XML 21 R10.htm IDEA: XBRL DOCUMENT

Note 3 - Business Combinations and Dispositions

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

3.	Business combinations and dispositions

Frank’s International N.V.

As discussed in Note 1 “Business description,” the Merger of Frank’s with Legacy Expro pursuant to the Merger Agreement was completed on October 1, 2021. U.S. GAAP requires the determination of the accounting acquirer, the acquisition date, the fair value of assets and liabilities of the acquired business and the resulting measurement of goodwill. The Merger is accounted for as a reverse merger and Legacy Expro has been identified as the acquirer for accounting purposes. As a result, the Company has in accordance with ASC 805, Business Combinations, applied the acquisition method of accounting to account for Frank’s assets acquired and liabilities assumed. Applying the acquisition method of accounting includes recording the identifiable assets acquired and liabilities assumed at their fair values and recording goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed.

The Merger consideration was based on Frank’s closing share price on the Closing Date. In a reverse merger involving only the exchange of equity, the fair value of the equity of the accounting acquiree may be used to measure consideration transferred if the value of the accounting acquiree’s equity interests are more reliably measurable than the value of the accounting acquirer’s equity interest. As Legacy Expro was a private company and Frank’s was a public company with a quoted and reliable market price, the fair value of Frank’s equity interests was deemed to be more reliable. Under the acquisition method of accounting, total consideration exchanged was as follows:

						*Per share*				*Amount*
		*Shares issued*				*price*				*(in thousands)*
Issuance of common stock attributable to Frank’s stockholders			38,066,216			$	18.90			$	719,452
Replacement of Frank’s equity awards											7,830
Cash payment to Mosing Holdings LLC pursuant to the amended and restated tax receivable agreement											15,000
Total Merger Consideration Exchanged										$	742,282

The following table sets forth the allocation of the merger consideration exchanged to the fair value of identifiable tangible and intangible assets acquired and liabilities assumed as of the Closing Date, with the recording of goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed (in thousands):

		*Initial allocation of the consideration*				*Measurement period adjustments*				*Allocation of consideration as of September 30, 2022*
Cash and cash equivalents		$	187,178			$	-			$	187,178
Restricted cash			2,561				-				2,561
Accounts receivables, net			112,234				(1,020	)			111,214
Inventories			69,567				(109	)			69,458
Assets held for sale			10,061				-				10,061
Income tax receivables			2,030				-				2,030
Other current assets			23,908				(862	)			23,046
Property, plant and equipment			212,639				(2,479	)			210,160
Goodwill			154,399				41,077				195,476
Intangible assets			104,791				-				104,791
Operating lease right-of-use assets			27,406				-				27,406
Other assets			20,494				(70	)			20,424
Total assets			927,268				36,537				963,804
Accounts payable and accrued liabilities			81,959				3,876				85,835
Operating lease liabilities			8,344				-				8,344
Current income tax liabilities			8,932				9,862				18,794
Other current liabilities			19,918				12,108				32,026
Deferred tax liabilities			5,673				-				5,673
Non-current operating lease liabilities			19,607				-				19,607
Other non-current liabilities			40,553				10,691				51,244
Total Liabilities			184,986				36,537				221,523

Total Merger Consideration Exchanged		$	742,282			$	(0	)		$	742,281

The preliminary valuation of the assets acquired and liabilities assumed, including other current liabilities, in the Merger initially resulted in goodwill of $154.4 million. During the third quarter of 2022, the Company finalized the valuation and recorded measurement period adjustments to its preliminary estimates due to additional information received primarily related to accounts payable and accrued liabilities, other current liabilities (please see Note 17 “Commitments and contingencies” for additional information), other non-current liabilities and income taxes. The measurement period adjustments resulted in an increase in goodwill of $41.1 million, for final total goodwill associated with the Merger of $195.5 million. The fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either through the use of the relief-from-royalty method or the multi-period excess earnings method, which are discounted to approximate their current value. The estimated useful lives are based on management’s historical experience and expectations as to the duration of time that benefits from these assets are expected to be realized.

The intangible assets will be amortized on a straight-line basis over an estimated 10 to 15 year life. We expect annual amortization to be approximately $7.7 million associated with these intangible assets.

Goodwill is not amortized but rather subject to an annual impairment test, absent any indicators of impairment prior to the annual testing date. Goodwill is attributable to planned synergies expected to be achieved from the combined operations of Legacy Expro and Frank’s. Goodwill recorded in the Merger is not expected to be deductible for tax purposes.

Unaudited Pro Forma Financial Information

The following unaudited pro forma consolidated results of operations for the three and nine months ended September 30, 2021 assume the Merger was completed as of January 1, 2020 (in thousands):

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Unaudited pro forma revenues
$ 312,488 $ 847,686

Unaudited pro forma net loss
$ (23,455 ) $ (81,692 )

Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the Merger been completed on the date indicated or of future operating results.

Merger and integration expense

During the three months ended September 30, 2022 and 2021, the Company incurred $1.6 million and $9.6 million, respectively, of merger and integration expense which consist primarily of legal fees, professional fees, integration, severance and other costs directly attributable to the Merger. During the nine months ended September 30, 2022 and 2021, the Company incurred $8.6 million and $19.1 million, respectively, of merger and integration expense which consist primarily of legal fees, professional fees, integration, severance and other costs directly attributable to the Merger.

Below is a reconciliation of our liability balance associated with our severance plan initiated during 2021 related to the integration in connection with the Merger, which is included in “Other current liabilities” on the condensed consolidated balance sheets (in thousands):

NLA

ESSA

MENA

APAC

Central

Total

Balance as of December 31, 2021
$ 2,057 $ 2,502 $ 424 $ 617 $ 6,615 $ 12,215

Expense (reversal) during the period
(256 ) (395 ) 34 401 1,282 1,066

Payments made during the period
(1,564 ) (1,491 ) (441 ) (711 ) (7,207 ) (11,414 )

Balance as of September 30, 2022
$ 237 $ 616 $ 17 $ 307 $ 690 $ 1,867