10-Q 1 fi20240331_10q.htm FORM 10-Q fi20240331_10q.htm
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

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

1934

For the quarterly period ended March 31, 2024

 

OR

 

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

the Securities Exchange Act of 1934

 

For the transition period from ______ to ______

Commission file number: 001-36053

 

EXPRO GROUP HOLDINGS N.V.

 

(Exact name of registrant as specified in its charter)

 

 

The Netherlands

 

98-1107145

 
 

(State or other jurisdiction of
incorporation or organization)

 

(IRS Employer
Identification No.)

 
     
 

1311 Broadfield Boulevard, Suite 400

   
 

Houston, Texas

 

77084

 
 

(Address of principal executive offices)

 

(Zip Code)

 

 

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

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, €0.06 nominal value

XPRO

New York Stock Exchange

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

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

 

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

 

As of April 22, 2024, there were 110,537,436 shares of common stock, €0.06 nominal value per share, outstanding.

 

 

 

 

   

Page

PART I. FINANCIAL INFORMATION

     

Item 1.

Financial Statements

 
 

Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2024 and 2023

1

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three Months Ended March 31, 2024 and 2023

2

 

Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023

3

  Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2024 and 2023

4

 

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2024 and 2023

5

 

Notes to the Unaudited Condensed Consolidated Financial Statements

6

     

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

24

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

     

Item 4.

Controls and Procedures

39

     

PART II. OTHER INFORMATION

     

Item 1.

Legal Proceedings

40

     

Item 1A.

Risk Factors

40

     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 40
     
Item 5.

Other Information

40
     

Item 6.

Exhibits

41

     

Signatures

 

42

 

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

Expro Group Holdings N.V.

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except share data)

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Total revenue

  $ 383,489     $ 339,279  

Operating costs and expenses:

               

Cost of revenue, excluding depreciation and amortization expense

    (308,487 )     (289,647 )

General and administrative expense, excluding depreciation and amortization expense

    (19,213 )     (13,285 )

Depreciation and amortization expense

    (40,146 )     (34,737 )

Merger and integration expense

    (2,161 )     (2,138 )

Severance and other expense

    (5,062 )     (927 )

Total operating cost and expenses

    (375,069 )     (340,734 )

Operating income (loss)

    8,420       (1,455 )

Other income (expense), net

    485       (949 )

Interest and finance expense, net

    (3,152 )     (1,298 )

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

    5,753       (3,702 )

Equity in income of joint ventures

    3,858       2,436  

Income (loss) before income taxes

    9,611       (1,266 )

Income tax expense

    (12,288 )     (5,085 )

Net loss

  $ (2,677 )   $ (6,351 )
                 

Loss per common share:

               

Basic and diluted

  $ (0.02 )   $ (0.06 )

Weighted average common shares outstanding:

               

Basic and diluted

    110,176,460       108,854,709  

 

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

 

 

 

 

Expro Group Holdings N.V.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(in thousands)

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Net loss

  $ (2,677 )   $ (6,351 )

Other comprehensive loss:

               

Amortization of prior service credit

    (61 )     (61 )

Other comprehensive loss

    (61 )     (61 )

Comprehensive loss

  $ (2,738 )   $ (6,412 )

 

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

 

 

Expro Group Holdings N.V.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Assets

        

Current assets

        

Cash and cash equivalents

 $163,221  $151,741 

Restricted cash

  1,313   1,425 

Accounts receivable, net

  438,941   469,119 

Inventories

  164,325   143,325 

Income tax receivables

  28,968   27,581 

Other current assets

  65,628   58,409 

Total current assets

  862,396   851,600 
         

Property, plant and equipment, net

  500,331   513,222 

Investments in joint ventures

  71,001   66,402 

Intangible assets, net

  229,574   239,716 

Goodwill

  247,687   247,687 

Operating lease right-of-use assets

  68,022   72,310 

Non-current accounts receivable, net

  9,179   9,768 

Other non-current assets

  12,064   12,302 

Total assets

 $2,000,254  $2,013,007 
         

Liabilities and stockholders’ equity

        

Current liabilities

        

