Civeo Corp 10-Q

ITEM 1. Financial Statements CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues: Service and other $ 177,504 $ 150,081 $ 514,328 $ 419,861 Rental 5,785 4,581 18,080 12,185 Product 938 401 2,451 2,623 184,227 155,063 534,859 434,669 Costs and expenses: Service and other costs 127,955 107,287 373,123 307,198 Rental costs 5,024 3,892 14,830 10,523 Product costs 517 251 1,439 1,521 Selling, general and administrative expenses 17,677 17,320 50,572 46,204 Depreciation and amortization expense 22,608 20,282 65,818 62,928 Impairment expense — — — 7,935 Other operating (income) expense ( 339 ) 21 ( 187 ) 122 173,442 149,053 505,595 436,431 Operating income (loss) 10,785 6,010 29,264 ( 1,762 ) Interest expense ( 3,001 ) ( 3,166 ) ( 8,077 ) ( 9,929 ) Loss on extinguishment of debt — ( 416 ) — ( 416 ) Interest income 13 — 15 2 Other income 2,179 364 4,290 6,066 Income (loss) before income taxes 9,976 2,792 25,492 ( 6,039 ) Income tax expense ( 3,713 ) ( 1,770 ) ( 7,091 ) ( 2,354 ) Net income (loss) 6,263 1,022 18,401 ( 8,393 ) Less: Net income attributable to noncontrolling interest 546 478 1,706 534 Net income (loss) attributable to Civeo Corporation 5,717 544 16,695 ( 8,927 ) Less: Dividends attributable to Class A preferred shares 492 482 1,469 1,440 Net income (loss) attributable to Civeo common shareholders $ 5,225 $ 62 $ 15,226 $ ( 10,367 ) Per Share Data (see Note 7) Basic net income (loss) per share attributable to Civeo Corporation common shareholders $ 0.32 $ — $ 0.92 $ ( 0.73 ) Diluted net income (loss) per share attributable to Civeo Corporation common shareholders $ 0.32 $ — $ 0.91 $ ( 0.73 ) Weighted average number of common shares outstanding: Basic 13,932 14,277 14,058 14,255 Diluted 14,064 14,361 14,220 14,255 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income (loss) $ 6,263 $ 1,022 $ 18,401 $ ( 8,393 ) Other comprehensive loss, net of taxes: Foreign currency translation adjustment, net of zero taxes ( 20,745 ) ( 12,217 ) ( 32,757 ) ( 15,417 ) Total other comprehensive loss, net of taxes ( 20,745 ) ( 12,217 ) ( 32,757 ) ( 15,417 ) Comprehensive loss ( 14,482 ) ( 11,195 ) ( 14,356 ) ( 23,810 ) Less: Comprehensive income attributable to noncontrolling interest 368 450 1,474 488 Comprehensive loss attributable to Civeo Corporation $ ( 14,850 ) $ ( 11,645 ) $ ( 15,830 ) $ ( 24,298 ) The accompanying notes are an integral part of these financial statements. 5 CIVEO CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Excluding Share Amounts) September 30, 2022 December 31, 2021 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 8,361 $ 6,282 Accounts receivable, net 122,280 114,859 Inventories 6,984 6,468 Prepaid expenses 9,487 6,876 Other current assets 3,850 10,946 Assets held for sale 13,759 11,762 Total current assets 164,721 157,193 Property, plant and equipment, net 309,752 389,996 Goodwill 7,322 8,204 Other intangible assets, net 81,997 93,642 Operating lease right-of-use assets 14,267 18,327 Other noncurrent assets 5,270 5,372 Total assets $ 583,329 $ 672,734 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 46,225 $ 49,321 Accrued liabilities 32,432 33,564 Income taxes 111 171 Current portion of long-term debt 27,964 30,576 Deferred revenue 2,092 18,479 Other current liabilities 8,900 4,807 Total current liabilities 117,724 136,918 Long-term debt, less current maturities 96,727 142,602 Deferred income taxes 7,344 896 Operating lease liabilities 11,669 15,429 Other noncurrent liabilities 13,668 13,778 Total liabilities 247,132 309,623 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, aggregate liquidation preference of $ 98,907,587 and $ 97,438,687 as of September 30, 2022 and December 31, 2021, respectively) 63,410 61,941 Common shares ( no par value; 46,000,000 shares authorized, 14,079,336 shares and 14,431,819 shares issued, respectively, and 13,712,661 shares and 14,111,221 shares outstanding, respectively) — — Additional paid-in capital 1,585,303 1,582,442 Accumulated deficit ( 911,934 ) ( 912,951 ) Common shares held in treasury at cost, 366,675 and 320,598 shares, respectively ( 9,063 ) ( 8,050 ) Accumulated other comprehensive loss ( 394,408 ) ( 361,883 ) Total Civeo Corporation shareholders’ equity 333,308 361,499 Noncontrolling interest 2,889 1,612 Total shareholders’ equity 336,197 363,111 Total liabilities and shareholders’ equity $ 583,329 $ 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, June 30, 2021 $ 60,974 $ — $ 1,580,213 $ ( 918,156 ) $ ( 8,050 ) $ ( 352,171 ) $ 595 $ 363,405 Net income — — — 544 — — 478 1,022 Currency translation adjustment — — — — — ( 12,189 ) ( 28 ) ( 12,217 ) Dividends paid — — — — — — ( 15 ) ( 15 ) Dividends attributable to Class A preferred shares 482 — — ( 482 ) — — — — Common shares repurchased — — — ( 445 ) — — — ( 445 ) Share-based compensation — — 1,035 — — — — 1,035 Balance, September 30, 2021 $ 61,456 $ — $ 1,581,248 $ ( 918,539 ) $ ( 8,050 ) $ ( 364,360 ) $ 1,030 $ 352,785 Balance, June 30, 2022 $ 62,918 $ — $ 1,584,416 $ ( 903,492 ) $ ( 9,063 ) $ ( 373,841 ) $ 2,582 $ 363,520 Net income — — — 5,717 — — 546 6,263 Currency translation adjustment — — — — — ( 20,567 ) ( 178 ) ( 20,745 ) Dividends paid — — — — — — ( 61 ) ( 61 ) Dividends attributable to Class A preferred shares 492 — — ( 492 ) — — — — Common shares repurchased — — — ( 13,667 ) — — — ( 13,667 ) Share-based compensation — — 887 — — — — 887 Balance, September 30, 2022 $ 63,410 $ — $ 1,585,303 $ ( 911,934 ) $ ( 9,063 ) $ ( 394,408 ) $ 2,889 $ 336,197 Balance, December 31, 2020 $ 60,016 $ — $ 1,578,315 $ ( 907,727 ) $ ( 6,930 ) $ ( 348,989 ) $ 672 $ 375,357 Net income (loss) — — — ( 8,927 ) — — 534 ( 8,393 ) Currency translation adjustment — — — — — ( 15,371 ) ( 46 ) ( 15,417 ) Dividends paid — — — — — — ( 130 ) ( 130 ) Dividends attributable to Class A preferred shares 1,440 — — ( 1,440 ) — — — — Common shares repurchased — — — ( 445 ) — — — ( 445 ) Share-based compensation — — 2,933 — ( 1,120 ) — — 1,813 Balance, September 30, 2021 $ 61,456 $ — $ 1,581,248 $ ( 918,539 ) $ ( 8,050 ) $ ( 364,360 ) $ 1,030 $ 352,785 Balance, December 31, 2021 $ 61,941 $ — $ 1,582,442 $ ( 912,951 ) $ ( 8,050 ) $ ( 361,883 ) $ 1,612 $ 363,111 Net income — — — 16,695 — — 1,706 18,401 Currency translation adjustment — — — — — ( 32,525 ) ( 232 ) ( 32,757 ) Dividends paid — — — — — — ( 197 ) ( 197 ) Dividends attributable to Class A preferred shares 1,469 — — ( 1,469 ) — — — — Common shares repurchased — — — ( 14,209 ) — — — ( 14,209 ) Share-based compensation — — 2,861 — ( 1,013 ) — — 1,848 Balance, September 30, 2022 $ 63,410 $ — $ 1,585,303 $ ( 911,934 ) $ ( 9,063 ) $ ( 394,408 ) $ 2,889 $ 336,197 Preferred Shares Common Shares (in thousands) Balance, December 31, 2021 9,042 14,111 Share-based compensation — 100 Common shares repurchased — ( 498 ) Balance, September 30, 2022 9,042 13,713 The accompanying notes are an integral part of these financial statements. 7 CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net income (loss) $ 18,401 $ ( 8,393 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 65,818 62,928 Impairment charges — 7,935 Loss on extinguishment of debt — 416 Deferred income tax expense 6,930 2,105 Non-cash compensation charge 2,861 2,933 Gains on disposals of assets ( 4,069 ) ( 2,305 ) Provision (benefit) for credit losses, net of recoveries ( 23 ) 155 Other, net 2,397 2,436 Changes in operating assets and liabilities: Accounts receivable ( 19,138 ) ( 21,516 ) Inventories ( 1,557 ) ( 193 ) Accounts payable and accrued liabilities 3,515 9,836 Taxes payable ( 62 ) 61 Other current and noncurrent assets and liabilities, net ( 12,701 ) 6,843 Net cash flows provided by operating activities 62,372 63,241 Cash flows from investing activities: Capital expenditures ( 17,466 ) ( 9,645 ) Proceeds from dispositions of property, plant and equipment 11,975 7,545 Other, net 190 — Net cash flows used in investing activities ( 5,301 ) ( 2,100 ) Cash flows from financing activities: Revolving credit borrowings 204,951 367,622 Revolving credit repayments ( 219,775 ) ( 305,148 ) Term loan repayments ( 23,059 ) ( 117,595 ) Debt issuance costs — ( 4,407 ) Repurchases of common shares ( 14,209 ) ( 445 ) Taxes paid on vested shares ( 1,013 ) ( 1,120 ) Net cash flows used in financing activities ( 53,105 ) ( 61,093 ) Effect of exchange rate changes on cash ( 1,887 ) ( 1,255 ) Net change in cash and cash equivalents 2,079 ( 1,207 ) Cash and cash equivalents, beginning of period 6,282 6,155 Cash and cash equivalents, end of period $ 8,361 $ 4,948 Non-cash financing activities: Preferred dividends paid-in-kind $ 1,469 $ 1,440 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Canada Accommodation revenues $ 72,724 $ 60,511 $ 219,349 $ 176,800 Mobile facility rental revenues 25,283 19,075 73,359 38,240 Food service and other services revenues 5,002 4,471 15,276 14,183 Total Canada revenues 103,009 84,057 307,984 229,223 Australia Accommodation revenues $ 38,316 $ 38,104 $ 114,967 $ 109,559 Food service and other services revenues 35,489 27,014 90,187 79,215 Total Australia revenues 73,805 65,118 205,154 188,774 U.S. Accommodation revenues $ 990 $ 1,812 $ 2,244 $ 4,189 Mobile facility rental revenues 5,811 3,941 18,128 10,769 Manufacturing revenues 587 124 1,286 1,686 Food service and other services revenues 25 11 63 28 Total U.S. revenues 7,413 5,888 21,721 16,672 Total revenues $ 184,227 $ 155,063 $ 534,859 $ 434,669 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 September 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 September 30, 2022 $ 41,135 $ 86,433 $ 47,742 $ 297,488 $ 472,798 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. 10 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. FAIR VALUE MEASUREMENTS Our financial instruments consist of cash and cash equivalents, receivables, payables and debt instruments. We believe that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values. As of September 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 September 30, 2022 and December 31, 2021 is presented below (in thousands): September 30, 2022 December 31, 2021 Accounts receivable, net: Trade $ 69,833 $ 75,740 Unbilled revenue 51,567 38,508 Other 1,184 972 Total accounts receivable 122,584 115,220 Allowance for credit losses ( 304 ) ( 361 ) Total accounts receivable, net $ 122,280 $ 114,859 September 30, 2022 December 31, 2021 Inventories: Finished goods and purchased products $ 5,586 $ 5,346 Work in process — 25 Raw materials 1,398 1,097 Total inventories $ 6,984 $ 6,468 Estimated Useful Life (in years) September 30, 2022 December 31, 2021 Property, plant and equipment, net: Land $ 25,896 $ 30,556 Accommodations assets 3 — 15 1,426,704 1,657,577 Buildings and leasehold improvements 7 — 20 17,260 24,335 Machinery and equipment 4 — 15 10,752 14,983 Office furniture and equipment 3 — 7 61,187 63,228 Vehicles 3 — 5 8,227 14,578 Construction in progress 9,444 2,063 Total property, plant and equipment 1,559,470 1,807,320 Accumulated depreciation ( 1,249,718 ) ( 1,417,324 ) Total property, plant and equipment, net $ 309,752 $ 389,996 11 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2022 December 31, 2021 Accrued liabilities: Accrued compensation $ 27,577 $ 28,877 Accrued taxes, other than income taxes 2,901 2,944 Other 1,954 1,743 Total accrued liabilities $ 32,432 $ 33,564 September 30, 2022 December 31, 2021 Deferred revenue: Contract liabilities $ 2,092 $ 18,479 Deferred revenue consists of contract liabilities resulting from upfront payments related to the mobilization of mobile assets to service pipeline projects in our Canadian business segment. The decrease in deferred revenue from December 31, 2021 to September 30, 2022 was primarily due to the recognition of deferred revenue over the contracted terms of these pipeline projects in Canada. 6. ASSETS AND LIABILITIES HELD FOR SALE As of September 30, 2022, assets and liabilities held for sale included certain assets and liabilities in our U.S. business segment. As of December 31, 2021, assets and liabilities held for sale included certain assets in our U.S. business segment and undeveloped land holdings in our Australia business segment. These assets and liabilities 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 September 30, 2022 and December 31, 2021 of the assets and liabilities classified as held for sale (in thousands): September 30, 2022 December 31, 2021 Assets held for sale: Assets Accounts receivable, net $ 1,247 $ — Inventories 321 — Property, plant and equipment, net 12,010 11,762 Other noncurrent assets 181 — Total assets held for sale $ 13,759 $ 11,762 Liabilities held for sale: Liabilities Accounts payable $ 375 $ — Accrued liabilities 470 — Deferred revenue 122 — Other current liabilities 44 — Other noncurrent liabilities 114 — Total liabilities held for sale (1) $ 1,125 $ — 12 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (1) Liabilities held for sale are classified as a current liability on the unaudited consolidated balance sheets, under the caption "Other current liabilities." 