or shipments to and from foreign locations, due to the occurrence of natural disasters such as earthquakes, floods or hurricanes, in these locations, could significantly disrupt our operations and decrease our ability to provide services to our customers. If a natural disaster were to impact a location where we have a high concentration of business and resources, our local facilities and workforce could be affected by such an occurrence or outbreak which could also significantly disrupt our operations and decrease our ability to provide services and products to our customers.
Investor and public perception related to the Company’s ESG performance as well as current and future ESG reporting requirements may affect our business and our operating results.
Increasing focus on ESG factors has led to enhanced interest in, and review of performance results by investors, banks, institutional lenders and other stakeholders, and the potential for reputational risk. Regulatory requirements related to ESG or sustainability reporting have been issued in the European Union (“EU”) that apply to financial market participants, with implementation and enforcement starting in 2021. In the U.S., such regulations have been issued related to pension investments in California, and for the responsible investment of public funds in Illinois. Additional regulation is pending in other states. We expect regulatory requirements related to ESG matters to continue to expand globally. The Company is committed to transparent and comprehensive reporting of our sustainability performance. If we are not able to meet future sustainability reporting requirements of regulators or current and future expectations of investors, customers or other stakeholders, our business and ability to raise capital may be adversely affected.
Events outside of our control, including the ongoing COVID-19 pandemic, have and may further materially adversely affect our business.
We face risks related to pandemics, epidemics, outbreaks or other public health events that are outside of our control, and could significantly disrupt our operations and adversely affect our financial condition. For example, the ongoing COVID-19 pandemic has resulted in significant global economic disruption, including in the U.S. and many other geographic areas where we operate, or where our customers are located or suppliers or vendors operate. As the global economy and demand for crude oil and natural gas continues to recover from the global impact of the COVID-19 pandemic, the persistent effects from new variants, including Delta and Omicron, have further constrained recovery of global economic activity and has resulted in substantial volatility in demand for and market prices of crude oil and natural gas. Any prolonged period of economic slowdown or recession resulting from the negative effects of COVID-19 on economic and business prospects across the world may negatively impact crude oil prices and the demand for our products and services, and could have significant adverse consequences on our financial condition and the financial condition of our customers, suppliers and other counterparties.
While many governmental authorities have implemented multi-step policies towards the goal of reopening their economies, certain jurisdictions have reinstated certain restrictions due to a rise in COVID-19 cases as a result of new variants. We have experienced, and expect to continue to experience, some periodic disruptions to our business operations, as these government restrictions have significantly impacted, and may continue to impact, many sectors of the economy. Our business involves movement of people and certain parts and supplies to or from foreign locations, and the reinstatement of travel restrictions in certain countries where we operate, including the temporary closure of international borders, will continue to disrupt such movement and decrease our ability to provide products and services to our customers. In addition, the risk of infection and the associated health risks with the new variants of COVID-19 may adversely affect our operations or the health of our workforce and the workforces of our customers and service providers by rendering employees or contractors unable to work.
In addition, the technology required for the corresponding transition to remote work increases our vulnerability to cybersecurity threats, including threats to gain unauthorized access to sensitive information or to render data or systems unusable, the impact of which may have material adverse effects on our business and operations. See “—Our business could be negatively affected by cybersecurity threats and other disruptions.”
The ultimate impact of the COVID-19 pandemic is difficult to predict, and the extent to which it may negatively affect our operating results or the duration of any potential business disruption is uncertain. Any potential impact will depend on future developments, including the duration and spread of the COVID-19 pandemic and any new variants, the actions taken by authorities to contain it or treat its impact, and the impact on overall economic activity, all of which are uncertain and are outside of our control. These potential impacts, while uncertain, could adversely affect our operating results.
Our business could be negatively affected by cybersecurity threats and other disruptions.
We rely heavily on information systems to conduct and protect our business. These information systems are increasingly subject to sophisticated cybersecurity threats such as unauthorized access to data and systems, loss or destruction of data (including confidential customer information), computer viruses, ransomware, or other malicious code, phishing and cyberattacks, and other similar events. These threats arise from numerous sources, not all of which are within our control, including fraud or malice on the part of third parties, accidental technological failure, electrical or telecommunication outages, failures of computer servers or other damage to our property or assets, or outbreaks of hostilities or terrorist acts.
Given the rapidly evolving nature of cyber threats, there can be no assurance that the systems we have designed and implemented to prevent or limit the effects of cyber incidents or attacks will be sufficient in preventing all such incidents or attacks, or avoiding a material impact to our systems when such incidents or attacks do occur. If we were to be subject to a cyber incident or attack in the future, it could result in the disclosure of confidential or proprietary customer information, theft or loss of intellectual property, damage to our reputation with our customers and the market, failure to meet customer requirements or customer dissatisfaction, theft or exposure to litigation, damage to equipment (which could cause environmental or safety issues) and other financial costs and losses. In addition, as cybersecurity threats continue to evolve, we may be required to devote additional resources to continue to enhance our protective measures or to investigate or remediate any cybersecurity vulnerabilities.
Our executive officers and certain key personnel are critical to our business, and these officers and key personnel may not remain with us in the future.
We depend greatly on the efforts of our executive officers and other key employees to manage our operations. The loss or unavailability of any of our executive officers or other key employees could have a material adverse effect on our business.
If we are unable to adapt our business to the effects of the energy transition in a timely and effective manner, our financial condition and results of operations could be negatively impacted.
The transition of the global energy sector from primarily a fossil fuel-based system to renewable energy sources could affect our customers’ levels of expenditures. Our business will need to adapt to changing customer preferences and government requirements. If the energy transition occurs faster than anticipated or in a manner we do not anticipate, demand for our services and products could be adversely affected. In addition, if we fail or are perceived to not effectively implement an energy transition strategy, or if investors, banks or institutional lenders shift funding away from companies in fossil fuel-related industries, our access to capital or the market for our securities could be negatively impacted.
Risks Relating to the Merger
The failure to integrate successfully the businesses of Frank’s and Legacy Expro could adversely affect the Company’s future results.
The Merger involves the integration of two companies that prior to October 1, 2021, operated independently. The success of the Merger will depend -- in large part -- on the ability of the combined company to realize the anticipated benefits, including cost savings, among others, from combining the businesses of Frank’s and Legacy Expro. To realize these anticipated benefits, the businesses of Frank’s and Legacy Expro must be successfully integrated. This integration will be complex and time-consuming. The failure to integrate successfully and to manage successfully the challenges presented by the integration process may result in the combined company not achieving the anticipated benefits of the Merger.
In particular, the Company may fail to realize the anticipated benefits and synergies expected from the Merger, which could adversely affect its business, financial condition and operating results. The success of the Merger will depend, in significant part, on the combined company’s ability to successfully integrate the acquired business and realize the anticipated strategic benefits and synergies from the combination. Company management believes that the Merger will provide operational and financial scale, increasing free cash flow, and enhancing the combined company’s corporate returns on invested capital. However, achieving these goals requires, among other things, realization of the targeted cost synergies expected from the Merger. The anticipated benefits of the Merger and actual operating, technological, strategic and revenue opportunities may not be realized fully or at all, or may take longer to realize than expected. If the Company is not able to achieve these objectives and realize the anticipated benefits and synergies expected from the Merger within the anticipated timing or at all, the combined company’s business, financial condition and operating results may be adversely affected.
The Company will also incur significant integration-related costs and there is potential for unknown liabilities, unforeseen expenses, delays associated with post-Merger integration activities and performance shortfalls of the combined company as a result of the diversion of management’s attention caused by completing the Merger and integrating the companies’ operations. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Additionally, there are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including accounting and finance, asset management, benefits, billing, health, safety and environmental, human resources, maintenance, marketing, payroll and purchasing. The expenses of integrating these systems could, particularly in the near term, exceed the savings that the combined company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings.
Any of these difficulties in successfully integrating the businesses of Frank’s and Legacy Expro, or any delays in the integration process, could adversely affect the combined company’s ability to achieve the anticipated benefits of the Merger and could adversely affect the combined company’s business, financial results, financial condition and stock price.
The combined company’s ability to utilize the historic U.S. net operating loss carryforwards of Frank’s and of Legacy Expro may be limited.
As of December 31, 2021, Frank’s and Legacy Expro had U.S. federal net operating loss carryforwards (“NOLs”) of approximately $447.4 million and $98.2 million, respectively, net of existing Section 382 (as defined below) limitations. $156.4 million and $30.8 million, respectively, of these NOLs were incurred prior to January 1, 2018 and will begin to expire, if unused, in 2036 and 2022, respectively. $291.0 million and $67.4 million of these NOLs were incurred on or after January 1, 2018 and will not expire and will be carried forward indefinitely. The combined company’s ability to utilize these NOLs and other tax attributes to reduce future taxable income following the consummation of the Merger depends on many factors, including its future income, which cannot be assured. Section 382 of the Code (“Section 382”) generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone an “ownership change” (as determined under Section 382). An ownership change generally occurs if one or more stockholders (or groups of stockholders) who are each deemed to own at least 5% of such corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. In the event that an ownership change occurs, utilization of the relevant corporation’s NOLs would be subject to an annual limitation under Section 382, generally determined, subject to certain adjustments, by multiplying (i) the fair market value of such corporation’s stock at the time of the ownership change by (ii) a percentage approximately equivalent to the yield on long-term tax-exempt bonds during the month in which the ownership change occurs. Any unused annual limitation may be carried over to later years.
The Company underwent an ownership change under Section 382 as a result of the Merger, which, based on information currently available, may trigger a limitation (calculated as described above) on the combined company’s ability to utilize any historic Frank’s NOLs and could cause some of the Frank’s NOLs incurred prior to January 1, 2018 to expire before the combined company would be able to utilize them to reduce taxable income in future periods. While the exchange of ordinary shares of Legacy Expro for shares of the Company's common stock (“Company Common Stock”) in the Merger was, standing alone, insufficient to result in an ownership change with respect to Legacy Expro, we cannot assure you that the Company will not undergo an ownership change as a result of the Merger taking into account other changes in ownership of Company stock occurring within the relevant three-year period described above. If there were to be an ownership change with respect to Legacy Expro as a result of the Merger, the combined company may be prevented from fully utilizing Legacy Expro’s historic NOLs incurred prior to January 1, 2018 prior to their expiration.
Certain of the shareholders of the Company have the ability to exercise significant influence over certain corporate actions.
Entities affiliated with Oak Hill Advisors, L.P. and members of the Mosing family and entities they control could have significant influence over the outcome of matters requiring a shareholder vote, including the election of directors, the adoption of any amendment to the articles of association of the Company and the approval of mergers and other significant corporate transactions. Their influence over the Company may have the effect of delaying or preventing a change of control or may adversely affect the voting and other rights of other shareholders. In addition, entities affiliated with Oak Hill Advisors, L.P. have the right to designate two nominees for election to the combined company’s nine member board of directors and members of the Mosing family have the right to designate one nominee for election to such board. Finally, if these shareholders were in the future to sell all or a material number of shares of Company Common Stock, the market price of Company’s Common Stock could be negatively impacted.
Risks Related to Accounting and Financial Matters
Customer credit risks could result in losses.
The concentration of our customers in the energy industry may impact our overall exposure to credit risk as customers may be similarly affected by prolonged changes in economic and industry conditions. Those countries that rely heavily upon income from hydrocarbon exports would be hit particularly hard by a drop in oil prices such as the drop that has occurred this year. Further, laws in some jurisdictions in which we operate could make collection difficult or time consuming. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. While we maintain reserves for potential credit losses, we cannot assure such reserves will be sufficient to meet write-offs of uncollectible receivables or that our losses from such receivables will be consistent with our expectations.
In addition, customers experiencing financial difficulty may delay payment for our products and services. Such delays, even if accounts are ultimately paid in full, could reduce our cash resources available and materially and adversely impact our credit available from suppliers and financial institutions.
If our assets are impaired, we may be required to record significant non-cash charges to our earnings.
We recognize impairments of goodwill when the fair value of any of our reporting units becomes less than its carrying value. Our estimates of fair value are based on assumptions about future cash flows of each reporting unit, discount rates applied to these cash flows and current market estimates of value. Based on the uncertainty of future revenue growth rates, gross profit performance, and other assumptions used to estimate our reporting units’ fair value, future reductions in our expected cash flows could cause a material non-cash impairment charge of goodwill, which could have a material adverse effect on our results of operations and financial condition.
Please see additional discussion regarding goodwill in “Management’s Discussion & Analysis of Financial Condition and Results of Operation—Critical accounting policies and estimates—Goodwill and identified intangible assets.”
We also have certain long-lived assets, other intangible assets and other assets which could be at risk of impairment or may require reserves based upon anticipated future benefits to be derived from such assets. Any change in the valuation of such assets could have a material effect on our profitability.
Restrictions in the agreement governing our RCF could adversely affect our business, financial condition, results of operations and stock price.
The operating and financial restrictions in our RCF and any future financing agreements could restrict our ability to finance future operations or capital needs, or otherwise pursue our business activities. For example, our RCF limits our and our subsidiaries’ ability to, among other things:
• | incur debt or issue guarantees; |
• | incur or permit certain liens to exist; |
• | make certain investments, acquisitions or other restricted payments; |
• | dispose of assets; |
• | engage in certain types of transactions with affiliates; |
• | merge, consolidate or transfer all or substantially all of our assets; and |
• | prepay certain indebtedness. |
Furthermore, our RCF contains financial covenants requiring us to maintain (i) a minimum cashflow cover ratio of 1.5 to 1.0 based on the ratio of cashflow 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.
In addition, any borrowings under our RCF may be at variable rates of interest that expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed will remain the same, and our net income and cash flows will correspondingly decrease.
A failure to comply with the covenants in the agreement governing our RCF could result in an event of default, which, if not cured or waived, would permit the exercise of remedies against us that could have a material adverse effect on our business, results of operations and financial position. Remedies under our RCF include foreclosure on the collateral securing the indebtedness and termination of the commitments under our RCF, and any outstanding borrowings under our RCF may be declared immediately due and payable. Compliance with these covenants is tested quarterly (annually for capital expenditure limits). Furthermore, the facility restricts the payment of dividends, or share buybacks. Please see “Management’s Discussion & Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—Revolving Credit Facility” for an expanded discussion regarding our RCF, including current amounts outstanding.
Risks Related to Legal and Regulatory Requirements
Our operations and our customers’customers’ operations are subject to a variety of governmental laws and regulations that may increase our costs, limit the demand for our services and products or restrict our operations.
Our business and our customers’ businesses may be significantly affected by:
• | federal, state and local restrictions on business activity and travel including stay at home orders and quarantines such as those enacted in response to COVID-19; | |
• | federal, state and local and non-U.S. laws and other regulations relating to oilfield operations, worker safety and protection of the environment and natural resources; | |
• | changes in these laws and regulations; and | |
• | the level of enforcement of these laws and regulations. |
In addition, we depend on the demand for our services and products from the oil and gas industry. This demand is affected by changing taxes, price controls and other laws and regulations relating to the oil and gas industry in general. For example, the adoption of laws and regulations curtailing exploration and development drilling for oil and gas for economic or other policy reasons could adversely affect our operations by limiting demand for our services and products. In addition, some non-U.S. countries may adopt regulations or practices that give advantage to indigenous oil companies in bidding for oil leases, or require indigenous companies to perform oilfield services currently supplied by the Company and other international service companies. To the extent that such companies are not our customers, or we are unable to develop relationships with them, our business may suffer. We cannot determine the extent to which our future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations.
Because of our non-U.S. operations and sales, we are also subject to changes in non-U.S. laws and regulations that may encourage or require hiring of local contractors or require non-U.S. contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. If we fail to comply with any applicable law or regulation, our business, financial condition and results of operations may be adversely affected.
Our operations are subject to environmental and operational safety laws and regulations that may expose us to significant costs and liabilities.
Our oil and gas exploration and production customers’ operations in the United States and other countries are subject to numerous stringent federal, state and complexlocal legal requirements governing environmental protection. These requirements may take the form of laws, regulations, executive actions and various other legal initiatives. See Part I, Item 1. “Business – Environmental and Occupational Health and Safety Regulation” for more discussion on these matters. Compliance with these regulations and other regulatory initiatives, or any other new environmental laws and regulations governingcould, among other things, require us or our customers to install new or modified emission controls on equipment or processes, incur longer permitting timelines, and incur significantly increased capital or operating expenditures, which costs may be significant. Additionally, one or more of these developments that impact our customers could reduce demand for our products and services, which could have a material adverse effect on our business, results of operations and financial condition.
Our operations may be adversely affected by various laws and regulations in countries in which we operate relating to the dischargeequipment and operation of materials intodrilling units, oil and gas exploration and development, as well as import and export activities.
Governments in some foreign countries have been increasingly active in regulating and controlling the environment, healthownership of concessions and safetycompanies holding concessions, the exploration for oil and gas and other aspects of our operations,the oil and gas industries in their countries, including local content requirements for participating in tenders. Many governments favor or otherwise relatingeffectively require that contracts be awarded to occupational healthlocal contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices may result in inefficiencies or put us at a disadvantage when we bid for contracts against local competitors.
In addition, the shipment of goods, services and safetytechnology across international borders subjects us to extensive trade laws and environmental protection.regulations. Our import and export activities are governed by unique customs laws and regulations in each of the countries where we operate. Moreover, many countries control the import and export of certain goods, services and technology and impose related import and export recordkeeping and reporting obligations. Governments also may impose economic sanctions against certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities. We are subject to U.S. anti-boycott laws. The U.S. and other countries also from time to time may impose special punitive tariff regimes targeting goods from certain countries.
The laws and regulations concerning import and export activity, recordkeeping and reporting, import and export control and economic sanctions are complex and constantly changing. These laws and regulations may among other things, regulate the managementbe enacted, amended, enforced or interpreted in a manner materially impacting our operations. An economic downturn may increase some foreign governments’ efforts to enact, enforce, amend or interpret laws and disposal of hazardous and non-hazardous wastes; require acquisition of environmental permits relatedregulations as a method to our operations; restrict the types, quantities, and concentrations of various materialsincrease revenue. Materials that we import can be released into the environment; limitdelayed and denied for varying reasons, some of which are outside our control and some of which may result from failure to comply with existing legal and regulatory regimes. Shipping delays or prohibitdenials could cause unscheduled operational activities in certain ecologically sensitive and other protected areas; regulate specific health and safety criteria addressing worker protection; require compliance with operational and equipment standards; impose testing, reporting and record-keeping requirements; and require remedial measures to mitigate pollution from former and ongoing operations. Failuredowntime. Any failure to comply with these lawsapplicable legal and regulations or to obtain or comply with permits mayregulatory obligations also could result in the assessmentcriminal and civil penalties and sanctions, such as fines, imprisonment, debarment from government contracts, seizure of administrative, civilshipments and criminal penalties,loss of import and export privileges.
The imposition of remedialrestrictions or corrective action requirementsprohibitions on drilling by any governing body may have a material adverse effect on our business.
Events over the past decade have heightened environmental and regulatory concerns about the imposition of injunctionsoil and gas industry. From time to time, governing bodies have enacted and may propose legislation or regulations that would materially limit or prohibit drilling in certain activitiesareas. If laws are enacted or forceother governmental action is taken that restricts or prohibits offshore drilling in our expected areas of operation, our expected future compliance. Certaingrowth in offshore services could be reduced and our business could be materially adversely affected. See Part I, Item 1. “Business—Environmental and Occupational Health and Safety Regulation” for more discussion on these regulatory and safety matters. The issuance of more stringent safety and environmental laws may impose jointguidelines, regulations or moratoria for drilling could disrupt, delay or cancel drilling operations, increase the cost of drilling operations or reduce the area of operations for drilling. The matters described above, individually or in the aggregate, could have a material adverse effect on our business, financial condition and several liability, without regard to faultresults of operations.
There are various risks associated with greenhouse gases and climate change legislation or legality of conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment.
The threat of climate change continues to attract considerable attention. Numerous proposals have been made and could continue to be made at the international, national, regional and state levels of government to monitor and limit existing emissions of GHGs as well as to restrict or eliminate such future emissions. As a result, our operations in countries outside of the United States are subject to a series of regulatory, political, litigation, and financial risks associated with the production and processing of fossil fuels and emission of GHGs. See Part I, Item 1. “Business—Environmental and Occupational Health and Safety Regulation” for more discussion on the threat of climate and restriction of GHG emissions. The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from the oil and natural gas sector or otherwise restrict the areas in which this sector may produce oil and natural gas or generate GHG emissions could result in increased costs of compliance or costs of consuming fossil fuels, and thereby reduce demand for, oil and natural gas, which could reduce demand for our services and products. Additionally, political, litigation and financial risks may result in our oil and natural gas customers restricting or canceling production activities, incurring liability for infrastructure damages as a result of climatic changes, or impairing their ability to continue to operate in an economic manner, which also could reduce demand for our services and products. One or more of these developments could have a material adverse effect on our business, financial condition and results of operations.
