What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-28 compared with 2023-04-28 · 252 added, 96 removed, 253 unchanged (58% of the section changed)

9 unchanged sentences

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 the expectations of our customers' shareholders.

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, and the resultant impact of these commodity price expectations on customers' spending.

Other factors that can affect our business and financial results include the general global economic environment, including inflationary pressures, supply chain disruptions and labor shortages, volatility affecting the banking system and financial markets, and regulatory changes in Canada, Australia, the U.S.

Other factors that can affect our business and financial results include the general global economic environment, including inflationary pressures, supply chain disruptions and labor shortages, volatility affecting the banking system and financial markets, availability of capital to the natural resource industry and regulatory changes in Canada, Australia, the U.S.

and other markets, including governmental measures introduced to fight climate change.

8 unchanged sentences

day basis that covers lodging and meals and is based on the duration of customer needs, which can range from several weeks to several years.

The remainder of our revenue is generated by our hospitality services at customer-owned locations in Canada and Australia, mobile assets in Canada and our lodges in the U.S.

The remainder of our revenue is generated by our hospitality services at customer-owned locations in Canada and Australia and mobile assets in Canada.

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.

During 2022 and into 2023, increasing inflationary pressures and supply chain disruptions have been, and are being, experienced worldwide.

During 2022 and through the first half of 2023, inflationary pressures and supply chain disruptions have been, and are being, experienced worldwide.

Price increases resulting from inflation and supply chain concerns 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.

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This led to a significant increase in global oil prices to above $100 per barrel in the second quarter of 2022.

Severe inflation and rising interest rates in the second half of 2022 led to concerns of an economic recession and lower oil demand which resulted in decreased oil prices through the remainder of 2022 and into early 2023.

In an effort to support the price of oil amidst demand concerns, OPEC+ announced additional oil production cuts in April 2023.

Further, Saudi Arabia announced voluntary oil production cuts in June 2023, which were extended through at least August 2023.

Alberta, Canada.

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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.

TMX recently announced that the project is close to 80% complete, with mechanical completion expected to occur at the end of 2023, and the pipeline is expected to be in-service in the first quarter of 2024.

WCS prices in the first quarter of 2023 averaged $56.61 per barrel compared to an average of $82.04 in the first quarter of 2022.

The WCS Differential decreased from $27.62 per barrel at the end of the fourth quarter of 2022 to $14.31 at the end of the first quarter of 2023.

As of April 24, 2023, the WTI price was $64.11 and the WCS price was $78.76, resulting in a WCS Differential of $14.65.

Although oil prices reached multi-year highs in the first half of 2022, they fluctuated through the second half of 2022 and into the first quarter of 2023.

TMX recently announced that the project is approximately 80% complete, with mechanical completion expected to occur at the end of 2023, and the pipeline is expected to be in-service in the first quarter of 2024.

WCS prices in the second quarter of 2023 averaged $60.25 per barrel compared to an average of $92.89 in the second quarter of 2022.

The WCS Differential decreased from $27.62 per barrel at the end of the fourth quarter of 2022 to $11.30 at the end of the second quarter of 2023.

As of July 24, 2023, the WTI price was $63.14 and the WCS price was $78.89, resulting in a WCS Differential of $15.75.

Although oil prices reached multi-year highs in the first half of 2022, they fluctuated through the second half of 2022 and the first half of 2023.

There is continued uncertainty around commodity price levels, including the impact of inflationary pressures, actions taken by OPEC+ to adjust production levels, geopolitical events such as the ongoing Russia/Ukraine conflict, 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.

We have agreed to not renew an expiring land lease associated with our McClelland Lake Lodge in Alberta, Canada, which expires in June 2023, ten years earlier than originally expected, in order to support our customer’s intent to mine the land where the lodge is located.

In addition, the accompanying hospitality services contract at McClelland Lake Lodge expires in June 2023.

We did not renew our expiring land lease associated with our McClelland Lake Lodge in Alberta, Canada, which expired in June 2023, ten years earlier than originally expected, in order to support our customer’s intent to mine the land where the lodge is located.

In addition, the accompanying hospitality services contract at McClelland Lake Lodge expired in July 2023, however;

we will continue to provide hospitality services to the customer at our other owned lodges through January 31, 2024 under a short-term take-or-pay commitment.

Our assets will be demobilized and removed from the existing site by February 1,

Based on ongoing discussions with customers in the region, our current assessment is there are no commercially viable opportunities that support the reinstallation of these assets in a different location within the Regional Municipality of Wood Buffalo.