7. EARNINGS PER SHARE We use the two-class method to calculate basic and diluted earnings per share because we have participating securities in the form of Class A preferred shares. The two-class method requires a proportional share of net income to be allocated between common shares and participating securities. The proportional share to be allocated to participating securities is determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities. Basic earnings per share is computed under the two-class method by dividing the net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding during the period. Net income attributable to common shareholders represents our net income reduced by an allocation of current period earnings to participating securities as described above. No such adjustment is made during periods with a net loss, as the adjustment would be anti-dilutive. Diluted earnings per share is computed under the two-class method by dividing diluted net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of share-based awards. In addition, we calculate the potential dilutive effect of any outstanding dilutive security under both the two-class method and the “if-converted” method, and we report the more dilutive of the methods as our diluted earnings per share. We also apply the treasury stock method with respect to certain share-based awards in the calculation of diluted earnings per share, if dilutive. The calculation of earnings per share attributable to Civeo common shareholders is presented below for the periods indicated (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Numerator: Net income (loss) attributable to Civeo common shareholders $ 5,225 $ 62 $ 15,226 $ ( 10,367 ) Less: income allocated to participating securities ( 794 ) ( 9 ) ( 2,297 ) — Basic net income (loss) attributable to Civeo Corporation common shareholders $ 4,431 $ 53 $ 12,929 $ ( 10,367 ) Add: undistributed income attributable to participating securities 794 9 2,297 — Less: undistributed income reallocated to participating securities ( 788 ) ( 9 ) ( 2,275 ) — Diluted net income (loss) attributable to Civeo Corporation common shareholders $ 4,437 $ 53 $ 12,951 $ ( 10,367 ) Denominator: Weighted average shares outstanding - basic 13,932 14,277 14,058 14,255 Dilutive shares - share-based awards 132 84 162 — Weighted average shares outstanding - diluted 14,064 14,361 14,220 14,255 Basic net income (loss) per share attributable to Civeo Corporation common shareholders (1) $ 0.32 $ — $ 0.92 $ ( 0.73 ) Diluted net income (loss) per share attributable to Civeo Corporation common shareholders (1) $ 0.32 $ — $ 0.91 $ ( 0.73 ) (1) Computations may reflect rounding adjustments. The following common share equivalents have been excluded from the calculation of weighted-average common shares outstanding because the effect is anti-dilutive for the periods presented (in millions of shares): 13 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Share-based awards (1) — 0.1 — 0.2 Preferred shares 2.5 2.4 2.5 2.4 (1) Share-based awards for the three and nine months ended September 30, 2022 totaled less than 0.1 million shares. 