We are required to comply with a number of U.S. federalcomplex laws and regulations,pertaining to business conduct, including restrictions imposed by the U.S. Foreign Corrupt Practices Act as well as trade sanctions administeredand similar legislation enacted by Governments outside the Office of Foreign Assets Control and the Commerce Department.
We operate internationally and in some countries with high levels of perceived corruption commonly gauged according to the Transparency International Corruption Perceptions Index. We must comply with complex foreign and U.S. laws including the United States Foreign Corrupt Practices Act (“FCPA”), the UKU.K. Bribery Act 2010 and the United Nations Convention Against Corruption, which prohibit engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. We do business and may in the future do additional business in countries and regions in which we may face, directly or indirectly, corrupt demands by officials, tribal or insurgent organizations, or by private entities in which corrupt offers are expected or demanded. Furthermore, many of our operations require us to use third parties to conduct business or to interact with people who are deemed to be governmental officials under the anticorruption laws. Thus, we face the risk of unauthorized payments or offers of payments or other things of value by our employees, contractors or agents. It is our policy to implement compliance procedures to prohibit these practices. However, despite those safeguards and any future improvements to them, our employees, contractors, and agents may engage in conduct for which we might be held responsible, regardless of whether such conduct occurs within or outside the United States. We may also be held responsible for any violations by an acquired company that occur prior to an acquisition, or subsequent to the acquisition but before we are able to institute our compliance procedures. In addition, our non-U.S. competitors that are not subject to the FCPA or similar anticorruption laws may be able to secure business or other preferential treatment in such countries by means that such laws prohibit with respect to us. A violation of any of these laws, even if prohibited by our policies, may result in severe criminal and/or civil sanctions and other penalties, and could have a material adverse effect on our business. Actual or alleged violations could damage our reputation, be expensive to defend, and impair our ability to do business.
We are currently conducting an internal investigation of the operations of certain of our foreign subsidiaries in West Africa for possible violations of the FCPA, our policies and other applicable laws, and 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. We are unable to predict the ultimate resolution of these matters before the SEC and DOJ. Adverse action by these government agencies could have a material adverse effect on our business.
Compliance with U.S.laws and regulations on trade sanctions and embargoes including those administered by the United States Department of the Treasury’s Office of Foreign Assets Control also poses a risk to us. We cannot provide products or services to or in certain countries subject to U.S. or other international trade sanctions or to certain individuals and entities subject to sanctions. Furthermore, the laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. Any failure to comply with applicable legaltrade-related laws and regulatory trading obligationsregulations, even if prohibited by our policies, could result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from governmental contracts, seizure of shipments and loss of import and export privileges.
Data protection and regulations related to privacy, data protection and information security could increase our costs, and our failure to comply could result in fines, sanctions or other penalties, which could materially and adversely affect our results of operations, as well as have an impact on our reputation.
We are subject to regulations related to privacy, data protection and information security in the jurisdictions in which we do business. As privacy, data protection and information security laws could be costlyare interpreted and could affect operating results.
In recent years, there has been increasing regulatory enforcement and litigation activity in the areas of privacy, data protection and information security in the U.S. and in approximately 50various countries that can be impacted by expected and unexpected changes in the legal and business environments in which we operate. Political instability and regional issues in many of the areas in which we operate may contribute to such changes with greater significance In addition, legislators and/or frequency. Our ability to manage our compliance costs and compliance programs will impact our business, financial condition and results of operations. Compliance-related issues could also limit our ability to do business in certain countries. Changes that could impact the legal environment include new legislation, new regulations, new policies, investigations and legal proceedings and new interpretations of existing legal rules and regulations, in particular, changes in export control laws or exchange control laws, additional restrictions on doing business in countries subject to sanctions and changes in laws in countries where we operate or intend to operate.
Risks Related to Our Common Stock
Our declaration of dividends is within the discretion of our management board, with the approval of our supervisory board,Board and subject to certain limitations under Dutch law and our financing agreements, and there can be no assurance that we will pay dividends.
Our dividend policy is within the discretion of our management board, with the approval of our supervisory board,Board, and the amount of future dividends, if any, will depend upon various factors, including our results of operations, financial condition, capital requirements and investment opportunities. We can provide no assurance that we will pay dividends on our common stock. No dividends on our common stock will accrue in arrears. In addition, Dutch law contains certain restrictions on a company’s ability to pay cash dividends, and we can provide no assurance that those restrictions, or any dividend restrictions in our financing agreements, will not prevent us from paying a dividend in future periods.
As a Dutch company with limited liability, the rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. agencies.
We are a Dutch company with limited liability (
Naamloze Vennootschap). Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. The rights of shareholders and the responsibilities of members of ourFor example, resolutions of the general meeting of shareholders may be taken with majorities different from the majorities required for adoption of equivalent resolutions in, for example, Delaware corporations. Although shareholders will have the right to approve legal mergers or demergers, Dutch law does not grant appraisal rights to a company’s shareholders who wish to challenge the consideration to be paid upon a legal merger or demerger of a company.
In addition, if a third party is liable to a Dutch company, under Dutch law shareholders generally do not have the right to bring an action on behalf of the company or to bring an action on their own behalf to recover damages sustained as a result of a decrease in value, or loss of an increase in value, of their ordinary shares. Only in the event that the
Furthermore, certain provisions of Dutch corporate law have the effect of concentrating control over certain corporate decisions and transactions in the hands of our management board and supervisory board.Board. As a result, holders of our shares may have more difficulty in protecting their interests in the face of actions by members of our management board and supervisory boardBoard than if we were incorporated in the United States.
Our articles of association and Dutch corporate law contain provisions that may discourage a takeover attempt.
Provisions contained in our amended and restated articles of association and the laws of the Netherlands could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders. Provisions of our articles of association impose various procedural and other requirements, which could make it more difficult for shareholders to effect certain corporate actions. Among other things, these provisions:
• | authorize our Board, for a period of five years (which ends on May 19, 2022, unless extended) to issue common stock, including for defensive purposes, without shareholder approval; and |
• | do not provide for shareholder action by written consent, thereby requiring all shareholder actions to be taken at a general meeting of shareholders. |
These provisions, alone or together, could delay hostile takeovers and changes in control of our company or changes in our management.
It may be difficult for you to obtain or enforce judgments against us or some of our executive officers and directors in the United States or the Netherlands.
We were formed under the laws of the Netherlands and, as such, the rights of holders of our ordinary shares and the civil liability of our directors will be governed by the laws of the Netherlands and our amended and restated articles of association.
In the absence of an applicable convention between the United States and the Netherlands providing for the reciprocal recognition and enforcement of judgments (other than arbitration awards and divorce decrees) in civil and commercial matters, a judgment rendered by a court in the United States will not automatically be recognized by the courts of the Netherlands. In principle, the courts of the Netherlands will be free to decide, at their own discretion, if and to what extent a judgment rendered by a court in the United States should be recognized in the Netherlands.
Without prejudice to the above, in order to obtain enforcement of a judgment rendered by a United States court in the Netherlands, a claim against the relevant party on the basis of such judgment should be brought before the competent
In all of the above situations, we note the following rules as applied by Dutch courts:
• | where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement; |
• | the overriding mandatory provisions of the law of the courts remain applicable (irrespective of the law chosen); |
• | effect may be given to overriding mandatory provisions of the law of the country where the obligations arising out of the relevant transaction documents have to be or have been performed, insofar as those overriding mandatory provisions render the performance of the contract unlawful; and |
• | the application of the law of any jurisdiction may be refused if such application is manifestly incompatible with the public policy (openbare orde) of the courts. |
Under our amended and restated articles of association, we will indemnify and hold our officers and directors harmless against all claims and suits brought against them, subject to limited exceptions. Under our amended and restated articles of association, to the extent allowed by law, the rights and obligations among or between us, any of our current or former directors, officers and employees and any current or former shareholder will be governed exclusively by the laws of the Netherlands and subject to the jurisdiction of Dutch courts, unless those rights or obligations do not relate to or arise out of their capacities listed above. Although there is doubt as to whether U.S. courts would enforce such provision in an action brought in the United States under U.S. securities laws, this provision could make judgments obtained outside of the Netherlands more difficult to have recognized and enforced against our assets in the Netherlands or jurisdictions that would apply Dutch law. Insofar as a release is deemed to represent a condition, stipulation or provision binding any person acquiring our ordinary shares to waive compliance with any provision of the Securities Act or of the rules and regulations of the SEC, such release will be void.
Changes in tax laws, treaties or regulations or adverse outcomes resulting from examination of our tax returns could adversely affect our financial results.
Our future effective tax rates could be adversely affected by changes in tax laws, treaties and regulations, both in the United States and internationally. Tax laws, treaties and regulations are highly complex and subject to interpretation. Consequently, we are subject to changing tax laws, treaties and regulations in and between countries in which we operate or are resident. Our income tax expense is based upon the interpretation of the tax laws in effect in various countries at the time that the expense was incurred. A change in these tax laws, treaties or regulations, or in the interpretation thereof, could result in a materially higher tax expense or a higher effective tax rate on our worldwide earnings. If any country successfully challenges our income tax filings based on our structure, or if we otherwise lose a material tax dispute, our effective tax rate on worldwide earnings could increase substantially and our financial results could be materially adversely affected.
We are a Netherlands limited liability company classified as a corporation for U.S. federal income tax purposes, and our U.S. holders may be subject to certain anti-deferral rules under U.S. tax law. For instance, U.S. tax authorities could treat us as a “passive“passive foreign investment company” (“PFIC”), which could have adverse U.S. federal income tax consequences to U.S. holders.
A foreign corporation will be treated as a “passive foreign investment company,” or PFIC for U.S. federal income tax purposes if either either:
(1) at least 75% of its gross income for any taxable year (including the pro-rata share of the gross income of any company, U.S. or foreign, in which it is considered to own, directly or indirectly, 25% or more of the shares by value) consists of certain types of “passive income” or
(2) at least 50% of the average value of the corporation’s assets for any taxable year (averaged over the year and ordinarily determined based on fair market value and including the pro-rata share of the assets of any company in which it is considered to own, directly or indirectly, 25% or more of the shares by value) produce or are held for the production of those types of “passive income.”
For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale or exchange of investment property, and rents and royalties other than certain rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, but does not include income derived from the performance of services.
Once a foreign corporation is treated as a PFIC for any taxable year in which a U.S. holder owns stock in the corporation, it will generally continue to be treated as a PFIC for all subsequent taxable years with respect to such U.S. holder. U.S. shareholders of a PFIC are subject to a
Based on the current and anticipated value of our assets and the composition of our income, assets, and operations, we willdo not expect to be a PFIC for the current taxable year or for any future taxable year.in the foreseeable future. However, thisthe application of the PFIC rules involves a facts and circumstances analysis and it is possiblewe cannot assure you that the IRS would not agree with our conclusion or that the U.S. tax laws couldwill not change significantly.
The U.S. “anti-inversion”federal income tax treatment of non-U.S. entities is complicated, and the U.S. federal income tax consequences to each shareholder depends on such shareholder’s particular circumstances. For example, if a U.S. holder owns (or is deemed to own) more than 10% of our shares (by vote or value), such holder may be subject to additional anti-deferral rules not discussed herein, such as those under the “subpart F” and “global intangible low-taxed income” regimes. Accordingly, each of our shareholders is urged to consult its own tax advisors regarding the application of the PFIC rules and other aspects of U.S. tax law that may apply to such shareholder.
U.S. “anti-inversion” tax laws could negativelyadversely affect our results, and could result in a reduced amount of foreign tax credit for U.S. holders.
Under rules contained in U.S. “anti-inversion” tax law, we would be subject to tax aslaws, if, following the acquisition of a U.S. corporation in the event that we acquire(or substantially all of the assets of a U.S. corporation) by a foreign corporation, and the equity owners of that U.S. corporation own at least 80% (calculated(by vote or value, calculated without regard for any stock issued in aany public offering) of our stock by reason of holding stock in such U.S. corporation, then the acquiring foreign corporation could be treated as a U.S. corporation.
In addition, following the acquisition of a U.S. corporation (or substantially all of the assets of a U.S. corporation) by a foreign corporation, the U.S. “anti-inversion” rules can limit the ability of an acquired U.S. corporation and its U.S. affiliates to utilize U.S. tax attributes (including net operating losses and certain tax credits) to offset U.S. taxable income resulting from certain transactions if the shareholders of the acquired U.S. corporation hold at least 60% (by vote or value) but less than 80% of the shares of the foreign acquiring corporation by reason of holding shares in the U.S. corporation, and certain other conditions are met.
We do not believe these rules apply to our prior acquisitions of U.S. businesses; however, there can be no assurance that the IRS will not challenge this determination. These rules may apply with respect to any potential future acquisitions of U.S. businesses by us using our stock as consideration. As a result, these rules may impose adverse consequences or apply limitations on our ability to engage in future acquisitions.
None.
In order to design, manufacture and service the proprietary productsequipment that support our tubular and other well construction services,operations, as well as thosethe products that we offer for sale directly to external customers, we maintain several manufacturing and service facilities around the world. Though our manufacturing and service capabilities are primarily concentrated in the U.S., weWe currently provide our services and products in over 100 locations in approximately 5060 countries.
The following table details our material facilities by segment, owned or leased by us as of December 31, 2017.
Leased or | ||||
Location | Owned | Principal/Most Significant Use | ||
All Segments | ||||
Houston, Texas | Leased | Corporate office | ||
Reading, United Kingdom | Leased | Corporate office | ||
Aberdeen, Scotland | Owned/Leased | Regional operations, manufacturing, engineering and administration | ||
Lafayette, Louisiana | Owned | Regional operations, manufacturing, engineering and administration | ||
NLA | ||||
Georgetown, Guyana | Leased | Regional operations | ||
Macaé, Brazil | Owned | Regional operations | ||
Neuquen, Argentina | Leased | Regional operations | ||
New Iberia, Louisiana | Leased | Regional operations | ||
Villahermosa, Mexico | Leased | Regional operations | ||
ESSA | ||||
Den Helder, the Netherlands | ||||
Regional operations and administration | ||||
Stavanger, Norway | Leased | |||
Regional operations | ||||
MENA | ||||
Al Khobar, Saudi Arabia | Leased | Regional operations | ||
Dubai, United Arab Emirates | Owned/Leased | Regional operations | ||
Hassi Messaoud, Algeria | Leased | Regional operations | ||
APAC | ||||
Kuala Lumpur, Malaysia | Leased | Regional operations and administration | ||
Labuan, Malaysia | Leased | Regional operations | ||
Perth, Australia | Leased | Regional operations |
Our largest manufacturing facility isfacilities are located in Aberdeen, Scotland and Lafayette, Louisiana, where we design and manufacture a substantial portion of our tubular handling tools. The facility serves our U.S. Services segment in the U.S. Gulf of Mexico and our Tubular Sales segment. The Lafayette facility is our global headquarters for the design and manufacture of our equipment and is situated on a total of 175 acres. The main facility occupies 148 acres and consists of manufacturing, operations, pipe storage, training and administration. The remaining 27 acres located off of the main campus consists of manufacturing, warehousing and administration. There is a total of 16 buildings onsite and 17 buildings offsite. Our manufacturing operations occupy 16 of the 33 buildings, with the remaining buildings dedicated to administration, training and other operational tasks. The main administrative building within the facility is approximately 172,636 square feet.service equipment. We believe the facilities that we currently occupy are suitable for their intended use.
Information related to Item 3. Legal Proceedings is included 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 December 31, 2017. 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. See Note 18 - “Commitments and Contingencies in the Notes to Consolidated Financial Statements, which are incorporated herein by reference to Part II, Item 8 “Financial Statements and Supplementary Data” of this Form 10-K.
Not applicable.
PART II
Market Information
Our common stock is traded on the NYSE under the symbol "FI"“XPRO”. The following table sets forth, forOn September 30, 2021, Frank’s supervisory board of directors unanimously approved a 1-for-6 reverse stock split of the periods indicated,Company Common Stock, which was effected on October 1, 2021. All of the high and low saleoutstanding Company Common Stock share numbers, nominal value, share prices and per share amounts in this Form 10-K have been retroactively adjusted to reflect a 1-for-6 reverse stock split for all periods presented. Prior to the dividend payments forMerger, our common stock.
High | Low | Dividends Per Share | ||||||||||
Year Ended December 31, 2017 | ||||||||||||
First Quarter | $ | 13.00 | $ | 9.20 | $ | 0.075 | ||||||
Second Quarter | 10.66 | 7.02 | 0.075 | |||||||||
Third Quarter | 9.15 | 6.04 | 0.075 | |||||||||
Fourth Quarter | 7.80 | 5.79 | — | |||||||||
Year Ended December 31, 2016 | ||||||||||||
First Quarter | $ | 17.07 | $ | 12.34 | $ | 0.150 | ||||||
Second Quarter | 17.73 | 14.05 | 0.150 | |||||||||
Third Quarter | 15.44 | 10.91 | 0.075 | |||||||||
Fourth Quarter | 14.86 | 10.47 | 0.075 |
On February 19, 2018,28, 2022, we had 223,390,309109,377,501 shares of common stock outstanding. The common shares outstanding at February 19, 201828, 2022, were held by approximately 3021 record holders. The actual number of shareholders is greater than the number of holders of record.
Dividend Policy
The declaration and payment of future dividends will be at the discretion of theour Board of Supervisory Directors and will depend upon, among other things, future earnings, general financial condition, liquidity, capital requirements, restrictions contained in our financing agreements and general business conditions. Accordingly, there can be no assurance that we will pay dividends. On October 27, 2017, the Board of Managing Directors of the Company, with the approval of the Board of Supervisory Directors of the Company, approved a plan to suspend the Company's quarterly dividend in order to preserve capital for various purposes, including to invest in growth opportunities.
Unregistered Sales of Equity
SecuritiesWe did not have any sales of unregistered equity securities during the year ended December 31, 2021, that we have not previously reported on a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
Issuer Purchases of Equity Securities
Our Board has authorized a program to repurchase our IPOcommon stock from time to time. Approximately $38.5 million remained authorized for repurchase as of December 31, 2021; subject to the limitation set in August 2013, we issued 52,976,000 shares of Preferred Stock to Mosing Holdings. Under our Amended Articles of Association, upon the written election of Mosing Holdings, each Preferred Share, together with a unit in FICV, our subsidiary, was convertible into a shareshareholder authorization for repurchases of our common stock, on a one-for-one basis.
Performance Graph
The following performance graph compares the performance of our common stock to the Russell 2000 Index, the PHLX Oil Service Sector Index the Russell 1000 Index, Russell 2000 Index(“OSX”) and to a peer group established by management. The peer group consists of the following companies: Baker Hughes Inc.,Company, ChampionX Corporation, Core Laboratories N.V., Diamond Offshore Drilling, Inc., Dril-Quip, Inc., EnscoTechnipFMC plc, Forum Energy Technologies, Inc., Halliburton Company, Helmerich & Payne,Helix Energy Solutions Group Inc., Hornbeck OffshoreNational Energy Services Inc.Reunited Corp., Nabors Industries Ltd., National Oilwell Varco,NexTier Oilfield Solutions Inc., Oceaneering International, Inc., Patterson-UTI Energy,NOV Inc., Rowan Companies plc, and Schlumberger N.V., Tesco Corporation, Transocean Ltd. and Weatherford International Ltd.
The graph below compares the cumulative total return to holders of our common stock with the cumulative total returns of the PHLX Oil Service SectorRussell 2000 Index, the Russell 1000 Index, Russell 2000 IndexOSX and our peer group for the period from August 9, 2013, using the closing price for the first day of trading immediately following the effectiveness of our IPODecember 31, 2016 through December 31, 2017.2021. The graph assumes that the value of the investment in our common stock was $100 at August 9, 2013 or JulyDecember 31, 20132016 and for each index (including reinvestment of dividends) and tracks the return on the investment through December 31, 2017.2021. The shareholder return set forth herein is not necessarily indicative of future performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Expro Group Holdings N.V., the Russell 2000 Index, the PHLX Oil Service Sector Index,
and a Peer Group
*$100 invested on Fiscal year ending December 31. |
The performance graph above and related information shall not be deemed "soliciting material"“soliciting material” or to be "filed"“filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate by reference.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K 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, 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 conditions. |
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 selectedforward-looking statements in this Form 10-K speak only as of the date of this report; we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. Forward-looking statements are not assurances of future performance and involve risks and uncertainties. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties include, but are not limited to, the following:
• | continuing uncertainty relating to global crude oil demand and crude oil prices that correspondingly may lead to further significant reductions in domestic oil and gas activity, which in turn could result in further significant declines in demand for our products and services; |
• | uncertainty regarding the extent and duration of the remaining restrictions in the United States and globally on various commercial and economic activities due to 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 the OPEC and 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 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 operational decisions are made by management, further adjustments may be required which could have a material adverse impact on the Company’s consolidated financial information contained below is derived fromposition, results of operations and cash flows.
