UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
1934
For the quarterly period ended
OR
the Securities Exchange Act of 1934
For the transition period from ______ to ______
Commission file number:
EXPRO GROUP HOLDINGS N.V.
(Exact name of registrant as specified in its charter)
| The | | |||
| (State or other jurisdiction of | (IRS Employer | |||
| | ||||
| | | |||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | | Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of April 22, 2024, there were
| Page |
||
| Item 1. |
Financial Statements |
|
| Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2024 and 2023 |
||
| Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three Months Ended March 31, 2024 and 2023 |
||
| Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023 |
||
| Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2024 and 2023 | ||
| Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2024 and 2023 |
||
| Notes to the Unaudited Condensed Consolidated Financial Statements |
||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
|
| Item 4. |
Controls and Procedures |
|
| PART II. OTHER INFORMATION |
||
| Item 1. |
Legal Proceedings |
|
| Item 1A. |
Risk Factors |
|
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 40 |
| Item 5. | Other Information |
40 |
| Item 6. |
Exhibits |
|
| Signatures |
||
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except share data)
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Total revenue |
$ | $ | ||||||
| Operating costs and expenses: |
||||||||
| Cost of revenue, excluding depreciation and amortization expense |
( |
) | ( |
) | ||||
| General and administrative expense, excluding depreciation and amortization expense |
( |
) | ( |
) | ||||
| Depreciation and amortization expense |
( |
) | ( |
) | ||||
| Merger and integration expense |
( |
) | ( |
) | ||||
| Severance and other expense |
( |
) | ( |
) | ||||
| Total operating cost and expenses |
( |
) | ( |
) | ||||
| Operating income (loss) |
( |
) | ||||||
| Other income (expense), net |
( |
) | ||||||
| Interest and finance expense, net |
( |
) | ( |
) | ||||
| Income (loss) before taxes and equity in income of joint ventures |
( |
) | ||||||
| Equity in income of joint ventures |
||||||||
| Income (loss) before income taxes |
( |
) | ||||||
| Income tax expense |
( |
) | ( |
) | ||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Loss per common share: |
||||||||
| Basic and diluted |
$ | ( |
) | $ | ( |
) | ||
| Weighted average common shares outstanding: |
||||||||
| Basic and diluted |
||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in thousands)
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Other comprehensive loss: |
||||||||
| Amortization of prior service credit |
( |
) | ( |
) | ||||
| Other comprehensive loss |
( |
) | ( |
) | ||||
| Comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Income tax receivables | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Investments in joint ventures | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets | ||||||||
| Non-current accounts receivable, net | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Income tax liabilities | ||||||||
| Finance lease liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term borrowings | ||||||||
| Deferred tax liabilities, net | ||||||||
| Post-retirement benefits | ||||||||
| Non-current finance lease liabilities | ||||||||
| Non-current operating lease liabilities | ||||||||
| Uncertain tax positions | ||||||||
| Other non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 17) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, € nominal value, shares authorized, and shares issued and and shares outstanding | ||||||||
| Treasury stock (at cost) and shares | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation and amortization expense |
||||||||
| Equity in income of joint ventures |
( |
) | ( |
) | ||||
| Stock-based compensation expense |
||||||||
| Elimination of unrealized (loss) gain on sales to joint ventures |
( |
) | ||||||
| Changes in fair value of contingent consideration |
||||||||
| Deferred taxes |
( |
) | ( |
) | ||||
| Unrealized foreign exchange |
( |
) | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable, net |
( |
) | ||||||
| Inventories |
( |
) | ( |
) | ||||
| Other assets |
( |
) | ( |
) | ||||
| Accounts payable and accrued liabilities |
( |
) | ||||||
| Other liabilities |
||||||||
| Income taxes, net |
||||||||
| Other |
( |
) | ( |
) | ||||
| Net cash provided by operating activities |
||||||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
( |
) | ( |
) | ||||
| Payment for acquisition of business, net of cash acquired |
( |
) | ||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
||||||||
| Release of (cash pledged for) collateral deposits, net |
( |
) | ||||||
| Proceeds from borrowings |
||||||||
| Acquisition of common stock |
( |
) | ||||||
| Payment of withholding taxes on stock-based compensation plans |
( |
) | ( |
) | ||||
| Repayment of financed insurance premium |
( |
) | ( |
) | ||||
| Repayment of finance leases |
( |
) | ( |
) | ||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
( |
) | ( |
) | ||||
| Net increase (decrease) to cash and cash equivalents and restricted cash |
( |
) | ||||||
| Cash and cash equivalents and restricted cash at beginning of period |
||||||||
| Cash and cash equivalents and restricted cash at end of period |
$ | $ | ||||||
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
||||||
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(in thousands)
| Three Months Ended March 31, 2023 |
||||||||||||||||||||||||||||
| Accumulated |
||||||||||||||||||||||||||||
| Additional |
other |
Total |
||||||||||||||||||||||||||
| Common |
Treasury |
paid-in |
comprehensive |
Accumulated |
stockholders’ |
|||||||||||||||||||||||
| stock |
Stock |
capital |
income |
deficit |
equity |
|||||||||||||||||||||||
| Balance at January 1, 2023 |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Stock-based compensation expense |
- | |||||||||||||||||||||||||||
| Common shares issued upon vesting of share-based awards |
||||||||||||||||||||||||||||
| Treasury shares withheld |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Acquisition of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance at March 31, 2023 |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Three Months Ended March 31, 2024 |
||||||||||||||||||||||||||||
| Accumulated |
||||||||||||||||||||||||||||
| Additional |
other |
Total |
||||||||||||||||||||||||||
| Common |
Treasury |
paid-in |
comprehensive |
Accumulated |
stockholders’ |
|||||||||||||||||||||||
| stock |
Stock |
capital |
income |
deficit |
equity |
|||||||||||||||||||||||
| Balance at January 1, 2024 |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Stock-based compensation expense |
- | |||||||||||||||||||||||||||
| Common stock issued upon vesting of share-based awards |
( |
) | ||||||||||||||||||||||||||
| Treasury shares withheld |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance at March 31, 2024 |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
| Business description |
With roots dating to 1938, Expro Group Holdings N.V. (the “Company,” “Expro,” “we,” “our” or “us”) is a global provider of energy services with operations in approximately
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 now authorized to acquire up to $
| 2. | Basis of presentation and significant accounting policies |
Basis of presentation
The unaudited condensed consolidated financial statements reflect the accounts of the Company and its subsidiaries. All intercompany balances and transactions, including unrealized profits arising from them, have been eliminated for purposes of preparing these unaudited condensed consolidated financial statements. Investments in which we do not have a controlling interest, but over which we do exercise significant influence, are accounted for under the equity method of accounting.
The accompanying condensed consolidated financial statements have not been audited by our independent registered public accounting firm. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim consolidated financial information. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, included in our most recent Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on February 21, 2024 (the “Annual Report”).
In the opinion of management, these unaudited condensed consolidated financial statements, which are prepared in accordance with the rules of the SEC and U.S. GAAP for interim financial reporting, included herein contain all adjustments necessary to present fairly our financial position as of March 31, 2024, the results of our operations for the three months ended March 31, 2024 and 2023 and our cash flows for the three months ended March 31, 2024 and 2023. Such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other period.
The unaudited condensed consolidated financial statements have been prepared on an historical cost basis using the United States dollar (“$” or “U.S. dollar”) as the reporting currency.