14 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. DEBT As of September 30, 2022 and December 31, 2021, long-term debt consisted of the following (in thousands): September 30, 2022 December 31, 2021 Canadian term loan; weighted average interest rate of 4.7 % for the nine month period ended September 30, 2022 $ 36,480 $ 63,104 U.S. revolving credit facility; weighted average interest rate of 6.3 % for the nine month period ended September 30, 2022 — — Canadian revolving credit facility; weighted average interest rate of 5.0 % for the nine month period ended September 30, 2022 83,904 111,300 Australian revolving credit facility; weighted average interest rate of 3.8 % for the nine month period ended September 30, 2022 5,832 726 126,216 175,130 Less: Unamortized debt issuance costs 1,525 1,952 Total debt 124,691 173,178 Less: Current portion of long-term debt, including unamortized debt issuance costs, net 27,964 30,576 Long-term debt, less current maturities $ 96,727 $ 142,602 Credit Agreement As of September 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 15 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 September 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 September 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 September 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 September 30, 2022, the U.S. was considered a loss jurisdiction for tax accounting purposes and was removed from the annual effective tax rate computation for purposes of computing the interim tax provision. As of September 30, 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 September 30, 2022 totaled $ 3.7 million, or 37.2 % of pretax income, compared to income tax expense of $ 1.8 million, or 63.4 % of pretax income, for the three months ended September 30, 2021. Our effective tax rate for the three months ended September 30, 2022 was impacted by considering the U.S. a loss jurisdiction that was removed from the annual effective tax rate computation for purposes of computing the interim tax provision. For the three months ended September 30, 2021, our effective tax rate 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 nine months ended September 30, 2022 totaled $ 7.1 million, or 27.8 % of pretax income, compared to income tax expense of $ 2.4 million, or ( 39.0 )% of pretax loss, for the nine months ended September 30, 2021. Our effective tax rate for the nine months ended September 30, 2022 was impacted by considering the U.S. a loss jurisdiction that was removed from the annual effective tax rate computation for the purposes of computing the interim tax provision. Our effective tax rate for the nine months ended September 2021 was impacted by considering Canada and the U.S. loss jurisdictions that were removed from the annual effective tax rate computation for the purposes of computing the interim tax provision. 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. 16 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. ACCUMULATED OTHER COMPREHENSIVE LOSS Our accumulated other comprehensive loss increased $ 32.5 million from $ 361.9 million at December 31, 2021 to $ 394.4 million at September 30, 2022, as a result of foreign currency exchange rate fluctuations. Changes in other comprehensive loss during the first nine 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$ 232 million and A$ 232 million, respectively, at September 30, 2022. 12. SHARE REPURCHASES In August 2021, our Board of Directors (Board) authorized a common share repurchase program (the 2021 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. In August 2022, our Board authorized a new common share repurchase program (the 2022 Share Repurchase Program) to repurchase up to 5.0 % of our total common shares which are issued and outstanding, or approximately 685,000 common shares, over a twelve month period. The 2022 Share Repurchase Program and the 2021 Share Repurchase Program are collectively referred to as the "Share Repurchase Programs." 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 have funded, and intend to continue to fund, repurchases through cash on hand and cash generated from operations. The common shares repurchased under the Share Repurchase Programs 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. Pursuant to our 2021 Share Repurchase Program, during the nine months ended September 30, 2022, we repurchased an aggregate of 123,882 of our common shares outstanding at a weighted average price of $ 28.54 per share, for a total of approximately $ 3.5 million. We repurchased an aggregate of 341,061 of our common shares outstanding at a weighted average price of $ 23.98 per share for a total cost of $ 8.2 million during the twelve month period comprising the 2021 Share Repurchase Program. We have not repurchased any shares under the 2022 Share Repurchase Program as of September 30, 2022. In addition to the Share Repurchase Programs, we repurchased 374,753 common shares from a shareholder for approximately $ 10.7 million during the three months ended September 30, 2022. 