Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20212022

or

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to__________

Commission File Number: 001-32936

GraphicGraphic

HELIX ENERGY SOLUTIONS GROUP, INC.

(Exact name of registrant as specified in its charter)

Minnesota

   

95-3409686

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

3505 West Sam Houston Parkway North

Suite 400

Houston Texas

77043

(Address of principal executive offices)

(Zip Code)

(281) 618–0400

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

   

Trading Symbol(s)

   

Name of each exchange on which registered

Common Stock, no par value

HLX

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes þ No

As of October 18, 2021, 150,888,68620, 2022, 151,821,116 shares of common stock were outstanding.

Table of Contents

TABLE OF CONTENTS

PART I.

FINANCIAL INFORMATION

PAGE

Item 1.

Financial Statements:

3

Condensed Consolidated Balance Sheets – September 30, 20212022 (Unaudited) and December 31, 20202021

3

Condensed Consolidated Statements of Operations (Unaudited) – Three and nine months ended September 30, 20212022 and 20202021

4

Condensed Consolidated Statements of Comprehensive IncomeLoss (Unaudited) – Three and nine months ended September 30, 20212022 and 20202021

5

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) – Three months ended September 30, 20212022 and 20202021

6

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) – Nine months ended September 30, 20212022 and 20202021

7

Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine months ended September 30, 20212022 and 20202021

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2728

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

4041

Item 4.

Controls and Procedures

4142

PART II.

OTHER INFORMATION

4142

Item 1.

Legal Proceedings

4142

Item 1A.

Risk Factors

43

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4144

Item 3.

Defaults Upon Senior Securities

44

Item 4.

Mine Safety Disclosures

44

Item 5.

Other Information

44

Item 6.

Exhibits

4245

Signatures

4346

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

September 30, 

December 31, 

September 30, 

December 31, 

    

2022

    

2021

    

2021

    

2020

(Unaudited)

ASSETS

 

  

 

  

 

  

 

  

Current assets:

 

  

 

  

 

  

 

  

Cash and cash equivalents

$

237,549

$

291,320

$

162,268

$

253,515

Restricted cash

 

71,282

 

 

2,506

 

73,612

Accounts receivable, net of allowance for credit losses of $1,410 and $3,469, respectively

 

136,704

 

132,233

Accounts receivable, net of allowance for credit losses of $2,187 and $1,477, respectively

 

228,043

 

144,137

Other current assets

 

62,442

 

102,092

 

83,301

 

58,274

Total current assets

 

507,977

 

525,645

 

476,118

 

529,538

Property and equipment

 

2,942,699

 

2,948,907

 

2,945,654

 

2,938,154

Less accumulated depreciation

 

(1,256,025)

 

(1,165,943)

 

(1,337,814)

 

(1,280,509)

Property and equipment, net

 

1,686,674

 

1,782,964

 

1,607,840

 

1,657,645

Operating lease right-of-use assets

 

117,397

 

149,656

 

209,351

 

104,190

Other assets, net

 

35,251

 

40,013

 

62,188

 

34,655

Total assets

$

2,347,299

$

2,498,278

$

2,355,497

$

2,326,028

LIABILITIES AND SHAREHOLDERS' EQUITY

 

  

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

 

  

Accounts payable

$

75,162

$

50,022

$

131,898

$

87,959

Accrued liabilities

 

85,240

 

87,035

 

112,321

 

91,712

Current maturities of long-term debt

 

42,825

 

90,651

 

38,154

 

42,873

Current operating lease liabilities

 

55,051

 

51,599

 

48,102

 

55,739

Total current liabilities

 

258,278

 

279,307

 

330,475

 

278,283

Long-term debt

 

261,668

 

258,912

 

225,427

 

262,137

Operating lease liabilities

 

64,423

 

101,009

 

166,916

 

50,198

Deferred tax liabilities

 

91,785

 

110,821

 

97,373

 

86,966

Other non-current liabilities

 

1,481

 

3,878

 

53,452

 

975

Total liabilities

 

677,635

 

753,927

 

873,643

 

678,559

Commitments and contingencies

Redeemable noncontrolling interests

 

 

3,855

Shareholders’ equity:

 

  

 

  

 

  

 

  

Common stock, 0 par, 240,000 shares authorized, 150,876 and 150,341 shares issued, respectively

 

1,290,697

 

1,327,592

Common stock, no par, 240,000 shares authorized, 151,808 and 151,124 shares issued, respectively

 

1,297,296

 

1,292,479

Retained earnings

 

437,065

 

464,524

 

320,579

 

411,072

Accumulated other comprehensive loss

 

(58,098)

 

(51,620)

 

(136,021)

 

(56,082)

Total shareholders’ equity

 

1,669,664

 

1,740,496

 

1,481,854

 

1,647,469

Total liabilities, redeemable noncontrolling interests and shareholders’ equity

$

2,347,299

$

2,498,278

Total liabilities and shareholders’ equity

$

2,355,497

$

2,326,028

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents

HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share amounts)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Net revenues

$

180,716

$

193,490

$

506,072

$

573,658

Cost of sales

 

177,716

 

158,862

 

485,318

 

507,444

Gross profit

 

3,000

 

34,628

 

20,754

 

66,214

Gain (loss) on disposition of assets, net

 

15

 

440

 

(631)

 

913

Goodwill impairment

 

 

 

 

(6,689)

Selling, general and administrative expenses

 

(13,346)

 

(16,053)

 

(41,950)

 

(48,256)

Income (loss) from operations

 

(10,331)

 

19,015

 

(21,827)

 

12,182

Net interest expense

 

(5,928)

 

(7,598)

 

(17,900)

 

(20,407)

Gain (loss) on extinguishment of long-term debt

 

(124)

 

9,239

 

(124)

 

9,239

Other income (expense), net

 

(4,015)

 

8,824

 

(1,438)

 

(3,672)

Royalty income and other

 

297

 

197

 

2,603

 

2,493

Income (loss) before income taxes

 

(20,101)

 

29,677

 

(38,686)

 

(165)

Income tax provision (benefit)

 

(1,058)

 

5,232

 

(2,910)

 

(16,132)

Net income (loss)

 

(19,043)

 

24,445

 

(35,776)

 

15,967

Net loss attributable to redeemable noncontrolling interests

 

 

(54)

 

(146)

 

(2,044)

Net income (loss) attributable to common shareholders

$

(19,043)

$

24,499

$

(35,630)

$

18,011

Earnings (loss) per share of common stock:

 

  

 

  

 

  

 

  

Basic

$

(0.13)

$

0.16

$

(0.24)

$

0.10

Diluted

$

(0.13)

$

0.16

$

(0.24)

$

0.10

Weighted average common shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

150,088

 

149,032

 

150,018

 

148,956

Diluted

 

150,088

 

149,951

 

150,018

 

149,824

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Net revenues

$

272,547

$

180,716

$

585,284

$

506,072

Cost of sales

 

233,332

 

177,716

 

566,032

 

485,318

Gross profit

 

39,215

 

3,000

 

19,252

 

20,754

Gain (loss) on disposition of assets, net

 

 

15

 

 

(631)

Acquisition and integration costs

(762)

(2,349)

Change in fair value of contingent consideration

(2,664)

(2,664)

Selling, general and administrative expenses

 

(23,563)

 

(13,346)

 

(53,966)

 

(41,950)

Income (loss) from operations

 

12,226

 

(10,331)

 

(39,727)

 

(21,827)

Equity in earnings of investment

 

78

 

 

8,262

 

Net interest expense

 

(4,644)

 

(5,928)

 

(14,617)

 

(17,900)

Loss on extinguishment of long-term debt

 

 

(124)

 

 

(124)

Other expense, net

 

(20,271)

 

(4,015)

 

(37,623)

 

(1,438)

Royalty income and other

 

348

 

297

 

3,286

 

2,603

Loss before income taxes

 

(12,263)

 

(20,101)

 

(80,419)

 

(38,686)

Income tax provision (benefit)

 

6,500

 

(1,058)

 

10,074

 

(2,910)

Net loss

 

(18,763)

 

(19,043)

 

(90,493)

 

(35,776)

Net loss attributable to redeemable noncontrolling interests

 

 

 

 

(146)

Net loss attributable to common shareholders

$

(18,763)

$

(19,043)

$

(90,493)

$

(35,630)

Loss per share of common stock:

 

  

 

  

 

  

 

  

Basic

$

(0.12)

$

(0.13)

$

(0.60)

$

(0.24)

Diluted

$

(0.12)

$

(0.13)

$

(0.60)

$

(0.24)

Weighted average common shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

151,331

 

150,088

 

151,226

 

150,018

Diluted

 

151,331

 

150,088

 

151,226

 

150,018

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents

HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMELOSS

(UNAUDITED)

(in thousands)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

2021

    

2020

Net income (loss)

$

(19,043)

$

24,445

$

(35,776)

 

$

15,967

Other comprehensive income (loss), net of tax:

 

  

 

  

 

  

 

  

Net unrealized loss on hedges arising during the period

 

 

 

 

(95)

Reclassifications into earnings

 

 

 

 

452

Income taxes on hedges

 

 

 

 

(72)

Net change in hedges, net of tax

 

 

 

 

285

Foreign currency translation gain (loss)

 

(13,447)

 

19,426

 

(6,478)

 

(16,057)

Other comprehensive income (loss), net of tax

 

(13,447)

 

19,426

 

(6,478)

 

(15,772)

Comprehensive income (loss)

 

(32,490)

 

43,871

 

(42,254)

 

195

Less comprehensive income (loss) attributable to redeemable noncontrolling interests:

 

  

 

  

 

  

 

  

Net loss

 

 

(54)

 

(146)

 

(2,044)

Foreign currency translation gain (loss)

 

 

133

 

48

 

(115)

Comprehensive income (loss) attributable to redeemable noncontrolling interests

 

 

79

 

(98)

 

(2,159)

Comprehensive income (loss) attributable to common shareholders

$

(32,490)

$

43,792

$

(42,156)

 

$

2,354

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

2022

    

2021

Net loss

$

(18,763)

$

(19,043)

$

(90,493)

 

$

(35,776)

Other comprehensive loss, net of tax:

 

  

 

  

 

  

 

  

Foreign currency translation loss

 

(33,453)

 

(13,447)

 

(79,939)

 

(6,478)

Other comprehensive loss, net of tax

 

(33,453)

 

(13,447)

 

(79,939)

 

(6,478)

Comprehensive loss

 

(52,216)

 

(32,490)

 

(170,432)

 

(42,254)

Less comprehensive loss attributable to redeemable noncontrolling interests:

 

  

 

  

 

  

 

  

Net loss

 

 

 

 

(146)

Foreign currency translation gain

 

 

 

 

48

Comprehensive loss attributable to redeemable noncontrolling interests

 

 

 

 

(98)

Comprehensive loss attributable to common shareholders

$

(52,216)

$

(32,490)

$

(170,432)

 

$

(42,156)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents

HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)

Accumulated

 

Accumulated

 

Other

Total

Redeemable

Other

Total

Redeemable

Common Stock

Retained

Comprehensive

Shareholders’

Noncontrolling

Common Stock

Retained

Comprehensive

Shareholders’

Noncontrolling

    

Shares

    

Amount

    

Earnings

    

Loss

    

Equity

    

Interests

    

Shares

    

Amount

    

Earnings

    

Loss

    

Equity

    

Interests

Balance, June 30, 2021

 

150,787

$

1,288,603

$

456,108

$

(44,651)

$

1,700,060

 

$

Balance, June 30, 2022

 

151,714

$

1,295,016

$

339,342

$

(102,568)

$

1,531,790

 

$

Net loss

 

 

 

(19,043)

 

 

(19,043)

 

 

 

 

(18,763)

 

 

(18,763)

 

Foreign currency translation adjustments

 

 

 

 

(13,447)

 

(13,447)

 

 

 

 

 

(33,453)

 

(33,453)

 

Activity in company stock plans, net and other

 

89

 

262

 

 

 

262

 

 

94

 

274

 

 

 

274

 

Share-based compensation

 

 

1,832

 

 

 

1,832

 

 

 

2,006

 

 

 

2,006

 

Balance, September 30, 2021

 

150,876

$

1,290,697

$

437,065

$

(58,098)

$

1,669,664

 

$

Balance, September 30, 2022

 

151,808

$

1,297,296

$

320,579

$

(136,021)

$

1,481,854

 

$

Accumulated

 

Accumulated

 

Other

Total

Redeemable

Other

Total

Redeemable

Common Stock

Retained

Comprehensive

Shareholders’

Noncontrolling

Common Stock

Retained

Comprehensive

Shareholders’

Noncontrolling

    

Shares

    

Amount

    

Earnings

    

Loss

    

Equity

    

Interests

    

Shares

    

Amount

    

Earnings

    

Loss

    

Equity

    

Interests

Balance, June 30, 2020

 

150,040

$

1,318,531

$

436,107

$

(99,938)

$

1,654,700

 

$

3,372

Net income (loss)

 

 

 

24,499

 

 

24,499

 

(54)

Balance, June 30, 2021

 

150,787

$

1,288,603

$

456,108

$

(44,651)

$

1,700,060

 

$

Net loss

 

 

 

(19,043)

 

 

(19,043)

 

Foreign currency translation adjustments

 

 

 

 

19,426

 

19,426

 

133

 

 

 

 

(13,447)

 

(13,447)

 

Accretion of redeemable noncontrolling interests

 

 

 

(128)

 

 

(128)

 

128

Equity component of convertible senior notes

33,336

33,336

Re-acquisition of equity component of convertible senior notes

(18,006)

(18,006)

Capped call transactions

(10,625)

(10,625)

Activity in company stock plans, net and other

 

96

 

193

 

 

 

193

 

 

89

 

262

 

 

 

262

 

Share-based compensation

 

 

2,091

 

 

 

2,091

 

 

 

1,832

 

 

 

1,832

 

Balance, September 30, 2020

 

150,136

$

1,325,520

$

460,478

$

(80,512)

$

1,705,486

 

$

3,579

Balance, September 30, 2021

 

150,876

$

1,290,697

$

437,065

$

(58,098)

$

1,669,664

 

$

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents

HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)

Accumulated

 

Accumulated

 

Other

Total

Redeemable

Other

Total

Redeemable

Common Stock

Retained

Comprehensive

Shareholders’

Noncontrolling

Common Stock

Retained

Comprehensive

Shareholders’

Noncontrolling

    

Shares

    

Amount

    

Earnings

    

Loss

    

Equity

    

Interests

    

Shares

    

Amount

    

Earnings

    

Loss

    

Equity

    

Interests

Balance, December 31, 2020

 

150,341

$

1,327,592

$

464,524

$

(51,620)

$

1,740,496

 

$

3,855

Balance, December 31, 2021

 

151,124

$

1,292,479

$

411,072

$

(56,082)

$

1,647,469

 

$

Net loss

 

 

 

(35,630)

 

 

(35,630)

 

(146)

 

 

 

(90,493)

 

 

(90,493)

 

Cumulative-effect adjustments upon adoption of ASU No. 2020-06

 

 

(41,456)

 

6,682

 

 

(34,774)

 

Foreign currency translation adjustments

 

 

 

 

(6,478)

 

(6,478)

 

48

 

 

 

 

(79,939)

 

(79,939)

 

Accretion of redeemable noncontrolling interests

 

 

 

1,489

 

 

1,489

 

(1,489)

Acquisition of redeemable noncontrolling interests

 

 

 

 

 

 

(2,268)

Activity in company stock plans, net and other

 

535

 

(1,052)

 

 

 

(1,052)

 

 

684

 

(673)

 

 

 

(673)

 

Share-based compensation

 

 

5,613

 

 

 

5,613

 

 

 

5,490

 

 

 

5,490

 

Balance, September 30, 2021

 

150,876

$

1,290,697

$

437,065

$

(58,098)

$

1,669,664

 

$

Balance, September 30, 2022

 

151,808

$

1,297,296

$

320,579

$

(136,021)

$

1,481,854

 

$

Accumulated

 

Accumulated

 

Other

Total

Redeemable

Other

Total

Redeemable

Common Stock

Retained

Comprehensive

Shareholders’

Noncontrolling

Common Stock

Retained

Comprehensive

Shareholders’

Noncontrolling

    

Shares

    

Amount

    

Earnings

    

Loss

    

Equity

    

Interests

    

Shares

    

Amount

    

Earnings

    

Loss

    

Equity

    

Interests

Balance, December 31, 2019

 

148,888

$

1,318,961

$

445,370

$

(64,740)

$

1,699,591

 

$

3,455

Net income (loss)

 

 

 

18,011

 

 

18,011

 

(2,044)

Credit losses recognized in retained earnings upon adoption of ASU No. 2016-13

 

 

 

(620)

 

 

(620)

 

Balance, December 31, 2020

 

150,341

$

1,327,592

$

464,524

$

(51,620)

$

1,740,496

 

$

3,855

Net loss

 

 

 

(35,630)

 

 

(35,630)

 

(146)

Cumulative-effect adjustments upon adoption of ASU No. 2020-06

 

 

(41,456)

 

6,682

 

 

(34,774)

 

Foreign currency translation adjustments

 

 

 

 

(16,057)

 

(16,057)

 

(115)

 

 

 

 

(6,478)

 

(6,478)

 

48

Unrealized gain on hedges, net of tax

 

 

 

 

285

 

285

 

Accretion of redeemable noncontrolling interests

 

 

 

(2,283)

 

 

(2,283)

 

2,283

 

 

 

1,489

 

 

1,489

 

(1,489)

Equity component of convertible senior notes

33,336

33,336

Re-acquisition of equity component of convertible senior notes

(18,006)

(18,006)

Capped call transactions

(10,625)

(10,625)

Acquisition of redeemable noncontrolling interests

(2,268)

Activity in company stock plans, net and other

 

1,248

 

(4,320)

 

 

 

(4,320)

 

 

535

 

(1,052)

 

 

 

(1,052)

 

Share-based compensation

 

 

6,174

 

 

 

6,174

 

 

 

5,613

 

 

 

5,613

 

Balance, September 30, 2020

 

150,136

$

1,325,520

$

460,478

$

(80,512)

$

1,705,486

 

$

3,579

Balance, September 30, 2021

 

150,876

$

1,290,697

$

437,065

$

(58,098)

$

1,669,664

 

$

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

Nine Months Ended

September 30, 

    

2021

    

2020

Cash flows from operating activities:

 

  

  

Net income (loss)

$

(35,776)

$

15,967

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

  

Depreciation and amortization

 

106,226

 

99,552

Goodwill impairment

 

 

6,689

Amortization of debt discounts

 

 

5,094

Amortization of debt issuance costs

 

2,596

 

2,401

Share-based compensation

 

5,783

 

6,394

Deferred income taxes

 

(10,375)

 

3,901

(Gain) loss on disposition of assets, net

 

631

 

(913)

(Gain) loss on extinguishment of long-term debt

 

124

 

(9,239)

Unrealized gain on derivative contracts, net

 

 

(601)

Unrealized foreign currency loss

 

2,041

 

2,891

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable, net

 

(6,631)

 

(35,276)

Other current assets

16,604

(28,036)

Income tax payable, net of income tax receivable

 

20,912

 

(26,342)

Accounts payable and accrued liabilities

 

28,577

 

32,075

Other, net

 

(9,460)

 

(15,929)

Net cash provided by operating activities

 

121,252

 

58,628

Cash flows from investing activities:

 

  

 

  

Capital expenditures

 

(7,386)

 

(19,193)

Proceeds from sale of assets

51

938

Net cash used in investing activities

 

(7,335)

 

(18,255)

Cash flows from financing activities:

 

  

 

  

Proceeds from convertible senior notes

 

 

200,000

Repayment of convertible senior notes

 

 

(183,150)

Repayment of Term Loan

 

(29,826)

 

(2,625)

Repayment of Nordea Q5000 Loan

 

(53,572)

 

(26,786)

Repayment of MARAD Debt

 

(7,560)

 

(7,200)

Capped call transactions

 

 

(10,625)

Debt issuance costs

 

(1,209)

 

(7,075)

Acquisition of redeemable noncontrolling interests

(2,268)

Payments related to tax withholding for share-based compensation

 

(1,878)

 

(5,161)

Proceeds from issuance of ESPP shares

 

654

 

622

Net cash used in financing activities

 

(95,659)

 

(42,000)

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 

(747)

 

(1,600)

Net increase (decrease) in cash and cash equivalents and restricted cash

 

17,511

 

(3,227)

Cash and cash equivalents and restricted cash:

 

  

 

  

Balance, beginning of year

 

291,320

 

262,561

Balance, end of period

$

308,831

$

259,334

Nine Months Ended

September 30, 

    

2022

    

2021

Cash flows from operating activities:

 

  

  

Net loss

$

(90,493)

$

(35,776)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

  

Depreciation and amortization

 

102,590

 

106,226

Amortization of debt issuance costs

 

1,744

 

2,596

Share-based compensation

 

5,630

 

5,783

Deferred income taxes

 

2,876

 

(10,375)

Equity in earnings of investment

 

(8,262)

 

Loss on disposition of assets, net

 

 

631

Loss on extinguishment of long-term debt

 

 

124

Unrealized foreign currency loss

 

38,374

 

2,041

Change in fair value of contingent consideration

2,664

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable, net

 

(50,268)

 

(6,631)

Other current assets

(19,888)

16,604

Income tax payable, net of income tax receivable

 

1,818

 

20,912

Accounts payable and accrued liabilities

 

47,266

 

28,577

Other, net

 

(32,655)

 

(9,460)

Net cash provided by operating activities

 

1,396

 

121,252

Cash flows from investing activities:

 

  

 

  

Alliance acquisition, net of cash acquired

 

(112,625)

 

Capital expenditures

 

(4,990)

 

(7,386)

Distribution from equity investment, net

 

7,840

 

Proceeds from sale of assets

51

Net cash used in investing activities

 

(109,775)

 

(7,335)

Cash flows from financing activities:

 

  

 

  

Repayment of convertible senior notes

 

(35,000)

 

Repayment of Term Loan

 

 

(29,826)

Repayment of Nordea Q5000 Loan

 

 

(53,572)

Repayment of MARAD Debt

 

(7,937)

 

(7,560)

Debt issuance costs

 

(550)

 

(1,209)

Acquisition of redeemable noncontrolling interests

(2,268)

Payments related to tax withholding for share-based compensation

 

(1,525)

 

(1,878)

Proceeds from issuance of ESPP shares

 

575

 

654

Net cash used in financing activities

 

(44,437)

 

(95,659)

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 

(9,537)

 

(747)

Net increase (decrease) in cash and cash equivalents and restricted cash

 

(162,353)

 

17,511

Cash and cash equivalents and restricted cash:

 

  

 

  

Balance, beginning of year

 

327,127

 

291,320

Balance, end of period

$

164,774

$

308,831

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 — Basis of Presentation and New Accounting Standards

The accompanying condensed consolidated financial statements include the accounts of Helix Energy Solutions Group, Inc. and its subsidiaries (collectively, “Helix”). Unless the context indicates otherwise, the terms “we,” “us” and “our” in this report refer collectively to Helix and its subsidiaries. All material intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements in U.S. dollars have been prepared pursuant toin accordance with instructions for the Quarterly Report on Form 10-Q required to be filed with the Securities and Exchange Commission (the “SEC”) and do not include all information and footnotes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

On July 1, 2022, we completed our acquisition of all of the equity interests of the Alliance group of companies (collectively “Alliance”). The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP in U.S. dollars and are consistent in all material respects with those applied in our 2020 Annual Report on Form 10-K (our “2020 Form 10-K”) withprior to July 1, 2022 reflect only the exceptionhistorical results of Helix. The condensed consolidated financial statements since the completion of the impactAlliance acquisition have included the results of early adopting Accounting Standards Update (“ASU”) No. 2020-06 on a modified retrospective basis beginning January 1, 2021 (see below). Helix Alliance using the acquisition method of accounting. See Note 3 for additional information regarding the Alliance acquisition.

