UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20202021
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from _________________________ to _________________________ |
Commission file number: 001-36246
Civeo Corporation
(Exact name of registrant as specified in its charter)
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British Columbia, Canada | 98-1253716 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
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Three Allen Center, 333 Clay Street, Suite 4980, | 77002 |
Houston,, Texas | (Zip Code) |
(Address of principal executive offices) | |
(713) 510-2400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
Common Shares, no par value | CVEO | 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.
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).
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 "accelerated filer," "large accelerated filer," "smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | ☐ | Accelerated Filer | ☒ | Emerging Growth Company | ☐ |
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Non-Accelerated Filer | ☐ | Smaller Reporting 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).
The Registrant had 170,582,02114,316,274 common shares outstanding as of October 23, 2020.July 26, 2021.
CIVEO CORPORATION
INDEX
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| Page No. |
Part I -- FINANCIAL INFORMATION | |
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Item 1. Financial Statements: | |
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Consolidated Financial Statements | |
Unaudited Consolidated Statements of Operations for the Three and NineSix Months Ended SeptemberJune 30, 20202021 and 2019 2020 | |
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and NineSix Months Ended SeptemberJune 30, 20202021 and 20192020 | |
Consolidated Balance Sheets – as of SeptemberJune 30, 20202021 (unaudited) and December 31, 20192020 | |
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three and NineSix Months Ended SeptemberJune 30, 20202021 and 20192020 | |
Unaudited Consolidated Statements of Cash Flows for the NineSix Months Ended SeptemberJune 30, 20202021 and 2019 2020 | |
Notes to Unaudited Consolidated Financial Statements | |
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Cautionary Statement Regarding Forward-Looking Statements | |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
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Item 4. Controls and Procedures | |
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Part II -- OTHER INFORMATION | |
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Item 1. Legal Proceedings | |
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Item 1A. Risk Factors | |
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Item 6. Exhibits | |
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(a) Index of Exhibits | |
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Signature Page | |
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
CIVEO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Revenues: | Revenues: | | | | | | | | Revenues: | | | | | | | |
Service and other | Service and other | $ | 136,523 | | | $ | 140,349 | | | $ | 375,928 | | | $ | 353,147 | | Service and other | $ | 147,784 | | | $ | 110,006 | | | $ | 269,780 | | | $ | 239,405 | |
Rental | Rental | 3,217 | | | 6,942 | | | 13,261 | | | 21,057 | | Rental | 4,540 | | | 3,865 | | | 7,604 | | | 10,044 | |
Product | Product | 3,117 | | | 872 | | | 7,162 | | | 4,662 | | Product | 1,852 | | | 831 | | | 2,222 | | | 4,045 | |
| | 142,857 | | | 148,163 | | | 396,351 | | | 378,866 | | | 154,176 | | | 114,702 | | | 279,606 | | | 253,494 | |
Costs and expenses: | Costs and expenses: | | | | | | | | Costs and expenses: | | | | | | | |
Service and other costs | Service and other costs | 92,147 | | | 93,642 | | | 267,051 | | | 243,945 | | Service and other costs | 103,449 | | | 78,860 | | | 199,911 | | | 174,904 | |
Rental costs | Rental costs | 3,131 | | | 5,072 | | | 11,559 | | | 16,579 | | Rental costs | 3,661 | | | 3,615 | | | 6,631 | | | 8,428 | |
Product costs | Product costs | 2,156 | | | 766 | | | 5,270 | | | 3,826 | | Product costs | 892 | | | 658 | | | 1,270 | | | 3,114 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 13,462 | | | 14,334 | | | 38,889 | | | 42,960 | | Selling, general and administrative expenses | 14,703 | | | 11,490 | | | 28,884 | | | 25,427 | |
Depreciation and amortization expense | Depreciation and amortization expense | 24,820 | | | 31,196 | | | 72,527 | | | 92,974 | | Depreciation and amortization expense | 21,377 | | | 22,205 | | | 42,646 | | | 47,707 | |
Impairment expense | Impairment expense | 0 | | | 0 | | | 144,120 | | | 5,546 | | Impairment expense | 7,935 | | | 0 | | | 7,935 | | | 144,120 | |
Other operating expense | 51 | | | 277 | | | 755 | | | 109 | | |
Other operating expense (income) | | Other operating expense (income) | 30 | | | (285) | | | 101 | | | 704 | |
| | 135,767 | | | 145,287 | | | 540,171 | | | 405,939 | | | 152,047 | | | 116,543 | | | 287,378 | | | 404,404 | |
Operating income (loss) | Operating income (loss) | 7,090 | | | 2,876 | | | (143,820) | | | (27,073) | | Operating income (loss) | 2,129 | | | (1,841) | | | (7,772) | | | (150,910) | |
| Interest expense | Interest expense | (3,646) | | | (7,315) | | | (13,095) | | | (20,670) | | Interest expense | (3,401) | | | (3,854) | | | (6,763) | | | (9,449) | |
Loss on extinguishment of debt | (383) | | | 0 | | | (383) | | | 0 | | |
| Interest income | Interest income | 0 | | | 17 | | | 20 | | | 66 | | Interest income | 2 | | | 4 | | | 2 | | | 20 | |
Other income | Other income | 4,542 | | | 2,849 | | | 17,209 | | | 6,882 | | Other income | 788 | | | 12,642 | | | 5,702 | | | 12,667 | |
Income (loss) before income taxes | 7,603 | | | (1,573) | | | (140,069) | | | (40,795) | | |
Income tax (expense) benefit | (180) | | | 6,629 | | | 8,509 | | | 13,963 | | |
(Loss) income before income taxes | | (Loss) income before income taxes | (482) | | | 6,951 | | | (8,831) | | | (147,672) | |
Income tax benefit (expense) | | Income tax benefit (expense) | 492 | | | (122) | | | (584) | | | 8,689 | |
Net income (loss) | Net income (loss) | 7,423 | | | 5,056 | | | (131,560) | | | (26,832) | | Net income (loss) | 10 | | | 6,829 | | | (9,415) | | | (138,983) | |
Less: Net income attributable to noncontrolling interest | Less: Net income attributable to noncontrolling interest | 434 | | | 60 | | | 914 | | | 60 | | Less: Net income attributable to noncontrolling interest | (3) | | | 222 | | | 56 | | | 480 | |
Net income (loss) attributable to Civeo Corporation | Net income (loss) attributable to Civeo Corporation | 6,989 | | | 4,996 | | | (132,474) | | | (26,892) | | Net income (loss) attributable to Civeo Corporation | 13 | | | 6,607 | | | (9,471) | | | (139,463) | |
Less: Dividends attributable to Class A preferred shares | Less: Dividends attributable to Class A preferred shares | 472 | | | 464 | | | 1,411 | | | 1,384 | | Less: Dividends attributable to Class A preferred shares | 480 | | | 471 | | | 958 | | | 939 | |
Net income (loss) attributable to Civeo common shareholders | $ | 6,517 | | | $ | 4,532 | | | $ | (133,885) | | | $ | (28,276) | | |
Net (loss) income attributable to Civeo common shareholders | | Net (loss) income attributable to Civeo common shareholders | $ | (467) | | | $ | 6,136 | | | $ | (10,429) | | | $ | (140,402) | |
| | Per Share Data (see Note 8) | | |
Basic net income (loss) per share attributable to Civeo Corporation common shareholders | $ | 0.03 | | | $ | 0.02 | | | $ | (0.79) | | | $ | (0.17) | | |
Per Share Data (see Note 7) (1) | | Per Share Data (see Note 7) (1) | |
Basic net (loss) income per share attributable to Civeo Corporation common shareholders | | Basic net (loss) income per share attributable to Civeo Corporation common shareholders | $ | (0.03) | | | $ | 0.37 | | | $ | (0.73) | | | $ | (9.96) | |
| Diluted net income (loss) per share attributable to Civeo Corporation common shareholders | $ | 0.03 | | | $ | 0.02 | | | $ | (0.79) | | | $ | (0.17) | | |
Diluted net (loss) income per share attributable to Civeo Corporation common shareholders | | Diluted net (loss) income per share attributable to Civeo Corporation common shareholders | $ | (0.03) | | | $ | 0.37 | | | $ | (0.73) | | | $ | (9.96) | |
| Weighted average number of common shares outstanding: | Weighted average number of common shares outstanding: | | Weighted average number of common shares outstanding: | |
Basic | Basic | 169,924 | | | 167,640 | | | 169,420 | | | 166,842 | | Basic | 14,278 | | | 14,151 | | | 14,244 | | | 14,097 | |
Diluted | Diluted | 170,544 | | | 168,282 | | | 169,420 | | | 166,842 | | Diluted | 14,278 | | | 14,166 | | | 14,244 | | | 14,097 | |
(1)Reflects our 1-for-12 reverse share split that became effective November 19, 2020. See Note 1 - Description of Business and Basis of Presentation to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
The accompanying notes are an integral part of these financial statements.
CIVEO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss) | Net income (loss) | $ | 7,423 | | | $ | 5,056 | | | $ | (131,560) | | | $ | (26,832) | | Net income (loss) | $ | 10 | | | $ | 6,829 | | | $ | (9,415) | | | $ | (138,983) | |
| Other comprehensive income (loss), net of taxes: | Other comprehensive income (loss), net of taxes: | | Other comprehensive income (loss), net of taxes: | |
Foreign currency translation adjustment, net of 0 taxes | Foreign currency translation adjustment, net of 0 taxes | 11,131 | | | (12,096) | | | (8,025) | | | (5,633) | | Foreign currency translation adjustment, net of 0 taxes | (1,573) | | | 29,385 | | | (3,200) | | | (19,156) | |
Total other comprehensive income (loss), net of taxes | Total other comprehensive income (loss), net of taxes | 11,131 | | | (12,096) | | | (8,025) | | | (5,633) | | Total other comprehensive income (loss), net of taxes | (1,573) | | | 29,385 | | | (3,200) | | | (19,156) | |
| Comprehensive income (loss) | Comprehensive income (loss) | 18,554 | | | (7,040) | | | (139,585) | | | (32,465) | | Comprehensive income (loss) | (1,563) | | | 36,214 | | | (12,615) | | | (158,139) | |
Less: Comprehensive income attributable to noncontrolling interest | 462 | | | 60 | | | 928 | | | 60 | | |
Comprehensive income (loss) attributable to Civeo Corporation | $ | 18,092 | | | $ | (7,100) | | | $ | (140,513) | | | $ | (32,525) | | |
Less: Comprehensive (loss) income attributable to noncontrolling interest | | Less: Comprehensive (loss) income attributable to noncontrolling interest | (11) | | | 303 | | | 38 | | | 466 | |
Comprehensive (loss) income attributable to Civeo Corporation | | Comprehensive (loss) income attributable to Civeo Corporation | $ | (1,552) | | | $ | 35,911 | | | $ | (12,653) | | | $ | (158,605) | |
The accompanying notes are an integral part of these financial statements.
CIVEO CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Excluding Share Amounts)
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| June 30, 2021 | | December 31, 2020 |
| (Unaudited) | | |
ASSETS | | | |
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Current assets: | | | |
Cash and cash equivalents | $ | 4,414 | | | $ | 6,155 | |
Accounts receivable, net | 114,187 | | | 89,782 | |
Inventories | 6,958 | | | 6,181 | |
Prepaid expenses | 5,537 | | | 7,020 | |
Other current assets | 9,976 | | | 6,165 | |
Assets held for sale | 2,205 | | | 3,910 | |
Total current assets | 143,277 | | | 119,213 | |
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Property, plant and equipment, net | 442,819 | | | 486,930 | |
Goodwill | 8,474 | | | 8,729 | |
Other intangible assets, net | 98,967 | | | 99,749 | |
Operating lease right-of-use assets | 21,445 | | | 22,606 | |
Other noncurrent assets | 2,705 | | | 3,626 | |
Total assets | $ | 717,687 | | | $ | 740,853 | |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
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Current liabilities: | | | |
Accounts payable | $ | 43,956 | | | $ | 42,056 | |
Accrued liabilities | 23,983 | | | 27,349 | |
Income taxes | 225 | | | 203 | |
Current portion of long-term debt | 35,593 | | | 34,585 | |
Deferred revenue | 21,486 | | | 6,812 | |
Other current liabilities | 5,997 | | | 5,760 | |
Total current liabilities | 131,240 | | | 116,765 | |
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Long-term debt, less current maturities | 189,228 | | | 214,000 | |
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Operating lease liabilities | 17,997 | | | 19,834 | |
Other noncurrent liabilities | 15,817 | | | 14,897 | |
Total liabilities | 354,282 | | | 365,496 | |
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Commitments and contingencies (Note 10) | 0 | | 0 |
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Shareholders’ Equity: | | | |
Preferred shares (Class A Series 1, 0 par value; 50,000,000 shares authorized, 9,042 shares issued and outstanding, respectively; aggregate liquidation preference of $96,471,559 and $95,514,031 as of June 30, 2021 and December 31, 2020) | 60,974 | | | 60,016 | |
Common shares (0 par value; 46,000,000 shares authorized, 14,636,872 shares and 14,478,878 shares issued, respectively, and 14,316,274 shares and 14,215,169 shares outstanding, respectively) (1) | 0 | | | 0 | |
Additional paid-in capital | 1,580,213 | | | 1,578,315 | |
Accumulated deficit | (918,156) | | | (907,727) | |
Common shares held in treasury at cost, 320,598 and 263,709 shares, respectively | (8,050) | | | (6,930) | |
Accumulated other comprehensive loss | (352,171) | | | (348,989) | |
Total Civeo Corporation shareholders’ equity | 362,810 | | | 374,685 | |
Noncontrolling interest | 595 | | | 672 | |
Total shareholders’ equity | 363,405 | | | 375,357 | |
Total liabilities and shareholders’ equity | $ | 717,687 | | | $ | 740,853 | |
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| September 30, 2020 | | December 31, 2019 |
| (Unaudited) | | |
ASSETS | | | |
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Current assets: | | | |
Cash and cash equivalents | $ | 6,938 | | | $ | 3,331 | |
Accounts receivable, net | 92,754 | | | 99,493 | |
Inventories | 5,775 | | | 5,877 | |
Prepaid expenses | 9,369 | | | 7,247 | |
Other current assets | 7,737 | | | 7,904 | |
Assets held for sale | 0 | | | 7,589 | |
Total current assets | 122,573 | | | 131,441 | |
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Property, plant and equipment, net | 481,394 | | | 590,309 | |
Goodwill | 8,086 | | | 110,173 | |
Other intangible assets, net | 98,907 | | | 111,837 | |
Operating lease right-of-use assets | 20,426 | | | 24,876 | |
Other noncurrent assets | 1,550 | | | 1,276 | |
Total assets | $ | 732,936 | | | $ | 969,912 | |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
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Current liabilities: | | | |
Accounts payable | $ | 37,116 | | | $ | 36,971 | |
Accrued liabilities | 22,229 | | | 21,755 | |
Income taxes | 379 | | | 328 | |
Current portion of long-term debt | 32,978 | | | 35,080 | |
Deferred revenue | 7,801 | | | 7,165 | |
Other current liabilities | 6,353 | | | 8,741 | |
Total current liabilities | 106,856 | | | 110,040 | |
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Long-term debt, less current maturities | 236,876 | | | 321,792 | |
Deferred income taxes | 0 | | | 9,452 | |
Operating lease liabilities | 18,035 | | | 21,231 | |
Other noncurrent liabilities | 17,557 | | | 16,592 | |
Total liabilities | 379,324 | | | 479,107 | |
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Commitments and contingencies (Note 11) | | | |
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Shareholders’ Equity: | | | |
Preferred shares (Class A Series 1, 0 par value; 50,000,000 shares authorized, 9,042, shares issued and outstanding, respectively; aggregate liquidation preference of $95,039 and $93,627 as of September 30, 2020 and December 31, 2019) | 59,540 | | | 58,129 | |
Common shares (0 par value; 550,000,000 shares authorized, 173,746,532 shares and 171,656,039 shares issued, respectively, and 170,582,021 shares and 169,556,403 shares outstanding, respectively) | 0 | | | 0 | |
Additional paid-in capital | 1,577,053 | | | 1,572,249 | |
Accumulated deficit | (905,475) | | | (771,590) | |
Common shares held in treasury at cost, 3,164,511 and 2,099,636 shares, respectively | (6,930) | | | (5,472) | |
Accumulated other comprehensive loss | (371,212) | | | (363,173) | |
Total Civeo Corporation shareholders’ equity | 352,976 | | | 490,143 | |
Noncontrolling interest | 636 | | | 662 | |
Total shareholders’ equity | 353,612 | | | 490,805 | |
Total liabilities and shareholders’ equity | $ | 732,936 | | | $ | 969,912 | |
(1)Reflects our 1-for-12 reverse share split that became effective November 19, 2020. See Note 1 - Description of Business and Basis of Presentation to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.The accompanying notes are an integral part of these financial statements.
CIVEO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY
(In Thousands)
| | | Attributable to Civeo | | | Attributable to Civeo | |
| | Preferred Shares | | Common Shares | | | | Preferred Shares | | Common Shares | | |
| | Amount | | Par Value | | Additional Paid-in Capital | | Accumulated Deficit | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interest | | Total Shareholders’ Equity | | Amount | | Par Value | | Additional Paid-in Capital | | Accumulated Deficit | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interest | | Total Shareholders’ Equity |
Balance, June 30, 2019 | $ | 57,200 | | | $ | — | | | $ | 1,567,162 | | | $ | (744,058) | | | $ | (5,472) | | | $ | (364,786) | | | $ | — | | | $ | 510,046 | | |
Balance, March 31, 2020 | | Balance, March 31, 2020 | $ | 58,597 | | | $ | — | | | $ | 1,574,457 | | | $ | (918,128) | | | $ | (6,914) | | | $ | (411,619) | | | $ | 552 | | | $ | 296,945 | |
Net income (loss) | Net income (loss) | — | | | — | | | — | | | 4,996 | | | — | | | — | | | 60 | | | 5,056 | | Net income (loss) | — | | | — | | | — | | | 6,607 | | | — | | | — | | | 222 | | | 6,829 | |
Currency translation adjustment | Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (12,096) | | | — | | | (12,096) | | Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | 29,304 | | | 81 | | | 29,385 | |
Dividends paid | Dividends paid | — | | | — | | | — | | | — | | | — | | | — | | | (60) | | | (60) | | Dividends paid | — | | | — | | | — | | | — | | | — | | | — | | | (231) | | | (231) | |
Dividends attributable to Class A preferred shares | Dividends attributable to Class A preferred shares | 464 | | | — | | | — | | | (464) | | | — | | | — | | | — | | | — | | Dividends attributable to Class A preferred shares | 471 | | | — | | | — | | | (471) | | | — | | | — | | | — | | | — | |
Share-based compensation | Share-based compensation | — | | | — | | | 2,572 | | | — | | | — | | | — | | | — | | | 2,572 | | Share-based compensation | — | | | — | | | 1,331 | | | — | | | (16) | | | — | | | — | | | 1,315 | |
Balance, September 30, 2019 | $ | 57,664 | | | $ | — | | | $ | 1,569,734 | | | $ | (739,526) | | | $ | (5,472) | | | $ | (376,882) | | | $ | — | | | $ | 505,518 | | |
Balance, June 30, 2020 | | Balance, June 30, 2020 | $ | 59,068 | | | $ | — | | | $ | 1,575,788 | | | $ | (911,992) | | | $ | (6,930) | | | $ | (382,315) | | | $ | 624 | | | $ | 334,243 | |
| Balance, June 30, 2020 | $ | 59,068 | | | $ | — | | | $ | 1,575,788 | | | $ | (911,992) | | | $ | (6,930) | | | $ | (382,315) | | | $ | 624 | | | $ | 334,243 | | |
Balance, March 31, 2021 | | Balance, March 31, 2021 | $ | 60,494 | | | $ | — | | | $ | 1,579,342 | | | $ | (917,689) | | | $ | (8,050) | | | $ | (350,606) | | | $ | 648 | | | $ | 364,139 | |
Net income (loss) | Net income (loss) | — | | | — | | | — | | | 6,989 | | | — | | | — | | | 434 | | | 7,423 | | Net income (loss) | — | | | — | | | — | | | 13 | | | — | | | — | | | (3) | | | 10 | |
Currency translation adjustment | Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | 11,103 | | | 28 | | | 11,131 | | Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (1,565) | | | (8) | | | (1,573) | |
Dividends paid | Dividends paid | — | | | — | | | — | | | — | | | — | | | — | | | (450) | | | (450) | | Dividends paid | — | | | — | | | — | | | — | | | — | | | — | | | (42) | | | (42) | |
Dividends attributable to Class A preferred shares | Dividends attributable to Class A preferred shares | 472 | | | — | | | — | | | (472) | | | — | | | — | | | — | | | — | | Dividends attributable to Class A preferred shares | 480 | | | — | | | — | | | (480) | | | — | | | — | | | — | | | — | |
Share-based compensation | Share-based compensation | — | | | — | | | 1,265 | | | — | | | — | | | — | | | — | | | 1,265 | | Share-based compensation | — | | | — | | | 871 | | | — | | | — | | | — | | | — | | | 871 | |
Balance, September 30, 2020 | $ | 59,540 | | | $ | — | | | $ | 1,577,053 | | | $ | (905,475) | | | $ | (6,930) | | | $ | (371,212) | | | $ | 636 | | | $ | 353,612 | | |
| Balance, December 31, 2018 | $ | 56,280 | | | $ | — | | | $ | 1,562,133 | | | $ | (710,551) | | | $ | (1,189) | | | $ | (371,249) | | | $ | — | | | $ | 535,424 | | |
Net income (loss) | — | | | — | | | — | | | (26,892) | | | — | | | — | | | 60 | | | (26,832) | | |
Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (5,633) | | | — | | | (5,633) | | |
Dividends paid | — | | | — | | | — | | | — | | | — | | | — | | | (60) | | | (60) | | |
Cumulative effect of implementation of ASU 2014-09 | — | | | — | | | — | | | (699) | | | — | | | — | | | — | | | (699) | | |
Dividends attributable to Class A preferred shares | 1,384 | | | — | | | — | | | (1,384) | | | — | | | — | | | — | | | — | | |
Share-based compensation | — | | | — | | | 7,601 | | | — | | | (4,283) | | | — | | | — | | | 3,318 | | |
Balance, September 30, 2019 | $ | 57,664 | | | $ | — | | | $ | 1,569,734 | | | $ | (739,526) | | | $ | (5,472) | | | $ | (376,882) | | | $ | — | | | $ | 505,518 | | |
Balance, June 30, 2021 | | Balance, June 30, 2021 | $ | 60,974 | | | $ | — | | | $ | 1,580,213 | | | $ | (918,156) | | | $ | (8,050) | | | $ | (352,171) | | | $ | 595 | | | $ | 363,405 | |
| Balance, December 31, 2019 | Balance, December 31, 2019 | $ | 58,129 | | | $ | — | | | $ | 1,572,249 | | | $ | (771,590) | | | $ | (5,472) | | | $ | (363,173) | | | $ | 662 | | | $ | 490,805 | | Balance, December 31, 2019 | $ | 58,129 | | | $ | — | | | $ | 1,572,249 | | | $ | (771,590) | | | $ | (5,472) | | | $ | (363,173) | | | $ | 662 | | | $ | 490,805 | |
Net income (loss) | Net income (loss) | — | | | — | | | — | | | (132,474) | | | — | | | — | | | 914 | | | (131,560) | | Net income (loss) | — | | | — | | | — | | | (139,463) | | | — | | | — | | | 480 | | | (138,983) | |
Currency translation adjustment | Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (8,039) | | | 14 | | | (8,025) | | Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (19,142) | | | (14) | | | (19,156) | |
Dividends paid | Dividends paid | — | | | — | | | — | | | — | | | — | | | — | | | (954) | | | (954) | | Dividends paid | — | | | — | | | — | | | — | | | — | | | — | | | (504) | | | (504) | |
Dividends attributable to Class A preferred shares | Dividends attributable to Class A preferred shares | 1,411 | | | — | | | — | | | (1,411) | | | — | | | — | | | — | | | — | | Dividends attributable to Class A preferred shares | 939 | | | — | | | — | | | (939) | | | — | | | — | | | — | | | — | |
Share-based compensation | Share-based compensation | — | | | — | | | 4,804 | | | — | | | (1,458) | | | — | | | — | | | 3,346 | | Share-based compensation | — | | | — | | | 3,539 | | | — | | | (1,458) | | | — | | | — | | | 2,081 | |
Balance, September 30, 2020 | $ | 59,540 | | | $ | — | | | $ | 1,577,053 | | | $ | (905,475) | | | $ | (6,930) | | | $ | (371,212) | | | $ | 636 | | | $ | 353,612 | | |
Balance, June 30, 2020 | | Balance, June 30, 2020 | $ | 59,068 | | | $ | — | | | $ | 1,575,788 | | | $ | (911,992) | | | $ | (6,930) | | | $ | (382,315) | | | $ | 624 | | | $ | 334,243 | |
| Balance, December 31, 2020 | | Balance, December 31, 2020 | $ | 60,016 | | | $ | — | | | $ | 1,578,315 | | | $ | (907,727) | | | $ | (6,930) | | | $ | (348,989) | | | $ | 672 | | | $ | 375,357 | |
Net income (loss) | | Net income (loss) | — | | | — | | | — | | | (9,471) | | | — | | | — | | | 56 | | | (9,415) | |
Currency translation adjustment | | Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (3,182) | | | (18) | | | (3,200) | |
Dividends paid | | Dividends paid | — | | | — | | | — | | | — | | | — | | | — | | | (115) | | | (115) | |
Dividends attributable to Class A preferred shares | | Dividends attributable to Class A preferred shares | 958 | | | — | | | — | | | (958) | | | — | | | — | | | — | | | — | |
Share-based compensation | | Share-based compensation | — | | | — | | | 1,898 | | | — | | | (1,120) | | | — | | | — | | | 778 | |
Balance, June 30, 2021 | | Balance, June 30, 2021 | $ | 60,974 | | | $ | — | | | $ | 1,580,213 | | | $ | (918,156) | | | $ | (8,050) | | | $ | (352,171) | | | $ | 595 | | | $ | 363,405 | |
| | | | | | | | | | | |
| Preferred Shares (in thousands) | | Common Shares (in thousands) |
Balance, December 31, 2019 | 9,042 | | | 169,556 | |
Share-based compensation | 0 | | | 1,026 | |
Balance, September 30, 2020 | 9,042 | | | 170,582 | |
| | | | | | | | | | | |
| Preferred Shares | | Common Shares (in thousands)(1) |
Balance, December 31, 2020 | 9,042 | | | 14,215 | |
Share-based compensation | 0 | | | 101 | |
Balance, June 30, 2021 | 9,042 | | | 14,316 | |
(1)Reflects our 1-for-12 reverse share split that became effective November 19, 2020. See Note 1 - Description of Business and Basis of Presentation to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
The accompanying notes are an integral part of these financial statements.