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 September 30, 2022 and 2021 totaled $ 0.3 million and $ 0.4 million, respectively. Compensation expense associated with restricted share awards, restricted share units and deferred share awards recognized in the nine months ended September 30, 2022 and 2021 totaled $ 0.9 million and $ 1.2 million, respectively. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during both the three months ended September 30, 2022 and 2021 was less than $ 0.1 million. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during the nine months ended September 30, 2022 and 2021 was $ 2.1 million and $ 1.5 million, respectively. 17 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) At September 30, 2022, unrecognized compensation cost related to restricted share awards, restricted share units and deferred share awards was $ 0.6 million, which is expected to be recognized over a weighted average period of 0.6 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 September 30, 2022 and 2021, we recognized compensation expense associated with phantom shares totaling $ 2.3 million and $ 2.1 million, respectively. During the nine months ended September 30, 2022 and 2021, we recognized compensation expense associated with phantom shares totaling $ 7.2 million and $ 5.0 million, respectively. At September 30, 2022, unrecognized compensation cost related to phantom shares was $ 11.7 million, as remeasured at September 30, 2022, which is expected to be recognized over a weighted average period of 1.9 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 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 September 30, 2022 and 2021, we recognized compensation expense associated with performance awards totaling $ 0.6 million and $ 0.6 million, respectively. During the nine months ended September 30, 2022 and 2021, we recognized compensation expense associated with performance awards totaling $ 1.9 million and $ 1.7 million, respectively. No performance share awards vested during the three months ended September 30, 2022 and 2021. The total fair value of performance share awards that vested during the nine months ended September 30, 2022 and 2021 was $ 2.4 million and $ 1.9 million, respectively. At September 30, 2022, unrecognized compensation cost related to performance shares was $ 4.6 million, which is expected to be recognized over a weighted average period of 2.0 years. 18 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 nine months ended September 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 September 30, 2022 Canada $ 103,009 $ 14,749 $ 7,846 $ 3,580 $ 718,981 Australia 73,805 7,599 5,859 4,921 191,557 U.S. 7,413 312 ( 1,690 ) 286 20,159 Corporate and eliminations — ( 52 ) ( 1,230 ) 32 ( 347,368 ) Total $ 184,227 $ 22,608 $ 10,785 $ 8,819 $ 583,329 Three months ended September 30, 2021 Canada $ 84,057 $ 11,511 $ 6,131 $ 1,344 $ 754,223 Australia 65,118 8,033 4,422 1,647 231,427 U.S. 5,888 567 ( 2,124 ) 336 26,699 Corporate and eliminations — 171 ( 2,419 ) 62 ( 328,307 ) Total $ 155,063 $ 20,282 $ 6,010 $ 3,389 $ 684,042 Nine months ended September 30, 2022 Canada $ 307,984 $ 41,344 $ 23,081 $ 7,433 $ 718,981 Australia 205,154 23,284 17,446 8,969 191,557 U.S. 21,721 1,089 ( 4,594 ) 1,010 20,159 Corporate and eliminations — 101 ( 6,669 ) 54 ( 347,368 ) Total $ 534,859 $ 65,818 $ 29,264 $ 17,466 $ 583,329 Nine months ended September 30, 2021 Canada $ 229,223 $ 35,750 $ 5,924 $ 3,667 $ 754,223 Australia 188,774 25,004 5,073 4,348 231,427 U.S. 16,672 1,675 ( 5,831 ) 1,187 26,699 Corporate and eliminations — 499 ( 6,928 ) 443 ( 328,307 ) Total $ 434,669 $ 62,928 $ ( 1,762 ) $ 9,645 $ 684,042 19 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.