The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements and the related disclosures. Actual results may differ from our estimates. We have made all adjustments, which, unless otherwise disclosed, are of normal recurring nature, that we believe are necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income,loss, statements of shareholders’ equity and statements of cash flows, as applicable. The operating results for the three- and nine-month periods ended September 30, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. Our balance sheet as of December 31, 20202021 included herein has been derived from the audited balance sheet as of December 31, 20202021 included in our 20202021 Annual Report on Form 10-K.10-K (our “2021 Form 10-K”). These unaudited condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and notes thereto included in our 20202021 Form 10-K.

Certain reclassifications were made to previously reported amounts in the consolidated financial statements and notes thereto to make them consistent with the current presentation format.

New accounting standards

In August 2020, the Financial Accounting Standards Board issued ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity's Own Equity,” which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, this ASU removes from GAAP the requirement to separate certain convertible instruments, such as our Convertible Senior Notes Due 2022, Convertible Senior Notes Due 2023 and Convertible Senior Notes Due 2026 (Note 5), into liability and equity components. Consequently, those convertible instruments will be accounted for in their entirety as liabilities measured at their amortized cost. We elected to early adopt ASU No. 2020-06 on a modified retrospective basis beginning January 1, 2021. The adoption of this ASU increased our long-term debt and decreased the reported value of our common stock by $44.1 million and $41.5 million, respectively, as we reclassified the conversion features associated with our various outstanding convertible senior notes from equity to long-term debt. The adoption of this ASU also increased our retained earnings and decreased deferred tax liabilities by $6.7 million and $9.3 million, respectively. Subsequent to its adoption, interest expense associated with our outstanding convertible senior notes will decrease as there will no longer be debt discounts to amortize. Additionally, the ASU no longer permits the treasury stock method for convertible instruments and instead requires the application of the if-converted method to calculate the impact of our convertible senior notes on diluted earnings per share (“EPS”).

We do not expect any other recently issued accounting standards to have a material impact on our financial position, results of operations or cash flows when they become effective.

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Note 2 — Company Overview

We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. Traditionally, ourOur services have covered the lifecycleare centered on a three-legged business model:

Production maximization — our assets and methodologies are specifically designed to efficiently enhance and extend the lives of existing oil and gas reserves; we also offer an alternative to take over end-of-life reserves in preparation for their abandonment;
Decommissioning — we have historical success as a full-field abandonment contractor and believe that regulatory push for plug and abandonment (“P&A”) and transition to renewable energy will facilitate the continued growth of abandonment backlog; and
Renewable energy support — we are an established global leader in jet trenching and continue to seek to provide specialty support services to offshore wind farm developments, including boulder removal and unexploded ordnance clearance.

9

Table of an offshore oil or gas field. In recent years, we have seen an increasing demand for our services from the offshore renewable energy market. Contents

We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. We have expanded our service capabilities to shallow waters in the Gulf of Mexico with the Alliance acquisition on July 1, 2022 (Note 3). Our North Sea operations and our Gulf of Mexico shelf operations related to our Alliance acquisition are subject to seasonal changes in demand, which generally peaks in the summer months and declines in the winter months. Our services are segregated into 3four reportable business segments: Well Intervention, Robotics, and Production Facilities and our new reporting segment, Shallow Water Abandonment, which was formed in the third quarter 2022 comprising the Helix Alliance business (Note 10)11).

Our Well Intervention segment provides services enabling our customers to safely access offshore wells for the purpose of performing production enhancement or decommissioning operations.operations, thereby avoiding drilling new wells by extending the useful lives of existing wells and preserving the environment by preventing uncontrolled releases of oil and gas. Our well intervention vessels include the Q4000, the Q5000, the Q7000, the Seawell, the Well Enhancer, and 2two chartered monohull vessels, the Siem Helix 1 and the Siem Helix 2. Our well intervention equipment includes intervention systems such as intervention riser systems (“IRSs”), subsea intervention lubricators (“SILs”) and the Riserless Open-water Abandonment Module, (“ROAM”), some of which we provide on a stand-alone basis. Our well intervention segment also includes our ownership interest in Subsea Technologies Group Limited (“STL”). Beginning in May 2019 we held a 70% controlling interest in STL, and in June 2021 we acquired the remaining 30% interest.

Our Robotics segment provides offshore construction, trenching, seabed clearance, and inspection, repair and maintenance (“IRM”) services to both the oil and gas and the renewable energy markets globally. Ourglobally, thereby assisting the delivery of affordable and reliable energy and supporting the responsible transition away from a carbon-based economy. Additionally, our Robotics services alsoare used in and complement our well intervention services. Our Robotics segment mainly includes remotely operated vehicles (“ROVs”), trenchers a ROVDrill and 2 robotics support vessels under long-term charter, the Grand Canyon II and the Grand Canyon III,term charters as well as spot vessels as needed.

Our Production Facilities segment includes the Helix Producer I (the “HP I”), a ship-shaped dynamically positioned floating production vessel, the Helix Fast Response System (the “HFRS”), which combines the HP I, the Q4000 and the Q5000 with certain well control equipment that can be deployed to respond to a well control incident, and our ownership of Droshky oil and gas properties. We also have a 20% ownership interest in Independence Hub, LLC (“Independence Hub”) that we account for using the equity method of accounting. In May 2022, we received a net cash distribution of $7.8 million from the sale of the “Independence Hub” platform owned by Independence Hub. In August 2022, we acquired from MP Gulf of Mexico, LLC (“MP GOM”), a joint venture controlled by Murphy Exploration & Production Company – USA, all of MP GOM’s 62.5% interest in Mississippi Canyon Block 734, comprised of three wells and related subsea infrastructure (collectively known as the Thunder Hawk Field), in exchange for the assumption of MP GOM’s abandonment obligations (Note 12). All of our current Production Facilities activities are located in the Gulf of Mexico.

Our Shallow Water Abandonment segment provides services in support of the upstream and midstream ‎industries in the Gulf of Mexico shelf, including offshore oil field decommissioning and ‎reclamation, project management, engineered solutions, intervention, maintenance, repair, heavy lift and commercial diving services. Our Shallow Water Abandonment segment includes a diversified fleet of marine assets including liftboats, offshore supply vessels (“OSVs”), dive support vessels (“DSVs”), a heavy lift derrick barge, a crew boat, P&A systems, coiled tubing systems and other miscellaneous assets.

Note 3 — DetailsAlliance Acquisition

On July 1, 2022, we completed our acquisition of Certain Accounts

Other current assets consistall of the following (in thousands):equity interests of Alliance. The Alliance acquisition extends our energy transition strategy by adding shallow-water capabilities into what we expect to be a growing offshore decommissioning market.

September 30, 

December 31, 

    

2021

    

2020

Contract assets (Note 7)

$

367

 

$

2,446

Prepaids

 

18,301

 

15,904

Deferred costs (Note 7)

 

8,792

 

23,522

Income tax receivable

 

 

20,787

Other receivable (Note 11)

 

28,184

 

29,782

Other

 

6,798

 

9,651

Total other current assets

$

62,442

 

$

102,092

Other assets, net consistThe aggregate preliminary purchase price of the following (in thousands):Alliance acquisition was $145.7 million, consisting of $119.0 million with cash on hand and the estimated fair value of $26.7 million of contingent consideration related to the post-closing earn-out consideration. The earn-out is payable in 2024 to the seller in the Alliance transaction in either cash or shares of our common stock pursuant to the terms of the Equity Purchase Agreement (the “Equity Purchase Agreement”) dated May 16, 2022 by and among Helix Alliance Decom, LLC, the seller and Helix. The earn-out is not capped and is calculated based on certain financial metrics of the Helix Alliance business for 2022 and 2023 relative to amounts as set forth in the Equity Purchase Agreement.

September 30, 

December 31, 

    

2021

    

2020

Deferred recertification and dry dock costs, net

$

16,401

 

$

21,464

Deferred costs (Note 7)

 

543

 

861

Charter deposit (1)

 

12,544

 

12,544

Intangible assets with finite lives, net

 

3,579

 

3,809

Other

 

2,184

 

1,335

Total other assets, net

$

35,251

 

$

40,013

(1)This amount is deposited with the owner of the Siem Helix2 to offset certain payment obligations associated with the vessel at the end of the charter term.

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Table of Contents

AccruedThe Alliance acquisition has been accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. The purchase price consideration has been allocated to the assets acquired and liabilities consistassumed of Alliance based upon preliminary estimate of their fair values as of the acquisition date. Fair values of the assets acquired and liabilities assumed are measured in accordance with ASC Topic 820, Fair Value Measurement, using discounted cash flows and other applicable valuation techniques. For certain assets and liabilities, those fair values are consistent with historical carrying values.

The following table summarizes the purchase consideration and the preliminary purchase price allocation to estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):

September 30, 

December 31, 

    

2021

    

2020

Accrued payroll and related benefits

$

26,443

 

$

24,768

Accrued interest

2,760

7,098

Income tax payable

 

581

 

Deferred revenue (Note 7)

 

9,425

 

8,140

Asset retirement obligations (Note 11)

 

29,018

 

30,913

Other

 

17,013

 

16,116

Total accrued liabilities

$

85,240

 

$

87,035

July 1, 2022

Cash consideration

$

118,961

Contingent consideration

 

26,700

Total fair value of consideration transferred

$

145,661

Assets acquired:

Cash and cash equivalents

$

6,336

Accounts receivable (1)

43,378

Other current assets

4,879

Property and equipment

118,619

Operating lease right-of-use assets

1,205

Intangible assets

1,400

Other assets

 

2,133

Total assets acquired

$

177,950

Liabilities assumed:

Accounts payable

$

20,480

Accrued liabilities

3,073

Operating lease liabilities

 

1,205

Deferred tax liabilities

 

7,531

Total liabilities assumed

 

32,289

Net assets acquired

$

145,661

(1)The gross contractual accounts receivable totaled $44.2 million. The fair value of accounts receivable reflects our best estimate at the acquisition date of contractual cash flows not expected to be collected.

The purchase price allocation is subject to revision as acquisition-date fair value analyses are completed and if additional information about facts and circumstances that existed at the acquisition date becomes available. The purchase price consideration, as well as the estimated fair values of the assets acquired and liabilities assumed, will be finalized as soon as practicable, but no later than one year from the closing of the Alliance acquisition.

Other non-current liabilitiesAcquisition and integration costs consist of legal and professional fees as well as costs incurred to integrate Alliance’s operations and systems and to align its financial processes and procedures with those of Helix. Those costs are expensed as incurred and are presented separately from “Selling, general and administrative expenses” in the accompanying condensed consolidated statements of operations. Also presented separately are the changes in fair value of the contingent earn-out consideration (Note 16).

The pro forma summary below presents the results of operations as if the Alliance acquisition had occurred on January 1, 2021 and includes transaction accounting adjustments such as incremental depreciation and amortization expense from acquired tangible and intangible assets, elimination of interest expense on Alliance’s long-term debt that was paid off, acquisition and integration cost accruals, and tax-related effects. The pro forma summary uses estimates and assumptions based on information available at the time. Management believes the estimates and assumptions to be reasonable; however, actual results may have differed significantly from this pro forma financial information. The pro forma information does not reflect any cost savings, operating synergies or revenue enhancements that might have been achieved from combining the operations. The unaudited pro forma summary is provided for illustrative purposes only and does not purport to represent Helix’s actual consolidated results of operations had the acquisition been completed as of the date presented, nor should it be considered indicative of Helix’s future consolidated results of operations.

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Table of Contents

The following table summarizes the pro forma results of Helix and Alliance (in thousands):

September 30, 

December 31, 

Three Months Ended

Nine Months Ended

    

2021

    

2020

September 30, 

September 30, 

Deferred revenue (Note 7)

$

762

 

$

1,869

Other

 

719

 

2,009

Total other non-current liabilities

$

1,481

 

$

3,878

    

2022

    

2021

    

2022

    

2021

Revenues

$

272,547

$

228,574

$

665,021

 

$

591,179

Net loss

 

(18,763)

 

(8,828)

 

(81,069)

 

(29,620)

Note 4 — LeasesDetails of Certain Accounts

We charter vessels and lease facilities and equipment under non-cancelable contracts that expire on various dates through 2031. We also sublease someOther current assets consist of our facilities under non-cancelable sublease agreements.

Thethe following table details the components of our lease cost (in thousands):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Operating lease cost

$

14,336

$

16,132

$

45,391

 

$

48,561

Variable lease cost

 

4,298

 

4,204

 

11,417

 

11,256

Short-term lease cost

 

6,258

 

12,923

 

13,233

 

30,089

Sublease income

 

(289)

 

(344)

 

(967)

 

(951)

Net lease cost

$

24,603

$

32,915

$

69,074

 

$

88,955

September 30, 

December 31, 

    

2022

    

2021

Contract assets (Note 8)

$

746

 

$

639

Prepaids

 

30,371

 

18,228

Deferred costs (Note 8)

 

13,634

 

2,967

Income tax receivable

 

 

1,116

Other receivable (Note 12)

 

30,052

 

28,805

Other

 

8,498

 

6,519

Total other current assets

$

83,301

 

$

58,274

MaturitiesOther assets, net consist of our operating lease liabilities as of September 30, 2021 are as followsthe following (in thousands):

    

    

Facilities and

    

    

Vessels

    

Equipment

    

Total

Less than one year

$

55,817

$

5,731

 

$

61,548

One to two years

 

43,045

 

4,946

 

47,991

Two to three years

 

8,013

 

4,689

 

12,702

Three to four years

 

 

3,212

 

3,212

Four to five years

 

 

1,048

 

1,048

Over five years

 

 

4,443

 

4,443

Total lease payments

$

106,875

$

24,069

 

$

130,944

Less: imputed interest

 

(7,388)

 

(4,082)

 

(11,470)

Total operating lease liabilities

$

99,487

$

19,987

 

$

119,474

Current operating lease liabilities

$

50,295

$

4,756

 

$

55,051

Non-current operating lease liabilities

 

49,192

 

15,231

 

64,423

Total operating lease liabilities

$

99,487

$

19,987

 

$

119,474

September 30, 

December 31, 

    

2022

    

2021

Deferred recertification and dry dock costs, net

$

37,732

 

$

16,291

Deferred costs (Note 8)

 

4,873

 

381

Prepaid charter (1)

 

12,544

 

12,544

Intangible assets with finite lives, net

 

4,335

 

3,472

Other

 

2,704

 

1,967

Total other assets, net

$

62,188

 

$

34,655

(1)Represents prepayments to the owner of the Siem Helix1 and the Siem Helix2 to offset certain payment obligations associated with the vessels at the end of their respective charter term.

Accrued liabilities consist of the following (in thousands):

September 30, 

December 31, 

    

2022

    

2021

Accrued payroll and related benefits

$

39,548

 

$

28,657

Accrued interest

2,116

6,746

Income tax payable

 

1,614

 

Deferred revenue (Note 8)

 

20,840

 

8,272

Asset retirement obligations (Note 12)

 

30,961

 

29,658

Other

 

17,242

 

18,379

Total accrued liabilities

$

112,321

 

$

91,712

Other non-current liabilities consist of the following (in thousands):

September 30, 

December 31, 

    

2022

    

2021

Deferred revenue (Note 8)

$

 

$

476

Asset retirement obligations (Note 12)

 

23,763

 

Contingent consideration (Note 16)

29,364

Other

 

325

 

499

Total other non-current liabilities

$

53,452

 

$

975

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Note 5 — Leases

We charter vessels and lease facilities and equipment under non-cancelable contracts that expire on various dates through 2031. The majority of the increases in our operating leases during the nine-month period ended September 30, 2022 are related to the vessel charter extensions for the Siem Helix1, the Siem Helix2, the Grand Canyon II, the Grand Canyon III and the Shelia Bordelon (Note 13). We also sublease some of our facilities under non-cancelable sublease agreements.

The following table details the components of our lease cost (in thousands):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Operating lease cost

$

16,088

$

14,336

$

44,348

 

$

45,391

Variable lease cost

 

4,488

 

4,298

 

14,035

 

11,417

Short-term lease cost

 

9,112

 

6,258

 

22,121

 

13,233

Sublease income

 

(300)

 

(289)

 

(930)

 

(967)

Net lease cost

$

29,388

$

24,603

$

79,574

 

$

69,074

Maturities of our operating lease liabilities as of September 30, 2022 are as follows (in thousands):

    

    

Facilities and

    

    

Vessels

    

Equipment

    

Total

Less than one year

$

56,405

$

6,334

 

$

62,739

One to two years

 

57,040

 

5,753

 

62,793

Two to three years

 

47,724

 

3,390

 

51,114

Three to four years

 

35,200

 

867

 

36,067

Four to five years

 

30,569

 

885

 

31,454

Over five years

 

7,589

 

2,790

 

10,379

Total lease payments

$

234,527

$

20,019

 

$

254,546

Less: imputed interest

 

(36,767)

 

(2,761)

 

(39,528)

Total operating lease liabilities

$

197,760

$

17,258

 

$

215,018

Current operating lease liabilities

$

42,621

$

5,481

 

$

48,102

Non-current operating lease liabilities

 

155,139

 

11,777

 

166,916

Total operating lease liabilities

$

197,760

$

17,258

 

$

215,018

Maturities of our operating lease liabilities as of December 31, 20202021 are as follows (in thousands):

    

    

Facilities and

    

    

    

Facilities and

    

    

Vessels

    

Equipment

    

Total

    

Vessels

    

Equipment

    

Total

Less than one year

$

54,621

$

6,028

 

$

60,649

$

55,573

$

5,601

 

$

61,174

One to two years

 

52,106

 

5,435

 

57,541

 

34,580

 

4,844

 

39,424

Two to three years

 

34,580

 

4,649

 

39,229

 

2,470

 

4,514

 

6,984

Three to four years

 

2,470

 

4,374

 

6,844

 

 

2,462

 

2,462

Four to five years

 

 

2,340

 

2,340

 

 

1,074

 

1,074

Over five years

 

 

4,054

 

4,054

 

 

4,193

 

4,193

Total lease payments

$

143,777

$

26,880

 

$

170,657

$

92,623

$

22,688

 

$

115,311

Less: imputed interest

 

(13,352)

 

(4,697)

 

(18,049)

 

(5,633)

 

(3,741)

 

(9,374)

Total operating lease liabilities

$

130,425

$

22,183

 

$

152,608

$

86,990

$

18,947

 

$

105,937

Current operating lease liabilities

$

46,748

$

4,851

 

$

51,599

$

51,035

$

4,704

 

$

55,739

Non-current operating lease liabilities

 

83,677

 

17,332

 

101,009

 

35,955

 

14,243

 

50,198

Total operating lease liabilities

$

130,425

$

22,183

 

$

152,608

$

86,990

$

18,947

 

$

105,937

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The following table presents the weighted average remaining lease term and discount rate:

September 30, 

December 31, 

September 30, 

December 31, 

    

2021

2020

    

2022

2021

Weighted average remaining lease term

 

2.6

years

3.1

years

 

4.2

years

2.4

years

Weighted average discount rate

 

7.59

%  

7.53

%

 

7.83

%  

7.57

%

The following table presents other information related to our operating leases (in thousands):

Nine Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2022

    

2021

Cash paid for operating lease liabilities

$

46,141

 

$

49,350

$

43,342

 

$

46,141

Right-of-use assets obtained in exchange for new operating lease obligations

 

5,975

 

36

 

143,357

 

5,975

Note 56 — Long-Term Debt

Scheduled maturities of our long-term debt outstanding as of September 30, 20212022 are as follows (in thousands):

2022

2023

2026

MARAD

 

2023

2026

MARAD

 

    

Notes

    

Notes

    

Notes

    

Debt

    

Total

    

Notes

    

Notes

    

Debt

    

Total

Less than one year

$

35,000

$

$

$

7,937

 

$

42,937

$

30,000

$

$

8,333

 

$

38,333

One to two years

 

 

30,000

 

 

8,333

 

38,333

 

 

 

8,749

 

8,749

Two to three years

 

 

 

 

8,749

 

8,749

 

 

 

9,186

 

9,186

Three to four years

 

 

 

 

9,186

 

9,186

 

 

200,000

 

9,644

 

209,644

Four to five years

 

 

 

200,000

 

9,644

 

209,644

 

 

 

5,001

 

5,001

Over five years

 

 

 

 

5,001

 

5,001

Gross debt

 

35,000

 

30,000

 

200,000

 

48,850

 

313,850

 

30,000

 

200,000

 

40,913

 

270,913

Unamortized debt issuance costs (1)

 

(112)

 

(359)

 

(6,203)

 

(2,683)

 

(9,357)

 

(179)

 

(4,958)

 

(2,195)

 

(7,332)

Total debt

 

34,888

 

29,641

 

193,797

 

46,167

 

304,493

 

29,821

 

195,042

 

38,718

 

263,581

Less current maturities

 

(34,888)

 

 

 

(7,937)

 

(42,825)

 

(29,821)

 

 

(8,333)

 

(38,154)

Long-term debt

$

$

29,641

$

193,797

$

38,230

 

$

261,668

$

$

195,042

$

30,385

 

$

225,427

(1)Debt issuance costs are amortized to interest expense over the term of the applicable debt agreement. See Note 1 for accounting changes as a result of the adoption of ASU No. 2020-06.