Significant accounting policies
Refer to Note 2 “Basis of presentation and significant accounting policies” of our consolidated financial statements as of and for the year ended December 31, 2023, which are included in our most recent Annual Report for a discussion of our significant accounting policies. There have been no material changes in our significant accounting policies as compared to the significant accounting policies described in our consolidated financial statements as of and for the year ended December 31, 2023.
Recent accounting pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) generally in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company prospectively to all annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard on our disclosures.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which enhances the disclosures required for operating segments in the Company's annual and interim consolidated financial statements. ASU 2023-07 is effective retrospectively for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard on our disclosures.
All other recently issued ASUs were assessed and were either determined to be not applicable or are expected to have immaterial impact on our consolidated financial position, results of operations and cash flows.
| 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 the DeltaTek Acquisition was $
The contingent consideration arrangement requires the Company 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 contingent consideration arrangement of $
The DeltaTek 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 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 |
Final allocation of the consideration |
||||||||||
| Cash and cash equivalents |
$ | $ | - | $ | ||||||||
| Accounts receivables, net |
- | |||||||||||
| Inventories |
- | |||||||||||
| Property, plant and equipment |
- | |||||||||||
| Goodwill |
||||||||||||
| Intangible assets |
||||||||||||
| Other assets |
- | |||||||||||
| Total assets |
||||||||||||
| Accounts payable and accrued liabilities |
||||||||||||
| Deferred tax liabilities |
||||||||||||
| Other liabilities |
( |
) | ||||||||||
| Total Liabilities |
||||||||||||
| Fair value of net assets acquired |
$ | $ | $ | |||||||||
The preliminary valuation of the assets acquired and liabilities assumed, including other liabilities, in the DeltaTek Acquisition initially resulted in a goodwill of $
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 management’s historical experience and expectations as to the duration of time that benefits from these assets are expected to be realized.
The intangible assets will be amortized on a straight-line basis over an estimated
The goodwill consists largely of the synergies 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 amortization but will be evaluated at least annually for impairment or more frequently if impairment indicators are present. Goodwill recorded in the DeltaTek 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 three months ended March 31, 2023, assuming the DeltaTek Acquisition were to have been completed as of January 1, 2023. This is not necessarily indicative of the results that would have occurred had the DeltaTek Acquisition been completed on the 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 our wholly owned subsidiary, EPSH. The acquisition will enable Expro to expand its portfolio of cost-effective, technology-enabled services and solutions 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 $
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 $
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 accounting to account for PRT’s assets acquired and liabilities assumed.
| Amount |
||||
| Cash and cash equivalent |
$ | |||
| Accounts receivables, net |
||||
| Other current assets |
||||
| Property, plant and equipment |
||||
| Goodwill |
||||
| Intangible assets |
||||
| Operating lease right-of-use assets |
||||
| Total assets |
||||
| Accounts payable and accrued liabilities |
||||
| Operating lease liabilities |
||||
| Other current liabilities |
||||
| Non-current operating lease liabilities |
||||
| Long-term borrowings |
||||
| Total liabilities |
||||
| Fair value of net assets acquired |
$ | |||
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 discounted to approximate their current value. The estimated useful lives are based on management’s historical experience and expectations as to the duration of time that benefits from these assets are expected to be realized. The cost approach was used to determine the fair value of property, plant and equipment.
The intangible assets will be amortized on a straight-line basis over an estimated
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 three months ended March 31, 2024 include $
The Company has determined the estimated unaudited pro forma information to be immaterial for the three months ended March 31, 2023, assuming the PRT Acquisition were to have been completed as of January 1, 2023. This is not necessarily indicative of the results that would have occurred had the PRT Acquisition been completed on the date indicated or of future operating results.
Coretrax
On February 12, 2024, Expro announced that it had agreed to acquire Scotland-based Coretrax, a technology leader in performance drilling tools and wellbore cleanup, well integrity and production optimization solutions. The Headline Price (as defined in the agreement) is $
| 4. |
Fair value measurements |
Recurring Basis
A summary of financial assets and liabilities that are measured at fair value on a recurring basis, as of March 31, 2024 and December 31, 2023, were as follows (in thousands):
| March 31, 2024 |
||||||||||||||||
| Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| Assets: |
||||||||||||||||
| Non-current accounts receivable, net |
$ | $ | $ | $ | ||||||||||||
| Liabilities: |
||||||||||||||||
| Contingent consideration liabilities |
||||||||||||||||
| Borrowings |
||||||||||||||||
| Finance lease liabilities |
||||||||||||||||
| December 31, 2023 |
||||||||||||||||
| Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| Assets: |
||||||||||||||||
| Non-current accounts receivable, net |
$ | $ | $ | $ | ||||||||||||
| Liabilities: |
||||||||||||||||
| Contingent consideration liabilities |
||||||||||||||||
| Borrowings |
||||||||||||||||
| Finance lease liabilities |
||||||||||||||||
We have certain contingent consideration liabilities related to acquisitions which are measured at fair value using Level 3 inputs. The amount of contingent consideration due to the sellers is based on the 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 current projections of future results of the acquired companies. Accretion of, and changes in the valuations of, contingent consideration are reported on the condensed consolidated statement of operations within “Severance and other expense.”
| 5. |
Business segment reporting |
Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the Company’s Chief Operating Decision Maker (“CODM”), which is our Chief Executive Officer, in deciding how to allocate resources and assess performance. Our CODM manages our operational segments that are aligned with our geographical regions as below:
| ● |
North and Latin America (“NLA”), |
| ● |
Europe and Sub-Saharan Africa (“ESSA”), |
| ● |
Middle East and North Africa (“MENA”), and |
| ● |
Asia-Pacific (“APAC”). |
The following table presents our revenue disaggregated by our operating segments (in thousands):
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| NLA |
$ | $ | ||||||
| ESSA |
||||||||
| MENA |
||||||||
| APAC |
||||||||
| Total |
$ | $ | ||||||
Segment EBITDA
Our CODM regularly evaluates the performance of our operating segments using Segment EBITDA, which we define as income (loss) before income taxes adjusted for corporate costs, equity in income of joint ventures, depreciation and amortization expense, impairment expense, gain (loss) on disposal of assets, merger and integration expense, severance and other expense, stock-based compensation expense, foreign exchange gains (losses), other income (expense), net, and interest and finance income (expense), net.
The following table presents our Segment EBITDA disaggregated by our operating segments and a reconciliation to income (loss) before income taxes (in thousands):
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| NLA |
$ | $ | ||||||
| ESSA |
||||||||
| MENA |
||||||||
| APAC |
( |
) | ||||||
| Total Segment EBITDA |
||||||||
| Corporate costs |
( |
) | ( |
) | ||||
| Equity in income of joint ventures |
||||||||
| Depreciation and amortization expense |
( |
) | ( |
) | ||||
| Merger and integration expense |
( |
) | ( |
) | ||||
| Severance and other expense |
( |
) | ( |
) | ||||
| Stock-based compensation expense |
( |
) | ( |
) | ||||
| Foreign exchange (loss) gain |
( |
) | ||||||
| Other income (expense), net |
( |
) | ||||||
| Interest and finance expense, net |
( |
) | ( |
) | ||||
| Income (loss) before income taxes |
$ | $ | ( |
) | ||||
Corporate costs include the costs of running our corporate head office and other central functions that support the operating segments, including research, engineering and development, logistics, sales and marketing and health and safety and are not attributable to a particular operating segment.
| 6. |
Revenue |
Disaggregation of revenue
We disaggregate our revenue from contracts with customers by geography, as disclosed in Note 5 “Business segment reporting,” as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Additionally, we disaggregate our revenue into main areas of capabilities.
