# EXPRO GROUP HOLDINGS N.V. (XPRO) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from EXPRO GROUP HOLDINGS N.V.'s 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1575828/000143774922005566/fi20211231_10k.htm Accession: 0001437749-22-005566 Filing date: 2022-03-08 Report date: 2021-12-31 Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization. Confidence: high Company profile: /company/XPRO/ All MD&A years: /company/XPRO/mda/ Next year: /company/XPRO/mda/fy2022/ (FY 2022) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data” included in this Form 10-K. 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,” Part I, Item 1A, “Risk Factors” and elsewhere in this Form 10-K. Unless otherwise indicated, references to the terms “Frank’s” refers to Frank’s International N.V., the predecessor reporting entity prior to the Merger, references to “Legacy Expro” refer to Expro Group Holdings International Limited, the entity acquired by the Company, and references to “Expro,” the “Company,” “we,” “our,” and “us” refer to Expro Group Holdings N.V., following the consummation of the Merger and unless the context otherwise required, Frank’s prior to the consummation of the Merger. Overview of Business Working for clients across the entire well life cycle, we are a leading provider of energy services, offering cost-effective, innovative solutions and what we consider to be best-in-class safety and service quality. The Company’s extensive portfolio of capabilities spans well construction, well flow management, subsea well access, and well intervention and integrity solutions. With roots dating to 1938, we have approximately 7,200 employees and provide services and solutions to leading exploration and production companies in both onshore and offshore environments in approximately 60 countries with over 100 locations. Our broad portfolio of products and services are designed to enhance production and improve recovery across the well lifecycle from exploration through abandonment, including: [[GREPCENT_TABLE]] [["","Well Construction"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Our well construction products and services support customers\u2019 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."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","Well Management"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","Our well management offerings consist of well flow management, subsea well access and well intervention and integrity services:"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","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."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Subsea well access: With over 35 years of experience providing a wide range of fit-for-purpose subsea well access solutions, our technology aims to ensure safe well access and optimized production throughout the lifecycle of the well. We provide what we believe to be the most reliable, efficient and cost-effective subsea well access systems for exploration and appraisal, development, intervention and abandonment, including an extensive portfolio of standard and bespoke Subsea Test Tree Assemblies, a rig-deployed Intervention Riser System and a vessel-deployed, wire through water Riserless Well Intervention System. We also provide systems integration and project management services."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Well intervention and integrity: We provide well intervention solutions to capture well data, ensure well bore integrity and improve production. In addition to our extensive fleet of mechanical and cased hole wireline units, we have recently introduced a number of cost-effective, innovative well intervention services, including CoilHose\u2122, a lightweight, small-footprint solution for wellbore lifting, cleaning and chemical treatments; Octopoda\u2122, for fluid treatments in wellbore annuli; and Galea\u2122, 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."]] [[/GREPCENT_TABLE]] 34 Table of Contents We operate a global business and have a diverse and stable customer base that is comprised of national oil companies (“NOC”), international oil companies (“IOC”), independent exploration and production companies (“Independents”) and service partners. We have strong relationships with a number of the world’s largest NOCs and IOCs, some of which have been our customers for decades. We are dedicated to safely and sustainably delivering maximum value to our customers. We organize and manage our operations on a geographical basis. Our reporting structure and the key financial information used by our management team is organized around our four operating segments: (i) NLA, (ii) ESSA, (iii) MENA and (iv) APAC. How We Generate Our Revenue Our revenue is derived primarily from providing services in well construction, well flow management, subsea well access and well intervention and integrity services to operators globally. Our revenue includes equipment service charges, personnel charges, run charges and consumables. Some of our contracts allow us to charge for additional deliverables, such as the costs of mobilization of people and equipment and customer specific engineering costs associated with a project. We also procure products and services on behalf of our customers that are provided by third parties for which we are reimbursed with a mark-up or in connection with an integrated services contract. We also design, manufacture and sell equipment, which is typically done in connection with a related operations and maintenance arrangement with a particular customer. In addition, we also generate revenue from the sale of certain well construction products. For the year ended December 31, 2021, approximately 71% of our revenue was generated by activities related to offshore oil and gas operations and approximately 41% of our revenue was generated by production optimization activities, which are generally funded by customers’ operating expenditures rather than capital expenditures. Market Conditions and Price of Oil and Gas As a full-cycle energy services company, our services span the full life of an oil and gas field from appraisal, development, completion and production through eventual abandonment. While 2021 presented challenges due to ongoing COVID-19 constraints, the market showed positive signs of recovery beginning in late 2021 and continuing into the first quarter of 2022. There are a number of market factors that have had, and may continue to have, an effect on our business, including: [[GREPCENT_TABLE]] [["","\u2022","The market for oilfield services and our business are substantially dependent on the condition of the oil and gas industry and, in particular, the willingness of oil and gas companies to make expenditures on exploration, drilling and production activities."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Oil demand in 2022 is forecast to exceed 2021 as the overall economic backdrop improves through the COVID-19 pandemic recovery with liquid demand expected to grow by 3.6 million barrels per day (\u201cb/d\u201d) in 2022, up from 96.9 million b/d in 2021 (which would surpass 2019 levels), rising by an additional 1.8 million b/d in 2023 to 102.3 million b/d. Due to production curtailments by OPEC+ members, investment restraint from U.S. oil producers, and other supply disruptions during the COVID-19 pandemic, oil demand has outpaced production for over a year. Following reaffirmation from OPEC+ members to increase production again, the Energy Information Administration (\u201cEIA\u201d) forecast that global oil production will outpace demand during both 2022 and 2023, resulting in rising global oil inventories and downward pressures on oil prices. However, the impact of new variants of COVID-19 on economic activity is unknown, and uncertainty remains in the global oil markets."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Despite the multi-year underinvestment in new reserves, we expect that operators will continue to exercise fiscal discipline in the near-term and continue to exercise caution around potential new COVID-19 variants impact on activities. As a result, we and other oilfield services companies have limited visibility on customer spending plans for 2022 and the timing of an expected further increase in activity levels."]] [[/GREPCENT_TABLE]] 35 Table of Contents [[GREPCENT_TABLE]] [["","\u2022","In addition, increases in activity are not expected to be uniform across regions or type of activity, at least in the early stages of a market recovery, although international and deepwater activity is expected to continue to improve throughout 2022. We expect that the demand for services related to brownfield and production enhancement and in field development will also show increased demand."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Although the clean energy transition has continued to gain momentum, it is expected that hydrocarbons will play a vital role in the transition towards more sustainable energy resources. The existing expertise and future innovation within the oilfield services sector, both to reduce the emissions and enhance efficiency within the current industry and the new industries, will be critical. We are already active in the early-stage carbon capture and storage sector and have established operations and technologies within the geothermal and flare reduction and gas recovery segments. We continue to develop technologies to reduce the greenhouse gas impact of our customers\u2019 operations which, along with our digital transformation initiatives, are expected to enable us to continue to support our customers\u2019 efficiency and environmental initiatives. As the industry changes, we plan to continue to evolve our approach to adapt and help our customers address the energy transition."