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Below is a summary of certain components of our indebtedness:

Credit Agreement

On September 30, 2021 we entered into an asset-based credit agreement (the “ABL Facility”) with Bank of America, N.A. (“Bank of America”), Wells Fargo Bank, N.A. and Zions Bancorporation.Bancorporation and on July 1, 2022 we entered into a first amendment to the credit agreement (collectively, the “Amended ABL Facility”). The Amended ABL Facility provides for an $80$100 million asset-based revolving credit facility, which matures on September 30, 2026, with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $50 million. The Amended ABL Facility also permits us to request an increase of the facility by up to $70$50 million, subject to certain conditions.

Commitments under the Amended ABL Facility are comprised of separate U.S. and U.K. revolving credit facility commitments of $45$65 million and $35 million, respectively. The Amended ABL Facility provides funding based on a borrowing base calculation that includes eligible U.S. and U.K. customer accounts receivable and cash, and provides for a $10 million sub-limit for the issuance of letters of credit. As of September 30, 2021,2022, we had 0no borrowings under the Amended ABL Facility, and our available borrowing capacity under that facility, based on the borrowing base, totaled $69.6$81.8 million, net of $2.2 million of letters of credit issued under that facility.

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Table of Contents

We and certain of our U.S. and U.K. subsidiaries including Helix Alliance are the initialcurrent borrowers under the Amended ABL Facility, whose obligations under the Amended ABL Facility are guaranteed by those borrowers and certain other U.S. and U.K. subsidiaries, excluding Cal Dive I – Title XI, Inc. (“CDI Title XI”), Helix Offshore Services Limited and certain other enumerated subsidiaries. Other subsidiaries may be added as guarantors of the facility in the future. The Amended ABL Facility is secured by all accounts receivable and designated deposit accounts of the U.S. borrowers and guarantors, and by substantially all of the assets of the U.K. borrowers and guarantors.

U.S. borrowings under the Amended ABL Facility initially bear interest at the LIBORTerm SOFR (also known as CME Term SOFR as administered by CME Group, Inc.) rate plus a margin of 1.50% to 2.00% or at a base rate plus a margin of 0.50% to 1.00%. U.K. borrowings under the Amended ABL Facility denominated in U.S. dollars initially bear interest at the LIBORTerm SOFR rate with SOFR adjustment of 0.10% and U.K. borrowings denominated in the British pound initially bear interest at the SONIA daily rate, each plus a margin of 1.50% to 2.00%. We also pay a commitment fee of 0.375% to 0.50% per annum on the unused portion of the facility. Beginning on the earlier of June 30, 2023, cessation of LIBOR or an earlier opt-in election, LIBOR will be replaced by either SOFR or term SOFR plus a margin of 0.114% to 0.428% or an alternate benchmark rate.

The Amended ABL Facility includes certain limitations on our ability to incur additional indebtedness, grant liens on assets, pay dividends and make distributions on equity interests, dispose of assets, make investments, repay certain indebtedness, engage in mergers, and other matters, in each case subject to certain exceptions. The Amended ABL Facility contains customary default provisions which, if triggered, could result in acceleration of all amounts then outstanding. The Amended ABL Facility requires us to satisfy and maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 if availability is less than the greater of 10% of the borrowing base or $8$10 million. The Amended ABL Facility also requires us to maintain a pro forma minimum excess availability of $16$20 million for the 91 days prior to the maturity of each of our outstanding convertible senior notes.

The Amended ABL Facility also (i) limits the amount of permitted debt for the deferred purchase price of property not to exceed $50 million, (ii) establishes an excess availability requirement for the portion of any post-closing earn-out consideration related to our acquisition of Alliance that will be paid in cash (Note 3), and (iii) provides for potential pricing adjustments based on specific metrics and performance targets determined by us and Bank of America, as agent with respect to the Amended ABL Facility, related to environmental, social and governance (“ESG”) changes implemented by us in our business.

Convertible Senior Notes Due 2022 (“2022 Notes”)

The 2022 Notes bear interest at a coupon interest rate of 4.25% per annum payable semi-annually in arrears on November 1 and May 1 of each year until maturity. The 2022 Notes mature on May 1, 2022 unless earlier converted,We fully redeemed or repurchased by us. The 2022 Notes are convertible by their holders at any time beginning February 1, 2022 at an initial conversion rate of 71.9748 shares of our common stock per $1,000 principal amount, which currently represents 2,519,118 potentially convertible shares at an initial conversion price of approximately $13.89 per share of common stock. Upon conversion, we have the right to satisfy our conversion obligation by delivering cash, shares of our common stock or any combination thereof.

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Table of Contents

Prior to February 1, 2022, holders of the 2022 Notes may convert their notes if the closing price of our common stock exceeds 130% of the conversion price for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter (share price condition) or if the trading price of the 2022 Notes was equal to or less than 97% of the conversion value of the notes during the 5 consecutive business days immediately after any 10 consecutive trading day period (trading price condition). Holders of the 2022 Notes may also convert their notes if we make certain distributions on shares of our common stock or engage in certain corporate transactions, in which case the holders may be entitled to an increase in the conversion rate, depending on the price of our common shares and the time$35 million remaining to maturity, of up to 30.5887 shares of our common stock per $1,000 principal amount.

Prior to November 1, 2019, the 2022 Notes were not redeemable. On or after November 1, 2019, we may redeem all or any portion of the 2022 Notes if the price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period preceding our redemption notice. Any redemption would be payable in cash equal to 100% of the principal amount plus accrued and unpaid interest and a “make-whole premium” calculated as the present value of all remaining scheduled interest payments. Holders of the 2022 Notes may convert any of their notes if we call the notes for redemption. Holders of the 2022 Notes may also require us to repurchase the notes following a “fundamental change,” which includes a change of control or a termination of trading of our common stock (as defined in the indenture governing the 2022 Notes).

The indenture governing the 2022 Notes contains customary terms and covenants, including that upon certain events of default, the entire principal amount of and any accrued interest on the notes may be declared immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a subsidiary, the principal amount of the 2022 Notes together with anyplus accrued interest will become immediately due and payable.

The 2022 Notes were initially separated between the equity component recognized in shareholders’ equity and the debt component, which was presented as long-term debt, net of the unamortized debt discount and debt issuance costs. The unamortized debt discount and debt issuance costs were being accreted to interest expense through theby delivering cash upon maturity date of the 2022 Notes. As of December 31, 2020, unamortized debt discount and debt issuance costs related to the 2022 Notes totaled $1.5 million. As a result of the adoption of ASU No. 2020-06 beginning Januaryon May 1, 2021, there is no longer any debt discount (or related accretion) associated with the 2022 Notes (Note 1). As of September 30, 2021, unamortized debt issuance costs related to the 2022 Notes were $0.1 million.

2022. The effective interest rate for the 2022 Notes priorwas 4.8%. For the nine month periods ended September 30, 2022, total interest expense related to the adoption of ASU No. 2020-062022 Notes was 7.3%. The effective$0.6 million, primarily from coupon interest rate subsequent to the adoption of ASU No. 2020-06 decreased to 4.8%.expense. For the three- and nine-month periods ended September 30, 2021, total interest expense related to the 2022 Notes was $0.4 million and $1.3 million, respectively, with coupon interest expense of $0.4 million and $1.1 million, respectively, and the amortization of issuance costs of $0.2 million for the nine-month period ended September 30, 2021. For the three- and nine-month periods ended September 30, 2020, total interest expense related to the 2022 Notes was $1.4 million and $6.0 million, respectively, with coupon interest expense of $0.8 million and $3.5 million, respectively, and the amortization of debt discount and issuance costs of $0.6 million and $2.5 million, respectively.

Convertible Senior Notes Due 2023 (“2023 Notes”)

The 2023 Notes bear interest at a coupon interest rate of 4.125% per annum payable semi-annually in arrears on March 15 and September 15 of each year until maturity. The 2023 Notes mature on September 15, 2023 unless earlier converted, redeemed or repurchased by us. The 2023 Notes are convertible by their holders at any time beginning March 15, 2023 at an initial conversion rate of 105.6133 shares of our common stock per $1,000 principal amount, which currently represents 3,168,399 potentially convertible shares at an initial conversion price of approximately $9.47 per share of common stock. Upon conversion, we have the right to satisfy our conversion obligation by delivering cash, shares of our common stock or any combination thereof.

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Prior to March 15, 2023, holders of the 2023 Notes may convert their notes if the closing price of our common stock exceeds 130% of the conversion price for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter (share price condition) or if the trading price of the 2023 Notes wasis equal to or less than 97% of the conversion value of the notes during the 5five consecutive business days immediately after any 10ten consecutive trading day period (trading price condition). Holders of the 2023 Notes may also convert their notes if we make certain distributions on shares of our common stock or engage in certain corporate transactions, in which case the holders may be entitled to an increase in the conversion rate, depending on the price of our common shares and the time remaining to maturity, of up to 47.5260 shares of our common stock per $1,000 principal amount.

Prior to March 15, 2021, the 2023 Notes were not redeemable. On or after March 15, 2021, we may redeem all or any portion of the 2023 Notes if the price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period preceding our redemption notice. Any redemption would be payable in cash equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest and a “make-whole premium” calculated as the present value of all remaining scheduled interest payments. Holders of the 2023 Notes may convert any of their notes if we call the notes for redemption. Holders of the 2023 Notes may also require us to repurchase the notes following a “fundamental change,” which includes a change of control or a termination of trading of our common stock (as defined in the indenture governing the 2023 Notes).

The indenture governing the 2023 Notes contains customary terms and covenants, including that upon certain events of default, the entire principal amount of and any accrued interest on the notes may be declared immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a significant subsidiary, the principal amount of the 2023 Notes together with any accrued interest will become immediately due and payable.

The 2023 Notes were initially separated between the equity component recognized in shareholders’ equity and the debt component, which was presented as long-term debt, net of the unamortized debt discount and debt issuance costs. The unamortized debt discount and debt issuance costs were being accreted to interest expense through the maturity date of the 2023 Notes. As of December 31, 2020, unamortized debt discount and debt issuance costs related to the 2023 Notes totaled $3.1 million. As a result of the adoption of ASU No. 2020-06 beginning January 1, 2021, there is no longer any debt discount (or related accretion) associated with the 2023 Notes (Note 1). As of September 30, 2021, unamortized debt issuance costs related to the 2023 Notes were $0.4 million.

The effective interest rate for the 2023 Notes prioris 4.8%. For the three- and nine-month periods ended September 30, 2022, total interest expense related to the adoption2023 Notes was $0.4 million and $1.1 million, respectively, with coupon interest expense of ASU No. 2020-06 was 7.8%. The effective interest rate subsequent to$0.3 million and $0.9 million, respectively, and the adoptionamortization of ASU No. 2020-06 decreased to 4.8%.debt issuance costs of $0.1 million for the nine-month period ended September 30, 2022. For the three- and nine-month periods ended September 30, 2021, total interest expense related to the 2023 Notes was $0.3 million and $1.0 million, respectively, with coupon interest expense of $0.3 million and $0.9 million, respectively, and the amortization of issuance costs of $0.1 million for the nine-month period ended September 30, 2021. For the three- and nine-month periods ended September 30, 2020, total interest expense related to the 2023 Notes was $1.4 million and $6.0 million, respectively, with coupon interest expense of $0.8 million and $3.4 million, respectively, and the amortization of debt discount and issuance costs of $0.6 million and $2.6 million, respectively.

Convertible Senior Notes Due 2026 (“2026 Notes”)

The 2026 Notes bear interest at a coupon interest rate of 6.75% per annum payable semi-annually in arrears on February 15 and August 15 of each year, beginning February 15, 2021 until maturity. The 2026 Notes mature on February 15, 2026 unless earlier converted, redeemed or repurchased by us. The 2026 Notes are convertible by their holders at any time beginning November 17, 2025 at an initial conversion rate of 143.3795 shares of our common stock per $1,000 principal amount, which currently represents 28,675,900 potentially convertible shares at an initial conversion price of approximately $6.97 per share of common stock. Upon conversion, we have the right to satisfy our conversion obligation by delivering cash, shares of our common stock or any combination thereof.

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Table of Contents

Prior to November 17, 2025, holders of the 2026 Notes may convert their notes if the closing price of our common stock exceeds 130% of the conversion price for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter (share price condition) or if the trading price of the 2026 Notes wasis equal to or less than 97% of the conversion value of the notes during the 5five consecutive business days immediately after any 10ten consecutive trading day period (trading price condition). Holders of the 2026 Notes may also convert their notes if we make certain distributions on shares of our common stock or engage in certain corporate transactions, in which case the holders may be entitled to an increase in the conversion rate, depending on the price of our common shares and the time remaining to maturity, of up to 64.5207 shares of our common stock per $1,000 principal amount.

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Table of Contents

Prior to August 15, 2023, the 2026 Notes are not redeemable. On or after August 15, 2023, we may redeem all or any portion of the 2026 Notes if the price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period preceding our redemption notice. Any redemption would be payable in cash equal to 100% of the principal amount plus accrued and unpaid interest and a “make-whole premium” calculated as the present value of all remaining scheduled interest payments. Holders of the 2026 Notes may convert any of their notes if we call the notes for redemption. Holders of the 2026 Notes may also require us to repurchase the notes following a “fundamental change,” which includes a change of control or a termination of trading of our common stock (as defined in the indenture governing the 2026 Notes).

The indenture governing the 2026 Notes contains customary terms and covenants, including that upon certain events of default, the entire principal amount of and any accrued interest on the notes may be declared immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a significant subsidiary, the principal amount of the 2026 Notes together with any accrued interest will become immediately due and payable.

The 2026 Notes were initially separated between the equity component recognized in shareholders’ equity and the debt component, which was presented as long-term debt, net of the unamortized debt discount and debt issuance costs. The unamortized debt discount and debt issuance costs were being accreted to interest expense through the maturity date of the 2026 Notes. As of December 31, 2020, unamortized debt discount and debt issuance costs related to the 2026 Notes totaled $47.3 million. As a result of the adoption of ASU No. 2020-06 beginning January 1, 2021, there is no longer any debt discount (or related accretion) associated with the 2026 Notes (Note 1). As of September 30, 2021, unamortized debt issuance costs related to the 2026 Notes were $6.2 million.

The effective interest rate for the 2026 Notes prioris 7.6%. For the three- and nine-month periods ended September 30, 2022, total interest expense related to the adoption2026 Notes was $3.7 million and $11.1 million, respectively, with coupon interest expense of ASU No. 2020-06 was 12.4%. The effective interest rate subsequent to$3.4 million and $10.1 million, respectively, and the adoptionamortization of ASU No. 2020-06 decreased to 7.6%.debt issuance costs of $0.3 million and $1.0 million, respectively. For the three- and nine-month periods ended September 30, 2021, total interest expense related to the 2026 Notes was $3.7 million and $11.0 million, respectively, with coupon interest expense of $3.4 million and $10.1 million, respectively, and the amortization of debt issuance costs of $0.3 million and $0.9 million, respectively. For the three- and nine-month periods ended September 30, 2020, total interest expense related to the 2026 Notes was $2.5 million with coupon interest expense of $1.7 million and the amortization of debt discount and issuance costs of $0.8 million.

2026 Capped Calls

In connection with the 2026 Notes offering, we entered into capped call transactions (the “2026 Capped Calls”) with three separate option counterparties. The 2026 Capped Calls are separate transactions from the 2026 Notes and do not change the holders' rights under the 2026 Notes. Holders of the 2026 Notes do not have any rights with respect to the 2026 Capped Calls.

The 2026 Capped Calls are for an aggregate of 28,675,900 shares of our common stock, which corresponds to the shares into which the 2026 Notes are initially convertible. The capped call shares are subject to certain anti-dilution adjustments. Each capped call option has an initial strike price of approximately $6.97 per share, which corresponds to the initial conversion price of the 2026 Notes, and an initial cap price of approximately $8.42 per share. The strike and cap prices are subject to certain adjustments. The 2026 Capped Calls are intended to offset some or all of the potential dilution to Helix common shares caused by any conversion of the 2026 Notes up to the cap price. The 2026 Capped Calls can be settled in either net shares or cash at our option in components commencing December 15, 2025 and ending February 12, 2026, which could be extended under certain circumstances.

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Table of Contents

The 2026 Capped Calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting Helix, including a merger, tender offer, nationalization, insolvency or delisting. In addition, certain events may result in a termination of the 2026 Capped Calls, including changes in law, insolvency filings and hedging disruptions. The 2026 Capped Calls are recorded at their aggregate cost of $10.6 million as a reduction to common stock in the shareholders’ equity section of our condensed consolidated balance sheet.sheets.

MARAD Debt

In 2005, Helix’s subsidiary CDI – Title XI issued its U.S. Government Guaranteed Ship Financing Bonds, Q4000 Series, to refinance the construction financing originally granted in 2002 of the Q4000 vessel (the “MARAD Debt”). The MARAD Debt is guaranteed by the U.S. government pursuant to Title XI of the Merchant Marine Act of 1936, administered by the Maritime Administration (“MARAD”). The obligation of CDI Title XI to reimburse MARAD in the event CDI Title XI fails to repay the MARAD Debt is collateralized by the Q4000 and is guaranteed 50% by us. In addition, we have agreed to bareboat charter the Q4000 from CDI Title XI for so long as the MARAD Debt remains outstanding. The MARAD Debt is payable in equal semi-annual installments, matures in February 2027 and bears interest at a rate of 4.93%. The agreements relating to the bonds and the terms and conditions of our obligations to MARAD in respect of the MARAD Debt are typical for U.S. government-guaranteed ship financing transactions, including customary restrictions on incurring additional liens on the Q4000 and trading restrictions with respect to the vessel as well as working capital requirements.

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Table of Contents

Other

In accordance with the Amended ABL Facility, the 2023 Notes, the 2026 Notes and the MARAD Debt, we are required to comply with certain covenants, including minimum liquidity and a springing fixed charge coverage ratio (applicable under certain conditions that are currently not applicable) with respect to the Amended ABL Facility and the maintenance of net worth, working capital and debt-to-equity requirements with respect to the MARAD Debt. As of September 30, 2022, we were in compliance with these covenants.

We previously had a credit agreement with a syndicated bank lending group for a term loan (the “Nordea Q5000 Loan”) to finance the construction of the Q5000. The loan was secured by the Q5000 and its charter earnings. As of December 31, 2020, the remaining principal amount of the Nordea Q5000 Loan was $53.6 million, which we repaid in January 2021.

We previously had another credit agreement (and the amendments made thereafter, collectively the “Credit Agreement”) with a group of lenders led by Bank of America. The Credit Agreement was comprised of a term loan (the “Term Loan”) and a revolving credit facility (the “Revolving Credit Facility”) with a maximum availability of $175 million and had a maturity date of December 31, 2021. Concurrent with our entering into the ABL Facility on September 30, 2021, the Credit Agreement was terminated. Theterminated, the $28 million remaining balance of the Term Loan was repaid in full and the letters of credit issued under the Revolving Credit Facility were transferred to the ABL Facility. We had 0no borrowings under the Revolving Credit Facility.

We previously had a credit agreement with a syndicated bank lending group for a term loan (the “Nordea Q5000 Loan”) to finance the construction of the Q5000. The loan was secured by the Q5000 and its charter earnings. In accordance with the ABL Facility, the 2022 Notes, the 2023 Notes, the 2026 Notes and the MARAD Debt, we are required to comply with certain covenants, including a springing fixed charge coverage ratio and minimum liquidity with respect to the ABL Facility and the maintenance of net worth, working capital and debt-to-equity requirements with respect to the MARAD Debt. As of September 30,January 2021, we were in compliance with these covenants.repaid the remaining principal amount of $53.6 million.

The following table details the components of our net interest expense (in thousands):

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

    

2022

    

2021

    

2022

    

2021

Interest expense

$

6,097

$

8,007

$

18,152

 

$

22,580

$

4,923

$

6,097

$

15,264

 

$

18,152

Capitalized interest

 

 

 

 

(1,182)

Interest income

 

(169)

 

(409)

 

(252)

 

(991)

 

(279)

 

(169)

 

(647)

 

(252)

Net interest expense

$

5,928

$

7,598

$

17,900

 

$

20,407

$

4,644

$

5,928

$

14,617

 

$

17,900

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Note 67 — Income Taxes

We believe that our recorded deferredoperate in multiple jurisdictions with complex tax assets and liabilities are reasonable. However, tax laws and regulations are subject to interpretation and the outcomesjudgment. We believe that our application of tax disputes are inherently uncertain; therefore, our assessments can involve a series of complex judgments about future eventssuch laws and rely heavily on estimates and assumptions.

The U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020, is an economic stimulus package designed to aid in offsetting the economic damage caused by the ongoing COVID-19 pandemic and includes various changes to U.S. income tax regulations. The CARES Act permits the carryback of certain net operating losses, which previously had been required to be carried forward, at the tax rates applicableimpact thereof are reasonable and fairly presented in our condensed consolidated financial statements.

For the relevant carryback year. As a result of these changes, in thethree- and nine-month periodperiods ended September 30, 20202022, we recognized an estimated $7.6 million net tax benefit ($18.9 million current tax benefit and $11.3 million deferred tax expense). This net tax benefit was generated as our deferred tax assets related to U.S. net operating losses were realized at higher prior year income tax rates.

Duringexpense of $6.5 million and $10.1 million, respectively, resulting in effective tax rates of (53.0)% and (12.5)%, respectively. For these periods our aggregate tax expense was greater than the nine-month period ended September 30, 2020, we migrated 2 of our foreign subsidiaries into our U.S. consolidated tax group. As a result, these subsidiaries are not subject to future U.S. branch profits tax and a net deferredaggregate tax benefit of $8.3 million was recognized.

Theour losses primarily due to non-creditable foreign income and deemed profit taxes as well as unbenefited tax losses, resulting in negative effective tax rates forrates. Furthermore, our mix of earnings was impacted by the three-monthacquisition of Alliance, resulting in increased U.S. earnings and tax expense as compared to the same periods in 2021. For the three- and nine-month periods ended September 30, 2021, we recognized income tax benefit of $1.1 million and 2020 were$2.9 million, respectively, resulting in effective tax rates of 5.3% and 17.6%7.5%, respectively. The variance wasThese variances were primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions as well as the impact of the CARES Act in 2020. The effective tax rateslosses for the nine-month periods ended September 30, 2021 and 2020 were 7.5% and 9,777.0%, respectively. The effective tax rate for the nine-month period ended September 30, 2021 was lower than the U.S. statutory rate primarily driven by losses in jurisdictions with low tax rates as well as non-U.S. withholding and deemed profits taxes paid. The effective tax rate for the nine-month period ended September 30, 2020 was significantly higher than the U.S. statutory rate primarily due to the recognition ofwhich no financial statement benefits from our foreign subsidiary restructuring and the CARES Act, as discussed above, in relation to nominal pre-tax losses.have been recognized.

