EXPRO GROUP HOLDINGS N.V. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Form 10-Q and the audited consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report. Management believes the comparison of the most recently completed quarter to the immediately preceding quarter provides more relevant information needed to understand and analyze the business as given the cyclical nature of our industry over the past decade, we believe a sequential discussion provides a more relevant analysis of our business results. As such, pursuant to Item 303(c)(2)(ii) of Regulation S-K, we have elected to discuss any material changes in our results of operations by including a comparison of our most recently completed quarter to the immediately preceding quarter.
This section contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in any forward-looking statement because of various factors, including those described in the sections titled "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" of this Form 10-Q.
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 toExpro Group Holdings International Limited , the entity acquired by the Company in the Merger, and references to "Expro," the "Company," "we," "our," and "us" refer toExpro 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.
Our broad portfolio of products and services are designed to enhance production and improve recovery across the well lifecycle from exploration through abandonment, including:
Well Construction
• Our well construction products and services support customers' new wellbore
drilling, wellbore completion and recompletion, and wellbore plug and
abandonment requirements. In particular, we offer advanced technology
solutions in drilling, tubular running services, cementing and tubulars. With
a focus on innovation, we are continuing to advance the way wells are
constructed by optimizing process efficiency on the rig floor, developing new
methods to handle and install tubulars and mitigating well integrity risks.
Well Management
Our well management offerings consist of well flow management, subsea well access and well intervention and integrity services:
• Well flow management: We gather valuable well and reservoir data, with a
particular focus on well-site safety and environmental impact. We provide
global, comprehensive well flow management systems for the safe production,
measurement and sampling of hydrocarbons from a well during the exploration
and appraisal phase of a new field; the flowback and clean-up of a new well
prior to production; and in-line testing of a well during its production life.
We also provide early production facilities to accelerate production;
production enhancement packages to enhance reservoir recovery rates through
the realization of production that was previously locked within the reservoir;
and metering and other well surveillance technologies to monitor and measure
flow and other characteristics of wells.
•
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.
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• Well intervention and integrity: We provide well intervention solutions to
acquire and interpret 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™, a lightweight,
small-footprint solution for wellbore lifting, cleaning and chemical
treatments; Octopoda™, for fluid treatments in wellbore annuli; and Galea™, an
autonomous well intervention solution. We also possess several other distinct
technical capabilities, including non-intrusive metering technologies and
wireless telemetry systems for reservoir monitoring.
We operate a global business and have a diverse and 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)
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.
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 the first quarter of 2022 has continued to be challenged in certain geographies by COVID-19 constraints and the impact of the Russian-Ukrainian conflict, the market is showing positive signs of recovery. There are a number of market factors that have had, and may continue to have, an effect on our business, including:
• 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 operations.
• Oil demand in 2022 is forecast to exceed 2021 as the overall economic backdrop
improves through the COVID-19 pandemic recovery with liquids demand growing by
an estimated 2.4 million barrels per day ("b/d") in 2022, up from 97.4 million
b/d in 2021, rising by an additional 1.9 million b/d in 2023 to 101.7 million
b/d (which would surpass 2019 levels of 101.5 million b/d). Due to the
production curtailments by
("OPEC") and certain non-
from
pandemic, oil demand has outpaced production for over a year. Following
supply disruptions due to sanctions imposed on
reaffirmation from OPEC+ members they will increase production again, the
will outpace demand during both 2022 and 2023, resulting in rising global oil
inventories and downward pressures on oil prices. However, the ultimate impact
of sanctions on Russian exports, energy security concerns resulting from the
Russian-Ukrainian conflict, and the impact of new COVID-19 variants on
economic activity are unknown and as a result uncertainty remains in the
global oil markets.
• 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 as a result of the potential impact of new
COVID-19 variants on their activities. As a result, Expro and other oilfield
services companies continue to have limited visibility through 2022 and into
2023 on customer spending plans and the timing of an expected further increase
in activity levels.
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• In addition, increases in activity are not expected to be uniform across
geo-markets 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.