Accounts payable and accrued liabilities

 $299,094  $326,125 

Income tax liabilities

  47,688   45,084 

Finance lease liabilities

  2,012   1,967 

Operating lease liabilities

  16,885   17,531 

Other current liabilities

  100,110   98,144 

Total current liabilities

  465,789   488,851 
         

Long-term borrowings

  40,000   20,000 

Deferred tax liabilities, net

  21,636   22,706 

Post-retirement benefits

  8,697   10,445 

Non-current finance lease liabilities

  15,824   16,410 

Non-current operating lease liabilities

  50,249   54,976 

Uncertain tax positions

  59,718   59,544 

Other non-current liabilities

  44,231   44,202 

Total liabilities

  706,144   717,134 
         

Commitments and contingencies (Note 17)

          
         

Stockholders’ equity:

        

Common stock, €0.06 nominal value, 200,000,000 shares authorized, 114,109,774 and 113,389,911 shares issued and 110,537,436 and 110,029,694 shares outstanding

  8,102   8,062 

Treasury stock (at cost) 3,572,338 and 3,360,217 shares

  (68,792)  (64,697)

Additional paid-in capital

  1,914,353   1,909,323 

Accumulated other comprehensive income

  22,257   22,318 

Accumulated deficit

  (581,810)  (579,133)

Total stockholders’ equity

  1,294,110   1,295,873 

Total liabilities and stockholders’ equity

 $2,000,254  $2,013,007 

 

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

 

 

 

Expro Group Holdings N.V.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Cash flows from operating activities:

               

Net loss

  $ (2,677 )   $ (6,351 )

Adjustments to reconcile net loss to net cash provided by operating activities:

               

Depreciation and amortization expense

    40,146       34,737  

Equity in income of joint ventures

    (3,858 )     (2,436 )

Stock-based compensation expense

    5,070       4,171  

Elimination of unrealized (loss) gain on sales to joint ventures

    (741 )     39  

Changes in fair value of contingent consideration

    398       -  

Deferred taxes

    (1,071 )     (5,225 )

Unrealized foreign exchange

    660       (1,753 )

Changes in assets and liabilities:

               

Accounts receivable, net

    29,332       (5,761 )

Inventories

    (17,286 )     (2,380 )

Other assets

    (7,629 )     (11,320 )

Accounts payable and accrued liabilities

    (14,570 )     5,362  

Other liabilities

    2,755       11,306  

Income taxes, net

    1,391       3,929  

Other

    (1,982 )     (2,995 )

Net cash provided by operating activities

    29,938       21,323  
                 

Cash flows from investing activities:

               

Capital expenditures

    (30,739 )     (28,776 )

Payment for acquisition of business, net of cash acquired

    -       (7,536 )

Net cash used in investing activities

    (30,739 )     (36,312 )
                 

Cash flows from financing activities:

               

Release of (cash pledged for) collateral deposits, net

    650       (10 )

Proceeds from borrowings

    21,204       -  

Acquisition of common stock

    -       (10,011 )

Payment of withholding taxes on stock-based compensation plans

    (4,095 )     (2,954 )

Repayment of financed insurance premium

    (2,327 )     (2,899 )

Repayment of finance leases

    (541 )     (499 )

Net cash provided by (used in) financing activities

    14,891       (16,373 )
                 

Effect of exchange rate changes on cash and cash equivalents

    (2,722 )     (800 )

Net increase (decrease) to cash and cash equivalents and restricted cash

    11,368       (32,162 )

Cash and cash equivalents and restricted cash at beginning of period

    153,166       218,460  

Cash and cash equivalents and restricted cash at end of period

  $ 164,534     $ 186,298  

 

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

 

 

 

 

Expro Group Holdings N.V.