The primary differences between the income tax provision (benefit) at the U.S. statutory rate and our actual income tax provision (benefit) are as follows (dollars in thousands):

Three Months Ended

Nine Months Ended

 

September 30, 

September 30, 

 

    

2021

    

2020

    

2021

    

2020

 

Taxes at U.S. statutory rate

$

(4,221)

    

21.0

%  

$

6,232

 

21.0

%  

$

(8,124)

 

21.0

%  

$

(35)

 

21.0

%

Foreign tax provision

 

5,134

 

(25.5)

 

1,088

 

3.7

 

3,669

 

(9.5)

 

(28)

 

17.0

CARES Act

 

 

 

(2,362)

 

(8.0)

 

 

 

(7,596)

 

4,603.6

Subsidiary restructuring

 

 

 

 

 

 

 

(8,333)

 

5,050.3

Other (1)

 

(1,971)

 

9.8

 

274

 

0.9

 

1,545

 

(4.0)

 

(140)

 

85.1

Income tax provision (benefit)

$

(1,058)

 

5.3

%  

$

5,232

 

17.6

%  

$

(2,910)

 

7.5

%  

$

(16,132)

 

9,777.0

%

(1)Includes interim period allocations of $(1.7) million and $1.1 million, respectively, for the three- and nine-month periods ended September 30, 2021 and $2.3 million for both the three- and nine-month periods ended September 30, 2020.

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Note 78 — Revenue from Contracts with Customers

Disaggregation of Revenue

Our revenues are primarily derived from short-term and long-term service contracts with customers. Our service contracts generally contain either provisions for specific time, material and equipment charges that are billed in accordance with the terms of such contracts (dayrate contracts) or lump sum payment provisions (lump sum contracts). We record revenues net of taxes collected from customers and remitted to governmental authorities. Contracts are classified as long-term if all or part of the contract is to be performed over a period extending beyond 12 months from the effective date of the contract. Long-term contracts may include multi-year agreements whereby the commitment for services in any one year may be short in duration. The following table provides information about disaggregated revenue by contract duration (in thousands):

Well

Production

Intercompany

Total

    

Intervention

    

Robotics

    

Facilities

    

Eliminations (1)

    

Revenue

Three months ended September 30, 2021

 

  

 

  

 

  

 

  

 

  

Short-term

$

92,954

$

30,186

$

$

$

123,140

Long-term

 

38,360

 

12,437

 

18,552

 

(11,773)

 

57,576

Total

$

131,314

$

42,623

$

18,552

$

(11,773)

$

180,716

Three months ended September 30, 2020

 

  

 

  

 

  

 

  

 

  

Short-term

$

46,907

$

28,782

$

$

$

75,689

Long-term

 

93,896

 

21,020

 

14,167

 

(11,282)

 

117,801

Total

$

140,803

$

49,802

$

14,167

$

(11,282)

$

193,490

Nine months ended September 30, 2021

 

  

 

  

 

  

 

  

 

  

Short-term

$

218,840

$

60,605

$

$

$

279,445

Long-term

 

178,547

 

35,825

 

49,217

 

(36,962)

 

226,627

Total

$

397,387

$

96,430

$

49,217

$

(36,962)

$

506,072

Nine months ended September 30, 2020

 

  

 

  

 

  

 

  

 

  

Short-term

$

184,599

$

87,307

$

$

$

271,906

Long-term

 

242,697

 

48,589

 

43,301

 

(32,835)

 

301,752

Total

$

427,296

$

135,896

$

43,301

$

(32,835)

$

573,658

(1)Intercompany revenues among our business segments are under agreements that are considered long-term.

Well

Shallow Water

Production

Intercompany

Total

    

Intervention

    

Robotics

    

Abandonment

    

Facilities

    

Eliminations

    

Revenue

Three months ended September 30, 2022

 

  

 

  

 

  

 

  

Short-term

$

111,378

$

26,695

$

67,401

$

$

(135)

$

205,339

Long-term

 

32,547

 

29,487

 

 

18,448

 

(13,274)

��

 

67,208

Total

$

143,925

$

56,182

$

67,401

$

18,448

$

(13,409)

$

272,547

Three months ended September 30, 2021

 

  

 

  

 

  

 

  

Short-term

$

92,954

$

30,186

$

$

$

$

123,140

Long-term

 

38,360

 

12,437

 

 

18,552

 

(11,773)

 

57,576

Total

$

131,314

$

42,623

$

$

18,552

$

(11,773)

$

180,716

Nine months ended September 30, 2022

 

  

 

  

 

  

 

  

Short-term

$

288,772

$

73,684

$

67,401

$

$

(770)

$

429,087

Long-term

 

67,811

 

69,699

 

 

54,420

 

(35,733)

 

156,197

Total

$

356,583

$

143,383

$

67,401

$

54,420

$

(36,503)

$

585,284

Nine months ended September 30, 2021

 

  

 

  

 

  

 

  

Short-term

$

218,840

$

60,605

$

$

$

$

279,445

Long-term

 

178,547

 

35,825

 

 

49,217

 

(36,962)

 

226,627

Total

$

397,387

$

96,430

$

$

49,217

$

(36,962)

$

506,072

Contract Balances

Accounts receivable are recognized when our right to consideration becomes unconditional.

Contract assets are rights to consideration in exchange for services that we have provided to a customer when those rights are conditioned on our future performance. Contract assets generally consist of (i) demobilization fees recognized ratably over the contract term but invoiced upon completion of the demobilization activities and (ii) revenue recognized in excess of the amount billed to the customer for lump sum contracts when the cost-to-cost method of revenue recognition is utilized. Contract assets are reflected in “Other current assets” in the accompanying condensed consolidated balance sheets (Note 3)4). Contract assets were $0.4$0.7 million at September 30, 20212022 and $2.4$0.6 million at December 31, 2020.2021. We had 0no credit losses on our contract assets for the three- and nine-month periods ended September 30, 20212022 and 2020.2021.

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Contract liabilities are obligations to provide future services to a customer for which we have already received, or have the unconditional right to receive, the consideration for those services from the customer. Contract liabilities may consist of (i) advance payments received from customers, including upfront mobilization fees allocated to a single performance obligation and recognized ratably over the contract term and/or (ii) amounts billed to the customer in excess of revenue recognized for lump sum contracts when the cost-to-cost method of revenue recognition is utilized. Contract liabilities are reflected as “Deferred revenue,” a component of “Accrued liabilities” and “Other non-current liabilities” in the accompanying condensed consolidated balance sheets (Note 3)4). Contract liabilities totaled $10.2$20.8 million at September 30, 20212022 and $10.0$8.7 million at December 31, 2020.2021. Revenue recognized for the three- and nine-month periods ended September 30, 20212022 included $4.0$2.7 million and $6.7$7.0 million, respectively, that were included in the contract liability balance at the beginning of each period. Revenue recognized for the three- and nine-month periods ended September 30, 20202021 included $3.4$4.0 million and $8.8$6.7 million, respectively, that were included in the contract liability balance at the beginning of each period.

We report the net contract asset or contract liability position on a contract-by-contract basis at the end of each reporting period.

Performance Obligations

As of September 30, 2021, $230.52022, $758.4 million related to unsatisfied performance obligations was expected to be recognized as revenue in the future, with $68.6$162.0 million, $426.4 million and $170.0 million in 2021, $102.6 million in 2022 and $59.3 million in , 2023 and thereafter.2024, respectively. These amounts include fixed consideration and estimated variable consideration for both wholly and partially unsatisfied performance obligations, including mobilization and demobilization fees. These amounts are derived from the specific terms of our contracts, and the expected timing for revenue recognition is based on the estimated start date and duration of each contract according to the information known at September 30, 2021.2022.

For the three- and nine-month periods ended September 30, 20212022 and 2020,2021, revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were immaterial.

Contract Fulfillment Costs

Contract fulfillment costs consist of costs incurred in fulfilling a contract with a customer. Our contract fulfillment costs primarily relate to costs incurred for mobilization of personnel and equipment at the beginning of a contract and costs incurred for demobilization at the end of a contract. Mobilization costs are deferred and amortized ratably over the contract term (including anticipated contract extensions) based on the pattern of the provision of services to which the contract fulfillment costs relate. Demobilization costs are recognized when incurred at the end of the contract. Deferred contract costs are reflected as “Deferred costs,” a component of “Other current assets” and “Other assets, net” in the accompanying condensed consolidated balance sheets (Note 3)4). Our deferred contract costs totaled $9.3$18.5 million at September 30, 20212022 and $24.4$3.3 million at December 31, 2020.2021. For the three- and nine-month periods ended September 30, 2021,2022, we recorded $11.7$8.5 million and $31.6$19.7 million, respectively, related to amortization of these deferred contract costs. For the three- and nine-month periods ended September 30, 2020,2021, we recorded $9.2$11.7 million and $27.2$31.6 million, respectively, related to amortization of these deferred contract costs. There were no associated impairment losses for any period presented.

For additional information regarding revenue recognition, see Notes 2 and 12 to our 20202021 Form 10-K.

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Note 89 — Earnings Per Share

We have shares of restricted stock issued and outstanding that are currently unvested. Because holders of shares of unvested restricted stock are entitled to the same liquidation and dividend rights as the holders of our unrestricted common stock, we are required to compute basic and diluted EPSearnings per share (“EPS”) under the two-class method in periods in which we have earnings. Under the two-class method, net income or loss attributable to common shareholders for each period is allocated based on the participation rights of both common shareholders and the holders of any participating securities as if earnings for the respective periods had been distributed. For periods in which we have a net loss we do not use the two-class method as holders of our restricted shares are not obligated to share in such losses.

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Basic EPS is computed by dividing net income or loss available to common shareholders by the weighted average shares of our common stock outstanding. The calculation of diluted EPS is similar to that for basic EPS, except that the denominator includes dilutive common stock equivalents and the numerator excludes the effects of dilutive common stock equivalents, if any. The computations of the numerator (income)(earnings or loss) and denominator (shares) to derive the basic and diluted EPS amounts presented on the face of the accompanying condensed consolidated statements of operations are as follows (in thousands):

Three Months Ended

Three Months Ended

September 30, 2021

September 30, 2020

    

Income

    

Shares

    

Income

    

Shares

Basic:

 

  

 

  

 

  

 

  

Net income (loss) attributable to common shareholders

$

(19,043)

 

$

24,499

 

  

Less: Undistributed earnings allocated to participating securities

 

 

(180)

 

  

Accretion of redeemable noncontrolling interests

 

 

(128)

 

  

Net income (loss) available to common shareholders, basic

$

(19,043)

150,088

$

24,191

 

149,032

Diluted:

 

  

  

 

  

 

  

Net income (loss) available to common shareholders, basic

$

(19,043)

150,088

$

24,191

 

149,032

Effect of dilutive securities:

 

  

  

 

  

 

  

Share-based awards other than participating securities

 

 

 

919

Undistributed earnings reallocated to participating securities

 

 

2

 

Net income (loss) available to common shareholders, diluted

$

(19,043)

150,088

$

24,193

 

149,951

Three Months Ended

Three Months Ended

September 30, 2022

September 30, 2021

    

Income

    

Shares

    

Income

    

Shares

Basic and Diluted:

 

  

 

  

 

  

 

  

Net loss attributable to common shareholders

$

(18,763)

 

$

(19,043)

 

  

Net loss available to common shareholders

$

(18,763)

151,331

$

(19,043)

 

150,088

Nine Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

    

Income

    

    

Income

    

Shares

Basic:

 

  

 

  

 

  

 

  

Net income (loss) attributable to common shareholders

$

(35,630)

 

$

18,011

 

  

Less: Undistributed earnings allocated to participating securities

 

 

(117)

 

  

Less: Accretion of redeemable noncontrolling interests

 

(241)

 

(2,283)

 

  

Net income (loss) available to common shareholders, basic

$

(35,871)

150,018

$

15,611

 

148,956

Diluted:

 

  

  

 

  

 

  

Net income (loss) available to common shareholders, basic

$

(35,871)

150,018

$

15,611

 

148,956

Effect of dilutive securities:

 

  

  

 

  

 

  

Share-based awards other than participating securities

 

 

 

868

Undistributed earnings reallocated to participating securities

 

 

1

 

Net income (loss) available to common shareholders, diluted

$

(35,871)

150,018

$

15,612

 

149,824

Nine Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

    

Income

    

Shares

    

Income

    

Shares

Basic and Diluted:

 

  

 

  

 

  

 

  

Net loss attributable to common shareholders

$

(90,493)

 

$

(35,630)

 

  

Less: Accretion of redeemable noncontrolling interests

 

 

(241)

 

  

Net loss available to common shareholders

$

(90,493)

151,226

$

(35,871)

 

150,018

We had net losses for the three- and nine-month periods ended September 30, 2022 and 2021. Accordingly, our diluted EPS calculation for these periods excluded any assumed exercise or conversion of common stock equivalents. These common stock equivalents were excluded because they were deemed to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share in the applicable periods. Shares that otherwise would have been included in the diluted per share calculations assuming we had earnings are as follows (in thousands):

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

    

2021

    

2021

    

2022

    

2021

    

2022

    

2021

Diluted shares (as reported)

 

150,088

 

150,018

 

151,331

 

150,088

 

151,226

 

150,018

Share-based awards

 

1,384

 

1,306

 

1,471

 

1,384

 

1,332

 

1,306

Total

 

151,472

 

151,324

 

152,802

 

151,472

 

152,558

 

151,324

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The following potentially dilutive shares related to the 2022 Notes, the 2023 Notes and the 2026 Notes were excluded from the diluted EPS calculation as they were anti-dilutive (in thousands):

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

    

2022

    

2021

    

2022

    

2021

2022 Notes

 

2,519

 

5,688

 

2,519

 

7,886

2,519

803

2,519

2023 Notes

 

3,168

 

8,076

 

3,168

 

11,481

 

3,168

 

3,168

 

3,168

 

3,168

2026 Notes

 

28,676

 

14,650

 

28,676

 

4,919

 

28,676

 

28,676

 

28,676

 

28,676

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Note 910 — Employee Benefit Plans

Long-Term Incentive Plan

As of September 30, 2021,2022, there were 5.94.1 million shares of our common stock available for issuance under our 2005 Long-Term Incentive Plan, as amended and restated (the “2005 Incentive Plan”). During the nine-month period ended September 30, 2021,2022, the following grants of share-based awards were made under the 2005 Incentive Plan:

Grant Date

Fair Value

Date of Grant

    

Shares/Units

    

Per Share/Unit

    

Vesting Period

January 1, 2021 (1)

 

452,381

$

4.20

 

33% per year over three years

January 4, 2021 (2)

 

452,381

$

5.33

 

100% on January 4, 2024

January 4, 2021 (3)

 

14,249

$

4.20

 

100% on January 1, 2023

April 1, 2021 (3)

 

9,282

$

5.05

 

100% on January 1, 2023

July 1, 2021 (3)

 

8,403

$

5.71

 

100% on January 1, 2023

July 23, 2021 (4)

 

14,664

$

4.54

 

100% on July 23, 2022

Grant Date

Fair Value

Date of Grant

    

Award Type

    

Shares/Units

    

Per Share/Unit

    

Vesting Period

January 1, 2022 (1)

 

RSU

 

1,065,705

$

3.12

 

33% per year over three years

January 4, 2022 (1)

 

PSU

 

1,065,705

$

4.25

 

100% on January 4, 2025

January 4, 2022 (2)

 

Restricted stock

 

15,775

$

3.12

 

100% on January 1, 2024

April 1, 2022 (2)

 

Restricted stock

 

14,710

$

4.78

 

100% on January 1, 2024

July 1, 2022 (2)

 

Restricted stock

 

14,867

$

3.10

 

100% on January 1, 2024

September 22, 2022 (3)

 

Restricted stock

 

19,328

$

4.38

 

100% on September 22, 2023

(1)Reflects grants of restricted stock units (“RSUs”) to our executive officers.
(2)Reflects grants of performance share units (“PSUs”) to our executive officers. These PSUs consist of two components: (i) 50% based on the performance of our common stock and (ii) 50% based on cumulative total Free Cash Flow. The grant date fair value represents the average grant date fair value of the 2 components.
(3)Reflects grants of restricted stock to certain independent members of our Board of Directors (our “Board”) who have elected to take their quarterly fees in stock in lieu of cash.cash, of which 8,013 shares granted on January 4, 2022 and 5,230 shares granted on April 1, 2022 vested upon the approval of our Board’s Compensation Committee in connection with the departure of an independent director during the second quarter 2022.
(4)(3)Reflects a grant of restricted stock grants made to atwo new independent membermembers of our Board upon his joiningin connection with their appointment to our Board.

Compensation cost for restricted stock is the product of the grant date fair value of each share and the number of shares granted and is recognized over the applicable vesting period on a straight-line basis. Forfeitures are recognized as they occur. NaNNo restricted stock awards have been granted to our executive officers or other employees in 2021.2022. For the three- and nine-month periods ended September 30, 2022, $0.5 million and $1.9 million, respectively, were recognized as share-based compensation related to restricted stock. For the three- and nine-month periods ended September 30, 2021, $0.8 million and $2.5 million, respectively, were recognized as share-based compensation related to restricted stock. For the three- and nine-month periods ended September 30, 2020, $1.1 million and $3.2 million, respectively, were recognized as share-based compensation related to restricted stock.

Our existing PSUsperformance share units (“PSUs”) that were granted prior to 2021 are to be settled solely in shares of our common stock and are accounted for as equity awards. Those PSUs, which contain a service condition and a market condition.condition, are based on the performance of our common stock against peer group companies. Our PSUs granted inbeginning 2021 may be settled in either cash or shares of our common stock upon vesting at the discretion of the Compensation Committee of our Board and are initiallyhave been accounted for as equity awards. TheThose PSUs granted in 2021 consist of 2two components: (i) 50% based on the performance of our common stock against peer group companies, which component contains a service condition and a market condition, and (ii) 50% based on cumulative total Free Cash Flow, which component contains a service condition and a performance condition. Free Cash Flow is calculated as cash flows from operating activities less capital expenditures, net of proceeds from sale of assets. Our PSUs cliff vest at the end of a three-year period with the maximum amount of the award being 200% of the original PSU awards and the minimum amount being 0.zero.

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Table of Contents

Compensation cost forFor PSUs that have a service condition and a market condition and are accounted for as equity awards, compensation cost is measured based on the grant date estimated fair value determined using a Monte Carlo simulation model and subsequently recognized over the vesting period on a straight-line basis. The grant date estimated fair value is determined using a Monte Carlo simulation model. Compensation cost forFor PSUs that have a service condition and a performance condition and are accounted for as equity awards, compensation cost is initially measured based on the grant date fair value. Cumulative compensation cost is subsequently adjusted at the end of each reporting period to reflect the current estimation of achieving the performance condition. For the three- and nine-month periods ended September 30, 2021, $1.02022, $1.5 million and $3.1$3.6 million, respectively, were recognized as share-based compensation related to equity PSUs. For the three- and nine-month periods ended September 30, 2020,2021, $1.0 million and $3.0$3.1 million, respectively, were recognized as share-based compensation related to equity PSUs. In January 2021,2022, based on the performance of our common stock price as compared to our performance peer group over a three-year period, 368,038559,150 equity PSUs granted in 20182019 vested at 200%157%, representing 736,075876,469 shares of our common stock with a total market value of $3.1$3.2 million.

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RSUs grantedOur restricted stock units (“RSUs”) may be settled in 2021either cash or shares of our common stock upon vesting at the discretion of the Compensation Committee and have been accounted for as liability awards. Liability RSUs are measured at their estimated fair value at each balance sheet date, and subsequent changes in the fair value of the awards are recognized in earnings for the portion of the award for which the requisite service period has elapsed. Cumulative compensation cost for vested liability RSUs equals the actual payout value upon vesting. For the three- and nine-month periods ended September 30, 2022, $0.7 million and $1.5 million, respectively, were recognized as compensation cost. Compensation cost recognized for the three-month period ended September 30, 2021 was minimal. For the nine-month period ended September 30, 2021, $0.4 million was recognized as compensation cost.

In 20212022 and 2020,2021, we granted fixed-value cash awards of $3.5$5.4 million and $4.7$3.5 million, respectively, to select management employees under the 2005 Incentive Plan. The value of these cash awards is recognized on a straight-line basis over a vesting period of three years. For the three- and nine-month periods ended September 30, 2022, $1.1 million and $3.2 million, respectively, were recognized as compensation cost. For the three- and nine-month periods ended September 30, 2021, $1.0 million and $3.0 million, respectively, were recognized as compensation cost. For the three- and nine-month periods ended September 30, 2020, $1.1 million and $3.4 million, respectively, were recognized as compensation cost.

Defined Contribution Plan

We sponsor a defined contribution 401(k) retirement plan. We suspended ourOur discretionary contributions are in the form of cash and consist of a 50% match of each participant’s contribution up to 5% of the participant’s salary. Our discretionary contributions were suspended for an indefinite period2021 and re-activated beginning January 2021.2022. For the three- and nine-month periods ended September 30, 2022, we made $0.4 million and $1.1 million, respectively, in contributions to the 401(k) plan.

Employee Stock Purchase Plan

We have an employee stock purchase plan (the “ESPP”). As of September 30, 2021, 1.62022, 1.4 million shares were available for issuance under the ESPP. The ESPP currently has a purchase limit of 260 shares per employee per purchase period.

For more information regarding our employee benefit plans, including the 2005 Incentive Plan and the ESPP, see Note 14 to our 20202021 Form 10-K.

Note 1011 — Business Segment Information

We have 3Through the second quarter 2022, we had three reportable business segments: Well Intervention, Robotics and Production Facilities. Beginning in the third quarter 2022 as a result of the Alliance acquisition (Note 3), we formed a new reportable business segment: Shallow Water Abandonment. Our U.S., U.K. and Brazil well interventionWell Intervention operating segments are aggregated into the Well Intervention segment for financial reporting purposes. Our Well Intervention segment provides services enabling our customers to safely access offshore wells for the purpose of performing production enhancement or decommissioning operations primarily in the Gulf of Mexico, Brazil, the North Sea and West Africa. Our well intervention vessels include the Q4000, the Q5000, the Q7000, the Seawell, the Well Enhancer, and the Siem Helix 1 and Siem Helix 2 chartered vessels. Our well intervention equipment includes IRSs, SILs and the ROAM,intervention systems, some of which we provide on a stand-alone basis. Our Robotics segment provides offshore construction, trenching, seabed clearance inspection, repair and maintenanceIRM services to both the oil and gas and the renewable energy markets globally. OurAdditionally, our Robotics services alsoare used in and complement our well intervention services. Our Robotics segment mainly includes ROVs, trenchers a ROVDrill and 2 robotics support vessels under long-term charter, the Grand Canyon II and the Grand Canyon III,term charters as well as spot vessels as needed. Our Production Facilities segment includes the HP I, the HFRS and our ownership of oil and gas properties (Note 11)12). Our Shallow Water Abandonment segment provides services in support of the upstream and midstream ‎industries in the Gulf of Mexico shelf, including offshore oil field decommissioning and ‎reclamation, project management, engineered solutions, intervention, maintenance, repair, heavy lift and commercial diving services. Our Shallow Water Abandonment segment operates a diversified fleet of marine assets including liftboats, OSVs, DSVs, a heavy lift derrick barge, a crew boat, P&A systems, coiled tubing systems and other miscellaneous assets. All material intercompany transactions between the segments have been eliminated.