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Increased expectations of host countries in regard to local content is another multi-year trend, which gained additional momentum during recent years. Our commitment to developing local capabilities and in-country personnel has reduced our dependence on international staff, which has also allowed us to mitigate some of the operational challenges associated with travel restrictions related to the COVID-19 pandemic. These efforts have enabled us to continue to service our customers in their ongoing operations throughout the pandemic."]] [[/GREPCENT_TABLE]] A major factor that affects our business activity is the price of oil and, to a lesser extent, the regional price of natural gas, which are both driven by market supply and demand. Changes in oil and gas prices impact our customers' spending on exploration and appraisal, development, production and abandonment activities. The extent of the impact of a change in oil and gas prices on these activities varies extensively between geographic regions, types of customers, types of activities and the financial returns of individual projects. In response to this uncertain industry outlook, we continue to evaluate additional cost saving opportunities in order to reduce service delivery costs, increase productivity and improve profitability; however, our commitment to safety, service quality and innovation remains steadfast. Outlook Demand continues to improve with stabilizing Brent oil prices, and activity in 2022 is forecast to be higher than in 2021, with oil demand forecast to return to or exceed pre-pandemic levels before year end. As discussed above, the EIA estimates that global liquid fuels consumption will grow to 100.5 million b/d in 2022, up from 96.9 million b/d in 2021 (which would surpass 2019 levels), rising to 102.3 million b/d in 2023. Counterbalancing consumption growth, the EIA expect continuing production increases from OPEC (2.5 million b/d) and an acceleration in U.S. crude oil production in 2022 (rising from 11.2 million b/d in 2021 to 11.8 million b/d in 2022 and 12.4 million b/d in 2023, the highest annual average U.S. crude oil production on record) that along with other supply increases, is expected to outpace global oil consumption growth and contribute to declining oil prices in the mid-term. As a result, the EIA forecasts Brent crude oil spot prices to average $75 per barrel in 2022 and $68 per barrel in 2023 compared to an average $71 per barrel in 2021. In addition to the stabilized oil market outlook, global natural gas demand is continuing its recovery due to a combination of rising economic activity, lower inventory in storage, recent extreme weather events and a predicted long winter in Europe. The EIA expects Henry Hub spot prices will average $3.82/Metric Million British Thermal Unit (“MMBtu”) in the first quarter of 2022 and average $3.79/MMBtu for all of 2022 and $3.63/MMBtu in 2023 as U.S. dry gas production recovers. Rystad forecasts the European and Asian liquefied natural gas spot price to average $16.70 and $18.60 in 2022, respectively, maintaining the higher rates achieved in 2021 with slight downward pricing pressure in 2023 as liquefied natural gas production ramps up. 36 Table of Contents The outlook for 2022 indicates a continuing modest recovery in exploration and production expenditures, albeit at different rates in individual countries depending on a range of factors, including increasing crude production offset by a slower rate of demand growth with slower jet fuel recovery and uncertainty regarding COVID-19 and the impact of any new variants or a resurgence over the winter period. We expect demand for our services and solutions to trend positively throughout 2022. The following provides an outlook for 2022 by our reporting segments based on data from Spears and Associates, Inc. NLA: In North America, activity is projected to increase in 2022 by 23% in drilling and 10% in hydraulic fracturing activity. Operator focus remains on capital discipline, although with further drilled but uncompleted drawdowns becoming limited, new well drilling will need to continue increasing in order to maintain output. In Latin America, drilling activity is now forecast to increase 20% in 2022, driven mainly by increased activity in Guyana, Suriname and Argentina. ESSA: In Europe, drilling activity is projected to rise in 2022 by 2%, with an average of 82 active rigs and approximately 725 new wells. Onshore and offshore activity are both projected to increase by 2% in 2022. In Sub-Saharan Africa, drilling activity is forecasted to increase by 17% overall, to an average of 109 active rigs in 2022, following the resumption of activity in the fourth quarter of 2021 and the progression of further development programs for a number of large offshore projects. MENA: In the Middle East and North Africa, drilling activity is projected to rise by 10% in 2022, to an average of 271 active rigs, as Iraq plans to increase their production capacity and Saudi Arabia responds to increased demand for its oil. The increased focus on infield development and production optimization and enhancement projects to maintain production rates continues, with future expansion of carbon capture and storage projects, for example in the UAE, also adding to a growing future activity outlook. APAC: In Asia Pacific, drilling activity is projected to increase by 12%, to 179 active rigs, including an increase offshore following weaker activity in 2021, especially in India where future deepwater exploration is now forecast to increase driven by the government’s ambition to reduce dependence on oil imports. Activity is driven by both new projects and expansion of existing developments through production optimization in Australia, Malaysia, Indonesia and Thailand. Indonesia and Malaysia are also progressing plans for carbon capture and storage projects. How We Evaluate Our Operations We use a number of financial and operational measures to routinely analyze and evaluate the performance of our business, including Revenue, Adjusted EBITDA, Adjusted Cash Flow from Operations and Cash Conversion. Revenue: We analyze our performance by comparing actual monthly revenue by operating segments and areas of capabilities to our internal projections for each month. Our revenue is primarily derived from well construction, well flow management, subsea well access and well intervention and integrity solutions. Adjusted EBITDA: We regularly evaluate our financial performance using Adjusted EBITDA. Our management believes Adjusted EBITDA is a useful financial performance measure as it excludes non-cash charges and other transactions not related to our core operating activities and allows more meaningful analysis of the trends and performance of our core operations. Adjusted Cash Flow from Operations: We regularly evaluate our operating cash flow performance using Adjusted Cash Flow from Operations. Our management believes Adjusted Cash Flow from Operations is a useful tool to measure the operating cash performance of the Company as it excludes exceptional payments, interest payments and non-cash charges not related to our core operating activities and allows more meaningful analysis of the trends and performance of our core operations. Cash Conversion: We regularly evaluate our efficiency of generating cash from operations using Cash Conversion which provides a useful tool to measure Adjusted Cash Flow from Operations as a percentage of Adjusted EBITDA. Adjusted EBITDA, Adjusted Cash Flow from Operations and Cash Conversion are non-GAAP financial measures. Please refer to the section titled “Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable financial performance measure calculated and presented in accordance with GAAP and a reconciliation of Adjusted Cash Flow from Operations to net cash provided by operating activities, the most directly comparable liquidity measure calculated and presented in accordance with GAAP. 37 Table of Contents Executive Overview Year ended December 31, 2021 compared to year ended December 31, 2020 Certain highlights of our financial results and other key developments include: [[GREPCENT_TABLE]] [["","\u2022","On October 1, 2021, the Company completed the Merger with Legacy Expro. Refer to Note 3 \u201cBusiness combinations and dispositions\u201d of our consolidated financial statements for more details."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Revenue for the year ended December 31, 2021 increased by $150.8 million, or 22.3%, to $825.8 million, compared to $675.0 million for the year ended December 31, 2020. Of the total increase of $150.8 million for the year ended December 31, 2021, $112.1 million is related to the Merger, and the balance of the increase was driven by higher activity across NLA, ESSA and APAC, partially offset by a reduction in activity in the MENA segment. Revenue for our segments is discussed separately below under the heading \u201cOperating Segment Results\u201d."],["","\u2022","We reported a net loss for the year ended December 31, 2021 of $131.9 million, compared to a net loss of $307.0 million for the year ended December 31, 2020. The overall decrease in net loss was primarily due to a combination of asset impairments totaling $287.5 million recognized during the year ended December 31, 2020, partially offset by the Merger which resulted in higher Merger and Integration expense of $46.0 million, higher stock-based compensation expense of $54.2 million and higher income tax expense of $19.7 million during the year ended December 31, 2021."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Adjusted EBITDA for the year ended December 31, 2021 increased by $25.8 million, or 25.7%, to $125.9 million from $100.2 million for the year ended December 31, 2020. Of the total increase of $25.8 million for the year ended December 31, 2021, $17.3 million is due to the Merger and the remaining increase of $8.5 million is attributable to higher activity during the year ended December 31, 2021. Adjusted EBITDA margin improved from 14.8% to 15.3% during the year ended December 31, 2021 compared to the year ended December 31, 2020."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Net cash provided by operating activities for the year ended December 31, 2021 was $16.1 million, compared to $70.4 million for the year ended December 31, 2020."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Adjusted Cash Flow from Operations and Cash Conversion for the year ended December 31, 2021 was $65.3 million and 51.9%, respectively, compared to $88.6 million and 88.5%, respectively, for the year ended December 31, 2020."