EXPRO GROUP HOLDINGS N.V. (XPRO) FY 2023 MD&A

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.

This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Unless otherwise indicated, references to the terms “Frank’s” refers to Frank’s International N.V., the predecessor reporting entity prior to the Merger, references to “Legacy Expro” refer to Expro Group Holdings International Limited, the entity acquired by the Company, and references to “Expro,” the “Company,” “we,” “our,” and “us” refer to Expro Group Holdings N.V., following the consummation of the Merger and unless the context otherwise requires, Frank’s prior to the consummation of the Merger.

Overview of Business

Working for clients across the entire well life cycle, we are a 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 8,000 employees and provide services and solutions to leading exploration and production companies in both onshore and offshore environments in approximately 60 countries.

Our broad portfolio of products and services are designed to enhance production and improve recovery across the well lifecycle from exploration through abandonment, including:

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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.

For the year ended December 31, 2023, approximately 82% of our revenue was generated outside of the United States and approximately 66% of our revenue was generated by activities related to offshore oil and gas operations. Approximately 63% of our revenue was generated by services tied to drilling and completions-related activities, which are generally funded by customers’ capital expenditures, and approximately 37% of our revenue was generated by production optimization related activities, which are generally funded by customers’ operating expenditures.

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Market Conditions and Price of Oil and Gas

The fourth quarter of 2023 has seen continued growth and increased activity as the market rebounds from the effects of the COVID-19 pandemic and Russia’s invasion of Ukraine, with limited effect currently from the heightened tensions resulting from the ongoing conflicts in the Middle East. There are a number of market factors that have had, and may continue to have, an effect on our business, including:

Outlook

Global liquids demand growth continued in the final quarter of 2023 and is forecast to continue to grow in 2024. Demand growth combined with a slowing production growth due to the extension of voluntary OPEC+ supply cuts, as well as reduced non-OPEC supply growth, is expected to lead to inventory withdrawals in the first quarter of 2024, which in turn will continue to support higher oil prices.

The U.S. Energy Information Administration (“EIA”) predicts that global liquid fuels consumption will average 102.5 million b/d in 2024, continuing growth from pre-pandemic levels and increasing by 1.4 million b/d over 2023. Global liquids demand is then expected to grow by an additional 1.2 million b/d to reach 103.7 million b/d in 2025. Global liquids demand growth is mostly from countries outside the Organization for Economic Co-operation and Development (“OECD”) in Asia, led by China and India, with OECD countries demand growth expected to remain mostly flat in 2024 and 2025.

The EIA forecasts that global liquids production will average 102.3 million b/d in 2024 - an increase of 0.6 million b/d over 2023 – and average 104.0 million b/d in 2025, a further 1.6 million b/d increase over 2024. Supply growth in 2024 is down from the increases seen in 2023 as a result of extended OPEC+ production cuts and slowing non-OPEC growth. OPEC+ crude oil production is expected to decline by 0.6 million b/d in 2024, which is offset by 1.2 million b/d production growth outside of the group. The main drivers of the slowdown in production growth are the United States, Canada and Brazil, offset by supply growth from Guyana.

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As a result of the inventory withdrawals expected in the first quarter of 2024, the EIA forecasts that Brent prices will average $85/bbl for this period. Supply and demand dynamics are then expected to improve with relatively balanced markets for the remainder of 2024 placing downward pressure on crude oil prices. As a result, the EIA expects Brent crude oil prices to average $82/bbl for 2024 and $79/bbl for 2025.

In addition to the continued positive oil market outlook, global natural gas prices are expected to remain elevated as the market remains fundamentally tight.

The EIA estimates that annual average Henry Hub prices will remain under $3.00 per million British thermal unit (“MMBtu”) for 2024 and 2025, though they are expected to increase from an average of $2.54/MMBtu in 2023 to reach $2.66/MMBtu in 2024 and $2.95/MMBtu in 2025, respectively. The modest increase in prices is driven by an increase in LNG exports, however, further upward pricing pressure is limited by high levels of inventory. Rystad Energy forecasts spot prices at the European Title Transfer Facility and Northeast Asian LNG will average $12.20/MMBtu and $13.20/MMBtu respectively for 2024, as balances have loosened through a milder winter. Prices are expected to see higher than normal volatility where shocks in demand or supply may drive short-term price spikes.