The following table sets forth the total amount of revenue by main area of capabilities as follows (in thousands):
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Well construction |
$ | $ | ||||||
| Well management |
||||||||
| Total |
$ | $ | ||||||
Contract balances
We perform our obligations under contracts with our customers by transferring services and products in exchange for consideration. The timing of our performance often differs from the timing of our customer’s payment, which results in the recognition of unbilled receivables and deferred revenue.
Unbilled receivables are initially recognized for revenue earned on completion of the performance obligation which are not yet invoiced to the customer. The amounts recognized as unbilled receivables are reclassified to 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 March 31, 2024, and December 31, 2023 (in thousands):
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Trade receivable, net |
$ | $ | ||||||
| Unbilled receivables (included within accounts receivable, net) |
$ | $ | ||||||
| Contract assets (included within accounts receivable, net) |
$ | $ | ||||||
| Deferred revenue (included within other liabilities) |
$ | $ | ||||||
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 $
As of March 31, 2024, $
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 $
| 7. |
Income taxes |
For interim financial reporting, the annual tax rate is based on pre-tax income (loss) before equity in income of joint ventures. We have historically calculated the income tax expense/(benefit) during interim reporting periods by applying a full year estimated Annual Effective Tax Rate (“AETR”) to income (loss) before income taxes, excluding infrequent or unusual discrete items, for the reporting period. For the three months ended March 31, 2024, we determined that using an AETR would not provide a reliable estimate of income taxes due to the forecasting methodology used to project income (loss) before income taxes, resulting in significant changes in the estimated AETR. Thus, we concluded to use a discrete effective tax rate, which treats the year-to-date period as an annual period, to calculate income taxes for the three months ended March 31, 2024.
Our effective tax rates were
Our effective tax rate was impacted primarily due to changes in the mix of taxable profits between jurisdictions with different tax regimes, in particular in Latin America and in our ESSA region.
| 8. |
Investment in joint ventures |
We have investments in two joint venture companies, which together provide us access to certain Asian markets that otherwise would be challenging for us to penetrate or develop effectively on our own. COSL-Expro Testing Services (Tianjin) Co. Ltd (“CETS”), in which we have a
The carrying value of our investment in joint ventures as of March 31, 2024, and December 31, 2023, was as follows (in thousands):
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| CETS |
$ | $ | ||||||
| PVD-Expro |
||||||||
| Total |
$ | $ | ||||||
| 9. |
Accounts receivable, net |
Accounts receivable, net consisted of the following as of March 31, 2024, and December 31, 2023 (in thousands):
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Accounts receivable |
$ | $ | ||||||
| Less: Expected credit losses |
( |
) | ( |
) | ||||
| Total |
$ | $ | ||||||
| Current |
||||||||
| Non – current |
||||||||
| Total |
$ | $ | ||||||
| 10. |
Inventories |
Inventories consisted of the following as of March 31, 2024, and December 31, 2023 (in thousands):
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Finished goods |
$ | $ | ||||||
| Raw materials, equipment spares and consumables |
||||||||
| Work-in-progress |
||||||||
| Total |
$ | $ | ||||||
| 11. |
Other assets and liabilities |
Other assets consisted of the following as of March 31, 2024, and December 31, 2023 (in thousands):
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Prepayments |
$ | |||||||
| Value-added tax receivables |
||||||||
| Collateral deposits |
||||||||
| Deposits |
||||||||
| Other |
||||||||
| Total |
$ | $ | ||||||
| Current |
||||||||
| Non – current |
||||||||
| Total |
$ | $ | ||||||
Other liabilities consisted of the following as of March 31, 2024, and December 31, 2023 (in thousands):
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Deferred revenue |
$ | $ | ||||||
| Other tax and social security |
||||||||
| Provisions |
||||||||
| Contingent consideration liabilities |
||||||||
| Other |
||||||||
| Total |
$ | $ | ||||||
| Current |
||||||||
| Non – current |
||||||||
| Total |
$ | $ | ||||||
| 12. |
Accounts payable and accrued liabilities |
Accounts payable and accrued liabilities consisted of the following as of March 31, 2024, and December 31, 2023 (in thousands):
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Accounts payable – trade |
$ | $ | ||||||
| Payroll, vacation and other employee benefits |
||||||||
| Accruals for goods received not invoiced |
||||||||
| Other accrued liabilities |
||||||||
| Total |
$ | $ | ||||||
| 13. |
Property, plant and equipment, net |
Property, plant and equipment, net consisted of the following as of March 31, 2024, and December 31, 2023 (in thousands):
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Cost: |
||||||||
| Land |
$ | $ | ||||||
| Land improvements |
||||||||
| Buildings and lease hold improvements |
||||||||
| Plant and equipment |
||||||||
| Less: accumulated depreciation |
( |
) | ( |
) | ||||
| Total |
$ | $ | ||||||
The carrying amount of our property, plant and equipment recognized in respect of assets held under finance leases as of March 31, 2024 and December 31, 2023 and included in amounts above is as follows (in thousands):
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Cost: |
||||||||
| Buildings |
$ | $ | ||||||
| Plant and equipment |
||||||||
| Total |
||||||||
| Less: accumulated amortization |
( |
) | ( |
) | ||||
| Total |
$ | $ | ||||||
Depreciation expense relating to property, plant and equipment, including assets under finance leases, was $
| 14. |
Intangible assets, net |
The following table summarizes our intangible assets comprising of Customer Relationships & Contracts (“CR&C”), Trademarks, Technology and Software as of March 31, 2024 and December 31, 2023 (in thousands):
| March 31, 2024 |
December 31, 2023 |
March 31, 2024 |
||||||||||||||||||||||||||
| Gross carrying amount |
Accumulated impairment and amortization |
Net book value |
Gross carrying amount |
Accumulated impairment and amortization |
Net book value |
Weighted average remaining life (years) |
||||||||||||||||||||||
| CR&C |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Trademarks |
( |
) | ( |
) | ||||||||||||||||||||||||
| Technology |
( |
) | ( |
) | ||||||||||||||||||||||||
| Software |
( |
) | ( |
) | ||||||||||||||||||||||||
| Total |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
Amortization expense for intangible assets was $
The following table summarizes the intangible assets which were acquired pursuant to the DeltaTek Acquisition and the PRT Acquisition during 2023 (in thousands):
| Acquired Fair Value |
Weighted average life (years) |
|||||||
| DeltaTek: |
||||||||
| CR&C |
$ | |||||||
| Trademarks |
||||||||
| Technology |
||||||||
| Total |
$ | |||||||
| PRT: |
||||||||
| CR&C |
$ | |||||||
| Trademarks |
||||||||
| Technology |
||||||||
| Total |
$ | |||||||
| 15. |
Goodwill |
Our reporting units are our operating segments which are NLA, ESSA, MENA and APAC.