Condensed Consolidated Statements of Stockholders Equity (Unaudited)

(in thousands)

 

   

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

    108,744     $ 7,911     $ (40,870 )   $ 1,847,078     $ 27,549     $ (555,773 )   $ 1,285,895  

Net loss

    -       -       -       -       -       (6,351 )     (6,351 )

Other comprehensive loss

    -       -       -       -       (61 )     -       (61 )

Stock-based compensation expense

    -       -       -       4,171       -       -       4,171  

Common shares issued upon vesting of share-based awards

    582       32       -       566       -       -       598  

Treasury shares withheld

    (185 )     -       (3,556 )     -       -       -       (3,556 )

Acquisition of common stock

    (557 )     -       (10,011 )     -       -       -       (10,011 )

Balance at March 31, 2023

    108,584     $ 7,943     $ (54,437 )   $ 1,851,815     $ 27,488     $ (562,124 )   $ 1,270,685  

 

   

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

    110,030     $ 8,062     $ (64,697 )   $ 1,909,323     $ 22,318     $ (579,133 )   $ 1,295,873  

Net loss

    -       -       -       -       -       (2,677 )     (2,677 )

Other comprehensive loss

    -       -       -       -       (61 )     -       (61 )

Stock-based compensation expense

    -       -       -       5,070       -       -       5,070  

Common stock issued upon vesting of share-based awards

    719       40       -       (40 )     -       -       -  

Treasury shares withheld

    (212 )     -       (4,095 )     -       -       -       (4,095 )

Balance at March 31, 2024

    110,537     $ 8,102     $ (68,792 )   $ 1,914,353     $ 22,257     $ (581,810 )   $ 1,294,110  

 

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

 

 
5

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 

 

1.

Business description

 

With roots dating to 1938, Expro Group Holdings N.V. (the “Company,” “Expro,” “we,” “our” or “us”) is a global provider of energy services with operations in approximately 60 countries. The Company’s broad portfolio of products and services provides solutions to enhance production and improve recovery across the well lifecycle, from exploration through abandonment.

 

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 $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 Program during the three months ended March 31, 2024. During the three months ended March 31, 2023, the Company repurchased approximately 0.6 million shares at an average price of $17.99 per share, for a total cost of approximately $10.0 million

 

6

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 
 

2.

Basis of presentation and significant accounting policies

 

Basis of presentation

 

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

 

The accompanying condensed consolidated financial statements have not been audited by our independent registered public accounting firm. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim consolidated financial information. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 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 2Basis 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.

 

7

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 
 

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 $18.4 million, including final cash consideration paid of $9.9 million and contingent consideration which is estimated to be $8.5 million. 

 

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 $8.5 million was estimated by applying the income approach and is reflected in “Other liabilities” on the condensed consolidated balance sheets. That measure is based on significant inputs that are not observable in the market, referred to as Level 3 inputs in accordance with ASC 820. To the extent our estimates and assumptions changed during the measurement period and such changes are based on facts and circumstances that existed as of the DeltaTek Closing Date, an adjustment to the contingent consideration liability was recorded with an offsetting adjustment to goodwill. To the extent our estimates and assumptions change based on facts and circumstances subsequent to the measurement period, an adjustment to the contingent consideration liability would be recorded with an offsetting adjustment to earnings during the applicable period.

 

The DeltaTek Acquisition is accounted for 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

  $ 1,464     $ -     $ 1,464  

Accounts receivables, net

    723       -       723  

Inventories

    183       -       183  

Property, plant and equipment

    642       -       642  

Goodwill

    7,157       994       8,151  

Intangible assets

    11,063       2       11,065  

Other assets

    27       -       27  

Total assets

    21,259       996       22,255  
                         

Accounts payable and accrued liabilities

    245       2       247  

Deferred tax liabilities

    2,700       66       2,766  

Other liabilities

    831       (16 )     815  

Total Liabilities

    3,776       52       3,828  
                         

Fair value of net assets acquired

  $ 17,483     $ 944     $ 18,427  

 

8

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 

The preliminary valuation of the assets acquired and liabilities assumed, including other liabilities, in the DeltaTek Acquisition initially resulted in a goodwill of $7.2 million. During the third quarter of 2023, the Company finalized the valuation and recorded measurement period adjustments to its preliminary estimates due to additional information received primarily related to a customary purchase price adjustment. The measurement period adjustments resulted in an increase in goodwill of $1.0 million, for final total goodwill associated with the DeltaTek Acquisition of $8.2 million.