Consequently, the market outlook for 2024 is generally constructive with high commodity prices relative to the last several years driving growth in exploration and production expenditures and the highest level of upstream investment expected since 2015. Strong investment growth is expected in the deepwater and offshore shelf segments with support from large projects in Norway, Brazil, Guyana and the continuation of production capacity expansion projects in the Middle East, driven by Saudi Arabia, the United Arab Emirates and Qatar.

As a result, we expect demand for our services and solutions to continue trending positively throughout 2024. The following provides an outlook for 2024 by our reporting segments based on data from Spears and Associates, Inc.

NLA: Drilling activity in North America is forecast to decline by 6% in 2024 to an average of 648 active rigs as both large and small operators strive for continued capital discipline, creating a ceiling on potential growth as they prioritize financial returns. Completion activity is expected to hold steady in 2024, with a total of about 18,100 well completions and 13,000 frac jobs. The uptick in merger and acquisition activity in 2023 and continuing into 2024 may contribute to a slower recovery in drilling activity as new owners prioritize production growth from existing assets. In Latin America, drilling activity is estimated to increase by 6% in 2024 to an average of 191 active rigs, accounting for over 2,500 new wells driven by Mexico, Argentina and Brazil. Mexico, Argentina and Colombia are expected to collectively account for 75-80% of overall Latin American rig activity in 2024. After Brazil, the top four producing nations in Latin America are Mexico, Venezuela, Colombia and Argentina, with Guyana expected to soon take over third place.

ESSA: European drilling activity is now expected to average 101 active rigs in 2024, up by 4%, accounting for over 850 new wells. Ukraine, Norway and the U.K. are expected to collectively account for over approximately 75% of overall European rig activity in 2024. Onshore drilling in Europe is forecast to average 68 active rigs in 2024, up by 5%, accounting for over 450 new wells. Offshore drilling activity is predicted to grow by 3% in 2024, averaging 33 active rigs as North Sea activity is constrained by the exodus of rigs from Norwegian waters for international contracts in Namibia, Brazil and Australia. Drilling activity in Africa is projected to average 156 active rigs in 2024, up by 15%, accounting for almost 1,250 new wells, with activity in Namibia and Uganda continuing to increase. Onshore drilling activity is expected to improve by 16% in 2024 to average 124 active rigs, drilling 850 new wells, while offshore drilling activity is predicted to increase by 10% to average 32 active rigs, drilling around 375 new wells.

MENA: In the Middle East, drilling activity is now expected to average 343 active rigs in 2024, up by 9%, accounting for almost 2,600 new wells. Saudi Arabia, Iraq and Abu Dhabi are expected to collectively account for around 65% of overall Middle Eastern rig activity in 2024. The growth is driven by analysts estimates that state-owned national oil companies in the region could potentially spend up to $100 billion this year on upstream investment, despite some projections that crude oil could reach peak demand before the end of this decade. Onshore drilling in the Middle East is now projected to increase by 10% in 2024 to an average of 296 active land rigs, drilling about 2,500 new wells, while offshore activity is forecast to increase by 12%, averaging 46 active rigs drilling almost 340 new wells. In addition, there is increasing focus on carbon capture, utilization and storage projects, with one NOC recently doubling its CO2 capture target, for example

APAC: Based on the outlook for oil prices, drilling activity in the Asia Pacific region is now forecast to average 191 active rigs in 2024, up by 6%, accounting for almost 2,800 new wells. India, Indonesia and Australia are projected to collectively account for around 75% of overall rig activity in the region in 2024. Onshore drilling in the region is forecast to increase by 5% to average 143 active land rigs drilling about 1,750 new wells, while offshore activity is projected to rise by 7% to an average of 48 active rigs, accounting for a total of almost 1,050 new wells. LNG development projects are driving the activity growth in Australia and Indonesia as operators look to meet the increased global demand driven by energy security concerns and the energy transition.

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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 income (loss), the most directly comparable financial performance measure calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and a reconciliation of Adjusted Cash Flow from Operations to net cash provided by (used in) operating activities, the most directly comparable liquidity measure calculated and presented in accordance with GAAP.

