PART I
General
Expro Group Holdings N.V. (“FINV”) is a Netherlands limited liability company (
On March 10, 2021, the Company and areNew Eagle Holdings Limited, an industry-leading global provider of highly engineered tubular services, tubular fabrication and specialty well construction and well intervention solutions toexempted company limited by shares incorporated under the oil and gas industry. We provide our services and products 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 onelaws of the largest global providers of tubular services to the oilCayman Islands and gas industry.
Our Operations
With roots dating to 1938, the Company is a leading provider of energy services, offering cost-effective, innovative solutions and gas.
Description of casing, centralizationBusiness Segments
Our operations are comprised of four operating segments which also represent our reporting segments and wellbore zonal isolation,are aligned with our geographic regions as well as enhance cementing operations through advance wiper plug and float equipment technology.
• | 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 revenue and percentage of consolidated revenue for the periods indicated (revenue in thousands):
Year Ended | Percentage | |||||||||||||||||||||||
(in thousands) | December 31, 2023 | December 31, 2022 | December 31, 2021 | December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||||||||||
NLA | $ | 511,800 | $ | 499,813 | $ | 193,156 | 33.8 | % | 39.1 | % | 23.4 | % | ||||||||||||
ESSA | 520,951 | 389,342 | 300,557 | 34.4 | % | 30.4 | % | 36.4 | % | |||||||||||||||
MENA | 233,528 | 201,495 | 171,136 | 15.4 | % | 15.7 | % | 20.7 | % | |||||||||||||||
APAC | 246,485 | 188,768 | 160,913 | 16.3 | % | 14.8 | % | 19.5 | % | |||||||||||||||
Total Revenue | $ | 1,512,764 | $ | 1,279,418 | $ | 825,762 | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||
| Revenue | Percent | Revenue | Percent | Revenue | Percent | ||||||||||||||||||||||||||||||
| Tubular Running Services | $ | 269,711 | 69.1% | $ | 400,327 | 69.0 | % | $ | 361,045 | 69.1 | % | ||||||||||||||||||||||||
| Tubulars | 53,668 | 13.7% | 74,687 | 12.9 | % | 72,303 | 13.8 | % | |||||||||||||||||||||||||||
| Cementing Equipment | 66,979 | 17.2% | 104,906 | 18.1 | % | 89,145 | 17.1 | % | |||||||||||||||||||||||||||
| Total | $ | 390,358 | 100.0% | $ | 579,920 | 100.0 | % | $ | 522,493 | 100.0 | % | ||||||||||||||||||||||||
Our broad portfolio of products and services includes:
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. We believe we are a market leader in deepwater tubular running services and solutions. In recent years, we have added a range of lower-risk, open water cementing solutions, including the proprietary SeaCure® and QuikCure® solutions. We also offer a range of performance drilling tools designed to mitigate risk and optimize drilling efficiency. |
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 40 years of experience providing a wide range of fit-for-purpose subsea well access solutions, our technology aims to provide 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 (“IRS”) and a vessel-deployed, wire through water Riserless Well Intervention System (“RWIS”). We also provide systems integration and project management services. |
• | Well intervention and integrity: We provide well intervention solutions to acquire and interpret well data, maintain 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 StructureStrategy
Our corporate strategy is designed to leverage existing capabilities and position Expro as a solutions provider with a technologically differentiated offering. In particular, our objectives for 2024, which we expect 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, gas and geothermal resources more efficiently and with a lower carbon footprint; (iii) 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, to be agile and responsive, and to embrace diversity; and (v) leveraging the power of data to improve our own business practices and to 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 are 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 which we work to keep our employees safe, minimize our impact on the environment and to provide for robust and transparent governance.
As of December 31, 2023, we had approximately 8,000 employees worldwide. We are a publicly tradedparty to collective bargaining agreements or other similar arrangements in certain international areas in which we operate. As of December 31, 2023, approximately 19% of our employees were subject to collective bargaining agreements, with 15% being under agreements that expire within one year. We consider our relations with our employees to be positive. In the United States of America (“U.S.”), where approximately 17% of our employees are located, most employees are at-will employees and, therefore, not subject to any type of employment contract or agreement. Outside the U.S., we enter 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, inclusive and 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 an 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 are committed to 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 approaches, and solve business challenges. Our goal is to put the right people forward to do the right work for the right 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 development plans and succession planning.
We also actively solicit employee feedback and constantly strive to make the Company an employer of choice, one such program being the 2023 Global Employee Survey which was carried out to understand and act upon areas where we can positively influence and develop Expro’s culture. We empower employees with an ownership mindset that encourages accountability and creativity, leading to new and better solutions.
Compensation and Benefits
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.
Employee Health and Wellbeing
The health and wellbeing of our people is, and will continue to be, a priority at Expro. We appreciate that emotional wellbeing can affect how individuals face life every day and acknowledge that anyone can suffer from poor mental or physical health at any time. As leaders, we understand the need to recognize when an individual needs help and we encourage all managers and employees to be approachable in providing time, support and mentorship.
We are committed to safeguarding our employees’ health and wellbeing and to providing encouragement to our teams to build supportive networks and a collaborative culture across our organization. An example of the programs we have put into place is our employee-driven regional online wellness hubs, which promote employee and cross-company participation in health and wellbeing initiatives.
In addition, we also offer 24/7 online support through resources within Expro’s Employee Assistance Program (“EAP”), which provides health and wellbeing support and advice globally. The EAP covers a wide range of subjects for employees and their families, delivered across multiple channels and languages.
Corporate Social Responsibility / Community Involvement
Across our global operations, we encourage and celebrate participation in diverse community activities which align with our values of People, Performance, Partnerships and Planet. From tree planting to supporting those less fortunate, we are proud of the work our teams continue to put back into our communities. Our company-wide social steering committee helps to champion our social efforts. This team acts as a conduit for the broader employee community to gain input and perspective to ultimately support in enhancing our culture.
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 seek to 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 (“LTIF”) rate and the Total Recordable Case Frequency (“TRCF”) rate. LTIF is a measure of the frequency of injuries that result in lost work time, normalized on the New York Stock Exchange (“NYSE”). Asbasis of February 17, 2021, basedper million man-hours worked. TRCF is a measure of the frequency of recordable workplace injuries, normalized on the best information availablebasis 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 worldwide LTIF and TRCF for the Company for the years ended December 31, 2023 and 2022 and on a combined basis for Legacy Expro and Frank’s for the year ended December 31, 2021.
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
LTIF | 0.06 | 0.36 | 0.46 | |||||||||
TRCF | 0.61 | 1.07 | 1.31 | |||||||||
We have comprehensive compliance policies, programs and training that are applied globally to our entire workforce. We also standardize our global training processes to provide that all jobs are executed to high standards of safety and quality.
Code of Business Conduct and Ethics
We pledge to be forthright in all our business interactions and conduct our business to the Company,highest ethical standards. That commitment extends to strict compliance with all relevant laws, regulations and business standards. We have comprehensive compliance programs and policies that are applied globally to our entire workforce. Our ethical foundation is our Code of Conduct, the Mosing family collectively owns approximately 47%provisions of which all employees are expected to understand and comply with. Our compliance and ethics policies undergo regular review.
We require every employee worldwide to certify compliance with our common shares.
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 impacting the Tubulars segment).
Our ability to source low costlow-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 effectivecost-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 servicesservices; 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 competitors in the U.S. onshore market compared to international and 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,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 no single competitor across all ofsolutions, and by supporting our product lines, we believe that Weatherford International represents our most direct competitor across our segments for providing tubular services, specialty well construction and well intervention services and productscustomers on an aggregate,a global basis.
Governmental Regulations
We are subject to numerous environmental and the resulting reduction in oil sector activity continues to evolve daily. However, with ongoing mass vaccination programs beginning to be deployed, we expect the market to respond positively throughout 2021. As COVID-19 responses have normalizedother governmental and the Organization of Petroleum Exporting Countries (“OPEC”) and Russia production cut agreements have remained in place, demand is expected to continue to draw down stockpiles of supply. While it is uncertain how long depressed energy demand will last, we anticipate international and U.S. offshore demand for our products and services to moderately increase from current levels as more customer projects come back online in 2021. Exploration and development spending continues to shift toward offshore and internationally focused projects, while U.S. land activity is anticipated to have a moderate recovery over the coming year. Activity in the deepwater offshore market is expected to improve as delayed projects resume and new projects commence throughout 2021.
Environmental and Occupational Health and Safety Regulation
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 obligations oractions, 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 is to typically 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 attract considerable attention in the United StatesU.S. and other countries. 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 greenhouse gases (“GHGs”) as well as to restrict or eliminate such future emissions. As a result, our operations are subject to a series of regulatory, political, litigation, and financial risks associated with the transport of fossil fuels and emission of GHGs.
Separately, various states and groups of statesgovernments 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 through individually-determined reduction goals every five years after 2020. While the United States withdrew fromUnder the Paris Agreement, under the TrumpBiden Administration effective November 4, 2020, President Biden issued an executive order on January 20, 2021 recommittinghas committed the United States to reducing its greenhouse gas emissions by 50 - 52% from 2005 levels by 2030. In November 2021, the Paris Agreement. WithU.S. and other countries entered into the United States recommittingGlasgow Climate Pact, which includes a range of measures designed to address climate change, including but not limited to the Paris
There are also increasing risks of litigation 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 alleging 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 other suits have been filed seekingin May 2021, the Hague District Court ordered Royal Dutch Shell plc to extend this obligationreduce its worldwide emissions by 45% by 2030 compared to private companies.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 fossil-fuel energysuch fossil fuel companies but are concerned about the potential effects of climate change may elect in the future to shift some or all of their investments into non-energy relatedother sectors. InstitutionalBanks and institutional lenders whothat provide financing to fossil-fuel energyfossil fuel companies (and their suppliers and service providers) also have become more attentive to sustainable lending practices and some of them may elect not to provide funding for fossil fuel energy companies. Additionally, in recent years, the lending practices of institutional lenders have been the subject of intensive lobbying efforts in recent years, oftentimesnot 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 not to provide funding for fossil fuel energy companies.change. Limitation of investments in and financings for fossil fuel energy companies could result in the restriction, delay or cancellation of production of crude oil and natural gas, which could in turn decrease demand for our services. Our own operations could also face limitations on access to capital as a result of these trends, 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 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, 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
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 our Cementing Equipment segment,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)U.S.) are in the process of studying, restricting, regulating or preparing to regulate hydraulic fracturing, directly or indirectly. For example, in the United States, the EPA already regulates certain hydraulic fracturing operations involving diesel under the Underground Injection Control program of the federal Safe Drinking Water Act. Also, in 2016, the federal Bureau of Land Management (“BLM”) under the Obama Administration published a final rule imposing more stringent standards on hydraulic fracturing activities on federal lands, including requirements for chemical disclosure, well bore integrity, and handling of flowback water. However, in late 2018, the BLM under the Trump Administration published a final rule rescinding the 2016 final rule. Litigation challenging the BLM's 2016 final rule as well as its 2018 final rule rescinding the 2016 rule has been pursued by variousAdditionally, states and industry and environmental groups. While a California federal court vacated the 2018 final rule in July 2020, a Wyoming federal court subsequently vacated the 2016 final rule in October 2020 and, accordingly, the 2016 final rule is no longer in effect but the Wyoming decision is expected to be appealed. Moreover, the BLM under a Biden Administration could seek to pursue regulatory initiatives that regulate hydraulic fracturing activities on federal lands. Additionally, in late 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources, concluding that “water cycle” activities associated with hydraulic fracturing may impact drinking water sources under some circumstances. States and local governments may also seek to limit hydraulic fracturing activities through time, place, and manner restrictions on operations or ban the process altogether. The adoption of legislation or regulatory programs that restrict hydraulic fracturing could adversely affect, reduce or delay well drilling and completion activities, increase the cost of drilling and production, and thereby reduce demand for our services. There also exists the potential for the Biden Administrationstates and local governments to pursue new or amended laws, regulations, executive actions and other regulatory initiatives that could impose more stringent restrictions on hydraulic fracturing, including potential restrictions on hydraulic fracturing by banning new oil and gas permitting on federal lands.
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 StatesU.S. and Gulf of Mexico. In the United States, President Biden has indicated his intent to ban new oil and natural gas permitting on federal lands and waters, including the OCS, and he may pursue regulatory initiatives, executive actions and legislation in support of his regulatory agenda. Additionally, regulatory agencies under the Biden Administration may issue new or amended rulemakings regarding deep water leasing, permitting or drilling that could result in more stringent or costly restrictions than those imposed under the Trump Administration as well as delays or cancellations to our customers with respect to their offshore operations. On January 20, 2021, the Acting Secretary of the U.S. Department of the Interior issued an order, effective immediately, that suspends new oil and gas leases and drilling permits on non-Indian federal lands and waters for a period of 60 days. Subsequently, on January 27, 2021, President Biden issued an executive order that, among other things, ordered the Secretary of the Interior to pause, to the extent consistent with applicable law, the
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 U.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. Historically, our environmental and worker safety costs to comply with existing environmental laws and regulations have not had a material adverse impact on us. However, we 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 such costs will not materially adversely affect 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.
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| TRIR | 0.44 | 0.64 | 0.84 | ||||||||||||||
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 business is subject to varying degreesExecutive Officers and Other Key Employees
The following table sets forth, as of riskFebruary 21, 2024, the names, ages and uncertainty. Investors should consider the risks and uncertainties summarized below, as well as the risks and uncertainties discussed in Part I, Item 1A. Risk Factorsexperience of this Annual Report on Form 10-K. Additional risks not presently known to us or that we currently deem immaterial may also affect us. If any of these risks occur, our business, financial condition or results of operations could be materially and adversely affected.
| Name | Age | Current Position and Five-Year Business Experience |
| Michael Jardon | 54 | 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 | 60 | 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 September 2008 to November 2018; investment banker with Citigroup Global Markets, Inc., from 1996 to 2008. |
| Alistair Geddes | 61 | 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 | 56 | 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 | 57 | 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. |
| Natalie Questell | 50 | 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. |
| Michael Bentham | 61 | 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. |
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 and products. In addition, the effects of world events, such as the Russian war in Ukraine, heightened tensions resulting from ongoing conflicts in the Middle East and an economic slowdown or recession in the U.S. and other countries, have and may continue to materially impact the demand for crude oil and natural gas, which has contributed further to price volatility. Prices are also impacted by decisions made by the Organization of the Petroleum Exporting Countries (“OPEC”) plus the countries of Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan (together with OPEC, “OPEC+”) to either increase or cut production of oil and gas as well as their compliance with those decisions. Global economic conditions have a significant impact on oil and natural gas prices, and any stagnation or deterioration in these conditions could result in less demand for our products and services and could cause our customers to reduce their planned capital spending. Adverse global economic conditions also may cause our customers, vendors and/or suppliers to lose access to the financing necessary to sustain or increase their current level of operations, fulfill their commitments and/or fund future operations and obligations. 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 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. A prolonged reduction in oil and natural gas prices may require us to record asset impairments. Such a potential impairment charge could have a material adverse impact on our operating results.
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 and products. Worldwide military, political, economic and economicpublic health events have in the past contributed to volatility in demand and prices for oil and gas price volatility and continue to do so at present. Average daily prices for New York Mercantile Exchange West Texas Intermediate ranged from a high of approximately $63/Bbl in January 2020 to a low of negative $37/Bbl in April 2020. This significant decline in crude oil prices has largely been attributable to the global outbreak of COVID-19, which has reduced demand for oil and natural gas because of significantly reduced global and national economic activity. Additionally, in March 2020, Saudi Arabia and Russia failed to agree on a plan to cut production of oil and gas within OPEC and Russia. Subsequently, Saudi Arabia announced plans to increase production to record levels and reduce the prices at which they sold oil. Saudi Arabia and Russia subsequently announced production cuts, but even with such cuts oil prices could remain at current levels, or decline further, for an extended period of time. We cannot predict whether or when oil production and economic activities will return to normalized levels. If current levels are sustained or decline further, certain of our customers may be unable to pay their vendors and service providers, including us, as a result of the decline in commodity prices. 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.
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 a material adverse effect on our business, financial condition and results of operations.
• | 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 technical specifications of wells including depth of wells and complexity of well design; | |
| • | demand for, availability of and technological viability of alternative sources of energy; | |
| • | technological advances affecting energy exploration, production, transportation and consumption; |
• | 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 on economically advantageous terms 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.
Physical dangers and operating hazards are inherent in our operations and may expose us to significant potential losses.
Our internationalservices and products 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.
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.
We may face significant warranty, contract and other litigation claims and incur substantial fines, liabilities or losses as a result of these hazards. Our insurance and contractual indemnity protection may not be sufficient or effective to protect us under all circumstances or against all risks. The occurrence of a significant event, against which we are not fully insured or indemnified or the failure of a customer to meet its indemnification obligations to us, could materially and adversely affect our results of operations and financial condition.
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, pollution emanating from the customer’s equipment or from the reservoir (including uncontained oil flow from a reservoir) and catastrophic events, such as a well blowout, fire or explosion. 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 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. Further, our assets generally are not insured against loss from political violence such as war, terrorism or civil unrest. If any of our assets are damaged or destroyed as a result of an uninsured cause, we could recognize a loss of those assets.
Our 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, 2020, 2019 and 2018, international operations accounted for approximately 60%, 49% and 46%, 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; |
| • | inflationary pressures; | |
• | 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; |
• | restrictions on the repatriation of funds; | |
| • | pandemics, epidemics and other public health events; 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. In particular, heightened levels of uncertainty related to the ongoing Russian war in Ukraine and heightened tensions resulting from the ongoing conflicts in Middle East could further disrupt financial and commodities markets. 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 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 services and products are characterized by continual technological developments. While we believe that the proprietary equipment we have developed provides us with technological advances in providing services to our customers, substantialSubstantial improvements in the scope and quality of the equipment in the marketmarkets in which we operate may occur over a short period of time. In addition, alternativeAlternative products and services have been and may in the future 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 to develop new equipment in order to support our services depends on our ability to design and produce equipment that allow us to meet the needs of our customers and third parties on an integrated basis and obtain and maintain patent protection.
We may encounter resource constraints, technical barriers, or other difficulties that would delay introduction of new services and 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.
It may also be possible for a third party to design around our patents. Furthermore, patentPatent 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, weWe 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.
The industry in which we operate is undergoing continuing consolidation thathas undergone and may impact results of operations.
Some of our largest customers have consolidated in recent years and are using their size and purchasing power to achieve economies of scale and pricing concessions. This consolidation may result in reduced capital spending by such customers or the acquisition of one or more of our other primary customers, which may lead to decreased demand for our products and services. If we cannot maintain sales levels for customers that have consolidated or replace such revenue with increased business activities from other customers, this consolidation activity could have a significant negative impact on our business, financial condition and results of operations. We are unable to predict what effect consolidations in our industry may have on prices, capital spending by customers, selling strategies, competitive position, ability to retain customers or ability to negotiate favorable agreements with customers.
The loss of one or more of our larger customers and reductions in capital spending in response to declining commodity prices willcould have a material adverse effect on our business.
We are subject to the risk of supplier concentration.
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 have been and may in the future 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 capital expenditures bythe relationship with any of these suppliers, through consolidation or otherwise, would limit our customersability to manufacture or reductions in their capital spending could directly impactsell certain of our business by reducing demand for our products and services and could have a material adverse effect on our business. Our customers are subject to risks which, in turn, could impact our business, including recent volatile oil and gas prices caused by COVID-19 and the potential for increased oil production from Russia and Saudi Arabia, difficulty accessing capital on economically advantageous terms and adverse developments in their own business or operations. With respect to national oil company customers, we are also subject to risk of policy, regime and budgetary changes.
Seasonal and weather conditions, as well as natural disasters, whichcould 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 affect travel required for our worldwide operations.
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.
Lastly, some scientists have concluded that increasing concentrations of our control, including a pandemic, epidemic or outbreak of an infectious disease,GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects on weather conditions, such as the global outbreakincreased frequency and severity of COVID-19, have materially adversely affected,storms, droughts, floods and may further materiallyother climatic events. If such climatic events were to occur more frequently or with greater intensity, they could adversely affect or delay demand for the oil or natural gas produced or cause us to incur significant costs in preparing for or responding to the effects of climatic events themselves. If any such events were to occur, they could have an adverse effect on the demand for our business.
Investor and servicespublic perception related to our customers. To the extent COVID-19 continues or worsens, including potential seasonal increases, governmentsCompany’s ESG performance as well as current and future ESG reporting requirements may impose additional similar restrictions.
Increasing focus on Environmental, Social and Governance (“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., several states have enacted or proposed such regulations related to pension investments or for the responsible investment of public funds. Additional regulation is pending in other states and federally, including rules proposed by the SEC in March 2022 that would require companies to enhance and standardize disclosures related to climate change, specifically those associated with physical risks and transitional risks. 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.
Our business could be negatively affected by cybersecurity threatsincidents 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.
Although we utilize various procedures and controls to mitigate our exposure to such risk, cybersecurity attacks and other cyber incidents are evolving nature of cyber threats, thereand unpredictable. 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. We have experienced, and expect to continue to experience, cyber intrusions and attacks to our information systems and our operational technology. To our knowledge, none of these incidents or attacks have resulted in a material cybersecurity intrusion or data breach.
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. A cyberattack or security breach could result in liability under data privacy laws, regulatory penalties, damage to our reputation or loss of confidence in us, or additional costs for remediation and modification or enhancement of our information systems to prevent future occurrences. 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.
If we are unable to adapt our services and products.
The diminution or losstransition of the servicesglobal energy sector from primarily a fossil fuel-based system to renewable energy sources could affect our customers’ levels of these individuals, or other integral key personnel affiliated with entities that we acquireexpenditures. Reduced activity in the future,our areas of operation as a result of decreased capital spending could have a material adverse effectnegative long-term impact on our business. The public health concerns posed by COVID-19 could poseOur business will need to adapt to changing customer preferences and government requirements. If the energy transition occurs faster than anticipated or in a risk to our employees and may render our employees unable to work or travel. The full extent to which COVID-19 may impact our employees, and subsequently our business, cannot be predicted at this time. We continue to monitor the situation, have actively implemented policies and practices to address the situation, and may adjust our current policies and practices as more information and guidance become available. Furthermore,manner we maydo not be able to enforce all of the provisions in agreements we have entered into with certain of our executive officers, and such agreements may not otherwise be effective in retaining such individuals. In addition, we may not be able to retain key employees of entities that we acquire in the future. This may impact our ability to successfully integrate or operate the assets we acquire.
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. The impact of the most recent downturn on our customers and their ability to continue operations and pay for our services is uncertain. 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.
Restrictions in the agreement governing our ABLRevolving Credit Facility (“RCF”) could adversely affect our business, financial condition, and results of operations.
The operating and financial restrictions in our ABL Credit FacilityRCF 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 ABL Credit Facility limitsThese limit our and our subsidiaries’ ability to, among other things:
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 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 have adopted and may continue to 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 customerscustomers’ operations in the United StatesU.S. and other countries are subject to stringent federal, state and local 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 could, 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 equipment and operation of drilling units, oil and gas exploration and development, as well as import and export activities.
Governing bodies have enacted and may propose legislation or regulations that would materially limit or prohibit drilling in certain areas. The issuance of more stringent safety and environmental guidelines, 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. If laws are enacted or other governmental action is taken that restricts or prohibits drilling in our expected areas of operation, demand for our services and products could be reduced and our business could be materially adversely affected.
Governments in some foreign countries have been increasingly active in regulating and controlling the ownership of concessions and companies holding concessions, the exploration for oil and gas and other aspects of the oil and gas industries in their countries, including local content requirements for participating in tenders for certain tubular and well construction services. We operate in several of these countries, including Angola, Nigeria, Ghana, Equatorial Guinea, Indonesia, Malaysia, Brazil and Canada.tenders. Many governments favor or effectively require that contracts be awarded to local 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 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 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 also subject to the U.S. anti-boycott law, and although no violation occurred, we made an International Boycott Report on Form 5713 during the year ended December 31, 2019. In addition, certain anti-dumping regulations in the U.S. and other countries in which we operate may prohibit us from purchasing pipe from certain suppliers.laws. The U.S. and other countries also from time to time may impose special punitive tariff regimes targeting goods from certain countries. For example, on March 8, 2018, under Section 232 of the Trade Expansion Act of 1962, the U.S. imposed a 25% tariff on steel articles imported from all countries. However, imports of steel tubes from Australia, Argentina, Brazil and South Korea were exempted from the 25% tariff; the latter three with specific quotas per product.
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 be 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 regulations as a method to increase revenue. Materials that we import can be delayed 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 denials could cause unscheduled operational downtime. Any failure to comply with these applicable legal and regulatory obligations also could result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from government contracts, seizure of shipments and loss of import and export privileges.
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.
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 Kingdom passed a referendum requiringStates Foreign Corrupt Practices Act (“FCPA”), the country to leave the European Union (“EU”), and in March 2017 the United Kingdom provided notification of its intent to leave the EU. On January 31, 2020, the United Kingdom formally left the EU,U.K. Bribery Act 2010 and the United KingdomNations 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 the EU have agreed upon a transition period through December 31, 2020, in order to negotiate a new trade agreement. Our offices in Aberdeen function as a regional hub for warehousing, servicing and repair of equipment. The departure of the United Kingdom from the European Union could impact trade, and shipping both between the United Kingdom and Europe, and generally to all destinations. Disruption or delay of shipping and customs clearancemay in the United Kingdom could adversely impact our ability to meet our obligations under customer contractsfuture do additional business in countries and to accept new work.
Compliance with laws and regulations on trade sanctions and embargoes including those administered by the past decade have heightened environmental and regulatory concerns aboutUnited States Department of the oil and gas industry. From timeTreasury’s Office of Foreign Assets Control also poses a risk to time, governing bodies have enacted and may propose legislationus. We cannot provide products or regulations that would materially limitservices to or prohibit offshore drilling in certain areas. If laws are enactedcountries 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 trade-related laws and regulations, even if prohibited by our policies, could result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from governmental actioncontracts, seizure of shipments and loss of import and export privileges. It is taken that restrictour policy to implement procedures concerning compliance with applicable trade sanctions, export controls, and other trade-related laws and regulations. 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 prohibit offshore drilling in our expected areas of operation, our expected future growth 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 offshore regulatory and safety matters. The issuance of more stringent safety and environmental guidelines, regulations or moratoria for drilling inoutside the U.S. GulfWe 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.
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.
The threat of climate change continues to attract considerable attention in the United States and other countries.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 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 – “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.
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 are interpreted and applied, compliance costs may increase, particularly in the context of ensuring that adequate data protection and data transfer mechanisms are in place.
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 various countries in which we operate. In addition, legislators and/or regulators in the U.S., the European UnionEU and other jurisdictions in which we operate are increasingly adopting or revising privacy, data protection and information security laws that could create compliance uncertainty and could increase our costs or require us to change our business practices in a manner adverse to our business. Compliance with current or future privacy, data protection and information security laws could significantly impact our current and planned privacy, data protection and information security related practices, our collection, use, sharing, retention and safeguarding of employee information and information regarding others with whom we do business. Our failure to comply with privacy, data protection and information security laws could result in fines, sanctions or other penalties, which could materially and adversely affect our results of operations and overall business, as well as have an impact on our reputation. For example, the EU’s General Data Protection Regulations (EU) 2016/679 (the “GDPR”), as supplemented by any national laws (such as in the United Kingdom (“U.K.”), the Data Protection Act 2018) and further implemented through binding guidance from the European Data Protection Board, came into effect on May 25, 2018. The GDPR expanded the scope of the EU data protection law to all foreign companies processing personal data of European Economic Area individuals and imposed a stricter data protection compliance regime, including the introduction of administrative fines for non-compliance, up to 4% of global total annual worldwide turnover or €20 million (whichever is higher), depending on the type and severity of the breach, as well as the right to compensation for financial or non-financial damages claimed by any individuals under Article 82 GDPR and theGDPR. Our business may also face reputational damages that our business may be facing as a result of any personal data breach or violation of the GDPR.
Risks Related to Our Common Stock
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
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 cause of liability of such third party to the company also constitutes a tortious act directly against such shareholder and the damages sustained are permanent, may that shareholder have an individual right of action against such third party on its own behalf to recover damages. The Dutch Civil Code provides for the possibility to initiate such actions collectively. A foundation or an association whose objective, as stated in its articles of association, is to protect the rights of persons having similar interests may institute a collective action. The collective action cannot result in an order for payment of monetary damages but may result in a declaratory judgment (
verklaring voor recht), for example declaring that a party has acted wrongfully or has breached a fiduciary duty. The foundation or association and the defendant are permitted to reach (often on the basis of such declaratory judgment) a settlement which provides for monetary compensation for damages. A designated Dutch court may declare the settlement agreement binding upon all the injured parties, whereby an individual injured party will have the choice to opt-out within the term set by the court (at least three months). Such individual injured party may also individually institute a civil claim for damages within the before mentioned term.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:
In addition, based on Dutch corporate law and our articles of association, the 2023 annual general meeting of shareholders has authorized our Board, for a period of eighteen months as of the date of the 2023 annual meeting, to issue common stock, up to 20% of the issued share capital, for any legal purpose, which could include defensive purposes, without further shareholder approval being needed. The issuance, or availability for issuance, of substantial amounts of our common stock in the public market could adversely affect the prevailing market price of our common stock and could impair our ability to raise additional capital through the sale of equity securities.
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 StatesU.S. 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 StatesU.S. 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 StatesU.S. 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 StatesU.S. court in the Netherlands, a claim against the relevant party on the basis of such judgment should be brought before the competent court of the Netherlands. During the proceedings such court will assess, when requested, whether a foreign judgment meets the above conditions. In the affirmative, the court may order that substantive examination of the matter shall be dispensed with. In such case, the court will confine itself to an order reiterating the foreign judgment against the party against whom it had been obtained. Otherwise, a new substantive examination will take place.
