What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-07-28 · 168 added, 151 removed, 354 unchanged (47% of the section changed)

24 unchanged sentences

Consequently, these investments are primarily dependent on those customers’ long-term views of commodity demand and prices.

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

During 2022 and through the first nine months 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.

5 unchanged sentences

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 the first half of 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.

Further, Saudi Arabia announced voluntary oil production cuts in June 2023, which have been extended through the end of 2023.

These production cuts, coupled with the rising geopolitical risks in the Middle East, resulted in increased oil prices in the third quarter and early fourth quarter of 2023.

Alberta, Canada.

6 unchanged sentences

TMX recently announced that the project is approximately 90% 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 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 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.

Revenues for the full year 2022 associated with our McClelland Lake Lodge were approximately C$60 million.

We expect to have further clarity on potential sales or redeployment opportunities for these assets as we move through 2023.

WCS prices in the third quarter of 2023 averaged $66.20 per barrel compared to an average of $70.70 in the third quarter of 2022.

The WCS Differential decreased from $27.62 per barrel at the end of the fourth quarter of 2022 to $18.30 at the end of the third quarter of 2023.

As of October 23, 2023, the WTI price was $61.42 and the WCS price was $86.39, resulting in a WCS Differential of $24.97

Although oil prices reached multi-year highs in the first half of 2022, they fluctuated through the second half of 2022 and throughout 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 rising geopolitical risks in the Middle East, 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.

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 are being demobilized and expected to be completely removed from the existing site by February 1, 2024.

During the third quarter of 2023, we entered into a definitive agreement to sell our McClelland Lake Lodge assets to a U.S.-based mining project for approximately C$49 million, or US$36 million.

We expect to complete the transaction before January 31, 2024, subject to the satisfaction of customary closing conditions.

During the third quarter of 2023, we recognized $4.9 million in demobilization costs and received $9.1 million in cash proceeds associated with the sale.

We expect to recognize the remaining demobilization costs and the proceeds of the sale in the fourth quarter of 2023 and first quarter of 2024.

British Columbia, Canada.

7 unchanged sentences

British Columbia LNG activity and related pipeline projects are a material driver of activity for our Sitka Lodge, as well as for our mobile assets, which are contracted to serve designated portions of the related pipeline construction activity.

While our current expectation is that our contracted commitments associated with the CGL pipeline project will be completed in the second half of 2023, any new delays in facility or pipeline construction may result in extensions to these dates.

While our current expectation is that the majority of our contracted commitments associated with the CGL pipeline project will be completed in the fourth quarter of 2023, any new delays in facility or pipeline construction may result in extensions to these dates.

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 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.

Met coal pricing and production growth in the Bowen Basin region is predominantly influenced by the level of global steel production, which increased by 0.2% for the first eight months of 2023 compared to the same period of 2022.

The marginal increase year-over-year was the result of stronger production from both China and India in July and August.

As of October 23, 2023, met coal spot prices were $342.00 per tonne.

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.

Downward pressure on prices could accelerate in the short term if demand in China worsens.

In September 2023, met coal prices increased to over $300 per tonne, as truck and port disruptions resulted in extremely tight supply from Australia.

Analysts forecast met coal prices to remain near $300 per tonne during the fourth quarter of 2023 due to supply limitations in Australia.

Downward pressure on prices is still possible in the short term if demand in China worsens.

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

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.

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

As of October 23, 2023, iron ore spot prices were $112.04 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.

12 unchanged sentences

(per tonne) Iron

Third Quarter through July 24, 2023

Fourth Quarter through October 23, 2023

$ 86.25 $ 64.26 $ 354.05 $ 114.79

5 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

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 Change Percentage 2023 2022 Change Percentage

3 unchanged sentences

dollar $0.655 $0.683 ($0.03) (4.1)% $0.669 $0.707 ($0.04) (5.4)%

June 30, 2023 December 31, 2022 Change Percentage

September 30, 2023 December 31, 2022 Change Percentage

Canadian dollar to U.S.

