Civeo Corp 10-Q

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. 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. Historically, 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 has been driven by natural resource production, maintenance and operation of those facilities as well as expansion of those sites. In general, industry capital spending programs are based on the outlook for commodity prices, economic growth, global commodity supply/demand, estimates of resource production and shareholder expectations. As a result, demand for our hospitality services is largely sensitive to expected commodity prices, principally related to 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; British Columbia, Canada; Queensland, Australia; and Western Australia. We derive most of our business from natural resource companies who are developing and producing oil sands, met coal, LNG and iron ore resources and, to a lesser extent, other hydrocarbon and mineral resources. In the second quarter of 2022, approximately 64% of our revenue was generated by our lodges in Canada and 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-person-per-day basis that covers lodging and meals and is based on the duration of customer needs, 19 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 make significant, upfront 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 have 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, including government-imposed or voluntary social distancing and quarantining, reduced travel and remote work policies, evolved with the introduction of vaccination efforts in 2021, and may continue to evolve as virus variants have added uncertainty to the continuing global impact. Since the COVID-19 pandemic began, we have been impacted by increased staff costs as a result of hospitality labor shortages in Australia. This labor shortage has been exacerbated by significantly reduced foreign labor availability and reduced labor mobility in Australia, which has subsequently led to an increased reliance on more expensive temporary labor resources. 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 sanitization efforts, the suspension of nonessential employee travel and implementation of work-from-home policies, where applicable. In part due to the impact of COVID-19 on the global economy, increasing inflationary pressures are being experienced worldwide. These price increases have, and are expected to continue to have, a negative impact on our labor and food costs, as well as consumable costs such as fuel. The Company is managing inflation risk with negotiated service scope changes and contractual protections. 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. Since this trough in early 2020, global oil prices increased later in 2020 and throughout 2021 primarily due to improved global oil demand and lagging global oil supply due to oil production discipline from publicly traded oil producers and OPEC+ countries. These supply/demand dynamics have continued in 2022 and have been exacerbated by the recent conflict between Russia and Ukraine and related sanctions on Russia, which decreased global fossil fuel supply even further. This has led to a significant increase in global oil prices to above $100 per barrel. In response, several governments including the U.S. government under the Biden administration, have begun to release oil from the government controlled strategic reserves. 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), refinery blending requirements and 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 assets and to improve take-away capacity for Canadian oil sands producers over the longer term. The Enbridge Line 3 replacement project was completed at the end of 2021 and the Trans Mountain Pipeline (TMX) is currently under construction and continues to progress towards completion. The Canadian federal government acquired the TMX pipeline in 2018, approved the expansion of the project and is currently working through a revised construction timeline to adjust for recent delays related to legal challenges, the COVID-19 pandemic, flooding along certain sections of the pipeline corridor and seasonal wildfires. As a result, the TMX pipeline construction has been delayed, and there is a risk that there could be future delays. Recent legal issues between the Canadian government and First Nation groups have been resolved for the time being and construction has resumed. WCS prices in the second quarter of 2022 averaged $92.89 per barrel compared to an average of $53.27 in the second quarter of 2021. The WCS Differential increased from $14.12 per barrel at the end of the fourth quarter of 2021 to $18.16 at the end of the second quarter of 2022. As of July 25, 2022, the WTI price was $99.60 and the WCS price was $76.26, resulting in a WCS Differential of $23.34. Together with the initial spread of COVID-19, depressed price levels of both WTI and WCS materially impacted 2020 maintenance and production spending and activity by Canadian operators and, therefore, demand for our hospitality services. Customers began increasing production activity in the fourth quarter of 2020, throughout 2021 and into the first half of 2022. 