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We evaluate our performance based on operating income of each reportable segment. Certain financial data by reportable segment are summarized as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2021

    

2020

2021

    

2020

Net revenues —

  

 

  

  

 

  

Well Intervention

$

131,314

$

140,803

$

397,387

$

427,296

Robotics

 

42,623

 

49,802

 

96,430

 

135,896

Production Facilities

 

18,552

 

14,167

 

49,217

 

43,301

Intercompany eliminations

 

(11,773)

 

(11,282)

 

(36,962)

 

(32,835)

Total

$

180,716

$

193,490

$

506,072

$

573,658

Income (loss) from operations —

 

  

 

  

 

  

 

  

Well Intervention

$

(13,343)

$

18,844

$

(14,819)

$

24,910

Robotics

 

4,936

 

6,983

 

2,257

 

11,940

Production Facilities

 

5,089

 

4,134

 

16,285

 

11,142

Segment operating income (loss)

 

(3,318)

 

29,961

 

3,723

 

47,992

Goodwill impairment (1)

 

 

 

 

(6,689)

Corporate, eliminations and other

 

(7,013)

 

(10,946)

 

(25,550)

 

(29,121)

Total

$

(10,331)

$

19,015

$

(21,827)

$

12,182

(1)As a result of the decline in oil prices as well as energy and energy services valuations during the first quarter 2020 due to the COVID-19 pandemic and the price war among members of the Organization of Petroleum Exporting Countries (“OPEC”) and other non-OPEC producer nations (collectively with OPEC members, “OPEC+”), we impaired all of our goodwill, which consisted entirely of goodwill attributable to the acquisition of a controlling interest in STL.

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

2022

    

2021

Net revenues —

 

  

 

  

  

 

  

Well Intervention

$

143,925

$

131,314

$

356,583

$

397,387

Robotics

 

56,182

 

42,623

 

143,383

 

96,430

Shallow Water Abandonment

67,401

67,401

Production Facilities

 

18,448

 

18,552

 

54,420

 

49,217

Intercompany eliminations

 

(13,409)

 

(11,773)

 

(36,503)

 

(36,962)

Total

$

272,547

$

180,716

$

585,284

$

506,072

Income (loss) from operations —

 

 

  

 

  

 

  

Well Intervention

$

(1,304)

$

(13,343)

$

(55,610)

$

(14,819)

Robotics

 

11,708

 

4,936

 

22,854

 

2,257

Shallow Water Abandonment

16,320

16,320

Production Facilities

 

6,068

 

5,089

 

17,964

 

16,285

Segment operating income (loss)

 

32,792

 

(3,318)

 

1,528

 

3,723

Corporate, eliminations and other

 

(20,566)

 

(7,013)

 

(41,255)

 

(25,550)

Total

$

12,226

$

(10,331)

$

(39,727)

$

(21,827)

Intercompany segment amounts are derived primarily from equipment and services provided to other business segments. Intercompany segment revenues are as follows (in thousands):

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

    

2022

    

2021

    

2022

    

2021

Well Intervention

$

4,267

$

4,120

$

17,060

$

11,334

$

4,303

$

4,267

$

12,046

$

17,060

Robotics

 

7,506

 

7,162

 

19,902

 

21,501

 

8,971

 

7,506

 

24,322

 

19,902

Shallow Water Abandonment

 

135

 

 

135

 

Total

$

11,773

$

11,282

$

36,962

$

32,835

$

13,409

$

11,773

$

36,503

$

36,962

Segment assets are comprised of all assets attributable to each reportable segment. Corporate and other includes all assets not directly identifiable with our business segments, most notably the majority of our cash and cash equivalents.segments. The following table reflects total assets by reportable segment (in thousands):

September 30, 

December 31,

September 30, 

December 31,

    

2021

    

2020

    

2022

    

2021

Well Intervention

$

2,042,180

$

2,134,081

$

1,769,705

$

2,012,214

Robotics

 

109,450

 

132,550

 

172,521

 

96,249

Shallow Water Abandonment

200,987

Production Facilities

 

121,258

 

129,773

 

138,921

 

119,004

Corporate and other

 

74,411

 

101,874

 

73,363

 

98,561

Total

$

2,347,299

$

2,498,278

$

2,355,497

$

2,326,028

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Note 1112 — Asset Retirement Obligations

Asset retirement obligations (“AROs”) are recorded at fair value and consist of estimated costs for subsea infrastructure plugdecommissioning and abandonment (“P&A”)&A activities associated with our oil and gas properties. The estimated costs are discounted to present value using a credit-adjusted risk-free discount rate. After its initial recognition, an ARO liability is increased for the passage of time as accretion expense, which is a component of our depreciation and amortization expense. An ARO liability may also change based on revisions in estimated costs and/or timing to settle the obligations.

Our existing AROs relate to our Droshky oil and gas properties that we acquired from Marathon Oil Corporation (“Marathon Oil”) in January 2019. In connection with assuming the P&A obligations related to those assets, we are entitled to receive agreed-upon amounts from Marathon Oil as the P&A work is completed. Our ARO additions in the third quarter 2022 and a corresponding asset of $23.6 million relate to MP GOM’s 62.5% interest in the Thunder Hawk Field that we acquired in August 2022 (Note 2). The following table describes the changes in our AROs (in thousands):

    

2021

    

2020

    

2022

    

2021

AROs at January 1,

$

30,913

$

28,258

$

29,658

$

30,913

Liability incurred during the period

23,601

Revisions in estimates

 

(2,631)

 

 

 

(2,631)

Accretion expense

 

736

 

2,021

 

1,465

 

736

AROs at September 30,

$

29,018

$

30,279

$

54,724

$

29,018

Note 1213 — Commitments and Contingencies and Other Matters

Commitments

We have long-term charter agreements with Siem Offshore AS (“Siem”) for the Siem Helix 1 and Siem Helix 2 vessels, which historically have been used in connection with our contracts with Petróleo Brasileiro S.A. (“Petrobras”) to perform well intervention work offshore Brazil. The initial term ofvessels. During the first quarter 2022, the charter agreements with Siem is for seven years, with options to extend. Thethe Siem Helix1 charter expires June 2023 and the Siem Helix2 charter expireswere extended to February 2024.2025 and February 2027, respectively, with further options to extend. We have time charter agreements for the Grand Canyon II and Grand Canyon III vessels. The expiration datevessels, which were extended during the third quarter 2022 to December 2027 and May 2028, respectively, with further options to renew. During the first quarter 2022, we executed short-term time charter agreements for the Horizon Enabler in the North Sea and the Shelia Bordelon in the Gulf of Mexico. During the third quarter 2022, the charter agreement for the Grand Canyon IIShelia Bordelon charter was extended to December 2022, with an option to renew. The Grand Canyon III charter expires May 2023.June 2024.

Contingencies and Claims

Our contingent consideration liability resulting from the Alliance acquisition is subject to risk as a result of changes in our probability weighted discounted cash flow model, which is based on internal forecasts, and changes in weighted average discount rate, which is derived from market data.

We believe that there are currently no other contingencies that would have a material adverse effect on our financial position, results of operations or cash flows.

Litigation

We are involved in various legal proceedings, some involving claims for personal injury under the General Maritime Laws of the United States and the Merchant Marine Act of 1920 (commonly referred to as the Jones Act.Act). In addition, from time to time we receive other claims, such as contract and employment-related disputes, in the normal course of business.

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We are currently involved in several lawsuits filed by current and former offshore employees seeking overtime compensation. These suits are brought as collective actions and are in various stages of litigation. In one such lawsuit, during the third quarter 2021 the United States Court of Appeals for the Fifth Circuit (the “Fifth Circuit”) issued a ruling adverse to us that may also have implications for some of the other cases in which we are involved, as well as the way offshore personnel are compensated throughout our industry. We intendfurther appealed that matter to further appeal this matter andthe United States Supreme Court, which heard oral arguments in October 2022. In another such lawsuit, during the third quarter 2022 the Fifth Circuit issued a separate adverse ruling that may also have implications for some of the other cases in which we are involved. We continue to continue vigorously defendingdefend these lawsuits. Notwithstanding that we believe we retain valid defenses, at this time we have established a liability for probable losses in certain of these matters. The final outcome of these matters remains uncertain, and the ultimate liability to us could be more or less than the liability established.

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Note 1314 — Statement of Cash Flow Information

We define cash and cash equivalents as cash and all highly liquid financial instruments with original maturities of three months or less. We classify cash as restricted when there are legal or contractual restrictions for its withdrawal. The following table provides supplemental cash flow information (in thousands):

Nine Months Ended

September 30, 

    

2021

    

2020

Interest paid, net of interest capitalized

$

19,945

$

14,255

Income taxes paid (1)

 

6,771

 

6,436

(1)Exclusive of income tax refunds. During the nine-month period ended September 30, 2021, we received $18.9 million in refunds related to the CARES Act.

Nine Months Ended

September 30, 

    

2022

    

2021

Interest paid

$

18,143

$

19,945

Income taxes paid

 

6,631

 

6,771

Our capital additions include the acquisition of property and equipment for which payment has not been made. These non-cash capital additions totaled $0.3 million at September 30, 20212022 and $1.6 million at December 31, 2020.2021.

Non-cash investing activities for the nine-month period ended September 30, 2022 also included $26.7 million in estimated fair value of contingent earn-out consideration as of July 1, 2022, the date of the Alliance acquisition (Note 3).

Note 1415 — Allowance for Credit Losses

We estimate current expected credit losses on our accounts receivable at each reporting date. We estimate current expected credit lossesdate based on our credit loss history, adjusted for current factors including global economic and business conditions, offshore energy industry and market conditions, customer mix, contract payment terms and past due accounts receivable.

The following table sets forth the activity in our allowance for credit losses (in thousands):

    

2021

    

2020

    

2022

    

2021

Balance at January 1,

$

3,469

$

$

1,477

$

3,469

Additions (reductions) (1)

 

(213)

 

2,387

 

710

 

(213)

Write-offs (2)

(1,846)

(1,846)

Adjustments (3)

 

 

785

Balance at September 30,

$

1,410

$

3,172

$

2,187

$

1,410

(1)Additions (reductions) in allowance for credit losses reflect credit loss reserves (releases) during the respective periods, including a $1.7 millionperiods. Additions during the third quarter 2022 primarily reflected adjustments to the allowance for credit loss reserve in 2020 relatedlosses due to a receivableincreases in our Robotics segment.expected credit losses as a result of the Alliance acquisition.
(2)The write-offs of allowance for credit losses reflect certain receivables related to our Robotics segment that were previously reserved and subsequently deemed to be uncollectible.
(3)The adjustment in allowance for credit losses reflects provision for current expected credit losses upon the adoption of ASU No. 2016-13 on January 1, 2020.

Note 15 — Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value accounting rules establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

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Assets and liabilities measured at fair value are based on one or more of three valuation approaches as follows:Note 16 — Fair Value Measurements

(a)Market Approach. Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
(b)Cost Approach. Amount that would be required to replace the service capacity of an asset (replacement cost).
(c)Income Approach. Techniques to convert expected future cash flows to a single present amount based on market expectations (including present value techniques, option-pricing and excess earnings models).

Our financial instruments include cash and cash equivalents, receivables, accounts payable and long-term debt. The carrying amount of cash and cash equivalents, trade and other current receivables as well as accounts payable approximates fair value due to the short-term nature of these instruments.

The following table sets forth our assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

Fair Value at September 30, 2022

    

Level 1

    

Level 2

    

Level 3

    

Total

Liabilities:

 

  

 

  

 

  

 

  

Contingent consideration

 

 

 

29,364

 

29,364

Contingent consideration liability related to the Alliance acquisition (Note 3) is measured at fair value using Level 3 unobservable inputs at the end of each reporting period and changes in its estimated fair value are recorded in earnings until the liability is settled. The fair value of the estimated contingent consideration is determined based on our evaluation of the probability and amount of earnout that may be achieved based on expected future performance of Helix Alliance. The Monte Carlo simulation model is used to calculate the estimated earnout payment, which is then discounted to present value based on the expected payment date of the contingent consideration. The weighted-average volatility was 47.5% and the weighted average discount rate was estimated to be 9.2% at September 30, 2022. The changes in the fair value of contingent consideration are as follows:

    

2022

Balance at July 1,

$

26,700

Change in fair value

2,664

Balance at September 30, 

$

29,364

The principal amount and estimated fair value of our long-term debt are as follows (in thousands):

September 30, 2021

December 31, 2020

September 30, 2022

December 31, 2021

Principal

Fair

Principal

Fair

Principal

Fair

Principal

Fair

    

Amount (1)

    

Value (2) (3)

    

Amount (1)

    

Value (2) (3)

    

Amount (1)

    

Value (2)

    

Amount (1)

    

Value (2)

Term Loan (repaid September 2021) (4)

$

$

$

29,750

$

28,969

Nordea Q5000 Loan (matured January 2021) (5)

 

 

 

53,572

 

53,598

MARAD Debt (matures February 2027)

 

48,850

 

53,115

 

56,410

 

62,318

$

40,913

$

40,496

$

48,850

$

52,481

2022 Notes (mature May 2022)

 

35,000

 

34,638

 

35,000

 

33,513

2022 Notes (matured May 2022)

 

 

 

35,000

 

34,794

2023 Notes (mature September 2023)

 

30,000

 

29,001

 

30,000

 

28,650

 

30,000

 

29,504

 

30,000

 

29,054

2026 Notes (mature February 2026)

 

200,000

 

210,143

 

200,000

 

211,383

 

200,000

 

205,754

 

200,000

 

200,562

Total debt

$

313,850

$

326,897

$

404,732

$

418,431

$

270,913

$

275,754

$

313,850

$

316,891

(1)Principal amount includes current maturities and excludes any related unamortized debt discount and debt issuance costs. See Note 56 for additional disclosures on our long-term debt.
(2)The estimated fair value of the 2022 Notes, the 2023 Notes and the 2026 Notes was determined using Level 1 fair value inputs under the market approach. The fair value of the Term Loan, the Nordea Q5000 Loan and the MARAD Debt was estimated using Level 2 fair value inputs under the market approach, which was determined using a third-party evaluation of the remaining average life and outstanding principal balance of the indebtedness as compared to other obligations in the marketplace with similar terms.
(3)The principal amount and estimated fair value of the 2022 Notes, the 2023 Notes and the 2026 Notes are for the entire instrument inclusive of the conversion feature, which had been accounted for in shareholders’ equity through December 31, 2020.
(4)The Term Loan was fully repaid in September 2021 concurrent with our entering into the ABL Facility (Note 5).
(5)The Nordea Q5000 Loan was fully repaid upon maturity in January 2021 (Note 5).

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS AND ASSUMPTIONS

This Quarterly Report on Form 10-Q contains or incorporates by reference various statements that contain forward-looking information regarding Helix and represent our current expectations or forecasts of future events. This forward-looking information is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995 as set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements included herein or incorporated by reference herein that are predictive in nature, that depend upon or refer to future events or conditions, or that use terms and phrases such as “achieve,” “anticipate,” “believe,” “estimate,” “budget,” “expect,” “forecast,” “plan,” “project,” “propose,” “strategy,” “predict,” “envision,” “hope,” “intend,” “will,” “continue,” “may,” “potential,” “should,” “could” and similar terms and phrases are forward-looking statements although not all forward-looking statements contain such identifying words. Included in forward-looking statements are, among other things:

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statements regarding our business strategy, corporate initiatives and any other business plans, forecasts or objectives, any or all of which are subject to change;
statements regarding projections of revenues, gross margins, expenses, earnings or losses, working capital, debt and liquidity, capital expenditures or other financial items;
statements regarding our backlog and commercial contracts and rates thereunder;
statements regarding our ability to enter into and/or perform commercial contracts, including the scope, timing and outcome of those contracts;
statements regarding the spot market, the continuation of our current backlog, our spending and cost reduction plans and our ability to manage changes, and the ongoing COVID-19 pandemic and oil price volatility and their respective effects and results on the foregoing as well as our protocols and plans;
statements regarding the acquisition, construction, completion, upgrades to or maintenance of vessels, systems or equipment and any anticipated costs or downtime related thereto;
statements regarding any financing transactions or arrangements, or our ability to enter into such transactions or arrangements;
statements regarding potential legislative, governmental, regulatory, administrative or other public body actions, requirements, permits or decisions;
statements regarding our trade receivables and their collectability;
statements regarding potential developments, industry trends, performance or industry ranking;
statements regarding our ESG initiatives and the successes thereon or regarding our environmental efforts, including greenhouse gas emissions targets;
statements regarding global, market or investor sentiment with respect to fossil fuels;
statements regarding our existing activities in, and future expansion into, the offshore renewable energy market;
statements regarding general economic or political conditions, whether international, national or in the regional or local markets in which we do business;
statements regarding our human capital resources, including our ability to retain our senior management and other key employees;
statements regarding the underlying assumptions related to any projection or forward-looking statement; and
any other statements that relate to non-historical or future information.

Although we believe that the expectations reflected in our forward-looking statements are reasonable and are based on reasonable assumptions, they do involve risks, uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements. These factors include:

the results and effects of the ongoing COVID-19 pandemic and actions by governments, customers, suppliers and partners with respect thereto;
the impact of domestic and global economic conditions and the future impact of such conditions on the offshore energy industry and the demand for our services;
the general impact of oil and gas price volatility and the cyclical nature of the oil and gas market;
the potential effects of regional tensions that have escalated or may escalate, including into conflicts or wars, and their impact on the global economy, oil and gas market, our operations, international trade, or our ability to do business with certain parties or in certain regions, and any governmental sanctions resulting therefrom;
the results and effects of the COVID-19 pandemic and actions by governments, customers, suppliers and partners with respect thereto;

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the results of corporate initiatives such as alliances, partnerships, joint ventures, mergers, acquisitions, divestitures and restructurings, or the determination not to pursue or effect such initiatives;
the impact of inflation and our ability to recoup rising costs in the rates we charge to our customers;
the impact of any potential cancellation, deferral or modification of our work or contracts by our customers;
the ability to effectively bid, renew and perform our contracts, including the impact of equipment problems or failure;
the impact of the imposition by our customers of rate reductions, fines and penalties with respect to our operating assets;
unexpected future capital expenditures, including the amount and nature thereof;
the effectiveness and timing of completion of our vessel and/or system upgrades, regulatory recertification and inspection as well as major maintenance items;
unexpected delays in the delivery, chartering or customer acceptance, and terms of acceptance, of our assets;
the effect of adverse weather conditions and/or other risks associated with marine operations;
the effects of our indebtedness, our ability to comply with debt covenants and our ability to reduce capital commitments;
the results of our continuing efforts to control costs and improve performance;
the success of our risk management activities, including with respect to our cybersecurity initiatives;
the effects of competition;
the availability of capital (including any financing) to fund our business strategy and/or operations;
the effectiveness of our ESG initiatives and disclosures;
the impact of current and future laws and governmental regulations and how they will be interpreted or enforced, including related to litigation and similar claims in which we may be involved;
the future impact of international activity such as the U.K.’s exit from the European Union, known as Brexit, and trade agreements on our business, operations and financial condition;

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the effect of adverse weather conditions and/or other risks associated with marine operations;
the impact of foreign currency exchange controls, potential illiquidity of those currencies and exchange rate fluctuations;
the effectiveness of ourany future hedging activities;
the potential impact of a negative event related to our human capital resources, including a loss of one or more key employees; and
the impact of general, market, industry or business conditions.conditions; and
the factors generally described in Item 1A. Risk Factors in our 2021 Form 10-K.

Our actual results could also differ materially from those anticipated in any forward-looking statements as a result of a variety of factors, including those described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 20202021 Form 10-K. Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

We caution you not to place undue reliance on forward-looking statements. Forward-looking statements are only as of the date they are made, and other than as required under the securities laws, we assume no obligation to update or revise these forward-looking statements, all of which are expressly qualified by the statements in this section, or provide reasons why actual results may differ. All forward-looking statements, express or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We urge you to carefully review and consider the disclosures made in this Quarterly Report and our reports filed with the SEC and incorporated by reference in our 20202021 Form 10-K that attempt to advise interested parties of the risks and factors that may affect our business.

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EXECUTIVE SUMMARY

Our Business

We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. TheOur services we offer to theare centered on a three-legged business model well positioned for a global energy transition by maximizing production of remaining oil and gas market cover the lifecycle of an offshorereserves, decommissioning end-of-life oil orand gas field,reserves and the services we offer to thesupporting renewable energy market are currently focused on offshore wind farm projects and cable burial operations.developments. Our well intervention fleet includes seven purpose-built well intervention vessels six IRSs, three SILs and the ROAM.10 intervention systems. Our robotics equipment includes 4240 work-class ROVs, four trenchers, one ROVDrill and one ROVDrill.boulder grab. We charter ROVrobotics support vessels on both long-term and spot bases to facilitate our ROV and trenching operations. Our well intervention and robotics operations are geographically dispersed throughout the world. Our Production Facilities segment includes the HP I, the HFRS and our ownership of oil and gas properties.properties including the recently acquired interest in the Thunder Hawk Field. On July 1, 2022, we completed our acquisition of Alliance and formed a new reporting segment in the third quarter 2022 comprised of the Helix Alliance business. Our new Shallow Water Abandonment segment includes 10 liftboats, six OSVs, three DSVs, one 1760T heavy lift derrick barge, one crew boat, 14 marketable P&A systems (with the ability to scale up to 20 systems) and six coiled tubing systems.