 

The fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either using the relief-from royalty method or the multi-period excess earnings method, which are discounted to approximate their current value. The estimated useful lives are based on 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 5 to 15 years life. We expect annual amortization to be approximately $1.0 million associated with these intangible assets. An associated deferred tax liability has been recorded in regards to these intangible assets. Refer to Note 14Intangible assets, net” for additional information regarding the various acquired intangible assets.

 

The goodwill consists largely of the synergies and economies of scale expected from the 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 $91.0 million, including cash consideration of $21.7 million, net of cash received, equity consideration of $40.9 million, and contingent consideration of $13.2 million, subject to a true-up for customary working capital adjustments. As of March 31, 2024 and December 31, 2023, the Company has accrued $1.5 million of the cash consideration related to standard holdback provisions, which is expected to be paid later in 2024.

 

The contingent consideration arrangement requires the Company to pay the former owners of PRT additional consideration based on PRT Offshore’s financial performance during the four quarters following closing. The fair value of the contingent consideration arrangement of $13.2 million was estimated by applying the income approach and is reflected in “Other current liabilities” on the condensed consolidated balance sheets. That measure is based on significant inputs that are not observable in the market, referred to as Level 3 inputs in accordance with ASC 820. To the extent our estimates and assumptions change during the measurement period and such changes are based on facts and circumstances that existed as of the PRT Closing Date, an adjustment to the contingent consideration liability would be recorded with an offsetting adjustment to goodwill. To the extent our estimates and assumptions change based on facts and circumstances subsequent to the PRT Closing Date or after the measurement period, an adjustment to the contingent consideration liability would be recorded with an offsetting adjustment to earnings during the applicable period.

 

9

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 

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

  $ 15,086  

Accounts receivables, net

    15,195  

Other current assets

    986  

Property, plant and equipment

    52,278  

Goodwill

    18,556  

Intangible assets

    33,940  

Operating lease right-of-use assets

    1,242  

Total assets

    137,283  
         

Accounts payable and accrued liabilities

    8,621  

Operating lease liabilities

    505  

Other current liabilities

    1,811  

Non-current operating lease liabilities

    678  

Long-term borrowings

    34,701  

Total liabilities

    46,316  
         

Fair value of net assets acquired

  $ 90,967  

 

Due to the recency of the PRT Acquisition, these amounts, including the estimated fair values, are based on preliminary calculations and subject to change as our fair value estimates and assumptions are finalized during the measurement period. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation table above. The fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either using the relief-from royalty method or the multi-period excess earnings method, which are 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 5 to 15 years life. We expect annual amortization to be approximately $3.3 million associated with these intangible assets. An associated deferred tax liability has been recorded in regards to these intangible assets. Refer to Note 14 “Intangible assets”, net for additional information regarding the various acquired intangible assets. 

 

The goodwill consists largely of the synergies and economies of scale expected from the acquired customer relationships and contracts. The goodwill is not subject to amortization but will be evaluated at least annually for impairment or more frequently if impairment indicators are present. 

 

The Company’s operating results for the three months ended March 31, 2024 include $14.6 million of revenue and $2.1 million of net income attributable to PRT.

 

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 $210.0 million subject to customary purchase price adjustments. The consideration to be paid at closing includes at least $75.0 million in cash and up to 6.8 million newly issued shares of the Company's common stock. The cash component of the consideration to be paid may be increased at the Company's election, and the notional value of any equity consideration will be unitized based on our thirty trading day volume weighted average price prior to closing, which is expected to occur in the second quarter of 2024.

 

10

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 

4.

Fair value measurements

 

Recurring Basis

 

A summary of financial assets and liabilities that are measured at fair value on a recurring basis, as of 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

  $ -     $ 9,179     $ -     $ 9,179  

Liabilities:

                               

Contingent consideration liabilities

    -       -       25,103       25,103  

Borrowings

    -       41,874       -       41,874  

Finance lease liabilities

    -       17,836       -       17,836  

 

   

December 31, 2023

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 

Assets:

                               

Non-current accounts receivable, net

  $ -     $ 9,768     $ -     $ 9,768  

Liabilities:

                               

Contingent consideration liabilities

    -       -       24,705       24,705  

Borrowings

    -       20,701       -       20,701  

Finance lease liabilities

    -       18,377       -       18,377  

 

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.”