These and other important factors that could affect our Consolidated Financial Statementsoperating results and should be readperformance are described in conjunction with(i) Part I, Item 1A “Risk Factors” and in Part II, Item 7 "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” of this Form 10-K, and elsewhere within this Form 10-K, (ii) our audited Consolidated Financial Statements that are includedother reports and filings we make with the SEC from time to time and (iii) 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-K. Our historical10-K occur, or should underlying assumptions prove incorrect, our actual results, are not necessarily indicative of our results to be expectedperformance, achievements or plans could differ materially from those expressed or implied in any future period.
Year Ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(in thousands, except per share amounts) | |||||||||||||||||||
Financial Statement Data: | |||||||||||||||||||
Revenue | $ | 454,795 | $ | 487,531 | $ | 974,600 | $ | 1,152,632 | $ | 1,077,722 | |||||||||
Income (loss) from continuing operations | (159,457 | ) | (156,079 | ) | 106,110 | 229,312 | 308,195 | ||||||||||||
Total assets | 1,261,769 | 1,588,061 | 1,726,838 | 1,758,681 | 1,561,195 | ||||||||||||||
Debt | 4,721 | 276 | 7,321 | 304 | 376 | ||||||||||||||
Total equity | 1,115,901 | 1,311,319 | 1,451,426 | 1,472,536 | 1,333,327 | ||||||||||||||
Earnings Per Share Information: | |||||||||||||||||||
Basic income (loss) per common share: | |||||||||||||||||||
Continuing operations | $ | (0.72 | ) | $ | (0.77 | ) | $ | 0.51 | $ | 1.03 | $ | 1.69 | |||||||
Discontinued operations | — | — | — | — | 0.24 | ||||||||||||||
Total | $ | (0.72 | ) | $ | (0.77 | ) | $ | 0.51 | $ | 1.03 | $ | 1.93 | |||||||
Diluted income (loss) per common share: | |||||||||||||||||||
Continuing operations | $ | (0.72 | ) | $ | (0.77 | ) | $ | 0.50 | $ | 1.03 | $ | 1.62 | |||||||
Discontinued operations | — | — | — | — | 0.23 | ||||||||||||||
Total | $ | (0.72 | ) | $ | (0.77 | ) | $ | 0.50 | $ | 1.03 | $ | 1.85 | |||||||
Weighted average common shares outstanding: | |||||||||||||||||||
Basic | 222,940 | 176,584 | 154,662 | 153,814 | 132,257 | ||||||||||||||
Diluted | 222,940 | 176,584 | 209,152 | 207,828 | 185,506 | ||||||||||||||
Cash dividends per common share | $ | 0.225 | $ | 0.450 | $ | 0.600 | $ | 0.450 | $ | 0.075 | |||||||||
Other Data: | |||||||||||||||||||
Adjusted EBITDA (1) | $ | 5,715 | $ | 25,031 | $ | 319,086 | $ | 451,513 | $ | 438,739 |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes thereto included in Part II, Item 8, "Financial“Financial Statements and Supplementary Data"Data” included in this Form 10-K.
This section contains forward-looking statements that are based on management'smanagement’s current expectations, estimates and projections about our business and operations, and involve risks and uncertainties. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements because of various factors, including those described in the sections titled "Cautionary“Cautionary Note Regarding Forward-Looking Statements,"” Part I, Item 1A, "Risk Factors"“Risk Factors” and elsewhere in this Form 10-K.
Unless otherwise indicated, references to the terms “Frank’s”refers to Frank’s International N.V., the predecessor reporting entity prior to the Merger, references to “Legacy Expro” refer to Expro Group Holdings International Limited, the entity acquired by the Company, and references to “Expro,” the “Company,”“we,”“our,” and “us” refer to Expro Group Holdings N.V., following the consummation of the Merger and unless the context otherwise required, Frank’s prior to the consummation of the Merger.
Overview of Business
Working for clients across the entire well life cycle, we are a globalleading provider of highly engineered tubularenergy services, tubular fabricationoffering cost-effective, innovative solutions and specialtywhat 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 solutionsand integrity solutions.
With roots dating to the oil1938, we have approximately 7,200 employees and gas industryprovide services and have been in business for over 75 years. We provide our servicessolutions to leading exploration and production companies in both onshore and offshore and onshore environments with a focus on complex and technically demanding wells.
Our customers in thesebroad 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 capture 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 markets are primarily largeoil companies (“IOC”), independent exploration and production companies including integrated oil(“Independents”) and gas companies and national oil and gas companies
We organize and manage our operations on a presence ingeographical basis. Our reporting structure and the active onshore oilkey financial information used by our management team is organized around our four operating segments: (i) NLA, (ii) ESSA, (iii) MENA and gas drilling regions in the U.S., including the
How We Generate Our Revenue
Our revenue is derived primarily from personnel rates for our specially trained employees who perform tubular
For the year ended December 31, 2021, approximately 71% of our productsrevenue was generated by activities related to offshore oil and equipmentgas operations and approximately 41% of our revenue was generated by production optimization activities, which are generally funded by customers’ operating expenditures rather than capital expenditures.
Market Conditions and Price of Oil and Gas
As a full-cycle energy services company, our services span the full life of an oil and gas field from appraisal, development, completion and production through eventual abandonment. While 2021 presented challenges due to ongoing COVID-19 constraints, the market showed positive signs of recovery beginning in late 2021 and continuing into the first quarter of 2022. There are a number of market factors that have had, and may continue to have, an effect on our staging areasbusiness, including:
• | The market for oilfield services and our business are substantially dependent on the condition of the oil and gas industry and, in particular, the willingness of oil and gas companies to make expenditures on exploration, drilling and production activities. |
• | Oil demand in 2022 is forecast to exceed 2021 as the overall economic backdrop improves through the COVID-19 pandemic recovery with liquid demand expected to grow by 3.6 million barrels per day (“b/d”) in 2022, up from 96.9 million b/d in 2021 (which would surpass 2019 levels), rising by an additional 1.8 million b/d in 2023 to 102.3 million b/d. Due to production curtailments by OPEC+ members, investment restraint from U.S. oil producers, and other supply disruptions during the COVID-19 pandemic, oil demand has outpaced production for over a year. Following reaffirmation from OPEC+ members to increase production again, the Energy Information Administration (“EIA”) forecast that global oil production will outpace demand during both 2022 and 2023, resulting in rising global oil inventories and downward pressures on oil prices. However, the impact of new variants of COVID-19 on economic activity is unknown, and uncertainty remains in the global oil markets. |
• | Despite the multi-year underinvestment in new reserves, we expect that operators will continue to exercise fiscal discipline in the near-term and continue to exercise caution around potential new COVID-19 variants impact on activities. As a result, we and other oilfield services companies have limited visibility on customer spending plans for 2022 and the timing of an expected further increase in activity levels. |
• | In addition, increases in activity are not expected to be uniform across regions or type of activity, at least in the early stages of a market recovery, although international and deepwater activity is expected to continue to improve throughout 2022. We expect that the demand for services related to brownfield and production enhancement and in field development will also show increased demand. |
• | Although the clean energy transition has continued to gain momentum, it is expected that hydrocarbons will play a vital role in the transition towards more sustainable energy resources. The existing expertise and future innovation within the oilfield services sector, both to reduce the emissions and enhance efficiency within the current industry and the new industries, will be critical. We are already active in the early-stage carbon capture and storage sector and have established operations and technologies within the geothermal and flare reduction and gas recovery segments. We continue to develop technologies to reduce the greenhouse gas impact of our customers’ operations which, along with our digital transformation initiatives, are expected to enable us to continue to support our customers’ efficiency and environmental initiatives. As the industry changes, we plan to continue to evolve our approach to adapt and help our customers address the energy transition. |
• | Increased expectations of host countries in regard to local content is another multi-year trend, which gained additional momentum during recent years. Our commitment to developing local capabilities and in-country personnel has reduced our dependence on international staff, which has also allowed us to mitigate some of the operational challenges associated with travel restrictions related to the COVID-19 pandemic. These efforts have enabled us to continue to service our customers in their ongoing operations throughout the pandemic. |
A major factor that affects our business activity is the price of oil and, to a lesser extent, the regional price of natural gas, which are both driven by market supply and demand. Changes in oil and gas prices impact our customers' spending 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. In response to this uncertain industry outlook, we continue to evaluate additional cost saving opportunities in order to reduce service delivery costs, increase productivity and improve profitability; however, our commitment to safety, service quality and innovation remains steadfast.
Outlook
Demand continues to improve with stabilizing Brent oil prices, and activity in 2022 is forecast to be higher than in 2021, with oil demand forecast to return to or exceed pre-pandemic levels before year end.
As discussed above, the EIA estimates that global liquid fuels consumption will grow to 100.5 million b/d in 2022, up from 96.9 million b/d in 2021 (which would surpass 2019 levels), rising to 102.3 million b/d in 2023. Counterbalancing consumption growth, the EIA expect continuing production increases from OPEC (2.5 million b/d) and an acceleration in U.S. crude oil production in 2022 (rising from 11.2 million b/d in 2021 to 11.8 million b/d in 2022 and 12.4 million b/d in 2023, the highest annual average U.S. crude oil production on record) that along with other supply increases, is expected to outpace global oil consumption growth and contribute to declining oil prices in the mid-term. As a result, the EIA forecasts Brent crude oil spot prices to average $75 per barrel in 2022 and $68 per barrel in 2023 compared to an average $71 per barrel in 2021.
In addition to the customers’ job sites.
The outlook for 2022 indicates a continuing modest recovery in exploration and production expenditures, albeit at different rates in response toindividual countries depending on a range of factors, including increasing crude production offset by a slower rate of demand growth with slower jet fuel recovery and uncertainty regarding COVID-19 and the improvement in commodity prices in recent months. However, muchimpact of any new variants or a resurgence over the anticipated increase in spending
We expect to see share gains in certain markets, but competitive pricing is likely to persist that could result in low growth in both revenue and margins.
NLA: In North America, activity is projected to increase in 2022 by 23% in drilling and 10% in hydraulic fracturing activity. Operator focus remains on capital discipline, although with further drilled but uncompleted drawdowns becoming limited, new well drilling will need to continue increasing in order to maintain output. In Latin America, drilling activity is now forecast to increase 20% in 2022, driven mainly by increased activity in Guyana, Suriname and Argentina.
ESSA: In Europe, drilling activity is projected to rise in 2022 by 2%, with an average of 82 active rigs and approximately 725 new wells. Onshore and offshore activity are both projected to increase by 2% in 2022. In Sub-Saharan Africa, drilling activity is forecasted to increase by 17% overall, to an average of 109 active rigs in 2022, following the resumption of activity in the fourth quarter of 2021 and the progression of further development programs for a leaner cost structurenumber of large offshore projects.
MENA: In the Middle East and North Africa, drilling activity is expectedprojected to resultrise by 10% in higher revenues2022, to an average of 271 active rigs, as Iraq plans to increase their production capacity and improved profitabilitySaudi Arabia responds to increased demand for this businessits oil. The increased focus on infield development and production optimization and enhancement projects to maintain production rates continues, with future expansion of carbon capture and storage projects, for example in 2018.
APAC: In Asia Pacific, drilling activity is primarilyprojected to increase by 12%, to 179 active rigs, including an increase offshore following weaker activity in 2021, especially in India where future deepwater exploration is now forecast to increase driven by specialized needs of our customersthe government’s ambition to reduce dependence on oil imports. Activity is driven by both new projects and the timing of projects, specifically in the Gulf of Mexico. We expect to benefit from increased sales in select international markets that are predicted to supplement our modest activity growth outlook in the offshore Gulf of Mexico.
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,Revenue, Adjusted EBITDA, Adjusted EBITDA marginCash Flow from Operations and safety performance.
Revenue: We analyze our revenue growthperformance by comparing actual monthly revenue by operating segments and areas of capabilities to our internal projections for each monthmonth. 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
Year ended December 31, 2021 compared to year ended December 31, 2020
Certain highlights of our financial results and other key developments include:
• | On October 1, 2021, the Company completed the Merger with Legacy Expro. Refer to Note 3 “Business combinations and dispositions” of our consolidated financial statements for more details. | |
• | Revenue for the year ended December 31, 2021 increased by $150.8 million, or 22.3%, to $825.8 million, compared to $675.0 million for the year ended December 31, 2020. Of the total increase of $150.8 million for the year ended December 31, 2021, $112.1 million is related to the Merger, and the balance of the increase was driven by higher activity across NLA, ESSA and APAC, partially offset by a reduction in activity in the MENA segment. Revenue for our segments is discussed separately below under the heading “Operating Segment Results”. | |
• | We reported a net loss for the year ended December 31, 2021 of $131.9 million, compared to a net loss of $307.0 million for the year ended December 31, 2020. The overall decrease in net loss was primarily due to a combination of asset impairments totaling $287.5 million recognized during the year ended December 31, 2020, partially offset by the Merger which resulted in higher Merger and Integration expense of $46.0 million, higher stock-based compensation expense of $54.2 million and higher income tax expense of $19.7 million during the year ended December 31, 2021. |
• | Adjusted EBITDA for the year ended December 31, 2021 increased by $25.8 million, or 25.7%, to $125.9 million from $100.2 million for the year ended December 31, 2020. Of the total increase of $25.8 million for the year ended December 31, 2021, $17.3 million is due to the Merger and the remaining increase of $8.5 million is attributable to higher activity during the year ended December 31, 2021. Adjusted EBITDA margin improved from 14.8% to 15.3% during the year ended December 31, 2021 compared to the year ended December 31, 2020. |
• | Net cash provided by operating activities for the year ended December 31, 2021 was $16.1 million, compared to $70.4 million for the year ended December 31, 2020. |
• | Adjusted Cash Flow from Operations and Cash Conversion for the year ended December 31, 2021 was $65.3 million and 51.9%, respectively, compared to $88.6 million and 88.5%, respectively, for the year ended December 31, 2020. |
• | In connection with the Merger, we entered into a new revolving credit facility (“New Facility”) with an aggregate commitment of $200.0 million with up to $130.0 million available for drawdowns as loans and up to $70.0 million for bonds and guarantees. The New Facility has substantially the same conditions as Legacy Expro’s revolving credit facility and matures in October 2024. Please refer to the section titled “Liquidity and Capital Resources” for further discussion on our debt facilities. |
Selected Unaudited Financial Information for the Three Months Ended December 31, 2021
Unaudited segment revenue and Segment EBITDA for the three months ended December 31, 2021, which includes the results of Legacy Expro and Frank’s, was as follows:
Three Months Ended December 31, | ||||||||
(in thousands) | 2021 | |||||||
Revenue: | ||||||||
NLA | $ | 100,394 | 34 | % | ||||
ESSA | 94,322 | 32 | % | |||||
MENA | 49,464 | 17 | % | |||||
APAC | 51,489 | 17 | % | |||||
Total Revenue | $ | 295,669 | 100 | % | ||||
Segment EBITDA: | ||||||||
NLA | $ | 21,162 | 31 | % | ||||
ESSA | 19,859 | 28 | % | |||||
MENA | 16,076 | 23 | % | |||||
APAC | 12,206 | 18 | % | |||||
69,303 | 100 | % | ||||||
Unaudited revenue by main area of capability for the three months ended December 31, 2021, which includes the results of Legacy Expro and Frank’s, was as follows:
Three Months Ended December 31, | ||||||||
(in thousands) | 2021 | |||||||
Well construction | $ | 112,126 | 38 | % | ||||
Well management | 183,543 | 62 | % | |||||
Total Revenue | $ | 295,669 | 100 | % |
Year ended December 31, 2020 compared to year ended December 31, 2019
Certain highlights of our financial results, which only reflect results of Legacy Expro, and other key developments include:
• | Revenue for the year ended December 31, 2020 decreased by $135.0 million, or 16.7%, to $675.0 million from $810.1 million for the year ended December 31, 2019. The decrease was driven by lower activity across all of our product and service offerings in all of our reporting segments other than the APAC segment due to a combination of factors, including a substantial decline in global demand for oil caused by the COVID-19 pandemic and disagreements between the members of OPEC+ regarding limits on production of oil, resulting in surplus supply and a material reduction in crude prices. Other effects of the COVID-19 pandemic have included, and may continue to include, disruptions to our operations, including suspension or deferral of drilling activities; customer shutdowns of oil and gas exploration and production; downward revisions to customer budgets and reduced customer demand for our services; and workforce reductions in response to activity declines. Revenue for our segments is discussed separately below under the heading “Operating Segment Results.” |
• | We reported a net loss for the year ended December 31, 2020 of $307.0 million, compared to a net loss of $64.8 million for the year ended December 31, 2019. The increase in net loss was primarily driven by lower activity across all of our product and service offerings as discussed above and significant asset impairments recognized during the year ended December 31, 2020. |
• | Adjusted EBITDA for the year ended December 31, 2020 decreased by $17.1 million, or 14.6%, to $100.2 million from $117.3 million for the year ended December 31, 2019, reflecting a reduction in overall activity in the oilfield services industry during 2020. However, Adjusted EBITDA margin increased from 14.5% to 14.8% during the year ended December 31, 2020 compared to the year ended December 31, 2019. The improvement in Adjusted EBITDA margin is primarily due to various initiatives undertaken during 2020 in response to the COVID-19 pandemic to structurally adjust Expro’s cost base in order to improve longer-term profitability and performance. |
• | Net cash provided by operating activities for the year ended December 31, 2020 was $70.4 million, compared to $81.2 million for the year ended December 31, 2019. |
• | Adjusted Cash Flow from Operations and Cash Conversion for the year ended December 31, 2020 was $88.6 million and 88.5%, respectively, compared to $86.5 million and 73.7%, respectively, for the year ended December 31, 2019. |
• | Severance and other expense for the year ended December 31, 2020 increased by 213.5% to $13.9 million as compared to $4.4 million for the year ended December 31, 2019. The increase was primarily driven by activities undertaken to restructure and resize our business in response to reduced activity levels due to COVID-19 and other economic conditions in the oil and gas industry, primarily consisting of headcount reductions and the cost of exiting certain facilities. |
• | We recorded significant asset impairments during the year ended December 31, 2020. We tested our goodwill and other long-lived assets for impairment as of the quarter ended March 31, 2020 due to the macro-economic uncertainty that was experienced beginning in March 2020 from a combination of factors, including COVID-19, which resulted in asset impairments as of March 31, 2020 totaling approximately $191.9 million relating to our goodwill and $83.7 million relating to our property, plant and equipment, intangible assets and operating lease right-of-use assets. Additionally, at year end, we recorded an impairment charge of $11.9 million relating to our property, plant and equipment and operating lease right-of-use assets. |
Non-GAAPFinancial Measures
We include in this Form 10-K 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 performance. We also assess incremental changesfinancial and operating performance as compared to those of other companies in our monthly revenue acrossindustry, without regard to the effects of our operating segments to identify potential areas for improvement.
We define Adjusted EBITDA as net loss adjusted for (a) income (loss) before interest income, net,tax expense (benefit), (b) depreciation and amortization income tax benefit or expense, asset impairments,(c) impairment expense, (d) severance and other expense, net, (e) stock-based compensation expense, (f) merger and integration expense, (g) gain or loss on disposal of assets, (h) other income, net, (i) interest and finance expense, net and (j) foreign currency gain or loss, equity-based compensation, unrealized and realized gain or loss, the effects of the TRA, other non-cash adjustments and other charges or credits.exchange losses. Adjusted EBITDA margin reflects our Adjusted EBITDA as a percentage of our revenues.
We review 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, and Adjusted EBITDA margin, on both a consolidated basisAdjusted Cash Flow from Operations and on a segment basis. We use Adjusted EBITDA and Adjusted EBITDA margin to assess our financial performance because it allows us to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization), items outside the control of our management team (such as income tax and foreign currency exchange rates) and other charges outside the normal course of business. Adjusted EBITDA and Adjusted EBITDA marginCash Conversion have limitations as analytical tools and should not be considered in isolation or as an alternativea 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 net income (loss), operating income (loss), cash flow from operating activities or anysimilarly titled measures of other measure of financial performance presented in accordance with generally accepted accounting principles in the U.S. ("GAAP").