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 StatesU.S. 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.
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. 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 (i) two persons as its nominees for election to the Board as non-executive directors for so long as the Oak Hill Group (as defined in the Director Nomination Agreement) collectively owns shares of common stock equal to at least 20% of the total shares outstanding and (ii) one person as its nominee for election to the Board as a non-executive director for so long as the Oak Hill Group collectively owns shares of common stock equal to at least 10% (but less than 20%) of the total shares outstanding. The Oak Hill Group currently has the right to designate one person as its nominee for election to the Board. Upon the Oak Hill Group ceasing to collectively own shares of common stock equal to at least 10% of the total shares outstanding, Oak Hill Advisors will not have a right to designate a director to the Board. Finally, if these shareholders were in the future to sell all or a material number of shares of common stock, the market price of Company’s common stock could be negatively impacted.
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.
Our future effective tax rates could be adversely affected by changes in tax laws, treaties and regulations, both in the United StatesU.S. 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.
Item 1B. Unresolved Staff Comments
None.
In the ordinary course of our business, we collect, use, store, and transmit digitally large amounts of confidential, sensitive, proprietary, and personal information. The secure maintenance of this information and our information technology systems is important to our operations and business strategy. To this end, we have implemented processes designed to assess, identify, and manage risks from potential unauthorized occurrences on or through our information technology systems that may result in adverse effects on the currentconfidentiality, integrity, and anticipated valueavailability of our assetsthese systems and the compositiondata residing therein.
These processes are managed and monitored by a dedicated Cybersecurity and Infrastructure team, which is led by our Chief Information Officer, and include mechanisms, controls, technologies, systems, and other processes designed to prevent or mitigate data loss, theft, misuse, or other security incidents or vulnerabilities affecting the data and maintain a stable information technology environment. For example, we conduct penetration and vulnerability testing, data recovery testing, security audits, and annual and ongoing risk assessments. We engage third parties to perform monitoring and regular penetration testing. We have adopted an Incident Response Policy that applies in the event of a cybersecurity threat or incident that follows the National Institute of Standards and Technology framework. We also conduct regular employee trainings on cyber and information security, among other topics. In addition, we consult with outside advisors and experts, when appropriate, to assist with assessing, identifying, and managing cybersecurity risks, including to anticipate future threats and trends, and their impact on the Company’s risk environment.
Our Chief Information Officer who reports to the Chief Financial Officer and has over 30 years of experience managing information technology and cybersecurity matters, together with our income, assets,executive management team, is responsible for assessing and operations,managing cybersecurity risks. We consider cybersecurity, along with other significant risks that we doface, within our overall enterprise risk management framework. In the last fiscal year, we have not expectidentified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us, but we face certain ongoing cybersecurity risks threats that, if realized, are reasonably likely to bematerially affect us. Additional information on cybersecurity risks we face is discussed in Part I, Item 1A, “Risk Factors,” under the heading “Risks Related to Legal and Regulatory Requirements.”
The Board of Directors, as a PFICwhole and at the committee level, has oversight for the current taxable year or in the foreseeable future. However, the application of the PFIC rules involves a factsmost significant risks facing us and circumstances analysisfor our processes to identify, prioritize, assess, manage, and we cannot assure you that the IRS would agree withmitigate those risks. The Nominating and Governance Committee has been designated by our conclusion or that the U.S. tax laws will not change significantly.
In order to design, manufacture and service the proprietary equipment that support our operations, as well as the 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 approximately 4060 countries.
The following table details our material facilities by segment, owned or leased by us as of December 31, 2020.
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 and administration | ||||||||||||
Neuquen, Argentina | Leased | Regional operations | ||||||||||||
New Iberia, Louisiana | Leased | Regional operations | ||||||||||||
| Broussard, 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 | Corporate office and regional operations | ||||||||||||
Dubai, United Arab Emirates | Owned/Leased | Regional operations and administration | ||||||||||||
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 and/or assemble a substantial portion of our service equipment. The main administrative building within the facility is approximately 172,636 square feet. We believe the facilities that we currently occupy are suitable for their intended use.
Information related to Item 3. Legal Proceedings“Legal Proceedings” is included in Note 16—18 “Commitments and Contingenciescontingencies” to the consolidated financial statements.
Not applicable.
PART II
Market Information
Our common stock is traded on the NYSE under the symbol “FI”“XPRO”.
On February 17, 2021,16, 2024, we had 226,578,254110,079,739 shares of common stock outstanding. The common shares outstanding at February 17, 2021,16, 2024, were held by approximately 2820 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, 2020,2023, 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
On October 25, 2023, the Board approved an extension to the stock repurchase program first approved on June 16, 2022. Pursuant to the extended stock repurchase program, the Company is authorized to acquire up to $100.0 million of Directors has authorized a program to repurchase ourits outstanding common stock from timeOctober 25, 2023 through November 24, 2024 (the “Stock Repurchase Program”). Under the Stock Repurchase Program, the Company may repurchase shares of the Company’s common stock in open market purchases, in privately negotiated transactions or otherwise. The Stock Repurchase Program will continue to be utilized at management’s discretion and in accordance with federal securities laws. The timing and actual numbers of shares repurchased will depend on a variety of factors including price, corporate requirements, the constraints specified in the Stock Repurchase Program along with general business and market conditions. The Stock Repurchase Program does not obligate the Company to repurchase any particular amount of common stock, and it could be modified, suspended or discontinued at any time. Approximately $38,502,322 remained authorized for repurchases as ofDuring the year ended December 31, 2020; subject to the limitation set in our shareholder authorization for repurchases2023, we repurchased approximately 1.2 million shares of our common stock which is currently 10% ofunder the common stock outstanding as of April 30, 2020. From the inception of this program in February 2020 through December 31, 2020, we repurchased 570,044 shares of our common stockStock Repurchase Program for a total cost of approximately $1.5 million. This program was suspended$20.0 million, including shares repurchased prior to the extension of the Stock Repurchase Program.
Following is a summary of repurchases of our common stock during the second quarter of 2020 due to the impacts of COVID-19 and commodity price declines and will be revisited when market conditions stabilize sufficiently to provide greater clarity to anticipated business results.
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Program (2) | ||||||||||||
October 1 - October 31 | -- | $ | -- | -- | $ | 100,000,000 | ||||||||||
November 1 - November 30 | 642,334 | $ | 15.59 | 642,334 | $ | 89,987,162 | ||||||||||
December 1 - December 31 | -- | $ | -- | -- | $ | 89,987,162 | ||||||||||
Total | 642,334 | $ | 15.59 | 642,334 | ||||||||||||
1) | This table excludes shares withheld from employees to satisfy tax withholding requirements on equity-based transactions. We administer cashless settlements and do not repurchase stock in connection with cashless settlements. |
2) | Our Board authorized a program to repurchase our common stock from time to time. Approximately $90.0 million remained authorized for repurchases as of December 31, 2023, subject to the limitation set in our shareholder authorization for repurchases of our common stock. |
Performance Graph
The following performance graph compares the performance of our common stock to the Russell 2000 Index, the SPDR S&P Oil & Gas Equipment & Services ETF (“XES”) and to a peer group established by management. The peer group consists of the following companies: Baker Hughes Company, ChampionX Corporation, Core Laboratories N.V., Dril-Quip, Inc., TechnipFMC plc, Halliburton Company, Helix Energy Solutions Group Inc., National Energy Services Reunited Corp., Patterson-UTI Energy, Inc. (which acquired NexTier Oilfield Solutions Inc., a member of our peer group for 2022), Oceaneering International, Inc., NOV Inc. and Schlumberger Limited.
If a company selects a different index from that used in the immediately preceding fiscal year, the company’s stock performance must be compared with both the newly-selected index and the PHLX Oil Service Sector Index (“OSX”).
Fiscal year ending December 31. | ||
The performance graph above and related information shall not be deemed “soliciting material” or to be “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; |
• | our cash flows and liquidity; |
• | our financial strategy, budget, projections and operating results; | |
| • | the amount and timing of any future share repurchases; |
• | the amount, nature and timing of capital expenditures; |
• | the availability and terms of capital; |
• | the exploration, development and production activities of our customers; |
• | the market for our existing and future products and services; |
• | competition and government regulations; and |
• | general economic and political conditions, including political tensions, conflicts and war (such as the ongoing Russian war in Ukraine and heightened tensions resulting from the ongoing conflicts in the Middle East). |
These forward-looking statements are generally accompanied by words such as “anticipate,” “believe,” “estimate,” “expect,” “goal,” “plan,” “intend,” “potential,” “predict,” “project,” “may,” “outlook,” or other terms that convey the uncertainty of future events or outcomes, although not all forward-looking statements contain such identifying words. The forward-looking statements in this Form 10-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 timing, pace and extent of an economic recovery, or economic slowdown or recession, in the U.S. and other countries, 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 (including the ability to recover, and to the extent necessary, service and/or economically repair any equipment located on the seabed); |
• | 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; and |
• | perception related to our ESG performance as well as current and future ESG reporting requirements. |
These and other important factors that could affect our operating results and performance are described in (i) Part I, Item 6. Selected Financial Data
| Year Ended December 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||||||||||||||||
Financial Statement Data: (1) | |||||||||||||||||||||||||||||
| Revenue | $ | 390,358 | $ | 579,920 | $ | 522,493 | $ | 454,795 | $ | 487,531 | |||||||||||||||||||
| Net loss | (156,220) | (235,329) | (90,733) | (159,457) | (156,079) | ||||||||||||||||||||||||
| Total assets | 816,901 | 994,165 | 1,193,929 | 1,261,769 | 1,588,061 | ||||||||||||||||||||||||
| Total equity | 661,249 | 810,294 | 1,034,772 | 1,115,901 | 1,311,319 | ||||||||||||||||||||||||
| Earnings Per Share Information: | |||||||||||||||||||||||||||||
| Basic and diluted loss per common share | $ | (0.69) | $ | (1.05) | $ | (0.41) | $ | (0.72) | $ | (0.77) | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||||||||
| Basic and diluted | 226,042 | 225,159 | 223,999 | 222,940 | 176,584 | ||||||||||||||||||||||||
| Cash dividends per common share | $ | — | $ | — | $ | — | $ | 0.225 | $ | 0.45 | |||||||||||||||||||
| Other Data: | |||||||||||||||||||||||||||||
Adjusted EBITDA (2) | $ | 8,996 | $ | 57,521 | $ | 33,232 | $ | 5,715 | $ | 25,031 | |||||||||||||||||||
Item 7, “Management’s7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - How We Evaluate Our Operations - Adjusted EBITDA and Adjusted EBITDA Margin.”
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, “Financial8. “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”1A. “Risk Factors” and elsewhere in this Form 10-K.
This section of this Form 10-K generally discusses 20202023 and 20192022 items and year-to-year comparisons between 20202023 and 2019.2022. Discussions of 20182021 items and year-to-year comparisons between 20192022 and 20182021 that are not included in this Form 10-K can be found in “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations” in Part II, Item 77. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
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 requires, 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 8,000 employees and gas industry and have been in business for over 80 years. We provide our services and productssolutions to leading exploration and production companies in both onshore and offshore and onshore environments with a focus on complex and technically demanding wells.
Our broad portfolio of products and services are designed to enhance production and improve recovery across the U.S.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. We believe we are a market leader in deepwater tubular running services and solutions. In recent years, we have added a range of lower-risk, open water cementing solutions, including the proprietary SeaCure® and QuikCure® solutions. We also offer a range of performance drilling tools designed to mitigate risk and optimize drilling efficiency. |
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 40 years of experience providing a wide range of fit-for-purpose subsea well access solutions, our technology aims to provide 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 (“IRS”) and a vessel-deployed, wire through water Riserless Well Intervention System (“RWIS”). We also provide systems integration and project management services. |
• | Well intervention and integrity: We provide well intervention solutions to acquire and interpret well data, maintain 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 relatively stable customer base that is comprised of national oil companies (“NOC”), the TRS segment provides services in the active onshoreinternational oil and gas drilling regions, including the Permian Basin, Eagle Ford Shale, Haynesville Shale, Marcellus Shale and Utica Shale, as well as in the U.S. Gulf of Mexico. Our customers in these markets are primarily largecompanies (“IOC”), independent exploration and production companies including international oil(“Independents”) and gas companies, national oil and gas companies, major independents and other oilfield service companies.
We organize and manage our operations on a geographical basis. Our reporting structure and the installation of casing, centralizationkey financial information used by our management team is organized around our four operating segments: (i) North and wellbore zonal isolation, as well as enhance cementing operations through advance wiper plugLatin America (“NLA”), (ii) Europe and float equipment technology. Abandonment solutions are primarily used to isolate portions of the wellbore through the setting of barriers downhole to allow for rig evacuation in case of inclement weather, maintenance work on other rig equipment, squeeze cementing, pressure testing within the wellbore, hydraulic fracturingSub-Saharan Africa (“ESSA”), (iii) Middle East and temporaryNorth Africa (“MENA”) and permanent abandonments. These offerings improve operational efficiencies and limit non-productive time if unscheduled events are encountered at the wellsite.
How We Generate Our Revenue
Our
For the year ended December 31, 2023, approximately 82% of our revenue was generated outside of the United States and approximately 66% of our revenue was generated by activities related to offshore oil and gas operations. Approximately 63% of our revenue was generated by services tied to drilling tool offerings,and completions-related activities, which are generally funded by customers’ capital expenditures, and approximately 37% of our revenue was generated by production optimization related activities, which are generally funded by customers’ operating expenditures.
Market Conditions and Price of Oil and Gas
The fourth quarter of 2023 has seen continued growth and increased activity as the market rebounds from the effects of the COVID-19 pandemic and Russia’s invasion of Ukraine, with limited effect currently from the heightened tensions resulting from the ongoing conflicts in the Middle East. There are a number of market factors that have had, and may continue to have, an effect on our business, including:
• | The market for energy services and our business are substantially dependent on the price of oil and, to a lesser extent, the regional price of gas, which are both driven by market supply and demand. Changes in oil and gas prices impact customer willingness to spend on exploration and appraisal, development, production, and abandonment activities. The extent of the impact of a change in oil and gas prices on these activities varies extensively between geographic regions, types of customers, types of activities and the financial returns of individual projects. |
• | Average daily oil demand in the fourth quarter of 2023 exceeded average daily demand levels in 2022, with liquid demand recovering to annualized 2019 levels in 2023. Brent crude oil prices have been returning to mid-year levels (average $75/bbl in June) through the fourth quarter, declining from an average of $91/bbl in October to an average of $78/bbl in December. The Brent price decrease came despite the announcement of an extension by Organization of Petroleum Exporting Countries and certain other oil producing nations (“OPEC+”) of supply cuts amid ongoing concerns about global oil demand growth and rising global oil inventories, which were estimated to increase by 0.8 million b/d in the fourth quarter. |
• | Activity related to gas and liquified natural gas (“LNG”) production (and associated asset development) continues to grow within our ESSA and MENA regions in support of Europe’s ongoing drive to diversify away from its reliance on Russian pipeline gas supplies over the long term. More broadly, the energy security and transition imperatives of policymakers in the U.S. and Europe are expected to result in increased investment in global gas development. |
• | International, offshore and deepwater activity continued to strengthen throughout 2023 as operator upstream investments increased to pre-pandemic levels. We also experienced an increased demand for services and solutions related to brownfield and production enhancement and infield development programs as operators strive to maximize their previous investments and maintain production with a lower carbon footprint. In addition, we have seen an increase in demand for early production facilities and production optimization technologies, especially in support of gas and LNG developments. |
• | The clean energy transition continues to gain momentum. We believe, however, that hydrocarbons, and natural gas in particular, will continue to play a vital role in the transition towards more sustainable energy resources, and the existing expertise and future innovation within the energy services sector, both to reduce emissions and enhance efficiency, will be critical. We are already active in the early-stage carbon capture and storage segment and have expertise and established operations within the geothermal and flare reduction segments. We continue to develop technologies to enhance the sustainability of our customers’ operations which, along with our digital transformation initiatives, are expected to enable us to continue to support our customers’ commercial and environmental initiatives. As the industry changes, we continue to evolve our approach to adapt and help our customers develop more sustainable energy solutions. |
Outlook
Global liquids demand growth continued in the final quarter of 2023 and is forecast to continue to grow in 2024. Demand growth combined with a slowing production growth due to the extension of voluntary OPEC+ supply cuts, as well as from well construction and well intervention services.
The U.S. Energy Information Administration (“EIA”) predicts that global liquid fuels consumption will average 102.5 million b/d in 2024, continuing growth from pre-pandemic levels and increasing by 1.4 million b/d over 2023. Global liquids demand is then expected to grow by an additional 1.2 million b/d to reach 103.7 million b/d in 2025. Global liquids demand growth is mostly from countries outside the Organization for Economic Co-operation and Development (“OECD”) in Asia, led by China and India, with OECD countries demand growth expected to remain mostly flat in 2024 and 2025.
The EIA forecasts that global liquids production will average 102.3 million b/d in 2024 - an increase of 0.6 million b/d over 2023 – and average 104.0 million b/d in 2025, a further 1.6 million b/d increase over 2024. Supply growth in 2024 is down stockpilesfrom the increases seen in 2023 as a result of supply. While itextended OPEC+ production cuts and slowing non-OPEC growth. OPEC+ crude oil production is uncertain how long depressed energyexpected to decline by 0.6 million b/d in 2024, which is offset by 1.2 million b/d production growth outside of the group. The main drivers of the slowdown in production growth are the United States, Canada and Brazil, offset by supply growth from Guyana.
As a result of the inventory withdrawals expected in the first quarter of 2024, the EIA forecasts that Brent prices will average $85/bbl for this period. Supply and demand dynamics are then expected to improve with relatively balanced markets for the remainder of 2024 placing downward pressure on crude oil prices. As a result, the EIA expects Brent crude oil prices to average $82/bbl for 2024 and $79/bbl for 2025.
In addition to the continued positive oil market outlook, global natural gas prices are expected to remain elevated as the market remains fundamentally tight.
The EIA estimates that annual average Henry Hub prices will remain under $3.00 per million British thermal unit (“MMBtu”) for 2024 and 2025, though they are expected to increase from an average of $2.54/MMBtu in 2023 to reach $2.66/MMBtu in 2024 and $2.95/MMBtu in 2025, respectively. The modest increase in prices is driven by an increase in LNG exports, however, further upward pricing pressure is limited by high levels of inventory. Rystad Energy forecasts spot prices at the European Title Transfer Facility and Northeast Asian LNG will average $12.20/MMBtu and $13.20/MMBtu respectively for 2024, as balances have loosened through a milder winter. Prices are expected to see higher than normal volatility where shocks in demand or supply may drive short-term price spikes.
Consequently, the market outlook for 2024 is generally constructive with high commodity prices relative to the last several years driving growth in exploration and production expenditures and the highest level of upstream investment expected since 2015. Strong investment growth is expected in the deepwater and offshore shelf segments with support from large projects in Norway, Brazil, Guyana and the continuation of production capacity expansion projects in the Middle East, driven by Saudi Arabia, the United Arab Emirates and Qatar.
As a result, we anticipate international and U.S. offshoreexpect demand for our productsservices and servicessolutions to moderately increasecontinue trending positively throughout 2024. The following provides an outlook for 2024 by our reporting segments based on data from current levelsSpears and Associates, Inc.
NLA: Drilling activity in North America is forecast to decline by 6% in 2024 to an average of 648 active rigs as more customer projects come back online in 2021. Explorationboth large and development spending continues to shift toward offshore and internationally focused projects, while U.S. landsmall operators strive for continued capital discipline, creating a ceiling on potential growth as they prioritize financial returns. Completion activity is anticipatedexpected to havehold steady in 2024, with a moderatetotal of about 18,100 well completions and 13,000 frac jobs. The uptick in merger and acquisition activity in 2023 and continuing into 2024 may contribute to a slower recovery in drilling activity as new owners prioritize production growth from existing assets. In Latin America, drilling activity is estimated to increase by 6% in 2024 to an average of 191 active rigs, accounting for over 2,500 new wells driven by Mexico, Argentina and Brazil. Mexico, Argentina and Colombia are expected to collectively account for 75-80% of overall Latin American rig activity in 2024. After Brazil, the coming year. Activitytop four producing nations in Latin America are Mexico, Venezuela, Colombia and Argentina, with Guyana expected to soon take over third place.
ESSA: European drilling activity is now expected to average 101 active rigs in 2024, up by 4%, accounting for over 850 new wells. Ukraine, Norway and the deepwater offshore marketU.K. are expected to collectively account for over approximately 75% of overall European rig activity in 2024. Onshore drilling in Europe is forecast to average 68 active rigs in 2024, up by 5%, accounting for over 450 new wells. Offshore drilling activity is predicted to grow by 3% in 2024, averaging 33 active rigs as North Sea activity is constrained by the exodus of rigs from Norwegian waters for international contracts in Namibia, Brazil and Australia. Drilling activity in Africa is projected to average 156 active rigs in 2024, up by 15%, accounting for almost 1,250 new wells, with activity in Namibia and Uganda continuing to increase. Onshore drilling activity is expected to improve as delayed projects resumeby 16% in 2024 to average 124 active rigs, drilling 850 new wells, while offshore drilling activity is predicted to increase by 10% to average 32 active rigs, drilling around 375 new wells.
MENA: In the Middle East, drilling activity is now expected to average 343 active rigs in 2024, up by 9%, accounting for almost 2,600 new wells. Saudi Arabia, Iraq and Abu Dhabi are expected to collectively account for around 65% of overall Middle Eastern rig activity in 2024. The growth is driven by analysts estimates that state-owned national oil companies in the region could potentially spend up to $100 billion this year on upstream investment, despite some projections that crude oil could reach peak demand before the end of this decade. Onshore drilling in the Middle East is now projected to increase by 10% in 2024 to an average of 296 active land rigs, drilling about 2,500 new projects commence throughout 2021.
APAC: Based on the internationaloutlook for oil prices, drilling activity in the Asia Pacific region is now forecast to average 191 active rigs in 2024, up by 6%, accounting for almost 2,800 new wells. India, Indonesia and Australia are projected to collectively account for around 75% of overall rig activity in the region in 2024. Onshore drilling in the region is forecast to increase by 5% to average 143 active land rigs drilling about 1,750 new wells, while offshore marketsactivity is projected to see moderaterise by 7% to an average of 48 active rigs, accounting for a total of almost 1,050 new wells. LNG development projects are driving the activity growth in line with market trends, U.S. offshoreAustralia and Indonesia as operators look to remain stable, and U.S. onshore operations to rebound slightly from 2020 asmeet the increased global demand for oil improves. This business is typically associated with higher margin projects and will continue to be a vehicle to pull through additional product lines and revenue sources. Competitive pricing is likely to persist that could serve to limit our growth; however, we expect to maintain market share gains from previous years. Our client base continues to expand as drilling contractors and integrated service providers look for differentiated technology and efficiency-based solutions.
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 income (loss), the most directly comparable financial performance measure calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and a reconciliation of Adjusted Cash Flow from Operations to net cash provided by (used in) operating activities, the most directly comparable liquidity measure calculated and presented in accordance with GAAP.
Executive Overview
Year ended December 31, 2023 compared to year ended December 31, 2022
Certain highlights of our financial results and other key developments include:
• | Revenue for the year ended December 31, 2023 increased by $233.4 million, or 18.2%, to $1,512.8 million, compared to $1,279.4 million for the year ended December 31, 2022. Activity and revenue across all our geography-based operating segments increased during the year ended December 31, 2023, most notably in ESSA. 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, 2023 of $23.4 million, compared to a net loss of $20.1 million for the year ended December 31, 2022. The increase in net loss primarily reflects higher depreciation and amortization expense of $32.5 million, higher severance and other expense of $6.6 million, higher interest and finance expense of $3.7 million, higher income tax expense of $3.1 million, lower other income of $1.9 million, and higher stock-based compensation expense of $1.1 million, partially offset by higher Adjusted EBITDA of $42.7 million and lower merger and integration expense of $3.8 million. |
• | Adjusted EBITDA for the year ended December 31, 2023 increased by $42.7 million, or 20.7%, to $248.9 million from $206.2 million for the year ended December 31, 2022. Adjusted EBITDA margin increased to 16.5% during the year ended December 31, 2023, as compared to 16.1% during the year ended December 31, 2022. The increase in Adjusted EBITDA and Adjusted EBITDA margin is primarily attributable to higher revenue and a more favorable activity mix. The increase is offset by unrecoverable costs associated with our light well intervention (“LWI”) business in APAC. Adjusted EBITDA for the year ended December 31, 2023 includes unrecoverable LWI-related costs in APAC of $35.9 million. Adjusted EBITDA for the year ended December 31, 2022 includes unrecoverable LWI-related costs in APAC of $27.7 million. Excluding unrecoverable LWI-related costs, Adjusted EBITDA for the years ended December 31, 2023 and 2022 would have been $284.8 million and $233.9 million, and Adjusted EBITDA margin would have been 18.8% and 18.3%, respectively. The Company suspended vessel-deployed LWI operations during the third quarter of 2023 following a wire failure on the main crane of a third-party owned vessel working with Expro while the crane was suspending the subsea module of Expro’s vessel-deployed LWI system. We are continuing to work with the relevant stakeholders and independent experts to assess the incident. Fourth quarter results include unrecoverable LWI-related costs of $4.3 million. The well control package and lubricator components of this vessel-deployed LWI system have been safely recovered, but we have determined not to participate in the recovery of the subsea module from the seabed. We are continuing to determine the path forward for our vessel-deployed LWI operations, including what alternative service delivery options and service partner options are available to the Company, and the timing and cost (including potential damage claims) of completing customer work scopes for which our vessel-deployed LWI system was integral. At this time, we are not able to assess the timing and potential cost of completing customer work scopes but do not expect such costs to be material to Expro’s financial results. |
• | Net cash provided by operating activities was $138.3 million during the year ended December 31, 2023 as compared to $80.2 million during the year ended December 31, 2022. The increase of $58.1 million in net cash provided by operating activities for the year ended December 31, 2023 was primarily driven by increase in Adjusted EBITDA of $42.7 million and favorable movement in working capital by $22.0 million, partially offset by higher payments for income taxes of $11.1 million for the year ended December 31, 2023. Adjusted Cash Flow from Operations and Cash Conversion for the year ended December 31, 2023 were $170.2 million and 68.4%, respectively, compared to $115.3 million and 55.9%, respectively, for the year ended December 31, 2022 |
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 income (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 (used in) 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 income (loss) before interestadjusted for (a) income net,tax expense (benefit), (b) depreciation and amortization income tax benefit or expense, asset impairments, gain or(c) impairment expense, (d) severance and other expense, net, (e) stock-based compensation expense, (f) merger and integration expense, (g) (gain) loss on disposal of assets, (h) other (income) expense, net, (i) interest and finance (income) 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 (gain) loss. Adjusted EBITDA margin reflects our Adjusted EBITDA as a percentage of our revenue. revenues.
We review define Adjusted Cash Flow from Operations as net cash provided by (used in) 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 measurecompanies, thereby diminishing their utility.