• The clean energy transition continues to gain momentum. However, hydrocarbons
will play a vital role in the transition towards more sustainable energy
resources, and the existing expertise and future innovation within the
oilfield services sector, both to reduce emissions by and enhance efficiency
within the energy industry, will be critical. We are already active in the
early-stage carbon capture and storage sector and have established operations
and developed technologies within the geothermal and flare recovery segments.
We continue to develop technologies to enhance the sustainability of our
customers' operations which, along with our digital transformation
initiatives, are expected to enable us to continue to support our
customers' commercial and environmental initiatives. As the industry changes,
we continue to evolve our approach to adapt and help our customers address the
energy transition.
• Increased expectations of host countries in regard to local content is another
multi-year trend, which gained additional momentum during the last two
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 COVID-19. These efforts have enabled us to
continue to service our customers in their ongoing operations throughout the
pandemic.
A major factor that affects our business activity is the price of oil and, to a
lesser extent, the regional price of gas, which are both driven by market supply
and demand. Changes in oil and gas prices impact customer 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.
Outlook
Demand continues to improve in the face of volatile oil prices, and activity in
2022 is forecast to be higher than in 2021, with oil demand forecast to return
to pre-pandemic levels in late 2022 or 2023.
The EIA estimates that global liquid fuels consumption will grow to 99.8 million
b/d in 2022, up from 97.4 million b/d in 2021, rising to 101.7 million b/d in
2023 (which would surpass 2019 levels of 101.5 million b/d). Counterbalancing
consumption growth, the EIA expects continuing production increases from OPEC
(+2.7 million b/d compared to 2021) and an acceleration in U.S. oil production
in 2022 (rising to 12.0 million b/d in 2022 and 13.0 million b/d in 2023, the
highest annual average U.S. crude oil production on record) that, along with
other supply increases, will 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 $104 per barrel in 2022 and $92
per barrel in 2023 compared to an average $71 per barrel in 2021.
In addition to the improving oil market outlook, global natural gas demand is
increasing due to a combination of rising economic activity, lower inventory in
storage, extreme weather events at the beginning of the quarter, and concerns of
European supply curtailments from Russia which has resulted in a renewed focus
on energy security, particularly in Europe . The EIA expects Henry Hub spot
prices to average $5.62 per million British thermal unit ("MMBtu") in the second
quarter of 2022, $5.23 /MMBtu for all of 2022 and $3.95 /MMBtu in 2023 as U.S. gas
production recovers. Rystad forecasts the European and Asian liquified natural
gas ("LNG") spot price to trade at approximately $25 /MMBtu in 2022, maintaining
the higher rates achieved in 2021 with slight downward pricing pressure in 2023
as new supplies to Europe materialize and LNG production ramps up.
The outlook for 2022 indicates a continuing modest recovery in exploration and
production expenditures, albeit at different rates in individual countries,
rather than a significant increase in activity in response to the higher oil and
gas prices. Ongoing recovery is dependent on a range of factors, including
increasing crude production offset by a slower rate of demand growth due to
increasing commodity prices as a result of the Russian-Ukrainian conflict,
slower jet fuel recovery, investor pressure on operators to exercise capital
discipline, uncertainty on COVID-19 recovery and the impact of any new variants.
We expect demand for our services and solutions to continue to trend positively throughout 2022.
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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 (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.
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Table of Contents Executive Overview
Three months ended
Certain highlights of our financial results and other key developments include:
• Revenue for the three months ended
or 5.1%, to
ended
across ESSA and APAC, partially offset by an increase in activity in NLA and
MENA. COVID-19-related project delays, particularly in APAC, also contributed
to the sequential decrease in revenue. Revenue for our segments is discussed
separately below under the heading "Operating Segment Results."
• We reported a net loss for the three months ended
ended
a combination of sequentially lower merger and integration expense of
million, stock-based compensation expense of
expense of
• Adjusted EBITDA for the three months ended
months ended
to lower activity during the three months ended
offset by lower corporate costs. Adjusted EBITDA margin decreased to 13.1%
during the three months ended
three months ended
• Net cash used in operating activities for the three months ended
2022 was
• Adjusted Cash Flow from Operations and Cash Conversion for the three months
ended
2021.