CIVEO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net loss | Net loss | $ | (131,560) | | | $ | (26,832) | | Net loss | $ | (9,415) | | | $ | (138,983) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | Adjustments to reconcile net loss to net cash provided by operating activities: | | Adjustments to reconcile net loss to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 72,527 | | | 92,974 | | Depreciation and amortization | 42,646 | | | 47,707 | |
Impairment charges | Impairment charges | 144,120 | | | 5,546 | | Impairment charges | 7,935 | | | 144,120 | |
Loss on extinguishment of debt | 383 | | | 0 | | |
Deferred income tax benefit | (8,941) | | | (14,732) | | |
| Deferred income tax expense (benefit) | | Deferred income tax expense (benefit) | 416 | | | (8,941) | |
Non-cash compensation charge | Non-cash compensation charge | 4,804 | | | 7,601 | | Non-cash compensation charge | 1,898 | | | 3,539 | |
Gains on disposals of assets | Gains on disposals of assets | (2,581) | | | (4,095) | | Gains on disposals of assets | (1,941) | | | (1,819) | |
Provision (benefit) for loss on receivables, net of recoveries | 45 | | | (39) | | |
Provision for credit losses, net of recoveries | | Provision for credit losses, net of recoveries | 147 | | | 25 | |
Other, net | Other, net | (2,730) | | | 2,530 | | Other, net | 1,483 | | | (3,240) | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | 5,355 | | | (30,227) | | Accounts receivable | (24,617) | | | 10,231 | |
Inventories | Inventories | 194 | | | (1,175) | | Inventories | (830) | | | (1,895) | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | 1,247 | | | 4,958 | | Accounts payable and accrued liabilities | (563) | | | (4,583) | |
Taxes payable | Taxes payable | 51 | | | 345 | | Taxes payable | 21 | | | 251 | |
Other current and noncurrent assets and liabilities, net | Other current and noncurrent assets and liabilities, net | (2,239) | | | (3,328) | | Other current and noncurrent assets and liabilities, net | 12,170 | | | (1,094) | |
Net cash flows provided by operating activities | Net cash flows provided by operating activities | 80,675 | | | 33,526 | | Net cash flows provided by operating activities | 29,350 | | | 45,318 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | |
Capital expenditures | Capital expenditures | (6,244) | | | (25,517) | | Capital expenditures | (6,530) | | | (3,847) | |
Payments related to acquisitions, net of cash acquired | 0 | | | (16,439) | | |
| Proceeds from disposition of property, plant and equipment | Proceeds from disposition of property, plant and equipment | 3,336 | | | 5,482 | | Proceeds from disposition of property, plant and equipment | 7,012 | | | 1,897 | |
Other, net | Other, net | 4,619 | | | 1,762 | | Other, net | 0 | | | 4,619 | |
Net cash flows provided by (used in) investing activities | 1,711 | | | (34,712) | | |
Net cash flows provided by investing activities | | Net cash flows provided by investing activities | 482 | | | 2,669 | |
| Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
Revolving credit borrowings | Revolving credit borrowings | 324,611 | | | 340,494 | | Revolving credit borrowings | 117,976 | | | 122,320 | |
Revolving credit repayments | Revolving credit repayments | (369,122) | | | (310,946) | | Revolving credit repayments | (130,080) | | | (147,950) | |
Term loan repayments | Term loan repayments | (31,092) | | | (26,085) | | Term loan repayments | (17,874) | | | (16,551) | |
Debt issuance costs | (2,583) | | | (1,950) | | |
| Taxes paid on vested shares | Taxes paid on vested shares | (1,458) | | | (4,283) | | Taxes paid on vested shares | (1,120) | | | (1,458) | |
Net cash flows used in financing activities | Net cash flows used in financing activities | (79,644) | | | (2,770) | | Net cash flows used in financing activities | (31,098) | | | (43,639) | |
| Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | 865 | | | (344) | | Effect of exchange rate changes on cash | (475) | | | (368) | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | 3,607 | | | (4,300) | | Net change in cash and cash equivalents | (1,741) | | | 3,980 | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 3,331 | | | 12,372 | | Cash and cash equivalents, beginning of period | 6,155 | | | 3,331 | |
| Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 6,938 | | | $ | 8,072 | | Cash and cash equivalents, end of period | $ | 4,414 | | | $ | 7,311 | |
| Non-cash financing activities: | Non-cash financing activities: | | Non-cash financing activities: | |
Preferred dividends paid-in-kind | Preferred dividends paid-in-kind | $ | 1,411 | | | $ | 1,384 | | Preferred dividends paid-in-kind | $ | 958 | | | $ | 939 | |
The accompanying notes are an integral part of these financial statements.
CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
1.DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of the Business
We are aprovide hospitality company servicingservices to the natural resources industry in Canada, Australia and the U.S. We provide a full suite of hospitality services for our guests, including lodging, catering and food service, housekeeping and maintenance at accommodation facilities that we or our customers own. In many cases, we provide services that support the day-to-day operations of accommodation facilities, such as laundry, facility management and maintenance, water and wastewater treatment, power generation, communication systems, security and logistics. We also offer development activities for workforce accommodation facilities, including site selection, permitting, engineering and design, manufacturing management and site construction, along with providing hospitality services once the facility is constructed. We primarily operate in some of the world’s most active oil, metallurgical (met) coal, liquefied natural gas (LNG) and iron ore producing regions, and our customers include major and independent oil and gas companies, mining companies, engineering companies and oilfield and mining service companies. We operate in 3 principal reportable business segments – Canada, Australia and the U.S.
Reverse Share Split
On November 19, 2020, we effected a reverse share split where each twelve issued and outstanding common shares were
converted into one common share. Our common shares began trading on a reverse share split adjusted basis on November 19, 2020. A total of 14,215,169 common shares were issued and outstanding immediately after the reverse share split. No fractional shares were outstanding following the reverse share split. In lieu of any fractional share, the aggregate number of common shares that a holder was entitled to was, if the fraction was less than half a common share, rounded down to the next closest whole number of common shares, and if the fraction was at least half of a common share, rounded up to one whole common share.
The reverse share split did not affect the number of authorized or issued and outstanding shares of our preferred shares. As a result of the reverse share split, the conversion price for the Company’s outstanding Class A Series 1 preferred shares (Series A preferred shares) was automatically increased to $39.60 for each Series A preferred share (previously it was $3.30 per Series A preferred share).
All authorized, issued and outstanding shares and per share amounts contained in the accompanying consolidated financial statements have been adjusted to reflect this reverse share split for all prior periods presented.
Basis of Presentation
Unless otherwise stated or the context otherwise indicates: (i) all references in these consolidated financial statements to “Civeo,” “us,” “our” or “we” refer to Civeo Corporation and its consolidated subsidiaries; and (ii) all references in this report to “dollars” or “$” are to U.S. dollars.
The accompanying unaudited consolidated financial statements of Civeo have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC) pertaining to interim financial information. Certain information in footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) has been condensed or omitted pursuant to those rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which Civeo considers necessary for a fair presentation of the results of operations for the interim periods covered and for the financial condition of Civeo at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year.
The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, actual amounts may differ from those included in the accompanying consolidated financial statements.
CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(continued)
The financial statements included in this report should be read in conjunction with our audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
2.RECENT ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), which are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards or other guidance updates, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.
In June 2016,December 2019, the FASB issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2016-13, “Financial Instruments – Credit Losses” (ASU 2016-13). This new standard changes how companies measure credit losses for most financial assets2019-12 remove certain exceptions to the general principles in Accounting Standards Codification Topic 740. The amendments also clarify and certain other instruments thatamend existing guidance to improve consistent application. The amendments are not measured at fair value through net income. ASU 2016-13 is effective for financial statements issued for reporting periods beginning after December 15, 20192020 and interim periods within the reporting periods. The transition method (retrospective, modified retrospective or prospective basis) related to the amendments depends on the applicable guidance, and all amendments for which there is no transition guidance specified are to be applied on a prospective basis. We adopted ASU 2016-13 as of2019-12 on January 1, 2020.2021 and have applied the prospective basis. The adoption of this new standard did not have a materialan impact on our consolidated financial statements.
CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
3.REVENUE
The following table disaggregates our revenue by our 3 reportable segments: Canada, Australia and the U.S., and major categories for the periods indicated (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Canada | Canada | | | | | | | | Canada | | | | | | | |
Accommodation revenues | Accommodation revenues | $ | 49,798 | | | $ | 79,939 | | | $ | 156,068 | | | $ | 203,774 | | Accommodation revenues | $ | 69,759 | | | $ | 40,204 | | | $ | 116,289 | | | $ | 106,270 | |
Mobile facility rental revenues | Mobile facility rental revenues | 13,135 | | | 3,048 | | | 21,715 | | | 5,648 | | Mobile facility rental revenues | 8,666 | | | 6,072 | | | 19,165 | | | 8,580 | |
Food service and other services revenues | Food service and other services revenues | 8,852 | | | 8,084 | | | 26,336 | | | 25,507 | | Food service and other services revenues | 4,856 | | | 6,710 | | | 9,712 | | | 17,484 | |
Manufacturing revenues | 0 | | | 0 | | | 0 | | | 1,014 | | |
| Total Canada revenues | Total Canada revenues | 71,785 | | | 91,071 | | | 204,119 | | | 235,943 | | Total Canada revenues | 83,281 | | | 52,986 | | | 145,166 | | | 132,334 | |
| Australia | Australia | | Australia | |
Accommodation revenues | Accommodation revenues | $ | 39,470 | | | $ | 33,056 | | | $ | 106,988 | | | $ | 92,473 | | Accommodation revenues | $ | 37,780 | | | $ | 34,933 | | | $ | 71,455 | | | $ | 67,518 | |
Food service and other services revenues | Food service and other services revenues | 25,215 | | | 14,687 | | | 63,881 | | | 14,687 | | Food service and other services revenues | 26,239 | | | 22,138 | | | 52,201 | | | 38,666 | |
Total Australia revenues | Total Australia revenues | 64,685 | | | 47,743 | | | 170,869 | | | 107,160 | | Total Australia revenues | 64,019 | | | 57,071 | | | 123,656 | | | 106,184 | |
| U.S. | U.S. | | U.S. | |
Accommodation revenues | Accommodation revenues | $ | 394 | | | $ | 1,655 | | | $ | 1,892 | | | $ | 11,354 | | Accommodation revenues | $ | 1,605 | | | $ | 242 | | | $ | 2,377 | | | $ | 1,498 | |
Mobile facility rental revenues | Mobile facility rental revenues | 3,218 | | | 6,952 | | | 13,275 | | | 21,175 | | Mobile facility rental revenues | 3,761 | | | 3,870 | | | 6,828 | | | 10,057 | |
Manufacturing revenues | Manufacturing revenues | 2,772 | | | 714 | | | 6,159 | | | 3,116 | | Manufacturing revenues | 1,499 | | | 524 | | | 1,562 | | | 3,387 | |
Food service and other services revenues | Food service and other services revenues | 3 | | | 28 | | | 37 | | | 118 | | Food service and other services revenues | 11 | | | 9 | | | 17 | | | 34 | |
Total U.S. revenues | Total U.S. revenues | 6,387 | | | 9,349 | | | 21,363 | | | 35,763 | | Total U.S. revenues | 6,876 | | | 4,645 | | | 10,784 | | | 14,976 | |
| Total revenues | Total revenues | $ | 142,857 | | | $ | 148,163 | | | $ | 396,351 | | | $ | 378,866 | | Total revenues | $ | 154,176 | | | $ | 114,702 | | | $ | 279,606 | | | $ | 253,494 | |
Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when our performance obligations are satisfied is not significant. Payment terms are generally within 30 days.days and do not extend beyond 60 days, unless otherwise agreed to. We do not have significant financing components or significant payment terms.
As of SeptemberJune 30, 2020,2021, for contracts that are greater than one year, the table below discloses the estimated revenues related to performance obligations that are unsatisfied (or partially unsatisfied) and when we expect to recognize the revenue. The table only includes revenue expected to be recognized from contracts where the quantity of service is certain (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ending December 31, |
| 2020 | | 2021 | | 2022 | | Thereafter | | Total |
Revenue expected to be recognized as of September 30, 2020 | $ | 33,002 | | | $ | 61,031 | | | $ | 29,120 | | | $ | 11,820 | | | $ | 134,973 | |
CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ending December 31, |
| 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Revenue expected to be recognized as of June 30, 2021 | $ | 53,065 | | | $ | 81,244 | | | $ | 14,253 | | | $ | 2,008 | | | $ | 150,570 | |
We applied the practical expedient and do not disclose consideration for remaining performance obligations with an original expected duration of one year or less. In addition, we do not estimate revenues expected to be recognized related to unsatisfied performance obligations for contracts without minimum room commitments. The table above represents only a portion of our expected future consolidated revenues and it is not necessarily indicative of the expected trend in total revenues.
4.FAIR VALUE MEASUREMENTS
Our financial instruments consist of cash and cash equivalents, receivables, payables and debt instruments. We believe that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values.
As of SeptemberJune 30, 20202021 and December 31, 2019,2020, we believe the carrying value of our floating-rate debt outstanding under our term loans and revolving credit facilities approximates fair value because the terms include short-term interest rates and exclude penalties for prepayment. We estimated the fair value of our floating-rate term loan and revolving credit facilities using significant other observable inputs, representative of a Level 2 fair value measurement, including terms and credit spreads for these loans.
During the first quarter of 2020, and the second and fourth quarters of 2019, we wrote down certain long-lived assets to fair value. We also recorded goodwill impairment charges related to one of our reporting units during the first quarter of 2020 and one of our reporting units during the fourth quarter of 2019.units. Our estimates of fair value required us to use significant unobservable inputs, representative of Level 3 fair value measurements, including numerous assumptions with respect to future
CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
circumstances that might directly impact each of the relevant asset groups’ operations in the future and are therefore uncertain. We estimated the fair value when conducting the goodwill impairment and long-lived asset impairment tests primarily using an income approach. The discount rates used to value our reporting units for the interim goodwill impairment test, as well as the Canadian and U.S. segments long-lived asset impairment analysis ranged between 10.5% and 14.0%. These assumptions with respect to future circumstances included future cash flows, oil, met coal and natural gas prices, anticipated spending by our customers, the cost of capital, and industry and/or local market conditions. DuringWe estimated the fourth quarter of 2019, our estimate of fair value of corporate office space in Canadawhen conducting the goodwill impairment test primarily using an income approach. The discount rates used to value our reporting units for the goodwill impairment test ranged between 10.5% and during14.0%.
During the second quarter of 2019,2021 and the first quarter of 2020, we wrote down certain long-lived assets to fair value. During the first quarter of 2020, we estimated the fair value when conducting the long-lived asset impairment tests primarily using an income approach. We used a variety of unobservable inputs and underlying assumptions consistent with those discussed above for purposes of our goodwill impairment test. The discount rates used to value our Canadian and U.S. segments long-lived asset impairment analysis ranged between 11.0% and 14.0%. During the second quarter of 2021, our estimate of the fair value of undeveloped land positions in Australia that were impaired was based on appraisals from third parties.
See Note 6 – Impairment Charges for further information.
During the third quarter of 2019, we acquired Action Industrial Catering (Action) and recorded the assets acquired and liabilities assumed at fair value. Determining the fair value of these assets and liabilities required the exercise of significant judgment, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. The cash flows employed in the valuation are based on our best estimates of future sales, earnings and cash flows after considering factors such as general market conditions, expected future customer orders, contracts with suppliers, labor costs, changes in working capital, long-term business plans and recent operating performance. See Note 7 – Acquisitions for further information.
5.DETAILS OF SELECTED BALANCE SHEET ACCOUNTS
Additional information regarding selected balance sheet accounts at SeptemberJune 30, 20202021 and December 31, 20192020 is presented below (in thousands):
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
Accounts receivable, net: | Accounts receivable, net: | | | | Accounts receivable, net: | | | |
Trade | Trade | $ | 68,848 | | | $ | 76,370 | | Trade | $ | 82,844 | | | $ | 66,071 | |
Unbilled revenue | Unbilled revenue | 21,819 | | | 23,041 | | Unbilled revenue | 31,716 | | | 22,565 | |
Other (1) | Other (1) | 2,357 | | | 335 | | Other (1) | 7 | | | 1,421 | |
Total accounts receivable | Total accounts receivable | 93,024 | | | 99,746 | | Total accounts receivable | 114,567 | | | 90,057 | |
Allowance for credit losses | Allowance for credit losses | (270) | | | (253) | | Allowance for credit losses | (380) | | | (275) | |
Total accounts receivable, net | Total accounts receivable, net | $ | 92,754 | | | $ | 99,493 | | Total accounts receivable, net | $ | 114,187 | | | $ | 89,782 | |
CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
(1)
As of September 30,December 31, 2020, Other accounts receivable includes a $2.4included $1.1 million receivable related to the Canada Emergency Wage Subsidy (CEWS), a subsidy implemented by the Canadian government in response to the COVID-19 pandemic. For the three months ended June 30, 2021 and 2020, Other income related to the CEWS duringwas $0.7 million and $6.2 million, respectively. For the three and ninesix months ended SeptemberJune 30, 2021 and 2020, Other income related to the CEWS was $3.6$3.5 million and $9.7$6.2 million, respectively.