 

11

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 

5.

Business segment reporting

 

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

 

 

North and Latin America (“NLA”),

 

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

 

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

 

Asia-Pacific (“APAC”).

 

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

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

NLA

  $ 130,389     $ 126,228  

ESSA

    121,746       113,648  

MENA

    71,494       50,945  

APAC

    59,860       48,458  

Total

  $ 383,489     $ 339,279  

 

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

  $ 34,377     $ 31,874  

ESSA

    25,201       20,785  

MENA

    24,538       14,568  

APAC

    10,786       (2,698 )

Total Segment EBITDA

    94,902       64,529  

Corporate costs

    (31,300 )     (25,081 )

Equity in income of joint ventures

    3,858       2,436  

Depreciation and amortization expense

    (40,146 )     (34,737 )

Merger and integration expense

    (2,161 )     (2,138 )

Severance and other expense

    (5,062 )     (927 )

Stock-based compensation expense

    (5,070 )     (4,171 )

Foreign exchange (loss) gain

    (2,743 )     1,070  

Other income (expense), net

    485       (949 )

Interest and finance expense, net

    (3,152 )     (1,298 )

Income (loss) before income taxes

  $ 9,611     $ (1,266 )

 

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.

 

12

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 

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

  $ 120,030     $ 128,265  

Well management

    263,459       211,014  

Total

  $ 383,489     $ 339,279  

 

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

  $ 295,083     $ 222,591  

Unbilled receivables (included within accounts receivable, net)

  $ 136,417     $ 203,689  

Contract assets (included within accounts receivable, net)

  $ 16,620     $ 52,607  

Deferred revenue (included within other liabilities)

  $ 28,016     $ 27,206  

 

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 $5.9 million and $25.2 million for the three months ended  March 31, 2024 and 2023, respectively, out of the deferred revenue balance as of the beginning of the applicable year.

 

As of March 31, 2024, $26.6 million of our deferred revenue was classified as current and is included in “Other current liabilities” on the condensed consolidated balance sheets, with the remainder classified as non-current and included in “Other non-current liabilities” on the condensed consolidated balance sheets.

 

Transaction price allocated to remaining performance obligations

 

Remaining performance obligations represent firm contracts for which work has not been performed 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 $10.9 million.

 

13

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 
 

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 213.6% and (137.4)% for the three months ended March 31, 2024, and 2023 respectively.

 

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 50% equity interest, has extensive offshore well testing and completions capabilities and a reputation for providing technology-driven solutions in China. Similarly, PV Drilling Expro International Co. Ltd. (“PVD-Expro”) in which we have a 49% equity interest, offers the full suite of Expro products and services, including well testing and completions, in Vietnam. Both of these are strategic to our activities and offer the full capabilities and technology of Expro, but each company is independently managed.

 

The carrying value of our investment in joint ventures as of March 31, 2024, and December 31, 2023, was as follows (in thousands):

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 

CETS

  $ 67,343     $ 62,704  

PVD-Expro

    3,658       3,698  

Total

  $ 71,001     $ 66,402  

 

14

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 
 

9.

Accounts receivable, net

 

Accounts receivable, net consisted of the following as of March 31, 2024, and December 31, 2023 (in thousands):

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 

Accounts receivable

  $ 467,242     $ 497,135  

Less: Expected credit losses

    (19,122 )     (18,248 )

Total

  $ 448,120     $ 478,887  
                 

Current

    438,941       469,119  

Non – current

    9,179       9,768  

Total

  $ 448,120     $ 478,887  

 

 

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

  $ 16,122     $ 25,854  

Raw materials, equipment spares and consumables

    119,281       99,011  

Work-in-progress

    28,922       18,460  

Total

  $ 164,325     $ 143,325  

 

 