20 While oil prices have recently increased to multi-year highs, there is continued uncertainty around commodity price levels, including the impact of COVID-19, inflationary pressures and regulatory implications on such prices, which could 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. British Columbia, Canada. Our Sitka Lodge supports the LNG Canada project and related pipeline projects (see discussion below). From a macroeconomic standpoint, LNG demand continued to grow despite the spread of COVID-19, 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. The conflict between Russia and Ukraine has further highlighted the need for secure natural gas supply globally, particularly in Europe. Accordingly, additional investment in LNG supply will be needed to meet the resulting expected long-term LNG demand growth. Currently, Western Canada does not have any operational LNG export facilities. LNG Canada (LNGC), a joint venture among 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). British Columbia LNG activity and related pipeline projects are a material driver of activity for our Sitka Lodge, as well as for our mobile assets, which are contracted to serve designated portions of the related pipeline construction activity. The actual timing of when revenue is realized from the Coastal GasLink (CGL) pipeline and Sitka Lodge contracts could be impacted by any delays in the construction of the Kitimat LNG Facility or the pipeline, such as protest blockades or COVID-19. Our current expectation is that our contracted commitments associated with the CGL pipeline project will be completed in late 2022 or early 2023. Any new delays in facility or pipeline construction may result in extensions to these dates. 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. In late December 2020, British Columbia’s public health officer issued a health order limiting workforce size at all large industrial projects across the province, including LNGC. These actions resulted in reduced occupancy at our Sitka Lodge beginning in the second quarter of 2020. British Columbia's public health order was phased out in the second quarter of 2021. It was replaced with less restrictive requirements focused on monitoring, allowing workforces to return to their optimal sizes, which increased occupancy at our Sitka Lodge in the second half of 2021 and into 2022. 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 decreased by 5.5% through June 2022 compared to the same period of 2021. Analysts forecast steel production for 2022 to be subdued for the full year 2022 compared to 2021 with reduced residential construction activity offsetting stronger global infrastructure activity. As of July 25, 2022, met coal spot prices were $230 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. The Chinese embargo on Australian coal continues. However, Australian met coal producers have found new markets, including India and Europe, for their premium product. This led to a rebalancing of the market globally in 2021, with China relying on domestic production along with increased met coal imports from the U.S., Canada and Mongolia. With the backdrop of continuing strong steel demand and met coal supply constraints, the spot price for met coal surged to record highs through the second half of 2021 into early 2022. Since the historic highs in early 2022, prices have retreated to approximately $230 per tonne with a weakening in steel demand coupled with Chinese lockdowns and concerns about a global economic slowdown. Analysts expect prices to remain stagnant, with some volatility in prices in the near term, recovering to near $300 per tonne in the second half of 2022. As the trade impasse with China remains unresolved and as the Ukraine conflict continues, there remains volatility in both the short and medium term. Civeo's activity in Western Australia is driven primarily by iron ore production, which is a key steel-making ingredient. Through the second half of 2021, with forced cuts in Chinese steel production along with weaker demand, prices retreated from the peaks experienced in mid-2021. Iron ore prices have remained relatively stable in the first half of 2022, albeit with a decrease in early July. As of July 22, 2022, iron ore spot prices were $92.51 per metric tonne, which reflects a softening in prices since early 2022 as new COVID restrictions in China and weaker steel production impact demand. While there is anticipation of infrastructure-related construction activity improving in China, this factor will be tempered with a slowdown in 21 residential activity and COVID-19 impacts. Accordingly, iron ore prices are expected to moderate above current levels during the second half of 2022. Australian iron ore exports in 2022 are forecast to exceed both 2020 and 2021 volumes and continue to grow over the medium term through to 2024. 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. In 2020, the U.S. oil rig count and associated completion activity decreased due to COVID-19 and the global oil price decline discussed above. Only 267 oil rigs were active at the end of 2020. With the recovery of oil prices, oil rig count and drilling activity have recovered substantially, with 594 oil rigs active at the end of the second quarter 2022. The Permian Basin remains the most active U.S. unconventional play, representing approximately 60% of the oil rigs active in the U.S. at the end of the second quarter of 2022. The increase in the U.S. rig count and oil prices has only resulted in slight increases to U.S. oil production from an average of 11.3 million barrels per day in 2021 to an average of 11.6 million barrels per day at the end of April 2022. As of July 22, 2022, there were 599 active oil rigs in the U.S. (as measured by Bakerhughes.com). U.S. oil shale drilling and completion activity will continue to be impacted by higher WTI oil prices, pipeline capacity, federal energy policies and availability of capital to support exploration and production (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, met coal and iron ore pricing trends are as follows: Average