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
Inventories: | Inventories: | | | | Inventories: | | | |
Finished goods and purchased products | Finished goods and purchased products | $ | 4,538 | | | $ | 3,982 | | Finished goods and purchased products | $ | 5,330 | | | $ | 5,047 | |
Work in process | Work in process | 18 | | | 813 | | Work in process | 337 | | | 45 | |
Raw materials | Raw materials | 1,219 | | | 1,082 | | Raw materials | 1,291 | | | 1,089 | |
Total inventories | Total inventories | $ | 5,775 | | | $ | 5,877 | | Total inventories | $ | 6,958 | | | $ | 6,181 | |
CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Estimated Useful Life (in years) | | June 30, 2021 | | December 31, 2020 |
Property, plant and equipment, net: | | | | | | | | | |
Land | | | | | | | $ | 40,723 | | | $ | 47,751 | |
Accommodations assets | 3 | | — | | 15 | | 1,718,621 | | | 1,737,620 | |
Buildings and leasehold improvements | 7 | | — | | 20 | | 28,471 | | | 28,831 | |
Machinery and equipment | 4 | | — | | 15 | | 13,541 | | | 12,784 | |
Office furniture and equipment | 3 | | — | | 7 | | 63,556 | | | 61,850 | |
Vehicles | 3 | | — | | 5 | | 14,467 | | | 15,363 | |
Construction in progress | | | | | | | 6,443 | | | 5,523 | |
Total property, plant and equipment | | | | | | | 1,885,822 | | | 1,909,722 | |
Accumulated depreciation | | | | | | | (1,443,003) | | | (1,422,792) | |
Total property, plant and equipment, net | | | | | | | $ | 442,819 | | | $ | 486,930 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Estimated Useful Life (in years) | | September 30, 2020 | | December 31, 2019 |
Property, plant and equipment, net: | | | | | | | | | |
Land | | | | | | | $ | 47,049 | | | $ | 43,147 | |
Accommodations assets | 3 | | — | | 15 | | 1,651,178 | | | 1,696,425 | |
Buildings and leasehold improvements | 7 | | — | | 20 | | 33,714 | | | 26,108 | |
Machinery and equipment | 4 | | — | | 15 | | 12,110 | | | 12,060 | |
Office furniture and equipment | 3 | | — | | 7 | | 59,432 | | | 58,005 | |
Vehicles | 3 | | — | | 5 | | 14,711 | | | 14,604 | |
Construction in progress | | | | | | | 5,551 | | | 4,286 | |
Total property, plant and equipment | | | | | | | 1,823,745 | | | 1,854,635 | |
Accumulated depreciation | | | | | | | (1,342,351) | | | (1,264,326) | |
Total property, plant and equipment, net | | | | | | | $ | 481,394 | | | $ | 590,309 | |
During the second quarterAs of December 31, 2020, we reclassified $6.6 million of assets held for sale back into property,included $3.9 million related to our modular construction and manufacturing plant and equipment due to no longer meetingnear Edmonton, Alberta, Canada. During the accounting requirementsfirst quarter 2021, the manufacturing facility was sold. As of June 30, 2021, assets held for sale assets.included $2.2 million related to various non-operational land holdings in Australia.
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
Accrued liabilities: | Accrued liabilities: | | | | Accrued liabilities: | | | |
Accrued compensation | Accrued compensation | $ | 17,350 | | | $ | 17,169 | | Accrued compensation | $ | 18,898 | | | $ | 22,475 | |
Accrued taxes, other than income taxes | Accrued taxes, other than income taxes | 3,113 | | | 3,152 | | Accrued taxes, other than income taxes | 3,534 | | | 3,099 | |
| Other | Other | 1,766 | | | 1,434 | | Other | 1,551 | | | 1,775 | |
Total accrued liabilities | Total accrued liabilities | $ | 22,229 | | | $ | 21,755 | | Total accrued liabilities | $ | 23,983 | | | $ | 27,349 | |
6.IMPAIRMENT CHARGES
Quarter ended June 30, 2021. During the second quarter of 2021, we recorded impairment expense of $7.9 million related to various undeveloped land positions and related permitting costs in Australia. At June 30, 2021, we identified an impairment trigger related to certain of these properties due to the cancellation of a significant thermal coal project in Australia and our negative expectations related to other possible Australian thermal coal projects becoming viable in the near term. Accordingly, the assets were written down to their estimated fair value of $2.4 million. As of June 30, 2021, we concluded certain of the undeveloped land positions met the criteria to be classified as held for sale.
Quarter ended March 31, 2020. During the first quarter of 2020, we recorded impairment expense related to goodwill and long-lived assets.
The spread of the COVID-19 coronavirus (COVID-19) and the response thereto during the first quarter of 2020 negatively impacted the global economy. The resulting unprecedented decline in oil demand, coupled with disagreements between Saudi Arabia and Russia about production limits, resulted in a collapse of global oil prices in March 2020, thereby creating unprecedented downward pressure on stock prices in the energy industry, particularly small-cap companies with
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NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
operations in the U.S. and Canada, such as Civeo. As a result, we experienced a sustained reduction of our share price during the first quarter of 2020. Our market capitalization implied an enterprise value which was significantly less than the sum of the estimated fair values of our reporting units, and we determined that an indicator of a goodwill impairment was present as of March 31, 2020. Accordingly, we performed an interim goodwill impairment test as of March 31, 2020, and the carrying amount of our Canadian reporting unit exceeded the reporting unit's fair value. Based on the results of the impairment test, we reduced the value of our goodwill in our Canadian reporting unit to 0 and recognized impairment expense in the first quarter of 2020 of $93.6 million.
Furthermore, as a result of the decline in global oil prices and forecasts for a potentially protracted period of lower prices, as well as the goodwill impairment in our Canadian segment, we determined all asset groups within this segment had experienced a trigger that indicated that the carrying values might not be recoverable. Accordingly, we assessed the carrying value of each asset group to determine if it continued to be recoverable based on estimated future cash flows. Based on the assessment, the carrying values of certain asset groups were determined to not be fully recoverable, and we proceeded to compare the estimated fair value of these asset groups to their respective carrying values. As a result, certain asset groups were written down to their estimated fair values of $43.5 million and we recorded impairment expense of $38.1 million related to certain long-lived assets in our Canadian segment.
Also, as a result of the decline in global oil prices and forecasts for a potentially protracted period of lower prices, we reviewed all asset groups in our U.S. segment to determine if an indicator of impairment had occurred that would indicate that the carrying values of the asset groups in the segment might not be recoverable. We determined that certain asset groups within the segment had experienced an indicator of impairment, and thus we assessed the carrying values of our long-lived assets in
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NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
the U.S. to determine if they continued to be recoverable based on estimated future cash flows. Based on the assessment, the carrying values of certain of our U.S. asset groups were determined to not be recoverable, and we proceeded to compare the estimated fair values of the asset groups to their respective carrying values. Accordingly, these assets were written down to their estimated fair values of $12.5 million. We recorded impairment expense of $12.4 million during the first quarter of 2020 related to our U.S. segment.
Quarter ended June 30, 2019. During the second quarter of 2019, we identified indicators that certain long-lived assets in Australia may be impaired due to market developments, including the non-renewal of certain land development approval agreements. We assessed the carrying values of the related assets to determine if they continued to be recoverable based on estimated future cash flows. Based on the assessment, the carrying values were determined to not be fully recoverable, and we proceeded to compare the estimated fair value of the assets to their respective carrying values. Accordingly, the assets were written down to their estimated fair values of $0.5 million. As a result of the analysis described above, we recorded impairment expense of $4.5 million.
Additionally, during the second quarter of 2019, we identified a liability related to an asset retirement obligation (ARO) at one of our villages in Australia that should have been recorded in 2011. We determined that the error was not material to our previously issued financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, and therefore, corrected the error in the second quarter of 2019. Specifically, we recorded the following amounts in the second quarter 2019 unaudited consolidated statement of operations related to prior periods: (i) additional accretion expense related to the ARO of $0.9 million, (ii) additional depreciation and amortization expense of $0.5 million related to amortization of the related asset retirement cost and (iii) additional impairment expense related to the impairment of the asset retirement cost of $1.0 million offset by recognition of an ARO liability totaling $2.3 million as of June 30, 2019.
7.ACQUISITIONS
Action
On July 1, 2019, we acquired Action, a provider of catering and managed services to the mining industry in Western Australia. We funded the purchase price of $16.9 million in cash through a combination of cash on hand and borrowings under our revolving credit facility. Action's operations are reported as part of our Australia reporting business segment beginning on July 1, 2019, the date of acquisition.
This acquisition was accounted for in accordance with the acquisition method of accounting for business combinations, which required us to record the assets acquired and the liabilities assumed at their fair values at July 1, 2019. Our estimates of the fair value for such assets and liabilities required significant assumptions and judgment. Based on the final purchase price allocation, intangible assets acquired totaled $8.4 million and consisted primarily of customer contracts and a trade name. In addition, we recognized goodwill of $7.9 million.
Noralta
On April 2, 2018, we acquired Noralta Lodge Ltd. (Noralta). During the second quarter of 2020, $5.0 million in cash was released to us from escrow to cover certain agreed upon indemnification claims. As a result of this settlement, we recorded $4.7 million in Other income in the accompanying unaudited consolidated statements of operations for the nine months ended September 30, 2020.
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NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
8.EARNINGS PER SHARE
As previously disclosed in Note 1 - Description of Business and Basis of Presentation, a 1-for-12 reverse share split became effective on November 19, 2020 for all authorized, issued and outstanding shares of Civeo common shares. Accordingly, all share and per share amounts have been adjusted to reflect this reverse stock split for all prior periods presented.
We calculate basic and diluted earnings per share by applying the two-class method because we have participating securities in the form of Class A preferred shares. Participating securities are allocated a proportional share of net income determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities. We also apply the treasury stock method with respect to certain share-based awards in the calculation of diluted earnings per share, if dilutive.
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NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
The calculation of earnings per share attributable to Civeo common shareholders is presented below for the periods indicated (in thousands, except per share amounts):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Numerator: | Numerator: | | | | | | | | Numerator: | | | | | | | |
Net income (loss) attributable to Civeo common shareholders | $ | 6,517 | | | $ | 4,532 | | | $ | (133,885) | | | $ | (28,276) | | |
Net (loss) income attributable to Civeo common shareholders | | Net (loss) income attributable to Civeo common shareholders | $ | (467) | | | $ | 6,136 | | | $ | (10,429) | | | $ | (140,402) | |
Less: income allocated to participating securities | Less: income allocated to participating securities | (944) | | | (653) | | | 0 | | | 0 | | Less: income allocated to participating securities | 0 | | | (886) | | | 0 | | | 0 | |
Basic net income (loss) attributable to Civeo Corporation common shareholders | Basic net income (loss) attributable to Civeo Corporation common shareholders | $ | 5,573 | | | $ | 3,879 | | | $ | (133,885) | | | $ | (28,276) | | Basic net income (loss) attributable to Civeo Corporation common shareholders | $ | (467) | | | $ | 5,250 | | | $ | (10,429) | | | $ | (140,402) | |
Add: undistributed income attributable to participating securities | Add: undistributed income attributable to participating securities | 944 | | | 653 | | | 0 | | | 0 | | Add: undistributed income attributable to participating securities | 0 | | | 886 | | | 0 | | | 0 | |
Less: undistributed income reallocated to participating securities | Less: undistributed income reallocated to participating securities | (942) | | | (651) | | | 0 | | | 0 | | Less: undistributed income reallocated to participating securities | 0 | | | (885) | | | 0 | | | 0 | |
Diluted net income (loss) attributable to Civeo Corporation common shareholders | Diluted net income (loss) attributable to Civeo Corporation common shareholders | $ | 5,575 | | | $ | 3,881 | | | $ | (133,885) | | | $ | (28,276) | | Diluted net income (loss) attributable to Civeo Corporation common shareholders | $ | (467) | | | $ | 5,251 | | | $ | (10,429) | | | $ | (140,402) | |
| Denominator: | Denominator: | | Denominator: | |
Weighted average shares outstanding - basic | Weighted average shares outstanding - basic | 169,924 | | | 167,640 | | | 169,420 | | | 166,842 | | Weighted average shares outstanding - basic | 14,278 | | | 14,151 | | | 14,244 | | | 14,097 | |
Dilutive shares - share-based awards | Dilutive shares - share-based awards | 620 | | | 642 | | | 0 | | | 0 | | Dilutive shares - share-based awards | 0 | | | 15 | | | 0 | | | 0 | |
Weighted average shares outstanding - diluted | Weighted average shares outstanding - diluted | 170,544 | | | 168,282 | | | 169,420 | | | 166,842 | | Weighted average shares outstanding - diluted | 14,278 | | | 14,166 | | | 14,244 | | | 14,097 | |
| Basic net income (loss) per share attributable to Civeo Corporation common shareholders (1) | $ | 0.03 | | | $ | 0.02 | | | $ | (0.79) | | | $ | (0.17) | | |
Basic net loss per share attributable to Civeo Corporation common shareholders (1) | | Basic net loss per share attributable to Civeo Corporation common shareholders (1) | $ | (0.03) | | | $ | 0.37 | | | $ | (0.73) | | | $ | (9.96) | |
| Diluted net income (loss) per share attributable to Civeo Corporation common shareholders (1) | $ | 0.03 | | | $ | 0.02 | | | $ | (0.79) | | | $ | (0.17) | | |
Diluted net loss per share attributable to Civeo Corporation common shareholders (1) | | Diluted net loss per share attributable to Civeo Corporation common shareholders (1) | $ | (0.03) | | | $ | 0.37 | | | $ | (0.73) | | | $ | (9.96) | |
(1)Computations may reflect rounding adjustments.
For the three months ended SeptemberJune 30, 2020, and 2019, we excluded 2.4 million and 4.50.3 million share-based awards respectively, from the computation of diluted earnings per share because their effect was anti-dilutive. When an entity has a net loss from continuing operations, it is prohibited from including potential common shares in the computation of diluted per share amounts. For the ninethree months ended SeptemberJune 30, 20202021 and 2019,the six months ended June 30, 2021 and 2020, we excluded from the computation of diluted loss per share 4.90.1 million, 0.2 million and 6.90.4 million share-based awards, respectively, since the effect would have been anti-dilutive. Additionally, for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, we excluded from the computation the impact of converting the Preferred Shares into 28.82.4 million and 28.22.4 million common shares, respectively, since the effect would have been anti-dilutive.
CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
9.8.DEBT
As of SeptemberJune 30, 20202021 and December 31, 2019,2020, long-term debt consisted of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Canadian term loan, which matures on May 30, 2023; 3.125% of aggregate principal repayable per quarter; weighted average interest rate of 4.0% for the nine month period ended September 30, 2020 | $ | 187,371 | | | $ | 224,963 | |
| | | |
U.S. revolving credit facility, which matures on May 30, 2023, weighted average interest rate of 5.6% for the nine month period ended September 30, 2020 | 0 | | | 0 | |
| | | |
Canadian revolving credit facility, which matures on May 30, 2023, weighted average interest rate of 4.2% for the nine month period ended September 30, 2020
| 55,478 | | | 134,117 | |
| | | |
Australian revolving credit facility, which matures on May 30, 2023, weighted average interest rate of 3.6% for the nine month period ended September 30, 2020 | 29,697 | | | 0 | |
| 272,546 | | | 359,080 | |
Less: Unamortized debt issuance costs | 2,692 | | | 2,208 | |
Total debt | 269,854 | | | 356,872 | |
Less: Current portion of long-term debt, including unamortized debt issuance costs, net | 32,978 | | | 35,080 | |
Long-term debt, less current maturities | $ | 236,876 | | | $ | 321,792 | |
We did not have any capitalized interest to net against interest expense for the three and nine months ended September 30, 2020 or 2019. | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Canadian term loan, which matures on May 30, 2023; C$11.2 million principal repayable per quarter; weighted average interest rate of 4.0% for the six month period ended June 30, 2021 | $ | 174,636 | | | $ | 187,530 | |
| | | |
U.S. revolving credit facility, which matures on May 30, 2023; weighted average interest rate of 5.8% for the six month period ended June 30, 2021 | 0 | | | 0 | |
| | | |
Canadian revolving credit facility, which matures on May 30, 2023; weighted average interest rate of 4.5% for the six month period ended June 30, 2021 | 44,697 | | | 45,789 | |
| | | |
Australian revolving credit facility, which matures on May 30, 2023; weighted average interest rate of 3.6% for the six month period ended June 30, 2021 | 7,500 | | | 17,767 | |
| 226,833 | | | 251,086 | |
Less: Unamortized debt issuance costs | 2,012 | | | 2,501 | |
Total debt | 224,821 | | | 248,585 | |
Less: Current portion of long-term debt, including unamortized debt issuance costs, net | 35,593 | | | 34,585 | |
Long-term debt, less current maturities | $ | 189,228 | | | $ | 214,000 | |
Amended Credit Agreement
As of December 31, 2019,June 30, 2021, our Credit Agreement as(as then amended to date, the Credit Agreement) provided for: (i) a $263.5$167.3 million revolving credit facility scheduled to mature on NovemberMay 30, 2021 for certain lenders,2023, allocated as follows: (A) a $20.0$10.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (B) a $183.5$122.3 million senior secured revolving credit facility in favor of Civeo and certain of our Canadian subsidiaries, as borrowers; and (C) a $60.0$35.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) a $285.4$194.8 million term loan facility scheduled to mature on NovemberMay 30, 20212023 for certain lenders in favor of Civeo.
On September 3, 2020, the third amendment to the Credit Agreement (as so amended, the Amended Credit Agreement) became effective, which, among other things:
•Extended the maturity date by 18 months of the commitments and loans of each lender remaining a lender following the effectiveness of the Amended Credit Agreement to May 30, 2023. Certain lenders are not extending the maturity date of their commitments and loans; the loans of the non-extending lenders were paid in full primarily with borrowings under the facility, and their commitments terminated on the date the Amended Credit Agreement became effective.
•Increased the margin applicable to loans and the commitment fee payable on the commitments of the lenders. Prior to entering into the Amended Credit Agreement, (i) the margin applicable to Eurocurrency loans, BBSY rate loans and B/A loans ranged from 2.25% to 4.00%, (ii) the margin applicable to ABR loans, Canadian Prime rate loans and U.S. Base rate loans ranged from 1.25% to 3.00% and (iii) the commitment fee ranged from 0.51% to 0.90%, in each case increasing as the total leverage ratio of the parent borrower and its subsidiaries increased from less than 2.00 to 1.00 to greater than 4.00 to 1.00. Following entry into the Amended Credit Agreement, these ranges have increased to (i) 3.50% to 4.50%, (ii) 2.50% to 3.50% and (iii) 0.875% to 1.125%, respectively, in each case as the total leverage ratio increases from less than 2.50 to 1.00 to greater than 3.50 to 1.00.
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NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
•Decreased (i) the U.S. revolving commitments from $20.0 million to $10.0 million, (ii) the maximum permitted amount of U.S. L/C exposure from $15.0 million to $10.0 million to match the reduction in the U.S. revolving commitments, (iii) the Canadian revolving commitments from $183.5 million to $122.3 million and (iv) the Australian revolving commitments from $60.0 million to $35.0 million.
We are required to maintain, if a qualified offering of indebtedness with gross proceeds in excess of $150 million has been consummated, a maximum leverage ratio of 4.00 to 1.00 and, if such qualified offering has not been consummated, a maximum leverage ratio not to exceed the ratios set forth in the following table:
| | | | | | | | |
Period Ended | Maximum Leverage Ratio |
September 30, 2020 | 3.75 : | 1.00 |
December 31, 2020 and thereafter | 3.50 : | 1.00 |
U.S. dollar amounts outstanding under the facilities provided by the Amended Credit Agreement bear interest at a variable rate equal to the London Inter-Bank Offered Rate (LIBOR) plus a margin of 3.50% to 4.50%, or a base rate plus 2.50% to 3.50%, in each case based on a ratio of our total debt to consolidated EBITDA (as defined in the Amended Credit Agreement). Canadian dollar amounts outstanding bear interest at a variable rate equal to a B/ABankers’ Acceptance Discount Rate (as defined in the Amended Credit Agreement) based on the Canadian Dollar Offered Rate (CDOR) plus a margin of 3.50% to 4.50%, or a Canadian Prime rate plus a margin of 2.50% to 3.50%, in each case based on a ratio of our total debt to consolidated EBITDA. Australian dollar amounts outstanding under the Amended Credit Agreement bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 3.50% to 4.50%, based on a ratio of our total debt to consolidated EBITDA. The future transitions from LIBOR and CDOR as interest rate benchmarks isare addressed in the Amended Credit Agreement and at such time the transition from LIBOR or CDOR takes place, we will endeavor with the administrative agent to establish an alternate rate of interest to LIBOR or CDOR that gives due consideration to (1) the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time for the replacement of LIBOR and (2) any evolving or then existing convention for similar Canadian Dollar denominated syndicated credit facilities for the replacement of CDOR.
The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict: (i) indebtedness, liens and fundamental changes; (ii) asset sales; (iii) acquisitions of margin stock; (iv) specified acquisitions; (v) certain restrictive agreements; (vi) transactions with affiliates; and (vii) investments and other restricted payments, including dividends and other distributions. In addition, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.03.00 to 1.01.00 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA, of no greater than 3.753.50 to 1.0 (as of September 30, 2020). As noted above, the permitted maximum leverage ratio decreases to 3.5 to 1.0 beginning December 31, 2020.1.00. Following a qualified offering of indebtedness with gross proceeds in excess of $150$150.0 million, we will be required to maintain a maximum leverage ratio of no greater than 4.00 to 1.00 and a maximum senior secured ratio less than 2.50 to 1.0.1.00. Each of the factors considered in the calculations of these ratios are defined in the Amended Credit Agreement. EBITDA and consolidated interest, as defined, exclude goodwill and asset impairments, debt
CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
discount amortization, amortization of intangibles and other non-cash charges. We were in compliance with our covenants as of SeptemberJune 30, 2020.2021.
Borrowings under the Amended Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries.subsidiaries subject to customary exceptions. The obligations under the Amended Credit Agreement are guaranteed by our significant subsidiaries. As of SeptemberJune 30, 2020,2021, we had 8 lenders that were parties to the Amended Credit Agreement, with total commitments (including both revolving commitments and term commitments) ranging from $22.4 million to $71.1 million. As of SeptemberJune 30, 2020,2021, we had outstanding letters of credit of $0.3$0.9 million under the U.S. facility, $0.5 million0 under the Australian facility and $2.6$2.1 million under the Canadian facility.
As of June 30, 2021, we had 1 bank guarantee facility totaling A$1.0 million. We had bank guarantees of A$0.8 million outstanding under the facility as of June 30, 2021.
10.9.INCOME TAXES
Our operations are conducted through various subsidiaries in a number of countries throughout the world. We have provided for income taxes based upon the tax laws and rates in the countries in which operations are conducted and income is earned.
We operate in three jurisdictions, Canada, Australia and the U.S., where statutory tax rates range from 21% to 30%. Our effective tax rate will vary from period to period based on changes in earnings mix between these different jurisdictions.
CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
We compute our quarterly taxes under the effective tax rate method by applying an anticipated annual effective rate to our year-to-date income, except for significant unusual or extraordinary transactions. Income taxes for any significant and unusual or extraordinary transactions are computed and recorded in the period in which the specific transaction occurs. As of SeptemberJune 30, 2021 and 2020, Canada and the U.S. were considered loss jurisdictions for tax accounting purposes and were removed from the annual effective tax rate computation for purposes of computing the interim tax provision. As
Our income tax benefit for the three months ended June 30, 2021 totaled $0.5 million, or 102.1% of Septemberpretax loss, compared to tax expense of $0.1 million, or 1.8% of pretax income, for the three months ended June 30, 2019,2020. Our effective tax rate for both the three months ended June 30, 2021 and June 30, 2020 was impacted by considering Canada and the U.S. was considered a loss jurisdiction for tax accounting purposes and wasjurisdictions that were removed from the 2019 annual effective tax rate computation for purposes of computing the interim tax provision.
