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Note 3 - Business Combinations and Dispositions | 12 Months Ended
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Dec. 31, 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, 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 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 December 31, 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 |  |  |  | 963,805 |
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 |  |  | $ | - |  |  | $ | 742,282 |
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 18 “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 will not be amortized but rather subject to an annual impairment test, absent any indicators of impairment. 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. Results of Frank’s for the period October 1, 2021 through December 31, 2021 The Company’s operating results for the period October 1, 2021 through December 31, 2021 include $112.1 million of revenue and $32.9 million of net loss attributable to Frank’s. Unaudited Pro Forma Financial Information The following unaudited pro forma consolidated results of operations for the year ended December 31, 2021 and 2020 assume the Merger was completed as of January 1, 2020 (in thousands):
|  | Year Ended December 31, |
|  | 2021 |  |  | 2020 |
Unaudited pro forma revenues |  | $ | 1,143,356 |  |  | $ | 1,065,384 |
Unaudited pro forma net loss |  | $ | (121,546 | ) |  | $ | (491,091 | )
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 year ended December 31, 2022, 2021 and 2020, the Company incurred $13.6 million, $47.6 million and $1.6 million of merger and integration expense respectively, 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 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 | ) |  | $ | (808 | ) |  | $ | 34 |  |  | $ | 646 |  |  | $ | 1,707 |  |  |  | 1,323 |
Payments made during the year |  |  | (1,675 | ) |  |  | (1,634 | ) |  |  | (458 | ) |  |  | (1,176 | ) |  |  | (7,880 | ) |  |  | (12,823 | )
Balance as of December 31, 2022 |  | $ | 126 |  |  | $ | 60 |  |  | $ | - |  |  | $ | 87 |  |  | $ | 442 |  |  | $ | 715 |
Sale of assets On November 13, 2020, Legacy Expro entered into an agreement to transfer, sell and assign all rights, title and interest in and to certain identified tangible and intangible assets and liabilities relating to its pressure-control chokes product line for total cash consideration of $15.5 million and an additional earn-out consideration of up to a maximum of $1.0 million, contingent upon certain criteria being met in the following year. No contingent consideration was recognized during the year ended December 31, 2020. Legacy Expro recognized a gain of $10.1 million for the year ended December 31, 2020 net of the carrying value of the assets transferred of $4.4 million and costs directly attributable to the sale of $1.0 million. As of December 31, 2021, the conditions upon which the earn-out consideration was contingent were met. As a result, the Company recognized a gain of $1.0 million for the year ended December 31, 2021.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI https://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 + Details
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