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Executive Overview

Year ended December 31, 2023 compared to year ended December 31, 2022

Certain highlights of our financial results and other key developments include:

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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 income (loss), the most directly comparable financial performance measure calculated and presented in accordance with GAAP, to Adjusted EBITDA. We also provide a reconciliation of Adjusted Cash Flow from Operations to net cash provided by (used in) operating activities, the most directly comparable liquidity measure calculated and presented in accordance with GAAP.

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Cash Flow from Operations and Cash Conversion are used as supplemental financial measures by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others. These non-GAAP financial measures allow our management and others to assess our financial and operating performance as compared to those of other companies in our industry, without regard to the effects of our capital structure, asset base, items outside the control of management and other charges outside the normal course of business.

We define Adjusted EBITDA as net income (loss) adjusted for (a) income tax expense (benefit), (b) depreciation and amortization expense, (c) impairment expense, (d) severance and other expense, net, (e) stock-based compensation expense, (f) merger and integration expense, (g) (gain) loss on disposal of assets, (h) other (income) expense, net, (i) interest and finance (income) expense, net and (j) foreign exchange (gain) loss. Adjusted EBITDA margin reflects our Adjusted EBITDA as a percentage of revenues.

We define Adjusted Cash Flow from Operations as net cash provided by (used in) operating activities adjusted for cash paid during the period for interest, net, severance and other expense and merger and integration expense. We define Cash Conversion as Adjusted Cash Flow from Operations divided by Adjusted EBITDA.

Adjusted EBITDA, 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.

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The following table presents a reconciliation of net loss to Adjusted EBITDA for each of the periods presented (in thousands):

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):

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Selected Unaudited Financial Information for the Three Months Ended December 31, 2023 and September 30, 2023

Operating Segment Results

The following table shows revenue by segment and revenue as a percentage of total revenue by segment for the three months ended December 31, 2023 and September 30, 2023:

The following table shows the Segment EBITDA and Segment EBITDA as a percentage of total revenue by segment (“Segment EBITDA margin”) and a reconciliation to income (loss) before income taxes for the three months ended December 31, 2023 and September 30, 2023:

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Quarter ended December 31, 2023 compared to quarter ended September 30, 2023

NLA

Revenue for the NLA segment was $145.5 million for the three months ended December 31, 2023, an increase of $40.2 million, or 38.2%, compared to $105.3 million for the three months ended September 30, 2023. The increase was primarily due to additional subsea well access revenue following the acquisition of PRT Offshore at the beginning of the fourth quarter, higher well flow management revenue in Mexico, and higher well construction revenue in the U.S. due to increased customer activity.

Segment EBITDA for the NLA segment was $44.3 million, or 30.5% of revenues, during the three months ended December 31, 2023, compared to $20.0 million, or 19.0% of revenues, during the three months ended September 30, 2023. The increase of $24.3 million in Segment EBITDA was attributable to higher activity and the increase in Segment EBITDA margin was attributable to improved operating leverage and a more favorable activity mix during the three months ended December 31, 2023.

ESSA

Revenue for the ESSA segment was $133.8 million for the three months ended December 31, 2023, a decrease of $1.6 million, or 1.2%, compared to $135.4 million for the three months ended September 30, 2023. The decrease in revenues was primarily driven by lower well flow management revenue in Congo, partially offset by higher well flow management and subsea well access revenue in Equatorial Guinea.

Segment EBITDA for the ESSA segment was $41.0 million, or 30.6% of revenues, for the three months ended December 31, 2023, an increase of $1.7 million, or 4.3%, compared to $39.3, or 29.0% of revenues, for the three months ended September 30, 2023. The increase in Segment EBITDA and Segment EBITDA margin was primarily attributable to a more favorable activity mix during the three months ended December 31, 2023.

MENA

Revenue for the MENA segment was $65.4 million for the three months ended December 31, 2023, an increase of $7.3 million, or 12.6%, compared to $58.1 million for the three months ended September 30, 2023. The increase in revenue was driven by higher well flow management services revenue in Algeria and the Kingdom of Saudi Arabia and by higher well construction revenue in Morocco.