The following table presents a reconciliation of net loss to Adjusted EBITDA and Adjusted EBITDA margin to net loss for each of the periods presented (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Net loss | $ | (156,220) | $ | (235,329) | $ | (90,733) | |||||||||||
| Goodwill impairment | 57,146 | 111,108 | — | ||||||||||||||
| Severance and other charges (credits), net | 33,023 | 50,430 | (310) | ||||||||||||||
| Interest income, net | (712) | (2,265) | (4,243) | ||||||||||||||
| Depreciation and amortization | 70,169 | 92,800 | 111,292 | ||||||||||||||
| Income tax expense (benefit) | (4,081) | 23,794 | (2,950) | ||||||||||||||
| (Gain) loss on disposal of assets | (1,424) | 1,037 | (1,309) | ||||||||||||||
| Foreign currency loss | 211 | 2,233 | 5,675 | ||||||||||||||
| TRA related adjustments | — | (220) | 1,359 | ||||||||||||||
Charges and credits (1) | 10,884 | 13,933 | 14,451 | ||||||||||||||
| Adjusted EBITDA | $ | 8,996 | $ | 57,521 | $ | 33,232 | |||||||||||
| Adjusted EBITDA margin | 2.3 | % | 9.9 | % | 6.4 | % | |||||||||||
Year ended | ||||||||||||
December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Net loss | $ | (23,360 | ) | $ | (20,145 | ) | $ | (131,891 | ) | |||
Income tax expense | $ | 44,307 | $ | 41,247 | $ | 16,267 | ||||||
Depreciation and amortization expense | 172,260 | 139,767 | 123,866 | |||||||||
Severance and other expense | 14,388 | 7,825 | 7,826 | |||||||||
Merger and integration expense | 9,764 | 13,620 | 47,593 | |||||||||
Gain on disposal of assets | - | - | (1,000 | ) | ||||||||
Other income, net (1) | (1,234 | ) | (3,149 | ) | (3,992 | ) | ||||||
Stock-based compensation expense | 19,574 | 18,486 | 54,162 | |||||||||
Foreign exchange losses | 9,238 | 8,341 | 4,314 | |||||||||
Interest and finance expense, net | 3,943 | 241 | 8,795 | |||||||||
Adjusted EBITDA (2) | $ | 248,880 | $ | 206,233 | $ | 125,940 | ||||||
Adjusted EBITDA Margin | 16.5 | % | 16.1 | % | 15.3 | % | ||||||
(1) | Other expense (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. | ||||
(2) | Excluding $35.9 million of unrecoverable LWI-related costs during the year ended December 31, 2023, Adjusted EBITDA would have been $284.8 million and Adjusted EBITDA margin would have been 18.8%. Excluding $27.7 million of unrecoverable LWI-related costs during the year ended December 31, 2022, Adjusted EBITDA would have been $233.9 million and Adjusted EBITDA margin would have been 18.3%. |
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, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Net cash provided by operating activities | $ | 138,309 | $ | 80,169 | $ | 16,144 | ||||||
Cash paid during the year for interest, net | 2,177 | 3,851 | 4,192 | |||||||||
Cash paid during the year for severance and other expense | 12,304 | 3,970 | 8,052 | |||||||||
Cash paid during the year for merger and integration expense | 17,403 | 27,344 | 36,921 | |||||||||
Adjusted Cash Flow from Operations | $ | 170,193 | $ | 115,334 | $ | 65,309 | ||||||
Adjusted EBITDA | $ | 248,880 | $ | 206,233 | $ | 125,940 | ||||||
Cash Conversion | 68.4 | % | 55.9 | % | 51.9 | % | ||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Revenue: | |||||||||||||||||
| Services | $ | 328,457 | $ | 473,538 | $ | 416,781 | |||||||||||
| Products | 61,901 | 106,382 | 105,712 | ||||||||||||||
| Total revenue | 390,358 | 579,920 | 522,493 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Cost of revenue, exclusive of depreciation and amortization | |||||||||||||||||
| Services | 264,680 | 338,325 | 302,880 | ||||||||||||||
| Products | 47,399 | 78,666 | 76,183 | ||||||||||||||
| General and administrative expenses | 82,257 | 120,444 | 126,638 | ||||||||||||||
| Depreciation and amortization | 70,169 | 92,800 | 111,292 | ||||||||||||||
| Goodwill impairment | 57,146 | 111,108 | — | ||||||||||||||
| Severance and other charges (credits), net | 33,023 | 50,430 | (310) | ||||||||||||||
| (Gain) loss on disposal of assets | (1,424) | 1,037 | (1,309) | ||||||||||||||
| Operating loss | (162,892) | (212,890) | (92,881) | ||||||||||||||
| Other income (expense): | |||||||||||||||||
TRA related adjustments (1) | — | 220 | (1,359) | ||||||||||||||
| Other income, net | 2,090 | 1,103 | 2,047 | ||||||||||||||
| Interest income, net | 712 | 2,265 | 4,243 | ||||||||||||||
| Mergers and acquisition expense | — | — | (58) | ||||||||||||||
| Foreign currency loss | (211) | (2,233) | (5,675) | ||||||||||||||
| Total other income (expense) | 2,591 | 1,355 | (802) | ||||||||||||||
| Loss before income taxes | (160,301) | (211,535) | (93,683) | ||||||||||||||
| Income tax expense (benefit) | (4,081) | 23,794 | (2,950) | ||||||||||||||
| Net loss | $ | (156,220) | $ | (235,329) | $ | (90,733) | |||||||||||
Selected Unaudited Financial Information for the Notes to Consolidated Financial Statements for further discussion.
Operating Segment Results
The following table shows revenue by segment and revenue as a percentage of total revenue by segment for the yearthree months ended December 31, 2020, decreased2023 and September 30, 2023:
Three Months Ended | Percentage | |||||||||||||||
(in thousands) | December 31, 2023 | September 30, 2023 | December 31, 2023 | September 30, 2023 | ||||||||||||
NLA | $ | 145,490 | $ | 105,252 | 35.8 | % | 28.5 | % | ||||||||
ESSA | 133,846 | 135,395 | 32.9 | % | 36.6 | % | ||||||||||
MENA | 65,363 | 58,057 | 16.1 | % | 15.7 | % | ||||||||||
APAC | 62,051 | 71,114 | 15.3 | % | 19.2 | % | ||||||||||
Total Revenue | $ | 406,750 | $ | 369,818 | 100.0 | % | 100.0 | % | ||||||||
The following table shows the Segment EBITDA and Segment EBITDA as a percentage of total revenue by $189.6segment (“Segment EBITDA margin”) and a reconciliation to income (loss) before income taxes for the three months ended December 31, 2023 and September 30, 2023:
Three Months Ended | Segment EBITDA Margin | |||||||||||||||
(in thousands) | December 31, 2023 | September 30, 2023 | December 31, 2023 | September 30, 2023 | ||||||||||||
NLA | $ | 44,325 | $ | 19,967 | 30.5 | % | 19.0 | % | ||||||||
ESSA | 40,990 | 39,268 | 30.6 | % | 29.0 | % | ||||||||||
MENA | 21,271 | 16,871 | 32.5 | % | 29.1 | % | ||||||||||
APAC | 5,337 | (4,286 | ) | 8.6 | % | (6.0 | )% | |||||||||
Total Segment EBITDA | $ | 111,923 | $ | 71,820 | 27.5 | % | 19.4 | % | ||||||||
Corporate costs | (31,894 | ) | (24,070 | ) | ||||||||||||
Equity in income of joint ventures | 5,117 | 2,495 | ||||||||||||||
Depreciation and amortization expense | (62,874 | ) | (37,414 | ) | ||||||||||||
Merger and integration expense | (5,432 | ) | (817 | ) | ||||||||||||
Severance and other expense | (8,901 | ) | (1,897 | ) | ||||||||||||
Stock-based compensation expense | (4,892 | ) | (4,934 | ) | ||||||||||||
Foreign exchange loss | (4,608 | ) | (4,260 | ) | ||||||||||||
Other income (expense), net | 4,774 | (1,129 | ) | |||||||||||||
Interest and finance expense, net | (2,255 | ) | (373 | ) | ||||||||||||
Income (loss) before income taxes | $ | 958 | $ | (579 | ) | |||||||||||
Quarter endedDecember 31, 2023compared to quarter ended September 30, 2023
NLA
Revenue for the NLA segment was $145.5 million for the three months ended December 31, 2023, an increase of $40.2 million, or 32.7%38.2%, compared to $390.4$105.3 million from $579.9for the three months ended September 30, 2023. The increase was primarily due to additional subsea well access revenue following the acquisition of PRT Offshore at the beginning of the fourth quarter, higher well flow management revenue in Mexico, and higher well construction revenue in the U.S. due to increased customer activity.
Segment EBITDA for the NLA segment was $44.3 million, or 30.5% of revenues, during the three months ended December 31, 2023, compared to $20.0 million, or 19.0% of revenues, during the three months ended September 30, 2023. The increase of $24.3 million in Segment EBITDA was attributable to higher activity and the increase in Segment EBITDA margin was attributable to improved operating leverage and a more favorable activity mix during the three months ended December 31, 2023.
ESSA
Revenue for the ESSA segment was $133.8 million for the three months ended December 31, 2023, a decrease of $1.6 million, or 1.2%, compared to $135.4 million for the three months ended September 30, 2023. The decrease in revenues was primarily driven by lower well flow management revenue in Congo, partially offset by higher well flow management and subsea well access revenue in Equatorial Guinea.
Segment EBITDA for the ESSA segment was $41.0 million, or 30.6% of revenues, for the three months ended December 31, 2023, an increase of $1.7 million, or 4.3%, compared to $39.3, or 29.0% of revenues, for the three months ended September 30, 2023. The increase in Segment EBITDA and Segment EBITDA margin was primarily attributable to a more favorable activity mix during the three months ended December 31, 2023.
MENA
Revenue for the MENA segment was $65.4 million for the three months ended December 31, 2023, an increase of $7.3 million, or 12.6%, compared to $58.1 million for the three months ended September 30, 2023. The increase in revenue was driven by higher well flow management services revenue in Algeria and the Kingdom of Saudi Arabia and by higher well construction revenue in Morocco.
Segment EBITDA for the MENA segment was $21.3 million, or 32.5% of revenues, for the three months ended December 31, 2023, an increase of $4.4 million, or 26.0%, compared to $16.9 million, or 29.1% of revenues, for the three months ended September 30, 2023. The increase in Segment EBITDA and Segment EBITDA margin was primarily due to higher activity, improved operating leverage and a more favorable activity mix during the three months ended December 31, 2023.
APAC
Revenue for the APAC segment was $62.1 million for the three months ended December 31, 2023, a decrease of $9.0 million, or 12.7%, compared to $71.1 million for the three months ended September 30, 2023. The decrease in revenue was primarily due to lower subsea well access revenue in Australia, where we suspended vessel-deployed LWI operations, and China, partially offset by higher subsea well access revenue in Malaysia and well flow management revenue in Malaysia and Australia.
Segment EBITDA for the APAC segment was $5.3 million, or 8.6% of revenues, for the three months ended December 31, 2023, an increase of $9.6 million compared to ($4.3) million, or (6.0)% of revenues, for the three months ended September 30, 2023. The increase in Segment EBITDA (despite the decrease in revenues) was primarily due to lower operating costs within our LWI business during the three months ended December 31, 2023 following our suspension of vessel-deployed LWI operations during the third quarter of 2023. For the three months ended December 31, 2023, Segment EBITDA includes unrecoverable LWI-related costs of $4.3 million. Segment EBITDA for the three months ended September 31, 2023 include unrecoverable LWI-related costs of $15.3 million. Excluding unrecoverable LWI-related costs, APAC Segment EBITDA for the fourth and third quarter of 2023 would have been $9.6 million or 15.5% of revenue and $11.0 million or 15.5% of revenue, respectively.
Results of Operations for the years ended December 31, 2023, 2022 and 2021
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 Segment EBITDA 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 a percentage of total revenue by segment for the years ended December 31, 2023, 2022 and 2021:
Year Ended | Percentage | |||||||||||||||||||||||
(in thousands) | December 31, 2023 | December 31, 2022 | December 31, 2021 | December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||||||||||
NLA | $ | 511,800 | $ | 499,813 | $ | 193,156 | 33.8 | % | 39.1 | % | 23.4 | % | ||||||||||||
ESSA | 520,951 | 389,342 | 300,557 | 34.4 | % | 30.4 | % | 36.4 | % | |||||||||||||||
MENA | 233,528 | 201,495 | 171,136 | 15.4 | % | 15.7 | % | 20.7 | % | |||||||||||||||
APAC | 246,485 | 188,768 | 160,913 | 16.3 | % | 14.8 | % | 19.5 | % | |||||||||||||||
Total Revenue | $ | 1,512,764 | $ | 1,279,418 | $ | 825,762 | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
The following table shows Segment EBITDA and Segment EBITDA margin by segment and a reconciliation to income (loss) before income taxes for the years ended December 31, 2023 and December 31, 2022:
Year Ended | Segment EBITDA Margin | |||||||||||||||||||||||
(in thousands) | December 31, 2023 | December 31, 2022 | December 31, 2021 | December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||||||||||
NLA | $ | 132,869 | $ | 135,236 | $ | 32,254 | 26.0 | % | 27.1 | % | 16.7 | % | ||||||||||||
ESSA | 136,007 | 74,681 | 53,336 | 26.1 | % | 19.2 | % | 17.7 | % | |||||||||||||||
MENA | 71,201 | 63,315 | 56,312 | 30.5 | % | 31.4 | % | 32.9 | % | |||||||||||||||
APAC (1) | 1,805 | 4,850 | 33,444 | 0.7 | % | 2.6 | % | 20.8 | % | |||||||||||||||
Total Segment EBITDA | $ | 341,882 | $ | 278,082 | $ | 175,346 | ||||||||||||||||||
Corporate costs (2) | (105,855 | ) | (87,580 | ) | (66,153 | ) | ||||||||||||||||||
Equity in income of joint ventures | 12,853 | 15,731 | 16,747 | |||||||||||||||||||||
Depreciation and amortization expense | (172,260 | ) | (139,767 | ) | (123,866 | ) | ||||||||||||||||||
Merger and integration expense | (9,764 | ) | (13,620 | ) | (47,593 | ) | ||||||||||||||||||
Severance and other expense | (14,388 | ) | (7,825 | ) | (7,826 | ) | ||||||||||||||||||
Stock-based compensation expense | (19,574 | ) | (18,486 | ) | (54,162 | ) | ||||||||||||||||||
Foreign exchange loss | (9,238 | ) | (8,341 | ) | (4,314 | ) | ||||||||||||||||||
Other income, net | 1,234 | 3,149 | 3,992 | |||||||||||||||||||||
Gain on disposal of assets | - | - | 1,000 | |||||||||||||||||||||
Interest and finance expense, net | (3,943 | ) | (241 | ) | (8,795 | ) | ||||||||||||||||||
Income (loss) before income taxes | $ | 20,947 | $ | 21,102 | $ | (115,624 | ) | |||||||||||||||||
(1) | Excluding $35.9 million of unrecoverable LWI-related costs during the year ended December 31, 2023, APAC Segment EBITDA would have been $37.7 million and Segment EBITDA margin would have been 15.3%. Excluding $27.7 million of unrecoverable LWI-related costs during the year ended December 31, 2022, APAC Segment EBITDA would have been $32.6 million and APAC Segment EBITDA margin would have been 17.3%. |
(2) | 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. |
Yearended December 31, 2023 compared to the year endedDecember 31, 2022
NLA
Revenue for the NLA segment was $511.8 million for the year ended December 31, 2019. Revenue decreased across all2023, an increase of our segments as a result of the impact of COVID-19.
Segment EBITDA for the NLA segment was $132.9 million, or 26.0% of revenues, during the year ended December 31, 2020, decreased by $38.12023, compared to $135.2 million or 31.6%,27.1% of revenues during the year ended December 31, 2022, a decrease of $2.3 million. The decrease was attributable to $82.3 million from $120.4less favorable activity mix during the year ended December 31, 2023.
ESSA
Revenue for the ESSA segment was $521.0 million for the year ended December 31, 2019
Segment EBITDA for the ESSA segment was $136.0 million, or 26.1% of a lower depreciable asset base.
MENA
Revenue for the MENA segment was $233.5 million for the year ended December 31, 2020 as2023, an increase of $32.0 million, or 15.9%, compared to a goodwill impairment of $111.1$201.5 million for the year ended December 31, 2019.
Segment EBITDA for additional information.
APAC
Revenue for the APAC segment was $246.5 million for the year ended December 31, 2019. Severance and other charges (credits)2023, an increase of $57.7 million, or 30.6%, net for the year ended December 31, 2020 consisted of fixed asset impairment charges of $15.7 million, intangible asset impairments of $4.7 million, inventory impairments of $0.4 million and severance and other costs of $12.3 million, primarily driven by COVID-19-related activity disruptions and customer spending cuts in responsecompared to falling oil prices. Severance and other charges (credits), net for the year ended December 31, 2019 consisted of fixed asset impairment charges of $32.9 million, intangible asset impairments of $3.3 million, inventory impairments of $4.5 million and severance and other costs of $9.7 million, primarily made in conjunction with our business review conducted during the fourth quarter of 2019.
Segment EBITDA for the APAC segment was $1.8 million, or 0.7% of revenues, during the U.S. dollar in the current period asyear ended December 31, 2023, compared to $4.9 million, or 2.6% of revenues, during the prior year period, particularlyended December 31, 2022. The decrease in comparisonSegment EBITDA despite the increase in revenues was primarily due to unrecoverable LWI-related costs in APAC of $35.9 million incurred during the Norwegian krone.
Corporate Costs
Corporate costs for the year ended December 31, 2020, changed2023 increased by $27.9$18.3 million, or 20.9%, to a benefit of $4.1$105.9 million, from an expense of $23.8as compared to $87.6 million, for the year ended December 31, 2019. 2022. The effectiveincrease in the corporate costs is generally proportional with increases in activity and revenue year over year.
Equity in income tax rate was 2.5% and (11.2)%of joint ventures
Equity in income of joint ventures for the yearsyear ended December 31, 2020, and December 31, 20192023 decreased by $2.8 million, or 17.8%, respectively. The change was due primarily to a significant tax expense recorded in 2019$12.9 million as compared to record a valuation allowance against certain indefinite-lived intangibles.
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Revenue: | |||||||||||||||||
| Tubular Running Services | $ | 269,711 | $ | 400,327 | $ | 361,045 | |||||||||||
| Tubulars | 53,668 | 74,687 | 72,303 | ||||||||||||||
| Cementing Equipment | 66,979 | 104,906 | 89,145 | ||||||||||||||
| Total | $ | 390,358 | $ | 579,920 | $ | 522,493 | |||||||||||
Segment Adjusted EBITDA: (1) | |||||||||||||||||
| Tubular Running Services | $ | 22,171 | $ | 85,601 | $ | 62,515 | |||||||||||
| Tubulars | 7,765 | 11,575 | 11,246 | ||||||||||||||
| Cementing Equipment | 10,780 | 14,089 | 8,617 | ||||||||||||||
Corporate (2) | (31,720) | (53,744) | (49,146) | ||||||||||||||
| Total | $ | 8,996 | $ | 57,521 | $ | 33,232 | |||||||||||
Depreciation and amortization expense
Depreciation and amortization expense for the year ended December 31, 2023 increased by $32.5 million or 32.6%,23.2% to $172.3 million as compared to $400.3 million for the same period in 2019. The decrease was driven by lower activity levels in most regions, partially offset by improved activity levels in the Caribbean.
Merger and integration expense
Merger and integration expense for the year ended December 31, 2023 decreased by $3.8 million, or 74.1%,to $9.8 million as compared to $85.6 million for the same period in 2019. Segment results were negatively impacted by activity declines, partially offset by cost cutting measures.
Severance and other expense
Severance and other expense for the same period in 2019, primarilyyear ended December 31, 2023 increased by $6.6 million, to $14.4 million as a result of lower drilling tools activity and tubular sales in the Gulf of Mexico, partially offset by increased demand for our drilling tools in international markets.
Other income
Other income for the year ended December 31, 2023 was $1.2 million or 32.8%, oras compared to $11.6 million for the same period in 2019, primarily driven by lower drilling tools activity and tubular sales in the Gulfother income of Mexico.
Interest and finance expense, net
Interest and finance expense, net, for the year ended December 31, 2023, was $3.9 million compared to $104.9 million for the same period in 2019, driven by reductions in the U.S. land and offshore markets, partially offset by continued expansion to international markets.
Income tax (expense) benefit
Income tax expense for the year ended December 31, 2023 was $44.3 million, compared to international markets.
Liquidity
Our financial objectives include the maintenance of sufficient liquidity, adequate financial resources and financial flexibility to fund our business. As of December 31, 2020, we had2023, total available liquidity was $298.4 million, including cash and cash equivalents and short-term investmentsrestricted cash of $211.8$151.7 million and no debt.$146.7 million available for borrowings under our Amended and Restated Facility Agreement. Expro believes these amounts, along with cash generated by ongoing operations, will be sufficient to meet future business requirements for the next 12 months and beyond. 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, acquisitions and acquisitions.repurchases of company stock. We continually monitor potential capital sources, including equity and debt financing, in order to meet our investment and target liquidity requirements. The COVID-19 pandemic has significantly reduced economic activity levels across the globe, which has resulted in lower demand for oil and natural gas, as well as for our services and products. The reduced demand for our services and products has had, and may continue to have, a material adverse impact on our business, results of operations and financial condition. In consideration of these risks, we are undertaking additional measures to protect liquidity. These measures include increased focus on collection of receivables, enhanced customer credit review, special measures to reduce risks of high-cost inventory items, and enhanced cash reporting requirements.
Our total capital expenditures are estimated to be approximately $25range between $130.0 million and $140.0 million for 2021,2024. Our total capital expenditures were $122.1 million for the year ended December 31, 2023, out of which we expect approximately 90% will bewere used for the purchase andor manufacture of equipment to directly support customer-related activities and approximately 10% for other property, plant and equipment, inclusive of capitalized enterprise resource planning software implementation costs. The actual amount of capital expenditures for the purchase and manufacture of equipment may fluctuate based on market conditions. DuringWe continue to focus on preserving and protecting our strong balance sheet, optimizing utilization of our existing assets and, where practical, limiting new capital expenditures.
On October 25, 2023, the years ended December 31, 2020, 2019 and 2018, purchasesBoard approved an extension to the stock repurchase program first approved on June 16, 2022. Pursuant to the extended stock repurchase program, we are authorized to acquire up to $100.0 million of property, plant and equipment and intangibles were $28.5 million, $36.9 million and $56.5 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, FICV, Frank’s International, LLCOctober 6, 2023, we amended and Blackhawk, as borrowers,restated our previous facility agreement pursuant to an amendment and FINV, certain of FINV’s subsidiaries, including FICV, Frank’s International, LLC, Blackhawk, Frank’s International GP, LLC, Frank’s International, LP, Frank’s International LP B.V., Frank’s International Partners B.V., Frank’s International Management B.V., Blackhawk Intermediate Holdings, LLC, Blackhawk Specialty Tools, LLC,restatement agreement (the “Amended and Trinity Tool Rentals, L.L.C., as guarantors, entered into a five-year senior secured revolving credit facility (the “ABL Credit Facility”Restated Facility Agreement”) with JPMorgan ChaseDNB Bank N.A.,ASA, London Branch, as administrative agent (the “ABL Agent”),in order to extend the maturity of the Amended and other financial institutions as lenders withRestated Facility Agreement for a further 36 months and increase the total commitments to $250.0 million, of $100.0which $166.7 million including up to $15.0was available for drawdowns as loans and $83.3 million was available for letters of credit. Subject to the terms of the ABL Credit Facility, we haveThe Company has the ability to increase the commitments to $200.0$350.0 million. The maximum amount that
Please see Note 16 “Interest bearing loans” in the Company may borrow under the ABL Credit Facility is subject to a borrowing base, which is based on a percentage of certain eligible accounts receivable and eligible inventory, subject to customary reserves and other adjustments.
Cash flow from operating, investing and (y) 15% of the lesser of the borrowing base and the aggregate commitments. If FINV fails to perform its obligations under the agreement that results in an event of default, the commitments under the ABL Credit Facility could be terminated and any outstanding borrowings under the ABL Credit Facility may be declared immediately due and payable. The ABL Credit Facility also contains cross default provisions that apply to FINV’s other indebtedness.
Cash flows provided by (used in) our operations, investing and financing activities are summarized below (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Operating activities | $ | 39,651 | $ | 27,048 | $ | (32,644) | |||||||||||
| Investing activities | (20,034) | (10,046) | 10,403 | ||||||||||||||
| Financing activities | (2,082) | (5,945) | (7,946) | ||||||||||||||
| 17,535 | 11,057 | (30,187) | |||||||||||||||
| Effect of exchange rate changes on cash activities | (3,028) | (529) | 3,384 | ||||||||||||||
| Increase (decrease) in cash and cash equivalents | $ | 14,507 | $ | 10,528 | $ | (26,803) | |||||||||||
Year Ended December 31, | ||||||||||||
(in thousands) | 2023 | 2022 | 2021 | |||||||||
Net cash provided by operating activities | $ | 138,309 | $ | 80,169 | $ | 16,144 | ||||||
Net cash (used in) provided by investing activities | (148,232 | ) | (71,206 | ) | 112,046 | |||||||
Net cash used in financing activities | (49,339 | ) | (25,612 | ) | (7,176 | ) | ||||||
Effect of exchange rate changes on cash activities | (6,032 | ) | (4,738 | ) | (1,876 | ) | ||||||
Net (decrease) increase to cash and cash equivalents and restricted cash | $ | (65,294 | ) | $ | (21,387 | ) | $ | 119,138 | ||||
Net cash flows may not reflect the changes in corresponding accounts on the consolidated balance sheets.
Net cash provided by operating activities was $39.7$138.3 million during the year ended December 31, 2023 as compared to $80.2 million during the year ended December 31, 2022. The increase in net cash provided by operating activities of $58.1 million, was primarily driven by an increase in Adjusted EBITDA of $42.7 million and favorable movement in working capital by $22.0 million, partially offset by higher payments for income taxes of $11.1 million for the year ended December 31, 2020, compared to $27.0 million in 2019. The increase in cash flow provided by operating activities in 2020 of $12.7 million compared to 2019 was primarily a result of favorable change in accounts receivable of $32.6 million, partially offset by unfavorable changes in accounts payable and accrued liabilities of $12.9 million.
Adjusted Cash flow used in investing activities was $20.0 million forFlow from Operations during the year ended December 31, 2020,2023 was $170.2 million compared to $10.0 million for the year ended December 31, 2019. The increase in cash used in investing activities of $10.0 million was primarily a result of decreased net proceeds from the sale of investments of $26.0 million, partially offset by decreased purchases of property, plant and equipment of $8.5 million and increased proceeds from sale of assets of $7.5 million.
Net cash used in investing activities
Net cash used in investing activities was $148.2 million during the year ended December 31, 2023 as compared to $71.2 million during the year ended December 31, 2022, an increase of $77.0 million. Our principal recurring investing activity is our capital expenditures. The increase in net cash used in investing activities was primarily due to increase in capital expenditures of $40.0 million, payment for acquisition of business of $28.7 million, lower proceeds from sale/maturity of investments of $10.8 million and lower proceeds from disposal of assets of $5.2 million. In addition, cash used to acquire technology of $7.9 million during 2022 was not repeated in 2023.
Net cash used in financing activities
Net cash used in financing activities was $49.1 million during the year ended December 31, 2023 as compared to $25.6 million during the year ended December 31, 2022. The increase of $23.5 million in net cash used in financing activities is primarily due to net repayments of long term borrowings of $15.1 million and an increase in the repurchase of our common stock of $7.0 million.
Off-balancesheet arrangements
We are a partyhave outstanding letters of credit/guarantees that relate to various contractualperformance bonds, custom/excise tax guaranties and facility lease/rental obligations. A portion of these obligations are reflected in our financial statements, such as operating leases, while other obligations, such as purchase obligations, are not reflected on our balance sheet. The following is a summary of our contractual obligations as of December 31, 2020 (in thousands):
| Payments Due by Period | |||||||||||||||||||||||||||||
| Less than | More than | ||||||||||||||||||||||||||||
| Total | 1 year | 1-3 years | 3-5 years | 5 years | |||||||||||||||||||||||||
| Operating leases | $ | 39,996 | $ | 10,378 | $ | 14,842 | $ | 6,942 | $ | 7,834 | |||||||||||||||||||
Purchase obligations (1) | 26,638 | 16,231 | 10,407 | — | — | ||||||||||||||||||||||||
| Total | $ | 66,634 | $ | 26,609 | $ | 25,249 | $ | 6,942 | $ | 7,834 | |||||||||||||||||||
Critical Accounting Policies
The preparation of consolidated financial statements and related disclosures in conformity with 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 revenuethe 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 over a period of time as services are performed or rendered. Rates for services are typically priced onrendered and the customer simultaneously consumes the benefit of the service while it is being rendered, and, therefore, reflects the amount of consideration to which we have a per day, per man-hour or similar basis.right to invoice. We generally perform services either under direct service purchase orders or master service agreements which are supplemented by individual call-out provisions. For customers contracted under such arrangements, an accrual is recorded in unbilled revenuereceivable for revenue earned but not yet invoiced.
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 sales arrangements typically do not include a rightrevenue for contracts involving multiple performance obligations is allocated to each distinct performance obligation based on relative selling prices and is recognized on satisfaction of return or other similar provisions, nor do they contain any other post-deliveryeach of the distinct performance obligations.
We recognize revenue for these “billlong-term construction-type contracts, involving significant design and hold” sales onceengineering efforts in order to satisfy custom designs for customer-specific applications, on an over a period of time basis, using an input method, which represents the following criteria have been met: (1) there isratio of actual costs incurred to date on the project in relation to total estimated project costs. The estimate of total project costs has a substantive reason forsignificant impact on both the arrangement, (2) the product is identifiedamount of revenue recognized as well as the customer’s asset, (3)related profit on a project. Revenue and profits on contracts can also be significantly affected by change orders and claims. Profits are recognized based on the product is ready for deliveryestimated project profit multiplied by the percentage complete. Due to the customer,nature of these projects, adjustments to estimates of contract revenue and (4)total contract costs are often required as work progresses. Any expected losses on a project are recorded in full in the period in which they are identified.
We are required to determine the transaction price in respect of each of our contracts with customers. In making such judgment, we cannotassess the impact of any variable consideration in the contract, due to discounts or penalties, the existence of any significant financing component and any non-cash consideration in the contract. In determining the impact of variable consideration, we use the product or direct it“most-likely amount” method whereby the transaction price is determined by reference to another customer.
Business Combinations
We record business combinations using the acquisition method is used for determining our income tax provisions, under which currentof accounting. All of the assets acquired and deferred tax liabilities and assetsassumed are recorded at estimated 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 accordance with enacted tax lawsthe determination of the fair value of assets acquired and rates. Under this method,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 procedures and techniques. Significant assumptions and estimates include, but are not limited to, the amounts of deferred tax liabilities and assets at the end of each period are determined using the tax ratecash flows that an asset is expected to generate in the future and what we believe to be 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 allan appropriate weighted-average cost of capital.
If the deferred tax assets will not be realized. In determiningactual results differ from the need for valuation allowances, we have made judgments and estimates regarding future taxable income and ongoing prudent and feasible tax planning strategies. These 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 countriesconsolidated financial statements may be exposed to potential impairment of long-lived assets, including intangible assets and changes in local country law. The ultimate realizationgoodwill. Refer to Note 3 “Business combinations and dispositions” of the deferred tax assets depends on the generation of sufficient taxable income in the applicable taxing jurisdictions.
Goodwill
We record the excess of operations for a particular periodpurchase price over the fair value of the tangible and on our effective tax rate for any period in which such resolution occurs.
No impairment expense was recorded for goodwill impairment as of October 31 each year.