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

  $ 31,473       28,725  

Value-added tax receivables

    24,668       20,622  

Collateral deposits

    1,239       1,886  

Deposits

    8,986       8,912  

Other

    11,326       10,566  

Total

  $ 77,692     $ 70,711  
                 

Current

    65,628       58,409  

Non – current

    12,064       12,302  

Total

  $ 77,692     $ 70,711  

 

15

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 

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

  $ 28,016     $ 27,206  

Other tax and social security

    32,488       34,004  

Provisions

    37,628       38,576  

Contingent consideration liabilities

    25,103       24,705  

Other

    21,106       17,855  

Total

  $ 144,341     $ 142,346  
                 

Current

    100,110       98,144  

Non – current

    44,231       44,202  

Total

  $ 144,341     $ 142,346  

 

 

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

  $ 146,192     $ 146,759  

Payroll, vacation and other employee benefits

    32,030       43,924  

Accruals for goods received not invoiced

    11,154       22,921  

Other accrued liabilities

    109,718       112,521  

Total

  $ 299,094     $ 326,125  

 

16

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 
 

13.

Property, plant and equipment, net

 

Property, plant and equipment, net consisted of the following as of March 31, 2024, and December 31, 2023 (in thousands):

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 

Cost:

               

Land

  $ 22,176     $ 22,176  

Land improvements

    3,332       3,332  

Buildings and lease hold improvements

    101,642       100,404  

Plant and equipment

    986,348       971,178  
      1,113,498       1,097,090  

Less: accumulated depreciation

    (613,167 )     (583,868 )

Total

  $ 500,331     $ 513,222  

 

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

  $ 23,859     $ 23,859  

Plant and equipment

    589       589  

Total

    24,448       24,448  

Less: accumulated amortization

    (10,868 )     (10,315 )

Total

  $ 13,580     $ 14,133  

 

Depreciation expense relating to property, plant and equipment, including assets under finance leases, was $29.6 million and $25.5 million for the three months ended March 31, 2024, and 2023, respectively.

 

17

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 
 

14.

Intangible assets, net

 

The following table summarizes our intangible assets comprising of Customer Relationships & Contracts (“CR&C”), Trademarks, Technology and Software as of 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

  $ 256,835     $ (145,125 )   $ 111,710     $ 256,835     $ (139,302 )   $ 117,533       5.8  

Trademarks

    58,977       (38,457 )     20,520       58,977       (36,578 )     22,399       6.2  

Technology

    179,154       (84,151 )     95,003       179,154       (82,266 )     96,888       10.9  

Software

    15,634       (13,293 )     2,341       15,248       (12,352 )     2,896       0.6  

Total

  $ 510,600     $ (281,026 )   $ 229,574     $ 510,214     $ (270,498 )   $ 239,716       7.9  

 

Amortization expense for intangible assets was $10.5 million and $9.2 million for the three months ended March 31, 2024 and 2023, respectively. 

 

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

  $ 2,571       6.0  

Trademarks

    257       5.0  

Technology

    8,237       15.0  

Total

  $ 11,065       12.7  
                 

PRT:

               

CR&C

  $ 32,048       10.0  

Trademarks

    1,627       4.0  

Technology

    265       15.0  

Total

  $ 33,940       9.8  

 

 

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

  $ 139,512     $ 139,512  

ESSA

    83,319       83,319  

MENA

    5,441       5,441  

APAC

    19,415       19,415  

Total

  $ 247,687     $ 247,687  

 

18

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 

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

  $ 2,445     $ 18,556  

ESSA

    3,261       -  

MENA

    1,223       -  

APAC

    1,222       -  

Total

  $ 8,151     $ 18,556  

 

As of March 31, 2024, we did not identify any triggering events that would represent an indicator of impairment of our goodwill. Accordingly, no impairment charges related to goodwill have been recorded during the three months ended March 31, 2024.

 

 

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 $250.0 million, of which $166.7 million was available for drawdowns as loans and $83.3 million was available for letters of credit. The Company has the ability to increase the commitments to $350.0 million.