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","In connection with the Merger, we entered into a new revolving credit facility (\u201cNew Facility\u201d) with an aggregate commitment of $200.0 million with up to $130.0 million available for drawdowns as loans and up to $70.0 million for bonds and guarantees. The New Facility has substantially the same conditions as Legacy Expro\u2019s revolving credit facility and matures in October 2024. Please refer to the section titled \u201cLiquidity and Capital Resources\u201d for further discussion on our debt facilities."]] [[/GREPCENT_TABLE]] 38 Table of Contents Selected Unaudited Financial Information for the Three Months Ended December 31, 2021 Unaudited segment revenue and Segment EBITDA for the three months ended December 31, 2021, which includes the results of Legacy Expro and Frank’s, was as follows: [[GREPCENT_TABLE]] [["","","Three Months Ended December 31,"],["(in thousands)","","2021"],["Revenue:"],["NLA","","$","100,394","","","","34","%"],["ESSA","","","94,322","","","","32","%"],["MENA","","","49,464","","","","17","%"],["APAC","","","51,489","","","","17","%"],["Total Revenue","","$","295,669","","","","100","%"],["Segment EBITDA:"],["NLA","","$","21,162","","","","31","%"],["ESSA","","","19,859","","","","28","%"],["MENA","","","16,076","","","","23","%"],["APAC","","","12,206","","","","18","%"],["","","","69,303","","","","100","%"]] [[/GREPCENT_TABLE]] Unaudited revenue by main area of capability for the three months ended December 31, 2021, which includes the results of Legacy Expro and Frank’s, was as follows: [[GREPCENT_TABLE]] [["","","Three Months Ended December 31,"],["(in thousands)","","2021"],["Well construction","","$","112,126","","","","38","%"],["Well management","","","183,543","","","","62","%"],["Total Revenue","","$","295,669","","","","100","%"]] [[/GREPCENT_TABLE]] 39 Table of Contents Year ended December 31, 2020 compared to year ended December 31, 2019 Certain highlights of our financial results, which only reflect results of Legacy Expro, and other key developments include: [[GREPCENT_TABLE]] [["","\u2022","Revenue for the year ended December 31, 2020 decreased by $135.0 million, or 16.7%, to $675.0 million from $810.1 million for the year ended December 31, 2019. The decrease was driven by lower activity across all of our product and service offerings in all of our reporting segments other than the APAC segment due to a combination of factors, including a substantial decline in global demand for oil caused by the COVID-19 pandemic and disagreements between the members of OPEC+ regarding limits on production of oil, resulting in surplus supply and a material reduction in crude prices. Other effects of the COVID-19 pandemic have included, and may continue to include, disruptions to our operations, including suspension or deferral of drilling activities; customer shutdowns of oil and gas exploration and production; downward revisions to customer budgets and reduced customer demand for our services; and workforce reductions in response to activity declines. Revenue for our segments is discussed separately below under the heading \u201cOperating Segment Results.\u201d"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","We reported a net loss for the year ended December 31, 2020 of $307.0 million, compared to a net loss of $64.8 million for the year ended December 31, 2019. The increase in net loss was primarily driven by lower activity across all of our product and service offerings as discussed above and significant asset impairments recognized during the year ended December 31, 2020."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Adjusted EBITDA for the year ended December 31, 2020 decreased by $17.1 million, or 14.6%, to $100.2 million from $117.3 million for the year ended December 31, 2019, reflecting a reduction in overall activity in the oilfield services industry during 2020. However, Adjusted EBITDA margin increased from 14.5% to 14.8% during the year ended December 31, 2020 compared to the year ended December 31, 2019. The improvement in Adjusted EBITDA margin is primarily due to various initiatives undertaken during 2020 in response to the COVID-19 pandemic to structurally adjust Expro\u2019s cost base in order to improve longer-term profitability and performance."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Net cash provided by operating activities for the year ended December 31, 2020 was $70.4 million, compared to $81.2 million for the year ended December 31, 2019."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Adjusted Cash Flow from Operations and Cash Conversion for the year ended December 31, 2020 was $88.6 million and 88.5%, respectively, compared to $86.5 million and 73.7%, respectively, for the year ended December 31, 2019."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","Severance and other expense for the year ended December 31, 2020 increased by 213.5% to $13.9 million as compared to $4.4 million for the year ended December 31, 2019. The increase was primarily driven by activities undertaken to restructure and resize our business in response to reduced activity levels due to COVID-19 and other economic conditions in the oil and gas industry, primarily consisting of headcount reductions and the cost of exiting certain facilities."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u2022","We recorded significant asset impairments during the year ended December 31, 2020. We tested our goodwill and other long-lived assets for impairment as of the quarter ended March 31, 2020 due to the macro-economic uncertainty that was experienced beginning in March 2020 from a combination of factors, including COVID-19, which resulted in asset impairments as of March 31, 2020 totaling approximately $191.9 million relating to our goodwill and $83.7 million relating to our property, plant and equipment, intangible assets and operating lease right-of-use assets. Additionally, at year end, we recorded an impairment charge of $11.9 million relating to our property, plant and equipment and operating lease right-of-use assets."]] [[/GREPCENT_TABLE]] 40 Table of Contents Non-GAAP Financial Measures We include in this Form 10-K the non-GAAP financial measures Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Cash Flow from Operations and Cash Conversion. We provide reconciliations of net loss, the most directly comparable financial performance measure calculated and presented in accordance with GAAP, to Adjusted EBITDA. We also provide a reconciliation of Adjusted Cash Flow from Operations to net cash provided by operating activities, the most directly comparable liquidity measure calculated and presented in accordance with GAAP. Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Cash Flow from Operations and Cash Conversion are used as supplemental financial measures by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others. These non-GAAP financial measures allow our management and others to assess our financial and operating performance as compared to those of other companies in our industry, without regard to the effects of our capital structure, asset base, items outside the control of management and other charges outside the normal course of business. We define Adjusted EBITDA as net loss adjusted for (a) income tax expense (benefit), (b) depreciation and amortization expense, (c) impairment expense, (d) severance and other expense, net, (e) stock-based compensation expense, (f) merger and integration expense, (g) gain on disposal of assets, (h) other income, net, (i) interest and finance expense, net and (j) foreign exchange losses. Adjusted EBITDA margin reflects our Adjusted EBITDA as a percentage of revenues. We define Adjusted Cash Flow from Operations as net cash provided by operating activities adjusted for cash paid during the period for interest, net, severance and other expense and merger and integration expense. We define Cash Conversion as Adjusted Cash Flow from Operations divided by Adjusted EBITDA. Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Cash Flow from Operations and Cash Conversion have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. As Adjusted EBITDA, Adjusted Cash Flow from Operations and Cash Conversion may be defined differently by other companies in our industry, our presentation of Adjusted EBITDA, Adjusted Cash Flow from Operations and Cash Conversion may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. 41 Table of Contents The following table presents a reconciliation of net loss to Adjusted EBITDA for each of the periods presented (in thousands): [[GREPCENT_TABLE]] [["","","Year ended"],["","","December 31,"],["","","2021","","","2020","","","2019"],["Net loss","","$","(131,891",")","","$","(307,045",")","","$","(64,761",")"],["Income tax expense (benefit)","","","16,267","","","","(3,400",")","","","(1,137",")"],["Depreciation and amortization expense","","","123,866","","","","113,693","","","","122,503"],["Impairment expense (1)","","","\u2014","","","","287,454","","","","49,036"],["Severance and other expense","","","7,826","","","","13,930","","","","4,444"],["Merger and integration expense","","","47,593","","","","1,630","","","","\u2014"],["Gain on disposal of assets","","","(1,000",")","","","(10,085",")","","","\u2014"],["Other income, net (2)","","","(3,992",")","","","(3,908",")","","","(226",")"],["Stock-based compensation expense (3)","","","54,162","","","","\u2014","","","","\u2014"],["Foreign exchange losses","","","4,314","","","","2,261","","","","4,176"],["Interest and finance expense, net","","","8,795","","","","5,656","","","","3,300"],["Adjusted EBITDA","","$","125,940","","","$","100,186","","","$","117,335"],["Adjusted EBITDA Margin","","","15.3","%","","","14.8","%","","","14.5","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Impairment expense represents impairments recorded on goodwill and other long-lived assets, including property, plant and equipment, intangible assets and operating lease right-of-use assets."