Price (1) Quarter ended WTI Crude (per bbl) WCS Crude (per bbl) Hard Coking Coal (Met Coal) (per tonne) Iron Ore (per tonne) Third Quarter through July 25, 2022 $ 100.61 $ 78.70 $ 261.31 $ 100.47 6/30/2022 108.77 92.89 464.61 128.80 3/31/2022 95.17 82.04 474.83 129.46 12/31/2021 77.31 60.84 371.95 104.88 9/30/2021 70.54 57.58 258.41 164.90 6/30/2021 66.19 53.27 136.44 195.97 3/31/2021 58.13 46.28 127.95 159.83 (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 June 30, Six Months Ended June 30, 2022 2021 Change Percentage 2022 2021 Change Percentage Average Canadian dollar to U.S. dollar $0.784 $0.815 ($0.03) (3.8)% $0.787 $0.802 ($0.02) (1.9)% Average Australian dollar to U.S. dollar $0.715 $0.770 ($0.06) (7.2)% $0.719 $0.772 ($0.05) (6.8)% 22 As of June 30, 2022 December 31, 2021 Change Percentage Canadian dollar to U.S. dollar $0.776 $0.789 ($0.01) (1.6)% Australian dollar to U.S. dollar $0.690 $0.726 ($0.04) (4.9)% 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 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, inflation, the COVID-19 global pandemic and the responses thereto in order to plan our business activities. We currently expect that our 2022 capital expenditures, including the capital expenditures associated with our recently announced 12-year contract renewal for our Wapasu Lodge in the Canadian oil sands, will be in the range of approximately $24 million to $29 million, compared to 2021 capital expenditures of $15.6 million. We may adjust our capital expenditure plans in the future as we continue to monitor customer activity. See “Liquidity and Capital Resources ” below for further discussion of 2022 capital expenditures. 23 Results of Operations Unless otherwise indicated, discussion of results for the three and six months ended June 30, 2022, is based on a comparison to the corresponding periods of 2021. Results of Operations – Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021 Three Months Ended June 30, 2022 2021 Change ($ in thousands) Revenues Canada $ 109,023 $ 83,281 $ 25,742 Australia 67,820 64,019 3,801 U.S. and other 8,111 6,876 1,235 Total revenues 184,954 154,176 30,778 Costs and expenses Cost of sales and services Canada 75,009 57,342 17,667 Australia 47,692 44,895 2,797 U.S. and other 7,352 5,765 1,587 Total cost of sales and services 130,053 108,002 22,051 Selling, general and administrative expenses 17,682 14,703 2,979 Depreciation and amortization expense 23,083 21,377 1,706 Impairment expense — 7,935 (7,935) Other operating (income) expense (106) 30 (136) Total costs and expenses 170,712 152,047 18,665 Operating income 14,242 2,129 12,113 Interest expense, net (2,606) (3,399) 793 Other income 415 788 (373) Income (loss) before income taxes 12,051 (482) 12,533 Income tax (expense) benefit (1,821) 492 (2,313) Net income 10,230 10 10,220 Less: Net income (loss) attributable to noncontrolling interest 662 (3) 665 Net income attributable to Civeo Corporation 9,568 13 9,555 Less: Dividends attributable to preferred shares 490 480 10 Net income (loss) attributable to Civeo common shareholders $ 9,078 $ (467) $ 9,545 We reported net income attributable to Civeo for the quarter ended June 30, 2022 of $9.1 million, or $0.54 per diluted share compared to 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 for the quarter ended June 30, 2021 included a $7.9 million pre-tax loss resulting from the impairment of fixed assets included in Impairment expense. Revenues. Consolidated revenues increased $30.8 million, or 20%, in the second quarter of 2022 compared to the second quarter of 2021. This increase was primarily due to (i) higher billed rooms at our Canadian lodges as occupancy in the second quarter of 2021 was negatively impacted by the COVID-19 pandemic, (ii) higher average daily rate at our Canadian lodges largely due to occupancy mix, (iii) increased mobile asset activity from pipeline projects in Canada, (iv) increased activity at our Australian integrated services villages in Western Australia and (v) increased activity at our Australian Bowen Basin owned villages. These items were partially offset by a weaker Australian and Canadian dollar relative to the U.S. dollar in the second quarter of 2022 compared to the second quarter of 2021. 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 $22.1 million, or 20%, in the second quarter of 2022 compared to the second quarter of 2021. This increase was primarily due to (i) higher billed rooms at our Canadian lodges, (ii) increased mobile asset activity from pipeline projects in Canada, (iii) increased activity at our Australian integrated services villages, (iv) increased activity at our Australian Bowen Basin owned villages and (v) increased cost of 24 temporary labor due to ongoing labor shortages in Australia. These items were partially offset by a weaker Australian and Canadian dollar relative to the U.S. dollar in the second quarter of 2022 compared to the second quarter of 2021. See the discussion of segment results of operations below for further information. Selling, General and Administrative Expenses. SG&A expense increased $3.0 million, or 20%, in the second quarter of 2022 compared to the second quarter of 2021. This increase was primarily due to higher share-based compensation expense, travel and entertainment expense and information technology expense. The increase in share-based compensation expense was due to a relative increase in our stock price during the second quarter of 2022 compared to the second quarter of 2021. The increase in travel and entertainment expenses was largely a result of a return to more normalized travel expenses with the lifting of travel restrictions