Economic Outlook and Industry Influences

Demand for our services is primarily influenced by the condition of the oil and gas and the renewable energy markets and, in particular, the willingness of offshore energy companies to spend on operational activities and capital projects. The performance of our business is also largely affected by the prevailing market prices for oil and natural gas, which are impacted by domestic and global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, global health, and severalvarious other factors, including:factors.

worldwide economic activity and general economic and business conditions, including access to capital and capital markets;
the global supply and demand for oil and natural gas;
political and economic uncertainty and geopolitical unrest, including regional conflicts and economic and political conditions in oil-producing regions;
actions taken by OPEC and/or OPEC+;
the availability and discovery rate of new oil and natural gas reserves in offshore areas;
the exploration and production of onshore shale oil and natural gas;
the cost of offshore exploration for and production and transportation of oil and natural gas;
the level of excess production capacity;

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TableOil and gas prices experienced increased volatility and moderate declines from recent highs in the first half of Contents

the ability of oil and gas companies to generate funds or otherwise obtain external capital for capital projects and production operations;
the Environmental, Social and Governance (“ESG”) sustainability of the oil and gas sector and the perception thereof, including within the investing community;
the sale and expiration dates of offshore leases globally;
governmental restrictions on oil and gas leases;
technological advances affecting energy exploration, production, transportation and consumption;
potential acceleration of the development of alternative fuels;
shifts in end-customer preferences toward fuel efficiency and the use of natural gas or renewable energy alternatives;
weather conditions, natural disasters, and epidemic and pandemic diseases, including the ongoing COVID-19 pandemic;
laws, regulations and policies directly related to the industries in which we provide services, and their interpretation and enforcement;
environmental and other governmental regulations; and
domestic and international tax laws, regulations and policies.

Crude2022. Meanwhile, global demand continued to recover and supply was disrupted by regional conflicts. The outlook for sustained high oil prices historically have been volatile, which volatility has been exacerbated byshould lead to higher customer spending for the industry. However, despite the current strong commodity price environment, there are broad headwinds to commodity price stability. These headwinds include those regional conflicts, high inflation and in particular governments’ and central banks’ efforts to taper economic growth, ongoing COVID-19 pandemic as well as actions taken by OPEC+ nations. Prices have recovered their losses from 2020COVID-related uncertainties, various governmental and are at their highest levels since 2014, but their stability remains uncertain. The decline in oil prices in 2020customer ESG initiatives and the overall volatility and uncertainty in prices, in addition to the shift incontinued shifting of resource allocation to renewable energy, have causedenergy. We expect these factors will continue to contribute to commodity price volatility and may temper customer spending for oil and gas operators to drastically reduce spending (on both operational activities and capital projects), which has decreased the demand and rates for services provided by offshore oil and gas services providers. projects.

Historically, drilling rigs have been the asset class used for offshore well intervention work, and rig day rates are a pricing indicator for our services. Our customers have used drilling rigs on existing long-term contracts (rig overhang) to perform well intervention work instead of new drilling activities. Rig day rates are also a pricing indicator for our services. Rig overhang, combined with lowerCurrent volumes of work, and lowerrig utilization rates, the day rates quoted by drilling rig contractors affectsand existing rig overhang affect the utilization and/or rates we can achieve for our assets and services. Furthermore, additional volatile and uncertain macroeconomic conditions as well as ESG initiatives in some regions and countries around the world may have a direct and/or indirect impact on our existing contracts and contracting opportunities and may introduce further volatility into our operations and/or financial results.

The ongoing COVID-19 pandemic has resulted in a new period of market weaknessdynamics and challenges to us.us, including contributing significantly to oil and gas price volatility and increased costs related to our supply chain, logistics and human capital resources. While the full impact of the COVID-19 pandemic, including the duration of its negative impact on economic activity, remains unknown, we expect thatsuch impact may continue into the impact of COVID-19 onforeseeable future, including affecting our industry will continue to be felt through 2021 and possibly longer. The uncertainty and other conditions of the current environment have resulted in challenges to renew or secure long-term contracts for our vessels and systems, as operators have been less willingcustomers’ willingness to commit to future spending. These developments have also impacted, and are expected to continue to impact, many other aspects of our industry and the global economy, includingspending, limiting access to and use of capital, across various sources and markets, disrupting supply chains and increasing costs, and negatively affecting human capital resources including complicating offshore crew changes due to health and travel restrictionsresources.

Over the near-term, as well as the overall health of the global workforce. The COVID-19 pandemic and its effects on our industry and the global economy have impacted our 2020 and 2021 operating results to date. Most if not all of our oil and gas customers cutcompanies evaluate their spending, which has reduced the demand and rates for the services offered to ourbudgetary spend allocations, we expect they may be weighted towards short-cycle production enhancement of existing wells rather than new long-cycle exploration projects, as historically enhancement is less expensive per incremental barrel of oil and gas customers. The COVID-19 pandemic continues to pose challenges with, and increase costs related to, our supply chain, logistics and human capital resources, including minimizing the direct impact of COVID-19 on our offshore workforce and challenges with offshore crew changes due to travel restrictions and quarantine measures.

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Despite this current period of market weakness and volatility, overthan exploration. Over the longer term, we continue to expect oil and gas companies to increasingly focus on optimizing production of their existing subsea wells. As oil and gas companies evaluate their budgetary spend allocations, we expect that they may be weighted towards production enhancement of existing wells rather than new exploration projects as enhancement is less expensive per incremental barrel of oil than exploration. Moreover, as the subsea tree base expands and ages and customers shift resources to renewable energy, the demand for P&A services should persist. Our well intervention and robotics operations service the lifecycle of an oil and gas field and provide P&A services at the end of the life of a field as required by governmental regulations, and we believe that we have a competitive advantage in performing well interventionthese services efficiently.

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We expect the fundamentals for our business will remain favorable over the longer term as the need to prolong well life in oil and gas production and safely decommission end of lifeend-of-life wells are primary drivers of demand for our services. This expectation is based on multiple factors, including (1) maintaining the optimal production of a well through enhancement is fundamental to maximizing the overall economics of well production; (2) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling; and (3) extending the production of offshore wells not only maximizes a well’s production economics but also enables the financial benefit of delaying P&A costs, which can be substantial.

Demand for our services in the renewable energy market is affected by various factors, including the pace of consumer shift towards renewable energy sources, global electricity demand, technological advancements that increase the production and/or reduce the cost of renewable energy, expansion of offshore renewable energy projects to deeper water, and government subsidies for renewable energy projects.

We are subject to the effects of changing prices. Inflation rates have been relatively low and stable over the previous three decades; however, in 2021 due in part to supply chain disruptions and the effects of the COVID-19 pandemic, inflation rates began to rise significantly and remained high through the second quarter 2022. Although we are able to mitigate our exposure to price increases through the rates we charge, we bear the costs of operating and maintaining our assets, including labor and material costs as well as recertification and dry dock costs. While the cost outlook is not certain, we believe that we can manage these inflationary pressures by introducing appropriate sales price adjustments and by actively pursuing internal cost reduction efforts. However, competitive market pressures may affect our ability to recoup these price increases through the rates we charge, which may result in reductions in our operating margins and cash flows in the future. The recent high inflation rates seen in various major economies have caused concerns for central banks’ tightening of monetary policies. These concerns have contributed to stock market volatility as well as higher interest rates, which, combined with ongoing regional conflicts and unrest and continued COVID-related disruptions throughout the globe, could provide a strained macroeconomic outlook and in turn affect energy markets.

Backlog

We provide services and methodologies that we believe are critical to maximizing production economics. Our services cover the lifecycle of an offshore oil or gas field. In addition to serving the oil and gas market, our robotics assets are contracted for the development of offshore renewable energy projects (wind farms). We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions.define backlog as firm commitments represented by signed contracts. As of September 30, 2021,2022, our consolidated backlog that is supported by written agreements or contracts totaled approximately $231$758 million, of which $69$162 million is expected to be performed over the remainder of 2021.2022. Our agreementscontract with PetrobrasTrident Energy Do Brasil LTDA. to provide P&A services offshore Brazil with the Siem Helix1 chartered vessel, our contract with Petróleo Brasileiro S.A. (“Petrobras”) to provide well intervention services offshore Brazil with the Siem Helix 2 chartered vessel, our well intervention contract with Shell Offshore Inc. for the Q5000and our fixed fee agreement for the HP I representrepresented approximately 43%58% of our total backlog as of September 30, 2021.2022. Backlog is not necessarily a reliable indicator of revenues derived from theseour contracts as services are often added but may sometimes be added or subtracted; contracts may be renegotiated, deferred, canceled and in many cases modified while in progress; and reduced rates, fines and penalties may be imposed by our customers. Furthermore, our contracts are in certain cases cancelable without penalty. If there are cancellation fees, the amount of those fees can be substantially less than the rates we would have generated had we performed the contract.amounts reflected in backlog.

RESULTS OF OPERATIONS

We have three reportable business segments: Well Intervention, Robotics and Production Facilities. All material intercompany transactions between the segments have been eliminated in our condensed consolidated financial statements, including our condensed consolidated results of operations.

Non-GAAP Financial Measures

A non-GAAP financial measure is generally defined by the SEC as a numerical measure of a company’s historical or future performance, financial position or cash flows that includes or excludes amounts from the most directly comparable measure under GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. Users of this financial information should consider the types of events and transactions that are excluded from these measures.

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We measure our operating performance based on EBITDA, Adjusted EBITDA and free cash flow.Free Cash Flow. EBITDA, Adjusted EBITDA and free cash flowFree Cash Flow are non-GAAP financial measures that are commonly used but are not recognized accounting terms under GAAP. We use EBITDA, Adjusted EBITDA and free cash flowFree Cash Flow to monitor and facilitate internal evaluation of the performance of our business operations, to facilitate external comparison of our business results to those of others in our industry, to analyze and evaluate financial and strategic planning decisions regarding future investments and acquisitions, to plan and evaluate operating budgets, and in certain cases, to report our results to the holders of our debt as required by our debt covenants. We believe that our measures of EBITDA, Adjusted EBITDA and free cash flowFree Cash Flow provide useful information to the public regarding our operating performance and ability to service debt and fund capital expenditures and may help our investors understand and compare our results to other companies that have different financing, capital and tax structures. Other companies may calculate their measures of EBITDA, Adjusted EBITDA and free cash flowFree Cash Flow differently from the way we do, which may limit their usefulness as comparative measures. EBITDA, Adjusted EBITDA and free cash flowFree Cash Flow should not be considered in isolation or as a substitute for, but instead are supplemental to, income from operations, net income, cash flows from operating activities, or other income or cash flow data prepared in accordance with GAAP.

We define EBITDA as earnings before income taxes, net interest expense, gaingains or losslosses on extinguishment of long-term debt, gains and losses on equity investments, net other income or expense, and depreciation and amortization expense. Non-cash impairment losses on goodwill and other long-lived assets and non-cash gains and losses on equity investments are also added back if applicable. To arrive at our measure of Adjusted EBITDA, we exclude the gain or loss on disposition of assets, acquisition and integration costs, the change in fair value of contingent consideration and the general provision (release) for current expected credit losses, if any. In addition, we include realized losses from foreign currency exchange contracts not designated as hedging instruments, which are excluded from EBITDA as a component of net other income or expense. We define free cash flowFree Cash Flow as cash flows from operating activities less capital expenditures, net of proceeds from sale of assets. In the following reconciliation, we provide amounts as reflected in the condensed consolidated financial statements unless otherwise noted.

The reconciliation of our net loss to EBITDA and Adjusted EBITDA is as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Net income (loss)

$

(19,043)

$

24,445

$

(35,776)

$

15,967

Adjustments:

 

  

 

  

 

  

 

  

Income tax provision (benefit)

 

(1,058)

 

5,232

 

(2,910)

 

(16,132)

Net interest expense

 

5,928

 

7,598

 

17,900

 

20,407

(Gain) loss on extinguishment of long-term debt

 

124

 

(9,239)

 

124

 

(9,239)

Other (income) expense, net

 

4,015

 

(8,824)

 

1,438

 

3,672

Depreciation and amortization

 

36,719

 

33,985

 

106,226

 

99,552

Goodwill impairment

 

 

 

 

6,689

EBITDA

 

26,685

 

53,197

 

87,002

 

120,916

Adjustments:

 

  

 

  

 

  

 

  

(Gain) loss on disposition of assets, net

 

(15)

 

(440)

 

631

 

(913)

General provision (release) for current expected credit losses

 

(138)

 

(38)

 

(121)

 

656

Realized losses from foreign exchange contracts not designated as hedging instruments

 

 

 

 

(682)

Adjusted EBITDA

$

26,532

$

52,719

$

87,512

$

119,977

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Net loss

$

(18,763)

$

(19,043)

$

(90,493)

$

(35,776)

Adjustments:

 

  

 

  

 

  

 

  

Income tax provision (benefit)

 

6,500

 

(1,058)

 

10,074

 

(2,910)

Net interest expense

 

4,644

 

5,928

 

14,617

 

17,900

Loss on extinguishment of long-term debt

 

 

124

 

 

124

Other expense, net

 

20,271

 

4,015

 

37,623

 

1,438

Depreciation and amortization

 

35,944

 

36,719

 

102,590

 

106,226

Gain on equity investment

(78)

(8,262)

EBITDA

 

48,518

 

26,685

 

66,149

 

87,002

Adjustments:

 

  

 

  

 

  

 

  

(Gain) loss on disposition of assets, net

 

 

(15)

 

 

631

Acquisition and integration costs

762

2,349

Change in fair value of contingent consideration

2,664

2,664

General provision (release) for current expected credit losses

 

624

 

(138)

 

691

 

(121)

Adjusted EBITDA

$

52,568

$

26,532

$

71,853

$

87,512

The reconciliation of our cash flows from operating activities to free cash flowFree Cash Flow is as follows (in thousands):

Nine Months Ended

September 30, 

    

2021

    

2020

Cash flows from operating activities

$

121,252

$

58,628

Less: Capital expenditures, net of proceeds from sale of assets

 

(7,335)

 

(18,255)

Free cash flow

$

113,917

$

40,373

Nine Months Ended

September 30, 

    

2022

    

2021

Cash flows from operating activities

$

1,396

$

121,252

Less: Capital expenditures, net of proceeds from sale of assets

 

(4,990)

 

(7,335)

Free Cash Flow

$

(3,594)

$

113,917

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Comparison of Three Months Ended September 30, 20212022 and 20202021

We have four reportable business segments: Well Intervention, Robotics, Shallow Water Abandonment and Production Facilities. All material intercompany transactions between the segments have been eliminated in our condensed consolidated financial statements, including our condensed consolidated results of operations. The following table details various financial and operational highlights for the periods presented (dollars in thousands):

Three Months Ended

Increase/

 

September 30, 

(Decrease)

 

    

2021

    

2020

    

Amount

    

Percent

 

Net revenues —

 

  

 

  

 

  

 

  

Well Intervention

$

131,314

$

140,803

$

(9,489)

 

(7)

%

Robotics

 

42,623

 

49,802

 

(7,179)

 

(14)

%

Production Facilities

 

18,552

 

14,167

 

4,385

 

31

%

Intercompany eliminations

 

(11,773)

 

(11,282)

 

(491)

 

  

$

180,716

$

193,490

$

(12,774)

 

(7)

%

Gross profit (loss) —

 

  

 

  

 

  

 

  

Well Intervention

$

(9,570)

$

21,905

$

(31,475)

 

(144)

%

Robotics

 

6,894

 

8,452

 

(1,558)

 

(18)

%

Production Facilities

 

5,451

 

4,672

 

779

 

17

%

Corporate, eliminations and other

 

225

 

(401)

 

626

 

  

$

3,000

$

34,628

$

(31,628)

 

(91)

%

Gross margin —

 

  

 

  

 

  

 

  

Well Intervention

 

(7)

%  

 

16

%  

 

  

 

Robotics

 

16

%  

 

17

%  

 

  

 

  

Production Facilities

 

29

%  

 

33

%  

 

  

 

  

Total company

 

2

%  

 

18

%  

 

  

 

  

Number of vessels or robotics assets (1) / Utilization (2)

 

  

 

  

 

  

 

  

Well Intervention vessels

 

7 / 72

%  

 

7 / 68

%  

 

  

 

  

Robotics assets (3)

 

47 / 43

%  

 

49 / 37

%  

 

  

 

  

Chartered robotics vessels

 

5 / 99

%  

 

5 / 95

%  

 

  

 

  

Three Months Ended

Increase/

 

September 30, 

(Decrease)

 

    

2022

    

2021

    

Amount

    

Percent

 

Net revenues —

 

  

 

  

 

  

 

  

Well Intervention

$

143,925

$

131,314

$

12,611

 

10

%

Robotics

 

56,182

 

42,623

 

13,559

 

32

%

Shallow Water Abandonment

67,401

67,401

100

%

Production Facilities

 

18,448

 

18,552

 

(104)

 

(1)

%

Intercompany eliminations

 

(13,409)

 

(11,773)

 

(1,636)

 

  

$

272,547

$

180,716

$

91,831

 

51

%

Gross profit (loss) —

 

  

 

  

 

  

 

  

Well Intervention

$

1,839

$

(9,570)

$

11,409

 

119

%

Robotics

 

13,514

 

6,894

 

6,620

 

96

%

Shallow Water Abandonment

17,381

17,381

100

%

Production Facilities

 

6,854

 

5,451

 

1,403

 

26

%

Corporate, eliminations and other

 

(373)

 

225

 

(598)

 

  

$

39,215

$

3,000

$

36,215

 

1,207

%

Gross margin —

 

  

 

  

 

  

 

  

Well Intervention

 

1

%  

 

(7)

%  

 

  

 

Robotics

 

24

%  

 

16

%  

 

  

 

  

Shallow Water Abandonment

 

26

%  

 

%  

 

  

 

  

Production Facilities

 

37

%  

 

29

%  

 

  

 

  

Total company

 

14

%  

 

2

%  

 

  

 

  

Number of vessels, Robotics assets or Shallow Water Abandonment systems (1) / Utilization (2)

 

  

 

  

 

  

 

  

Well Intervention vessels

 

7 / 87

%  

 

7 / 72

%  

 

  

 

  

Robotics assets (3)

 

46 / 66

%  

 

47 / 43

%  

 

  

 

  

Chartered Robotics vessels

 

5 / 98

%  

 

5 / 99

%  

 

  

 

  

Shallow Water Abandonment vessels (4)

 

21 / 80

%  

 

— / —

%  

 

  

 

  

Shallow Water Abandonment systems (5)

 

20 / 59

%  

 

— / —

%  

 

  

 

  

(1)Represents the number of vessels, Robotics assets or robotics assetsmarketable Shallow Water Abandonment systems as of the end of the period, including spot vessels and those under long-term charter,term charters, and excluding acquired vessels prior to their in-service dates, vessels managed on behalf of third parties and vessels or assets disposed of and/or taken out of service.
(2)Represents the average utilization rate, which is calculated by dividing the total number of days the vessels, Robotics assets or robotics assetsmarketable Shallow Water Abandonment systems generated revenues by the total number of available calendar days in the applicable period. The average utilizationUtilization rates of chartered roboticsRobotics vessels during the three-month periods ended September 30, 2022 and 2021 included 100 and 2020 included 176 and 291 spot vessel days, respectively, at near full utilization.
(3)Consists of ROVs, trenchers, an ROVDrill and ROVDrill.

Intercompany segment amounts are derived primarily from equipment and services provided to other business segments. Intercompany segment revenues are as follows (in thousands):

Three Months Ended

September 30, 

Increase/

    

2021

    

2020

    

(Decrease)

Well Intervention

$

4,267

$

4,120

$

147

Robotics

 

7,506

 

7,162

 

344

$

11,773

$

11,282

$

491

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Net Revenues. Our consolidated net revenues for the three-month period ended September 30, 2021 decreased by 7% as compared to the same period in 2020, reflecting lower revenues from our Well Intervention and Robotics segments, offset in part by higher revenues from our Production Facilities segment.

Our Well Intervention revenues decreased by 7% for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower rates and vessel utilization in the Gulf of Mexico and Brazil, offset in part by higher utilization in the North Sea and on the Q7000 in West Africa. Our revenues in the Gulf of Mexico and Brazil were negatively impacted by the completion of our long-term contracts on the Q5000 during the second quarter 2021 and the Siem Helix 1 during the third quarter 2021. Our revenues in the North Sea and West Africa benefitted from utilization on the Seawell and the Q7000, both of which were stacked during the three-month period ended September 30, 2020.

Our Robotics revenues decreased by 14% for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting fewer vessel days, including reduced seabed clearance days using spot vessels, as well as a reduction in trenching activities. Our results included 358 vessel days and 90 trenching days during the three-month period ended September 30, 2021 as compared to 450 vessel days and 154 trenching days during the same period in 2020.

Our Production Facilities revenues increased by 31% for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting higher oil and gas prices, higher production volumes from our wells and higher revenues from the HFRS agreement.

Gross Profit (Loss). Our consolidated gross profit decreased by $31.6 million for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower gross profit in our Well Intervention and Robotics segments, offset in part by higher gross profit in our Production Facilities segment.

Our Well Intervention segment had a gross loss of $9.6 million for the three-month period ended September 30, 2021 as compared to a gross profit of $21.9 million for the same period in 2020, primarily reflecting lower segment revenues as well as higher costs associated with our activity in West Africa, which resumed in the first quarter 2021.

The gross profit related to our Robotics segment decreased by $1.6 million for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower revenues due to fewer spot vessel days on site clearance projects.

The gross profit related to our Production Facilities segment increased by $0.8 million for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting higher revenues during the current quarter.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $13.3 million for the three-month period ended September 30, 2021 as compared to $16.1 million for the same period in 2020, primarily reflecting lower employee compensation costs.

Net Interest Expense. Our net interest expense totaled $5.9 million for the three-month period ended September 30, 2021 as compared to $7.6 million for the same period in 2020, primarily reflecting lower interest expense due to a reduction in our overall debt levels and the elimination of accretion of debt discounts associated with the 2022 Notes, 2023 Notes and 2026 Notes as a result of the adoption of ASU No. 2020-06 beginning January 1, 2021 (Note 5).

Gain (Loss) on Extinguishment of Long-Term Debt. The $0.1 million loss on extinguishment of long-term debt for the three-month period ended September 30, 2021 was associated with the full repayment of the Term Loan in September 2021 concurrent with our entering into the ABL Facility (Note 5). The $9.2 million gain on extinguishment of long-term debt for the three-month period ended September 30, 2020 was associated with the repurchase of $90.0 million in aggregate principal amount of the 2022 Notes and $95.0 million in aggregate principal amount of the 2023 Notes.

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Other Income (Expense), Net. Net other expense was $4.0 million for the three-month period ended September 30, 2021 primarily due to foreign currency transaction losses reflecting the weakening of the British pound. Net other income was $8.8 million for the same period in 2020 primarily due to foreign currency transaction gains reflecting the strengthening of the British pound.

Income Tax Provision (Benefit). Income tax benefit was $1.1 million for the three-month period ended September 30, 2021 as compared to a $5.2 million provision for the same period in 2020. The effective tax rates for the three-month periods ended September 30, 2021 and 2020 were 5.3% and 17.6%, respectively, primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions and the impact of the CARES Act in 2020 (Note 6).