Accordingly, we intend to market these assets for new opportunities within Canada and the U.S.

knowledge and understanding of the marketplace, we believe there is demand for these assets for sale or redeployment.

Accordingly, we are actively marketing these assets for new opportunities within Canada and the U.S.

and have discussed with a number of parties.

Based on our knowledge and understanding of the marketplace, we believe there is demand for these assets for sale or redeployment.

Should our marketing efforts fail to identify an economic alternative, other options will be considered.

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In Australia, 84% 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 level of global steel production, which decreased by 0.1% during the first three months of 2023 compared to the same period in 2022.

The decrease was the result of weakness in the Chinese residential sector and slowing global growth due to inflationary pressures.

As of April 24, 2023, met coal spot prices were $257.90 per tonne.

Steel output is forecast to improve marginally through 2024, with large infrastructure rollouts in a number of major economies including the U.S.

Following historic highs in early 2022, met coal prices have since stabilized and were further supported in early 2023 with seasonal weather-related supply interruptions in Australia.

Met coal pricing and production growth in the Bowen Basin region is predominantly influenced by the level of global steel production, which decreased by 1.1% through June 2023 compared to the same period of 2022.

The decrease was the result of continuing weakness in the Chinese residential sector, slowing growth due to global monetary tightening and the continuation of the Russia/Ukraine conflict.

As of July 24, 2023, met coal spot prices were $234.65 per tonne.

Steel output for 2023 is expected to remain at similar levels to 2022.

Following historic highs in early 2022, met coal prices have since stabilized and were further supported in the first half of 2023 with seasonal weather-related supply interruptions in Australia.

Analysts forecast met coal prices to face downward pressure through the second half of 2023 with supply recovery and weaker demand sentiment impacted by the global financial markets.

1 unchanged sentence

Civeo's activity in Western Australia is driven primarily by iron ore production, which is a key steel-making ingredient.

Iron ore prices fluctuated in the second half of 2022 and have since stabilized in early 2023.

As of April 21, 2023, iron ore spot prices were $110.82 per tonne.

Analysts anticipate that infrastructure-led construction activity in China will gradually improve and continue to support more stable prices.

Analysts forecast pricing in 2023 to remain between $100 and $115.

In the first quarter of 2023, we sold our Acadian Acres lodge assets.

In addition, in the second half of 2022, we sold both our wellsite services and our offshore businesses.

Iron ore prices have stabilized in early 2023 after fluctuating in the second half of 2022.

As of July 21, 2023, iron ore spot prices were $111.32 per tonne.

Analysts forecast Chinese steel production in 2023 to be at similar levels to 2022 and expect forecast iron ore pricing in 2023 to remain between $100 and $115.

In the first quarter of 2023, we sold our U.S.

Acadian Acres lodge assets.

In addition, in the second half of 2022, we sold both our U.S.

wellsite services and offshore businesses.

Our remaining U.S.

7 unchanged sentences

(per tonne) Iron

Second Quarter through April 24, 2023

Third Quarter through July 24, 2023

$ 75.02 $ 62.50 $ 232.28 $ 109.43

4 unchanged sentences

6/30/2022 108.77 92.89 464.61 128.80

3/31/2022 95.17 82.04 474.83 129.46

WTI crude prices are from U.S.

11 unchanged sentences

Three Months Ended

2023 2022 Change Percentage

June 30, Six Months Ended

2023 2022 Change Percentage 2023 2022 Change Percentage

Average Canadian dollar to U.S.

2 unchanged sentences

dollar $0.668 $0.715 ($0.05) (6.6)% $0.676 $0.719 ($0.04) (6.0)%

March 31, 2023 December 31, 2022 Change Percentage

June 30, 2023 December 31, 2022 Change Percentage

Canadian dollar to U.S.

6 unchanged sentences

We currently expect that our 2023 capital expenditures will be in the range of approximately $35 million to $40 million, compared to 2022 capital expenditures of $25.4 million.

The $20 million increase relates to village enhancements in Australia, for which our customer will reimburse us, resulting in a net neutral cash flow impact in 2023.

The 2023 capital expenditures include $10 million related to village enhancements in Australia, for which our customer will reimburse us, resulting in a net negligible cash flow impact in 2023.

We may adjust our capital expenditure plans in the future as we continue to monitor customer activity.

1 unchanged sentence

Results of Operations

Unless otherwise indicated, discussion of results for the three months ended March 31, 2023, is based on a comparison to the corresponding period of 2022.

Results of Operations – Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Unless otherwise indicated, discussion of results for the three and six months ended June 30, 2023, is based on a comparison to the corresponding period of 2022.