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Other income, net, is comprised of immaterial, unusual or infrequently occurring transactions which, in management\u2019s view, do not provide useful measures of the underlying operating performance of the business."],["(3)","Non-cash, stock-based compensation expense of $54.2 million includes $42.1 million associated with Legacy Expro stock options and restricted stock units recognized as a result of the completion of the Merger. Please see Note 20 \u201cStock-based compensation\u201d in the Notes to the Consolidated Financial Statements for additional information."]] [[/GREPCENT_TABLE]] The following table provides a reconciliation of net cash provided by operating activities to Adjusted Cash Flow from Operations for each of the periods presented (in thousands): [[GREPCENT_TABLE]] [["","","Year Ended"],["","","December 31,"],["","","2021","","","2020","","","2019"],["Net cash provided by operating activities","","$","16,144","","","$","70,391","","","$","81,209"],["Cash paid during the period for interest, net","","","4,192","","","","2,630","","","","1,490"],["Cash paid during the period for severance and other expense","","","8,052","","","","15,602","","","","3,811"],["Cash paid during the period for merger and integration expense","","","36,921","","","","\u2014","","","","\u2014"],["Adjusted Cash Flow from Operations","","$","65,309","","","$","88,623","","","$","86,510"],["Adjusted EBITDA","","$","125,940","","","$","100,186","","","$","117,335"],["Cash Conversion","","","51.9","%","","","88.5","%","","","73.7","%"]] [[/GREPCENT_TABLE]] 42 Table of Contents Results of Operations Year ended December 31, 2021 compared to year ended December 31, 2020 [[GREPCENT_TABLE]] [["","","Year Ended"],["","","December 31,","","","Change"],["(in thousands)","","2021","","","2020","","","$","","","%"],["Total revenue","","$","825,762","","","$","675,026","","","$","150,736","","","","22.3","%"],["Operating costs and expenses:"],["Cost of revenue, excluding depreciation and amortization","","","(701,165",")","","","(566,876",")","","","(134,289",")"],["General and administrative expense, excluding depreciation and amortization","","","(73,880",")","","","(23,814",")","","","(50,066",")"],["Depreciation and amortization expense","","","(123,866",")","","","(113,693",")","","","(10,173",")"],["Impairment expense","","","\u2014","","","","(287,454",")","","","287,454"],["Gain on disposal of assets","","","1,000","","","","10,085","","","","(9,085",")"],["Merger and integration expense","","","(47,593",")","","","(1,630",")","","","(45,963",")"],["Severance and other expense","","","(7,826",")","","","(13,930",")","","","6,104"],["Total operating cost and expenses","","","(953,330",")","","","(997,312",")","","","43,982"],["Operating loss","","","(127,568",")","","","(322,286",")","","","194,718","","","","(60.4",")%"],["Other income, net","","","3,992","","","","3,908","","","","84"],["Interest and finance expense, net","","","(8,795",")","","","(5,656",")","","","(3,139",")"],["Loss before taxes and equity in income of joint ventures","","","(132,371",")","","","(324,034",")","","","191,663","","","","(59.1",")%"],["Equity in income of joint ventures","","","16,747","","","","13,589","","","","3,158"],["Loss before income taxes","","","(115,624",")","","","(310,445",")","","","194,821","","","","(62.8",")%"],["Income tax (expense) benefit","","","(16,267",")","","","3,400","","","","(19,667",")"],["Net loss","","$","(131,891",")","","$","(307,045",")","","$","175,154","","","","(57.0",")%"]] [[/GREPCENT_TABLE]] Revenue Revenue for the year ended December 31, 2021 increased by $150.8 million, or 22.3%, to $825.8 million, compared to $675.0 million for the year ended December 31, 2020. Of the total increase of $150.8 million for the year ended December 31, 2021, $112.1 million is related to the Merger, and the balance of the increase was driven by higher activity across NLA, ESSA and APAC, partially offset by a reduction in activity in the MENA segment. Revenue for our segments is discussed separately below under the heading “Operating Segment Results”. Revenue for our well flow management and well intervention and integrity offerings increased by $15.6 million (3.8%) and $39.6 million (29.4%), respectively, partially offset by a decrease in subsea well access revenue by $16.7 million (-12.6%) for the year ended December 31, 2021. Additionally, the Merger resulted in well construction revenue of $112.1 million for the year ended December 31, 2021. 43 Table of Contents Cost of revenue, excluding depreciation and amortization Cost of revenue, excluding depreciation and amortization, for the year ended December 31, 2021 was $701.2 million (84.9% of revenue), an increase of $134.3 million, or 23.7%, compared to $566.9 million (84.0% of revenue) for the year ended December 31, 2020. Of the total increase of $134.3 million for the year ended December 31, 2021, $92.1 million relates to the Merger, and the remaining increase of $42.2 million was due to higher personnel costs for operational and support staff, equipment rentals, facility costs, materials, sub-contractor costs, and research, engineering and development costs, which is in line with the higher activity, and recognition of stock-based compensation expense for Legacy Expro’s Management Incentive Plan of $10.5 million during the year ended December 31, 2021 as a result of the Merger. General and administrative, excluding depreciation and amortization General and administrative expenses, excluding depreciation and amortization, is comprised of costs associated with sales and marketing, costs of running the corporate head office and other central functions that support the reporting segments. General and administrative expenses for the year ended December 31, 2021 increased by $50.1 million, or 210.2%, to $73.9 million, as compared to $23.8 million for the year ended December 31, 2020. Of the total increase of $50.1 million for the year ended December 31, 2021, $15.4 million relates to the Merger, and the remaining increase was primarily driven by recognition of stock-based compensation expense for Legacy Expro’s Management Incentive Plan of $31.6 million as a result of the Merger. Depreciation and amortization expense Depreciation and amortization expense for the year ended December 31, 2021 increased by $10.2 million, or 8.9%, to $123.9 million, as compared to $113.7 million for the year ended December 31, 2020. The increase in depreciation and amortization expense for the year ended December 31, 2021 is primarily related to the Merger. Gain on disposal of assets Gain on disposal of assets of $1.0 million for the year ended December 31, 2021 represents the earn-out consideration recognized as the conditions upon which the consideration was contingent were met during the year ended December 31, 2021 related to a sale of assets which occurred in 2020. Impairment expense No impairment expense was recorded for the year ended December 31, 2021 as compared to $287.5 million for the year ended December 31, 2020. Impairment expense for the year ended December 31, 2020 mainly relates to impairment of goodwill of $191.9 million, intangible assets of $60.4 million, property, plant and equipment of $20.0 million and operating lease right-of-use assets of $15.2 million. For further information, refer to Note 4 “Fair value measurements” in the accompanying consolidated financial statements. Merger and integration expense Merger and integration expense for the year ended December 31, 2021 increased by $46.0 million, to $47.6 million as compared to $1.6 million for the year ended December 31, 2020. The increase for the year ended December 31, 2021 primarily consists of professional fees, integration, and other costs related to the Merger. Severance and other expense Severance and other expense for the year ended December 31, 2021 decreased by $6.1 million, or 43.8%, to $7.8 million as compared to $13.9 million for the year ended December 31, 2020. The decrease was primarily driven by higher headcount reductions and facility rationalization undertaken in the previous year to restructure and resize our business to match reduced activity levels due to COVID-19 and economic conditions in the oil and gas industry for the year ended December 31, 2020. 44 Table of Contents Interest and finance expense, net Interest and finance expense, net for the year ended December 31, 2021, was $8.8 million, an increase of $3.1 million, or 55.5%, compared to $5.7 million for the year ended December 31, 2020. The increase in interest and finance expense was primarily driven by fees incurred with respect to the New Facility established following the Merger. Equity in income of joint ventures Equity in income of joint ventures for the year ended December 31, 2021 increased by $3.2 million, or 23.2%, to $16.7 million as compared to $13.6 million for the year ended December 31, 2020. The increase reflects higher income from our joint ventures compared to the previous year. Income tax (expense) benefit Income tax expense for the year ended December 31, 2021 was $16.3 million, compared to an income tax benefit of $3.4 million for the year ended December 31, 2020. Following the closing of the Merger on October 1, 2021, as a result of our change in domicile from the U.K. to the Netherlands, our statutory tax rate changed to 25% for the year ended December 31, 2021. The statutory rate for the year ended December 31, 2020 was 19%. The effective tax rate was (12.3%) and 1.0% for the years ended December 31, 2021 and 2020, respectively. Our effective tax rate was impacted by the Merger in 2021, impairments of goodwill in 2020, and the geographic mix of profits and losses between deemed profit and taxable profit jurisdictions. Our effective income tax rate fluctuates from the statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates along with jurisdictions utilizing a deemed profit taxation regime, the impact of valuation allowances, foreign inclusions and other permanent differences related to the recognition of income and expense. Year ended December 31, 2020 compared to year ended December 31, 2019 [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","Change"],["","","2020","","","2019","","","$","","","%"],["(in thousands)"],["Total revenue","","$","675,026","","","$","810,064","","","$","(135,038",")","","","(16.7",")%"],["Operating costs and expenses:"],["Cost of revenue, excluding depreciation and amortization","","","(566,876",")","","","(677,184",")","","","110,308"],["General and administrative expense, excluding depreciation and amortization","","","(23,814",")","","","(29,360",")","","","5,546"],["Depreciation and amortization expense","","","(113,693",")","","","(122,503",")","","","8,810"],["Impairment expense","","","(287,454",")","","","(49,036",")","","","(238,418",")"],["Gain on disposal of assets","","","10,085","","","","\u2014","","","","10,085"],["Merger and integration expense","","","(1,630",")","","","\u2014","","","","(1,630",")"],["Severance and other