Non-GAAP Financial Measures
We include in this Form 10-Q 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 (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 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 three months presented (in thousands):
Three Months Ended
December 31,
March 31, 2022 2021 March 31, 2021
Net loss $ (11,132 ) $ (91,204 ) $ (20,392 )
Income tax expense $ 4,549 $ 7,944 $ 2,545
Depreciation and amortization expense 35,012 44,111 27,759
Merger and integration expense 4,725 28,450 4,823
Severance and other expense 1,494 1,729 555
Gain on disposal of assets - (1,000 ) -
Other income, net (1) (996 ) (2,681 ) (239 )
Stock-based compensation expense (2) 6,018 54,162 -
Foreign exchange (gain) loss (2,816 ) 2,804 748
Interest and finance (income) expense, net (13 ) 6,242 1,627
Adjusted EBITDA $ 36,841 $ 50,557 $ 17,426
Adjusted EBITDA Margin 13.1 % 17.1 % 11.1 %
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(1) Other income, net, is comprised of immaterial, unusual or infrequently
occurring transactions which, in management's view, do not provide useful
measures of the underlying operating performance of the business.
(2) Non-cash, stock-based compensation expense of
months ended
associated with Legacy Expro stock options and restricted stock units
recognized as a result of the completion of the Merger.
The following table provides a reconciliation of net cash provided by operating
activities to Adjusted Cash Flow from Operations for each of the three months
presented (in thousands):
Three Months Ended
December 31,
March 31, 2022 2021 March 31, 2021
Net cash (used in) provided by operating
activities $ (14,162 ) $ 15,690 $ 9,641
Cash paid during the three months for
interest, net 903 1,176 981
Cash paid during the three months for merger
and integration expense 11,632 22,390 4,524
Cash paid during the three months for
severance and other expense 207 1,836 492
Adjusted Cash Flow from Operations $ (1,420 ) $ 41,092 $ 15,638
Adjusted EBITDA $ 36,841 $ 50,557 $ 17,426
Cash Conversion (4 )% 81 % 90 %
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Table of Contents Results of Operations 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
Three months ended Percentage
March 31, December March 31, December(in thousands) 2022 31, 2021 2021 March 31, 2022 31, 2021 March 31, 2021 NLA$ 103,861 $ 100,394 $ 30,363 37.0 % 34.0 % 19.4 % ESSA 82,071 94,322 53,630 29.3 % 31.9 % 34.3 % MENA 50,715 49,464 41,155 18.1 % 16.7 % 26.4 % APAC 43,830 51,489 31,147 15.6 % 17.4 % 19.9 % Total Revenue$ 280,477 $ 295,669 $ 156,295 100.0 % 100.0 % 100.0 % The following table shows Segment EBITDA and Segment EBITDA margin by segment and reconciliation to loss before income taxes for the three months endedMarch 31, 2022 ,December 31, 2021 andMarch 31, 2021 : Three months ended Segment EBITDA Margin March 31, December March 31, December 31,
(in thousands) 2022 31, 2021 2021 March 31, 2022 2021 March 31, 2021 NLA$ 21,827 $ 21,162 $ 2,428 21.0 % 21.1 % 8.0 % ESSA 11,874 19,859 5,366 14.5 % 21.1 % 10.0 % MENA 15,465 16,076 15,058 30.5 % 32.5 % 36.6 % APAC 5,438 12,206 5,166 12.4 % 23.7 % 16.6 %
Total Segment EBITDA 54,604 69,303 28,018 Corporate costs (1) (21,965 ) (23,985 ) (14,684 ) Equity in income of joint ventures 4,202 5,239 4,092 Gain on disposal of assets - 1,000 - Depreciation and amortization expense (35,012 ) (44,111 ) (27,759 ) Merger and integration expense (4,725 ) (28,450 ) (4,823 ) Severance and other expense (1,494 ) (1,729 ) (555 ) Stock-based compensation expense (6,018 ) (54,162 ) - Foreign exchange gain (loss) 2,816 (2,804 ) (748 ) Other income, net 996 2,681 239 Interest and finance (expense) income, net 13 (6,242 ) (1,627 ) Loss before income taxes$ (6,583 ) $ (83,260 ) $ (17,847 )
(1) Corporate costs include the costs of running our corporate head office and
other central functions that support the operating segments, including
research, engineering and development, logistics, sales and marketing and
health and safety and are not attributable to a particular operating segment.