Results of Operations – Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Three Months Ended

13 unchanged sentences

Depreciation and amortization expense 20,701 23,083 (2,382)

Other operating expense (income) 86 (106) 192

Total costs and expenses 168,671 170,712 (2,041)

Operating income 10,172 14,242 (4,070)

Interest expense, net (3,554) (2,606) (948)

Other income 427 415 12

Income before income taxes 7,045 12,051 (5,006)

Income tax expense (2,878) (1,821) (1,057)

Net income 4,167 10,230 (6,063)

Net income (loss) attributable to noncontrolling interest (296) 662 (958)

Net income attributable to Civeo Corporation 4,463 9,568 (5,105)

Dividends attributable to preferred shares — 490 (490)

Net income attributable to Civeo common shareholders $ 4,463 $ 9,078 $ (4,615)

We reported net income attributable to Civeo for the quarter ended June 30, 2023 of $4.5 million, or $0.30 per diluted shares compared to net income attributable to Civeo for the quarter ended June 30, 2022 of $9.1 million, or $0.54 per diluted share.

Consolidated revenues decreased $6.1 million, or 3%, in the second quarter of 2023 compared to the second quarter of 2022.

This decrease was primarily due to (i) decreased mobile asset activity from pipeline projects in Canada, (ii) lower billed rooms at our Canadian lodges, (iii) reduced activity in the U.S.

operations due to the sale of our wellsite and offshore businesses in the second half of 2022 and (iv) a weaker Australian and Canadian dollar relative to the U.S.

dollar in the second quarter of 2023 compared to the second quarter of 2022.

These items were partially offset by (i) increased activity at our integrated services villages in Western Australia with billed rooms up 33% period-over-period and (ii) increased occupancy at our Civeo owned villages in the Australian Bowen and Gunnedah Basins with billed rooms up 16% period-over-period.

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 $1.4 million, or 1%, in the second quarter of 2023 compared to the second quarter of 2022.

This increase was primarily due to (i) increased occupancy at our Civeo owned villages in the Australian Bowen and Gunnedah Basins, (ii) increased activity at our integrated services villages in Western Australia and (iii) increased operating costs due to inflationary pressures in Canada.

These items were partially offset by (i) reduced activity in the U.S.

operations due to the sale of our wellsite and offshore businesses in the second half of 2022, (ii) lower costs related to reduced mobile asset activity in Canada, (iii) reduced lodge occupancy in Canada and (iv) a weaker

Australian and Canadian dollar relative to the U.S.

dollar in the second quarter of 2023 compared to the second quarter of 2022.

See the discussion of segment results of operations below for further information.

Selling, General and Administrative Expenses.

SG&A expense decreased $1.2 million, or 7%, in the second quarter of 2023 compared to the second quarter of 2022.

This decrease was primarily due to lower incentive compensation costs, lower share-based compensation expense and a weaker Australian and Canadian dollar relative to the U.S.

dollar in the second quarter of 2023 compared to the second quarter of 2022.

The decrease in share-based compensation expense was due to a relative decrease in our stock price during 2023 compared to 2022.

These items were partially offset by higher information technology expense.

The increase in information technology expense was related to ongoing investment in our newly implemented human capital management (HCM) system and set-up costs incurred in a cloud computing arrangement for the HCM system, which are being amortized through SG&A expense instead of depreciation and amortization expense.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $2.4 million, or 10%, in the second quarter of 2023 compared to the second quarter of 2022.

The decrease was primarily due to (i) the sale of our wellsite and offshore businesses in the U.S.

in the second half of 2022, (ii) certain assets becoming fully depreciated in Canada in the second quarter of 2023 and (iii) lower depreciation and amortization expense due to a weaker Australian and Canadian dollar relative to the U.S.

dollar in the second quarter of 2023 compared to the second quarter of 2022.

Operating Income.

Consolidated operating income decreased $4.1 million, or 29%, in the second quarter of 2023 compared to the second quarter of 2022, primarily due to increased operating costs due to inflationary pressures in Canada and Australia and reduced mobile asset activity in Canada in the second quarter of 2023 compared to the second quarter of 2022.

Interest Expense, net.

Net interest expense increased by $0.9 million, or 36%, in the second quarter of 2023 compared to the second quarter of 2022, primarily related to higher interest rates on credit facility borrowings during 2023 compared to 2022, partially offset by lower average debt levels.

Income Tax (Expense) Benefit.

Our income tax expense for the three months ended June 30, 2023 totaled $2.9 million, or 40.9% of pretax income, compared to an income tax expense of $1.8 million, or 15.1% of pretax income, for the three months ended June 30, 2022.