The allocation of goodwill by operating segment as of March 31, 2024 and December 31, 2023 is as follows (in thousands):
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| NLA |
$ | $ | ||||||
| ESSA |
||||||||
| MENA |
||||||||
| APAC |
||||||||
| Total |
$ | $ | ||||||
The following table summarizes the goodwill by operating segment which were acquired pursuant to the DeltaTek Acquisition and the PRT Acquisition during 2023 (in thousands):
| DeltaTek |
PRT |
|||||||
| NLA |
$ | $ | ||||||
| ESSA |
||||||||
| MENA |
||||||||
| APAC |
||||||||
| Total |
$ | $ | ||||||
As of March 31, 2024, we did not identify any triggering events that would represent an indicator of impairment of our goodwill. Accordingly,
| 16. |
Interest bearing loans |
On October 6, 2023, we amended and restated the previous revolving credit 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 revolving credit facility agreement. The maturity date of the Amended and Restated Facility Agreement is October 6, 2026. The Amended and Restated Facility Agreement increased the total commitments to $
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
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
As of March 31, 2024, we had $
| 17. |
Commitments and contingencies |
Commercial Commitments
During the normal course of business, we enter into commercial commitments in the form of letters of credit and bank guarantees to provide financial and performance assurance to third parties. We entered into contractual commitments for the acquisition of property, plant and equipment totaling $
Contingencies
Certain conditions may exist as of the date our unaudited condensed consolidated financial statements are issued that may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. Our management, with input from legal counsel, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings pending against us or unasserted claims that may result in proceedings, our management, with input from legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates it is probable a material loss has been incurred and the amount of liability can be reasonably estimated, then the estimated liability would be accrued in our unaudited condensed consolidated financial statements. If the assessment indicates a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. We are the subject of lawsuits and claims arising in the ordinary course of business from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. We had no material accruals for loss contingencies, individually or in the aggregate, as of March 31, 2024 and December 31, 2023. 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 $
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 $
Other than discussed above, we had no other material legal accruals for loss contingencies, individually or in the aggregate, as of March 31, 2024 and December 31, 2023.
| 18. |
Post-retirement benefits |
Amounts recognized in the unaudited condensed consolidated statements of operations in respect of the defined benefit schemes were as follows (in thousands):
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Amortization of prior service credit |
$ | $ | ||||||
| Interest cost |
( |
) | ( |
) | ||||
| Expected return on plan assets |
||||||||
| Total |
$ | $ | ( |
) | ||||
The Company contributed $
Amortization of prior service credit, interest cost and expected return on plan assets have been recognized in “Other income, net” in the unaudited condensed consolidated statements of operations.
| 19. |
Loss per share |
Basic loss per share attributable to Company stockholders is calculated by dividing net loss attributable to the Company by the weighted-average number of common shares outstanding for the period. Diluted earnings per share attributable to Company stockholders is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, assuming all potentially dilutive shares were issued. We apply the treasury stock method to determine the dilutive weighted average common shares represented by unvested restricted stock units, stock options and Employee Stock Purchase Program (“ESPP”) shares.
The calculation of basic and diluted loss per share attributable to Company stockholders for the three months ended March 31, 2024 and 2023, respectively, are as follows (in thousands):
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Basic and diluted weighted average number of shares outstanding |
||||||||
| Total basic and diluted loss per share |
$ | ( |
) | $ | ( |
) | ||
Approximately
| 20. |
Related party disclosures |
Our related parties consist primarily of CETS and PVD-Expro, the two companies in which we exert significant influence, and Mosing Holdings LLC and its affiliates (Mr. Erich Mosing served as a director until May 24, 2023). During the three months ended March 31, 2024 and 2023, we provided goods and services to related parties totaling $
Additionally, we entered into various operating lease agreements to lease facilities with affiliated companies. Rent expense associated with our related party leases was $
As of March 31, 2024 and December 31, 2023 amounts receivable from related parties were $
As of March 31, 2024, $
Tax Receivable Agreement
Mosing Holdings, LLC, a Delaware limited liability company (“Mosing Holdings”), converted all of its shares of Frank’s International N.V. (“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 to Mosing Holdings of of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Frank’s actually realized (or were deemed to be realized in certain circumstances) in periods after the IPO as a result of (i) tax basis increases resulting from the Conversion and (ii) imputed interest deemed to be paid by Frank’s as a result of, and additional tax basis arising from, payments under the Original TRA. Frank’s retained the benefit of the remaining of these cash savings, if any.
In connection with the merger agreement providing for the Merger, Frank’s, FICV and Mosing Holdings entered into the Amended and Restated Tax Receivable Agreement, dated as of March 10, 2021 (the “A&R TRA”). Pursuant to the A&R TRA, on October 1, 2021, the Company made a payment of $
| 21. |
Stock-based compensation |
The Company recognized
Stock-based compensation expense relating to the Long-Term Incentive Plan (“LTIP”), including restricted stock units (“RSUs”) and performance restricted stock units (“PRSUs”) for the three months ended March 31, 2024 was $
During the three months ended March 31, 2024,
During the three months ended March 31, 2024 we recognized $
| 22. | Supplemental cash flow |
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes, net of refunds | $ | $ | ||||||
| Cash paid for interest, net | $ | $ | ||||||
| Change in accounts payable and accrued expenses related to capital expenditures | $ | $ | ||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Form 10-Q and the audited consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report.
This section contains forward-looking statements that are based on management’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 Note Regarding Forward-Looking Statements” and “Risk Factors” of this Form 10-Q and our Annual Report.
Overview of Business
Working for clients across the entire well life cycle, we are a leading provider of energy services, offering cost-effective, innovative solutions and what we consider to be best-in-class safety and service quality. Our broad portfolio of products and services are designed to enhance production and improve recovery across the well lifecycle from exploration through abandonment.
With roots dating to 1938, we have approximately 8,000 employees and provide services and solutions to leading exploration and production companies in both onshore and offshore environments in approximately 60 countries.
The Company’s extensive portfolio of capabilities spans well construction, well flow management, subsea well access, and well intervention and integrity solutions.
| 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 over 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. We also provide services and solutions utilizing a rig-deployed Intervention Riser System (“IRS”) owned by a third party and have capabilites for vessel-deployed light well intervention services. In addition, we 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”), international oil companies (“IOC”), independent exploration and production companies (“Independents”) and service partners. We have strong relationships with a number of the world’s largest NOCs and IOCs, some of which have been our customers for decades. We are dedicated to safely and sustainably delivering maximum value to our customers.
We organize and manage our operations on a geographical basis. Our reporting structure and the key financial information used by our management team is organized around our four operating segments: (i) North and Latin America (“NLA”), (ii) Europe and Sub-Saharan Africa (“ESSA”), (iii) Middle East and North Africa (“MENA”) and (iv) Asia-Pacific (“APAC”).
How We Generate Our Revenue
Our revenue is derived primarily from providing services in well construction, well flow management, subsea well access and well intervention and integrity to operators globally. Our revenue includes equipment service charges, personnel charges, run charges and consumables. Some of our contracts allow us to charge for additional deliverables, such as the costs of mobilization of people and equipment and customer specific engineering costs associated with a project. We also procure products and services on behalf of our customers that are provided by third parties for which we are reimbursed with a mark-up or in connection with an integrated services contract. We also design, manufacture and sell equipment, which is typically done in connection with a related operations and maintenance arrangement with a particular customer. In addition, we also generate revenue from the sale of certain well construction products.