Segment EBITDA for the MENA segment was $21.3 million, or 32.5% of revenues, for the three months ended December 31, 2023, an increase of $4.4 million, or 26.0%, compared to $16.9 million, or 29.1% of revenues, for the three months ended September 30, 2023. The increase in Segment EBITDA and Segment EBITDA margin was primarily due to higher activity, improved operating leverage and a more favorable activity mix during the three months ended December 31, 2023.

APAC

Revenue for the APAC segment was $62.1 million for the three months ended December 31, 2023, a decrease of $9.0 million, or 12.7%, compared to $71.1 million for the three months ended September 30, 2023. The decrease in revenue was primarily due to lower subsea well access revenue in Australia, where we suspended vessel-deployed LWI operations, and China, partially offset by higher subsea well access revenue in Malaysia and well flow management revenue in Malaysia and Australia.

Segment EBITDA for the APAC segment was $5.3 million, or 8.6% of revenues, for the three months ended December 31, 2023, an increase of $9.6 million compared to ($4.3) million, or (6.0)% of revenues, for the three months ended September 30, 2023. The increase in Segment EBITDA (despite the decrease in revenues) was primarily due to lower operating costs within our LWI business during the three months ended December 31, 2023 following our suspension of vessel-deployed LWI operations during the third quarter of 2023. For the three months ended December 31, 2023, Segment EBITDA includes unrecoverable LWI-related costs of $4.3 million. Segment EBITDA for the three months ended September 31, 2023 include unrecoverable LWI-related costs of $15.3 million. Excluding unrecoverable LWI-related costs, APAC Segment EBITDA for the fourth and third quarter of 2023 would have been $9.6 million or 15.5% of revenue and $11.0 million or 15.5% of revenue, respectively.

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Results of Operations for the years ended December 31, 2023, 2022 and 2021

Operating Segment Results

We evaluate our business segment operating performance using segment revenue and Segment EBITDA, as described in Note 5 “Business segment reporting” in our consolidated financial statements. We believe Segment EBITDA is a useful operating performance measure as it excludes non-cash charges and other transactions not related to our core operating activities and corporate costs, and Segment EBITDA allows management to more meaningfully analyze the trends and performance of our core operations by segment as well as to make decisions regarding the allocation of resources to our segments.

The following table shows revenue by segment and revenue as a percentage of total revenue by segment for the years ended December 31, 2023, 2022 and 2021:

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The following table shows Segment EBITDA and Segment EBITDA margin by segment and a reconciliation to income (loss) before income taxes for the years ended December 31, 2023 and December 31, 2022:

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Year ended December 31, 2023 compared to the year ended December 31, 2022

NLA

Revenue for the NLA segment was $511.8 million for the year ended December 31, 2023, an increase of $12.0 million, or 2.4%, compared to $499.8 million for the year ended December 31, 2022. The increase in revenue is primarily due to higher subsea well access revenue in the U.S., higher well intervention and integrity activity in South America, and higher well construction activity in Mexico, offset by lower well flow management revenue in Mexico and Canada.

Segment EBITDA for the NLA segment was $132.9 million, or 26.0% of revenues, during the year ended December 31, 2023, compared to $135.2 million or 27.1% of revenues during the year ended December 31, 2022, a decrease of $2.3 million. The decrease was attributable to less favorable activity mix during the year ended December 31, 2023.

ESSA

Revenue for the ESSA segment was $521.0 million for the year ended December 31, 2023, an increase of $131.7 million, or 33.8%, compared to $389.3 million for the year ended December 31, 2022. The increase is primarily attributable to higher well flow management revenue during the year ended December 31, 2023, driven by a long-term, LNG related construction project in Congo. The increase in Congo revenue was supplemented by higher well intervention and integrity revenue in the U.K. and higher subsea well access revenue in Central and West Africa, Angola and Azerbaijan partially offset by lower subsea revenue in Norway. Also contributing to the increase in revenue was higher well construction revenue in Southeast Africa, offset by lower well construction revenue in Norway.

Segment EBITDA for the ESSA segment was $136.0 million, or 26.1% of revenues, during the year ended December 31, 2023, compared to $74.7 million, or 19.2% of revenues, during the year ended December 31, 2022, an increase of $61.3 million. The increase was attributable to higher activity, improved absorption of geography-based support costs, and more favorable activity mix during the year ended December 31, 2023.