The following table presents a reconciliation of net loss to Adjusted EBITDA and Adjusted EBITDA margin to net income (loss) for each of the periods presented (in thousands):
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Net income (loss) | $ | (159,457 | ) | $ | (156,079 | ) | $ | 106,110 | |||
Interest income, net | (2,309 | ) | (2,073 | ) | (341 | ) | |||||
Depreciation and amortization | 122,102 | 114,215 | 108,962 | ||||||||
Income tax expense (benefit) | 72,918 | (25,643 | ) | 37,319 | |||||||
(Gain) loss on disposal of assets | (2,045 | ) | 1,117 | (1,038 | ) | ||||||
Foreign currency (gain) loss | (2,075 | ) | 10,819 | 6,358 | |||||||
Derecognition of TRA liability (1) | (122,515 | ) | — | — | |||||||
Charges and credits (2) | 99,096 | 82,675 | 61,716 | ||||||||
Adjusted EBITDA | $ | 5,715 | $ | 25,031 | $ | 319,086 | |||||
Adjusted EBITDA margin | 1.3 | % | 5.1 | % | 32.7 | % |
Year ended | ||||||||||||
December 31, | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
Net loss | $ | (131,891 | ) | $ | (307,045 | ) | $ | (64,761 | ) | |||
Income tax expense (benefit) | 16,267 | (3,400 | ) | (1,137 | ) | |||||||
Depreciation and amortization expense | 123,866 | 113,693 | 122,503 | |||||||||
Impairment expense (1) | — | 287,454 | 49,036 | |||||||||
Severance and other expense | 7,826 | 13,930 | 4,444 | |||||||||
Merger and integration expense | 47,593 | 1,630 | — | |||||||||
Gain on disposal of assets | (1,000 | ) | (10,085 | ) | — | |||||||
Other income, net (2) | (3,992 | ) | (3,908 | ) | (226 | ) | ||||||
Stock-based compensation expense (3) | 54,162 | — | — | |||||||||
Foreign exchange losses | 4,314 | 2,261 | 4,176 | |||||||||
Interest and finance expense, net | 8,795 | 5,656 | 3,300 | |||||||||
Adjusted EBITDA | $ | 125,940 | $ | 100,186 | $ | 117,335 | ||||||
Adjusted EBITDA Margin | 15.3 | % | 14.8 | % | 14.5 | % |
(1) | Impairment expense represents impairments recorded on goodwill and other long-lived assets, including property, plant and equipment, intangible assets and operating lease right-of-use assets. |
(2) | 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. |
(3) | |
Year Ended December 31, | ||||||||
2017 | 2016 | 2015 | ||||||
TRIR | 0.57 | 0.87 | 0.76 |
The following table presents our consolidated resultsprovides a reconciliation of net cash provided by operating activities to Adjusted Cash Flow from Operations for each of the periods presented (in thousands):
Year Ended | ||||||||||||
December 31, | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
Net cash provided by operating activities | $ | 16,144 | $ | 70,391 | $ | 81,209 | ||||||
Cash paid during the period for interest, net | 4,192 | 2,630 | 1,490 | |||||||||
Cash paid during the period for severance and other expense | 8,052 | 15,602 | 3,811 | |||||||||
Cash paid during the period for merger and integration expense | 36,921 | — | — | |||||||||
Adjusted Cash Flow from Operations | $ | 65,309 | $ | 88,623 | $ | 86,510 | ||||||
Adjusted EBITDA | $ | 125,940 | $ | 100,186 | $ | 117,335 | ||||||
Cash Conversion | 51.9 | % | 88.5 | % | 73.7 | % |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Revenues: | |||||||||||
Services | $ | 364,061 | $ | 397,369 | $ | 766,252 | |||||
Products | 90,734 | 90,162 | 208,348 | ||||||||
Total revenue | 454,795 | 487,531 | 974,600 | ||||||||
Operating expenses: | |||||||||||
Cost of revenues, exclusive of depreciation and amortization | |||||||||||
Services (1) | 223,222 | 246,652 | 384,842 | ||||||||
Products (1) | 87,200 | 70,616 | 129,748 | ||||||||
General and administrative expenses (1) | 163,704 | 171,887 | 174,479 | ||||||||
Depreciation and amortization | 122,102 | 114,215 | 108,962 | ||||||||
Severance and other charges | 75,354 | 46,406 | 35,484 | ||||||||
Changes in contingent consideration | — | — | (1,532 | ) | |||||||
(Gain) loss on disposal of assets | (2,045 | ) | 1,117 | (1,038 | ) | ||||||
Operating income (loss) | (214,742 | ) | (163,362 | ) | 143,655 | ||||||
Other income (expense): | |||||||||||
Derecognition of the TRA liability (2) | 122,515 | — | — | ||||||||
Other income | 1,763 | 4,170 | 5,791 | ||||||||
Interest income, net | 2,309 | 2,073 | 341 | ||||||||
Mergers and acquisition expense | (459 | ) | (13,784 | ) | — | ||||||
Foreign currency gain (loss) | 2,075 | (10,819 | ) | (6,358 | ) | ||||||
Total other income (expense) | 128,203 | (18,360 | ) | (226 | ) | ||||||
Income (loss) before income tax expense (benefit) | (86,539 | ) | (181,722 | ) | 143,429 | ||||||
Income tax expense (benefit) | 72,918 | (25,643 | ) | 37,319 | |||||||
Net income (loss) | (159,457 | ) | (156,079 | ) | 106,110 | ||||||
Less: Net income (loss) attributable to noncontrolling interest | — | (20,741 | ) | 27,000 | |||||||
Net income (loss) attributable to Frank's International N.V. | $ | (159,457 | ) | $ | (135,338 | ) | $ | 79,110 |
Results of Operations
Year Endedended December 31, 2017 Compared2021 compared to Year Endedyear ended December 31, 2016
Year Ended | ||||||||||||||||
December 31, | Change | |||||||||||||||
(in thousands) | 2021 | 2020 | $ | % | ||||||||||||
Total revenue | $ | 825,762 | $ | 675,026 | $ | 150,736 | 22.3 | % | ||||||||
Operating costs and expenses: | ||||||||||||||||
Cost of revenue, excluding depreciation and amortization | (701,165 | ) | (566,876 | ) | (134,289 | ) | ||||||||||
General and administrative expense, excluding depreciation and amortization | (73,880 | ) | (23,814 | ) | (50,066 | ) | ||||||||||
Depreciation and amortization expense | (123,866 | ) | (113,693 | ) | (10,173 | ) | ||||||||||
Impairment expense | — | (287,454 | ) | 287,454 | ||||||||||||
Gain on disposal of assets | 1,000 | 10,085 | (9,085 | ) | ||||||||||||
Merger and integration expense | (47,593 | ) | (1,630 | ) | (45,963 | ) | ||||||||||
Severance and other expense | (7,826 | ) | (13,930 | ) | 6,104 | |||||||||||
Total operating cost and expenses | (953,330 | ) | (997,312 | ) | 43,982 | |||||||||||
Operating loss | (127,568 | ) | (322,286 | ) | 194,718 | (60.4 | )% | |||||||||
Other income, net | 3,992 | 3,908 | 84 | |||||||||||||
Interest and finance expense, net | (8,795 | ) | (5,656 | ) | (3,139 | ) | ||||||||||
Loss before taxes and equity in income of joint ventures | (132,371 | ) | (324,034 | ) | 191,663 | (59.1 | )% | |||||||||
Equity in income of joint ventures | 16,747 | 13,589 | 3,158 | |||||||||||||
Loss before income taxes | (115,624 | ) | (310,445 | ) | 194,821 | (62.8 | )% | |||||||||
Income tax (expense) benefit | (16,267 | ) | 3,400 | (19,667 | ) | |||||||||||
Net loss | $ | (131,891 | ) | $ | (307,045 | ) | $ | 175,154 | (57.0 | )% |
Revenue
Revenue for the year ended December 31, 2017 decreased2021 increased by $32.7$150.8 million, or 6.7%22.3%, to $454.8$825.8 million, from $487.5compared to $675.0 million for the year ended December 31, 2016.
Revenue for our well flow management and well intervention and integrity offerings increased by $15.6 million (3.8%) and $39.6 million (29.4%), respectively, partially offset by a decrease in additional cost of revenues related to our Blackhawk acquisition, which was acquired in November 2016.
Cost of revenue, excluding depreciation and benefit related expenses, and one-time property tax credits earned in 2017, partially offset by higher IT expenses and increased G&A expense related to the Blackhawk acquisition.
Cost of
General and administrative, excluding depreciation and amortization
General and administrative expenses, excluding depreciation and amortization, is comprised of 2016.
Depreciation and income taxamortization expense (benefit) for 2017 would have been 57.4%
Depreciation and $(49.7) million, respectively. The change from 2016 to 2017, excluding one-time items, is primarily due to changes in the jurisdictional mix of earnings.
Gain on disposal of assets
Gain on disposal of assets of $1.0 million for the year ended December 31, 2015.2021 represents the earn-out consideration recognized as the conditions upon which the consideration was contingent were met during the year ended December 31, 2021 related to a sale of assets which occurred in 2020.
Impairment expense
No impairment expense was recorded for the year ended December 31, 2021 as compared to $287.5 million for the year ended December 31, 2020. Impairment expense for the year ended December 31, 2020 mainly relates to impairment of goodwill of $191.9 million, intangible assets of $60.4 million, property, plant and equipment of $20.0 million and operating lease right-of-use assets of $15.2 million. For further information, refer to Note 4 “Fair value measurements” in the accompanying consolidated financial statements.
Merger and integration expense
Merger and integration expense for the year ended December 31, 2021 increased by $46.0 million, to $47.6 million as compared to $1.6 million for the year ended December 31, 2020. The increase for the year ended December 31, 2021 primarily consists of professional fees, integration, and other costs related to the Merger.
Severance and other expense
Severance and other expense for the year ended December 31, 2021 decreased by $6.1 million, or 43.8%, to $7.8 million as compared to $13.9 million for the year ended December 31, 2020. The decrease was primarily driven by higher headcount reductions and facility rationalization undertaken in the previous year to restructure and resize our business to match reduced activity levels due to COVID-19 and economic conditions in the oil and gas industry for the year ended December 31, 2020.
Interest and finance expense, net
Interest and finance expense, net for the year ended December 31, 2021, was $8.8 million, an increase of $3.1 million, or 55.5%, compared to $5.7 million for the year ended December 31, 2020. The increase in interest and finance expense was primarily driven by fees incurred with respect to the New Facility established following the Merger.
Equity in income of joint ventures
Equity in income of joint ventures for the year ended December 31, 2021 increased by $3.2 million, or 23.2%, to $16.7 million as compared to $13.6 million for the year ended December 31, 2020. The increase reflects higher income from our joint ventures compared to the previous year.
Income tax (expense) benefit
Income tax expense for the year ended December 31, 2021 was $16.3 million, compared to an income tax benefit of $3.4 million for the year ended December 31, 2020. Following the closing of the Merger on October 1, 2021, as a result of our change in domicile from the U.K. to the Netherlands, our statutory tax rate changed to 25% for the year ended December 31, 2021. The statutory rate for the year ended December 31, 2020 was 19%. The effective tax rate was (12.3%) and 1.0% for the years ended December 31, 2021 and 2020, respectively. Our effective tax rate was impacted by the Merger in 2021, impairments of goodwill in 2020, and the geographic mix of profits and losses between deemed profit and taxable profit jurisdictions.
Our effective income tax rate fluctuates from the statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates along with jurisdictions utilizing a deemed profit taxation regime, the impact of valuation allowances, foreign inclusions and other permanent differences related to the recognition of income and expense.
Year ended December 31, 2020 compared to year ended December 31, 2019
Year Ended December 31, | Change | |||||||||||||||
2020 | 2019 | $ | % | |||||||||||||
(in thousands) | ||||||||||||||||
Total revenue | $ | 675,026 | $ | 810,064 | $ | (135,038 | ) | (16.7 | )% | |||||||
Operating costs and expenses: | ||||||||||||||||
Cost of revenue, excluding depreciation and amortization | (566,876 | ) | (677,184 | ) | 110,308 | |||||||||||
General and administrative expense, excluding depreciation and amortization | (23,814 | ) | (29,360 | ) | 5,546 | |||||||||||
Depreciation and amortization expense | (113,693 | ) | (122,503 | ) | 8,810 | |||||||||||
Impairment expense | (287,454 | ) | (49,036 | ) | (238,418 | ) | ||||||||||
Gain on disposal of assets | 10,085 | — | 10,085 | |||||||||||||
Merger and integration expense | (1,630 | ) | — | (1,630 | ) | |||||||||||
Severance and other expense | (13,930 | ) | (4,444 | ) | (9,486 | ) | ||||||||||
Total operating cost and expenses | (997,312 | ) | (882,527 | ) | (114,785 | ) | ||||||||||
Operating loss | (322,286 | ) | (72,463 | ) | (249,823 | ) | 344.8 | % | ||||||||
Other income, net | 3,908 | 226 | 3,682 | |||||||||||||
Interest and finance expense, net | (5,656 | ) | (3,300 | ) | (2,356 | ) | ||||||||||
Loss before taxes and equity in income of joint ventures | (324,034 | ) | (75,537 | ) | (248,497 | ) | 329.0 | % | ||||||||
Equity in income of joint ventures | 13,589 | 9,639 | 3,950 | |||||||||||||
Loss before income taxes | (310,445 | ) | (65,898 | ) | (244,547 | ) | 371.1 | % | ||||||||
Income tax benefit | 3,400 | 1,137 | 2,263 | |||||||||||||
Net loss | $ | (307,045 | ) | $ | (64,761 | ) | $ | (242,284 | ) | 374.1 | % |
Revenue
Revenue for the year ended December 31, 2020, which only includes revenue of Legacy Expro, decreased by $135.0 million, or 16.7%, to $675.0 million from $810.1 million for the year ended December 31, 2019. The decrease in total revenue for the year ended December 31, 2020 compared to the year ended December 31, 2019 was driven by lower activity volumes,across all of our product and service offerings in all of our reporting segments other than the APAC segment, due to a combination of factors, including a substantial decline in global demand for oil caused by the COVID-19 pandemic and disagreements between the members of OPEC+ regarding limits on production of oil, resulting in surplus supply and reduction in crude oil prices. For reference, Brent oil price averaged $42 per barrel in 2020 as compared to an average of $64 per barrel in 2019. As a result of reduced activity, revenue for the NLA segment decreased by $58.3 million (33.5%), the MENA segment by $43.0 million (18.2%) and the ESSA segment by $37.3 million (14.5%), partially offset by a modest increase in revenue in the APAC segment of $3.6 million (2.5%). Revenue for our segments is discussed in further detail separately below under the heading “Operating Segment Results.”
Revenue for our well flow management, well intervention and integrity and subsea well access offerings decreased by $75.8 million (15.7%), $35.1 million (20.7%) and $24.1 million (15.4%), respectively, for the year ended December 31, 2019 compared to December 31, 2020.
Cost of revenue, excluding depreciation and amortization
Cost of revenue, excluding depreciation and amortization, for the year ended December 31, 2020 was $566.9 million (84.0% of revenue), a decrease of $110.3 million, or 16.3%, compared to $677.1 million (83.6% of revenue) for the year ended December 31, 2019. The decrease in the cost actions taken throughout 2016. We also incurred additionalof revenue, which includes personnel costs of $8.9 million relatedfor operational and support staff, equipment rentals, facility costs, materials, sub-contractor costs, and research, engineering and development costs, was in line with the lower activity. In addition, we reduced our support staff by approximately 9.1% for the year ended December 31, 2020 compared to our Blackhawk acquisition in November 2016.
General and administrative, excluding depreciation and amortization
General and administrative expenses,
excluding depreciation and amortization, include the costs associated with sales and marketing, costs of running our corporate head office and other central functions that support the operating segments and include foreign currency gains (losses). General and administrative expenses for the year ended December 31,Depreciation and amortization
Depreciation and amortization expense for the year ended December 31, 2016 increased by $5.32020 was $113.7 million, a decrease of $8.8 million, or 4.8%,7.2% compared to $114.2 million from $109.0$122.5 million for the year ended December 31, 2015. The increase was2019, primarily attributable to our acquisitions of Timco Services, Inc. and Blackhawk, as well as a higherresult of a lower depreciable base resulting from property and equipment additions.
Impairment expense
Impairment expense for the year ended December 31, 2016 were $13.82020 was $287.5 million, as a resultan increase of our Blackhawk acquisition as mentioned in Note 3 - Acquisition and Divestitures in the Notes$238.4 million, or 486.2%, compared to Consolidated Financial Statements.
Merger and integration expense
During the year ended December 31, 2020, we incurred $1.6 million of merger and integration expense, which consists primarily dueof professional fees and other costs with respect to the devaluationMerger. No such expense was incurred during the year ended December 31, 2019.
Gain on disposal of assets
Gain on disposal of assets of $10.1 million represents profit recognized on the Nigerian Naira.
Severance and other expense (benefit)
Severance and other expense (benefit) for the year ended December 31, 2016 decreased2020 increased by $63.0$9.5 million, or 168.7%213.5%, to $(25.6)$13.9 million from $37.3$4.4 million for the year ended December 31, 20152019. The increase was primarily driven by headcount reductions and facility rationalization to restructure and resize our business to match reduced activity levels due to COVID-19 and economic conditions in the oil and gas industry.
Depending on how the market evolves, further actions may be necessary, which could result in additional expense in future periods.
Interest and finance expense, net
Interest and finance expense, net for the year ended December 31, 2020, was $5.7 million, an increase of $2.4 million, or 71.4%, compared to $3.3 million for the year ended December 31, 2019. The increase in interest and finance expense was due to lower interest income earned in 2020 primarily due to lower interest rates. We earned interest income of $1.0 million during the year ended December 31, 2020 as compared to $3.3 million during the previous year.
Equity in income of joint ventures
Equity in income of joint ventures for the year ended December 31, 2020 increased by $4.0 million, or 41.0%, to $13.6 million from $9.6 million for the year ended December 31, 2019. The increase reflects higher income from our joint ventures compared to the previous year.
Income tax benefit
Income tax benefit for the year ended December 31, 2020 was $3.4 million, an increase of $2.3 million, or 199.0%, compared to $1.1 million for the year ended December 31, 2019. The statutory tax rate was 19% for both the years ended December 31, 2020 and 2019. The effective tax rate was 1.0% and 1.5% for the years ended December 31, 2020 and 2019 respectively. Our effective tax rate was impacted due to the impairment on goodwill along with the geographic mix of profits and losses between deemed profit and taxable profit jurisdictions.
Our effective income tax rate fluctuates from the statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates along with jurisdictions utilizing a deemed profit taxation regime, the impact of valuation allowances, foreign inclusions and other permanent differences related to the recognition of income and expense.
Operating Segment Results
We evaluate our business segment operating performance using segment revenue and Segment EBITDA, as described in Note 5 “Business segment reporting” in our consolidated financial statements. We believe Segment EBITDA is a useful operating performance measure as it excludes non-cash charges and other transactions not related to our core operating activities and corporate costs and allows management to more meaningfully analyze the trends and performance of our core operations by segment as well as to make decisions regarding the allocation of resources to our segments.
The following table shows revenue by segment and revenue as percentage of total revenue by segment for the years ended December 31, 2021, 2020 and 2019:
Revenues | Percentage | |||||||||||||||||||||||
(in thousands) | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||
NLA | $ | 193,156 | $ | 115,738 | $ | 174,058 | 23.4 | % | 17.2 | % | 21.5 | % | ||||||||||||
ESSA | 300,557 | 219,534 | 256,790 | 36.4 | % | 32.5 | % | 31.7 | % | |||||||||||||||
MENA | 171,136 | 194,033 | 237,065 | 20.7 | % | 28.7 | % | 29.3 | % | |||||||||||||||
APAC | 160,913 | 145,721 | 142,151 | 19.5 | % | 21.6 | % | 17.5 | % | |||||||||||||||
Total revenue | $ | 825,762 | $ | 675,026 | $ | 810,064 | 100.0 | % | 100.0 | % | 100.0 | % |
The following table shows Segment EBITDA and Segment EBITDA margin by segment for the years ended December 31, 2021, 2020 and 2019:
Segment EBITDA (1) | Segment EBITDA Margin | |||||||||||||||||||||||
(in thousands) | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||
NLA | $ | 32,254 | $ | 54 | $ | 15,031 | 16.7 | % | 0.0 | % | 8.6 | % | ||||||||||||
ESSA | 53,336 | 35,393 | 45,358 | 17.7 | % | 16.1 | % | 17.7 | % | |||||||||||||||
MENA | 56,312 | 77,296 | 86,043 | 32.9 | % | 39.8 | % | 36.3 | % | |||||||||||||||
APAC | 33,444 | 34,976 | 28,762 | 20.8 | % | 24.0 | % | 20.2 | % |
(1) | Relative to Adjusted EBITDA ($125.9 million, $100.2 million and $117.3 million for the years ended December 31, 2021, 2020 and 2019, respectively), Segment EBITDA for the years ended December 31, 2021, 2020 and 2019 excludes corporate costs of $66.2 million, $61.1 million and $67.5 million, respectively, and equity in income of joint ventures of $16.7 million, $13.6 million and $9.6 million, respectively. |
Yearended December31, 2021 compared to the year endedDecember 31, 2020
NLA
Revenue for the NLA segment was $193.2 million for the year ended December 31, 2021, an increase of $77.4 million, or 66.9%, compared to $115.7 million for the year ended December 31, 2020. Of the total increase of $77.4 million for the year ended December 31, 2021, $67.0 million relates to the Merger, and the balance of the increase of $10.4 million was primarily driven by an increase in well flow management and well intervention and integrity services in Mexico, Argentina, Brazil, Colombia, and Trinidad and Tobago driven by higher customer activity. The increase in revenues was partially offset by non-recurring power chokes equipment sales as a result of disposition of our power chokes product line in 2020 and lower well flow management and subsea well access revenues in Canada due to completion of a decreasecontract in taxable income2020.