Our effective tax rate for each of the three months ended June 30, 2023 and 2022 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 income increased $22.1 million in the second quarter of 2023 compared to the second quarter of 2022, 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.

The Canadian dollar exchange rate compared to the U.S.

dollar increased 2% in the second quarter of 2023 compared to a 3% decrease in the second quarter of 2022.

The Australian dollar exchange rate compared to the U.S.

dollar decreased 1% in the second quarter of 2023 compared to a 8% decrease in the second quarter of 2022.

Segment Results of Operations – Canadian Segment

Three Months Ended

2023 2022 Change

Revenues ($ in thousands)

Accommodation revenue (1)

$ 72,355 $ 79,431 $ (7,076)

Mobile facility rental revenue (2)

17,407 24,058 (6,651)

Food service and other services revenue (3)

5,708 5,534 174

Total revenues $ 95,470 $ 109,023 $ (13,553)

Cost of sales and services ($ in thousands)

Accommodation cost $ 52,431 $ 53,108 $ (677)

Mobile facility rental cost 11,598 14,458 (2,860)

Food service and other services cost 5,060 4,976 84

Indirect other costs 2,756 2,467 289

Total cost of sales and services $ 71,845 $ 75,009 $ (3,164)

Gross margin as a % of revenues 24.7 % 31.2 % (6.5) %

Average daily rate for lodges (4)

$ 100 $ 103 $ (3)

Total billed rooms for lodges (5)

724,299 771,267 (46,968)

Average Canadian dollar to U.S.

dollar $ 0.745 $ 0.784 $ (0.039)

(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 2023 that were $13.6 million, or 12%, lower than the second quarter of 2022.

The weakening of the average exchange rate for the Canadian dollar relative to the U.S.

dollar by 5.0% in the second quarter of 2023 compared to the second quarter of 2022 resulted in a $5.1 million period-over-period decrease in revenues.

Excluding the impact of the weaker Canadian exchange rate, the revenue decrease was driven by (i) reduced mobile asset activity from pipeline projects and (ii) lower billed rooms at our lodges.

Our Canadian segment cost of sales and services decreased $3.2 million, or 4%, in the second quarter of 2023 compared to the second quarter of 2022.

The weakening of the average exchange rate for the Canadian dollar relative to the U.S.

dollar by 5.0% in the second quarter of 2023 compared to the second quarter of 2022 resulted in a $3.8 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 operating costs at our lodges due to inflationary pressures, partially offset by (i) lower costs related to the reduced mobile asset activity and (ii) reduced lodge occupancy.

Our Canadian segment gross margin as a percentage of revenues decreased from 31.2% in the second quarter of 2022 to 24.7% in the second quarter of 2023.

This was primarily driven by reduced margins at our lodges due to inflationary pressures and reduced margins from our mobile asset activity as certain higher margin components were recognized over the initial contract terms through late 2022, with 2023 representing continuing operations.

Segment Results of Operations – Australian Segment

Three Months Ended

2023 2022 Change

Revenues ($ in thousands)

Accommodation revenue (1)

$ 44,342 $ 39,052 $ 5,290

Food service and other services revenue (2)

38,202 28,768 9,434

Total revenues $ 82,544 $ 67,820 $ 14,724

Cost of sales and services ($ in thousands)

Accommodation cost $ 20,948 $ 18,840 $ 2,108

Food service and other services cost 35,372 27,008 8,364

Indirect other cost 2,225 1,844 381

Total cost of sales and services $ 58,545 $ 47,692 $ 10,853

Gross margin as a % of revenues 29.1 % 29.7 % (0.6) %

Average daily rate for villages (3)

$ 75 $ 77 $ (2)

Total billed rooms for villages (4)

587,855 505,310 82,545

Australian dollar to U.S.

dollar $ 0.668 $ 0.715 $ (0.047)

(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 2023 that were $14.7 million, or 22%, higher than the second quarter of 2022.

The weakening of the average exchange rate for Australian dollars relative to the U.S.

dollar by 6.6% in the second quarter of 2023 compared to the second quarter of 2022 resulted in a $5.7 million period-over-period decrease in revenues.

On a constant currency basis, the Australian segment experienced a 30% 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 Civeo owned villages in the Bowen Basin and Gunnedah Basin and our integrated services villages in Western Australia.

Our Australian segment cost of sales and services increased $10.9 million, or 23%, in the second quarter of 2023 compared to the second quarter of 2022.