associated with COVID-19. This increase in information technology expense was related to implementation costs incurred in a cloud computing arrangement for our newly implemented human capital management system, which are being amortized through SG&A expense instead of depreciation and amortization expense. Depreciation and Amortization Expense. Depreciation and amortization expense increased $1.7 million, or 8%, in the second quarter of 2022 compared to the second quarter of 2021. The increase was primarily due to shortening the lives on certain assets in Canada, partially offset by certain assets in Canada becoming fully depreciated during 2021 and the disposal of our West Permian Lodge in the U.S. during 2021. Impairment Expense. We recorded pre-tax impairment expense of $7.9 million in the second quarter of 2021 associated with long-lived assets in our Australian reporting unit. See Note 3 - Impairment Charges to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion. Operating Income. Consolidated operating income increased $12.1 million, or 569%, in the second quarter of 2022 compared to the second quarter of 2021, primarily due to higher activity levels in Canada in the second quarter of 2022 compared to the second quarter of 2021 and lower impairment expense in Australia in the second quarter of 2022 compared to the second quarter of 2021. Interest Expense, net. Net interest expense decreased by $0.8 million, or 23%, in the second quarter of 2022 compared to the second quarter of 2021, primarily related to lower average debt levels on credit facility borrowings during 2022 compared to 2021, partially offset by higher interest rates on credit facility borrowings. Income Tax (Expense) Benefit. Our income tax expense for the three months ended June 30, 2022 totaled $1.8 million, or 15.1% of pretax income, compared to an 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. Other Comprehensive (Loss) Income. Other comprehensive loss increased $18.5 million in the second quarter of 2022 compared to the second quarter of 2021, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar decreased 3% in the second quarter of 2022 compared to a 1% increase in the second quarter of 2021. The Australian dollar exchange rate compared to the U.S. dollar decreased 8% in the second quarter of 2022 compared to a 2% decrease in the second quarter of 2021. 25 Segment Results of Operations – Canadian Segment Three Months Ended June 30, 2022 2021 Change Revenues ($ in thousands) Accommodation revenue (1) $ 79,431 $ 69,759 $ 9,672 Mobile facility rental revenue (2) 24,058 8,666 15,392 Food service and other services revenue (3) 5,534 4,856 678 Total revenues $ 109,023 $ 83,281 $ 25,742 Cost of sales and services ($ in thousands) Accommodation cost $ 53,108 $ 44,992 $ 8,116 Mobile facility rental cost 14,458 5,644 8,814 Food service and other services cost 4,976 4,455 521 Indirect other costs 2,467 2,251 216 Total cost of sales and services $ 75,009 $ 57,342 $ 17,667 Gross margin as a % of revenues 31.2 % 31.1 % 0.1 % Average daily rate for lodges (4) $ 103 $ 96 $ 7 Total billed rooms for lodges (5) 771,267 723,324 47,943 Average Canadian dollar to U.S. dollar $ 0.784 $ 0.815 $ (0.031) (1) Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented. (2) Includes revenues related to mobile assets for the periods presented. (3) Includes revenues related to food services, laundry and water and wastewater treatment services for the periods presented. (4) Average daily rate is based on billed rooms and accommodation revenue. (5) Billed rooms represents total billed days for owned assets for the periods presented. Our Canadian segment reported revenues in the second quarter of 2022 that were $25.7 million, or 31%, higher than the second quarter of 2021. The weakening of the average exchange rate for the Canadian dollar relative to the U.S. dollar by 4% in the second quarter of 2022 compared to the second quarter of 2021 resulted in a $4.4 million period-over-period decrease in revenues. Excluding the impact of the weaker Canadian exchange rate, the increase was driven by (i) higher billed rooms at our lodges as occupancy in the second quarter of 2021 was negatively impacted by the COVID-19 pandemic, (ii) a higher average daily rate at our lodges largely due to occupancy mix and (iii) increased mobile asset activity from pipeline projects. Our Canadian segment cost of sales and services increased $17.7 million, or 31%, in the second quarter of 2022 compared to the second quarter of 2021. The weakening of the average exchange rate for the Canadian dollar relative to the U.S. dollar by 4% in the second quarter of 2022 compared to the second quarter of 2021 resulted in a $3.0 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Canadian exchange rate, the increase in cost of sales and services was driven by increased occupancy at our lodges and by increased mobile asset activity from pipeline projects. Our Canadian segment gross margin as a percentage of revenues was largely unchanged, increasing from 31.1% in the second quarter of 2021 to 31.2% in the second quarter of 2022. Accommodation gross margin as a percentage of revenues decreased from 35.5% in the second quarter of 2021 to 33.1% in the second quarter of 2022, as 2021 benefited more significantly from billed rooms that were unused by clients under take-or-pay arrangements. Mobile facility gross margin as a percentage of revenues increased from 34.9% in the second quarter of 2021 to 39.9% in the second quarter of 2022, due to increased mobile asset activity and related operating efficiencies. 