Three months ended
NLA Revenue for the NLA segment was$103.9 million for the three months endedMarch 31, 2022 , an increase of$3.5 million , or 3.5%, compared to$100.4 million for the three months endedDecember 31 , 2021.The increase was primarily due to higher demand for well construction services in theU.S. andMexico driven by higher customer activity and equipment sales during the three months endedMarch 31, 2022 . The increase in revenues was partially offset by lower subsea well access and well flow management revenues in theU.S. due to lower activity and non-recurring subsea equipment sales. Segment EBITDA for the NLA segment was$21.8 million , or 21.0% of revenues, during the three months endedMarch 31, 2022 , compared to$21.2 million or 21.1% of revenues during the three months endedDecember 31, 2021 . The increase of$0.6 million is attributable to higher activity during the three months endedMarch 31, 2022 . 30
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Table of Contents ESSA Revenue for the ESSA segment was$82.1 million for the three months endedMarch 31, 2022 , a decrease of$12.3 million , or 13.0%, compared to$94.3 million for the three months endedDecember 31, 2021 . The decrease of$12.3 million in revenues was primarily driven by lower well flow management and well construction services revenue inMozambique ,United Kingdom ,Azerbaijan , andAngola due to a combination of lower customer activity levels and project delays, as well as non-recurring equipment sales inNorway . Segment EBITDA for the ESSA segment was$11.9 million , or 14.5% of revenues, for the three months endedMarch 31, 2022 , a decrease of$8.0 million , or 40.2%, compared to$19.9 million , or 21.1% of revenues, for the three months endedDecember 31, 2021 . The decrease of$8.0 million is primarily attributable to lower activity levels and a less favorable activity mix during the three months endedMarch 31, 2022 . MENA Revenue for the MENA segment was$50.7 million for the three months endedMarch 31, 2022 , an increase of$1.2 million , or 2.5%, compared to$49.5 million for the three months endedDecember 31, 2021 . The increase in revenue was driven by equipment sales related to well flow management in theUnited Arab Emirates andSaudi Arabia . Segment EBITDA for the MENA segment was$15.5 million , or 30.5% of revenues, for the three months endedMarch 31, 2022 , a reduction of$0.6 million , or 3.8%, compared to$16.1 million , or 32.5% of revenues, for the three months endedDecember 31, 2021 . The reduction in Segment EBITDA was primarily due to lower activity on higher margin contracts and a less favorable activity mix. APAC Revenue for the APAC segment was$43.8 million for the three months endedMarch 31, 2022 , a decrease of$7.7 million , or 14.9%, compared to$51.5 million for the three months endedDecember 31, 2021 . The decrease in revenue was primarily due to a combination of lower customer activities, non-recurring equipment sales and completion of certain projects during the previous quarter inBrunei ,Thailand ,Malaysia ,India andIndonesia across all product lines. This decrease was partially offset by higher subsea well access revenues inAustralia . Segment EBITDA for the APAC segment was$5.4 million , or 12.4% of revenues, for the three months endedMarch 31, 2022 , a decrease of$6.8 million , or 55.4%, compared to$12.2 million , or 23.7% of revenues, for the three months endedDecember 31, 2021 . The reduction was primarily due to a less favorable activity mix and upfront mobilization costs incurred during the current quarter related to a COVID-19-delayed start-up of a subsea project, as well as lower activity on higher margin contracts. 31
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Merger and integration expense
Merger and integration expense for the three months endedMarch 31, 2022 decreased by$23.8 million , to$4.7 million as compared to$28.5 million for the three months endedDecember 31, 2021 . The decrease is primarily attributable to lower legal and other professional fees related to the Merger incurred during the three months endedMarch 31, 2022 as compared to the three months endedDecember 31, 2021 .
Stock-based compensation expense
Stock-based compensation expense for the three months endedMarch 31, 2022 decreased by$48.2 million , to$6.0 million as compared to$54.2 million for the three months endedDecember 31, 2021 . The decrease is primarily driven by the recognition of stock-based compensation expense of$42.1 million during the three months endedDecember 31, 2021 associated with Legacy Expro stock options and restricted stock units as a result of the completion of the Merger, as well as the acceleration of certain legacy Frank's equity awards in connection with the Merger.