10 unchanged sentences

Results of Operations

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

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

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

Three Months Ended

September 30,

2023 2022 Change

16 unchanged sentences

Interest expense, net (3,321) (2,988) (333)

Other income 427 415 12

Other income (expense) (4,709) 2,179 (6,888)

Income before income taxes 8,009 9,976 (1,967)

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

Income tax benefit (expense) 1,214 (3,713) 4,927

Net income 9,223 6,263 2,960

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

Net income attributable to noncontrolling interest 201 546 (345)

Net income attributable to Civeo Corporation 9,022 5,717 3,305

1 unchanged sentence

Net income attributable to Civeo common shareholders $ 9,022 $ 5,225 $ 3,797

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.

We reported net income attributable to Civeo for the quarter ended September 30, 2023 of $9.0 million, or $0.61 per diluted share compared to net income attributable to Civeo for the quarter ended September 30, 2022 of $5.2 million, or $0.32 per diluted share.

Consolidated revenues decreased $0.7 million, or 0%, in the third quarter of 2023 compared to the third quarter of 2022.

This decrease was primarily due to (i) decreased mobile asset activity from pipeline projects in Canada, (ii) reduced activity in the U.S.

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

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

These items were partially offset by (i) increased occupancy at our Civeo owned villages in the Australian Bowen and Gunnedah Basins and (ii) 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 $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.

Our consolidated cost of sales and services decreased $3.2 million, or 2%, in the third quarter of 2023 compared to the third quarter of 2022.

This decrease was primarily due to (i) lower costs related to reduced mobile asset activity in Canada, (ii) lower staff costs at certain lodges in Canada, (iii) reduced activity at our south lodges in Canada, (iv) reduced activity in the U.S.

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

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

These items were partially offset by (i) increased occupancy at our Civeo owned villages in the Australian

Bowen and Gunnedah Basins and (ii) increased activity at our integrated services villages in Western Australia.

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.

SG&A expense increased $2.6 million, or 14%, in the third quarter of 2023 compared to the third quarter of 2022.

This increase was primarily due to higher incentive compensation costs and higher compensation expense.

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

These items were partially offset by a weaker Australian and Canadian dollar relative to the U.S.

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

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.

Depreciation and amortization expense decreased $5.7 million, or 25%, in the third quarter of 2023 compared to the third 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.

dollar in the third quarter of 2023 compared to the third 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.

Consolidated operating income increased $5.3 million, or 49%, in the third quarter of 2023 compared to the third quarter of 2022, primarily due to increased activity in Australia and lower depreciation and amortization expense.

These items were partially offset by reduced mobile asset activity in Canada and increased operating costs due to inflationary pressures in the third quarter of 2023 compared to the third 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.

Net interest expense increased by $0.3 million, or 11%, in the third quarter of 2023 compared to the third 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.

Other Income.

Consolidated other income decreased $6.9 million in the third quarter of 2023 compared to the third quarter of 2022, primarily due to lower net gains on the sale of assets.

The third quarter of 2023 included expenses of $4.9 million associated with the demobilization of our McClelland Lake Lodge to prepare the assets for sale.

The associated gain related to the sale of the McClelland Lake Lodge assets will be recognized in the fourth quarter of 2023 and first quarter of 2024.

The third quarter of 2022 include gains related to the sale of our Kambalda village and an undeveloped land holding in Australia, our wellsite business in the U.S.

and various mobile assets and unused corporate office space in Canada.

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.

Our income tax benefit for the three months ended September 30, 2023 totaled $1.2 million, or (15.2)% of pretax income, compared to an income tax expense of $3.7 million, or 37.2% of pretax income, for the three months ended September 30, 2022.

Our effective tax rate for the three months ended September 30, 2023 and 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.

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.

Other comprehensive income increased $14.0 million in the third quarter of 2023 compared to the third 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.

dollar decreased 2% in the third quarter of 2023 compared to a 6% decrease in the third 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.

dollar decreased 3% in the third quarter of 2023 compared to a 6% decrease in the third quarter of 2022.

Segment Results of Operations – Canadian Segment

Three Months Ended

September 30,

2023 2022 Change

25 unchanged sentences

(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.

Our Canadian segment reported revenues in the third quarter of 2023 that were $7.9 million, or 8%, lower than the third 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.

dollar by 2.6% in the third quarter of 2023 compared to the third quarter of 2022 resulted in a $2.6 million period-over-period decrease in revenues.