Market Conditions and Price of Oil and Gas
| • |
The 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 first quarter of 2024 exceeded average daily demand levels in 2023, with liquid demand expected to grow by 0.8 million b/d in 2024 over 2023. Brent crude oil prices have been increasing over the first quarter, from an average of $80/bbl in January increasing to an average of $85/bbl in March. The Brent price increase is attributable to the ongoing conflicts in the Middle East, the Russia-Ukraine war, increasing demand in Asia and the announcement of an extension of voluntary supply cuts by the Organization of Petroleum Exporting Countries and certain other oil producing nations (“OPEC+”). |
| • |
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 has continued to strengthen throughout 2024 as operator upstream investments return to near 2015 levels. We also have 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 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 that 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 slowed in the first quarter of 2024 compared to the previous quarter, however, average year-on-year consumption is expected to continue to grow in 2024. Demand growth, particularly in Asia, along with an extension of voluntary production cuts by OPEC+, as well as escalating geopolitical tension in the Middle East have led to a tightening of the market and supply concerns, adding upward pressure to prices.
The U.S. Energy Information Administration (“EIA”) forecasts that global liquids fuels consumption will average 102.9 million b/d in 2024, continuing growth from pre-pandemic levels and increasing by 0.9 million b/d over 2023. Global liquid fuels demand is then expected to grow by an additional 1.4 million b/d to reach 104.3 million b/d in 2025. Global liquids fuels demand growth is mostly driven by non-OECD Asian countries – particularly China and India – with significant growth also expected in the Middle East and United States, increasing industrial requirements and jet fuel consumption resulting from increasing global travel.
The EIA forecasts that global liquid fuels production will average 102.6 million b/d in 2024 - an increase of 0.8 million b/d over 2023 – and average 104.6 million b/d in 2025, a further 2.0 million b/d increase over 2024. Supply growth in 2024 is slowing from the increases seen in 2023 as the extension of OPEC+ voluntary cuts are offset by supply growth outside of OPEC+. Although forecast OPEC+ crude oil production in 2024 is expected to decrease by 0.9 million b/d compared to last year, forecast production outside of OPEC+ is set to increase by 1.8 million b/d, led by the United States, Guyana, Brazil and Canada. Global liquid fuels production is predicted to increase by 2.0 million b/d in 2025 as the OPEC+ production cuts expire and supply growth outside of OPEC+ continues to grow.
Oil prices rose in the first quarter of 2024 driven by heightened geopolitical risk in the Middle East with the recent extension of OPEC+ voluntary production cuts adding further upward price pressure. The combination of flat production and rising consumption caused the EIA to forecast a reduction of global inventories for the second quarter of 2024, with the tighter market balance keeping oil prices relatively elevated. As a result, the EIA expects oil prices to average $90/bbl in the second quarter of 2024 and $89/bbl for all of 2024. Inventories are forecast to build in 2025 following the expected unwinding of OPEC+ supply cuts putting downward pressure on prices and as a result the EIA estimates oil prices will average $87/bbl in 2025.
In addition to the continued positive oil market outlook, global natural gas prices are expected to be generally constructive for development activity and investment by our customers.
The EIA estimates that annual average Henry Hub prices will remain under $3.00 per million British thermal unit (“MMBtu”) for 2024 and 2025, averaging $2.20/MMBtu in 2024 and $2.90/MMBtu in 2025 respectively. The low prices are driven by high natural gas storage inventories due to a surplus at the start of winter and a milder winter resulting in below average natural gas consumption in the residential and commercial sectors. Rystad Energy predicts prices at the European Title Transfer Facility (TTF) and Northeast Asian LNG spot will average $9.20/MMBtu and $9.80/MMBtu respectively for 2024 as prices have declined in the first quarter driven by healthy storage levels, milder weather and some bearish indicators for economic growth. Despite muted demand growth globally and healthy European storage levels, muted LNG supply growth this year should maintain a price floor for gas and LNG.
Consequently, the market outlook for 2024 remains positive with strong prices driving growth in exploration and production expenditures. Strong investment growth is expected in the deepwater and offshore shelf segments with support from large projects in the Middle East driven by Saudi Arabia, the UAE and Qatar, as well as Norway, and Brazil and Guyana in Latin America.
As a result, we expect demand for our services and solutions to continue trending positively throughout 2024.
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 and Adjusted EBITDA.
Revenue: We analyze our performance by comparing actual monthly revenue by operating segments and areas of capabilities to our internal projections for each month. Our revenue is primarily derived from well construction, well flow management, subsea well access and well intervention and integrity solutions.
Adjusted EBITDA: We regularly evaluate our financial performance using Adjusted EBITDA. Our management believes Adjusted EBITDA is a useful financial performance measure as it excludes non-cash charges and other transactions not related to our core operating activities and allows more meaningful analysis of the trends and performance of our core operations.
Adjusted EBITDA is a non-GAAP financial measures. Please refer to the section titled “Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable financial performance measure calculated and presented in accordance with GAAP.
Executive Overview
Three months ended March 31, 2024, compared to three months ended December 31, 2023
Certain highlights of our financial results and other key developments include:
|
|
||
| • |
Revenue for the three months ended March 31, 2024, decreased by $23.3 million, or 5.7%, to $383.5 million, compared to $406.8 million for the three months ended December 31, 2023. The decrease in revenue was driven by lower activity primarily in the NLA and ESSA segments, partially offset by higher revenue in MENA. Consistent with historical patterns, revenue and profitability for the three months ended March 31, 2024, was negatively impacted by the winter season in the Northern Hemisphere and the budget cycles of our NOC customers. Revenue for our segments is discussed separately below under the heading “Operating Segment Results.” |
|
|
|
||
| • |
We reported net loss for the three months ended March 31, 2024, of $2.7 million, compared to a net loss of $12.4 million for the three months ended December 31, 2023. Net loss margin was (0.7)% for the three months ended March 31, 2024 compared to (3.1)% for the three months ended December 31, 2023. The change in net loss primarily reflected lower depreciation and amortization expense of $22.7 million, lower severance and other expense of $3.8 million and lower merger and integration expense of $3.3 million, partially offset by lower Adjusted EBITDA by $17.6 million, as discussed below, and higher other income, net, of $4.3 million. | |
| • |
Adjusted EBITDA for the three months ended March 31, 2024, decreased by $17.6 million, or 20.7%, to $67.5 million from $85.1 million for the three months ended December 31, 2023. Adjusted EBITDA margin decreased to 17.6% during the three months ended March 31, 2024, as compared to 20.9% during the three months ended December 31, 2023. The decrease in Adjusted EBITDA and Adjusted EBITDA margin is primarily attributable to lower revenue and activity mix, primarily in NLA and ESSA segments, partially offset by increased activity on higher-margin projects in MENA.
The Company suspended vessel-deployed light well intervention (“LWI”) operations during the third quarter of 2023 following a wire failure on the main crane of the third party-owned vessel working with Expro while the crane was suspending the subsea module (“SSM”) of Expro’s vessel-deployed LWI system. We are continuing to work with the relevant stakeholders and independent experts to assess the incident. The well control package and lubricator components of this vessel-deployed LWI system have been safely recovered. The subsea module was also subsequently recovered from the seabed but as we had abandoned it as a wreck we did not participate in its recovery. We are pursuing an insurance claim in respect of the subsea module and related umbilical and flushing lines. 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 for the three months ended March 31, 2024, was $29.9 million, compared to net cash provided by operating activities of $32.8 million for the three months ended December 31, 2023, with the change primarily driven by a decreases in Adjusted EBITDA by $17.6 million in the current quarter and non-repeat of dividends received from joint ventures of $5.6 million, partially offset by a favorable movement in working capital of $21.2 million compared to the prior quarter. |
Non-GAAP Financial Measures
We include in this Form 10-Q the non-GAAP financial measures Adjusted EBITDA and Adjusted EBITDA margin. We provide reconciliations of net income (loss), the most directly comparable financial performance measure calculated and presented in accordance with GAAP, to Adjusted EBITDA.