Segment EBITDA for the NLA segment was $32.2 million, or 16.7% of revenues, during the year ended December 31, 2021, compared to $0.1 million during year ended December 31, 2020. Out of the total increase of $32.1 million during the year ended December 31, 2021, $16.1 million relates to the Merger, and the balance of the increase of $16.0 million is attributable to higher activity on higher margin contracts and a change in jurisdictional mix. We are subject to many U.S. and foreign tax jurisdictions and many tax agreements and treaties among the various taxing authorities. Our operations in these jurisdictions are taxed on various bases such as income before taxes, deemed profits (which is generally determined using a percentagemore favorable activity mix during 2021.
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Revenue: | |||||||||||
International Services | $ | 206,746 | $ | 237,207 | $ | 442,107 | |||||
U.S. Services | 118,815 | 152,827 | 326,437 | ||||||||
Tubular Sales | 58,210 | 87,515 | 206,056 | ||||||||
Blackhawk | 71,024 | 9,982 | — | ||||||||
Total | $ | 454,795 | $ | 487,531 | $ | 974,600 | |||||
Segment Adjusted EBITDA: (1) | |||||||||||
International Services | $ | 30,801 | $ | 33,264 | $ | 182,475 | |||||
U.S. Services (2) | (39,357 | ) | (11,012 | ) | 95,612 | ||||||
Tubular Sales | 3,181 | 1,741 | 40,999 | ||||||||
Blackhawk | 11,090 | 1,038 | — | ||||||||
Total | $ | 5,715 | $ | 25,031 | $ | 319,086 |
ESSA
Revenue for the International ServicesESSA segment decreased by $30.5was $300.6 million for the year ended December 31, 2021, an increase of $81.0 million, or 12.8%36.9%, compared to 2016,$219.5 million for the year ended December 31, 2020. Out of the total increase of $81.0 million for the year ended December 31, 2021, $28.5 million is attributable to the Merger. The remaining increase of $52.5 million in revenues was primarily driven by an early production equipment sale in Nigeria and higher well flow management and subsea well access revenues in Norway, Mozambique, United Kingdom, Ghana, and Angola due to lower
Segment EBITDA for the ESSA segment was $53.3 million, or 17.7% of revenues, for the year ended December 31, 2021, an increase of $17.9 million, or 50.7%, compared to expand into countries with drilling activity where
MENA
Revenue for the MENA segment decreased by $22.9 million, or 11.8%, to $171.1 million for the year ended December 31, 2021, as compared to $194.0 million for the year ended December 31, 2020. The lower revenues in the region were driven by a reduction in well flow management revenues in Algeria, Egypt, Saudi Arabia and the United Arab Emirates reflecting lower customer activities partially offset by an increase in well construction revenues of $8.3 million due to the Merger.
Segment EBITDA for the International ServicesMENA segment decreased by $2.5was $56.3 million, or 7.4%32.9% of revenues, for the year ended December 31, 2021, a reduction of $20.9 million, or 27.1%, compared to 2016, primarily due to the decrease in revenue, which was partially offset by lower expenses due to reduced activity and cost-cutting measures.
APAC
Revenue for the APAC segment was $160.9 million for the year ended December 31, 2021, an increase of $15.2 million, or 10.4%, compared to $145.7 million for the year ended December 31, 2020. Of the total, $8.4 million relates to the Merger, and the balance of the increase of $6.8 million was primarily driven by increased well flow management and well intervention and integrity revenue of $17.4 million as a result of improvedin Australia, Brunei, Thailand and Indonesia from new contracts or higher activity on existing contracts. This increase was partially offset by lower subsea well access revenues in China and Malaysia due to increased oil prices, which has led to higher rig countsa combination of lower spare sales, completion of a contract and more favorable pricing.
Segment EBITDA for the U.S. ServicesAPAC segment decreased by $28.3was $33.4 million for the year ended December 31, 2021, a decrease of $1.5 million, or 257.4%4.4%, compared to 2016$35.0 million for the year ended December 31, 2020. The reduction was primarily due to a less favorable activity mix and lower activity on higher pricing concessions, increased assetmargin contracts, partially offset by an increase in Segment EBITDA of $1.1 million related expenses and higher labor costs to support increased land activity, as well as higher corporate and other costs, which were attributablethe Merger.
Year ended December 31, 2020 compared to ongoing global corporate initiatives.
NLA
Revenue for the Tubular SalesNLA segment decreased by $29.3was $115.7 million for the year ended December 31, 2020, a decrease of $58.3 million, or 33.5%, compared to 2016, primarily as a result of lower deepwater activity in the Gulf of Mexico.
Segment EBITDA for the NLA segment was $0.1 million during the year ended December 31, 20152020, compared to $15.0 million, or 8.6% of revenues, during the year ended December 31, 2019. The reduction in NLA Segment EBITDA was mainly driven by a combination of lower activity on higher margin contracts and a less favorable activity mix during 2020.
ESSA
Revenue for the International ServicesESSA segment decreased by $204.9$37.3 million, or 46.3%14.5%, compared to 2015,$219.5 million during the year ended December 31, 2020 from $256.8 million during the year ended December 31, 2019. The decrease in revenue was primarily due to depressed oila reduction in well flow management and gas prices, which challenged the economicssubsea well access revenues, driven by a combination of current developmentlower activity, suspension of activities by customers and non-recurring projects and caused the termination of ongoing drilling campaigns and the delay in the commencement ofU.K., Azerbaijan and several countries in the Sub-Sahara African region, including Nigeria, Ghana, Cote D’Ivoire, Mozambique and Equatorial Guinea, partially offset by an increase in revenues in Mauritania from a new projects, assubsea well as cancellations or deferred work scopes.
Segment EBITDA for the International ServicesESSA segment decreased by $149.2was $35.4 million, or 81.8%, compared to 2015, primarily due to the decrease in revenue and $11.3 million16.1% of bad debt expense related to the collectability of receivables in Venezuela and Nigeria, which were partially offset by lower expenses due to reduced activity and cost-cutting measures
MENA
Revenue for the MENA segment decreased by $43.0 million, or 18.2%, to $194.0 million during the year ended December 31, 2020 from $237.1 million during the year ended December 31, 2019. The lower revenues in the Notesregion were driven by a reduction in well flow management revenues in Algeria, Saudi Arabia and the United Arab Emirates reflecting lower customer activities. Additionally, revenues in Egypt decreased during the year ended December 31, 2020 compared to Consolidated Financial Statementsthe same period in 2019 due to non-recurring equipment sales.
Segment EBITDA for additional informationthe MENA segment was $77.3 million, or 39.8% of revenues, for the year ended December 31, 2020, a reduction of $8.7 million, or 10.2%, compared to $86.0 million, or 36.3% of revenues, for the year ended December 31, 2019. The reduction in Segment EBITDA for MENA was primarily due to a decrease in revenues during 2020; however, MENA Segment EBITDA margin improved during 2020 as compared to 2019 due to various cost savings measures undertaken in the region and a modestly more favorable activity mix.
APAC
Revenue for the APAC segment was $145.7 million for the year ended December 31, 2020, an increase of $3.6 million, or 2.5%, compared to $142.2 million for the year ended December 31, 2019. The increase in revenue in APAC was primarily driven by increased well flow management and subsea well access revenue in Malaysia from new contracts and higher activity on our Blackhawk acquisition.
Segment EBITDA for the APAC segment was $35.0 million for the year ended December 31, 2020, an increase of $6.2 million, or 21.6%, compared to $28.8 million for the year ended December 31, 2019. APAC Segment EBITDA margin was 24.0%, up from 20.2% for the year ended December 31, 2019. The improvement in APAC Segment EBITDA margin was due to increased activity combined with a more favorable activity mix and cost control measures.
Liquidity and Capital Resources
Liquidity
Our financial objectives include the maintenance of sufficient liquidity, adequate financial resources and financial flexibility to fund our business. At December 31, 2017, we had2021, total available liquidity was $369.9 million, including cash and cash equivalents and short-term investmentsrestricted cash of $294.0$239.9 million and debt of $4.7 million.$130.0 million available for borrowings under our New Facility. Our primary sources of liquidity to date have been cash flows from operations. Our primary uses of capital have been for organic growth capital expenditures and acquisitions. We continually monitor potential capital sources, including equity and debt financing, in order to meet our investment and target liquidity requirements.
Our total capital expenditures are estimated at $48.0to range between $90 million and $100 million for 2018. We expect2022. Our total capital expenditures (exclusive of the Merger) were $81.5 million for year ended December 31, 2021, out of which approximately $38.0 million90% were used for the purchase and manufacture of equipment to directly support customer-related activities and $10.0 millionapproximately 10% for other property, plant and equipment, inclusive of the purchase or construction of facilities.software costs. The actual amount of capital expenditures for the purchase and manufacture of equipment may fluctuate based on market conditions. During the years ended December 31, 2017, 2016 and 2015,Our total capital expenditures were $21.9$112.4 million $42.1 million and $99.7 million, respectively, all of which were funded from internally generated sources. We believe our cash on hand and cash flows from operations will be sufficient to fund our capital expenditure and liquidity requirements for the next twelve months.
Credit Facility
Revolving Credit Facility
On November 5, 2018, certain subsidiaries of managing directors subject to the approval of our Board of Supervisory Directors and will depend upon many factors, including our financial condition, earnings, capital requirements, covenants associated with certain of our debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets, and other factors deemed relevant by our board of managing directors and our Board of Supervisory Directors. We do not have a legal obligation to pay any dividend and there can be no assurance that we will be able to do so. On October 27, 2017, the Board of Managing Directors of the Company, with the approval from the Board of Supervisory Directors of the Company, approved a plan to suspend the Company's quarterly dividend in order to preserve capital for various purposes, including to invest in growth opportunities.
On December 20, 2018, subsidiaries of Legacy Expro entered into a revolving credit facility (the “2018 RCF”) with aggregate commitments of $150.0 million with up to $20.0$100.0 million in letters of creditavailable for drawdowns as loans and up to $10.0$50 million in swinglinefor bonds and guarantees. The 2018 RCF bore interest at U.S. dollar LIBOR plus 3.75% and was secured by a fixed and floating charge on certain assets of some of our wholly owned subsidiaries. On October 1, 2021, following the closing of the Merger, the ABL Credit Facility and 2018 RCF were cancelled.
Concurrently with the cancelation of the ABL Credit Facility and the 2018 RCF, we entered into the New Facility with DNB Bank ASA, London Branch, as agent, with total commitments of $200.0 million, of which $130.0 million is available for drawdowns as loans which matures in August 2018 (the “Credit Facility”).and $70.0 million is available for letters of credit. Subject to the terms of our Creditthe New Facility, we havethe Company has the ability to increase the commitments to $150.0$250.0 million. At December 31, 2017Proceeds of the New Facility may be used for general corporate and 2016, we did not have any outstanding indebtedness underworking capital purposes. Please see Note 16 “Interest bearing loans” in the Credit Facility. At December 31, 2017 and 2016, we had $2.8 million and $3.7 million, respectively, in letters of credit outstanding. As of December 31, 2017, our ability to borrow under the Credit Facility has been reduced to approximately $14.3 million less letters of credit outstanding under the Credit Facility as a result of our decreased Adjusted EBITDA. Our borrowing capacity under the Credit Facility could be reduced or eliminated depending on our future Adjusted EBITDA. If this were to occur, our overall liquidity would be diminished.
Cash flow from operating, investing and guarantees. The credit facility also allows for open ended guarantees. Outstanding amounts under the credit facility bear interest of 1.25% per annum for amounts outstanding up to one year. Amounts outstanding more than one year bear interest at 1.5% per annum. As of December 31, 2017 and 2016, we had $2.6 million and $2.2 million, respectively, in letters of credit outstanding.
Cash flows provided by (used in) our operations, investing and financing activities are summarized below (in thousands):
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Operating activities | $ | 24,774 | $ | (10,831 | ) | $ | 427,758 | ||||
Investing activities | (77,709 | ) | (178,915 | ) | (174,689 | ) | |||||
Financing activities | (52,471 | ) | (96,765 | ) | (141,209 | ) | |||||
(105,406 | ) | (286,511 | ) | 111,860 | |||||||
Effect of exchange rate changes on cash activities | (1,105 | ) | 3,678 | 1,145 | |||||||
Increase (decrease) in cash and cash equivalents | $ | (106,511 | ) | $ | (282,833 | ) | $ | 113,005 |
Year Ended December 31, | ||||||||||||
(in thousands) | 2021 | 2020 | 2019 | |||||||||
Net cash provided by operating activities | $ | 16,144 | $ | 70,391 | $ | 81,209 | ||||||
Net cash provided by (used in) investing activities | 112,046 | (96,773 | ) | (151,934 | ) | |||||||
Net cash provided by (used in) financing activities | (7,176 | ) | (625 | ) | 21,922 | |||||||
Effect of exchange rate changes on cash activities | (1,876 | ) | 631 | 566 | ||||||||
Net increase (decrease) to cash and cash equivalents and restricted cash | $ | 119,138 | $ | (26,376 | ) | $ | (48,237 | ) |
Analysis of cash flows for entities with international operations that useflow changes between the local currency as the functional currency exclude the effects of the changes in foreign currency exchange rates that occur during any given year, as these are noncash changes. As a result, changes reflected in certain accounts on the consolidated statements ofyears ended December 31, 2021 and 2020
Net cash flows may not reflect the changes in corresponding accounts on the consolidated balance sheets.
Net cash provided by operating activities was $24.8$16.1 million forduring the year ended December 31, 20172021 as compared to $(10.8)$70.4 million during the year ended December 31, 2020. The decrease of $54.3 million in 2016. The increase innet cash provided by operating activities in 2017 of $35.6 million as compared to 2016 was primarily a result of positive changes to working capital and other long-term assets and liabilities of $39.8 million, partially offset by an increase in net loss of $3.4 million. Most of the increase in working capital during 2017 was due to tax refunds of $29.7 million.
Adjusted Cash Flow from Operations during the year ended December 31, 2021 was $65.3 million compared to $88.6 million during the year ended December 31, 2020. Our primary uses of net cash provided by operating activities were capital expenditures and funding obligations related to our financing arrangements.
Net cash provided by (used in) investing activities
Net cash provided by investing activities was $112.0 million during the year ended December 31, 2021 as compared to net cash used in investing activities of $96.8 million during the year ended December 31, 2020. Our principal recurring investing activity is our capital expenditures. The increase in net cash provided by investing activities was primarily due to net cash of $189.7 million acquired as part of the Merger and a decrease in capital expenditures of $30.9 million, partially offset by a reduction in proceeds from disposal of assets of $11.8 million.
Net cash provided by (used in) financing activities
Net cash used in financing activities was $7.2 million during the year ended December 31, 2021 as compared to $0.6 million during the year ended December 31, 2020. The increase of $6.6 million in cash used by financing activities primarily related to payment of higher loan issuance and other transaction costs of $4.0 million with respect to the New Facility, payment of withholding taxes in connection with the vesting of shares underlying stock-based compensation plans of $0.8 million and lower proceeds from the release of collateral deposits of $2.1 million, partially offset by $0.6 million of lower payments on finance leases during 2021.
Analysis of cash flow changes between the years ended December 31, 2020 and 2019
Net cash provided by operating activities
Net cash provided by operating activities was $70.4 million during the year ended December 31, 2020 as compared to $81.2 million during the year ended December 31, 2019. The decrease of $10.8 million in net cash provided by operating activities for the year ended December 31, 2020 was primarily due to a decrease in Adjusted EBITDA of $17.1 million, an increase in net cash paid for income taxes of $7.8 million, and higher severance and other expense paid of $9.5 million, partially offset by improvements in working capital and favorable movements in other assets and liabilities of $21.7 million.
Adjusted Cash Flow from Operations during the year ended December 31, 2020 was $88.6 million compared to $86.5 million during the year ended December 31, 2019. Our primary uses of net cash provided by operating activities were capital expenditures and acquisitions and funding obligations related to our financing arrangements.
Net cash provided by (used in) investing activities
Net cash used in investing activities was $96.8 million during the year ended December 31, 2020 as compared to $151.9 million during the year ended December 31, 2019. Our principal recurring investing activity is our capital expenditures. The decrease in net cash used in investing activities was primarily due to a $47.9 million payment for an acquisition during the previous year and proceeds of $15.6 million from the disposal of assets in 2020. This decrease was partially offset by an increase of $8.3 million in capital expenditures during the year ended December 31, 2020, including $29.2 million of capital expenditures related to new technologies, including our coil hose, annular intervention and riserless light well intervention capabilities.
Net cash provided by (used in) financing activities
Net cash used in financing activities was $0.6 million during the year ended December 31, 2020 as compared to net cash provided by financing activities of $21.9 million during the year ended December 31, 2019. The decrease in cash provided by financing activities primarily related to lower proceeds from the release of collateral deposits of $26.0 million during the year ended December 31, 2020 as compared to the year ended December 31, 2015 was primarily due to a net loss as a result of lower activity due to depressed oil and gas prices, the impact of deferred taxes and working capital changes primarily related to accounts receivable and accrued expense and other liabilities.
Off-balancesheet arrangements
We have outstanding letters of a reductioncredit/guarantees that relate to performance bonds, custom/excise tax guaranties and facility lease/rental obligations. These were entered into in the dividends per share amountordinary course of business and lower noncontrolling interest payments of $35.5 million. These decreases were partially offset by higher repayments on borrowings of $6.4 million.
Payments Due by Period | |||||||||||||||||||
Less than | More than | ||||||||||||||||||
Total | 1 year | 1-3 years | 3-5 years | 5 years | |||||||||||||||
Long-term debt | $ | 4,721 | $ | 4,721 | $ | — | $ | — | $ | — | |||||||||
Noncancellable operating leases | 37,390 | 10,563 | 11,020 | 7,882 | 7,925 | ||||||||||||||
Purchase obligations (1) | 22,147 | 12,578 | 9,569 | — | — | ||||||||||||||
Total | $ | 64,258 | $ | 27,862 | $ | 20,589 | $ | 7,882 | $ | 7,925 |
Critical accounting policies and purchase obligations.
The preparation of consolidated financial statements and related disclosures in conformity with U.S. GAAP requires managementExpro to select appropriate accounting principles from those available, to apply those principles consistently and to make reasonable estimates and assumptions that affect the reported amounts of revenues and associated costs as well as reported amounts of assets and liabilities and related disclosuredisclosures of contingent assets and liabilities. Certain accounting policies involve judgments and uncertainties. We evaluate estimates and assumptions on a regular basis. We base our respective estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from thethese estimates andunder different assumptions used in preparation of our consolidated financial statements.or conditions. We consider the following policies to be the most critical to understanding the judgments that are involved and the uncertainties that could impact our results of operations, financial condition and cash flows.
Revenue Recognition
Service revenue is recognized when allover time as services are performed or rendered and the customer simultaneously consumes the benefit of the following criteriaservice while it is being rendered, and, therefore, reflects the amount of consideration to which we have been met: (1) evidence of an arrangement exists; (2) deliverya right to and acceptance by the customer has occurred; (3) the price to the customer is fixed or determinable; and (4) collectability is reasonably assured, as follows:
We considered whetheralso recognize revenue should be recognized on these sales under thefor “bill and hold” guidance provided bysales, once the SEC Staff; however, based uponfollowing criteria have been met: (1) there is a substantive reason for the assessment performed, revenue recognition on these transactions totaling $4.7 million and $18.1 million was deferred at December 31, 2017 and 2016, respectively untilarrangement, (2) the product is identified as the customer’s asset, (3) the product is ready for delivery and significant risks of ownership have passed to the customer, and (4) we cannot use the product or direct it to another customer.