The weakening of the average exchange rate for Australian dollars relative to the U.S.

dollar by 6.6% in the second quarter of 2023 compared to the second quarter of 2022 resulted in a $4.0 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 increased occupancy at our Bowen Basin and Gunnedah Basin owned villages and our integrated services villages in Western Australia.

Our Australian segment gross margin as a percentage of revenues decreased to 29.1% in the second quarter of 2023 from 29.7% in the second quarter of 2022.

This decrease was partially offset by improved margins at Civeo owned villages in the Bowen Basin and Gunnedah Basin as a result of increased activity.

Additionally, we experienced improved margins at our integrated services villages resulting from the renegotiation of rates on a material contract, which included an approximate $1.5 million adjustment recognized in the second quarter of 2023.

Results of Operations – Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Six Months Ended

2023 2022 Change

($ in thousands)

Canada $ 184,923 $ 204,975 $ (20,052)

Australia 159,533 131,349 28,184

Other 1,978 14,308 (12,330)

Total revenues 346,434 350,632 (4,198)

Costs and expenses:

Cost of sales and services

Canada 145,750 150,215 (4,465)

Australia 116,853 92,206 24,647

Other 2,336 13,475 (11,139)

Total cost of sales and services 264,939 255,896 9,043

Selling, general and administrative expenses 32,649 32,895 (246)

Depreciation and amortization expense 42,363 43,210 (847)

Other operating expense 215 152 63

Total costs and expenses 340,166 332,153 8,013

Operating income (loss) (3,904) 4,237 (8,141)

Operating income 6,268 18,479 (12,211)

Interest expense, net (7,178) (5,074) (2,104)

Other income 2,877 2,111 766

Income (loss) before income taxes (5,078) 3,465 (8,543)

Income before income taxes 1,967 15,516 (13,549)

Income tax expense (4,111) (3,378) (733)

Net income (loss) (2,144) 12,138 (14,282)

Net income attributable to noncontrolling interest 42 498 (456)

Net income (loss) attributable to noncontrolling interest (254) 1,160 (1,414)

Net income (loss) attributable to Civeo Corporation (1,890) 10,978 (12,868)

1 unchanged sentence

Net income (loss) attributable to Civeo common shareholders $ (1,890) $ 10,001 $ (11,891)

We reported net loss attributable to Civeo for the quarter ended March 31, 2023 of $6.4 million, or $0.42 per diluted shares compared to net income attributable to Civeo for the quarter ended March 31, 2022 of $0.9 million, or $0.06 per diluted share.

Consolidated revenues increased $1.9 million, or 1%, in the first quarter of 2023 compared to the first quarter of 2022.

These items were partially offset by (i) lower average daily rates at our Canadian lodges largely due to occupancy mix, (ii) decreased mobile asset activity from pipeline projects in Canada, (iii) reduced activity in the U.S.

We reported net loss attributable to Civeo for the six months ended June 30, 2023 of $1.9 million, or $0.13 per diluted shares compared to net income attributable to Civeo for the six months ended June 30, 2022 of $10.0 million, or $0.60 per diluted share.

Consolidated revenues decreased $4.2 million, or 3%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

This decrease was primarily due to (i) decreased mobile asset activity from pipeline projects in Canada, (ii) lower billed rooms at our Canadian lodges, (iii) reduced activity in the U.S.

operations due to the sale of our wellsite and offshore businesses in the second half of 2022 and (iv) a weaker Australian and Canadian dollar relative to the U.S.

dollar in the first quarter of 2023 compared to the first quarter of 2022.

dollar in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

These items were partially offset by increased occupancy at our Civeo owned villages in the Australian Bowen and Gunnedah Basins and increased activity at our integrated services villages in Western Australia.

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 $7.7 million, or 6%, in the first quarter of 2023 compared to the first quarter of 2022.

This increase was primarily due to (i) increased occupancy at our Civeo owned villages in the Australian Bowen and Gunnedah Basins, (ii) increased activity at our integrated services villages in Western Australia, (iii) higher billed rooms at our Canadian lodges and (iv) increased operating costs due to inflationary pressures in Canada and Australia.

Our consolidated cost of sales and services increased $9.0 million, or 4%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

These items were partially offset by (i) reduced activity in the U.S.

operations due to the sale of our wellsite and offshore businesses in the second half of 2022 and (ii) a weaker Australian and Canadian dollar relative to the U.S.

dollar in the first quarter of 2023 compared to the first quarter of 2022.

dollar in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

See the discussion of segment results of operations below for further information.

Selling, General and Administrative Expenses.

SG&A expense increased $1.0 million, or 6%, in the first quarter of 2023 compared to the first quarter of 2022.