MENA

Revenue for the MENA segment was $233.5 million for the year ended December 31, 2023, an increase of $32.0 million, or 15.9%, compared to $201.5 million for the year ended December 31, 2022. The increase was driven by higher well flow management, well construction and well intervention and integrity revenue in Saudi Arabia, and higher well construction revenue in the United Arab Emirates, Egypt, and Morocco.

Segment EBITDA for the MENA segment was $71.2 million, or 30.5% of revenues, during the year ended December 31, 2023, compared to $63.3 million, or 31.4% of revenues during the year ended December 31, 2022. The increase of $7.9 million was attributable to higher activity during the year ended December 31, 2023.

APAC

Revenue for the APAC segment was $246.5 million for the year ended December 31, 2023, an increase of $57.7 million, or 30.6%, compared to $188.8 million for the year ended December 31, 2022. The increase was primarily attributable to higher subsea well access revenue in Australia, China and Malaysia. Also contributing to the increase was higher well intervention and integrity and well construction activity in Southeast Asia.

Segment EBITDA for the APAC segment was $1.8 million, or 0.7% of revenues, during the year ended December 31, 2023, compared to $4.9 million, or 2.6% of revenues, during the year ended December 31, 2022. The decrease in Segment EBITDA despite the increase in revenues was primarily due to unrecoverable LWI-related costs in APAC of $35.9 million incurred during the year ended December 31, 2023. Comparatively, during the year ended December 31, 2022, the Company incurred unrecoverable LWI-related costs of $27.7 million. Excluding $35.9 million and $27.7 million of unrecoverable LWI-related costs during the years ended December 31, 2023 and 2022, respectively, APAC Segment EBITDA would have been $37.7 million and $32.6 million and APAC segment Adjusted EBITDA margin would have been 15.3% and 17.3%, respectively.

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Corporate Costs

Corporate costs for the year ended December 31, 2023 increased by $18.3 million, or 20.9%, to $105.9 million, as compared to $87.6 million, for the year ended December 31, 2022. The increase in the corporate costs is generally proportional with increases in activity and revenue year over year.

Equity in income of joint ventures

Equity in income of joint ventures for the year ended December 31, 2023 decreased by $2.8 million, or 17.8%, to $12.9 million as compared to $15.7 million for the year ended December 31, 2022. The decrease reflects lower income from our joint venture in China compared to the previous year.

Depreciation and amortization expense

Depreciation and amortization expense for the year ended December 31, 2023 increased by $32.5 million or 23.2% to $172.3 million as compared to $139.8 million for the year ended December 31, 2022. The increase was primarily due to $19.3 million of accelerated depreciation expense related to the subsea module (“SSM”) of Expro’s vessel-deployed LWI system and related equipment.

Merger and integration expense

Merger and integration expense for the year ended December 31, 2023 decreased by $3.8 million, to $9.8 million as compared to $13.6 million for the year ended December 31, 2022. The decrease was primarily attributable to lower legal and other professional fees, and lower integration and other costs related to acquisitions incurred during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Severance and other expense

Severance and other expense for the year ended December 31, 2023 increased by $6.6 million, to $14.4 million as compared to $7.8 million for the year ended December 31, 2022. The increase was primarily attributable to unrecoverable LWI-related costs and a change in the fair value of deferred consideration.

Other income

Other income for the year ended December 31, 2023 was $1.2 million as compared to other income of $3.1 million for the year ended December 31, 2022. The decrease of $1.9 million is primarily attributable to increase in interest cost on post retirement benefits.

Interest and finance expense, net

Interest and finance expense, net, for the year ended December 31, 2023, was $3.9 million compared to $0.2 million for the year ended December 31, 2022. The increase in interest and finance expense of $3.7 million was primarily due to fees incurred with respect to the Amended and Restated Facility Agreement (as defined below) established during the year ended December 31, 2023.

Income tax (expense) benefit

Income tax expense for the year ended December 31, 2023 was $44.3 million, compared to an income tax expense of $41.2 million for the year ended December 31, 2022. Our statutory tax rate for the years ended December 31, 2023 and December 31, 2022 was 25.8%. The effective tax rate was 547.4% and 768.0% for the years ended December 31, 2023 and 2022 respectively. 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.