Adjusted EBITDA and Adjusted EBITDA margin are used as supplemental financial measures by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others. These non-GAAP financial measures allow our management and others to assess our financial and operating performance as compared to those of other companies in our industry, without regard to the effects of our capital structure, asset base, items outside the control of management and other charges outside the normal course of business.
We define Adjusted EBITDA as net income (loss) adjusted for (a) income tax expense (benefit), (b) depreciation and amortization expense, (c) impairment expense, (d) severance and other expense, net, (e) stock-based compensation expense, (f) merger and integration expense, (g) gain on disposal of assets, (h) other income (expense), net, (i) interest and finance (income) expense, net and (j) foreign exchange (gain) loss. Adjusted EBITDA margin reflects our Adjusted EBITDA as a percentage of revenues.
Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. As Adjusted EBITDA may be defined differently by other companies in our industry, our presentation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
The following table presents a reconciliation of net loss to Adjusted EBITDA for each of the three months presented (in thousands):
| Three Months Ended |
||||||||||||
| March 31, 2024 |
December 31, 2023 |
March 31, 2023 |
||||||||||
| Net loss |
$ | (2,677 | ) | $ | (12,418 | ) | $ | (6,351 | ) | |||
| Income tax expense |
$ | 12,288 | $ | 13,376 | $ | 5,085 | ||||||
| Depreciation and amortization expense |
40,146 | 62,874 | 34,737 | |||||||||
| Severance and other expense |
5,062 | 8,901 | 927 | |||||||||
| Merger and integration expense |
2,161 | 5,432 | 2,138 | |||||||||
| Other (income) expense, net (1) |
(485 | ) | (4,774 | ) | 949 | |||||||
| Stock-based compensation expense |
5,070 | 4,892 | 4,171 | |||||||||
| Foreign exchange loss (gain) |
2,743 | 4,608 | (1,070 | ) | ||||||||
| Interest and finance expense, net |
3,152 | 2,255 | 1,298 | |||||||||
| Adjusted EBITDA |
$ | 67,460 | $ | 85,146 | $ | 41,884 | ||||||
| Net loss margin |
(0.7 | )% | (3.1 | )% | (1.9 | )% | ||||||
| Adjusted EBITDA margin |
17.6 | % | 20.9 | % | 12.3 | % | ||||||
| (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. |
Results of Operations
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 each of the periods presented:
| Three Months Ended |
Percentage |
|||||||||||||||||||||||
| (in thousands) |
March 31, 2024 |
December 31, 2023 |
March 31, 2023 |
March 31, 2024 |
December 31, 2023 |
March 31, 2023 |
||||||||||||||||||
| NLA |
$ | 130,389 | $ | 145,490 | $ | 126,228 | 34.0 | % | 35.8 | % | 37.2 | % | ||||||||||||
| ESSA |
121,746 | 133,846 | 113,648 | 31.7 | % | 32.9 | % | 33.5 | % | |||||||||||||||
| MENA |
71,494 | 65,363 | 50,945 | 18.6 | % | 16.1 | % | 15.0 | % | |||||||||||||||
| APAC |
59,860 | 62,051 | 48,458 | 15.6 | % | 15.3 | % | 14.3 | % | |||||||||||||||
| Total Revenue |
$ | 383,489 | $ | 406,750 | $ | 339,279 | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
The following table shows Segment EBITDA and Segment EBITDA margin by segment and a reconciliation to income before income taxes for each of the periods presented:
| Three Months Ended |
Segment EBITDA Margin |
|||||||||||||||||||||||
| (in thousands) |
March 31, 2024 |
December 31, 2023 |
March 31, 2023 |
March 31, 2024 |
December 31, 2023 |
March 31, 2023 |
||||||||||||||||||
| NLA |
$ | 34,377 | $ | 44,325 | $ | 31,874 | 26.4 | % | 30.5 | % | 25.3 | % | ||||||||||||
| ESSA |
25,201 | 40,990 | 20,785 | 20.7 | % | 30.6 | % | 18.3 | % | |||||||||||||||
| MENA |
24,538 | 21,271 | 14,568 | 34.3 | % | 32.5 | % | 28.6 | % | |||||||||||||||
| APAC |
10,786 | 5,337 | (2,698 | ) | 18.0 | % | 8.6 | % | (5.6 | )% | ||||||||||||||
| Total Segment EBITDA |
94,902 | 111,923 | 64,529 | |||||||||||||||||||||
| Corporate costs (1) |
(31,300 | ) | (31,894 | ) | (25,081 | ) | ||||||||||||||||||
| Equity in income of joint ventures |
3,858 | 5,117 | 2,436 | |||||||||||||||||||||
| Depreciation and amortization expense |
(40,146 | ) | (62,874 | ) | (34,737 | ) | ||||||||||||||||||
| Merger and integration expense |
(2,161 | ) | (5,432 | ) | (2,138 | ) | ||||||||||||||||||
| Severance and other expense |
(5,062 | ) | (8,901 | ) | (927 | ) | ||||||||||||||||||
| Stock-based compensation expense |
(5,070 | ) | (4,892 | ) | (4,171 | ) | ||||||||||||||||||
| Foreign exchange (loss) gain |
(2,743 | ) | (4,608 | ) | 1,070 | |||||||||||||||||||
| Other income (expense), net |
485 | 4,774 | (949 | ) | ||||||||||||||||||||
| Interest and finance expense, net |
(3,152 | ) | (2,255 | ) | (1,298 | ) | ||||||||||||||||||
| Income (loss) before income taxes |
$ | 9,611 | $ | 958 | $ | (1,266 | ) | |||||||||||||||||
| (1) | Corporate costs include the costs of running our corporate head office and other central functions that support the operating segments, including research, engineering and development, logistics, sales and marketing and health and safety and are not attributable to a particular operating segment. |
Three months ended March 31, 2024 compared to three months ended December 31, 2023
NLA
Revenue for the NLA segment was $130.4 million for the three months ended March 31, 2024, a decrease of $15.1 million, or 10.4%, compared to $145.5 million for the three months ended December 31, 2023. The decrease was primarily due to lower well construction revenue in the United States, Guyana and Mexico, partially offset by increased well intervention and integrity revenue in the United States and Brazil and higher well flow management revenue in Colombia.
Segment EBITDA for the NLA segment was $34.4 million, or 26.4% of revenues, during the three months ended March 31, 2024, a decrease of $9.9 million, or 22.3%, compared to $44.3 million or 30.5% of revenues during the three months ended December 31, 2023. The decrease in Segment EBITDA and Segment EBITDA margin was attributable to lower activity and less favorable activity mix during the three months ended March 31, 2024.
ESSA
Revenue for the ESSA segment was $121.7 million for the three months ended March 31, 2024, a decrease of $12.1 million, or 9.0%, compared to $133.8 million for the three months ended December 31, 2023. The decrease in revenues was primarily driven by lower well flow management revenue in the Congo, lower subsea well access revenue in Western and Central Africa, and lower Well Construction revenue in the UK and Angola, partially offset by higher well intervention and integrity revenue in the UK and higher well flow management revenue in Norway and Denmark.