Comparison of Nine Months Ended September 30, 2021 and 2020

The following table details various financial and operational highlights for the periods presented (dollars in thousands):

Nine Months Ended

Increase/

 

September 30, 

(Decrease)

 

    

2021

    

2020

    

Amount

    

Percent

 

Net revenues —

 

  

 

  

 

  

 

  

Well Intervention

$

397,387

$

427,296

$

(29,909)

 

(7)

%

Robotics

 

96,430

 

135,896

 

(39,466)

 

(29)

%

Production Facilities

 

49,217

 

43,301

 

5,916

 

14

%

Intercompany eliminations

 

(36,962)

 

(32,835)

 

(4,127)

 

  

$

506,072

$

573,658

$

(67,586)

 

(12)

%

Gross profit (loss) —

 

  

 

  

 

  

 

  

Well Intervention

$

(3,386)

$

35,936

$

(39,322)

 

(109)

%

Robotics

 

8,247

 

19,077

 

(10,830)

 

(57)

%

Production Facilities

 

17,767

 

12,549

 

5,218

 

42

%

Corporate, eliminations and other

 

(1,874)

 

(1,348)

 

(526)

 

  

$

20,754

$

66,214

$

(45,460)

 

(69)

%

Gross margin —

 

  

 

  

 

  

 

  

Well Intervention

 

(1)

%  

 

8

%  

 

  

 

  

Robotics

 

9

%  

 

14

%  

 

  

 

  

Production Facilities

 

36

%  

 

29

%  

 

  

 

  

Total company

 

4

%  

 

12

%  

 

  

 

  

Number of vessels or robotics assets (1) / Utilization (2)

 

  

 

  

 

  

 

  

Well intervention vessels

 

7 / 79

%  

 

7 / 71

%  

 

  

 

  

Robotics assets (3)

 

47 / 35

%  

 

49 / 35

%  

 

  

 

  

Chartered robotics vessels

 

5 / 95

%  

 

5 / 93

%  

 

  

 

  

(1)Represents the number of vessels or robotics assets as of the end of the period, including spot vessels and those under long-term charter, and excluding acquired vessels prior to their in-service dates and vessels or assets disposed of and/or taken out of service.a boulder grab.
(2)(4)Represents the average utilization rate, which is calculated by dividing the total numberConsists of days the vessels or robotics assets generated revenues by the total number of available calendar days in the applicable period. The average utilization rates of chartered robotics vessels during the nine-month periods ended September 30, 2021liftboats, OSVs, DSVs, a heavy lift derrick barge and 2020 included 240 and 905 spot vessel days, respectively, at near full utilization.a crew boat.
(3)(5)Consists of ROVs, trenchersmarketable P&A and ROVDrill.coiled tubing systems.

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Intercompany segment amounts are derived primarily from equipment and services provided to other business segments. Intercompany segment revenues are as follows (in thousands):

Nine Months Ended

September 30, 

Increase/

    

2021

    

2020

    

(Decrease)

Well Intervention

$

17,060

$

11,334

$

5,726

Robotics

 

19,902

 

21,501

 

(1,599)

$

36,962

$

32,835

$

4,127

Three Months Ended

September 30, 

Increase/

    

2022

    

2021

    

(Decrease)

Well Intervention

$

4,303

$

4,267

$

36

Robotics

 

8,971

 

7,506

 

1,465

Shallow Water Abandonment

 

135

 

 

135

$

13,409

$

11,773

$

1,636

Net Revenues. Our consolidated net revenues for the three-month period ended September 30, 2022 increased by 51%as compared to the same period in 2021, primarily reflecting the addition of Shallow Water Abandonment segment in the third quarter 2022 and higher revenues from our Well Intervention and Robotics segments.

Our Well Intervention revenues increased by 10% for the three-month period ended September 30, 2022 as compared to the same period in 2021, primarily reflecting higher utilization and rates in the Gulf of Mexico and the North Sea, offset in part by lower utilization on the Q7000 in West Africa, lower rates in Brazil and the impact of weaker foreign currency exchange rates. Utilization in the Gulf of Mexico improved year over year with fewer idle days during the quarter. The North Sea fleet maintained strong utilization during the third quarter 2022 as compared to the prior year, which saw an early seasonal slowdown during the third quarter 2021. The Q7000 recommenced operations mid-quarter following its scheduled maintenance whereas it was fully utilized during the third quarter 2021. In Brazil, the Siem Helix 2 operated at near full utilization with lower rates under the existing contract with Petrobras during the third quarter 2022 whereas it was on higher legacy contract rates during the third quarter 2021.

Our Robotics revenues increased by 32% for the three-month period ended September 30, 2022 as compared to the same period in 2021, primarily reflecting higher vessel, ROV and trenching activities. Chartered vessel days increased to 376 days during the third quarter 2022 as compared to 358 days during the third quarter 2021. Vessel utilization remained relatively flat at 98% in the third quarter 2022 as compared to 99% during the third quarter 2021. Vessel days during the third quarter 2022 included 100 spot vessel days as compared to 176 spot vessel days during the third quarter 2021, primarily performing seabed clearance work in the North Sea. ROV and trencher utilization increased to 66% in the third quarter 2022 from 43% during the third quarter 2021, and trenching days increased to 176 days during the third quarter 2022 as compared to 90 days during the third quarter 2021.

Our Shallow Water Abandonment revenues for the three-month period ended September 30, 2022 reflected revenues generated by Helix Alliance since the acquisition on July 1, 2022 (Note 3) with 80% utilization across 21 vessels and 1,077 days of utilization across marketable P&A and coiled tubing systems during the quarter.

Our Production Facilities revenues for the three-month period ended September 30, 2022 decreased slightly as compared to the same period in 2021, primarily reflecting lower oil and gas production volumes from the Droshky wells, offset in part by oil and gas volume from our recently acquired interest in the Thunder Hawk Field (Note 2). The HP I completed its scheduled five-year regulatory dry dock during the third quarter 2022.

Gross Profit (Loss). Our consolidated gross profit was $39.2 million for the three-month period ended September 30, 2022 as compared to $3.0 million for the same period in 2021, primarily reflecting the addition of Shallow Water Abandonment segment in the third quarter 2022 and increased profitability in our other segments.

Our Well Intervention gross profit was $1.8 million for the three-month period ended September 30, 2022 as compared to a gross loss of $9.6 million the same period in 2021, primarily reflecting higher segment revenues.

Our Robotics gross profit increased by $6.6 million for the three-month period ended September 30, 2022 as compared to the same period in 2021, primarily reflecting higher revenues due to increased ROV and trenching activities and a higher number of vessel days, offset in part by higher costs on increased activity.

Our Shallow Water Abandonment gross profit for the three-month period ended September 30, 2022 reflected results from Helix Alliance since the acquisition on July 1, 2022 (Note 3).

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Our Production Facilities gross profit increased by $1.4 million for the three-month period ended September 30, 2022 as compared to the same period in 2021, primarily reflecting lower depletion expense associated with the Droshky wells.

Acquisition and Integration Costs. Our acquisition and integration costs were $0.8 million for the three-month period ended September 30, 2022, reflecting Alliance acquisition related costs incurred during the third quarter 2022 (Note 3).

Change in Fair Value of Contingent Consideration. The $2.7 million change in fair value of contingent consideration for the three-month period ended September 30, 2022 reflected an increase in the estimated earn-out consideration payable to the seller in the Alliance transaction in 2024 as Helix Alliance’s actual third quarter 2022 results were more favorable than previous forecasts based on available information at the acquisition date (Notes 3 and 16).

Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $23.6 million for the three-month period ended September 30, 2022 as compared to $13.3 million for the same period in 2021, primarily reflecting higher employee incentive compensation costs and general and administrative costs in our Shallow Water Abandonment segment following the closing of our Alliance acquisition on July 1, 2022.

Net Interest Expense. Our net interest expense totaled $4.6 million for the three-month period ended September 30, 2022 as compared to $5.9 million for the same period in 2021, primarily reflecting the repayment of certain indebtedness (Note 6).

Other Expense, Net. Net other expense was $20.3million for the three-month period ended September 30, 2022 as compared to $4.0 million for the same period in 2021 and is comprised almost entirely of unrealized foreign currency losses of $19.7 million related to the approximately 8% weakening of the British pound during the third quarter 2022 on U.S. dollar denominated intercompany debt in our U.K. entities.

Income Tax Provision (Benefit). Income tax provision was $6.5 million for the three-month period ended September 30, 2022 as compared to an income tax benefit of $1.1 million for the same period in 2021. The effective tax rates for the three-month periods ended September 30, 2022 and 2021 were (53.0)% and 5.3%, respectively. These variances were primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions as well as losses for which no financial statement benefits have been recognized (Note 7).

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Table of Contents

Comparison of Nine Months Ended September 30, 2022 and 2021

We have four reportable business segments: Well Intervention, Robotics, Shallow Water Abandonment and Production Facilities. All material intercompany transactions between the segments have been eliminated in our condensed consolidated financial statements, including our condensed consolidated results of operations. The following table details various financial and operational highlights for the periods presented (dollars in thousands):

Nine Months Ended

Increase/

 

September 30, 

(Decrease)

 

    

2022

    

2021

    

Amount

    

Percent

 

Net revenues —

 

  

 

  

 

  

 

  

Well Intervention

$

356,583

$

397,387

$

(40,804)

 

(10)

%

Robotics

 

143,383

 

96,430

 

46,953

 

49

%

Shallow Water Abandonment

67,401

67,401

100

%

Production Facilities

 

54,420

 

49,217

 

5,203

 

11

%

Intercompany eliminations

 

(36,503)

 

(36,962)

 

459

 

  

$

585,284

$

506,072

$

79,212

 

16

%

Gross profit (loss) —

 

  

 

  

 

  

 

  

Well Intervention

$

(45,943)

$

(3,386)

$

(42,557)

 

(1,257)

%

Robotics

 

28,631

 

8,247

 

20,384

 

247

%

Shallow Water Abandonment

17,381

17,381

100

%

Production Facilities

 

20,150

 

17,767

 

2,383

 

13

%

Corporate, eliminations and other

 

(967)

 

(1,874)

 

907

 

  

$

19,252

$

20,754

$

(1,502)

 

(7)

%

Gross margin —

 

  

 

  

 

  

 

  

Well Intervention

 

(13)

%  

 

(1)

%  

 

  

 

  

Robotics

 

20

%  

 

9

%  

 

  

 

  

Shallow Water Abandonment

 

26

%  

 

%  

 

  

 

  

Production Facilities

 

37

%  

 

36

%  

 

  

 

  

Total company

 

3

%  

 

4

%  

 

  

 

  

Number of vessels, Robotics assets or Shallow Water Abandonment systems (1) / Utilization (2)

 

  

 

  

 

  

 

  

Well Intervention vessels

 

7 / 74

%  

 

7 / 79

%  

 

  

 

  

Robotics assets (3)

 

46 / 52

%  

 

47 / 35

%  

 

  

 

  

Chartered Robotics vessels

 

6 / 94

%  

 

5 / 95

%  

 

  

 

  

Shallow Water Abandonment vessels (4)

 

21 / 80

%  

 

— / —

%  

 

  

Shallow Water Abandonment systems (5)

 

20 / 59

%  

 

— / —

%  

 

  

(1)Represents the number of vessels, Robotics assets or marketable Shallow Water Abandonment systems as of the end of the period, including spot vessels and those under term charters, and excluding acquired vessels prior to their in-service dates, vessels managed on behalf of third parties and vessels or assets disposed of and/or taken out of service.
(2)Represents the average utilization rate, which is calculated by dividing the total number of days the vessels, Robotics assets or marketable Shallow Water Abandonment systems generated revenues by the total number of calendar days in the applicable period. Utilization rates of chartered Robotics vessels during the nine-month periods ended September 30, 2022 and 2021 included 352 and 240 spot vessel days, respectively, at near full utilization.
(3)Consists of ROVs, trenchers, an ROVDrill and a boulder grab.
(4)Cosists of liftboats, OSVs, DSVs, a heavy lift derrick barge and a crew boat.
(5)Consists of marketable P&A and coiled tubing systems.

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Intercompany segment amounts are derived primarily from equipment and services provided to other business segments. Intercompany segment revenues are as follows (in thousands):

Nine Months Ended

September 30, 

Increase/

    

2022

    

2021

    

(Decrease)

Well Intervention

$

12,046

$

17,060

$

(5,014)

Robotics

 

24,322

 

19,902

 

4,420

Shallow Water Abandonment

 

135

 

 

135

$

36,503

$

36,962

$

(459)

Net Revenues. Our consolidated net revenues for the nine-month period ended September 30, 2021 decreased2022 increased by 12%16% as compared to the same period in 2020,2021, reflecting the addition of Shallow Water Abandonment segment in the third quarter 2022 and higher revenues from our Robotics and Production Facilities segments, offset in part by lower revenues from our Well Intervention and Robotics segments and higher intercompany eliminations, offset in part by higher revenues from our Production Facilities segment.

Our Well Intervention revenues decreased by 7%10% for the nine-month period ended September 30, 20212022 as compared to the same period in 2020,2021, primarily reflecting lower rates on the Q5000 and lower rates and utilization on the Q4000 in the Gulf of Mexico as well as lower rates and utilization on the Siem Helix 1 and the Siem Helix 2in Brazil. These revenue decreases wereBrazil as both vessels rolled off their legacy contracts with Petrobras and lower utilization on the Q7000 in West Africa due to its scheduled maintenance during a four-month period from April to July 2022, offset in part by higher rates and utilization onin the SeawellGulf of Mexico and higher utilization in the North Sea and onduring the Q7000 in West Africa, both of which were stacked for most of the first nine months in 2020.nine-month period ended September 30, 2022.

Our Robotics revenues decreasedincreased by 29%49% for the nine-month period ended September 30, 20212022 as compared to the same period in 2020,2021, primarily reflecting fewerhigher vessel, ROV and trenching activities. Chartered vessel days including reduced seabed clearance days using spot vessels, as well as a reduction in trenching activities. Our results included 759 vessel days and 246 trenchingincreased to 1,069 days during the nine-month period ended September 30, 20212022 as compared to 1,353 vessel days and 315 trenching759 days during the same period in 2020.2021. Vessel utilization remained relatively flat at 94% during the nine-month period ended September 30, 2022 as compared to 95% during the same period in 2021. Vessel days during the nine-month period ended September 30, 2022 included 352 spot vessel days as compared to 240 spot vessel days during the same period in 2021, primarily performing seabed clearance work in the North Sea. ROV and trencher utilization increased to 52% during the nine-month period ended September 30, 2022 from 35% during the same period in 2021, and trenching days increased to 323 days during the nine-month period ended September 30, 2022 as compared to 246 days during the same period in 2021.

Our Shallow Water Abandonment revenues for the three-month period ended September 30, 2022 reflected revenues generated by Helix Alliance since the acquisition on July 1, 2022 (Note 3) with 80% utilization across 21 vessels and 1,077 days of utilization across marketable P&A and coiled tubing systems.

Our Production Facilities revenues increased by 14%11% for the nine-month period ended September 30, 20212022 as compared to the same period in 2020,2021, primarily reflecting higher HFRS revenues, higher oil and gas prices and higher production volumes from our wells.

The increase in intercompany eliminations was primarily attributable to higher elimination of revenues that our Well Intervention segment earned associated with its P&A work on our Droshky oil and gas properties on behalf of our Production Facilities segment during the nine-month period ended September 30, 2021.prices.

Gross Profit (Loss). Our consolidated gross profit decreased by $45.5was $19.3 million for the nine-month period ended September 30, 20212022 as compared to $20.8 million for the same period in 2020,2021, primarily reflecting lower gross profitdecreased profitability in our Well Intervention and Robotics segments,segment, offset in part by higher gross profitincreased profitability in our Robotics and Production Facilities segment.segments and the addition of Shallow Water Abandonment segment in the third quarter 2022.

Our Well Intervention segment had a gross loss of $3.4$45.9 million for the nine-month period ended September 30, 20212022 as compared to a gross profitloss of $35.9$3.4 million for the same period in 2020,2021, primarily reflecting lower segment revenues as well as higher costs associated with our resumed activity in West Africa during the current period.revenues.

TheOur Robotics gross profit related to our Robotics segment decreasedincreased by $10.8$20.4 million for the nine-month period ended September 30, 20212022 as compared to the same period in 2020,2021, primarily reflecting lowerhigher revenues due to fewer spotincreased ROV and trenching activities and a higher number of vessel days on site clearance projects.days.

TheOur Shallow Water Abandonment gross profit related to our Production Facilities segment increased by $5.2 million for the nine-month period ended September 30, 2021 as compared to2022 reflected results from Helix Alliance since the same period in 2020, primarily reflecting higher revenues during the current period.

Goodwill Impairment. The $6.7 million charge in the nine-month period ended September 30, 2020 reflects the impairment of the entire goodwill balance, which related to our acquisition of a controlling interest in STLon July 1, 2022 (Note 10)3).

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Our Production Facilities gross profit for the nine-month period ended September 30, 2022 increased by $2.4 million as compared to the same period in 2021, primarily reflecting higher revenues.

Acquisition and Integration Costs. Our acquisition and integration costs were $2.3 million for the nine-month period ended September 30, 2022, reflecting Alliance acquisition related costs incurred during 2022 (Note 3).

Change in Fair Value of Contingent Consideration. The $2.7 million change in fair value of contingent consideration for the nine-month period ended September 30, 2022 reflected an increase in the estimated earn-out consideration payable to the seller in the Alliance transaction in 2024 as Helix Alliance’s actual third quarter 2022 results were more favorable than previous forecasts based on available information at the acquisition date (Notes 3 and 16).

Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $42.0$54.0 million for the nine-month period ended September 30, 20212022 as compared to $48.3$42.0 million for the same period in 2020,2021, primarily reflecting lower credit loss reserveshigher employee incentive compensation costs and employee compensation costs. Our selling, general and administrative expensescosts in our Shallow Water Abandonment segment following the closing of our Alliance acquisition on July 1, 2022.

Equity in Earnings of Investment. Equity in earnings of investment was $8.3 million for the nine-month period ended September 30, 2020 included2022 primarily reflecting the cash distribution as a $2.4 million provision for current expected credit lossesresult of the sale of the “Independence Hub” platform (Note 14)2).

Net Interest Expense. Our net interest expense totaled $17.9$14.6 million for the nine-month period ended September 30, 20212022 as compared to $20.4$17.9 million for the same period in 2020,2021, primarily reflecting lower interest expense due to a reduction in our overall debt levels and the elimination of accretion of debt discounts associated with the 2022 Notes, 2023 Notes and 2026 Notes as a result of the adoption of ASU No. 2020-06 beginning January 1, 2021 (Note 5), offset in part by the cessation of interest capitalization with the completion of the Q7000 in 2020. Net interest expense for the nine-month period ended September 30, 2020 excluded $1.2 million in capitalized interest associated with the Q7000 (Note 5).

Gain (Loss) on Extinguishment of Long-Term Debt. The $0.1 million loss on extinguishment of long-term debt for the nine-month period ended September 30, 2021 was associated with the full repayment of the Term Loan in September 2021 concurrent with our entering into the ABL Facilitycertain indebtedness (Note 5)6). The $9.2 million gain on extinguishment of long-term debt for the nine-month period ended September 30, 2020 was associated with the repurchase of $90.0 million in aggregate principal amount of the 2022 Notes and $95.0 million in aggregate principal amount of the 2023 Notes.

Other Expense, Net. Net other expense was $1.4 $37.6million for the nine-month period ended September 30, 20212022 as compared to $3.7$1.4 million for the same period in 2020 primarily due to2021 and is comprised almost entirely of unrealized foreign currency transaction losses reflectingof $38.4 million related to the approximately 17% weakening of the British pound during 2022 on U.S. dollar denominated intercompany debt in each of those periods.our U.K. entities.

Income Tax Benefit.Provision (Benefit). Income tax benefitprovision was $2.9$10.1 million for the nine-month period ended September 30, 20212022 as compared to $16.1an income tax benefit of $2.9 million for the same period in 2020.2021. The effective tax rates for the nine-month periods ended September 30, 2022 and 2021 were (12.5)% and 20207.5%, respectively. These variances were 7.5% and 9,777.0%, respectively, primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions and the impact of the CARES Act and the foreign subsidiary restructuring in 2020as well as losses for which no financial statement benefits have been recognized (Note 6)7).

LIQUIDITY AND CAPITAL RESOURCES

OverviewFinancial Condition and Liquidity

The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):

September 30, 

December 31, 

    

2021

    

2020

Net working capital (1)

$

249,699

$

246,338

Long-term debt (1)

 

261,668

 

258,912

Liquidity (2)

 

307,194

 

451,532

(1)Current maturities of our long-term debt of $42.8 million and $90.7 million, respectively, are included in net working capital and excluded from long-term debt. Long-term debt as of September 30, 2021 is net of unamortized debt issuance costs. Long-term debt as of December 31, 2020 is net of unamortized debt discounts and debt issuance costs. See Note 5 for information relating to our long-term debt, including the impact of our adoption of ASU No. 2020-06.
(2)Liquidity, as defined by us, is equal to cash and cash equivalents, excluding restricted cash, plus available capacity under our credit facility. Our liquidity at September 30, 2021 included $237.5 million of cash and cash equivalents and $69.6 million of available borrowing capacity under the ABL Facility (Note 5). Our liquidity at September 30, 2021 excluded $71.3 million of restricted cash securing a short-term project related letter of credit, the restriction from which is expected to be released upon completion of the project. Our liquidity at December 31, 2020 included $291.3 million of cash and cash equivalents and $160.2 million of available borrowing capacity under the Revolving Credit Facility.

September 30, 

December 31, 

    

2022

    

2021

Net working capital

$

145,643

$

251,255

Long-term debt

 

225,427

 

262,137

Liquidity

 

244,052

 

304,660

Net Working Capital

Net working capital is equal to current assets minus current liabilities. It measures short-term liquidity and operational efficiency and is important for predicting cash flow and debt requirements. Our net working capital includes current maturities of our long-term debt.

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The carrying amountsLong-Term Debt

Long-term debt in the table above is net of unamortized debt issuance costs and excludes current maturities of $38.2 million at September 30, 2022 and $42.9 million at December 31, 2021. See Note 6 for information relating to our long-term debt aredebt.