Defined benefit plans
Our post-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 the 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 approximately matching the expected timing of payment of the more significant assumptions inherentrelated benefit obligations. The discount rates used to determine the benefit obligations for our principal pension plans were 4.5% in the income approach include the estimated future net annual cash flows for the reporting unit, the terminal growth rate2023, 4.7% in 2022 and the discount rate. We selected the assumptions used1.8% in the discounted cash flow projections using historical data supplemented by current and anticipated2021, reflecting market conditions and estimated growthinterest rates. Our estimates are based upon assumptions believed to be reasonable. However, given the inherent uncertainty in determining the assumptions underlyingAs of December 31, 2023, we estimate that a discounted cash flow analysis, actual results may differ from those used in our valuation which could result in additional impairment charges in the future. Assuming all other assumptions and inputs used in the discounted cash flow analysis were held constant, a 50 basis point1% increase or decrease in the discount rate assumption would have increased the 2020 goodwill impairment charge byresult in an impact of approximately $4.3 million.
The expected rate of return on plan assets represents the average rate of return expected to be earned on plan assets over the period that benefits included in the benefit obligation are expected to be paid, with consideration given to the distribution of investments by asset class and historical rates of return for each individual asset class. The weighted average expected rate of return on plan assets for the pension plans was 5.8% in 2023, 5.6% in 2022 and 3.2% in 2021. A change in the expected rate of return of 1% would impact our net periodic pension expense by $1.4 million.
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 allocatedmore 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 reportable segments as follows: Cementing Equipment -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 approximately $24.1 million; TRS - approximately $18.7 million.
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 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.accounting pronouncements”.
Financial risk factors
Our operations expose us to certainseveral financial risks, principally market risks inherent in our financial instruments and arising from changes in foreignrisk (foreign currency exchange ratesrisk and interest rates. A discussionrate risk) and credit risk.
Foreign currency risk
Cash flow exposure
We expect many of the subsidiaries of our market risk exposure in financial instruments is presented below.
Transaction exposure
Many of our subsidiaries have assets and liabilities that are reflecteddenominated in accumulated other comprehensive income (loss) in the shareholders’ equity section on our consolidated balance sheets. A portion of our net assets are impacted by changes in foreign currencies in relation to the U.S. dollar.
As of December 31, 2023, we estimate that a portion of our revenue is denominated5% appreciation (depreciation) in USD would result in a 2.7% decreasechange in our overall revenue for the year ended December 31, 2020.
Interest rate risk
We are also exposed to market risk onthe impact of interest rate changes primarily through 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 | Receivable (Payable) Fair Value at December 31, 2019 | |||||||||||||||||
| Canadian dollar | $ | 948 | 1.3182 | $ | (16) | |||||||||||||||
| Euro | 9,279 | 1.1180 | (80) | |||||||||||||||||
| Norwegian krone | 11,027 | 9.0688 | (355) | |||||||||||||||||
| Pound sterling | 16,057 | 1.3381 | 127 | |||||||||||||||||
| $ | (324) | |||||||||||||||||||
Credit Facility. Although we do not currently utilize interest rate derivative instrumentsrisk
Our exposure to reduce interest rate exposure, we may do so in the future.
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 40 countries and, as a result, our accounts receivables are spread over many countries and customers. As of December 31, 2020, 35% and 11% of our net trade receivables were from customers in the United States and Saudi Arabia, respectively. As of December 31, 2019, 42% of our net trade receivables were from customers in the United States. No other country accountedmaintaining an allowance for more than 10% of our net trade receivables at these dates.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | ||||||||||
Page | ||||||||||
Consolidated Balance Sheets as of | ||||||||||
| 58 | ||||||||||
| Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, | ||||||||||
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Frank’s InternationalExpro Group Holdings N.V. and subsidiaries (the Company)“Company”) as of December 31, 20202023 and 2019,2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows, for each of the three years in the three-year period ended December 31, 2020,2023, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively referred to as the consolidated financial statements)“financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the three years in the three-year period ended December 31, 2020,2023, in conformity with U.S.accounting principles generally accepted accounting principles.
We have also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2020,2023, based on criteria established in
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on these consolidatedthe Company's financial statements based on our audits. 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 audits 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 consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit mattermatters communicated below is a matterare matters arising from the current periodcurrent-period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit mattermatters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattermatters below, providing a separate opinionopinions on the critical audit mattermatters or on the accounts or disclosures to which it relates.they relate.
Goodwill – ESSA, NLA and APAC Reporting Units — Refer to Notes 2, 3, 4 and 15 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill associated withfor impairment involves the Cementing Equipment reporting unit
We identified the assessment of the valuation of goodwill associated with the Cementing Equipment reporting unitfor ESSA, NLA and APAC as a critical audit matter. The estimatedmatter because of the significant judgments made by management when developing the fair value of its ESSA, NLA and APAC reporting units, the Cementing Equipment reporting unit was derived from assumptions usedhigh degree of auditor judgment in estimatingperforming procedures and evaluating audit evidence related to management’s anticipated future cash flows resultingand significant assumptions related to short-term and long-term forecasts of operating performance, revenue growth rates, profitability margins and discount rates, and an increased extent of audit effort, including the need to involve professionals with specialized skill and knowledge.
How the Critical Audit Matter Was Addressed in the applicationAudit
Our audit procedures related to the short-term and long-term forecasts of operating performance, including revenue growth rates and profitability margins, and the selection of discount rates for ESSA, NLA and APAC reporting units included the following, among others:
● | We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of ESSA, NLA and APAC, such as controls related to management’s forecasts and selection of the discount rates. |
● | We evaluated management’s ability to accurately forecast future revenues and profitability margins by comparing actual results to management’s historical forecasts. |
● | We evaluated the reasonableness of management’s short-term and long-term forecasts by comparing the forecasts to (1) historical results and (2) internal communications to management and the Board of Directors. |
● | We evaluated the impact of changes in management’s forecast from October 31, 2023, the annual measurement date, to December 31, 2023. |
● | With the assistance of our fair value specialists, we evaluated the terminal revenue growth rates and discount rates and developed a range of independent estimates and compared those to the terminal revenue growth rates and discount rates selected by management. |
Business combinations and dispositions – PRT Offshore — Refer to Notes 2 and 3 to the financial statements
Critical Audit Matter Description
The Company completed the acquisition of Professional Rental Tools, LLC (“PRT” or “PRT Offshore”) on October 2, 2023 (the “PRT Acquisition”). 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 rental equipment, leasehold improvements, cranes, pumps and compressors, warehouse equipment, furniture & fixtures, office equipment and light duty vehicles (collectively, “Personal Property”); and the income approach for trade name, patented technology, customer relationships, and assembled workforce (collectively, “Intangible Assets”).
We identified the valuation of Personal Property and Intangible Assets arising out of the PRT Acquisition 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 PRT Acquisition. This required a high degree of subjective auditor judgment. The revenue growth rates, discount rate,judgment and terminal growth rate assumptions usedan increased extent of effort, including the need to estimateinvolve our valuation specialists when performing audit procedures to determine the fair value of acquired Personal Property under the reporting unit were determinedcost approach, including estimating the cost to replace or reproduce comparable assets adjusted for the remaining useful lives, 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 significant assumptions as changes to those assumptions could have had a significant effect onrealized.
How the Company’s assessment ofCritical Audit Matter Was Addressed in the impairment of goodwill.
Our audit procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s goodwill impairment assessment process. This included controls related to the determination of the fair value of the Cementing Equipment reporting unitPersonal Property and the developmentIntangible Assets acquired as part of the significant assumptions listed above. We comparedPRT Acquisition included the Company’s historical forecasted revenue to actual results to assess the Company’s ability to accurately forecast. We involved valuation professionals with specialized skills and knowledge, who assisted in:
● | We tested the effectiveness of controls over the purchase price allocation, including management’s controls over the assumptions used in the cost and income approach for Personal Property and Intangible Assets, respectively, and reviewing the work of management’s third-party specialists. |
● | We evaluated whether the estimated future cash flows used in the income approach for Intangible Assets were consistent with projections used by the Company, as well as evidence obtained in other areas of the audit. |
● | With the assistance of our fair value specialists, and in respect to the Personal Property acquired, we evaluated the reasonableness of the valuation methodology, current market data, and the cost to replace or reproduce comparable assets and developed a range of independent estimates and compared to those used by management. |
● | With the assistance of our fair value specialists, and in respect to the Intangible Assets acquired, we evaluated the terminal growth rate and discount rate and developed a range of independent estimates and compared those to the terminal revenue growth rate and discount rate selected by management. |
● | We considered any events or transactions occurring after the PRT Acquisition closing date that may indicate a different valuation for the assets acquired and liabilities assumed. |
/s/ KPMGDeloitte & Touche LLP
Houston, Texas
February 21, 2024
We have served as the Company’s auditor since 2018.
To the Stockholdersstockholders and the Board of Directors
Opinion on Internal Control Overover Financial Reporting
We have audited Frank’s International N.V. and subsidiaries’ (the Company)the internal control over financial reporting of Expro Group Holdings N.V. and subsidiaries (the “Company”) as of December 31, 2020,2023, based on criteria established in
We have also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheetsfinancial statements as of and for the year ended December 31, 2023 of the Company as of December 31, 2020 and December 31, 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated March 1, 2021February 21, 2024, expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Controls, appearing in Item 9A, management excluded from its assessment the internal control over financial reporting at PRT, which was acquired on October 2, 2023, and whose financial statements constitute 6.4% and approximately 1.0% of total assets and revenues, respectively, of the consolidated financial statements.
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 of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also includedrisk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Overover 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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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/ KPMGDeloitte & Touche LLP
Houston, Texas
February 21, 2024
Consolidated Statements of Operations
(in thousands)
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Total revenue | $ | 1,512,764 | $ | 1,279,418 | $ | 825,762 | ||||||
Operating costs and expenses: | ||||||||||||
Cost of revenue, excluding depreciation and amortization | (1,241,295 | ) | (1,057,356 | ) | (701,165 | ) | ||||||
General and administrative expense, excluding depreciation and amortization | (64,254 | ) | (58,387 | ) | (73,880 | ) | ||||||
Depreciation and amortization expense | (172,260 | ) | (139,767 | ) | (123,866 | ) | ||||||
Gain on disposal of assets | - | - | 1,000 | |||||||||
Merger and integration expense | (9,764 | ) | (13,620 | ) | (47,593 | ) | ||||||
Severance and other expense | (14,388 | ) | (7,825 | ) | (7,826 | ) | ||||||
Total operating cost and expenses | (1,501,961 | ) | (1,276,955 | ) | (953,330 | ) | ||||||
Operating income (loss) | 10,803 | 2,463 | (127,568 | ) | ||||||||
Other income, net | 1,234 | 3,149 | 3,992 | |||||||||
Interest and finance expense, net | (3,943 | ) | (241 | ) | (8,795 | ) | ||||||
Income (loss) before taxes and equity in income of joint ventures | 8,094 | 5,371 | (132,371 | ) | ||||||||
Equity in income of joint ventures | 12,853 | 15,731 | 16,747 | |||||||||
Income (loss) before income taxes | 20,947 | 21,102 | (115,624 | ) | ||||||||
Income tax expense | (44,307 | ) | (41,247 | ) | (16,267 | ) | ||||||
Net loss | $ | (23,360 | ) | $ | (20,145 | ) | $ | (131,891 | ) | |||
Loss per common share: | ||||||||||||
Basic and diluted | $ | (0.21 | ) | $ | (0.18 | ) | $ | (1.64 | ) | |||
Weighted average common shares outstanding: | ||||||||||||
Basic and diluted | 109,161,453 | 109,072,761 | 80,525,694 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements. |
| FRANK’S INTERNATIONAL N.V. | |||||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||||
| (In thousands, except share data) | |||||||||||
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 209,575 | $ | 195,383 | |||||||
| Restricted cash | 1,672 | 1,357 | |||||||||
| Short-term investments | 2,252 | 0 | |||||||||
| Accounts receivables, net | 110,607 | 166,694 | |||||||||
| Inventories, net | 81,718 | 78,829 | |||||||||
| Assets held for sale | 2,939 | 13,795 | |||||||||
| Other current assets | 7,744 | 10,360 | |||||||||
| Total current assets | 416,507 | 466,418 | |||||||||
| Property, plant and equipment, net | 272,707 | 328,432 | |||||||||
| Goodwill | 42,785 | 99,932 | |||||||||
| Intangible assets, net | 7,897 | 16,971 | |||||||||
| Deferred tax assets, net | 18,030 | 16,590 | |||||||||
| Operating lease right-of-use assets | 28,116 | 32,585 | |||||||||
| Other assets | 30,859 | 33,237 | |||||||||
| Total assets | $ | 816,901 | $ | 994,165 | |||||||
| Liabilities and Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 99,986 | $ | 120,321 | |||||||
| Current portion of operating lease liabilities | 7,832 | 7,925 | |||||||||
| Deferred revenue | 586 | 657 | |||||||||
| Other current liabilities | 1,674 | 0 | |||||||||
| Total current liabilities | 110,078 | 128,903 | |||||||||
| Deferred tax liabilities | 1,548 | 2,923 | |||||||||
| Non-current operating lease liabilities | 21,208 | 24,969 | |||||||||
| Other non-current liabilities | 22,818 | 27,076 | |||||||||
| Total liabilities | 155,652 | 183,871 | |||||||||
| Commitments and contingencies (Note 16) | 0 | 0 | |||||||||
| Stockholders’ equity: | |||||||||||
| Common stock, €0.01 par value, 798,096,000 shares authorized, 228,806,301 and 227,000,507 shares issued and 226,324,559 and 225,510,650 shares outstanding | 2,866 | 2,846 | |||||||||
| Additional paid-in capital | 1,087,733 | 1,075,809 | |||||||||
| Accumulated deficit | (377,346) | (220,805) | |||||||||
| Accumulated other comprehensive loss | (31,966) | (30,298) | |||||||||
| Treasury stock (at cost), 2,481,742 and 1,489,857 shares | (20,038) | (17,258) | |||||||||
| Total stockholders’ equity | 661,249 | 810,294 | |||||||||
| Total liabilities and equity | $ | 816,901 | $ | 994,165 | |||||||
Consolidated Statements of Comprehensive Loss
(in thousands)
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Net loss | $ | (23,360 | ) | $ | (20,145 | ) | $ | (131,891 | ) | |||
Other comprehensive (loss) income : | ||||||||||||
Actuarial (loss) gain on defined benefit plans | (4,529 | ) | 7,440 | 22,345 | ||||||||
Reclassified net remeasurement loss | - | - | (244 | ) | ||||||||
Amortization of prior service credit | (702 | ) | (249 | ) | (249 | ) | ||||||
Other comprehensive (loss) income | (5,231 | ) | 7,191 | 21,852 | ||||||||
Comprehensive loss | $ | (28,591 | ) | $ | (12,954 | ) | $ | (110,039 | ) | |||
The accompanying notes are an integral part of these consolidated financial statements. |
| FRANK’S INTERNATIONAL N.V. | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Revenue: | |||||||||||||||||
| Services | $ | 328,457 | $ | 473,538 | $ | 416,781 | |||||||||||
| Products | 61,901 | 106,382 | 105,712 | ||||||||||||||
| Total revenue | 390,358 | 579,920 | 522,493 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Cost of revenue, exclusive of depreciation and amortization | |||||||||||||||||
| Services | 264,680 | 338,325 | 302,880 | ||||||||||||||
| Products | 47,399 | 78,666 | 76,183 | ||||||||||||||
| General and administrative expenses | 82,257 | 120,444 | 126,638 | ||||||||||||||
| Depreciation and amortization | 70,169 | 92,800 | 111,292 | ||||||||||||||
| Goodwill impairment | 57,146 | 111,108 | 0 | ||||||||||||||
| Severance and other charges (credits), net | 33,023 | 50,430 | (310) | ||||||||||||||
| (Gain) loss on disposal of assets | (1,424) | 1,037 | (1,309) | ||||||||||||||
| Operating loss | (162,892) | (212,890) | (92,881) | ||||||||||||||
| Other income (expense): | |||||||||||||||||
| Tax receivable agreement (“TRA”) related adjustments | 0 | 220 | (1,359) | ||||||||||||||
| Other income, net | 2,090 | 1,103 | 2,047 | ||||||||||||||
| Interest income, net | 712 | 2,265 | 4,243 | ||||||||||||||
| Mergers and acquisition expense | 0 | 0 | (58) | ||||||||||||||
| Foreign currency loss | (211) | (2,233) | (5,675) | ||||||||||||||
| Total other income (expense) | 2,591 | 1,355 | (802) | ||||||||||||||
| Loss before income taxes | (160,301) | (211,535) | (93,683) | ||||||||||||||
| Income tax expense (benefit) | (4,081) | 23,794 | (2,950) | ||||||||||||||
| Net loss | $ | (156,220) | $ | (235,329) | $ | (90,733) | |||||||||||
| Loss per common share: | |||||||||||||||||
| Basic and diluted | $ | (0.69) | $ | (1.05) | $ | (0.41) | |||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Basic and diluted | 226,042 | 225,159 | 223,999 | ||||||||||||||
Consolidated Balance Sheets
(in thousands, except share data)
December 31, | ||||||||
2023 | 2022 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 151,741 | $ | 214,788 | ||||
Restricted cash | 1,425 | 3,672 | ||||||
Accounts receivable, net | 469,119 | 419,237 | ||||||
Inventories | 143,325 | 153,718 | ||||||
Assets held for sale | - | 2,179 | ||||||
Income tax receivables | 27,581 | 26,938 | ||||||
Other current assets | 58,409 | 44,975 | ||||||
Total current assets | 851,600 | 865,507 | ||||||
Property, plant and equipment, net | 513,222 | 462,316 | ||||||
Investments in joint ventures | 66,402 | 66,038 | ||||||
Intangible assets, net | 239,716 | 229,504 | ||||||
Goodwill | 247,687 | 220,980 | ||||||
Operating lease right-of-use assets | 72,310 | 74,856 | ||||||
Non-current accounts receivable, net | 9,768 | 9,688 | ||||||
Other non-current assets | 12,302 | 8,263 | ||||||
Total assets | $ | 2,013,007 | $ | 1,937,152 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 326,125 | $ | 272,704 | ||||
Income tax liabilities | 45,084 | 37,151 | ||||||
Finance lease liabilities | 1,967 | 1,047 | ||||||
Operating lease liabilities | 17,531 | 19,057 | ||||||
Other current liabilities | 98,144 | 107,750 | ||||||
Total current liabilities | 488,851 | 437,709 | ||||||
Long-term borrowings | 20,000 | - | ||||||
Deferred tax liabilities, net | 22,706 | 30,419 | ||||||
Post-retirement benefits | 10,445 | 11,344 | ||||||
Finance lease liabilities | 16,410 | 13,773 | ||||||
Operating lease liabilities | 54,976 | 60,847 | ||||||
Uncertain tax positions | 59,544 | 58,036 | ||||||
Other non-current liabilities | 44,202 | 39,129 | ||||||
Total liabilities | 717,134 | 651,257 | ||||||
Commitments and contingencies (Note 18) | ||||||||
Stockholders’ equity: | ||||||||
Common stock, €0.06 nominal value, 200,000,000 shares authorized, 113,389,911 and 110,710,188 shares issued and 110,029,694 and 108,743,761 shares outstanding | 8,062 | 7,911 | ||||||
Treasury stock (at cost), 3,360,217 and 1,966,427 shares | (64,697 | ) | (40,870 | ) | ||||
Additional paid-in capital | 1,909,323 | 1,847,078 | ||||||
Accumulated other comprehensive income | 22,318 | 27,549 | ||||||
Accumulated deficit | (579,133 | ) | (555,773 | ) | ||||
Total stockholders’ equity | 1,295,873 | 1,285,895 | ||||||
Total liabilities and stockholders’ equity | $ | 2,013,007 | $ | 1,937,152 | ||||
The accompanying notes are an integral part of these consolidated financial statements. |
| FRANK’S INTERNATIONAL N.V. | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS | |||||||||||||||||
| (In thousands) | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Net loss | $ | (156,220) | $ | (235,329) | $ | (90,733) | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
| Foreign currency translation adjustments | (1,668) | 404 | (1,452) | ||||||||||||||
| Marketable securities: | |||||||||||||||||
| Unrealized gain on marketable securities | 0 | 0 | 86 | ||||||||||||||
| Total other comprehensive income (loss) | (1,668) | 404 | (1,366) | ||||||||||||||
| Comprehensive loss | $ | (157,888) | $ | (234,925) | $ | (92,099) | |||||||||||
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31, | ||||||||||||
Cash flows from operating activities: | 2023 | 2022 | 2021 | |||||||||
Net loss | $ | (23,360 | ) | $ | (20,145 | ) | $ | (131,891 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization expense | 172,260 | 139,767 | 123,866 | |||||||||
Equity in income of joint ventures | (12,853 | ) | (15,731 | ) | (16,747 | ) | ||||||
Stock-based compensation expense | 19,574 | 18,486 | 54,162 | |||||||||
Changes in fair value of investments | - | 1,199 | (511 | ) | ||||||||
Elimination of unrealized profit on sales to joint ventures | 4,159 | - | 174 | |||||||||
Debt issuance expense | - | - | 5,166 | |||||||||
Gain on disposal of assets | - | - | (1,000 | ) | ||||||||
Deferred taxes | (10,478 | ) | (1,326 | ) | (737 | ) | ||||||
Unrealized foreign exchange losses | 5,658 | 6,116 | 1,407 | |||||||||
Changes in fair value of contingent consideration | 576 | - | - | |||||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable, net | (34,895 | ) | (97,758 | ) | (20,256 | ) | ||||||
Inventories | 10,575 | (26,037 | ) | 906 | ||||||||
Other assets | (16,745 | ) | 4,365 | 12,683 | ||||||||
Accounts payable and accrued liabilities | 34,600 | 35,491 | 5,371 | |||||||||
Other liabilities | (18,275 | ) | 31,435 | (5,981 | ) | |||||||
Income taxes, net | 8,798 | 10,209 | (2,056 | ) | ||||||||
Dividends received from joint ventures | 8,329 | 7,283 | 4,058 | |||||||||
Other | (9,614 | ) | (13,185 | ) | (12,470 | ) | ||||||
Net cash provided by operating activities | 138,309 | 80,169 | 16,144 | |||||||||
Cash flows from investing activities: | ||||||||||||
Capital expenditures | (122,110 | ) | (81,904 | ) | (81,511 | ) | ||||||
Cash and cash equivalents and restricted cash acquired in the Merger | - | - | 189,739 | |||||||||
Payment for acquired businesses, net of cash acquired | (28,707 | ) | - | - | ||||||||
Acquisition of technology | - | (7,967 | ) | - | ||||||||
Proceeds from disposal of assets | 2,013 | 7,279 | 3,818 | |||||||||
Proceeds from sale / maturity of investments | 572 | 11,386 | - | |||||||||
Net cash (used in) provided by investing activities | (148,232 | ) | (71,206 | ) | 112,046 | |||||||
Cash flows from financing activities: | ||||||||||||
(Cash pledged for) release of collateral deposits | (217 | ) | (70 | ) | 162 | |||||||
Payments of loan issuance and other transaction costs | - | (132 | ) | (5,123 | ) | |||||||
Proceeds from long-term borrowings | 50,000 | - | - | |||||||||
Repayment of long-term borrowings | (65,096 | ) | - | - | ||||||||
Repurchase of common stock | (20,024 | ) | (12,996 | ) | - | |||||||
Payment of withholding taxes on stock-based compensation plans | (2,559 | ) | (4,168 | ) | (818 | ) | ||||||
Repayment of financed insurance premium | (9,317 | ) | (7,245 | ) | (227 | ) | ||||||
Repayments of finance leases | (2,126 | ) | (1,001 | ) | (1,170 | ) | ||||||
Net cash used in financing activities | (49,339 | ) | (25,612 | ) | (7,176 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | (6,032 | ) | (4,738 | ) | (1,876 | ) | ||||||
Net (decrease) increase to cash and cash equivalents and restricted cash | (65,294 | ) | (21,387 | ) | 119,138 | |||||||
Cash and cash equivalents and restricted cash at beginning of year | 218,460 | 239,847 | 120,709 | |||||||||
Cash and cash equivalents and restricted cash at end of year | $ | 153,166 | $ | 218,460 | $ | 239,847 | ||||||
The accompanying notes are an integral part of these consolidated financial statements. |
| FRANK’S INTERNATIONAL N.V. | |||||||||||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||
| Accumulated | |||||||||||||||||||||||||||||||||||||||||
| Additional | Retained | Other | Total | ||||||||||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Earnings | Comprehensive | Treasury | Stockholders’ | ||||||||||||||||||||||||||||||||||||
| Shares | Value | Capital | (Deficit) | Income (Loss) | Stock | Equity | |||||||||||||||||||||||||||||||||||
| Balances at December 31, 2017 | 223,289 | $ | 2,814 | $ | 1,050,873 | $ | 106,923 | $ | (30,972) | $ | (13,737) | $ | 1,115,901 | ||||||||||||||||||||||||||||
| Cumulative effect of accounting change | — | — | — | 670 | — | — | 670 | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (90,733) | — | — | (90,733) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | (1,452) | — | (1,452) | ||||||||||||||||||||||||||||||||||
| Unrealized gain on marketable securities | — | — | — | — | 86 | — | 86 | ||||||||||||||||||||||||||||||||||
| Equity-based compensation expense | — | — | 10,621 | — | — | — | 10,621 | ||||||||||||||||||||||||||||||||||
| Common shares issued upon vesting of share-based awards | 1,018 | 12 | (12) | — | — | — | 0 | ||||||||||||||||||||||||||||||||||
| Common shares issued for employee stock purchase plan (“ESPP”) | 233 | 3 | 1,312 | — | — | — | 1,315 | ||||||||||||||||||||||||||||||||||
| Treasury shares withheld | (250) | — | — | — | — | (1,636) | (1,636) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2018 | 224,290 | $ | 2,829 | $ | 1,062,794 | $ | 16,860 | $ | (32,338) | $ | (15,373) | $ | 1,034,772 | ||||||||||||||||||||||||||||
| Cumulative effect of accounting change | — | — | — | (700) | — | — | (700) | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (235,329) | — | — | (235,329) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | 404 | — | 404 | ||||||||||||||||||||||||||||||||||
| Reclassification of marketable securities | — | — | — | (1,636) | 1,636 | — | 0 | ||||||||||||||||||||||||||||||||||
| Equity-based compensation expense | — | — | 11,280 | — | — | — | 11,280 | ||||||||||||||||||||||||||||||||||
| Common shares issued upon vesting of share-based awards | 1,134 | 13 | (13) | — | — | — | 0 | ||||||||||||||||||||||||||||||||||
| Common shares issued for ESPP | 389 | 4 | 1,748 | — | — | — | 1,752 | ||||||||||||||||||||||||||||||||||
| Treasury shares withheld | (302) | — | — | — | — | (1,885) | (1,885) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2019 | 225,511 | $ | 2,846 | $ | 1,075,809 | $ | (220,805) | $ | (30,298) | $ | (17,258) | $ | 810,294 | ||||||||||||||||||||||||||||
| Cumulative effect of accounting change | — | — | — | (321) | — | — | (321) | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (156,220) | — | — | (156,220) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | (1,668) | — | (1,668) | ||||||||||||||||||||||||||||||||||
| Equity-based compensation expense | — | — | 11,010 | — | — | — | 11,010 | ||||||||||||||||||||||||||||||||||
| Common shares issued upon vesting of share-based awards | 1,464 | 16 | (16) | — | — | — | 0 | ||||||||||||||||||||||||||||||||||
| Common shares issued for ESPP | 341 | 4 | 930 | — | — | — | 934 | ||||||||||||||||||||||||||||||||||
| Treasury shares withheld | (421) | — | — | — | — | (1,282) | (1,282) | ||||||||||||||||||||||||||||||||||
| Share repurchase program | (570) | — | — | — | — | (1,498) | (1,498) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | 226,325 | $ | 2,866 | $ | 1,087,733 | $ | (377,346) | $ | (31,966) | $ | (20,038) | $ | 661,249 | ||||||||||||||||||||||||||||
Consolidated Statements of Stockholders’ Equity
(in thousands)
Accumulated | ||||||||||||||||||||||||||||||||
Additional | other | Total | ||||||||||||||||||||||||||||||
Common stock | Treasury | paid-in | comprehensive | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
Shares | Value | Stock | Warrants | capital | income (loss) | deficit | Equity | |||||||||||||||||||||||||
Balance at January 1, 2021 | 70,890 | $ | 585 | $ | - | $ | 10,530 | $ | 1,006,100 | $ | (1,494 | ) | $ | (403,737 | ) | $ | 611,984 | |||||||||||||||
Net loss | - | - | - | - | - | - | (131,891 | ) | (131,891 | ) | ||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | 21,852 | - | 21,852 | ||||||||||||||||||||||||
Stock-based compensation expense | - | - | - | - | 54,162 | - | - | 54,162 | ||||||||||||||||||||||||
Common shares issued upon vesting of share-based awards | 741 | 16 | - | - | (16 | ) | - | - | - | |||||||||||||||||||||||
Treasury shares withheld | (554 | ) | - | (818 | ) | - | - | - | - | (818 | ) | |||||||||||||||||||||
Cancellation of Legacy Expro common stock | - | (585 | ) | - | - | 585 | - | - | - | |||||||||||||||||||||||
Cancellation of warrants | - | - | - | (10,530 | ) | 10,530 | - | - | - | |||||||||||||||||||||||
Merger | 38,066 | 7,828 | (21,967 | ) | - | 756,421 | - | - | 742,282 | |||||||||||||||||||||||
Balance at December 31, 2021 | 109,143 | $ | 7,844 | $ | (22,785 | ) | $ | - | $ | 1,827,782 | $ | 20,358 | $ | (535,628 | ) | $ | 1,297,571 | |||||||||||||||
Net loss | - | - | - | - | - | - | (20,145 | ) | (20,145 | ) | ||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | 7,191 | - | 7,191 | ||||||||||||||||||||||||
Stock-based compensation expense | - | - | - | - | 18,486 | - | - | 18,486 | ||||||||||||||||||||||||
Common shares issued upon vesting of share-based awards | 1,013 | 67 | - | - | 810 | - | - | 877 | ||||||||||||||||||||||||
Repurchase of common stock | (1,100 | ) | - | (12,995 | ) | - | - | - | - | (12,995 | ) | |||||||||||||||||||||
Treasury shares withheld | (312 | ) | - | (5,090 | ) | - | - | - | - | (5,090 | ) | |||||||||||||||||||||
Balance at December 31, 2022 | 108,744 | $ | 7,911 | $ | (40,870 | ) | $ | - | $ | 1,847,078 | $ | 27,549 | $ | (555,773 | ) | $ | 1,285,895 | |||||||||||||||
Net loss | - | - | - | - | - | - | (23,360 | ) | (23,360 | ) | ||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | (5,231 | ) | - | (5,231 | ) | ||||||||||||||||||||||
Stock-based compensation expense | - | - | - | - | 19,574 | - | - | 19,574 | ||||||||||||||||||||||||
Common shares issued upon vesting of share-based awards | 836 | 46 | - | - | 1,866 | - | - | 1,912 | ||||||||||||||||||||||||
Repurchase of common stock | (1,199 | ) | - | (20,024 | ) | - | - | - | - | (20,024 | ) | |||||||||||||||||||||
Treasury shares withheld | (195 | ) | - | (3,803 | ) | - | - | - | - | (3,803 | ) | |||||||||||||||||||||
PRT Acquisition | 1,844 | 105 | 40,805 | 40,910 | ||||||||||||||||||||||||||||
Balance at December 31, 2023 | 110,030 | $ | 8,062 | $ | (64,697 | ) | $ | - | $ | 1,909,323 | $ | 22,318 | $ | (579,133 | ) | $ | 1,295,873 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements. |
| FRANK’S INTERNATIONAL N.V. | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||
| (In thousands) | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Cash flows from operating activities | |||||||||||||||||
| Net loss | $ | (156,220) | $ | (235,329) | $ | (90,733) | |||||||||||
| Adjustments to reconcile net loss to cash from operating activities | |||||||||||||||||
| Depreciation and amortization | 70,169 | 92,800 | 111,292 | ||||||||||||||
| Equity-based compensation expense | 11,010 | 11,280 | 10,621 | ||||||||||||||
| Goodwill impairment | 57,146 | 111,108 | 0 | ||||||||||||||
| Loss on asset impairments and retirements | 21,225 | 40,686 | 0 | ||||||||||||||
| Amortization of deferred financing costs | 388 | 371 | 58 | ||||||||||||||
| Deferred tax provision (benefit) | (625) | 727 | (14,634) | ||||||||||||||
| Provision for bad debts | 938 | 1,281 | 159 | ||||||||||||||
| (Gain) loss on disposal of assets | (1,424) | 1,037 | (1,309) | ||||||||||||||
| Changes in fair value of investments | (1,106) | (2,747) | 1,199 | ||||||||||||||
| Unrealized (gain) loss on derivative instruments | 0 | 222 | (386) | ||||||||||||||
| Other | (64) | (1,522) | 843 | ||||||||||||||
| Changes in operating assets and liabilities, net of effects from acquisitions | |||||||||||||||||
| Accounts receivable | 54,707 | 22,152 | (63,654) | ||||||||||||||
| Inventories | (1,573) | (10,694) | (2,917) | ||||||||||||||
| Other current assets | 4,437 | 856 | 4,581 | ||||||||||||||
| Other assets | 848 | (1,285) | 258 | ||||||||||||||
| Accounts payable and accrued liabilities | (16,787) | (3,937) | 15,310 | ||||||||||||||
| Deferred revenue | (74) | 545 | (354) | ||||||||||||||
| Other noncurrent liabilities | (3,344) | (503) | (2,978) | ||||||||||||||
| Net cash provided by (used in) operating activities | 39,651 | 27,048 | (32,644) | ||||||||||||||
| Cash flows from investing activities | |||||||||||||||||
| Purchase of property, plant and equipment and intangibles | (28,473) | (36,942) | (19,734) | ||||||||||||||
| Purchase of property, plant and equipment from related parties | 0 | 0 | (36,737) | ||||||||||||||
| Proceeds from sale of assets and equipment | 8,319 | 791 | 7,089 | ||||||||||||||
| Purchase of investments | (2,252) | (20,122) | (84,040) | ||||||||||||||
| Proceeds from sale of investments | 2,832 | 46,739 | 143,825 | ||||||||||||||
| Other | (460) | (512) | 0 | ||||||||||||||
| Net cash provided by (used in) investing activities | (20,034) | (10,046) | 10,403 | ||||||||||||||
| Cash flows from financing activities | |||||||||||||||||
| Repayments of borrowings | (236) | (5,627) | (5,892) | ||||||||||||||
| Deferred financing costs | 0 | (184) | (1,733) | ||||||||||||||
| Treasury shares withheld | (1,282) | (1,886) | (1,636) | ||||||||||||||
| Treasury share repurchase | (1,498) | 0 | 0 | ||||||||||||||
| Proceeds from the issuance of ESPP shares | 934 | 1,752 | 1,315 | ||||||||||||||
| Net cash used in financing activities | (2,082) | (5,945) | (7,946) | ||||||||||||||
| Effect of exchange rate changes on cash | (3,028) | (529) | 3,384 | ||||||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 14,507 | 10,528 | (26,803) | ||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 196,740 | 186,212 | 213,015 | ||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 211,247 | $ | 196,740 | $ | 186,212 | |||||||||||
| 1. | Business description |
With roots dating to 1938, Expro Group Holdings N.V. (“FINV”(the “Company,” “Expro,” “we,” “our” or “us”), a limited liability company organized under the laws of the Netherlands, is a global provider of highly engineered tubularenergy services tubular fabricationwith operations in approximately 60 countries. The Company’s portfolio of capabilities includes products and specialtyservices related to well construction, well flow management, subsea well access, and well intervention solutions toand integrity. The Company’s portfolio of products and services enhance production and improve recovery across the oilwell lifecycle, from exploration through abandonment.