Excluding the impact of the weaker Canadian exchange rate, the revenue decrease was driven by reduced mobile asset activity from pipeline projects.

Our Canadian segment cost of sales and services decreased $6.9 million, or 9%, in the third quarter of 2023 compared to the third 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.

dollar by 2.6% in the third quarter of 2023 compared to the third quarter of 2022 resulted in a $1.8 million period-over-period decrease in cost of sales and services.

Excluding the impact of the weaker Canadian exchange rate, the decrease in cost of sales and services was driven by (i) lower costs related to the reduced mobile asset activity, (ii) lower staff costs at certain lodges and (iii) reduced activity at our south lodges.

These decreases were partially offset by increased operating costs at our lodges due to inflationary pressures.

Our Canadian segment gross margin as a percentage of revenues increased from 29.3% in the third quarter of 2022 to 30.7% in the third quarter of 2023.

This was primarily driven by improved margins at our lodges due to improved efficiencies, partially offset 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

September 30,

2023 2022 Change

21 unchanged sentences

(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.

Our Australian segment reported revenues in the third quarter of 2023 that were $14.1 million, or 19%, higher than the third 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.

dollar by 4.1% in the third quarter of 2023 compared to the third quarter of 2022 resulted in a $3.8 million period-over-period decrease in revenues.

On a constant currency basis, the Australian segment experienced a 24% 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.

Our Australian segment cost of sales and services increased $10.3 million, or 19%, in the third quarter of 2023 compared to the third 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

dollar by 4.1% in the third quarter of 2023 compared to the third quarter of 2022 resulted in a $2.8 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 Civeo owned villages in the Bowen Basin and Gunnedah Basin and our integrated services villages in Western Australia.

Our Australian segment gross margin as a percentage of revenues decreased to 27.6% in the third quarter of 2023 from 27.7% in the third 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 Basin and Gunnedah Basin due to improved efficiencies as a result of increased activity.

Results of Operations – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Nine Months Ended

September 30,

2023 2022 Change

12 unchanged sentences

Depreciation and amortization expense 59,277 65,818 (6,541)

Other operating expense 215 152 63

Other operating expense (income) 302 (187) 489

Total costs and expenses 507,699 505,595 2,104

1 unchanged sentence

Interest expense, net (10,499) (8,062) (2,437)

Other income 2,877 2,111 766

Other income (expense) (1,832) 4,290 (6,122)

Income before income taxes 9,976 25,492 (15,516)

Income tax expense (2,897) (7,091) 4,194

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

Net income 7,079 18,401 (11,322)

Net income (loss) attributable to noncontrolling interest (53) 1,706 (1,759)

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

Net income attributable to Civeo Corporation 7,132 16,695 (9,563)

Dividends attributable to preferred shares — 1,469 (1,469)

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

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.

Net income attributable to Civeo common shareholders $ 7,132 $ 15,226 $ (8,094)

We reported net income attributable to Civeo for the nine months ended September 30, 2023 of $7.1 million, or $0.47 per diluted share compared to net income attributable to Civeo for the nine months ended September 30, 2022 of $15.2 million, or $0.91 per diluted share.

Consolidated revenues decreased $4.9 million, or 1%, in the nine months ended September 30, 2023 compared to the nine months ended September 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 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.

dollar in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

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 $9.0 million, or 4%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Our consolidated cost of sales and services increased $5.8 million, or 2%, in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

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

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

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 and (iii) a weaker Australian and Canadian dollar relative to the U.S.

dollar in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

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

Selling, General and Administrative Expenses.

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.

SG&A expense increased $2.3 million, or 5%, in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

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

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.

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 nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

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

Depreciation and Amortization Expense.

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.

Depreciation and amortization expense decreased $6.5 million, or 10%, in the nine months ended September 30, 2023 compared to the nine months ended September 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.

dollar in the nine months ended September 30, 2023 compared to the nine months ended September 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 $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.

Consolidated operating income decreased $7.0 million, or 24%, in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily due to reduced mobile asset activity in Canada and increased operating costs due to inflationary pressures in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Interest Expense, net.