Where contractual arrangements contain multiple performance obligations, judgment is involved to analyze each performance obligation within the sales arrangement to determine whether they are distinct. The liability methodrevenue for contracts involving multiple performance obligations is used for determining our income tax provisions, under which currentallocated to each distinct performance obligation based on relative selling prices and deferred tax liabilities and assets are recorded in accordance with enacted tax laws and rates. Under this method, the amounts of deferred tax liabilities and assets at the endis recognized on satisfaction of each periodof the distinct performance obligations.
We are determined usingrequired to determine the tax rate expectedtransaction price in respect of each of our contracts with customers. In making such judgment, we assess the impact of any variable consideration in the contract, due to bediscounts or penalties, the existence of any significant financing component and any non-cash consideration in effect when taxes are actually paid or recovered. Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some portion or all the deferred tax assets will not be realized.contract. In determining the needimpact of variable consideration, we use the “most-likely amount” method whereby the transaction price is determined by reference to the single most likely amount in a range of possible consideration amounts.
Business Combinations
We record business combinations using the acquisition method of accounting. All of the assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill.
The application of the acquisition method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed, in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation allowances, we have made judgmentsprocedures and techniques. Significant assumptions and estimates regardinginclude, but are not limited to, the cash flows that an asset is expected to generate in the future taxable income and ongoing prudent and feasible tax planning strategies. Thesethe appropriate weighted-average cost of capital.
If the actual results differ from the estimates and judgments include some degree of uncertainty, and changesused in these estimates, and assumptions could require us to adjust the valuation allowances for our deferred tax assets. Historically, changes to valuation allowances have been caused by major changesamounts recorded in the business cycle in certain
Goodwill and on our effective tax rate for any period in which such resolution occurs.
We record the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as goodwill. Goodwill is not subject to amortization and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. A qualitative assessment is allowed to determine if goodwill is potentially impaired. We have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. The qualitative assessment determines whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then a quantitative impairment test is performed. The quantitative goodwill impairment test is used to identify both the existence of impairment and the amount of impairment loss. The test compares the fair value of a reporting unit with its carrying amount, including goodwill. The amountIf the fair value of impairment for goodwillthe reporting unit is measured as the excess ofless than its carrying value, over its fair value.
No impairment expense was recorded for goodwill during the year ended December 31, 2021. During the fourth quarteryears ended December 31, 2020 and 2019, we recorded impairment expense of 2017, we elected$191.9 million and $26.4 million, respectively, relating to change the timingour goodwill. Refer to Note 4 “Fair value measurements” of our annual goodwillconsolidated financial statements for details regarding the facts and circumstances that led to this impairment testing from December 31and other details. We used the income approach to October 31 for our U.S Services, International Services, Tubular Sales and Manufacturing reporting units. This accounting change is considered to be preferable because it allows for additional time to completeestimate the annual goodwill impairment test, better aligns with our planning process, and synchronizes the testing date for allfair value of our reporting units, as October 31, which isbut also considered the Blackhawkmarket approach to validate the results. The income approach estimates the fair value by discounting the reporting unit's annual impairment testing date. This change did not resultunit’s estimated future cash flows using an appropriate risk-adjusted rate. The market approach includes the use of comparative multiples to corroborate the discounted cash flow results and involves significant judgment in adjustments to previously issued financial statements.
We review our identified intangible assets for Doubtful Accounts
No impairment expense was recorded for Nigeria, Angola and Venezuela, which is included in the financial statement line item severance and other chargesidentified intangible assets during the year ended December 31, 2017. 2021. During the year ended December 31, 2020 and 2019, we recorded impairment expense relating to our identified intangible assets of $60.4 million and $17.9 million, respectively. Refer to Note 4 “Fair value measurements” of our consolidated financial statements for further details.
Defined benefit plans
Our allowancepost-retirement benefit obligations are described in detail in Note 19 “Post-retirement benefits” of our consolidated financial statements. Defined pension benefits are calculated using significant inputs to the actuarial models that measure pension benefit obligations and related effects on operations. Two assumptions, discount rate and expected return on assets, are important elements of plan asset/liability measurement and are updated on an annual basis, or more frequently if events or changes in circumstances so indicate.
We evaluate these critical assumptions at least annually on a plan and country specific basis. We periodically evaluate other assumptions involving demographic factors such as retirement age, mortality and turnover, and update them to reflect our experience and expectations for doubtful accountsthe future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.
The discount rate that we use reflects the market rate of a portfolio of high-quality corporate bonds with maturities matching the expected timing of payment of the related benefit obligations. The discount rates used to determine the benefit obligations for our principal pension plans were 1.8% in 2021, 1.3% in 2020 and 2.0% in 2019, reflecting market interest rates. As of December 31, 2021, we estimate that a 1% appreciation or depreciation in the discount rate would result in an impact of approximately $39.4 million to our present value of defined benefit obligations as at December 31, 20172021. The weighted average expected rate of return on plan assets for the pension plans was 3.2% in 2021, 2.7% in 2020 and 2016 was $4.8 million3.4% in 2019. A change in the expected rate of return of 1% would impact our net periodic pension expense by $2.1 million.
Income Taxes
We use the asset and $14.3 million, respectively.liability method to account for income taxes whereby we calculate the deferred tax asset or liability account balances using tax laws and rates in effect at that time. Under this method, the balances of deferred tax liabilities and assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Valuation allowances are recorded to reduce gross deferred tax assets when it is more likely than not that all or some portion of the gross deferred tax assets will not be realized. In determining the need for valuation allowances, we have made judgments and considered estimates regarding estimated future taxable income and available tax planning strategies. These estimates and judgments include some degree of uncertainty, therefore changes in these estimates and assumptions could require us to adjust the valuation allowances for our deferred tax assets accordingly. The ultimate realization of the deferred tax assets depends on the generation of sufficient taxable income in the applicable taxing jurisdictions.
We operate in more than 60 countries. As a result, we are subject to numerous domestic and foreign taxing jurisdictions and tax agreements and treaties among various governments. Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding future events, including the amount, timing and character of income, deductions, and tax credits. Changes in tax laws, regulations or agreements in each taxing jurisdiction could have an impact on the amount of income taxes that we provide during any given year.
Our tax filings for various periods are subject to audit by the tax authorities in most jurisdictions in which we operate, and these assessments can result in additional taxes. Estimating the outcome of audits and assessments by the tax authorities involves uncertainty. We review the facts of each case and apply judgments and assumptions to determine the most likely outcome and provide for taxes, interest and penalties on this basis. In line with U.S. GAAP, we recognize the effects of a tax position in the consolidated financial statements when it is more likely than not that, based on the technical merits, some level of tax benefit related to a tax position will be sustained upon audit by tax authorities. Our experience has been that the estimates and assumptions used to provide for future tax assessments have proven to be appropriate. However, past experience is only a guide, and the potential exists that tax resulting from the resolution of current and potential future tax disputes may differ materially from the amount accrued. In such an event, we will record additional tax expense or tax benefit in the period in which such resolution occurs.
New accounting pronouncements
See Note 1 - 2 “Basis of Presentationpresentation and Significant Accounting Policiessignificant accounting policies” in the Notes to Consolidated Financial Statements set forth in Part II, Item 8, "Financial Statements and Supplementary Data,"our consolidated financial statements under the heading "Recent Accounting Pronouncements" included in this Form 10-K.“Recent accounting pronouncements.”
Financial risk factors
Our operations expose us to several financial risks, principally market risk (foreign currency risk and interest rate risk) and credit risk.
Foreign currency risk
Cash flow exposure
We expect many of the subsidiaries of our business to have future cash flows that will be denominated in currencies other than USD. Our primary cash flow exposures are exposedrevenues and expenses. Changes in the exchange rates between USD and other currencies in which our subsidiaries transact will cause fluctuations in the cash flows we expect to certain market risksreceive or pay when these cash flows are realized or settled. We generally attempt to minimize our currency exchange risk by seeking to naturally hedge our exposure by offsetting non-USD inflows with non-USD denominated local expenses. We generally do not enter into forward hedging agreements, and our largest exposures are to the British pound and Norwegian kroner, mainly driven by facility costs and employee compensation and benefits.
Transaction exposure
Many of our subsidiaries have assets and liabilities that are inherent in our financial instruments and arise from changes in foreign currency exchange rates and interest rates. A discussion of our market risk exposure in financial instruments is presented below.
As of December 31, 2021, we estimate that a portion of our revenues is denominated5% appreciation (depreciation) in USD would result in a 2.2% decreasechange in our overall revenues for the year ended December 31, 2017.
Interest rate risk
We enter into short-duration foreign currency forward contractscurrently have no outstanding variable interest rate bearing debt and accordingly, we are not exposed to mitigate ourvariability in interest expense and cash flows due to interest rate changes.
Credit risk
Our exposure to non-local currency operating working capital. We are also exposed to market risk on our forward contracts related to potential non-performance by our counterparty. It is our policy to enter into derivative contracts with counterparties that are creditworthy institutions.
Foreign Currency | Notional Amount | Contractual Exchange Rate | Fair Value at December 31, 2017 | ||||||||
Canadian dollar | $ | 6,226 | 1.2850 | $ | (165 | ) | |||||
Euro | 5,326 | 1.1836 | (101 | ) | |||||||
Norwegian krone | 6,212 | 8.3704 | (157 | ) | |||||||
Pound sterling | 6,039 | 1.3419 | (64 | ) | |||||||
$ | (487 | ) |
Foreign Currency | Notional Amount | Contractual Exchange Rate | Fair Value at December 31, 2016 | ||||||||
Canadian dollar | $ | 4,553 | 1.3179 | $ | 74 | ||||||
Euro | 4,753 | 1.0563 | (11 | ) | |||||||
Euro | 2,558 | 1.0659 | (24 | ) | |||||||
Norwegian krone | 3,643 | 8.5101 | 38 | ||||||||
Pound sterling | 3,908 | 1.2607 | 69 | ||||||||
$ | 146 |
We extend credit to customers and other parties in the normal course of business. International sales also presentbusiness and are thus subject to concentrations of customer credit risk. We have established various risksprocedures to manage our credit exposure, including governmental activities that may limit or disrupt marketscredit evaluations and restrict the movement of funds. We operate in approximately 50 countries and, as a result, our accounts receivables are spread over many countries and customers.
Page Reports of Independent Registered Public Accounting Firm – Deloitte & Touche LLP (PCAOB ID 34) Consolidated Statements of Comprehensive 58 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of In our opinion, the The consolidated financial statements of the Company for the year ended December 31, 2019, before the effects of the adjustments to retrospectively apply the change in accounting related to the reverse stock split discussed in Note 1 to the financial statements, were audited by other auditors whose report, dated March 17, 2020, except for Notes 2 and 5, as to which the date was March 26, 2021, expressed an unqualified opinion on those statements. We have also audited the adjustments to the 2019 consolidated financial statements to retrospectively apply the change in accounting for the reverse stock split in 2021, as discussed in Note 1 to the financial statements. Our procedures included (1) comparing the amounts shown in the per share disclosures for 2019 to the Company’s underlying accounting analysis, (2) comparing the previously reported shares outstanding and the related balance sheet and income statement amounts per the Company’s accounting analysis to the previously issued consolidated financial statements, and (3) recalculating the decrease of shares to give effect to the reverse stock split and testing the mathematical accuracy of the underlying analysis. In our opinion, such retrospective adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any other procedures to the 2019 consolidated financial statements of the Company We have also audited, in Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the fraud. Our audits Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Business combinations and dispositions – Frank’s International N.V. — Refer to Notes 1 and 3 to the financial statements Critical Audit Matter Description The Company completed the merger of Frank’s International N.V. (“Frank’s”) with Expro Group Holdings International Limited (“Legacy Expro”) for a total purchase price of $742.3 million on October 1, 2021 (the “Merger”). The purchase price was allocated to the assets acquired and liabilities assumed based on their respective estimated fair values. The largest asset classes acquired include Property, plant and equipment (“PP&E”) and Intangible assets, for which fair value was determined based on the cost approach for buildings and improvements, leasehold improvements, air and gas compressors, bucking/torque machines, casing/tubular running tools, cementing tools, downhole drilling tools, hydraulic hammers, oil & gas equipment, power generator assembly, power tongs, slip assembly, stabbing guides, thread protectors, training rigs, welding & soldering equipment, tooling, furniture & fixtures, office equipment, computer hardware/software, forklifts, and light duty vehicles (collectively, “Real & Personal Property”); the market approach for land; and the income approach for trademarks, trade name Frank’s International, patented technology (casing running, completions, drilling tech, and cementing), IPR&D (casing running, completions, drilling tech, tubulars, cementing, and service tools), customer relationships, and assembled workforce (collectively, “Intangible Assets”). We identified the valuation of Real & Personal Property and Intangible Assets arising out of the Merger as a critical audit matter because of the estimates made by management to determine the fair value of these assets for purposes of recording the Merger. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our valuation specialists when performing audit procedures to determine the fair value of acquired Real & Personal Property under the cost approach, including estimating cost to replace or reproduce comparable assets adjusted for the remaining useful lives, land under the market approach, and Intangible Assets under the income approach, including forecasting of expected future cash flows either through the use of the relief-from-royalty method or the multi-period excess earnings method, estimating the discount rates used to approximate their current value, and estimating the useful lives based on management’s historical experience and expectations as to the duration of time that benefits from these assets are expected to be realized. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the fair value of Real & Personal Property and Intangible Assets acquired as part of the Merger included the following, among others:
/s/ Deloitte & Touche LLP Houston, Texas March 8, 2022 We have served as the Company's auditor since 2020. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Expro Group Holdings N.V. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Expro Group Holdings N.V. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021 of the Company and our report dated March 8, 2022, expressed an unqualified opinion on those financial statements. As described in Management’s Report on Internal Control Over Financial Reporting, appearing under Part II, Item 9A, management excluded from its assessment the internal control over financial reporting at Expro Group Holdings International Limited (“Legacy Expro”); rather it focused exclusively on the internal control over financial reporting related to ongoing Frank's International N.V. (“Legacy Frank’s”) operations. Accordingly, our audit did not include the internal control over financial reporting at Legacy Expro; rather it focused on the internal control over financial reporting related to ongoing Legacy Frank’s operations. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, appearing under Part II, Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Houston, Texas March 8, 2022 To the stockholders and the Board of Directors of Expro Group Holdings N.V. Opinion on the Financial Statements We have audited, before the retrospective adjustments to the basic and diluted loss per share disclosure in Note 22 as a result of the reverse stock split disclosed in Note 1, the consolidated balance sheet of Expro Group Holdings International Limited (the “Company”) as of December 31, 2019, the related consolidated statement of operations, comprehensive loss, stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements, before the effects of the retrospective adjustments to the basic and diluted loss per share in Note 22 as a result of the reverse stock split disclosed in Note 1, referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. We were not engaged to audit, review or apply any procedures to the retrospective adjustments related to the basic and diluted loss per share in Note 22 as a result of the reverse stock split disclosure in Note 1 and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since Reading, United Kingdom March 17, 2020, except for Notes 2 and 5, as to which the date is March 26, 2021. Consolidated Statements of Operations (in thousands)
Consolidated Statements of Comprehensive Loss (in thousands)
64 Consolidated Balance Sheets (in thousands, except share data)
Consolidated Statements of Cash Flows (in thousands)
Consolidated Statements of Stockholders’ Equity (in thousands)
EXPRO GROUP HOLDINGS N.V.
Notes to the Consolidated Financial Statements description On March 10, 2021, Frank’s International N.V. 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 affected on October 1, 2021. All of the outstanding share numbers, nominal value, share prices and per share amounts in these consolidated financial statements have been retroactively adjusted to reflect the Exchange Ratio (as defined below) and the 1-for-6 reverse stock split for all periods presented, as applicable. Pursuant to the Merger Agreement, as of the effective time of the Merger (the “Effective Time”), each outstanding ordinary share of common stock, par value $0.01 per share, of Legacy Expro was converted into the right to receive 1.2120 shares of common stock, nominal value €0.06 per share, of the Company (“Company Common Stock”). The number of shares of Company Common Stock received by the Legacy Expro shareholders was equal to 7.2720 (the “Exchange Ratio” as provided in the Merger Agreement) multiplied by the 1-for-6 reverse stock split ratio. Further, pursuant to the Merger Agreement, at the Effective Time, the articles of association of the Company (the “Company Articles”) were amended to increase the total authorized capital stock of the Company from 798,096,000 shares of Company Common Stock to 1,200,000,000 shares of Company Common Stock (200,000,000 shares of Company Common Stock on a post-reverse split basis) and to effect certain other amendments to the Company Articles contemplated by the Merger Agreement. On October 4, 2021, the first trading day following the closing of the Merger, the Company Common Stock began trading on a post-reverse split basis on the New York Stock Exchange under the new name and new ticker symbol “XPRO.” With roots dating to 1938, the Company is a global provider of 2.Basis of presentation and significant accounting policies Basis of presentation The consolidated financial statements of The consolidated financial statements have been prepared using the U.S. dollar (“$” or “USD”) as the reporting currency. Basis of consolidation The consolidated financial statements reflect the accounts of the Company and 68 EXPRO GROUP HOLDINGS N.V. Use of Preparation of
Revenue recognition We Revenue from the sale of goods is generally recognized at the point in time when the control has passed onto the customer which generally coincides with delivery and installation, where applicable. We also recognize revenue for “bill and hold” sales, associated with certain product sales, once the following criteria have been met: (1) there is a substantive reason for the arrangement, (2) the product is identified as the customer’s asset, (3) the product is ready for delivery to the customer, and (4) we cannot use the product or direct it to another customer. Where contractual arrangements contain multiple performance obligations, we analyze each performance obligation within the sales arrangement to determine whether they are distinct. The revenue for contracts involving multiple performance obligations is allocated to each distinct performance obligation based on Revenue is recognized to depict the transfer of Foreign currency transactions The functional currency of all our subsidiaries is the 69 Interest and finance expense, net Our interest and finance expense primarily consists of interest and other costs that we incur in connection with our revolving credit facility and finance lease liabilities. Costs incurred that are directly related to the raising of debt financing, together with any original issue discount or premium, are capitalized and recognized over the term of the loan or facility, using the effective interest method other than for those debt instruments that we elect to account for under the fair value option, in which case such costs are expensed in the period incurred. All other finance costs are expensed in the period they are incurred. Income taxes We use the asset and liability method to account for income taxes whereby we calculate the deferred tax asset or liability account balances using tax laws and rates in effect at that time. Under this method, the balances of deferred tax liabilities and assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Valuation allowances are recorded to reduce gross deferred tax assets when it is more likely than not that some portion or all of the gross deferred tax assets will not be realized. In determining the need for valuation allowances, we have made judgments and considered estimates regarding estimated future taxable income and ongoing achievable tax planning strategies. These estimates and judgments include some degree of uncertainty therefore changes in these estimates and assumptions could require us to adjust the valuation allowances for our deferred tax assets accordingly. The ultimate realization of the deferred tax assets depends on the generation of sufficient taxable income in the applicable taxing jurisdictions. We operate in more than 60 countries and are subject to domestic and numerous foreign taxing jurisdictions. Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events such as the amount, timing and character of income, deductions, and tax credits. Changes in tax laws, regulations or agreements in each taxing jurisdiction could have an impact on the amount of income taxes that we provide during any given year. Our tax filings for various periods are subject to audit by the tax authorities in most jurisdictions in which we operate, and these assessments can result in additional taxes. Estimating the outcome of audits and assessments by the tax authorities involves uncertainty. We review the facts of each case and apply judgments and assumptions to determine the most likely outcome and we provide for taxes, interest and penalties on this basis. In line with U.S. GAAP, we recognize the effects of a tax position in the consolidated financial statements when it is more likely than not that, based on the technical merits, some level of tax benefit related to a tax position will be sustained upon audit by tax authorities. Cash, cash equivalents and restricted cash We consider all highly liquid instruments with original maturities of three months or less at the time of purchase to be cash equivalents. Restricted cash primarily relates to bank deposits which have been pledged as cash collateral for certain guarantees issued by various banks or minimum cash balances which must be maintained in accordance with contractual arrangements. Accounts receivable, net Accounts receivable represents customer transactions that have been invoiced as of the balance sheet date and unbilled receivables relating to customer transactions that have not yet been invoiced as of the balance sheet date. The carrying value of our receivables, net of expected credit losses, represents the estimated net realizable value. We have an extensive global customer base comprised of a large number of international oil companies, national oil companies, independent exploration and production companies and service partners that operate in all major oil and gas locations around the world. We estimate reserves for expected credit losses using information about past events, current conditions and risk characteristics of customers, and reasonable and supportable forecasts relevant to assessing risk associated with the collectability of accounts and unbilled receivables. Past-due receivables are written off when our internal collection efforts have been unsuccessful. 70 Inventories Inventories are stated at the lower of cost or net realizable value. Cost comprises direct materials and where applicable, direct labor costs and overheads that have been incurred in bringing the inventories to their current location and condition which are calculated using the average cost method. We regularly evaluate the quantities and values of our inventories in light of current market conditions, market trends and other factors, and record inventory write-downs as appropriate. This evaluation considers historical usage, expected demand, product obsolescence and other factors. Market conditions are subject to change, and actual consumption of our inventory could differ from expected demand. Impairment of long-lived assets We assess long-lived assets, including our property, plant and equipment, for impairment whenever events or changes in business circumstances arise that may indicate that the carrying amount of our long-lived assets may not be recoverable. These events and changes can include significant current period operating losses or negative cash flows associated with the use of a long-lived asset, or group of assets, combined with a history of such factors, significant changes in the manner of use of the assets, and current expectations that it is more likely than not that a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. For purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. When impairment indicators are present, we compare undiscounted future cash flows, including the eventual disposition of the asset group at market value, to the asset group’s carrying value to determine if the asset group is recoverable. If the carrying values are in excess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset or asset group to its carrying value. Fair value is generally determined by considering (i) internally developed discounted projected cash flow analysis of the asset or asset group, (ii) third-party valuations, and/or (iii) information available regarding the current market for similar assets. If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, an impairment equal to the difference is recorded in the period that the impairment indicator occurs. Estimating future cash flows requires significant judgment, and projections may vary from the cash flows eventually realized, which could impact our ability to accurately assess whether an asset has been impaired. We consider a long-lived asset to be abandoned after we have ceased use of such asset and we have no intent to use or re-purpose the asset in the future. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. Cost includes the price paid to acquire or construct the asset, required installation costs, interest capitalized during the construction period and any expenditure that substantially adds to the value of the asset, substantially upgrades the assets for an enhanced use or substantially extends the useful life of an existing asset. We expense costs related to the routine repair and maintenance of property, plant and equipment at the time we incur them. We capitalize interest as part of the cost of acquiring or constructing certain assets, to the extent incurred, during the period of time required to place the property, plant and equipment into service. When properties or equipment are sold, retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the books and the resulting gain or loss is recognized on the consolidated statements of operations. We begin depreciation for such assets, including any related capitalized interest, once an asset is placed into operational service. We consider an asset to be placed into operational service when the asset is both in the location and condition for its intended use. We compute depreciation expense, with the exception of land, using the straight-line method on a net cost basis over the estimated useful lives of the assets, as presented in the table below.
Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively. 71 For property, plant and equipment that has been placed into service, but is subsequently idled, we continue to record depreciation expense during the idle period. We adjust the estimated useful lives of the idled assets if the estimated useful lives have changed. Goodwill Goodwill is not subject to amortization and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. A qualitative assessment is allowed to determine if goodwill is potentially impaired. We have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. The qualitative assessment determines whether it is more likely than not that a reporting unit’s fair value is less than than the carrying amount, then a quantitative impairment test is performed. The quantitative goodwill impairment test is used to identify both the existence of impairment and the amount of impairment loss. The test compares the fair value of a reporting unit with its carrying amount, including goodwill. Intangible assets, net Identifiable intangible assets are amortized using the straight-line method over the estimated useful lives of the Investments in joint ventures We use the equity method of
The Company evaluates its investments in The results of the joint ventures are prepared for the same reporting period as the Company. Where necessary, adjustments are made to bring the accounting policies used in line with those of the Company, to take into account fair values assigned at the date of acquisition; and to reflect impairment losses where appropriate. Adjustments are also made in our consolidated financial statements to eliminate our share of unrealized gains and losses on transactions between us and our joint ventures. Fair value measurements We measure certain financial assets and liabilities at fair value at each balance sheet date and, for the purposes of impairment testing, use fair value to determine the recoverable amount of our non-financial assets. Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by us. Accounting standards include disclosure requirements around fair values used for certain financial instruments and establish a fair value hierarchy. The hierarchy prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value is reported in one of three levels: 72 Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted market prices from active markets for identical assets or liabilities being measured; Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques; and Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect our own assumptions about the assumptions that market participants would use to price an asset or liability. When available, we use quoted market prices to determine the fair value of an asset or liability. We determine the policies and procedures for both recurring fair value measurements and non-recurring fair value measurements, such as impairment tests. At each reporting date, we analyze the movements in the values of assets and liabilities which are required to be remeasured or reassessed as per our accounting policies. For the purpose of fair value disclosures, we have determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. Leases We have operating and finance leases primarily related to real estate, transportation and equipment. We determine if an arrangement is a lease at inception. Upon commencement of a lease, we recognize an operating lease right-of-use asset (“ROU Asset”) and corresponding operating lease liability based on the then present value of all lease payments over the lease term. ROU Assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligations to make lease payments arising from the lease. The accounting for some of our leases may require significant judgments, which includes determining the incremental borrowing rates to utilize in our net present value calculation of lease payments for lease agreements which do not provide an implicit rate, and assessing the likelihood of renewal or termination options, which are considered as part of assessing the lease term if the extension or termination is deemed to be reasonably certain. Leases which meet the criteria of a finance lease in accordance with Accounting Standards Codification (“ASC”) 842Leases are capitalized and included in “Property, plant and equipment, We do not separate lease and 73 Post-retirement benefits Defined Benefit Plans The cost of providing benefits under defined benefit plans are determined separately for each plan using the projected unit credit method, which attributes entitlement to benefits to the current and prior periods. Both current and past service costs are recognized in net income (loss) as they arise. The interest element of the defined benefit cost represents the change in present value of plan obligations resulting from the passage of time and is determined by applying a discount rate to the opening present value of the benefit obligation, taking into account material changes in the obligation during the year. The expected return on plan assets is based on an assessment made at the beginning of the year of long-term market returns on plan assets, adjusted for the We initially recognize actuarial gains and losses as other comprehensive income in the year they arise. Where the net cumulative actuarial gains or losses for a plan exceeds 10 percent of that plan’s gross pension liability, or asset if higher, the amount of gains or losses above the 10 percent threshold are recognized The defined benefit pension asset or liability on the consolidated balance sheets comprise the total for each plan of the present value of the defined benefit obligation using a discount rate based on high quality corporate bonds less the fair value of plan assets out of which the obligations are to be settled directly. Fair value is based on market price information and Defined Contribution Plans The costs of providing benefits under a defined contribution plan are expensed at the time contributions become payable to the Stock-based compensation Effective as Stock-based compensation expense is measured at the grant date of the share-based awards based on their fair value. Stock-based compensation expense is recognized on a straight-line basis over the vesting period and is included in cost of revenue and general and administrative The grant date fair value of the RSUs, which are not entitled to receive dividends until vested, is measured by reducing the share price at that date by the present value of the dividends expected to be paid during the requisite vesting period, discounted at the appropriate risk-free interest rate. The grant date fair value and compensation expense of PRSU grants is estimated based on a Monte Carlo simulation using the 74 In October 2018, Legacy Expro established the Expro Group Holdings International Limited 2018 Management Incentive Plan (the “Management Incentive Plan”) which was comprised of the following stock-based compensation awards: (a) stock options to non-executive directors and key management personnel and (b) restricted stock units, each of which were assumed by the Company in connection with the Merger. Due to the Merger, the Company recorded stock-based compensation expense based on the fair value on the Closing Date to the extent each award was fully vested. Compensation expense associated with those awards that have a requisite service period remaining as of the Closing Date will be recognized on a straight-line basis over the remaining requisite service period based on the Closing Date fair value. Research and development Research and development costs are expensed as incurred and relate to spending for new product development and innovation and includes internal engineering, materials and third-party costs. We incurred $6.7 million, $10.4 million and $14.4 million of research and development costs for the years ended December 31, 2021, 2020 and 2019, respectively, which are included in “Cost of revenue, excluding depreciation and amortization” in the consolidated statements of operations. Income (loss) per share Basic income (loss) per share excludes dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution that could occur if securities to issue common stock were exercised or converted to common stock. Recent accounting pronouncements Accounting guidance adopted Changes to GAAP are established by the Financial Accounting Standards Board We consider the applicability and impact of all In
We adopted the guidance on January 1, 75 EXPRO GROUP HOLDINGS N.V. Notes to the 3.Business combinations and dispositions Frank’s International N.V. As discussed in Note 1, 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
The merger consideration was
76 EXPRO GROUP HOLDINGS N.V. Notes to the The following table
Due to the recency and complexity of the Merger, these amounts are preliminary and subject to change as our fair value assessments are finalized. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation table above. The fair values of
The intangible assets Goodwill will not be amortized but rather subject to an annual impairment test, absent any indicators of impairment. Goodwill is 77 Results of Frank’s for the period October 1, 2021 through December 31, 2021 The Company’s operating results for the period October 1, 2021 through December 31, 2021 include $112.1 million of revenue and Unaudited Pro Forma Financial Information The following unaudited pro forma consolidated results of operations for the year ended December 31, 2021 and 2020 assume the Merger was completed as of January 1, 2020 (in
Estimated unaudited pro forma information is not necessarily indicative of Merger and integration expense During the
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 consolidated balance sheets (in thousands):
Sale of assets On November 13, 2020, Legacy Expro entered into an agreement to transfer, sell and assign all rights, title and interest in and to certain identified tangible and intangible assets and liabilities relating to its pressure-control chokes product line for total cash consideration of $15.5 million and an additional earn-out consideration of up to a
78
EXPRO GROUP HOLDINGS N.V. 4.Fair value Recurring Basis A summary of financial assets and liabilities that are measured at fair value on a recurring basis, as of December 31,
Our investments associated with our deferred compensation plan at December 31, 2021 consist primarily of the cash surrender value of life insurance policies and is included in other assets on the consolidated balance sheets. The liability associated with our deferred compensation plan at December 31, 2021 is included in other liabilities on the 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 79 EXPRO GROUP HOLDINGS N.V. Notes to the Consolidated Financial Statements Non-recurring Basis We apply the provisions of the fair value measurement standard to our non-recurring, non-financial measurements including business combinations and assets identified as held for sale, as well as impairment related to goodwill and other long-lived assets. For business combinations, Goodwill is not subject to amortization and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. A qualitative assessment is allowed to determine if goodwill is potentially impaired. We recorded based on that difference. When conducting an impairment test on long-lived assets, other than goodwill, we first compare estimated future undiscounted cash flows associated with the asset to the asset’s carrying amount. If the undiscounted cash flows are less than the asset’s carrying amount, we then determine the For assets that meet the criteria to be classified as held for sale, a market approach is used to determine fair value based on third-party appraisal reports. The impairment assessments discussed above incorporate inherent uncertainties, including projected commodity pricing, supply and demand for our services and future market conditions, which are difficult to predict in volatile economic environments and could result in impairment NaN impairment expense was recognized during the year ended December 31, 2021. The following table presents total amount of impairment expense recognized during the years ended December 31, 2020 and 2019 (in thousands):
80 EXPRO GROUP HOLDINGS N.V. Notes to the Consolidated Financial Statements Goodwill As of October 31, 2021, our annual testing date, we performed a qualitative assessment of our goodwill and determined there were no events or circumstances that indicated it is more likely than not that a reporting unit’s fair value is less than its carrying amount. Accordingly, 0 impairment expense related to goodwill has been recorded during the year ended December 31, 2021. In March 2020, the Company observed a material increase in macro-economic uncertainty and a material decrease in oil and gas prices as a result of a combination of factors, including the substantial decline in global demand for oil caused by the COVID-19 pandemic and disagreements between the Organization of Petroleum Exporting Countries and other oil producing nations regarding limits on production. As a result, customers significantly decreased capital budgets and other spending, which significantly impacted our global outlook for the industry. We determined that these events constituted a triggering event that required us to perform a quantitative goodwill impairment assessment as of March 31, 2020 (“Testing Date”) and to review the recoverability of all our long-lived assets. We used the income approach to estimate the fair value of our reporting units, but also considered the market approach to validate the results. The Under the income approach, we utilized third-party valuation advisors to assist us with these valuations. These analyses included significant judgment, including significant Level 3 assumptions related to management’s short-term and long-term forecast of operating performance, discount rates based on our Our interim quantitative impairment test in 2020 determined the carrying value of certain of our reporting units exceeded their estimated fair value as of the Testing Date, which resulted in goodwill impairment expense of $191.9 million. Our annual quantitative impairment test in 2020 determined no further impairment to goodwill was to be recorded. Our annual quantitative impairment test in 2019 determined the carrying value of certain of our reporting units exceeded their estimated fair value as of the Testing Date, which resulted in goodwill impairment expense of $26.4 million. After recording of the impairment expense, the carrying value of certain of our impaired reporting units equaled their fair value whereas the estimated fair values of other reporting units was more than their carrying values. Long-lived Assets The Company did not identify any indicators of impairment related to our long-lived assets during the year ended December 31, 2021. In reviewing the recoverability of our long-lived assets during 2020 and 2019, we identified certain of our long-lived assets which exceeded their respective fair values and certain of our long-lived assets which were deemed to be no longer useable. As a result, during 2020 we recorded impairment expense of $20.0 million, $60.4 million and $15.2 million relating to our property, plant and equipment, intangible assets and operating lease right-of-use assets, respectively, and during 2019, we recorded impairment expense of $4.7 million and $17.9 million relating to our property, plant and equipment and intangible assets, respectively. Financial Instruments The estimated fair values of the Company’s financial instruments have been determined at discrete points in time based on relevant market information. The Company’s financial instruments consist of cash and cash equivalents, 81 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 operations are comprised of 4 operating segments which also represent our reporting segments and are aligned with our geographic regions as below:
The following table presents our revenue disaggregated by our operating segments (in thousands):
82 Segment EBITDA Our CODM regularly evaluates the performance of our operating segments using Segment EBITDA, which we define as loss before income taxes adjusted for corporate costs, equity in income of joint ventures, depreciation and amortization expense, impairment expense, severance and other expense, gain on disposal of assets, foreign exchange losses, merger and integration expense, other income, interest and finance expense, net and stock-based compensation expense. The following table presents our Segment EBITDA disaggregated by our operating segments and reconciliation to loss before income taxes (in thousands):
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. We are a Netherlands based company and we derive our revenue from services and product sales to customers primarily in the oil and gas industry. NaN single customer accounted for more than 10% of our revenue for the year ended December 31, 2021. One customer in our MENA operating segment accounted for 16% and 14% of our consolidated revenue for the years ended December 31, 2020 and 2019, respectively. The revenue generated in the Netherlands was immaterial for the years ended December 31, 2021, 2020 and 2019. Other than Norway, no individual country represented more than 10% of our revenue for the year ended December 31, 2021. Other than Algeria, no individual country represented more than 10% of our revenue for the year ended December 31, 2020. Other than Algeria and the U.S., no individual country represented more than 10% of our revenue for the year ended December 31, 2019. The following table presents total assets by geographic region and assets held centrally. Assets held centrally includes certain property plant and equipment, investments in joint ventures, collateral deposits, income tax related balances, corporate cash and cash equivalents, accounts receivable and other current
83 EXPRO GROUP HOLDINGS N.V. Notes to The following table presents our capital expenditures disaggregated by our operating segments (in thousands):
6.Revenue Disaggregation of revenue We disaggregate our revenue from contracts with customers by geography, as disclosed in Note 5 above, as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Additionally, we disaggregate our revenue into areas of capability. The following table sets forth the total amount of revenue by areas of capability as follows (in thousands):
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 customers’ payments, which results in the recognition of receivables and deferred revenue. 84 EXPRO GROUP HOLDINGS N.V. Notes to Unbilled receivables are initially recognized for revenue earned on completion of Contract balances consisted of the following as of December 31, 2021 and December 31, 2020 (in thousands):
The Company recognized revenue of $15.4 million, $6.3 million and $8.9 million for the years ended December 31, 2021, 2020 and 2019, respectively, out of the deferred revenue balance as of the beginning of the applicable year. As of December 31, 2021, $15.7 million of our Transaction price allocated to remaining performance obligations Remaining performance obligations represent firm contracts for which work has not been performed and future revenue recognition is expected. We have elected the 7.Income taxes The components of income tax expense (benefit) for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):
Following the closing of the Merger on October 1, 2021, the tax domicile of the Company changed from the U.K. to the Netherlands. As a result of this change in domicile due to the Merger, income tax expense (benefit) is split between the Netherlands and foreign tax jurisdictions for the year ended December 31, 2021 and between the U.K. and foreign tax jurisdictions for the year ended December 31,2020 and 2019. 85 The Netherland, U.K. and foreign components of loss from continuing operations before income taxes and equity in income of joint ventures for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):
A reconciliation of the differences between the income tax provision computed at the Netherlands statutory rate of 25% for the year ended December 31, 2021 and the U.K. statutory rate of 19% for the years ended December 31, 2020 and 2019 to loss from continuing operations before taxes and equity in joint ventures for the reasons below (in thousands):
Deferred tax assets and liabilities are recorded for the anticipated future tax effects of temporary differences between the financial statement basis and tax basis of our assets and liabilities and are measured using the tax rates and laws expected to be in effect when the differences are projected to reverse. The primary components of our deferred tax assets and liabilities as of December 31, 2021 and 2020 were as follows (in thousands):
86 We recognize a valuation allowance where it is more likely than not that some or all of the deferred tax assets will not be realized. The realization of a deferred tax asset is dependent upon the ability to generate sufficient taxable income in the appropriate taxing jurisdictions where the deferred tax assets are initially recognized. At December 31, 2021, we have maintained a valuation allowance with respect to substantially all U.S. foreign tax credit carryforwards as well as certain net operating loss carryforwards for various jurisdictions. The changes in valuation allowances were as follows (in thousands):
As of December 31, 2021, the Company had approximately $664 million of U.S. operating losses of which $567 million will start to expire in 2036, and the balance does not expire. The Company also has approximately $1,840.3 million and $127.7 million of losses in the U.K. and Norway respectively which do not expire. It is our intention that all cash and earnings of our subsidiaries as of December 31,2021, are permanently reinvested and will be used to meet operating cash flow needs. Existing plans do not demonstrate a need to repatriate foreign cash to fund parent company activity, however, should we determine that parent company funding is required, we estimate that any such cash needs may be met without adverse tax consequences. We have performed an analysis of uncertain tax positions in the various jurisdictions in which we operate and concluded that we are adequately provided. Our tax filings are subject to regular audits by tax authorities in the various jurisdictions in which we operate. Tax liabilities are based on estimates, however due to the uncertain and complex application of tax legislation, the ultimate resolution of audits may be materially different to our estimates. The Company is subject to income taxation in many jurisdictions around the world. The following table presents the changes in our uncertain tax positions as of December 31, 2021 and 2020 (in thousands):
87 The amounts above include penalties and interest of $4.2 million and $1.7 million for the years ended December 31, 2021 and 2020, respectively. We classify penalties and interest relating to uncertain tax positions within income tax (expense) benefit in the consolidated statements of operations. Approximately $30.1 million of our We file income tax returns in the Netherlands and in various other foreign jurisdictions in respect of the Company's subsidiaries. In all cases we are no longer subject to income tax examination by tax authorities for years prior to 2009. Tax filings of our subsidiaries, branches and related entities are routinely examined in the normal course of business by the relevant tax authorities. We believe that there are no jurisdictions in which the outcome of unresolved issues is likely to be material to our results of operations, financial position or cash flows. 8.Investment in joint ventures We have investments in two joint ventures, 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 the Company’s 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 the Company, but each company is independently managed. The carrying value of our investment in joint ventures as of December 31, 2021 and 2020 was as follows (in thousands):
9.Accounts receivable, net Accounts receivable, net consisted of the
88 The movement of expected credit losses for the years ended December 31, 2021, 2020 and 2019 was as follows (in thousands):
10.Inventories Inventories consisted of the following as of December 31, 2021 and 2020 (in thousands):
11.Other assets and liabilities Other assets consisted of the following as of December 31, 2021 and 2020 (in thousands):
89 Other liabilities consisted of the following as of December 31, 2021 and 2020 (in thousands):
Cash Surrender Value of Life Insurance Policies At December 31, 2021, we had $18.9 million of cash surrender value of life insurance policies that are held within a 12.Accounts payable and accrued liabilities Accounts payable and accrued liabilities consisted of the following as of December 31, 2021 and 2020 (in thousands):
90 EXPRO GROUP HOLDINGS N.V. Notes to the Consolidated Financial Statements 13.Property, plant and equipment, net Property, plant and equipment, net consisted of the following as of December 31,
The carrying amount of our property, plant and equipment recognized in respect of assets held under finance leases as of December 31, 2021 and 2020 and included in amounts above is as follows (in thousands):
Depreciation expense related to property, plant and equipment, including assets under finance leases, was $95.8 million, $85.4 million and $88.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. NaN impairment expense related to property, plant and equipment was recognized for the year ended December 31, 2021. We recognized impairment expense related to property, plant and equipment of $20.0 million and $4.7 million for the years ended December 31, 2020 and 2019 respectively, which are included in “Impairment expense” on our consolidated statement of operations. Refer to Note 4 “Fair value measurements” for further details. During the three months ended December 31, 2021, a building classified as assets held for sale was sold for $3.8 million. 14.Intangible assets, net The following table summarizes our intangible assets comprising of Customer Relationships & Contracts (“CR&C”), Trademarks, Technology and Software as of December 31, 2021 and 2020 (in thousands):