Liquidity

We define liquidity as follows (in thousands):

September 30, 

December 31, 

    

2021

    

2020

Term Loan (repaid September 2021) (1)

$

$

29,559

Nordea Q5000 Loan (matured January 2021) (2)

 

 

53,532

MARAD Debt (matures February 2027)

 

46,167

 

53,361

2022 Notes (mature May 2022) (3)

 

34,888

 

33,477

2023 Notes (mature September 2023) (3)

 

29,641

 

26,922

2026 Notes (mature February 2026) (3)

 

193,797

 

152,712

Total debt (4)

304,493

349,563

Less current maturities

(42,825)

(90,651)

Long-term debt

$

261,668

$

258,912

(1)The Term Loan was fully repaid in September 2021 concurrent with our entering into the ABL Facility (Note 5).
(2)The Nordea Q5000 Loan was fully repaid upon maturity in January 2021 (Note 5).
(3)As a result of the adoption of ASU No. 2020-06 beginning January 1, 2021, there are no longer any debt discounts associated with the 2022 Notes, 2023 Notes or 2026 Notes (Note 1).
(4)Amounts are net of any unamortized debt discounts and debt issuance costs.

The following table provides summary data fromcash and cash equivalents, excluding restricted cash, plus available capacity under our condensed consolidated statementscredit facility. Our liquidity at September 30, 2022 included $162.3million of cash flows (in thousands):and cash equivalents and $81.8 million of available borrowing capacity under the Amended ABL Facility (Note 6) and excluded $2.5 million of restricted cash. Our liquidity at December 31, 2021 included $253.5 million of cash and cash equivalents and $51.1 million of available borrowing capacity under the ABL Facility and excluded $73.6 million of short-term project related restricted cash. As of September 30, 2022, we had approximately $21.7 million in Nigerian Naira, which is subject to currency exchange controls established by the Central Bank of Nigeria. Those exchange controls have to date restricted our ability to convert our Nigerian Naira into U.S. dollars.

Nine Months Ended

September 30, 

    

2021

    

2020

Cash provided by (used in):

 

  

 

Operating activities

$

121,252

$

58,628

Investing activities

 

(7,335)

 

(18,255)

Financing activities

 

(95,659)

 

(42,000)

Our current requirements for cash primarily reflect the need to fundThe COVID-19 pandemic impacted our operations and capital spending for our current lines of business and to service our debt.

The ongoing COVID-19 pandemic, challenging market conditions and industry-wide spending cuts have impacted our revenues and we expect these events to continue to impact our results into the foreseeable future. Our operating cash flows are impacted to the extent we cannot replace those revenuesrevenues. We responded by deferring or reduce costs. Despite these challenges, we remain focused on maintaining a strong balance sheet and adequate liquidity. We have reduced, deferred or cancelled certainreducing planned capital expenditures and reduced our overall cost structure commensurateoperating costs during the past two years. This spending is returning with our level of activities. In 2020,increased activity. Furthermore, we extended our debt maturity profile with refinancing a portionfully redeemed the $35 million remaining principal amount of the 2022 Notes plus accrued interest by delivering cash upon maturity on May 1, 2022, and we have other term debt maturities during 2022 that we intend to settle in cash. Additionally on July 1, 2022, we completed our acquisition of Alliance for $119.0 million cash at closing plus post-closing earn-out consideration payable to the seller in the Alliance transaction in 2024 in the event the Helix Alliance business achieves certain financial metrics in 2022 and 2023 Notes with the 2026 Notes. We have at the same time continued to de-lever our balance sheet with the repayment of the Nordea Q5000 Loan in January 2021 and the Term Loan in September 2021. We have reduced operating costs through various measures including warm stacking our vessels when idle. These costs should return with increases in activity.(Note 3). We believe that our cash on hand, internally generated cash flows and availability under the Amended ABL Facility will be sufficient to fund our operations and service our debt over at least the next 12 months.

The ongoing COVID-19 pandemic and its impact on the energy and financial markets have contributed to rising yields on our existing debt as well as volatility in our stock price, both of which increase our cost of capital. The yield on the 2026 Notes is significantly higher than that of the 2022 Notes and 2023 Notes. The COVID-19 pandemic has also contributed to limited access to certain capital markets.

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An ongoingA period of weak or continued decreases in, industry activity may make it difficult to comply with ourthe covenants and the other restrictions in the agreements governing our debt and ouragreements. Our failure to comply with thesethe covenants and other restrictions could lead to an event of default. Current global and market conditions have increased the potential for that difficulty and are expected to negatively impact the terms on which we are able to secure financing. Decreases in our borrowing base may limit our ability to fully access the Amended ABL Facility. At September 30, 2021, our available borrowing capacity under the ABL Facility was $69.6 million, net of $2.2 million of letters of credit issued under that facility. We currently do not anticipate borrowing under the Amended ABL Facility other than for the issuance of letters of credit.

Operating Cash Flows

NetThe following table provides summary data from our condensed consolidated statements of cash flows provided by(in thousands):

Nine Months Ended

September 30, 

    

2022

    

2021

Cash provided by (used in):

 

  

 

Operating activities

$

1,396

$

121,252

Investing activities

 

(109,775)

 

(7,335)

Financing activities

 

(44,437)

 

(95,659)

Operating Activities

The decrease in our operating activities were $121.3 millioncash flows for the nine-month period ended September 30, 20212022 as compared to $58.6 million for the same period in 2020. The increase2021 primarily reflects lower earnings, higher regulatory recertification costs for our vessels and systems and negative changes in operatingnet working capital. Regulatory recertification spend on our vessels and systems amounted to $30.3 million and $7.1 million, respectively, during the comparable year over year periods. Operating cash flows primarily reflects improvements in working capital, lower recertificationfor the nine-month periods ended September 30, 2022 and dry dock costs, and2021 included the receipt in 2021 of $1.1 million and $18.9 million, respectively, in income tax refunds related to the CARESU.S. Coronavirus Aid, Relief, and Economic Security Act.

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Investing Activities

Capital expenditures representCash flows used in investing activities for the nine-month periods ended September 30, 2022 and 2021 reflect $112.6 million in net cash paid principally forto acquire Alliance (Note 3), offset in part by $7.8 million in net cash distribution from Independence Hub in May 2022 (Note 2) and the acquisition, construction, completion, upgrade, modification and refurbishmentdeferral or reduction of long-lived property and equipment such as dynamically positioned vessels, topside equipment and subsea systems. Capital expenditures also include interest on property and equipment under development. Significant sources (uses) of cash associated with investing activities are as follows (in thousands):

Nine Months Ended

September 30, 

    

2021

    

2020

Capital expenditures:

 

  

 

Well Intervention

$

(1,556)

$

(18,489)

Robotics

 

(1)

 

(255)

Production Facilities

 

(5,616)

 

Other

 

(213)

 

(449)

Proceeds from sale of assets

51

938

Net cash used in investing activities

$

(7,335)

$

(18,255)

Ourour planned capital expenditures duringas our response to the adverse impact to our operations as a result of the COVID-19 pandemic.

Financing Activities

Net cash outflows from financing activities for the nine-month period ended September 30, 20202022 primarily included payments associated withreflect the construction and completionrepayment of the Q7000, which commenced operations in January 2020.

Financing Activities

Cash flows from financing activities consist primarily of proceeds and repayments$7.9 million related to our long-term debt.the MARAD Debt and $35 million related to the 2022 Notes (Note 6). Net cash outflows from financing activities of $95.7 million for the nine-month period ended September 30, 2021 primarily reflect the repayment of $90.9 million related to our indebtedness, including the final maturity of $53.6 million of the Nordea Q5000 Loan and $28.0 million in full repayment of the Term Loan (Note 5)6). Net

Material Cash Requirements

Our material cash outflows from financing activities of $42.0 million for the nine-month period ended September 30, 2020 primarily reflect the repayment of $36.6 million ofrequirements include our indebtednessobligations to repay our long-term debt, satisfy other contractual cash commitments and entry into the 2026 Capped Calls as well as the repurchase of a portion of the 2022 Notesfund other obligations.

Long-term debt and 2023 Notes with proceeds from the issuance of the 2026 Notes (Note 5).

Free Cash Flow

Free cash flow increased by $73.5 million for the nine-month period ended September 30, 2021 as compared to the same period in 2020. The increase was attributable to the increase in operating cash flows and the decrease in capital expenditures.

Free cash flow is a non-GAAP financial measure. See “RESULTS OF OPERATIONS” above for the definition and calculation of free cash flow.

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Contractual Obligations and Commercial Commitmentsother contractual commitments

The following table summarizes the principal amount of our long-term debt and related debt service costs as well as other contractual cashcommitments, which include commitments for property and equipment and operating lease obligations, as of September 30, 20212022 and the scheduled yearsportions of those amounts that are short-term (due in whichless than one year) and long-term (due in one year or greater) based on their stated maturities (in thousands). Our property and equipment commitments include contractually committed amounts to purchase and service certain property and equipment (inclusive of commitments related to regulatory recertification and dry dock as discussed below) but do not include expected capital spending that is not contractually committed as of September 30, 2022. Our 2023 Notes and 2026 Notes have certain early redemption and conversion features that could affect the obligationstiming and amount of any cash requirements. Although upon conversion these notes are contractually due (in thousands):able to be settled in either cash or shares, we intend to settle their principal amounts in cash (Note 6).

Less Than

More Than

    

Total (1)

    

1 Year

    

1-3 Years

    

3-5 Years

    

5 Years

MARAD debt

$

48,850

$

7,937

$

17,082

$

18,830

$

5,001

2022 Notes (2)

 

35,000

 

35,000

 

 

 

2023 Notes (3)

 

30,000

 

 

30,000

 

 

2026 Notes (4)

 

200,000

 

 

 

200,000

 

Interest related to debt (5)

 

71,664

 

18,303

 

32,335

 

20,943

 

83

Property and equipment

 

5,641

 

5,641

 

 

 

Operating leases (6)

 

205,851

 

102,843

 

94,301

 

4,263

 

4,444

Total cash obligations

$

597,006

$

169,724

$

173,718

$

244,036

$

9,528

    

Total

    

Short-Term

    

Long-Term

MARAD debt

$

40,913

$

8,333

$

32,580

2023 Notes

 

30,000

 

30,000

 

2026 Notes

 

200,000

 

 

200,000

Interest related to debt

 

53,467

 

17,082

 

36,385

Property and equipment

 

8,249

 

8,249

 

Operating leases (1)

 

430,522

 

110,960

 

319,562

Total cash obligations

$

763,151

$

174,624

$

588,527

(1)Excludes unsecured letters of credit outstanding at September 30, 2021 totaling $2.2 million. These letters of credit may be issued to support various obligations, such as contractual obligations, contract bidding and insurance activities.
(2)Notes mature in May 2022. See Note 5 for additional information.
(3)Notes mature in September 2023. See Note 5 for additional information.
(4)Notes mature in February 2026. See Note 5 for additional information.
(5)Interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at September 30, 2021 for variable rate debt.
(6)Operating leases include vessel charters and facility and equipment leases. At September 30, 2021,2022, our commitment related to long-term vessel charters totaled approximately $180.3$402.3 million, of which $73.4$167.8 million was related to the non-lease (services) components that are not included in operating lease liabilities in the condensed consolidated balance sheet as of September 30, 2021.2022.

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Other material cash requirements

Other material cash requirements include the following:

Decommissioning. We have decommissioning obligations associated with our oil and gas properties (Note 12). Those obligations, which are presented on a discounted basis on the accompanying condensed consolidated balance sheets, approximate $76.0 million (undiscounted) as of September 30, 2022, of which $31.0 million are expected to be paid during the next 12 months. We are entitled to receive certain amounts from Marathon Oil Corporation as certain short-term decommissioning obligations are fulfilled.

Regulatory recertification and dry dock. Our Well Intervention vessels and systems are subject to certain regulatory recertification requirements that must be satisfied in order for the vessels and systems to operate. Recertification may require dry dock and other compliance costs on a periodic basis, usually every 30 months. Although the amount and timing of these costs may vary, they generally range between $3.0 million to $15.0 million per vessel and $0.5 million to $5.0 million per system.

Earn-out consideration. As part of the Alliance acquisition, we are required to make the earn-out payment to the seller in the Alliance transaction in 2024 in the event the Helix Alliance business achieves certain financial metrics in 2022 and 2023 (Note 3).

We expect the sources of funds to satisfy our material cash requirements to primarily come from our ongoing operations and existing cash on hand, but may also come from availability under the Amended ABL Facility and access to capital markets.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Our discussion and analysis of our financial condition and results of operations, as reflected in the condensed consolidated financial statements and related footnotes, are prepared in conformity with GAAP. As such, we are required to make certain estimates, judgments and assumptions that affect the reported amountshave had or are reasonably likely to have a material impact on our financial condition or results of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.operations. We base our estimates on historical experience, available information and various other assumptions we believe to be reasonable under the circumstances. These estimates involve a significant level of estimation uncertainty and may change over time as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes.

For information regarding our critical accounting estimates, and policies, please readsee our “Critical Accounting Estimates and Policies”Estimates” as disclosed in our 20202021 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of September 30, 2021,2022, we were exposed to market risks associated with foreign currency exchange rates. We had no exposure to interest rate risk as we had no outstanding debt subject to floating rates.

Foreign Currency Exchange Rate Risk. Because we operate in various regions around the world, we conduct a portion of our business in currencies other than the U.S. dollar. As such, our earnings are impacted by movements in foreign currency exchange rates when (i) transactions are denominated in currencies other than the functional currency of the relevant Helix entity or (ii) the functional currency of our subsidiaries is not the U.S. dollar. In order to mitigate the effects of exchange rate risk in areas outside the U.S., we endeavor to pay a portion of our expenses in local currencies to partially offset revenues that are denominated in the same local currencies. In addition, a substantial portion of our contracts are denominated, and provide for collections from our customers, in U.S. dollars.

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Assets and liabilities of our subsidiaries that do not have the U.S. dollar as their functional currency are translated using the exchange rates in effect at the balance sheet date, resulting in translation adjustments that are reflected in “Accumulated other comprehensive loss” in the shareholders’ equity section of our condensed consolidated balance sheets. For the nine-month period ended September 30, 2021,2022, we recorded foreign currency translation losses of $6.5$79.9 million to accumulated other comprehensive loss. Deferred taxes have not been provided on foreign currency translation adjustments since we consideras our non-U.S. undistributed earnings (when applicable) of our non-U.S. subsidiaries without operations in the U.S. to beare permanently reinvested.

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When currencies other than the functional currency are to be paid or received, the resulting transaction gain or loss associated with changes in the applicable foreign currency exchange rate is recognized in the condensed consolidated statements of operations as a component of “Other income (expense),expense, net.” Foreign currency gains or losses from the remeasurement of monetary assets and liabilities as well as unsettled foreign currency transactions, including intercompany transactions that are not of a long-term investment nature, are also recognized as a component of “Other income (expense),expense, net.” For the three- and nine-month periodperiods ended September 30, 2021,2022, we recorded foreign currency transaction losses of $1.5$20.3 million and $37.6 million, respectively, primarily related to U.S. dollar denominated intercompany debt in our subsidiaries in the U.K. entities.

Item 4. Controls and Procedures

(a)  Evaluation of disclosure controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2021.2022. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 20212022 to ensure that information that is required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure.

As disclosed in Note (3) to the unaudited condensed consolidated financial statements, we acquired Alliance on July 1, 2022. Helix Alliance’s total revenues constituted approximately 24.7% of total consolidated revenues as shown on our condensed consolidated statement of operations for the three-month period ended September 30, 2022. Helix Alliance’s total assets constituted approximately 8.5% of total consolidated assets as shown on our condensed consolidated balance sheet as of September 30, 2022. We excluded Helix Alliance’s disclosure controls and procedures that are subsumed by its internal control over financial reporting from the scope of management's assessment of the effectiveness of our disclosure controls and procedures. This exclusion is in accordance with the guidance issued by the Staff of the Securities and Exchange Commission that an assessment of recent business combinations may be omitted from management's assessment of internal control over financial reporting for one year following the acquisition. We are in the process of implementing financial reporting controls and procedures at Helix Alliance as part of our ongoing integration activities. Helix Alliance currently maintains separate accounting systems and is expected to convert to Helix’s accounting systems no later than June 30, 2023. The condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q were prepared using information obtained from these separate accounting systems.

(b)  Changes in internal control over financial reporting. ThereExcept as described above, there have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

See Part I, Item 1, Note 12 — Litigation to the Condensed Consolidated Financial Statements, which is incorporated herein by reference.

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Item 1A. Risk Factors

Except as set forth below, there have been no material changes during the period ended September 30, 2022 in our “Risk Factors” as discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.

Our business would be adversely affected if we failed to comply with the Jones Act foreign ownership provisions or if these provisions were modified or repealed.

We are subject to the Jones Act and other federal laws that restrict maritime cargo transportation between points in the U.S. As a result of the Alliance acquisition, we acquired 21 vessels registered under the U.S. flag which operate in the U.S. Gulf of Mexico coastwise trade. In order to operate vessels in the Jones Act trade and to be qualified to document vessels for coastwise trade, we must maintain U.S. citizen status for Jones Act purposes. We could cease being a U.S. citizen if certain events were to occur, including if non-U.S. citizens were to own 25% or more of our common stock. We are responsible for monitoring our ownership to ensure compliance with the Jones Act. The consequences of our failure to comply with the Jones Act provisions on coastwise trade, including failing to qualify as a U.S. citizen, would have an adverse effect on our results of operations as we may be prohibited from operating certain of our vessels in the U.S. coastwise trade or, under certain circumstances, permanently lose U.S. coastwise trading rights or be subject to fines or forfeiture of certain our vessels. There have been attempts to repeal or amend restrictions contained in the Jones Act, and such attempts are expected to continue in the future. Our business could be adversely affected if the Jones Act were to be modified or repealed so as to permit foreign competition that is not subject to the same U.S. government imposed burdens.

We may execute a strategic transaction that may not achieve intended results, could increase our debt or the number of our shares outstanding, or result in a change of control.

We have executed acquisitions and divestitures in the past, and in the future we may evaluate and potentially enter into additional strategic transactions. Any such transaction could be material to our business, could occur at any time and could take any number of forms, including, for example, an acquisition, merger, joint venture, strategic alliance, equity investment, divestiture or an asset sale.

The success of any transaction may depend on, in part, our ability to integrate an acquired business and realize the financial growth or synergies expected from the transaction. Any such transaction may not be successful, may not be accretive to shareholders or may not achieve expected benefits within an expected timeframe. Acquired businesses may also have unanticipated liabilities, contingencies or negative tax consequences. In addition, acquisitions are accompanied by the risk that the obligations of an acquired business may not be adequately reflected in the historical financial statements of that company and the risk that those historical financial statements may be based on assumptions which are incorrect or inconsistent with our assumptions or approach to accounting policies. Any of these material obligations, unanticipated liabilities or incorrect or inconsistent assumptions could have a material adverse effect on our growth strategy, business, financial condition, prospects and results of operations. Furthermore, evaluating potential transactions and integrating completed transactions could be time-consuming, involve significant transaction related expenses, create unexpected costs, involve difficulties assimilating the operations and personnel of an acquired business, make evaluating our business and future financial prospects difficult and may divert the attention of our management from ordinary operating matters.

Any such transaction may require additional financing that could result in an increase in the number of our outstanding shares or the aggregate amount of our debt, and the number of shares of our common stock or the aggregate principal amount of our debt that we may issue may be significant. Certain transactions may not be permitted under our existing asset-based credit facility, requiring either waivers, amendments, or terminating such facility. Furthermore, a strategic transaction may result in a change in control of our company or otherwise materially and adversely affect our business.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

(c)

Total number

(d)

of shares

Maximum

(a)

(b)

purchased as

number of shares

Total number

Average

part of publicly

that may yet be

of shares

price paid

announced

purchased under

Period

purchased

per share

program

the program (1)

July 1 to July 31, 2021

$

7,829,695

August 1 to August 31, 2021

7,829,695

September 1 to September 30, 2021

7,895,950

$

(c)

(d)

Total number

Maximum

of shares

number of shares

(a)

(b)

purchased as

that may yet

Total number

Average

part of publicly

be purchased

of shares

price paid

announced plans

under the plans

Period

    

purchased (1)

    

per share

    

or programs

    

or programs (2)

July 1 to July 31, 2022

 

3,520

$

2.65

 

 

9,275,587

August 1 to August 31, 2022

 

 

 

 

9,275,587

September 1 to September 30, 2022

 

 

 

 

9,339,021

 

3,520

$

2.65

 

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(1)Includes shares forfeited in satisfaction of tax obligations upon vesting of share-based awards under our existing long-term incentive plans.
(2)Under the terms of our stock repurchase program, we may repurchase shares of our common stock in an amount equal to any equity granted to our employees, officers and directors under our share-based compensation plans, including share-based awards under our existing long-term incentive plans and shares issued to our employees under our ESPPEmployee Stock Purchase Plan (Note 9)10), and such shares increase the number of shares available for repurchase. For additional information regarding our stock repurchase program, see Note 11 to our 20202021 Form 10-K.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Number

    

Description

    

Filed or Furnished Herewith or Incorporated by Reference from the Following Documents (Registration or File Number)

3.1

2005 Amended and Restated Articles of Incorporation, as amended, of Helix Energy Solutions Group, Inc.

Exhibit 3.1 to the Current Report on Form 8-K filed on March 1, 2006 (000-22739)

3.2

Second Amended and Restated By-Laws of Helix Energy Solutions Group, Inc., as amended.

Exhibit 3.1 to the Current Report on Form 8-K filed on September 28, 2006 (001-32936)

4.1

Loan, Guaranty and Security Agreement,Amendment No. 1, dated as of September 30, 2021,July 1, 2022, to Loan, Security and Guaranty Agreement, among Helix Energy Solutions Group, Inc., Helix Well Ops Inc., Helix Robotics Solutions, Inc., Deepwater Abandonment Alternatives, Inc., Helix Well Ops (U.K.) Limited and Helix Robotics Solutions Limited as Borrowers,borrowers, the Lenders from time to timeguarantors party thereto, the lenders party thereto, and Bank of America, N.A., as Agent.agent and security trustee for the lenders.

Exhibit 4.1 to the Current Report on Form 8-K filed on OctoberJuly 1, 20212022 (001-32936)

31.1

Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 by Owen Kratz, Chief Executive Officer.

Filed herewith

31.2

Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 by Erik Staffeldt, Chief Financial Officer.

Filed herewith

32.1

Certification of Helix’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.

Furnished herewith

101.INS

XBRL Instance Document.

The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

Filed herewith

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Filed herewith

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Filed herewith

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

Filed herewith

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Filed herewith

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    

HELIX ENERGY SOLUTIONS GROUP, INC.

(Registrant)

Date: October 21, 202126, 2022

By:

/s/ Owen Kratz

Owen Kratz

President and Chief Executive Officer

(Principal Executive Officer)

Date: October 21, 202126, 2022

By:

/s/ Erik Staffeldt

Erik Staffeldt

Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)

4346