Segment EBITDA for the ESSA segment was $25.2 million, or 20.7% of revenues, for the three months ended March 31, 2024, a decrease of $15.8 million, or 38.5%, compared to $41.0 million, or 30.6% of revenues, for the three months ended December 31, 2023. The decrease in Segment EBITDA and Segment EBITDA margin was attributable to a combination of a less favorable activity mix and decreased activities on higher margin services during the three months ended March 31, 2024.
MENA
Revenue for the MENA segment was $71.5 million for the three months ended March 31, 2024, an increase of $6.1 million, or 9.3%, compared to $65.4 million for the three months ended December 31, 2023. The increase in revenue was driven higher well flow management revenue in Algeria and Saudi Arabia, partially offset by lower well construction revenue in Morocco.
Segment EBITDA for the MENA segment was $24.5 million, or 34.3% of revenues, for the three months ended March 31, 2024, an increase of $3.2 million, or 15.0%, compared to $21.3 million, or 32.5% of revenues, for the three months ended December 31, 2023. The increase in Segment EBITDA and Segment EBITDA margin was primarily due to increased activity on higher-margin projects and more favorable activity mix during the three months ended March 31, 2024.
APAC
Revenue for the APAC segment was $59.9 million for the three months ended March 31, 2024, a decrease of $2.2 million, or 3.5%, compared to $62.1 million for the three months ended December 31, 2023. The decrease in revenue was primarily due to lower well flow management, well intervention and integrity and subsea well access revenue in Malaysia, offset by higher subsea well access revenue in China and Australia, and higher well flow management revenue in Australia and Thailand.
Segment EBITDA for the APAC segment was $10.8 million, or 18.0% of revenues, for the three months ended March 31, 2024, an increase of $5.5 million compared to $5.3 million, or 8.6% of revenues, for the three months ended December 31, 2023. The increase in Segment EBITDA is attributable primarily to higher activity.
Depreciation and amortization expense
Depreciation and amortization expense for the three months ended March 31, 2024 decreased by $22.7 million or 36.1% to $40.1 million as compared to $62.9 million for the three months ended December 31, 2023. The decrease was primarily due to non recurrence of $19.3 million of accelerated depreciation expense related to the SSM of Expro’s vessel-deployed LWI system and related equipment.
Merger and integration expense
Merger and integration expense for the three months ended March 31, 2024, decreased by $3.2 million, to $2.2 million as compared to $5.4 million for the three months ended December 31, 2023. The decrease was primarily attributable to lower integration related expenses incurred during the three months ended March 31, 2024, as compared to the three months ended December 31, 2023.
Severance and other expense
Severance and other expense for the three months ended March 31, 2024 decreased by $3.8 million or 43.1% to $5.1 million as compared to $8.9 million for the three months ended December 31, 2023. The decrease was primarily attributable to non recurrence of unrecoverable LWI-related costs and a change in the fair value of deferred consideration. The LWI-related costs in the preceding quarter resulted from the wire failure on the main crane of a third-party vessel and were comprised of equipment costs, legal costs, and an immaterial write-off of spare parts.
Foreign exchange loss
Foreign exchange loss for the three months ended March 31, 2024 decreased by $1.9 million or 40.5% to $2.7 million as compared to $4.6 million for the three months ended December 31, 2023. The decrease was primarily due to favorable changes in various exchange rates.
Other income, net
Other income, net for the three months ended March 31, 2024 decreased by $4.3 million or 89.8% to $0.5 million as compared to $4.8 million for the three months ended December 31, 2023. The decrease was primarily due to a decrease in interest income on post retirement benefits.
Three months ended March 31, 2024 compared to three months ended March 31, 2023
NLA
Revenue for the NLA segment was $130.4 million for the three months ended March 31, 2024, an increase of $4.2 million, or 3.3%, compared to $126.2 million for the three months ended March 31, 2023. The increase was primarily due to increases in subsea well access revenue in the United States and well intervention and integrity revenue in Brazil, partially offset by lower well construction revenue in the United States and Guyana.
Segment EBITDA for the NLA segment was $34.4 million, or 26.4% of revenues, during the three months ended March 31, 2024, an increase of $2.5 million, or 7.8%, compared to $31.9 million or 25.3% of revenues during the three months ended March 31, 2023. The increase in Segment EBITDA and Segment EBITDA margin was attributable to higher activity and more favorable activity mix during the three months ended March 31, 2024.
ESSA
Revenue for the ESSA segment was $121.7 million for the three months ended March 31, 2024, an increase of $8.1 million, or 7.1%, compared to $113.6 million for the three months ended March 31, 2023. The increase in revenues was primarily driven by increased well flow management activity in Namibia, Norway and Denmark, higher well construction revenue in Equatorial Guinea and Norway, and higher subsea well access activity in the Congo, partially offset by lower subsea well access activity in Cote d'Ivoire and Angola.
Segment EBITDA for the ESSA segment was $25.2 million, or 20.7% of revenues, for the three months ended March 31, 2024, an increase of $4.4 million, or 21.2%, compared to $20.8 million, or 18.3% of revenues, for the three months ended March 31, 2023. The increase in Segment EBITDA and Segment EBITDA margin was attributable to a combination of a more favorable activity mix and increase activities on higher margin services during the three months ended March 31, 2024.
MENA
Revenue for the MENA segment was $71.5 million for the three months ended March 31, 2024, an increase of $20.6 million, or 40.5%, compared to $50.9 million for the three months ended March 31, 2023. The increase in revenue was driven by higher well flow management activity in Saudi Arabia and Algeria.
Segment EBITDA for the MENA segment was $24.5 million, or 34.3% of revenues, for the three months ended March 31, 2024, an increase of $9.9 million, or 67.8%, compared to $14.6 million, or 28.6% of revenues, for the three months ended March 31, 2023. The increase in Segment EBITDA and Segment EBITDA margin was primarily due to increased activity on higher-margin projects and more favorable activity mix during the three months ended March 31, 2024.
APAC
Revenue for the APAC segment was $59.9 million for the three months ended March 31, 2024, an increase of $11.4 million, or 23.5%, compared to $48.5 million for the three months ended March 31, 2023. The increase in revenue was primarily due to increased well flow management revenue in Australia and higher subsea well access revenue in China and Australia.
Segment EBITDA for the APAC segment was $10.8 million, or 18.0% of revenues, for the three months ended March 31, 2024, an increase of $13.5 million compared to ($2.7) million, or (5.6)% of revenues, for the three months ended March 31, 2023. The increase in Segment EBITDA is attributable primarily to $10.6 million of unrecoverable LWI-related costs during the first quarter of 2023 that did not repeat in 2024.
Corporate costs
Corporate costs for the three months ended March 31, 2024 increased by $6.2 million or 24.8% to $31.3 million as compared to $25.1 million for the three months ended March 31, 2023. The increase in the corporate costs was due to higher research and development costs, higher corporate headcount and the remaining increase was generally proportional with increases in activity and revenue year over year.
Depreciation and amortization expense
Depreciation and amortization expense for the three months ended March 31, 2024 increased by $5.4 million or 15.6% to $40.1 million as compared to $34.7 million for the three months ended March 31, 2023. The increase was generally proportional to the increase in property plant and equipment year over year.
Severance and other expense
Severance and other expense for the three months ended March 31, 2024 increased by $4.1 million or 446.1% to $5.1 million as compared to $0.9 million for the three months ended March 31, 2023. The increase was primarily attributable to an increase in restructuring costs across all regions and a contractual settlement in the first quarter of 2024 as a result of the LWI wire failure incident.