This increase was primarily due to higher compensation expense and information technology expense.

The increase in compensation expense was primarily due to increased staff and recruitment costs.

These items were partially offset by lower share-based compensation expense and a weaker Australian and Canadian dollar relative to the U.S.

dollar in the first quarter of 2023 compared to the first quarter of 2022.

SG&A expense decreased $0.2 million, or 1%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

This decrease was primarily due to lower share-based compensation expense, lower incentive compensation costs and a weaker Australian and Canadian dollar relative to the U.S.

dollar in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The decrease in share-based compensation expense was due to a relative decrease in our stock price during 2023 compared to 2022.

These items were partially offset by higher compensation expense and information technology expense.

The increase in compensation expense was primarily due to increased staff and recruitment costs.

The increase in information technology expense was related to ongoing investment in our newly implemented HCM system and set-up costs incurred in a cloud computing arrangement for the HCM system, which are being amortized through SG&A expense instead of depreciation and amortization expense.

Depreciation and Amortization Expense.

Depreciation and amortization expense increased $1.5 million, or 8%, in the first quarter of 2023 compared to the first quarter of 2022.

The increase was primarily due to shortening the useful lives on certain assets in Canada, including the McClelland Lake Lodge.

This was partially offset by lower depreciation and amortization expense due to a weaker Australian and Canadian dollar relative to the U.S.

dollar in the first quarter of 2023 compared to the first quarter of 2022 and the sale of our wellsite and offshore businesses in the U.S.

in the second half of 2022.

Depreciation and amortization expense decreased $0.8 million, or 2%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The decrease was primarily due to (i) the sale of our wellsite and offshore businesses in the U.S.

dollar in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

This was partially offset by the shortening of the useful lives on certain assets in Canada, including the McClelland Lake Lodge.

Operating Income.

Consolidated operating income decreased $8.1 million, or 192%, in the first quarter of 2023 compared to the first quarter of 2022, primarily due to increased operating costs due to inflationary pressures in Canada and Australia and reduced mobile asset activity in Canada in the first quarter of 2023 compared to the first quarter of 2022.

Consolidated operating income decreased $12.2 million, or 66%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to increased operating costs due to inflationary pressures in Canada and Australia and reduced mobile asset activity in Canada in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Interest Expense, net.

Net interest expense increased by $1.2 million, or 47%, in the first quarter of 2023 compared to the first quarter of 2022, primarily related to higher interest rates on credit facility borrowings during 2023 compared to 2022, partially offset by lower average debt levels on credit facility borrowings.

Net interest expense increased by $2.1 million, or 41%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily related to higher interest rates on credit facility borrowings during 2023 compared to 2022, partially offset by lower average debt levels on credit facility borrowings.

Other Income.

Consolidated other income increased $0.8 million in the first quarter of 2023 compared to the first quarter of 2022 primarily due to higher gain on the sale of assets related to the sale of our Acadian Acres accommodation assets in the U.S.

in the first quarter of 2023 compared to the first quarter of 2022.

Consolidated other income increased $0.8 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to higher gain on the sale of assets related to the sale of our Acadian Acres accommodation assets in the U.S.

in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The six months ended June 30, 2022 included gain on the sale of assets primarily related to various mobile assets across Canada, Australia and the U.S.

Income Tax (Expense) Benefit.

Our income tax expense for the three months ended March 31, 2023 totaled $1.2 million, or (24.3)% of pretax income, compared to an income tax expense of $1.6 million, or 44.9% of pretax income, for the three months ended March 31, 2022.

Our effective tax rate for each of the three months ended March 31, 2023 and 2022 was impacted by considering Canada and the U.S.

Our income tax expense for the six months ended June 30, 2023 totaled $4.1 million, or 209% of pretax income, compared to an income tax expense of $3.4 million, or 22% of pretax income, for the six months ended June 30, 2022.

Our effective tax rate for each of the six months ended June 30, 2023 and 2022 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 $10.2 million in the first quarter of 2023 compared to the first quarter of 2022, 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.

Other comprehensive loss increased $11.9 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, 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.

The Canadian dollar exchange rate compared to the U.S.

dollar remained constant in the first quarter of 2023 compared to a 1% increase in the first quarter of 2022.

dollar increased 2% in the six months ended June 30, 2023 compared to a 2% decrease in the six months ended June 30, 2022.

The Australian dollar exchange rate compared to the U.S.

dollar decreased 1% in the first quarter of 2023 compared to a 3% increase in the first quarter of 2022.

dollar decreased 2% in the six months ended June 30, 2023 compared to a 5% decrease in the six months ended June 30, 2022.