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.

Net interest expense increased by $2.4 million, or 30%, in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily related to higher interest rates on credit facility borrowings during 2023 compared to 2022, partially offset by lower average debt levels.

Other Income.

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.

Consolidated other income decreased $6.1 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily due to lower gain on the sale of assets.

The nine months ended September 30, 2023 included expenses of $4.9 million associated with the demobilization of our McClelland Lake Lodge to prepare the assets for sale, partially offset by gains related to the sale of our Acadian Acres accommodation assets in the U.S.

The associated gain related to the sale of the McClelland Lake Lodge assets will be recognized in the fourth quarter of 2023 and first quarter of 2024.

The nine months ended September 30, 2022 included gains on the sale of assets primarily related to our Kambalda village and undeveloped land holdings in Australia, our wellsite business in the U.S.

and various mobile assets across Canada, Australia and the U.S.

Income Tax (Expense) Benefit.

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.

Our income tax expense for the nine months ended September 30, 2023 totaled $2.9 million, or 29% of pretax income, compared to an income tax expense of $7.1 million, or 28% of pretax income, for the nine months ended September 30, 2022.

Our effective tax rate for the nine months ended September 30, 2023 and 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.

Other Comprehensive (Loss) Income.

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.

Other comprehensive income increased $25.9 million in the nine months ended September 30, 2023 compared to the nine months ended September 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 increased 2% in the six months ended June 30, 2023 compared to a 2% decrease in the six months ended June 30, 2022.

dollar increased 0.2% in the nine months ended September 30, 2023 compared to a 8% decrease in the nine months ended September 30, 2022.

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

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

dollar decreased 5% in the nine months ended September 30, 2023 compared to a 11% decrease in the nine months ended September 30, 2022.

Segment Results of Operations – Canadian Segment

Six Months Ended

Nine Months Ended

September 30,

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 six months ended June 30, 2023 that were $20.1 million, or 10%, lower than the six months ended June 30, 2022.

Our Canadian segment reported revenues in the nine months ended September 30, 2023 that were $27.9 million, or 9%, lower than the nine months ended September 30, 2022.

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

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.

dollar by 4.6% in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 resulted in a $13.7 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.

Our Canadian segment cost of sales and services decreased $11.4 million, or 5%, in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

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

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.

dollar by 4.6% in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 resulted in a $10.6 million period-over-period decrease in cost of sales and services.

Excluding the impact of the weaker Canadian exchange rate, the decrease in cost of sales and services was driven by lower costs related to the reduced mobile asset activity.

This decrease was partially offset by increased operating costs at our lodges due to inflationary pressures.

Our Canadian segment gross margin as a percentage of revenues decreased from 27.6% in the nine months ended September 30, 2022 to 24.4% in the nine months ended September 30, 2023.

Segment Results of Operations – Australian Segment

Six Months Ended

Nine Months Ended

September 30,

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 six months ended June 30, 2023 that were $28.2 million, or 21%, higher than the six months ended June 30, 2022.

Our Australian segment reported revenues in the nine months ended September 30, 2023 that were $42.3 million, or 21%, higher than the nine months ended September 30, 2022.

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

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.

dollar by 5.4% in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 resulted in a $14.1 million period-over-period decrease in revenues.

On a constant currency basis, the Australian segment experienced a 27% period-over-period increase in revenues.

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.

Our Australian segment cost of sales and services increased $34.9 million, or 24%, in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

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

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.

dollar by 5.4% in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 resulted in a $10.3 million period-over-period decrease in cost of sales and services.

Our Australian segment gross margin as a percentage of revenues decreased to 27.1% in the nine months ended September 30, 2023 from 29.1% in the nine months ended September 30, 2022.

Liquidity and Capital Resources

Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and improving our hospitality services, developing new lodges and villages, purchasing or leasing land, and for general working capital needs.

In addition, capital has been used to repay debt, repurchase our common shares and preferred shares and fund strategic business acquisitions.

Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and improving our hospitality services, developing new lodges and villages and purchasing or leasing land, to pay dividends, to repurchase common shares and for general working capital needs.

In addition, capital has been used to repay debt and fund strategic business acquisitions.