Interest and finance (expense) income, net
Interest and finance expense, net, decreased by
Income tax expense Income tax expense for the three months endedMarch 31, 2022 decreased by$3.4 million to$4.5 million from$7.9 million for the three months endedDecember 31, 2021 , primarily due to changes in the mix of taxable profits between jurisdictions.
Three months ended
NLA Revenue for the NLA segment was$103.9 million for the three months endedMarch 31, 2022 , an increase of$73.5 million , or 242.1%, compared to$30.4 million for the three months endedMarch 31, 2021 . The increase was primarily attributable to the Merger, which contributed to an increase of$73.6 million in well construction revenue during the current quarter. Segment EBITDA for the NLA segment was$21.8 million , or 21.0% of revenues, during the three months endedMarch 31, 2022 , compared to$2.4 million or 8.0% of revenues during the three months endedMarch 31, 2021 , an increase of$19.4 million . The increase was primarily attributable to the Merger, which contributed an increase of$19.3 million in Segment EBITDA. ESSA Revenue for the ESSA segment was$82.1 million for the three months endedMarch 31, 2022 , an increase of$28.5 million , or 53.0%, compared to$53.6 million for the three months endedMarch 31, 2021 . Of the total increase of$28.5 million for the three months endedMarch 31, 2022 ,$24.2 million is attributable to the Merger and the remainder of the increase is primarily attributable to higher well intervention and integrity services revenue in theUnited Kingdom ,Mozambique andTanzania . Segment EBITDA for the ESSA segment was$11.9 million , or 14.5% of revenues, during the three months endedMarch 31, 2022 , compared to$5.4 million or 10.0% of revenues during the three months endedMarch 31, 2021 , an increase of$6.5 million . The increase was primarily attributable to the Merger, which contributed to an increase of$6.7 million in Segment EBITDA. 32
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Table of Contents MENA Revenue for the MENA segment was$50.7 million for the three months endedMarch 31, 2022 , an increase of$9.5 million , or 23.2%, compared to$41.2 million for the three months endedMarch 31, 2021 . Of the total increase of$9.5 million for the three months endedMarch 31, 2022 ,$6.3 million is attributable to the Merger and the remaining increase in revenue was driven by equipment sales related to well flow management in theUnited Arab Emirates andSaudi Arabia . Segment EBITDA for the MENA segment was$15.5 million , or 30.5% of revenues, during the three months endedMarch 31, 2022 , compared to$15.1 million or 36.6% of revenues during the three months endedMarch 31, 2021 . The increase was primarily attributable to the Merger, which contributed an increase of$0.3 million in Segment EBITDA. The reduction in Segment EBITDA margin was primarily due to lower activity on higher margin contracts and an unfavorable activity mix. APAC Revenue for the APAC segment was$43.8 million for the three months endedMarch 31, 2022 , an increase of$12.7 million , or 40.7%, compared to$31.1 million for the three months endedMarch 31, 2021 . Of the total increase of$12.7 million for the three months endedMarch 31, 2022 ,$7.3 million is attributable to the Merger and the remaining increase is primarily attributable to higher subsea well access and well flow management revenue inAustralia ,Brunei andMalaysia . Segment EBITDA for the APAC segment was$5.4 million , or 12.4% of revenues, during the three months endedMarch 31, 2022 , compared to$5.2 million or 16.6% of revenues during the three months endedMarch 31, 2021 . The Merger contributed an increase of$0.2 million in Segment EBITDA.