Segment Results of Operations – Canadian Segment

Three Months Ended

Six Months Ended

2023 2022 Change

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(5) Billed rooms represents total billed days for owned assets for the periods presented.

Our Canadian segment reported revenues in the first quarter of 2023 that were $6.5 million, or 7%, lower than the first quarter of 2022.

Our Canadian segment reported revenues in the six months ended June 30, 2023 that were $20.1 million, or 10%, lower than the six months ended June 30, 2022.

The weakening of the average exchange rate for the Canadian dollar relative to the U.S.

dollar by 6% in the first quarter of 2023 compared to the first quarter of 2022 resulted in a $6.0 million period-over-period decrease in revenues.

Excluding the impact of the weaker Canadian exchange rate, the revenue decrease was driven by (i) reduced mobile asset activity from pipeline projects and (ii) a lower average daily rate at our lodges due to occupancy mix and a tiered pricing structure at certain lodges that reduces at higher volumes.

These items were partially offset by higher billed rooms at our lodges.

Our Canadian segment cost of sales and services decreased $1.3 million, or 2%, in the first quarter of 2023 compared to the first quarter of 2022.

dollar by 5.7% in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 resulted in a $11.1 million period-over-period decrease in revenues.

Excluding the impact of the weaker Canadian exchange rate, the revenue decrease was driven by (i) reduced mobile asset activity from pipeline projects and (ii) lower billed rooms at our lodges.

Our Canadian segment cost of sales and services decreased $4.5 million, or 3%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The weakening of the average exchange rate for the Canadian dollar relative to the U.S.

dollar by 6% in the first quarter of 2023 compared to the first quarter of 2022 resulted in a $5.0 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 (i) increased occupancy at our lodges and (ii) increased operating costs due to inflationary pressures.

Our Canadian segment gross margin as a percentage of revenues decreased from 21.6% in the first quarter of 2022 to 17.4% in the first quarter of 2023.

dollar by 5.7% in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 resulted in a $8.8 million period-over-period decrease in cost of sales and services.

Our Canadian segment gross margin as a percentage of revenues decreased from 26.7% in the six months ended June 30, 2022 to 21.2% in the six months ended June 30, 2023.

Segment Results of Operations – Australian Segment

Three Months Ended

Six Months Ended

2023 2022 Change

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(4) Billed rooms represent total billed days for owned assets for the periods presented.

Our Australian segment reported revenues in the first quarter of 2023 that were $13.5 million, or 21%, higher than the first quarter of 2022.

Our Australian segment reported revenues in the six months ended June 30, 2023 that were $28.2 million, or 21%, higher than the six months ended June 30, 2022.

The weakening of the average exchange rate for Australian dollars relative to the U.S.

dollar by 5% in the first quarter of 2023 compared to the first quarter of 2022 resulted in a $4.6 million period-over-period decrease in revenues.

dollar by 6.0% in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 resulted in a $10.3 million period-over-period decrease in revenues.

On a constant currency basis, the Australian segment experienced a 29% 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 occupancy at our Civeo owned villages in the Bowen Basin and Gunnedah Basin and higher activity for our integrated services business in Western Australia.

Our Australian segment cost of sales and services increased $13.8 million, or 31%, in the first quarter of 2023 compared to the first quarter of 2022.

Our Australian segment cost of sales and services increased $24.6 million, or 27%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The weakening of the average exchange rate for Australian dollars relative to the U.S.

dollar by 5% in the first quarter of 2023 compared to the first quarter of 2022 resulted in a $3.5 million period-over-period decrease in cost of sales and services.

Our Australian segment gross margin as a percentage of revenues decreased to 24.3% in the first quarter of 2023 from 29.9% in the first quarter of 2022.

This was primarily driven by an increased relative revenue contribution from our integrated services business, which has a service-only business model, and therefore generates lower overall gross margins than our accommodation business and increased operating costs due to inflationary pressures, partially offset by improved margins at Civeo owned villages in the Bowen and Gunnedah Basins as a result of increased occupancy.

dollar by 6.0% in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 resulted in a $7.5 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 occupancy at our Bowen Basin and Gunnedah Basin owned villages and our integrated services villages in Western Australia and (ii) increased operating costs due to inflationary pressures.

Our Australian segment gross margin as a percentage of revenues decreased to 26.8% in the six months ended June 30, 2023 from 29.8% in the six months ended June 30, 2022.

This decrease was partially offset by improved margins at Civeo owned villages in the Bowen and Gunnedah Basins as a result of increased activity.