On March 10, 2021, Frank’s International N.V. (“Frank’s”) and gas industry. FINV provides services to leading explorationNew Eagle Holdings Limited, a direct wholly owned subsidiary of Frank’s (“Merger Sub”), entered into an Agreement and production companiesPlan of Merger (the “Merger Agreement”) with Expro Group Holdings International Limited (“Legacy Expro”) providing for the merger of Legacy Expro with and into Merger Sub in both offshorean all-stock transaction, with Merger Sub surviving the merger as a direct, wholly owned subsidiary of Frank’s (the “Merger”). The Merger closed on October 1, 2021 (the “Closing Date”), and onshore environmentsFrank’s was renamed Expro Group Holdings N.V. The Merger was accounted for using the acquisition method of accounting with a focus on complex and technically demanding wells.
On October 25, 2023, the Company’s Board of Directors (the “Board”) approved an extension to the stock repurchase program first approved on June 16, 2022. Pursuant to the extended stock repurchase program, the Company is authorized to acquire up to $100.0 million of its outstanding common stock from October 25, 2023 through November 24, 2024 (the “Stock Repurchase Program”). Under the Stock Repurchase Program, the Company may repurchase shares of the Company’s common stock in open market purchases, in privately negotiated transactions or otherwise. The Stock Repurchase Program will continue to be utilized at management’s discretion and in accordance with federal securities laws. The timing and actual numbers of shares repurchased will depend on a variety of factors including price, corporate requirements, the constraints specified in the Stock Repurchase Program along with general business and market conditions. The Stock Repurchase Program does not obligate the Company to repurchase any particular amount of common stock, and it could be modified, suspended or discontinued at any time. During the year ended December 31, 2023, under the Stock Repurchase Program we repurchased approximately 1.2 million shares of our common stock at an average price of $16.70 for a total cost of approximately $20.0 million, including shares repurchased prior to the extension of the Stock Repurchase Program. During the year ended December 31, 2022, we repurchased 1.1 million shares at an average price of $11.81 per share, for a total cost of $13.0 million under the preceding program.
| 2. | Basis of presentation and significant accounting policies |
Basis of Presentation
The consolidated financial statements of FINV for the years ended December 31, 2020, 2019Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The consolidated financial statements have been prepared using the U.S. dollar (“$” or “USD”) as the reporting currency.
Basis of consolidation
The consolidated financial statements reflect the accounts of the Company and 2018 include the activities of Frank’s International C.V. (“FICV”), Blackhawk Group Holdings, LLC (“Blackhawk”) and their wholly owned subsidiaries (collectively, “Company,” “we,” “us” and “our”).its subsidiaries. All intercompany accountsbalances and transactions, including unrealized profits arising from them, have been eliminated for purposes of preparing these consolidated financial statements.
Use of estimates
Preparation of the opinion of management, these consolidated financial statements reflect all adjustments consisting solely of normal accruals that are necessary for the fair presentation of financial results as of and for the periods presented.
Revenue recognition
We estimate current expected credit losses on our accounts receivablerecognize revenue from rendering of services over a period of time as the customer simultaneously consumes the benefit of the service while it is being rendered reflecting the amount of consideration to which the Company has a right to invoice. As part of rendering of services, the Company also provides rental equipment and personnel. Using practical expedients under Accounting Standards Update (“ASU”) 2014-09, the Company has elected not to separate non-lease components from the associated lease components and account for the combined component in accordance with the ASU 2014-09 with recognition over a period of time.
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.
Where contractual arrangements contain multiple performance obligations, we analyze each reporting date. We estimate current expected credit lossesperformance 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 relative selling prices and is recognized on satisfaction of each distinct performance obligation. Further, a small number of our credit loss history, adjustedcontracts contain penalty provisions for current factors including global economiclate delivery and business conditions, oil and natural gas industry and market conditions and customer mix. Lossesinstallation of equipment, downtime or other equipment functionality. These penalties are charged against the allowance when the customer accounts are determined to be uncollectible. This process involves judgment and estimation, and accordingly, our results can be affected by adjustments to the allowance due to actual write-offs that differ from estimated amounts.
| December 31, | December 31, | ||||||||||
| 2020 | 2019 | ||||||||||
| Cash and cash equivalents | $ | 209,575 | $ | 195,383 | |||||||
| Restricted cash | 1,672 | 1,357 | |||||||||
| Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | $ | 211,247 | $ | 196,740 | |||||||
Expro recognizes revenue for long-term construction-type contracts, involving significant design and engineering efforts in order to satisfy custom designs for customer-specific applications, on an over a componentperiod of stockholders’ equity.
Revenue is recognized to depict the transfer of promised services or goods to customers in an amount of relief sought or expectedthat reflects the consideration to which the Company expects to be sought therein.
Foreign currency transactions
The functional currency of a contingency indicates itall our subsidiaries 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.
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 approximately 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.
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.
Land improvement | 12 years |
Buildings | Up to 40 years |
Leased property, including leasehold buildings | over the lesser of the remaining useful life or period of the lease |
Plant and equipment | 2 to 12 years |
Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively. 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 itsit’s 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
Intangible assets, net annual cash flows for the reporting unit, the terminal growth rate and the discount rate. We selected the assumptions used in the discounted cash flow projections using historical data supplemented by current and anticipated market conditions and estimated growth rates. Our estimates are based upon assumptions believed to be reasonable. However, given the inherent uncertainty in determining the assumptions underlying a discounted cash flow analysis, actual results may differ from those used in our valuation which could result in additional impairment charges in the future. Assuming all other assumptions and inputs used in the March 31, 2020 discounted cash flow analysis were held constant, a 50 basis point increase in the discount rate assumption would have increased the goodwill impairment charge by approximately $4.3 million.
Identifiable intangible assets are amortized using the straight-line method over the estimated useful lives of the assets.assets, ranging from one year to fifteen years. We evaluate impairment of our intangible assets on an asset group basis whenever circumstances indicate that the carrying value may not be recoverable. Intangible assets deemed to be impaired are written down to their fair value using a discounted cash flow model and, if available, comparable market values.
| December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Total | Gross Carrying Amount | Accumulated Amortization | Total | ||||||||||||||||||||||||||||||
| Customer relationships | $ | 28,300 | $ | (26,324) | $ | 1,976 | $ | 32,890 | $ | (23,946) | $ | 8,944 | |||||||||||||||||||||||
| Intellectual property | 13,860 | (7,939) | 5,921 | 14,029 | (6,002) | 8,027 | |||||||||||||||||||||||||||||
| Total intangible assets | $ | 42,160 | $ | (34,263) | $ | 7,897 | $ | 46,919 | $ | (29,948) | $ | 16,971 | |||||||||||||||||||||||
Investments in joint ventures
We use the equity method of accounting for our Cementing Equipment segment. Amortization expenseequity investments where we hold more than 20% of the ownership interests of an investee that does not constitute a controlling interest or where we have the ability to significantly influence the operations or financial decision of the investee. Such equity investments are carried on the consolidated balance sheets at cost plus post-acquisition changes in our share of net income, less dividends received and less any impairments. Our consolidated statements of operations reflect our share of income from the joint ventures’ results after tax. Any goodwill arising on the acquisition of a joint venture, representing the excess of the cost of the investment compared to the Company’s share of the net fair value of the acquired identifiable net assets, is included in the carrying amount of the joint venture and is not amortized.
The Company evaluates its investments in joint ventures for intangibles assets was $4.4 million, $10.8 million and $10.8 million forpotential impairment whenever events or changes in circumstances indicate that there may be a loss in the years ended December 31, 2020, 2019 and 2018, respectively. During the first quartervalue of 2020, theeach investment that is other than temporary.
The results of the Company's testjoint ventures are prepared for impairment of goodwillthe same reporting period as the Company. Where necessary, adjustments are made to bring the accounting policies used in the Cementing Equipment segment as a resultline with those of the negative market indicators was a triggering event that indicated that our intangible assets in this segment were impaired. Impairment testing performed inCompany, to take into account fair values assigned at the first quarter resulted in the determination that certain intangible assets were not recoverabledate of acquisition; and that the estimated fair value was below the carrying value. As a result, during the year ended December 31, 2020,to reflect impairment charges of $4.7 million were recorded associated with certain customer relationships and intellectual property intangible assetslosses where appropriate. Adjustments are also made in our Cementing Equipment segment, which are included in severanceconsolidated financial statements to eliminate our share of unrealized gains and other charges (credits), netlosses on the
Fair value measurements
We measure certain financial assets and liabilities at fair value at each balance sheet date and, for the purposes of operations. Duringimpairment testing, use fair value to determine the year ended December 31, 2019,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:
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 chargestests.
At each reporting date, we analyze the movements in the values of $3.3 million were recorded associated with certain customer relationshipsassets and intellectual property intangibleliabilities 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 in our Cementing Equipment and Tubular Running Services segments. NaN intangible asset impairment was recorded duringliabilities based on the year ended December 31, 2018.
| Period | Amount | ||||
| 2021 | $ | 3,718 | |||
| 2022 | 677 | ||||
| 2023 | 665 | ||||
| 2024 | 606 | ||||
| 2025 | 604 | ||||
| Thereafter | 1,627 | ||||
| Total | $ | 7,897 | |||
Leases
We have operating and finance leases forprimarily related to real estate, vehiclestransportation and certain equipment. AtWe 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 time,value of all of our leases are classified as operating leases. Operating lease expense is recognized on a straight-line basispayments 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 judgment,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.
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, net” and “Finance lease liabilities” on the consolidated balance sheets. Our lease contracts generally do not provide any guaranteed residual values. Payments related to finance leases are apportioned between the reduction of the lease liability and finance expense in the consolidated statement of operations so as to achieve a constant rate of interest on the remaining balance of the liability. Leases which do not meet the definition of a finance lease are classified as operating leases and are included in Operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheets. Lease expense is recognized on a straight-line basis over the shorter of the estimated useful life of the underlying asset or the lease term.
We do not separate lease and non-lease components for all classes of leased assets. Also, leases with an initial term of 12 monthsone year or less are not recorded on the consolidated balance sheet.sheets.
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 Equipment
The interest element of the assetdefined benefit cost represents the change in present value of plan obligations resulting from the passage of time and meetis determined by applying a minimum capitalization threshold. Expenditures for routine repairs and maintenance, which do not improve or extenddiscount rate to the lifeopening present value of the relatedbenefit obligation, taking into account material changes in the obligation during the current period. The expected return on plan assets are expensed when incurred. When properties or equipment are sold, retired or otherwise disposedis based on an assessment made at the beginning of the related costyear of long-term market returns on plan assets, adjusted for the effect on the fair value of plan assets of contributions received and accumulatedbenefits paid during the current period.
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 in the consolidated statement of operations as a component of net pension costs (over the expected remaining working lives of the plan’s active participants or the remaining lives of plan members in the event the plan is no longer active), which is included in “Cost of revenue, excluding depreciation are removed from the books and the resulting gainamortization.”
The defined benefit pension asset or loss is recognizedliability on the consolidated statements of operations.
Defined Contribution Plans
The costs of providing benefits under a significant financing component anddefined contribution plan are expensed at the consideration we receive is generally fixed. We do not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. Because our contracts with customers are short-term in nature and fall within this exemption, we do not have significant unsatisfied performance obligations.
Stock-based compensation
Effective October 1, 2021, in connection with the consummation of return or other similar provisions, nor do they contain any other post-delivery obligations.
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 expenses in the consolidated statements of operations.
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 PRSUPerformance Restricted Stock Unit (“PRSU”) grants is estimated based on a Monte Carlo simulation using the Company’s closing stock price as of the day before the grant date.
In October 2018, Legacy Expro established the Expro Group Holdings International Limited 2018 Management Incentive Plan (the “MIP”) 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 $11.4 million, $7.3 million and $6.7 million of research and development costs for the years ended December 31, 2023, 2022 and 2021, respectively, which are included in “Cost of revenue, excluding depreciation and amortization” in the consolidated statements of operations.
Earnings (loss) per share
Basic earnings (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 earnings (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 Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”)ASUs to the FASB’s Accounting Standards Codification.
| 3. | Business combinations and dispositions |
DeltaTek Oil Tools Limited
On February 8, 2023 (“DeltaTek Closing Date”), DeltaTek Oil Tools Limited, a limited liability company registered in the United Kingdom, and its subsidiary (“DeltaTek”), was acquired (“the DeltaTek Acquisition”) by our wholly owned subsidiary Exploration and Production Services (Holdings) Limited, a limited liability company registered in the United Kingdom (“EPSH”). DeltaTek has developed a number of innovative technologies and solutions and their range of low-risk open water cementing solutions increases clients’ operational efficiency, delivers rig time and cost savings, and improves the quality of cementing operations of clients. The fair value of consideration for credit losses on financial instruments. the DeltaTek Acquisition was $18.4 million, including final cash consideration paid of $9.9 million and contingent consideration which is estimated to be $8.5 million.
The guidance includescontingent consideration arrangement requires the replacementCompany to pay the former owners of DeltaTek a percentage of future revenues generated specifically from the acquired technology over a period of seven years. The fair value of the “incurred loss”contingent consideration arrangement of $8.5 million was estimated by applying the income approach and is reflected in “Other liabilities” on the consolidated balance sheets. That measure is based on significant inputs that are not observable in the market, referred to as Level 3 inputs in accordance with ASC 820. To the extent our estimates and assumptions changed during the measurement period and such changes were based on facts and circumstances that existed as of the DeltaTek Closing Date, an adjustment to the contingent consideration liability was recorded with an offsetting adjustment to goodwill. To the extent our estimates and assumptions change based on facts and circumstances subsequent to the DeltaTek Closing Date or after the measurement period, an adjustment to the contingent consideration liability would be recorded with an offsetting adjustment to earnings during the applicable period.
The DeltaTek Acquisition is accounted for recognizing credit lossesas a business combination and Expro has been identified as the acquirer for accounting purposes. As a result, the Company has in accordance with ASC 805, Business Combinations, applied the acquisition method of accounting to account for DeltaTek’s assets acquired and liabilities assumed. Applying the acquisition method of accounting includes recording the identifiable assets acquired and liabilities assumed at their fair values and recording goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed.
The following table sets forth the allocation of the DeltaTek Acquisition consideration exchanged to the fair value of identifiable tangible and intangible assets acquired and liabilities assumed as of the DeltaTek Closing Date, with the recording of goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed (in thousands):
Initial allocation of the consideration | Measurement period adjustments | Allocation of consideration as of December 31, 2023 | ||||||||||
Cash and cash equivalents | $ | 1,464 | $ | - | $ | 1,464 | ||||||
Accounts receivables, net | 723 | - | 723 | |||||||||
Inventories | 183 | - | 183 | |||||||||
Property, plant and equipment | 642 | - | 642 | |||||||||
Goodwill | 7,157 | 994 | 8,151 | |||||||||
Intangible assets | 11,063 | 2 | 11,065 | |||||||||
Other assets | 27 | - | 27 | |||||||||
Total assets | 21,259 | 996 | 22,255 | |||||||||
Accounts payable and accrued liabilities | 245 | 2 | 247 | |||||||||
Deferred tax liabilities | 2,700 | 66 | 2,766 | |||||||||
Other liabilities | 831 | (16 | ) | 815 | ||||||||
Total liabilities | 3,776 | 52 | 3,828 | |||||||||
Fair value of net assets acquired | $ | 17,483 | $ | 944 | $ | 18,427 | ||||||
The preliminary valuation of the assets acquired and liabilities assumed, including other liabilities, in the DeltaTek Acquisition initially resulted in a goodwill of $7.2 million. During the third quarter of 2023, the Company finalized the valuation and recorded measurement period adjustments to its preliminary estimates due to additional information received primarily related to a customary purchase price adjustment. The measurement period adjustments resulted in an increase in goodwill of $1.0 million, for final total goodwill associated with the Acquisition of $8.2 million.
The fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either using the relief-from royalty method or the multi-period excess earnings method, which are discounted to approximate their current value. The estimated useful lives are based on financialmanagement’s historical experience and expectations as to the duration of time that benefits from these assets including trade receivables, with a methodology that reflects expected credit losses, which considers historical and current information as well as reasonable and supportable forecasts. We adopted the guidance on January 1, 2020, and the adoption did not have a material impact on our consolidated financial statements. The new credit loss standard isare expected to accelerate recognition of credit lossesbe realized.
The intangible assets will be amortized on our accounts receivable. Seea straight-line basis over an estimated 5 to 15 years life. We expect annual amortization to be approximately $1.0 million associated with these intangible assets. An associated deferred tax liability has been recorded in regards to these intangible assets. Refer to Note 3—Accounts Receivable,14 “Intangible assets”, net for additional information regarding allowance for credit losses on our accounts receivable.
The main objectivegoodwill consists largely of the accounting guidancesynergies and economies of scale expected from the technology providing more efficient services and expected future developments resulting from the assembled workforce. The goodwill is not subject to increase transparency amortization but will be evaluated at least annually for impairment or more frequently if impairment indicators are present. Goodwill recorded in the Acquisition is not expected to be deductible for tax purposes.
The Company has determined the estimated unaudited pro forma information to be insignificant for the years ended December 31, 2023 and comparability among organizations2022, assuming the DeltaTek Acquisition were to have been completed as of January 1, 2023 and 2022, respectively. This is not necessarily indicative of the results that would have occurred had the DeltaTek Acquisition been completed on either date indicated or of future operating results.
PRT Offshore
On October 2, 2023 (“PRT Closing Date”), Professional Rental Tools, LLC (“PRT” or “PRT Offshore”), was acquired (the “PRT Acquisition”) from PRT Partners, LLC by recognizing lease assetsour wholly owned subsidiary, EPSH. The acquisition will enable Expro to expand its portfolio of cost-effective, technology-enabled services and lease liabilitiessolutions within the subsea well access sector in the North and Latin America region and accelerate the growth of PRT Offshore’s surface equipment offering in the Europe and Sub-Saharan Africa and Asia Pacific regions. We estimated the fair value of consideration for the PRT Acquisition to be $91.0 million, including cash consideration of $21.7 million, net of cash received, equity consideration of $40.9 million, and contingent consideration of $13.2 million, subject to a true-up for customary working capital adjustments. As of December 31, 2023, the Company has accrued $1.5 million of the cash consideration related to standard holdback provisions, which is expected to be paid in 2024.
The contingent consideration arrangement requires the Company to pay the former owners of PRT additional consideration based on PRT Offshore’s financial performance during the four quarters following closing. The fair value of the contingent consideration arrangement of $13.2 million was estimated by applying the income approach and is reflected in “Other current liabilities” on the consolidated balance sheetsheets. That measure is based on significant inputs that are not observable in the market, referred to as Level 3 inputs in accordance with ASC 820. To the extent our estimates and disclosing key information about leasing arrangements. The main difference between previous GAAPassumptions change during the measurement period and the new guidance is the recognition of lease assetssuch changes are based on facts and lease liabilities by lessees for those leases classifiedcircumstances that existed as operating leases. The new guidance requires lessees to recognize assets and liabilities arising from leases on the balance sheet and further defines a lease as a contract that conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Control over the use of the identified asset means that the customer has both (1) the right to obtain substantially all of the economic benefit from the use of the asset and (2) the right to direct the use of the asset. The accounting guidance requires disclosures by both lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We adopted the new lease standard effective January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at adoption, including not restating comparative periods.
The PRT Acquisition is accounted for as a business combination and Expro has been identified as the acquirer for accounting purposes. As a result, the Company has in accordance with ASC 805, Business Combinations, applied the acquisition method of 12 months or less are not recorded on the balance sheet.
| Leases (in thousands) | Classification | December 31, 2020 | December 31, 2019 | |||||||||||||||||
| Assets | ||||||||||||||||||||
| Operating lease assets | Operating lease right-of-use assets | $ | 28,116 | $ | 32,585 | |||||||||||||||
| Liabilities | ||||||||||||||||||||
| Current | ||||||||||||||||||||
| Operating | Current portion of operating lease liabilities | 7,832 | 7,925 | |||||||||||||||||
| Noncurrent | ||||||||||||||||||||
| Operating | Non-current operating lease liabilities | 21,208 | 24,969 | |||||||||||||||||
| Total lease liabilities | $ | 29,040 | $ | 32,894 | ||||||||||||||||
| Year Ended | Year Ended | |||||||||||||
| Long-term Lease Cost (in thousands) | December 31, 2020 | December 31, 2019 | ||||||||||||
Operating lease cost (a) | $ | 10,202 | $ | 11,674 | ||||||||||
| Sublease income | $ | (273) | $ | (533) | ||||||||||
The following table sets forth the preliminary allocation of the PRT Acquisition consideration exchanged to the fair value of identifiable tangible and intangible assets acquired and liabilities assumed as of the PRT Closing Date, with the recording of goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed (in thousands):
Amount | ||||
Cash and cash equivalents | $ | 15,086 | ||
Accounts receivables, net | 15,195 | |||
Other current assets | 986 | |||
Property, plant and equipment | 52,278 | |||
Goodwill | 18,556 | |||
Intangible assets | 33,940 | |||
Operating lease right-of-use assets | 1,242 | |||
Total assets | 137,283 | |||
Accounts payable and accrued liabilities | 8,621 | |||
Operating lease liabilities | 505 | |||
Other current liabilities | 1,811 | |||
Non-current operating lease liabilities | 678 | |||
Long-term borrowings | 34,701 | |||
Total liabilities | 46,316 | |||
Fair value of net assets acquired | $ | 90,967 | ||
Due to the recency of the PRT Acquisition, these amounts, including the estimated fair values, are based on preliminary calculations and subject to change as our fair value estimates and assumptions are finalized during the measurement period. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation table above. The fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either using the relief-from royalty method or the multi-period excess earnings method, which are immaterial.
| Year Ended | Year Ended | |||||||||||||
| Other Information (in thousands) | December 31, 2020 | December 31, 2019 | ||||||||||||
| Cash paid for amounts included in measurement of lease liabilities | ||||||||||||||
| Operating cash flows from operating leases | $ | 11,880 | $ | 10,750 | ||||||||||
| Right-of-use assets obtained in an exchange for lease obligations | ||||||||||||||
| Operating leases | $ | 5,814 | $ | 7,393 | ||||||||||
| Lease Term and Discount Rate | December 31, 2020 | December 31, 2019 | ||||||||||||
| Weighted average remaining lease term (years) | ||||||||||||||
| Operating leases | 5.54 | 6.06 | ||||||||||||
| Weighted average discount rate | ||||||||||||||
| Operating leases | 13.29% | 10.47% | ||||||||||||
| Maturity of Operating Lease Liabilities (in thousands) | December 31, 2020 | |||||||
| 2021 | $ | 10,378 | ||||||
| 2022 | 8,475 | |||||||
| 2023 | 6,367 | |||||||
| 2024 | 3,985 | |||||||
| 2025 | 2,957 | |||||||
| Thereafter | 7,834 | |||||||
| Total lease payments | 39,996 | |||||||
| Less: interest | 10,956 | |||||||
| Present value of lease liabilities | $ | 29,040 | ||||||
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Trade accounts receivable, net of allowance for credit losses of $3,857 and $5,129, respectively | $ | 65,684 | $ | 101,718 | |||||||
| Unbilled receivables | 26,215 | 43,422 | |||||||||
| Taxes receivable | 14,292 | 18,516 | |||||||||
Affiliated (1) | 549 | 549 | |||||||||
| Other receivables | 3,867 | 2,489 | |||||||||
| Total accounts receivable, net | $ | 110,607 | $ | 166,694 | |||||||
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Pipe and connectors, net of allowance of $16,819 and $18,287, respectively | $ | 22,642 | $ | 21,779 | |||||||
| Finished goods, net of allowance of $84 and $485, respectively | 22,715 | 25,628 | |||||||||
| Work in progress | 1,730 | 3,663 | |||||||||
| Raw materials, components and supplies | 34,631 | 27,759 | |||||||||
| Total inventories, net | $ | 81,718 | $ | 78,829 | |||||||
The intangible assets will be amortized on a straight-line basis over an estimated 5 to 15 years life. We expect annual amortization to be approximately $3.3 million associated with these intangible assets. An associated deferred tax liability has been recorded in regards to these intangible assets. Refer to Note 14 “Intangible assets”, net for additional information regarding the various acquired intangible assets.