26 Segment Results of Operations – Australian Segment Three Months Ended June 30, 2022 2021 Change Revenues ($ in thousands) Accommodation revenue (1) $ 39,052 $ 37,780 $ 1,272 Food service and other services revenue (2) 28,768 26,239 2,529 Total revenues $ 67,820 $ 64,019 $ 3,801 Cost of sales and services ($ in thousands) Accommodation cost $ 18,840 $ 18,082 $ 758 Food service and other services cost 27,008 25,154 1,854 Indirect other cost 1,844 1,659 185 Total cost of sales and services $ 47,692 $ 44,895 $ 2,797 Gross margin as a % of revenues 29.7 % 29.9 % (0.2) % Average daily rate for villages (3) $ 77 $ 81 $ (4) Total billed rooms for villages (4) 505,310 466,298 39,012 Australian dollar to U.S. dollar $ 0.715 $ 0.770 $ (0.056) (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 second quarter of 2022 that were $3.8 million, or 6%, higher than the second quarter of 2021. The weakening of the average exchange rate for Australian dollars relative to the U.S. dollar by 7% in the second quarter of 2022 compared to the second quarter of 2021 resulted in a $5.3 million period-over-period decrease in revenues. On a constant currency basis, the Australian segment experienced a 14% period-over-period increase in revenues. Excluding the impact of the weaker Australian exchange rate, the increase in the Australian segment was driven by increased activity at our integrated services villages in Western Australia and Civeo owned villages in the Bowen Basin. Our Australian segment cost of sales and services increased $2.8 million, or 6%, in the second quarter of 2022 compared to the second quarter of 2021. The weakening of the average exchange rate for Australian dollars relative to the U.S. dollar by 7% in the second quarter of 2022 compared to the second quarter of 2021 resulted in a $3.7 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Australian exchange rate, the increase in cost of sales and services was largely driven by (i) increased activity at our integrated services villages in Western Australia, (ii) increased activity our Civeo owned villages in the Bowen Basin and, to a lesser extent, (iii) increased costs of temporary labor due to ongoing labor shortages. Our Australian segment gross margin as a percentage of revenues decreased to 29.7% in the second quarter of 2022 from 29.9% in the second quarter of 2021. This was primarily driven by higher revenue in our integrated services business, which has a service-only business model, and therefore results in lower overall gross margins than the accommodation business. 27 Segment Results of Operations – U.S. Segment Three Months Ended June 30, 2022 2021 Change Revenues ($ in thousands) $ 8,111 $ 6,876 $ 1,235 Cost of sales and services ($ in thousands) $ 7,352 $ 5,765 $ 1,587 Gross margin as a % of revenues 9.4 % 16.2 % (6.8) % Our U.S. segment reported revenues in the second quarter of 2022 that were $1.2 million, or 18%, higher than the second quarter of 2021. This increase was due to greater U.S. drilling activity positively impacting our wellsite business. This increase was partially offset by reduced revenue from our former West Permian Lodge, which operated in the second quarter of 2021 and was sold in the fourth quarter of 2021, and reduced activity in our offshore business as certain projects were completed in the second quarter of 2021 that did not recur to the same extent in 2022. Our U.S. segment cost of sales and services increased $1.6 million, or 28%, in the second quarter of 2022 compared to the second quarter of 2021. This increase was due to greater U.S. drilling activity positively impacting our wellsite business, partially offset by lower costs in our offshore business as certain projects were completed in the second quarter of 2021 that did not recur to the same extent in 2022. Our U.S. segment gross margin as a percentage of revenues decreased from 16.2% in the second quarter of 2021 to 9.4% in the second quarter of 2022 primarily due to our former West Permian Lodge, which operated in the second quarter of 2021 and was sold in the fourth quarter of 2021, and reduced margins from our offshore business as the second quarter of 2021 was positively impacted by higher margins from product sales. These were partially offset by improved margins in our wellsite business due to operating efficiencies at higher activity levels. 28 Results of Operations – Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021 Six Months Ended June 30, 2022 2021 Change ($ in thousands) Revenues Canada $ 204,975 $ 145,166 $ 59,809 Australia 131,349 123,656 7,693 U.S. and other 14,308 10,784 3,524 Total revenues 350,632 279,606 71,026 Costs and expenses Cost of sales and services Canada 150,215 109,227 40,988 Australia 92,206 87,798 4,408 U.S. and other 13,475 10,787 2,688 Total cost of sales and services 255,896 207,812 48,084 Selling, general and administrative expenses 32,895 28,884 4,011 Depreciation and amortization expense 43,210 42,646 564 Impairment expense — 7,935 (7,935) Other operating expense 152 101 51 Total costs and expenses 332,153 287,378 44,775 Operating income (loss) 18,479 (7,772) 26,251 Interest expense, net (5,074) (6,761) 1,687 Other income 2,111 5,702 (3,591) Income (loss) before income taxes 15,516 (8,831) 24,347 Income tax (expense) (3,378) (584) (2,794) Net income (loss) 12,138 (9,415) 21,553 Less: Net income attributable to noncontrolling interest 1,160 56 1,104 Net income (loss) attributable to Civeo Corporation 10,978 (9,471) 20,449 Less: Dividends attributable to preferred shares 977 958 19 Net income (loss) attributable to Civeo common shareholders $ 10,001 $ (10,429) $ 20,430 We reported net income attributable to Civeo for the six months ended June 30, 2022 of $10.0 million, or $0.60 per diluted share compared to net loss attributable to Civeo for the six months ended June 30, 2021 of $10.4 million, or $0.73 per diluted share. As further discussed below, net loss for the six months ended June 30, 2021 included a $7.9 million pre-tax loss resulting from the impairment of fixed assets included in Impairment expense. Revenues. Consolidated revenues increased $71.0 million, or 25%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase was primarily driven by (i) higher billed rooms at our Canadian lodges as occupancy in the first half of 2021 was negatively impacted by the COVID-19 pandemic, (ii) higher average daily rate at our Canadian lodges largely due to occupancy mix, (iii) increased mobile asset activity from pipeline projects in Canada, (iv) increased activity at our Australian Civeo owned villages in the Bowen Basin and (v) increased activity at our integrated services villages in Western Australia. These items were partially offset by a weaker Australian and Canadian dollar relative to the U.S. dollar in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. 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 $48.1 million, or 23%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase was primarily due to (i) higher billed rooms at our Canadian lodges, (ii) increased mobile asset activity from pipeline projects in Canada, (iii) increased activity at our Australian Civeo owned villages in the Bowen Basin, (iv) increased activity at our integrated services villages in Western Australia and (v) increased cost of temporary labor due to ongoing labor shortages in Australia. These items were partially offset by a weaker Australian and Canadian dollar relative to the U.S. dollar in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. See the discussion of segment results of operations below for further information. 29 Selling, General and Administrative Expenses . SG&A expense increased $4.0 million, or 14%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase was primarily due to higher share-based compensation expense, travel and entertainment expense and information technology expense. The increase in share-based compensation expense was due to a relative increase in our stock price during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase in travel and entertainment expenses was largely a result of a return to more normalized travel expenses with the lifting of travel restrictions associated with COVID-19. The increase in information technology expense was related to implementation costs incurred in a cloud computing arrangement for our newly implemented human capital management system, which are being amortized through SG&A expense instead of depreciation and amortization expense. Depreciation and Amortization Expense. Depreciation and amortization expense increased $0.6 million, or 1%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was primarily due to shortening the lives on certain assets in Canada, partially offset by assets in Canada becoming fully depreciated during 2021 and the disposal of our West Permian Lodge in the U.S. during 2021. 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. See Note 3 - Impairment Charges to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion. Operating Income (Loss). Consolidated operating income increased $26.3 million, or 338%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to higher activity levels in Canada and Australia in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 and lower impairment expense in Australia in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Interest Expense, net. Net interest expense decreased by $1.7 million, or 25%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily related to lower average debt levels on credit facility borrowings during 2022 compared to 2021. Other Income. Consolidated other income decreased $3.6 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The six months ended June 30, 2022 included lower gain on the sale of assets primarily related to various mobile assets across Canada, Australia and the U.S. The six months ended June 30, 2021 included $3.5 million related to proceeds from the Canada Emergency Wage Subsidy (CEWS) and a higher gain on the sale of assets primarily related to the sale of a manufacturing facility and mobile assets in Canada. Income Tax (Expense) Benefit. Our income tax expense for the six months ended June 30, 2022 totaled $3.4 million, or 21.8% of pretax income, compared to an 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 both the six 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. Other Comprehensive (Loss) Income. Other comprehensive loss increased $8.8 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar decreased 2% in the six months ended June 30, 2022 compared to a 3% increase in the six months ended June 30, 2021. The Australian dollar exchange rate compared to the U.S. dollar decreased 5% in the six months ended June 30, 2022 compared to a 3% decrease in the six months ended June 30, 2021. 