 

Borrowings under the Amended and Restated Facility Agreement bear interest at a rate per annum of Term SOFR (as defined in the Amended and Restated Facility Agreement), subject to a 0.00% floor, plus an applicable margin of 3.75% (which is subject to a margin ratchet which reduces the margin in 4 step downs according to the Total Net Leverage Ratio (as defined in the Amended and Restated Facility Agreement)) for cash borrowings or 2.50% for letters of credit (which are similarly subject to a margin ratchet which reduces the margin in 4 step downs according to the Total Net Leverage Ratio). A 0.40% per annum fronting fee applies to letters of credit, and an additional 0.25% or 0.50% per annum utilization fee is payable on cash borrowings to the extent one-third or two-thirds, respectively, or more of Facility A (as defined in the Amended and Restated Facility Agreement) commitments are drawn. The unused portion of the Amended and Restated Facility Agreement is subject to a commitment fee of 35% per annum of the applicable margin.

 

The Amended and Restated Facility Agreement retains various undertakings and affirmative and negative covenants (with certain agreed amendments) which limit, subject to certain customary exceptions and thresholds, the Company and its subsidiaries’ ability to, among other things, (1) enter into asset sales; (2) incur additional indebtedness; (3) make investments, acquisitions, or loans and create or incur liens; (4) pay certain dividends or make other distributions and (5) engage in transactions with affiliates. The Amended and Restated Facility Agreement amends certain of the financial covenants such that the Company is required to maintain (i) a minimum interest cover ratio of 4.0 to 1.0 based on the ratio of EBITDA to net finance charges and (ii) a maximum total net leverage ratio of 2.50 to 1.0 based on the ratio of total net debt to EBITDA, in each case tested quarterly on a last-twelve-months basis, subject to certain exceptions. We are in compliance with all our debt covenants as of  March 31, 2024.

 

As of  March 31, 2024, we had $40.0 million of borrowings outstanding under the Amended and Restated Facility Agreement. The effective interest rate on our outstanding borrowings was 7.6%. As of December 31, 2023, we had $20.0 million of borrowings outstanding. We utilized $44.6 million and $50.4 million as of  March 31, 2024 and December 31, 2023, respectively, for bonds and guarantees.

 

 

19

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 
 

17.

Commitments and contingencies

 

Commercial Commitments

 

During the normal course of business, we enter into commercial commitments in the form of letters of credit and bank guarantees to provide financial and performance assurance to third parties. We entered into contractual commitments for the acquisition of property, plant and equipment totaling $33.5 million and $36.7 million as of  March 31, 2024 and December 31, 2023, respectively.

 

Contingencies

 

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

 

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

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. We are the subject of lawsuits and claims arising in the ordinary course of business from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. We had no material accruals for loss contingencies, individually or in the aggregate, as of 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 $8.0 million and, accordingly, we had recorded a loss contingency in that amount within “Other current liabilities” on our condensed consolidated balance sheet, with the offset taken as an increase to goodwill as a measurement period adjustment associated with our 2021 business combination with Expro Group Holdings International Limited ( the “Merger”).

 

On April 26, 2023, the SEC issued a cease-and-desist order against the Company pursuant to section 21C of the Securities Exchange Act of 1934 (“Exchange Act”). Under this Order, the Company neither admitted nor denied any of the SEC’s findings and agreed to cease and desist from committing or causing any violations and any future violations of the anti-bribery, books and records and internal accounting controls requirements of the FCPA and the Exchange Act. In accepting the Company’s settlement offer, the SEC noted the Company’s self-reporting, co-operation afforded to the SEC staff and remedial action including improving the Company’s internal controls and further enhancements to its internal controls environment and compliance program following the Merger. The Company paid $8.0 million to the SEC in respect of disgorgement, prejudgment interest and civil penalty during the second quarter of 2023.

 

Other than discussed above, we had no other material legal accruals for loss contingencies, individually or in the aggregate, as of  March 31, 2024 and December 31, 2023.

 

20

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 
 

18.