The goodwill consists largely of the synergies and economies of scale expected from the acquired customer relationships and contracts. The goodwill is not subject to amortization but will be evaluated at least annually for impairment or more frequently if impairment indicators are present.
The Company’s operating results for the period October 3, 2023 through December 31, 20202023 include $14.7 million of revenue and 2019 (in thousands):
| December 31, | |||||||||||||||||
| Estimated Useful Lives in Years | 2020 | 2019 | |||||||||||||||
| Land | — | $ | 30,869 | $ | 30,724 | ||||||||||||
| Land improvements | 8-15 | 7,620 | 7,193 | ||||||||||||||
| Buildings and improvements | 13-39 | 121,105 | 116,182 | ||||||||||||||
| Rental machinery and equipment | 2-7 | 897,398 | 882,979 | ||||||||||||||
| Machinery and equipment - other | 7 | 54,842 | 60,182 | ||||||||||||||
| Furniture, fixtures and computers | 3-5 | 16,928 | 17,251 | ||||||||||||||
| Automobiles and other vehicles | 5 | 25,948 | 28,734 | ||||||||||||||
| Leasehold improvements | 7-15,or lease term if shorter | 12,773 | 14,258 | ||||||||||||||
| Construction in progress - machinery and equipment | — | 24,381 | 46,564 | ||||||||||||||
| 1,191,864 | 1,204,067 | ||||||||||||||||
| Less: Accumulated depreciation | (919,157) | (875,635) | |||||||||||||||
| Total property, plant and equipment, net | $ | 272,707 | $ | 328,432 | |||||||||||||
The Company has determined the first quarter of 2019, buildings with a net book value of $1.1 million met the criteriaestimated unaudited pro forma information to be classified as held for sale and were reclassified from property, plant and equipment to assets held for sale on our consolidated balance sheet. During the second quarter of 2019, we sold a building classified as held for sale for $0.2 million and recorded an immaterial loss. During the third quarter of 2019, an additional building met the criteria to be classified as held for sale and a $4.0 million impairment loss was recorded, which is included in severance and other charges (credits), net on our consolidated statements of operations. The building's remaining net book value of $5.3 million was reclassified from property, plant and equipment to assets held for sale on our consolidated balance sheets. During the fourth quarter of 2019, we sold a building classified as held for sale for $0.3 million and recorded an immaterial loss. Also during the fourth quarter of 2019, equipment in our Tubular Running Services segment met the criteria to be classified as held for sale and a $0.3 million impairment loss was recorded, which is included in severance and other charges (credits), net on our consolidated statements of operations. The equipment’s remaining net book value of $0.2 million was reclassified from property, plant and equipment to assets held for sale on our consolidated balance sheets.
| December 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | ||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||
| Services | $ | 63,511 | $ | 80,072 | $ | 93,280 | ||||||||||||||
| Products | 701 | 1,511 | 4,354 | |||||||||||||||||
| General and administrative expenses | 5,957 | 11,217 | 13,658 | |||||||||||||||||
| Total | $ | 70,169 | $ | 92,800 | $ | 111,292 | ||||||||||||||
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
Cash surrender value of life insurance policies (1) | $ | 26,167 | $ | 27,313 | |||||||
| Deposits | 2,182 | 2,119 | |||||||||
| Other | 2,510 | 3,805 | |||||||||
| Total other assets | $ | 30,859 | $ | 33,237 | |||||||
Coretrax
On February 12, 2024, Expro announced that it had agreed to acquire Scotland-based Coretrax, a technology leader in performance drilling tools and Accrued Liabilities
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Accounts payable | $ | 22,277 | $ | 16,793 | |||||||
| Accrued compensation | 23,212 | 23,988 | |||||||||
| Accrued property and other taxes | 14,420 | 20,099 | |||||||||
| Accrued severance and other charges | 2,666 | 5,837 | |||||||||
| Income taxes | 16,029 | 19,166 | |||||||||
Affiliated (1) | 2,513 | 1,694 | |||||||||
| Accrued purchase orders and other | 18,869 | 32,744 | |||||||||
| Total accounts payable and accrued liabilities | $ | 99,986 | $ | 120,321 | |||||||
| 4. | Fair value measurements |
Recurring Basis
A summary of financial assets and liabilities that are measured at fair value on a recurring basis, as of December 31, 2020 2023 and 2019,2022, were as follows (in thousands):
| Quoted Prices in Active Markets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||||||||||
| December 31, 2020 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| Cash surrender value of life insurance policies - deferred compensation plan | $ | 0 | $ | 26,167 | $ | 0 | $ | 26,167 | |||||||||||||||
| Marketable securities - other | 3 | 0 | 0 | 3 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Deferred compensation plan | 0 | 20,271 | 0 | 20,271 | |||||||||||||||||||
| December 31, 2019 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| Cash surrender value of life insurance policies - deferred compensation plan | $ | 0 | $ | 27,313 | $ | 0 | $ | 27,313 | |||||||||||||||
| Marketable securities - other | 8 | 0 | 0 | 8 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivative financial instruments | 0 | 324 | 0 | 324 | |||||||||||||||||||
| Deferred compensation plan | 0 | 23,251 | 0 | 23,251 | |||||||||||||||||||
December 31, 2023 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Non-current accounts receivable, net | $ | - | $ | 9,768 | - | $ | 9,768 | |||||||||
Liabilities: | ||||||||||||||||
Contingent consideration liabilities | - | - | 24,705 | 24,705 | ||||||||||||
Finance lease liabilities | - | 18,377 | - | 18,377 | ||||||||||||
Long-term borrowings | - | 20,701 | - | 20,701 | ||||||||||||
December 31, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Non-current accounts receivable, net | $ | - | $ | 9,688 | - | $ | 9,688 | |||||||||
Liabilities: | ||||||||||||||||
Contingent consideration liabilities | - | - | 3,227 | 3,227 | ||||||||||||
Finance lease liabilities | - | 14,820 | - | 14,820 | ||||||||||||
We have certain contingent consideration liabilities related to acquisitions which are measured at fair value using Level 3 inputs. The amount of derivative financial instrumentscontingent consideration due to the sellers is based on quoted market values including foreign exchange forward ratesthe achievement of agreed-upon financial performance metrics by the acquired company, as determined by the terms of the contingent consideration agreements with the sellers of each acquired company. We record a liability at the time of the acquisition based on the present value of management’s best estimates of the future results of the acquired companies compared to the agreed-upon metrics. After the date of acquisition, we update the original valuation to reflect the passage of time and interest rates. The fair value is computed by discountingcurrent projections of future results of the projected future cash flow amounts to present value. At December 31, 2019, derivative financial instruments are includedacquired companies. Accretion of, and changes in the financial statement line item accounts payable and accrued liabilities in our consolidated balance sheets.
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, the purchase price is allocated to the assets acquired and liabilities assumed based on a discounted cash flow model for most intangibles as well as market assumptions for the valuation of equipment and other fixed assets.
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 perform ourhave 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 for eachdetermines whether it is more likely than not that a reporting unit by comparingunit’s fair value is less than its carrying amount. If it is more likely than not that the estimated fair value of eachthe 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 reporting unit’s carrying value, including goodwill. We estimate the fair value for each reporting unit using a discounted cash flow analysis based on management’s short-term and long-term forecastexistence of operating performance. This analysis includes significant assumptions regarding discount rates, revenue growth rates, terminal growth ratesimpairment and the timingamount of expected future cash flows based on market conditions. Ifimpairment loss. The test compares the estimated fair value of a reporting unit exceedswith its carrying amount, goodwillincluding goodwill. If the fair value of the reporting unit is not considered impaired. If theless than its carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is measured and recorded.
When conducting an impairment test on long-lived assets, other than goodwill, we first compare estimated future undiscounted cash flows associated with the asset to the asset’s carrying amount. If the undiscounted cash flows are less than the asset’s carrying amount, we then determine the asset’s fair value by using a discounted cash flow analysis. These analyses are based on estimates such as management’s short-term and long-term forecast of operating performance, including revenue growth rates and expected profitability margins, estimates of the remaining useful life and service potential of the asset, and a discount rate based on our weighted average cost of capital. 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-partythird-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 chargesexpense in future periods if actual results materially differ from the estimated assumptions utilized in our forecasts. If crude oil prices decline significantly and remain at low levels for a sustained period of time, we could be required to record an impairment of the carrying value of our long-lived assets in the future which could have a material adverse impact on our operating results. Given the unobservable nature of the inputs, the discounted cash flow models are deemed to use Level 3 inputs.
No impairment expense was recognized during the years ended December 31, 2023, 2022 and 2021.
Goodwill
For the years ended December 31, 2023 and December 31, 2022, we performed quantitative goodwill impairment assessments as of our annual testing date and determined that the fair value was substantially in excess of the carrying value for each reporting unit. For the year ended December 31, 2021, we performed a qualitative goodwill impairment assessment of our goodwill as of our annual testing date and determined that 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, no impairment expense related to goodwill was recorded during the years ended December 31, 2023, 2022 and 2021.
In performing our quantitative goodwill impairment assessments, we used the income approach and the market approach to estimate the fair value of our reporting units. The carrying valuesincome approach estimates the fair value by discounting the reporting unit’s estimated future cash flows using an estimated discount rate, or expected return, that a marketplace participant would have required as of the valuation date. The market approach includes the use of comparative multiples to corroborate the discounted cash flow results and involves significant judgment in the selection of the appropriate peer group companies and valuation multiples. 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 consolidated balance sheetsestimated weighted average cost of capital, revenue growth rates, profitability margins and capital expenditures.
Long-lived Assets
The Company did not identify any indicators of impairment related to our long-lived assets during the years ended December 31, 2023, 2022 and 2021.
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, short-term investments, traderestricted cash, accounts receivable, other current assets, accounts payable and accrued liabilities and linesinterest-bearing loans. The carrying amounts of creditthe Company’s financial instruments other than interest bearing loans approximate fair valuesvalue due to their short maturities.the short-term nature of the items. The Company has $20.0 million of outstanding borrowings on its interest-bearing loan as of December 31, 2023.
| 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 (“CEO”), in deciding how to allocate resources and assess performance. Our operations are comprised of four operating segments which also represent our reporting segments and are aligned with our geographic regions as below:
● | North and Latin America (“NLA”), |
● | Europe and Sub-Saharan Africa (“ESSA”), |
● | Middle East and North Africa (“MENA”), and |
● | Asia-Pacific (“APAC”). |
The following table presents our revenue disaggregated by our operating segments (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
NLA | $ | 511,800 | $ | 499,813 | $ | 193,156 | ||||||
ESSA | 520,951 | 389,342 | 300,557 | |||||||||
MENA | 233,528 | 201,495 | 171,136 | |||||||||
APAC | 246,485 | 188,768 | 160,913 | |||||||||
Total | $ | 1,512,764 | $ | 1,279,418 | $ | 825,762 | ||||||
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, net, 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 income (loss) before income taxes (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
NLA | $ | 132,869 | $ | 135,236 | $ | 32,254 | ||||||
ESSA | 136,007 | 74,681 | 53,336 | |||||||||
MENA | 71,201 | 63,315 | 56,312 | |||||||||
APAC | 1,805 | 4,850 | 33,444 | |||||||||
Total Segment EBITDA | $ | 341,882 | $ | 278,082 | $ | 175,346 | ||||||
Corporate costs | (105,855 | ) | (87,580 | ) | (66,153 | ) | ||||||
Equity in income of joint ventures | 12,853 | 15,731 | 16,747 | |||||||||
Depreciation and amortization expense | (172,260 | ) | (139,767 | ) | (123,866 | ) | ||||||
Merger and integration expense | (9,764 | ) | (13,620 | ) | (47,593 | ) | ||||||
Severance and other expense | (14,388 | ) | (7,825 | ) | (7,826 | ) | ||||||
Stock-based compensation expense | (19,574 | ) | (18,486 | ) | (54,162 | ) | ||||||
Foreign exchange losses | (9,238 | ) | (8,341 | ) | (4,314 | ) | ||||||
Other income, net | 1,234 | 3,149 | 3,992 | |||||||||
Gain on disposal of assets | - | - | 1,000 | |||||||||
Interest and finance expense, net | (3,943 | ) | (241 | ) | (8,795 | ) | ||||||
Income (loss) before income taxes | $ | 20,947 | $ | 21,102 | $ | (115,624 | ) | |||||
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. One customer accounted 12.5% of our revenue in the year ended December 31, 2023. No single customer accounted for more than 10% of our revenue for the years ended December 31, 2022 and 2021. The revenue generated in the Netherlands was immaterial for the years ended December 31, 2023, 2022 and 2021. Other than the U.S. in 2023 and 2022 and Norway in 2021,no individual country represented more than 10% of our revenue for the years ended December 31, 2023, 2022 and 2021.
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 and non-current assets, which are not included in the measure of segment assets reviewed by the CODM:
December 31, | ||||||||
2023 | 2022 | |||||||
NLA | $ | 709,600 | $ | 633,644 | ||||
ESSA | 519,939 | 444,368 | ||||||
MENA | 351,379 | 294,742 | ||||||
APAC | 190,398 | 232,812 | ||||||
Assets held centrally | 241,691 | 331,586 | ||||||
Total | $ | 2,013,007 | $ | 1,937,152 | ||||
The following table presents our capital expenditures disaggregated by our operating segments (in thousands):
Year Ended December 31, | ||||||||
2023 | 2022 | |||||||
NLA | $ | 34,955 | $ | 18,435 | ||||
ESSA | 25,232 | 17,574 | ||||||
MENA | 38,673 | 27,354 | ||||||
APAC | 18,056 | 13,457 | ||||||
Assets held centrally | 5,194 | 5,084 | ||||||
Total | $ | 122,110 | $ | 81,904 | ||||
| 6. | Revenue |
Disaggregation of revenue
We disaggregate our revenue from contracts with customers by geography, as disclosed in Note 10— Derivatives5 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):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Well construction | $ | 533,556 | $ | 500,438 | $ | 112,126 | ||||||
Well management | 979,208 | 778,980 | 713,636 | |||||||||
Total | $ | 1,512,764 | $ | 1,279,418 | $ | 825,762 | ||||||
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.
Unbilled receivables are initially recognized for revenue earned on completion of the performance obligation which are not yet invoiced to the customer. The amounts recognized as unbilled receivables are reclassified to trade receivable upon billing. Deferred revenue represents the Company’s obligations to transfer goods or services to customers for which the Company has received consideration, in full or part, from the customer.
Contract balances consisted of the following as of December 31, 2023 and December 31, 2022 (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Trade receivable, net | $ | 222,591 | $ | 289,235 | ||||
Unbilled receivables (included within accounts receivable, net) | $ | 203,689 | $ | 139,690 | ||||
Contract assets (included within accounts receivable, net) | $ | 52,607 | - | |||||
Deferred revenue (included within other liabilities) | $ | 27,206 | $ | 51,192 | ||||
Contract assets include unbilled amounts resulting from sales under our long-term construction-type contracts when revenue recognized exceeds the amount billed to the customer and right to payment is conditional or subject to completing a milestone, such as a phase of the project. Contract assets are not considered a significant financing component, as they are intended to protect the customer in the event that we do not perform our obligations under the contract. Contract assets are generally classified as current, as it is very unusual for us to have contract assets with a term of greater than one year. Our contract assets are reported in a net position on a contract-by-contract basis at the end of each reporting period.
The Company recognized revenue of $49.8 million, $15.5 million and $15.4 million for the years ended December 31, 2023, 2022 and 2021, respectively, out of the deferred revenue balance as of the beginning of the applicable year.
As of December 31, 2023, $26.0 million of our deferred revenue was classified as current and is included in “Other current liabilities” on the consolidated balance sheets, with the remainder classified as non-current and included in “Other non-current liabilities” on the consolidated balance sheets.
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 practical expedient permitting the exclusion of disclosing remaining performance obligations for contracts that have an original expected duration of one year or less and for our long-term contracts we have a right to consideration from customers in an amount that corresponds directly with the value to the customer of the performance completed to date. With respect to our long term construction contracts, revenue allocated to remaining performance obligations is $17.7 million.
| 7. | Income taxes |
The components of income tax expense for the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Current tax: | ||||||||||||
Netherlands | $ | 518 | $ | 283 | $ | 216 | ||||||
Foreign | 54,267 | 42,308 | 16,777 | |||||||||
Total current tax | 54,785 | 42,591 | 16,993 | |||||||||
Deferred tax: | ||||||||||||
Netherlands | - | - | - | |||||||||
Foreign | (10,478 | ) | (1,344 | ) | (726 | ) | ||||||
Total deferred tax | (10,478 | ) | (1,344 | ) | (726 | ) | ||||||
Income tax expense | $ | 44,307 | $ | 41,247 | $ | 16,267 | ||||||
The Netherlands and foreign components of loss from continuing operations before income taxes and equity in income of joint ventures for the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Netherlands | $ | (5,232 | ) | $ | (13,984 | ) | $ | (19,190 | ) | |||
Foreign | 13,326 | 19,355 | (113,181 | ) | ||||||||
Total | $ | 8,094 | $ | 5,371 | $ | (132,371 | ) | |||||
The provision for income taxes differs from the amount computed by applying Netherlands statutory income tax rate of 25.8% in effect as of December 31, 2023, (2022:25.8%) to loss from continuing operations before taxes and equity in joint ventures for the reasons below (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Statutory tax rate | 25.8 | % | 25.8 | % | 25.0 | % | ||||||
Income tax expense (benefit) at statutory rate | $ | 2,089 | $ | 1,387 | $ | (33,093 | ) | |||||
Permanent differences | 9,332 | 12,187 | 14,123 | |||||||||
Effect of overseas tax rates | 30,572 | (4,024 | ) | 9,905 | ||||||||
Net tax charge related to attributes with full valuation allowance | (7,408 | ) | 28,267 | 28,607 | ||||||||
Exempt dividends from joint ventures | - | (2,649 | ) | (1,014 | ) | |||||||
Return to provision adjustments | (884 | ) | (5,966 | ) | (5,001 | ) | ||||||
Withholding taxes | 3,479 | 3,029 | 1,995 | |||||||||
Foreign exchange movements on tax balances | 2,908 | 694 | 67 | |||||||||
Movement in uncertain tax positions | 2,958 | 8,322 | 678 | |||||||||
Other differences | 1,261 | - | - | |||||||||
Income tax expense | $ | 44,307 | $ | 41,247 | $ | 16,267 | ||||||
Effective tax rate | 547.4 | % | 768.0 | % | (12.3 | )% | ||||||
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, 2023 and 2022 were as follows (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carry forwards | $ | 760,720 | $ | 771,963 | ||||
Employee compensation and benefits | 10,224 | 9,977 | ||||||
Depreciation | 77,174 | 66,300 | ||||||
Other | 53,202 | 44,133 | ||||||
Intangibles | 13,485 | 16,197 | ||||||
Valuation allowance | (862,201 | ) | (881,286 | ) | ||||
Total deferred tax assets | 52,604 | 27,284 | ||||||
Deferred tax liabilities: | ||||||||
Depreciation | (26,172 | ) | (13,630 | ) | ||||
Goodwill and other intangibles | (32,955 | ) | (36,968 | ) | ||||
Investment in partnership | (1,274 | ) | (911 | ) | ||||
Other | (14,909 | ) | (6,194 | ) | ||||
Total deferred tax liabilities | (75,310 | ) | (57,703 | ) | ||||
Net deferred tax liabilities | $ | (22,706 | ) | $ | (30,419 | ) | ||
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.
The changes in valuation allowances were as follows (in thousands):
Year Ended December 31 | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Balance at the beginning of the period | $ | 881,286 | $ | 829,087 | $ | 512,711 | ||||||
Additions attributable to the Merger | - | - | 187,319 | |||||||||
Additions not attributable to the Merger | 88,497 | 146,451 | 160,299 | |||||||||
Reductions | (107,582 | ) | (94,252 | ) | (31,242 | ) | ||||||
Balance at end of period | $ | 862,201 | $ | 881,286 | $ | 829,087 | ||||||
As of December 31, 2023, the Company had U.S. federal net operating loss carryforwards (“NOLs”) excluding interest limitations of approximately $561.1 million, net of existing Section 382 (as defined below) limitations. $155.2 million of these NOLs were incurred prior to January 1, 2018 and will begin to expire, if unused, in 2036. $405.9 million of these NOLs were incurred on or after January 1, 2018 and will not expire and will be carried forward indefinitely.
The net operating loss carryforwards have been adjusted due to expected utilization during 2023 and integration related restructuring in the U.S. as the Company consolidated U.S. operations under one operating group.
Section 382 of the Code (“Section 382”) 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 time we enter into short-duration foreign currency forward derivative contractsthe 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 will trigger a limitation (calculated as described above) on the combined company’s ability to utilize any historic Frank’s NOLs and will cause some of the Frank’s NOLs incurred prior to January 1, 2018 to expire before the combined company will be able to utilize them to reduce taxable income in future periods.
The exchange of ordinary shares of Legacy Expro for shares of the riskCompany’s common stock (“Company Common Stock”) in the Merger was, standing alone, insufficient to result in an ownership change with respect to Legacy Expro. However, the Company will 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. Due to the ownership change with respect to Legacy Expro as a result of the Merger, the combined company will be prevented from fully utilizing Legacy Expro’s historic NOLs incurred prior to January 1, 2018 prior to their expiration.
It is our intention that all cash and earnings of our subsidiaries as of December 31, 2023, are permanently reinvested and will be used to meet operating cash flow needs. Existing plans do not demonstrate a need to repatriate foreign currency fluctuations. 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 usehave 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, 2023 and 2022 (in thousands):
Year ended December 31 | ||||||||
2023 | 2022 | |||||||
Balance at the beginning of the period | $ | 88,137 | $ | 76,114 | ||||
Additions attributable to the Merger | - | 7,259 | ||||||
Additions based on tax positions related to current period not attributable to the Merger | 3,042 | 8,009 | ||||||
Additions for tax positions of prior year period not attributable to the Merger | 2,125 | 2,371 | ||||||
Settlements with tax authorities | (1,945 | ) | (2,490 | ) | ||||
Reductions for tax positions of prior years | (714 | ) | (547 | ) | ||||
Reductions due to the lapse of statute of limitations | (976 | ) | (1,525 | ) | ||||
Effect of changes in foreign exchange rates | (25 | ) | (1,054 | ) | ||||
Balance at the end of the period | $ | 89,644 | $ | 88,137 | ||||
The amounts above include penalties and interest of $11.6 million and $9.8 million for the years ended December 31, 2023 and 2022, respectively. We classify penalties and interest relating to uncertain tax positions within income tax expense in the consolidated statements of operations.
Approximately $59.5 million and $58.0 million of unrecognized tax benefits as of December 31, 2023 and 2022 respectively, included in “Other non-current liabilities” on the consolidated balance sheets, would positively impact our future rate and be recognized as additional tax benefit in our statement of operations if resolved in our favor. Approximately $30.1 million of unrecognized tax benefits as of December 31, 2023 and 2022, respectively, relate to certain deductions and should not impact our future rate. We do not foresee material resolution of these instrumentspositions in the coming 12 months.
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 mitigateincome tax examination by tax authorities for years prior to 2008. Tax filings of our exposuresubsidiaries, 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 non-local currency operating working capital.be material to our results of operations, financial position or cash flows.
In 2021 the OECD announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 (including the European Union Member States) with the adoption of additional components in later years or announced their plans to enact legislation in future years. We recordare continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions we operate in.
| 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 contracts at fairare 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, 2023 and 2022 was as follows (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
CETS | $ | 62,704 | $ | 62,471 | ||||
PVD-Expro | 3,698 | 3,567 | ||||||
Total | $ | 66,402 | $ | 66,038 | ||||
| 9. | Accounts receivable, net |
Accounts receivable, net consisted of the following as of December 31, 2023 and 2022 (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Accounts receivable | $ | 497,135 | $ | 441,605 | ||||
Less: Expected credit losses | (18,248 | ) | (12,680 | ) | ||||
Total | $ | 478,887 | $ | 428,925 | ||||
Current | $ | 469,119 | $ | 419,237 | ||||
Non – current | 9,768 | 9,688 | ||||||
Total | $ | 478,887 | $ | 428,925 | ||||
The movement of expected credit losses for the years ended December 31, 2023, 2022 and 2021 was as follows (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Balance at beginning of year | $ | 12,680 | $ | 9,392 | $ | 6,917 | ||||||
Additions - Acquired in Merger | - | 992 | ||||||||||
Additions - Other | 6,139 | 4,096 | 1,527 | |||||||||
Deductions | (571 | ) | (808 | ) | (44 | ) | ||||||
Balance at end of year | $ | 18,248 | $ | 12,680 | $ | 9,392 | ||||||
| 10. | Inventories |
Inventories consisted of the following as of December 31, 2023 and 2022 (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Finished goods | $ | 25,854 | $ | 26,810 | ||||
Raw materials, equipment spares and consumables | 99,011 | 102,395 | ||||||
Work-in progress | 18,460 | 24,513 | ||||||
Total | $ | 143,325 | $ | 153,718 | ||||
| 11. | Other assets and liabilities |
Other assets consisted of the following as of December 31, 2023 and 2022 (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Prepayments | $ | 28,725 | $ | 18,084 | ||||
Value-added tax receivables | 20,622 | 20,727 | ||||||
Collateral deposits | 1,886 | 1,669 | ||||||
Deposits | 8,912 | 7,245 | ||||||
Other | 10,566 | 5,513 | ||||||
Total | $ | 70,711 | $ | 53,238 | ||||
Current | $ | 58,409 | $ | 44,975 | ||||
Non – current | 12,302 | 8,263 | ||||||
Total | $ | 70,711 | $ | 53,238 | ||||
Other liabilities consisted of the following as of December 31, 2023 and 2022 (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Deferred revenue | $ | 27,206 | $ | 51,192 | ||||
Other tax and social security | 34,004 | 28,557 | ||||||
Provisions | 38,576 | 45,248 | ||||||
Contingent consideration liabilities | 24,705 | 3,227 | ||||||
Other | 17,855 | 18,655 | ||||||
Total | $ | 142,346 | $ | 146,879 | ||||
Current | $ | 98,144 | $ | 107,750 | ||||
Non – current | 44,202 | 39,129 | ||||||
Total | $ | 142,346 | $ | 146,879 | ||||
| 12. | Accounts payable and accrued liabilities |
Accounts payable and accrued liabilities consisted of the following as of December 31, 2023 and 2022 (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Accounts payable – trade | $ | 146,759 | $ | 100,951 | ||||
Payroll, vacation and other employee benefits | 43,924 | 46,935 | ||||||
Accruals for goods received not invoiced | 22,921 | 32,102 | ||||||
Other accrued liabilities | 112,521 | 92,716 | ||||||
Total | $ | 326,125 | $ | 272,704 | ||||
| 13. | Property, plant and equipment, net |
Property, plant and equipment, net consisted of the following as of December 31, 2023 and 2022 (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Cost: | ||||||||
Land | $ | 22,176 | $ | 22,261 | ||||
Land improvement | 3,332 | 3,054 | ||||||
Buildings and lease hold improvements | 100,404 | 98,490 | ||||||
Plant and equipment | 971,178 | 789,910 | ||||||
| 1,097,090 | 913,715 | |||||||
Less: accumulated depreciation | (583,868 | ) | (451,399 | ) | ||||
Total | $ | 513,222 | $ | 462,316 | ||||
The carrying amount of our property, plant and equipment recognized in respect of assets held under finance leases as of December 31, 2023 and 2022 and included in amounts above is as follows (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Cost: | ||||||||
Buildings | $ | 23,859 | $ | 18,623 | ||||
Plant and equipment | 589 | 1,275 | ||||||
| 24,448 | 19,898 | |||||||
Less: accumulated amortization | (10,315 | ) | (9,085 | ) | ||||
Total | $ | 14,133 | $ | 10,813 | ||||
Depreciation expense related to property, plant and equipment, including assets under finance leases, was $133.4 million, $102.3 million and $95.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.
No impairment expense related to property, plant, and equipment was recognized for the years ended December 31, 2023, 2022 and 2021.