91 EXPRO GROUP HOLDINGS N.V.
Notes to the Consolidated Financial Statements
Amortization expense for intangible assets was $28.1 million, $28.2 million and $34.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. The following table summarizes the
NaN impairment expense associated with our intangible assets was recognized during the year ended December 31,
$17.9 million for the years ended December 31, 2020 and 2019, respectively, which is included in “Impairment expense” in our consolidated statement of operations. Refer to Note 4 “Fair value measurements” for further details. The following table
92 Expected future intangible asset amortization as of December 31, 2021 is as follows (in thousands):
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 was as follows (in thousands):
The following table provides the gross carrying amount and cumulative impairment expense of goodwill for each operating segment as of December 31, 2021 and 2020 (in thousands):
NaN goodwill impairment expense was recognized during the year ended December 31, 2021. We recorded goodwill impairment expense of $191.9 million and $26.4 million for the years ended December 31, 2020 and 2019, respectively. Refer to Note 4 “Fair value measurements” for further details. The following table summarizes our goodwill impairment expense by operating segment for the years ended December 31, 2021, 2020 and 2019 (in thousands):
93 16.Interest bearing loans On November 5, 2018, certain subsidiaries of Frank’s entered into an asset-based revolving credit facility (the “ABL Credit Facility”) with aggregate commitments of $100.0 million secured by certain assets of the On December 20, 2018, subsidiaries of Legacy Expro entered into a revolving credit facility (the “2018 RCF”) with aggregate commitments of $150.0 million with up to $100.0 million available for drawdowns as loans and Concurrently with the cancelation of the ABL Credit Facility and the 2018 RCF, we entered into a new revolving credit facility (the “New Facility”) with DNB Bank ASA, London Branch, as agent, with total commitments of $200.0 million, of which $130.0 million is available for cash drawings 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 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 loan receivables 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 cash borrowings 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 Company and its subsidiaries paid $5.1 million in customary fees and expenses in connection with the New Facility in the year ended December 31, 2021, which are included in “Interest and finance expense, net” on the consolidated statements of operations. 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. NaN drawdowns as loans have been made, however, as of December 31, 2021, we had utilized $33.4 million for bonds and guarantees. 17.Leases We are a lessee for numerous operating leases, primarily related to real estate, transportation and equipment. The terms and conditions for these leases vary by the type of underlying asset. The vast majority of our operating leases have terms ranging between one and fifteen years, some of which include options to extend the leases, and some of which include options to terminate the leases. We include the renewal or termination options in the lease terms, when it is reasonably certain that we will exercise that option. We also lease certain real estate and equipment under finance leases. Our lease contracts generally do not provide any guaranteed residual values. The accounting for some of our leases may require significant judgment, which includes determining whether a contract contains a lease, determining the incremental borrowing rates to utilize in our net present value calculation of lease payments for lease agreements which do not provide an implicit rate, and assessing the likelihood of renewal or termination options. 94 The following tables illustrate the financial impact of our leases as of and for the years ended December 31, 2021, 2020 and 2019, along with other supplemental information about our existing leases (in thousands, except years and percentages):
The operating cash flows for finance leases approximates the interest expense for the year. As of December 31, 2021, maturity of our lease liabilities are as follows (in thousands):
95 18.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 $26.3 million and $42.3 million as of December 31, 2021 and 2020, respectively. We also entered into purchase commitments related to inventory on an as-needed basis. As of December 31, 2021, these inventory purchase commitments were $14.2 million. We are committed under various lease agreements primarily related to real estate, vehicles and certain equipment that expire at various dates throughout the next several years. Refer to Note 17 “Leases” for further details. Contingencies Certain conditions may exist as of the date our 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 in 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 estimated, then the estimated liability would be accrued in our 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 0 material accruals for loss contingencies, individually or in the aggregate, as of December 31, 2021 and December 31, 2020. We believe the probability is remote that the ultimate outcome of these matters would have a material adverse effect on our financial position, results of operations or cash flows. We are conducting an internal investigation of the operations of certain of our foreign subsidiaries in West Africa including possible violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), our policies and other applicable laws. In June 2016, we voluntarily disclosed the existence of our extensive internal review to the SEC, the U.S. Department of Justice (“DOJ”) and other governmental entities. It is our intent to continue to fully cooperate with these agencies and any other applicable authorities in connection with any further investigation that may be conducted in connection with this matter. While our review has not indicated that there has been any material impact on our previously filed financial statements, we have continued to collect information and cooperate with the authorities, but at this time are unable to predict the ultimate resolution of these matters with these agencies. As disclosed above, our investigation into possible violations of the FCPA remains ongoing, and we will continue to cooperate with the SEC, DOJ and other relevant governmental entities in connection therewith. At this time, we are unable to predict the ultimate resolution of these matters with these agencies, including any financial impact to us. Our board and management are committed to continuously enhancing our internal controls that support improved compliance and transparency throughout our global operations. 19.Post-retirement benefits We operate a number of post-retirement benefit plans, primarily consisting of defined contribution plans for U.S. and non-U.S. employees. We also sponsor defined benefit pension plans for certain employees located in the U.K., Norway and Indonesia. The majority of our post-retirement expense relates to defined contribution plans. The assets of the various defined benefit plans are held separately from those of the Company. Our principal retirement savings plans and pension plans are discussed below. 96 Defined contribution plans We offer certain retirement savings plans to U.S. and non-U.S. employees. These plans are managed in accordance with applicable local statutes and practices and are defined contribution plans. For U.S. employees, we offer 401k savings and investment plans as part of our employee benefits package which previously included a Safe Harbor Matching Contribution. During 2020, the Safe Harbor Matching Contribution was eliminated. For U.K. employees, we offer the Group Personal Pension plan (“GPP”), which is a portable, personal pension plan to which the employer contributes on a matching basis between a base of 4.5% and a ceiling of 6% of base salary. In addition, we offer other defined contribution plans for our employees in the rest of the world as per local statues. Effective in 2020, the GPP for U.K. employees was temporarily modified, with the employer contribution matching basis ceiling being reduced to 4% of base salary from 6% of base salary and the employer contributions to the 401k savings and investment plan for our United States employees were temporarily suspended. As of December 31, 2021, these temporary reductions and suspensions were still in place. Expense recognized in respect of these plans were $7.3 million, $6.4 million and $8.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. Defined benefit plans We offer a pension plan to certain of our U.K. employees, which qualifies as a defined benefit plan. Effective October 1, 1999, this plan was closed to new entrants. The contributions to the plan are determined by a qualified external actuary on the basis of an annual valuation. In December 2015, the decision was taken to close the U.K. defined benefit plan (“DB Plan”) to new accruals. The status of the DB Plan’s remaining active members has changed to that of deferred members. This change affected approximately 80 employees. As deferred members, these employees will no longer accrue further benefits under the DB Plan through their service. However, benefits earned through past service are retained and will continue to increase with inflation. In addition, affected individuals were auto-enrolled in the Company’s defined contribution pension plan. On December 28, 2020, the Company, with the written consent of the trustees, amended the DB Plan rules to introduce a new pension option for members who retire before their state pension age, a bridging pension option. Under this new option, a plan member who receives his or her pension before the later of age 65 or their state pension age can elect to have their pension temporarily increased at retirement and then reduced at the time of state pension. 97 Key assumptions The major assumptions, included on a weighted average basis across the defined benefit plans, used to calculate the defined benefit plan liabilities were:
The discount rate has been calculated with reference to AA rated corporate bonds of a suitable maturity. Expected rates of salary increases have been estimated by management following a review of the participant data. Within the U.K. plans pensionable salary was frozen in 2012 resulting in the reduction in the weighted average assumption for salary increases disclosed above. The expected long-term return on cash is based on cash deposit rates available at the reporting date. The expected return on bonds is determined by reference to U.K. long term government bonds and bond yields at the reporting date. The expected rates of return on equities and property have been determined by setting an appropriate risk premium above government bond yields having regard to market conditions at the reporting date. Net periodic benefit cost Amounts recognized in the consolidated statements of operations and in the consolidated statements of comprehensive loss in respect of the defined benefit plans were as
98
EXPRO GROUP HOLDINGS N.V. Notes to the Consolidated Financial Statements The The actuarial gain (loss) is derived from the components shown in the table
The actuarial gain on the
The amount of employer contributions expected to be paid
99 EXPRO GROUP HOLDINGS N.V. Notes to the Consolidated Financial Statements The amounts included in the consolidated balance sheets arising from
Changes in
Movements in fair value of plan assets were as follows (in thousands):
100 The actual return on plan assets consists of the following (in thousands):
Information for pension plans with an accumulated benefit obligation in excess of plan assets were as follows (in thousands):
The investment strategy of the main U.K. plan (“U.K. Plan”) is set by the trustees and is based on advice received from an investment consultant. The primary investment objective for the U.K. Plan is to achieve an overall rate of return that is sufficient to ensure that assets are available to meet all liabilities as and when they become due. In doing so, the aim is to maximize returns at an acceptable level of risk taking into consideration the circumstances of the U.K. Plan. The investment strategy has been determined after considering the U.K. Plan’s liability profile and requirements of the U.K. statutory funding objective, and an appropriate level of investment risk. Taking all these factors into consideration, approximately 58% of the assets are invested in a growth portfolio, comprising diversified growth funds (“DGFs”) and property, and approximately 42% of the assets in a stabilizing portfolio, comprising corporate bonds and liability driven investments. DGFs are actively managed multi-asset funds. The managers of the DGFs aim to deliver equity like returns in the long term, with lower volatility. They seek to do this by investing in a wide range of assets and investment contracts in order to implement their market views. The present value of the U.K. Plan’s future Assets of the other plans are invested in a combination of equity, bonds, real estate and insurance contracts. The analysis of the plan assets and the expected rate of return at the reporting date were as follows (in thousands):
101 The aggregated asset categorization for the plans were as follows (in thousands):
Other assets primarily represent insurance contracts. The fair value is estimated, based on the underlying defined benefit obligation assumed by the insurers. Movements in fair value of Level 3 assets were as follows (in thousands):
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. All participant benefits under this EDC Plan shall be paid directly from the general funds of the applicable participating subsidiary or a grantor trust, commonly referred to as a Rabbi Trust, created for the purpose of informally funding the EDC Plan, and other than such Rabbi Trust, no special or separate fund shall be established and no other segregation of assets shall be made to assure payment. The assets of the EDC Plan’s trust are invested in a corporate owned split-dollar life insurance policy and an amalgamation of mutual funds. As of December 31, 2021, the total liability related to the EDC Plan was $9.3 million and was included in “Other non-current liabilities” on the consolidated balance sheets. As of December 31, 2021, 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 $18.9 million. 102 20.Stock-based compensation Management Incentive Plan During October 2018, Legacy Expro’s board of directors approved the Management Incentive Plan (“MIP”) which was comprised of (a) stock options to non-executive directors and key management personnel and (b) restricted stock units. The outstanding awards under the MIP were assumed by the Company in connection with the Merger. MIP Stock options Stock options issued under the MIP vest over a three or four year vesting period as defined in the award agreement, subject to the There were 5.8 million and Due to the nature of the performance conditions, recognition of compensation expense for the stock options was deferred until the occurrence of a Liquidity Event as defined in the MIP as the performance condition was deemed to be improbable. On October 1, 2021, the MIP stock options were modified to redefine the occurrence of the Liquidity Event to the closing of the Merger. Upon Closing, the MIP stock options were exchanged for options to purchase Company common stock based on the The aforementioned event was accounted for as an improbable-to-probable modification and as a result, the fair value of As of December 31, 2021, there were 6.9 million MIP stock options issued and outstanding with a weighted average Closing Date fair value of $6.52 per option. As of December 31, 2021, there were 2.2 million exercisable MIP stock options with a weighted average Closing Date fair value of $7.54 per option. As of December 31, 2021, the weighted average remaining term for the MIP stock options was 6.1 years. The fair value of the time-based MIP stock options granted to non-executive directors and management was estimated at the Closing Date using a Black-Scholes model and the fair value of the performance-based MIP stock options granted to management was estimated at the Closing Date using a Monte-Carlo Option valuation model. The Closing Date fair value of the Company’s shares is a key input in the determination of the fair value of the awards. The key assumptions used to estimate the fair value of the MIP stock options were as follows:
103 MIP Restricted stock units (“MIP RSUs”) RSUs granted under the The Company recognized $2.6 million of stock-based compensation expense attributable to Expro Group Holdings N.V. Long-Term Incentive Plan Effective October 1, 2021, in connection with
2013 LTIP Restricted Stock Units All RSUs granted under the LTIP vest ratably over a period of one to three years. Our treasury stock primarily consists of shares that were withheld from employees to settle personal tax obligations that arose as a result of Employees granted LTIP RSUs are not entitled to dividends declared on the underlying shares while the Stock-based compensation expense relating to LTIP RSUs Non-vested LTIP RSUs outstanding as of December 31,
104 EXPRO GROUP HOLDINGS N.V.
Notes to the Consolidated Financial Statements Performance Restricted Stock Units (“PRSUs”) The purpose of the PRSUs is to closely align the incentive compensation of the executive leadership team for the duration of the Though the value of the PRSU grant may change for each participant, the compensation expense recorded by the Company is determined on the date of grant. Expected volatility is based on historical equity volatility of our In Period. The weighted average assumptions for the PRSUs granted in
In the event of death or disability, the restrictions related to forfeiture as defined in the performance awards agreement will lapse with respect to 100% of the PRSUs at the target level effective on the date of such Stock-based 105 EXPRO GROUP HOLDINGS N.V. Notes to the Consolidated Financial Statements Non-vested PRSUs outstanding as of December 31,
Employee Stock Purchase Plan Under the 106 21.Warrants As of December 31, 2020, Legacy Expro had outstanding warrants consisting of the following:
Pursuant to the Merger Agreement, the Company agreed to issue replacement warrants but only so that the holders of the Legacy Expro warrants would receive, upon exercise of the warrants after Closing, the merger consideration that would have been received of the Legacy Expro shares issuable upon exercise of the Legacy Expro warrants immediately before Closing, assuming a cashless exercise. Because the fair market value of the Legacy Expro shares at the time of merger determined in accordance with the warrant agreement was below the exercise price of the Legacy Expro warrant (i.e. the Legacy Expro warrants were out of the money), no Legacy Expro shares would have been issuable upon a cashless exercise prior to Closing. Accordingly, replacement warrants were not required to be issued by the Company and the Legacy Expro warrants have been cancelled resulting in 0 warrants outstanding as of December 31, 2021. 22.Loss per share Basic income (loss) per share attributable to Company stockholders is calculated by dividing net income (loss) attributable to the Company by the weighted-average number of common shares outstanding for the period. Diluted income (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 ESPP The calculation of basic and diluted loss per share attributable to the Company stockholder for years ended December 31, 2021, 2020 and 2019 respectively, are as follows (in thousands, except shares outstanding and per share amounts):
Approximately 651,736 shares of Additionally, since the conditions upon which shares were issuable for outstanding warrants and stock options were not satisfied as of December 31, 107 EXPRO GROUP HOLDINGS N.V. Notes to the 23.Related party transactions 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 a member of our Board and its affiliates. During the years ended December 31, 2021, 2020 and 2019, we provided goods and services to CETS and PVD-Expro totaling $6.8 million, $13.9 million and Further, during the years ended December 31, 2021, 2020 and 2019, we received dividends from CETS and PVD-Expro totaling $4.1 million, $3.6 million and $3.1 million, respectively. As of December 31, 2021 and 2020, amounts receivable from related parties were $1.6 million and $7.2 million, respectively, and 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. NaN right-of-use assets or lease liabilities associated with related party leases were outstanding as of December 31, 2020. 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 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
In connection with the Merger Agreement, Frank’s, FICV and
108 EXPRO GROUP HOLDINGS N.V.
24.Supplemental Cash Flow
109
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures 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 period covered by this Form 10-K. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we 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 the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of December 31, Management’s Report Regarding Internal Control Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of its assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Company assets that could have a material effect on the financial statements. On October 1, 2021, Frank’s and Legacy Expro completed the Merger, and, after giving effect to the Merger, the stockholders of Legacy Expro as of immediately prior to the Merger owned approximately 65% of Company Common Stock following Closing, and the stockholders of Frank’s as of immediately prior to the Merger owned approximately 35% of Company Common Stock following Closing. Frank’s was the legal acquirer in the Merger. Legacy Expro was the accounting acquirer in the Merger under U.S. GAAP. Prior to the Merger, Legacy Expro was a privately-held company and was not subject to Section 404 of the Sarbanes-Oxley Act (“SOX”), while Frank’s was a publicly traded company subject to Section 404 of SOX. For all filings under the Exchange Act after the Merger, the historical financial statements of the Company for the periods prior to the Merger are and will be those of Legacy Expro. The activities of Frank’s are and will be included in the Company’s financial statements for all periods subsequent to the Merger. As noted above, Frank’s was the legal acquirer in the Merger and subject to Section 404 of SOX. As of the date of its report, management was able to evaluate the effectiveness of the design and operation of the ongoing internal controls related to Frank’s. As the Merger occurred during the fourth quarter of 2021, and Legacy Expro was the accounting acquirer and not previously subject to Section 404 of SOX, management concluded there was insufficient time for management to complete its assessment of the internal controls over financial reporting related to Legacy Expro, and, therefore, Legacy Expro internal controls over financial reporting were excluded from this report on internal control over financial reporting. The management of the Company, with the participation of the CEO and CFO, assessed the effectiveness of the Company’s internal control over financial reporting, by focusing on those controls that relate exclusively to ongoing Frank’s operations (covering approximately 14% of the revenue on the Consolidated Statements of Operations for the year ended December 31, 2021 and 45% of the total assets on the Consolidated Balance Sheets as of December 31, 2021). Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 based on the Internal Control The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included in Part II, Item 8, See Report of Independent Registered Public Accounting Firm under Part II, Item 8,Changes in Control Over Financial Reporting Upon closing of the Merger on October 1, 2021, the historical consolidated financial statements of Legacy Expro became the historical consolidated financial statements of the registrant. During the quarter ended December 31, 2021, following becoming a public company as a result of the reverse merger, we integrated our financial reporting processes of the business with Frank’s processes and implemented additional closing procedures to enable our financial reporting process. The processes and controls for significant areas including business combinations, intangible asset 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. Other than such changes, there were no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. 111 Item 10 is incorporated by reference to our definitive proxy statement to be filed pursuant to Regulation 14A under the Exchange Act. We expect to file the definitive proxy statement with the SEC within 120 days after December 31, Item 11 is incorporated by reference to our definitive proxy statement to be filed pursuant to Regulation 14A under the Exchange Act. We expect to file the definitive proxy statement with the SEC within 120 days after December 31, 2021. Item12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 12 is incorporated by reference to our definitive proxy statement to be filed pursuant to Regulation 14A under the Exchange Act. We expect to file the definitive proxy statement with the SEC within 120 days after December 31, Item 13 is incorporated by reference to our definitive proxy statement to be filed pursuant to Regulation 14A under the Exchange Act. We expect to file the definitive proxy statement with the SEC within 120 days after December 31, Item 14 is incorporated by reference to our definitive proxy statement to be filed pursuant to Regulation 14A under the Exchange Act. We expect to file the definitive proxy statement with the SEC within 120 days after December 31, 112 PART IV Item 15. Exhibits and Financial Statement Schedules (a)(1) Financial Statements Our Consolidated Financial Statements are included under Part II, Item 8, 58. (a)(2) Financial Statement Schedules Schedules not listed (a)(3) Exhibits The following exhibits are
filed or furnished with this Report or incorporated by reference: EXHIBIT INDEX
† Represents management contract or compensatory plan or arrangement. * Filed herewith. ** Furnished herewith. None. 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 8, 2022.
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