expense","","","(13,930",")","","","(4,444",")","","","(9,486",")"],["Total operating cost and expenses","","","(997,312",")","","","(882,527",")","","","(114,785",")"],["Operating loss","","","(322,286",")","","","(72,463",")","","","(249,823",")","","","344.8","%"],["Other income, net","","","3,908","","","","226","","","","3,682"],["Interest and finance expense, net","","","(5,656",")","","","(3,300",")","","","(2,356",")"],["Loss before taxes and equity in income of joint ventures","","","(324,034",")","","","(75,537",")","","","(248,497",")","","","329.0","%"],["Equity in income of joint ventures","","","13,589","","","","9,639","","","","3,950"],["Loss before income taxes","","","(310,445",")","","","(65,898",")","","","(244,547",")","","","371.1","%"],["Income tax benefit","","","3,400","","","","1,137","","","","2,263"],["Net loss","","$","(307,045",")","","$","(64,761",")","","$","(242,284",")","","","374.1","%"]] [[/GREPCENT_TABLE]] 45 Table of Contents Revenue Revenue for the year ended December 31, 2020, which only includes revenue of Legacy Expro, decreased by $135.0 million, or 16.7%, to $675.0 million from $810.1 million for the year ended December 31, 2019. The decrease in total revenue for the year ended December 31, 2020 compared to the year ended December 31, 2019 was driven by lower activity across all of our product and service offerings in all of our reporting segments other than the APAC segment, due to a combination of factors, including a substantial decline in global demand for oil caused by the COVID-19 pandemic and disagreements between the members of OPEC+ regarding limits on production of oil, resulting in surplus supply and reduction in crude oil prices. For reference, Brent oil price averaged $42 per barrel in 2020 as compared to an average of $64 per barrel in 2019. As a result of reduced activity, revenue for the NLA segment decreased by $58.3 million (33.5%), the MENA segment by $43.0 million (18.2%) and the ESSA segment by $37.3 million (14.5%), partially offset by a modest increase in revenue in the APAC segment of $3.6 million (2.5%). Revenue for our segments is discussed in further detail separately below under the heading “Operating Segment Results.” Revenue for our well flow management, well intervention and integrity and subsea well access offerings decreased by $75.8 million (15.7%), $35.1 million (20.7%) and $24.1 million (15.4%), respectively, for the year ended December 31, 2019 compared to December 31, 2020. Cost of revenue, excluding depreciation and amortization Cost of revenue, excluding depreciation and amortization, for the year ended December 31, 2020 was $566.9 million (84.0% of revenue), a decrease of $110.3 million, or 16.3%, compared to $677.1 million (83.6% of revenue) for the year ended December 31, 2019. The decrease in the cost of revenue, which includes personnel costs for operational and support staff, equipment rentals, facility costs, materials, sub-contractor costs, and research, engineering and development costs, was in line with the lower activity. In addition, we reduced our support staff by approximately 9.1% for the year ended December 31, 2020 compared to the year ended December 31, 2019. General and administrative, excluding depreciation and amortization General and administrative expenses, excluding depreciation and amortization, include the costs associated with sales and marketing, costs of running our corporate head office and other central functions that support the operating segments and include foreign currency gains (losses). General and administrative expenses for the year ended December 31, 2020 decreased by $5.5 million, or 18.9%, to $23.8 million, from $29.4 million for the year ended December 31, 2019. The decrease in general and administrative expenses during the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily driven by a reduction in our corporate support staff by approximately 9.3% for the year ended December 31, 2020 compared to the year ended December 31, 2019. This contributed to lower personnel costs, lower corporate overhead costs, and lower travel costs. Additionally, we benefited from lower foreign exchange losses of $1.9 million from the revaluation of monetary assets and liabilities denominated in foreign currencies during the year ended December 31, 2020 compared to the year ended December 31, 2019. Depreciation and amortization expense Depreciation and amortization expense for the year ended December 31, 2020 was $113.7 million, a decrease of $8.8 million, or 7.2% compared to $122.5 million for the year ended December 31, 2019, primarily as a result of a lower depreciable asset base. Impairment expense Impairment expense for the year ended December 31, 2020 was $287.5 million, an increase of $238.4 million, or 486.2%, compared to $49.0 million for the year ended December 31, 2019. During the year ended December 31, 2020, we recorded impairment expense relating to our goodwill of $191.9 million, intangible assets of $60.4 million, property, plant and equipment of $20.0 million and operating lease right-of-use assets of $15.2 million. For further information, refer to Note 4 “Fair value measurements” in the accompanying consolidated financial statements. 46 Table of Contents Merger and integration expense During the year ended December 31, 2020, we incurred $1.6 million of merger and integration expense, which consists primarily of professional fees and other costs with respect to the Merger. No such expense was incurred during the year ended December 31, 2019. Gain on disposal of assets Gain on disposal of assets of $10.1 million represents profit recognized on the sale of certain identified tangible and intangible assets and liabilities relating to the disposition of our pressure-control chokes product line during 2020 for a total cash consideration of $15.5 million. The carrying value of net assets transferred was $4.4 million and we incurred costs directly attributable to the sale of $1.0 million. Severance and other expense Severance and other expense for the year ended December 31, 2020 increased by $9.5 million, or 213.5%, to $13.9 million from $4.4 million for the year ended December 31, 2019. The increase was primarily driven by headcount reductions and facility rationalization to restructure and resize our business to match reduced activity levels due to COVID-19 and economic conditions in the oil and gas industry. Depending on how the market evolves, further actions may be necessary, which could result in additional expense in future periods. Interest and finance expense, net Interest and finance expense, net for the year ended December 31, 2020, was $5.7 million, an increase of $2.4 million, or 71.4%, compared to $3.3 million for the year ended December 31, 2019. The increase in interest and finance expense was due to lower interest income earned in 2020 primarily due to lower interest rates. We earned interest income of $1.0 million during the year ended December 31, 2020 as compared to $3.3 million during the previous year. Equity in income of joint ventures Equity in income of joint ventures for the year ended December 31, 2020 increased by $4.0 million, or 41.0%, to $13.6 million from $9.6 million for the year ended December 31, 2019. The increase reflects higher income from our joint ventures compared to the previous year. Income tax benefit Income tax benefit for the year ended December 31, 2020 was $3.4 million, an increase of $2.3 million, or 199.0%, compared to $1.1 million for the year ended December 31, 2019. The statutory tax rate was 19% for both the years ended December 31, 2020 and 2019. The effective tax rate was 1.0% and 1.5% for the years ended December 31, 2020 and 2019 respectively. Our effective tax rate was impacted due to the impairment on goodwill along with the geographic mix of profits and losses between deemed profit and taxable profit jurisdictions. Our effective income tax rate fluctuates from the statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates along with jurisdictions utilizing a deemed profit taxation regime, the impact of valuation allowances, foreign inclusions and other permanent differences related to the recognition of income and expense. 47 Table of Contents Operating Segment Results We evaluate our business segment operating performance using segment revenue and Segment EBITDA, as described in Note 5 “Business segment reporting” in our consolidated financial statements. We believe Segment EBITDA is a useful operating performance measure as it excludes non-cash charges and other transactions not related to our core operating activities and corporate costs and allows management to more meaningfully analyze the trends and performance of our core operations by segment as well as to make decisions regarding the allocation of resources to our segments. The following table shows revenue by segment and revenue as percentage of total revenue by segment for the years ended December 31, 2021, 2020 and 2019:   [[GREPCENT_TABLE]] [["","","Revenues","","","Percentage"],["(in thousands)","","2021","","","2020","","","2019","","","2021","","","2020","","","2019"],["NLA","","$","193,156","","","$","115,738","","","$","174,058","","","","23.4","%","","","17.2","%","","","21.5","%"],["ESSA","","","300,557","","","","219,534","","","","256,790","","","","36.4","%","","","32.5","%","","","31.7","%"],["MENA","","","171,136","","","","194,033","","","","237,065","","","","20.7","%","","","28.7","%","","","29.3","%"],["APAC","","","160,913","","","","145,721","","","","142,151","","","","19.5","%","","","21.6","%","","","17.5","%"],["Total revenue","","$","825,762","","","$","675,026","","","$","810,064","","","","100.0","%","","","100.0","%","","","100.0","%"]] [[/GREPCENT_TABLE]] The following table shows Segment EBITDA and Segment EBITDA margin by segment for the years ended December 31, 2021, 2020 and 2019: [[GREPCENT_TABLE]] [["","","Segment EBITDA (1)","","","Segment EBITDA Margin"],["(in thousands)","","2021","","","2020","","","2019","","","2021","","","2020","","","2019"],["NLA","","$","32,254","","","$","54","","","$","15,031","","","","16.7","%","","","0.0","%","","","8.6","%"],["ESSA","","","53,336","","","","35,393","","","","45,358","","","","17.7","%","","","16.1","%","","","17.7","%"],["MENA","","","56,312","","","","77,296","","","","86,043","","","","32.9","%","","","39.8","%","","","36.3","%"],["APAC","","","33,444","","","","34,976","","","","28,762","","","","20.8","%","","","24.0","%","","","20.2","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Relative