During the year ended December 31, 2022, a building classified as assets held for sale as of December 31, 2021, was sold for net proceeds of $6.3 million. Additionally, during the year ended December 31, 2022, a building with net carrying value of $2.2 million met the criteria to be classified as held for sale and was reclassified from property plant and equipment, net to assets held for sale on our consolidated balance sheets. Althoughsheet. During the derivative contracts will serve as an economic hedgeyear ended December 31, 2023, assets held for sale were sold for net proceeds of the cash flow of our currency exchange risk exposure, they are not
| 14. | Intangible assets, net |
The following table summarizes our intangible assets comprising of Customer Relationships & Contracts (“CR&C”), Trademarks, Technology and Software as hedge contractsof December 31, 2023 and 2022 (in thousands):
December 31, 2023 | December 31, 2022 | December 31, 2023 | ||||||||||||||||||||||||||
Accumulated | Accumulated | Weighted | ||||||||||||||||||||||||||
Gross | impairment | Gross | impairment | average | ||||||||||||||||||||||||
carrying | and | Net book | carrying | and | Net book | remaining | ||||||||||||||||||||||
amount | amortization | value | amount | amortization | value | life (years) | ||||||||||||||||||||||
CR&C | $ | 256,835 | $ | (139,302 | ) | $ | 117,533 | $ | 222,200 | $ | (118,221 | ) | $ | 103,979 | 6.1 | |||||||||||||
Trademarks | 58,977 | (36,578 | ) | 22,399 | 57,100 | (32,921 | ) | 24,179 | 6.4 | |||||||||||||||||||
Technology | 179,154 | (82,266 | ) | 96,888 | 170,652 | (71,191 | ) | 99,461 | 11.2 | |||||||||||||||||||
Software | 15,248 | (12,352 | ) | 2,896 | 11,556 | (9,671 | ) | 1,885 | 0.7 | |||||||||||||||||||
Total | $ | 510,214 | $ | (270,498 | ) | $ | 239,716 | $ | 461,508 | $ | (232,004 | ) | $ | 229,504 | 8.1 | |||||||||||||
Amortization expense for hedge accounting treatment. Accordingly, any changesintangible assets was $38.5 million, $37.4 million and $28.1 million for the years ended December 31, 2023, 2022 and 2021, respectively.
During the first quarter of 2022, we acquired technology to bolster our well intervention and integrity product offering, resulting in the fair valuean increase in intangible assets of the derivative instruments during a period$11.2 million which will be amortized over a five-year life. The impact of this asset acquisition is included in our“Acquisition of technology” on the consolidated statements of operations.
| December 31, 2019 | ||||||||||||||||||||
| Notional | Contractual | Settlement | ||||||||||||||||||
| Derivative Contracts | Amount | Exchange Rate | Date | |||||||||||||||||
| Canadian dollar | $ | 948 | 1.3182 | 3/16/2020 | ||||||||||||||||
| Euro | 9,279 | 1.1180 | 3/17/2020 | |||||||||||||||||
| Norwegian krone | 11,027 | 9.0688 | 3/17/2020 | |||||||||||||||||
| Pound sterling | 16,057 | 1.3381 | 3/17/2020 | |||||||||||||||||
The following table summarizes the locationintangible assets which were acquired during the year ended December 31, 2023 (in thousands):
Acquired Fair Value | Weighted average life | |||||||
DeltaTek: | ||||||||
CR&C | $ | 2,571 | 6.0 | |||||
Trademarks | 257 | 5.0 | ||||||
Technology | 8,237 | 15.0 | ||||||
Total | $ | 11,065 | 12.7 | |||||
PRT: | ||||||||
CR&C | $ | 32,048 | 10.0 | |||||
Trademarks | 1,627 | 4.0 | ||||||
Technology | 265 | 15.0 | ||||||
Total | $ | 33,940 | 9.8 | |||||
No impairment expense associated with our intangible assets was recognized during the years ended December 31, 2023, 2022 and fair value amounts2021.
Expected future intangible asset amortization as of December 31, 2020 and 20192023 is as follows (in thousands):
| Derivatives not designated as Hedging Instruments | Consolidated Balance Sheet Location | December 31, 2020 | December 31, 2019 | |||||||||||||||||
| Foreign currency contracts | Accounts payable and accrued liabilities | $ | 0 | $ | (324) | |||||||||||||||
Years ending December 31, | ||||
2024 | $ | 35,875 | ||
2025 | 32,968 | |||
2026 | 32,968 | |||
2027 | 32,968 | |||
2028 | 30,890 | |||
Thereafter | 74,047 | |||
Total | $ | 239,716 |
| 15. | Goodwill |
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):
December 31, | ||||||||
2023 | 2022 | |||||||
NLA | $ | 139,512 | $ | 118,511 | ||||
ESSA | 83,319 | 80,058 | ||||||
MENA | 5,441 | 4,218 | ||||||
APAC | 19,415 | 18,193 | ||||||
Total | $ | 247,687 | $ | 220,980 | ||||
The following table summarizeprovides the locationgross carrying amount and amountscumulative impairment expense of goodwill for each operating segment as of December 31, 2023 and 2022 (in thousands):
2023 | 2022 | |||||||||||||||||||||||||||||||||||
Cost | Acquired in acquisitions | Measurement period adjustments | Accumulated impairment | Net Book Value | Cost | Measurement period adjustments | Accumulated impairment | Net Book Value | ||||||||||||||||||||||||||||
NLA | $ | 155,852 | $ | 20,703 | $ | 298 | $ | (37,341 | ) | $ | 139,512 | $ | 130,949 | $ | 24,903 | $ | (37,341 | ) | $ | 118,511 | ||||||||||||||||
ESSA | 94,536 | 2,863 | 398 | (14,478 | ) | 83,319 | 80,761 | 13,775 | (14,478 | ) | 80,058 | |||||||||||||||||||||||||
MENA | 130,601 | 1,074 | 149 | (126,383 | ) | 5,441 | 129,714 | 887 | (126,383 | ) | 4,218 | |||||||||||||||||||||||||
APAC | 58,306 | 1,073 | 149 | (40,113 | ) | 19,415 | 56,794 | 1,512 | (40,113 | ) | 18,193 | |||||||||||||||||||||||||
Total | $ | 439,295 | $ | 25,713 | $ | 994 | $ | (218,315 | ) | $ | 247,687 | $ | 398,218 | $ | 41,077 | $ | (218,315 | ) | $ | 220,980 | ||||||||||||||||
During 2023, the Company recognized goodwill totaling $25.7 million from the DeltaTek Acquisition and PRT Acquisition and made measurement period adjustments of $1.0 million related to the DeltaTek Acquisition. Please see Note 3 “Business combinations and dispositions” for additional information.
No goodwill impairment expense was recognized during the years ended December 31, 2023, 2022 and 2021.
| 16. | Interest bearing loans |
On October 6, 2023, we amended and restated the previous facility agreement pursuant to an amendment and restatement agreement (the “Amended and Restated Facility Agreement”) with DNB Bank ASA, London Branch, as agent, in order to extend the maturity of the unrealizedNew Facility agreement. The maturity date of the Amended and realized gainsRestated Facility Agreement is October 6, 2026. The Amended and lossesRestated Facility Agreement increased the total commitments to $250.0 million, of which $166.7 million was available for drawdowns as loans and $83.3 million was available for letters of credit. The Company has the ability to increase the commitments to $350.0 million.
Borrowings under the Amended and Restated Facility Agreement bear interest at a rate per annum of Term SOFR (as defined in the Amended and Restated Facility Agreement), subject to a 0.00% floor, plus an applicable margin of 3.75% (which is subject to a margin ratchet which reduces the margin in 4 step downs according to the Total Net Leverage Ratio (as defined in the Amended and Restated Facility Agreement)) for cash borrowings or 2.50% for letters of credit (which are similarly subject to a margin ratchet which reduces the margin in 4 step downs according to the Total Net Leverage Ratio). A 0.40% per annum fronting fee applies to letters of credit, and an additional 0.25% or 0.50% per annum utilization fee is payable on derivativecash borrowings to the extent one-third or two-thirds, respectively, or more of Facility A (as defined in the Amended and Restated Facility Agreement) commitments are drawn. The unused portion of the Amended and Restated Facility Agreement is subject to a commitment fee of 35% per annum of the applicable margin.
The Amended and Restated Facility Agreement retains various undertakings and affirmative and negative covenants (with certain agreed amendments) 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 Amended and Restated Facility Agreement amends certain of the financial covenants such that the Company is required to maintain (i) a minimum interest cover ratio of 4.0 to 1.0 based on the ratio of EBITDA to net finance charges and (ii) a maximum total net leverage ratio of 2.50 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. We are in compliance with all our debt covenants as of December 31, 2023.
As of December 31, 2023, we had $20.0 million of borrowings outstanding under the Amended and Restated Facility Agreement. The effective interest rate on our outstanding borrowings was 8.1%. Our facility was undrawn on a cash basis (i.e., no loans were outstanding) as of December 31, 2022. We utilized $50.4 million and $53.8 million as of December 31, 2023 and December 31, 2022, respectively, 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.
The following tables illustrate the financial impact of our leases as of and for the years ended December 31, 2023, 2022 and 2021, along with other supplemental information about our existing leases (in thousands, except years and percentages):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Components of lease expenses: | ||||||||||||
Finance lease expense: | ||||||||||||
Amortization of right of use assets | $ | 1,230 | $ | 1,352 | $ | 967 | ||||||
Interest incurred on lease liabilities | 1,969 | 2,006 | 2,246 | |||||||||
Operating lease expense | 26,451 | 26,231 | 21,479 | |||||||||
Short term lease expense | 121,615 | 84,045 | 54,756 | |||||||||
Total lease expense | $ | 151,265 | $ | 113,634 | $ | 79,448 | ||||||
December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Other supplementary information (in thousands, except years and discount rates): | ||||||||||||
Cash paid for amounts included in measurement of lease liabilities: | ||||||||||||
Operating cash flows from operating leases | $ | 28,269 | $ | 28,454 | $ | 25,348 | ||||||
Right-of-use assets obtained in an exchange for lease obligations: | ||||||||||||
Operating leases | $ | 13,022 | $ | 15,051 | $ | 8,529 | ||||||
Weighted average remaining lease term: | ||||||||||||
Operating leases | 7.0 | 6.9 | 7.3 | |||||||||
Finance leases | 8.2 | 10.1 | 11.0 | |||||||||
Weighted average discount rate for operating leases | 9.6 | % | 8.9 | % | 8.8 | % | ||||||
Weighted average discount rate for finance leases | 12.6 | % | 12.9 | % | 13.1 | % | ||||||
The operating cash flows for finance leases approximates the interest expense for the year.
As of December 31, 2023, maturity of our lease liabilities are as follows (in thousands):
Operating | Finance | |||||||
Leases | Leases | |||||||
Years ending December 31, | ||||||||
2024 | $ | 23,429 | $ | 4,148 | ||||
2025 | 16,069 | 3,711 | ||||||
2026 | 11,282 | 3,703 | ||||||
2027 | 9,996 | 3,231 | ||||||
2028 | 9,027 | 2,558 | ||||||
Due after 5 years | 31,479 | 12,497 | ||||||
| $ | 101,282 | $ | 29,848 | |||||
Less: amounts representing interest | (28,775 | ) | (11,471 | ) | ||||
Total | $ | 72,507 | $ | 18,377 | ||||
Current portion | $ | 17,531 | $ | 1,967 | ||||
Noncurrent portion | 54,976 | 16,410 | ||||||
Total | $ | 72,507 | $ | 18,377 | ||||
| 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 $36.7 million and $45.5 million as of December 31, 2023 and 2022, respectively. We also entered into purchase commitments related to inventory on an as-needed basis. As of December 31, 2023 and 2022, inventory purchase commitments were $23.7 million and $25.8 million, respectively.
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 of judgment. In assessing loss contingencies related to legal proceedings pending against us or unasserted claims that may result in proceedings, our management, with input from legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates it is probable a material loss has been incurred and the amount of liability can be reasonably estimated, then the estimated liability would be accrued in our 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 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 have conducted an internal investigation of the operations of certain of the Company’s foreign subsidiaries in West Africa including possible violations of the U.S. Foreign Corrupt Practices Act, our policies and other applicable laws. In June 2016, we voluntarily disclosed the existence of our internal review to the SEC and the U.S. Department of Justice (“DOJ”). The DOJ has provided a declination, subject to the Company and the SEC reaching a satisfactory settlement of civil claims. On the basis of discussions with the SEC up to the end of the first quarter of 2023, we believed that a final resolution of this matter was likely to include a civil penalty in the amount of approximately $8.0 million and, accordingly, we had recorded a loss contingency in that amount within “Other current liabilities” on our condensed consolidated balance sheet, with the offset taken as an increase to goodwill as a measurement period adjustment associated with the Merger.
On April 26, 2023, the SEC issued a cease-and-desist order against the Company pursuant to section 21C of the Securities Exchange Act of 1934 (“Exchange Act”). Under this Order, the Company neither admitted nor denied any of the SEC’s findings and agreed to cease and desist from committing or causing any violations and any future violations of the anti-bribery, books and records and internal accounting controls requirements of the FCPA and the Exchange Act. In accepting the Company’s settlement offer, the SEC noted the Company’s self-reporting, co-operation afforded to the SEC staff and remedial action including improving the Company’s internal controls and further enhancements to its internal controls environment and compliance program following the Merger. The Company paid $8.0 million to the SEC in respect of disgorgement, prejudgment interest and civil penalty during the second quarter of 2023.
Other than discussed above, we had no material accruals for loss contingencies, individually or in the aggregate, as of December 31, 2023 and December 31, 2022.
| 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.
Defined contribution plans
We offer various defined contribution plans for employees around the globe as per local statute and market practice. Specific to our largest employee populations, for employees in the U.S., we offer a 401(K) plan, which is a defined contribution retirement savings plan to which the employer matches employee contributions up to 4% of eligible earnings. For U.K. employees, we offer the Group Personal Pension plan, 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.
Expense recognized in respect of these plans were $12.7 million, $8.4 million and $7.3 million for the years ended December 31, 2023, 2022 and 2021, 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.
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:
December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Discount rate | 4.5 | % | 4.7 | % | 1.8 | % | ||||||
Expected return on plan assets | 5.8 | % | 5.6 | % | 3.2 | % | ||||||
Expected rate of salary increases | 0.1 | % | 0.1 | % | 0.1 | % | ||||||
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 follows (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Current service cost | $ | (350 | ) | $ | (357 | ) | $ | (439 | ) | |||
Interest cost | (6,177 | ) | (4,307 | ) | (3,407 | ) | ||||||
Expected return on plan assets | 6,977 | 6,796 | 5,499 | |||||||||
Amortization of prior service credit | 249 | 249 | 249 | |||||||||
Reclassified net remeasurement (loss) gains | 453 | - | 244 | |||||||||
Amounts included in consolidated statements of operations | $ | 1,152 | $ | 2,381 | $ | 2,146 | ||||||
Actuarial gain (loss) on defined benefit plans | $ | (4,529 | ) | $ | 7,440 | $ | 22,345 | |||||
Amortization of prior service credit | (249 | ) | (249 | ) | (249 | ) | ||||||
Reclassified net remeasurement (loss) gains | (453 | ) | - | (244 | ) | |||||||
Other comprehensive income (loss) | $ | (5,231 | ) | $ | 7,191 | $ | 21,852 | |||||
Total comprehensive income (loss) | $ | (4,079 | ) | $ | 9,572 | $ | 23,998 | |||||
The service costs have primarily been included in “Cost of revenue, excluding depreciation and amortization” in the consolidated statements of operations. Interest cost, expected return on plan assets and plan curtailment / amendment events have been recognized in “Other income, net” in the consolidated statements of operations.
The actuarial gain (loss) is derived from the components shown in the table below (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Actuarial (loss) gain on assets | $ | 2,319 | $ | (74,332 | ) | $ | 11,378 | |||||
Actuarial gain (loss) on liabilities | (6,848 | ) | 81,772 | 10,967 | ||||||||
Actuarial gain (loss) on defined benefit plans | $ | (4,529 | ) | $ | 7,440 | $ | 22,345 | |||||
The actuarial loss on the benefit obligation for the year December 31, 2023 has arisen primarily as a result of a reduction in corporate bond yields, offset in part by higher than anticipated investment returns. In addition, there was an additional loss as actual inflation over 2023 was higher than anticipated.
The amount of employer contributions expected to be paid to our defined benefit plans during the years to December 31, 2033 is set out below (in thousands):
Years ending December 31: | ||||
2024 | $ | 5,598 | ||
2025 | $ | 5,741 | ||
2026 | $ | 5,970 | ||
2027 | $ | 6,262 | ||
2028 | $ | 6,471 | ||
Thereafter to December 31, 2033 | $ | 18,006 |
The amounts included in the consolidated balance sheets arising from our obligations in respect of defined retirement benefit plans and post-employment benefits was as follows (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Present value of defined benefit obligations | $ | (148,167 | ) | $ | (135,182 | ) | ||
Fair value of plan assets | 137,725 | 123,840 | ||||||
Deficit recognized under non-current liabilities | $ | (10,442 | ) | $ | (11,342 | ) | ||
Changes in the present value of defined benefit obligations were as follows (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Opening balance | $ | (135,182 | ) | $ | (241,808 | ) | ||
Current service cost | (350 | ) | (357 | ) | ||||
Interest cost | (6,177 | ) | (4,307 | ) | ||||
Actuarial gain | (6,848 | ) | 81,772 | |||||
Exchange differences | (6,905 | ) | 23,823 | |||||
Benefits paid | 7,295 | 5,695 | ||||||
Ending balance | $ | (148,167 | ) | $ | (135,182 | ) | ||
Movements in fair value of plan assets were as follows (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Opening balance | $ | 123,840 | $ | 212,688 | ||||
Actual return on plan assets | 9,296 | (67,536 | ) | |||||
Exchange differences | 6,344 | (20,776 | ) | |||||
Contributions from the sponsoring companies | 5,540 | 5,159 | ||||||
Benefits paid | (7,295 | ) | (5,695 | ) | ||||
Ending balance | $ | 137,725 | $ | 123,840 | ||||
The actual return on plan assets consists of the following (in thousands):
December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Expected return on plan assets | $ | 6,977 | $ | 6,796 | $ | 5,499 | ||||||
Actuarial (loss) gain on plan assets | 2,319 | (74,332 | ) | 11,378 | ||||||||
Actual return on plan assets | $ | 9,296 | $ | (67,536 | ) | $ | 16,877 | |||||
Information for pension plans with an accumulated benefit obligation in excess of plan assets were as follows (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Accumulated benefit obligation | $ | 147,129 | $ | 134,102 | ||||
Fair value of plan assets | $ | 137,725 | $ | 123,840 | ||||
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 provide 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 45% of the assets are invested in a growth portfolio, comprising diversified growth funds (“DGFs”) and property, and approximately 55% 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 benefits payments to members is sensitive to changes in long term interest rates and long-term inflation expectations. Liability driven investment (“LDI”) funds are more sensitive to changes in these factors and therefore provide more efficient hedging than traditional bonds. A small proportion of the assets have therefore been invested in LDI funds to help to reduce the volatility of the U.K. Plan’s funding position. The hedging level is expected to be increased over time as the U.K. Plan’s funding position improves.
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):
December 31, 2023 | December 31, 2022 | |||||||||||||||
Expected rate | Fair value of | Expected rate | Fair value of | |||||||||||||
of return % | asset | of return % | asset | |||||||||||||
Mutual funds | ||||||||||||||||
DGFs | 7.7 | $ | 64,023 | 7.5 | $ | 55,633 | ||||||||||
LDI funds | 4.2 | 47,283 | 4.0 | 45,170 | ||||||||||||
Bond funds | 4.4 | 24,835 | 4.5 | 21,899 | ||||||||||||
Equities | 3.7 | 185 | 1.8 | 188 | ||||||||||||
Other assets | 4.0 | 1,399 | 2.2 | 950 | ||||||||||||
Total | $ | 137,725 | $ | 123,840 | ||||||||||||
The aggregated asset categorization for the plans were as follows (in thousands):
December 31, 2023 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Mutual funds: | ||||||||||||||||
DGFs | $ | 64,023 | $ | - | $ | - | $ | 64,023 | ||||||||
LDI funds | 47,283 | - | - | 47,283 | ||||||||||||
Bond funds | 24,835 | - | - | 24,835 | ||||||||||||
Equities | 185 | - | - | 185 | ||||||||||||
Other assets | 785 | 277 | 337 | 1,399 | ||||||||||||
Total | $ | 137,111 | $ | 277 | $ | 337 | $ | 137,725 | ||||||||
December 31, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Mutual funds: | ||||||||||||||||
DGFs | $ | 55,633 | $ | - | $ | - | $ | 55,633 | ||||||||
LDI funds | 45,170 | - | - | 45,170 | ||||||||||||
Bond funds | 21,899 | - | - | 21,899 | ||||||||||||
Equities | 188 | - | - | 188 | ||||||||||||
Other assets | 172 | 395 | 383 | 950 | ||||||||||||
Total | $ | 123,062 | $ | 395 | $ | 383 | $ | 123,840 | ||||||||
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):
December 31, | ||||||||
2023 | 2022 | |||||||
Opening balance | $ | 383 | $ | 360 | ||||
Actual return on plan assets | 10 | 6 | ||||||
Exchange differences | (88 | ) | (6 | ) | ||||
Contributions from the sponsoring companies | 32 | 23 | ||||||
Ending balance | $ | 337 | $ | 383 | ||||
| 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 fulfilment of continued service and a performance condition related to the occurrence of a Liquidity Event (as defined in the MIP). Additionally, a portion of the management options are subject to performance conditions linked to an internal rate of return.
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 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 post-reverse stock split Exchange Ratio of 1.2120 to 1 (as provided in the Merger Agreement). As of the modification date, there were 6.9 million MIP stock options issued and outstanding.
The aforementioned event was accounted for as an improbable-to-probable modification and as a result, the fair value of all of the issued and outstanding MIP stock options was determined as of the Closing Date. Compensation expense was immediately recognized upon the Merger closing for all MIP stock options in which the service period was fulfilled. For the stock options in which the service period was not fulfilled, stock-based compensation expense is to be recognized based on the total modification date fair value of the associated awards on a straight-line basis over the remaining service period.
The Company recognized stock-based compensation expense related to the MIP stock options of $0.9 million, $3.6 million and $39.5 million during the years ended December 31, 2023, 2022 and 2021 respectively. As of December 31, 2023, there was no unrecognized stock compensation expense relating to MIP stock options.
As of December 31, 2023, 2022 and 2021, there were 2.9 million, 6.7 million and 6.9 million, respectively, MIP stock options issued and outstanding with a weighted average exercise price of $17.17, $17.19 and 17.20, respectively. There were no stock options granted during 2021,2022 or 2023 and there are no plans to grant stock options in 2024. During the year ended December 31, 2023 there were 3.5 million options expired unvested at a weighted average exercise price of $17.21, 0.3 million options exercised at a weighted average exercise price of $17.25 and no options forfeited. As of December 31, 2023, there were 2.9 million exercisable MIP stock options with a weighted average exercise price of $17.17 per option.
The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option. The total intrinsic value of options exercised was $1.8 million during 2023. The total intrinsic value of options exercised was not material during 2022 and there were no stock option exercises during 2021. As of December 31, 2023, options outstanding and exercisable had no intrinsic value and a weighted-average remaining life of 4.1 years.
The key assumptions used to estimate the fair value of the MIP stock options were as follows:
Risk free interest rate | 0.04 | % | ||
Expected volatility | 55 | % | ||
Dividend yield | 0.0 | % | ||
Stock price on valuation date | $ | 18.90 |
MIP Restricted stock units (“MIP RSUs”)
RSUs granted under the MIP were subject to vesting over a three year period. There were 0.1 million outstanding MIP RSUs as of December 31, 2020. No stock-based compensation expense attributable to the MIP RSUs was recognized during the year ended December 31, 2020 2019as the performance conditions within the agreements were deemed to be improbable. In February 2021, the MIP RSU awards were modified so that upon the closing of the Merger, the MIP RSUs would convert to RSUs of the Company based on the post-reverse stock split Exchange Ratio of 1.2120 to 1 and 2018 (in thousands):
| Derivatives not designated as Hedging Instruments | Location of gain (loss) recognized in income on derivative contracts | December 31, 2020 | December 31, 2019 | December 31, 2018 | ||||||||||||||||||||||
| Unrealized gain (loss) on foreign currency contracts | Other income, net | $ | 0 | $ | (222) | $ | 386 | |||||||||||||||||||
| Realized gain on foreign currency contracts | Other income, net | 1,475 | 320 | 1,661 | ||||||||||||||||||||||
| Total net gain on foreign currency contracts | $ | 1,475 | $ | 98 | $ | 2,047 | ||||||||||||||||||||
| Derivative Asset Positions | Derivative Liability Positions | |||||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| Gross position - asset / (liability) | $ | 0 | $ | 127 | $ | 0 | $ | (451) | ||||||||||||||||||
| Netting adjustment | 0 | (127) | 0 | 127 | ||||||||||||||||||||||
| Net position - asset / (liability) | $ | 0 | $ | 0 | $ | 0 | $ | (324) | ||||||||||||||||||
Expro Group Holdings and its permitted transferees converted all of their shares of Preferred Stock into shares of our common stock on August 26, 2016, N.V. Long-Term Incentive Plan
Effective October 1, 2021, in connection with their delivery to FINV of all of their interests in FICV (the “Conversion”). As a result of an election under Section 754the consummation of the Internal Revenue Code, made by FICV,Merger, the Conversion resulted in an adjustmentCompany amended its 2013 Long-Term Incentive Plan to the tax basis of Expro Group Holdings N.V. Long-Term Incentive Plan, as amended and restated. Further, effective May 25, 2022, the tangibleExpro Group Holdings N.V. Long-Term Incentive Plan, as amended and intangible assets of FICV with respect to the portion of FICV transferred to FINV by Mosing Holdings and its permitted transferees. These adjustments are allocated to FINV. The adjustments to the tax basis of the tangible and intangible assets of FICV described above would not have been available absent the Conversion. The basis adjustments may reduce the amount of tax that FINV would otherwise be required to pay in the future. These basis adjustments may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Numerator | |||||||||||||||||
| Net loss | $ | (156,220) | $ | (235,329) | $ | (90,733) | |||||||||||
| Denominator | |||||||||||||||||
Basic and diluted weighted average common shares (1) | 226,042 | 225,159 | 223,999 | ||||||||||||||
| Loss per common share: | |||||||||||||||||
| Basic and diluted | $ | (0.69) | $ | (1.05) | $ | (0.41) | |||||||||||
| (1) | Approximate number of shares of unvested restricted stock units and stock to be issued pursuant to the ESPP that have been excluded from the computation of diluted loss per share as the effect would be anti-dilutive when the results from operations are at a net loss position. | 1,048 | 737 | 922 | |||||||||||||||||||
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 wereShares withheld from employees to settle personal tax obligations that arose as a result of restricted stock unitsRSUs that vested.vested are included in our treasury stock. Certain restricted stock unitRSU awards provide for accelerated vesting for qualifying terminations of employment or service.
Employees granted LTIP RSUs are not entitled to dividends declared on the underlying shares while the restricted stock unitRSU is unvested. As such, the grant date fair value of the award is measured by reducing the grant date price of our common stock by the present value of the dividends expected to be paid on the underlying shares during the requisite service period, discounted at the appropriate risk-free interest rate. The weighted average grant date fair value of RSUs granted during the years ended December 31, 2020, 2019 and 2018 was $9.9 million, $11.4 million and $9.5 million, respectively. Compensation expense is recognized ratably over the vesting period. Forfeitures are recorded as they occur.
Stock-based compensation expense relating to LTIP RSUs was $13.3 million, $11.2 million and $6.8 million for the years ended December 31, 2020, 20192023, 2022 and 2018 was $8.0 million, $8.7 million and $8.9 million,2021, respectively. The total fair value of LTIP RSUs vested during the years ended December 31, 2020, 20192023, 2022 and 20182021 was $9.6$11.1 million, $7.1$13.0 million and $6.7$2.0 million respectively. UnamortizedAs of December 31, 2023, unrecognized stock compensation expense as of December 31, 2020, relating to LTIP RSUs totaled approximately $9.0$20.2 million, which will be expensed over a weighted average period of 1.3 years.
The following is a summary of December 31, 2020RSU information and the changes during the year were as follows:
| Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Non-vested at December 31, 2019 | 2,460,800 | $ | 6.65 | ||||||||
| Granted | 2,928,737 | 3.38 | |||||||||
| Vested | (1,465,069) | 6.58 | |||||||||
| Forfeited | (325,569) | 4.95 | |||||||||
| Non-vested at December 31, 2020 | 3,598,899 | $ | 4.18 | ||||||||
Number of Shares | Weighted Average Grant Date Fair Value | |||||||
Non-vested on Closing Date | 883,079 | $ | 21.97 | |||||
Granted | 458,258 | 17.64 | ||||||
Vested | (93,688 | ) | 21.80 | |||||
Forfeited | (12,549 | ) | 22.59 | |||||
Non-vested at December 31, 2021 | 1,235,100 | 20.49 | ||||||
Granted | 913,034 | 16.51 | ||||||
Vested | (593,037 | ) | 21.91 | |||||
Forfeited | (70,899 | ) | 18.80 | |||||
Non-vested at December 31, 2022 | 1,484,198 | 17.51 | ||||||
Granted | 940,176 | 19.07 | ||||||
Vested | (640,145 | ) | 17.37 | |||||
Forfeited | (67,415 | ) | 18.07 | |||||
Non-vested at December 31, 2023 | 1,716,814 | $ | 18.39 | |||||
Performance Restricted Stock Units
The purpose of the PRSUs is to closely align the incentive compensation of the executive leadership team for the duration of the performance cycle with returns to FINV’sthe Company’s shareholders and thereby further motivate the executive leadership team to create sustained value to FINVthe Company shareholders. The design of the PRSU grants effectuates this purpose by placing a material amount of incentive compensation for each executive at risk by offering an extraordinary reward for the attainment of extraordinary results.
Design features of the PRSU grant that in furtherance of this purpose include the following: (1)(1) The vesting of the PRSUs is based on total shareholder
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 stock basedstock-based on 50% of historical and 50% of implied volatility weighting commensurate with the expected term of the PRSU. The expected volatility considers factors such as the historical volatility of our share price and our peer group companies, implied volatility of our share price, length of time our shares have been publicly traded, and split- and dividend-adjusted closing stock prices.