In the future, capital may be required to move lodges from one site to another.

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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 June 30, 2023 and December 31, 2022 (in thousands):

June 30, 2023 December 31, 2022

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

September 30, 2023 December 31, 2022

Lender commitments $ 200,000 $ 200,000

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Total available liquidity $ 110,598 $ 104,084

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

Cash totaling $56.6 million was provided by operations during the nine months ended September 30, 2023, compared to $62.4 million provided by operations during the nine months ended September 30, 2022.

During the nine months ended September 30, 2023 and 2022, $20.0 million and $29.9 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 payments received from a customer for village enhancements in Australia and a payment received from a customer related to an asset transportation contract, partially offset by the timing of payments during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Cash was used in investing activities during the nine months ended September 30, 2023 in the amount of $14.1 million, compared to cash used in investing activities during the nine months ended September 30, 2022 in the amount of $5.3 million.

The increase in cash used in investing activities was primarily due to higher capital expenditures and lower proceeds from the sale of property, plant and equipment.

Capital expenditures totaled $21.2 million and $17.5 million during the nine months ended September 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 $2.7 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 received proceeds from the sale of property, plant and equipment of $7.1 million during the nine months ended September 30, 2023 primarily related to the sale of our McClelland Lake Lodge accommodation assets in Canada and Acadian Acres accommodation assets in the U.S., compared to $12.0 million during the nine months ended September 30, 2022 primarily related to the sale of our Kambalda village and undeveloped land holdings in Australia, unused corporate office space and various mobile assets in Canada and our wellsite business in the U.S.

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 $6.9 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):

Net cash of $42.0 million was used in financing activities during the nine months ended September 30, 2023 primarily due to term loan repayments of $22.3 million, repurchases of our common shares of $9.2 million, net repayments under our revolving credit facilities of $6.7 million and dividend payments of $3.7 million.

Net cash of $53.1 million was used in financing activities during the nine months ended September 30, 2022 primarily due to net repayments under our revolving

credit facilities of $14.8 million, term loan repayments of $23.1 million, repurchases of our common shares of $14.2 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 nine months ended September 30, 2023 (in thousands):

Balance at December 31, 2022 $ 132,037

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Translation 281

Balance at June 30, 2023 $ 136,105

Balance at September 30, 2023 $ 103,248

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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In August 2023, our Board authorized a common share repurchase program to repurchase up to 5.0% of our total common shares which are issued and outstanding, or 742,134 common shares, over a twelve month period.

See Note 11 – Share Repurchase Programs to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.

In addition, on September 5, 2023, our Board declared a quarterly dividend of $0.25 per common share to shareholders of record as of close of business on September 15, 2023.

The total cash payment of $3.7 million was paid on September 29, 2023.

The dividend is an eligible dividend pursuant to the Income Tax Act (Canada).

See Note 11 – Share Repurchase Programs and Dividends to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.

Credit Agreement

As of June 30, 2023, our Credit Agreement (as then amended to date, the Credit Agreement) provided for:

As of September 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 June 30, 2023, we had outstanding letters of credit of $0.3 million under the U.S.

As of September 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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See Note 7 – Debt to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.

We intend to pay regular quarterly dividends on our common shares, with all future dividend payments subject to quarterly review and approval by our Board.

The declaration and amount of all potential future dividends will be at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, results of operations, cash flows, prospects, industry conditions, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors the Board deems relevant.

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Future agreements may also limit our ability to pay dividends, and we may incur incremental taxes if we are required to repatriate foreign earnings to pay such dividends.

If we elect to pay dividends in the future, the amount per share of our dividend payments may be changed, or dividends may be suspended, without advance notice.

The amount per share of our dividend payments may be changed, or dividends may be suspended, without advance notice.

The likelihood that dividends will be reduced or suspended is increased during periods of market weakness.

There can be no assurance that we will pay a dividend in the future.

There can be no assurance that we will continue to pay a dividend in the future.

The preferred shares we issued in the Noralta acquisition were entitled to receive a 2% annual dividend on the liquidation preference (initially $10,000 per share), paid quarterly in cash or, at our option, by increasing the preferred shares’ liquidation preference, or any combination thereof.

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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