Our income tax expense for the three months ended September 30, 2020 totaled $0.2 million, or 2.4% of pretax loss, compared to a benefit of $6.6 million, or 421.4% of pretax income, for the three months ended September 30, 2019. For the three months ended September 30, 2020, we recorded a tax expense of $0.1 million related to foreign withholding and U.S. state income taxes. Additionally, the effective tax rate for the three months ended September 30, 2019 was impacted by a tax benefit of $3.0 million related to a reduction in the Alberta, Canada income tax rate, as well as a $2.1 million tax benefit related to the change in the valuation allowance in Australia resulting from the acquisition of Action. Under ASC 740-270, "Accounting for Income Taxes," the quarterly tax provision is based on our current estimate of the annual effective tax rate less the prior quarter's year-to-date provision.
Our income tax benefitexpense for the ninesix months ended SeptemberJune 30, 20202021 totaled $8.5$0.6 million, or 6.1%(6.6)% of pretax loss, compared to a benefit of $14.0$8.7 million, or 34.2%5.9% of pretax loss, for the ninesix months ended SeptemberJune 30, 2019.2020. Our effective tax rate for the ninesix months ended SeptemberJune 30, 2021 and June 30, 2020 was impacted by considering Canada and the U.S. loss jurisdictions. Additionally, althoughAlthough Australia was not considered a loss jurisdiction for the ninesix months ended SeptemberJune 30, 2020, our effective tax rate was impacted by utilization of deferred tax assets and a release of the corresponding valuation allowance in Australia, resulting in no income tax expense for that jurisdiction. ForAdditionally, our effective tax rate for the ninesix months ended SeptemberJune 30, 2020 we recordedwas impacted by a deferred tax benefit of $9.0$9.6 million offset by a valuation allowancean increase of $0.1$0.7 million against the Canadian net deferred tax assets. Our effective tax rate for the nine months ended September 30, 2019 was impacted by a reduction in the Alberta, Canada income tax rate, as well as a change in the valuation allowance in Australia resulting from the acquisition of Action.Canada.
11.10.COMMITMENTS AND CONTINGENCIES
We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including warranty and product liability claims as a result of our products or operations. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.
12.11.ACCUMULATED OTHER COMPREHENSIVE LOSS
Our accumulated other comprehensive loss increased $8.0$3.2 million from $363.2$349.0 million at December 31, 20192020 to $371.2$352.2 million at SeptemberJune 30, 2020,2021, as a result of foreign currency exchange rate fluctuations. Changes in other comprehensive loss during the ninefirst six months of 20202021 were primarily driven by the Australian dollar increasingdecreasing in value compared to the U.S. dollar, partially offset by the Canadian dollar decreasingincreasing in value compared to the U.S. dollar. Excluding intercompany balances, our Canadian dollar and Australian dollar functional currency net assets totaled approximately C$0.2 billion166 million and A$0.3 billion,280 million, respectively, at SeptemberJune 30, 2020.2021.
CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
13.GOODWILL
Changes in the carrying amount of goodwill from December 31, 2019 to September 30, 2020 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Canada | | Australia | | U.S. | | Total |
Goodwill, net of $19.9 million accumulated impairment loss as of December 31, 2019 | $ | 102,238 | | | $ | 7,935 | | | $ | 0 | | | $ | 110,173 | |
Foreign currency translation | (8,632) | | | 151 | | | 0 | | | (8,481) | |
Goodwill impairment (1) | (93,606) | | | 0 | | | 0 | | | (93,606) | |
Goodwill, net of $113.5 million accumulated impairment loss as of September 30, 2020 | $ | 0 | | | $ | 8,086 | | | $ | 0 | | | $ | 8,086 | |
(1)See Note 6 – Impairment Charges for further information.
14.12.SHARE-BASED COMPENSATION
Certain key employees and non-employee directors participate in the Amended and Restated 2014 Equity Participation Plan of Civeo Corporation (the Civeo Plan). The Civeo Plan authorizes our Board of Directors and the Compensation Committee of our Board of Directors to approve grants of options, awards of restricted shares, performance awards, phantom share awards and dividend equivalents, awards of deferred shares, and share payments to our employees and non-employee directors. No more than 28.72.4 million Civeo common shares are authorized to be issued under the Civeo Plan.
Outstanding Awards
Restricted Share Awards / Restricted Share Units / Deferred Share Awards. On May 19, 2021, we granted 45,762 restricted share awards to our non-employee directors, which vest in their entirety on May 19, 2022.
Compensation expense associated with restricted share awards, restricted share units and deferred share awards recognized in the three months ended SeptemberJune 30, 2021 and 2020 and 2019 totaled $0.7$0.3 million and $1.5$0.8 million, respectively. Compensation expense associated with restricted share awards, restricted share units and deferred share awards recognized in the ninesix months ended SeptemberJune 30, 2021 and 2020 and 2019 totaled $2.7$0.8 million and $4.3$2.0 million, respectively. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during the three months ended SeptemberJune 30, 2021 and 2020 was 0 and 2019 was less than $0.1 million.$0.2 million, respectively. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during the ninesix months ended SeptemberJune 30, 2021 and 2020 was $1.5 million and 2019 was $2.6 million, and $4.0 million, respectively.
At SeptemberJune 30, 2020,2021, unrecognized compensation cost related to restricted share awards, restricted share units and deferred share awards was $2.0$1.2 million, which is expected to be recognized over a weighted average period of 1.00.8 years.
Phantom Share Awards. On February 25, 2020,22, 2021, we granted 3,741,094270,079 phantom share awards under the Civeo Plan, which vest in three equal annual installments beginning on February 25, 2021.22, 2022. We also granted 1,221,72581,774 phantom share awards under the Canadian Long-Term Incentive Plan, which vest in three equal annual installments beginning on February 25, 2021.22, 2022.
During the three months ended SeptemberJune 30, 20202021 and 2019,2020, we recognized compensation expense associated with phantom shares totaling $0.5$1.4 million and $0.1$0.4 million, respectively. During the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, we recognized compensation expense associated with phantom shares totaling $1.2$2.9 million and $3.5$0.7 million, respectively. At SeptemberJune 30, 2020,2021, unrecognized compensation cost related to phantom shares was $2.9$9.6 million, as remeasured at SeptemberJune 30, 2020,2021, which is expected to be recognized over a weighted average period of 2.32.2 years.
Performance Awards. On February 22, 2021, we granted 129,754 performance awards under the Civeo Plan, which cliff vest in three years on February 22, 2024. These awards will be earned in amounts between 0% and 200% of the participant’s target performance share award, based on (1) the payout percentage associated with Civeo’s relative total shareholder return rank among a peer group that includes 17 other companies and (2) the payout percentage associated with Civeo's cumulative free cash flow over the performance period relative to a preset target. The portion of the performance awards tied to cumulative free cash flow includes a performance-based vesting requirement. The fair value of these awards is based on the closing market price of our common shares on the date of grant. We evaluate the probability of achieving the performance criteria throughout the performance period and will adjust share-based compensation expense based on the number of shares expected to vest based on our estimate of the most probable performance outcome. The ultimate payout of the cumulative free cash flow component of the award can vary from 0% to 60% based on actual results.
During the three months ended SeptemberJune 30, 20202021 and 2019,2020, we recognized compensation expense associated with performance awards totaling $0.6 million and $1.1$0.6 million, respectively. During the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, we recognized compensation expense associated with performance awards totaling $2.1$1.1 million and $3.3$1.5 million, respectively. The total fair value of performance share awards that vested during the three months ended SeptemberJune 30, 20202021 and 20192020 was 0. The total fair value of performance share awards that vested during the ninesix months ended SeptemberJune 30, 20202021 and 20192020 was $1.9 million and $10.1$1.9 million, respectively. At June 30, 2021, unrecognized compensation cost related to performance shares was $3.9 million, which is expected to be recognized over a weighted average period of 2.2 years.
CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
At September 30, 2020, unrecognized compensation cost related to performance shares was $2.2 million, which is expected to be recognized over a weighted average period of 1.2 years.
15.13.SEGMENT AND RELATED INFORMATION
In accordance with current accounting standards regarding disclosures about segments of an enterprise and related information, we have identified the following reportable segments: Canada, Australia and the U.S., which represent our strategic focus on hospitality services and workforce accommodations.
Financial information by business segment for each of the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 is summarized in the following table (in thousands):
| | | Total revenues | | Depreciation and amortization | | Operating income (loss) | | Capital expenditures | | Total assets | | Total revenues | | Depreciation and amortization | | Operating income (loss) | | Capital expenditures | | Total assets |
Three months ended September 30, 2020 | | | | | | | | | | |
Three months ended June 30, 2021 | | Three months ended June 30, 2021 | | | | | | | | | |
Canada | Canada | $ | 71,785 | | | $ | 13,266 | | | $ | 1,007 | | | $ | 362 | | | $ | 691,634 | | Canada | $ | 83,281 | | | $ | 12,152 | | | $ | 7,452 | | | $ | 1,143 | | | $ | 763,763 | |
Australia | Australia | 64,685 | | | 10,739 | | | 9,890 | | | 1,825 | | | 266,591 | | Australia | 64,019 | | | 8,512 | | | (2,656) | | | 1,147 | | | 242,730 | |
U.S. | U.S. | 6,387 | | | 747 | | | (3,197) | | | 84 | | | 27,017 | | U.S. | 6,876 | | | 542 | | | (1,109) | | | 482 | | | 27,793 | |
Corporate and eliminations | Corporate and eliminations | 0 | | | 68 | | | (610) | | | 126 | | | (252,306) | | Corporate and eliminations | 0 | | | 171 | | | (1,558) | | | 386 | | | (316,599) | |
Total | Total | $ | 142,857 | | | $ | 24,820 | | | $ | 7,090 | | | $ | 2,397 | | | $ | 732,936 | | Total | $ | 154,176 | | | $ | 21,377 | | | $ | 2,129 | | | $ | 3,158 | | | $ | 717,687 | |
| Three months ended September 30, 2019 | | |
Three months ended June 30, 2020 | | Three months ended June 30, 2020 | |
Canada | Canada | $ | 91,071 | | | $ | 18,219 | | | $ | 2,919 | | | $ | 2,851 | | | $ | 843,818 | | Canada | $ | 52,986 | | | $ | 12,177 | | | $ | (6,719) | | | $ | 231 | | | $ | 662,926 | |
Australia | Australia | 47,743 | | | 9,576 | | | 4,662 | | | 675 | | | 279,386 | | Australia | 57,071 | | | 9,733 | | | 8,191 | | | 748 | | | 261,188 | |
U.S. | U.S. | 9,349 | | | 1,611 | | | (2,167) | | | 576 | | | 51,376 | | U.S. | 4,645 | | | 195 | | | (2,623) | | | 12 | | | 30,503 | |
Corporate and eliminations | Corporate and eliminations | 0 | | | 1,790 | | | (2,538) | | | 207 | | | (163,757) | | Corporate and eliminations | 0 | | | 100 | | | (690) | | | 205 | | | (220,034) | |
Total | Total | $ | 148,163 | | | $ | 31,196 | | | $ | 2,876 | | | $ | 4,309 | | | $ | 1,010,823 | | Total | $ | 114,702 | | | $ | 22,205 | | | $ | (1,841) | | | $ | 1,196 | | | $ | 734,583 | |
| Nine months ended September 30, 2020 | | |
Six months ended June 30, 2021 | | Six months ended June 30, 2021 | |
Canada | Canada | $ | 204,119 | | | $ | 39,812 | | | $ | (142,343) | | | $ | 1,203 | | | $ | 691,634 | | Canada | $ | 145,166 | | | $ | 24,239 | | | $ | (207) | | | $ | 2,323 | | | $ | 763,763 | |
Australia | Australia | 170,869 | | | 29,767 | | | 24,245 | | | 3,036 | | | 266,591 | | Australia | 123,656 | | | 16,971 | | | 651 | | | 2,701 | | | 242,730 | |
United States | United States | 21,363 | | | 2,525 | | | (19,954) | | | 1,468 | | | 27,017 | | United States | 10,784 | | | 1,108 | | | (3,707) | | | 851 | | | 27,793 | |
Corporate and eliminations | Corporate and eliminations | 0 | | | 423 | | | (5,768) | | | 537 | | | (252,306) | | Corporate and eliminations | 0 | | | 328 | | | (4,509) | | | 655 | | | (316,599) | |
Total | Total | $ | 396,351 | | | $ | 72,527 | | | $ | (143,820) | | | $ | 6,244 | | | $ | 732,936 | | Total | $ | 279,606 | | | $ | 42,646 | | | $ | (7,772) | | | $ | 6,530 | | | $ | 717,687 | |
| Nine months ended September 30, 2019 | | |
Six months ended June 30, 2020 | | Six months ended June 30, 2020 | |
Canada | Canada | $ | 235,943 | | | $ | 50,574 | | | $ | (14,437) | | | $ | 19,294 | | | $ | 843,818 | | Canada | $ | 132,334 | | | $ | 26,546 | | | $ | (143,350) | | | $ | 841 | | | $ | 662,926 | |
Australia | Australia | 107,160 | | | 29,401 | | | (1,302) | | | 2,508 | | | 279,386 | | Australia | 106,184 | | | 19,028 | | | 14,355 | | | 1,211 | | | 261,188 | |
United States | United States | 35,763 | | | 7,713 | | | (4,484) | | | 2,870 | | | 51,376 | | United States | 14,976 | | | 1,778 | | | (16,757) | | | 1,384 | | | 30,503 | |
Corporate and eliminations | Corporate and eliminations | 0 | | | 5,286 | | | (6,850) | | | 845 | | | (163,757) | | Corporate and eliminations | 0 | | | 355 | | | (5,158) | | | 411 | | | (220,034) | |
Total | Total | $ | 378,866 | | | $ | 92,974 | | | $ | (27,073) | | | $ | 25,517 | | | $ | 1,010,823 | | Total | $ | 253,494 | | | $ | 47,707 | | | $ | (150,910) | | | $ | 3,847 | | | $ | 734,583 | |
Cautionary Statement Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. The forward-looking statements can be identified by the use of forward-looking terminology including “may,” “expect,” “anticipate,” “estimate,” “continue,” “believe” or other similar words. The forward-looking statements in this report include, but are not limited to, the statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” relating to our expectations about the macroeconomic environment and industry conditions, including the impact of COVID-19 and the response thereto and the declinevolatility in the price of and demand for oil, as well as our expectations about capital expenditures in 20202021 and beliefs with respect to liquidity needs, including our ability to remain in compliance with our financial covenants.needs. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors. For a discussion of known material factors that could affect our results, please refer to "Risk Factors" included in Part II, Item 1A of this report, “Risk Factors,” “Forward-Looking“Cautionary Statement Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 20192020 and our subsequent SEC filings. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected. Our management believes these forward-looking statements are reasonable. However, you should not place undue reliance on these forward-looking statements, which are based only on our current expectations and are not guarantees of future performance. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any of them in light of new information, future events or otherwise, except to the extent required by applicable law.
In addition, in certain places in this quarterly report, we refer to reports published by third parties that purport to describe trends or developments in the energy industry. We do so for the convenience of our shareholders and in an effort to provide information available in the market that will assist our investors in a better understanding of the market environment in which we operate. However, we specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this quarterly report on Form 10-Q.
Reverse Share Split
On November 19, 2020, we effected a reverse share split where each twelve issued and outstanding common shares were converted into one common share (Reverse Share Split). Our common shares began trading on a reverse share split adjusted basis on November 19, 2020. All common share and per common share data included in this quarterly report have been retroactively adjusted to reflect the Reverse Share Split.
See Note 1 - Description of Business and Basis of Presentation to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
Overview and Macroeconomic Environment
We provide hospitality services to the natural resources industry in Canada, Australia and the U.S. Demand for our services can be attributed to two phases of our customers’ projects: (1) the development or construction phase; and (2) the operations or production phase. The majorityHistorically, initial demand for our hospitality services has been driven by our customers’ capital spending programs related to the construction and development of natural resource projects and associated infrastructure, as well as the exploration for oil and natural gas. Long-term demand for our services in our Canadian lodges and Australian villages ishas been driven by on-going operationsnatural resource production, maintenance and maintenanceoperation of oil sands and mining facilities.those facilities as well as expansion of those sites. In general, industry operating and maintenancecapital spending programs are based on the outlook for commodity prices, economic growth, global commodity supply/demand dynamics and estimates of resource production. As a result, demand for our hospitality services is largely sensitive to expected commodity prices, principally related to crude oil, metallurgical (met) coal, liquefied natural gas (LNG) and iron ore. Other factors that can affect our business and financial results include the general global economic environment and regulatory changes in
Canada, Australia, the U.S. and other markets, including governmental measures introduced to fight climate change or to help slow the spread or mitigate the impact of COVID-19.
Our business is predominantly located in northern Alberta, Canada,Canada; British Columbia, Canada,Canada; Queensland, AustraliaAustralia; and Western Australia. We derive most of our business from natural resource companies who are developing and producing oil sands, and met coal, LNG and iron ore resources and, to a lesser extent, other hydrocarbon and mineral resources. Approximately 70%67% of our revenue is generated by our lodges in Canada and villages.our villages in Australia. Where traditional accommodations and infrastructure are insufficient, inaccessible or cost ineffective, our lodge and village facilities provide comprehensive hospitality services similar to those found in an urban hotel. We typically contract our facilities to our customers on a fee-per-dayfee-per-person-per- day basis that covers lodging and meals and is based on the duration of customer needs, which can range from several weeks to several years.
The remainder of our revenue is generated by our hospitality services at customer-owned locations in Canada and Australia, mobile assets in Canada and the U.S and our lodges in the U.S.Generally, our core Canadian oil sands and Australian mining customers are making multi-billion dollarmake significant capital investments to develop their prospects, which have estimated reserve lives ranging from ten years to in excess of 30 years. Consequently, these investments are primarily dependent on those customers’ long-term views of commodity demand and prices.
The spread of COVID-19 and the response thereto during the first nine months of 2020 hashave negatively impacted the global economy. The actions taken by governments and the private-sector to mitigate the spread of COVID-19 and the risk of infection, have altered, and are expected to continue to alter, governmental and private-sector policies and behaviors in ways that have had a significant negative effect on oil consumption, such asincluding government-imposed or voluntary social distancing and quarantining, reduced travel and remote work policies.policies, have evolved with the introduction of vaccination efforts, and may continue to evolve as the surfacing of virus variants has added a degree of uncertainty to the continuing global impact of COVID-19. Additionally, global oil prices dropped to historically low levels in March and April 2020 due to severely reduced global oil demand, high global crude inventory levels, uncertainty around timing and slope of worldwide economic recovery after COVID-19 related economic shut-downs and effectiveness of production cuts by major oil producing countries, such as Saudi Arabia, Russia and the U.S. While inIn mid-April 2020, OPEC+ (the combination of historical OPEC members and other significant oil producers, such as Russia) announced potential production cuts of up to approximately 10 million barrels per day,day. However, oil prices have remained at depressed levels and prices are expected to remain at low levels for the remainderthroughout most of 2020, before modest improvement late in the year and into early 2021.
The economic disruption in 2020 caused by the decline As global oil demand recovered in the pricesecond quarter of 2021, oil supply did not keep up, resulting in falling inventories and demand for oil has impacted the activitya significant increase in the Canadian oil sands and we have seen a decrease in demand for rooms by our oil sands customers. A reduction in the occupancy at our Canadian oil sands lodges negatively impacted our business in the quarter ended September 30, 2020 and could continue to negatively impact our business if oil prices remain at the current lower levels. Duecontinuing into July 2021. In July 2021, OPEC+ agreed to lowerphase out 5.8 million barrels per day of oil prices and the economic disruption causedproduction cuts by COVID-19, we implemented certain cost containment initiatives, including salary and total compensation reductions of 20% for the Board and Chief Executive Officer for 2020 from March levels, headcount reduction in North America of approximately 25% in March through June 2020, and cutting expected 2020 capital spending by approximately 25%. September 2022.
We continue to closely monitor the COVID-19 situation and have taken measures to help ensure the health and well-being of our employees, guests and contractors, including screening of individuals that enter our facilities, social distancing practices, enhanced cleaning and deep sanitization, the suspension of nonessential employee travel and implementation of work-from-home policies, where applicable.
Alberta, Canada. In Canada, Western Canadian Select (WCS) crude is the benchmark price for our oil sands customers. Pricing for WCS is driven by several factors, including the underlying price for West Texas Intermediate (WTI) crude, the availability of transportation infrastructure (consisting of pipelines and crude by railcar) and recent actions by the Alberta provincial government to limit oil production from the province.governmental regulation. Historically, WCS has traded at a discount to WTI, creating a “WCS Differential,” due to transportation costs and capacity restrictions to move Canadian heavy oil production to refineries, primarily along the U.S. Gulf Coast. The WCS Differential has varied depending on the extent of transportation capacity availability.
Certain expansionary oil pipeline projects have the potential to both drive incremental demand for mobile accommodations assets and to improve take-away capacity for Canadian oil sands producers over the longer term. While these pipeline projects, including Kinder Morgan’sthe Trans Mountain Pipeline (TMX) and the Keystone XL Pipeline (KXL), have recently received incremental regulatory approvals, it is still not certain if any of the proposed pipeline projects will ultimately be completed. Certain segments of the TMX pipeline have begun construction; however,resumed construction without conflict at the construction timeline continues to be delayed due to the lack of agreement betweenpresent time. Recent legal issues with the Canadian federal government which supportsand First Nation groups have been resolved for the pipeline projects, and the British Columbia provincial government.time being. The Canadian federal government acquired Kinder Morgan’s Trans Mountain Pipelinethe TMX pipeline in 2018, approved the expansion of the project and is currently working through thea revised construction timeline. Regardingtimeline to adjust for recent delays related to legal hurdles and the KXL pipeline, the Alberta provincial government announced in April 2020 its intent to financially support the construction of the pipeline. The construction of this pipeline expansion is currently suspended due to the U.S. Supreme Court refusing to renew a water permit for the KXL pipeline in July 2020.COVID-19 pandemic.