Stock-based compensation expense
Stock-based compensation expense for the three months endedMarch 31, 2022 was$6.0 million . No stock-based compensation expense was recognized during the three months endedMarch 31, 2021 . The expense for the current quarter primarily relates to the Company's Long-Term Incentive Plan which was not present during the three months endedMarch 31, 2021 . Additionally, the current quarter also includes expenses related to stock options under the Management Incentive Plan ("MIP"). No expense was recognized under the MIP during the three months endedMarch 31, 2021 , as the performance conditions within the stock option agreements were deemed to be improbable. 33
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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 ofMarch 31, 2022 , total available liquidity was$348.4 million , including cash and cash equivalents and restricted cash of$218.4 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$80 million and$90 million for the remainder of 2022. Our total capital expenditures were$10.6 million for the three months endedMarch 31, 2022 , 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. In addition, we used$8.0 million of cash during the first quarter to acquire technology to enhance our well intervention and integrity business. Total capital expenditures were$28.0 million for the three months endedDecember 31, 2021 , 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. The prior board of directors of the Company authorized a program to repurchase Company Common Stock from time to time. Approximately$38.5 million remained authorized for repurchases as ofMarch 31, 2022 , subject to the limitation set in our shareholder authorization for repurchases of our Company Common Stock, which is currently 10% of the common stock outstanding as ofAugust 3, 2021 . From the inception of this program inFebruary 2020 to date, 95,007 shares of common stock were repurchased for a total cost of approximately$1.5 million . Credit Facility Revolving Credit Facility OnOctober 1, 2021 , in connection with the closing of the Merger, we entered into a new revolving credit facility (the "New Facility") withDNB Bank ASA ,London Branch, as agent (the "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. OnMarch 31, 2022 , the Agent, on behalf of the consenting lenders, countersigned a Consent Request Letter datedMarch 10, 2022 to the New Facility (the "Consent"). Pursuant to the Consent, the lenders consented to, among other things, an amendment to the New Facility permitting dividends or distributions by the Company, or the repurchase or redemption of the Company's shares in an aggregate amount of$50.0 million over the life of the New Facility, subject to pro forma compliance with the 2.25 to 1.0 maximum senior leverage ratio financial covenant.
Please see Note 16 "Interest bearing loans" in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.
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):
Three Months Ended
March 31, 2022 March 31, 2021
Net cash (used in) provided by operating activities $ (14,162 ) $ 9,641
Net cash used in investing activities (5,008 ) (19,168 )
Net cash used in financing activities (2,394 ) (802 )
Effect of exchange rate changes on cash activities 133 (272 )
Net decrease to cash and cash equivalents and
restricted cash $ (21,431 ) $ (10,601 )
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Analysis of cash flow changes between the three months ended
Net cash (used in) provided by operating activities
Net cash used in operating activities was$14.2 million during the three months endedMarch 31, 2022 as compared to net cash provided by operating activities of$9.6 million during the three months endedMarch 31, 2021 . The increase of$23.8 million in net cash used in operating activities for the three months endedMarch 31, 2022 was primarily due to an increase in net working capital of$30.4 million , higher tax payments of$6.0 million and higher payments for merger and integration and severance expenses of$6.8 million , partially offset by an increase in Adjusted EBITDA of$19.4 million for the three months endedMarch 31, 2022 . Adjusted cash flows from operation during the three months endedMarch 31, 2022 was$(1.4) million as compared to adjusted cash flows from operation of$15.6 million during the three months endedMarch 31, 2021 . Our primary uses of cash from operating activities were capital expenditures and funding obligations related to our financing arrangements.
Net cash used in investing activities
Net cash used in investing activities was$5.0 million during the three months endedMarch 31, 2022 as compared to$19.2 million during the three months endedMarch 31, 2021 , a decrease of$14.2 million . Our principal recurring investing activity is our capital expenditures. The decrease in net cash used in investing activities was primarily due to proceeds from sale of investments related to the Frank's executive deferred compensation plan of$7.1 million , proceeds from disposal of assets of$6.4 million and lower capital expenditures of$8.6 million for the three months endedMarch 31, 2022 , partially offset by an acquisition of technology for$8.0 million .
Net cash used in financing activities
Net cash used in financing activities was$2.4 million during the three months endedMarch 31, 2022 as compared to$0.8 million during the three months endedMarch 31, 2021 . The increase of$1.6 million in cash used in financing activities is primarily due to payments of withholding taxes on stock-based compensation plans of$1.1 million and financed insurance premium of$1.0 million , partially offset by lower cash pledged for collateral deposits of$0.2 million and lower repayments of finance leases of$0.2 million during the three months endedMarch 31, 2022 . New accounting pronouncements See Note 2 "Basis of presentation and significant accounting policies" in our unaudited condensed consolidated financial statements under the heading "Recent accounting pronouncements."