Post-retirement benefits

 

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

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Amortization of prior service credit

  $ 61     $ 61  

Interest cost

    (1,604 )     (1,533 )

Expected return on plan assets

    1,926       986  

Total

  $ 383     $ (486 )

 

The Company contributed $1.3 million and $1.2 million for the three months ended March 31, 2024 and 2023, respectively, to defined benefit schemes.

 

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

 

 

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

  $ (2,677 )   $ (6,351 )

Basic and diluted weighted average number of shares outstanding

    110,176,460       108,854,709  
                 

Total basic and diluted loss per share

  $ (0.02 )   $ (0.06 )

 

Approximately 0.8 million and 0.7 million shares of unvested restricted stock units and stock to be issued pursuant to the ESPP have been excluded from the computation of diluted loss per share as the effect would be anti-dilutive for the three months ended March 31, 2024 and 2023 respectively.

 

21

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 
 

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 $4.3 million and $2.1 million, respectively. During the three months ended March 31, 2024 and 2023 we received material goods and services from related parties totaling $0.1 million and $0.4 million, respectively. 

 

Additionally, we entered into various operating lease agreements to lease facilities with affiliated companies. Rent expense associated with our related party leases was $0.1 million and $0.1 million, respectively, for the three months ended  March 31, 2024 and 2023. 

 

As of  March 31, 2024 and December 31, 2023 amounts receivable from related parties were $4.1 million and $2.7 million, respectively, and amounts payable to related parties were $0.6 million and $1.2 million, respectively.

 

As of March 31, 2024, $0.5 million of our operating lease right-of-use assets and $0.5 million of our lease liabilities were associated with related party leases. As of December 31, 2023, $0.6 million of our operating lease right-of-use assets and $0.6 million of our lease liabilities were associated with related party leases.

 

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 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Frank’s actually realized (or were deemed to be realized in certain circumstances) in periods after the IPO as a result of (i) tax basis increases resulting from the Conversion and (ii) imputed interest deemed to be paid by Frank’s as a result of, and additional tax basis arising from, payments under the Original TRA. Frank’s retained the benefit of the remaining 15% of these cash savings, if any.

 

In connection with the merger agreement 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 $15 million to settle the early termination payment obligations that would otherwise have been owed to Mosing Holdings under the Original TRA as a result of the Merger. As the payment was a condition precedent to effect the Merger, it was included in the determination of Merger consideration exchanged. The A&R TRA also provides for other contingent payments to be made by the Company to Mosing Holdings in the future in the event the Company realizes cash tax savings from tax attributes covered under the Original TRA during the ten-year period following October 1, 2021 in excess of $18.1 million.

 

22

Expro Group Holdings N.V.
Notes to Unaudited Condensed Consolidated Financial Statements
 

 

 

21.

Stock-based compensation

 

The Company recognized no stock-based compensation expense attributable to the Management Incentive Plan (“MIP”) stock options during the three months ended March 31, 2024. The Company recognized expense of $0.5 million attributable to the MIP stock options during the three months ended March 31, 2023

 

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 $4.9 million. Stock-based compensation expense relating to LTIP RSUs and PRSUs for the three months ended  March 31, 2023 was $3.6 million.

 

During the three months ended March 31, 2024, 1,002,359 RSUs and 308,412 PRSUs were granted to employees and directors at a weighted average grant date fair value of $19.45 per RSU and $26.00 per PRSU.

 

During the three months ended  March 31, 2024 we recognized $0.2 million of compensation expense related to stock purchased under the ESPP. The Company recognized ESPP expense for the three months ended  March 31, 2023 of $0.1 million.

 

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

 $11,956  $6,381 

Cash paid for interest, net

 $2,910  $966 

Change in accounts payable and accrued expenses related to capital expenditures

 $9,922  $3,551 

 

 

23

 

 

 

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

 

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

 

This section contains forward-looking statements that are based on managements 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 first quarter of 2024 has seen continued investment and activity growth as a result of stabilizing and strengthening commodity prices. Heightened tensions resulting from ongoing conflicts in Europe and the Middle East remains a source of uncertainty and volatility for energy and energy services market. There are a number of market factors that have had, and may continue to have, an effect on our business, including:

 

 

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

 

 

Average daily oil demand in the 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.