to Adjusted EBITDA ($125.9 million, $100.2 million and $117.3 million for the years ended December 31, 2021, 2020 and 2019, respectively), Segment EBITDA for the years ended December 31, 2021, 2020 and 2019 excludes corporate costs of $66.2 million, $61.1 million and $67.5 million, respectively, and equity in income of joint ventures of $16.7 million, $13.6 million and $9.6 million, respectively."]] [[/GREPCENT_TABLE]] Year ended December 31, 2021 compared to the year ended December 31, 2020 NLA Revenue for the NLA segment was $193.2 million for the year ended December 31, 2021, an increase of $77.4 million, or 66.9%, compared to $115.7 million for the year ended December 31, 2020. Of the total increase of $77.4 million for the year ended December 31, 2021, $67.0 million relates to the Merger, and the balance of the increase of $10.4 million was primarily driven by an increase in well flow management and well intervention and integrity services in Mexico, Argentina, Brazil, Colombia, and Trinidad and Tobago driven by higher customer activity. The increase in revenues was partially offset by non-recurring power chokes equipment sales as a result of disposition of our power chokes product line in 2020 and lower well flow management and subsea well access revenues in Canada due to completion of a contract in 2020. Segment EBITDA for the NLA segment was $32.2 million, or 16.7% of revenues, during the year ended December 31, 2021, compared to $0.1 million during year ended December 31, 2020. Out of the total increase of $32.1 million during the year ended December 31, 2021, $16.1 million relates to the Merger, and the balance of the increase of $16.0 million is attributable to higher activity on higher margin contracts and a more favorable activity mix during 2021. 48 Table of Contents ESSA Revenue for the ESSA segment was $300.6 million for the year ended December 31, 2021, an increase of $81.0 million, or 36.9%, compared to $219.5 million for the year ended December 31, 2020. Out of the total increase of $81.0 million for the year ended December 31, 2021, $28.5 million is attributable to the Merger. The remaining increase of $52.5 million in revenues was primarily driven by an early production equipment sale in Nigeria and higher well flow management and subsea well access revenues in Norway, Mozambique, United Kingdom, Ghana, and Angola due to an increase in overall customer activities and new projects. The overall increase in revenues was partially offset by a decrease in revenue in Mauritania upon completion of a subsea well access contract. Segment EBITDA for the ESSA segment was $53.3 million, or 17.7% of revenues, for the year ended December 31, 2021, an increase of $17.9 million, or 50.7%, compared to $33.4 million, or 16.1% of revenues, for the year ended December 31, 2020. Of the total increase of $17.9 million during the year ended December 31, 2021, $8.9 million relates to the Merger, and the balance of the increase of $9.1 million is attributable to higher activity and a more favorable activity mix during 2021. MENA Revenue for the MENA segment decreased by $22.9 million, or 11.8%, to $171.1 million for the year ended December 31, 2021, as compared to $194.0 million for the year ended December 31, 2020. The lower revenues in the region were driven by a reduction in well flow management revenues in Algeria, Egypt, Saudi Arabia and the United Arab Emirates reflecting lower customer activities partially offset by an increase in well construction revenues of $8.3 million due to the Merger. Segment EBITDA for the MENA segment was $56.3 million, or 32.9% of revenues, for the year ended December 31, 2021, a reduction of $20.9 million, or 27.1%, compared to $77.3 million, or 39.8% of revenues, for the year ended December 31, 2020. The reduction in Segment EBITDA was primarily due to a decrease in revenues during 2021 and lower activity on higher margin contracts, partially offset by an increase in Segment EBITDA of $1.2 million related to the Merger. APAC Revenue for the APAC segment was $160.9 million for the year ended December 31, 2021, an increase of $15.2 million, or 10.4%, compared to $145.7 million for the year ended December 31, 2020. Of the total, $8.4 million relates to the Merger, and the balance of the increase of $6.8 million was primarily driven by increased well flow management and well intervention and integrity revenue in Australia, Brunei, Thailand and Indonesia from new contracts or higher activity on existing contracts. This increase was partially offset by lower subsea well access revenues in China and Malaysia due to a combination of lower spare sales, completion of a contract and lower customer activities during the year ended December 31, 2021. Segment EBITDA for the APAC segment was $33.4 million for the year ended December 31, 2021, a decrease of $1.5 million, or 4.4%, compared to $35.0 million for the year ended December 31, 2020. The reduction was primarily due to a less favorable activity mix and lower activity on higher margin contracts, partially offset by an increase in Segment EBITDA of $1.1 million related to the Merger. Year ended December 31, 2020 compared to the year ended December 31, 2019 NLA Revenue for the NLA segment was $115.7 million for the year ended December 31, 2020, a decrease of $58.3 million, or 33.5%, compared to $174.1 million for the year ended December 31, 2019. The decrease in revenue was mainly driven by a reduction in well flow management and subsea well access revenues in North America offshore where activity levels continued to show weakness, reflecting a combination of COVID-19 and hurricane-related project deferrals. The lower revenues in NLA also reflect reduced customer activity levels in our relatively small, pre-Merger North America land operations, resulting in lower well flow management revenues as well as lower sales within our then-owned power chokes product line. Additionally, the reduction in revenues in NLA was also driven by lower subsea well access and well flow management revenues in Canada and lower wireline intervention and integrity services revenue in Argentina during the year ended December 31, 2020, compared to the year ended December 31, 2019. Segment EBITDA for the NLA segment was $0.1 million during the year ended December 31, 2020, compared to $15.0 million, or 8.6% of revenues, during the year ended December 31, 2019. The reduction in NLA Segment EBITDA was mainly driven by a combination of lower activity on higher margin contracts and a less favorable activity mix during 2020. 49 Table of Contents ESSA Revenue for the ESSA segment decreased by $37.3 million, or 14.5%, to $219.5 million during the year ended December 31, 2020 from $256.8 million during the year ended December 31, 2019. The decrease in revenue was primarily due to a reduction in well flow management and subsea well access revenues, driven by a combination of lower activity, suspension of activities by customers and non-recurring projects in the U.K., Azerbaijan and several countries in the Sub-Sahara African region, including Nigeria, Ghana, Cote D’Ivoire, Mozambique and Equatorial Guinea, partially offset by an increase in revenues in Mauritania from a new subsea well access contract. Segment EBITDA for the ESSA segment was $35.4 million, or 16.1% of revenues, for the year ended December 31, 2020, a reduction of $10.0 million, or 22.0%, compared to $45.4 million, or 17.7% of revenues, for the same period in 2019. The reduction in Segment EBITDA for ESSA was primarily due to lower revenues during 2020 combined with a less favorable activity mix, which negatively impacted the Segment EBITDA margin. MENA Revenue for the MENA segment decreased by $43.0 million, or 18.2%, to $194.0 million during the year ended December 31, 2020 from $237.1 million during the year ended December 31, 2019. The lower revenues in the region were driven by a reduction in well flow management revenues in Algeria, Saudi Arabia and the United Arab Emirates reflecting lower customer activities. Additionally, revenues in Egypt decreased during the year ended December 31, 2020 compared to the same period in 2019 due to non-recurring equipment sales. Segment EBITDA for the MENA segment was $77.3 million, or 39.8% of revenues, for the year ended December 31, 2020, a reduction of $8.7 million, or 10.2%, compared to $86.0 million, or 36.3% of revenues, for the year ended December 31, 2019. The reduction in Segment EBITDA for MENA was primarily due to a decrease in revenues during 2020; however, MENA Segment EBITDA margin improved during 2020 as compared to 2019 due to various cost savings measures undertaken in the region and a modestly more favorable activity mix. APAC Revenue for the APAC segment was $145.7 million for the year ended December 31, 2020, an increase of $3.6 million, or 2.5%, compared to $142.2 million for the year ended December 31, 2019. The increase in revenue in APAC was primarily driven by increased well flow management and subsea well access revenue in Malaysia from new contracts and higher activity on existing contracts, and increased revenue in Australia, primarily from higher subsea well access services. This increase was partially offset by lower well flow management revenues in India due to non-recurring equipment sales and lower activity levels on continuing projects in Thailand. Segment EBITDA for the APAC segment was $35.0 million for the year ended December 31, 2020, an increase of $6.2 million, or 21.6%, compared to $28.8 million for the year ended December 31, 2019. APAC Segment EBITDA margin was 24.0%, up from 20.2% for the year ended December 31, 2019. The improvement in APAC Segment EBITDA margin was due to increased activity combined with a more favorable activity mix and cost control measures. 