WCS prices in the thirdsecond quarter of 20202021 averaged $31.15$53.27 per barrel and on September 30, 2020,compared to $19.73 in the WCS price was $29.38 per barrel.second quarter of 2020. The WCS Differential decreased from $15.40$15.35 per barrel at the end of the firstfourth quarter of 2020 to $10.84 per barrel$13.95 at the end of the thirdsecond quarter of 2020.2021. In 2018, the Government of Alberta announced it would mandate temporary curtailments of the province’s oil production. However, monthly production limits were put on hold in December 2020 until further notice, allowing operators to produce freely at their discretion while the government monitors production and inventory levels. Should
forecasts show storage inventories approaching maximum capacity, the government may reintroduce production limits. As of October 23, 2020,July 26, 2021, the WTI price was $39.67$71.91 and the WCS price was $29.33,$58.27, resulting in a WCS Differential of $10.34.$13.64.
TheTogether with the initial spread of COVID-19, the depressed price levels of both WTI and WCS are expected to materially impact exploration, development,impacted 2020 maintenance and production spending and activity by Canadian operators and, therefore, demand for our hospitality services. For example, on March 23, 2020, the Fort Hills Energy LP project announced a reduction ofCustomers began increasing production activity from two trains to one
train. Companies have significantly reduced spending year-to-date and announced further reductions to their spending forecasts for the remainder of the year. While some of our Canadian oil sands customers conducted maintenance projects in the thirdfourth quarter activity was negatively impacted byof 2020 and into the current environment.first half of 2021. Continued uncertainty, including about the impact of COVID-19, and commodity price volatility and regulatory complications are expected tocould cause our Canadian oil sands and pipeline customers to reduce production, delay expansionary and maintenance spending and defer additional investments in their oil sands assets. Additionally, if oil prices do not improve,stabilize, the resulting impact could continue to negatively affect the value of our long-lived assets.
British Columbia, Canada. Our Sitka Lodge supports the British Columbia LNG marketCanada project and related pipeline projects.projects (see discussion below). From a macroeconomic standpoint, global LNG importsdemand continued to significantly increase in 2019, rising by 40 million tonnes andgrow despite the COVID-19 pandemic, reinforcing the need for the global LNG industry to expand access to natural gas. Evolving government energy policies around the world have amplified support for cleaner energy supply, creating more opportunities for natural gas and LNG. Accordingly, the current view is additional investment in LNG supply will be needed to meet the expected long-term LNG demand growth.
WhileCurrently, Western Canada does not currently have any operational LNG export facilities,facilities. LNG Canada (LNGC), a joint venture betweenamong Shell Canada Energy, an affiliate of Royal Dutch Shell plc (40 percent), and affiliates of PETRONAS, through its wholly-owned entity, North Montney LNG Limited Partnership (25 percent), PetroChina (15 percent), Mitsubishi Corporation (15 percent) and Korea Gas Corporation (5 percent), is currently constructing a liquefaction and export facility in Kitimat, British Columbia (Kitimat LNG Facility). As a result, British Columbia LNG activity and related pipeline projects have becomeare a material driver of activity for our Sitka Lodge, as well as for our mobile fleet assets, which are contracted to serve several portions of the related pipeline construction activity. The actual timing of when revenue is realized from the CGLCoastal Gas Link pipeline and Sitka Lodge contracts could be impacted by any delays in the construction of the Kitimat LNG Facility or the pipeline, including recentsuch as protest blockades that aim to delay pipeline construction. and the COVID-19 pandemic.
In late March 2020, LNGC announced steps being taken to reduce the spread of COVID-19, including reduction of the workforce at the project site to essential personnel only. This resulted in a reduction in occupancy at our Sitka Lodge during the second quarter of 2020. Occupancy at the Sitka Lodge returned2020, before returning to expected levels during Julyin the second half of 2020. In late December 2020, and has remainedBritish Columbia’s public health officer issued a health order limiting workforce size at expected levels thoroughall large industrial projects across the thirdprovince, including LNGC. This order once again reduced occupancy at our Sitka Lodge in the first quarter of 2020.2021. In the second quarter of 2021, this order was repealed. It was replaced with less restrictive requirements focused on monitoring, allowing workforces to return to their optimal sizes.
Australia. In Australia, 82% of our rooms are located in the Bowen Basin of Queensland, Australia and primarily serve met coal mines in that region. Met coal pricing and production growth in the Bowen Basin region is predominantly influenced by the levels of global steel production, which decreasedincreased by 3.2%14.4% during the first nine monthshalf of 20202021 compared to the same period of 2019.2020. As of October 23, 2020,July 26, 2021, met coal spot prices were $110$215 per metric tonne. Long-term demand for steel is expected to be driven by global infrastructure spending and increased steel consumption per capita in developing economies, such as China and India, whose current consumption per capita is a fraction of developed countries. There is stillIn 2020, the impact of the outbreak of COVID-19 led to a high level of uncertainty for demand of iron ore and met coal. The impact on theHowever, due to strong global steel demand, for steel with the closure or curtailment of manufacturing in economies affected by COVID-19, which will only return to normal levels of consumption once jurisdictions lift quarantine requirements and manufacturing facilities are reopened, is also uncertain. However, a new round of stimulus in China and recovering steel productionsupply disruptions in other regions continuescountries and limited COVID-19 cases in Australia, Australian met coal and iron ore activity was relatively buoyant in 2020 and the first half of 2021. An increase in global infrastructure spending to stimulate economies is expected to support demand for raw materials, particularly iron ore. We believe there is a high likelihood that many countries will use infrastructure spend as part of their economic recovery plan, which would have a positive impact on the demand for met coal and iron ore.
Currently, China and Australia are in a trade dispute that has led to China implementing a trade embargo on Australian coal. China has historically accounted for approximately 22% of Australia’s met coal exports. The continuing uncertainty in the Chinese demand for Australian met coal has led to volatile Australian met coal spot price. To date, wepricing. The Chinese trade embargo and volatile Australian met coal spot pricing have not seen an overall material decline increated a shuffling of global export trade flows. If this dispute continues, it could continue to impact pricing volatility, and demand for Australian met coal and consequently lead to reduced occupancy at our Australian villages resulting from COVID-19.villages.
ActivityCiveo's activity in Western Australia is driven primarily by iron ore production, which is a key steel-making ingredient. As of October 23, 2020,July 26, 2021, iron ore spot prices were $117.07$197.30 per metric tonne.
On July 1, 2019, we acquired Action Industrial Catering (Action), a provider ofOur integrated services business provides catering and managed services to the mining industry in Western Australia. Accordingly, we alsoWe have contracts in place forto manage customer-owned villages in Western Australia which service primarily support iron ore mines in addition to
gold, lithium and nickel mines. We believe iron ore prices are currently at a level that may contribute to increased activity over the long term if our customers view these price levels as sustainable.
Met coal and iron ore prices to date have remained at levels that should support the current levels of occupancy in our Australia villages and the customer locations that we manage under Action. Accordingly, we plan to continue focusing on enhancing the quality of our operations, maintaining financial discipline, proactively managing our business as market conditions continue to evolve and integrating Action into our business.
U.S. Our U.S. business supports oil shale drilling and completion activity and is primarily tied to WTI oil prices in the U.S. shale formations in the Permian Basin, the Mid-Continent, the Bakken and the Rockies. TheDuring 2019, the U.S. oil rig count and associated completion activity has beendecreased due to the oil price decline in late 2018 and early 2019 coupled with other market dynamics negatively impacted inimpacting exploration and production (E&P) spending, finishing the first nine months ofyear at 677 rigs. In 2020, the U.S. oil rig count and associated completion activity further decreased due to the global oil price decline
discussed above. Only 183267 oil rigs were active at the end of 2020. As oil prices began to recover in 2021, oil rig count and drilling activity recovered somewhat, with 372 oil rigs active at the thirdend of the second quarter of 2020.2021. The Permian Basin remains the most active U.S. unconventional play, representing 67%63% of the oil rigs active in the U.S. market at the end of the thirdsecond quarter of 2020.2021. The lower U.S. rig count and decline in oil prices resulted in decreased U.S. oil production from an average of 12.2 million barrels per day in 2019 to an average of 11.3 million barrels per day in 2020 and to an average of 11.2 million barrels per day through the first five months of 2021. As of OctoberJuly 23, 2020,2021, there were 211387 active oil rigs in the U.S. (as measured by Bakerhughes.com). With the recent reductionvolatility in oil prices and a resulting reduction in spending by exploration and production (E&P)E&P companies, we will be exitingexited the Bakken and reduced our presence in the Rockies marketsregions for our U.S. mobile well site units.assets. Those assets willwere either be sold or transported to our TexasPermian Basin and OklahomaMid-Continent district locations. This process is underway and we expect it to be completed in a phased approach through 2020 andcomplete during the first halfthird quarter of 2021. U.S. oil shale drilling and completion activity will continue to be dependent on sustained higher WTI oil prices, pipeline capacity and sufficient capital to support E&P drilling and completion plans. In addition, consolidation among our E&P customer base in the U.S. has historically created short-term spending and activity dislocations.Should the current trend of industry consolidation continue, we may see activity, utilization and occupancy declines in the near term.
Recent Commodity Prices. Recent WTI crude, WCS crude, and met coal and iron ore pricing trends are as follows:
| | | | Average Price (1) | | | Average Price (1) |
Quarter ended | Quarter ended | | WTI Crude (per bbl) | | WCS Crude (per bbl) | | Hard Coking Coal (Met Coal) (per tonne) | Quarter ended | | WTI Crude (per bbl) | | WCS Crude (per bbl) | | Hard Coking Coal (Met Coal) (per tonne) | | Iron Ore (per tonne) |
Fourth Quarter through 10/23/2020 | | $ | 40.13 | | | $ | 30.33 | | | $ | 125.16 | | |
Third Quarter through July 26, 2021 | | Third Quarter through July 26, 2021 | | $ | 72.35 | | | $ | 58.77 | | | $ | 207.69 | | | $ | 209.68 | |
6/30/2021 | | 6/30/2021 | | 66.19 | | | 53.27 | | | 136.44 | | | 195.97 | |
3/31/2021 | | 3/31/2021 | | 58.13 | | | 46.28 | | | 127.95 | | | 159.83 | |
12/31/2020 | | 12/31/2020 | | 42.63 | | | 31.34 | | | 109.37 | | | 128.24 | |
9/30/2020 | 9/30/2020 | | 40.90 | | | 31.15 | | | 113.30 | | 9/30/2020 | | 40.90 | | | 31.15 | | | 113.30 | | | 116.10 | |
6/30/2020 | 6/30/2020 | | 27.95 | | | 19.73 | | | 120.27 | | 6/30/2020 | | 27.95 | | | 19.73 | | | 120.27 | | | 89.53 | |
3/31/2020 | 3/31/2020 | | 45.38 | | | 27.92 | | | 156.17 | | 3/31/2020 | | 45.38 | | | 27.92 | | | 156.17 | | | 83.57 | |
12/30/2019 | 12/30/2019 | | 56.85 | | | 37.94 | | | 141.39 | | 12/30/2019 | | 56.85 | | | 37.94 | | | 141.39 | | | 85.13 | |
9/30/2019 | 9/30/2019 | | 56.40 | | | 43.88 | | | 160.25 | | 9/30/2019 | | 56.40 | | | 43.88 | | | 160.25 | | | 101.41 | |
6/30/2019 | 6/30/2019 | | 59.89 | | | 47.39 | | | 204.78 | | 6/30/2019 | | 59.89 | | | 47.39 | | | 204.78 | | | 94.62 | |
3/31/2019 | 3/31/2019 | | 54.87 | | | 44.49 | | | 203.30 | | 3/31/2019 | | 54.87 | | | 44.49 | | | 203.30 | | | 79.26 | |
12/31/2018 | 12/31/2018 | | 59.32 | | | 25.66 | | | 223.02 | | 12/31/2018 | | 59.32 | | | 25.66 | | | 223.02 | | | 70.13 | |
9/30/2018 | 9/30/2018 | | 69.61 | | | 41.58 | | | 188.46 | | 9/30/2018 | | 69.61 | | | 41.58 | | | 188.46 | | | 61.91 | |
6/30/2018 | 6/30/2018 | | 67.97 | | | 49.93 | | | 189.41 | | 6/30/2018 | | 67.97 | | | 49.93 | | | 189.41 | | | 62.58 | |
3/31/2018 | | 62.89 | | | 37.09 | | | 228.82 | | |
12/31/2017 | | 55.28 | | | 38.65 | | | 202.33 | | |
9/30/2017 | | 48.16 | | | 37.72 | | | 187.89 | | |
(1)Source: WTI crude prices are from U.S. Energy Information Administration (EIA), WCS crude prices and iron ore prices are from Bloomberg and hard coking coal prices are from IHS Markit.
Foreign Currency Exchange Rates. Exchange rates between the U.S. dollar and each of the Canadian dollar and the Australian dollar influence our U.S. dollar reported financial results. Our business has historically derived the vast majority of its revenues and operating income (loss) in Canada and Australia. These revenues and profits/losses are translated into U.S. dollars for U.S. GAAP financial reporting purposes. The following tables summarize the fluctuations in the exchange rates between the U.S. dollar and each of the Canadian dollar and the Australian dollar:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | Change | | Percentage | | 2020 | | 2019 | | Change | | Percentage |
Average Canadian dollar to U.S. dollar | $0.751 | | $0.757 | | (0.01) | | (0.8)% | | $0.739 | | $0.752 | | ($0.01) | | (1.7)% |
Average Australian dollar to U.S. dollar | $0.716 | | $0.686 | | 0.03 | | 4.3% | | $0.677 | | $0.699 | | ($0.02) | | (3.1)% |
| | | | | | | | | | | | | | | | | | | | | | | |
| As of |
| September 30, 2020 | | December 31, 2019 | | Change | | Percentage |
Canadian dollar to U.S. dollar | $0.750 | | $0.770 | | (0.02) | | (2.6)% |
Australian dollar to U.S. dollar | $0.716 | | $0.702 | | 0.01 | | 1.9% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | Change | | Percentage | | 2021 | | 2020 | | Change | | Percentage |
Average Canadian dollar to U.S. dollar | $0.815 | | $0.722 | | 0.09 | | 12.8% | | $0.802 | | $0.733 | | $0.07 | | 9.4% |
Average Australian dollar to U.S. dollar | $0.770 | | $0.658 | | 0.11 | | 17.2% | | $0.772 | | $0.658 | | $0.11 | | 17.3% |
| | | | | | | | | | | | | | | | | | | | | | | |
| As of |
| June 30, 2021 | | December 31, 2020 | | Change | | Percentage |
Canadian dollar to U.S. dollar | $0.807 | | $0.785 | | 0.02 | | 2.8% |
Australian dollar to U.S. dollar | $0.750 | | $0.773 | | (0.02) | | (3.0)% |
These fluctuations of the Canadian and Australian dollars have had and will continue to have an impact on the translation of earnings generated from our Canadian and Australian subsidiaries and, therefore, our financial results.
Capital Expenditures. We continue to monitor the COVID-19 global pandemic and the responses thereto, the global economy, the price of and demand for crude oil, met coal, LNG and iron ore and the resultant impact on the capital spending plans of our customers in order to plan our business activities. In April 2020, we revised downward our 2020 capital expenditure plans and weWe currently expect that our 20202021 capital expenditures, exclusive of any expansionary spending, which is contingent on obtaining customer contracts,business acquisitions, will total less than $15approximately $20 million, compared to 20192020 capital expenditures of $29.8$10.1 million. We may adjust our capital expenditure plans in the future as we continue to monitor customer activity and the impact of COVID-19. See “Liquidity and Capital Resources” below for further discussion of 20202021 capital expenditures.
Results of Operations
Unless otherwise indicated, discussion of results for the three and nine months ended SeptemberJune 30, 2020,2021, is based on a comparison to the corresponding period of 2019.2020.
Results of Operations – Three Months Ended SeptemberJune 30, 20202021 Compared to Three Months Ended SeptemberJune 30, 20192020
| | | Three Months Ended September 30, | | Three Months Ended June 30, |
| | 2020 | | 2019 | | Change | | 2021 | | 2020 | | Change |
| | | ($ in thousands) | | ($ in thousands) |
Revenues | Revenues | | | | | | Revenues | | | | | |
Canada | Canada | $ | 71,785 | | | $ | 91,071 | | | $ | (19,286) | | Canada | $ | 83,281 | | | $ | 52,986 | | | $ | 30,295 | |
Australia | Australia | 64,685 | | | 47,743 | | | 16,942 | | Australia | 64,019 | | | 57,071 | | | 6,948 | |
U.S. and other | U.S. and other | 6,387 | | | 9,349 | | | (2,962) | | U.S. and other | 6,876 | | | 4,645 | | | 2,231 | |
Total revenues | Total revenues | 142,857 | | | 148,163 | | | (5,306) | | Total revenues | 154,176 | | | 114,702 | | | 39,474 | |
Costs and expenses | Costs and expenses | | | | | | Costs and expenses | | | | | |
Cost of sales and services | Cost of sales and services | | | | | | Cost of sales and services | | | | | |
Canada | Canada | 51,393 | | | 62,277 | | | (10,884) | | Canada | 57,342 | | | 42,465 | | | 14,877 | |
Australia | Australia | 38,529 | | | 28,664 | | | 9,865 | | Australia | 44,895 | | | 34,913 | | | 9,982 | |
U.S. and other | U.S. and other | 7,512 | | | 8,539 | | | (1,027) | | U.S. and other | 5,765 | | | 5,755 | | | 10 | |
Total cost of sales and services | Total cost of sales and services | 97,434 | | | 99,480 | | | (2,046) | | Total cost of sales and services | 108,002 | | | 83,133 | | | 24,869 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 13,462 | | | 14,334 | | | (872) | | Selling, general and administrative expenses | 14,703 | | | 11,490 | | | 3,213 | |
Depreciation and amortization expense | Depreciation and amortization expense | 24,820 | | | 31,196 | | | (6,376) | | Depreciation and amortization expense | 21,377 | | | 22,205 | | | (828) | |
Impairment expense | Impairment expense | — | | | — | | | — | | Impairment expense | 7,935 | | | — | | | 7,935 | |
Other operating income | 51 | | | 277 | | | (226) | | |
Other operating expense (income) | | Other operating expense (income) | 30 | | | (285) | | | 315 | |
Total costs and expenses | Total costs and expenses | 135,767 | | | 145,287 | | | (9,520) | | Total costs and expenses | 152,047 | | | 116,543 | | | 35,504 | |
Operating income | 7,090 | | | 2,876 | | | 4,214 | | |
Operating income (loss) | | Operating income (loss) | 2,129 | | | (1,841) | | | 3,970 | |
| Interest expense and income, net | (4,029) | | | (7,298) | | | 3,269 | | |
Interest expense, net | | Interest expense, net | (3,399) | | | (3,850) | | | 451 | |
Other income | Other income | 4,542 | | | 2,849 | | | 1,693 | | Other income | 788 | | | 12,642 | | | (11,854) | |
Income (loss) before income taxes | 7,603 | | | (1,573) | | | 9,176 | | |
Income tax (expense) benefit | (180) | | | 6,629 | | | (6,809) | | |
(Loss) income before income taxes | | (Loss) income before income taxes | (482) | | | 6,951 | | | (7,433) | |
Income tax benefit (expense) | | Income tax benefit (expense) | 492 | | | (122) | | | 614 | |
Net income | Net income | 7,423 | | | 5,056 | | | 2,367 | | Net income | 10 | | | 6,829 | | | (6,819) | |
Less: Net income attributable to noncontrolling interest | Less: Net income attributable to noncontrolling interest | 434 | | | 60 | | | 374 | | Less: Net income attributable to noncontrolling interest | (3) | | | 222 | | | (225) | |
Net income attributable to Civeo Corporation | Net income attributable to Civeo Corporation | 6,989 | | | 4,996 | | | 1,993 | | Net income attributable to Civeo Corporation | 13 | | | 6,607 | | | (6,594) | |
Less: Dividends attributable to preferred shares | Less: Dividends attributable to preferred shares | 472 | | | 464 | | | 8 | | Less: Dividends attributable to preferred shares | 480 | | | 471 | | | 9 | |
Net income attributable to Civeo common shareholders | $ | 6,517 | | | $ | 4,532 | | | $ | 1,985 | | |
Net (loss) income attributable to Civeo common shareholders | | Net (loss) income attributable to Civeo common shareholders | $ | (467) | | | $ | 6,136 | | | $ | (6,603) | |
We reported net loss attributable to Civeo for the quarter ended June 30, 2021 of $0.5 million, or $0.03 per diluted share. As further discussed below, net loss included a $7.9 million pre-tax loss resulting from the impairment of fixed assets included in Impairment expense.
We reported net income attributable to Civeo for the quarter ended SeptemberJune 30, 2020 of $6.5$6.1 million, or $0.03 per diluted share.
We reported net income attributable to Civeo for the quarter ended September 30, 2019 of $4.5 million, or $0.02$0.37 per diluted share. As further discussed below, net income included $4.7 million of income associated with the settlement of a gain on sale of assetsrepresentations and warranties claim related to the sale of a villageNoralta acquisition included in Australia and related $2.2 million release of an asset retirement obligation (ARO) liability assumed by the buyer.
Revenues. Consolidated revenues decreased $5.3increased $39.5 million, or 4%34%, in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019.2020. This decreaseincrease was primarily due to lower revenue in Canada resulting from lower occupancy(i) higher billed rooms at our Canadian oil sands lodges related to the COVID-19 pandemic and lower oil prices. Additionally, lowerturnaround activities by a number of customers, (ii) increased mobile asset activity from a pipeline project in Canada, (iii) increased occupancy at our Australian integrated services villages, (iv) increased activity levels in certain U.S. markets in the U.S. and (v) a weakerstronger Australian and Canadian dollar relative to the U.S. dollar in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019 contributed to decreased revenues.2020. These items were partially offset by (i) higher revenuesreduced occupancy at our Canadian Sitka Lodge related to the COVID-19 pandemic and the British Columbia health order, (ii) reduced food service activity, as an overflow site supporting a LNG-related project in Australia due to increased2020 is no longer required, (iii) decreased activity at the Action villages and increased occupancy at our Bowen Basin villages (ii) higher revenue in Canada due to increased mobile camp activity from a pipeline project and an increase from food service activity, (iii) increased activity in our offshore rental business in the U.S.Western Australia villages and (iv) a stronger Australian dollar relative to thedecreased activity at our U.S. dollar in the third quarter of 2020 compared to the third quarter of 2019.wellsite business. See the discussion of segment results of operations below for further information.