Liquidity and Capital Resources

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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

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 or refinance debt.

The following table summarizes our consolidated liquidity position as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

The following table summarizes our consolidated liquidity position as of June 30, 2023 and December 31, 2022 (in thousands):

June 30, 2023 December 31, 2022

Lender commitments $ 200,000 $ 200,000

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Total available liquidity $ 89,032 $ 104,084

Cash totaling $0.4 million was provided by operations during the three months ended March 31, 2023, compared to $2.0 million provided by operations during the three months ended March 31, 2022.

During the three months ended March 31, 2023 and 2022, $15.6 million and $21.8 million was used in working capital, respectively.

The year-over-over decrease in working capital outflows in 2023 compared to 2022 is largely due to a payment received from a customer for village enhancements in Australia, partially offset by the timing of payments during the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Cash was used in investing activities during the three months ended March 31, 2023 in the amount of $2.5 million, compared to cash used in investing activities during the three months ended March 31, 2022 in the amount of $1.0 million.

Cash totaling $19.8 million was provided by operations during the six months ended June 30, 2023, compared to $23.6 million provided by operations during the six months ended June 30, 2022.

During the six months ended June 30, 2023 and 2022, $25.2 million and $36.6 million was used in working capital, respectively.

The year-over-over decrease in cash used in working capital in 2023 compared to 2022 is largely due to a payment received from a customer for village enhancements in Australia, partially offset by the timing of payments during the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Cash was used in investing activities during the six months ended June 30, 2023 in the amount of $9.0 million, compared to cash used in investing activities during the six months ended June 30, 2022 in the amount of $5.2 million.

The increase in cash used in investing activities was primarily due to higher capital expenditures.

Capital expenditures totaled $4.8 million and $3.6 million during the three months ended March 31, 2023 and 2022, respectively.

Capital expenditures totaled $11.7 million and $8.6 million during the six months ended June 30, 2023 and 2022, respectively.

Capital expenditures in both periods were primarily related to maintenance.

We received proceeds from the sale of property, plant and equipment of $2.3 million during the three months ended March 31, 2023 primarily related to the sale of our Acadian Acres accommodation assets in the U.S., compared to $2.4 million during the three months ended March 31, 2022 primarily related to the sale of undeveloped land holdings in Australia and various mobile assets in Canada.

We received proceeds from the sale of property, plant and equipment of $2.7 million during the six months ended June 30, 2023 primarily related to the sale of our Acadian Acres accommodation assets in the U.S., compared to $3.3 million during the six months ended June 30, 2022 primarily related to the sale of undeveloped land holdings in Australia and various mobile assets in Canada.

We expect our capital expenditures for 2023 to be in the range of $35 million to $40 million, which excludes any unannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts or commitments.

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We continue to monitor the global economy, commodity prices, demand for crude oil, met coal, LNG and iron ore, inflation and the resultant impact on the capital spending plans of our customers in order to plan our business activities, and we may adjust our capital expenditure plans in the future.

Net cash of $6.6 million was provided by financing activities during the three months ended March 31, 2023 primarily due to net borrowings under our revolving credit facilities of $17.7 million, partially offset by term loan repayments of $7.4 million and repurchases of our common shares of $3.8 million.

Net cash of $1.3 million was used in financing activities during the three months ended March 31, 2022 primarily due to term loan repayments of $8.0 million and $1.0 million used to settle tax obligations on vested shares under our share-based compensation plans, partially offset by net borrowings under our revolving credit facilities of $7.7 million.

The following table summarizes the changes in debt outstanding during the three months ended March 31, 2023 (in thousands):

Net cash of $6.9 million was used in financing activities during the six months ended June 30, 2023 primarily due to term loan repayments of $14.9 million and repurchases of our common shares of $8.0 million, partially offset by net borrowings under our revolving credit facilities of $16.0 million.

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, repurchases of our common shares of $0.5 million and payments to settle tax obligations on vested shares under our share-based compensation plans of $1.0 million.

The following table summarizes the changes in debt outstanding during the six months ended June 30, 2023 (in thousands):

Balance at December 31, 2022 $ 132,037

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Translation 3,017

Balance at March 31, 2023 $ 142,608

Balance at June 30, 2023 $ 136,105

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.

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Credit Agreement

As of March 31, 2023, our Credit Agreement (as then amended to date, the Credit Agreement) provided for:

As of June 30, 2023, 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:

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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 March 31, 2023, we had outstanding letters of credit of $0.3 million under the U.S.

As of June 30, 2023, 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis