Civeo Corp 10-Q

ITEM 1. Financial Statements CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenues: Service and other $ 177,254 $ 147,784 $ 336,824 $ 269,780 Rental 7,035 4,540 12,295 7,604 Product 665 1,852 1,513 2,222 184,954 154,176 350,632 279,606 Costs and expenses: Service and other costs 124,318 103,449 245,168 199,911 Rental costs 5,414 3,661 9,806 6,631 Product costs 321 892 922 1,270 Selling, general and administrative expenses 17,682 14,703 32,895 28,884 Depreciation and amortization expense 23,083 21,377 43,210 42,646 Impairment expense — 7,935 — 7,935 Other operating (income) expense ( 106 ) 30 152 101 170,712 152,047 332,153 287,378 Operating income (loss) 14,242 2,129 18,479 ( 7,772 ) Interest expense ( 2,608 ) ( 3,401 ) ( 5,076 ) ( 6,763 ) Interest income 2 2 2 2 Other income 415 788 2,111 5,702 Income (loss) before income taxes 12,051 ( 482 ) 15,516 ( 8,831 ) Income tax (expense) benefit ( 1,821 ) 492 ( 3,378 ) ( 584 ) Net income (loss) 10,230 10 12,138 ( 9,415 ) Less: Net income (loss) attributable to noncontrolling interest 662 ( 3 ) 1,160 56 Net income (loss) attributable to Civeo Corporation 9,568 13 10,978 ( 9,471 ) Less: Dividends attributable to Class A preferred shares 490 480 977 958 Net income (loss) attributable to Civeo common shareholders $ 9,078 $ ( 467 ) $ 10,001 $ ( 10,429 ) Per Share Data (see Note 7) Basic net income (loss) per share attributable to Civeo Corporation common shareholders $ 0.55 $ ( 0.03 ) $ 0.60 $ ( 0.73 ) Diluted net income (loss) per share attributable to Civeo Corporation common shareholders $ 0.54 $ ( 0.03 ) $ 0.60 $ ( 0.73 ) Weighted average number of common shares outstanding: Basic 14,148 14,278 14,122 14,244 Diluted 14,275 14,278 14,271 14,244 The accompanying notes are an integral part of these financial statements. 4 CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In Thousands) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income (loss) $ 10,230 $ 10 $ 12,138 $ ( 9,415 ) Other comprehensive loss, net of taxes: Foreign currency translation adjustment, net of zero taxes ( 20,024 ) ( 1,573 ) ( 12,012 ) ( 3,200 ) Total other comprehensive loss, net of taxes ( 20,024 ) ( 1,573 ) ( 12,012 ) ( 3,200 ) Comprehensive income (loss) ( 9,794 ) ( 1,563 ) 126 ( 12,615 ) Less: Comprehensive income (loss) attributable to noncontrolling interest 568 ( 11 ) 1,106 38 Comprehensive loss attributable to Civeo Corporation $ ( 10,362 ) $ ( 1,552 ) $ ( 980 ) $ ( 12,653 ) The accompanying notes are an integral part of these financial statements. 5 CIVEO CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Excluding Share Amounts) June 30, 2022 December 31, 2021 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 4,782 $ 6,282 Accounts receivable, net 134,845 114,859 Inventories 7,382 6,468 Prepaid expenses 5,003 6,876 Other current assets 6,282 10,946 Assets held for sale 11,430 11,762 Total current assets 169,724 157,193 Property, plant and equipment, net 349,094 389,996 Goodwill 7,798 8,204 Other intangible assets, net 88,936 93,642 Operating lease right-of-use assets 16,295 18,327 Other noncurrent assets 5,550 5,372 Total assets $ 637,397 $ 672,734 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 45,360 $ 49,321 Accrued liabilities 28,289 33,564 Income taxes 74 171 Current portion of long-term debt 29,880 30,576 Deferred revenue 7,256 18,479 Other current liabilities 8,494 4,807 Total current liabilities 119,353 136,918 Long-term debt, less current maturities 123,018 142,602 Deferred income taxes 3,999 896 Operating lease liabilities 13,438 15,429 Other noncurrent liabilities 14,069 13,778 Total liabilities 273,877 309,623 Commitments and contingencies (Note 10) Shareholders’ Equity: Preferred shares (Class A Series 1, no par value; 50,000,000 shares authorized, 9,042 shares issued and outstanding, respectively; aggregate liquidation preference of $ 98,415,509 and $ 97,438,687 as of June 30, 2022 and December 31, 2021) 62,918 61,941 Common shares ( no par value; 46,000,000 shares authorized, 14,554,687 shares and 14,431,819 shares issued, respectively, and 14,188,012 shares and 14,111,221 shares outstanding, respectively) — — Additional paid-in capital 1,584,416 1,582,442 Accumulated deficit ( 903,492 ) ( 912,951 ) Common shares held in treasury at cost, 366,675 and 320,598 shares, respectively ( 9,063 ) ( 8,050 ) Accumulated other comprehensive loss ( 373,841 ) ( 361,883 ) Total Civeo Corporation shareholders’ equity 360,938 361,499 Noncontrolling interest 2,582 1,612 Total shareholders’ equity 363,520 363,111 Total liabilities and shareholders’ equity $ 637,397 $ 672,734 The accompanying notes are an integral part of these financial statements. 6 CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In Thousands) Attributable to Civeo 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 Balance, March 31, 2021 $ 60,494 $ — $ 1,579,342 $ ( 917,689 ) $ ( 8,050 ) $ ( 350,606 ) $ 648 $ 364,139 Net income (loss) — — — 13 — — ( 3 ) 10 Currency translation adjustment — — — — — ( 1,565 ) ( 8 ) ( 1,573 ) Dividends paid — — — — — — ( 42 ) ( 42 ) Dividends attributable to Class A preferred shares 480 — — ( 480 ) — — — — Share-based compensation — — 871 — — — — 871 Balance, June 30, 2021 $ 60,974 $ — $ 1,580,213 $ ( 918,156 ) $ ( 8,050 ) $ ( 352,171 ) $ 595 $ 363,405 Balance, March 31, 2022 $ 62,428 $ — $ 1,583,474 $ ( 912,037 ) $ ( 9,063 ) $ ( 353,911 ) $ 2,080 $ 372,971 Net income (loss) — — — 9,568 — — 662 10,230 Currency translation adjustment — — — — — ( 19,930 ) ( 94 ) ( 20,024 ) Dividends paid — — — — — — ( 66 ) ( 66 ) Dividends attributable to Class A preferred shares 490 — — ( 490 ) — — — — Common shares repurchased — — — ( 533 ) — — — ( 533 ) Share-based compensation — — 942 — — — — 942 Balance, June 30, 2022 $ 62,918 $ — $ 1,584,416 $ ( 903,492 ) $ ( 9,063 ) $ ( 373,841 ) $ 2,582 $ 363,520 Balance, December 31, 2020 $ 60,016 $ — $ 1,578,315 $ ( 907,727 ) $ ( 6,930 ) $ ( 348,989 ) $ 672 $ 375,357 Net income (loss) — — — ( 9,471 ) — — 56 ( 9,415 ) Currency translation adjustment — — — — — ( 3,182 ) ( 18 ) ( 3,200 ) Dividends paid — — — — — — ( 115 ) ( 115 ) Dividends attributable to Class A preferred shares 958 — — ( 958 ) — — — — Share-based compensation — — 1,898 — ( 1,120 ) — — 778 Balance, June 30, 2021 $ 60,974 $ — $ 1,580,213 $ ( 918,156 ) $ ( 8,050 ) $ ( 352,171 ) $ 595 $ 363,405 Balance, December 31, 2021 $ 61,941 $ — $ 1,582,442 $ ( 912,951 ) $ ( 8,050 ) $ ( 361,883 ) $ 1,612 $ 363,111 Net income — — — 10,978 — — 1,160 12,138 Currency translation adjustment — — — — — ( 11,958 ) ( 54 ) ( 12,012 ) Dividends paid — — — — — — ( 136 ) ( 136 ) Dividends attributable to Class A preferred shares 977 — — ( 977 ) — — — — Common shares repurchased — — — ( 542 ) — — — ( 542 ) Share-based compensation — — 1,974 — ( 1,013 ) — 961 Balance, June 30, 2022 $ 62,918 $ — $ 1,584,416 $ ( 903,492 ) $ ( 9,063 ) $ ( 373,841 ) $ 2,582 $ 363,520 Preferred Shares Common Shares (in thousands) Balance, December 31, 2021 9,042 14,111 Share-based compensation — 100 Common shares repurchased — ( 23 ) Balance, June 30, 2022 9,042 14,188 The accompanying notes are an integral part of these financial statements. 7 CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Six Months Ended June 30, 2022 2021 Cash flows from operating activities: Net income (loss) $ 12,138 $ ( 9,415 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 43,210 42,646 Impairment charges — 7,935 Deferred income tax expense 3,256 416 Non-cash compensation charge 1,974 1,898 Gains on disposals of assets ( 1,895 ) ( 1,941 ) Provision (benefit) for credit losses, net of recoveries ( 24 ) 147 Other, net 1,544 1,483 Changes in operating assets and liabilities: Accounts receivable ( 23,119 ) ( 24,617 ) Inventories ( 1,180 ) ( 830 ) Accounts payable and accrued liabilities ( 6,713 ) ( 563 ) Taxes payable ( 99 ) 21 Other current and noncurrent assets and liabilities, net ( 5,461 ) 12,170 Net cash flows provided by operating activities 23,631 29,350 Cash flows from investing activities: Capital expenditures ( 8,647 ) ( 6,530 ) Proceeds from disposition of property, plant and equipment 3,302 7,012 Other, net 190 — Net cash flows provided by (used in) investing activities ( 5,155 ) 482 Cash flows from financing activities: Revolving credit borrowings 155,712 117,976 Revolving credit repayments ( 158,288 ) ( 130,080 ) Term loan repayments ( 15,763 ) ( 17,874 ) Repurchases of common shares ( 542 ) — Taxes paid on vested shares ( 1,013 ) ( 1,120 ) Net cash flows used in financing activities ( 19,894 ) ( 31,098 ) Effect of exchange rate changes on cash ( 82 ) ( 475 ) Net change in cash and cash equivalents ( 1,500 ) ( 1,741 ) Cash and cash equivalents, beginning of period 6,282 6,155 Cash and cash equivalents, end of period $ 4,782 $ 4,414 Non-cash financing activities: Preferred dividends paid-in-kind $ 977 $ 958 The accompanying notes are an integral part of these financial statements. 8 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of the Business We provide hospitality services to the natural resources industry in Canada, Australia and the U.S. Our full suite of hospitality services for our guests includes 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, 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 companies, mining companies, engineering companies and oilfield and mining service companies. We operate in three principal reportable business segments – Canada, Australia and the U.S. 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. 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, 2021. 9 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. REVENUE The following table disaggregates our revenue by our three reportable segments: Canada, Australia and the U.S., and major categories for the periods indicated (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Canada Accommodation revenues $ 79,431 $ 69,759 $ 146,625 $ 116,289 Mobile facility rental revenues 24,058 8,666 48,076 19,165 Food service and other services revenues 5,534 4,856 10,274 9,712 Total Canada revenues 109,023 83,281 204,975 145,166 Australia Accommodation revenues $ 39,052 $ 37,780 $ 76,651 $ 71,455 Food service and other services revenues 28,768 26,239 54,698 52,201 Total Australia revenues 67,820 64,019 131,349 123,656 U.S. Accommodation revenues $ 791 $ 1,605 $ 1,254 $ 2,377 Mobile facility rental revenues 7,051 3,761 12,317 6,828 Manufacturing revenues 254 1,499 699 1,562 Food service and other services revenues 15 11 38 17 Total U.S. revenues 8,111 6,876 14,308 10,784 Total revenues $ 184,954 $ 154,176 $ 350,632 $ 279,606 Our payment terms vary by the type and location of our customer and the products or services offered. The time between invoicing and when our performance obligations are satisfied is not significant. Payment terms are generally within 30 days and in most cases do not extend beyond 60 days. We do not have significant financing components or significant payment terms. As of June 30, 2022, 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, 2022 2023 2024 Thereafter Total Revenue expected to be recognized as of June 30, 2022 $ 75,076 $ 47,206 $ 12,605 $ 9,964 $ 144,851 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. 3. 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. 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. 10 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of June 30, 2022 and December 31, 2021, 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. In addition, the estimated fair value of our assets held for sale is based upon Level 2 fair value measurements, which include appraisals and previous negotiations with third parties. During the second quarter of 2021, we wrote down certain long-lived assets to fair value. Our estimate of the fair value of undeveloped land positions in Australia that were impaired was based on appraisals from third parties. See Note 3 – Impairment Charges for further information. 5. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS Additional information regarding selected balance sheet accounts at June 30, 2022 and December 31, 2021 is presented below (in thousands): June 30, 2022 December 31, 2021 Accounts receivable, net: Trade $ 80,295 $ 75,740 Unbilled revenue 53,455 38,508 Other 1,415 972 Total accounts receivable 135,165 115,220 Allowance for credit losses ( 320 ) ( 361 ) Total accounts receivable, net $ 134,845 $ 114,859 June 30, 2022 December 31, 2021 Inventories: Finished goods and purchased products $ 5,611 $ 5,346 Work in process 365 25 Raw materials 1,406 1,097 Total inventories $ 7,382 $ 6,468 Estimated Useful Life (in years) June 30, 2022 December 31, 2021 Property, plant and equipment, net: Land $ 28,664 $ 30,556 Accommodations assets 3 — 15 1,592,357 1,657,577 Buildings and leasehold improvements 7 — 20 23,307 24,335 Machinery and equipment 4 — 15 14,804 14,983 Office furniture and equipment 3 — 7 63,407 63,228 Vehicles 3 — 5 14,605 14,578 Construction in progress 5,671 2,063 Total property, plant and equipment 1,742,815 1,807,320 Accumulated depreciation ( 1,393,721 ) ( 1,417,324 ) Total property, plant and equipment, net $ 349,094 $ 389,996 11 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2022 December 31, 2021 Accrued liabilities: Accrued compensation $ 23,345 $ 28,877 Accrued taxes, other than income taxes 2,998 2,944 Other 1,946 1,743 Total accrued liabilities $ 28,289 $ 33,564 6. ASSETS HELD FOR SALE As of June 30, 2022, assets held for sale included certain assets in our U.S. business segment, an undeveloped land holding and a village in our Australia business segment and an unused corporate office space acquired in the Noralta acquisition in our Canada business segment. As of December 31, 2021, assets held for sale included certain assets in our U.S. business segment and undeveloped land holdings in our Australia business segment. These assets were recorded at the estimated fair value less costs to sell, which exceeded their carry values. The following table summarizes the carrying amount as of June 30, 2022 and December 31, 2021 of the assets classified as held for sale (in thousands): June 30, 2022 December 31, 2021 Assets held for sale: Property, plant and equipment, net $ 11,430 $ 11,762 Total assets held for sale $ 11,430 $ 11,762 7. EARNINGS PER SHARE 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. In calculating diluted earnings per share, we utilize the most dilutive result of the two class method and if-converted methods. We also apply the treasury stock method with respect to certain share-based awards in the calculation of diluted earnings per share, if dilutive. 12 CIVEO CORPORATION 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 June 30, Six Months Ended June 30, 2022 2021 2022 2021 Numerator: Net income (loss) attributable to Civeo common shareholders $ 9,078 $ ( 467 ) $ 10,001 $ ( 10,429 ) Less: income allocated to participating securities ( 1,356 ) — ( 1,497 ) — Basic net income (loss) attributable to Civeo Corporation common shareholders $ 7,722 $ ( 467 ) $ 8,504 $ ( 10,429 ) Add: undistributed income attributable to participating securities 1,356 — 1,497 — Less: undistributed income reallocated to participating securities ( 1,346 ) — ( 1,483 ) — Diluted net income (loss) attributable to Civeo Corporation common shareholders $ 7,732 $ ( 467 ) $ 8,518 $ ( 10,429 ) Denominator: Weighted average shares outstanding - basic 14,148 14,278 14,122 14,244 Dilutive shares - share-based awards 127 — 149 — Weighted average shares outstanding - diluted 14,275 14,278 14,271 14,244 Basic net income (loss) per share attributable to Civeo Corporation common shareholders (1) $ 0.55 $ ( 0.03 ) $ 0.60 $ ( 0.73 ) Diluted net income (loss) per share attributable to Civeo Corporation common shareholders (1) $ 0.54 $ ( 0.03 ) $ 0.60 $ ( 0.73 ) (1) Computations may reflect rounding adjustments. For the three and six months ended June 30, 2022, we excluded a portion of our share-based awards, which totaled less than 0.1 million shares, 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. As a result of the net loss for the three and six months ended June 30, 2021, we excluded from the computation of diluted loss per share 0.1 million and 0.2 million share based awards, respectively, since the effect would have been anti-dilutive. Additionally, for the three and six months ended June 30, 2022 and 2021, the impact of converting the Preferred Shares into 2.5 million and 2.4 million common shares, respectively, using the if-converted method would have been anti-dilutive. 13 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. DEBT As of June 30, 2022 and December 31, 2021, long-term debt consisted of the following (in thousands): June 30, 2022 December 31, 2021 Canadian term loan; weighted average interest rate of 4.1 % for the six month period ended June 30, 2022 $ 46,560 $ 63,104 U.S. revolving credit facility; weighted average interest rate of 5.7 % for the six month period ended June 30, 2022 — — Canadian revolving credit facility; weighted average interest rate of 4.4 % for the six month period ended June 30, 2022 93,586 111,300 Australian revolving credit facility; weighted average interest rate of 3.3 % for the six month period ended June 30, 2022 14,492 726 154,638 175,130 Less: Unamortized debt issuance costs 1,740 1,952 Total debt 152,898 173,178 Less: Current portion of long-term debt, including unamortized debt issuance costs, net 29,880 30,576 Long-term debt, less current maturities $ 123,018 $ 142,602 Credit Agreement As of June 30, 2022, our Credit Agreement (as then amended to date, the Credit Agreement) provided for: (i) a $ 200.0 million revolving credit facility scheduled to mature on September 8, 2025, allocated as follows: (A) a $ 10.0 million senior secured revolving credit facility in favor of one of our U.S. subsidiaries, as borrower; (B) a $ 155.0 million senior secured revolving credit facility in favor of Civeo, as borrower; and (C) a $ 35.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) a C$ 100.0 million term loan facility scheduled to be fully repaid on December 31, 2023 in favor of Civeo. U.S. dollar amounts outstanding under the facilities provided by the Credit Agreement bear interest at a variable rate equal to the London Inter-Bank Offered Rate (LIBOR) plus a margin of 3.00 % to 4.00 %, or a base rate plus 2.00 % to 3.00 %, in each case based on a ratio of our total net debt to Consolidated EBITDA (as defined in the Credit Agreement). Canadian dollar amounts outstanding bear interest at a variable rate equal to a Bankers’ Acceptance Discount Rate (as defined in the Credit Agreement) based on the Canadian Dollar Offered Rate (CDOR) plus a margin of 3.00 % to 4.00 %, or a Canadian Prime rate plus a margin of 2.00 % to 3.00 %, in each case based on a ratio of our total debt to Consolidated EBITDA. Australian dollar amounts outstanding under the Credit Agreement bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 3.00 % to 4.00 %, based on a ratio of our total net debt to Consolidated EBITDA. The future transitions from LIBOR and CDOR as interest rate benchmarks are addressed in the Credit Agreement and at such time the transition from (i) LIBOR takes place, an alternate benchmark will be established based on the first alternative of the following, plus a benchmark replacement adjustment, Term Secured Overnight Financing Rate (SOFR), Daily Simple SOFR and an alternative benchmark selected by the administrative agent and the applicable borrowers giving due consideration to any selection or recommendation by a government body or any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for U.S. dollar-denominated syndicated credit facilities at such time or (ii) CDOR takes place, we will endeavor with the administrative agent to establish an alternate rate of interest to CDOR that gives due consideration to any evolving or then existing convention for similar Canadian Dollar denominated syndicated credit facilities for the replacement of CDOR. The 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 a minimum interest coverage ratio, defined as the ratio of Consolidated EBITDA to consolidated interest expense, of at least 3.00 to 1.00 and our maximum net leverage ratio, defined as 14 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) the ratio of total net debt to Consolidated EBITDA, of no greater than 3.00 to 1.00. Following a qualified offering of indebtedness, we will be required to maintain a maximum leverage ratio of no greater than 3.50 to 1.00 and a maximum senior secured ratio less than 2.00 to 1.00. Each of the factors considered in the calculations of these ratios are defined in the 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 June 30, 2022. Borrowings under the Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries subject to customary exceptions. The obligations under the Credit Agreement are guaranteed by our significant subsidiaries. As of June 30, 2022, we had seven lenders that were parties to the Credit Agreement, with total commitments (including both revolving commitments and term commitments) ranging from $ 22.5 million to $ 52.0 million. As of June 30, 2022, we had outstanding letters of credit of $ 0.3 million under the U.S. facility, zero under the Australian facility and $ 1.1 million under the Canadian facility. We also had outstanding bank guarantees of A$ 0.8 million under the Australian facility. 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 15 % to 30 %. Our effective tax rate will vary from period to period based on changes in earnings mix between these different jurisdictions. 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 June 30, 2022 and 2021, 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. Our income tax expense for the three months ended June 30, 2022 totaled $ 1.8 million, or 15.1 % of pretax income, compared to income tax benefit of $ 0.5 million, or 102.1 % of pretax loss, for the three months ended June 30, 2021. Our effective tax rate for both the three months ended June 30, 2022 and 2021 was impacted by considering Canada and the U.S. loss jurisdictions that were removed from the annual effective tax rate computation for purposes of computing the interim tax provision. Additionally, under Accounting Standards Codification 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 expense for six months ended June 30, 2022 totaled $ 3.4 million, or 21.8 % of pretax income, compared to income tax expense of $ 0.6 million, or ( 6.6 )% of pretax loss, for the six months ended June 30, 2021. Our effective tax rate for the six months ended June 30, 2022 and 2021 was impacted by considering Canada and the U.S. loss jurisdictions. 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. 11. ACCUMULATED OTHER COMPREHENSIVE LOSS Our accumulated other comprehensive loss increased $ 12.0 million from $ 361.9 million at December 31, 2021 to $ 373.8 million at June 30, 2022, as a result of foreign currency exchange rate fluctuations. Changes in other comprehensive loss during the first six months of 2022 were primarily driven by the Australian dollar and Canadian dollar decreasing in value compared to the U.S. dollar. Excluding intercompany balances, our Canadian dollar and Australian dollar functional currency net assets totaled approximately C$ 238 million and A$ 225 million, respectively, at June 30, 2022. 15 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 12. SHARE REPURCHASE PROGRAM In August 2021, our Board of Directors (Board) authorized a common share repurchase program to repurchase up to 5.0 % of our total common shares which are issued and outstanding, or approximately 715,000 common shares, over a twelve month period. The common share repurchase program commenced in September 2021 and will terminate no later than twelve months from date of commencement. The repurchase authorization allows repurchases from time to time in open market transactions, including pursuant to trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. We intend to fund repurchases through cash on hand and cash generated from operations. Pursuant to our common share repurchase program, during the six months ended June 30, 2022, we repurchased an aggregate of 22,911 of our common shares outstanding at a weighted average price of $ 23.65 per share, for a total of approximately $ 0.5 million. We have repurchased an aggregate of 240,090 of our common shares outstanding at a weighted average price of $ 21.59 per share for a total cost of $ 5.2 million since inception of the common share repurchase program. The common shares repurchased under the program are cancelled in the periods they are acquired and the payment is accounted for as an increase to accumulated deficit in our Unaudited Consolidated Statements of Changes in Shareholders’ Equity in the period the payment is made. 13. 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 and the Compensation Committee of our Board 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 2.4 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 18, 2022, we granted 39,032 restricted share awards to our non-employee directors, which vest in their entirety on May 17, 2023. Compensation expense associated with restricted share awards, restricted share units and deferred share awards recognized in the three months ended June 30, 2022 and 2021 totaled $ 0.3 million and $ 0.3 million, respectively. Compensation expense associated with restricted share awards, restricted share units and deferred share awards recognized in the six months ended June 30, 2022 and 2021 totaled $ 0.7 million and $ 0.8 million, respectively. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during the three months ended June 30, 2022 and 2021 was $ 1.5 million and zero , respectively. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during the six months ended June 30, 2022 and 2021 was $ 2.1 million and $ 1.5 million, respectively. At June 30, 2022, unrecognized compensation cost related to restricted share awards, restricted share units and deferred share awards was $ 0.9 million, which is expected to be recognized over a weighted average period of 0.9 years. Phantom Share Awards. On February 25, 2022, we granted 255,034 phantom share awards under the Civeo Plan, which vest in three equal annual installments beginning on February 25, 2023. We also granted 77,574 phantom share awards under the Canadian Long-Term Incentive Plan, which vest in three equal annual installments beginning on February 25, 2023. Phantom share awards are settled in cash upon vesting. During the three months ended June 30, 2022 and 2021, we recognized compensation expense associated with phantom shares totaling $ 2.5 million and $ 1.4 million, respectively. During the six months ended June 30, 2022 and 2021, we recognized compensation expense associated with phantom shares totaling $ 4.9 million and $ 2.9 million, respectively. At June 30, 2022, unrecognized compensation cost related to phantom shares was $ 14.5 million, as remeasured at June 30, 2022, which is expected to be recognized over a weighted average period of 2.0 years. Performance Awards. On February 25, 2022, we granted 122,555 performance awards under the Civeo Plan, which cliff vest in three years on February 25, 2025 subject to attainment of applicable performance criteria. These awards will be earned in amounts between 0 % and 200 % of the participant’s target performance share award, based equally on (i) the payout percentage associated with Civeo’s relative total shareholder return rank among a peer group that includes 17 other companies 16 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) and (ii) the payout percentage associated with Civeo's cumulative operating cash flow over the performance period relative to a preset target. The portion of the performance awards tied to cumulative operating 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. During the three months ended June 30, 2022 and 2021, we recognized compensation expense associated with performance awards totaling $ 0.7 million and $ 0.6 million, respectively. During the six months ended June 30, 2022 and 2021, we recognized compensation expense associated with performance awards totaling $ 1.3 million and $ 1.1 million, respectively. No performance share awards vested during the three months ended June 30, 2022 and 2021. The total fair value of performance share awards that vested during the six months ended June 30, 2022 and 2021 was $ 2.4 million and $ 1.9 million, respectively. At June 30, 2022, unrecognized compensation cost related to performance shares was $ 5.2 million, which is expected to be recognized over a weighted average period of 2.2 years. 17 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. 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 six months ended June 30, 2022 and 2021 is summarized in the following table (in thousands): Total revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Three months ended June 30, 2022 Canada $ 109,023 $ 14,998 $ 11,197 $ 1,847 $ 753,303 Australia 67,820 7,728 5,452 2,832 204,086 U.S. 8,111 395 ( 1,295 ) 376 26,165 Corporate and eliminations — ( 38 ) ( 1,112 ) — ( 346,157 ) Total $ 184,954 $ 23,083 $ 14,242 $ 5,055 $ 637,397 Three months ended June 30, 2021 Canada $ 83,281 $ 12,152 $ 7,452 $ 1,143 $ 763,763 Australia 64,019 8,512 ( 2,656 ) 1,147 242,730 U.S. 6,876 542 ( 1,109 ) 482 27,793 Corporate and eliminations — 171 ( 1,558 ) 386 ( 316,599 ) Total $ 154,176 $ 21,377 $ 2,129 $ 3,158 $ 717,687 Six months ended June 30, 2022 Canada $ 204,975 $ 26,595 $ 15,235 $ 3,853 $ 753,303 Australia 131,349 15,685 11,587 4,048 204,086 U.S. 14,308 777 ( 2,904 ) 724 26,165 Corporate and eliminations — 153 ( 5,439 ) 22 ( 346,157 ) Total $ 350,632 $ 43,210 $ 18,479 $ 8,647 $ 637,397 Six months ended June 30, 2021 Canada $ 145,166 $ 24,239 $ ( 207 ) $ 2,323 $ 763,763 Australia 123,656 16,971 651 2,701 242,730 U.S. 10,784 1,108 ( 3,707 ) 851 27,793 Corporate and eliminations — 328 ( 4,509 ) 655 ( 316,599 ) Total $ 279,606 $ 42,646 $ ( 7,772 ) $ 6,530 $ 717,687 18 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 volatility in the price of and demand for commodities, as well as our expectations about capital expenditures in 2022 and beliefs with respect to liquidity 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,” “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, 2021 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.