50 Table of Contents Liquidity and Capital Resources Liquidity Our financial objectives include the maintenance of sufficient liquidity, adequate financial resources and financial flexibility to fund our business. At December 31, 2021, total available liquidity was $369.9 million, including cash and cash equivalents and restricted cash of $239.9 million and $130.0 million available for borrowings under our New Facility. Our primary sources of liquidity have been cash flows from operations. Our primary uses of capital have been for capital expenditures and acquisitions. We monitor potential capital sources, including equity and debt financing, in order to meet our investment and liquidity requirements. Our total capital expenditures are estimated to range between $90 million and $100 million for 2022. Our total capital expenditures (exclusive of the Merger) were $81.5 million for year ended December 31, 2021, out 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. The actual amount of capital expenditures for the purchase and manufacture of equipment may fluctuate based on market conditions. Our total capital expenditures were $112.4 million for the year ended December 31, 2020, which were generally used for equipment required to provide services in connection with awarded contracts. We continue to focus on preserving and protecting our strong balance sheet, optimizing utilization of our existing assets and, where practical, limiting new capital expenditures. Credit Facility Revolving Credit Facility On November 5, 2018, certain subsidiaries of Frank’s entered into an asset-based revolving credit facility (the “ABL Credit Facility”) with aggregate commitments of $100.0 million secured by certain assets of the subsidiary guarantors. On December 20, 2018, subsidiaries of Legacy Expro entered into a revolving credit facility (the “2018 RCF”) with aggregate commitments of $150.0 million with up to $100.0 million available for drawdowns as loans and up to $50 million for bonds and guarantees. The 2018 RCF bore interest at U.S. dollar LIBOR plus 3.75% and was secured by a fixed and floating charge on certain assets of some of our wholly owned subsidiaries. On October 1, 2021, following the closing of the Merger, the ABL Credit Facility and 2018 RCF were cancelled. Concurrently with the cancelation of the ABL Credit Facility and the 2018 RCF, we entered into the New Facility with DNB Bank ASA, London Branch, as agent, with total commitments of $200.0 million, of which $130.0 million is available for drawdowns as loans and $70.0 million is available for letters of credit. Subject to the terms of the New Facility, the Company has the ability to increase the commitments to $250.0 million. Proceeds of the New Facility may be used for general corporate and working capital purposes. Please see Note 16 “Interest bearing loans” in the Notes to the Consolidated Financial Statements for additional information. 51 Table of Contents Cash flow from operating, investing and financing activities Cash flows provided by (used in) our operations, investing and financing activities are summarized below (in thousands): [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["(in thousands)","","2021","","","2020","","","2019"],["Net cash provided by operating activities","","$","16,144","","","$","70,391","","","$","81,209"],["Net cash provided by (used in) investing activities","","","112,046","","","","(96,773",")","","","(151,934",")"],["Net cash provided by (used in) financing activities","","","(7,176",")","","","(625",")","","","21,922"],["Effect of exchange rate changes on cash activities","","","(1,876",")","","","631","","","","566"],["Net increase (decrease) to cash and cash equivalents and restricted cash","","$","119,138","","","$","(26,376",")","","$","(48,237",")"]] [[/GREPCENT_TABLE]] Analysis of cash flow changes between the years ended December 31, 2021 and 2020 Net cash provided by operating activities Net cash provided by operating activities was $16.1 million during the year ended December 31, 2021 as compared to $70.4 million during the year ended December 31, 2020. The decrease of $54.3 million in net cash provided by operating activities for the year ended December 31, 2021 was primarily due to payment of merger and integration expenses related to the Merger of $36.9 million, unfavorable movements in working capital of $31.8 million and reimbursable payments made in connection with Frank's executive deferred compensation plan of $8.9 million, partially offset by improvements in Adjusted EBITDA of $25.7 million during the year ended December 31, 2021. Adjusted Cash Flow from Operations during the year ended December 31, 2021 was $65.3 million compared to $88.6 million during the year ended December 31, 2020. Our primary uses of net cash provided by operating activities were capital expenditures and funding obligations related to our financing arrangements. Net cash provided by (used in) investing activities Net cash provided by investing activities was $112.0 million during the year ended December 31, 2021 as compared to net cash used in investing activities of $96.8 million during the year ended December 31, 2020. Our principal recurring investing activity is our capital expenditures. The increase in net cash provided by investing activities was primarily due to net cash of $189.7 million acquired as part of the Merger and a decrease in capital expenditures of $30.9 million, partially offset by a reduction in proceeds from disposal of assets of $11.8 million. Net cash provided by (used in) financing activities Net cash used in financing activities was $7.2 million during the year ended December 31, 2021 as compared to $0.6 million during the year ended December 31, 2020. The increase of $6.6 million in cash used by financing activities primarily related to payment of higher loan issuance and other transaction costs of $4.0 million with respect to the New Facility, payment of withholding taxes in connection with the vesting of shares underlying stock-based compensation plans of $0.8 million and lower proceeds from the release of collateral deposits of $2.1 million, partially offset by $0.6 million of lower payments on finance leases during 2021. 52 Table of Contents Analysis of cash flow changes between the years ended December 31, 2020 and 2019 Net cash provided by operating activities Net cash provided by operating activities was $70.4 million during the year ended December 31, 2020 as compared to $81.2 million during the year ended December 31, 2019. The decrease of $10.8 million in net cash provided by operating activities for the year ended December 31, 2020 was primarily due to a decrease in Adjusted EBITDA of $17.1 million, an increase in net cash paid for income taxes of $7.8 million, and higher severance and other expense paid of $9.5 million, partially offset by improvements in working capital and favorable movements in other assets and liabilities of $21.7 million. Adjusted Cash Flow from Operations during the year ended December 31, 2020 was $88.6 million compared to $86.5 million during the year ended December 31, 2019. Our primary uses of net cash provided by operating activities were capital expenditures and acquisitions and funding obligations related to our financing arrangements. Net cash provided by (used in) investing activities Net cash used in investing activities was $96.8 million during the year ended December 31, 2020 as compared to $151.9 million during the year ended December 31, 2019. Our principal recurring investing activity is our capital expenditures. The decrease in net cash used in investing activities was primarily due to a $47.9 million payment for an acquisition during the previous year and proceeds of $15.6 million from the disposal of assets in 2020. This decrease was partially offset by an increase of $8.3 million in capital expenditures during the year ended December 31, 2020, including $29.2 million of capital expenditures related to new technologies, including our coil hose, annular intervention and riserless light well intervention capabilities. Net cash provided by (used in) financing activities Net cash used in financing activities was $0.6 million during the year ended December 31, 2020 as compared to net cash provided by financing activities of $21.9 million during the year ended December 31, 2019. The decrease in cash provided by financing activities primarily related to lower proceeds from the release of collateral deposits of $26.0 million during the year ended December 31, 2020 as compared to the year ended December 31, 2019, partially offset by $3.5 million of lower payments of loan transaction costs and finance leases during 2020. Off-balance sheet arrangements We have outstanding letters of credit/guarantees that relate to performance bonds, custom/excise tax guaranties and facility lease/rental obligations. These were entered into in the ordinary course of business and are customary practices in the various countries where we operate. It is not practicable to estimate the fair value of these financial instruments. None of the off-balance sheet arrangements either has, or is likely to have, a material effect on our consolidated financial statements. As of December 31, 2021, we had no material off-balance sheet financing arrangements other than those discussed above. 