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Liquidity and Capital Resources

Liquidity

Our financial objectives include the maintenance of sufficient liquidity, adequate financial resources and financial flexibility to fund our business. As of December 31, 2023, total available liquidity was $298.4 million, including cash and cash equivalents and restricted cash of $151.7 million and $146.7 million available for borrowings under our Amended and Restated Facility Agreement. Expro believes these amounts, along with cash generated by ongoing operations, will be sufficient to meet future business requirements for the next 12 months and beyond. Our primary sources of liquidity have been cash flows from operations. Our primary uses of capital have been for capital expenditures, acquisitions and repurchases of company stock. We monitor potential capital sources, including equity and debt financing, in order to meet our investment and liquidity requirements.

Our total capital expenditures are estimated to range between $130.0 million and $140.0 million for 2024. Our total capital expenditures were $122.1 million for the year ended December 31, 2023, out of which approximately 90% were used for the purchase or 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. We continue to focus on preserving and protecting our strong balance sheet, optimizing utilization of our existing assets and, where practical, limiting new capital expenditures.

On October 25, 2023, the Board approved an extension to the stock repurchase program first approved on June 16, 2022. Pursuant to the extended stock repurchase program, we are authorized to acquire up to $100.0 million of our outstanding common stock from October 25, 2023 through November 24, 2024 (the “Stock Repurchase Program”). Under the Stock Repurchase Program, we may repurchase shares of our common stock in open market purchases, in privately negotiated transactions or otherwise. The Stock Repurchase Program will continue to be utilized at management’s discretion and in accordance with federal securities laws. The timing and actual numbers of shares repurchased will depend on a variety of factors including price, corporate requirements, the constraints specified in the Stock Repurchase Program along with general business and market conditions. The Stock Repurchase Program does not obligate the Company to repurchase any particular amount of common stock, and it could be modified, suspended or discontinued at any time. During the year ended December 31, 2023, under the Stock Repurchase Program we repurchased 1.2 million shares of our common stock at an average price of $16.70 for a total cost of approximately $20.0 million, including shares repurchased prior to the extension of the Stock Repurchase Program. During the year ended December 31, 2022, we repurchased 1.1 million shares at an average price of $11.81 per share, for a total cost of $13.0 million under the preceding program.

Credit Facility

Revolving Credit Facility

On October 6, 2023, we amended and restated our previous facility agreement pursuant to an amendment and restatement agreement (the “Amended and Restated Facility Agreement”) with DNB Bank ASA, London Branch, as agent in order to extend the maturity of the Amended and Restated Facility Agreement for a further 36 months and increase the total commitments to $250.0 million, of which $166.7 million was available for drawdowns as loans and $83.3 million was available for letters of credit. The Company has the ability to increase the commitments to $350.0 million.

Please see Note 16 “Interest bearing loans” in the Notes to the Consolidated Financial Statements for additional information.

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Cash flow from operating, investing and financing activities

Cash flows provided by our operations, investing and financing activities are summarized below (in thousands):

Analysis of cash flow changes between the years ended December 31, 2023 and 2022

Net cash provided by operating activities

Net cash provided by operating activities was $138.3 million during the year ended December 31, 2023 as compared to $80.2 million during the year ended December 31, 2022. The increase in net cash provided by operating activities of $58.1 million, was primarily driven by an increase in Adjusted EBITDA of $42.7 million and favorable movement in working capital by $22.0 million, partially offset by higher payments for income taxes of $11.1 million for the year ended December 31, 2023.

Adjusted Cash Flow from Operations during the year ended December 31, 2023 was $170.2 million compared to $115.3 million during the year ended December 31, 2022. Our primary uses of net cash provided by operating activities were capital expenditures, acquisitions and repurchases of company stock.

Net cash used in investing activities

Net cash used in investing activities was $148.2 million during the year ended December 31, 2023 as compared to $71.2 million during the year ended December 31, 2022, an increase of $77.0 million. Our principal recurring investing activity is our capital expenditures. The increase in net cash used in investing activities was primarily due to increase in capital expenditures of $40.0 million, payment for acquisition of business of $28.7 million, lower proceeds from sale/maturity of investments of $10.8 million and lower proceeds from disposal of assets of $5.2 million. In addition, cash used to acquire technology of $7.9 million during 2022 was not repeated in 2023.