Cost of Sales and Services. Our consolidated cost of sales and services decreased $2.0increased $24.9 million, or 2%30%, in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019.2020. This decreaseincrease was primarily due to lower cost of sales and services in Canada resulting from lower(i) increased occupancy at our Canadian oil sands lodges related to the COVID-19 pandemicturnaround activities by a number of customers, (ii) increased mobile asset activity from a pipeline project in Canada, (iii) increased occupancy at our Australian integrated services villages and lower oil prices. Additionally, lowerincreased cost of temporary labor due to ongoing labor shortages in Australia, (iv) increased activity levels in certain U.S. markets in the U.S. and (v) a weakerstronger Australian and Canadian dollar relative to the U.S. dollar in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019 contributed to decreased cost of sales and services.2020. These items were partially offset by increased cost of sales(i) reduced occupancy at our Canadian Sitka Lodge related to the COVID-19 pandemic and services due to (i) increasedthe British Columbia health order, (ii) reduced food service activity, at the Action villages and increased occupancyas an overflow site supporting a LNG-related project in 2020 is no longer required, (iii) decreased activity at our Bowen Basin villages inand Western Australia (ii) increased mobile camp activity and the implementation of enhanced COVID-19 measures in Canada, (iii) increased activity in our offshore rental business in the U.S.villages and (iv) a stronger Australian dollar relative to thedecreased activity at our U.S. dollar in the third quarter of 2020 compared to the third quarter of 2019.wellsite business. See the discussion of segment results of operations below for further information.
Selling, General and Administrative Expenses. SG&A expense decreased $0.9increased $3.2 million, or 6%28%, in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019.2020. This decreaseincrease was primarily due to reducedhigher incentive compensation as a result of workforce reductions, lowercosts, share-based compensation expense lower professional fees and lower travelcompensation expense. In addition, SG&A expense increased approximately $1.0 million due to a stronger Australian and entertainment expenses, partially offset by higher incentive compensation costs.Canadian dollar relative to the U.S. dollar in the second quarter of 2021 compared to the second quarter of 2020. The decreaseincrease in share-based compensation was due to a reduction in the amount of restricted share and performance share awards outstanding and the reductionan increase in our stock price associated with phantom share awards during the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019. 2020.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased $6.4$0.8 million, or 20%4%, in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019.2020. The decrease was primarily due to (i) certain assets and intangibles becoming fully depreciated during 2019, (ii)2020 and the extension of the remaining life of certain long-lived accommodation assets in Canada during the fourth quarter of 2019 and (iii) the impairment of certain long-lived assets in Canada and the U.S. during the firstsecond quarter of 2020. These items were partially offset by additional intangible amortization expense relateda stronger Australian and Canadian dollar relative to the accelerationU.S. dollar in the second quarter of 2021 compared to the Action trade namesecond quarter of 2020.
Impairment Expense. We recorded pre-tax impairment expense of $7.9 million in Australia.the second quarter of 2021 associated with long-lived assets in our Australian reporting unit. See Note 6 - Impairment Charges to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
OperatingIncome. Income (Loss). Consolidated operating income increased $4.2$4.0 million, or 147%216%, in the thirdsecond quarter of 2021 compared to the second quarter of 2020, compared to the third quarter of 2019, primarily due to lower depreciation and amortization expense, lower SG&A expense and increased activity levels in Australia,Canada, partially offset by decreased activity levels in Canada and U.S. markets.higher impairment expense.
Interest Expense, and Income, net. Net interest expense decreased by $3.3$0.5 million, or 45%12%, in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019,2020, primarily related to lower average debt levels and lower interest rates on term loan and revolving credit facility borrowings during 20202021 compared to 2019, partially offset by increases from the 2020 write-off of debt issuance costs associated with the Amended Credit Agreement.2020.
Other Income. Consolidated other income increased $1.7decreased $11.9 million or 59%, in the thirdsecond quarter of 2021 compared to the second quarter of 2020. The second quarter of 2021 included $0.7 million related to proceeds from the Canada Emergency Wage Subsidy (CEWS). The second quarter of 2020 comparedincluded $4.7 million of other income associated with the settlement of a representations and warranties claim related to the third quarter of 2019, primarily due to $3.6Noralta acquisition, $6.2 million of other income related to proceeds from the CEWS partially offset byand a lowerhigher gain on sale of assets in 2020 compared to 2019. The thirdthe second quarter of 2019 included a gain on sale of assets related to the sale of a village in Australia and related $2.2 million release of an asset retirement obligation (ARO) liability assumed by the buyer.2020.
Income Tax (Expense) Benefit. Our income tax expensebenefit for the three months ended SeptemberJune 30, 20202021 totaled $0.2$0.5 million, or 2.4%102.1% of pretax income,loss, compared to aan income tax benefitexpense of $6.6$0.1 million, or 421.4%1.8% of pretax loss,income, for the three months ended SeptemberJune 30, 2019.2020. Our effective tax rate for both the three months ended SeptemberJune 30, 2021 and June 30, 2020 was impacted by tax expense of $0.1 million related to foreign withholdingconsidering Canada and the U.S. state income taxes. Ourloss jurisdictions that were removed from the annual effective tax rate computation for purposes of computing the three months ended September 30, 2019 was impacted by ainterim tax benefit of $3.0 million related to a reduction in the Alberta, Canada income tax rate as well as a $2.1 million tax benefit related to the change in the valuation allowance in Australia resulting from the acquisition of Action.provision. Under ASC 740-270, "Accounting for Income Taxes," the quarterly tax provision is based on our current estimate of the annual effective tax rate less the prior quarter's year-to-date provision.
Other Comprehensive (Loss) Income(Loss).Income. Other comprehensive income increased $23.2decreased $31.0 million in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019,2020, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar increased 2%1% in the thirdsecond quarter of 20202021 compared to a 1%4% decrease in the thirdsecond quarter of 2019.2020. The Australian dollar exchange rate compared to the U.S. dollar increased 4%decreased 1% in the thirdsecond quarter of 20202021 compared to a 4%2% decrease in the thirdsecond quarter of 2019.2020.
Segment Results of Operations – Canadian Segment
| | | Three Months Ended September 30, | | Three Months Ended June 30, |
| | 2020 | | 2019 | | Change | | 2021 | | 2020 | | Change |
Revenues ($ in thousands) | Revenues ($ in thousands) | | | | | | Revenues ($ in thousands) | | | | | |
Accommodation revenue (1) | Accommodation revenue (1) | $ | 49,798 | | | $ | 79,939 | | | $ | (30,141) | | Accommodation revenue (1) | $ | 69,759 | | | $ | 40,204 | | | $ | 29,555 | |
Mobile facility rental revenue (2) | Mobile facility rental revenue (2) | 13,135 | | | 3,048 | | | 10,087 | | Mobile facility rental revenue (2) | 8,666 | | | 6,072 | | | 2,594 | |
Food service and other services revenue (3) | Food service and other services revenue (3) | 8,852 | | | 8,084 | | | 768 | | Food service and other services revenue (3) | 4,856 | | | 6,710 | | | (1,854) | |
Manufacturing revenue (4) | — | | | — | | | — | | |
| Total revenues | Total revenues | $ | 71,785 | | | $ | 91,071 | | | $ | (19,286) | | Total revenues | $ | 83,281 | | | $ | 52,986 | | | $ | 30,295 | |
| Cost of sales and services ($ in thousands) | Cost of sales and services ($ in thousands) | | | | | | Cost of sales and services ($ in thousands) | | | | | |
Accommodation cost | Accommodation cost | $ | 32,490 | | | $ | 49,377 | | | $ | (16,887) | | Accommodation cost | $ | 44,992 | | | $ | 28,598 | | | $ | 16,394 | |
Mobile facility rental cost | Mobile facility rental cost | 8,557 | | | 2,059 | | | 6,498 | | Mobile facility rental cost | 5,644 | | | 5,285 | | | 359 | |
Food service and other services cost | Food service and other services cost | 7,595 | | | 7,319 | | | 276 | | Food service and other services cost | 4,455 | | | 6,163 | | | (1,708) | |
Manufacturing cost | 164 | | | 150 | | | 14 | | |
| Indirect other costs | Indirect other costs | 2,587 | | | 3,372 | | | (785) | | Indirect other costs | 2,251 | | | 2,419 | | | (168) | |
Total cost of sales and services | Total cost of sales and services | $ | 51,393 | | | $ | 62,277 | | | $ | (10,884) | | Total cost of sales and services | $ | 57,342 | | | $ | 42,465 | | | $ | 14,877 | |
| Gross margin as a % of revenues | Gross margin as a % of revenues | 28.4 | % | | 31.6 | % | | (3.2) | % | Gross margin as a % of revenues | 31.1 | % | | 19.9 | % | | 11.3 | % |
| Average daily rate for lodges (5)(4) | Average daily rate for lodges (5)(4) | $ | 96 | | | $ | 91 | | | $ | 5 | | Average daily rate for lodges (5)(4) | $ | 96 | | | $ | 96 | | | $ | — | |
| Total billed rooms for lodges (6)(5) | Total billed rooms for lodges (6)(5) | 508,449 | | | 875,891 | | | (367,442) | | Total billed rooms for lodges (6)(5) | 723,324 | | | 409,897 | | | 313,427 | |
| Average Canadian dollar to U.S. dollar | Average Canadian dollar to U.S. dollar | $ | 0.751 | | | $ | 0.757 | | | $ | (0.01) | | Average Canadian dollar to U.S. dollar | $ | 0.815 | | | $ | 0.722 | | | $ | 0.093 | |
(1)Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented.
(2)Includes revenues related to mobile campsassets for the periods presented.
(3)Includes revenues related to food services, laundry and water and wastewater treatment services for the periods presented.
(4)Includes revenues related to modular construction and manufacturing services for the periods presented.
(5)Average daily rate is based on billed rooms and accommodation revenue.
(6)(5)Billed rooms representrepresents total billed days for owned assets for the periods presented.
Our Canadian segment reported revenues in the thirdsecond quarter of 20202021 that were $19.3$30.3 million, or 21%57%, lowerhigher than the thirdsecond quarter of 2019.2020. The weakeningstrengthening of the average exchange ratesrate for the Canadian dollar relative to the U.S. dollar by 1%13% in the thirdsecond quarter of 2021 compared to the second quarter of 2020 compared to the third quarter of 2019 resulted in a $0.8$9.6 million period-over-period decreaseincrease in revenues. Excluding the impact of the weakerstronger Canadian exchange rates,rate, the segment experienced a 21% decrease39% increase in revenues. This decreaseincrease was driven by lower occupancyhigher billed rooms at our oil sands lodges where billed rooms were down 42% year-over-year. This decreaserelated to turnaround activities by a number of customers and by increased mobile asset activity from a pipeline project. Partially offsetting these items, revenue was lower at our Sitka Lodge related to the COVID-19 pandemic and lower oil prices. Partially offsetting this was increased mobile campthe British Columbia health order and from food services activity, fromas an overflow site supporting a pipeline project.LNG-related project in 2020 is no longer required.
Our Canadian segment cost of sales and services decreased $10.9increased $14.9 million, or 17%35%, in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019.2020. The weakeningstrengthening of the average exchange ratesrate for the Canadian dollar relative to the U.S. dollar by 1%13% in the thirdsecond quarter of 2021 compared to the second quarter of 2020 compared to the third quarter of 2019 resulted in a $0.5$6.5 million period-over-period decreaseincrease in cost of sales and services. Excluding the impact of the weakerstronger Canadian exchange rates,rate, the decreasedincreased cost of sales and services was driven by lowerincreased occupancy at our oil sands lodges. This decrease waslodges related to turnaround activities by a number of customers and by increased mobile asset activity from a pipeline project. Partially offsetting these items, cost of sales and services decreased at our Sitka Lodge related to the COVID-19 pandemic and lower oil prices. Additionally, lower costs resultedthe British Columbia health order and from reduced indirect other costs due tofood services activity, as an overflow site supporting a continued focus on cost containment and
operational efficiencies, partially offset by increased costs related to the implementation of enhanced measures during the COVID-19 pandemic and increased mobile camp activity.LNG-related project in 2020 is no longer required.
Our Canadian segment gross margin as a percentage of revenues decreasedincreased from 31.6%19.9% in the thirdsecond quarter of 20192020 to 28.4%31.1% in the thirdsecond quarter of 2020.2021. This was primarily driven by increased costs related to the implementation of enhanced measures during the COVID-19 pandemic, as well as reduced operating efficiencies at our oil sands lodges due to lower occupancy.higher occupancy and from our increased mobile asset activity.
Segment Results of Operations – Australian Segment
| | | Three Months Ended September 30, | | Three Months Ended June 30, |
| | 2020 | | 2019 | | Change | | 2021 | | 2020 | | Change |
Revenues ($ in thousands) | Revenues ($ in thousands) | | | | | | Revenues ($ in thousands) | | | | | |
Accommodation revenue (1) | Accommodation revenue (1) | $ | 39,470 | | | $ | 33,056 | | | $ | 6,414 | | Accommodation revenue (1) | $ | 37,780 | | | $ | 34,933 | | | $ | 2,847 | |
Food service and other services revenue (2) | Food service and other services revenue (2) | 25,215 | | | $ | 14,687 | | | $ | 10,528 | | Food service and other services revenue (2) | 26,239 | | | $ | 22,138 | | | $ | 4,101 | |
Total revenues | Total revenues | $ | 64,685 | | | $ | 47,743 | | | $ | 16,942 | | Total revenues | $ | 64,019 | | | $ | 57,071 | | | $ | 6,948 | |
| Cost of sales ($ in thousands) | | |
Cost of sales and services ($ in thousands) | | Cost of sales and services ($ in thousands) | |
Accommodation cost | Accommodation cost | $ | 16,401 | | | $ | 14,954 | | | $ | 1,447 | | Accommodation cost | $ | 18,082 | | | $ | 15,269 | | | $ | 2,813 | |
Food service and other services cost | Food service and other services cost | 21,161 | | | 12,807 | | | 8,354 | | Food service and other services cost | 25,154 | | | 18,759 | | | 6,395 | |
Indirect other cost | Indirect other cost | 967 | | | 903 | | | 64 | | Indirect other cost | 1,659 | | | 885 | | | 774 | |
Total cost of sales and services | Total cost of sales and services | $ | 38,529 | | | $ | 28,664 | | | $ | 9,865 | | Total cost of sales and services | $ | 44,895 | | | $ | 34,913 | | | $ | 9,982 | |
| Gross margin as a % of revenues | Gross margin as a % of revenues | 40.4 | % | | 40.0 | % | | 0.5 | % | Gross margin as a % of revenues | 29.9 | % | | 38.8 | % | | (9.0) | % |
| Average daily rate for villages (3) | Average daily rate for villages (3) | $ | 77 | | | $ | 73 | | | $ | 4 | | Average daily rate for villages (3) | $ | 81 | | | $ | 70 | | | $ | 11 | |
| Total billed rooms for villages (4) | Total billed rooms for villages (4) | 513,587 | | | 454,859 | | | 58,728 | | Total billed rooms for villages (4) | 466,298 | | | 502,392 | | | (36,094) | |
| Australian dollar to U.S. dollar | Australian dollar to U.S. dollar | $ | 0.716 | | | $ | 0.686 | | | $ | 0.03 | | Australian dollar to U.S. dollar | $ | 0.770 | | | $ | 0.658 | | | $ | 0.113 | |
(1)Includes revenues related to village rooms and hospitality services for owned rooms for the periods presented.
(2)Includes revenues related to food services and other services, including facilities management for the periods presented.
(3)Average daily rate is based on billed rooms and accommodation revenue.
(4)Billed rooms represent total billed days for owned assets for the periods presented.
Our Australian segment reported revenues in the thirdsecond quarter of 20202021 that were $16.9$6.9 million, or 35%12%, higher than the thirdsecond quarter of 2019.2020. The strengthening of the average exchange ratesrate for Australian dollars relative to the U.S. dollar by 4%17% in the thirdsecond quarter of 2021 compared to the second quarter of 2020 compared to the third quarter of 2019 resulted in a $2.8$9.4 million period-over-period increase in revenues and a $4revenues. Accordingly, the increase in the average daily rate.rate is entirely attributable to the strengthening of the Australia dollar. Excluding the impact of the stronger Australian exchange rates,rate, the Australian segment experienced a 30% increase4% decrease in revenues largely due to increaseddecreased activity at the Actionour Bowen Basin villages and Western Australia villages, partially offset by increased occupancy at our Bowen Basinintegrated services villages.
Our Australian segment cost of sales and services increased $9.9$10.0 million, or 34%29%, in the thirdsecond quarter of 2021 compared to the second quarter of 2020. The strengthening of the average exchange rate for Australian dollars relative to the U.S. dollar by 17% in the second quarter of 2021 compared to the second quarter of 2020 compared toresulted in a $6.6 million period-over-period increase in cost of sales and services. Excluding the third quarterimpact of 2019. Thethe stronger Australian exchange rate, the increase in cost of sales and services was largely driven by increased activity at the Action villages, increased occupancy at our Bowen Basinintegrated services villages and the strengtheningincreased costs of the Australian dollar.temporary labor due to ongoing labor shortages.
Our Australian segment gross margin as a percentage of revenues increaseddecreased to 40.4%29.9% in the thirdsecond quarter of 20202021 from 40.0%38.8% in the thirdsecond quarter of 2019.2020. This was primarily driven by improvedour integrated services business, which has a service-only business model, and therefore results in lower overall gross margins than the accommodation business. Reduced occupancy at ourthe Bowen Basin villages and Western Australia villages has also impacted our Australian gross margin. Segment gross margin has also been negatively impacted by increased staff costs as a result of a hospitality labor shortage in Australia which has been exacerbated by state and international border closures due to COVID-19. State and international border closures have affected the number of staff available which has subsequently led to an increased occupancy.
reliance on more expensive temporary labor hire resources and has placed upward pressure on wages for permanent staff as competitors compete for a small pool of labor.
Segment Results of Operations – U.S. Segment
| | | Three Months Ended September 30, | | Three Months Ended June 30, |
| | 2020 | | 2019 | | Change | | 2021 | | 2020 | | Change |
Revenues ($ in thousands) | Revenues ($ in thousands) | $ | 6,387 | | | $ | 9,349 | | | $ | (2,962) | | Revenues ($ in thousands) | $ | 6,876 | | | $ | 4,645 | | | $ | 2,231 | |
| Cost of sales ($ in thousands) | $ | 7,512 | | | $ | 8,539 | | | $ | (1,027) | | |
Cost of sales and services ($ in thousands) | | Cost of sales and services ($ in thousands) | $ | 5,765 | | | $ | 5,755 | | | $ | 10 | |
| Gross margin as a % of revenues | Gross margin as a % of revenues | (17.6) | % | | 8.7 | % | | (26.3) | % | Gross margin as a % of revenues | 16.2 | % | | (23.9) | % | | 40.1 | % |
Our U.S. segment reported revenues in the thirdsecond quarter of 20202021 that were $3.0$2.2 million, or 32%48%, lowerhigher than the thirdsecond quarter of 2019.2020. This increase was primarily due to reducedincreased occupancy at our West Permian, Killdeer and KilldeerAcadian Acres lodges and increased activity in our offshore business from fabrication and unit sales, partially offset by reduced U.S. drilling activity affecting our wellsite business. These decreases were partially offset by increased activity in our offshore rental business, as two fabrication projects were completed in the third quarter.
Our U.S. segment cost of sales decreased $1.0 million, or 12%,and services slightly increased in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019. The decrease2020. This increase was driven by reduced occupancy at our West Permian and Killdeer lodges and reduced U.S. drilling activity affecting our wellsite business. These decreases were partially offset by increaseddue to greater activity in our offshore rental business.business, partially offset by reduced costs in our wellsite business attributable to its reduced activity.
Our U.S. segment gross margin as a percentage of revenues decreasedincreased from 8.7% in the third quarter of 2019 to (17.6)(23.9)% in the thirdsecond quarter of 2020 to 16.2% in the second quarter of 2021 primarily due to reduced activityincreased occupancy at our West Permian, Killdeer and Acadian Acres lodges and in most areas of theour offshore business andfrom product sales, partially offset by reduced operating efficiencies at lower activity levels.levels in our wellsite business.
Results of Operations – NineSix Months Ended SeptemberJune 30, 20202021 Compared to NineSix Months Ended SeptemberJune 30, 20192020
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | Change | | 2021 | | 2020 | | Change |
| | | ($ in thousands) | | ($ in thousands) |
Revenues | Revenues | | Revenues | | | | | |
Canada | Canada | $ | 204,119 | | | $ | 235,943 | | | $ | (31,824) | | Canada | $ | 145,166 | | | $ | 132,334 | | | $ | 12,832 | |
Australia | Australia | 170,869 | | | 107,160 | | | 63,709 | | Australia | 123,656 | | | 106,184 | | | 17,472 | |
U.S. and other | U.S. and other | 21,363 | | | 35,763 | | | (14,400) | | U.S. and other | 10,784 | | | 14,976 | | | (4,192) | |
Total revenues | Total revenues | 396,351 | | | 378,866 | | | 17,485 | | Total revenues | 279,606 | | | 253,494 | | | 26,112 | |
Costs and expenses | Costs and expenses | | Costs and expenses | | | | | |
Cost of sales and services | Cost of sales and services | | Cost of sales and services | | | | | |
Canada | Canada | 158,130 | | | 176,200 | | | (18,070) | | Canada | 109,227 | | | 106,737 | | | 2,490 | |
Australia | Australia | 102,995 | | | 59,718 | | | 43,277 | | Australia | 87,798 | | | 64,466 | | | 23,332 | |
U.S. and other | U.S. and other | 22,755 | | | 28,432 | | | (5,677) | | U.S. and other | 10,787 | | | 15,243 | | | (4,456) | |
Total cost of sales and services | Total cost of sales and services | 283,880 | | | 264,350 | | | 19,530 | | Total cost of sales and services | 207,812 | | | 186,446 | | | 21,366 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 38,889 | | | 42,960 | | | (4,071) | | Selling, general and administrative expenses | 28,884 | | | 25,427 | | | 3,457 | |
Depreciation and amortization expense | Depreciation and amortization expense | 72,527 | | | 92,974 | | | (20,447) | | Depreciation and amortization expense | 42,646 | | | 47,707 | | | (5,061) | |
Impairment expense | Impairment expense | 144,120 | | | 5,546 | | | 138,574 | | Impairment expense | 7,935 | | | 144,120 | | | (136,185) | |
Other operating expense (income) | 755 | | | 109 | | | 646 | | |
Other operating income | | Other operating income | 101 | | | 704 | | | (603) | |
Total costs and expenses | Total costs and expenses | 540,171 | | | 405,939 | | | 134,232 | | Total costs and expenses | 287,378 | | | 404,404 | | | (117,026) | |
Operating loss | Operating loss | (143,820) | | | (27,073) | | | (116,747) | | Operating loss | (7,772) | | | (150,910) | | | 143,138 | |
| Interest expense and income, net | (13,458) | | | (20,604) | | | 7,146 | | |
Interest expense, net | | Interest expense, net | (6,761) | | | (9,429) | | | 2,668 | |
Other income | Other income | 17,209 | | | 6,882 | | | 10,327 | | Other income | 5,702 | | | 12,667 | | | (6,965) | |
Loss before income taxes | Loss before income taxes | (140,069) | | | (40,795) | | | (99,274) | | Loss before income taxes | (8,831) | | | (147,672) | | | 138,841 | |
Income tax benefit | 8,509 | | | 13,963 | | | (5,454) | | |
Income tax (expense) benefit | | Income tax (expense) benefit | (584) | | | 8,689 | | | (9,273) | |
Net loss | Net loss | (131,560) | | | (26,832) | | | (104,728) | | Net loss | (9,415) | | | (138,983) | | | 129,568 | |
Less: Net income attributable to noncontrolling interest | Less: Net income attributable to noncontrolling interest | 914 | | | 60 | | | 854 | | Less: Net income attributable to noncontrolling interest | 56 | | | 480 | | | (424) | |
Net loss attributable to Civeo Corporation | Net loss attributable to Civeo Corporation | (132,474) | | | (26,892) | | | (105,582) | | Net loss attributable to Civeo Corporation | (9,471) | | | (139,463) | | | 129,992 | |
Less: Dividends attributable to preferred shares | Less: Dividends attributable to preferred shares | 1,411 | | | 1,384 | | | 27 | | Less: Dividends attributable to preferred shares | 958 | | | 939 | | | 19 | |
Net loss attributable to Civeo common shareholders | Net loss attributable to Civeo common shareholders | $ | (133,885) | | | $ | (28,276) | | | $ | (105,609) | | Net loss attributable to Civeo common shareholders | $ | (10,429) | | | $ | (140,402) | | | $ | 129,973 | |
We reported net loss attributable to Civeo for the ninesix months ended SeptemberJune 30, 2021 of $10.4 million, or $0.73 per diluted share. As further discussed below, net loss included a $7.9 million pre-tax loss resulting from the impairment of fixed assets included in Impairment expense.
We reported net loss attributable to Civeo for the six months ended June 30, 2020 of $133.9$140.4 million, or $0.79$9.96 per diluted share. As further discussed below, net loss included (i) a $93.6 million pre-tax loss ($93.6 million after-tax, or $0.55 per diluted share) resulting from the impairment of goodwill in our Canadian reporting unitCanada segment included in Impairment expense, (ii) a $38.1 million pre-tax loss ($38.1 million after-tax, or $0.22 per diluted share) resulting from the impairment of long-lived assets in our Canadian reporting unitCanada segment included in Impairment expense and (iii) a $12.4 million pre-tax loss ($12.4 million after-tax, or $0.07 per diluted share) resulting from the impairment of long-lived assets in our U.S. reporting unitsegment included in Impairment expense. Net loss was partially offset by $4.7 million ($4.7 million after-tax, or $0.03 per diluted share) of income associated with the settlement of a representations and warranties claim related to the Noralta acquisition included in Other income.
We reported net loss attributable to Civeo for the nine months ended September 30, 2019 of $28.3 million, or $0.17 per diluted share. As further discussed below, net loss included (i) a $5.5 million pre-tax loss ($5.5 million after-tax, or $0.03 per diluted share) resulting from the impairment of fixed assets included in Impairment expense and (ii) a gain on sale of assets related to the sale of a village in Australia and related $2.2 million release of an ARO liability assumed by the buyer.
Revenues.Consolidated revenues increased $17.5$26.1 million, or 5%10%, in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 2019.2020. This increase was primarily due to higher revenues(i) increased mobile asset activity from a pipeline project in Australia due to the Action acquisition completed on July 1, 2019,Canada, (ii) increased occupancy at our Bowen BasinAustralian integrated services villages and higher mobile camp revenues in Canada related to(iii) a pipeline project. These items were partially offset by lower revenue from reduced occupancy at our north oil sands lodges in Canada resulting from the COVID-19 pandemicstronger Australian and lower oil prices. Additionally, lower activity levels in certain markets in the U.S. and weaker Canadian and Australian dollarsdollar relative to the U.S. dollar in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 2019 also2020. These items were partially offset the increased revenues.by (i) reduced food service activity, as an overflow site supporting a LNG-related project in 2020 is no longer required, (ii) decreased activity at our Bowen Basin villages and Western Australia villages and (iii) decreased activity at our U.S. wellsite business. See the discussion of segment results of operations below for further information.
Cost of Sales and Services. Our consolidated cost of sales and services increased $19.5$21.4 million million, or 7%11%, in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 2019,2020. This increase was primarily due to the Action acquisition and(i) increased mobile asset activity from a pipeline project in Canada, (ii) increased occupancy at our Bowen BasinAustralian integrated services villages and increased cost of temporary labor due to ongoing labor shortages in Australia and higher cost of sales(iii) a stronger Australian and services in Canada due to increased mobile camp activity from a pipeline project. These items were partially offset by decreased cost of sales and services due to reduced occupancy at our north oil sands lodges in Canada resulting from the COVID-19 pandemic and lower oil prices. Additionally, lower activity levels in certain markets in the U.S. and weaker Canadian and Australian dollarsdollar relative to the U.S. dollar in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 20192020. These items were partially offset by (i) reduced food service activity, as an overflow site supporting a LNG-related project in 2020 is no longer required, (ii) decreased activity at our Bowen Basin villages and Western Australia villages and (iii) lower activity in certain markets in the increased cost of sales and services.U.S. See the discussion of segment results of operations below for further information.
Selling, General and Administrative Expenses. SG&A expense decreased $4.1increased $3.5 million, or 9%14%, in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 2019.2020. This decreaseincrease was primarily due to lowerhigher incentive compensation costs, share-based compensation expense and lower travel and entertainment expenses,compensation expense, partially offset by higher incentive compensation costs.lower professional fees. The decreaseincrease in share-based compensation was due to a reduction in the amount of phantom share awards outstanding and the reductionan increase in our stock price during the nine months ended September 30, 20202021 compared to the nine months ended September 30, 2019.2020.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased $20.4$5.1 million, or 22%11%, in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 2019.2020. The decrease was primarily due to (i) certain assets and intangibles becoming fully depreciated during 2019,2020, (ii) the extension of the remaining life of certain long-lived accommodation assets in Canada during the fourth quarter of 2019, (iii) the impairment of certain long-lived assets in Canada and the U.S. during the first quarter of 2020 and (iv) weaker(iii) the extension of the remaining life of certain long-lived assets in the U.S. during the second quarter of 2020. These items were partially offset by a stronger Australian and Canadian and Australian dollarsdollar relative to the U.S. dollar in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 2019. These items were partially offset by additional depreciation and intangible amortization expense related to our acquisition in 2019.2020.
Impairment Expense.We recorded pre-tax impairment expense of $7.9 million in the six months ended June 30, 2021 associated with long-lived assets in our Australian reporting unit.
Impairment expense of $144.1 million in the ninesix months ended SeptemberJune 30, 2020 included the following items:
•Pre-tax impairment expense of $93.6 million related to the impairment of goodwill in our Canadian reporting unit.
•Pre-tax impairment expense of $38.1 million associated with long-lived assets in our Canadian reporting unit.
•Pre-tax impairment expense of $12.4 million associated with long-lived assets in our U.S. reporting unit.
Impairment expense of $5.5 million in the nine months ended September 30, 2019 was associated with long-lived assets in our Australian segment. This includes $1.0 million of impairment expense related to an error corrected in the second quarter 2019. We identified a liability related to an ARO at one of our villages in Australia that should have been recorded in 2011. We determined that the error was not material to our previously issued financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, and therefore, corrected the error in the second quarter of 2019. Specifically, we recorded the following amounts in our second quarter 2019 unaudited consolidated statements of operations related to prior periods: (i) additional accretion expense related to the ARO of $0.9 million, (ii) additional depreciation and amortization expense of $0.5 million related to amortization of the asset retirement cost and (iii) additional impairment expense related to the impairment of the asset retirement cost of $1.0 million offset by recognition of an ARO liability totaling $2.3 million as of June 30, 2019.
See Note 6 - Impairment Charges to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
OperatingLoss. Consolidated operating loss increased $116.7decreased $143.1 million, or 431%95%, in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 20192020, primarily due to impairmentsimpairment expense of goodwill and long-lived assets partially offset by increased activity levels in Australia, as well as lower depreciation and amortization expense.2020.
Interest Expense, and Income, net. Net interest expense decreased by $7.1$2.7 million, or 35%28%, in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 20192020, primarily related to lower average debt levels and lower interest rates on term loan and revolving credit facility borrowings during 20202021 compared to 2019.2020.
Other Income. Consolidated other income increased $10.3decreased $7.0 million or 150%, in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 2019, primarily due to $9.72020. The six months ended June 30, 2021 included $3.5 million of other income related to proceeds from the CEWS and a higher gain on the sale of assets primarily related to the sale of a manufacturing facility and mobile assets in Canada. The six months ended June 30, 2020 included $4.7 million of other income associated with the settlement of a representations and warranties claim
related to the Noralta acquisition, partially offset by a lower gain on sale of assets in 2020 compared to 2019. The nine months ended September 30, 2019 included $2.6$6.2 million of other income related to proceeds from an insurance claim associated with the closure of a lodge in 2018 for maintenance-related operational issuesCEWS and a gain on sale of assets related to the sale of a villageunutilized lodge assets in Australia and related $2.2 million release of an ARO liability assumed by the buyer.Canada.
Income Tax (Expense) Benefit. Our income tax benefitexpense for the ninesix months ended SeptemberJune 30, 20202021 totaled $8.5$0.6 million, or 6.1%(6.6)% of pretax loss, compared to an income tax benefit of $14.0$8.7 million, or 34.2%5.9% of pretax loss, for the ninesix months ended SeptemberJune 30, 2019. For2020. Our effective tax rate for both the ninesix months ended SeptemberJune 30, 2021 and June 30, 2020 was impacted by considering Canada and the U.S. were considered loss jurisdictions for tax accounting purposes andthat were not included inremoved from the annual effective tax rate computation for purposes of computing the interim tax provision. Although Australia was not considered a loss jurisdiction for the nine months ended September 30, 2020,Additionally, our effective tax rate was impacted by utilization of deferred tax assets and a release of the corresponding valuation allowance in Australia, resulting in no income tax expense for that jurisdiction. Our effective tax rate for the ninesix months ended SeptemberJune 30, 2020 was impacted by a deferred tax benefit of $9.0$9.6 million offset by a valuation allowancean increase of $0.1$0.7 million against the Canadian net deferred tax assets. For the nine months ended September 30, 2019, the U.S. was considered a loss jurisdiction. Additionally, the effective tax rate for the nine months ended September 30, 2019 was impacted by a tax benefit of $3.0 million related to a reduction in the Alberta, Canada income tax rate, as well as a $2.1 million tax benefit related to the change in the valuation allowance in Australia resulting from the acquisition of Action.Canada.
Other Comprehensive Income(Loss).Loss. Other comprehensive loss increased $2.4decreased $16.0 million in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 2019,2020, primarily as a result of foreign currency translation adjustments due to
changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar decreasedincreased 3% in the ninesix months ended SeptemberJune 30, 20202021 compared to a 3% increase5% decrease in the ninesix months ended SeptemberJune 30, 2019.2020. The Australian dollar exchange rate compared to the U.S. dollar increased 2%decreased 3% in the ninesix months ended SeptemberJune 30, 20202021 compared to a 4%2% decrease in the ninesix months ended SeptemberJune 30, 2019.2020.
Segment Results of Operations – Canadian Segment
| | | Nine Months Ended September 30, | | | Six Months Ended June 30, |
| | 2020 | | 2019 | | Change | | | 2021 | | 2020 | | Change |
Revenues ($ in thousands) | Revenues ($ in thousands) | | | | | | | Revenues ($ in thousands) | | | | | |
Accommodation revenue (1) | Accommodation revenue (1) | $ | 156,068 | | | $ | 203,774 | | | $ | (47,706) | | | Accommodation revenue (1) | $ | 116,289 | | | $ | 106,270 | | | $ | 10,019 | |
Mobile facility rental revenue (2) | Mobile facility rental revenue (2) | 21,715 | | | 5,648 | | | 16,067 | | | Mobile facility rental revenue (2) | 19,165 | | | 8,580 | | | 10,585 | |
Food service and other services revenue (3) | Food service and other services revenue (3) | 26,336 | | | 25,507 | | | 829 | | | Food service and other services revenue (3) | 9,712 | | | 17,484 | | | (7,772) | |
Manufacturing revenue (4) | — | | | 1,014 | | | (1,014) | | | |
| Total revenues | Total revenues | $ | 204,119 | | | $ | 235,943 | | | $ | (31,824) | | | Total revenues | $ | 145,166 | | | $ | 132,334 | | | $ | 12,832 | |
| Cost of sales and services ($ in thousands) | Cost of sales and services ($ in thousands) | | | | | | | Cost of sales and services ($ in thousands) | | | | | |
Accommodation cost | Accommodation cost | $ | 109,143 | | | $ | 137,140 | | | $ | (27,997) | | | Accommodation cost | $ | 83,328 | | | $ | 76,653 | | | $ | 6,675 | |
Mobile facility rental cost | Mobile facility rental cost | 17,099 | | | 4,735 | | | 12,364 | | | Mobile facility rental cost | 12,418 | | | 8,542 | | | 3,876 | |
Food service and other services cost | Food service and other services cost | 23,773 | | | 23,620 | | | 153 | | | Food service and other services cost | 8,576 | | | 16,178 | | | (7,602) | |
Manufacturing cost | 461 | | | 1,007 | | | (546) | | | |
Indirect other cost | 7,654 | | | 9,698 | | | (2,044) | | | |
| Indirect other costs | | Indirect other costs | 4,905 | | | 5,364 | | | (459) | |
Total cost of sales and services | Total cost of sales and services | $ | 158,130 | | | $ | 176,200 | | | $ | (18,070) | | | Total cost of sales and services | $ | 109,227 | | | $ | 106,737 | | | $ | 2,490 | |
| Gross margin as a % of revenues | Gross margin as a % of revenues | 22.5 | % | | 25.3 | % | | (2.8) | % | | Gross margin as a % of revenues | 24.8 | % | | 19.3 | % | | 5.4 | % |
| Average daily rate for lodges (5)(4) | Average daily rate for lodges (5)(4) | $ | 95 | | | $ | 91 | | | $ | 4 | | | Average daily rate for lodges (5)(4) | $ | 97 | | | $ | 94 | | | $ | 3 | |
| Total billed rooms for lodges (6)(5) | Total billed rooms for lodges (6)(5) | 1,626,668 | | | 2,241,510 | | | (614,842) | | | Total billed rooms for lodges (6)(5) | 1,203,390 | | | 1,118,220 | | | 85,170 | |
| Average Canadian dollar to U.S. dollar | Average Canadian dollar to U.S. dollar | $ | 0.739 | | | $ | 0.752 | | | $ | (0.01) | | | Average Canadian dollar to U.S. dollar | $ | 0.802 | | | $ | 0.733 | | | $ | 0.069 | |
(1)Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented.
(2)Includes revenues related to mobile campsassets for the periods presented.
(3)Includes revenues related to food services, laundry and water and wastewater treatment services for the periods presented.
(4)Includes revenues related to modular construction and manufacturing services for the periods presented.
(5)Average daily rate is based on billed rooms and accommodation revenue.
(6)(5)Billed rooms representrepresents total billed days for owned assets for the periods presented.
Our Canadian segment reported revenues in the ninesix months ended SeptemberJune 30, 20202021 that were $31.8$12.8 million, or 13%10%, lowerhigher than the ninesix months ended SeptemberJune 30, 2019.2020. The weakeningstrengthening of the average exchange ratesrate for the Canadian dollar relative to the U.S. dollar by 2%9% in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 20192020 resulted in a $3.4$13.3 million period-over-period decreaseincrease in revenues. Excluding the impact of the weakerstronger Canadian exchange rates, the segment experienced a 12% decrease in revenues. This decreaserate, revenue remained relatively flat; however, it was drivenpositively impacted by reduced occupancyhigher billed rooms at our lodges in the oil sands regionlodges related to lower oil pricesturnaround activities by a number of customers and the COVID-19 pandemic. Partially offsetting these items, revenue was favorably impacted by increased mobile campasset activity from a pipeline project. Partially offsetting these increases were reduced billed rooms at our Sitka Lodge related to the COVID-19 pandemic and the British Columbia health order and reduced food services activity, as an overflow site supporting a LNG-related project in 2020 is no longer required.
Our Canadian segment cost of sales and services decreased $18.1increased $2.5 million, or 10%2%, in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 2019.2020. The weakeningstrengthening of the average exchange ratesrate for the Canadian dollar relative to the U.S. dollar by 2%9% in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 20192020 resulted in a $2.7$9.6 million period-over-period decreaseincrease in cost of sales and services. Excluding the impact of the weakerstronger Canadian exchange rates,rate, the decreased cost of sales and services was driven by reduced occupancyfood services activity, as an overflow site supporting a LNG-related project in 2020 is no longer required and reduced activity at our lodges inSitka Lodge related to the north oil sands regionCOVID-19 pandemic and reduced indirect other costs from a continued focus on cost containment and operational efficiencies. TheseBritish Columbia health order. Partially offsetting these decreases were partially offset by increased mobile campasset activity from a pipeline project and increased costsactivity at our oil sands lodges related to the implementationturnaround activities by a number of enhanced measures during the COVID-19 pandemic.customers.
Our Canadian segment gross margin as a percentage of revenues decreasedincreased from 25.3%19.3% in the ninesix months ended SeptemberJune 30, 20192020 to 22.5%24.8% in the ninesix months ended SeptemberJune 30, 2020.2021. This was primarily driven by increased costsmobile asset activity and related operating efficiencies. Accommodation gross margins were maintained at 28% with an increase in margins at our oil sands lodges related to turnaround activities by a number of customers and related operating efficiencies at these higher levels, offset by a reduction in margins at our Sitka Lodge related to reduced operating efficiencies at the implementation of enhanced measures duringlower occupancy levels experienced due to the COVID-19 pandemic as well as reduced operating efficiencies due to lower occupancy.and the British Columbia health order.
Segment Results of Operations – Australian Segment
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | Change | | 2021 | | 2020 | | Change |
Revenues ($ in thousands) | Revenues ($ in thousands) | | | | | | Revenues ($ in thousands) | | | | | |
Accommodation revenue (1) | Accommodation revenue (1) | $ | 106,988 | | | $ | 92,473 | | | $ | 14,515 | | Accommodation revenue (1) | $ | 71,455 | | | $ | 67,518 | | | $ | 3,937 | |
Food service and other services revenue (2) | Food service and other services revenue (2) | 63,881 | | | 14,687 | | | 49,194 | | Food service and other services revenue (2) | 52,201 | | | $ | 38,666 | | | $ | 13,535 | |
Total revenues | Total revenues | $ | 170,869 | | | $ | 107,160 | | | $ | 63,709 | | Total revenues | $ | 123,656 | | | $ | 106,184 | | | $ | 17,472 | |
| Cost of sales ($ in thousands) | | |
Cost of sales and services ($ in thousands) | | Cost of sales and services ($ in thousands) | |
Accommodation cost | Accommodation cost | $ | 46,665 | | | $ | 44,816 | | | $ | 1,849 | | Accommodation cost | $ | 35,187 | | | $ | 30,264 | | | $ | 4,923 | |
Food service and other services cost | Food service and other services cost | 53,627 | | | 12,807 | | | 40,820 | | Food service and other services cost | 49,451 | | | 32,466 | | | 16,985 | |
Indirect other cost | Indirect other cost | 2,703 | | | 2,095 | | | 608 | | Indirect other cost | 3,160 | | | 1,736 | | | 1,424 | |
Total cost of sales and services | Total cost of sales and services | $ | 102,995 | | | $ | 59,718 | | | $ | 43,277 | | Total cost of sales and services | $ | 87,798 | | | $ | 64,466 | | | $ | 23,332 | |
| Gross margin as a % of revenues | Gross margin as a % of revenues | 39.7 | % | | 44.3 | % | | (4.5) | % | Gross margin as a % of revenues | 29.0 | % | | 39.3 | % | | (10.3) | % |
| Average daily rate for villages (3) | Average daily rate for villages (3) | $ | 72 | | | $ | 74 | | | $ | (2) | | Average daily rate for villages (3) | $ | 80 | | | $ | 69 | | | $ | 11 | |
| Total billed rooms for villages (4) | Total billed rooms for villages (4) | 1,487,819 | | | 1,253,856 | | | 233,963 | | Total billed rooms for villages (4) | 890,964 | | | 974,232 | | | (83,268) | |
| Australian dollar to U.S. dollar | Australian dollar to U.S. dollar | $ | 0.677 | | | $ | 0.699 | | | $ | (0.02) | | Australian dollar to U.S. dollar | $ | 0.772 | | | $ | 0.658 | | | $ | 0.114 | |
(1)Includes revenues related to village rooms and hospitality services for owned rooms for the periods presented.
(2)Includes revenues related to food services and other services, including facilities management for the periods presented.
(3)Average daily rate is based on billed rooms and accommodation revenue.
(4)Billed rooms represent total billed days for owned assets for the periods presented.
Our Australian segment reported revenues in the ninesix months ended SeptemberJune 30, 20202021 that were $63.7$17.5 million, or 59%17%, higher than the ninesix months ended September 30, 2019. Action contributed $63.9 million in revenues in the nine months ended SeptemberJune 30, 2020. The weakeningstrengthening of the average exchange ratesrate for Australian dollars relative to the U.S. dollar by 3%17% in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 20192020 resulted in a $2.2$18.3 million period-over-period decreaseincrease in revenues and a $2 reductionrevenues. Accordingly, the increase in the average daily rate.rate is entirely attributable to the strengthening of the Australia dollar. Excluding the impact of the weakerstronger Australian exchange rates,rate, the Australian segment experienced a 64% increase1% decrease in revenues primarilylargely due to the Action acquisition. In addition, increaseddecreased activity at our Bowen Basin villages wasand Western Australia villages, partially offset by decreased activityincreased occupancy at our Western Australiaintegrated services villages.