Foreign exchange loss
Foreign exchange loss for the three months ended March 31, 2024 was $2.7 million as compared to foreign exchange gain of $1.1 million for the three months ended March 31, 2023. The change was primarily due to unfavorable changes in various exchange rates.
Interest and finance expense, net
Interest and finance expense, net for the three months ended March 31, 2024 increased by $1.9 million or 142.8% to $3.1 million as compared to $1.3 million for the three months ended March 31, 2023. The increase was primarily due to an increase in interest cost on post retirement benefits.
Liquidity and Capital Resources
Liquidity
Our financial objectives include the maintenance of sufficient liquidity, adequate financial resources and financial flexibility to fund our business. As of March 31, 2024, total available liquidity was $291.2 million, including cash and cash equivalents and restricted cash of $164.5 million and $126.7 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 have been cash flows from operations. Our primary uses of capital have been for capital expenditures, acquisitions and repurchase of company stock. We monitor potential capital sources, including equity and debt financing, in order to meet our investment and liquidity requirements.
Our total capital expenditures are estimated to range between $100.0 million and $110.0 million for the remaining nine months of 2024. Our total capital expenditures were $30.7 million for the three months ended March 31, 2024, of which approximately 90% were used for the purchase and manufacture of equipment to directly support customer-related activities and approximately 10% for other property, plant and equipment, inclusive of software costs. In addition, we plan to use at least $75.0 million of cash during the second quarter of 2024 for the acquisition of Coretrax. We continue to focus on preserving and protecting our strong balance sheet, optimizing utilization of our existing assets and, where practical, limiting new capital expenditures.
On 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. The Company has made no repurchases under the Stock Repurchase Plan during the three months ended March 31, 2024
Credit Facility
Revolving Credit Facility
On October 6, 2023, we amended and restated our previous revolving credit 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 Amended and Restated Facility Agreement for a further 36 months and increase 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.
Please see Note 16 “Interest bearing loans” in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.
Cash flow from operating, investing and financing activities
Cash flows provided by (used in) our operations, investing and financing activities are summarized below (in thousands):
| Three Months Ended |
||||||||
| March 31, 2024 |
March 31, 2023 |
|||||||
| Net cash provided by operating activities |
$ | 29,938 | $ | 21,323 | ||||
| Net cash used in investing activities |
(30,739 | ) | (36,312 | ) | ||||
| Net cash provided by (used in) financing activities |
14,891 | (16,373 | ) | |||||
| Effect of exchange rate changes on cash activities |
(2,722 | ) | (800 | ) | ||||
| Net increase (decrease) to cash and cash equivalents and restricted cash |
$ | 11,368 | $ | (32,162 | ) | |||
Analysis of cash flow changes between the three months ended March 31, 2024 and March 31, 2023
Net cash provided by (used in) operating activities
Net cash provided by operating activities was $29.9 million during the three months ended March 31, 2024 as compared to net cash used in operating activities of $21.3 million during the three months ended March 31, 2023. The increase in net cash provided by operating activities of $8.6 million for the three months ended March 31, 2024, was primarily driven by an increase in Adjusted EBITDA of $25.6 million, partially offset by unfavorable movement in net working capital of $7.7 million and higher payments for corporate taxes of $5.9 million.
Net cash used in investing activities
Net cash used in investing activities was $30.7 million during the three months ended March 31, 2024, as compared to $36.3 million during the three months ended March 31, 2023, a decrease of $5.6 million. Our principal recurring investing activity is our capital expenditures. The decrease in net cash used in investing activities was primarily due to payment of net cash of $7.5 million for the acquisition of DeltaTek during the three months ended March 31, 2023.
Net cash provided by (used in) financing activities
Net cash provided by financing activities was $14.9 million during the three months ended March 31, 2024, as compared to net cash used in financing activities of $16.4 million during the three months ended March 31, 2023. The increase of $31.3 million in net cash used in financing activities is primarily due to the proceeds received from long-term and short-term borrowing of $20.1 million and non-repeat of acquisition of common stock of $10.0 million during the three months ended March 31, 2023.
New accounting pronouncements
See Note 2 “Basis of presentation and significant accounting policies” in our unaudited condensed consolidated financial statements under the heading “Recent accounting pronouncements.”
Critical accounting policies and estimates
There were no changes to our critical accounting policies and estimates from those disclosed in our Annual Report.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q”) includes certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include those that express a belief, expectation or intention, as well as those that are not statements of historical fact. Forward-looking statements include information regarding our future plans and goals and our current expectations with respect to, among other things:
| ● |
our business strategy and prospects for growth; |
| ● |
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-Q speak only as of the date of this report; we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. Forward-looking statements are not assurances of future performance and involve risks and uncertainties. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties include, but are not limited to, the following:
| ● |
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 and 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 environmental, social and governance (“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 (1) “Risk Factors” in Part II, Item 1A of this Form 10-Q, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Form 10-Q, and elsewhere within this Form 10-Q, (2) our Annual Report, (3) our other reports and filings we make with the SEC from time to time and (4) other announcements we make from time to time. Should one or more of the risks or uncertainties described in the documents above or in this Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results, performance, achievements or plans could differ materially from those expressed or implied in any forward-looking statements. All such forward-looking statements in this Form 10-Q are expressly qualified in their entirety by the cautionary statements in this section.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the Annual Report. Our exposure to market risk has not changed materially since December 31, 2023.
Item 4. Controls and Procedures
| a) |
Evaluation of Disclosure Controls and Procedures |
As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief 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 three months covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and 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 our evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of March 31, 2024 at the reasonable assurance level.
| b) |
Change in Internal Control Over Financial Reporting |
As of March 31, 2024, management has concluded that there have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Please see Note 17 “Commitments and contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements.
In addition to the other information set forth in this report, you should carefully consider the risks discussed under the heading “Risk Factors” in our Annual Report, which risks could materially affect our business, financial condition or future results. These risks are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Following is a summary of repurchases of Company common stock during the three months ended March 31, 2024.
| Period |
Total Number of Shares Purchased (1) |
Average Price Paid per Share |
Shares Purchased as 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) |
||||||||||||
| January 1 - January 31 |
- | $ | - | - | $ | 89,987,162 | ||||||||||
| February 1 - February 29 |
- | $ | - | - | $ | 89,987,162 | ||||||||||
| March 1 - March 31 |
- | $ | - | - | $ | 89,987,162 | ||||||||||
| Total |
- | $ | - | - | ||||||||||||
| 1) |
This table excludes shares withheld from employees to satisfy tax withholding requirements on equity-based transactions. We administer cashless settlements and generally 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 March 31, 2024, subject to the limitation set in our shareholder authorization for repurchases of our common stock. |
Securities Trading Arrangements with Officers and Directors
On , , , a trading plan intended to satisfy Rule 10b5-1(c) to sell up to shares of the Company’s common stock between June 5, 2024 and June 5, 2025, subject to certain conditions.
During the three months ended March 31, 2024, other director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
The exhibits required to be filed by Item 6 are set forth in the Exhibit Index included below.
EXHIBIT INDEX
| † | Represents management contract or compensatory plan or arrangement. |
| * | Filed herewith. |
| ** | Furnished herewith. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| EXPRO GROUP HOLDINGS N.V. |
|||
| Date: |
April 25, 2024 |
By: |
/s/ Quinn P. Fanning |
| Quinn P. Fanning |
|||
| Chief Financial Officer |
|||
| (Principal Financial Officer) |