30 Segment Results of Operations – Canadian Segment Six Months Ended June 30, 2022 2021 Change Revenues ($ in thousands) Accommodation revenue (1) $ 146,625 $ 116,289 $ 30,336 Mobile facility rental revenue (2) 48,076 19,165 28,911 Food service and other services revenue (3) 10,274 9,712 562 Total revenues $ 204,975 $ 145,166 $ 59,809 Cost of sales and services ($ in thousands) Accommodation cost $ 106,235 $ 83,328 $ 22,907 Mobile facility rental cost 29,342 12,418 16,924 Food service and other services cost 9,335 8,576 759 Indirect other costs 5,303 4,905 398 Total cost of sales and services $ 150,215 $ 109,227 $ 40,988 Gross margin as a % of revenues 26.7 % 24.8 % 2.0 % Average daily rate for lodges (4) $ 104 $ 97 $ 7 Total billed rooms for lodges (5) 1,406,822 1,203,390 203,432 Average Canadian dollar to U.S. dollar $ 0.787 $ 0.802 $ (0.015) (1) Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented. (2) Includes revenues related to mobile assets for the periods presented. (3) Includes revenues related to food services, laundry and water and wastewater treatment services for the periods presented. (4) Average daily rate is based on billed rooms and accommodation revenue. (5) Billed rooms represents total billed days for owned assets for the periods presented. Our Canadian segment reported revenues in the six months ended June 30, 2022 that were $59.8 million, or 41%, higher than the six months ended June 30, 2021. The weakening of the average exchange rate for the Canadian dollar relative to the U.S. dollar by 2% in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 resulted in a $4.5 million period-over-period decrease in revenues. Excluding the impact of the weaker Canadian exchange rate, the increase was driven by (i) higher billed rooms at our lodges as occupancy in the first half of 2021 was negatively impacted by the COVID-19 pandemic, (ii) a higher average daily rate at our lodges largely due to occupancy mix and (iii) increased mobile asset activity from pipeline projects. Our Canadian segment cost of sales and services increased $41.0 million, or 38%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The weakening of the average exchange rate for the Canadian dollar relative to the U.S. dollar by 2% in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 resulted in a $3.0 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Canadian exchange rate, the increase in cost of sales and services was driven by increased occupancy at our lodges and increased mobile asset activity from pipeline projects. Our Canadian segment gross margin as a percentage of revenues increased from 24.8% in the six months ended June 30, 2021 to 26.7% in the six months ended June 30, 2022. This was primarily driven by increased mobile asset activity and related operating efficiencies. 31 Segment Results of Operations – Australian Segment Six Months Ended June 30, 2022 2021 Change Revenues ($ in thousands) Accommodation revenue (1) $ 76,651 $ 71,455 $ 5,196 Food service and other services revenue (2) 54,698 52,201 2,497 Total revenues $ 131,349 $ 123,656 $ 7,693 Cost of sales and services ($ in thousands) Accommodation cost $ 37,247 $ 35,187 $ 2,060 Food service and other services cost 51,371 49,451 1,920 Indirect other cost 3,588 3,160 428 Total cost of sales and services $ 92,206 $ 87,798 $ 4,408 Gross margin as a % of revenues 29.8 % 29.0 % 0.8 % Average daily rate for villages (3) $ 78 $ 80 $ (2) Total billed rooms for villages (4) 979,784 890,964 88,820 Australian dollar to U.S. dollar $ 0.719 $ 0.772 $ (0.052) (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 six months ended June 30, 2022 that were $7.7 million, or 6%, higher than the six months ended June 30, 2021. The weakening of the average exchange rate for Australian dollars relative to the U.S. dollar by 7% in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 resulted in a $9.5 million period-over-period decrease in revenues. Excluding the impact of the weaker Australian exchange rate, the increase in the Australian segment was driven by increased activity at our Civeo owned villages in the Bowen Basin and our integrated services villages in Western Australia. Our Australian segment cost of sales and services increased $4.4 million, or 5%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The weakening of the average exchange rate for Australian dollars relative to the U.S. dollar by 7% in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 resulted in a $6.7 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Australian exchange rate, the increase in cost of sales and services was largely driven by (i) increased activity at our Bowen Basin villages, (ii) increased activity at our integrated services villages in Western Australia and (iii) increased costs of temporary labor due to ongoing labor shortages. Our Australian segment gross margin as a percentage of revenues increased to 29.8% in the six months ended June 30, 2022 from 29.0% in the six months ended June 30, 2021. This was primarily driven by improved margins at Civeo owned villages in the Bowen Basin as a result of increased occupancy. 32 Segment Results of Operations – U.S. Segment Six Months Ended June 30, 2022 2021 Change Revenues ($ in thousands) $ 14,308 $ 10,784 $ 3,524 Cost of sales and services ($ in thousands) $ 13,475 $ 10,787 $ 2,688 Gross margin as a % of revenues 5.8 % — % 5.8 % Our U.S. segment reported revenues in the six months ended June 30, 2022 that were $3.5 million, or 33%, higher than the six months ended June 30, 2021. This increase was due to greater U.S. drilling activity positively impacting our wellsite business, partially offset by reduced revenue from our former West Permian Lodge, which operated in the second quarter of 2021 and was sold in the fourth quarter of 2021. Our U.S. segment cost of sales and services increased $2.7 million, or 25%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase was due to greater U.S. drilling activity positively impacting our wellsite business, partially offset by reduced costs from our former West Permian Lodge, which operated in the second quarter of 2021 and was sold in the fourth quarter of 2021. Our U.S. segment gross margin as a percentage of revenues increased 5.8% from the six months ended