Net cash used in financing activities

Net cash used in financing activities was $49.1 million during the year ended December 31, 2023 as compared to $25.6 million during the year ended December 31, 2022. The increase of $23.5 million in net cash used in financing activities is primarily due to net repayments of long term borrowings of $15.1 million and an increase in the repurchase of our common stock of $7.0 million.

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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, 2023, we had no material off-balance sheet financing arrangements other than those discussed above.

Critical accounting policies and estimates

The preparation of consolidated financial statements and related disclosures in conformity with 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 a period of 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.

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 recognize revenue for long-term construction-type contracts, involving significant design and engineering efforts in order to satisfy custom designs for customer-specific applications, on an over a period of time basis, using an input method, which represents the ratio of actual costs incurred to date on the project in relation to total estimated project costs. The estimate of total project costs has a significant impact on both the amount of revenue recognized as well as the related profit on a project. Revenue and profits on contracts can also be significantly affected by change orders and claims. Profits are recognized based on the estimated project profit multiplied by the percentage complete. Due to the nature of these projects, adjustments to estimates of contract revenue and total contract costs are often required as work progresses. Any expected losses on a project are recorded in full in the period in which they are identified.

We are required to determine the transaction price in respect of each of our contracts with customers. In making such judgment, we 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.

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Business Combinations

We record business combinations using the acquisition method of accounting. All of the assets acquired and liabilities assumed are recorded at estimated fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill.

The application of the acquisition method of accounting for business combinations requires management to make significant estimates and assumptions in 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 what we believe to be an 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. Refer to Note 3 “Business combinations and dispositions” of our consolidated financial statements for further details.

Goodwill

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 years ended December 31, 2023, 2022 and 2021. We used the income approach and the market approach to estimate the fair value of our reporting units. The income approach estimates the fair value by discounting the reporting unit’s estimated future cash flows using what we believe to be 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.

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Defined benefit plans

Our post-retirement benefit obligations are described in detail in Note 19 “Post-retirement benefits” of our consolidated financial statements. Defined pension benefits are calculated using significant inputs to the actuarial models that measure pension benefit obligations and related effects on operations. Two assumptions, discount rate and expected return on assets, are important elements of plan asset/liability measurement and are updated on an annual basis, or more frequently if events or changes in circumstances so indicate.

We evaluate these critical assumptions at least annually on a plan and country specific basis. We periodically evaluate other assumptions involving demographic factors such as retirement age, mortality and turnover, and update them to reflect our experience and expectations for the future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.

The discount rate that we use reflects the market rate of a portfolio of high-quality corporate bonds with maturities approximately matching the expected timing of payment of the related benefit obligations. The discount rates used to determine the benefit obligations for our principal pension plans were 4.5% in 2023, 4.7% in 2022 and 1.8% in 2021, reflecting market interest rates. As of December 31, 2023, we estimate that a 1% increase or decrease in the discount rate would result in an impact of approximately $19.7 million to our present value of defined benefit obligations as of December 31, 2023.

The expected rate of return on plan assets represents the average rate of return expected to be earned on plan assets over the period that benefits included in the benefit obligation are expected to be paid, with consideration given to the distribution of investments by asset class and historical rates of return for each individual asset class. The weighted average expected rate of return on plan assets for the pension plans was 5.8% in 2023, 5.6% in 2022 and 3.2% in 2021. A change in the expected rate of return of 1% would impact our net periodic pension expense by $1.4 million.

Income Taxes

We use the asset and liability method to account for income taxes whereby we calculate the deferred tax asset or liability account balances using tax laws and rates in effect at that time. Under this method, the balances of deferred tax liabilities and assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Valuation allowances are recorded to reduce gross deferred tax assets when it is more likely than not that all or some portion of the gross deferred tax assets will not be realized. In determining the need for valuation allowances, we have made judgments and considered estimates regarding estimated future taxable income and available tax planning strategies. These estimates and judgments include some degree of uncertainty, therefore changes in these estimates and assumptions could require us to adjust the valuation allowances for our deferred tax assets accordingly. The ultimate realization of the deferred tax assets depends on the generation of sufficient taxable income in the applicable taxing jurisdictions.

We operate in approximately 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 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”.

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