In 2020,2023, we granted 260,762 PRSUs with a fair value of $3.0 million or 676,615 units (“Target Level”). The which have a performance period for these grants isof the three year-year period from January 1, 2020 2023 to December 31, 2025 and a single three-year achievement period for the same time period. In 2022, no shares were granted under the PRSU program. In 2021, we granted 354,275 PRSUs (“Target Level”) which have a performance period of the three-year period from January 1, 2022 to December 31, 2024, but with separate one-year achievement periods from January 1, 2022 to December 31, 2022, (“Performance Period”), but with separate one-year achievement periods from January 1, 2020 2023 to December 31, 2020, 2023, and January 1, 2021 2024 to December 31, 2021, and January 1, 2022 to December 31, 2022, 2024, resulting in a weighted average payout at the end of the Performance Period.applicable performance period.
The weighted average assumptions for the PRSUs granted in 2020 are2023 and 2021 were as follows:
2023 | 2021 | ||||
Total expected term (in years) | 2.85 | 3.25 | |||
Expected volatility | 65.7 | 84.2 | |||
Risk-free interest rate | 4.56% | 0.54% | |||
Correlation range | 48.7% to 76.2% | 21.2% to 79.5% |
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 event. In the event of involuntary termination except for cause, the Company may enter into a special vesting agreement with the executive under which the restrictions for forfeiture will not lapse upon such termination. In the event of a termination for any other reason prior to the end of the Performance Period, all PRSUs will be forfeited.
Stock-based compensation expense related to PRSUs was $5.0 million, $3.2 million and $5.2 million, respectively, for the years ended December 31, 2020, 20192023, 2022 and 2018 was $2.6 million, $2.0 million and $1.2 million, respectively.2021. The total fair value of PRSUs vested during the yearyears ended December 31, 2020,2023, 2022 and 2021, was $1.5 million. There were 0 PRSU vestings during the years ended $0.5 million, $9.9 million and $0.1 million respectively. As of December 31, 2019 and 2018. Unamortized2023, unrecognized stock compensation expense as of December 31, 2020, relating to PRSUs totaled approximately $3.4$8.7 million, which will be expensed over a weighted average period of 1.751.4 years.
The following is a summary of December 31, 2020,PRSU information and the changes during the year were as follows:
| Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Non-vested at December 31, 2019 | 788,833 | $ | 8.13 | ||||||||
| Granted | 676,615 | 4.40 | |||||||||
| Vested | (163,750) | 9.04 | |||||||||
| Forfeited | (14,611) | 7.79 | |||||||||
| Non-vested at December 31, 2020 | 1,287,087 | $ | 5.96 | ||||||||
Number | Weighted Average | |||||||
of | Grant Date | |||||||
Shares | Fair Value | |||||||
Non-vested on Closing Date | 340,071 | $ | 32.38 | |||||
Granted | 354,275 | 23.34 | ||||||
Vested | (2,715 | ) | 29.72 | |||||
Non-vested on December 31, 2021 | 691,631 | 27.75 | ||||||
Vested | (305,119 | ) | 32.50 | |||||
Non-vested at December 31, 2022 | 386,512 | 24.00 | ||||||
Granted | 260,762 | 33.03 | ||||||
Vested | (18,222 | ) | 26.63 | |||||
Forfeited | (14,471 | ) | 20.55 | |||||
Non-vested at December 31, 2023 | 614,581 | $ | 27.83 | |||||
Employee Stock Purchase Plan
As of July 1, 2023, the Expro Group Holdings N.V. 2023 Employee Stock Purchase Program (“ESPP”) replaced the Expro Group Holdings N.V. Employee Stock Purchase Program. Under the Frank’s International N.V. ESPP eligible employees have the right to purchase shares of common stock at the lesser of (i) 85% of the last reported sale price of our common stock on the last trading date immediately preceding the first day of the option period, or (ii) 85% of the last reported sale price of our common stock on the last trading date immediately preceding the last day of the option period. The ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. We have reserved 3.0 million5,000,000 shares of our common stock for issuance under the ESPP, of which 1.8 millionESPP; all shares were available for issuance as of December 31, 2020. Shares issued to our employees under the ESPP totaled 340,950 in 2020 and 389,284 shares in 2019. 2023. For the years ended December 31, 2020, 20192023, 2022 and 2018,2021, we recognized $0.4 million, $0.6$0.5 million and $0.5$0.1 million of compensation expense related to stock purchased under the ESPP, respectively.
| 21. | Loss per share |
Basic earnings (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 earnings (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, stock options and ESPP shares.
The calculation of basic and diluted loss per share attributable to the Company stockholder for years ended December 31, 2023, 2022 and 2021 respectively, are as follows (in thousands, except shares outstanding and per share amounts):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Net loss | $ | (23,360 | ) | $ | (20,145 | ) | $ | (131,891 | ) | |||
Basic and diluted weighted average number of shares outstanding | 109,161 | 109,073 | 80,526 | |||||||||
Total basic and diluted loss per share | $ | (0.21 | ) | $ | (0.18 | ) | $ | (1.64 | ) | |||
Approximately 0.9 million, 0.3 million and 0.7 million shares of our commonunvested restricted stock units, shares issuable for stock options and stock to our employees under this planbe issued pursuant to satisfy the employee purchase periodESPP have been excluded from July 1, 2019 to the computation of diluted loss per share as the effect would be anti-dilutive for the years ended December 31, 2019, which increased our common stock outstanding.2023, 2022 and 2021 respectively.
| 22. | Related party transactions |
Our related parties consist primarily of CETS and Investment Plan
Additionally, we entered into various operating lease agreements to lease facilities with affiliated companies. Rent expense associated with our related party leases was $0.5 million, $0.6 million and $0.5 million for the years ended December 31, 2020, 20192023, 2022 and 2018,2021, respectively.
Further, during the years ended December 2004,31, 2023, 2022 and 2021, we received dividends from CETS totaling $8.3 million, $7.3 million and certain affiliates adopted$4.14 million, respectively.
As of December 31, 2023 and 2022, amounts receivable from related parties were $2.7 million and $2.4 million, respectively, and amounts payable to related parties were $1.2 million and $0.8 million as of December 31, 2023 and 2022, respectively.
As of December 31, 2023, $0.6 million of our operating lease right-of-use assets and $0.6 million of our lease liabilities were associated with related party leases. As of December 31, 2022, $0.7 million of our operating lease right-of-use assets and $0.7 million of our lease liabilities were associated with related party leases.
Tax Receivable Agreement
Mosing Holdings, LLC, a Delaware limited liability company (“Mosing Holdings”), converted all of its shares of Frank’s Series A convertible preferred stock into shares of Frank’s common stock on August 26, 2016, in connection with its delivery to Frank’s of all of its interests in Frank’s International C.V. (“FICV”) (the “Conversion”).
The tax receivable agreement (the “Original TRA”) that Frank’s entered into with FICV and Mosing Holdings in connection with Frank’s initial public offering (“IPO”) generally provided for the payment by Frank’s Executive Deferred Compensation Plan (the “EDC Plan”). The purposeto Mosing Holdings of 85% of the EDC Plan isnet cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Frank’s actually realized (or were deemed to provide participants with an opportunitybe realized in certain circumstances) in periods after the IPO as a result of (i) tax basis increases resulting from the Conversion and (ii) imputed interest deemed to defer receipt of a portion of their salary, bonus, and other specified cash compensation. Participant contributions are immediately vested. Our contributions vest after five years of service. All participant benefits under this EDC Plan shall be paid directlyby Frank’s as a result of, and additional tax basis arising from, payments under the general fundsOriginal TRA. Frank’s retained the benefit of the applicable participating subsidiary orremaining 15% of these cash savings, if any.
In connection with the Merger Agreement, Frank’s, FICV and Mosing Holdings entered into the Amended and Restated Tax Receivable Agreement, dated as of March 10, 2021 (the “A&R TRA”). Pursuant to the A&R TRA, on October 1, 2021, the Company made a grantor trust, commonly referredpayment of $15 million to settle the early termination payment obligations that would otherwise have been owed to Mosing Holdings under the Original TRA as a Rabbi Trust, createdresult of the Merger. As the payment was a condition precedent to effect the Merger, it was included in the determination of Merger consideration exchanged. Refer to Note 3 “Business combinations and dispositions” for the purpose of informally funding the EDC Plan, andmore details. The A&R TRA also provides for other than such Rabbi Trust, no special or separate fund shall be established and no other segregation of assets shallcontingent payments to be made by the Company to assure payment. The assetsMosing Holdings in the future in the event the Company realizes cash tax savings from tax attributes covered under the Original TRA during the ten year period following October 1, 2021 in excess of our EDC Plan’s trust are invested in a corporate owned split-dollar life insurance policy and an amalgamation$18.1 million.
| 23. | Supplemental Cash Flow |
Supplemental disclosure of cash flow information includes the Company’s contribution of $1.0 millionfollowing for the year ended December 31, 2018. NaN compensation expense related to the vesting of the Company’s contribution was recorded for the years ended December 31, 20202023, 2022 and 2019. The total liability recorded at December 31, 2020 and 2019, related to the EDC Plan was $20.3 million and $23.3 million, respectively, and was included in other noncurrent liabilities on the consolidated balance sheets.
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid for income taxes net of refunds | $ | (44,268 | ) | $ | (33,171 | ) | $ | (20,130 | ) | |||
Cash paid for interest, net | (2,177 | ) | (3,851 | ) | (4,192 | ) | ||||||
Change in accounts payable and accrued expenses related to capital expenditures | (7,926 | ) | (14,721 | ) | (8,191 | ) | ||||||
Fair value of net assets acquired in the Merger, net of cash and cash equivalents and restricted cash | - | - | 552,543 | |||||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| United States | $ | (154,144) | $ | (225,653) | $ | (85,342) | |||||||||||
| Foreign | (6,157) | 14,118 | (8,341) | ||||||||||||||
| Loss before income taxes | $ | (160,301) | $ | (211,535) | $ | (93,683) | |||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Current | |||||||||||||||||
| U.S. federal | $ | (17,582) | $ | 0 | $ | 0 | |||||||||||
| U.S. state and local | 0 | 209 | 7 | ||||||||||||||
| Foreign | 12,876 | 21,975 | 11,677 | ||||||||||||||
| Total current | (4,706) | 22,184 | 11,684 | ||||||||||||||
| Deferred | |||||||||||||||||
| U.S. federal | (2,515) | 444 | 0 | ||||||||||||||
| Foreign | 3,140 | 1,166 | (14,634) | ||||||||||||||
| Total deferred | 625 | 1,610 | (14,634) | ||||||||||||||
| Total income tax expense (benefit) | $ | (4,081) | $ | 23,794 | $ | (2,950) | |||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Income tax benefit at statutory rate | $ | (33,663) | $ | (44,422) | $ | (19,673) | |||||||||||
| Branch profits tax | (8,015) | (12,129) | (4,267) | ||||||||||||||
| State taxes, net of federal benefit | (3,206) | 154 | (27) | ||||||||||||||
| Restricted stock units tax shortfall | 1,695 | 405 | 1,025 | ||||||||||||||
| Taxes on foreign earnings at higher rates | 11,399 | 14,427 | 13,095 | ||||||||||||||
| Effect of tax rate change | 0 | 0 | (2,929) | ||||||||||||||
| Effect of moving activity to higher tax rate jurisdiction | 0 | 0 | (14,620) | ||||||||||||||
| Management fee charged to international operations | 4,848 | 3,455 | 1,515 | ||||||||||||||
| Increase in valuation allowances | 34,005 | 37,802 | 22,892 | ||||||||||||||
| Goodwill impairment | (1,406) | 25,677 | 0 | ||||||||||||||
| Return-to-provision adjustments | (2,299) | (524) | (521) | ||||||||||||||
| Foreign tax credit | (6,574) | (5,707) | 0 | ||||||||||||||
| Other | (865) | 4,656 | 560 | ||||||||||||||
| Total income tax expense (benefit) | $ | (4,081) | $ | 23,794 | $ | (2,950) | |||||||||||
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Deferred tax assets | |||||||||||
| Foreign net operating loss | $ | 23,744 | $ | 17,121 | |||||||
| U.S. net operating loss | 105,802 | 104,105 | |||||||||
| Research and development credit | 1,156 | 1,016 | |||||||||
| Foreign tax credit carryover | 2,322 | 422 | |||||||||
| Intangibles | 17,536 | 9,365 | |||||||||
| Inventory | 2,615 | 2,280 | |||||||||
| Property and equipment | 22,565 | 16,161 | |||||||||
| Investment in partnership | 48,973 | 24,372 | |||||||||
| Other | 913 | 1,442 | |||||||||
| Valuation allowance | (168,174) | (130,010) | |||||||||
| Total deferred tax assets | 57,452 | 46,274 | |||||||||
| Deferred tax liabilities | |||||||||||
| Investment in partnership | (40,970) | (23,728) | |||||||||
| Property and equipment | 0 | (1,253) | |||||||||
| Goodwill | 0 | (7,297) | |||||||||
| Other | 0 | (329) | |||||||||
| Total deferred liabilities | (40,970) | (32,607) | |||||||||
| Net deferred tax assets | $ | 16,482 | $ | 13,667 | |||||||
| Year of Expiration | U.S. NOLs | Foreign NOLs | R&D Credits | |||||||||||||||||
| 2021 - 2025 | $ | 0 | $ | 21,230 | $ | 0 | ||||||||||||||
| 2026 - 2030 | 0 | 5,648 | 0 | |||||||||||||||||
| 2031 - 2039 | 168,163 | 335 | 1,156 | |||||||||||||||||
| Does not expire | 209,702 | 70,668 | 0 | |||||||||||||||||
| $ | 377,865 | $ | 97,881 | $ | 1,156 | |||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Severance and other costs | $ | 12,284 | $ | 9,744 | $ | 4,552 | |||||||||||
| Fixed asset impairments and retirements | 15,664 | 32,916 | 0 | ||||||||||||||
| Inventory impairments | 367 | 4,471 | 0 | ||||||||||||||
| Intangible asset impairments | 4,708 | 3,299 | 0 | ||||||||||||||
| Accounts receivable write-off (recovery) | 0 | 0 | (4,862) | ||||||||||||||
| $ | 33,023 | $ | 50,430 | $ | (310) | ||||||||||||
| Tubular Running Services | Tubulars | Cementing Equipment | Corporate | Total | |||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | 2,000 | $ | 19 | $ | 1,632 | $ | 2,186 | $ | 5,837 | |||||||||||||||||||
| Additions for costs expensed | 6,621 | 553 | 1,152 | 3,958 | 12,284 | ||||||||||||||||||||||||
| Severance and other payments | (7,781) | (175) | (1,827) | (4,448) | (14,231) | ||||||||||||||||||||||||
| Other adjustments | (586) | 0 | (21) | (617) | (1,224) | ||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 254 | $ | 397 | $ | 936 | $ | 1,079 | $ | 2,666 | |||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Cash paid for interest | $ | 1,096 | $ | 1,005 | $ | 273 | |||||||||||
| Cash paid (received) for income taxes, net of refunds | (2,512) | 13,330 | 1,848 | ||||||||||||||
| Non-cash transactions: | |||||||||||||||||
| Change in accruals related to purchases of property, plant and equipment and intangibles | $ | (4,832) | $ | 781 | $ | 5,910 | |||||||||||
| Financed insurance premium | 1,910 | 0 | 6,798 | ||||||||||||||
| Net transfers from inventory to property, plant and equipment | 1,967 | 3,190 | 4,529 | ||||||||||||||
| Year Ended December 31, 2020 | |||||||||||||||||||||||
| Tubular Running Services | Tubulars | Cementing Equipment | Consolidated | ||||||||||||||||||||
| United States | $ | 84,192 | $ | 34,318 | $ | 36,731 | $ | 155,241 | |||||||||||||||
| International | 185,519 | 19,350 | 30,248 | 235,117 | |||||||||||||||||||
| Total Revenue | $ | 269,711 | $ | 53,668 | $ | 66,979 | $ | 390,358 | |||||||||||||||
| Year Ended December 31, 2019 | |||||||||||||||||||||||
| Tubular Running Services | Tubulars | Cementing Equipment | Consolidated | ||||||||||||||||||||
| United States | $ | 147,547 | $ | 63,087 | $ | 82,538 | $ | 293,172 | |||||||||||||||
| International | 252,780 | 11,600 | 22,368 | 286,748 | |||||||||||||||||||
| Total Revenue | $ | 400,327 | $ | 74,687 | $ | 104,906 | $ | 579,920 | |||||||||||||||
| Year Ended December 31, 2018 | |||||||||||||||||||||||
| Tubular Running Services | Tubulars | Cementing Equipment | Consolidated | ||||||||||||||||||||
| United States | $ | 142,262 | $ | 66,017 | $ | 72,316 | $ | 280,595 | |||||||||||||||
| International | 218,783 | 6,286 | 16,829 | 241,898 | |||||||||||||||||||
| Total Revenue | $ | 361,045 | $ | 72,303 | $ | 89,145 | $ | 522,493 | |||||||||||||||
| Year Ended | |||||||||||||||||||||||||||||
| December 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||||||||||||||
| United States | $ | 155,241 | $ | 293,172 | $ | 280,595 | |||||||||||||||||||||||
| Europe/Middle East/Africa | 101,693 | 155,278 | 127,968 | ||||||||||||||||||||||||||
| Latin America | 87,517 | 72,720 | 46,553 | ||||||||||||||||||||||||||
| Asia Pacific | 34,094 | 35,909 | 35,327 | ||||||||||||||||||||||||||
| Other countries | 11,813 | 22,841 | 32,050 | ||||||||||||||||||||||||||
| Total Revenue | $ | 390,358 | $ | 579,920 | $ | 522,493 | |||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Segment Adjusted EBITDA: | |||||||||||||||||
| Tubular Running Services | $ | 22,171 | $ | 85,601 | $ | 62,515 | |||||||||||
| Tubulars | 7,765 | 11,575 | 11,246 | ||||||||||||||
| Cementing Equipment | 10,780 | 14,089 | 8,617 | ||||||||||||||
Corporate (1) | (31,720) | (53,744) | (49,146) | ||||||||||||||
| Total | 8,996 | 57,521 | 33,232 | ||||||||||||||
| Goodwill impairment | (57,146) | (111,108) | 0 | ||||||||||||||
| Severance and other (charges) credits, net | (33,023) | (50,430) | 310 | ||||||||||||||
| Interest income, net | 712 | 2,265 | 4,243 | ||||||||||||||
| Income tax benefit (expense) | 4,081 | (23,794) | 2,950 | ||||||||||||||
| Depreciation and amortization | (70,169) | (92,800) | (111,292) | ||||||||||||||
| Gain (loss) on disposal of assets | 1,424 | (1,037) | 1,309 | ||||||||||||||
| Foreign currency loss | (211) | (2,233) | (5,675) | ||||||||||||||
TRA related adjustments (2) | 0 | 220 | (1,359) | ||||||||||||||
Charges and credits (3) | (10,884) | (13,933) | (14,451) | ||||||||||||||
| Net loss | $ | (156,220) | $ | (235,329) | $ | (90,733) | |||||||||||
| Tubular Running Services | Tubulars | Cementing Equipment | Corporate | Total | |||||||||||||||||||||||||
| Year Ended December 31, 2020 | |||||||||||||||||||||||||||||
| Revenue from external customers | $ | 269,711 | $ | 53,668 | $ | 66,979 | $ | 0 | $ | 390,358 | |||||||||||||||||||
| Operating income (loss) | (39,470) | 3,223 | (76,591) | (50,054) | (162,892) | ||||||||||||||||||||||||
| Adjusted EBITDA | 22,171 | 7,765 | 10,780 | (31,720) | * | ||||||||||||||||||||||||
| Depreciation and amortization | 51,528 | 3,526 | 9,011 | 6,104 | 70,169 | ||||||||||||||||||||||||
| Purchases of property, plant and equipment and intangibles | 16,049 | 3,132 | 6,327 | 2,965 | 28,473 | ||||||||||||||||||||||||
| Year Ended December 31, 2019 | |||||||||||||||||||||||||||||
| Revenue from external customers | $ | 400,327 | $ | 74,687 | $ | 104,906 | $ | 0 | $ | 579,920 | |||||||||||||||||||
| Operating income (loss) | (3,900) | 7,344 | (124,597) | (91,737) | (212,890) | ||||||||||||||||||||||||
| Adjusted EBITDA | 85,601 | 11,575 | 14,089 | (53,744) | * | ||||||||||||||||||||||||
| Depreciation and amortization | 61,036 | 2,903 | 16,130 | 12,731 | 92,800 | ||||||||||||||||||||||||
| Purchases of property, plant and equipment and intangibles | 16,086 | 2,859 | 16,374 | 1,623 | 36,942 | ||||||||||||||||||||||||
| Year Ended December 31, 2018 | |||||||||||||||||||||||||||||
| Revenue from external customers | $ | 361,045 | $ | 72,303 | $ | 89,145 | $ | 0 | $ | 522,493 | |||||||||||||||||||
| Operating loss | (16,886) | 7,616 | (9,313) | (74,298) | (92,881) | ||||||||||||||||||||||||
| Adjusted EBITDA | 62,515 | 11,246 | 8,617 | (49,146) | * | ||||||||||||||||||||||||
| Depreciation and amortization | 80,009 | 3,371 | 16,324 | 11,588 | 111,292 | ||||||||||||||||||||||||
| Purchases of property, plant and equipment and intangibles | 7,824 | 1,838 | 7,583 | 39,226 | 56,471 | ||||||||||||||||||||||||
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Long-Lived Assets (PP&E) | |||||||||||
| Tubular Running Services | $ | 90,955 | $ | 132,626 | |||||||
| Tubulars | 14,782 | 15,162 | |||||||||
| Cementing Equipment | 23,441 | 34,184 | |||||||||
| Corporate and shared assets | 143,529 | 146,460 | |||||||||
| Total | $ | 272,707 | $ | 328,432 | |||||||
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Long-Lived Assets (PP&E) | |||||||||||
| United States | $ | 162,032 | $ | 207,227 | |||||||
| International | 110,675 | 121,205 | |||||||||
| $ | 272,707 | $ | 328,432 | ||||||||
| First | Second | Third | Fourth | ||||||||||||||||||||||||||
| Quarter | Quarter | Quarter | Quarter | Total | |||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||
| Revenue | $ | 123,492 | $ | 86,101 | $ | 84,417 | $ | 96,348 | $ | 390,358 | |||||||||||||||||||
Gross profit (loss) (1) | 12,622 | 809 | (616) | 1,252 | 14,067 | ||||||||||||||||||||||||
Operating loss (2) | (94,208) | (27,286) | (23,746) | (17,652) | (162,892) | ||||||||||||||||||||||||
| Net loss | (85,978) | (34,245) | (27,791) | (8,206) | (156,220) | ||||||||||||||||||||||||
Loss per common share: (4) | |||||||||||||||||||||||||||||
| Basic and diluted | $ | (0.38) | $ | (0.15) | $ | (0.12) | $ | (0.04) | $ | (0.69) | |||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||
| Revenue | $ | 144,408 | $ | 155,654 | $ | 140,417 | $ | 139,441 | $ | 579,920 | |||||||||||||||||||
Gross profit (1) | 19,102 | 25,062 | 20,825 | 16,357 | 81,346 | ||||||||||||||||||||||||
Operating loss (3) | (20,294) | (12,514) | (14,803) | (165,279) | (212,890) | ||||||||||||||||||||||||
| Net loss | (28,287) | (15,160) | (23,789) | (168,093) | (235,329) | ||||||||||||||||||||||||
Loss per common share: (4) | |||||||||||||||||||||||||||||
| Basic and diluted | $ | (0.13) | $ | (0.07) | $ | (0.11) | $ | (0.75) | $ | (1.05) | |||||||||||||||||||
None.
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 principalchief executive officer (“CEO”) and principalchief financial officer (“CFO”), 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 officerCEO and principal financial officer,CFO, 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 officerCEO and principal financial officerCFO have concluded that our disclosure controls and procedures were effective as of December 31, 2020,2023, at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements in a timely manner. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
On October 2, 2023, Expro consummated the PRT Acquisition which was the acquisition of a privately-held company that was not subject to Section 404 of the Sarbanes-Oxley Act (“SOX”). As the PRT Acquisition occurred during the fourth quarter of 2023, and PRT was 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 PRT, and, therefore, PRT’s internal controls over financial reporting were excluded from this report on internal control over financial reporting.
Our management with the participation of the CEO and CFO conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting excluding PRT’s internal controls as of December 31, 2023 (covering approximately 99.0% of the revenue on the Consolidated Statements of Operations for the year ended December 31, 2023 and 93.6% of the total assets on the Consolidated Balance Sheets as of December 31, 2023) based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on its evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2023.
Attestation Report of the Registered Public Accounting Firm
See Report of Independent Registered Public Accounting Firm under Part II, Item 8,8. “Financial Statements and Supplementary Data” of this Form 10-K.
Changes in Control Over Financial Reporting
As of December 31, 2023 management has concluded that there have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2020,2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Securities Trading Arrangements with Officers and Directors
During the three months ended December 31, 2023
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, 2020.
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, 2020.
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, 2020.
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, 2020.
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, 2020.
PART IV
(a)(1) Financial Statements
Our Consolidated Financial Statementsconsolidated financial statements are included under Part II, Item 8,8. “Financial Statements and Supplementary Data” of this Form 10-K. For a listing of these statements and accompanying footnotes, see “Index to Consolidated Financial Statements” at page 61.
(a)(2) Financial Statement Schedules
Schedules not listed above have been omitted because they are not applicable or not required or the information required to be set forth therein is included in Item 8,8. “Financial Statements and Supplementary Data” or notes thereto.
(a)(3) Exhibits
The following exhibits are filed or furnished with this Reportreport or incorporated by reference:
EXHIBIT INDEX
Exhibit Number | Description | ||||
3.1 | |||||
| *4.1 | |||||
4.2 | |||||
10.1 |
†10.3 | |||||
† | |||||
| †10.24 | |||||
| † | |||||
†10.26 | |||||
† | |||||
† | |||||
†10.29 | |||||
| †10.30 | Frank’s International N.V. U.S. Executive Retention and Severance Plan, dated January 21, 2019 (incorporated by reference to Exhibit 10.54 to the Annual Report on Form 10-K | ||||
† | |||||
†10.32 | |||||
*21.1 | |||||
*23.1 | |||||
*31.1 | |||||
*31.2 | |||||
**32.1 | |||||
**32.2 | |||||
*†97.1 | Expro Group Holdings N.V. Compensation Recovery Policy. | ||||
*101.1 | The following materials from | ||||
*104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
† Represents management contract or compensatory plan or arrangement.
* Filed herewith.
** Furnished herewith.
None
.| FRANK’S INTERNATIONAL N.V. | |||||||||||||||||||||||||||||
| Schedule II - Valuation and Qualifying Accounts | |||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Balance at Beginning of Period | Additions / Charged to Expense | Deductions | Other | Balance at End of Period | |||||||||||||||||||||||||
| Year Ended December 31, 2020 | |||||||||||||||||||||||||||||
| Allowance for credit losses | $ | 5,129 | $ | 1,506 | $ | (2,802) | $ | 24 | $ | 3,857 | |||||||||||||||||||
| Allowance for excess and obsolete inventory | 18,772 | 0 | (1,635) | (234) | 16,903 | ||||||||||||||||||||||||
| Allowance for deferred tax assets | 130,010 | 38,164 | 0 | 0 | 168,174 | ||||||||||||||||||||||||
| Year Ended December 31, 2019 | |||||||||||||||||||||||||||||
| Allowance for credit losses | $ | 3,925 | $ | 2,047 | $ | (843) | $ | 0 | $ | 5,129 | |||||||||||||||||||
| Allowance for excess and obsolete inventory | 22,624 | 1,677 | (5,839) | 310 | 18,772 | ||||||||||||||||||||||||
| Allowance for deferred tax assets | 84,972 | 45,038 | 0 | 0 | 130,010 | ||||||||||||||||||||||||
| Year Ended December 31, 2018 | |||||||||||||||||||||||||||||
| Allowance for credit losses | $ | 4,777 | $ | 348 | $ | (1,200) | $ | 0 | $ | 3,925 | |||||||||||||||||||
| Allowance for excess and obsolete inventory | 21,584 | 1,800 | (760) | 0 | 22,624 | ||||||||||||||||||||||||
| Allowance for deferred tax assets | 60,524 | 24,448 | 0 | 0 | 84,972 | ||||||||||||||||||||||||
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.
By: | Expro Group Holdings N.V. | |||||||||||||
(Registrant) | ||||||||||||||
Date: | February 21, 2024 | By: | /s/ Quinn P. Fanning | |||||||||||
Quinn P. Fanning | ||||||||||||||
Chief Financial Officer | ||||||||||||||
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 1, 2021.
Signature | Title | |||||||
/s/ Michael | President and Chief Executive Officer and Director | |||||||
Michael | (Principal Executive Officer) | |||||||
/s/ | Chief Financial Officer | |||||||
Quinn P. Fanning | (Principal Financial | |||||||
/s/ Michael | ||||||||
Michael | ||||||||
/s/ Michael C. Kearney | Chairman of the Board | |||||||
Michael C. Kearney | ||||||||
/s/ Eitan Arbeter | Director | |||||||
Eitan Arbeter | ||||||||
/s/ Robert W. Drummond | Director | |||||||
Robert W. Drummond | ||||||||
| /s/ | Director | |||||||
| /s/ | Director | |||||||
| /s/ | Director | |||||||
/s/ | Director | |||||||
Frances M. Vallejo | ||||||||
| /s/ | ||||||||