Our Australian segment cost of sales and services increased $43.3$23.3 million, or 72%36%, in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 2019.2020. The strengthening of the average exchange rate for Australian dollars relative to the U.S. dollar by 17% in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 resulted in a $13.0 million period-over-period increase in cost of sales and services. Excluding the impact of the stronger Australian exchange rate, the increase in cost of sales and services was primarilylargely driven by the Action acquisition. Increases related to increased activityoccupancy at our Bowen Basin villages were partially offset by decreased activity at our Western Australiaintegrated services villages and the weakeningincreased costs of the Australian dollar.temporary labor due to ongoing labor shortages.
Our Australian segment gross margin as a percentage of revenues decreased to 39.7%29% in the ninesix months ended SeptemberJune 30, 20202021 from 44.3%39.3% in the ninesix months ended SeptemberJune 30, 2019.2020. This was primarily driven by Action,our integrated services business, which has a service-only business model, and therefore results in lower overall gross margins than the accommodation business, partially offset by improved marginsbusiness. Reduced occupancy at ourthe Bowen Basin villages and Western Australia villages has also impacted our Australian segment gross margin. Segment gross margin has also been negatively impacted by increased staff costs as a result of a hospitality labor shortage in Australia which has been exacerbated by state and international border closures due to COVID-19. State and
international border closures have affected the number of staff available which has subsequently led to an increased occupancy.reliance on more expensive temporary labor hire resources and has placed upward pressure on wages for permanent staff as competitors compete for a small pool of labor.
Segment Results of Operations – U.S. Segment
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | Change | | 2021 | | 2020 | | Change |
Revenues ($ in thousands) | Revenues ($ in thousands) | $ | 21,363 | | | $ | 35,763 | | | $ | (14,400) | | Revenues ($ in thousands) | $ | 10,784 | | | $ | 14,976 | | | $ | (4,192) | |
| Cost of sales ($ in thousands) | $ | 22,755 | | | $ | 28,432 | | | $ | (5,677) | | |
Cost of sales and services ($ in thousands) | | Cost of sales and services ($ in thousands) | $ | 10,787 | | | $ | 15,243 | | | $ | (4,456) | |
| Gross margin as a % of revenues | Gross margin as a % of revenues | (6.5) | % | | 20.5 | % | | (27.0) | % | Gross margin as a % of revenues | 0.0 | % | | (1.8) | % | | 1.8 | % |
Our U.S. segment reported revenues in the ninesix months ended SeptemberJune 30, 20202021 that were $14.4$4.2 million, or 40%28%, lower than the ninesix months ended SeptemberJune 30, 2019.2020. This decrease was primarily due to reduced occupancy at our West Permian, Killdeer and Acadian Acres lodges, reduced U.S. drilling activity in the Bakken, Rockies, Mid-Continent and West Permian markets affecting our wellsite business and reduced activity in our offshore fabrication business as a project was completed in the first half of 2020 that did not recur to the same extent in 2021. These decreases were partially offset by increased activity inat our offshore rental business, as there wereAcadian Acres lodge related to a greater number of large fabrication jobs completed in the period.client’s turnaround activity.
Our U.S. segment cost of sales and services decreased $5.7$4.5 million, or 20%29%, in the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 2019. The2020. This decrease was driven bydue to reduced occupancyU.S. drilling activity affecting our wellsite business, reduced activity in our offshore fabrication business as a project was completed in the first half of 2020 that did not recur to the same extent in 2021 and reduced costs at our West Permian Killdeer and Acadian Acres lodges, reduced U.S. drilling activity in the Bakken, Rockies, Mid-Continent and West Permian markets affecting our wellsite business, partially offset by increased activity in our offshore rental business, as there werelodge under a greater number of large fabrication jobs completed in the period.new customer contract.
Our U.S. segment gross margin as a percentage of revenues decreasedincreased 1.8% from 20.5% in the ninesix months ended SeptemberJune 30, 20192020 to (6.5)% in the ninesix months ended SeptemberJune 30, 20202021, primarily due to reduced activityimproved margins at our lodgesWest Permian lodge under a new customer contract and wellsite markets andin our offshore business from product sales, partially offset by reduced operating efficiencies at lower activity levels.levels in our wellsite business.
Liquidity and Capital Resources
In September 2020, we entered into an amendment to our Credit Agreement, which reduced total lender commitments by $96.2 million. For additional information regarding the Amended Credit Agreement, see "Amended Credit Agreement" below.
Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and improving our hospitality services, developing new lodges and villages, purchasing or leasing land, and for general working capital needs. In addition, capital has been used to repay debt and fund strategic business acquisitions and pay dividends.acquisitions. Historically, our primary sources of funds have been available cash, cash flow from operations, borrowings under our Amended Credit
Agreement and proceeds from equity issuances. In the future, we may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity, fund acquisitions, refinance debt or retire preferred shares.
The following table summarizes our consolidated liquidity position as of SeptemberJune 30, 20202021 and December 31, 20192020 (in thousands):
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
Lender commitments (1) | Lender commitments (1) | $ | 167,300 | | | $ | 263,500 | | Lender commitments (1) | $ | 167,300 | | | $ | 167,300 | |
Reductions in availability (2) | — | | | (6,591) | | |
| Borrowings against revolving credit capacity | Borrowings against revolving credit capacity | (85,175) | | | (134,117) | | Borrowings against revolving credit capacity | (52,197) | | | (63,556) | |
Outstanding letters of credit | Outstanding letters of credit | (3,433) | | | (2,031) | | Outstanding letters of credit | (2,982) | | | (4,487) | |
Unused availability | Unused availability | 78,692 | | | 120,761 | | Unused availability | 112,121 | | | 99,257 | |
Cash and cash equivalents | Cash and cash equivalents | 6,938 | | | 3,331 | | Cash and cash equivalents | 4,414 | | | 6,155 | |
Total available liquidity | Total available liquidity | $ | 85,630 | | | $ | 124,092 | | Total available liquidity | $ | 116,535 | | | $ | 105,412 | |
(1)We also have a A$2.0 millionAs of June 30, 2021, we had one bank guarantee facility.facility totaling A$1.0 million. As of December 31, 2020, we had two bank guarantee facilities totaling $3.0 million. We had bank guarantees of A$0.70.8 million outstanding under this facility outstandingthe facilities as of both SeptemberJune 30, 20202021 and December 31, 2019, respectively.
(2)As of September 30, 2020, there were no reductions in our availability under the Amended Credit Agreement. As of December 31, 2019, $6.6 million of our borrowing capacity under the Credit Agreement could not be utilized in order to maintain compliance with the maximum leverage ratio financial covenant in the Credit Agreement.2020.
Cash totaling $80.7$29.4 million was provided by operations during the ninesix months ended SeptemberJune 30, 2020,2021, compared to $33.5$45.3 million provided by operations during the ninesix months ended SeptemberJune 30, 2019.2020. During the ninesix months ended SeptemberJune 30, 2021 and
2020, $13.8 million was used in working capital and 2019, $4.6$2.9 million was provided by working capital, and $29.4 million was used in working capital, respectively. The increasedecrease in cash provided by working capital in 20202021 compared to 20192020 is largely due to decreasedincreased accounts receivable balances in Canada.
Cash was provided by investing activities during the ninesix months ended SeptemberJune 30, 2021 in the amount of $0.5 million, compared to cash provided by investing activities during the six months ended June 30, 2020 in the amount of $1.7 million, compared to cash used in investing activities during the nine months ended September 30, 2019 in the amount of $34.7$2.7 million. The decrease in cash used inprovided by investing activities was primarily due to lower capital expenditures and $4.7 million of other income associated with the settlement of a representations and warranties claim related to the Noralta acquisition inand lower capital expenditures during the ninesix months ended SeptemberJune 30, 2020. This compares to $16.9 million to fund2020, partially offset by higher proceeds from the Action acquisitionsale of our manufacturing facility and mobile assets in Canada during the ninesix months ended SeptemberJune 30, 2019.2021. Capital expenditures totaled $6.2$6.5 million and $25.5$3.8 million during the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively. The decrease in capital expenditures from 2019 to 2020 was related primarily to the completion of the Sitka Lodge expansion, which occurred during 2019.
We expect our capital expenditures for 2020,2021, exclusive of any expansionary spending,business acquisitions or any growth capital expenditures, to be less than $15approximately $20 million, which excludes any expansionaryunannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts. Whether planned expenditures will actually be spent in 20202021 depends on industry conditions, project approvals and schedules, customer room commitments and project and construction timing. We expect to fund these capital expenditures with available cash, cash flow from operations and revolving credit borrowings under our Amended Credit Agreement. The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could pursue should the economic environment in our industry improve and the transaction economics are deemed to be attractive enough to us.us compared to the current capital allocation priorities of debt reduction. We continue to monitor the COVID-19 global pandemic and the responses thereto, the global economy, the prices of and demand for crude oil, met coal and iron ore and the resultant impact on the capital spending plans of our customers in order to plan our business activities, and we may adjust our capital expenditure plans in the future as we continue to monitor the impact of COVID-19.future.
Net cash of $79.6$31.1 million was used in financing activities during the ninesix months ended SeptemberJune 30, 2021 primarily due to net repayments under our revolving credit facilities of $12.1 million, repayments of term loan borrowings of $17.9 million and $1.1 million used to settle tax obligations on vested shares under our share-based compensation plans. Net cash of $43.6 million was used in financing activities during the six months ended June 30, 2020 primarily due to net repayments under our revolving credit facilities of $44.5$25.6 million, repayments of term loan borrowings of $31.1$16.5 million and $1.5 million used to settle tax obligations on vested shares under our share-based compensation plans and debt issuance costs of $2.6 million. Net cash of $2.8 million was used in financing activities during the nine months ended September 30, 2019 primarily due to repayments of term loan borrowings of $26.1 million, $4.3 million used to settle tax obligations on vested shares under our share-based compensation plans and debt issuances costs of $1.9 million, partially offset by net borrowings under our revolving credit facilities of $29.5 million.plans.
The following table summarizes the changes in debt outstanding during the ninesix months ended SeptemberJune 30, 20202021 (in thousands):
| | | | | | | | | | | | | |
| | | | | | | |
Balance at December 31, 20192020 | | | | | | | $ | 359,080251,086 | |
Borrowings under revolving credit facilities | | | | | | | 324,611117,976 | |
Repayments of borrowings under revolving credit facilities | | | | | | | (369,122)(130,080) | |
Repayments of term loans | | | | | | | (31,092)(17,874) | |
Translation | | | | | | | (10,931)5,725 | |
Balance at SeptemberJune 30, 20202021 | | | | | | | $ | 272,546226,833 | |
We believe that cash on hand and cash flow from operations will be sufficient to meet our anticipated liquidity needs in the coming 12 months. If our plans or assumptions change, including as a result of the impact of COVID-19 or the decline in the price of and demand for oil, or are inaccurate, or if we make acquisitions, we may need to raise additional capital. Acquisitions have been, and our management believes acquisitions will continue to be, an element of our long-term business strategy. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances or may issue equity directly to the sellers. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders.
Amended
Credit Agreement
As of December 31, 2019,June 30, 2021, our Credit Agreement as(as then amended to date, the Credit Agreement) provided for: (i) a $263.5$167.3 million revolving credit facility scheduled to mature on NovemberMay 30, 2021 for certain lenders,2023, allocated as follows: (A) a $20.0$10.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (B) a $183.5$122.3 million senior secured revolving credit facility in favor of Civeo and certain of our Canadian subsidiaries, as borrowers; and (C) a $60.0$35.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) a $285.4$194.8 million term loan facility scheduled to mature on NovemberMay 30, 20212023 for certain lenders in favor of Civeo.
On September 3, 2020, the third amendment to the Credit Agreement (as so amended, the Amended Credit Agreement) became effective, which, among other things:
•Extended the maturity date by 18 months of the commitments and loans of each lender remaining a lender following the effectiveness of the Amended Credit Agreement to May 30, 2023. Certain lenders are not extending the maturity date of their commitments and loans; the loans of the non-extending lenders were paid in full primarily with borrowings under the facility, and their commitments terminated on the date the Amended Credit Agreement became effective.
•Increased the margin applicable to loans and the commitment fee payable on the commitments of the lenders. Prior to entering into the Amended Credit Agreement, (i) the margin applicable to Eurocurrency loans, BBSY rate loans and B/A loans ranged from 2.25% to 4.00%, (ii) the margin applicable to ABR loans, Canadian Prime rate loans and U.S. Base rate loans ranged from 1.25% to 3.00% and (iii) the commitment fee ranged from 0.51% to 0.90%, in each case increasing as the total leverage ratio of the parent borrower and its subsidiaries increased from less than 2.00 to 1.00 to greater than 4.00 to 1.00. Following entry into the Amended Credit Agreement, these ranges have increased to (i) 3.50% to 4.50%, (ii) 2.50% to 3.50% and (iii) 0.875% to 1.125%, respectively, in each case as the total leverage ratio increases from less than 2.50 to 1.00 to greater than 3.50 to 1.00.
•Decreased (i) the U.S. revolving commitments from $20.0 million to $10.0 million, (ii) the maximum permitted amount of U.S. L/C exposure from $15.0 million to $10.0 million to match the reduction in the U.S. revolving commitments, (iii) the Canadian revolving commitments from $183.5 million to $122.3 million and (iv) the Australian revolving commitments from $60.0 million to $35.0 million.
We are required to maintain, if a qualified offering of indebtedness with gross proceeds in excess of $150 million has been consummated, a maximum leverage ratio of 4.00 to 1.00 and, if such qualified offering has not been consummated, a maximum leverage ratio not to exceed the ratios set forth in the following table:
| | | | | | | | |
Period Ended | Maximum Leverage Ratio |
September 30, 2020 | 3.75 : | 1.00 |
December 31, 2020 and thereafter | 3.50 : | 1.00 |
U.S. dollar amounts outstanding under the facilities provided by the Amended Credit Agreement bear interest at a variable rate equal to the London Inter-Bank Offered Rate (LIBOR) plus a margin of 3.50% to 4.50%, or a base rate plus 2.50% to 3.50%, in each case based on a ratio of our total debt to consolidated EBITDA (as defined in the Amended Credit Agreement). Canadian dollar amounts outstanding bear interest at a variable rate equal to a B/A Discount Rate (as defined in the Amended Credit Agreement) based on the Canadian Dollar Offered Rate (CDOR) plus a margin of 3.50% to 4.50%, or a Canadian Prime rate plus a margin of 2.50% to 3.50%, in each case based on a ratio of our total debt to consolidated EBITDA. Australian dollar amounts outstanding under the Amended Credit Agreement bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 3.50% to 4.50%, based on a ratio of our total debt to consolidated EBITDA. The future transitions from LIBOR and CDOR as interest rate benchmarks is addressed in the Amended Credit Agreement and at such time the transition from LIBOR or CDOR takes place, we will endeavor with the administrative agent to establish an alternate rate of interest to LIBOR or CDOR that gives due consideration to (1) the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time for the replacement of LIBOR and (2) any evolving or then existing convention for similar Canadian Dollar denominated syndicated credit facilities for the replacement of CDOR.
The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict: (i) indebtedness, liens and fundamental changes; (ii) asset sales; (iii) acquisitions of margin stock; (iv) specified acquisitions; (v) certain restrictive agreements; (vi) transactions with affiliates; and (vii) investments and other restricted payments, including dividends and other distributions. In addition, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA, of no greater than 3.75 to 1.0 (as of September 30, 2020). As noted above, the permitted maximum leverage ratio to 3.5 to 1.0 beginning December 31, 2020. Following a qualified offering of indebtedness with gross proceeds in excess of $150 million, we will be required to maintain a maximum senior secured ratio less than 2.50 to 1.0. Each of the factors considered in the calculations of these ratios are defined in the Amended Credit Agreement. EBITDA and consolidated interest, as defined, exclude goodwill and asset impairments, debt discount amortization, amortization of intangibles and other non-cash charges. We were in compliance with our covenants as of September 30, 2020.
Borrowings under the Amended Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries. The obligations under the Amended Credit Agreement are guaranteed by our significant subsidiaries. As of SeptemberJune 30, 2020, we had eight lenders that were parties to the Amended Credit Agreement, with total commitments (including both revolving commitments and term commitments) ranging from $22.4 million to $71.1 million. As of September 30, 2020,2021, we had outstanding letters of credit of $0.3$0.9 million under the U.S. facility, $0.5 millionzero under the Australian facility and $2.6$2.1 million under the Canadian facility.
As of June 30, 2021, we had one bank guarantee facility totaling A$1.0 million. We had bank guarantees of A$0.8 million outstanding under the facility as of June 30, 2021.
See Note 8 – Debt to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
Dividends
The declaration and amount of all potential future dividends will be at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, results of operations, cash flows, prospects, industry conditions, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors the Board of Directors deems relevant. In addition, our ability to pay cash dividends on common or preferred shares is limited by covenants in the Amended Credit Agreement. Future agreements may also limit our ability to pay dividends, and we may incur incremental taxes if we are required to repatriate foreign earnings to pay such dividends. If we elect to pay dividends in the future, the amount per share of our dividend payments may be changed, or dividends may be suspended, without advance notice. The likelihood that dividends will be reduced or suspended is increased during periods of market weakness. There can be no assurance that we will pay a dividend in the future.
The preferred shares we issued in the Noralta acquisition are entitled to receive a 2% annual dividend on the liquidation preference (initially $10,000 per share), paid quarterly in cash or, at our option, by increasing the preferred shares’ liquidation preference, or any combination thereof. Quarterly dividends were paid in-kind on SeptemberJune 30, 2020,2021, thereby increasing the liquidation preference to $10,511$10,669 per share as of SeptemberJune 30, 2020.2021. We currently expect to pay dividends on the preferred shares for the foreseeable future through an increase in liquidation preference rather than cash.
Off-Balance Sheet Arrangements
As of SeptemberJune 30, 2020,2021, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
For additional information about our contractual obligations, refer to “Liquidity and Capital Resources—Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. As of SeptemberJune 30, 2020,2021, except for net repayments under our revolving credit facilities, there were no material changes to the disclosure regarding our contractual obligations made in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Critical Accounting Policies
For a discussion of the critical accounting policies and estimates that we use in the preparation of our consolidated financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. These estimates require significant judgments, assumptions and estimates. We have discussed the development, selection and disclosure of these critical accounting policies and estimates with the audit committee of our Board of Directors. There have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Our principal market risks are our exposure to changes in interest rates and foreign currency exchange rates.
Interest Rate Risk
We have credit facilities that are subject to the risk of higher interest charges associated with increases in interest rates. As of SeptemberJune 30, 2020,2021, we had $272.5$226.8 million of outstanding floating-rate obligations under our credit facilities. These floating-rate obligations expose us to the risk of increased interest expense in the event of increases in short-term interest rates. If floating interest rates increased by 100 basis points, our consolidated interest expense would increase by approximately $2.7$2.3 million annually, based on our floating-rate debt obligations and interest rates in effect as of SeptemberJune 30, 2020.2021.
Foreign Currency Exchange Rate Risk
Our operations are conducted in various countries around the world, and we receive revenue and pay expenses from these operations in a number of different currencies. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in (i) currencies other than the U.S. dollar, which is our reporting currency, or (ii) the functional currency of our subsidiaries, which is not necessarily the U.S. dollar. Excluding intercompany balances, our Canadian dollar and Australian dollar functional currency net assets total approximately C$0.2 billion166 million and A$0.3 billion,280 million, respectively, at SeptemberJune 30, 2020.2021. We use a sensitivity analysis model to measure the impact of a 10% adverse movement of foreign currency exchange rates against the United States dollar. A hypothetical 10% adverse change in the value of the Canadian dollar and Australian dollar relative to the U.S. dollar as of SeptemberJune 30, 20202021 would result in translation adjustments of approximately $16$17 million and $29$28 million, respectively, recorded in other comprehensive loss. Although we do not currently have any foreign exchange agreements outstanding, in order to reduce our exposure to fluctuations in currency exchange rates, we may enter into foreign exchange agreements with financial institutions in the future.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2020,2021, at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
During the three months ended SeptemberJune 30, 2020,2021, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings
We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of our products or operations. Some of these claims relate to matters occurring prior to our acquisition of businesses, and some relate to businesses we have sold. In certain cases, we are entitled to indemnification from the sellers of businesses, and in other cases, we have indemnified the buyers of businesses from us. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.
ITEM 1A. Risk Factors
There are numerousFor additional information about our risk factors, that affect our business and results of operations, many of which are beyond our control. In addition to information set forth in this quarterly report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, you should carefully read and consider “Riskthe section entitled "Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations”included in our Annual Report on Form 10-K for the year ended December 31, 2019 and "Risk Factors" in our Form 10-Q for the quarter ended March 31, 2020, which contain descriptions of significant factors that may cause our future operating results to differ materially from those currently expected.2020.
ITEM 6. Exhibits
(a)INDEX OF EXHIBITS
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Exhibit No. | | Description |
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10.1 | — | Third Amendment to Amended and Restated Syndicated Facility Agreement, dated as of September 3, 2020, among Civeo Corporation and certain of its subsidiaries, as borrowers, the guarantors party thereto, the lenders named therein, Royal Bank of Canada, as Administrative Agent, and the other agents party thereto (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-36246) filed on September 8, 2020). |
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10.2 †* | — | |
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31.1* | — | |
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31.2* | — | |
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32.1** | — | |
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32.2** | — | |
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101.INS* | — | Inline 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 |
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101.SCH* | — | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* | — | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* | — | Inline Taxonomy Extension Definition Linkbase Document |
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101.LAB* | — | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* | — | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | — | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* | Filed herewith. | |
** | Furnished herewith. | |
† | Management contracts and compensatory plans and arrangements. | |
PLEASE NOTE: Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed or incorporated by reference the agreements referenced above as exhibits to this Quarterly Report on Form 10-Q. The agreements have been filed to provide investors with information regarding their respective terms. The agreements are not intended to provide any other factual information about Civeo or its business or operations. In particular, the assertions embodied in any representations, warranties and covenants contained in the agreements may be subject to qualifications with respect to knowledge and materiality different from those applicable to investors and may be qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set forth in the agreements. Moreover, certain
representations, warranties and covenants in the agreements may have been used for the purpose of allocating risk between the parties, rather than establishing matters as facts. In addition, information concerning the subject matter of the representations, warranties and covenants may have changed after the date of the respective agreement, which subsequent information may or may not be fully reflected in our public disclosures. Accordingly, investors should not rely on the representations, warranties and covenants in the agreements as characterizations of the actual state of facts about Civeo or its business or operations on the date hereof.
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.
CIVEO CORPORATION
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Date: October 28, 2020July 30, 2021 | By /s/ Carolyn J. Stone |
| Carolyn J. Stone |
| Senior Vice President, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial Officer) |
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