June 30, 2021 to the six months ended June 30, 2022 primarily due to improved margins in our wellsite business due to operating efficiencies at higher activity levels, partially offset by our former West Permian Lodge, which operated in the second quarter of 2021 and was sold in the fourth quarter of 2021. Liquidity and Capital Resources 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, repurchase our common shares and fund strategic business acquisitions. In the future, capital may be required to move lodges from one site to another. Historically, our primary sources of funds have been available cash, cash flow from operations, borrowings under our 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 June 30, 2022 and December 31, 2021 (in thousands): June 30, 2022 December 31, 2021 Lender commitments $ 200,000 $ 200,000 Borrowings against revolving credit capacity (108,078) (112,026) Outstanding letters of credit (1,420) (1,439) Unused availability 90,502 86,535 Cash and cash equivalents 4,782 6,282 Total available liquidity $ 95,284 $ 92,817 Cash totaling $23.6 million was provided by operations during the six months ended June 30, 2022, compared to $29.4 million provided by operations during the six months ended June 30, 2021. During the six months ended June 30, 2022 and 2021, $36.6 million and $13.8 million was used in working capital, respectively. The increase in cash used in working capital in 2022 compared to 2021 is largely due to the timing of customer payments and revenue recognition as it relates to mobile asset activity in Canada and decreased accounts payable and accrual balances, substantially due to timing of payments during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Cash was used in investing activities during the six months ended June 30, 2022 in the amount of $5.2 million, compared to cash provided by investing activities during the six months ended June 30, 2021 in the amount of $0.5 million. The decrease in cash provided by investing activities was primarily due to the receipt of proceeds from the sale of our manufacturing facility 33 and mobile assets in Canada during the six months ended June 30, 2021. Capital expenditures totaled $8.6 million and $6.5 million during the six months ended June 30, 2022 and 2021, respectively. Capital expenditures in both periods were primarily maintenance related. We expect our capital expenditures for 2022 to be in the range of $24 million to $29 million, which excludes any unannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts or commitments. Our 2022 capital expenditures estimate includes the capital expenditures associated with our recently announced 12-year contract renewal for our Wapasu Lodge in the Canadian oil sands. Whether planned expenditures will actually be spent in 2022 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 Credit Agreement. The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could pursue should the transaction economics be attractive enough to us compared to the current capital allocation priorities of debt reduction and return of capital to shareholders. We continue to monitor 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, inflation, the COVID-19 global pandemic and the responses thereto in order to plan our business activities, and we may adjust our capital expenditure plans in the future. Net cash of $19.9 million was used in financing activities during the six months ended June 30, 2022 primarily due to net repayments under our revolving credit facilities of $2.6 million, term loan repayments of $15.8 million, $0.5 million used to repurchase our common shares and $1.0 million used to settle tax obligations on vested shares under our share-based compensation plans. Net cash of $31.1 million was used in financing activities during the six months ended June 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. The following table summarizes the changes in debt outstanding during the six months ended June 30, 2022 (in thousands): Balance at December 31, 2021 $ 175,130 Borrowings under revolving credit facilities 155,712 Repayments of borrowings under revolving credit facilities (158,288) Repayments of term loans (15,763) Translation (2,153) Balance at June 30, 2022 $ 154,638 We believe that cash on hand and cash flow from operations will be sufficient to meet our anticipated liquidity needs for the next 12 months. If our plans or assumptions change, including as a result of the impact of COVID-19 or changes in 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. In August 2021, our Board authorized a common share repurchase program to repurchase up to 5.0% of our total common shares which are issued and outstanding, or 715,814 common shares, over a twelve month period. See Note 12 – Share Repurchase Program to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion. 34 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. 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. 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 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 deems relevant. In addition, our ability to pay cash dividends on common or preferred shares is limited by covenants in the 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 June 30, 2022, thereby increasing the liquidation preference to $10,884 per share as of June 30, 2022. We currently expect to pay dividends on the preferred shares through an increase in liquidation preference rather than cash until they mandatorily convert to Civeo common shares in April 2023. 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, 2021. 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. 35