Critical accounting policies and estimates
There were no changes to our critical accounting policies and estimates from those disclosed in our Annual Report.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this "Form 10-Q") includes certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include those that express a belief, expectation or intention, as well as those that are not statements of historical fact. Forward-looking statements include information regarding our future plans and goals and our current expectations with respect to, among other things: ? our business strategy and prospects for growth; ? post-Merger integration; ? our cash flows and liquidity; ? our financial strategy, budget, projections and operating results; ? the amount, nature and timing of capital expenditures; ? the availability and terms of capital;
? the exploration, development and production activities of our customers;
? the market for our existing and future products and services; ? competition and government regulations; and
? general economic and political conditions, including political tensions,
conflicts and war (such as the ongoing conflict in Ukraine ).
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These forward-looking statements are generally accompanied by words such as "anticipate," "believe," "estimate," "expect," "goal," "plan," "intend," "potential," "predict," "project," "may," "outlook," or other terms that convey the uncertainty of future events or outcomes, although not all forward-looking statements contain such identifying words. The forward-looking statements in this Form 10-Q speak only as of the date of this report; we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. Forward-looking statements are not assurances of future performance and involve risks and uncertainties. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties include, but are not limited to, the following:
? uncertainty relating to global crude oil demand and crude oil prices that
correspondingly may lead to significant reductions in oil and gas activity,
which in turn could result in significant declines in demand for our products
and services;
? uncertainty regarding the extent and duration of the remaining restrictions in
due to COVID-19, including uncertainty regarding the re-imposition of
restrictions due to resurgences in infection rates;
? uncertainty regarding the timing, pace and extent of an economic recovery in
crude oil and therefore the demand for the products and services we provide
and the commercial opportunities available to us;
? the impact of current and future laws, rulings, governmental regulations,
accounting standards and statements, and related interpretations;
? unique risks associated with our offshore operations;
? political, economic and regulatory uncertainties in our international
operations, including the impact of actions taken by
respect to production levels and the effects thereof;
? our ability to develop new technologies and products;
? our ability to protect our intellectual property rights;
? our ability to attract, train and retain key employees and other qualified
personnel;
? operational safety laws and regulations;
? international trade laws and sanctions;
? severe weather conditions and natural disasters, and other operating
interruptions (including explosions, fires, weather-related incidents,mechanical failure, unscheduled downtime, labor difficulties, transportation
interruptions, spills and releases and other environmental risks);
? policy or regulatory changes;
? the overall timing and level of transition of the global energy sector from
fossil-based systems of energy production and consumption to more renewable
energy sources;
? perception related to our environmental, social and governance("ESG") performance as well as current and future ESG reporting requirements;
and
? uncertainty with respect to integration and realization of expected synergies
following completion of the Merger.
The impact of the COVID-19 pandemic and related economic, business and market
disruptions continue to evolve, and its future effects are uncertain. The
continued impact of COVID-19 on the Company's business will depend on many
factors, many of which are beyond management's control and knowledge. It is
therefore difficult for management to assess or predict with accuracy the broad
future effects of this health crisis on the global economy, the energy industry
or the Company's business. As additional information becomes available, events
or circumstances change and strategic and/or operational decisions are made by
management, further adjustments may be required which could have a material
adverse impact on the Company's consolidated financial position, results of
operations and cash flows.
These and other important factors that could affect our operating results and
performance are described in (1) "Risk Factors" in Part II, Item 1A of this Form
10-Q, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Part I, Item 2 of this Form 10-Q, and elsewhere within this
Form 10-Q, (2) our Annual Report on Form 10-K for the year ended December 31,
2021 , filed with the SEC on March 8, 2022 (our "Annual Report"), (3) our other
reports and filings we make with the SEC from time to time and (4) other
announcements we make from time to time. Should one or more of the risks or
uncertainties described in the documents above or in this Form 10-Q occur, or
should underlying assumptions prove incorrect, our actual results, performance,
achievements or plans could differ materially from those expressed or implied in
any forward-looking statements. All such forward-looking statements in this Form
10-Q are expressly qualified in their entirety by the cautionary statements in
this section.
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