53 Table of Contents Critical accounting policies and estimates The preparation of consolidated financial statements and related disclosures in conformity with U.S. GAAP requires Expro to make estimates and assumptions that affect the reported amounts of revenues and associated costs as well as reported amounts of assets and liabilities and related disclosures of contingent liabilities. Certain accounting policies involve judgments and uncertainties. We evaluate estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We consider the following policies to be the most critical to understanding the judgments that are involved and the uncertainties that could impact our results of operations, financial condition and cash flows. Revenue recognition Service revenue is recognized over time as services are performed or rendered and the customer simultaneously consumes the benefit of the service while it is being rendered, and, therefore, reflects the amount of consideration to which we have a right to invoice. We generally perform services either under direct service purchase orders or master service agreements which are supplemented by individual call-out provisions. For customers contracted under such arrangements, an accrual is recorded in unbilled receivable for revenue earned but not yet invoiced. Revenue from the sale of goods is generally recognized at the point in time when the control has passed onto the customer which generally coincides with delivery and, where applicable, installation. We also regularly assess customer credit risk inherent in the carrying amounts of receivables, contract costs and estimated earnings, including the risk that contractual penalties may not be sufficient to offset our accumulated investment in the event of customer termination. We also recognize revenue for “bill and hold” sales, once the following criteria have been met: (1) there is a substantive reason for the arrangement, (2) the product is identified as the customer’s asset, (3) the product is ready for delivery to the customer, and (4) we cannot use the product or direct it to another customer. Where contractual arrangements contain multiple performance obligations, judgment is involved to analyze each performance obligation within the sales arrangement to determine whether they are distinct. The revenue for contracts involving multiple performance obligations is allocated to each distinct performance obligation based on relative selling prices and is recognized on satisfaction of each of the distinct performance obligations. We are required to determine the transaction price in respect of each of our contracts with customers. In making such judgment, we assess the impact of any variable consideration in the contract, due to discounts or penalties, the existence of any significant financing component and any non-cash consideration in the contract. In determining the impact of variable consideration, we use the “most-likely amount” method whereby the transaction price is determined by reference to the single most likely amount in a range of possible consideration amounts. Business Combinations We record business combinations using the acquisition method of accounting. All of the assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill. The application of the acquisition method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed, in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Significant assumptions and estimates include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted-average cost of capital. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the consolidated financial statements may be exposed to potential impairment of long-lived assets, including intangible assets and goodwill. The Merger of Frank’s with Legacy Expro pursuant to the Merger Agreement was completed on October 1, 2021. Refer to Note 3 “Business combinations and dispositions” of our consolidated financial statements for further details. 54 Table of Contents Goodwill and identified intangible assets We record the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as goodwill. Goodwill is not subject to amortization and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. A qualitative assessment is allowed to determine if goodwill is potentially impaired. We have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. The qualitative assessment determines whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then a quantitative impairment test is performed. The quantitative goodwill impairment test is used to identify both the existence of impairment and the amount of impairment loss. The test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded based on that difference. No impairment expense was recorded for goodwill during the year ended December 31, 2021. During the years ended December 31, 2020 and 2019, we recorded impairment expense of $191.9 million and $26.4 million, respectively, relating to our goodwill. Refer to Note 4 “Fair value measurements” of our consolidated financial statements for details regarding the facts and circumstances that led to this impairment and other details. We used the income approach to estimate the fair value of our reporting units, but also considered the market approach to validate the results. The income approach estimates the fair value by discounting the reporting unit’s estimated future cash flows using an appropriate risk-adjusted rate. The market approach includes the use of comparative multiples to corroborate the discounted cash flow results and involves significant judgment in the selection of the appropriate peer group companies and valuation multiples. The inputs used in the determination of fair value are generally level 3 inputs. We review our identified intangible assets for impairment whenever events or changes in business circumstances arise that may indicate that the carrying amount of its intangible assets may not be recoverable. These events and changes can include significant current period operating losses or negative cash flows associated with the use of an intangible asset, or group of assets, combined with a history of such factors, significant changes in the manner of use of the assets, and current expectations that it is more likely than not that an intangible asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. When impairment indicators are present, we compare undiscounted future cash flows, including the eventual disposition of the asset group at market value, to the asset group’s carrying value to determine if the asset group is recoverable. If the carrying values are in excess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset or asset group to its carrying value. Estimating future cash flows requires significant judgment, and projections may vary from the cash flows eventually realized, which could impact our ability to accurately assess whether an asset has been impaired. No impairment expense was recorded for identified intangible assets during the year ended December 31, 2021. During the year ended December 31, 2020 and 2019, we recorded impairment expense relating to our identified intangible assets of $60.4 million and $17.9 million, respectively. Refer to Note 4 “Fair value measurements” of our consolidated financial statements for further details. Defined benefit plans Our post-retirement benefit obligations are described in detail in Note 19 “Post-retirement benefits” of our consolidated financial statements. Defined pension benefits are calculated using significant inputs to the actuarial models that measure pension benefit obligations and related effects on operations. Two assumptions, discount rate and expected return on assets, are important elements of plan asset/liability measurement and are updated on an annual basis, or more frequently if events or changes in circumstances so indicate. We evaluate these critical assumptions at least annually on a plan and country specific basis. We periodically evaluate other assumptions involving demographic factors such as retirement age, mortality and turnover, and update them to reflect our experience and expectations for the future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors. The discount rate that we use reflects the market rate of a portfolio of high-quality corporate bonds with maturities matching the expected timing of payment of the related benefit obligations. The discount rates used to determine the benefit obligations for our principal pension plans were 1.8% in 2021, 1.3% in 2020 and 2.0% in 2019, reflecting market interest rates. As of December 31, 2021, we estimate that a 1% appreciation or depreciation in the discount rate would result in an impact of approximately $39.4 million to our present value of defined benefit obligations as at December 31, 2021. The weighted average expected rate of return on plan assets for the pension plans was 3.2% in 2021, 2.7% in 2020 and 3.4% in 2019. A change in the expected rate of return of 1% would impact our net periodic pension expense by $2.1 million. Income Taxes We use the asset and liability method to account for income taxes whereby we calculate the deferred tax asset or liability account balances using tax laws and rates in effect at that time. Under this method, the balances of deferred tax liabilities and assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Valuation allowances are recorded to reduce gross deferred tax assets when it is more likely than not that all or some portion of the gross deferred tax assets will not be realized. In determining the need for valuation allowances, we have made judgments and considered estimates regarding estimated future taxable income and available tax planning strategies. These estimates and judgments include some degree of uncertainty, therefore changes in these estimates and assumptions could require us to adjust the valuation allowances for our deferred tax assets accordingly. The ultimate realization of the deferred tax assets depends on the generation of sufficient taxable income in the applicable taxing jurisdictions. 55 Table of Contents We operate in more than 60 countries. As a result, we are subject to numerous domestic and foreign taxing jurisdictions and tax agreements and treaties among various governments. Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding future events, including the amount, timing and character of income, deductions, and tax credits. Changes in tax laws, regulations or agreements in each taxing jurisdiction could have an impact on the amount of income taxes that we provide during any given year. Our tax filings for various periods are subject to audit by the tax authorities in most jurisdictions in which we operate, and these assessments can result in additional taxes. Estimating the outcome of audits and assessments by the tax authorities involves uncertainty. We review the facts of each case and apply judgments and assumptions to determine the most likely outcome and provide for taxes, interest and penalties on this basis. In line with U.S. GAAP, we recognize the effects of a tax position in the consolidated financial statements when it is more likely than not that, based on the technical merits, some level of tax benefit related to a tax position will be sustained upon audit by tax authorities. Our experience has been that the estimates and assumptions used to provide for future tax assessments have proven to be appropriate. However, past experience is only a guide, and the potential exists that tax resulting from the resolution of current and potential future tax disputes may differ materially from the amount accrued. In such an event, we will record additional tax expense or tax benefit in the period in which such resolution occurs. New accounting pronouncements See Note 2 “Basis of presentation and significant accounting policies” in our consolidated financial statements under the heading “Recent accounting pronouncements.”